Phillips Edison & Company Reports Fourth Quarter and Full Year 2021 Results
February 10, 2022 | Phillips Edison & Company
Phillips Edison & Company, Inc. (Nasdaq: PECO) (“PECO” or the “Company”), one of the nation’s largest owners and operators of grocery-anchored omni-channel neighborhood shopping centers, reported net loss attributable to stockholders of $5.2 million, or $0.05 per diluted share, for the three months ended December 31, 2021, and net income attributable to stockholders of $15.1 million, or $0.15 per diluted share, for the full year ended December 31, 2021.
Highlights for the Fourth Quarter Ended December 31, 2021
• Nareit FFO totaled $49.4 million, or $0.39 per diluted share
• Core FFO totaled $60.8 million, or $0.47 per diluted share
• Same-center NOI increased 15.2% versus the three months ended December 31, 2020
• Same-center NOI increased 3.9% versus the comparable same-center NOI for the quarter ended December 31, 2019
• Leased portfolio occupancy increased to a record 96.3%
• Comparable new and renewal rent spreads were 18.3% and 7.8%, respectively
• Acquired five grocery-anchored shopping centers and two outparcels for $219.1 million; subsequent to quarter end, acquired an additional two grocery-anchored shopping centers for $82.9 million
• Net debt to annualized adjusted EBITDAre was 5.6x compared to 7.3x at December 31, 2020
• Completed upsized debut public debt offering of $350 million aggregate principal amount of 2.625% senior notes due in 2031
Highlights for the Full Year Ended December 31, 2021
• Nareit FFO totaled $211.2 million, or $1.81 per diluted share
• Core FFO totaled $255.0 million, or $2.19 per diluted share
• Same-center NOI increased 8.2% versus the full year ended December 31, 2020
Management Commentary
“Our strong results for the fourth quarter capped off a remarkable year for Phillips Edison – both at the corporate level and the property level,” stated Jeff Edison, chairman and chief executive officer of PECO. “During 2021, we completed our $547 million underwritten IPO, our $350 million debut investment grade debt offering, and a new $980 million unsecured credit facility. This activity combined with the strong and growing cash flow generated by our centers positions us to pursue attractive external growth by expanding our portfolio of grocery-anchored shopping centers through acquisitions.”
“At the property level, quarterly foot traffic surpassed both 2019 and 2020 levels, occupancy reached an all time high, and the operating environment remains healthy. We continue to see sustained demand for retail space at our grocery-anchored shopping centers. This demand allows us to drive strong internal growth through attractive new and renewal leasing spreads and executing new leases with contractual annual rent bumps.
“We believe our robust external and internal growth will drive strong long-term growth as we look toward the remainder of 2022 and beyond.”
Financial Results for the Fourth Quarter and Year Ended December 31, 2021
Net (Loss) Income
Fourth quarter 2021 net loss attributable to stockholders totaled $5.2 million, or $0.05 per diluted share, compared to net loss of $11.2 million, or $0.12 per diluted share, during the fourth quarter of 2020.
For the year ended December 31, 2021, net income attributable to stockholders totaled $15.1 million, or $0.15 per diluted share, compared to $4.8 million, or $0.05 per diluted share, during the year ended December 31, 2020.
Nareit FFO
Fourth quarter 2021 funds from operations attributable to stockholders and operating partnership unit (“OP unit”) holders as defined by Nareit (“Nareit FFO”) increased 7.3% to $49.4 million, or $0.39 per diluted share, from $46.0 million, or $0.41 per diluted share, during the fourth quarter of 2020.
For the year ended December 31, 2021, Nareit FFO decreased 4.7% to $211.2 million, or $1.81 per diluted share, from $221.7 million, or $1.99 per diluted share, during the year ended December 31, 2020.
The results were driven by an increase in rental income and an improvement in collections, offset by an increase in the earn-out liability, which resulted in $7.4 million and $30.4 million of non-cash expense for the three months and year ended December 31, 2021, respectively. The earn-out liability was settled in its entirety with the issuance of approximately 1.6 million OP units on January 11, 2022. The per diluted share metrics were impacted by an increase in shares outstanding due to the earn-out shares and PECO’s July 2021 IPO.
Core FFO
Fourth quarter 2021 core funds from operations (“Core FFO”) increased 24.5% to $60.8 million, or $0.47 per diluted share, compared to $48.8 million, or $0.44 per diluted share, during the fourth quarter of 2020.
