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peco-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-54691

PHILLIPS EDISON & COMPANY, INC.

(Exact name of registrant as specified in its charter)


Maryland						27-1106076
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


11501 Northlake Drive, Cincinnati, Ohio						45249
(Address of principal executive offices)						(Zip code)


(513) 554-1110
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

PECO

Nasdaq Global Select Market


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.	Yes	☑	No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).	Yes	☑	No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☐

☑

☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.	☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).	Yes	☐	No ☑

There were 116.7 million shares of the registrant’s Common Stock, $0.01 par value per share, outstanding as of July 29, 2022.

PHILLIPS EDISON & COMPANY, INC. FORM 10-Q


TABLE OF CONTENTS

PART I.
ITEM 1.		FINANCIAL STATEMENTS (CONDENSED AND UNAUDITED)	2
		CONSOLIDATED BALANCE SHEETS AS OF JUNE 30 , 2022 AND DECEMBER 31, 2021	2
		CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 3 0 , 2022 AND 2021	3
		CONSOLIDATED STATEMENTS OF EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 3 0 , 2022 AND 2021	4
		CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 3 0 , 2022 AND 2021	6
		NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2022
	NOTE 1	ORGANIZATION	8
	NOTE 2	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	8
	NOTE 3	LEASES	9
	NOTE 4	REAL ESTATE ACTIVITY	10
	NOTE 5	OTHER ASSETS, NET	11
	NOTE 6	DEBT OBLIGATIONS	11
	NOTE 7	DERIVATIVES AND HEDGING ACTIVITIES	12
	NOTE 8	COMMITMENTS AND CONTINGENCIES	13
	NOTE 9	EQUITY	13
	NOTE 10	EARNINGS PER SHARE	15
	NOTE 11	RELATED PARTY TRANSACTIONS	16
	NOTE 12	FAIR VALUE MEASUREMENTS	16
	NOTE 13	SUBSEQUENT EVENTS	18
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	38
ITEM 4.		CONTROLS AND PROCEDURES	38

PART II.
ITEM 1.		LEGAL PROCEEDINGS	38
ITEM 1A.		RISK FACTORS	38
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	39
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	39
ITEM 4.		MINE SAFETY DISCLOSURES	39
ITEM 5.		OTHER INFORMATION	39
ITEM 6.		EXHIBITS	40
		SIGNATURES	41


PHILLIPS EDISON & COMPANY JUNE 30, 2022 FORM 10-Q									1


w PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2022 AND DECEMBER 31, 2021

(Condensed and Unaudited)

(In thousands, except per share amounts)


	June 30, 2022		December 31, 2021
ASSETS
Investment in real estate:
Land and improvements	$	1,623,203	$	1,586,993
Building and improvements	3,487,920		3,355,433
In-place lease assets	465,417		452,504
Above-market lease assets	70,842		68,736
Total investment in real estate assets	5,647,382		5,463,666
Accumulated depreciation and amortization	(1,216,331)		(1,110,426)
Net investment in real estate assets	4,431,051		4,353,240
Investment in unconsolidated joint ventures	28,096		31,326
Total investment in real estate assets, net	4,459,147		4,384,566
Cash and cash equivalents	24,657		92,585
Restricted cash	19,030		22,944
Goodwill	29,066		29,066
Other assets, net	162,712		138,050
Real estate investments and other assets held for sale	—		1,557
Total assets	$	4,694,612	$	4,668,768

