Phillips Edison & Co Inc

NASDAQ:PECO

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, and welcome to the Phillips Edison & Company's Fourth Quarter and Full Year 2018 Earnings Call. My name is Rocco, and I will be your conference operator today. [Operator Instructions]

Before we begin today's call, I would like to remind listeners that this live conference call is being recorded and simultaneously broadcast via webcast. The webcast and a copy of this slide presentation can both be accessed via the Investors section of the Phillips Edison website at www.phillipsedison.com under the Events and Presentations tab. A webcast replay will be available starting later this afternoon and will also be on the Investors section of the Phillips Edison website at www.phillipsedison.com under the Events and Presentations tab.

I would now like to turn the call over to Michael Koehler with Phillips Edison & Company. Sir, please proceed.

[Michael Koehler, executive]

Thank you, operator. Good morning, everyone, and thank you for joining us today. I'm Michael Koehler, the Director of Investor Relations with Phillips Edison & Company. Joining me on today's call is our Chairman and Chief Executive Officer, Jeff Edison; and our Chief Financial Officer, Devin Murphy.

During today's presentation, Jeff will touch on our highlights for the quarter and provide an update on our portfolio. Devin will then go through our financials for the fourth quarter and full year, discuss our balance sheet and then speak to our share repurchase program. Lastly, Jeff will return to talk about some of our key initiatives for 2019. Upon the conclusion of our prepared remarks, we will address your questions. [Operator Instructions]

Before we begin, I'd like to remind our audience that statements made during our prepared remarks and the question-and-answer session may be forward-looking statements, which are subject to various risks and uncertainties. Please refer to Slide 3 for additional disclosure and direction on where you can find more information regarding potential risks.

In addition, we also refer to non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results is available in our earnings release issued yesterday, March 12, 2019, as well as in the slide presentation for this webinar, which is available on our website.

I would now like to turn the call over to Jeff Edison, our Chief Executive Officer. Jeff?

[Jeffrey Edison, executive]

Thank you, Michael. Good morning, everyone. If you'd please refer to Slide 4, which outlines our highlights for the quarter and the full year ended December 31, 2018. We had a transformative and exciting fourth quarter. First, we completed the $1.9 billion merger with Phillips Edison Grocery Center REIT II, where we added 86 grocery-anchored shopping centers totaling approximately 10.3 million square feet to our portfolio. And secondly, we entered into a new joint venture with one of the nation's most respected commercial real estate investors, Northwestern Mutual Life Insurance, with a total value of approximately $359 million. Both of these events were very meaningful achievements for the company, and I'll provide more commentary on them in a few moments.

Also during the quarter, we reached a historic milestone, surpassing $1 billion of cumulative distributions made to our stockholders since our first distribution in January 2011. We view this as a testament to creating stockholders value and a confirmation of the stability of the cash flows provided by our well-located grocery-anchored shopping centers.

Accordingly, financials, on which Devin will provide more details in a moment, were also very strong as illustrated by FFO of $39.2 million, which represented 102.4% coverage of total distributions made during the quarter. Our full year financial highlights included FFO of $156.2 million, which represented 101.8% coverage of our total distributions made during the year.

Slide 5 provides more detail on our strategic merger with REIT II, which provides a number of meaningful benefits to the combined company. First, the merger maintains our exclusive focus on owning and operating high-quality shopping centers, anchored by leading grocers. Second, it increases the size, scale and market prominence of our combined portfolio.

Third, the merger improves the overall demographics of our portfolio and the quality of our earnings. Post transaction, a higher percentage of our earnings will be derived from our wholly owned real estate as opposed to fees. The merger between -- better positions the combined company for a liquidity event as our business model has been simplified. And fifth, importantly, no internalization or disposition fees were paid. Any advisory fees paid by REIT II were terminated.

At the close of the merger, former REIT II stockholders owned approximately 29% of the combined company and PECO stockholders owned approximately 71%. Importantly, management as a group is the combined company's largest stockholders, owning 7.3% or $262 million worth of our company. This meaningful investment by management highly aligns us with our stockholders' interest. We believe these are all positive steps towards a full cycle liquidity event for both PECO and REIT II stockholders, which remains a priority for our board and our management team.

