What changed in this filing

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Item 1A. Risk Factors

2021-08-05 compared with 2021-05-04 · 43 added, 17 removed, 51 unchanged (54% of the section changed)

14 unchanged sentences

All temporarily closed Neighbors have since been permitted to reopen;

however, a portion of our Neighbors have permanently closed, and we are working to backfill these spaces.

Some may be 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.

These actions, as well as the continuing economic impacts of the COVID-19 pandemic, could result in increased permanent store closures.

In addition to the permanent closures that have occurred in our portfolio, this could reduce the demand for leasing space in our shopping centers and result in a decline in average rental rates on expiring leases.

however, there are

PHILLIPS EDISON & COMPANY

JUNE 30, 2021 FORM 10-Q

continuing economic impacts from the COVID-19 pandemic which could result in future store closures or could reduce the demand for leasing space in our shopping centers.

While most of our Neighbors have reopened, we cannot presently determine how many of the Neighbors 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.

1 unchanged sentence

However, we believe it is best to begin negotiation of relief only once a Neighbor has reopened and made payments toward rent and recovery charges accrued.

Inclusive of our prorated share of properties owned through our joint ventures, as of April 20, 2021, we have $5.4 million of outstanding payment plans with our Neighbors, and we had recorded rent abatements of approximately $4.4 million during

These payment plans and rent abatements represented 1.4% and 1.1% of portfolio ABR, respectively, and the weighted-average term over which we expect to receive remaining amounts owed on executed payment plans is approximately 13 months.

Inclusive of our prorated share of properties owned through our joint ventures, as of July 20, 2021, we have $5.3 million of outstanding payment plans with our Neighbors, and we had recorded rent abatements of approximately $0.7 million during 2021.

These payment plans and rent abatements represented approximately 2.0% and 0.3% of portfolio rental income for the six months ended June 30, 2021, respectively.

As of July 20, 2021, approximately 54% of payments are scheduled to be received by December 31, 2021 for all executed payment plans, and the weighted-average term over which we expect to receive remaining amounts owed on executed payment plans is approximately twelve months.

We are still actively pursuing past due amounts under the terms negotiated with our Neighbors.

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

As of April 20, 2021, we have collected approximately 95% of rent and recoveries billed during the second through fourth quarters of 2020, and approximately 95% of rent and recoveries billed during the first quarter of 2021.

As of July 20, 2021, we have collected approximately 95% of rent and recoveries billed during the second through fourth quarters of 2020, and approximately 98% of rent and recoveries billed during the first and second quarters of 2021.

In the event of any default by a Neighbor under its lease agreement or relief agreement, we may 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.

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

As of March 31, 2021, we have several Neighbors in bankruptcy proceedings where we have not yet received notice that the lease has been assumed or rejected, representing an exposure of approximately 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:

12 unchanged sentences

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.

PHILLIPS EDISON & COMPANY

JUNE 30, 2021 FORM 10-Q

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 Neighbors’ business, financial condition, results of operations, cash flows, liquidity, and ability to satisfy debt service obligations.

10 unchanged sentences

Actual incremental yields may vary from our underwritten incremental yield range based on the actual total cost to complete a project and its incremental NOI at stabilization.

We and the Operating Partnership entered into a tax protection agreement with certain protected partners, which may limit the Operating Partnership’s ability to sell or otherwise dispose of certain properties and may require the Operating Partnership to maintain certain debt levels that otherwise would not be required to operate its business.

We and our consolidated subsidiary, Phillips Edison Grocery Center Operating Partnership I, L.P.

(the “Operating Partnership”), entered into a tax protection agreement with, among others, Jeffrey S.

Edison, our Chairman and Chief Executive Officer, and certain entities controlled by him at the closing of a transaction in May 2017 pursuant to which we internalized our management structure through the acquisition of certain real estate assets and the third party investment management business of Phillips Edison Limited Partnership in exchange for ownership units of the Operating Partnership and cash.