LIABILITIES AND EQUITY
Liabilities:
Debt obligations, net	$	1,877,107	$	1,891,722
Below-market lease liabilities, net	108,323		107,526
Earn-out liability	—		52,436
Derivative liabilities	52		24,096
Deferred income	21,629		19,145
Accounts payable and other liabilities	92,856		97,229
Liabilities of real estate investments held for sale	—		288
Total liabilities	2,099,967		2,192,442
Commitments and contingencies (see Note 8)	—		—
Equity:
Preferred stock, $0.01 par value per share, 10,000 shares authorized, zero shares issued and outstanding at June 30, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value per share, 1,000,000 shares authorized, 115,782 shares issued and outstanding at June 30, 2022; 650,000 shares authorized, 19,550 shares issued and outstanding at December 31, 2021	1,157		196
Class B common stock, $0.01 par value per share, zero shares authorized, issued, and outstanding at June 30, 2022; 350,000 shares authorized, 93,665 shares issued and outstanding at December 31, 2021	—		936
Additional paid-in capital (“APIC”)	3,341,646		3,264,038
Accumulated other comprehensive income (loss) (“AOCI”)	8,571		(24,819)
Accumulated deficit	(1,129,151)		(1,090,837)
Total stockholders’ equity	2,222,223		2,149,514
Noncontrolling interests	372,422		326,812
Total equity	2,594,645		2,476,326
Total liabilities and equity	$	4,694,612	$	4,668,768

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY JUNE 30, 2022 FORM 10-Q									2

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Condensed and Unaudited)

(In thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues:
Rental income	$	137,230	$	130,335	$	275,978	$	257,958
Fees and management income	4,781		2,374		7,242		4,660
Other property income	505		361		1,459		833
Total revenues	142,516		133,070		284,679		263,451
Operating Expenses:
Property operating	22,852		21,974		46,172		44,176
Real estate taxes	16,473		16,814		33,964		33,387
General and administrative	11,376		11,937		22,908		21,278
Depreciation and amortization	60,769		56,587		117,995		111,928
Impairment of real estate assets	—		1,056		—		6,056
Total operating expenses	111,470		108,368		221,039		216,825
Other:
Interest expense, net	(17,127)		(19,132)		(35,326)		(39,195)
Gain on disposal of property, net	2,793		3,744		4,161		17,585
Other expense, net	(1,457)		(2,924)		(5,822)		(18,509)
Net income	15,255		6,390		26,653		6,507
Net income attributable to noncontrolling interests	(1,727)		(796)		(3,046)		(810)
Net income attributable to stockholders	$	13,528	$	5,594	$	23,607	$	5,697
Earnings per share of common stock:
Net income per share attributable to stockholders - basic and diluted (see Note 10)	$	0.12	$	0.06	$	0.21	$	0.06

Comprehensive income:
Net income	$	15,255	$	6,390	$	26,653	$	6,507
Other comprehensive income:
Change in unrealized value on interest rate swaps	9,834		3,373		37,407		15,493
Comprehensive income	25,089		9,763		64,060		22,000
Net income attributable to noncontrolling interests	(1,727)		(796)		(3,046)		(810)
Change in unrealized value on interest rate swaps attributable to noncontrolling interests	(1,535)		(400)		(4,237)		(1,909)
Reallocation of comprehensive income (loss) upon conversion of noncontrolling interests	432		(10)		220		(10)
Comprehensive income attributable to stockholders	$	22,259	$	8,557	$	56,997	$	19,271

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY JUNE 30, 2022 FORM 10-Q									3

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021

(Condensed and Unaudited)

(In thousands, except per share amounts)


	Three Months Ended June 30, 2022 and 2021
	Common Stock			Class B Common Stock			APIC		AOCI		Accumulated Deficit		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Amount		Shares	Amount
Balance at April 1, 2021	—	$	—	93,582	$	2,807	$	2,746,891	$	(41,695)	$	(1,023,155)	$	1,684,848	$	324,558	$	2,009,406
Change in unrealized value on interest rate swaps	—	—		—	—		—		2,973		—		2,973		400		3,373
Common distributions declared, $0.255 per share	—	—		—	—		—		—		(24,056)		(24,056)		—		(24,056)
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(3,460)		(3,460)
Share-based compensation	—	—		30	1		2,102		—		—		2,103		1,632		3,735
Conversion of noncontrolling interests	—	—		28	—		743		—		—		743		(743)		—
Reallocation of operating partnership interests	—	—		—	—		(56)		(10)		—		(66)		66		—
Net income	—	—		—	—		—		—		5,594		5,594		796		6,390
Balance at June 30, 2021	—	$	—	93,640	$	2,808	$	2,749,680	$	(38,732)	$	(1,041,617)	$	1,672,139	$	323,249	$	1,995,388