Now turning to Slide 6. During the quarter, we entered into a joint venture with Northwestern Mutual, one of the largest and most experienced commercial real estate investors in the country. Northwestern Mutual acquired an 85% interest in 17 of our grocery-anchored shopping centers valued at $359 million. We maintain a 15% interest in the properties and we'll continue providing asset management and property management services. As a result, we expect the joint venture to generate approximately $4 million of fee income paid to us on an annual basis for our investment management business.

Proceeds generated from this joint venture transaction will largely be used to delever our balance sheet, fund redevelopment projects and invest in properties with additional growth opportunities.

Additionally, our sponsored and managed nontraded REIT, Phillips Edison Grocery Center REIT III, entered into a similar joint venture where Northwestern Mutual invested in 3 grocery-anchored shopping centers owned by PECO III. Under this agreement, Northwestern Mutual acquired a 90% interest in the properties, which have an aggregate value of $47 million. PECO III maintains a 10% ownership in the portfolio. Phillips Edison's investment management business will continue providing asset and property management services to these properties, from which we expect to generate approximately $700,000 of fee income on an annual basis.

The Northwestern Mutual joint ventures are a meaningful step in the growth of our third-party investment management business, and we are pleased to have Northwestern Mutual as our partner. Partnerships with these institutional investors like Northwestern Mutual and TPG Real Estate are a meaningful and positive affirmation of the PECO brand and the quality of our asset management platform.

Slide 7 provides more detail on our investment management business. In total, we provided asset management and real estate management services to 5 ventures that owned collectively 37 properties. These ventures total approximately $680 million of assets under management.

In addition to the 2 joint ventures with Northwestern Mutual, our investment management business manages our Necessity Retail Partners joint venture with TPG Real Estate in which we acquired a 20% stake when we merged with REIT II. This joint venture, which was originally formed in 2016, currently owns 13 properties and is focused on value-added investment opportunities. This fund's investment period ends in March of this year and disposed of 1 asset in 2018. This venture is expected to generate approximately $2.4 million of fee income for PECO in 2019.

Finally, we provided asset management services to 2 -- we provide asset management services to 2 properties owned by PECO III and 2 legacy properties owned by the Phillips Edison Limited Partnership. Our investment management business is important to us and represents a great opportunity for future growth. This business can generate income and cash flow for PECO shareholders without requiring a capital investment from PECO, which means we can grow this business without increasing our leverage.

Additionally, we can efficiently provide property management, asset management and tenant support services to our in-place national platform, which benefits our partners and improves our operating margins. Growing our investment management business and our third-party assets under management is one of our key initiatives for the future.

Now turning to Slide 8. As of December 31, 2018, our portfolio consisted of 303 wholly-owned properties, including 86 shopping centers acquired as a result of our merger with REIT II during the quarter. Our properties are anchored by 38 leading grocers, representing multiple banners and are located in 32 states totaling 34.4 million square feet of gross leasable area or GLA. This compares to 236 properties owned as of December 31, 2017, when we're located in 32 states with 34 leading grocers, totaling 26.3 million square feet of GLA.

As of December 31, 2018, our leased portfolio occupancy was 93.2% and our in-line occupancy was 84.9%. Of our total rent, 76.8% came from grocers and national and regional tenants, and the average remaining lease term for our portfolio was 4.9 years. Our annualized base rent or ABR per square foot was $11.99 for our whole portfolio, and our in-line ABR per square foot was $19.04.

Slide 9 shows a breakdown of our ABR by tenant type and tenant industry as well as our top 5 grocers by ABR. As we look at tenant type, 36.2% of total ABR came from our grocery anchors and 40.5% came from other national and regional tenants. We focus on these classifications because it gives us a sense of the credit quality and stability of our tenants.

