What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-05 · 135 added, 141 removed, 593 unchanged (32% of the section changed)

49 unchanged sentences

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

SEPTEMBER 30, 2022 FORM 10-Q

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

49 unchanged sentences

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

SEPTEMBER 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.

17 unchanged sentences

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

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.

As of September 30, 2022, we owned equity interests in 290 shopping centers, including 270 wholly-owned shopping centers and 20 shopping centers owned through one unconsolidated joint venture, which comprised approximately 33.3 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.

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

We recognized no income during the three months ended September 30, 2022 and $2.7 million in income during the nine months ended September 30, 2022 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 September 30, 2022 and 2021 (dollars and square feet in thousands):

September 30, 2022 September 30, 2021

Number of properties 270 267

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PHILLIPS EDISON & COMPANY

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

SEPTEMBER 30, 2022 FORM 10-Q

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

September 30, 2022

Joint Venture Ownership Percentage Number of Properties ABR GLA

GRP I 14% 20 $ 30,356 2,209

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:

LEASE EXPIRATIONS —The following chart shows the aggregate scheduled lease expirations, excluding our Neighbors who are occupying space on a temporary basis, after September 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

JUNE 30, 2022 FORM 10-Q

SEPTEMBER 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 venture, by Neighbor type as of June 30, 2022:

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

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

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

SEPTEMBER 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 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):

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 September 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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TJX Companies 6,030 1.4 % 516 1.7 % 18

Raley's 3,884 0.9 % 253 0.8 % 4

Dollar Tree 3,711 0.9 % 352 1.2 % 37

Raley's 3,672 0.8 % 248 0.8 % 4

SUPERVALU 3,244 0.7 % 336 1.1 % 5

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2,461 0.6 % 151 0.5 % 31

Starbucks Corporation 2,250 0.5 % 51 0.2 % 30

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

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Save Mart 2,174 0.5 % 258 0.8 % 5

Starbucks Corporation 2,136 0.5 % 49 0.2 % 30

Petco Animal Supplies, Inc.

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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.

Our collections returned to pre-COVID levels during the second half of 2021 and have remained strong throughout 2022.

As of September 30, 2022, our Neighbors currently being accounted for on a cash basis represented approximately 4% of portfolio ABR.

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

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PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

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

SEPTEMBER 30, 2022 FORM 10-Q

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

Three Months Ended

June 30, Favorable (Unfavorable)

September 30, Favorable (Unfavorable)

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

12 unchanged sentences

(17,569) (18,570) 1,001 5.4 %

Gain on disposal of property, net

2,793 3,744 (951) (25.4) %

(Loss) gain on disposal of property, net (10) 14,093 (14,103) (100.1) %

Other expense, net

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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 14 properties acquired.

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

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

Rental Income increased $14.0 million primarily as follows:

• $6.8 million increase related to our same-center portfolio as follows:

▪ $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;

▪ $1.4 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.

▪ $4.8 million increase primarily due to a $0.37 increase in average minimum rent PSF and a 1.6% improvement in average occupancy;

▪ $0.9 million increase owing largely to an increase in recoverable income attributable to an increase in common area maintenance spending and the 1.6% improvement in average occupancy;

▪ $1.1 million increase primarily due to lower reserves as a result of a decrease in Neighbors we have identified as a credit risk.

• $7.3 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:

• The $0.9 million increase in property operating expenses was largely related to our same-center portfolio and corporate operating activities primarily as follows:

▪ $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

Property Operating Expenses increased $1.5 million primarily as follows:

• $0.6 million increase from our same-center portfolio and corporate operating activities primarily due to an increase in recoverable expenses attributed to higher common area maintenance costs, as compared to 2021;

• $0.9 million increase primarily due to our acquisition activity.

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.

• The $1.7 million increase in real estate tax expenses is primarily due to our acquisition activity.

General and Administrative Expenses decreased $0.8 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;

• $0.4 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.

• $0.4 million decrease primarily related to savings in premiums for directors and officers insurance.

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.