Balance at April 1, 2022	113,819	$	1,138	—	$	—	$	3,276,151	$	(160)	$	(1,111,673)	$	2,165,456	$	372,213	$	2,537,669
Issuance of common stock, net	1,860	18		—	—		62,947		—		—		62,965		—		62,965
Change in unrealized value on interest rate swaps	—	—		—	—		—		8,299		—		8,299		1,535		9,834
Common distributions declared, $0.27 per share	—	—		—	—		—		—		(31,006)		(31,006)		—		(31,006)
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(4,113)		(4,113)
Share-based compensation	31	—		—	—		1,008		—		—		1,008		3,033		4,041
Conversion of noncontrolling interests	72	1		—	—		2,417		—		—		2,418		(2,418)		—
Reallocation of operating partnership interests	—	—		—	—		(877)		432		—		(445)		445		—
Net income	—	—		—	—		—		—		13,528		13,528		1,727		15,255
Balance at June 30, 2022	115,782	$	1,157	—	$	—	$	3,341,646	$	8,571	$	(1,129,151)	$	2,222,223	$	372,422	$	2,594,645

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY JUNE 30, 2022 FORM 10-Q									4

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Condensed and Unaudited)

(In thousands, except per share amounts)


	Six Months Ended June 30, 2022 and 2021
	Common Stock			Class B Common Stock			APIC		AOCI		Accumulated Deficit		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Amount		Shares	Amount
Balance at January 1, 2021	—	$	—	93,279	$	2,798	$	2,739,358	$	(52,306)	$	(999,491)	$	1,690,359	$	325,570	$	2,015,929
Dividend reinvestment plan (“DRIP”)	—	—		280	8		7,360		—		—		7,368		—		7,368
Share repurchases	—	—		(24)	—		(123)		—		—		(123)		—		(123)
Change in unrealized value on interest rate swaps	—	—		—	—		—		13,584		—		13,584		1,909		15,493
Common distributions declared, $0.51 per share	—	—		—	—		—		—		(47,823)		(47,823)		—		(47,823)
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(6,779)		(6,779)
Share-based compensation	—	—		77	2		2,427		—		—		2,429		2,416		4,845
Conversion of noncontrolling interests	—	—		28	—		743		—		—		743		(743)		—
Reallocation of operating partnership interests	—	—		—	—		(56)		(10)		—		(66)		66		—
Other	—	—		—	—		(29)		—		—		(29)		—		(29)
Net income	—	—		—	—		—		—		5,697		5,697		810		6,507
Balance at June 30, 2021	—	$	—	93,640	$	2,808	$	2,749,680	$	(38,732)	$	(1,041,617)	$	1,672,139	$	323,249	$	1,995,388

Balance at January 1, 2022	19,550	$	196	93,665	$	936	$	3,264,038	$	(24,819)	$	(1,090,837)	$	2,149,514	$	326,812	$	2,476,326
Conversion of Class B common stock	93,665	936		(93,665)	(936)		—		—		—		—		—		—
Issuance of common stock, net	1,860	18		—	—		62,947		—		—		62,965		—		62,965
Change in unrealized value on interest rate swaps	—	—		—	—		—		33,170		—		33,170		4,237		37,407
Common distributions declared, $0.54 per share	—	—		—	—		—		—		(61,921)		(61,921)		—		(61,921)
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(8,217)		(8,217)
Share-based compensation	102	1		—	—		1,475		—		—		1,476		5,711		7,187
Conversion of noncontrolling interests	605	6		—	—		19,730		—		—		19,736		(19,736)		—
Reallocation of operating partnership interests	—	—		—	—		(6,544)		220		—		(6,324)		6,324		—
Settlement of earn-out liability	—	—		—	—		—		—		—		—		54,245		54,245
Net income	—	—		—	—		—		—		23,607		23,607		3,046		26,653
Balance at June 30, 2022	115,782	$	1,157	—	$	—	$	3,341,646	$	8,571	$	(1,129,151)	$	2,222,223	$	372,422	$	2,594,645

