What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-13 · 255 added, 202 removed, 398 unchanged (53% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2020 AND DECEMBER 31, 2019

AS OF SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

(Condensed and Unaudited)

(In thousands, except per share amounts)

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

Investment in real estate:

10 unchanged sentences

Restricted cash 32,888 77,288

Goodwill 29,066 29,066

Other assets, net 133,014 128,690

Real estate investment and other assets held for sale — 6,038

Total assets $ 4,721,773 $ 4,828,195

LIABILITIES AND EQUITY

8 unchanged sentences

Preferred stock, $ 0.01 par value per share, 10,000 shares authorized, zero shares issued and

outstanding at June 30, 2020 and December 31, 2019

outstanding at September 30, 2020 and December 31, 2019

Common stock, $ 0.01 par value per share, 1,000,000 shares authorized, 290,466 and 289,047

shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital (“APIC”) 2,796,655 2,779,130

Accumulated other comprehensive loss (“AOCI”)

( 55,630 ) ( 20,762 )

Accumulated deficit ( 980,534 ) ( 947,252 )

1 unchanged sentence

Noncontrolling interests 344,257 354,788

Total equity 2,107,653 2,168,794

Total liabilities and equity $ 4,721,773 $ 4,828,195

1 unchanged sentence

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Condensed and Unaudited)

(In thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Rental income $ 123,298 $ 132,715 $ 367,418 $ 390,605

10 unchanged sentences

Interest expense, net ( 20,388 ) ( 25,309 ) ( 65,317 ) ( 76,151 )

(Loss) gain on disposal of property, net

Other (expense) income, net

Net (loss) income

Net loss (income) attributable to noncontrolling interests

Net (loss) income attributable to stockholders

Gain on disposal of property, net 10,734 5,048 8,616 10,903

Other income (expense), net 196 1,561 9,565 ( 1,476 )

Net income (loss) 13,430 ( 29,727 ) 18,216 ( 77,687 )

Net (income) loss attributable to noncontrolling interests ( 1,646 ) 3,850 ( 2,251 ) 10,045

Net income (loss) attributable to stockholders $ 11,784 $ ( 25,877 ) $ 15,965 $ ( 67,642 )

Earnings per common share:

Net (loss) income per share attributable to stockholders - basic and diluted (Note 10)

Comprehensive loss

Net (loss) income

Other comprehensive loss:

Net income (loss) per share attributable to stockholders - basic and diluted (Note 10)

$ 0.04 $ ( 0.09 ) $ 0.05 $ ( 0.24 )

Comprehensive income (loss):

Net income (loss) $ 13,430 $ ( 29,727 ) $ 18,216 $ ( 77,687 )

Other comprehensive income (loss):

Change in unrealized value on interest rate swaps 5,098 ( 9,731 ) ( 40,013 ) ( 47,737 )

Comprehensive loss

Net loss (income) attributable to noncontrolling interests

Other comprehensive loss attributable to noncontrolling interests

Comprehensive loss attributable to stockholders

Comprehensive income (loss) 18,528 ( 39,458 ) ( 21,797 ) ( 125,424 )

Net (income) loss attributable to noncontrolling interests ( 1,646 ) 3,850 ( 2,251 ) 10,045

Other comprehensive (income) loss attributable to noncontrolling interests ( 653 ) 1,293 5,145 6,399

Comprehensive income (loss) attributable to stockholders $ 16,229 $ ( 34,315 ) $ ( 18,903 ) $ ( 108,980 )

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Condensed and Unaudited)

(In thousands, except per share amounts)

Three Months Ended June 30, 2020 and 2019

Accumulated Deficit

Total Stockholders’ Equity

Noncontrolling Interests

Balance at April 1, 2019

Three Months Ended September 30, 2020 and 2019

Common Stock APIC AOCI Accumulated Deficit Total Stockholders’ Equity Noncontrolling Interests Total Equity

Shares Amount

Balance at July 1, 2019 283,770 $ 2,838 $ 2,718,871 $ ( 20,538 ) $ ( 830,358 ) $ 1,870,813 $ 371,213 $ 2,242,026

Dividend reinvestment plan (“DRIP”) 1,475 14 16,357 — — 16,371 — 16,371

1 unchanged sentence

Change in unrealized value on interest

rate swaps — — — ( 8,438 ) — ( 8,438 ) ( 1,293 ) ( 9,731 )

Common distributions declared, $ 0.17

— — — — ( 48,062 ) ( 48,062 ) — ( 48,062 )

Distributions to noncontrolling interests — — — — — — ( 6,978 ) ( 6,978 )

Share-based compensation 1 — 502 — — 502 1,674 2,176

Conversion of noncontrolling interests

Balance at June 30, 2019

Balance at April 1, 2020

Net loss — — — — ( 25,877 ) ( 25,877 ) ( 3,850 ) ( 29,727 )

Balance at September 30, 2019 283,586 $ 2,835 $ 2,717,537 $ ( 28,976 ) $ ( 904,297 ) $ 1,787,099 $ 360,766 $ 2,147,865

Balance at July 1, 2020 290,465 $ 2,905 $ 2,795,434 $ ( 60,075 ) $ ( 991,939 ) $ 1,746,325 $ 341,144 $ 2,087,469

Change in unrealized value on interest

rate swaps — — — 4,445 — 4,445 653 5,098

Share-based compensation 1 — 1,036 — — 1,036 818 1,854

Conversion of noncontrolling interests

Balance at June 30, 2020

Six Months Ended June 30, 2020 and 2019

Accumulated Deficit

Total Stockholders’ Equity

Noncontrolling Interests

Other — — 185 — ( 379 ) ( 194 ) ( 4 ) ( 198 )

Net income — — — — 11,784 11,784 1,646 13,430

Balance at September 30, 2020 290,466 $ 2,905 $ 2,796,655 $ ( 55,630 ) $ ( 980,534 ) $ 1,763,396 $ 344,257 $ 2,107,653

Nine Months Ended September 30, 2020 and 2019

Common Stock APIC AOCI Accumulated Deficit Total Stockholders’ Equity Noncontrolling Interests Total Equity

