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Phillips Edison & Company Reports Third Quarter 2020 Results

·36 min read

Third quarter rent and recovery collections totaled 94% of monthly billings

Monthly distribution to resume in January 2021 at an annualized rate of $0.34 per share

Company intends to repurchase up to 4.5 million shares of common stock at $5.75 per share in December 2020

Phillips Edison & Company, Inc. ("PECO", the "Company", "we", "our", or "us"), an internally-managed real estate investment trust ("REIT") and one of the nation’s largest owners and operators of grocery-anchored shopping centers, reported net income of $13.4 million and $18.2 million for the three- and nine-month periods ended September 30, 2020, respectively.

Third Quarter 2020 Highlights (vs. Third Quarter 2019)

  • Same-center net operating income ("NOI") decreased 4.1% to $83.5 million

  • Rent and recovery collections totaled 94% of monthly billings for the quarter

  • Leased portfolio occupancy totaled 95.3%, an increase from 95.0% at September 30, 2019

  • Executed 230 leases (new, renewal, and options) totaling 1.3 million square feet compared to 246 leases totaling 1.4 million square feet

  • Comparable new lease spreads were 8.2% and comparable renewal lease spreads were 4.1%

  • Core funds from operations ("Core FFO") increased 1.1% to $59.7 million; Core FFO per diluted share was unchanged at $0.18

  • Net debt to Adjusted EBITDAre was 7.0x at September 30, 2020, compared to 7.2x at December 31, 2019

  • Subsequent to the quarter’s end, the PECO Board of Directors declared the December 2020 distribution at an annualized rate of $0.34 per share

  • Subsequent to the quarter’s end, the Company announced it intends to launch a tender offer repurchasing up to 4.5 million shares of common stock at $5.75 per share in December 2020

Nine Months Ended September 30, 2020 Highlights (vs. Nine Months Ended September 30, 2019)

  • Same-center NOI decreased 2.3% to $249.7 million

  • Executed 613 leases (new, renewal, and options) totaling 3.6 million square feet compared to 775 leases (new, renewal, and options) totaling 3.5 million square feet

  • Comparable new lease spreads were 9.7% and comparable renewal lease spreads were 7.4%

  • Core FFO increased 1.1% to $171.6 million; Core FFO per diluted share decreased to $0.51 from $0.52

Management Commentary

"Demand for well-located grocery-anchored retail space rebounded during the third quarter of 2020, as our leasing activity approached our 2019 levels," said Jeff Edison, chairman and chief executive officer of PECO. "Because of the outdoor nature of our neighborhood shopping centers and the resilience of our neighbors, over 98% are open for business, as our neighbors and their customers adjust to this COVID-19 impacted environment."

"Our portfolio and our business strategy are proving their strength during these challenging times, as illustrated by our 94% collection rate for the quarter. We know distributions are a critical attribute of this investment and are pleased that our Board of Directors has authorized the reinstatement of our distribution at an annualized rate of $0.34 per share for December 2020.

"Additionally, we also understand there is significant stockholder demand for liquidity, yet the current market conditions do not allow for a successful full-cycle liquidity event given that our public peers’ equity is trading at an average of 41% below their net asset value per share. We continue to be focused on adding long-term stockholder value and delivering full-cycle liquidity at an attractive price. That said, in order to meet the need of our stockholders who seek immediate liquidity, we plan to launch a tender offer at $5.75 per share. This fixed tender price reflects a discount from our estimated value per share that is similar to the current discount to net asset value seen in the stock prices of our publicly traded peers."

Collection Details

The table below outlines PECO’s collections for the second and third quarter of 2020 as well as the month of October 2020, calculated as a percentage of monthly billings to neighbors for rent and recoverable expenses (includes pro rata ownership through the Company’s joint ventures):

Rent and recoveries collected(1)

Q2 2020

90%

Q3 2020

94%

October 2020

94%

(1) Collections include monthly billings for rent and recoverable expenses that were received through November 4, 2020.

Three and Nine Months Ended September 30, 2020 Financial Results

Net Income (Loss)

For the third quarter of 2020, net income totaled $13.4 million, or $0.04 per diluted share, compared to a net loss of $29.7 million, or $0.09 per diluted share, for the third quarter of 2019.

For the nine months ended September 30, 2020, net income totaled $18.2 million, or $0.05 per diluted share, compared to a net loss of $77.7 million, or $0.24 per diluted share, for the first nine months of 2019.

The improvement in both periods was driven by a decrease in non-cash impairments of real estate and other assets, lower interest expense resulting from lower interest rates, and lower general and administrative expenses stemming from a reduction in headcount, executive and director compensation reductions, and lower performance-based compensation. The decreases were partially offset by lower rent and recovery collections and an increase in rent and recovery billings that are estimated to be uncollectible as a result of the COVID-19 pandemic.

