PHILLIPS EDISON & COMPANY, INC. The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and notes thereto. See also "Cautionary Note Regarding Forward-Looking Statements" preceding Part I.
KEY PERFORMANCE INDICATORS AND DEFINED TERMS
We use certain key performance indicators ("KPIs"), which include both financial
and nonfinancial metrics, to measure the performance of our operations. We
believe these KPIs, as well as the core concepts and terms defined below, allow
our Board, management, and investors to analyze trends around our business
strategy, financial condition, and results of operations in a manner that is
focused on items unique to the retail real estate industry.
We do not consider our non-GAAP measures to be alternatives to measures required
in accordance with accounting principles generally accepted in the United States
("GAAP"). Certain non-GAAP measures should not be viewed as an alternative
measure of our financial performance as they may not reflect the operations of
our entire portfolio, and they may not 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 shopping centers that
could materially impact our results from operations. Additionally, certain
non-GAAP measures should not be considered as an indication of our liquidity,
nor as an indication of funds available to cover our cash needs, including our
ability to fund distributions, and 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 in the manner currently contemplated. Accordingly, non-GAAP measures
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. Other REITs may use
different methodologies for calculating similar non-GAAP measures, and
accordingly, our non-GAAP measures may not be comparable to other REITs.
Our KPIs and terminology can be grouped into three key areas:
PORTFOLIO-Portfolio metrics help management to gauge the health of our centers overall and individually.
•Anchor space-We define an anchor space as a space greater than or equal to 10,000 square feet of gross leasable area ("GLA").
•Annualized Base Rent ("ABR")-We use ABR to refer to the monthly contractual base rent at the end of the period multiplied by twelve months.
•ABR per Square Foot ("PSF")-This metric is calculated by dividing ABR by leased
GLA. Increases in ABR PSF can be an indication of our ability to create rental
rate growth in our centers, as well as an indication of demand for our spaces,
which generally provides us with greater leverage during lease negotiations.
•GLA-We use GLA to refer to the total occupied and unoccupied square footage of
a building that is available for tenants (whom we refer to as a "Neighbor" or
our "Neighbors") or other retailers to lease.
•Inline space-We define an inline space as a space containing less than 10,000 square feet of GLA.
•Leased Occupancy-This metric is calculated as the percentage of total GLA for
which a lease has been signed regardless of whether the lease has commenced or
the Neighbor has taken possession. High occupancy is an indicator of demand for
our spaces, which generally provides us with greater leverage during lease
negotiations.
•Underwritten incremental unlevered yield-This reflects the yield we target to
generate from a project upon expected stabilization and is calculated as the
estimated incremental net operating income ("NOI") for a project at
stabilization divided by its estimated net project investment. The estimated
incremental NOI is the difference between the estimated annualized NOI we target
to generate by project upon stabilization and the estimated annualized NOI
without the planned improvements. Underwritten incremental unlevered yield does
not include peripheral impacts, such as lease rollover risk or the impact on the
long term value of the property upon sale or disposition. Actual incremental
unlevered yields may vary from our underwritten incremental unlevered yield
range based on the actual total cost to complete a project and its actual
incremental NOI at stabilization.
•Comparable lease-We use this term to refer to a lease with consistent terms that is executed for substantially the same space that has been vacant less than twelve months. •Comparable rent spread-This metric is calculated as the percentage increase or decrease in first-year ABR (excluding any free rent or escalations) on new or renewal leases (excluding options) where the lease was considered a comparable lease. This metric provides an indication of our ability to generate revenue growth through leasing activity.
•Cost of executing new leases-We use this term to refer to certain costs associated with new leasing, namely, leasing commissions, tenant improvement costs, and tenant concessions.
•Portfolio retention rate-This metric is calculated by dividing (i) total square
feet of retained Neighbors with current period lease expirations by (ii) the
total square feet of leases expiring during the period. The portfolio retention
rate
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DECEMBER 31, 2021 FORM 10-K 31
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provides insight into our ability to retain Neighbors at our shopping centers as
their leases approach expiration. Generally, the costs to retain an existing
Neighbor are lower than costs to replace with a new Neighbor.
•Recovery rate-This metric is calculated by dividing (i) total recovery income
by (ii) total recoverable expenses during the period. A high recovery rate is an
indicator of our ability to recover certain property operating expenses and
capital costs from our Neighbors.
FINANCIAL PERFORMANCE-In addition to financial metrics calculated in accordance
with GAAP, such as net income or cash flows from operations, we utilize non-GAAP
metrics to measure our operational and financial performance. See "Non-GAAP
Measures" below for further discussion on the following metrics.
•Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization for
Real Estate ("Adjusted EBITDAre")-To arrive at Adjusted EBITDAre, we adjust
EBITDAre, as defined below, to exclude certain recurring and non-recurring items
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; (iv)
transaction and acquisition expenses; and (v) realized performance income. We
use EBITDAre and Adjusted EBITDAre as additional measures of operating
performance which allow us to compare earnings independent of capital structure
and evaluate debt leverage and fixed cost coverage.
•Core Funds from Operations ("FFO")-To arrive at Core FFO, we adjust Nareit FFO
attributable to stockholders and OP unit holders, as defined below, to exclude
certain recurring and non-recurring items including, but not limited to: (i)
depreciation and amortization of corporate assets; (ii) changes in the fair
value of the earn-out liability; (iii) amortization of unconsolidated joint
venture basis differences; (iv) gains or losses on the extinguishment or
modification of debt and other; (v) other impairment charges; (vi) transaction
and acquisition expenses; and (vii) realized performance income. We believe
Nareit FFO provides insight into our operating performance as it excludes
certain items that are not indicative of such performance. Core FFO provides
further insight into the sustainability of our 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).
•EBITDAre-The National Association of Real Estate Investment Trusts ("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.
•Equity Market Capitalization-We calculate equity market capitalization as the
total dollar value of all outstanding shares using the closing price for the
applicable date.
•Nareit FFO-Nareit defines FFO as net income (loss) computed in accordance with
GAAP, excluding: (i) gains (or losses) from sales of property and gains (or
losses) from change in control; (ii) depreciation and amortization related to
real estate; (iii) 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; and (iv) adjustments for
unconsolidated partnerships and joint ventures, calculated to reflect FFO on the
same basis. We calculate Nareit FFO in a manner consistent with the Nareit
definition.
•Net Debt-We calculate net debt as total debt, excluding discounts, market adjustments, and deferred financing expenses, less cash and cash equivalents.
•Net Debt to Adjusted EBITDAre-This ratio is calculated by dividing net debt by Adjusted EBITDAre (included on an annualized basis within the calculation). It provides insight into our leverage rate based on earnings and is not impacted by fluctuations in our equity price. •Net Debt to Total Enterprise Value-This ratio is calculated by dividing net debt by total enterprise value, as defined below. It provides insight into our capital structure and usage of debt. •NOI-We calculate NOI as total operating revenues, adjusted to exclude non-cash revenue items, less property operating expenses and real estate taxes. NOI provides insight 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).
