Phillips Edison Reports Higher NAV Per Share and Record Leasing
The board of Phillips Edison & Company, Inc., an internally managed real estate investment trust that invests in grocery-anchored shopping centers, has approved a net asset value per share for the company’s common stock, as of March 31, 2021.
The board of Phillips Edison & Company, Inc., an internally managed real estate investment trust that invests in grocery-anchored shopping centers, has approved a net asset value per share of $10.55 for the company’s common stock, as of March 31, 2021, according to its recently released first quarter financial results.
The latest valuation is a 21 percent increase compared to its previous NAV per share of $8.75 as of March 31, 2020. Shares were originally priced at $10.00 each.
The company said that the increase is the result of several factors, including a “significantly improved” outlook for grocery-anchored shopping centers, a decrease in the applied discount rate as a result of a more stable economic environment, and the 4 percent decrease in share count resulting from its fourth quarter 2020 tender offer.
Duff & Phelps LLC, an independent third-party valuation firm, assisted with the valuation process and provided a valuation range of $9.87 to $11.22, with a midpoint of $10.55 per share.
“2021 is off to a solid start for us,” said Jeff Edison, chairman and chief executive officer. “Essentially all of our [tenants] are back open for business, occupancy has increased since the beginning of the year, and foot traffic at our centers has surpassed pre-pandemic levels. Leasing demand for brick-and-mortar retail space in our neighborhood centers has exceeded our expectations throughout the first quarter and into the second quarter.”
The company also reported its financial results for the three months ended March 31, 2021.
First quarter 2021 net income totaled $0.1 million compared to net income of $11.2 million for the first quarter of 2020.
The company said that the decrease was driven by a $16 million non-cash charge attributable to the increase in an earn-out liability related to the 2017 acquisition of Phillips Edison Limited Partnership, and a $5 million non-cash impairment charge related to property dispositions. Partially offsetting this was a $13.8 million gain on the sale of properties, a $2.7 million reduction of interest expense resulting from lower interest rates, and a $1.4 million decrease in general and administrative expenses.
Funds from operations attributable to stockholders and convertible noncontrolling interests decreased 34.1 percent to $45 million, or $0.14 per diluted share, from $68.2 million, or $0.20 per diluted share, during the same quarter last year.
Philips Edison said that the $23.2 million decrease was primarily driven by the change in earn-out liability, which resulted in $16 million of expense for 2021, compared to $10 million of income a year ago. Excluding the earn-out adjustments, FFO would have been $61 million for the first quarter of 2021 compared to $58.2 million a year ago, the company said.
For the first quarter of 2021, core FFO increased 5.5 percent to $63.6 million, or $0.20 per diluted share, compared to $60.2 million, or $0.18 per diluted share, during the same quarter in 2020.
The increase in core FFO was driven by lower interest costs and decreased general and administrative expenses, as well as fewer shares outstanding as a result of its December 2020 tender offer.
Same-center net operating income in the first quarter 2021 decreased 0.9 percent to $86.5 million compared to $87.3 million during the first quarter of 2020.
Results were driven by a 0.8 percent decrease in average same-center occupancy and continued reserves and abatements for tenants still recovering from the negative impacts of the COVID-19 pandemic. Partially offsetting this decrease was a $0.52, or 4.1 percent, increase in average base rent per square foot, the company noted.
Portfolio Overview
As of March 31, 2021, the REIT’s wholly-owned portfolio consisted of 278 properties, totaling approximately 31.3 million square feet, located in 31 states. This compares to 285 properties, totaling approximately 31.9 million square feet, located in 31 states as of March 31, 2020.
Leased portfolio occupancy totaled 94.8 percent at March 31, 2021 as compared to 95.6 percent at March 31, 2020. On a sequential basis, occupancy increased from 94.7 percent at December 31, 2020.
Anchor occupancy decreased to 97.3 percent compared to 98.3 percent a year ago, and inline occupancy decreased to 89.8 percent from 90.1 percent at March 31, 2020.
During the first quarter of 2021, a record 316 leases (new, renewal, and options) were executed totaling a record 1.4 million square feet. This compared to 214 leases executed totaling 1.1 million square feet during the first quarter of 2020. The record leasing activity was the result of strong demand for PECO’s retail spaces in its well located, grocery-anchored centers.
Comparable rent spreads during the quarter, which compare the percentage increase or decrease of new or renewal leases to the expiring lease of a unit that was occupied within the past 12 months, were 12.4 percent for new leases, 8 percent for renewal leases (excluding options), and 9.3 percent combined (new and renewal leases only).
During the first quarter of 2021, the REIT sold six properties and one outparcel, generating $58.4 million in proceeds. In the near term, the company said that disposition proceeds are expected to be used to fund tax-efficient acquisitions, to fund redevelopment opportunities in owned centers, and for general corporate purposes. The REIT acquired two shopping centers and two outparcels for $39.9 million during the first quarter.
Balance Sheet Highlights
As of March 31, 2021, Phillips Edison had approximately $490.3 million of borrowing capacity available on its $500 million revolving credit facility, net of outstanding letters of credit.
Net debt to total enterprise value was 40.5 percent at March 31, 2021, compared to 44.5 percent at December 31, 2020. The company said that the improvement was driven by the change in the NAV per share of its common stock.
Net debt to adjusted EBITDA for real estate annualized was 7.4x at March 31, 2021, compared to 7.3x at December 31, 2020.
At March 31, 2021, the company’s outstanding debt had a weighted-average interest rate of 3.0 percent and a weighted-average maturity of 3.8 years, and 69.8 percent of its total debt was fixed-rate debt. This compared to a weighted-average interest rate of 3.1 percent, a weighted-average maturity of 4.1 years, and 74.8 percent fixed-rate debt at December 31, 2020.
Distributions
For the three months ended March 31, 2021, total distributions of $36.2 million were paid to common stockholders and operating partnership unit holders, including $7.4 million reinvested through the dividend reinvestment plan, for net cash distributions of $28.8 million.
During the quarter, the REIT made distributions in January, February, and March to its stockholders of record (on the given record date) in the amount of $0.02833333 per share, which is equal to $0.34 if annualized.
Since inception, the company has distributed more than $1.3 billion to its stockholders and OP unit holders in the form of monthly distributions.
Phillips Edison plans to host a presentation on May 12, 2021, at 11:00 a.m. EST to discuss its NAV per share and first quarter 2021 results.
Last month, the company announced that its shareholders will vote at the annual meeting on a charter amendment proposal that would facilitate a potential listing of the company’s common stock on a national securities exchange, and/or a concurrent registered public offering, in order to provide liquidity. The company’s annual meeting is schedule on June 18, 2021 at 10:00 a.m. EST.
Phillips Edison & Company Inc. (formerly known as Phillips Edison Grocery Center REIT I Inc.) is one of the nation’s largest owners and operators of grocery-anchored shopping centers and oversees a portfolio of 278 properties, totaling approximately 31.3 million square feet, located in 31 states. The company’s offering was declared effective by the SEC in August 2010 and raised approximately $1.8 billion in investor equity before closing in February 2014.
