SEC Filing | Phillips Edison

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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, 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 113.9 million shares of the registrant’s Common Stock, $0.01 par value per share, outstanding as of April 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 M ARCH 31, 2022 AND DECEMBER 31, 2021	2
		CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021	3
		CONSOLIDATED STATEMENTS OF EQUITY FOR THE THREE MONTHS ENDED MARCH 31 , 202 2 AND 2021	4
		CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 3 1 , 202 2 AND 2021	5
		NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2022
	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	12
	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	34
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, 2022 FORM 10-Q									1


w PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2022 AND DECEMBER 31, 2021

(Condensed and Unaudited)

(In thousands, except per share amounts)


	March 31, 2022		December 31, 2021
ASSETS
Investment in real estate:
Land and improvements	$	1,611,991	$	1,586,993
Building and improvements	3,423,548		3,355,433
In-place lease assets	460,127		452,504
Above-market lease assets	69,187		68,736
Total investment in real estate assets	5,564,853		5,463,666
Accumulated depreciation and amortization	(1,161,965)		(1,110,426)
Net investment in real estate assets	4,402,888		4,353,240
Investment in unconsolidated joint ventures	30,491		31,326
Total investment in real estate assets, net	4,433,379		4,384,566
Cash and cash equivalents	5,063		92,585
Restricted cash	12,406		22,944
Goodwill	29,066		29,066
Other assets, net	153,720		138,050
Real estate investments and other assets held for sale	6,547		1,557
Total assets	$	4,640,181	$	4,668,768

LIABILITIES AND EQUITY
Liabilities:
Debt obligations, net	$	1,876,208	$	1,891,722
Below-market lease liabilities, net	107,869		107,526
Earn-out liability	—		52,436
Derivative liabilities	2,217		24,096
Deferred income	21,941		19,145
Accounts payable and other liabilities	94,079		97,229
Liabilities of real estate investments held for sale	198		288
Total liabilities	2,102,512		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 March 31, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value per share, 650,000 shares authorized, 113,819 and 19,550
shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	1,138		196
Class B common stock, $0.01 par value per share, 350,000 shares authorized, zero and 93,665
shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	—		936
Additional paid-in capital (“APIC”)	3,276,151		3,264,038
Accumulated other comprehensive loss (“AOCI”)	(160)		(24,819)
Accumulated deficit	(1,111,673)		(1,090,837)
Total stockholders’ equity	2,165,456		2,149,514
Noncontrolling interests	372,213		326,812
Total equity	2,537,669		2,476,326
Total liabilities and equity	$	4,640,181	$	4,668,768

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									2

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Condensed and Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31,
		2022		2021
Revenues:
Rental income		$	138,748	$	127,623
Fees and management income		2,461		2,286
Other property income		954		472
Total revenues		142,163		130,381
Operating Expenses:
Property operating		23,320		22,202
Real estate taxes		17,491		16,573
General and administrative		11,532		9,341
Depreciation and amortization		57,226		55,341
Impairment of real estate assets		—		5,000
Total operating expenses		109,569		108,457
Other:
Interest expense, net		(18,199)		(20,063)
Gain on disposal of property, net		1,368		13,841
Other expense, net		(4,365)		(15,585)
Net income		11,398		117
Net income attributable to noncontrolling interests		(1,319)		(14)
Net income attributable to stockholders		$	10,079	$	103
Earnings per share of common stock:
Net income per share attributable to stockholders - basic and diluted (see Note 10)		$	0.09	$	0.00

Comprehensive income:
Net income		$	11,398	$	117
Other comprehensive income:
Change in unrealized value on interest rate swaps		27,573		12,120
Comprehensive income		38,971		12,237
Net income attributable to noncontrolling interests		(1,319)		(14)
Change in unrealized value on interest rate swaps attributable to noncontrolling interests		(2,702)		(1,509)
Reallocation of comprehensive loss upon conversion of noncontrolling interests		(212)		$	—
Comprehensive income attributable to stockholders		$	34,738	$	10,714

