Phillips Edison & Company Announces Execution of Interest Rate Swap
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Insights
The entry of Phillips Edison & Company into an interest rate swap agreement is a strategic financial move to manage interest rate exposure. By locking in a fixed rate of approximately 3.45%, PECO is mitigating the risk of rising interest rates on their variable rate term loans. This is particularly pertinent given the current economic climate where interest rates have been fluctuating. The hedge ensures more predictable debt servicing costs, which can contribute positively to the company's financial stability and earnings predictability.
From a financial analysis perspective, the chosen fixed rate and the duration of the swap, maturing at the end of 2025, suggest a conservative approach towards risk management. This may be indicative of the company's broader financial strategy and could be seen as a positive signal to investors and creditors looking for stability in PECO's financial operations.
The use of a cash flow hedge instrument by PECO demonstrates a proactive approach to risk management, particularly in the context of a volatile interest rate environment. By using the interest rate swap, PECO is essentially insuring against the risk that the Secured Overnight Financing Rate (SOFR) will rise above the fixed rate they have locked in. This is a prudent measure that can protect the company's cash flows from future interest rate hikes.
The choice of SOFR as the benchmark for the swap is also noteworthy. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, which has been gaining prominence as a replacement for LIBOR. PECO's adoption of SOFR reflects alignment with current market trends towards more transparent and risk-free rates.
In the retail real estate sector, where PECO operates, managing operating costs is crucial for maintaining competitive advantage. Interest rate swaps are a common financial instrument used to manage borrowing costs, which are a significant expense for real estate companies with large property portfolios. The fixed interest rate of 3.45% is relatively moderate, suggesting that PECO has capitalized on current market conditions to secure favorable terms.
Moreover, the grocery-anchored shopping centers that PECO specializes in have shown resilience in various economic conditions, often deemed 'recession-proof' due to the non-discretionary nature of grocery spending. The decision to enter into an interest rate swap may reflect confidence in the stability of their cash flows, which is essential for maintaining investor confidence in the sector.
CINCINNATI, Jan. 16, 2024 (GLOBE NEWSWIRE) -- Phillips Edison & Company, Inc. (Nasdaq: PECO) (“PECO” or the “Company”), one of the nation’s largest owners and operators of grocery-anchored neighborhood shopping centers, today announced that it has entered into an interest rate swap agreement totaling
On January 12, 2024, the Operating Partnership entered into an interest rate swap pursuant to an International Swaps and Derivatives Association Master Agreement. The swap has a notional amount of
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About Phillips Edison & Company
Phillips Edison & Company, Inc. (“PECO”) is one of the nation’s largest owners and operators of omni-channel grocery-anchored shopping centers. Founded in 1991, PECO has generated strong results through its vertically-integrated operating platform and national footprint of well-occupied shopping centers. PECO’s centers feature a mix of national and regional retailers providing necessity-based goods and services in fundamentally strong markets throughout the United States. PECO’s top grocery anchors include Kroger, Publix, Albertsons and Ahold Delhaize. As of September 30, 2023, PECO managed 295 shopping centers, including 275 wholly-owned centers comprising 31.4 million square feet across 31 states and 20 shopping centers owned in one institutional joint venture. PECO is exclusively focused on creating great omni-channel, grocery-anchored shopping experiences and improving communities, one neighborhood shopping center at a time.
PECO uses, and intends to continue to use, its Investors website, which can be found at https://investors.phillipsedison.com, as a means of disclosing material nonpublic information and for complying with its disclosure obligations under Regulation FD.
Forward-Looking Statements
This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with the safe harbor provisions. Such forward-looking statements can generally be identified by the Company’s use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” “seek,” “objective,” “goal,” “strategy,” “plan,” “focus,” “priority,” “should,” “could,” “potential,” “possible,” “look forward,” “optimistic,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. Such statements include, but are not limited to (a) statements about the Company’s plans, strategies, initiatives, and prospects, (b) statements about the Company’s acquisitions, acquisition strategy and objectives and potential benefits from such acquisitions and (c) statements about the Company’s Unlevered IRR. Such statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated, including, without limitation: (i) changes in national, regional, or local economic climates; (ii) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in the Company’s portfolio; (iii) vacancies, changes in market rental rates, and the need to periodically repair, renovate, and re-let space; (iv) competition from other available shopping centers and the attractiveness of properties in the Company’s portfolio to its tenants; (v) the financial stability of the Company’s tenants, including, without limitation, their ability to pay rent; (vi) the Company’s ability to pay down, refinance, restructure, or extend its indebtedness as it becomes due; (vii) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors; (viii) potential liability for environmental matters; (ix) damage to the Company’s properties from catastrophic weather and other natural events, and the physical effects of climate change; (x) the Company’s ability and willingness to maintain its qualification as a REIT in light of economic, market, legal, tax, and other considerations; (xi) changes in tax, real estate, environmental, and zoning laws; (xii) information technology security breaches; (xiii) the Company’s corporate responsibility initiatives; (xiv) loss of key executives; (xv) the concentration of the Company’s portfolio in a limited number of industries, geographies, or investments; (xvi) the economic, political, and social impact of, and uncertainty relating to, pandemics or other health crises; (xvii) the Company’s ability to re-lease its properties on the same or better terms, or at all, in the event of non-renewal or in the event the Company exercises its right to replace an existing tenant; (xviii) the loss or bankruptcy of the Company’s tenants; (xix) to the extent the Company is seeking to dispose of properties, the Company’s ability to do so at attractive prices or at all; and (xx) the impact of inflation on the Company and on its tenants. Additional important factors that could cause actual results to differ are described in the filings made from time to time by the Company with the SEC and include the risk factors and other risks and uncertainties described in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on February 21, 2023, as updated from time to time in the Company’s periodic and/or current reports filed with the SEC, which are accessible on the SEC’s website at www.sec.gov. Therefore, such statements are not intended to be a guarantee of the Company’s performance in future periods.
Except as required by law, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
Investors
Kimberly Green, Head of Investor Relations
(513) 692-3399, kgreen@phillipsedison.com
FAQ
What is the purpose of the interest rate swap agreement announced by Phillips Edison & Company, Inc. (Nasdaq: PECO)?
What is the notional amount of the interest rate swap agreement?
What is the fixed rate of the interest rate swap agreement?
What is the purpose of the International Swaps and Derivatives Association Master Agreement?
