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Item 1A. Risk Factors

2020-08-13 compared with 2020-05-12 · 61 added, 25 removed, 21 unchanged (80% of the section changed)

1 unchanged sentence

Securities and Exchange Commission (“SEC”) on March 12, 2020 :

If we continue to pay distributions from sources other than our cash flows from operations, we may not be able to sustain our distribution rate, we may have fewer funds available for investment in properties and other assets, and our stockholders’ overall returns may be reduced.

If we pay distributions from sources other than our cash flows from operations, we may not be able to sustain our distribution rate, we may have fewer funds available for investment in properties and other assets, and our stockholders’ overall returns may be reduced.

Our organizational documents permit us to pay distributions from any source without limitation (other than those limitations set forth under Maryland law).

To the extent we continue to fund distributions from borrowings, we will have fewer funds available for investment in real estate properties and other real estate-related assets, and our stockholders’ overall returns may be reduced.

To the extent we fund distributions from borrowings, we will have fewer funds available for investment in real estate properties and other real estate-related assets, and our stockholders’ overall returns may be reduced.

At times, we may need to borrow funds to pay distributions, which could increase our operating costs.

Furthermore, if we cannot cover our distributions with cash flows from operations, we may be unable to sustain our distribution rate.

For the three months ended March 31, 2020 , we paid gross distributions to our common stockholders and noncontrolling interests of $55.8 million , including distributions reinvested through the dividend reinvestment plan (“DRIP”) of $15.9 million .

For the three months ended March 31, 2020 , our net cash provided by operating activities was $35.6 million , which represents a shortfall of $20.2 million , or 36.2% , of our distributions paid, while our funds from operations (“FFO”) Attributable to Stockholders and Convertible Noncontrolling Interests was $68.2 million , which represents an excess of $12.4 million , or 22.2% , of the distributions paid.

The shortfall was funded by borrowings.

For the three months ended March 31, 2019 , we paid distributions of $54.8 million , including distributions reinvested through the DRIP of $17.7 million .

For the three months ended March 31, 2019 , our net cash provided by operating activities was $41.2 million , which represents a shortfall of $13.6 million , or 24.8% , of our distributions paid, while our FFO was $61.0 million , which represents a excess of $6.2 million , or 11.3% , of our distributions paid.

The shortfall was funded by borrowings.

On March 27, 2020, our Board temporarily suspended stockholder distributions, which became effective after the payment of the March 2020 dividend on April 1, 2020.

For the six months ended June 30, 2020 , we paid gross distributions to our common stockholders and noncontrolling interests of $74.4 million , including distributions reinvested through the dividend reinvestment plan (“DRIP”) of $15.9 million .

For the six months ended June 30, 2020 , our net cash provided by operating activities was $89.9 million , which represents an excess of $15.5 million , or 20.8% , of our distributions paid, while our core funds from operations (“Core FFO”) was $111.9 million , which represents an excess of $37.5 million , or 50.4% , of the distributions paid.

For the six months ended June 30, 2019 , we paid distributions of $109.6 million , including distributions reinvested through the DRIP of $35.0 million .

For the six months ended June 30, 2019 , our net cash provided by operating activities was $100.1 million , which represents a shortfall of $9.5 million , or 8.7% , of our distributions paid, while our Core FFO was $110.7 million , which represents an excess of $1.1 million , or 1.0% , of our distributions paid.

The shortfall was funded by proceeds from borrowings.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures - Funds from Operations and Core Funds from Operations for the definition of Core FFO, for information regarding why we present Core FFO, as well as for a reconciliation of this non-GAAP financial measure to Net Income (Loss).

The outbreak of the COVID-19 pandemic has had, and could continue to have, a material adverse effect on our and our tenants’ businesses, financial condition, results of operations, cash flow, liquidity, and ability to satisfy debt service obligations.

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The COVID-19 pandemic has caused, and could continue to cause, significant disruptions to the United States and global economy and has contributed to significant volatility and negative pressure in financial markets.

The global impact of the outbreak is continually evolving and, as additional cases of the virus are identified, many countries, including the United States, have reacted by instituting quarantines, restrictions on travel, and/or mandatory closures of businesses.

Certain states and cities, including where our properties are located, have also reacted by instituting quarantines, restrictions on travel, “shelter-in-place” or “stay-at-home” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue.

Our retail and services tenants depend on in-person interactions with their customers to generate unit-level profitability, and the COVID-19 pandemic may decrease customer willingness to frequent, and mandated “shelter-in-place” or “stay-at-home” orders may prevent customers from frequenting, our tenants’ businesses, which may result in their inability to maintain profitability and make timely rental payments to us under their leases or to otherwise seek lease modifications or to declare bankruptcy.

