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peco-20230331

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 March 31, 2023

☐ 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 117.3 million shares of the registrant’s Common Stock, $0.01 par value per share, outstanding as of April 26, 2023.

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 M ARCH 31 , 202 3 AND DECEMBER 31, 2022	2
		CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022	3
		CONSOLIDATED STATEMENTS OF EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022	4
		CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022	5
		NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	NOTE 1	ORGANIZATION	7
	NOTE 2	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	7
	NOTE 3	LEASES	8
	NOTE 4	REAL ESTATE ACTIVITY	9
	NOTE 5	OTHER ASSETS, NET	10
	NOTE 6	DEBT OBLIGATIONS	11
	NOTE 7	DERIVATIVES AND HEDGING ACTIVITIES	11
	NOTE 8	COMMITMENTS AND CONTINGENCIES	12
	NOTE 9	EQUITY	13
	NOTE 10	EARNINGS PER SHARE	14
	NOTE 11	RELATED PARTY TRANSACTIONS	14
	NOTE 12	FAIR VALUE MEASUREMENTS	15
	NOTE 13	SUBSEQUENT EVENTS	17
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33
ITEM 4.		CONTROLS AND PROCEDURES	33

PART II.
ITEM 1.		LEGAL PROCEEDINGS	33
ITEM 1A.		RISK FACTORS	33
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	34
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	34
ITEM 4.		MINE SAFETY DISCLOSURES	34
ITEM 5.		OTHER INFORMATION	34
ITEM 6.		EXHIBITS	35
		SIGNATURES	36


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									1


w PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2023 AND DECEMBER 31, 2022

(Condensed and Unaudited)

(In thousands, except per share amounts)


	March 31, 2023		December 31, 2022
ASSETS
Investment in real estate:
Land and improvements	$	1,701,404	$	1,674,133
Building and improvements	3,639,646		3,572,146
In-place lease assets	478,477		471,507
Above-market lease assets	72,524		71,954
Total investment in real estate assets	5,892,051		5,789,740
Accumulated depreciation and amortization	(1,373,124)		(1,316,743)
Net investment in real estate assets	4,518,927		4,472,997
Investment in unconsolidated joint ventures	26,584		27,201
Total investment in real estate assets, net	4,545,511		4,500,198
Cash and cash equivalents	6,405		5,478
Restricted cash	5,559		11,871
Goodwill	29,066		29,066
Other assets, net	200,373		188,879
Total assets	$	4,786,914	$	4,735,492

LIABILITIES AND EQUITY
Liabilities:
Debt obligations, net	$	1,967,252	$	1,896,594
Below-market lease liabilities, net	111,007		109,799
Accounts payable and other liabilities	111,471		113,185
Deferred income	24,243		18,481
Total liabilities	2,213,973		2,138,059
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 March 31, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value per share, 1,000,000 shares authorized, 117,259 and 117,126 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	1,172		1,171
Additional paid-in capital (“APIC”)	3,382,368		3,383,978
Accumulated other comprehensive income (“AOCI”)	15,181		21,003
Accumulated deficit	(1,186,074)		(1,169,665)
Total stockholders’ equity	2,212,647		2,236,487
Noncontrolling interests	360,294		360,946
Total equity	2,572,941		2,597,433
Total liabilities and equity	$	4,786,914	$	4,735,492

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									2

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Condensed and Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31,
		2023		2022
Revenues:
Rental income		$	147,728	$	138,748
Fees and management income		2,478		2,461
Other property income		858		954
Total revenues		151,064		142,163
Operating Expenses:
Property operating		25,062		23,320
Real estate taxes		18,056		17,491
General and administrative		11,533		11,532
Depreciation and amortization		58,498		57,226
Total operating expenses		113,149		109,569
Other:
Interest expense, net		(19,466)		(18,199)
Gain on disposal of property, net		942		1,368
Other expense, net		(755)		(4,365)
Net income		18,636		11,398
Net income attributable to noncontrolling interests		(2,017)		(1,319)
Net income attributable to stockholders		$	16,619	$	10,079
Earnings per share of common stock:
Net income per share attributable to stockholders - basic and diluted (see Note 10)		$	0.14	$	0.09

Comprehensive income:
Net income		$	18,636	$	11,398
Other comprehensive (loss) income:
Change in unrealized value on interest rate swaps		(6,499)		27,573
Comprehensive income		12,137		38,971
Net income attributable to noncontrolling interests		(2,017)		(1,319)
Change in unrealized value on interest rate swaps attributable to noncontrolling interests		704		(2,702)
Reallocation of comprehensive loss upon conversion of noncontrolling interests		(27)		(212)
Comprehensive income attributable to stockholders		$	10,797	$	34,738