•Same-Center-We use this term to refer to a property, or portfolio of
properties, that have been owned and operational for the entirety of each
reporting period (i.e., since
•Total Enterprise Value-We calculate total enterprise value as our net debt plus our equity market capitalization on a fully diluted basis.
OVERVIEW
We are a REIT and one of the nation's largest owners and operators of omni-channel grocery-anchored shopping centers. Our portfolio primarily consists of neighborhood centers anchored by the #1 or #2 grocer tenants by sales within their respective formats by trade area. Our Neighbors are a mix of national, regional, and local retailers that primarily provide necessity-based goods and services. As ofDecember 31, 2021 , we owned equity interests in 289 shopping centers, including 268 wholly-owned shopping centers and 21 shopping center properties owned through two unconsolidated joint ventures, which comprised approximately 33.0 million square feet in 31 states. In addition to managing our shopping centers, our third-party investment managementPHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 32
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business provides comprehensive real estate management services to our unconsolidated joint ventures and one private fund (collectively, the "Managed Funds").
UNDERWRITTEN INITIAL PUBLIC OFFERING-OnJuly 19, 2021 , we closed our underwritten IPO, through which we offered 17.0 million shares of our common stock,$0.01 par value per share, at an initial price to the public of$28.00 per share, pursuant to a registration statement filed with theU.S. Securities and Exchange Commission ("SEC") on Form S-11 (File No. 333-255846), as amended. In connection with the underwritten IPO, the underwriters exercised a 30-day option to purchase additional shares of our common stock to cover overallotments, and, accordingly, onAugust 2, 2021 , we settled the sale of an additional 2.6 million shares at a price of$28.00 per share. These shares are listed on Nasdaq under the trading symbol "PECO". The underwritten IPO, including the underwriters' overallotment election, resulted in gross proceeds of$547.4 million .
Basis of Presentation-The basis of presentation of our shares of common stock is described as follows:
•Recapitalization-OnJune 18, 2021 , our stockholders approved an amendment to our charter (the "Articles of Amendment") that effected a change of each share of our common stock outstanding at the time the amendment became effective into one share of a newly created class of Class B common stock (the "Recapitalization"). The Articles of Amendment became effective upon filing with, and acceptance by, theState Department of Assessments and Taxation of Maryland onJuly 2, 2021 . Unless otherwise indicated, all information in this Form 10-K gives effect to the Recapitalization and references to "shares" and per share metrics refer to our common stock and Class B common stock, collectively. Our Class B common stock automatically converted into our publicly traded common stock onJanuary 18, 2022 (see Note 12). •Reverse Stock Split-OnJuly 2, 2021 , our Board approved an amendment to our charter to effect a one-for-three reverse stock split. Concurrent with the reverse split, theOperating Partnership enacted a one-for-three reverse stock split of its outstanding OP units. Unless otherwise indicated, the information in this Form 10-K gives effect to the reverse stock and OP unit splits (see Note 12). •IPO-Following our underwritten IPO, we are presenting common stock and Class B common stock as separate classes within our consolidated balance sheets and consolidated statements of equity. Any references to "common stock" in this Form 10-K refer to our Nasdaq-listed shares sold through the underwritten IPO, whereas Class B common stock refers to the newly-created class of Class B common stock that is not listed. This applies to all historical periods presented herein. 2021 BOND OFFERING-OnSeptember 20, 2021 , theSEC declared effective our bond offering registration statement as filed on Form S-3 (File Nos. 333-259059 and 333-259059-01) relating to the offer, from time to time, of an unspecified number of debt securities not to exceed a maximum aggregate offering of$1 billion ("Bond Registration"). InOctober 2021 , in connection with this Bond Registration, we settled$350 million aggregate principal amount of 2.625% senior notes ("2021 Bond Offering") priced at 98.692% of the principal amount and maturing inNovember 2031 . The 2021 Bond Offering resulted in gross proceeds of$345.4 million . The notes are fully and unconditionally guaranteed by us. AT-THE-MARKET OFFERING ("ATM")-OnFebruary 10, 2022 , we and theOperating Partnership entered into a sales agreement relating to the potential sale of shares of common stock pursuant to a continuous offering program. In accordance with the terms of the sales agreement, we may offer and sell shares of our common stock having an aggregate offering price of up to$250 million from time to time through our sales agents, or, if applicable, as forward sellers. PORTFOLIO AND LEASING STATISTICS-Below are statistical highlights of our wholly-owned portfolio as ofDecember 31, 2021 and 2020 (dollars and square feet in thousands): 2021 2020 Number of properties 268 283 Number of states 31 31 Total square feet 30,691 31,709 ABR$ 405,281 $ 386,516 % ABR from omni-channel grocery-anchored shopping centers 96.7 % 97.3 % Leased occupancy %: Total portfolio spaces 96.3 % 94.7 % Anchor spaces 98.1 % 97.6 % Inline spaces 92.7 % 88.9 % Average remaining lease term (in years)(1) 4.6
4.5
(1)The average remaining lease term in years excludes future options to extend the term of the lease.
COVID-19 STRATEGY-During 2020, as a result of the coronavirus ("COVID-19")
pandemic, many state governments issued "stay-at-home" mandates that generally
limited travel and movement of the general public to essential activities only
and required all non-essential businesses to close. All temporarily closed
Neighbors have since been permitted to reopen; however, a portion of our
Neighbors have permanently closed, and we continually work to backfill any
remaining vacant spaces. We believe our collections have returned to levels
consistent with those prior to the onset of the pandemic. All statistics and
financial results included in this COVID-19 Strategy section are approximate and
include the prorated portion attributable to properties owned through our
unconsolidated joint ventures.
PHILLIPS EDISON & COMPANY
DECEMBER 31, 2021 FORM 10-K 33
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We believe substantially all Neighbors, including those that were required to temporarily close under governmental mandates, are contractually obligated to continue with their rent payments as documented in our lease agreements with them. However, we decided to negotiate relief for a small subset of our Neighbors, including rent deferrals. As ofJanuary 20, 2022 , we have$3.3 million of outstanding payment plans with our Neighbors of which approximately 84% are scheduled to be received byDecember 31, 2022 . As ofJanuary 20, 2022 , the weighted-average term over which we expect to receive remaining amounts owed on executed payment plans is approximately ten months. We cannot guarantee that we will ultimately be able to collect these amounts; however, as ofJanuary 20, 2022 , the collection rate on our payment plans executed during the COVID-19 pandemic exceeded 90%. Despite seeing improvements in collections for current and past due amounts during 2021, the negative impact the pandemic has had on our Neighbors continues to be considered in our evaluation of Neighbors who potentially pose a credit risk. For Neighbors with a higher degree of uncertainty as to their creditworthiness, we may not record revenue for amounts billed until the cash is received. For the years endedDecember 31, 2021 and 2020, we had$3.6 million and$28.5 million , respectively, in net unfavorable monthly revenue adjustments for Neighbors who were being accounted for on a cash basis. As ofDecember 31, 2021 , our Neighbors currently being accounted for on a cash basis represented approximately 7% of our total Neighbor spaces, or approximately 5.9% of portfolio ABR. Further, many of our Neighbors who are on a cash basis of accounting are actively making payments toward their outstanding balances. When considering the ABR associated with Neighbors who are currently on a cash basis of accounting, 84% of this ABR is represented by Neighbors who are actively making payments. Certain of our Neighbors were unable to remain in their spaces as a result of the factors previously noted. Despite this fallout, our leasing activity has been strong as demand for space in our centers remains high, which generally allows us to re-lease these spaces to Neighbors who may increase our concentration of necessity-based and omni-channel retailers. For the year endedDecember 31, 2021 , our wholly-owned portfolio retention rate was 87.8%. Additionally, for the year endedDecember 31, 2021 , for our wholly-owned portfolio, we executed 538 new leases, an increase as compared to both 2020 and 2019. FINANCIAL HIGHLIGHTS-Owning, operating, and managing well-occupied omni-channel grocery-anchored real estate is a core part of our business strategy, and as ofDecember 31, 2021 , 96.7% of our ABR was derived from omni-channel grocery-anchored shopping centers. As ofDecember 31, 2021 , total leased occupancy improved 1.6% to 96.3% and inline occupancy improved 3.8% to 92.7%, when compared toDecember 31, 2020 . We believe that our differentiated focused strategy, coupled with our responsible balance sheet management, left our portfolio well-positioned to recover from the economic downturn resulting from the COVID-19 pandemic. Our financial performance highlights during 2021 are as follows:
•Net income of
•We closed our underwritten IPO and settled the 2021 Bond Offering, which
generated gross proceeds of
•Collections during the second half of the year reached 99% of our monthly billings; returning to pre-COVID levels.