Looking at our tenants industries, 70% of our ABR came from grocery, restaurants and service tenants such as hair salons, barbershops and nail salons, which we believe offer good services and experiences that are Internet-resistant and continued to drive recurring foot traffic to our centers. Our top 5 grocers by ABR represent a diverse mix of leading grocers, and our largest tenants, Kroger and Publix, contribute 6.7% and 5.5% of our ABR, respectively. Our portfolio enjoys excellent anchor diversification.

As we look at our leading grocers, we continue to see brick and mortar as the cornerstone of their future growth strategies. For example, Publix reported that its 2018 sales increased by 4.4% to $36.1 billion. They expect to invest $1.5 billion in the redevelopment of their stores and add another 100 store locations in the future.

Kroger also continues to invest in order to better service customers. For example, they recently announced a partnership with Microsoft to pilot a connected store experience, which Kroger believes will drive foot traffic and its potential to reinvent their customers' in-store experience. Additionally, we see Kroger continuing to invest in their omni-channel shopping experience, whether it's building a fulfillment center operated by robots, rolling out delivery services to new markets or expanding the number of locations that provide their click-and-collect offering.

Retailers in general, including our grocery anchors, are finding better results when they have both an online and a physical store presence for their customer. Publix and Kroger can gather with other leading grocers in our portfolio such as Albertsons/Safeway, Ahold Delhaize and Walmart know their customer well and are investing to meet the evolving needs of these customers.

With that, I would now like to turn the call over to our Chief Financial Officer, Devin Murphy, who will go over our results for the quarter and year-end December 31, 2018. Devin?

[Devin Murphy, executive]

Thanks, Jeff. Good morning, everyone. Our financial performance in 2018 was very strong. We had better performance on same-store NOI growth and FFO growth per share in any of the 9 public peers that we benchmark ourselves against. Same-center NOI -- I'm sorry. Please turn to Slide 10, which reviews our fourth quarter 2018 same-center NOI.

Same-center NOI compares the operating performance of properties that were owned and operational since January of 2017. For the purposes of evaluating same-center NOI on a comparative basis and in light of the PELP transaction and the merger with REIT II, we are presenting pro forma same-center NOI as if the PELP transaction and the REIT II merger had occurred on January 1, 2017. As such, our pro forma same-center NOI includes 280 properties that were owned and operational since January 1, 2017.

Fourth quarter 2018 pro forma same-center NOI growth totaled 0.6% when compared to the fourth quarter of 2017. The improvement in rent was driven by a $0.19 increase in our minimum rent per square foot. The 3.6% decrease in operating expense was driven by lower property management fees for the REIT II properties due to the merger with PECO and lower bad debt expense.

If you'll turn to Slide 11. For the full year 2018, we enjoyed pro forma same-center NOI growth of 3.7%, which was driven by a 2% increase in same-center revenues and a 1.5% decrease in operating expenses. The increase in revenues is the result of the aforementioned increase in minimum rent per square foot created by positive renewal spreads and new leasing spreads. The decrease in expenses was primarily the result of the synergies for our PECO and REIT II properties with lower management fees paid as a result of our acquisition of PELP.

Our 2018 same-center NOI growth of 3.7% compares favorably to an average same-center NOI growth of 2.5% for 2018 for the 9 publicly traded peers that we benchmark our performance against. A reconciliation of net income to pro forma same-center NOI is available on Slide 21.

Turning to Slide 12. Here, we outlined our financial results for the 3 months ended December 31, 2018. Net income totaled $79.2 million compared to a net loss of $33.3 million for the same period in 2017. This increase of $112.4 million is primarily the result of a $103.7 million in gains from the contribution and sale of properties primarily to the Northwestern Mutual joint venture during the quarter.

Partially offsetting these gains were impairment charges of $13.1 million recorded in connection with certain disposed properties or properties slated for future disposition and an increased depreciation and amortization expense as a result of owning additional properties versus the comparable period.

Further contributing to our net income for the quarter was $6.1 million of fee income generated by our investment management business for asset management and property management services rendered. For the quarter ended December 31, 2018, the company generated FFO of $39.2 million, which was an increase from $8.1 million in Q4 2017.