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									3

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Condensed and Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31, 2023 and 2022
	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, 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)		—		—		—		—		—		—
Change in unrealized value on interest rate swaps	—	—		—	—		—		24,871		—		24,871		2,702		27,573
Common distributions declared, $0.27 per share	—	—		—	—		—		—		(30,915)		(30,915)		—		(30,915)
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(4,104)		(4,104)
Share-based compensation	71	1		—	—		467		—		—		468		2,678		3,146
Conversion of noncontrolling interests	533	5		—	—		11,646		(212)		—		11,439		(11,439)		—
Settlement of earn-out liability	—	—		—	—		—		—		—		—		54,245		54,245
Net income	—	—		—	—		—		—		10,079		10,079		1,319		11,398
Balance at March 31, 2022	113,819	$	1,138	—	$	—	$	3,276,151	$	(160)	$	(1,111,673)	$	2,165,456	$	372,213	$	2,537,669

Balance at January 1, 2023	117,126	$	1,171	—	$	—	$	3,383,978	$	21,003	$	(1,169,665)	$	2,236,487	$	360,946	$	2,597,433
Change in unrealized value on interest rate swaps	—	—		—	—		—		(5,795)		—		(5,795)		(704)		(6,499)
Common distributions declared, $0.2799 per share	—	—		—	—		—		—		(33,028)		(33,028)		—		(33,028)
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(4,073)		(4,073)
Share-based compensation	133	1		—	—		(1,610)		—		—		(1,609)		2,081		472
Conversion of noncontrolling interests	—	—		—	—		—		(27)		—		(27)		27		—
Net income	—	—		—	—		—		—		16,619		16,619		2,017		18,636
Balance at March 31, 2023	117,259	$	1,172	—	$	—	$	3,382,368	$	15,181	$	(1,186,074)	$	2,212,647	$	360,294	$	2,572,941

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									4

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Condensed and Unaudited)

(In thousands)


	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	18,636	$	11,398
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets	57,953		56,321

Depreciation and amortization of corporate assets	545		905
Net amortization of above- and below-market leases	(1,228)		(1,002)
Amortization of deferred financing expenses	894		801
Amortization of debt and derivative adjustments	667		586
Gain on disposal of property, net	(942)		(1,368)
Change in fair value of earn-out liability	—		1,809
Straight-line rent	(2,566)		(1,818)
Share-based compensation	472		3,146
Return on investment in unconsolidated joint ventures	11		—
Other	(350)		487
Changes in operating assets and liabilities:
Other assets, net	(16,715)		(10,978)
Accounts payable and other liabilities	5,386		(66)
Net cash provided by operating activities	62,763		60,221
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(69,431)		(101,440)
Capital expenditures	(23,878)		(18,608)
Proceeds from sale of real estate, net	1,091		12,770
Return of investment in unconsolidated joint ventures	606		781
Insurance proceeds for property damage claims	194		—
Net cash used in investing activities	(91,418)		(106,497)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility	162,000		102,000
Payments on revolving credit facility	(76,000)		(56,000)
Payments on mortgages and loans payable	(25,477)		(62,515)
Distributions paid	(33,276)		(30,926)
Distributions to noncontrolling interests	(3,977)		(4,343)
Net cash provided by (used in) financing activities	23,270		(51,784)
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(5,385)		(98,060)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Beginning of period	17,349		115,529
End of period	$	11,964	$	17,469

RECONCILIATION TO CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	6,405	$	5,063
Restricted cash	5,559		12,406
Cash, cash equivalents, and restricted cash at end of period	$	11,964	$	17,469


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									5

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(Condensed and Unaudited)

(In thousands)


	Three Months Ended March 31,
	2023		2022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	15,166	$	14,849
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	888		—
Accrued capital expenditures	7,570		6,486
Assumed debt obligations, net	9,619		—
Assumed below-market debt	443		—
Change in distributions payable	(248)		(11)
Change in distributions payable - noncontrolling interests	96		(239)

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									6

Phillips Edison & Company, Inc.

Notes to Consolidated Financial Statements

(Condensed and Unaudited)


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, Grocery Retail Partners I LLC (“GRP I”) and Necessity Retail Partners (“NRP”), in which we have partial ownership interests, and one private fund (collectively, the “Managed Funds”) as of March 31, 2023.