•Core FFO improved by
•Same-Center NOI improved 8.2% to
•Acquired
•We paid monthly distributions of$0.085 per share, or$1.02 annualized, through the period ofSeptember 2021 and increased monthly distributions to$0.09 per share, or$1.08 annualized, for the remainder of the year.
•Net debt to Adjusted EBITDAre - annualized was 5.6x as compared to 7.3x during the same period a year ago.
EXECUTING OUR STRATEGY-Our performance for the year is linked to our key initiatives: differentiated and focused strategy, integrated operating platform, and responsible balance sheet management. We believe these initiatives will result in long-term growth and value creation to all of our stakeholders.
Differentiated and Focused Strategy-We continually monitor the commercial real estate sector for shopping centers that meet our investment objectives. During 2021, in the wake of the COVID-19 pandemic, our opportunities for investment in assets improved over 2020. Further, capital raised through our underwritten IPO during the third quarter of 2021 has created liquidity that we intend to use, in part, to grow our portfolio of assets. Highlights of our asset composition and acquisitions are as follows:
•96.7% of our ABR was derived from omni-channel grocery-anchored shopping
centers as of
•71.6% of our ABR was derived from Neighbors providing Necessity-based goods and services.
•Acquired nine properties and five outparcels for a net cash outlay of
Internal Growth Through Our Integrated Operating Platform-During 2021, our leasing activity has increased as compared to both 2020 and 2019. We have focused on improving our occupancy through leasing vacant spaces, increasing lease revenue through rent growth, and executing development and redevelopment opportunities. Highlights of our wholly-owned operational activity as of and for the year endedDecember 31, 2021 are as follows:
•Leased occupancy for our wholly-owned portfolio improved to 96.3% as of
•We executed 1,135 leases (new, renewal, and options) totaling 5.6 million square feet during the year endedDecember 31, 2021 , which was an increase from 861 leases totaling 4.7 million square feet executed during the year endedDecember 31, 2020 .PHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 34
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•Total ABR per leased square foot for executed new leases improved 6.0% to$17.11 , and inline ABR per leased square foot for executed new leases improved 13.9% to$20.63 during the year endedDecember 31, 2021 . •As of and for the year endedDecember 31, 2021 , we had 26 development and redevelopment projects completed or in process, which we estimate will comprise a total investment of$59.2 million .
•Created
Balance Sheet Management Positioned for External Growth-Our management team has executed strategies to improve the flexibility of our balance sheet, including gaining access to additional forms of liquidity and extending our debt maturity profile. This execution well-positions us to preserve our investment grade rating, fund distributions to our stockholders, and invest in our targeted acquisitions. As ofDecember 31, 2021 , we 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 our$500.0 million revolving credit facility. Our balance sheet management highlights as of and for the year endedDecember 31, 2021 are as follows: •Closed our underwritten IPO, in which we issued approximately 19.6 million shares of common stock at$28.00 per share, generating gross proceeds of$547.4 million .
•We were assigned investment grade ratings from Moody's Investors Services
(Baa3) and
•We settled the 2021 Bond Offering, which resulted in gross proceeds of
•We entered into a new$980 million credit facility comprised of a$500 million senior unsecured revolving credit facility and two$240 million senior unsecured term loan tranches (the "Refinancing"). •We paid down or refinanced$1.1 billion in term loan debt in 2021 utilizing proceeds from the underwritten IPO, the Refinancing, the 2021 Bond Offering, and cash on hand. Additionally, we executed early repayments of$55.2 million in mortgage debt. In total, we reduced our net outstanding debt obligations by 17.5% from a year ago. •Our ratio of net debt to Adjusted EBITDAre was 5.6x as ofDecember 31, 2021 , as compared to 7.3x as ofDecember 31, 2020 (see "Liquidity and Capital Resources - Financial Leverage Ratios" below for a discussion and calculation). •Following our activity this year, our debt maturity profile with the respective principal payment obligations as ofDecember 31, 2021 is as follows (including the impact of derivatives on weighted-average interest rates): [[Image Removed: cik0001476204-20211231_g8.jpg]]PHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 35
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LEASING ACTIVITY-Below is a summary of leasing activity for our wholly-owned
properties for the years ended
Total Deals Inline Deals
2021 2020 2021 2020
New leases:
Number of leases 538 383 517 363
Square footage (in thousands) 1,805 1,290 1,193 957
ABR (in thousands) $ 30,889 $ 20,823 $ 24,622 $ 17,325
ABR per square foot $ 17.11 $ 16.14 $ 20.63 $ 18.11
Cost per square foot of executing new
leases $ 28.44 $ 26.14 $ 29.55 $ 28.58
Number of comparable leases 228 127 224 125
Comparable rent spread 15.7 % 8.2 % 15.7 % 10.9 %
Weighted average lease term (in years) 8.1 7.6 6.4 6.7
Renewals and options:
Number of leases 597 478 537 422
Square footage (in thousands) 3,834 3,420 1,130 986
ABR (in thousands) $ 47,603 $ 41,290 $ 25,891 $ 20,976
ABR per square foot $ 12.42 $ 12.07 $ 22.92 $ 21.27
ABR per square foot prior to renewals $ 11.68 $ 11.49 $ 20.86 $ 19.77
Percentage increase in ABR per square foot 6.3 % 5.1 % 9.9 % 7.6 %
Cost per square foot of executing renewals
and options(2) $ 0.63 $ 0.80 $ 1.23 $ 1.13
Number of comparable leases(3) 496 365 475 349
Comparable rent spread(3) 8.1 % 6.7 % 10.2 % 8.0 %
Weighted average lease term (in years) 4.8 5.1 4.1 3.9
Portfolio retention rate 87.8 % 85.2 % 79.4 % 72.8 %
(1)Per square foot amounts may not recalculate exactly based on other amounts presented within the table due to rounding.