FFO as Defined by the National Association of Real Estate Investment Trusts ("Nareit")

For the third quarter ended September 30, 2020, FFO attributable to stockholders and convertible noncontrolling interests increased 1.8% to $57.4 million from $56.4 million during the third quarter of 2019. FFO attributable to stockholders and convertible noncontrolling interests per diluted share was unchanged at $0.17.

This increase was primarily attributable to expense reduction initiatives to lessen the economic impact of the COVID-19 pandemic, as well as the absence of impairments when compared to the third quarter of 2019.

For the nine months ended September 30, 2020, FFO attributable to stockholders and convertible noncontrolling interests increased 9.4% to $175.6 million, or $0.53 per diluted share, from $160.6 million, or $0.49 per diluted share, during the nine months ended September 30, 2019.

This improvement was driven by lower non-cash impairments and other non-recurring charges as compared to 2019, along with items previously discussed for net income (loss).

Core FFO

For the third quarter of 2020, Core FFO increased 1.1% to $59.7 million compared to $59.0 million during the same year-ago period. Core FFO per diluted share remained steady at $0.18.

For the first nine months of 2020, Core FFO increased 1.1% to $171.6 million, or $0.51 per diluted share, compared to $169.7 million, or $0.52 per diluted share, during the same year-ago period.

These results were driven by the aforementioned expense reduction initiatives and lower interest expense, partially offset by the decline in NOI due to the impact of the pandemic.

Same-Center NOI

For the third quarter of 2020, same-center NOI decreased 4.1% to $83.5 million compared to $87.1 million during the third quarter of 2019.

For the nine months ended September 30, 2020, same-center NOI decreased 2.3% to $249.7 million compared to $255.6 million during the same period in 2019.

The decline in both periods was largely due to lower rent and recovery collections and an increase in rent and recovery billings that are estimated to be uncollectible as a result of the COVID-19 pandemic.

Three and Nine Months Ended September 30, 2020 Portfolio Overview

Portfolio Statistics

At quarter-end, PECO’s wholly-owned portfolio consisted of 283 properties, totaling approximately 31.7 million square feet, located in 31 states. This compares to 294 properties, totaling approximately 33.2 million square feet, located in 32 states as of September 30, 2019.

Leased portfolio occupancy was 95.3%, an improvement from 95.0% at September 30, 2019. Anchor occupancy increased to 98.3% from 98.1% at September 30, 2019, while in-line occupancy increased to 89.5% from 89.2% at September 30, 2019. These increases were driven by strong leasing activity during Q4 2019 and Q1 2020, before the COVID-19 pandemic. Leased portfolio occupancy accounts for all neighbors under an active lease.

Leasing Activity

During the third quarter of 2020, 230 leases (new, renewal and options) were executed totaling approximately 1.3 million square feet. This compared to 246 leases executed totaling approximately 1.4 million square feet during the third quarter of 2019.

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 8.2% for new leases, 4.1% for renewal leases (excluding options), and 5.0% combined (new and renewal leases).

During the first nine months of 2020, 613 leases (new, renewal and options) were executed totaling approximately 3.6 million square feet. This compared to 775 leases executed totaling approximately 3.5 million square feet during the same year-ago period.

Comparable rent spreads during the first nine months of 2020 were 9.7% for new leases, 7.4% for renewal leases (excluding options), and 7.8% combined (new and renewal leases).

Disposition & Acquisition Activity

During the quarter, the Company sold two properties, generating $22.5 million in proceeds. In the near term, disposition proceeds are expected to be used to fund tax-efficient acquisitions and to help preserve liquidity during the current economic uncertainty. The Company acquired one shopping center for $18.6 million during the third quarter.

During the nine months ended September 30, 2020, six properties were sold, generating $48.3 million in proceeds. During the same period, the Company acquired land that was previously subject to a ground lease, one shopping center, and an outparcel adjacent to one of its shopping centers.

The pace of dispositions and acquisitions is being impacted by the current economic environment resulting from the COVID-19 pandemic.

Balance Sheet Highlights at September 30, 2020

At quarter-end, PECO had approximately $490 million of borrowing capacity available on its $500 million revolving credit facility, net of outstanding letters of credit.

Net debt to total enterprise value ("TEV") was 43.8% at September 30, 2020, compared to 39.5% at December 31, 2019. This increase was solely driven by the change in the estimated value per share of PECO’s common stock, as net debt decreased by $129.1 million from December 31, 2019.

Net debt to adjusted earnings before interest, taxes, depreciation, and amortization for real estate ("EBITDAre") annualized was 7.0x at September 30, 2020, compared to 7.2x at December 31, 2019.