Shares Amount

Balance at January 1, 2019 279,803 $ 2,798 $ 2,674,871 $ 12,362 $ ( 692,573 ) $ 1,997,458 $ 414,911 $ 2,412,369

DRIP 4,636 45 51,284 — — 51,329 — 51,329

Share repurchases ( 2,806 ) ( 28 ) ( 30,856 ) — — ( 30,884 ) — ( 30,884 )

Change in unrealized value on interest

rate swaps — — — ( 41,338 ) — ( 41,338 ) ( 6,399 ) ( 47,737 )

Common distributions declared, $ 0.50

— — — — ( 144,082 ) ( 144,082 ) — ( 144,082 )

Distributions to noncontrolling interests — — — — — — ( 21,206 ) ( 21,206 )

1 unchanged sentence

Conversion of noncontrolling interests 1,888 19 20,880 — — 20,899 ( 20,899 ) —

Balance at June 30, 2019

Net loss — — — — ( 67,642 ) ( 67,642 ) ( 10,045 ) ( 77,687 )

Balance at September 30, 2019 283,586 $ 2,835 $ 2,717,537 $ ( 28,976 ) $ ( 904,297 ) $ 1,787,099 $ 360,766 $ 2,147,865

Balance at January 1, 2020 289,047 $ 2,890 $ 2,779,130 $ ( 20,762 ) $ ( 947,252 ) $ 1,814,006 $ 354,788 $ 2,168,794

DRIP 1,436 14 15,926 — — 15,940 — 15,940

Share repurchases ( 288 ) ( 3 ) ( 2,697 ) — — ( 2,700 ) — ( 2,700 )

Change in unrealized value on interest

rate swaps — — — ( 34,868 ) — ( 34,868 ) ( 5,145 ) ( 40,013 )

Common distributions declared, $ 0.17

— — — — ( 48,809 ) ( 48,809 ) — ( 48,809 )

Distributions to noncontrolling interests — — — — — — ( 7,105 ) ( 7,105 )

1 unchanged sentence

Conversion of noncontrolling interests 168 2 1,859 — — 1,861 ( 1,861 ) —

Balance at June 30, 2020

Other ( 6 ) — ( 71 ) — ( 438 ) ( 509 ) ( 7 ) ( 516 )

Net income — — — — 15,965 15,965 2,251 18,216

Balance at September 30, 2020 290,466 $ 2,905 $ 2,796,655 $ ( 55,630 ) $ ( 980,534 ) $ 1,763,396 $ 344,257 $ 2,107,653

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Condensed and Unaudited)

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

7 unchanged sentences

Amortization of debt and derivative adjustments 2,154 6,007

Loss (gain) on disposal of property, net

Gain on disposal of property, net ( 8,616 ) ( 10,903 )

Change in fair value of earn-out liability ( 10,000 ) ( 7,500 )

2 unchanged sentences

Other impairment charges — 9,661

Other 1,497 1,223

Changes in operating assets and liabilities:

15 unchanged sentences

Repurchases of common stock ( 5,211 ) ( 30,178 )

Other ( 516 ) ( 208 )

Net cash used in financing activities ( 101,994 ) ( 164,818 )

NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 41,690 1,762

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:

6 unchanged sentences

PHILLIPS EDISON & COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Condensed and Unaudited)

13 unchanged sentences

Phillips Edison & Company, Inc.

(“we,” the “Company,” “our,” or “us”) was formed as a Maryland corporation in October 2009.

(“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 limited partner of the Operating Partnership, and our wholly-owned subsidiary, Phillips Edison Grocery Center OP GP I LLC (the “General Partner”), is the sole general partner of the Operating Partnership.

We are a real estate investment trust (“REIT”) that invests primarily in well-occupied, 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 three institutional joint ventures, in which we have a partial ownership interest, and one private fund (collectively, the “Managed Funds”).

As of June 30, 2020 , we wholly-owned 284 real estate properties.

Additionally, we owned a 20% equity interest in Necessity Retail Partners (“NRP”), a joint venture that owned seven properties;

As of September 30, 2020, we wholly-owned 283 real estate properties.

Additionally, we owned a 20 % equity interest in Necessity Retail Partners (“NRP”), a joint venture that owned six properties;

a 15 % interest in Grocery Retail Partners I LLC (“GRP I”), a joint venture that owned 17 properties;

and a 10 % interest in Grocery Retail Partners II LLC (“GRP II”), a joint venture that owned three properties.

On October 1, 2020, GRP I acquired GRP II.

Our ownership in the combined entity was adjusted upon consummation of the transaction, and we own approximately a 14 % equity interest in GRP I as a result of the acquisition.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 unchanged sentences

Specifically, as it relates to our business, the current economic situation resulted in temporary tenant closures at our shopping centers, often as a result of “stay-at-home” government mandates which limited travel and movement of the general public to essential activities only and required all non-essential businesses to close.

Temporary closures of tenant spaces at our centers peaked in April and have significantly decreased as states have reduced or removed restrictions on business operations and the travel and movement of the general public.

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.

Temporary closures of tenant spaces at our centers peaked in April and have significantly decreased as states reduced or removed restrictions on business operations and the travel and movement of the general public.

Certain tenants remain temporarily closed, have since closed after reopening, are limiting the number of customers allowed in their stores, 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.

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

1 unchanged sentence

All of this activity impacts our estimates around the collectability of revenue and valuation of real estate assets, goodwill and other intangible assets, and certain liabilities, among others.

There were no changes to our significant accounting policies during the six months ended June 30, 2020 .

There were no changes to our significant accounting policies during the nine months ended September 30, 2020.

For a full summary of our accounting policies, refer to our 2019 Annual Report on Form 10-K filed with the SEC on March 12, 2020.

3 unchanged sentences

In the opinion of management, all normal and recurring adjustments necessary for the fair presentation of the unaudited consolidated financial statements for the periods presented have been included in this Quarterly Report.

Our results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the operating results expected for the full year.

Our results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results expected for the full year.

The accompanying consolidated financial statements include our accounts and those of our majority-owned subsidiaries.

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The COVID-19 pandemic has increased the uncertainty of collecting rents from a number of our tenants.

For the three and six months ended June 30, 2020 , we had $12.0 million and $14.8 million , respectively, in revenue that will not be recognized until cash is collected or the tenant resumes payment and is considered creditworthy.