This increase was driven by a partial quarter of owning the REIT II properties and significant onetime expenses in 2017 related to the PELP transaction that we did not occur -- incur in 2018. The largest onetime expense recognized in 2017 was $24 million of noncash deferred asset management fees that were paid in the form of Class B units to PELP for services rendered from 2015 to 2017. These asset management fees ceased when PECO acquired PELP.

Total FFO represented 102.4% of total distributions made during the quarter. On a per diluted share basis, FFO increased to $0.14 per share from $0.04 per share. We generated MFFO of $43.9 million during the fourth quarter, which was a 12.7% increase from the $38.9 million for the same period in 2017.

This improvement is from owning the REIT II properties and solid operating performance at the property level, partially offset by the loss of income from the properties contributed to our Northwestern Mutual joint venture, GRP I. Total MFFO represented 114.7% of total distributions made during the quarter.

On a per diluted share basis, MFFO for the quarter totaled $0.16, down from $0.17 during the fourth quarter of 2017. This decline is primarily from lower leverage and lower fee income from REIT II as a result of the merger.

If you'll turn now to Slide 13. For the 12 months ended December 31, 2018, net income totaled $47.0 million compared to a net loss of $41.7 million for 2017. This increase of $88.7 million was primarily driven by $109.3 million of gains from the contribution and sale of properties, including those in the Northwestern Mutual joint venture, partially offset by $40.8 million of impairment charges.

For the 12 months ended December 31, 2018, FFO totaled $156.2 million compared to $84.2 million for 2017. The improvement in earnings was driven by the assets acquired, the synergies recognized from the PELP transaction and the completed merger with REIT II. Total FFO represented 101.8% of total distributions made during the year. For the year, FFO per diluted share increased to $0.65 from $0.43 during 2017.

For 2018, the company generated MFFO of $166.4 million, a 33% increase from the $125.2 million in 2017. The improvements in MFFO were a direct result of the acquisition of PELP, the merger with REIT II and our 3.7% same-center NOI growth. On a per diluted share basis, MFFO for 2018 increased 7.8% to $0.69, up from $0.64 during 2017, driven by the accretion from the acquisition of PELP and strong property growth.

If you'll turn now to Slide 14, we outlined the company's debt profile as of December 31, 2018. As illustrated, the company's debt to enterprise value was 40.6%. Our debt had a weighted average interest rate of 3.5%, a weighted average maturity of 4.9 years and approximately 90.1% of our debt was fixed rate. This compares to weighted average interest rate of 3.4%, a weighted average maturity of 5.5 years and an 88.5% fixed-rate debt percentage at December 31, 2017. As we look at our available capital at year-end, we had $426.6 million of borrowing capacity available to us on our $500 million revolving credit facility.

As part of the merger with REIT II, the company assumed approximately $464.5 million of debt and also refinanced approximately $548.3 million of existing debt. As part of the formation of GRP I, the company has signed $175 million of secured debt to this joint venture and used equity proceeds realized to pay off a $100 million unsecured term loan and to pay down its outstanding balance on the company's revolving credit facility.

If you'll turn now to Slide 17, we provide detail on our current share repurchase program or the SRP. During 2018, we repurchased 4.9 million shares totaling approximately $53.8 million of equity. Based on our current projections, our next standard repurchase is expected to be at the end of July 2019. At that time, we expect standard repurchase requests will be fulfilled on a pro rata basis to the extent that there are funds available. After July, we do not anticipate there will be material funding available for repurchases for the remainder of 2019.

If you should have any questions regarding the SRP, please contact our transfer agent, DST. DST can be reached at [phone]. I would now like to turn the call back over to Jeff for some commentary on our 2019 goals and initiatives. Jeff?

[Jeffrey Edison, executive]

Thanks, Devin. Now I'd like you to turn to Slide 16 where we've laid out our key initiatives for 2019, which we believe will position the company for continued success.

First, we will continue to drive NOI at our properties through leasing and expense management. Through our fully integrated platform, we are focused on increasing rental revenue and operating our shopping centers as efficiently and cost effectively as possible. This is the core of our business and will always be critical to our success.