At September 30, 2020, the Company's outstanding debt had a weighted-average interest rate of 3.1%, a weighted-average maturity of 4.3 years, and 75.1% of its total debt was fixed-rate debt. This compared to a weighted-average interest rate of 3.4%, a weighted-average maturity of 5.0 years, and 89.4% fixed-rate debt at December 31, 2019.

Distributions

On November 4, 2020, PECO’s Board of Directors reinstated distributions for December 2020 to stockholders of record at the close of business on December 28, 2020 equal to a monthly amount of $0.02833333 per share, or $0.34 on an annualized basis. Operating partnership unit ("OP Unit") holders will receive distributions at the same rate as common stockholders, subject to required tax withholding.

The December 2020 distribution is expected to be made on January 7, 2021. Future distributions are not guaranteed; however, the Board intends to evaluate distributions on a monthly basis throughout 2021.

Additionally, the Dividend Reinvestment Plan ("DRIP") has been reinstated by the Board effective January 7, 2021. Stockholders participating in the DRIP will reinvest their monthly distributions at the current estimated value per share ("EVPS") of $8.75, starting with the upcoming distribution on January 7, 2021.

To date, the Company has distributed over $1.3 billion to its stockholders and OP Unit holders in the form of monthly distributions.

Tender Offer

PECO intends to commence a voluntary fixed price tender offer on November 10, 2020 (the "Tender Offer") for up to 4.5 million shares, or approximately $26 million, of its outstanding common stock at $5.75 per share.

This price is 34% lower than the Company’s current EVPS of $8.75, reflecting, among other factors, the Board of Directors’ acknowledgment that the share prices of the Company’s publicly-traded shopping center REIT peers have declined significantly below their respective estimated net asset values, primarily as a result of the ongoing market uncertainty caused by the COVID-19 pandemic. As of October 30, 2020, the publicly traded equity of these peers was trading at an average discount to net asset value of 41%, and a median discount to net asset value of 39%, according to S&P Global Market Intelligence. Similarly, PECO’s shares of common stock have traded at a significant discount to its current EVPS in secondary market transactions reported by third parties. For example, during the six-month period ended October 31, 2020, approximately 67,000 shares were sold through a secondary market maker at an average price per share of $5.27. However, given the current economic climate, market prices are highly volatile as seen by market dynamics this week related to the timing of a potential vaccine for COVID-19. Accordingly, while the Board has approved the Tender Offer, the Board makes no recommendation to stockholders as to whether to tender or refrain from tendering their shares.

If more than 4.5 million shares are properly tendered and not properly withdrawn, PECO will purchase the shares on a pro rata basis. In that case, shares that are not purchased will be returned to stockholders.

The Tender Offer will expire at 5:00 p.m. Eastern time on December 15, 2020, unless extended or withdrawn by PECO. The Tender Offer will not be conditional upon any minimum number of shares being tendered. The Tender Offer will, however, be subject to other conditions, and PECO will reserve the right, subject to applicable laws, to withdraw or amend the Tender Offer if, at any time prior to the payment of deposited shares, certain events occur.

This Tender Offer has not yet commenced. This press release is not a recommendation, an offer to purchase, or a solicitation of an offer to sell shares of the Company. The Company expects to file with the Securities and Exchange Commission ("SEC") a tender offer statement on Schedule TO and related exhibits, including an offer to purchase, a related letter of transmittal, and other related documents (the "Tender Offer Documents").

Notice of the Tender Offer will be sent by mail to all stockholders and OP Unit holders. Equity holders may obtain full copies of the Tender Offer Documents from the Company, without charge, by contacting the Information Agent for the Tender Offer, Georgeson LLC, at 866-296-5716. The Tender Offer Documents will also be available at www.phillipsedison.com/investors, or on the SEC’s website at www.sec.gov. Equity holders should read these documents and related exhibits, as the documents contain important information about the Company’s Tender Offer.

Questions regarding the Tender Offer can be directed to the Company’s Information Agent for the Tender Offer, Georgeson LLC, at 866-296-5716.

The PECO Board of Directors intends to consider periodic tender offers going forward, with pricing and terms subject to market conditions.

Share Repurchase Program ("SRP") - Death, Qualifying Disability, and Determination of Incompetence ("DDI")

Effective January 2021, the Company expects to recommence repurchases under the DDI portion of its amended and restated SRP. The first redemption under the program is expected to take place at the end of January 2021 and continue monthly thereafter.

Qualifying repurchase requests under the amended and restated SRP are projected to be made at the current tender offer price of $5.75.