In our efforts to maximize collections in the near term while also supporting our tenants as they operate through this pandemic, we have begun negotiating rent relief primarily in the form of payment plans and deferrals on rent and recovery charges, which allow for changes in the timing of payments, but not the total amount of consideration due to us under the lease.

In a limited number of instances, we may also agree to waive certain charges due to us under the lease;

During the three months ended June 30, 2020 , our negotiated rent relief was minimal.

for additional details, please refer to Note 3.

Income Taxes —Our consolidated financial statements include the operations of wholly-owned subsidiaries that have jointly elected to be treated as Taxable REIT Subsidiaries and are subject to U.S.

federal, state, and local income taxes at regular corporate tax rates.

During the three and six months ended June 30, 2020 , an insignificant amount of federal income tax benefit was reported, and we recorded a full valuation allowance for our net deferred tax asset.

We recorded no income tax expense or benefit for the three and six months ended June 30, 2019 .

We recognized an insignificant amount of state and local income tax expense for the three and six months ended June 30, 2020 and 2019 .

All income tax amounts are included in Other (Expense) Income, Net on the consolidated statements of operations and comprehensive loss (“consolidated statements of operations”).

We recognized an insignificant amount of federal, state, and local income tax expense for the three and nine months ended September 30, 2020 and 2019, and we retain a full valuation allowance for our deferred tax asset.

All income tax amounts are included in Other Income (Expense), Net on the consolidated statements of operations and comprehensive income (loss) (“consolidated statements of operations”).

Recently Issued and Newly Adopted Accounting Pronouncements —In response to the COVID-19 pandemic, the Financial Accounting Standards Board (“FASB”) issued interpretive guidance addressing the accounting treatment for lease concessions attributable to the pandemic.

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The following table provides a brief description of newly adopted accounting pronouncements and their effect on our consolidated financial statements:

Date of Adoption

Effect on the Financial Statements or Other Significant Matters

Standard Description Date of Adoption Effect on the Financial Statements or Other Significant Matters

Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

10 unchanged sentences

It also allowed election of the fair value option on certain financial instruments.

January 1, 2020

The adoption of this standard did not have a material impact on our consolidated financial statements.

January 1, 2020 The adoption of this standard did not have a material impact on our consolidated financial statements.

The majority of our financial instruments result from operating lease transactions, which are not within the scope of this standard.

ASU 2018-17, Consolidation (Topic 810):

Targeted Improvements to Related Party Guidance for Variable Interest Entities

This ASU amended two aspects of the related-party guidance in Topic 810:

Targeted Improvements to Related Party Guidance for Variable Interest Entities This ASU amended two aspects of the related-party guidance in Topic 810:

(1) added an elective private-company scope exception to the variable interest entity guidance for entities under common control and (2) indirect interests held through related parties in common control arrangements will be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.

January 1, 2020

The adoption of this standard did not have a material impact on our consolidated financial statements.

ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

This ASU amended a variety of topics, improving certain aspects of previously issued ASUs, including ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10):

January 1, 2020 The adoption of this standard did not have a material impact on our consolidated financial statements.

ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments This ASU amended a variety of topics, improving certain aspects of previously issued ASUs, including ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

1 unchanged sentence

Targeted Improvements to Accounting for Hedging Activities.

January 1, 2020

The adoption of this standard did not have a material impact on our consolidated financial statements.

January 1, 2020 The adoption of this standard did not have a material impact on our consolidated financial statements.

ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

This ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting This ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur.

March 12, 2020

We have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.

March 12, 2020 We have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.

Application of these expedients preserves the presentation of derivatives consistent with past presentation.

2 unchanged sentences

• Corporate Intangible Assets, Net was included in Other Assets, Net.

The following line items on our consolidated statement of cash flows for the six months ended June 30, 2019 were reclassified to conform to current year presentation:

Amortization of Debt and Derivative Adjustments was listed on a separate line from Other Cash Flows from Operating Activities;

Equity in Net Loss of Unconsolidated Joint Ventures was included in Other Cash Flows from Operating Activities.

The following line item on our consolidated statement of operations for the nine months ended September 30, 2019 was reclassified to conform to current year presentation:

• Other Impairment Charges was included in Other Income (Expense), Net.

The following line item on our consolidated statement of cash flows for the nine months ended September 30, 2019 was reclassified to conform to current year presentation:

• Payments of Deferred Financing Expenses was included in Payments on Mortgages and Loans Payable.

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 for the three and six months ended June 30, 2020 and 2019 (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Lease income related to our operating leases was as follows for the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Rental income related to fixed lease payments (1)

$ 94,511 $ 97,328 $ 285,572 $ 289,318

Rental income related to variable lease payments 31,781 33,626 94,278 93,105

Straight-line rent amortization (2)

1,772 2,548 3,103 7,055

Amortization of lease assets 802 1,032 2,367 3,230

1 unchanged sentence

Adjustments for collectability (2)(3)

( 6,232 ) ( 2,451 ) ( 18,874 ) ( 3,191 )

Total rental income $ 123,298 $ 132,715 $ 367,418 $ 390,605

Contains general reserves as well as revenue adjustments for tenants deemed to be non-creditworthy.

Approximate future fixed contractual lease payments to be received under non-cancelable operating leases in effect as of June 30, 2020 , assuming no new or renegotiated leases or option extensions on lease agreements, are as follows (in thousands):

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

(2) Includes revenue adjustments for non-creditworthy tenants.

(3) Contains general reserves;

excludes reserves for straight-line rent amortization.

Approximate future fixed contractual lease payments to be received under non-cancelable operating leases in effect as of September 30, 2020, assuming no new or renegotiated leases or option extensions on lease agreements, are as follows (in thousands):

Remaining 2020 $ 98,238

As of June 30, 2020 , executed payment plans and rent concessions related to the COVID-19 pandemic were not material.

No single tenant comprised 10% or more of our aggregate annualized base rent (“ABR”) as of June 30, 2020 .

As of June 30, 2020 , our real estate investments in Florida and California represented 12.3% and 10.6% of our ABR, respectively.