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY JUNE 30, 2022 FORM 10-Q									5

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Condensed and Unaudited)

(In thousands)


	Six Months Ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	26,653	$	6,507
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets	116,169		109,995
Impairment of real estate assets	—		6,056
Depreciation and amortization of corporate assets	1,826		1,933
Net amortization of above- and below-market leases	(2,080)		(1,725)
Amortization of deferred financing expenses	1,622		2,448
Amortization of debt and derivative adjustments	1,207		739
Gain on disposal of property, net	(4,161)		(17,585)
Change in fair value of earn-out liability	1,809		18,000
Straight-line rent	(5,146)		(4,400)
Share-based compensation	7,187		4,845
Return on investment in unconsolidated joint ventures	1,242		1,533
Other	(100)		(519)
Changes in operating assets and liabilities:
Other assets, net	(4,200)		900
Accounts payable and other liabilities	471		1,170
Net cash provided by operating activities	142,499		129,897
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(170,186)		(40,459)
Capital expenditures	(42,946)		(30,230)
Proceeds from sale of real estate, net	27,077		119,638
Investment in third parties	—		(3,000)
Return of investment in unconsolidated joint ventures	3,162		3,888
Investment in marketable securities	(3,000)		—
Net cash (used in) provided by investing activities	(185,893)		49,837
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility	197,000		9,000
Payments on revolving credit facility	(149,000)		(9,000)
Payments on mortgages and loans payable	(68,557)		(66,237)
Distributions paid, net of DRIP	(61,979)		(48,308)
Distributions to noncontrolling interests	(8,877)		(7,931)
Proceeds from issuance of common stock, net of costs	62,965		—
Repurchases of Class B common stock	—		(77,765)
Other	—		(29)
Net cash used in financing activities	(28,448)		(200,270)
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(71,842)		(20,536)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Beginning of period	115,529		131,937
End of period	$	43,687	$	111,401

RECONCILIATION TO CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	24,657	$	22,205
Restricted cash	19,030		89,196
Cash, cash equivalents, and restricted cash at end of period	$	43,687	$	111,401


PHILLIPS EDISON & COMPANY JUNE 30, 2022 FORM 10-Q									6

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Condensed and Unaudited)

(In thousands)


	Six Months Ended June 30,
	2022		2021
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	34,130	$	36,845
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Settlement of earn-out liability	54,245		—
Right-of-use (“ROU”) assets obtained in exchange for new lease liabilities	—		239
Accrued capital expenditures	4,800		6,053
Change in distributions payable	(58)		(7,853)
Change in distributions payable - noncontrolling interests	(660)		(1,152)
Change in accrued share repurchase obligation	—		(77,642)
Distributions reinvested	—		7,368

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY JUNE 30, 2022 FORM 10-Q									7

Phillips Edison & Company, Inc.

Notes to Consolidated Financial Statements

(Condensed and Unaudited)
As of and for the period ended June 30, 2022


1. ORGANIZATION

Phillips Edison & Company, Inc. (“we,” the “Company,” “PECO,” “our,” or “us”) was formed as a Maryland corporation in October 2009. Substantially all of our business is conducted through Phillips Edison Grocery Center Operating Partnership I, L.P., (the “Operating Partnership”), a Delaware limited partnership formed in December 2009. We are a limited partner of the Operating Partnership, and our wholly-owned subsidiary, Phillips Edison Grocery Center OP GP I LLC, is the sole general partner of the Operating Partnership.

We are a real estate investment trust (“REIT”) that invests primarily in omni-channel grocery-anchored neighborhood and community shopping centers that have a mix of creditworthy national, regional, and local retailers that sell necessity-based goods and services in strong demographic markets throughout the United States. In addition to managing our own shopping centers, our third-party investment management business provides comprehensive real estate and asset management services to two unconsolidated institutional joint ventures, in which we have a partial ownership interest, and one private fund (collectively, the “Managed Funds”) as of June 30, 2022.