The deadline for monthly repurchases is expected to be the business day before the fifth business day prior to month end. The standard portion of the SRP remains inactive and such repurchase requests will not be accepted. For more information, including forms, please visit www.phillipsedison.com/investors or call 888-518-8073.

Stockholder Update Call

Chairman and Chief Executive Officer Jeff Edison, President Devin Murphy, and Chief Financial Officer John Caulfield will host a conference call on Thursday, November 12, 2020, at 1:00 p.m. Eastern Time addressing the Company’s Q3 2020 results and recent developments. Following management’s prepared remarks, there will be a question and answer session where questions may be submitted via the webcast interface during the call.

Date: Thursday, November 12, 2020

Time: 1:00 p.m. Eastern Time

Webcast link: https://services.choruscall.com/links/peco200813.html

U.S. listen-only: 888-346-2646

Replay: A webcast replay will be available approximately one hour after the conclusion of the presentation at http://investors.phillipsedison.com/event-calendar

Submit questions in advance of the call: InvestorRelations@phillipsedison.com

The conference call and accompanying slide presentation containing financial information can be accessed by visiting the Events and Presentations page on the Company’s website at http://investors.phillipsedison.com/event-calendar.

Interested parties can access the conference call via online webcast or by telephone. If dialing in, please call the conference telephone number fifteen minutes prior to the start time and an operator will register your name and organization. Participants should ask to join the Phillips Edison & Company call.

For more information on the Company’s third quarter 2020 results, please refer to the Company’s Form 10-Q for the quarter ended September 30, 2020, which will be filed with the SEC and available on the SEC’s website at www.sec.gov.

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

(Condensed and Unaudited)

(In thousands, except per share amounts)

September 30, 2020

December 31, 2019

ASSETS

Investment in real estate:

Land and improvements

$

1,547,154

$

1,552,562

Building and improvements

3,220,949

3,196,762

In-place lease assets

441,670

442,729

Above-market lease assets

65,637

65,946

Total investment in real estate assets

5,275,410

5,257,999

Accumulated depreciation and amortization

(892,090

)

(731,560

)

Net investment in real estate assets

4,383,320

4,526,439

Investment in unconsolidated joint ventures

39,575

42,854

Total investment in real estate assets, net

4,422,895

4,569,293

Cash and cash equivalents

103,910

17,820

Restricted cash

32,888

77,288

Goodwill

29,066

29,066

Other assets, net

133,014

128,690

Real estate investment and other assets held for sale

6,038

Total assets

$

4,721,773

$

4,828,195

LIABILITIES AND EQUITY

Liabilities:

Debt obligations, net

$

2,319,003

$

2,354,099

Below-market lease liabilities, net

105,223

112,319

Earn-out liability

22,000

32,000

Derivative liabilities

60,615

20,974

Deferred income

14,092

15,955

Accounts payable and other liabilities

93,187

124,054

Total liabilities

2,614,120

2,659,401

Equity:

Preferred stock, $0.01 par value per share, 10,000 shares authorized, zero shares issued and

outstanding at September 30, 2020 and December 31, 2019

Common stock, $0.01 par value per share, 1,000,000 shares authorized, 290,466 and 289,047

shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

2,905

2,890

Additional paid-in capital ("APIC")

2,796,655

2,779,130

Accumulated other comprehensive loss ("AOCI")

(55,630

)

(20,762

)

Accumulated deficit

(980,534

)

(947,252

)

Total stockholders’ equity

1,763,396

1,814,006

Noncontrolling interests

344,257

354,788

Total equity

2,107,653

2,168,794

Total liabilities and equity

$

4,721,773

$

4,828,195

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Condensed and Unaudited)

(In thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Revenues:

Rental income

$

123,298

$

132,715

$

367,418

$

390,605

Fees and management income

2,581

2,766

7,506

9,078

Other property income

816

528

2,334

1,676

Total revenues

126,695

136,009

377,258

401,359

Operating Expenses:

Property operating

20,835

23,296

62,226

67,095

Real estate taxes

17,282

18,016

50,847

53,294

General and administrative

9,595

11,537

30,141

38,287

Depreciation and amortization

56,095

58,477

168,692

179,020

Impairment of real estate assets

35,710

74,626

Total operating expenses

103,807

147,036

311,906

412,322

Other:

Interest expense, net

(20,388

)

(25,309

)

(65,317

)

(76,151

)

Gain on disposal of property, net

10,734

5,048

8,616

10,903

Other income (expense), net

196

1,561

9,565

(1,476

)

Net income (loss)

13,430

(29,727

)

18,216

(77,687

)

Net (income) loss attributable to noncontrolling interests

(1,646

)

3,850

(2,251

)

10,045

Net income (loss) attributable to stockholders

$

11,784

$

(25,877

)