Next, we will expand our disposition program, focusing on 2 specific objectives. Number one, quality improvement dispositions, where we will recycle capital from sold assets into higher quality assets with better opportunities for future growth. We are always evaluating our portfolio and pruning is important for a portfolio of our size.

Second, we will also pursue opportunistic dispositions, where we will target assets that we believe have maximized their value and we can monetize in order to pay down debt or invest in projects with higher growth prospects.

Redevelopment will also be an increasingly important part of our business. Through redevelopment, which can range from building an outparcel to repositioning an anchor box to constructing additional in-line units, we can drive incremental NOI growth and better overall yield at our properties.

Throughout our history, we've invested capital into our centers in order to improve the shopping experience for our customers. It drives foot traffic, improves the tenant mix and ultimately allows us to increase rents. We have been investing in redevelopment for many years and have been very successful at it. We are constantly evaluating our portfolio for redevelopment opportunities. As of December 31, 2018, we had 16 redevelopment and repositioning projects in progress for a total cost of $38 million, and we expect incremental NOI yields of between 9% and 11% on this invested capital. Redevelopment has the ability to drive future NOI growth and value at our centers in a meaningful way.

As previously discussed, our investment management business is a top priority for 2019 and beyond. To illustrate our commitment to this part of our business, yesterday, we announced that in August, our current CFO, Devin Murphy, will transition to the role of President of PECO, where his responsibilities will include expanding the investment management business and raising additional institutional and retail equity. Further, he will oversee our current joint ventures with TPG Real Estate and Northwestern Mutual.

At the same time, John Caulfield, our current Senior Vice President of Finance, will be appointed CFO. John has worked for Devin since PECO began in 2014 and is intimately familiar with the company's financial operations and reporting processes as well as its properties and capital markets initiatives. We are very confident this transition will be a smooth one.

Liquidity for our investors continues to be at top of mind for us, and we are constantly evaluating the public equity markets. 2018 was a tough trading year for retail REITs as their stocks declined approximately 24%.

Further, we continue to be disappointed by the current discount to net asset value or NAV that our shopping center REIT peers trade at in the public markets. As of March 1, 2019, our public peers were trading at an average discount to NAV of 19.6%. This discount is meaningful, and we would like to see the share prices of public peers and the value of shopping center REITs move closer to NAV, reflecting their true value before we move forward with the liquidity event.

As we manage toward future liquidity events, we have also observed that our public shopping center peers are managing their portfolios to lower leverage levels. While we believe our leverage level is acceptable, we will take advantage of opportunities to reduce our outstanding debt so we can be ready to access the public markets effectively when the time is appropriate.

As we have communicated on recent calls, we believe that a patient approach to liquidity is prudent. We believe executing on our 2019 initiatives will position us to achieve a full cycle liquidity event at a more attractive valuation when public equity valuation for shopping centers improve and a meaningful discount to NAV is not required to affect liquidity.

In closing, we've had a very successful and eventful 2018, but we know we have work ahead of us to achieve our goals and provide liquidity for our investors. We remain steadfast in our commitment to being the leading provider of grocery-anchored real estate and are committed to driving long-term value for our investors.

With that, I would like to turn the call over to Michael Koehler, our Director of Investor Relations, for our Q&A session. Michael?

[Michael Koehler, executive]

Thank you, Jeff. [Operator Instructions] Our first question comes from [ Gary Mastrodonato ], a financial advisor with [ James Path ] LLC. Gary asks, "How and when will the clients get the full return of their cash out of PECO?"

