Phillips Edison Grocery Center REIT II Reports Fourth Quarter and Full Year 2017 Results
Phillips Edison Grocery Center REIT II Inc., publicly registered non-traded a real estate investment trust, reported its results for the fourth quarter and full year ended December 31, 2017.
Phillips Edison Grocery Center REIT II Inc., publicly registered non-traded a real estate investment trust, reported its results for the fourth quarter and full year ended December 31, 2017.
Fourth Quarter 2017 Highlights (vs. Fourth Quarter 2016)
• Net loss totaled $2.3 million, unchanged from the fourth quarter of 2016
• Funds from operations increased 25.1 percent to $16.8 million
• Modified funds from operations increased 15.9 percent to $15.7 million
• Same-center net operating income increased 5.2 percent to $16.0 million
• Acquired two grocery-anchored shopping centers for a total cost of $26 million
Full Year 2017 Highlights (vs. 2016)
• Net loss totaled $9.5 million
• Excluding one-time expenses, net loss would have totaled $3.6 million, an improvement from a net loss of $5.5 million in 2016
• FFO increased 31.3 percent to $63.6 million
• MFFO increased 21.4 percent to $63.6 million
• Same-center NOI increased 4.0 percent to $65 million
• Acquired eleven grocery-anchored shopping centers for a total cost of $204.3 million
• Closed a 7-year, $200 million unsecured term loan facility, extending the weighted-average maturity of the company’s debt to 3.5 years from 3.3 years
“During 2017, we capitalized on the sustained tenant demand for well-located, grocery-anchored retail real estate,” commented Jeff Edison, chairman and chief executive officer of Phillips Edison Grocery Center REIT II. “As a result, we executed a record number of leases, realized a 15.9 percent increase in comparable leasing spreads, and saw the occupancy of our 85-property portfolio increase to 95.1 percent.”
Fourth Quarter and Full-Year Ended December 31, 2017 Financial Results
Net Loss
• For the fourth quarter of 2017, net loss totaled $2.3 million, which was unchanged from the fourth quarter of 2016. The company said the results were driven by a $6.7 million increase in revenues from the acquisition of 15 properties since October 1, 2016, offset by an increase in related property costs, depreciation and interest.
• For the year ended December 31, 2017, net loss totaled $9.5 million compared to a net loss of $5.5 million for 2016. The results were driven by a $32.8 million increase in revenues due to the acquisition of 34 properties since the beginning of 2016, offset by an increase in related property costs, depreciation and interest, coupled with a $6.0 million charge for the termination of certain affiliate arrangements with the company’s former advisor.
As a result of this termination, fees paid by the company for asset management, acquisition, and disposition services have been reduced by 15 percent, which is estimated to save over $1.2 million annually. Excluding this one-time expense, net loss would have been $3.6 million versus $5.5 million for 2016.
Funds From Operations and Modified Funds From Operations
• For the fourth quarter of 2017, FFO increased 25.1 percent to $16.8 million compared to $13.4 million during the fourth quarter of 2016. The improvement was driven by an increase in net operating income generated by the additional properties owned as well as a 5.2 percent increase in same-center NOI.
• For the year ended December 31, 2017, FFO increased 31.3 percent to $63.6 million compared to $48.4 million during 2016. The improvement was driven by an increase in net operating income generated by the additional properties owned as well as the 4.0 percent increase in same-center NOI.
• For the fourth quarter of 2017, MFFO increased 15.9 percent to $15.7 million compared to $13.6 million during the same year-ago quarter.
• For the year ended December 31, 2017, MFFO increased 21.4 percent to $63.6 million compared to $52.4 million during 2016.
• For the fourth quarter of 2017, same-center NOI increased 5.2 percent to $16.0 million compared to $15.2 million during the fourth quarter of 2016. The improvement was driven by a $0.21 increase in minimum rent per-square-foot as well as a 0.5 percent increase in same-center occupancy versus the comparable period.
Same-Center Results
• Full-year 2017 same-center NOI increased 4.0 percent to $65 million compared to $62.5 million during 2016. The improvement was driven by a 2.3 percent increase in minimum rent as well as an increase in same-center occupancy.
Portfolio Statistics
• At December 31, 2017, the portfolio consisted of 85 properties, totaling approximately 10.2 million square feet located in 24 states.
• Leased portfolio occupancy totaled 95.1 percent, a 50 basis point improvement from 94.6 percent at December 31, 2016.
Leasing Activity
• During the fourth quarter of 2017, 60 new and renewal leases were executed totaling 146,000 square feet.
• During the full year ended December 31, 2017, 248 new and renewal leases were executed totaling 649,000 square feet.
Acquisition Activity
• During the fourth quarter of 2017, two grocery-anchored shopping centers were acquired for a total cost of $26 million. The properties, both in Atlanta suburbs, total approximately 174,000 square feet.
• During the full year ended December 31, 2017, eleven shopping centers were acquired for a total cost of $204.3 million.
• During the full year ended December 31, 2017, Necessity Retail Partners, the company’s joint venture with TPG Real Estate, acquired three grocery-anchored shopping centers bringing its total property count to 14. There was no acquisition activity during the fourth quarter of 2017.
Balance Sheet Highlights
• At year-end, the company had $292.4 million of borrowing capacity on its $350 million revolving credit facility.
• Net debt to total enterprise value was 42.2 percent at December 31, 2017. The company defines net debt as total debt, excluding below-market debt adjustments and deferred financing costs, less cash and cash equivalents. Total enterprise value is defined as equity value, calculated as total diluted shares outstanding multiplied by the estimated net asset value per share of $22.75, plus net debt.
At year-end, the company’s outstanding debt had a weighted-average interest rate of 3.5 percent, a weighted-average maturity of 3.5 years, and 92.6 percent of its total debt was fixed-rate debt. This compared to a weighted-average interest rate of 3.0 percent, a weighted average maturity of 3.3 years, and 70.9 percent fixed-rate debt at December 31, 2016.
During the quarter, the company closed a 7-year, $200 million unsecured term loan facility, which was used to pay down the company’s revolving line of credit.
Distributions
Gross distributions of $18.9 million were paid during the fourth quarter of 2017, including $8.9 million reinvested through the dividend reinvestment plan, for net cash distributions of $10.0 million.
Share Repurchase Program
During the three months ended December 31, 2017, the company repurchased approximately 363,000 shares.
Repurchase requests surpassed the funding available during the fourth quarter of 2017, and standard repurchase requests for January 2018 were made on a pro-rata basis. Funds available for repurchases during the remainder of 2018 are expected to be limited.
Phillips Edison Grocery Center REIT II invests in grocery-anchored neighborhood shopping centers having a mix of national and regional retailers selling necessity-based goods and services. The offering was declared effective in November 2013 and closed in September 2015 after raising $1.1 billion in investor equity.