As of March 31, 2023, we wholly-owned 275 real estate properties. Additionally, we owned a 14% interest in GRP I, which owned 20 properties.

NRP—As of March 31, 2023, we owned a 20% equity interest in NRP. NRP was initially formed in March 2016 pursuant to the terms of a joint venture agreement between Phillips Edison Grocery Center REIT II, Inc. and an affiliate of TPG Real Estate and is set to expire seven years after the date of the joint venture contribution agreement unless otherwise extended by the members. In May 2022, we sold the final property in the joint venture as a result of the planned expiration in 2023. With the monetization of the joint venture, we exceeded the targeted return and as such were paid compensation of $0.1 million and $0.2 million during the three months ended March 31, 2023 and 2022, respectively, which is recorded in Fees and Management Income in our consolidated statements of operations and comprehensive income (“consolidated statements of operations”).


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 three months ended March 31, 2023, except for those discussed below. For a full summary of our significant accounting policies, refer to our 2022 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 21, 2023.

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 (“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, 2022, which are included in our 2022 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 months ended March 31, 2023 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.

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 months ended March 31, 2023 and 2022, 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 three months ended March 31, 2023 that impacted the Company.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									7

Reclassifications—Certain prior period amounts have been reclassified to conform to current year presentation in the consolidated statements of equity. The reallocation of operating partnership interests is now reflected within Conversion of Noncontrolling Interests, as opposed to being presented as a separate financial statement line item. There was no impact to the Company’s financial position as a result of this reclassification.


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 March 31,
		2023		2022
Rental income related to fixed lease payments(1)		$	108,864	$	101,510
Rental income related to variable lease payments(1)(2)		35,763		33,467
Straight-line rent amortization(3)		2,443		1,695
Amortization of lease assets		1,216		992
Lease buyout income		355		1,964
Adjustments for collectibility(4)		(913)		(880)
Total rental income		$	147,728	$	138,748

(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 March 31, 2023, 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 2023	$	326,815
2024	403,547
2025	346,840
2026	281,485
2027	216,408
Thereafter	539,314
Total	$	2,114,409

No single tenant comprised 10% or more of our aggregate annualized base rent (“ABR”) as of March 31, 2023. As of March 31, 2023, our wholly-owned real estate investments in Florida and California represented 12.2% and 10.9% 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 (see “Hurricane Ian” in Note 4) and California real estate markets.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									8


4. REAL ESTATE ACTIVITY

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


	Three Months Ended March 31,
	2023		2022
Number of properties acquired	4		3
Contract price	$	78,650	$	100,400
Total price of acquisitions(1)	69,431		101,440

(1)Total price of acquisitions includes closing costs less credits and assumed debt obligations.

The aggregate purchase price of the assets acquired during the three months ended March 31, 2023 and 2022 were allocated as follows (in thousands):


	March 31, 2023		March 31, 2022
ASSETS
Land and improvements	$	25,079	$	30,274
Building and improvements	49,853		65,028
In-place lease assets	592		8,557
Above-market lease assets	7,111		708
Below-market debt	443		—
Total assets	83,078		104,567

LIABILITIES
Debt obligations, net	9,619		—
Below-market lease liabilities	4,028		3,127
Total liabilities	13,647		3,127

Net assets acquired	$	69,431	$	101,440

The weighted-average amortization periods for in-place, above-market, and below-market lease intangibles and below-market debt acquired during the three months ended March 31, 2023 and 2022 are as follows (in years):


	March 31, 2023	March 31, 2022
Acquired in-place leases	12	14
Acquired above-market leases	8	6
Acquired below-market leases	18	24
Assumed below-market debt	2	—

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


	Three Months Ended March 31,
	2023		2022
Number of properties sold	—		2
Contract price	$	—	$	13,325
Proceeds from sale of real estate, net(1)(2)	1,091		12,770
Gain on disposal of property, net(2)	942		1,368

(1)Total proceeds from sale of real estate, net includes closing costs less credits.