As of June 30, 2022, we wholly-owned 269 real estate properties. Additionally, we owned a 14% interest in Grocery Retail Partners I LLC (“GRP I”), a joint venture that owned 20 properties.

In May 2022, we sold the final property in our joint venture with Necessity Retail Partners (“NRP”), in which we own a 20% interest. During the three and six months ended June 30, 2022, we recognized income of $2.5 million and $2.7 million, respectively, related to NRP’s achievement of certain performance targets, which is included in Fees and Management Income in our consolidated statements of operations and comprehensive income (“consolidated statements of operations”).

Underwritten Initial Public Offering—On July 19, 2021, we closed our underwritten initial public offering (“underwritten IPO”), through which we issued 19.6 million shares, including the underwriters’ overallotment election, of a new class of common stock, $0.01 par value per share, at an initial price to the public of $28.00 per share. As a result of the underwritten IPO, we received gross proceeds of $547.4 million.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Set forth below is a summary of the significant accounting estimates and policies that management believes are important to the preparation of our condensed consolidated interim financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by management. For example, significant estimates and assumptions have been made with respect to the useful lives of assets, remaining hold periods of assets, recoverable amounts of receivables, and other fair value measurement assessments required for the preparation of the consolidated interim financial statements. As a result, these estimates are subject to a degree of uncertainty.

There were no changes to our significant accounting policies during the six months ended June 30, 2022, except for those discussed below. For a full summary of our significant accounting policies, refer to our 2021 Annual Report on Form 10-K, filed with the SEC on February 16, 2022.

Basis of Presentation and Principles of Consolidation—The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q should refer to our audited consolidated financial statements for the year ended December 31, 2021, which are included in our 2021 Annual Report on Form 10-K. In the opinion of management, all normal and recurring adjustments necessary for the fair presentation of the unaudited consolidated financial statements for the periods presented have been included in this Quarterly Report. Our results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results expected for the full year.

The accompanying consolidated financial statements include our accounts and the accounts of the Operating Partnership and its wholly-owned subsidiaries (over which we exercise financial and operating control). The financial statements of the Operating Partnership are prepared using accounting policies consistent with our accounting policies. All intercompany balances and transactions are eliminated upon consolidation.

The basis of presentation of our shares of common stock is described as follows:

•Reverse Stock Split—On July 2, 2021, our board of directors (the “Board”) approved an amendment to our charter to effect a one-for-three reverse stock split. Concurrent with the reverse split, the Operating Partnership enacted a one-for-three reverse split of its outstanding Operating Partnership units (“OP units”). Unless otherwise indicated, the information in this Form 10-Q gives effect to the reverse stock and OP unit splits (see Note 9).


PHILLIPS EDISON & COMPANY JUNE 30, 2022 FORM 10-Q									8

•Recapitalization—On June 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 on July 2, 2021. Unless otherwise indicated, all information in this Form 10-Q 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 on January 18, 2022 (see Note 9). Prior to the conversion, we have presented common stock and Class B common stock as separate classes within our consolidated balance sheets and consolidated statements of equity. On May 5, 2022, we filed Articles Supplementary to our charter with the Maryland State Department of Assessments and Taxation in order to reclassify and designate all of the 350 million authorized shares of our Class B common stock, $0.01 par value per share, all of which were unissued at such time, as shares of our common stock, $0.01 par value per share. We no longer have Class B common stock authorized for issue.

Income Taxes—Our consolidated financial statements include the operations of wholly-owned subsidiaries that have jointly elected to be treated as taxable REIT subsidiary entities and are subject to U.S. federal, state, and local income taxes at regular corporate tax rates. We recognized an insignificant amount of federal, state, and local income tax expense for the three and six months ended June 30, 2022 and 2021, and we retain a full valuation allowance for our net deferred tax asset. All income tax amounts are included in Other Expense, Net on our consolidated statements of operations.

