Phillips Edison Grocery Center REIT II Triples New Leases in 2Q18
Phillips Edison Grocery Center REIT II Inc., a publicly registered non-traded real estate investment trust, focused on the acquisition and management of well-occupied grocery-anchored shopping centers, reported its results for the quarter and six months ended June 30, 2018.
Phillips Edison Grocery Center REIT II Inc., a publicly registered non-traded real estate investment trust, focused on the acquisition and management of well-occupied grocery-anchored shopping centers, reported its results for the quarter and six months ended June 30, 2018.
“During the second quarter, continued demand for retail space in our well-located shopping centers drove another period of strong leasing activity, as we tripled the new leases executed coupled with new comparable leasing spreads of 13.9 percent when compared to the second quarter of last year,” said chairman and chief executive officer Jeff Edison.
Merger with Phillips Edison & Company
- On July 17, 2018, REIT II entered into a definitive merger agreement with Phillips Edison & Company, Inc., an internally-managed REIT, which will create a national portfolio of 321 grocery-anchored shopping centers encompassing approximately 36.6 million square feet located across 33 states and a total enterprise value of approximately $6.3 billion.
Three and Six Months Ended June 30, 2018 Financial Results
Net Loss
For the second quarter 2018, net loss totaled $1.6 million compared to net loss of $1.3 million during the second quarter of 2017.
For the six months ended June 30, 2018, net loss totaled $2.9 million compared to net loss of $1.3 million during the six months ended June 30, 2017.
The company noted that the increase in net loss for both periods was primarily driven by increased depreciation and amortization as a result of owning an additional six properties when compared to June 30, 2017.
Funds from Operations (FFO)
For the second quarter of 2018, FFO totaled $18.0 million, or $0.38 per share, compared to $16.7 million, or $0.36 per share, during the second quarter of 2017.
For the six months ended June 30, 2018, FFO totaled $36.1 million, or $0.77 per share, compared to $34.1 million, or $0.73 per share, during the six months ended June 30, 2017.
The company said that the improvements in FFO were driven by an increase in net operating income generated by additional properties owned, coupled with a 1.1 percent and 2.9 percent increase in same-center NOI for the three and six months ended June 30, 2018, respectively, when compared to the same periods last year.
Modified Funds from Operations (MFFO)
For the second quarter of 2018, MFFO increased 8.6 percent to $16.7 million, or $0.36 per diluted share, compared to $15.4 million, or $0.33 per diluted share, for the three months ended June 30, 2017.
For the six months ended June 30, 2018, MFFO increased 8.3 percent to $33.4 million, or $0.72 per diluted share, compared to $30.9 million, or $0.66 per diluted share, for the six months ended June 30, 2017.
Same-Center Results
For the second quarter of 2018, same-center NOI increased 1.1 percent to $24.9 million compared to $24.6 million during the second quarter of 2017. The company said that the improvement was driven by a $0.22 increase in minimum rent per square foot partially offset by a 1.8 percent increase in operating expenses versus the comparable period.
For the six months ended June 30, 2018, same-center NOI increased 2.9 percent to $50.1 million compared to $48.7 million during the six months ended June 30, 2017. The improvement was driven by the aforementioned increase in minimum rent per square foot, partially offset by a 1.8 percent increase in same-center operating expenses versus the comparable six-month period.
Contributing to same-center NOI were 74 properties that were owned and operational for the entire portion of both comparable reporting periods.
Portfolio Statistics
At quarter-end, the portfolio consisted of 86 properties, totaling approximately 10.3 million square feet located in 24 states. This compares to 80 properties, totaling approximately 9.8 million square feet located in 24 states as of June 30, 2017.
Leased portfolio occupancy totaled 94.9 percent, an improvement from 94.8 percent as of June 30, 2017.
Leasing Activity
During the second quarter of 2018, 85 leases (new, renewal and options) were executed totaling approximately 444,000 square feet. This compares to 62 leases executed totaling approximately 165,000 square feet during the second quarter of 2017.
Comparable rent spreads during the quarter, which compare the percentage increase of new or renewal leases to the expiring lease of a unit that was occupied within the past 12 months, were 13.9 percent for new leases, 9.2 percent for renewal leases (excluding options), and 9.5 percent combined (new and renewal leases).
During the six months ended June 30, 2018, 153 leases (new, renewal and options) were executed totaling approximately 749,000 square feet. This compares to 114 leases executed totaling approximately 324,000 square feet during the six months ended June 30, 2017.
Acquisition Activity
During the second quarter of 2018, one undeveloped outparcel adjacent to a REIT II-owned shopping center was purchased for a total cost of $800,000.
During the six months ended June 30, 2018, one shopping center was acquired for a total cost of $18.5 million.
Balance Sheet Highlights at June 30, 2018
At quarter-end, the company had $264.4 million of borrowing capacity available on its $350 million revolving credit facility.
Net debt to total enterprise value was 42.8 percent at June 30, 2018.
At quarter-end, the company’s outstanding debt had a weighted-average interest rate of 3.5 percent, a weighted-average maturity of 3.0 years, and 89.4 percent of its total debt was fixed-rate debt at June 30, 2018. This compared to a weighted-average interest rate of 3.5 percent, a weighted average maturity of 3.5 years, and 92.6 percent fixed-rate debt at December 31, 2017.
Distributions
Gross distributions of $19.0 million were paid during the second quarter of 2018, including $8.5 million reinvested through the distribution reinvestment plan, for net cash distributions of approximately $10.5 million.
During the quarter, FFO totaled $18.0 million, which was 94.6 percent of total distributions made, up from 87.3 percent in Q2 2017.
Gross distributions of $38.1 million were paid during the six months ended of June 30, 2018, including $17.3 million reinvested through the DRIP, for net cash distributions of approximately $20.8 million.
During the first six months of 2018, FFO totaled $36.1 million, which was 94.9 percent of total distributions made, up from 90.2 percent during the comparable six months.
Share Repurchase Program
During the second quarter of 2018, approximately 342,000 shares of common stock, totaling $7.8 million, were repurchased under the SRP.
Phillips Edison Grocery Center REIT II Inc. invests in well-occupied grocery-anchored neighborhood shopping centers with a mix of national and regional retailers selling necessity-based goods and services, in strong demographic markets throughout the United States. As of June 30, 2018, the company owned a $1.9 billion retail portfolio consisting of 86 grocery-anchored shopping centers totaling approximately 10.3 million square feet. The company’s initial public offering launched in November 2013 and closed in September 2015 after raising $1.1 billion in investor equity, according to Summit Investment Research.