(2)During the third quarter of 2021, we refined our calculation of cost per square foot of executing renewals and options to better align with actual costs incurred. Prior period amounts have been adjusted to reflect costs on the same basis.
(3)Excludes exercise of options.
RESULTS OF OPERATIONS
KNOWN TRENDS AND UNCERTAINTIES OF THE COVID-19 PANDEMIC-The COVID-19 pandemic
resulted in reduced revenues beginning with the second quarter of 2020 and
continuing through early 2021. During the second half of 2021, we saw our
collections return to pre-COVID levels, including increased rental income as a
result of collections in 2021 related to rent amounts billed in 2020. We believe
our collections have likely stabilized, which will reduce volatility in our
earnings.
PHILLIPS EDISON & COMPANY
DECEMBER 31, 2021 FORM 10-K 36
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SUMMARY OF OPERATING ACTIVITIES FOR THE YEARS ENDED
Favorable (Unfavorable) Change
(Dollars in thousands) 2021 2020 $ %(1)
Revenues:
Rental income $ 519,495 $ 485,483 $ 34,012 7.0 %
Fees and management income 10,335 9,820 515 5.2 %
Other property income 3,016 2,714 302 11.1 %
Total revenues 532,846 498,017 34,829 7.0 %
Operating Expenses:
Property operating expenses 92,914 87,490 (5,424) (6.2) %
Real estate tax expenses 65,381 67,016 1,635 2.4 %
General and administrative expenses 48,820 41,383 (7,437) (18.0) %
Depreciation and amortization 221,433 224,679 3,246 1.4 %
Impairment of real estate assets 6,754 2,423 (4,331) NM
Total operating expenses 435,302 422,991 (12,311) (2.9) %
Other:
Interest expense, net (76,371) (85,303) 8,932 10.5 % Gain on disposal of property, net 30,421 6,494 23,927 NM Other (expense) income, net (34,361) 9,245 (43,606) NM Net income 17,233 5,462 11,771 NM Net income attributable to noncontrolling interests (2,112) (690) (1,422) NM
Net income attributable to stockholders
NM
(1)Line items that result in a percent change that exceed certain limitations are considered not meaningful ("NM") and indicated as such.
Our basis for analyzing significant fluctuations in our results of operations generally includes review of the results of our same-center portfolio, non-same-center portfolio, and revenues and expenses from our management activities. We define our same-center portfolio as the 256 properties that were owned and operational prior toJanuary 1, 2020 . We define our non-same-center portfolio as those properties that were not fully owned and operational in both periods owing to real estate asset activity occurring afterDecember 31, 2019 , which includes 31 properties disposed of and eleven properties acquired. Below are explanations of the significant fluctuations in the results of operations for the years endedDecember 31, 2021 and 2020:
Rental Income increased
•$37.3 million increase related to our same-center portfolio as follows:
?
?
?
?
•$3.3 million decrease related to our net disposition of 20 properties.
Property Operating Expenses increased
•
?
?
•$0.5 million decrease related to our net disposition of 20 properties.
Real Estate Tax Expenses decreased
•$1.3 million decrease related to our same-center portfolio primarily due to successful tax appeals and favorable assessments at our centers; and
•$0.4 million decrease related to our net disposition of 20 properties.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 37
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General and Administrative Expenses increased
•$8.7 million increase owing largely to lower expense for performance-based compensation in 2020 as a result of the COVID-19 pandemic, as compared to 2021;
•$1.2 million increase due to an increase in directors and officers insurance as a result of our underwritten IPO; and
•$2.3 million decrease primarily due to lower transfer agent costs and information technology costs.
Depreciation and Amortization decreased
•$1.8 million decrease related to our same-center portfolio and corporate operating activities primarily as follows:
?
?
•$1.4 million decrease related to our net disposition of 20 properties.
Impairment of Real Estate Assets:
•The
Interest Expense, Net:
•The$8.9 million decrease during the year endedDecember 31, 2021 as compared to the same period in 2020 was due to: (i) lower debt balances outstanding as a result of early repayments of debt; (ii) minimal borrowings on our revolving credit facility in 2021 as compared to 2020; and (iii) lower average interest rates during 2021 primarily due to the Refinancing; partially offset by (iv) the 2021 Bond Offering. Interest Expense, Net was comprised of the following (dollars in thousands): Year Ended December 31, 2021 2020 Interest on unsecured term loans and senior notes, net $ 40,107 $ 46,798 Interest on secured debt 25,044 29,001 Interest on revolving credit facility, net 870 1,668 Non-cash amortization and other 6,758 7,832 Loss on extinguishment or modification of debt and other, net 3,592 4 Interest expense, net $
76,371 $ 85,303
Weighted-average interest rate as of end of year 3.3 % 3.1 % Weighted-average term (in years) as of end of year 5.2 4.1
Gain on Disposal of Property, Net:
•The$23.9 million increase was primarily related to the sale of 24 properties and four outparcels (in addition to other property-related miscellaneous disposals and write-offs) with a net gain of$30.4 million during the year endedDecember 31, 2021 , as compared to the sale of seven properties and one outparcel (in addition to other property-related miscellaneous disposals and write-offs) with a net gain of$6.5 million during the year endedDecember 31, 2020 (see Note 4). Other (Expense) Income, Net: •The$43.6 million change was largely due to: (i) the change in the fair value of our earn-out liability as a result of the commencement of our underwritten IPO as well as improved market conditions in 2021; (ii) an increase in transaction and acquisition expenses in connection with our underwritten IPO, including restricted stock units awarded; partially offset by (iii) an increase from equity in income of our unconsolidated joint ventures primarily duePHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 38
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to
Year Ended
2021 2020
Change in fair value of earn-out liability (see Note 16)
$ 10,000
Equity in net income (loss) of unconsolidated joint ventures 1,695
(31)
Transaction and acquisition expenses (5,363) (539)
Federal, state, and local income tax expense (327) (491)
Other 70 306
Other (expense) income, net $ (34,361) $ 9,245 SUMMARY OF OPERATING ACTIVITIES FOR THE YEARS ENDED
For a discussion of the year-to-year comparisons in the results of operations
for the years ended
NON-GAAP MEASURES
See "Key Performance Indicators and Defined Terms" above for additional information related to the following non-GAAP measures.
SAME-CENTER NET OPERATING INCOME-Same-Center NOI is presented as a supplemental measure of our performance, as it highlights operating trends such as occupancy levels, rental rates, and operating costs for our Same-Center portfolio. Other REITs may use different methodologies for calculating Same-Center NOI, and accordingly, our Same-Center NOI may not be comparable to other REITs. For the years endedDecember 31, 2021 and 2020, Same-Center NOI represents the NOI for the 256 properties that were wholly-owned and operational for the entire portion of both comparable reporting periods. 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.