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									3

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Condensed and Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31, 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	—	—		—	—		—		10,611		—		10,611		1,509		12,120
Common distributions declared, $0.255 per share	—	—		—	—		—		—		(23,767)		(23,767)		—		(23,767)
Distributions to noncontrolling interests	—	—		—	—		—		—		—		—		(3,319)		(3,319)
Share-based compensation	—	—		47	1		325		—		—		326		784		1,110
Other	—	—		—	—		(29)		—		—		(29)		—		(29)
Net income	—	—		—	—		—		—		103		103		14		117
Balance at March 31, 2021	—	$	—	93,582	$	2,807	$	2,746,891	$	(41,695)	$	(1,023,155)	$	1,684,848	$	324,558	$	2,009,406

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		—	—		17,313		—		—		17,318		(17,318)		—
Reallocation of operating partnership interests	—	—		—	—		(5,667)		(212)		—		(5,879)		5,879		—
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

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									4

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Condensed and Unaudited)

(In thousands)


	Three Months Ended March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	11,398	$	117
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets	56,321		54,341
Impairment of real estate assets	—		5,000
Depreciation and amortization of corporate assets	905		1,000
Net amortization of above- and below-market leases	(1,002)		(838)
Amortization of deferred financing expenses	801		1,227
Amortization of debt and derivative adjustments	586		354
Gain on disposal of property, net	(1,368)		(13,841)
Change in fair value of earn-out liability	1,809		16,000
Straight-line rent	(1,818)		(1,424)
Share-based compensation	3,146		1,110
Return on investment in unconsolidated joint ventures	—		1,546
Other	487		(567)
Changes in operating assets and liabilities:
Other assets, net	(10,978)		(10,787)
Accounts payable and other liabilities	(66)		(4,487)
Net cash provided by operating activities	60,221		48,751
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(101,440)		(39,850)
Capital expenditures	(18,608)		(13,537)
Proceeds from sale of real estate, net	12,770		58,356
Investment in third parties	—		(3,000)
Return of investment in unconsolidated joint ventures	781		2,721
Net cash (used in) provided by investing activities	(106,497)		4,690
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility	102,000		—
Payments on revolving credit facility	(56,000)		—
Payments on mortgages and loans payable	(62,515)		(16,505)
Distributions paid, net of DRIP	(30,926)		(24,296)
Distributions to noncontrolling interests	(4,343)		(4,530)
Repurchases of Class B common stock	—		(77,765)
Other	—		(29)
Net cash used in financing activities	(51,784)		(123,125)
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(98,060)		(69,684)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Beginning of period	115,529		131,937
End of period	$	17,469	$	62,253

RECONCILIATION TO CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	5,063	$	20,258
Restricted cash	12,406		41,995
Cash, cash equivalents, and restricted cash at end of period	$	17,469	$	62,253


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									5

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Condensed and Unaudited)

(In thousands)


	Three Months Ended March 31,
	2022		2021
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	14,849	$	18,891
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	—		194
Accrued capital expenditures	6,486		3,442
Change in distributions payable	(11)		(7,897)
Change in distributions payable - noncontrolling interests	(239)		(1,211)
Change in accrued share repurchase obligation	—		(77,642)
Distributions reinvested	—		7,368

See notes to consolidated financial statements.


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									6

Phillips Edison & Company, Inc.

Notes to Consolidated Financial Statements

(Condensed and Unaudited)
As of and for the period ended March 31, 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 March 31, 2022.

As of March 31, 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, and a 20% equity interest in Necessity Retail Partners (“NRP”), a joint venture that owned one property.

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 three months ended March 31, 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 months ended March 31, 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).

•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


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									7

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.

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, 2022 and 2021, and we retain a full valuation allowance for our deferred tax asset. All income tax amounts are included in Other Expense, Net on our consolidated statements of operations and comprehensive income (“consolidated statements of operations”).

Newly Adopted Accounting Pronouncements—There were no newly adopted accounting pronouncements during the three months ended March 31, 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 March 31,
		2022		2021
Rental income related to fixed lease payments(1)		$	101,510	$	94,966
Rental income related to variable lease payments(1)(2)		33,467		31,401
Straight-line rent amortization(3)		1,695		1,369
Amortization of lease assets		992		827
Lease buyout income		1,964		797
Adjustments for collectibility(4)		(880)		(1,737)
Total rental income		$	138,748	$	127,623

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

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

(3)For the three months ended March 31, 2022 and 2021, includes unfavorable revenue adjustments to straight-line rent for tenants considered non-creditworthy of $1.2 million and $0.8 million, respectively.

