8-K: Phillips Edison & Company Reports Solid Q2 2024 Results, Launches Joint Venture with Cohen & Steers

Phillips Edison & Company (PECO) announced its second quarter 2024 results, reaffirming full-year guidance and launching a new joint venture with Cohen & Steers Income Opportunities REIT, Inc.

Summary

• Phillips Edison & Company reported a net income of $15.3 million, or $0.12 per diluted share, for the second quarter of 2024.
• The company's Nareit FFO was $78.4 million, or $0.57 per diluted share, and Core FFO was $80.0 million, or $0.59 per diluted share.
• PECO reaffirmed its full-year 2024 Nareit FFO guidance of $2.34 to $2.41 per diluted share and Core FFO guidance of $2.37 to $2.45 per diluted share.
• Same-center NOI increased by 1.9% year-over-year for the second quarter and 2.8% year-to-date.
• The company's leased portfolio occupancy was 97.5%, with same-center leased portfolio occupancy at 97.8%.
• Leased inline occupancy reached a record high of 95.1%, a 30 basis point increase year-over-year.
• PECO executed portfolio comparable new leases at a rent spread of 34.4% and renewal leases at a record-high rent spread of 20.5% during the quarter.
• The company completed a $350 million debt offering of 5.750% senior notes due in 2034.
• PECO acquired two shopping centers and one land parcel for $59.5 million during the quarter and one property and one land parcel for $11.3 million subsequent to quarter end.
• A new joint venture with Cohen & Steers Income Opportunities REIT, Inc. was launched, targeting $300 million in equity, with the first acquisition being Des Peres Corners in St. Louis, Missouri.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with solid financial results, reaffirmed guidance, and a new strategic joint venture. However, there are some minor negative points such as a slight decrease in occupancy and Nareit FFO per share, which temper the overall sentiment.

Positives

• The company achieved record-high leased inline occupancy of 95.1%.
• PECO executed portfolio comparable renewal leases at a record-high rent spread of 20.5% during the quarter.
• The company reaffirmed its full-year 2024 earnings guidance for Nareit and Core FFO per share.
• The joint venture with Cohen & Steers increases PECO's access to growth capital and expands its acquisition opportunities.
• The company's net debt to annualized adjusted EBITDAre remained stable at 5.1x.

Negatives

• Leased portfolio occupancy decreased slightly from 97.8% to 97.5% year-over-year.
• Same-center leased anchor occupancy decreased from 99.4% to 99.1% year-over-year.
• Nareit FFO per share decreased from $0.58 to $0.57 year-over-year for the second quarter.

Risks

• Changes in national, regional, or local economic climates could impact performance.
• Local market conditions, including oversupply or reduced demand, could affect the company.
• Vacancies, changes in rental rates, and the need for property repairs and renovations pose risks.
• Competition from other shopping centers could impact tenant attraction.
• The financial stability of tenants, including their ability to pay rent, is a risk.
• The company's ability to manage debt and borrowing costs is subject to interest rate changes.
• Potential liability for environmental matters and damage from natural events are risks.
• The company's ability to maintain its REIT qualification is subject to various factors.
• Information technology security breaches could pose a risk.
• The concentration of the company's portfolio in specific industries or geographies is a risk.
• Pandemics or other health crises could have economic and social impacts.
• The company's ability to re-lease properties on favorable terms is not guaranteed.
• The loss or bankruptcy of tenants could negatively impact the company.
• The company's ability to dispose of properties at attractive prices is not guaranteed.
• Inflation could impact the company and its tenants.

Future Outlook

PECO reaffirmed its full-year 2024 earnings guidance for Nareit FFO per share ($2.34 to $2.41) and Core FFO per share ($2.37 to $2.45), as well as same-center NOI growth (3.25% to 4.25%). The company expects to drive value in newly acquired assets through occupancy increases and rent growth, as well as potential future development of ground-up outparcel retail spaces.

Management Comments

• Jeff Edison, Chairman and Chief Executive Officer of PECO, stated that the PECO team delivered another solid quarter of growth and market-leading operating metrics.
• Jeff Edison also noted that the continued strength of operating performance is attributable to the company's differentiated strategy, the team's ability to drive results, and the advantages of suburban markets.
• James S. Corl, Chief Executive Officer of CNSREIT, expressed excitement about launching the joint venture with PECO and believes PECO's expertise will drive value.
• Jeff Edison added that the joint venture increases PECO's access to growth capital and expands its acquisition universe.

Industry Context

The announcement aligns with the trend of increased investment in grocery-anchored shopping centers, which are seen as resilient due to their focus on necessity-based goods and services. The joint venture with Cohen & Steers also reflects the growing interest of institutional investors in this sector. The open-air shopping center occupancy is at its highest level in 16 years at 95.7%.

Comparison to Industry Standards

• PECO's same-center NOI growth of 1.9% for the quarter is a positive result, but it is important to compare this to other publicly traded REITs in the same sector, such as Regency Centers (REG) or Kimco Realty (KIM), to assess its relative performance.
• The company's leased occupancy of 97.5% is strong, but it is important to compare this to the average occupancy rates of its peers to determine if it is above or below the industry benchmark.
• The rent spreads of 34.4% for new leases and 20.5% for renewal leases are very strong and indicate a high demand for PECO's properties, but it is important to compare these to the average rent spreads of its peers to determine if it is above or below the industry benchmark.
• The joint venture with Cohen & Steers is a positive development, but it is important to compare the terms of this joint venture to other similar partnerships in the industry to determine if it is favorable for PECO.
• The company's net debt to annualized adjusted EBITDAre of 5.1x is a key metric to compare to its peers to assess its financial leverage and risk profile.

Stakeholder Impact

• Shareholders will benefit from the company's solid financial performance and reaffirmed guidance.
• Employees will continue to be part of a company with a strong operating platform and growth opportunities.
• Customers will continue to have access to necessity-based goods and services in well-located shopping centers.
• Suppliers will continue to have a reliable partner in PECO.
• Creditors will be reassured by the company's stable financial position and debt management.

Next Steps

• PECO will host a conference call on July 26, 2024, to discuss the second quarter results and provide commentary on its business performance and guidance.
• The company will continue to execute its strategy of acquiring and managing grocery-anchored shopping centers.
• The joint venture with Cohen & Steers will focus on acquiring open-air, grocery-anchored shopping centers.

Key Dates

Keywords

grocery-anchored shopping centers, REIT, real estate, retail, NAREIT FFO, Core FFO, same-center NOI, occupancy, leasing, joint venture, acquisitions, debt offering