Q1 2017 Results Presentation
InvestorRelations@PhillipsEdison.com
www.grocerycenterREIT2.com
DST: (888) 518-8073
Griffin Capital Securities: (866) 788-8614
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Agenda
R. Mark Addy - President and COO
• Portfolio & Results
• Financials
• Estimated value per share update
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Forward-Looking
Statement Disclosure
This presentation and the corresponding call may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These statements include, but are not limited to, statements related to the Company’s
expectations regarding the performance of its business, its financial results, its liquidity and capital
resources, the quality of the Company’s portfolio of grocery anchored shopping centers and other non-
historical statements. You can identify these forward-looking statements by the use of words such as
“outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,”
“projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or the negative version of these words
or other comparable words. Such forward-looking statements are subject to various risks and
uncertainties, such as the risks that retail conditions may adversely affect our base rent and,
subsequently, our income, and that our properties consist primarily of retail properties and our
performance, therefore, is linked to the market for retail space generally, as well as other risks described
under the section entitled “Risk Factors” in the Company's Annual Report on Form 10-K for the year
ended December 31, 2016, as such factors may be updated from time to time in the Company’s
periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Accordingly,
there are or will be important factors that could cause actual outcomes or results to differ materially
from those indicated in these statements. These factors should not be construed as exhaustive and
should be read in conjunction with the other cautionary statements that are included in this
presentation, the corresponding call, and in the Company’s filings with the SEC. The Company
undertakes no obligation to publicly update or revise any forward-looking statement, whether as a
result of new information, future events, or otherwise.
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Q1 2017 Portfolio Highlights
• 78 total properties
• 22 leading grocery anchors
• 24 states
• 9.6 million square feet
• 94.5% leased occupancy
• 78.2% of rents from grocery,
national and regional tenants
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Grocer % of ABR # ofLocations
Publix 5.8% 15
Ahold Delhaize 5.7% 6
Albertsons-Safeway 5.2% 10
Walmart 4.8% 6
Kroger 4.3% 11
Top 5 Grocers by % of Annualized Base Rent
Annualized Base Rent by Tenant Type Annualized Base Rent by Tenant Industry
We calculate annualized base rent as monthly contractual rent as of March 31, 2017, multiplied by 12 months.
Grocery
38.4%
National and
Regional
39.8%
Local
21.8%
Grocery
38.4%
Retail
Stores
24.1%
Services
22.8%
Restaurant
14.7%
Q1 2017 Portfolio Highlights
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Name Location Grocer GLA
Windmill Marketplace Clovis, CA Save Mart 27,486
Herndon Place Fresno, CA Save Mart 95,370
Plaza 23 Pompton Plains, NJ Stop & Shop 161,035
Bells Fork Shopping Center Greenville, NC Harris Teeter 71,666
Windmill Marketplace Herndon Place Plaza 23 Bells Fork
Shopping Center
Q1 2017 Acquisition Highlights
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For the Quarter Ended March 31,
(in 000s) 2017 2016 $ Change % Change
Net (Loss) Income $ (87) $ 1,351 $ (1,438) (106.4)%
Funds from Operations (FFO) 17,360 10,299 7,061 68.6 %
Modified Funds from Operations (MFFO) 15,507 11,745 3,762 32.0 %
Q1 2017 Financials
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For the Quarter Ended March 31,
(in 000s) 2017 2016 $ Change % Change
Revenues:
Rental income(2) $ 17,585 $ 17,193 $ 392
Tenant recovery income 6,878 6,596 282
Other property income 75 85 (10)
Total revenues 24,538 23,874 664 2.8%
Operating expenses:
Property operating expenses 4,430 4,364 66
Real estate taxes 3,958 4,011 (53)
Total operating expenses 8,388 8,375 13 0.2%
Total Same-Center NOI $ 16,150 $ 15,499 $ 651 4.2%
(1) Represents 51 properties that we owned and operated prior to January 1, 2016
(2) Excludes straight-line rental income, net amortization of above- and below-market leases, and lease buyout income
Q1 2017 Same-Center(1)
Net Operating Income (NOI)
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• Debt to Total Enterprise Value: 37.3%*
• Weighted-Average Interest Rate: 2.9%
• Weighted-Average Years to Maturity: 2.8
• Fixed-Rate Debt: 78.6%
• Variable-Rate Debt: 21.4%
*Calculated as net debt (total debt, excluding below-market debt adjustments and deferred financing costs, less cash and cash equivalents)
as a percentage of enterprise value (equity value, calculated as total common shares and OP units outstanding multiplied by the estimated
value per share of $22.75, plus net debt).