Thereafter 594,574

Total $ 1,898,269

During the nine months ended September 30, 2020, we executed payment plans with our tenants agreeing to defer approximately $ 3.7 million in rent and related charges, and we granted rent abatements totaling approximately $ 1.3 million.

These payment plans and rent abatements represented 0.9 % and 0.3 % of our wholly-owned portfolio’s annualized base rent (“ABR”), respectively, and the weighted-average term over which we expect to receive payment on executed payment plans is approximately eight months.

For the three and nine months ended September 30, 2020, we had $ 5.2 million and $ 20.0 million, respectively, in billings that will not be recognized as revenue until cash is collected or the tenant resumes regular payments and/or is considered creditworthy.

These amounts include the estimated impact of tenants who have filed for bankruptcy.

No single tenant comprised 10% or more of our aggregate ABR as of September 30, 2020.

As of September 30, 2020, our real estate investments in Florida and California represented 12.3 % and 10.6 % of our ABR, respectively.

As a result, the geographic concentration of our portfolio makes it particularly susceptible to adverse weather or economic events, including the impact of the COVID-19 pandemic, in the Florida and California real estate markets.

Lessee —Lease assets and liabilities, grouped by balance sheet line where they are recorded, consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

Balance Sheet Information

Balance Sheet Location

June 30, 2020

December 31, 2019

Lessee — Lease assets and liabilities, grouped by balance sheet line where they are recorded, consisted of the following as of September 30, 2020 and December 31, 2019 (in thousands):

Balance Sheet Information Balance Sheet Location September 30, 2020 December 31, 2019

ROU assets, net - operating leases (1)

Investment in Real Estate $ 3,895 $ 7,613

ROU assets, net - operating and finance leases

Other Assets, Net

Operating lease liability

Accounts Payable and Other Liabilities

Finance lease liability

Debt Obligations, Net

During the six months ended June 30, 2020 , one of our acquisitions was land upon which one of our shopping centers is situated that was previously subject to a ground lease in which the lessor controlled an option requiring us to purchase the land subject to the lease.

ROU assets, net - operating and finance leases Other Assets, Net 1,998 2,111

Operating lease liability Accounts Payable and Other Liabilities 5,880 9,453

Finance lease liability Debt Obligations, Net 240 443

(1) During the nine months ended September 30, 2020, one of our acquisitions was land upon which one of our shopping centers is situated that was previously subject to a ground lease in which the lessor controlled an option requiring us to purchase the land subject to the lease.

Our valuation of the ROU asset and lease liability as of December 31, 2019 for this ground lease reflected the assumption that the lessor would exercise this option and that we would purchase the underlying land asset.

1 unchanged sentence

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

Six Months Ended June 30,

Nine Months Ended September 30,

Number of properties sold (1)

1 unchanged sentence

Proceeds from sale of real estate $ 48,276 $ 86,159

(Loss) gain on sale of properties, net (2)

We retained certain outparcels of land associated with one of our property dispositions during the six months ended June 30, 2020 , and as a result, this property is still included in our total property count.

The (loss) gain on sale of properties, net does not include miscellaneous write-off activity, which is also recorded in (Loss) Gain on Disposal of Property, Net on the consolidated statements of operations.

Subsequent to June 30, 2020 , we sold one property for $8.5 million .

Impairment of Real Estate Assets —During the three and six months ended June 30, 2020 , we did not recognize any impairment charges.

During the three and six months ended June 30, 2019 , we recognized impairment charges totaling $25.2 million and $38.9 million , respectively.

Gain on sale of properties, net (2)

(1) We retained certain outparcels of land associated with one of our property dispositions during the nine months ended September 30, 2020, and as a result, this property is still included in our total property count.

(2) The gain on sale of properties, net does not include miscellaneous write-off activity, which is also recorded in Gain on Disposal of Property, Net on the consolidated statements of operations.

Subsequent to September 30, 2020, we sold one outparcel for approximately $ 1.1 million.

Impairment of Real Estate Assets —During the three and nine months ended September 30, 2020, we did not recognize any impairment charges.

During the three and nine months ended September 30, 2019, we recognized impairment charges totaling $ 35.7 million and $ 74.6 million, respectively.

The impairments were associated with certain anticipated property dispositions where the net book value exceeded the estimated fair value.

1 unchanged sentence

We applied reasonable estimates and judgments in determining the amount of impairment recognized.

Acquisitions —During the six months ended June 30, 2020 , we acquired two parcels of land for a total of $4.3 million , both of which are either underneath or adjacent to shopping centers that we own.

During the six months ended June 30, 2019 , we acquired one property and one outparcel for a total of $49.9 million .

For the six months ended June 30, 2020 , our acquisitions did not have any lease intangibles.

The fair value and weighted-average useful life at acquisition for lease intangibles acquired as part of acquisitions in the six months ended June 30, 2019 are as follows (dollars in thousands, weighted-average useful life in years):

Six Months Ended June 30, 2019

Weighted-Average Useful Life

Acquisitions —During the nine months ended September 30, 2020, we acquired one property and two parcels of land for a total of $ 23.0 million.

Both parcels of land are adjacent to shopping centers that we own.

During the nine months ended September 30, 2019, we acquired one property and one outparcel for a total of $ 49.9 million.

The fair value and weighted-average useful life at acquisition for lease intangibles acquired as part of acquisitions in the nine months ended September 30, 2020 and 2019 are as follows (dollars in thousands, weighted-average useful life in years):

Nine Months Ended

September 30, 2020 September 30, 2019

Fair Value Weighted-Average Useful Life Fair Value Weighted-Average Useful Life

In-place leases $ 1,682 16 $ 4,736 11

1 unchanged sentence

Below-market leases ( 1,882 ) 26 ( 2,097 ) 16

Subsequent t o September 30, 2020, we purchased one property for approximately $ 18.4 million.

OTHER ASSETS, NET

The following is a summary of Other Assets, Net outstanding as of June 30, 2020 and December 31, 2019 , excluding amounts related to assets classified as held for sale (in thousands):

June 30, 2020

December 31, 2019

The following is a summary of Other Assets, Net outstanding as of September 30, 2020 and December 31, 2019, excluding amounts related to assets classified as held for sale (in thousands):

September 30, 2020 December 31, 2019

Other assets, net:

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Accounts receivable, net (1)

50,384 46,125

Accounts receivable - affiliates 622 728

Deferred rent receivable, net

Deferred rent receivable 32,179 29,291

Derivative assets — 2,728

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Total other assets, net $ 133,014 $ 128,690

Net of $5.7 million and $6.9 million of general reserves for uncollectible amounts, excluding $19.4 million and $6.9 million in receivables that were removed for tenants considered to be non-creditworthy as of June 30, 2020 and December 31, 2019 , respectively.

(1) Net of $ 7.1 million and $ 6.9 million of general reserves for uncollectible amounts.

Receivables that were removed for tenants considered to be non-creditworthy were $ 23.4 million and $ 6.9 million as of September 30, 2020 and December 31, 2019, respectively.

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 June 30, 2020 and December 31, 2019 (dollars in thousands):

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 September 30, 2020 and December 31, 2019 (dollars in thousands):

Interest Rate (1)

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

Revolving credit facility (2)

LIBOR + 1.40 %

Term loans (3)

2.58 % - 4.59 %

1,622,500 1,652,500

Secured loan facilities 3.35 % - 3.52 %

395,000 395,000

Mortgages 3.45 % - 7.91 %

317,148 324,578

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Deferred financing expenses, net ( 14,466 ) ( 17,204 )

Interest rates are as of June 30, 2020 .

We had $255.0 million of gross borrowings and payments under our revolving credit facility during the six months ended June 30, 2020 .

The gross borrowings and payments under our revolving credit facility were $105.6 million and $179.0 million , respectively, during the six months ended June 30, 2019 .

Total $ 2,319,003 $ 2,354,099

(1) Interest rates are as of September 30, 2020.

(2) We had $ 255.0 million of both gross borrowings and payments under our revolving credit facility during the nine months ended September 30, 2020.

The gross borrowings and payments under our revolving credit facility were $ 116.6 million and $ 190.0 million, respectively, during the nine months ended September 30, 2019.

(3) Our term loans carry an interest rate of LIBOR plus a spread.

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In June 2020, we paid down the outstanding balance on our revolving credit facility.

Our debt is subject to certain covenants, and as of June 30, 2020 , we were in compliance with the restrictive covenants of our outstanding debt obligations.

The allocation of total debt between fixed-rate and variable-rate as well as between secured and unsecured, excluding market debt adjustments and deferred financing expenses, net, as of June 30, 2020 and December 31, 2019 , is summarized below (in thousands):

June 30, 2020

December 31, 2019

Our debt is subject to certain covenants, and as of September 30, 2020, we were in compliance with the restrictive covenants of our outstanding debt obligations.

In October 2020, we executed early repayments of $ 20.4 million in mortgage debt securing two of our properties.

The allocation of total debt between fixed-rate and variable-rate as well as between secured and unsecured, excluding market debt adjustments and deferred financing expenses, net, as of September 30, 2020 and December 31, 2019, is summarized below (in thousands):

September 30, 2020 December 31, 2019

As to interest rate:

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Variable-rate debt 580,500 250,500

Total $ 2,334,888 $ 2,372,521

As to collateralization:

Unsecured debt $ 1,622,500 $ 1,652,500

Secured debt 712,388 720,021

Total $ 2,334,888 $ 2,372,521

Weighed-average interest rate (1)

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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 six months ended June 30, 2020 and 2019 , such derivatives were used to hedge the variable cash flows associated with certain variable-rate debt.

During the nine months ended September 30, 2020 and 2019, 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 $ 19.4 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 June 30, 2020 and December 31, 2019 (notional amounts in thousands):

June 30, 2020

December 31, 2019

The following is a summary of our interest rate swaps that were designated as cash flow hedges of interest rate risk as of September 30, 2020 and December 31, 2019 (notional amounts in thousands):

September 30, 2020 December 31, 2019

Notional amount $ 1,042,000 $ 1,402,000

Fixed LIBOR 1.3 % - 2.9 %

0.8 % - 2.9 %

Maturity date 2021 - 2025 2020 - 2025

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

Three Months Ended June 30,

Six Months Ended June 30,

Amount of (loss) recognized in other comprehensive income on derivatives

Amount of loss (gain) reclassified from AOCI into interest expense

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Amount of loss recognized in other

comprehensive income on derivatives

$ ( 45 ) $ ( 9,193 ) $ ( 51,575 ) $ ( 44,398 )

Amount of loss (gain) reclassified from

AOCI into interest expense

5,143 ( 538 ) 11,562 ( 3,339 )

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 June 30, 2020 , 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 $65.4 million .

As of June 30, 2020 , we had not posted any collateral related to these agreements and were not in breach of any agreement provisions.

As of September 30, 2020, 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 $ 60.6 million.

As of September 30, 2020, 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 $ 60.6 million.

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Premiums paid to Silver Rock may be adjusted based on these estimates, and such premiums may be reimbursed by tenants pursuant to specific lease terms.

As of June 30, 2020 , we had four cash collateralized letters of credit outstanding totaling approximately $8.0 million to provide security for our obligations under Silver Rock’s insurance and reinsurance contracts.

COVID-19 —As of June 30, 2020 , we were not aware of any significant liabilities or obligations to waive rent that we have incurred under force majeure or co-tenancy clauses in tenant leases.

As of September 30, 2020, we had four letters of credit outstanding totaling approximately $ 8.0 million to provide security for our obligations under Silver Rock’s insurance and reinsurance contracts.

COVID-19 —As of September 30, 2020, we were not aware of any significant liabilities or obligations to waive rent that we have incurred under force majeure or co-tenancy clauses in tenant leases.

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 (“Board”).

Our charter does not provide for cumulative voting in the election of directors.

On May 6, 2020, our Board decreased the estimated value per share (“EVPS”) of our common stock to $8.75 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, 2020.

The decrease was primarily driven by the negative impact of the COVID-19 pandemic on PECO’s non-grocery tenants resulting from social distancing and stay-at-home guidelines and the uncertainty of the duration and full effect on the overall economy.

On November 4, 2020, our Board approved an amendment to our articles of incorporation to effect a one-for-four reverse stock split effective in March 2021.

Neither the number of authorized shares nor the par value of the common stock will be changed.