(2)Activity for the three months ended March 31, 2023 was primarily related to land acquired from us by local authorities.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									9

Hurricane Ian - On September 28, 2022, Hurricane Ian struck the southeast United States and caused various amounts of damage to our properties located in the region. Based on our estimates at March 31, 2023, we expect to collect insurance proceeds of $1.0 million (net of deductibles and self-insurance of $1.7 million) equal to the replacement cost of the damaged properties. During 2022, we recorded gross cumulative accelerated depreciation of $2.7 million, which was reduced by expected insurance recoveries, for damages sustained to the properties. We also recognized a receivable for estimated insurance recoveries in excess of the deductible. As of March 31, 2023, we have received no insurance recoveries and have a receivable balance of $1.0 million, which is recorded in Other Assets, Net on our consolidated balance sheets.


5. OTHER ASSETS, NET

The following is a summary of Other Assets, Net outstanding as of March 31, 2023 and December 31, 2022, excluding amounts related to assets classified as held for sale (in thousands):


	March 31, 2023		December 31, 2022
Other assets, net:
Deferred leasing commissions and costs	$	50,253	$	49,687
Deferred financing expenses(1)	9,069		8,984
Office equipment, including capital lease assets, and other	23,132		23,051
Corporate intangible assets	6,692		6,692
Total depreciable and amortizable assets	89,146		88,414
Accumulated depreciation and amortization	(48,407)		(47,483)
Net depreciable and amortizable assets	40,739		40,931
Accounts receivable, net(2)	43,471		37,274
Accounts receivable - affiliates	1,470		513
Deferred rent receivable, net(3)	54,729		52,141
Derivative assets	19,200		25,853
Prepaid expenses and other	22,745		14,575
Investment in third parties	9,800		9,800
Investment in marketable securities	8,219		7,792
Total other assets, net	$	200,373	$	188,879

(1)Deferred financing expenses per the above table are related to our revolving credit facility, and as such we have elected to classify them as an asset rather than as a contra-liability.

(2)Net of $2.8 million and $3.0 million of general reserves for uncollectible amounts as of March 31, 2023 and December 31, 2022, respectively. Receivables that were removed for tenants considered to be non-creditworthy were $5.9 million and $6.2 million as of March 31, 2023 and December 31, 2022, respectively.

(3)Net of $4.0 million and $4.2 million of receivables removed as of March 31, 2023 and December 31, 2022, respectively, related to straight-line rent for tenants previously or currently considered to be non-creditworthy.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									10


6. DEBT OBLIGATIONS

The following is a summary of the outstanding principal balances and interest rates, which includes the effect of derivative financial instruments, for our debt obligations as of March 31, 2023 and December 31, 2022 (dollars in thousands):


	Interest Rate(1)	March 31, 2023			December 31, 2022
Revolving credit facility	SOFR + 1.1%	$	165,000		$	79,000
Term loans(2)	2.5% - 6.0%	955,000			955,000
Senior unsecured notes due 2031	2.6%	350,000			350,000
Secured loan facilities	3.4% - 3.5%	395,000			395,000
Mortgages	3.5% - 6.4%	117,549			133,199
Finance lease liability		529			585
Discount on notes payable		(6,828)			(7,001)
Assumed market debt adjustments, net		(1,512)			(1,226)
Deferred financing expenses, net		(7,486)			(7,963)
Total		$	1,967,252		$	1,896,594

Weighted-average interest rate(3)		3.8		%	3.6		%

(1)Interest rates are as of March 31, 2023.

(2)Our term loans carry an interest rate of the Secured Overnight Financing Rate (“SOFR”) plus a spread. While most of the rates are fixed through the use of swaps, a portion of these loans are not subject to a swap, and thus are still indexed to SOFR.

(3)Includes the effects of derivative financial instruments that were effective as of March 31, 2023 and December 31, 2022 (see Notes 7 and 12).

2023 Debt Activity—During the three months ended March 31, 2023, we repaid $25.4 million in mortgage debt.

Debt Allocation—The allocation of total debt between fixed-rate and variable-rate as well as between secured and unsecured, excluding market debt adjustments, discount on senior notes, and deferred financing expenses, net, and including the effects of derivative financial instruments as of March 31, 2023 and December 31, 2022 is summarized below (in thousands):


	March 31, 2023		December 31, 2022
As to interest rate:
Fixed-rate debt(1)	$	1,618,078	$	1,633,784
Variable-rate debt	365,000		279,000
Total	$	1,983,078	$	1,912,784
As to collateralization:
Unsecured debt	$	1,470,000	$	1,384,000
Secured debt	513,078		528,784
Total	$	1,983,078	$	1,912,784

(1)Fixed-rate debt includes, and variable-rate debt excludes, the portion of such debt that has been hedged by interest rate derivatives. As of March 31, 2023, $755 million in variable-rate debt is hedged to a fixed rate for a weighted-average period of 1.3 years (see Notes 7 and 12).


7. DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives—We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposure to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of our debt funding, and through the use of derivative financial instruments. Specifically, we enter into interest rate swaps to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our investments and borrowings.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									11

Cash Flow Hedges of Interest Rate Risk—Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The changes in the fair value of derivatives designated, and that qualify, as cash flow hedges are recorded in AOCI and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2023 and 2022, such derivatives were used to hedge the variable cash flows associated with certain variable-rate debt. Amounts reported in AOCI related to these derivatives will be reclassified to Interest Expense, Net as interest payments are made on the variable-rate debt. During the next twelve months, we estimate that an additional $15.5 million will be reclassified from AOCI as a decrease to Interest Expense, Net.

On March 15, 2023, we entered into an interest rate swap which has a notional amount of $200 million and swaps SOFR for a fixed rate of approximately 3.36% effective September 15, 2023 and maturing September 1, 2026.

The following is a summary of our interest rate swaps that were designated as cash flow hedges of interest rate risk as of March 31, 2023 and December 31, 2022 (dollars in thousands):


	March 31, 2023		December 31, 2022
Count	5		4
Notional amount(1)	$	755,000	$	755,000
Fixed SOFR	1.2% - 3.4%		1.2% - 2.8%
Maturity date	2023-2026		2023-2025
Weighted-average term (in years)	2.1		1.6

(1) Notional amount includes only interest rate swaps that were effective as of March 31, 2023 and December 31, 2022.

The table below details the nature of the gain and loss recognized on interest rate derivatives designated as cash flow hedges in the consolidated statements of operations (in thousands):


	Three Months Ended March 31,
		2023		2022
Amount of (loss) gain recognized in Other Comprehensive (Loss) Income		$	(1,952)	$	22,899
Amount of (gain) loss reclassified from AOCI into Interest Expense, Net		(4,547)		4,674

Credit-risk-related Contingent Features—We have agreements with our derivative counterparties that contain provisions where, if we default, or are capable of being declared in default, on any of our indebtedness, we could also be declared to be in default on our derivative obligations. As of March 31, 2023, the fair value of our derivatives in a net liability position, which included accrued interest but excluded any adjustment for nonperformance risk related to these agreements and approximated $0.2 million, are recorded in Accounts Payable and Other Liabilities on our consolidated balance sheets. As of March 31, 2023, we had not posted any collateral related to these agreements and were not in breach of any agreement provisions. If we had breached any of these provisions, we could have been required to settle our obligations under the agreements at their termination value of $0.2 million.


8. COMMITMENTS AND CONTINGENCIES

Litigation—We are involved in various claims and litigation matters arising in the ordinary course of business, some of which involve claims for damages. Many of these matters are covered by insurance, although they may nevertheless be subject to deductibles or retentions. Although the ultimate liability for these matters cannot be determined, based upon information currently available, we believe the resolution of such claims and litigation will not have a material adverse effect on our consolidated financial statements.

Environmental Matters—In connection with the ownership and operation of real estate, we may potentially be liable for costs and damages related to environmental matters. In addition, we may own or acquire certain properties that are subject to environmental remediation. Depending on the nature of the environmental matter, the seller of the property, a tenant of the property, and/or another third party may be responsible for environmental remediation costs related to a property. Additionally, in connection with the purchase of certain properties, the respective sellers and/or tenants may agree to indemnify us against future remediation costs. We also carry environmental liability insurance on our properties that provides limited coverage for any remediation liability and/or pollution liability for third-party bodily injury and/or property damage claims for which we may be liable. We are not currently aware of any environmental matters that we believe are reasonably likely to have a material adverse effect on our consolidated financial statements.

Captive Insurance—Our captive insurance company, Silver Rock Insurance, Inc. (“Silver Rock”), provides general liability insurance, wind, reinsurance, and other coverage to us and our GRP I joint venture. We capitalize Silver Rock in accordance with applicable regulatory requirements.

Silver Rock establishes annual premiums based on the past loss experience of the insured properties. An independent third party was engaged to perform an actuarial estimate of projected future claims, related deductibles, and projected future expenses necessary to fund associated risk management programs. Premiums paid to Silver Rock may be adjusted based on this estimate, and such premiums may be reimbursed by tenants pursuant to specific lease terms.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									12

As of March 31, 2023, we had four letters of credit outstanding totaling approximately $12.5 million to provide security for our obligations under Silver Rock’s insurance and reinsurance contracts.