(4)Includes general reserves as well as adjustments for tenants not considered creditworthy for which we are recording revenue on a cash basis, per Accounting Standards Codification (“ASC”) Topic 842, Leases.

For the three months ended March 31, 2022 and 2021, we had net favorable changes to general reserves of $0.2 million and $2.3 million, respectively. Additionally, we had net unfavorable adjustments of $1.1 million and $4.0 million, respectively, related to monthly revenue for tenants that we deemed non-creditworthy and for which we were recording revenue on a cash basis.

Approximate future fixed contractual lease payments to be received under non-cancelable operating leases in effect as of March 31, 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	$	303,902
2023	374,916
2024	322,431
2025	266,544
2026	201,848
Thereafter	513,911
Total	$	1,983,552

No single tenant comprised 10% or more of our aggregate annualized base rent (“ABR”) as of March 31, 2022. As of March 31, 2022, our wholly-owned real estate investments in Florida and California represented 12.0% 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 MARCH 31, 2022 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,
	2022		2021
Number of properties acquired	3		2
Number of outparcels acquired(1)	—		2
Contract price	$	100,400	$	39,605
Total price of acquisitions(2)	101,440		39,850

(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 three months ended March 31, 2022 and 2021 were allocated as follows (in thousands):


	March 31, 2022		March 31, 2021
ASSETS
Land and improvements	$	30,274	$	23,305
Building and improvements	65,028		13,990
In-place lease assets	8,557		4,155
Above-market lease assets	708		52
Total assets	104,567		41,502

LIABILITIES
Below-market lease liabilities	3,127		1,652
Total liabilities	3,127		1,652

Net assets acquired	$	101,440	$	39,850

The weighted-average amortization periods for in-place, above-market, and below-market lease intangibles acquired during the three months ended March 31, 2022 and 2021 are as follows (in years):


	March 31, 2022	March 31, 2021
Acquired in-place leases	14	7
Acquired above-market leases	6	5
Acquired below-market leases	24	6

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


	Three Months Ended March 31,
	2022		2021
Number of properties sold	2		6
Number of outparcels sold(1)	—		1
Contract Price	$	13,325	$	60,563
Proceeds from sale of real estate, net(2)	12,770		58,356
Gain on sale of property, net(3)	1,368		14,355

(1)During the three months ended March 31, 2021, the one outparcel sale included the only remaining portion of a property we previously owned; therefore, the sale resulted in a reduction in our total property count.

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

(3)During the three months ended March 31, 2021, Gain on Disposal of Property, Net on the consolidated statements of operations includes miscellaneous write-off activity, which is not included in gain on sale of property, net, presented above.


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									9

Property Held for Sale—As of March 31, 2022 and December 31, 2021, one property was classified as held for sale. A property classified as held for sale is under contract to sell, with no substantive contingencies, and the prospective buyer had significant funds at risk. A summary of assets and liabilities for the properties held for sale as of March 31, 2022 and December 31, 2021 is below (in thousands):


	March 31, 2022		December 31, 2021
ASSETS
Total investment in real estate assets, net	$	6,332	$	1,554
Other assets, net	215		3
Total assets	$	6,547	$	1,557
LIABILITIES
Below-market lease liabilities, net	$	114	$	284
Accounts payable and other liabilities	84		4
Total liabilities	$	198	$	288


5. OTHER ASSETS, NET

The following is a summary of Other Assets, Net outstanding as of March 31, 2022 and December 31, 2021, excluding amounts related to assets classified as held for sale (in thousands):


	March 31, 2022		December 31, 2021
Other assets, net:
Deferred leasing commissions and costs	$	45,688	$	44,968
Deferred financing expenses(1)	4,898		4,898
Office equipment, including capital lease assets, and other	25,833		24,823
Corporate intangible assets	6,690		6,706
Total depreciable and amortizable assets	83,109		81,395
Accumulated depreciation and amortization	(42,867)		(41,236)
Net depreciable and amortizable assets	40,242		40,159
Accounts receivable, net(2)	39,002		36,762
Accounts receivable - affiliates	638		711
Deferred rent receivable, net(3)	41,756		40,212
Derivative assets	5,365		—
Prepaid expenses and other	18,528		11,655
Investment in third parties	3,000		3,000
Investment in marketable securities	5,189		5,551
Total other assets, net	$	153,720	$	138,050

(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 $4.1 million and $3.5 million of general reserves for uncollectible amounts as of March 31, 2022 and December 31, 2021, respectively. Receivables that were removed for tenants considered to be non-creditworthy were $7.3 million and $9.2 million as of March 31, 2022 and December 31, 2021, respectively.