For the year ended December 31, 2021, Core FFO increased 15.7% to $255.0 million, or $2.19 per diluted share, compared to $220.4 million, or $1.98 per diluted share, during the year ended December 31, 2020.
The results were driven by an increase in rental income, an improvement in collections, and lower interest costs. Core FFO excludes one-time non-cash items like the aforementioned earn-out liability adjustment.
Same-Center NOI
Fourth quarter 2021 same-center net operating income (“NOI”) increased 15.2% to $88.8 million compared to $77.1 million during the fourth quarter of 2020.
For the year ended December 31, 2021, same-center NOI improved 8.2% to $346.8 million compared to $320.4 million during the year ended December 31, 2020.
Results were driven by a strong leasing environment which led to an increase in average base rent per square foot, as well as stronger collections compared to 2020.
Portfolio Overview for the Fourth Quarter and Year Ended December 31, 2021
Portfolio Statistics
As of December 31, 2021, PECO’s wholly-owned portfolio consisted of 268 properties, totaling approximately 30.7 million square feet, located in 31 states. This compared to 283 properties, totaling approximately 31.7 million square feet, located in 31 states as of December 31, 2020.
Leased portfolio occupancy increased to 96.3% at December 31, 2021, compared to 94.7% at December 31, 2020.
Anchor occupancy totaled 98.1% compared to 97.6% at December 31, 2020, and inline occupancy totaled 92.7% compared to 88.9% at December 31, 2020.
Leasing Activity
During the fourth quarter of 2021, 253 leases (new, renewal, and options) were executed totaling 1.4 million square feet. This compared to 248 leases executed totaling 1.1 million square feet during the fourth quarter of 2020.
Comparable rent spreads during the fourth quarter of 2021, 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 twelve months, were 18.3% for new leases, 7.8% for renewal leases (excluding options), and 10.4% combined (new and renewal leases only).
During the year ended December 31, 2021, 1,135 leases (new, renewal, and options) were executed totaling approximately 5.6 million square feet. This compared to 861 leases executed totaling approximately 4.7 million square feet during the same year-ago period.
Comparable rent spreads during the year ended December 31, 2021 were 15.7% for new leases, 8.1% for renewal leases (excluding options), and 10.1% combined (new and renewal leases only).
Acquisition & Disposition Activity
During the fourth quarter of 2021, PECO acquired five grocery-anchored shopping centers and two outparcels totaling over 750,000 square feet for $219.1 million. During the same period, four properties and one outparcel were sold for $27.8 million.
During the year ended December 31, 2021, PECO acquired nine properties and five outparcels for a total of $307.6 million. During the same period, 24 properties and four outparcels were sold for $216.1 million.
From January 1, 2022 through February 9, 2022, PECO acquired two properties totaling $82.9 million and disposed of one property totaling $1.4 million.
Balance Sheet Highlights as of December 31, 2021
As of December 31, 2021, PECO had $604.8 million of total liquidity, comprised of $115.5 million of cash, cash equivalents, and restricted cash, plus $489.3 million of borrowing capacity available on its $500.0 million revolving credit facility. PECO has no material debt maturities until 2024.
PECO’s net debt to annualized adjusted EBITDAre was 5.6x, compared to 7.3x at December 31, 2020.
PECO’s outstanding debt had a weighted-average interest rate of 3.3% and a weighted-average maturity of 5.2 years, and 98.7% of its total debt was fixed-rate debt.
During the fourth quarter of 2021, PECO completed its debut public debt offering of $350 million aggregate principal amount of 2.625% Senior Notes due 2031. The notes were priced at 98.692% of the principal amount and will mature on November 15, 2031.
On February 9, 2022, PECO’s Board of Directors (the “Board”) authorized a new $250 million “at-the-market” (“ATM”) stock offering program. The establishment of the ATM is expected to improve PECO’s access to the equity capital markets. PECO has no immediate plans to utilize the ATM program and will patiently evaluate market conditions before considering using the ATM.
Monthly Stockholder Distributions
For the three months ended December 31, 2021, total distributions of $34.7 million were paid to common stockholders, Class B stockholders and OP unit holders.
Monthly distributions paid in October 2021 were $0.085 per share. Monthly distributions paid in November 2021, December 2021, January 2022, and February 2022 were each $0.09 per share. PECO has paid, and plans to continue to pay, distributions monthly.
Subsequent to the quarter end, the Board authorized monthly distributions of $0.09 per share payable in March 2022, April 2022, and May 2022 to stockholders of record at the close of business on February 15, 2022, March 15, 2022, and April 15, 2022, respectively.