$

15,965

$

(67,642

)

Earnings per common share:

Net income (loss) per share attributable to stockholders - basic and diluted

$

0.04

$

(0.09

)

$

0.05

$

(0.24

)

Non-GAAP Disclosures

Same-Center Net Operating Income

We present Same-Center NOI as a supplemental measure of our performance. We define NOI as total operating revenues, adjusted to exclude non-cash revenue items, less property operating expenses and real estate taxes. For the three and nine months ended September 30, 2020 and 2019, Same-Center NOI represents the NOI for the 276 properties that were wholly-owned and operational for the entire portion of both comparable reporting periods. We believe Same-Center NOI provides useful information to our investors about our financial and operating performance because it provides a performance measure of the revenues and expenses directly involved in owning and operating real estate assets and provides a perspective not immediately apparent from net income (loss). Because Same-Center NOI excludes the change in NOI from properties acquired or disposed of after December 31, 2018, it highlights operating trends such as occupancy levels, rental rates, and operating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Same-Center NOI, and accordingly, our Same-Center NOI may not be comparable to other REITs.

Same-Center NOI should not be viewed as an alternative measure of our financial performance as it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, depreciation and amortization, interest expense, other income (expense), or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties that could materially impact our results from operations.

Funds from Operations and Core Funds from Operations

FFO is a non-GAAP performance financial measure that is widely recognized as a measure of REIT operating performance. The National Association of Real Estate Investment Trusts ("Nareit") defines FFO as net income (loss) computed in accordance with GAAP, excluding gains (or losses) from sales of property and gains (or losses) from change in control, plus depreciation and amortization, and after adjustments for impairment losses on real estate and impairments of in-substance real estate investments in investees that are driven by measurable decreases in the fair value of the depreciable real estate held by the unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We calculate FFO Attributable to Stockholders and Convertible Noncontrolling Interests in a manner consistent with the Nareit definition, with an additional adjustment made for noncontrolling interests that are not convertible into common stock.

Core FFO is an additional performance financial measure used by us as FFO includes certain non-comparable items that affect our performance over time. We believe that Core FFO is helpful in assisting management and investors with the assessment of the sustainability of operating performance in future periods. We believe it is more reflective of our core operating performance and provides an additional measure to compare our performance across reporting periods on a consistent basis by excluding items that may cause short-term fluctuations in net income (loss). To arrive at Core FFO, we adjust FFO attributable to stockholders and convertible noncontrolling interests to exclude certain recurring and non-recurring items including, but not limited to, depreciation and amortization of corporate assets, changes in the fair value of the earn-out liability, amortization of unconsolidated joint venture basis differences, gains or losses on the extinguishment or modification of debt, other impairment charges, and transaction and acquisition expenses.

FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and Core FFO should not be considered alternatives to net income (loss) under GAAP, as an indication of our liquidity, nor as an indication of funds available to cover our cash needs, including our ability to fund distributions. Core FFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate our business plan in the manner currently contemplated.

Accordingly, FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and Core FFO should be reviewed in connection with other GAAP measurements, and should not be viewed as more prominent measures of performance than net income (loss) or cash flows from operations prepared in accordance with GAAP. Our FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and Core FFO, as presented, may not be comparable to amounts calculated by other REITs.

Earnings Before Interest, Taxes, Depreciation, and Amortization for Real Estate and Adjusted EBITDAre

We have included the calculation of EBITDAre to better align with publicly traded REITs. Additionally, we believe that, as another important earnings metric, it is a useful indicator of our ability to support our debt obligations. Nareit defines EBITDAre as net income (loss) computed in accordance with GAAP before (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization, (iv) gains or losses from disposition of depreciable property, and (v) impairment write-downs of depreciable property. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDAre on the same basis.

Adjusted EBITDAre is an additional performance measure used by us as EBITDAre includes certain non-comparable items that affect our performance over time. To arrive at Adjusted EBITDAre, we exclude certain recurring and non-recurring items from EBITDAre, including, but not limited to: (i) changes in the fair value of the earn-out liability; (ii) other impairment charges; (iii) amortization of basis differences in our investments in our unconsolidated joint ventures; and (iv) transaction and acquisition expenses.

We use EBITDAre and Adjusted EBITDAre as additional measures of operating performance which allow us to compare earnings independent of capital structure, determine debt service and fixed cost coverage, and measure enterprise value. EBITDAre and Adjusted EBITDAre should not be considered as alternatives to net income (loss), as an indication of our liquidity, nor as an indication of funds available to cover our cash needs, including our ability to fund distributions. Accordingly, EBITDAre and Adjusted EBITDAre should be reviewed in connection with other GAAP measurements, and should not be viewed as more prominent measures of performance than net income (loss) or cash flows from operations prepared in accordance with GAAP. Our EBITDAre and Adjusted EBITDAre, as presented, may not be comparable to amounts calculated by other REITs.

The table below compares Same-Center NOI (in thousands):

Three Months Ended
September 30,

Favorable
(Unfavorable)

Nine Months Ended
September 30,

Favorable
(Unfavorable)

2020

2019(1)

$ Change

% Change

2020

2019

$ Change

% Change

Revenues:

Rental income(1)

$

86,574

$

89,281

$

(2,707

)

$

261,061

$

268,046

$

(6,985

)

Tenant recovery income

29,964

31,425

(1,461

)

88,283

87,369

914

Other property income

786

493

293

2,243

1,549

694

Total revenues

117,324

121,199

(3,875

)

(3.2

)%

351,587

356,964

(5,377

)

(1.5

)%

Operating expenses:

Property operating expenses

16,865

16,940

75

51,681

50,979

(702

)

Real estate taxes

16,975

17,167

192

50,161

50,417

256

Total operating expenses

33,840

34,107

267

0.8

%

101,842

101,396

(446

)

(0.4

)%

Total Same-Center NOI

$

83,484

$

87,092

$

(3,608

)

(4.1

)%

$

249,745

$

255,568

$

(5,823

)

(2.3

)%

(1) Excludes straight-line rental income, net amortization of above- and below-market leases, and lease buyout income.

Below is a reconciliation of Net Income (Loss) to NOI for our real estate investments and Same-Center NOI (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019(1)

2020

2019(1)

Net income (loss)

$

13,430

$

(29,727

)

$

18,216

$

(77,687

)

Adjusted to exclude:

Fees and management income

(2,581

)

(2,766

)

(7,506

)

(9,078

)

Straight-line rental income(2)

(1,800

)

(2,573

)

(3,164

)

(7,105

)

Net amortization of above- and below-market leases

(811

)

(1,042

)

(2,394

)

(3,266

)

Lease buyout income

(664

)

(632

)

(972

)

(1,088

)

General and administrative expenses

9,595

11,537

30,141

38,287

Depreciation and amortization

56,095

58,477

168,692

179,020

Impairment of real estate assets

35,710

74,626

Interest expense, net

20,388

25,309

65,317

76,151

Gain on disposal of property, net

(10,734

)

(5,048

)

(8,616

)

(10,903

)

Other (income) expense, net

(196

)

(1,561

)

(9,565

)

1,476

Property operating expenses related to fees and

management income

1,058

2,328

2,586

5,154

NOI for real estate investments

83,780

90,012

252,735

265,587

Less: Non-same-center NOI(3)

(296

)

(2,920

)

(2,990

)

(10,019

)

Total Same-Center NOI

$

83,484

$

87,092

$

249,745

$

255,568

(1) Certain prior period amounts have been reclassified to conform with current year presentation.

(2) Excludes straight-line rent adjustments for neighbors deemed to be non-creditworthy.

(3) Includes operating revenues and expenses from non-same-center properties which includes properties acquired or sold and corporate activities.

The following table presents our calculation of FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and Core FFO and provides additional information related to our operations (in thousands, except per share amounts):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019(1)

Calculation of FFO Attributable to Stockholders and Convertible Noncontrolling Interests

Net income (loss)

$

13,430

$

(29,727

)

$

18,216

$

(77,687

)

Adjustments:

Depreciation and amortization of real estate assets

54,579

57,331

164,288

174,501

Impairment of real estate assets

35,710

74,626

Gain on disposal of property, net

(10,734

)

(5,048

)

(8,616

)

(10,903

)

Adjustments related to unconsolidated joint ventures

166

(1,814

)

1,760

292

FFO attributable to the Company

57,441

56,452

175,648

160,829

Adjustments attributable to noncontrolling interests
not convertible into common stock

(43

)

(274

)

FFO attributable to stockholders and convertible
noncontrolling interests

$

57,441

$

56,409

$

175,648

$

160,555

Calculation of Core FFO

FFO attributable to stockholders and convertible
noncontrolling interests

$

57,441

$

56,409

$

175,648

$

160,555

Adjustments:

Depreciation and amortization of corporate assets

1,516

1,146

4,404

4,519

Change in fair value of earn-out liability

(10,000

)

(7,500

)

Amortization of unconsolidated joint venture
basis differences

546

1,181

1,267

1,878

Other impairment charges

9,661

Transaction and acquisition expenses

152

120

211

396

Other

157

73

157

Core FFO

$

59,655

$

59,013

$

171,603

$

169,666

FFO Attributable to Stockholders and Convertible
Noncontrolling Interests per share and Core FFO per share

Weighted-average common shares outstanding - diluted(2)

333,563

326,983

333,480

326,429

FFO attributable to stockholders and convertible
noncontrolling interests per share - diluted

$

0.17

$

0.17

$

0.53

$

0.49

Core FFO per share - diluted

$

0.18

$

0.18

$

0.51

$

0.52

(1) Certain prior period amounts have been reclassified to conform with current year presentation.