Q1 2017 Debt Profile
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• Duff & Phelps, a third-party valuation firm, produced an estimated
value per share in the range of $21.84 to $24.43 as of March 31, 2017
• The Board of Directors increased the estimated value per share to
$22.75*
◦ Above the March 31, 2016 price of $22.50 per share
◦ Represents an improving portfolio
◦ Real Estate value increasing in a time of volatility for publicly
traded REITs
*As of March 31, 2017. Please note that the estimated value per share is not intended to represent an enterprise or liquidation value of our company. It is important to
remember that the estimated value per share may not reflect the amount you would obtain if you were to sell your shares or if we liquidated our assets. Further, the
estimated value per share is as of a moment in time, and the value of our shares and assets may change over time as a result of several factors including, but not limited to,
future acquisitions or dispositions, other developments related to individual assets, and changes in the real estate and capital markets, and we do not undertake to update
the estimated value per share to account for any such events. You should not rely on the estimated value per share as being an accurate measure of the then-current value
of your shares in making a decision to buy or sell your shares, including whether to participate in our dividend reinvestment plan or our Share Repurchase Program (SRP).
For a description of the methodology and assumptions used to determine the estimated value per share, see our Quarterly Report on Form 10-Q filed with the U.S.
Securities and Exchange Commission on May 11, 2017.
Company Update
For More Information:
Thank You
InvestorRelations@PhillipsEdison.com
www.grocerycenterREIT2.com
DST: (888) 518-8073
Griffin Capital Securities: (866) 788-8614
Appendix
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We present Same-Center Net Operating Income (“Same-Center NOI”) as a supplemental measure of our performance. We define Net Operating Income (“NOI”) as total
operating revenues less property operating expenses, real estate taxes, and non-cash revenue items. Same-Center NOI represents the NOI for the 51 properties that were
operational for the entire portion of both comparable reporting periods and that were not acquired during or subsequent to the comparable reporting periods. We believe
that NOI and Same-Center NOI provide useful information to our investors about our financial and operating performance because each 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. Because
Same-Center NOI excludes the change in NOI from properties acquired after December 31, 2015, 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 since it does not reflect the operations of our entire portfolio, nor does it
reflect the impact of general and administrative expenses, acquisition expenses, interest expense, depreciation and amortization, other income, 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 is a comparison of the Same-Center NOI for the three months ended March 31, 2017, to the same period ended March 31, 2016 (in thousands):
(in 000s) 2017 2016 $ Change % Change
Revenues:
Rental income(1) $ 17,585 $ 17,193 $ 392
Tenant recovery income 6,878 6,596 282
Other property income 75 85 (10) )
Total revenues 24,538 23,874 664 2.8%
Operating expenses:
Property operating expenses 4,430 4,364 66
Real estate taxes 3,958 4,011 (53)
Total operating expenses 8,388 8,375 13 0.2%
Total Same-Center NOI $ 16,150 $ 15,499 $ 651 4.2%
(1)Excludes straight-line rental income, the net amortization of above- and below-market leases, and lease buyout income
Reconciliation of Non-GAAP
Financials
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2017 2016
Net (loss) income $ (87) $ 1,351
Adjusted to exclude:
Straight-line rental income (836) (809)
Net amortization of above- and below-market leases (607) (412)
Lease buyout income (125) —
General and administrative expenses 4,613 4,040
Acquisition expenses — 2,772
Depreciation and amortization 17,022 12,289
Interest expense, net 4,474 1,452
Other 60 126
Gain on contribution of properties to unconsolidated joint venture — (3,341)
NOI 24,514 17,468
Less: NOI from centers excluded from Same-Center (8,364) (1,969)
Total Same-Center NOI $ 16,150 $ 15,499
Below is a reconciliation of net loss to NOI and Same-Center NOI for the years ended March 31, 2017 and 2016
(in thousands):
Reconciliation of Non-GAAP
Financials
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Funds from Operations and Modified Funds from Operations
Funds from operations (“FFO”) is a non-GAAP performance financial measure that is widely recognized as a measure of REIT operating performance. We use FFO as
defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be net income (loss), computed in accordance with GAAP excluding extraordinary
items, as defined by GAAP, and gains (or losses) from sales of depreciable real estate property (including deemed sales and settlements of pre-existing relationships),
plus depreciation and amortization on real estate assets and impairment charges, and after related adjustments for unconsolidated partnerships, joint ventures and
noncontrolling interests. We believe that FFO is helpful to our investors and our management as a measure of operating performance because it, when compared year
to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and
interest costs, which are not immediately apparent from net income.
Since the definition of FFO was promulgated by NAREIT, GAAP has expanded to include several new accounting pronouncements, such that management and many
investors and analysts have considered the presentation of FFO alone to be insufficient. Accordingly, in addition to FFO, we use modified funds from operations
(“MFFO”), which excludes from FFO the following items:
acquisition expenses;
straight-line rent amounts, both income and expense;
amortization of above- or below-market intangible lease assets and liabilities;
amortization of discounts and premiums on debt investments;
gains or losses from the early extinguishment of debt;
gains or losses on the extinguishment of derivatives, except where the trading of such instruments is a fundamental attribute of our operations;
gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting;
gains or losses related to consolidation from, or deconsolidation to, equity accounting;
adjustments related to the above items for unconsolidated entities in the application of equity accounting.
We believe that MFFO is helpful in assisting management and investors with the assessment of the sustainability of operating performance in future periods and, in
particular, after our acquisition stage is complete, because MFFO excludes acquisition expenses that affect operations only in the period in which the property is
acquired. Thus, MFFO provides helpful information relevant to evaluating our operating performance in periods in which there is no acquisition activity.
Reconciliation of Non-GAAP
Financials
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Many of the adjustments in arriving at MFFO are not applicable to us. Nevertheless, as explained below, management’s evaluation of our operating performance may
also exclude items considered in the calculation of MFFO based on the following economic considerations.
Adjustments for straight-line rents and amortization of discounts and premiums on debt investments-GAAP requires rental receipts and discounts and premiums on
debt investments to be recognized using various systematic methodologies. This may result in income recognition that could be significantly different than
underlying contract terms. By adjusting for these items, MFFO provides useful supplemental information on the realized economic impact of lease terms and
debt investments and aligns results with management’s analysis of operating performance. The adjustment to MFFO for straight-line rents, in particular, is made
to reflect rent and lease payments from a GAAP accrual basis to a cash basis.
Adjustments for amortization of above- or below-market intangible lease assets-Similar to depreciation and amortization of other real estate-related assets that are
excluded from FFO, GAAP implicitly assumes that the value of intangibles diminishes ratably over the lease term and should be recognized in revenue. Since
real estate values and market lease rates in the aggregate have historically risen or fallen with market conditions, and the intangible value is not adjusted to
reflect these changes, management believes that by excluding these charges, MFFO provides useful supplemental information on the performance of the real
estate.
Gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting-This item relates to a fair value adjustment, which is based on the
impact of current market fluctuations and underlying assessments of general market conditions and specific performance of the holding, which may not be
directly attributable to current operating performance. As these gains or losses relate to underlying long-term assets and liabilities, management believes
MFFO provides useful supplemental information by focusing on the changes in core operating fundamentals rather than changes that may reflect anticipated,
but unknown, gains or losses.
Adjustment for gains or losses related to early extinguishment of derivatives and debt instruments-Similar to extraordinary items excluded from FFO, these
adjustments are not related to continuing operations. By excluding these items, management believes that MFFO provides supplemental information related to
sustainable operations that will be more comparable between other reporting periods and to other real estate operators.
Neither FFO nor MFFO should be considered as an alternative to net income (loss) or income (loss) from continuing operations under GAAP, nor as an indication of
our liquidity, nor is either of these measures indicative of funds available to fund our cash needs, including our ability to fund distributions. MFFO 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 and MFFO should be reviewed in connection with other GAAP measurements. FFO and MFFO should not be viewed as more prominent measures
of performance than our net income or cash flows from operations prepared in accordance with GAAP. Our FFO and MFFO as presented may not be comparable to
amounts calculated by other REITs. The following section presents our calculation of FFO and MFFO and provides additional information related to our operations.
Reconciliation of Non-GAAP
Financials
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Q1 Ended March 31,
(in thousands, except per share amounts) 2017 2016
Calculation of FFO
Net (loss) income $ (87) $ 1,351
Adjustments:
Depreciation and amortization of real estate assets 17,022 12,289
Gain on contribution of properties to unconsolidated JV — (3,341)
Depreciation and amortization related to unconsolidated JV 425 —
FFO $ 17,360 $ 10,299
Calculation of MFFO
FFO $ 17,360 $ 10,299
Adjustments:
Acquisition expenses — 2,772
Net amortization of above- and below-market leases (607) (412)
Straight-line rental income (836) (809)
Amortization of market debt adjustment (281) (110)
Change in fair value of derivatives (116) 5
Gain on extinguishment of debt (11) —
Adjustments related to unconsolidated joint venture (2) —
MFFO $ 15,507 $ 11,745
Weighted-average common shares outstanding - basic and diluted 46,512 46,024
Net (loss) income per share - basic and diluted $ (0.00) $ 0.03
FFO per share - basic and diluted $ 0.37 $ 0.22
MFFO per share - basic and diluted $ 0.33 $ 0.26
Reconciliation of Non-GAAP
Financials