Newly Adopted Accounting Pronouncements—There were no newly adopted accounting pronouncements during the six months ended June 30, 2022 that impacted the Company.


3. LEASES

Lessor—The majority of our leases are largely similar in that the leased asset is retail space within our properties, and the lease agreements generally contain similar provisions and features, without substantial variations. All of our leases are currently classified as operating leases. Lease income related to our operating leases was as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Rental income related to fixed lease payments(1)	$	103,163	$	94,485	$	204,673	$	189,451
Rental income related to variable lease payments(1)(2)	29,431		27,454		62,898		58,855
Straight-line rent amortization(3)	3,170		2,893		4,865		4,262
Amortization of lease assets	1,062		877		2,054		1,704
Lease buyout income	177		1,781		2,141		2,578
Adjustments for collectibility(4)	227		2,845		(653)		1,108
Total rental income	$	137,230	$	130,335	$	275,978	$	257,958

(1)Includes rental income related to lease payments before assessing for collectibility.

(2)Variable payments are primarily related to tenant recovery income.

(3)Includes revenue adjustments to straight-line rent for tenants considered non-creditworthy.

(4)Includes general reserves as well as adjustments for tenants considered non-creditworthy for which we are recording revenue on a cash basis, per Accounting Standards Codification (“ASC”) Topic 842, Leases.

Approximate future fixed contractual lease payments to be received under non-cancelable operating leases in effect as of June 30, 2022, assuming no new or renegotiated leases or option extensions on lease agreements, and including the impact of rent abatements and tenants who have been moved to the cash basis of accounting for revenue recognition purposes, are as follows (in thousands):


Year	Amount
Remaining 2022	$	205,120
2023	395,127
2024	343,818
2025	287,289
2026	222,902
Thereafter	572,366
Total	$	2,026,622

No single tenant comprised 10% or more of our aggregate annualized base rent (“ABR”) as of June 30, 2022. As of June 30, 2022, our wholly-owned real estate investments in Florida and California represented 11.9% and 10.7% of our ABR, respectively. As a result, the geographic concentration of our portfolio makes it particularly susceptible to adverse weather or economic events in the Florida and California real estate markets.


PHILLIPS EDISON & COMPANY JUNE 30, 2022 FORM 10-Q									9


4. REAL ESTATE ACTIVITY

Acquisitions—The following table summarizes our real estate acquisition activity (dollars in thousands):


	Six Months Ended June 30,
	2022		2021
Number of properties acquired	4		2
Number of outparcels acquired(1)	1		3
Contract price	$	169,342	$	40,190
Total price of acquisitions(2)	170,186		40,459

(1)Outparcels acquired are adjacent to shopping centers that we own.

(2)Total price of acquisitions includes closing costs and credits.

The aggregate purchase price of the assets acquired during the six months ended June 30, 2022 and 2021 were allocated as follows (in thousands):


	June 30, 2022		June 30, 2021
ASSETS
Land and improvements	$	44,191	$	23,914
Building and improvements	116,087		13,990
In-place lease assets	14,346		4,155
Above-market lease assets	2,362		52
Total assets	176,986		42,111

LIABILITIES
Below-market lease liabilities	6,800		1,652
Total liabilities	6,800		1,652

Net assets acquired	$	170,186	$	40,459

The weighted-average amortization periods for in-place, above-market, and below-market lease intangibles acquired during the six months ended June 30, 2022 and 2021 are as follows (in years):


	June 30, 2022	June 30, 2021
Acquired in-place leases	15	7
Acquired above-market leases	8	5
Acquired below-market leases	16	6

Property Dispositions—The following table summarizes our real estate disposition activity (dollars in thousands):


	Six Months Ended June 30,
	2022		2021
Number of properties sold(1)	3		13
Number of outparcels sold(2)	2		1
Contract Price	$	28,342	$	125,247
Proceeds from sale of real estate, net(3)