In addition, we intend to amend the limited partnership agreement of our Operating Partnership to effect a corresponding reverse stock split of the OP units.

As a result of the reverse stock split, every four shares of our common stock or OP units will be automatically combined and converted into one issued and outstanding share of common stock or OP unit rounded to the nearest 1/100 th share, after which our stockholders will have an estimated value per share (“EVPS”) of $35.00.

The reverse stock split impacts all common stock proportionately and will have no impact on any stockholder’s percentage ownership of common stock.

On May 6, 2020, our Board decreased the EVPS of our common stock to $ 8.75 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, 2020.

The decrease was primarily driven by the negative impact of the COVID-19 pandemic on our non-grocery tenants resulting from social distancing and stay-at-home guidelines and the uncertainty of the duration and full effect on the overall economy.

We engaged a third-party valuation firm to provide a calculation of the range in EVPS of our common stock as of March 31, 2020, which reflected certain balance sheet assets and liabilities as of that date.

Previously, our EVPS was $ 11.10 , 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, 2019.

Distributions —On March 27, 2020, our Board suspended stockholder distributions, effective after the payment of the March 2020 distribution on April 1, 2020, as a result of the uncertainty surrounding the COVID-19 pandemic.

On November 4, 2020, our Board authorized distributions for stockholders of record at the close of business on December 28, 2020 equal to a monthly amount of $ 0.02833333 per share of common stock, or $0.34 annually.

Operating partnership unit (“OP Unit”) holders will receive distributions at the same rate as common stockholders.

We expect to pay this distribution on January 7, 2021.

Dividend Reinvestment Plan —The DRIP allows stockholders to invest distributions in additional shares of our common stock, subject to certain limits.

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federal income taxation laws, will incur a tax liability on an amount equal to the fair value on the relevant distribution date of the shares of our common stock purchased with reinvested distributions, even though such stockholders have elected not to receive the distributions in cash.

On March 27, 2020, the DRIP was temporarily suspended and remains suspended as of June 30, 2020 .

The March 2020 distribution was paid all in cash on April 1, 2020.

Distributions —On March 27, 2020, our Board temporarily suspended stockholder distributions, effective after the payment of the March 2020 distribution on April 1, 2020, as a result of the uncertainty surrounding the COVID-19 pandemic, including the impact that the pandemic and the measures taken by governmental authorities and tenants in response to the pandemic are expected to continue to have on our shopping centers and our financial condition, liquidity sources, and capital needs.

On March 27, 2020, the DRIP was suspended, and the March 2020 distribution was paid in all cash on April 1, 2020.

The DRIP remained suspended as of September 30, 2020.

On November 4, 2020, our Board reinstated the DRIP, which will be effective beginning with the December 2020 distribution to be paid in January 2021.

Tender Offer —On November 4, 2020, our Board approved a voluntary tender offer commencing on November 10, 2020 (the “Tender Offer”) for up to 4.5 million shares of our outstanding common stock at a price of $ 5.75 per share, for a total value of approximately $ 26 million.

Share Repurchase Program (“SRP”) —The SRP provides an opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and limitations.

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On August 7, 2019, the Board suspended the SRP with respect to standard repurchases.

The SRP for death, qualifying disability, or determination of incompetence was also suspended, effective March 27, 2020.

Both the SRP with respect to standard repurchases and the SRP for death, qualifying disability, or determination of incompetence remain suspended as of June 30, 2020 .

Convertible Noncontrolling Interests —Under the terms of the Fourth Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”), Operating Partnership unit (“OP unit”) holders may elect to exchange OP units.

The SRP for death, qualifying disability, or determination of incompetence (“DDI”) was suspended effective March 27, 2020, in response to the uncertainty of COVID-19.

Both the SRP with respect to standard repurchases and the SRP for death, qualifying disability, or determination of incompetence remain suspended as of September 30, 2020.

We expect to restart share repurchases for DDI at $5.75 per share, but no shares will be repurchased until at least 10 business days after completion of the Tender Offer.

The SRP with respect to standard repurchases will remain suspended.

Convertible Noncontrolling Interests —Under the terms of the Fourth Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”), OP Unit holders may elect to exchange OP units.

The Operating Partnership controls the form of the redemption, and may elect to exchange 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 June 30, 2020 and December 31, 2019 are classified as Noncontrolling Interests within permanent equity on our consolidated balance sheets.

As the form of redemption for OP units is within our control, the OP units outstanding as of September 30, 2020 and December 31, 2019 are classified as Noncontrolling Interests within permanent equity on our consolidated balance sheets.

The distributions that have been paid on OP units are included in Distributions to Noncontrolling Interests on the consolidated statements of equity.

During the six months ended June 30, 2020 and 2019 , 0.2 million and 1.9 million OP units were converted into shares of our common stock at a 1:1 ratio, respectively.

There were approximately 42.7 million OP units outstanding as of June 30, 2020 and December 31, 2019 .

During the nine months ended September 30, 2020 and 2019, 0.2 million and 1.9 million OP units were converted into shares of our common stock at a 1:1 ratio, respectively.

There were approximately 42.7 million OP units outstanding as of September 30, 2020 and December 31, 2019.

Additionally, certain of our outstanding time- and performance-based equity awards will result in the issuance of shares or OP units upon vesting in future periods.

Simultaneously with the reverse stock split described above, to be made effective in 2021, every four OP units then outstanding will be automatically combined and converted into one OP unit.

EARNINGS PER SHARE

We use the two-class method of computing earnings per share (“EPS”), which is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared (whether paid or unpaid).

Under the two-class method, basic EPS is computed by dividing Net (Loss) Income Attributable to Stockholders by the weighted-average number of shares of common stock outstanding for the period.

Under the two-class method, basic EPS is computed by dividing Net Income (Loss) 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.

OP units held by limited partners other than us are considered to be participating securities because they contain non-forfeitable rights to dividends or dividend equivalents, and have the potential to be exchanged for an equal number of shares of our common stock in accordance with the terms of the the Partnership Agreement.

In previous periods, we issued certain share-based awards to employees which are tied to the value of our EVPS, but that are paid in cash upon vesting.

We have a small number of these awards that remain outstanding, however, they are not considered to be participating securities as they are not convertible into common stock, and as such are not included as a component of our basic or diluted EPS calculation.