The global impact of the outbreak is continually evolving and, as additional cases of the virus are identified, many countries, including the United States, reacted by instituting quarantines, restrictions on travel, and/or mandatory closures of businesses.

Certain states and cities, including where our properties are located, also reacted by instituting quarantines, restrictions on travel, “shelter-in-place” or “stay-at-home” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue.

In May 2020, many state and local governments began lifting, in whole or in part, the “stay-at-home” mandates, effectively removing or lessening the limitations on travel and allowing many businesses to reopen in full or limited capacity.

Some states and localities have temporarily reinstated certain mandates in response to increasing reported cases of COVID-19.

The impact these measures and the resulting consumer behavior are having on our portfolio evolved throughout the second quarter, and we expect that it will continue to do so.

The COVID-19 pandemic has impacted our business and financial performance, and we expect this impact to continue.

Our retail and services tenants depend on in-person interactions with their customers to generate unit-level profitability, and the COVID-19 pandemic has and may continue to decrease customer willingness to frequent, and mandated “shelter-in-place” or “stay-at-home” orders may prevent customers from frequenting, our tenants’ businesses, which may result in their inability to maintain profitability and make timely rental payments to us under their leases or to otherwise seek lease modifications or to declare bankruptcy.

We own properties across the United States, including properties in states that have been significantly impacted by the COVID-19 pandemic.

We have a higher concentration of ABR from temporarily closed tenants in certain states which have implemented stay-at-home and social distancing guidelines and mandates, such as Florida , Texas , California , Illinois and Georgia .

Our wholly-owned properties and those owned through our joint ventures contained approximately 5,550 tenant spaces as of May 11, 2020 .

As of May 11, 2020 , approximately 1,640 , or 30% , of these tenant spaces were temporarily closed, which represented 21% of our annualized base rent (“ABR”) and 16% of our gross leasable area (“GLA”), including some tenants that we believe are considered to be essential businesses but have temporarily closed due to sharp decreases in foot traffic and customer patronage as a result of government mandates and social distancing guidelines.

Approximately 7% of tenant spaces that we believe are considered to be essential retail and service businesses, totaling approximately 3% of the ABR and 2% of the GLA associated with all essential retail and service businesses, are included in these temporary closures as of May 11, 2020 .

We cannot presently determine when or how many of our tenants will reopen.

As of May 11, 2020 , we have received 2,120 rent relief requests from tenant spaces representing approximately 29% of our ABR, all of which are still being evaluated.

As of May 11, 2020 , we have collected approximately 77% of rent and recoveries billed for the month of April and approximately 74% of rent and recoveries billed for the month of May.

We currently anticipate the above circumstances to negatively impact our revenues for the second quarter of 2020 and potentially for the remainder of the year.

Moreover, the ongoing COVID-19 pandemic and restrictions intended to prevent and mitigate its spread could have additional adverse effects on our business, including with regards to:

We have a higher concentration of annualized base rent (“ABR”) from tenants in certain states significantly impacted by the pandemic, such as Florida , Texas , California , Georgia , and Illinois .

Our wholly-owned properties and those owned through our joint ventures contained approximately 5,600 occupied tenant spaces as of August 10, 2020 .

At the peak of the pandemic-related closure activity, our temporary closures reached approximately 2,100 , or 37% of all tenant spaces, totaling 27% of our ABR and 22% of our gross leasable area (“GLA”);

of the tenant spaces that temporarily closed, 88% , totaling 89% of our ABR and 90% of our GLA, have since reopened.

Certain tenants remain temporarily closed, have since closed after reopening, are limiting the number of customers allowed in their locations, or have modified their operations in other ways that may impact their profitability, either as a result of government mandates or self-

elected efforts to reduce the spread of COVID-19.

These actions could result in increased permanent store closings and could reduce the demand for leasing space in our shopping centers and result in a decline in average rental rates on expiring leases.

While most of our tenants have reopened, we cannot presently determine how many of the tenants that remain closed will reopen, or whether a portion of those that have reopened will be required by government mandates to temporarily close again or will encounter financial difficulties that require them to close permanently.

We believe substantially all tenants, including those that were required to temporarily close under governmental mandates, are contractually obligated to continue with their rent payments as documented in our lease agreements with them.

However, we believe it is best to begin negotiation of relief only once a tenant has reopened, and we received payments made toward rent and recovery charges owed during the second quarter.

As of August 10, 2020 , we have executed relief agreements for approximately 240 tenant spaces, primarily in the form of short-term payment plans without a reduction in amounts owed to us.

These relief agreements totaled approximately $3.8 million , or 1.0% of portfolio ABR, and the weighted-average term over which we expect to receive payment on executed payment plans is less than twelve months.

We are in negotiations with additional tenants, which we believe will lead to more tenants repaying their past due charges.

As of August 10, 2020 , we have collected approximately 84% , 86% , 89% , and 90% of rent and recoveries billed for the months of April, May, June, and July 2020, respectively.