(3)Net of $5.8 million and $4.7 million of receivables removed as of March 31, 2022 and December 31, 2021, respectively, related to straight-line rent for tenants previously or currently considered to be non-creditworthy.


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									10


6. DEBT OBLIGATIONS

The following is a summary of the outstanding principal balances and interest rates, which include the effect of derivative financial instruments, for our debt obligations as of March 31, 2022 and December 31, 2021 (dollars in thousands):


	Interest Rate(1)	March 31, 2022			December 31, 2021
Revolving credit facility	LIBOR + 1.1%	$	46,000		$	—
Term loans(2)	1.6% - 4.2%	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%	150,805			213,316
Finance lease liability		762			766
Discount on notes payable		(7,512)			(7,680)
Assumed market debt adjustments, net		(1,546)			(1,530)
Deferred financing expenses, net		(12,301)			(13,150)
Total		$	1,876,208		$	1,891,722

Weighted-average interest rate(3)		3.2		%	3.3		%

(1)Interest rates are as of March 31, 2022.

(2)Our term loans carry an interest rate of LIBOR plus a spread. While most of the rates are fixed through the use of swaps, there is a portion of these loans that are not subject to a swap, and thus are still indexed to LIBOR.

(3)Includes the effects of derivative financial instruments (see Notes 7 and 12).

2022 Debt Activity—During the three months ended March 31, 2022, we executed early repayments of $61.0 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, 2022 and December 31, 2021 is summarized below (in thousands):


	March 31, 2022		December 31, 2021
As to interest rate:
Fixed-rate debt(1)	$	1,826,567	$	1,889,082
Variable-rate debt	71,000		25,000
Total	$	1,897,567	$	1,914,082
As to collateralization:
Unsecured debt	$	1,351,000	$	1,305,000
Secured debt	546,567		609,082
Total	$	1,897,567	$	1,914,082

(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, 2022, $930.0 million in variable rate debt is hedged to a fixed rate for a weighted-average of 1.9 years.


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.

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


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									11

months ended March 31, 2022 and 2021, 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 $3.2 million will be reclassified from AOCI as an increase to Interest Expense, Net.

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, 2022 and December 31, 2021 (dollars in thousands):


	March 31, 2022		December 31, 2021
Count	5		5
Notional amount	$	930,000	$	930,000
Fixed LIBOR	1.3% - 2.9%		1.3% - 2.9%
Maturity date	2022-2025		2022 - 2025
Weighted-average term (in years)	1.6		1.9

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,
		2022		2021
Amount of gain recognized in Other Comprehensive Income		$	22,899	$	7,265
Amount of loss reclassified from AOCI into Interest Expense, Net		4,674		4,855

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, 2022, 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, was approximately $2.2 million. As of March 31, 2022, 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 $2.2 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 aware of any environmental matters which we believe are reasonably likely to have a material 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 certain related-party joint ventures. We capitalize Silver Rock in accordance with applicable regulatory requirements.

Silver Rock established 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.

As of March 31, 2022, we had four letters of credit outstanding totaling approximately $9.0 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 the Board. Our charter does not provide for cumulative voting in the election of directors.


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									12

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. As of March 31, 2022, we have issued zero shares under the ATM program.

Reverse Stock Split—On July 2, 2021, we effected 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 OP units. Neither the number of authorized shares nor the par value of the common stock were impacted. As a result of the reverse split, every three shares of our common stock or OP units were automatically combined and converted into one issued and outstanding share of common stock or OP unit rounded to the nearest 1/100th share. The reverse stock split impacted all common stock and OP units proportionately and had no impact on any stockholder’s percentage ownership of common stock.

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

Our Class B common stock was identical to our common stock, except that it was not listed on a national securities exchange. 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.