The impact of outstanding OP units on basic and diluted EPS has been calculated using the two-class method whereby earnings are allocated to the OP units based on dividends declared and the OP units’ participation rights in undistributed earnings.

The effects of the two-class method on basic and diluted EPS were immaterial to the consolidated financial statements as of June 30, 2020 and 2019 .

The effects of the two-class method on basic and diluted EPS were immaterial to the consolidated financial statements during the nine months ended September 30, 2020 and 2019.

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 June 30,

Six Months Ended June 30,

Net (loss) income attributable to stockholders - basic

Net (loss) income attributable to convertible OP units (1)

Net (loss) income - diluted

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Net income (loss) attributable to stockholders - basic

$ 11,784 $ ( 25,877 ) $ 15,965 $ ( 67,642 )

Net income (loss) attributable to convertible OP units (1)

1,646 ( 3,893 ) 2,251 ( 10,319 )

Net income (loss) - diluted $ 13,430 $ ( 29,770 ) $ 18,216 $ ( 77,961 )

Weighted-average shares - basic 290,465 283,827 290,295 282,714

42,742 42,783 42,792 43,356

Dilutive restricted stock awards 356 — 393 —

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Earnings per common share:

Basic and diluted (loss) income per share

Basic and diluted income (loss) per share

$ 0.04 $ ( 0.09 ) $ 0.05 $ ( 0.24 )

(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 Loss (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 years presented.

Approximately 1.1 million time-based and 2.7 million performance-based unvested stock awards were outstanding as of June 30, 2020 .

Approximately 1.1 million time-based and 1.5 million performance-based unvested stock awards were outstanding as of June 30, 2019 .

These securities were anti-dilutive for the three months ended June 30, 2020 and the three

and six months ended June 30, 2019 .

As a result, their impact was excluded from the weighted-average common shares used to calculate diluted EPS for those periods.

The Operating Partnership income or loss attributable to these OP units, which is included as a component of Net (Income) Loss 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 years presented.

Approximately 1.0 million time-based and 2.5 million performance-based unvested stock units were outstanding as of September 30, 2019.

These securities were anti-dilutive for the three and nine months ended September 30, 2019, and as a result, their impact was excluded from the weighted-average common shares used to calculate diluted EPS for those periods.

REVENUE RECOGNITION AND RELATED PARTY TRANSACTIONS

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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 June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Recurring fees (1)

$ 1,233 $ 1,669 $ 3,631 $ 4,890

Transactional revenue and reimbursements (2)

719 606 2,109 2,655

Insurance premiums (3)

629 491 1,766 1,533

Total fees and management income $ 2,581 $ 2,766 $ 7,506 $ 9,078

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

Insurance premium income from other parties includes amounts from third parties not affiliated with us.

During the six months ended June 30, 2019, we recognized a net charge of $1.9 million in Other Expense, Net on our consolidated statements of operations.

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

During the nine months ended September 30, 2019, we recognized a net charge of $ 1.9 million in Other Expense, Net on our consolidated statements of operations.

The charge was related to a reduction in our related party accounts receivable and organization and offering costs payable for amounts incurred in connection with the Phillips Edison Grocery Center REIT III, Inc.

(“REIT III”) public offering.

Remaining accounts receivable and organization and offering costs payable that were outstanding as of June 30, 2019 related to REIT III were settled when we merged with REIT III in October 2019.

Remaining accounts receivable and organization and offering costs payable that were outstanding as of September 30, 2019 related to REIT III were settled when we merged with REIT III in October 2019.

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.

We are also the limited guarantor of a $175 million mortgage loan for GRP I.

As of September 30, 2020, we were also the limited guarantor of a $ 175 million mortgage loan for GRP I.

Our guaranty in both cases is limited to being the non-recourse carveout guarantor and the environmental indemnitor.

We are also party to a separate agreement with our joint venture partner in which any potential liability under our guaranty for GRP I will be apportioned between us and our joint venture partner based on our respective ownership percentages in GRP I.

We have no liability recorded on our consolidated balance sheets for either guaranty as of June 30, 2020 and December 31, 2019 .

We have no liability recorded on our consolidated balance sheets for either guaranty as of September 30, 2020 and December 31, 2019.

FAIR VALUE MEASUREMENTS

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We have utilized market information, as available, or present value techniques to estimate the amounts required to be disclosed.

The following is a summary of borrowings as of June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020

December 31, 2019

Recorded Principal Balance (1)

The following is a summary of borrowings as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020 December 31, 2019

Recorded Principal Balance (1)

Fair Value Recorded Principal Balance (1)

Term loans $ 1,609,291 $ 1,602,032 $ 1,636,470 $ 1,656,765

Secured portfolio loan facilities 391,011 404,971 390,780 399,054

Mortgages (2)

Recorded principal balances include net deferred financing expenses of $15.4 million and $17.2 million as of June 30, 2020 and December 31, 2019 , respectively.

Recorded principal balances also include assumed market debt adjustments of $1.4 million and $1.2 million as of June 30, 2020 and December 31, 2019 , respectively.

There are deferred financing expenses related to our revolving credit facility that are in an asset position and thus are not included in these balances.

318,701 330,159 326,849 337,614

Total $ 2,319,003 $ 2,337,162 $ 2,354,099 $ 2,393,433

(1) Recorded principal balances include net deferred financing expenses of $ 14.5 million and $ 17.2 million as of September 30, 2020 and December 31, 2019, respectively.

Recorded principal balances also include assumed market debt adjustments of $ 1.4 million and $ 1.2 million as of September 30, 2020 and December 31, 2019, respectively.

We have recorded deferred financing expenses related to our revolving credit facility in Other Assets, Net on our consolidated balance sheets which are not included in these balances.

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

Recurring and Nonrecurring Fair Value Measurements —Our earn-out liability 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 six months ended June 30, 2020 and the year ended December 31, 2019 , were as follows (in thousands):

June 30, 2020

December 31, 2019

F air value measurements that occurred as of and during the nine months ended September 30, 2020 and the year ended December 31, 2019, were as follows (in thousands):

September 30, 2020 December 31, 2019

Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Derivative assets (1)

$ — $ — $ — $ — $ 2,728 $ —

Derivative liabilities (1)

— ( 60,615 ) — — ( 20,974 ) —

Earn-out liability — — ( 22,000 ) — — ( 32,000 )

Impaired real estate assets, net (2)

— — — — 280,593 —

Impaired corporate intangible asset, net (3)

— — — — — 4,401

(1) We record derivative assets in Other Assets, Net and derivative liabilities in Derivative Liabilities on our consolidated balance sheets.