The table below compares Same-Center NOI for the years ended
Favorable (Unfavorable)
2021 2020 $ Change % Change
Revenues:
Rental income(1) $ 361,297 $ 356,096 $ 5,201
Tenant recovery income 115,989 120,475 (4,486)
Reserves for uncollectibility(2) 1,876 (26,243) 28,119
Other property income 2,761 2,570 191
Total revenues 481,923 452,898 29,025 6.4 %
Operating expenses:
Property operating expenses 72,226 68,101 (4,125)
Real estate taxes 62,929 64,420 1,491
Total operating expenses 135,155 132,521 (2,634) (2.0) %
Total Same-Center NOI $ 346,768 $ 320,377 $ 26,391 8.2 %
(1)Excludes straight-line rental income, net amortization of above- and below-market leases, and lease buyout income.
(2)Includes billings that will not be recognized as revenue until cash is collected or the Neighbor resumes regular payments and/or we deem it appropriate to resume recording revenue on an accrual basis, rather than on a cash basis.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 39
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Same-Center Net Operating Income Reconciliation-Below is a reconciliation of Net Income to NOI and Same-Center NOI for the years endedDecember 31, 2021 and 2020 (in thousands): 2021 2020 Net income$ 17,233 $ 5,462 Adjusted to exclude: Fees and management income (10,335) (9,820) Straight-line rental income(1) (9,404) (3,356) Net amortization of above- and below-market leases (3,581) (3,173) Lease buyout income (3,485) (1,237) General and administrative expenses 48,820 41,383 Depreciation and amortization 221,433 224,679 Impairment of real estate assets 6,754 2,423 Interest expense, net 76,371 85,303 Gain on disposal of property, net (30,421) (6,494) Other expense (income), net 34,361 (9,245)
Property operating expenses related to fees and management income
4,855 6,098
NOI for real estate investments 352,601 332,023
Less: Non-same-center NOI(2) (5,833) (11,646)
Total Same-Center NOI $ 346,768 $ 320,377 (1)Includes straight-line rent adjustments for Neighbors for whom revenue is being recorded on a cash basis.
(2)Includes operating revenues and expenses from non-same-center properties which includes properties acquired or sold and corporate activities.
NAREIT FFO AND CORE FFO-Nareit FFO is a non-GAAP financial performance measure
that is widely recognized as a measure of REIT operating performance. Core FFO
is an additional financial performance measure used by us as Nareit 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 assessing
the sustainability of our operating performance in future periods.
Nareit FFO, Nareit FFO Attributable to Stockholders and OP Unit Holders, 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, Nareit FFO, Nareit FFO Attributable to Stockholders and OP Unit
Holders, 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 Nareit FFO, Nareit FFO Attributable to Stockholders and OP Unit
Holders, and Core FFO, as presented, may not be comparable to amounts calculated
by other REITs.
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DECEMBER 31, 2021 FORM 10-K 40
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The following table presents our calculation of Nareit FFO, Nareit FFO
Attributable to Stockholders and OP Unit Holders, and Core FFO for the years
ended
2021 2020 2019
Calculation of Nareit FFO Attributable to Stockholders
and
OP Unit Holders
Net income (loss) $ 17,233 $ 5,462 $ (72,826)
Adjustments:
Depreciation and amortization of real estate assets 217,564 218,738 231,023
Impairment of real estate assets 6,754 2,423 87,393
Gain on disposal of property, net (30,421) (6,494) (28,170)
Adjustments related to unconsolidated joint ventures 72 1,552 (128)
Nareit FFO attributable to the Company 211,202 221,681 217,292
Adjustments attributable to noncontrolling interests not
convertible into common stock - - (282)
Nareit FFO attributable to stockholders and OP unit holders
$ 211,202 $ 221,681 $ 217,010 Calculation of Core FFO Nareit FFO attributable to stockholders and OP unit holders$ 211,202 $ 221,681 $ 217,010 Adjustments: Depreciation and amortization of corporate assets 3,869 5,941 5,847 Change in fair value of earn-out liability 30,436 (10,000) (7,500) Transaction and acquisition expenses 5,363 539 598
Loss on extinguishment or modification of debt and other, net
3,592 4 2,238
Amortization of unconsolidated joint venture
basis differences 1,167 1,883 2,854 Realized performance income (675) - - Other impairment charges - 359 9,661 Other - - 158 Core FFO$ 254,954 $ 220,407 $ 230,866
Nareit FFO Attributable to Stockholders and OP Unit
Holders/Core FFO per diluted share Weighted-average shares of common stock outstanding - diluted(1) 116,672 111,156 109,170 Nareit FFO attributable to stockholders and OP unit holders per share - diluted$ 1.81 $ 1.99 $ 1.99 Core FFO per share - diluted$ 2.19 $ 1.98 $ 2.11 (1)Restricted stock awards were dilutive to Nareit FFO attributable to stockholders and OP unit holders per share and Core FFO per share for the years endedDecember 31, 2021 , 2020, and 2019, and, accordingly, their impact was included in the weighted-average shares of common stock used in their respective per share calculations. For the year endedDecember 31, 2019 , restricted stock units had an anti-dilutive effect upon the calculation of earnings per share and thus were excluded. For details related to the calculation of earnings per share, see Note 14.
EBITDAre and ADJUSTED EBITDAre-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. Additionally, we believe they are a useful indicator of our ability to support our debt obligations.
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.
PHILLIPS EDISON & COMPANY
DECEMBER 31, 2021 FORM 10-K 41
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The following table presents our calculation of EBITDAre and Adjusted EBITDAre
for the years ended
2021 2020 2019
Calculation of EBITDAre
Net income (loss) $ 17,233 $ 5,462 $ (72,826)
Adjustments:
Depreciation and amortization 221,433 224,679 236,870
Interest expense, net 76,371 85,303 103,174
Gain on disposal of property, net (30,421) (6,494) (28,170)
Impairment of real estate assets 6,754 2,423 87,393
Federal, state, and local tax expense 327 491 785
Adjustments related to unconsolidated joint ventures 1,431
3,355 2,571
EBITDAre $ 293,128 $ 315,219 $ 329,797
Calculation of Adjusted EBITDAre
EBITDAre $ 293,128 $ 315,219 $ 329,797
Adjustments:
Change in fair value of earn-out liability 30,436 (10,000) (7,500)
Transaction and acquisition expenses 5,363 539 598
Amortization of unconsolidated joint venture basis differences
1,167 1,883 2,854
Realized performance income (675) - -
Other impairment charges - 359 9,661
Adjusted EBITDAre $ 329,419 $ 308,000 $ 335,410 LIQUIDITY AND CAPITAL RESOURCES
GENERAL-Aside from standard operating expenses, we expect our principal cash demands to be for:
•investments in real estate;
•cash distributions to stockholders;
•redevelopment and repositioning projects;
•capital expenditures and leasing costs; and
•principal and interest payments on our outstanding indebtedness.
We expect our primary sources of liquidity to be:
•operating cash flows;
•proceeds received from the disposition of properties;
•proceeds from any ATM offering activities;
•proceeds from debt financings, including borrowings in connection with our Bond Registration and those under our unsecured revolving credit facility;
•distributions received from unconsolidated joint ventures; and
•available, unrestricted cash and cash equivalents.