[Jeffrey Edison, executive]

Gary, this is Jeff. Thank you for the question. This is a top-of-mind question for us. We are very proud of the fact that in December, we returned our 1 billionth dollar to our investors. The -- if you had invested in 2013 into the stock, today, you would have received 40% of your cash back through dividend. This is something that is a -- something that we believe signifies the strength of the concept that we have, but we continue to look at liquidity options because that -- you're not full cycle until you're full cycle and we are committed to that. Over the last 2 weeks, we've actually met with a wide variety of investment bankers about the liquidity options. And unfortunately, there continues to be a negative sentiment about retail in the public markets and to some extent, in the institutional markets that are headwinds to us and the -- are the reason that a lot of our peers are trading at significant discounts to NAV. What's -- the unfortunate thing that's happening is that with -- what we see going on right now is that Amazon, Walmart, Kroger and the other leading grocers are locked in a pretty epic battle for the customer, for the grocery shopper. And until that battle is fought out, we're going to continue to have headwinds on people who want to invest in retail. And that -- we hope that, that will subside, but we are -- we're watching it closely and we are concerned about it because as an example, yesterday -- or I think it was yesterday, Kroger announced that they're -- that they did not meet their projections and their stock crashes. And all of a sudden, the story again merges that retail is in trouble. Well, what they didn't talk about was that Kroger's same-store sales were up almost 2%, meaning that we have more shoppers coming to our Kroger stores than we had last year. They continue to invest heavily into technology, into changing the customer experience in the grocery store, which is also a drag on earnings. But we need to get out of that cycle in order to create a base that will allow us to have a -- what we would consider a successful liquidity event. And we're going to continue to monitor it. We're going to keep focused on it. But it is a -- in today's market, it is not something that we would recommend.

[Michael Koehler, executive]

Thanks, Jeff. The next question comes from [ Brent Robinson ]. "Assuming the company lists on an exchange, how are you working to alleviate potential selling pressure, which will adversely affect the share price?"

[Devin Murphy, executive]

Michael, it's Devin. I'll take that question. Brent, you're asking specifically about a listing as opposed to an initial public offering. And we have carefully studied all the listing events that have occurred over time, and we're very familiar with all the available alternatives that we could employ. We're also in regular dialogue with our bankers and we'll make certain that at the time of a liquidity event, we will architect the structure that will allow us to affect the best outcome for our shares post liquidity.

[Michael Koehler, executive]

Thanks, Devin. Next question comes from [ Max Strew ]. He says, "With the Fed on hold until later this year and the recent rise in REIT prices closer to NAV, a listing of your stock looks pretty. What are your comments?"

[Devin Murphy, executive]

Michael, it's Devin again. I'll take that. As Jeff just articulated, yes, with the Fed being on hold, we have seen REIT stocks rally from their December lows. Unfortunately, despite that rally, our peers are continuing to trade at meaningful discounts to NAV approximately 20%. And we believe that, that type of discount to affect liquidity is more significant than we feel is acceptable and therefore, we would like to see a narrowing of that discount to NAV to occur before we feel we would get a fair value for our shares in the public market.

[Michael Koehler, executive]

Thanks, Devin. A related question from [ Rob Eaves ], a financial advisor with Capital Investment Group. "What is or what can be done now to help PECO hit the ground running with institutional investors as quickly as possible after a potential listing?"

[Devin Murphy, executive]

Okay. Rob, it's Devin Murphy again. I will answer that question. So Rob, we are and have been, for over 5 years now, in regular dialogue with the sell-side research analysts that cover our sector and the largest institutional investors that invest in our space. They are very familiar with the PECO story, and we will continue all of our Investor Relations efforts to make sure that at the time we pursue a liquidity event that the PECO story is well known.

[Michael Koehler, executive]

Thank you, Devin. We've had a few questions come in about Amazon's recent news to launch grocery stores beyond their Whole Foods offerings. How does this expansion into brick-and-mortar impact Phillips Edison? Jeff, do you want to take that?