9. EQUITY

General—The holders of common stock are entitled to one vote per share on all matters voted on by stockholders, including one vote per nominee in the election of our Board of Directors (the “Board”). Our charter does not provide for cumulative voting in the election of directors.

At-the-Market Offering (“ATM”)—On February 10, 2022, we and the Operating Partnership entered into a sales agreement relating to the potential sale of shares of common stock pursuant to a continuous offering program. In accordance with the terms of the sales agreement, we may offer and sell shares of our common stock having an aggregate offering price of up to $250 million from time to time through our sales agents, or, if applicable, as forward sellers. During the three months ended March 31, 2023 and 2022, no shares of our common stock were issued under the ATM program. As of March 31, 2023, $159.9 million of common stock remained available for issuance under the ATM program.

Class B Common Stock—On June 18, 2021, our stockholders approved an amendment to our charter (the “Articles of Amendment”) that effected a change, wherein each share of our common stock outstanding at the time the Articles of Amendment became effective was converted into one share of a newly created class of Class B common stock (the “Recapitalization”).

Per the terms of the Recapitalization, on January 18, 2022, each share of our Class B common stock automatically converted into one share of our listed common stock.

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.

Distributions—We declared 2023 monthly distributions of $0.0933 per common share and Operating Partnership unit (“OP unit”) for each month beginning January 2023 through April 2023. Distributions paid to stockholders and OP unit holders of record subsequent to March 31, 2023 were as follows (dollars in thousands, excluding per share amounts):

Month

Date of Record

Date Distribution Paid

Monthly Distribution Rate

Cash Distribution

March

3/15/2023

4/3/2023

0.0933

12,226

April

4/17/2023

5/1/2023

0.0933

12,226

Convertible Noncontrolling Interests—As of March 31, 2023 and December 31, 2022, we had approximately 14.3 million and 14.1 million outstanding non-voting OP units, respectively. Additionally, certain of our outstanding restricted share and performance share awards will result in the issuance of OP units upon vesting in future periods.

Under the terms of the Fourth Amended and Restated Agreement of Limited Partnership, OP unit holders may elect to cause the Operating Partnership to redeem their OP units. The Operating Partnership controls the form of the redemption, and may elect to redeem OP units for shares of our common stock, provided that the OP units have been outstanding for at least one year, or for cash. As the form of redemption for OP units is within our control, the OP units outstanding as of March 31, 2023 and December 31, 2022 are classified as Noncontrolling Interests within permanent equity on our consolidated balance sheets.

On January 18, 2022, we issued approximately 1.6 million OP units in full settlement of the earn-out liability (see note 12).

The table below is a summary of our OP unit activity for the three months ended March 31, 2023 and 2022 (dollars and shares in thousands):


	Three Months Ended March 31,
		2023		2022
OP units converted into shares of common stock(1)		—		533
Distributions declared on OP units(2)		$	4,073	$	4,104

(1)Prior to the Recapitalization, OP units were converted to shares of common stock at a 1:1 ratio. From the Recapitalization through January 18, 2022, OP units were converted into shares of our Class B common stock at a 1:1 ratio. On January 18, 2022, each share of our Class B common stock automatically converted into one share of our listed common stock, and going forward, OP units will be converted into shares of our common stock at a 1:1 ratio.

(2)Distributions declared on OP units are included in Distributions to Noncontrolling Interests on the consolidated statements of equity.

Share Repurchase Program—On August 3, 2022, our Board approved a new share repurchase program of up to $250 million of common stock. The program may be suspended or discontinued at any time, and does not obligate us to repurchase any dollar amount or particular number of shares. No share repurchases have been made to date under this program.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									13


10. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing Net Income Attributable to Stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution that could occur from share equivalent activity.

The following table provides a reconciliation of the numerator and denominator of the earnings per share calculations (in thousands, except per share amounts):


	Three Months Ended March 31,
		2023		2022
Numerator:
Net income attributable to stockholders - basic		$	16,619	$	10,079
Net income attributable to convertible OP units(1)		2,017		1,319
Net income - diluted		$	18,636	$	11,398
Denominator:
Weighted-average shares - basic		117,223		113,571
OP units(1)		14,234		14,558
Dilutive restricted stock awards		486		374
Adjusted weighted-average shares - diluted		131,943		128,503
Earnings per common share:
Basic and diluted income per share		$	0.14	$	0.09

(1)OP units include units that are convertible into common stock or cash, at the Operating Partnership’s option. The Operating Partnership income or loss attributable to these OP units, which is included as a component of Net Income Attributable to Noncontrolling Interests on the consolidated statements of operations, has been added back in the numerator as these OP units were included in the denominator for all periods presented. OP units are allocated income on a consistent basis with the common stockholder and therefore have no dilutive impact to earnings per share of common stock.