In the event of any default by a tenant under its lease agreement or relief agreement, we might not be able to fully recover and/or may experience delays in recovering and additional costs in enforcing our rights as landlord to recover amounts due to us under the terms of the lease agreement and/or relief agreement.

We currently anticipate the above circumstances to negatively impact our revenues for the third quarter of 2020 and potentially for the remainder of the year.

Additionally, certain tenants have declared bankruptcy as a result of the effects of the pandemic.

As of June 30, 2020, we have received notification of entry into bankruptcy proceedings from several of our neighbors, representing an exposure of only 1.1% of our total ABR.

Moreover, the ongoing COVID-19 pandemic, restrictions intended to prevent and mitigate its spread, resulting consumer behavior, and the economic slowdown or recession could have additional adverse effects on our business, including with regards to:

the ability and willingness of our tenants to renew their leases upon expiration, our ability to re-lease the properties on the same or better terms in the event of nonrenewal or in the event we exercise our right to replace an existing tenant, and obligations we may incur in connection with the replacement of an existing tenant, particularly in light of the adverse impact to the financial health of many retailers and service providers that has occurred and continues to occur as a result of the COVID-19 pandemic and the significant uncertainty as to when and the conditions under which potential tenants will be able to operate physical retail locations in the future;

2 unchanged sentences

the adverse impact of the current economic conditions on our ability to effect a liquidity event at an attractive price or at all in the near term and for a potentially lengthy period of time;

the financial impact and continued economic uncertainty could continue to negatively impact our ability to pay distributions to our stockholders and/or to repurchase shares;

to the extent we were seeking to sell properties in the near term, significantly greater uncertainty regarding our ability to do so at attractive prices or at all;

anticipated returns from development and redevelopment projects, which have been temporarily delayed to the extent possible;

anticipated returns from development and redevelopment projects, which have been prioritized to support the reopening of our tenants and new leasing activity, or deferred if possible;

the broader impact of the severe economic contraction due to the COVID-19 pandemic, the resulting increase in unemployment that has occurred in the short-term and its effect on consumer behavior, and negative consequences that will occur if these trends are not timely reversed;

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our ability to pay down, refinance, restructure, or extend our indebtedness as it becomes due, and our potential inability to comply with the financial covenants of our credit facility and other debt agreements, which could result in a default and potential acceleration of indebtedness and impact our ability to make additional borrowings under our credit facility or otherwise in the future;

a potential reduction in our operating effectiveness as employees work remotely or if key personnel become unavailable due to illness or other personal circumstances related to the COVID-19 pandemic.

the potential negative impact on the health of our personnel, particularly if a significant number of them and/or key personnel are impacted, and the potential impact of adaptations to our operations in order to protect our personnel, such as remote work arrangements, could introduce operational risk, including but not limited to cybersecurity risks, and could impair our ability to manage our business.

We have temporarily suspended stockholder distributions in an effort to preserve cash due to current economic uncertainty and we may choose to do the same in the future.

Additionally, we may in the future choose to pay distributions in shares of

our common stock rather than solely in cash, which may result in our stockholders having a tax liability with respect to such distributions that exceeds the amount of cash received, if any.

Additionally, we may in the future choose to pay distributions in shares of our common stock rather than solely in cash, which may result in our stockholders having a tax liability with respect to such distributions that exceeds the amount of cash received, if any.

While the rapid developments regarding the COVID-19 pandemic preclude any prediction as to its ultimate adverse impact, the current economic, political, and social environment presents material risks and uncertainties with respect to our and our tenants’ business, financial condition, results of operations, cash flows, liquidity, and ability to satisfy debt service obligations.

Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks described under the section entitled “Item 1A.

Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise,

they may also have the effect of heightening many of the other risks described under the section entitled “Item 1A.

Risk Factors” in our most recent annual report on Form 10-K for the year ended December 31, 2019.

2020 Omnibus Incentive Plan (incorporated by reference to Appendix A to the Company’s 2020 Proxy Statement filed on Schedule 14A filed on March 27, 2020)

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

Certification of Principal Executive Officer pursuant to 18 U.S.C.

1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002*

Certification of Principal Financial Officer pursuant to 18 U.S.C.

1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002*

The following information from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in XBRL (eXtensible Business Reporting Language):

(i) Consolidated Balance Sheets;

(ii) Consolidated Statements of Operations and Comprehensive Loss;

(iii) Consolidated Statements of Equity;

and (iv) Consolidated Statements of Cash Flows*

*Filed herewith

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PHILLIPS EDISON & COMPANY, INC.

August 13, 2020

/s/ Jeffrey S.

Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

August 13, 2020

Chief Financial Officer, Senior Vice President and Treasurer (Principal Financial Officer)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors