What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-05 compared with 2022-05-05 · 262 added, 115 removed, 472 unchanged (44% of the section changed)

49 unchanged sentences

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

JUNE 30, 2022 FORM 10-Q

Our KPIs and terminology can be grouped into three key areas:

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• Underwritten incremental unlevered yield—This reflects the yield we target to generate from a project upon expected stabilization and is calculated as the estimated incremental NOI for a project at stabilization divided by its estimated net project investment.

The estimated incremental NOI is the difference between the estimated annualized NOI we target to generate by project upon stabilization and the estimated annualized NOI without the planned improvements.

The estimated incremental NOI is the difference between the estimated annualized NOI we target to generate by a project upon stabilization and the estimated annualized NOI without the planned improvements.

Underwritten incremental unlevered yield does not include peripheral impacts, such as lease rollover risk or the impact on the long term value of the property upon sale or disposition.

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• Cost of executing new leases—We use this term to refer to certain costs associated with new leasing, namely, leasing commissions, tenant improvement costs, and tenant concessions.

• Portfolio retention rate—This metric is calculated by dividing (i) total square feet of retained Neighbors with current period lease expirations by (ii) the total square feet of leases expiring during the period.

• Portfolio retention rate—This metric is calculated by dividing (i) the total square feet of retained Neighbors with current period lease expirations by (ii) the total square feet of leases expiring during the period.

The portfolio retention rate provides insight into our ability to retain Neighbors at our shopping centers as their leases approach expiration.

29 unchanged sentences

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

JUNE 30, 2022 FORM 10-Q

• Equity Market Capitalization—We calculate equity market capitalization as the total dollar value of all outstanding shares using the closing price for the applicable date.

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Our Neighbors are a mix of national, regional, and local retailers that primarily provide necessity-based goods and services.

As of March 31, 2022, we owned equity interests in 290 shopping centers, including 269 wholly-owned shopping centers and 21 shopping centers owned through two unconsolidated joint ventures, which comprised approximately 33.1 million square feet in 31 states.

As of June 30, 2022, we owned equity interests in 289 shopping centers, including 269 wholly-owned shopping centers and 20 shopping centers owned through one unconsolidated joint venture, which comprised approximately 33.1 million square feet in 31 states.

In addition to managing our shopping centers, our third-party investment management business provides comprehensive real estate management services to the Managed Funds.

PORTFOLIO AND LEASING STATISTICS —Below are statistical highlights of our wholly-owned portfolio as of March 31, 2022 and 2021 (dollars and square feet in thousands):

March 31, 2022 March 31, 2021

In May 2022, we sold the final property in our joint venture with NRP, in which we own a 20% interest.

During the three and six months ended June 30, 2022, we recognized income of $2.5 million and $2.7 million, respectively, related to NRP’s achievement of certain performance targets, which is included in Fees and Management Income in our consolidated statements of operations.

PORTFOLIO AND LEASING STATISTICS —Below are statistical highlights of our wholly-owned portfolio as of June 30, 2022 and 2021 (dollars and square feet in thousands):

June 30, 2022 June 30, 2021

Number of properties 269 272

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PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

The following table details information for our unconsolidated joint ventures as of March 31, 2022, which is the basis for determining the prorated information included in the subsequent tables (dollars and square feet in thousands):

March 31, 2022

JUNE 30, 2022 FORM 10-Q

The following table details information for our unconsolidated joint venture as of June 30, 2022, which is the basis for determining the prorated information included in the subsequent tables (dollars and square feet in thousands):

June 30, 2022

Joint Venture Ownership Percentage Number of Properties ABR GLA

Grocery Retail Partners I 14% 20 $ 30,090 2,210

Necessity Retail Partners 20% 1 2,270 116

LEASE EXPIRATIONS —The following chart shows the aggregate scheduled lease expirations, excluding our Neighbors who are occupying space on a temporary basis, after March 31, 2022 for each of the next ten years and thereafter for our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint ventures:

GRP I 14% 20 $ 30,308 2,210

LEASE EXPIRATIONS —The following chart shows the aggregate scheduled lease expirations, excluding our Neighbors who are occupying space on a temporary basis, after June 30, 2022 for each of the next ten years and thereafter for our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint venture:

Our ability to create rental rate growth generally depends on our leverage during new and renewal lease negotiations with prospective and existing Neighbors, which typically occurs when occupancy at our centers is high or during periods of economic growth and recovery.

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PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

JUNE 30, 2022 FORM 10-Q

PORTFOLIO TENANCY —We define national Neighbors as those Neighbors that operate in at least three states.

Regional Neighbors are defined as those Neighbors that have at least three locations in fewer than three states.

The following charts present the composition of our portfolio, including our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint ventures, by Neighbor type as of March 31, 2022:

The following charts present the composition of our portfolio by Neighbor industry as of March 31, 2022:

The following charts present the composition of our portfolio by Neighbor industry as of June 30, 2022:

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

JUNE 30, 2022 FORM 10-Q

NECESSITY-BASED GOODS AND SERVICES —We define “Necessity-based goods and services” as goods and services that are indispensable, necessary, or common for day-to-day living, or that tend to be inelastic (i.e., those for which the demand does not change based on a consumer’s income level).

We estimate that approximately 72% of our ABR, including the pro rata portion attributable to properties owned through our unconsolidated joint ventures, is generated from Neighbors providing necessity-based goods and services.