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(3) The carrying value of our impaired corporate intangible asset, net, which consists of in-place management contracts, subsequently decreased after the measurement date due to amortization as well as through derecognition as part of the merger with REIT III.

Derivative Instruments— As of June 30, 2020 and December 31, 2019 , we had interest rate swaps that fixed LIBOR on portions of our unsecured term loan facilities.

Derivative Instruments— As of September 30, 2020 and December 31, 2019, we had interest rate swaps that fixed LIBOR on portions of our unsecured term loan facilities.

All interest rate swap agreements are measured at fair value on a recurring basis.

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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.

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 June 30, 2020 and December 31, 2019 , 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.

However, as of September 30, 2020 and December 31, 2019, 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.

Earn-out —As part of our acquisition of Phillips Edison Limited Partnership (“PELP”), an earn-out structure was established which gave PELP the opportunity to earn additional OP units based upon the potential achievement of certain performance targets subsequent to the acquisition.

After the expiration of certain provisions in 2019, PELP is now eligible to earn up to five million OP units based on the timing and valuation of a liquidity event for PECO, which can occur no later than December 31, 2021 in order for the performance targets to be achieved per the terms of the agreement.

After the expiration of certain provisions in 2019, PELP is now eligible to earn between three million and five million OP units based on the timing and valuation of a liquidity event for PECO.

The liquidity event can occur no later than December 31, 2021 for the maximum shares to be awarded, but can occur as late as December 31, 2023.

We estimate the fair value of this liability on a quarterly basis using the Monte Carlo method.

This method requires us to make assumptions about future dividend yields, volatility, and timing and pricing of liquidity events, which are unobservable and are

considered Level 3 inputs in the fair value hierarchy.

This method requires us to make assumptions about future dividend yields, volatility, and timing and pricing of liquidity events, which are unobservable and are considered Level 3 inputs in the fair value hierarchy.

A change in these inputs to a different amount might result in a significantly higher or lower fair value measurement at the reporting date.

In calculating the fair value of this liability as of June 30, 2020 , we have determined that the most likely range of potential outcomes includes a possibility of no additional OP units issued as well as up to a maximum of five million units being issued.

In calculating the fair value of this liability as of September 30, 2020, we have determined that the most likely range of potential outcomes includes a possibility of no additional OP units issued as well as up to a maximum of five million units being issued.

Changes in the fair value of the earn-out liability have been and will continue to be recognized in earnings.

The following table presents a reconciliation of the change in the earn-out liability measured at fair value on a recurring basis using Level 3 inputs and recognized as Other (Expense) Income, Net in the consolidated statements of operations (in thousands):

The following table presents a reconciliation of the change in the earn-out liability measured at fair value on a recurring basis using Level 3 inputs and recognized as Other Income (Expense), Net in the consolidated statements of operations (in thousands):

Earn-Out Liability

Balance at December 31, 2019 $ 32,000

Change in fair value recognized in Other (Expense) Income, Net

Balance at June 30, 2020

Change in fair value recognized in Other Income (Expense), Net

Balance at September 30, 2020 $ 22,000

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.

During the three and six months ended June 30, 2019 , we impaired assets that were under contract or actively marketed for sale at a disposition price that was less than carrying value, or that had other operational impairment indicators.

During the three and nine months ended September 30, 2019, we impaired assets that were under contract or actively marketed for sale at a disposition price that was less than carrying value, or that had other operational impairment indicators.

The valuation technique used for the fair value of all impaired real estate assets was the expected net sales proceeds, which we consider to be a Level 2 input in the fair value hierarchy.

There were no impairment charges recorded during the three and six months ended June 30, 2020 .

There were no impairment charges recorded during the three and nine months ended September 30, 2020.

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.

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Our quarterly impairment procedures have not been altered by the COVID-19 pandemic, as we believe key impairment indicators such as temporary store closings and large dark or vacant spaces will continue to be identified in our review.

We have utilized forecasts that incorporate estimated decreases in net operating income (“NOI”) and cash flows as a result of the COVID-19 pandemic in performing our review procedures for the three and six months ended June 30, 2020 .

However, it is possible that we could experience unanticipated changes in assumptions that are employed in our impairment review which could impact our cash flows and fair value conclusions.

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We recorded the following expense upon impairment of real estate assets (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Impairment of real estate assets $ — $ 35,710 $ — $ 74,626

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In June 2019, the suspension of the REIT III public offering constituted a triggering event for further review of the corporate intangible asset’s fair value compared to its carrying value.

We estimated the fair value of the corporate intangible asset using a discounted cash flow model, leveraging certain Level 3 inputs.

We estimated the fair value of the corporate intangible asset using a discounted cash flow model which leveraged certain Level 3 inputs.

The evaluation of corporate intangible assets for potential impairment required management to exercise significant judgment and to make certain assumptions.

The assumptions utilized in the evaluation included future cash flows and a discount rate.

For the corporate intangible asset during the three months ended June 2019, we used a discount rate of 19% in our discounted cash flow model.

Based on this analysis, we concluded the carrying value exceeded the estimated fair value of the corporate intangible asset, and an impairment charge of $7.8 million was recorded in Other (Expense) Income, Net on the consolidated statements of operations in the second quarter of 2019.

The assumptions utilized in the evaluation included projected future cash flows and a discount rate of 19 %.

Based on this analysis, we concluded the carrying value exceeded the estimated fair value of the corporate intangible asset, and an impairment charge of $ 7.8 million was recorded in Other Income (Expense), Net on the consolidated statements of operations in the second quarter of 2019.

We have not noted any triggering events related to our corporate intangible asset, and accordingly have not recorded any impairments, subsequent to this date.

SUBSEQUENT EVENTS

2 unchanged sentences

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What changed 10-Q

Item 1. Financial Statements