Underwritten IPO—On July 19, 2021, we completed an underwritten IPO and issued 17.0 million shares of common stock at an offering price to the public of $28.00 per share. We used a portion of the net proceeds to reduce our leverage and used the remaining amount to fund external growth with property acquisitions and for other general corporate uses. As part of the underwritten IPO, underwriters were granted an option exercisable within 30 days from July 14, 2021 to purchase up to an additional 2.6 million shares of common stock at the underwritten IPO price, less underwriting discounts and commissions. On July 29, 2021, the underwriters exercised their option. The underwritten IPO, including the underwriters’ overallotment election, resulted in gross proceeds of $547.4 million.

Distributions—Distributions paid to stockholders and OP unit holders of record subsequent to March 31, 2022 were as follows (dollars in thousands, excluding per share amounts):

Month

Date of Record

Date Distribution Paid

Monthly Distribution Rate

Cash Distribution

March

3/15/2022

4/1/2022

0.09

11,520

April

4/15/2022

5/2/2022

0.09

11,520

On May 4, 2022, our Board authorized 2022 distributions for May, June, and July of $0.09 per share to the stockholders of record at the close of business on May 16, 2022, June 15, 2022, and July 15, 2022, respectively. OP unit holders will receive distributions at the same rate as common stockholders, subject to certain withholdings.

Convertible Noncontrolling Interests—As of March 31, 2022 and December 31, 2021, we had approximately 14.5 million and 13.4 million outstanding 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, 2022 and December 31, 2021 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, 2022 and 2021 (dollars and shares in thousands):


	Three Months Ended March 31,
		2022		2021
OP units converted into shares of common stock(1)		533		—
Distributions paid on OP units(2)		$	4,104	$	3,319

(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 paid on OP units are included in Distributions to Noncontrolling Interests on the consolidated statements of equity and cash flows.


PHILLIPS EDISON & COMPANY MARCH 31, 2022 FORM 10-Q									13

Estimated Value per Share—Prior to our underwritten IPO, on April 29, 2021, our Board increased the estimated value per share (“EVPS”) of our common stock to $31.65 from $26.25 based substantially on the estimated market value of our portfolio of real estate properties and our third-party investment management business as of March 31, 2021. We engaged a third-party valuation firm to provide a calculation of the range in EVPS of our common stock as of March 31, 2021, which reflected certain balance sheet assets and liabilities as of that date.

Dividend Reinvestment Plan and Share Repurchase Program (“SRP”)—On August 4, 2021, as a result of our underwritten IPO, our Board approved the termination of the DRIP and the SRP.


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,
	2022		2021
Numerator:
Net income attributable to stockholders - basic	$	10,079	$	103
Net income attributable to convertible OP units(1)	1,319		14
Net income - diluted	$	11,398	$	117
Denominator:
Weighted-average shares - basic	113,571		93,490
OP units(1)	14,558		13,354
Dilutive restricted stock awards	374		151
Adjusted weighted-average shares - diluted	128,503		106,995
Earnings per common share:
Basic and diluted income per share	$	0.09	$	0.00

(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,
		2022		2021
Recurring fees(1)		$	1,271	$	1,125
Transactional revenue and reimbursements(2)		394		468
Insurance premiums(3)		796		693
Total fees and management income		$	2,461	$	2,286

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

(2)Transactional revenue includes items such as leasing commissions, construction management fees, and acquisition fees.

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


PHILLIPS EDISON & COMPANY MARCH 31, 2022 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 has 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, 2022, the potential “make-whole amount” on the estimated aggregate amount of built-in gain subject to protection under the agreements is approximately $143.3 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—We are the limited guarantor for up to $190 million, capped at $50 million in most instances, of debt for our NRP joint venture. As of March 31, 2022, the outstanding loan balance related to our NRP joint venture was $15.3 million. As of March 31, 2022, we were also the limited guarantor of a $175 million mortgage loan secured by GRP I properties. Our guaranty for both the NRP and GRP I debt is limited to being the non-recourse carveout guarantor and the environmental indemnitor. Further, in both cases, we are also party to an agreement with our institutional joint venture partners in which any potential liability under such guarantees will be apportioned between us and our applicable joint venture partner based on our respective ownership percentages in the applicable joint venture. We have no liability recorded on our consolidated balance sheets for either guaranty as of March 31, 2022 and December 31, 2021.


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, 2022 and December 31, 2021 (in thousands):

March 31, 2022

December 31, 2021

Recorded Principal Balance(1)

Fair Value

Recorded Principal Balance(1)

Fair Value

Revolving credit facility