11. RELATED PARTY TRANSACTIONS

Revenue—We have entered into agreements with the Managed Funds related to certain advisory, management, and administrative services we provide to their real estate assets in exchange for fees and reimbursement of certain expenses. Summarized below are amounts included in Fees and Management Income. The revenue includes the fees and reimbursements earned by us from the Managed Funds and other revenues that are not in the scope of ASC Topic 606, Revenue from Contracts with Customers, but that are included in this table for the purpose of disclosing all related party revenues (in thousands):


	Three Months Ended March 31,
		2023		2022
Recurring fees(1)		$	1,012	$	1,075
Realized performance income(2)		75		196
Transactional revenue and reimbursements(3)		542		394
Insurance premiums(4)		849		796
Total fees and management income		$	2,478	$	2,461

(1)Recurring fees include asset management fees and property management fees.

(2)Realized performance income includes fees received related to the achievement of certain performance targets in our NRP joint venture.

(3)Transactional revenue includes items such as leasing commissions and construction management fees.

(4)Insurance premium income includes amounts for reinsurance from third parties not affiliated with us.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									14

Tax Protection Agreement—Through our Operating Partnership, we are currently party to a tax protection agreement (the “2017 TPA”) with certain partners that contributed property to our Operating Partnership on October 4, 2017, among them certain of our executive officers, including Jeffrey S. Edison, our Chairman and Chief Executive Officer, under which the Operating Partnership agreed to indemnify such partners for tax liabilities that could accrue to them personally related to our potential disposition of certain properties within our portfolio. The 2017 TPA will expire on October 4, 2027. On July 19, 2021, we entered into an additional tax protection agreement (the “2021 TPA”) with certain of our executive officers, including Mr. Edison. The 2021 TPA carries a term of four years and will become effective upon the expiration of the 2017 TPA. As of March 31, 2023, the potential “make-whole amount” on the estimated aggregate amount of built-in gain subject to protection under the agreements is approximately $147.8 million. The protection provided under the terms of the 2021 TPA will expire in 2031. We have not recorded any liability related to the 2017 TPA or the 2021 TPA on our consolidated balance sheets for any periods presented, nor recognized any expense since the inception of the 2017 TPA, owing to the fact that any potential liability under the agreements is controlled by us and we believe we will either (i) continue to own and operate the protected properties or (ii) be able to successfully complete tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (unless there is a change in applicable law) or complete other tax-efficient transactions to avoid any liability under the agreements.

Other Related Party Matters— As of March 31, 2023, we were the limited guarantor of a $175 million mortgage loan secured by GRP I properties. Our guaranty for the GRP I debt is limited to being the non-recourse carveout guarantor and the environmental indemnitor. Further, we are also party to an agreement with GRP I in which any potential liability under such guarantee will be apportioned between us and GRP I based on our respective ownership percentages in the joint venture. We have no liability recorded on our consolidated balance sheets for the guaranty as of March 31, 2023 and December 31, 2022.


12. FAIR VALUE MEASUREMENTS

The following describes the methods we use to estimate the fair value of our financial and nonfinancial assets and liabilities:

Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, and Accounts Payable—We consider the carrying values of these financial instruments to approximate fair value because of the short period of time between origination of the instruments and their expected realization.

Real Estate Investments—The purchase prices of the investment properties, including related lease intangible assets and liabilities, are allocated at estimated fair value based on Level 3 inputs, such as discount rates, capitalization rates, comparable sales, replacement costs, income and expense growth rates, and current market rents and allowances as determined by management.

Debt Obligations—We estimate the fair value of our revolving credit facility, term loans, secured portfolio of loans, and mortgages by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by our lenders using Level 3 inputs. The discount rates used approximate current lending rates for loans or groups of loans with similar maturities and credit quality, assuming the debt is outstanding through maturity and considering the debt’s collateral (if applicable). We have utilized market information, as available, or present value techniques to estimate the amounts required to be disclosed. We estimate the fair value of our senior unsecured notes by using quoted prices in active markets, which are considered Level 1 inputs.