[Jeffrey Edison, executive]

Sure. It's a great question, and we're probably not going to be able to give you a complete answer because in our information sources, Amazon doesn't know what they're going to do exactly yet. But what we do know is that Amazon, for 10 years, tried to do a Internet-only strategy, a digital-only strategy in the grocery business and it was not successful. They bought Whole Foods, which was their first sort of stake on the ground that in order to penetrate the grocery market, they were going to have to have a physical presence. That actually took a tremendous about of risk out of our business because had they been able to do an Internet-only strategy, it would have been very compromising for our properties. So that was great news. So they've worked with Whole Foods now for, I think, 2 years. And what they -- what we believe they have decided to do is to take -- to let Whole Foods operate as it is, they're going to expand Whole Foods, but they're also going to begin a pretty significant rollout of physical stores for their -- for Amazon. What that is exactly? No one knows. But they have given in -- we believe, 6 cities, that they have assigned individual brokers to help them find up to 50 to even more store sites. The word on the Street is that there are about 30,000 square feet that they want to have maximum flexibility in what they could sell there, everything from groceries to the top 10 things selling on Amazon at any one point in time. So their sort of strategy is evolving. This week, they also made the announcement that one of their strategies, which had been to do pickup and delivery in various locations, including cold stores and some other retailers, that they just stop that, and they weren't going to do that anymore, it wasn't working. So there are a lot of things that Amazon is going to keep doing. And it's not just Amazon. I mean, at the same time, Amazon is doing this and Amazon gets the headlines, but Walmart and Kroger are doing things that I think are maybe even more marketable in terms of the customer experience than what Amazon is doing. So it is an old-fashioned business battle in a lot of really big players that, that is -- that we're watching as we go and we've got to keep our eye on it. From our perspective, what we really like about it is Amazon was a competitor which -- who could steal sales from us. Now they are a potential tenant. And the more they expand, the more demand for our space there is, which allows us to grow occupancy and grow rents, which ultimately is what we're trying to do.

[Michael Koehler, executive]

Thanks, Jeff. Next question comes from [ Thomas Paine ], a financial advisor. How are Kroger's fourth quarter results and the subsequent [ D line ] in their share price impacts PECO's portfolio?

[Jeffrey Edison, executive]

Great, great question, another one that we are monitoring very closely. As I've said earlier, the myth is part of the story. It's not the whole story. But whenever anybody in -- if any of the 3 giants have anything negative, it's going to be amplified in this environment, and that's one of the things that makes it very difficult to do liquidity about right now because everything is magnified. From what we see with Kroger is they continue to be investment grade. They -- I think their plan for next year is to invest $3.4 billion into their stores and -- which we think is critical. They continue to develop their -- the technology side of their business and they're testing a lot of things. All of those, we think, are really positive. But they're in a really competitive environment, and I would anticipate that you're going to continue to see -- this was really driven by margin -- decline in the margins and -- which is just a pricing thing. They are fighting for market share with the other grocery competitors, and they are cutting back their pricing and therefore, their margins are being squeezed. That's where -- that's our understanding of where the change was. So it is -- we're going to keep watching all of our -- every one of our grocers. We think Kroger's one of the better positioned long term and if they remain investment grade as -- from a risk standpoint and they -- we think they're actually doing a really good job so far in doing that and they continue to be our largest tenant. So we are very focused on how they perform.

[Michael Koehler, executive]

Thanks, Jeff. Our next question is, what is the current estimated value per share? When it will be revalued? And has the dividend changed?

[Devin Murphy, executive]

I'll take that, Michael. It's Devin. So our current stated NAV is $11.05 per share. The board declared that in May of 2018. That was the midpoint of the range presented to the board by the independent valuation consult [ map ] we used up in Phillips. The next NAV will be declared again in May of this year. It will be based on the portfolio's value at March 31, 2019. And lastly, our dividend continues to be $0.67 as declared by the board. That has been the dividend that we have paid for the last several years, and there has not been a change in the dividend over that period of time.

[Michael Koehler, executive]

Thanks, Devin. Our next question comes from [ Robert Swift ] with [ KMR Financial ]. He asks, "Does the Northwestern Mutual joint venture affects PECO shareholders or only PECO III shareholders?

[Devin Murphy, executive]

It affects both PECO and PECO III shareholders. The effect on PECO shareholders is, number one, we were able to delever PECO because of the JV. We transferred $175 million of debt to that JV. With the equity proceeds that we raised from that JV, we paid down a $100 million term loan and outstanding balances on our revolving line of credit. So the #1 positive impact on PECO shareholders was the deleveraging impact of the venture. We continue to own 15% of the venture, and we received our pro rata share of income from that venture. And in addition to our pro rata share of the property level income from the venture, we received fees for advising and managing the fund and venture. We view this as a positive and constructive step forward for asset management business, which, Jeff indicated earlier, is one of our primary strategic objectives.