TOP TWENTY NEIGHBORS —The following table presents our top twenty Neighbors by ABR, including our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint ventures, as of March 31, 2022 (dollars and square feet in thousands):

We estimate that approximately 71% of our ABR, including the pro rata portion attributable to properties owned through our unconsolidated joint venture, is generated from Neighbors providing necessity-based goods and services.

TOP 20 NEIGHBORS —The following table presents our top 20 Neighbors by ABR, including our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint venture, as of June 30, 2022 (dollars and square feet in thousands):

ABR % of ABR Leased Square Feet % of Leased Square Feet Number of Locations (2)

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Kohl's Corporation 2,241 0.5 % 365 1.2 % 4

Office Depot 2,237 0.5 % 179 0.6 % 8

Food 4 Less (PAQ) 2,215 0.5 % 118 0.4 % 2

Save Mart 2,174 0.5 % 258 0.9 % 5

Starbucks Corporation 2,136 0.5 % 49 0.2 % 30

Petco Animal Supplies, Inc.

2,136 0.5 % 127 0.4 % 11

Franchise Group, Inc.

2,084 0.5 % 145 0.5 % 24

United Parcel Service 2,013 0.5 % 79 0.3 % 62

Total $ 147,376 34.6 % 14,806 48.8 % 440

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RESULTS OF OPERATIONS

KNOWN TRENDS AND UNCERTAINTIES OF THE COVID-19 PANDEMIC —The COVID-19 pandemic resulted in reduced revenues beginning with the second quarter of 2020 and continued through early 2021.

Our collections returned to pre-COVID levels during the second half of 2021 and have continued through the first quarter of 2022.

KNOWN TRENDS AND UNCERTAINTIES —The COVID-19 pandemic resulted in reduced revenues beginning with the second quarter of 2020 through early 2021.

Our collections returned to pre-COVID levels during the second half of 2021 and have continued through the first half of 2022.

As of June 30, 2022, our Neighbors currently being accounted for on a cash basis represented approximately 5.0% of portfolio ABR.

We believe our collections have stabilized, which will reduce volatility in our earnings during 2022 as compared to 2021.

Due to changing economic conditions and supply chain limitations, there has been an increase in wages and costs for materials.

The resulting increased inflation may negatively impact some of our Neighbors and increase our operating and construction costs.

Additionally, macroeconomic and geopolitical risks may create challenges that cause current market conditions in the United States to worsen.

The policies implemented to address these risks, including raising interest rates, could result in adverse impacts on the United States economy, including a slowing of growth or potentially a recession.

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

SUMMARY OF OPERATING ACTIVITIES FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

JUNE 30, 2022 FORM 10-Q

SUMMARY OF OPERATING ACTIVITIES FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021

Three Months Ended

March 31, Favorable (Unfavorable)

June 30, Favorable (Unfavorable)

(Dollars in thousands) 2022 2021 $ % (1)

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(1,457) (2,924) 1,467 50.2 %

11,398 117 11,281 NM

15,255 6,390 8,865 138.7 %

Net income attributable to noncontrolling interests

(1,319) (14) (1,305) NM

(1,727) (796) (931) (117.0) %

Net income attributable to stockholders

$ 10,079 $ 103 $ 9,976 NM

$ 13,528 $ 5,594 $ 7,934 141.8 %

(1) Line items that result in a percent change that exceed certain limitations are considered not meaningful (“NM”) and indicated as such.

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We define our same-center portfolio as the 255 properties that were owned and operational prior to January 1, 2021.

We define our non-same-center portfolio as those properties that were not fully owned and operational in both periods owing to real estate asset activity occurring after December 31, 2020, which includes 25 properties disposed of and twelve properties acquired.

Below are explanations of the significant fluctuations in the results of operations for the three months ended March 31, 2022 and 2021:

We define our non-same-center portfolio as those properties that were not fully owned and operational in both periods owing to real estate asset activity occurring after December 31, 2020, which includes 26 properties disposed of and 13 properties acquired.

Below are explanations of the significant fluctuations in the results of operations for the three months ended June 30, 2022 and 2021:

Rental Income increased $6.9 million primarily as follows:

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▪ $3.1 million increase primarily due to a $0.37 increase in average minimum rent PSF and a 1.6% improvement in average occupancy owing largely to the strength of our leasing results during 2021;

▪ $1.7 million increase owing largely to an increase in recoverable income attributed to an increase in real estate taxes and common area maintenance spending, as compared to 2021, as well as a 1.3% improvement in average occupancy;

▪ $0.6 million increase primarily due to the continued stabilization of collections from our Neighbors which resulted in a decrease in Neighbors we have identified as a credit risk and lower general reserves.

• $2.9 million increase primarily related to improving the quality of our portfolio through our acquisition and disposition activity.

▪ $1.4 million increase owing largely to an increase in recoverable income attributable to the 1.6% improvement in average occupancy and lower reserves for common area maintenance as compared to 2021;

▪ $2.2 million decrease primarily due to the stabilization of collections in 2022 compared to the recovery of prior year income in 2021 and the reversal of reserves for uncollectibility from 2020 resulting from the recovery of our portfolio in the wake of the COVID-19 pandemic.

• $4.7 million increase primarily related to our acquisition and disposition activity.

Fees and Management Income:

• The $2.4 million increase in fees and management income was primarily due to the achievement of certain performance targets related to our joint venture with NRP.

Property Operating Expenses:

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▪ $1.2 million increase in recoverable expenses attributed to higher common area maintenance costs, as compared to 2021;

▪ $0.5 million decrease in compensation expenses due to decreases in performance-based compensation, as compared to 2021.

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

Real Estate Tax Expenses:

• The $0.3 million decrease in real estate tax expenses is primarily due to the impact of favorable real estate tax reassessments and appeals.

General and Administrative Expenses decreased $0.6 million primarily as follows:

• $1.6 million decrease in compensation expense owing largely to a decrease in performance- and service-based compensation of approximately $0.8 million and $0.4 million, respectively;

• $0.3 million decrease primarily due to lower third-party consultant and custodial costs;

• $1.0 million increase primarily due to increases in technology-related costs and travel and conference expenses;

• $0.5 million increase primarily due to an increase in directors and officers insurance as a result of our becoming a publicly traded company.

Depreciation and Amortization:

• The $4.2 million increase in depreciation and amortization is primarily due to the execution of our acquisition strategy and investment in improvements to our Neighbor spaces.

Impairment of Real Estate Assets:

• The $1.1 million decrease in impairment of real estate assets was due to assets that were sold during 2021 at a disposition price that was less than the carrying value.

Interest Expense, Net:

• The $2.0 million decrease was primarily due to net repayments of debt outstanding in 2021, partially offset by higher average interest rates in 2022.

Interest Expense, Net was comprised of the following (dollars in thousands):

Three Months Ended June 30,

Interest on unsecured term loans and senior notes, net $ 9,512 $ 10,573

Interest on secured debt 5,147 6,246

Interest on revolving credit facility, net 521 207

Non-cash amortization and other 1,818 1,687

Loss on extinguishment or modification of debt and other, net (1)

Interest expense, net

$ 17,127 $ 19,132

Weighted-average interest rate as of end of period 3.2 % 2.9 %

Weighted-average term (in years) as of end of period 4.9 3.7

(1) Includes defeasance fees related to early repayments of debt.

Gain on Disposal of Property, Net:

• The $1.0 million decrease was primarily related to the sale of one property and two outparcels with a net gain of $2.8 million during the three months ended June 30, 2022, as compared to the sale of seven properties (in addition to other property-related miscellaneous disposals and write-offs) with a net gain of $3.7 million during the three months ended June 30, 2021 (see Note 4).

Other Expense, Net:

• The $1.5 million decrease was primarily related to a 2021 charge in connection with the change in the fair value of our earn-out liability, which was settled in January 2022, combined with an increase from equity in income of our unconsolidated joint ventures, partially offset by an increase in transaction and acquisition expenses owing largely to the amortization of the restricted stock units awarded at the time of our underwritten IPO and a decrease in the value of our investment in marketable securities.

Other Expense, Net was comprised of the following (in thousands):

Three Months Ended June 30,

Increase in fair value of earn-out liability (see Note 12) $ — $ (2,000)

Equity in net income of unconsolidated joint ventures

Transaction and acquisition expenses (2,035) (934)

Federal, state, and local income tax expense (97) (165)

Other (553) 88

Other expense, net

$ (1,457) $ (2,924)

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

SUMMARY OF OPERATING ACTIVITIES FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

Six Months Ended

June 30, Favorable (Unfavorable)

(Dollars in thousands) 2022 2021 $ % (1)

Rental income $ 275,978 $ 257,958 $ 18,020 7.0 %

Fee and management income 7,242 4,660 2,582 55.4 %

Other property income 1,459 833 626 75.2 %

Total revenues 284,679 263,451 21,228 8.1 %

Operating Expenses:

Property operating 46,172 44,176 (1,996) (4.5) %

Real estate taxes 33,964 33,387 (577) (1.7) %

General and administrative 22,908 21,278 (1,630) (7.7) %

Depreciation and amortization 117,995 111,928 (6,067) (5.4) %

Impairment of real estate assets — 6,056 6,056 NM

Total operating expenses 221,039 216,825 (4,214) (1.9) %

Interest expense, net

(35,326) (39,195) 3,869 9.9 %

Gain on disposal of property, net

4,161 17,585 (13,424) (76.3) %

Other expense, net

(5,822) (18,509) 12,687 68.5 %

26,653 6,507 20,146 NM

Net income attributable to noncontrolling interests

(3,046) (810) (2,236) NM

Net income attributable to stockholders

$ 23,607 $ 5,697 $ 17,910 NM

(1) Line items that result in a percent change that exceed certain limitations are considered not meaningful (“NM”) and indicated as such.

For details surrounding our basis for analyzing significant fluctuations in our results of operations as well as definitions related to our portfolio of real estate assets, please see “Summary of Operating Activities for the Three Months Ended June 30, 2022 and 2021” above.

Below are explanations of the significant fluctuations in the results of operations for the six months ended June 30, 2022 and 2021:

Rental Income increased $18.0 million as follows:

• $10.5 million increase related to our same-center portfolio primarily as follows:

▪ $9.0 million increase primarily due to a $0.37 increase in average minimum rent per square foot and a 1.4% improvement in average occupancy;

▪ $3.1 million increase owing largely to an increase in recoverable income attributed to an increase in common area maintenance spending and lower reserves for common area maintenance, as compared to 2021, and the 1.4% improvement in average occupancy;

▪ $1.7 million decrease primarily due to the stabilization of collections in 2022 compared to the recovery of prior year income in 2021 and the reversal of reserves for uncollectibility from 2020 resulting from the recovery of our portfolio in the wake of the COVID-19 pandemic.

• $7.6 million increase primarily related to our acquisition and disposition activity.

Fees and management income:

• The $2.6 million increase in fees and management income was primarily due to the achievement of certain performance targets related to our joint venture with NRP.

Property Operating Expenses increased $2.0 million primarily as follows:

• $1.4 million increase related to our same-center portfolio and corporate operating activities as follows:

▪ $1.9 million increase attributable to higher common area maintenance costs, as compared to 2021;

▪ $0.6 million increase primarily due to higher insurance expenses attributed to higher market rates and an increase in claims and claim development;

▪ $0.4 million decrease in compensation expenses due to decreases in performance-based compensation, as compared to 2021.

• $0.5 million increase primarily due to our acquisition activity.

Real Estate Tax Expenses:

• The $0.9 million increase in real estate tax expenses is primarily due to higher real estate tax assessments on the value of our portfolio.

• The $0.6 million increase in real estate tax expenses is primarily due to our acquisition activity.

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

JUNE 30, 2022 FORM 10-Q

General and Administrative Expenses increased $1.6 million primarily as follows:

• $1.1 million increase in compensation expense owing largely to an increase in performance- and service-based compensation of approximately $0.4 million and $0.3 million, respectively;

• $0.7 million increase primarily due to an increase in directors and officers insurance as a result of our underwritten IPO;

• $0.3 million increase primarily due to costs related to the conversion of our Class B common stock to common stock and other compliance related expenses owing largely to our common stock being listed on a publicly traded market.

• $1.2 million increase primarily due to an increase in directors and officers insurance as a result of our becoming a publicly traded company;

• $1.0 million increase primarily due to increases in overhead attributed to technology-related costs and travel and conference expenses;

• $0.5 million decrease in compensation expense owing largely to lower performance-based compensation.

Depreciation and Amortization:

• The $1.9 million increase in depreciation and amortization is primarily due to the execution of our growth strategy and investment in improvements to our Neighbor spaces.

• The $6.1 million increase in depreciation and amortization is primarily due to the execution of our acquisition strategy and investment in improvements to our Neighbor spaces.

Impairment of Real Estate Assets:

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Interest Expense, Net:

• The $1.9 million decrease during the three months ended March 31, 2022 as compared to the same period in 2021 was primarily due to:

(i) early repayments of debt outstanding in 2021;

partially offset by (ii) higher average interest rates;

and (iii) the issuance of $350 million aggregate principal amount of 2.625% senior notes in October 2021.

• The $3.9 million decrease was primarily due to net repayments of debt outstanding in 2021, partially offset by higher average interest rates in 2022.

Interest Expense, Net was comprised of the following (dollars in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Interest on unsecured term loans and senior notes, net $ 19,428 $ 21,206

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Weighted-average term (in years) as of end of period 4.9 3.7

(1) Includes defeasance fees related to early repayments of debt.

Gain on Disposal of Property, Net:

• The $12.5 million decrease was primarily related to the sale of two properties with a net gain of $1.4 million during the three months ended March 31, 2022, as compared to the sale of six properties and one outparcel with a net gain of $13.8 million during the three months ended March 31, 2021 (see Note 4).

• The $13.4 million decrease was primarily related to the sale of three properties and two outparcels with a net gain of $4.2 million during the six months ended June 30, 2022, as compared to the sale of 13 properties and one outparcel (as well as other property-related miscellaneous disposals and write-offs) with a net gain of $17.6 million during the six months ended June 30, 2021 (see Note 4).

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

Other Expense, Net:

• The $11.2 million decrease was primarily related to a lower charge in connection with the change in the fair value of our earn-out liability, which was settled in January 2022, partially offset by an increase in transaction and acquisition expenses owing largely to restricted stock units awarded at the time of our underwritten IPO.

• The $12.7 million decrease was primarily related to a 2021 charge in connection with the change in the fair value of our earn-out liability, which was settled in January 2022, combined with an increase from equity in income of our unconsolidated joint ventures, partially offset by an increase in transaction and acquisition expenses owing largely to the amortization of the restricted stock units awarded at the time of our underwritten IPO and a decrease in the value of our investment in marketable securities.

Other Expense, Net was comprised of the following (in thousands):

Three Months Ended March 31,

Change in fair value of earn-out liability (see Note 12) $ (1,809) $ (16,000)

Equity in net (loss) income of unconsolidated joint ventures

Six Months Ended June 30,

Increase in fair value of earn-out liability (see Note 12) $ (1,809) $ (18,000)

Equity in net income of unconsolidated joint ventures

Transaction and acquisition expenses (4,080) (1,075)

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$ (5,822) $ (18,509)

LEASING ACTIVITY —Below is a summary of leasing activity for our wholly-owned properties for the three months ended June 30, 2022 and 2021 (1) :

Total Deals Inline Deals

2022 2021 2022 2021

Number of leases 105 124 98 121

Square footage (in thousands) 404 341 225 278

ABR (in thousands) $ 7,479 $ 6,338 $ 5,479 $ 5,816

ABR PSF $ 18.51 $ 18.57 $ 24.40 $ 20.94

Cost PSF of executing new leases $ 35.10 $ 31.01 $ 35.18 $ 29.30

Number of comparable leases 38 57 37 55

Comparable rent spread 39.0 % 18.5 % 24.5 % 19.0 %

Weighted-average lease term (in years) 9.0 7.2 7.6 6.8

Renewals and options:

Number of leases 160 174 141 159

Square footage (in thousands) 1,225 1,049 290 333

ABR (in thousands) $ 15,132 $ 12,895 $ 7,290 $ 7,306

ABR PSF $ 12.35 $ 12.30 $ 25.17 $ 21.95

ABR PSF prior to renewals $ 11.49 $ 11.55 $ 22.46 $ 20.08

Percentage increase in ABR PSF 7.5 % 6.5 % 12.1 % 9.3 %

Cost PSF of executing renewals and options (2)

$ 0.55 $ 0.89 $ 0.75 $ 1.11

Number of comparable leases (3)

120 155 118 148

Comparable rent spread (3)

14.4 % 8.0 % 13.4 % 9.4 %

Weighted-average lease term (in years) 5.5 5.4 4.2 4.0

Portfolio retention rate 92.1 % 85.5 % 85.3 % 79.5 %

(1) PSF amounts may not recalculate exactly based on other amounts presented within the table due to rounding.

(2) During the third quarter of 2021, we refined our calculation of cost PSF of executing renewals and options to better align with actual costs incurred.

Prior period amounts have been adjusted to reflect costs on the same basis.

(3) Excludes exercise of options.

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

LEASING ACTIVITY —Below is a summary of leasing activity for our wholly-owned properties for the three months ended March 31, 2022 and 2021 (1) :

JUNE 30, 2022 FORM 10-Q

Below is a summary of leasing activity for our wholly-owned properties for the six months ended June 30, 2022 and 2021 (1) :

Total Deals Inline Deals

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Other REITs may use different methodologies for calculating Same-Center NOI, and accordingly, our Same-Center NOI may not be comparable to other REITs.

For the three months ended March 31, 2022 and 2021, Same-Center NOI represents the NOI for the 256 properties that were wholly-owned and operational for the entire portion of both comparable reporting periods.

For the three and six months ended June 30, 2022 and 2021, Same-Center NOI represents the NOI for the 255 properties that were wholly-owned and operational for the entire portion of all comparable reporting periods.

Same-Center NOI should not be viewed as an alternative measure of our financial performance as it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, depreciation and amortization, interest expense, other income (expense), or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties that could materially impact our results from operations.

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

JUNE 30, 2022 FORM 10-Q

The table below presents our Same-Center NOI (dollars in thousands):

Three Months Ended March 31, Favorable (Unfavorable)

2022 2021 $ Change % Change

Three Months Ended June 30, Favorable (Unfavorable) Six Months Ended June 30, Favorable (Unfavorable)

Change 2022 2021 $ Change % Change

Rental income (1)

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SAME-CENTER NOI RECONCILIATION —Below is a reconciliation of Net Income to NOI and Same-Center NOI (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

$ 15,255 $ 6,390 $ 26,653 $ 6,507

Adjusted to exclude:

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General and administrative expenses

11,376 11,937 22,908 21,278

Depreciation and amortization

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Other expense, net

Property operating expenses related to fees and management income 1,070 816

1,457 2,924 5,822 18,509

Property operating expenses related to fees and

management income 1,287 1,306 2,357 2,122

NOI for real estate investments 95,124 87,576 190,309 174,655

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PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

JUNE 30, 2022 FORM 10-Q

The following table presents our calculation of Nareit FFO Attributable to Stockholders and OP Unit Holders and Core FFO (in thousands, except per share amounts):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Calculation of Nareit FFO Attributable to Stockholders and OP Unit Holders

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Transaction and acquisition expenses 2,035 934 4,080 1,075

Loss on extinguishment or modification of debt and other, net

Amortization of unconsolidated joint venture basis differences 44 746

Loss on extinguishment or modification of debt and other,

129 419 1,029 1,110

Amortization of unconsolidated joint venture basis

differences 175 79 219 825

Realized performance income (1)

(2,546) — (2,742) —

Core FFO $ 71,838 $ 64,258 $ 144,401 $ 127,816

Nareit FFO Attributable to Stockholders and OP Unit Holders/Core FFO per diluted share

Weighted-average shares of common stock outstanding - diluted (1)

128,503 106,995

Nareit FFO attributable to stockholders and OP unit holders per share - diluted $ 0.52 $ 0.42

Weighted-average shares of common stock outstanding -

diluted 129,117 107,175 128,857 107,102

Nareit FFO attributable to stockholders and OP unit holders

per share - diluted $ 0.55 $ 0.56 $ 1.07 $ 0.98

Core FFO per share - diluted $ 0.56 $ 0.60 $ 1.12 $ 1.19

(1) Restricted stock awards were dilutive to Nareit FFO Attributable to Stockholders and OP Unit Holders per share and Core FFO per share for the three months ended March 31, 2022 and 2021, and, accordingly, their impact was included in the weighted-average shares of common stock used in their respective per share calculations.

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

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

JUNE 30, 2022 FORM 10-Q

EBITDA re and ADJUSTED EBITDA re —We use EBITDA re and Adjusted EBITDA re as additional measures of operating performance which allow us to compare earnings independent of capital structure, determine debt service and fixed cost coverage, and measure enterprise value.

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The following table presents our calculation of EBITDA re and Adjusted EBITDA re (in thousands):

Three Months Ended March 31, Year Ended December 31,

Three Months Ended June 30, Six Months Ended June 30, Year Ended December 31,

2022 2021 2022 2021 2021

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Federal, state, and local tax expense 97 165 194 331 327

Adjustments related to unconsolidated joint ventures 1,019 1,132 1,431

Adjustments related to unconsolidated

joint ventures (885) (535) 134 597 1,431

$ 89,570 $ 79,051 $ 176,141 $ 147,029 $ 293,128

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Transaction and acquisition expenses 2,035 934 4,080 1,075 5,363

Amortization of unconsolidated joint venture basis differences 44 746 1,167

Amortization of unconsolidated joint

venture basis differences 175 79 219 825 1,167

Realized performance income (1)

(2,546) — (2,742) — (675)

Adjusted EBITDA re

$ 89,234 $ 82,064 $ 179,507 $ 166,929 $ 329,419

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

LIQUIDITY AND CAPITAL RESOURCES

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PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

JUNE 30, 2022 FORM 10-Q

IMPACT OF THE UNDERWRITTEN IPO —On July 19, 2021, we closed our underwritten IPO, from which we received gross proceeds of $547.4 million.

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• In February 2022, we filed an automatically effective shelf registration statement on Form S-3 providing for the public offering and sale, from time to time, by us of our preferred stock, common stock, debt securities, depository shares, warrants, right, units, and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts.

• In connection with our February 2022 Form S-3 filing, we commenced the ATM through which we may offer and sell shares of our common stock having an aggregate offering price of up to $250 million.

We will continue to evaluate the market for conditions favorable for using the ATM.

DEBT —The following table summarizes information about our debt as of March 31, 2022 and December 31, 2021 (dollars in thousands):

March 31, 2022 December 31, 2021

• In connection with our February 2022 Form S-3 filing, we commenced the ATM program through which we may offer and sell shares of our common stock having an aggregate offering price of up to $250 million.

During the three months ended June 30, 2022, we issued 1.9 million shares of our common stock under the ATM program for net proceeds of $63.0 million, after approximately $0.6 million in commissions.

As of June 30, 2022, $186.3 million of common stock remained available for issuance under the ATM program.

In July 2022, we issued an additional 0.8 million shares of our common stock under the ATM program for net proceeds of $26.2 million, after approximately $0.3 million in commissions.

We received a weighted-average price of $34.23 per share for the 2.6 million shares of commons stock sold under the ATM program through July 2022.

DEBT —The following table summarizes information about our debt as of June 30, 2022 and December 31, 2021 (dollars in thousands):

June 30, 2022 December 31, 2021

Total debt obligations, gross $ 1,895,109 $ 1,914,082

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740,706 489,329

(1) The revolving credit facility matures in January 2026 and includes additional options to extend the maturity to January 2027 with its execution being subject to compliance with certain terms included in the loan agreement.

(1) The revolving credit facility matures in January 2026, extendable at our option to January 2027.

In addition, the revolving credit facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to $1 billion, subject to the satisfaction of certain conditions.

(2) Net of any outstanding balance and letters of credit.

In May 2022, we amended our credit facility agreement to, among other things, increase the total amount available under our unsecured revolving credit facility from $500 million to $800 million.

The unsecured revolving credit facility also includes an accordion feature that permits us to increase our aggregate borrowing capacity thereunder to up to $1 billion, subject to the satisfaction of certain conditions.

The unsecured revolving credit facility is scheduled to mature in January 2026, extendable at our option to January 2027.

In addition to expanding the borrowing capacity, the Amendment replaces LIBOR with SOFR as the benchmark interest rate for the unsecured revolving credit facility and the two $240 million senior unsecured term loan tranches, maturing in November 2025 and July 2026.

The 2.625% senior notes issued by the Operating Partnership pursuant to an effective registration statement in October 2021 were, and debt securities of the Operating Partnership registered under our automatically effective shelf registration statement on Form S-3 filed in February 2022 will be, fully and unconditionally guaranteed by us.

At March 31, 2022, the Operating Partnership had issued and outstanding its 2.625% senior notes.

At June 30, 2022, the Operating Partnership had issued and outstanding its 2.625% senior notes.

The obligations of the Operating Partnership to pay principal, premiums, if any, and interest on the 2.625% senior notes are fully and unconditionally guaranteed by us on a senior basis.

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Furthermore, as permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded the summarized financial information for the Operating Partnership because the assets, liabilities, and results of operations of the Operating Partnership are not materially different than the corresponding in our consolidated financial statements, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.

FINANCIAL LEVERAGE RATIOS —We believe our net debt to Adjusted EBITDA re , net debt to total enterprise value, and debt covenant compliance as of March 31, 2022 allow us access to future borrowings as needed in the near term.

The following table presents our calculation of net debt and total enterprise value, inclusive of our prorated portion of net debt and cash and cash equivalents owned through our unconsolidated joint ventures, as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022 December 31, 2021

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

FINANCIAL LEVERAGE RATIOS —We believe our net debt to Adjusted EBITDA re , net debt to total enterprise value, and debt covenant compliance as of June 30, 2022 allow us access to future borrowings as needed in the near term.

The following table presents our calculation of net debt and total enterprise value, inclusive of our prorated portion of net debt and cash and cash equivalents owned through our unconsolidated joint ventures, as of June 30, 2022 and December 31, 2021 (in thousands):

June 30, 2022 December 31, 2021

Total debt, excluding discounts, market adjustments, and deferred

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Total enterprise value $ 6,249,121 $ 6,031,391

(1) Total equity market capitalization is calculated as diluted shares multiplied by the closing market price per share, which includes 128.4 million and 126.6 million diluted shares as of March 31, 2022 and December 31, 2021, respectively, and the closing market price per share of $34.39 and $33.04 as of March 31, 2022 and December 31, 2021, respectively.

(2) Fully diluted shares include common stock and OP units as of March 31, 2022 and Class B common stock, common stock, and OP units as of December 31, 2021.

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

The following table presents our calculation of net debt to Adjusted EBITDA re and net debt to total enterprise value as of March 31, 2022 and December 31, 2021 (dollars in thousands):

March 31, 2022 December 31, 2021

(1) Total equity market capitalization is calculated as diluted shares multiplied by the closing market price per share, which includes 130.3 million and 126.6 million diluted shares as of June 30, 2022 and December 31, 2021, respectively, and the closing market price per share of $33.41 and $33.04 as of June 30, 2022 and December 31, 2021, respectively.

(2) Fully diluted shares include common stock and OP units as of June 30, 2022 and Class B common stock, common stock, and OP units as of December 31, 2021.

The following table presents our calculation of net debt to Adjusted EBITDA re and net debt to total enterprise value as of June 30, 2022 and December 31, 2021 (dollars in thousands):

June 30, 2022 December 31, 2021

Net debt to Adjusted EBITDA re - annualized :

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CAPITAL EXPENDITURES AND REDEVELOPMENT ACTIVITY —We make capital expenditures during the course of normal operations, including maintenance capital expenditures and tenant improvements, as well as value-enhancing anchor space repositioning and redevelopment, ground-up outparcel development, and other accretive projects.

During the three months ended March 31, 2022 and 2021, we had capital spend of $18.6 million and $13.5 million, respectively.

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

During the six months ended June 30, 2022 and 2021, we had capital spend of $42.9 million and $30.2 million, respectively.

Below is a summary of our capital spending activity, excluding leasing commissions, on a cash basis (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Capital expenditures for real estate:

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The following table highlights our property acquisitions (dollars in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Number of properties acquired 4 2

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(2) Total price of acquisitions includes closing costs and credits.

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

DISPOSITION ACTIVITY —We continually evaluate our portfolio of assets for opportunities to make strategic dispositions of assets that no longer meet our growth and investment objectives or assets that have stabilized in order to capture their value.

The following table highlights our property dispositions (dollars in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Number of properties sold (1)

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Gain on sale of property, net (4)

(1) During the three months ended March 31, 2021, the one outparcel sale included the only remaining portion of a property we previously owned;

(1) We retained an outparcel for one property sold during the six months ended June 30, 2021, and therefore the sale did not result in a reduction in our total property count.

(2) During the six months ended June 30, 2021, the one outparcel sale included the only remaining portion of a property we previously owned;

therefore, the sale resulted in a reduction in our total property count.

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

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

DISTRIBUTIONS —We paid 2022 monthly distributions of $0.09 per share, or $1.08 annualized, for the months of January, February, March, and April.

On May 4, 2022, our Board authorized 2022 distributions for May, June, and July of $0.09 per share to the stockholders of record at the close of business on May 16, 2022, June 15, 2022, and July 15, 2022, respectively.

(4) During the six months ended June 30, 2021, Gain on Disposal of Property, Net on the consolidated statements of operations includes miscellaneous write-off activity, which is not included in gain on sale of property, net, presented above.

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

DISTRIBUTIONS —We paid 2022 monthly distributions of $0.09 per share, or $1.08 annualized, for each month beginning January 2022 through July 2022.

On August 3, 2022, our Board authorized a distribution for August 2022 of $0.09 per share to the stockholders of record at the close of business on August 15, 2022.

OP unit holders will receive distributions at the same rate as common stockholders, subject to certain withholdings.

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We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.

CASH FLOW ACTIVITIES —As of March 31, 2022, we had cash and cash equivalents and restricted cash of $17.5 million, a net cash decrease of $98.1 million during the three months ended March 31, 2022.

CASH FLOW ACTIVITIES —As of June 30, 2022, we had cash and cash equivalents and restricted cash of $43.7 million, a net cash decrease of $71.8 million during the six months ended June 30, 2022.

Below is a summary of our cash flow activity (dollars in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

2022 2021 $ Change % Change (1)

5 unchanged sentences

(28,448) (200,270) 171,822 85.8 %

(1) Line items that result in a percent change that exceed certain limitations are considered not meaningful (“NM”) and indicated as such.

OPERATING ACTIVITIES —Our net cash provided by operating activities was primarily impacted by the following:

• Property operations and working capital —Most of our operating cash comes from rental and tenant recovery income and is offset by property operating expenses, real estate taxes, and general and administrative costs.

The increase in property operations was primarily due to a $5.7 million, or 6.8%, improvement in same center NOI as compared to the same period in 2021, and the execution of our external growth strategy.

During the three months ended March 31, 2022, we had a net cash outlay of $11.0 million from changes in working capital as compared to a net cash outlay of $15.3 million during the same period in 2021.

This change was primarily driven by the timing of real estate tax payments and higher accrued interest in connection with the registered offering of $350 million aggregate principal amount of 2.625% senior notes, partially offset by higher bonus payments and lower prepaid rent.

The increase in property operations was primarily due to a $9.3 million, or 5.5%, improvement in same center NOI as compared to the same period in 2021, and the execution of our acquisition strategy.

During the six months ended June 30, 2022, we had a net cash outlay of $3.7 million from changes in working capital as compared to a net cash inflow of $2.1 million during the same period in 2021.

This change was primarily driven by higher bonus payments, lower receivables collections due to the stabilization of collections in 2022 compared to the recovery of prior year receivables in 2021, and the timing of interest payments, partially offset by the timing of real estate tax payments.

• Fee and management income —We also generate operating cash from our third-party investment management business, pursuant to various management and advisory agreements between us and the Managed Funds.

Our fee and management income was $2.5 million for the three months ended March 31, 2022, which increased $0.2 million as compared to the same period in 2021.

• Cash paid for interest —During the three months ended March 31, 2022, we paid $14.8 million for interest, a decrease of $4.0 million over the same period in 2021, primarily due to our debt activity in 2021, including early repayments of debt outstanding and lower average interest rates as a result of refinancing activities.

Our fee and management income was $7.2 million for the six months ended June 30, 2022, an increase of $2.6 million as compared to the same period in 2021.

The increase in fees and management income was primarily due to our joint venture with NRP from which we recognized income of $2.7 million related to NRP’s achievement of certain performance targets.

• Cash paid for interest —During the six months ended June 30, 2022, we paid $34.1 million for interest, a decrease of $2.7 million over the same period in 2021, primarily due to our debt activity in 2021, including early repayments of debt outstanding.

INVESTING ACTIVITIES —Our net cash (used in) provided by investing activities was primarily impacted by the following:

• Real estate acquisitions —During the three months ended March 31, 2022, our acquisitions resulted in a total cash outlay of $101.4 million, as compared to a total cash outlay of $39.9 million during the same period in 2021.

• Real estate dispositions —During the three months ended March 31, 2022, our dispositions resulted in a net cash inflow of $12.8 million, as compared to a net cash inflow of $58.4 million during the same period in 2021.

PHILLIPS EDISON & COMPANY

MARCH 31, 2022 FORM 10-Q

• Real estate acquisitions —During the six months ended June 30, 2022, our acquisitions resulted in a total cash outlay of $170.2 million, as compared to a total cash outlay of $40.5 million during the same period in 2021.

• Real estate dispositions —During the six months ended June 30, 2022, our dispositions resulted in a net cash inflow of $27.1 million, as compared to a net cash inflow of $119.6 million during the same period in 2021.

• Capital expenditures —We invest capital into leasing our properties and maintaining or improving the condition of our properties.

During the three months ended March 31, 2022, we paid $18.6 million for capital expenditures, an increase of $5.1 million over the same period in 2021, primarily due to an increase in tenant improvements owing largely to our leasing volume during 2022 and 2021.

• Return of investment in unconsolidated joint ventures —During the three months ended March 31, 2022, we had a return of investment in unconsolidated joint ventures of $0.8 million.

During the three months ended March 31, 2021, we had a return of investment in unconsolidated joint ventures of $2.7 million.

During the six months ended June 30, 2022, we paid $42.9 million for capital expenditures, an increase of $12.7 million over the same period in 2021, primarily due to an increase in tenant improvements owing largely to our leasing volume during 2022 and 2021.

FINANCING ACTIVITIES —Our net cash used in financing activities was primarily impacted by the following:

• Debt borrowings and payments —During the three months ended March 31, 2022, we had $16.5 million in net repayment of debt primarily as a result of early repayments of mortgage loans, partially offset by borrowings on our revolving credit facility.

During the three months ended March 31, 2021, we had net payments of $16.5 million, primarily as a result of early repayments of mortgage loans.

• Distributions to stockholders and OP unit holders —Cash used for distributions to common stockholders and OP unit holders increased $6.4 million for the three months ended March 31, 2022 as compared to the same period in 2021, primarily due to an increase in shares of common stock outstanding as a result of our underwritten IPO.

• Share repurchases —Cash outflows for share repurchases decreased by $77.8 million for the three months ended March 31, 2022 as compared to the same period in 2021, primarily as a result of a tender offer, which was settled in January 2021.

• Debt borrowings and payments —During the six months ended June 30, 2022, we had $20.6 million in net repayment of debt primarily as a result of early repayments of mortgage loans, partially offset by our net borrowings under our revolving credit facility.

During the six months ended June 30, 2021, we had net payments of $66.2 million, primarily as a result of early repayments of mortgage loans.

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

• Distributions to stockholders and OP unit holders —Cash used for distributions to common stockholders and OP unit holders increased $14.6 million for the six months ended June 30, 2022 as compared to the same period in 2021, primarily due to an increase in shares of common stock outstanding as a result of our underwritten IPO.

• Issuance of common stock— During the six months ended June 30, 2022, we issued 1.9 million shares of our common stock under the ATM program for net proceeds of $63.0 million, after approximately $0.6 million in commissions.

• Share repurchases —Cash outflows for share repurchases decreased by $77.8 million for the six months ended June 30, 2022 as compared to the same period in 2021, primarily as a result of a tender offer which was settled in January 2021.

CRITICAL ACCOUNTING ESTIMATES

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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 2. Management’s Discussion and Analysis