PHILLIPS EDISON & COMPANY

SEPTEMBER 30, 2022 FORM 10-Q

• The $6.1 million increase in depreciation and amortization is primarily due to the execution of our acquisition strategy, investment in improvements to our Neighbor spaces, and accelerated depreciation related to damage sustained at our properties as a result of Hurricane Ian.

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.

• The $1.0 million decrease was primarily due to lower loss on extinguishment or modification of debt, partially offset by increased debt outstanding in 2022.

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

Three Months Ended June 30,

Three Months Ended September 30,

Interest on unsecured term loans and senior notes, net $ 10,492 $ 8,913

2 unchanged sentences

Non-cash amortization and other 1,558 1,697

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

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

Interest expense, net

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(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).

(Loss) Gain on Disposal of Property, Net:

• The $14.1 million decrease was primarily related to the sale of one outparcel with an insignificant net loss during the three months ended September 30, 2022, as compared to the sale of seven properties and two outparcels (in addition to other property-related miscellaneous disposals and write-offs) with a net gain of $14.1 million during the three months ended September 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.

• The $3.2 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, partially offset by an increase in transaction and acquisition expenses owing largely to activities related to the execution of our growth strategy.

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

Three Months Ended June 30,

Three Months Ended September 30,

Increase in fair value of earn-out liability (see Note 12) $ — $ (5,000)

Equity in net income of unconsolidated joint ventures

Equity in net income (loss) of unconsolidated joint ventures

Transaction and acquisition expenses (3,740) (1,775)

4 unchanged sentences

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)

SEPTEMBER 30, 2022 FORM 10-Q

SUMMARY OF OPERATING ACTIVITIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

Nine Months Ended

September 30, Favorable (Unfavorable)

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

Rental income $ 418,835 $ 386,784 $ 32,051 8.3 %

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

Fees and management income 9,323 7,095 2,228 31.4 %

Other property income 2,175 1,906 269 14.1 %

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(9,738) (25,595) 15,857 62.0 %

26,653 6,507 20,146 NM

38,826 23,069 15,757 68.3 %

Net income attributable to noncontrolling interests

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

(4,181) (2,739) (1,442) (52.6) %

Net income attributable to stockholders

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

$ 34,645 $ 20,330 $ 14,315 70.4 %

(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:

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

Rental Income increased $32.1 million as follows:

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▪ $4.1 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 1.5% 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.

▪ $0.6 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 in 2021 resulting from the recovery of our portfolio in the wake of the COVID-19 pandemic.

• $14.8 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.

• The $2.2 million increase in fees and management income was primarily due to the achievement of certain performance targets related to our joint venture with NRP, partially offset by the reduction in revenue as result of our joint venture with NRP fully liquidating its assets.

Property Operating Expenses increased $3.5 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.

• $2.2 million increase related to our same-center portfolio and corporate operating activities primarily due to $2.9 million increase attributable to higher common area maintenance costs, as compared to 2021;

• $1.3 million increase primarily due to our acquisition activity.

Real Estate Tax Expenses:

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

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

• The $2.2 million increase in real estate tax expenses was primarily due to our acquisition activity.

General and Administrative Expenses increased $0.8 million primarily as follows:

• $0.8 million increase primarily due to an increase in directors and officers insurance as a result of our becoming a publicly traded company;

PHILLIPS EDISON & COMPANY

SEPTEMBER 30, 2022 FORM 10-Q

• $0.9 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;

• $0.4 million decrease primarily due to lower third-party consultant and custodial costs.

Depreciation and Amortization:

• 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.

• The $12.2 million increase in depreciation and amortization is primarily due to the execution of our acquisition strategy, investment in improvements to our Neighbor spaces, and accelerated depreciation related to damage sustained at our properties as a result of Hurricane Ian.

Impairment of Real Estate Assets:

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

Six Months Ended June 30,

Nine Months Ended September 30,

Interest on unsecured term loans and senior notes, net $ 29,920 $ 30,119

9 unchanged sentences

Gain on Disposal of Property, Net:

• 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).

• The $27.5 million decrease was primarily related to the sale of three properties and three outparcels with a net gain of $4.2 million during the nine months ended September 30, 2022, as compared to the sale of 20 properties and three outparcels (as well as other property-related miscellaneous disposals and write-offs) with a net gain of $31.7 million during the nine months ended September 30, 2021 (see Note 4).

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

SEPTEMBER 30, 2022 FORM 10-Q

Other Expense, Net:

• 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.

• The $15.9 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 combined with costs for activities related to the execution of our growth strategy and a decrease in the value of our investment in marketable securities.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Increase in fair value of earn-out liability (see Note 12) $ (1,809) $ (23,000)

5 unchanged sentences

$ (9,738) $ (25,595)

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) :

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

Total Deals Inline Deals

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Cost PSF of executing renewals and options $ 0.56 $ 0.22 $ 1.66 $ 0.86

$ 0.55 $ 0.89 $ 0.75 $ 1.11

Number of comparable leases (2)

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(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.

(2) Excludes exercise of options.

PHILLIPS EDISON & COMPANY

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) :

SEPTEMBER 30, 2022 FORM 10-Q

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

Total Deals Inline Deals

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Cost PSF of executing renewals and options $ 0.57 $ 0.56 $ 1.10 $ 1.22

$ 0.58 $ 0.71 $ 0.81 $ 1.34

Number of comparable leases (2)

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(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.

(2) Excludes exercise of options.

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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 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.

For the three and nine months ended September 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

JUNE 30, 2022 FORM 10-Q

SEPTEMBER 30, 2022 FORM 10-Q

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

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

Three Months Ended September 30, Favorable (Unfavorable) Nine Months Ended September 30, Favorable (Unfavorable)

Change 2022 2021 $ Change % Change

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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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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Interest expense, net 17,569 18,570 52,895 57,765

Gain on disposal of property, net

Loss (gain) on disposal of property, net

10 (14,093) (4,151) (31,678)

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PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

SEPTEMBER 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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

3 unchanged sentences

Impairment of real estate assets — 698 — 6,754

Gain on disposal of property, net

Loss (gain) on disposal of property, net

10 (14,093) (4,151) (31,678)

6 unchanged sentences

Transaction and acquisition expenses 3,740 1,775 7,820 2,850

Loss on extinguishment or modification of debt and other,

(Gain) loss on extinguishment or modification of debt and other, net

(4) 1,674 1,025 2,784

12 unchanged sentences

PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

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

Three Months Ended September 30, Nine Months Ended September 30, Year Ended December 31,

2022 2021 2022 2021 2021

3 unchanged sentences

Interest expense, net 17,569 18,570 52,895 57,765 76,371

Gain on disposal of property, net

Loss (gain) on disposal of property, net

10 (14,093) (4,151) (31,678) (30,421)

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PHILLIPS EDISON & COMPANY

JUNE 30, 2022 FORM 10-Q

SEPTEMBER 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 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

During the three months ended September 30, 2022, we issued 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.

During the nine months ended September 30, 2022, we issued 2.6 million shares of our common stock under the ATM program for net proceeds of $89.2 million, after approximately $0.9 million in commissions.

As of September 30, 2022, $159.9 million of common stock remained available for issuance under the ATM program.

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

September 30, 2022 December 31, 2021

Total debt obligations, gross $ 1,890,039 $ 1,914,082

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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.

In August 2022, we amended two of our interest rate swaps with a total notional amount of $430 million to replace LIBOR with SOFR as the benchmark interest rate in conjunction with the Amendment.

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

At September 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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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

SEPTEMBER 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 September 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 September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021

Total debt, excluding discounts, market adjustments, and deferred

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Total enterprise value $ 5,587,345 $ 6,031,391

(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

(1) Total equity market capitalization is calculated as diluted shares multiplied by the closing market price per share, which includes 131.1 million and 126.6 million diluted shares as of September 30, 2022 and December 31, 2021, respectively, and the closing market price per share of $28.05 and $33.04 as of September 30, 2022 and December 31, 2021, respectively.

(2) Fully diluted shares include common stock and OP units as of September 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 September 30, 2022 and December 31, 2021 (dollars in thousands):

September 30, 2022 December 31, 2021

Net debt to Adjusted EBITDA re - annualized :

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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.