(2) Restricted stock units were dilutive to FFO Attributable to Stockholders and Convertible Noncontrolling Interests per share and Core FFO per share for the three and nine months ended September 30, 2020 and 2019, and, accordingly, their impact was included in the weighted-average common shares used in their respective per share calculations. For the three and nine months ended September 30, 2019, restricted stock units had an anti-dilutive effect upon the calculation of earnings per share and thus were excluded.

The following table presents our calculation of EBITDAre and Adjusted EBITDAre (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,

Year Ended

2020

2019

2020

2019

2019

Calculation of EBITDAre

Net income (loss)

$

13,430

$

(29,727

)

$

18,216

$

(77,687

)

$

(72,826

)

Adjustments:

Depreciation and amortization

56,095

58,477

168,692

179,020

236,870

Interest expense, net

20,388

25,309

65,317

76,151

103,174

Gain on disposal of property, net

(10,734

)

(5,048

)

(8,616

)

(10,903

)

(28,170

)

Impairment of real estate assets

35,710

74,626

87,393

Federal, state, and local tax expense

173

176

382

517

785

Adjustments related to unconsolidated
joint ventures

594

(1,131

)

3,162

2,398

2,571

EBITDAre

$

79,946

$

83,766

$

247,153

$

244,122

$

329,797

Calculation of Adjusted EBITDAre

EBITDAre

$

79,946

$

83,766

$

247,153

$

244,122

$

329,797

Adjustments:

Change in fair value of earn-out liability

(10,000

)

(7,500

)

(7,500

)

Other impairment charges

9,661

9,661

Transaction and acquisition expenses

152

120

211

396

598

Amortization of unconsolidated joint
venture basis differences

546

1,181

1,267

1,878

2,854

Adjusted EBITDAre

$

80,644

$

85,067

$

238,631

$

248,557

$

335,410

Financial Leverage Ratios

We believe our debt to Adjusted EBITDAre, debt to total enterprise value, and debt covenant compliance as of September 30, 2020 allow us access to future borrowings as needed in the near term. The following table presents our calculation of net debt and total enterprise value, inclusive of our prorated portion of net debt and cash and cash equivalents owned through our joint ventures, as of September 30, 2020 and December 31, 2019 (dollars in thousands):

September 30, 2020

December 31, 2019

Net debt:

Total debt, excluding market adjustments and deferred financing expenses

$

2,379,355

$

2,421,520

Less: Cash and cash equivalents

105,270

18,376

Net debt

$

2,274,085

$

2,403,144

Enterprise value:

Net debt

$

2,274,085

$

2,403,144

Total equity value(1)

2,914,940

3,682,161

Total enterprise value

$

5,189,025

$

6,085,305

(1) Total equity value is calculated as the number of common shares and OP units outstanding multiplied by the EVPS as of September 30, 2020 and December 31, 2019, respectively. There were 333.1 million diluted shares outstanding with an EVPS of $8.75 as of September 30, 2020 and 331.7 million diluted shares outstanding with an EVPS of $11.10 as of December 31, 2019.

The following table presents our calculation of net debt to Adjusted EBITDAre and net debt to total enterprise value as of September 30, 2020 and December 31, 2019 (dollars in thousands):

September 30, 2020

December 31, 2019

Net debt to Adjusted EBITDAre - annualized:

Net debt

$

2,274,085

$

2,403,144

Adjusted EBITDAre - annualized(1)

325,484

335,410

Net debt to Adjusted EBITDAre - annualized

7.0

x

7.2

x

Net debt to total enterprise value

Net debt

$

2,274,085

$

2,403,144

Total enterprise value

5,189,025

6,085,305

Net debt to total enterprise value

43.8

%

39.5

%

(1) Adjusted EBITDAre is annualized based on trailing twelve months.

About Phillips Edison & Company

Phillips Edison & Company, Inc. ("PECO"), an internally-managed REIT, is one of the nation’s largest owners and operators of grocery-anchored shopping centers. PECO’s diversified portfolio of well-occupied neighborhood shopping centers features a mix of national and regional retailers selling necessity-based goods and services in fundamentally strong markets throughout the United States. Through its vertically-integrated operating platform, the Company manages a portfolio of 309 properties, including 283 wholly-owned properties comprising approximately 31.7 million square feet across 31 states (as of September 30, 2020). PECO has generated strong operating results over its 29+ year history and has partnered with leading institutional commercial real estate investors, including TPG Real Estate and The Northwestern Mutual Life Insurance Company. The Company remains exclusively focused on creating great grocery-anchored shopping experiences and improving the communities it serves one center at a time. For more information, please visit www.phillipsedison.com.