At this time, we believe our current sources of liquidity are sufficient to meet our short- and long-term cash demands.
UNDERWRITTEN IPO-OnJuly 19, 2021 , we closed our underwritten IPO, through which we issued 19.6 million shares, including the underwriters' overallotment election, of our common stock,$0.01 par value per share, at an initial price to the public of$28.00 per share. The underwritten IPO, including the underwriters' overallotment election, resulted in gross proceeds of$547.4 million . See "Overview" above for more details.PHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 42
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DEBT-The following table summarizes information about our debt as of
2021 2020
Total debt obligations, gross $ 1,914,082 $ 2,307,686
Weighted-average interest rate 3.3 % 3.1 % Weighted-average term (in years) 5.2
4.1
Revolving credit facility capacity(1)
490,404
(1)In
(2)Net of any outstanding balance and letters of credit.
Bond Registration-OnSeptember 20, 2021 , theSEC declared effective our Bond Registration. We intend to use net proceeds from any sale of offered securities to repay outstanding indebtedness and for general corporate purposes, including funding future investment activity. Debt Activity-During the years endedDecember 31, 2021 and 2020, we took steps to reduce our leverage and appropriately ladder our debt maturities. Our debt activity during the year endedDecember 31, 2021 was as follows: •InJuly 2021 , we completed the Refinancing. In connection with the Refinancing, we paid off a$472.5 million term loan due inNovember 2025 . The revolving credit facility will mature inJanuary 2026 , and the two senior unsecured term loan tranches will mature inNovember 2025 andJuly 2026 , respectively. Additionally, we used proceeds from the underwritten IPO to retire a$375.0 million term loan that was set to mature inApril 2022 .
•In
•InOctober 2021 , we settled the 2021 Bond Offering priced at 98.692% of the principal amount and maturing inNovember 2031 . The 2021 Bond Offering resulted in gross proceeds of$345.4 million . InOctober 2021 , net proceeds from the bond settlement were used, in part, to pay down the remaining$150 million balance of the term loan that was set to mature inNovember 2023 . The notes are fully and unconditionally guaranteed by us.
•During 2021, we executed early repayments of
Our debt activity during the year ended
•In
•In
•InJune 2020 , we fully repaid the outstanding balance on our revolving credit facility as our rent and recovery collections during the second quarter, combined with our COVID-19 expense reduction initiatives, sufficiently funded our operating needs and provided enough stability to allow for this repayment. Further, we did not borrow on our revolving credit facility during the remainder of 2020.
•In the fourth quarter, we executed early repayments of
Future Debt Obligations-As ofDecember 31, 2021 , including the impact of our swap agreements, our future contractual debt obligations were$123.5 million of debt principal and interest payments during 2022, and$2.1 billion of debt principal and interest payments thereafter (see Note 8). Covenants-Credit agreements for our unsecured revolving credit facility and unsecured term loans contain customary financial covenants, including a leverage ratio of 60% or less, with a surge to 65% or less following a material acquisition, and require the fixed-charge ratio to be 1.5:1 or greater. Our unsecured senior notes due 2031 are also subject to customary financial covenants, including a leverage ratio of 65% or less, and require the fixed-charge ratio to be 150% or greater. As ofDecember 31, 2021 , we were in compliance with the restrictive covenants of our outstanding debt obligations and we expect to continue to meet the requirements of these covenants over the next twelve months. OTHER CONTRACTUAL COMMITMENTS AND CONTINGENCIES AND OFF BALANCE SHEET ARRANGEMENTS-We enter into leases as a lessee as part of our real estate operations in the form of ground leases of land for certain properties, and as part of our corporate operations in the form of office space and office equipment leases. Currently, neither our operating leases nor our finance leases have residual value guarantees or other restrictions or covenants. We expect to fund these obligations through existing financing or cash flows from operations. As ofDecember 31, 2021 , our future contractual obligations as a lessee included operating lease obligations of$0.8 million during 2022, and$7.5 million thereafter. As ofDecember 31, 2021 , our future contractual finance lease obligations included$0.2 million during 2022, and$0.6 million thereafter. We have an off-balance sheet arrangement that includes being the limited guarantor for up to$190 million , capped at$50 million in most instances, of debt for our NRP joint venture. Additionally, we are the limited guarantor of a$175 million mortgage loan secured byGrocery Retail Partners I LLC ("GRP I") properties. Our guaranty for both the NRP and GRP I debt is limited to being the non-recourse carveout guarantor and the environmental indemnitor. Further, in both cases, we are also party to an agreement with our institutional joint venture partners in which any potential liability under such guarantees will be apportioned between us and our applicable joint venture partner based on our respective ownership percentages in the applicable joint venture. As ofDecember 31, 2021 , NRP and GRP I had outstanding debt balances of$15.3 million and$174.0 million , respectively.PHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 43
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Additionally, our off-balance sheet arrangements include the notional amount of our interest rate swaps which we use to hedge a portion of our exposure to interest rate fluctuations. Currently, all of our interest rate swaps fix the variable rate interest on our term loan debt. We intend to fund our interest rate swap payments utilizing cash flows from operations. As ofDecember 31, 2021 , the notional amount of our interest rate swaps was$0.9 billion . As ofDecember 31, 2021 , our future interest rate swap obligations are$17.8 million during 2022 and$32.6 million thereafter. FINANCIAL LEVERAGE RATIOS-We believe our net debt to Adjusted EBITDAre, net debt to total enterprise value, and debt covenant compliance as ofDecember 31, 2021 allow us access to future borrowings as needed in the near term. The following table presents our calculation of net debt and total enterprise value, inclusive of our prorated portion of net debt and cash and cash equivalents owned through our unconsolidated joint ventures, as ofDecember 31, 2021 and 2020 (in thousands): 2021 2020
Net debt: Total debt, excluding discounts, market adjustments, and deferred
financing expenses$ 1,941,504 $ 2,345,620 Less: Cash and cash equivalents 93,109 104,952 Total net debt$ 1,848,395 $ 2,240,668 Enterprise value: Net debt$ 1,848,395 $ 2,240,668 Total equity market capitalization(1) 4,182,996 2,797,234 Total enterprise value $
6,031,391
(1)As ofDecember 31, 2021 , total equity market capitalization was calculated as the 126.6 million diluted shares multiplied by the closing market price per share of$33.04 . As ofDecember 31, 2020 , prior to the underwritten IPO, total equity value was calculated as 106.6 million diluted shares multiplied by the EVPS of$26.25 . Fully diluted shares include Class B common stock, common stock, and OP units. The following table presents our calculation of net debt to Adjusted EBITDAre and net debt to total enterprise value as ofDecember 31, 2021 and 2020 (dollars in thousands): 2021 2020 Net debt to Adjusted EBITDAre - annualized: Net debt$ 1,848,395 $
2,240,668
Adjusted EBITDAre - annualized(1) 329,419
308,000
Net debt to Adjusted EBITDAre - annualized 5.6x
7.3x
Net debt to total enterprise value: Net debt$ 1,848,395 $
2,240,668
Total enterprise value 6,031,391
5,037,902
Net debt to total enterprise value 30.6%
44.5%
(1)Adjusted EBITDAre is based on a trailing twelve months. See "Non-GAAP Measures - EBITDAre and Adjusted EBITDAre" above for a reconciliation to Net Income (Loss).