SEPTEMBER 30, 2022 FORM 10-Q

During the nine months ended September 30, 2022 and 2021, we had capital spend of $74.3 million and $49.3 million, respectively.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Capital expenditures for real estate:

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

Six Months Ended June 30,

Nine Months Ended September 30,

Number of properties acquired 5 4

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

PHILLIPS EDISON & COMPANY

SEPTEMBER 30, 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):

Six Months Ended June 30,

Nine Months Ended September 30,

Number of properties sold (1)

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Gain on sale of property, net (5)

(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.

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

(2) During the nine months ended September 30, 2021, our outparcel sales included:

(i) the only remaining portion of one of our properties, which resulted in a reduction in our total property count;

and (ii) an undeveloped parcel of land, as well as an outparcel adjacent to one of our centers, neither of which resulted in a reduction in our total property count.

(3) In addition to the three outparcels sold during the nine months ended September 30, 2021, a tenant at one of our properties exercised a bargain purchase option to acquire a parcel of land that we previously owned.

This generated minimal proceeds for us.

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

(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.

(5) During the nine months ended September 30, 2021, (Loss) 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 each month beginning January 2022 through August 2022.

On August 31, 2022, our Board authorized an increase of 3.7% on the September 2022 and October 2022 distributions to an amount of $0.0933 per share, or $1.12 annualized, which were paid on October 3, 2022 and November 1, 2022, respectively.

On November 2, 2022, our Board authorized a distribution for November and December 2022, as well as January 2023, of $0.0933 per share to the stockholders of record at the close of business on November 15, 2022, December 15, 2022, and January 17, 2023, respectively.

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 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.

PHILLIPS EDISON & COMPANY

SEPTEMBER 30, 2022 FORM 10-Q

CASH FLOW ACTIVITIES —As of September 30, 2022, we had cash and cash equivalents and restricted cash of $24.4 million, a net cash decrease of $91.1 million during the nine months ended September 30, 2022.

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

Six Months Ended June 30,

Nine Months Ended September 30,

2022 2021 $ Change % Change (1)

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The increase in property operations was primarily due to a $13.2 million, or 5.1%, 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.

During the nine months ended September 30, 2022, we had a net cash inflow of $9.3 million from changes in working capital as compared to a net cash inflow of $4.6 million during the same period in 2021.

This was primarily driven by higher real estate tax liabilities related to acquisition activity, partially offset by higher performance-based compensation payments in 2022.

• 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 $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.

Our fee and management income was $9.3 million for the nine months ended September 30, 2022, an increase of $2.2 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.

• Cash paid for interest —During the nine months ended September 30, 2022, we paid $47.4 million for interest, a decrease of $6.1 million over the same period in 2021, primarily due to our debt repayments in 2021.

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

• 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.

• Real estate acquisitions —During the nine months ended September 30, 2022, our acquisitions resulted in a total cash outlay of $229.9 million, as compared to a total cash outlay of $89.0 million during the same period in 2021.

• Real estate dispositions —During the nine months ended September 30, 2022, our dispositions resulted in a net cash inflow of $27.3 million, as compared to a net cash inflow of $180.3 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 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.

During the nine months ended September 30, 2022, we paid $74.3 million for capital expenditures, an increase of $25.0 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 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.

• Debt borrowings and payments —During the nine months ended September 30, 2022, we had $25.6 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 nine months ended September 30, 2021, we had net payments of $597.4 million primarily as a result of:

(i) a pay down in July 2021 of a $375 million term loan set to mature in 2022 using proceeds from our underwritten IPO;

(ii) a partial pay down in August 2021 of a $150 million term loan set to mature in 2023 utilizing cash on hand;

and (iii) early repayments of mortgage loans.

• Distributions to stockholders and OP unit holders —Cash used for distributions to common stockholders and OP unit holders increased $20.0 million for the nine months ended September 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 nine months ended September 30, 2022, we issued 2.6 million shares of our common stock under the ATM program for net proceeds of $89.2 million, after approximately $0.9 million in commissions.

During the nine months ended September 30, 2021, we had net proceeds from the issuance of common stock of $508.4 million from our underwritten IPO.

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

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.

SEPTEMBER 30, 2022 FORM 10-Q

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