The following is a summary of borrowings as of March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023				December 31, 2022
	Recorded Principal Balance(1)		Fair Value		Recorded Principal Balance(1)		Fair Value
Revolving credit facility	$	165,000	$	165,677	$	79,000	$	79,299
Term loans	949,089		959,281		948,429		959,319
Senior unsecured notes due 2031	343,172		263,277		342,999		257,446
Secured portfolio loan facilities	392,214		343,049		392,093		343,921
Mortgages(2)	117,777		115,763		134,073		132,563
Total	$	1,967,252	$	1,847,047	$	1,896,594	$	1,772,548

(1)As of March 31, 2023 and December 31, 2022, respectively, recorded principal balances include: (i) net deferred financing fees of $7.5 million and $8.0 million; (ii) assumed market debt adjustments of $1.5 million and $1.2 million; and (iii) notes payable discounts of $6.8 million and $7.0 million.

(2)Our finance lease liability is included in the mortgages line item, as presented.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									15

Recurring and Nonrecurring Fair Value Measurements—Our marketable securities and interest rate swaps are measured and recognized at fair value on a recurring basis, while certain real estate assets and liabilities are measured and recognized at fair value as needed. Fair value measurements that occurred as of and during the three months ended March 31, 2023 and the year ended December 31, 2022 were as follows (in thousands):


	March 31, 2023						December 31, 2022
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Recurring
Marketable securities(1)	$	8,219	$	—	$	—	$	7,792	$	—	$	—
Derivative assets(1)	—		19,200		—		—		25,853		—
Derivative liabilities(2)	—		184		—		—		—		—
Nonrecurring
Impaired real estate assets, net(3)	$	—	$	—	$	—	$	—	$	5,225	$	—

(1)We record marketable securities and derivative assets in Other Assets, Net on our consolidated balance sheets.

(2)We record derivative liabilities in Accounts Payable and Other Liabilities on our consolidated balance sheets.

(3)The carrying value of impaired real estate assets may have subsequently increased or decreased after the measurement date due to capital improvements, depreciation, or sale.

Marketable Securities—We estimate the fair value of marketable securities using Level 1 inputs. We utilize unadjusted quoted prices for identical assets in active markets that we have the ability to access.

Derivative Instruments—As of March 31, 2023 and December 31, 2022, we had interest rate swaps that fixed SOFR on portions of our unsecured term loan facilities.

All interest rate swap agreements are measured at fair value on a recurring basis. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

To comply with the provisions of ASC Topic 820, Fair Value Measurement, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although we determined that the significant inputs used to value our derivatives fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparties. However, as of March 31, 2023 and December 31, 2022, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Real Estate Asset Impairment—Our real estate assets are measured and recognized at fair value, less costs to sell for held-for-sale properties, on a nonrecurring basis dependent upon when we determine an impairment has occurred. There were no impairment charges recorded during the three months ended March 31, 2023 and March 31, 2022.

On a quarterly basis, we employ a multi-step approach to assess our real estate assets for possible impairment and record any impairment charges identified. The first step is the identification of potential triggering events, such as significant decreases in occupancy or the presence of large dark or vacant spaces. If we observe any of these indicators for a shopping center, we then perform an additional screen test consisting of a years-to-recover analysis to determine if we will recover the net book value of the property over its remaining economic life based upon net operating income (“NOI”) as forecasted for the current year. In the event that the results of this first step indicate a triggering event for a center, we proceed to the second step, utilizing an undiscounted cash flow model for the center to identify potential impairment. If the undiscounted cash flows are less than the net book value of the center as of the balance sheet date, we record an impairment charge based on the fair value determined in the third step. In performing the third step, we utilize market data such as capitalization rates and sales price per square foot on comparable recent real estate transactions to estimate the fair value of the real estate assets. We also utilize expected net sales proceeds to estimate the fair value of any centers that are actively being marketed for sale.

In addition to these procedures, we also review undeveloped or unimproved land parcels that we own for evidence of impairment and record any impairment charges as necessary. Primary impairment triggers for these land parcels are changes to our plans or intentions with regards to such properties, or planned dispositions at prices that are less than the current carrying values.


PHILLIPS EDISON & COMPANY MARCH 31, 2023 FORM 10-Q									16

Earn-out—As part of our acquisition of Phillips Edison Limited Partnership (“PELP”) in 2017, an earn-out structure was established which gave PELP the opportunity