Forward-Looking Statements

Certain statements contained in this press release for the Company other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995 (collectively with the Securities Act and the Exchange Act, the "Acts"). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in the Acts. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "can," "expect," "intend," "anticipate," "estimate," "believe," "continue," "possible," "initiatives," "focus," "seek," "objective," "goal," "strategy," "plan," "potential," "potentially," "preparing," "projected," "future," "long-term," "once," "should," "could," "would," "might," "uncertainty," or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the U.S. Securities and Exchange Commission ("SEC"). Such statements include, but are not limited to, (a) statements about our focus, plans, strategies, initiatives, and prospects; (b) statements about the COVID-19 pandemic, including its duration and potential or expected impact on our tenants, our business, and our estimated value per share; (c) statements about our intentions regarding the Tender Offer, our distributions, share repurchase program, and dividend reinvestment program; and (d) statements about our future results of operations, capital expenditures, and liquidity. Such statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated, including, without limitation: (i) changes in national, regional, or local economic climates; (ii) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our portfolio; (iii) vacancies, changes in market rental rates, and the need to periodically repair, renovate, and re-let space; (iv) changes in interest rates and the availability of permanent mortgage financing; (v) competition from other available properties and the attractiveness of properties in our portfolio to our tenants; (vi) the financial stability of tenants, including the ability of tenants to pay rent; (vii) changes in tax, real estate, environmental, and zoning laws; (viii) the concentration of our portfolio in a limited number of industries, geographies, or investments; (ix) the effects of the COVID-19 pandemic, including on the demand for consumer goods and services and levels of consumer confidence in the safety of visiting shopping centers as a result of the COVID-19 pandemic; (x) the measures taken by federal, state, and local government agencies and tenants in response to the COVID-19 pandemic, including mandatory business shutdowns, stay-at-home orders and social distancing guidelines; (xi) the impact of the COVID-19 pandemic on our tenants and their ability to pay rent on time or at all, or to renew their leases and, in the case of non-renewal, our ability to re-lease the space at the same or more favorable terms or at all; (xii) the length and severity of the COVID-19 pandemic in the United States; (xiii) the pace of recovery following the COVID-19 pandemic given the current severe economic contraction and increase in unemployment rates; (xiv) our ability to implement cost containment strategies; (xv) our and our tenants’ ability to obtain loans under government programs; (xvi) our ability to pay down, refinance, restructure, or extend our indebtedness as it becomes due; (xvii) to the extent we were seeking to dispose of properties in the near term, significantly greater uncertainty regarding our ability to do so at attractive prices; (xviii) the impact of the COVID-19 pandemic on our business, results of operations, financial condition, and liquidity; and (xix) supply chain disruptions due to the COVID-19 pandemic. Additional important factors that could cause actual results to differ are described in the filings made from time to time by the Company with the SEC and include the risk factors and other risks and uncertainties described in our 2019 Annual Report on Form 10-K, filed with the SEC on March 12, 2020 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 filed on November 9, 2020, in each case as updated from time to time in our periodic and/or current reports filed with the SEC, which are accessible on the SEC’s website at www.sec.gov.

Except as required by law, we do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Important Information

This press release is for informational purposes only and is neither an offer to buy nor the solicitation of an offer to sell any securities of the Company. The Tender Offer will be made only pursuant to an offer to purchase, letter of transmittal, and related materials that the Company intends to distribute to its stockholders and OP Unit holders and file with the SEC. The full details of the expected Tender Offer, including complete instructions on how to tender shares, will be included in the offer to purchase, the letter of transmittal, and other related materials, which the Company will file with the SEC upon commencement of the expected tender offer. If the Tender Offer is commenced as expected, stockholders and OP Unit holders are urged to carefully read the offer to purchase, the letter of transmittal, and other related materials when they become available, as they will contain important information, including the terms and conditions of the Tender Offer. If the Tender Offer is commenced as expected, stockholders will be able to obtain free copies of the offer to purchase, the letter of transmittal, and other related materials that the Company files with the SEC on the Company's website at www.phillipsedison.com/investors and the SEC’s website at www.sec.gov or by calling Georgeson LLC, at 866-296-5716.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201109006094/en/

Contacts

Investors:
Phillips Edison & Company, Inc.
Michael Koehler, Vice President of Investor Relations
(513) 338-2743
InvestorRelations@phillipsedison.com