CAPITAL EXPENDITURES AND REDEVELOPMENT ACTIVITY-We make capital expenditures during the course of normal operations, including maintenance capital expenditures and tenant improvements, as well as value-enhancing anchor space repositioning and redevelopment, ground-up outparcel development, and other accretive projects. During the years endedDecember 31, 2021 and 2020, we had capital spend of$75.0 million and$64.0 million , respectively. Below is a summary of our capital spending activity, excluding leasing commissions, on a cash basis for the years endedDecember 31, 2021 and 2020 (in thousands): 2021 2020(1) Capital expenditures for real estate: Capital improvements$ 15,862 $ 13,443 Tenant improvements 23,485 14,304 Redevelopment and development 31,579 30,521
Total capital expenditures for real estate 70,926 58,268 Corporate asset capital expenditures
2,194 3,972
Capitalized indirect costs(2) 1,915 1,725
Total capital spending activity $ 75,035 $ 63,965
(1)Certain prior period amounts have been reclassified to conform with current
year presentation.
PHILLIPS EDISON & COMPANY
DECEMBER 31, 2021 FORM 10-K 44
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(2)Amount includes internal salaries and related benefits of personnel who work directly on capital projects as well as capitalized interest expense.
We expect our capital expenditures to reach$95 million -$105 million in 2022, which includes$45 million -$55 million related to development and redevelopment projects. We anticipate that obligations related to capital improvements in 2022 can be met with cash flows from operations, cash flows from dispositions, or borrowings on our unsecured revolving credit facility. Generally, we expect our development and redevelopment projects to stabilize within 24 months. Our underwritten incremental unlevered yields on development and redevelopment projects are expected to average between 10%-12%. Our current in process projects represent an estimated total investment of$45.4 million . Actual incremental unlevered yields may vary from our underwritten incremental unlevered yield range based on the actual total cost to complete a project and its actual incremental annual NOI at stabilization. See "Key Performance Indicators and Defined Terms" above for further information. ACQUISITION ACTIVITY-We continually monitor the commercial real estate market for properties that have future growth potential, are located in attractive demographic markets, and support our business objectives. The following table highlights our property acquisitions during the years endedDecember 31, 2021 and 2020 (dollars in thousands): 2021 2020 Number of properties acquired 9 2 Number of outparcels acquired(1) 5 2
Total price of acquisitions
(1)Outparcels acquired are adjacent to shopping centers that we own.
Subsequent to
DISPOSITION ACTIVITY-We are actively evaluating our portfolio of assets for opportunities to make strategic dispositions of assets that no longer meet our growth and investment objectives or assets that have stabilized in order to capture their value. The following table highlights our property dispositions during the years endedDecember 31, 2021 and 2020 (dollars in thousands): 2021 2020 Number of properties sold(1) 24 7 Number of outparcels sold(2)(3) 4 1
Proceeds from sale of real estate, net
34,309 10,117
(1)We retained one outparcel related to property sales during each of the years
ended
(2)During the year endedDecember 31, 2021 , one of our outparcel sales included the only remaining portion of a property we previously owned; therefore, the sale resulted in a reduction in our total property count. (3)In addition to the four outparcels sold during the year endedDecember 31, 2021 , a tenant at one of our properties exercised a bargain purchase option to acquire a parcel of land that we previously owned. This generated minimal proceeds for us. (4)The gain on sale of property, net does not include miscellaneous write-off activity, which is also recorded in Gain on Disposal of Property, Net on the consolidated statements of operations and comprehensive income (loss).
Subsequent to
PHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 45
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DISTRIBUTIONS-The following table details distributions to our common
stockholders and OP unit holders on a cash basis during the years ended
Period(1) Date of Record Monthly Distribution Rate Annual Distribution Rate Date Distribution Paid
2021:
December 2020 12/31/2020 $0.085 $1.02 1/12/2021
January 2021 1/15/2021 $0.085 $1.02 2/1/2021
February 2021 2/15/2021 $0.085 $1.02 3/1/2021
March 2021 3/19/2021 $0.085 $1.02 4/1/2021
April 2021 4/19/2021 $0.085 $1.02 5/3/2021
May 2021 5/17/2021 $0.085 $1.02 6/1/2021
June 2021 6/15/2021 $0.085 $1.02 7/1/2021
July 2021 7/15/2021 $0.085 $1.02 8/2/2021
August 2021 8/16/2021 $0.085 $1.02 9/1/2021
September 2021 9/15/2021 $0.085 $1.02 10/1/2021
October 2021 10/15/2021 $0.09 $1.08 11/1/2021
November 2021 11/15/2021 $0.09 $1.08 12/1/2021
December 2021 12/15/2021 $0.09 $1.08 1/3/2022
2020:
December 2019 12/16/2019 $0.168 $2.02 1/2/2020
January 2020 1/15/2020 $0.168 $2.02 2/3/2020
February 2020 2/17/2020 $0.168 $2.02 3/2/2020
March 2020 3/16/2020 $0.168 $2.02 4/1/2020
(1)Due to the uncertainty of the COVID-19 pandemic, our Board suspended
stockholder distributions effective after the payment of the
TheJanuary 2022 distributions of$0.09 per share were paid onFebruary 1, 2022 . OnFebruary 9, 2022 , our Board authorized 2022 distributions for February, March, and April of$0.09 per share to the stockholders of record at the close of business onFebruary 15, 2022 ,March 15, 2022 , andApril 15, 2022 , respectively. OP unit holders will receive distributions at the same rate as common stockholders. The timing and amount of distributions is determined by our Board and is influenced in part by our intention to comply with REIT requirements of the IRC. To maintain our qualification as a REIT, we must make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain, and which does not necessarily equal net income or loss as calculated in accordance with GAAP). We generally will not be subject toU.S. federal income tax on the income that we distribute to our stockholders each year due to meeting the REIT qualification requirements. However, we may be subject to certain state and local taxes on our income, property, or net worth and to federal income and excise taxes on our undistributed income.
We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.
DRIP AND THE SRP-On
CASH FLOW ACTIVITIES-As of
Below is a summary of our cash flow activity for the years ended
2021 2020 $ Change % Change
Net cash provided by operating activities $ 262,902 $ 210,576 $ 52,326 24.8 %
Net cash used in investing activities (180,491) (44,092) (136,399) NM
Net cash used in financing activities (98,819) (129,655)
30,836 23.8 %
OPERATING ACTIVITIES-Our net cash provided by operating activities was primarily impacted by the following:
•Property operations and working capital-Most of our operating cash comes from rental and tenant recovery income and is offset by property operating expenses, real estate taxes, and general and administrative costs. The increase in property operations was primarily due to a$26.4 million , or 8.2%, improvement in same-center NOI asPHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 46
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compared to 2020. During the year endedDecember 31, 2021 , we had a net cash inflow of$4.0 million from changes in working capital as compared to a net cash outlay of$15.9 million during the same period in 2020. This change was primarily driven by improved collections on amounts due from Neighbors as well as expense reduction initiatives, and was partially offset by higher leasing commissions and prepaid expenses. •Fee and management income-We also generate operating cash from our third-party investment management business, pursuant to various management and advisory agreements between us and the Managed Funds. Our fee and management income was$10.3 million for the year endedDecember 31, 2021 , an increase of$0.5 million as compared to the same period in 2020. •Cash paid for interest-During the year endedDecember 31, 2021 , we paid$68.1 million for interest, a decrease of$10.4 million over the same period in 2020, largely due to: (i) lower debt balances outstanding as a result of early repayments of debt; (ii) minimal borrowings on our revolving credit facility in 2021 as compared to 2020; and (iii) lower average interest rates during 2021 primarily due to the Refinancing.