[Michael Koehler, executive]

Thanks, Devin. We've had a couple of people ask if we could define in-line occupancy. Jeff, do you want to talk about...

[Jeffrey Edison, executive]

Yes. For those of you guys who have been to one of our centers, the grocery store is our anchor. The small stores are around it that feed off of the traffic from the grocer, that's what we call our in-line store. So it's basically everything outside of the anchor stores. We do have some centers that have some -- but -- another anchor in addition to the grocer. But in most cases, it's just the grocer and then everything else is our in-line stores.

[Michael Koehler, executive]

Thanks, Jeff. Next question is, what is Mark Addy's role in Phillips Edison?

[Jeffrey Edison, executive]

Mark, that was a really good question. No, that was -- so I -- Mark's role hasn't changed. Mark is a member of our 4-member senior management team that runs the company, and he continues to have that role. He continues his role as President of NTR III. Mark's focus for the last several years has been on raising additional retail capital. He continues to be our soldier working on that, getting that done and that will continue. So there's absolutely no change in what Mark is doing. He remains as one of the 4 people running the business.

[Michael Koehler, executive]

Thanks, Jeff. Our next question is, can you tell us who do you monitor in terms of your publicly traded peers?

[Devin Murphy, executive]

Sure, I'll take that. The 9 publicly traded peers that we benchmark ourselves against, in alphabetical order are Brixmor, Cedar, Kimco, Kite, RPT Trust, Regency, ROIC, RPAI and Weingarten.

[Jeffrey Edison, executive]

Yes, I'd like -- just to add to that. There are 2 of those players that are in the grocer -- almost exclusively in the grocery-anchored business who have centers similar to ours which ROIC and Regency. Those are the 2 that we consider to be true comps. They tend to be -- one is up -- all in California, the other is in higher end markets than we are in. But they have the grocery focus, which we think is a differentiating feature from any of the other peers, which have a lot more power center kind of base in their real estate.

[Michael Koehler, executive]

Thanks, Jeff. And this is our last question from [ Chris Cash ] from [ Kodak Securities ]. Chris asks, "Do you anticipate the dividend coverage ratio to improve as efficiencies with the merger are realized and joint venture income is generated?"

[Jeffrey Edison, executive]

Yes, we do. It is a goal of ours. As you can see, we have done that with FFO. We have not done it with AFFO yet but we are pushing towards getting that done. And the -- but that's going to to be an operating thing. We've got to continue to grow our same-center NOI growth and our same-center NOI, and we've got to grow our AFFO from the operations of the business. We will be growing the asset management business, which will be additive. We do have our redevelopment. As I outlined, that will be -- we'll add additional growth to that. But it is one of the key metrics that we are focused on and concerned about. We want to make sure that we are -- we have a clear plan towards that coverage because that's not -- we want that to happen. So great question, certainly one that we are focused on. And we do believe that the growth in the company will obviously help that, and we've made significant progress to that coverage and we still have ways to go. Great question.

[Michael Koehler, executive]

Thanks, Jeff. This now concludes our question-and-answer session. I'd like to turn the call back over to Jeff for some final closing comments.

[Jeffrey Edison, executive]

Thank you, Michael, and thank you, everyone, for being on the call. On behalf of the entire management team, I'd like to express our appreciation for your continued support. We are hard at work making sure that we win at every single center that we own, and that will be the determinant in our mind of our -- of how well we do. And we -- as we've said, liquidity is top of mind for us. But we also think that there are times to be -- to act and times to be patient. In an environment like this, the -- we will tend to be more patient until we get to a point where we can have what we would consider a very successful liquidity event, not just a liquidity event. So I thank you all for your time. And obviously, if you have additional questions, please call us. Have a great day, everybody.

[Michael Koehler, executive]

Thank you for joining us. You may now disconnect.