Pursuant to this tax protection agreement, if the Operating Partnership:

(i) sells, exchanges, transfers or otherwise disposes of certain properties in a taxable transaction, or undertakes any taxable merger, combination, consolidation or similar transaction (including a transfer of all or substantially all assets), for a period of ten years commencing on October 4, 2017;

or (ii) fails, prior to the expiration of such period, to maintain certain minimum levels of indebtedness that would be allocable to each protected partner for tax purposes or, under certain circumstances, fails to offer such protected partners the opportunity to guarantee certain types of the Operating Partnership’s indebtedness, then the Operating Partnership will indemnify each affected protected partner, including our Chairman and Chief Executive Officer, Jeffrey S.

(the “Operating Partnership”), entered into tax protection agreements with certain protected partners, which may limit the Operating Partnership’s ability to sell or otherwise dispose of certain shopping centers and may require the Operating Partnership to maintain certain debt levels that otherwise would not be required to operate its business.

We and the Operating Partnership entered into a tax protection agreement on October 4, 2017 (the “2017 TPA”) with, among others, Jeffrey S.

Pursuant to the 2017 TPA, if the Operating Partnership:

(i) sells, exchanges, transfers or otherwise disposes of certain shopping centers in a taxable transaction, or undertakes any taxable merger, combination, consolidation or similar transaction (including a transfer of all or substantially all assets), for a period of ten years commencing on October 4, 2017;

Edison, against certain resulting tax liabilities.

Our tax indemnification obligations include a tax gross-up.

Therefore, although it may be in our stockholders’ best interest for us to cause the Operating Partnership to sell, exchange, transfer or otherwise dispose of one of these properties, it may be economically prohibitive for us to do so until the expiration of the protection period in 2027 because of these indemnity obligations.

As of June 30, 2021, 36 of our 272 wholly-owned properties, comprising approximately 11.4% of our ABR, are subject to the protection described in clause (i) above, and the potential “make-whole amount” on the estimated aggregate amount of built-in gain subject to such protection is approximately $152.6 million.

We and the Operating Partnership entered into an additional tax protection agreement (the “2021 TPA”) on July 19, 2021 with Mr.

Murphy, our President;

and Robert F.

Myers, our Chief Operating Officer and Executive Vice President, which will become effective upon the expiration of the 2017 TPA.

The 2021 TPA generally has the following terms:

(i) the 2021 TPA will severally provide to Mr.

Murphy and Mr.

Myers the same protection provided under the 2017 TPA until 2031, so long as (a) Mr.

Murphy or Mr.

Myers (or their permitted transferees), as applicable, individually owns at least 65% of the OP units owned by him as of the date of the execution of the 2021 TPA and (b) in the case of Mr.

Murphy or Mr.

Edison individually owns at least 65% of the OP units owned by him as of the date of the execution of the 2021 TPA;

and (ii) the 2021 TPA will provide that following the expiration of the four-year tax protection period under the 2021 TPA, for so long as Mr.

Edison holds at least $5.0 million in value of OP units, (a) Mr.

Edison will have the opportunity to guarantee debt of the Operating Partnership or enter into a “deficit restoration” obligation, and (b) the Operating Partnership will provide reasonable notice to Mr.

Edison before effecting a significant transaction reasonably likely to result in the recognition of more than one-third of the built-in gain allocated to Mr.

Edison that is protected under the 2017 TPA as of the date that the 2021 TPA is executed, and will consider in good faith any proposal made by Mr.

Edison relating to structuring such transaction in a manner to avoid or mitigate adverse tax consequences to him.

Therefore, although it may be in our stockholders’ best interest for us to cause the Operating Partnership to sell, exchange, transfer or otherwise dispose of one or more of these shopping centers, it may be economically prohibitive for us to do so until the expiration of the applicable protection period because of these indemnity obligations.

Moreover, these obligations may require us to cause the Operating Partnership to maintain more or different indebtedness than we would otherwise require for our business.

As a result, the tax protection agreement could, during its term, restrict our ability to take actions or make decisions that otherwise would be in our best interests.

As a result, the tax protection agreements could, during their term, restrict our ability to take actions or make decisions that otherwise would be in our best interests.

PHILLIPS EDISON & COMPANY

JUNE 30, 2021 FORM 10-Q

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended June 30, 2021, we issued 28,000 shares of common stock in redemption of 28,000 OP units.

As described in Item 5.

“Other Information”, our Board has approved the termination of the share repurchase program (“SRP”).

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