INVESTING ACTIVITIES-Our net cash used in investing activities was primarily impacted by the following:
•Real estate acquisitions-During the year ended
•Real estate dispositions-During the year ended
•Capital expenditures-We invest capital into leasing our properties and maintaining or improving the condition of our properties. During the year endedDecember 31, 2021 , we paid$75.0 million for capital expenditures, an increase of$11.1 million over the same period in 2020, primarily due to an increase in tenant improvements owing largely to an increase in leasing volume as compared to the same period a year ago. •Return of investment in unconsolidated joint ventures-During the year endedDecember 31, 2021 , we had a return of investment in unconsolidated joint ventures of$5.0 million , including$2.4 million in connection with NRP primarily as a result of property dispositions. During the year endedDecember 31, 2020 , we had a return of investment in unconsolidated joint ventures of$3.5 million . •Investment in marketable securities-During the the year endedDecember 31, 2021 , we made an investment in marketable securities resulting in a net cash outflow of$5.5 million . •Investment in third parties-During the year endedDecember 31, 2021 , we made an investment into a third party company that resulted in a net cash outflow of$3.0 million .
FINANCING ACTIVITIES-Our net cash used in financing activities was primarily impacted by the following:
•Underwritten IPO-Upon consummation of our underwritten IPO inJuly 2021 , including the over-allotment option exercised in full by the underwriters, we had gross proceeds from the issuance of common stock of$547.4 million , offset by a cash outflow of$39.0 million for offering costs, discounts, and commissions during the year endedDecember 31, 2021 . We did not issue any shares of common stock during the year endedDecember 31, 2020 , other than in connection with redemptions of OP units as set forth in our consolidated balance sheets under Noncontrolling Interests (see Note 12). •Debt borrowings and payments-During the year endedDecember 31, 2021 , we had$402.3 million in net repayment of debt as compared to$64.8 million in net repayment of debt during the same period a year ago. See "Debt Activity" above for more details. •Distributions to stockholders and OP unit holders-Cash used for distributions to common stockholders and OP unit holders increased by$62.9 million during the year endedDecember 31, 2021 as compared to the same period in 2020, due to the suspension of our distributions fromApril 2020 throughNovember 2020 and an increase in common shares outstanding as a result of our underwritten IPO.
•Share repurchases-Cash outflows for share repurchases increased by
INFLATION Although inflation has been historically low and has had a minimal impact on the operating performance of our shopping centers, inflation has recently increased inthe United States . Changes in economic conditions and supply chain constraints have driven a rise in wages and increased costs for materials. Further, monetary policy and stimulus measures implemented by the federal government and theFederal Reserve could lead to higher inflation rates or lengthen the period of inflation, which may negatively impact our Neighbors, our operating costs, and our construction costs. Substantially all of our leases contain provisions designed to mitigate the adverse effect of inflation, including rent escalations and requirements for Neighbors to pay their allocable share of operating expenses, including common area maintenance, utilities, real estate taxes, insurance, and certain capital expenditures. Additionally, many of our leases are for terms of less than ten years, which allows us to target increased rents to current market rates upon renewal.PHILLIPS EDISON & COMPANY DECEMBER 31, 2021 FORM 10-K 47
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CRITICAL ACCOUNTING ESTIMATES
Below is a discussion of our critical accounting estimates. Our accounting policies have been established to conform with GAAP. We consider these policies critical because they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain, and are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets at the dates of the consolidated financial statements, as well as the reported amounts of revenue during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our consolidated financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. Because of the adverse economic conditions that have occurred as a result of the impacts of the COVID-19 pandemic and any remaining uncertainty related to the pandemic, it is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change or vary significantly from actual results. Please refer to Notes 2 and 16 for additional discussion on the potential impact that the COVID-19 pandemic could have on these significant accounting estimates. Real Estate Valuation-We assess the fair value of acquired real estate and allocate the purchase price of real estate assets and liabilities acquired based upon their estimated fair values as of the acquisition date. The allocation requires the use of market based estimates and assumptions including estimated market lease rates and comparable acquisitions, historical operating results, carrying costs during lease-up periods, discount and capitalization rates, market absorption periods, and the number of years the property will be held for investment. Quarterly, we review our owned real estate properties, including those classified as real estate held for sale, for evidence of impairment, which requires us, at times, to estimate the fair value of our real estate assets. Valuing our investment in real estate assets requires us to utilize a significant amount of judgment in the inputs that we select for impairment testing and other analyses. We select these inputs based on all available evidence and using techniques that are commonly employed by other real estate companies. Examples of these inputs include projected revenue and expense growth rates, estimates of future cash flows, anticipated holding periods, capitalization rates, general economic conditions and trends, and other available market data.
We believe that our real estate valuation estimates are based on reasonable assumptions. However, the use of inappropriate estimates could result in an incorrect valuation of our real estate properties, at acquisition or during our ownership period, which could result in material impairment losses in the future.
Rental Income-The majority of our revenue is lease revenue derived from our real
estate assets, for which we are the lessor. Lease receivables are reviewed
continually to determine whether or not it is probable that we will realize
substantially all remaining lease payments for each of our Neighbors (i.e.,
whether a Neighbor is deemed to be a credit risk). If we determine it is not
probable that we will collect substantially all of the remaining lease payments
from a Neighbor, revenue for that Neighbor is recorded on a cash basis
("cash-basis Neighbor"), including no longer recognizing straight-line rent
receivables and/or receivables for recoverable expenses. We will resume
recording lease income on an accrual basis for cash-basis Neighbors once we
believe the collection of rent for the remaining lease term is probable, which
will generally be after a period of regular payments and no remaining unpaid
rent for a certain timeframe.
Additionally, we record a general reserve based on our review of operating lease
receivables at a company level to ensure they are properly valued based on
analysis of historical uncollectible tenant receivables, outstanding balances,
and the current economic climate.
The aforementioned adjustments, as well as any reserve for disputed charges, are recorded as a reduction of Rental Income on the consolidated statements of operations and comprehensive income (loss).
Our revenue collectibility estimates are made based on historical experience, the current economic climate, and other Neighbor-specific factors. While we do not believe there is a reasonable likelihood of a material change in the estimates or assumptions that we use to recognize revenue, if actual payment levels were to vary significantly from estimates, we may be exposed to decreases in rental income that could be material or increases of non-cash straight-line income when a cash-basis Neighbor moves back to accrual accounting in accordance with GAAP.
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