Phillips Edison & Company, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and notes thereto and the more detailed information contained in our 2022 Annual Report on Form 10-K, filed with the SEC on February 21, 2023. All references to “Notes” throughout this document refer to the footnotes to the consolidated financial statements in “Item 1. Financial Statements”. See also “Cautionary Note Regarding Forward-Looking Statements” below. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Quarterly Report on Form 10-Q of Phillips Edison & Company, Inc. (“we,” the “Company,” “our,” or “us”) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995 (collectively with the Securities Act and the Exchange Act, the “Acts”). These forward-looking statements are based on current expectations, estimates, and projections about the industry and markets in which we operate, and beliefs of, and assumptions made by, management of our company and involve uncertainties that could significantly affect our financial results. We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in the Acts. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “can,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” “possible,” “initiatives,” “focus,” “seek,” “objective,” “goal,” “strategy,” “plan,” “potential,” “potentially,” “preparing,” “projected,” “future,” “long-term,” “once,” “should,” “could,” “would,” “might,” “uncertainty,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the SEC. Such statements include, but are not limited to: (a) statements about our plans, strategies, initiatives, and prospects; (b) statements about our underwritten incremental yields; and (c) statements about our future results of operations, capital expenditures, and liquidity. Such statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated, including, without limitation: (i) changes in national, regional, or local economic climates; (ii) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our portfolio; (iii) vacancies, changes in market rental rates, and the need to periodically repair, renovate, and re-let space; (iv) competition from other available shopping centers and the attractiveness of properties in our portfolio to our tenants; (v) the financial stability of our tenants, including, without limitation, their ability to pay rent; (vi) our ability to pay down, refinance, restructure, or extend our indebtedness as it becomes due; (vii) increases in our borrowing costs as a result of changes in interest rates and other factors; (viii) potential liability for environmental matters; (ix) damage to our properties from catastrophic weather and other natural events, and the physical effects of climate change; (x) our ability and willingness to maintain our qualification as a REIT in light of economic, market, legal, tax, and other considerations; (xi) changes in tax, real estate, environmental, and zoning laws; (xii) information technology security breaches; (xiii) our corporate responsibility initiatives; (xiv) loss of key executives; (xv) the concentration of our portfolio in a limited number of industries, geographies, or investments; (xvi) the economic, political, and social impact of, and uncertainty relating to, pandemics or other health crises; (xvii) our ability to re-lease our properties on the same or better terms, or at all, in the event of non-renewal or in the event we exercise our right to replace an existing tenant; (xviii) the loss or bankruptcy of our tenants; (xix) to the extent we are seeking to dispose of properties, our ability to do so at attractive prices or at all; and (xx) the impact of inflation on us and on our tenants. Additional important factors that could cause actual results to differ are described in the filings made from time to time by the Company with the SEC and include the risk factors and other risks and uncertainties described in our 2022 Annual Report on Form 10-K, filed with the SEC on February 21, 2023, as updated from time to time in our periodic and/or current reports filed with the SEC, which are accessible on the SEC’s website at www.sec.gov. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. KEY PERFORMANCE INDICATORS AND DEFINED TERMS We use certain key performance indicators (“KPIs”), which include both financial and nonfinancial metrics, to measure the performance of our operations. We believe these KPIs, as well as the core concepts and terms defined below, allow our Board, management, and investors to analyze trends around our business strategy, financial condition, and results of operations in a manner that is focused on items unique to the retail real estate industry. We do not consider our non-GAAP measures to be alternatives to measures required in accordance with GAAP. Certain non-GAAP measures should not be viewed as an alternative measure of our financial performance as they may not reflect the operations of our entire portfolio, and they may not 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 shopping centers that could materially impact our results from operations. Additionally, certain non-GAAP measures should not be considered as an indication of our liquidity, nor as an indication of funds available to cover our cash needs, including our ability to fund distributions, and may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate our business in the manner currently contemplated. Accordingly, non-GAAP measures should be reviewed in connection with other GAAP measurements and should not be viewed as more prominent measures of performance than net income (loss) or cash flows from operations prepared in accordance with GAAP. Other REITs may use different methodologies for calculating similar non-GAAP measures, and accordingly, our non-GAAP measures may not be comparable to other REITs. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 18 Our KPIs and terminology can be grouped into three key areas: PORTFOLIO —Portfolio metrics help management to gauge the health of our centers overall and individually. • Anchor space—We define an anchor space as a space greater than or equal to 10,000 square feet of gross leasable area (“GLA”). • ABR—We use ABR to refer to the monthly contractual base rent at the end of the period multiplied by twelve months. • ABR Per Square Foot (“PSF”)—This metric is calculated by dividing ABR by leased GLA. Increases in ABR PSF can be an indication of our ability to create rental rate growth in our centers, as well as an indication of demand for our spaces, which generally provides us with greater leverage during lease negotiations. • GLA—We use GLA to refer to the total occupied and unoccupied square footage of a building that is available for tenants (whom we refer to as a “Neighbor” or our “Neighbors”) or other retailers to lease. • Inline space—We define an inline space as a space containing less than 10,000 square feet of GLA. • Leased Occupancy—This metric is calculated as the percentage of total GLA for which a lease has been signed regardless of whether the lease has commenced or the Neighbor has taken possession. High occupancy is an indicator of demand for our spaces, which generally provides us with greater leverage during lease negotiations. • 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 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. Actual incremental unlevered yields may vary from our underwritten incremental unlevered yield range based on the actual total cost to complete a project and its actual incremental NOI at stabilization. LEASING —Leasing is a key driver of growth for our company. • Comparable lease—We use this term to refer to a lease with consistent terms that is executed for substantially the same space that has been vacant less than twelve months. • Comparable rent spread—This metric is calculated as the percentage increase or decrease in first-year ABR (excluding any free rent or escalations) on new or renewal leases (excluding options) where the lease was considered a comparable lease. This metric provides an indication of our ability to generate revenue growth through leasing activity. • 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) 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. Generally, the costs to retain an existing Neighbor are lower than costs to replace with a new Neighbor. • Recovery rate—This metric is calculated by dividing (i) total recovery income by (ii) total recoverable expenses during the period. A high recovery rate is an indicator of our ability to recover certain property operating expenses and capital costs from our Neighbors. FINANCIAL PERFORMANCE —In addition to financial metrics calculated in accordance with GAAP, such as net income or cash flows from operations, we utilize non-GAAP metrics to measure our operational and financial performance. See “Non-GAAP Measures” below for further discussion on the following metrics. • Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization for Real Estate (“Adjusted EBITDA re ”)—To arrive at Adjusted EBITDA re , we adjust EBITDA re , as defined below, to exclude certain recurring and non-recurring items including, but not limited to: (i) changes in the fair value of the earn-out liability; (ii) other impairment charges; (iii) amortization of basis differences in our investments in our unconsolidated joint ventures; (iv) transaction and acquisition expenses; and (v) realized performance income. We use EBITDA re and Adjusted EBITDA re as additional measures of operating performance which allow us to compare earnings independent of capital structure and evaluate debt leverage and fixed cost coverage. • Core Funds From Operations Attributable to Stockholders and OP Unit Holders (“Core FFO”)—To arrive at Core FFO, we adjust Nareit FFO, as defined below, to exclude certain recurring and non-recurring items including, but not limited to: (i) depreciation and amortization of corporate assets; (ii) changes in the fair value of the earn-out liability; (iii) amortization of unconsolidated joint venture basis differences; (iv) gains or losses on the extinguishment or modification of debt and other; (v) other impairment charges; (vi) transaction and acquisition expenses; and (vii) realized performance income. We believe Nareit FFO provides insight into our operating performance as it excludes certain items that are not indicative of such performance. Core FFO provides further insight into the sustainability of our operating performance and provides an additional measure to compare our performance across reporting periods on a consistent basis by excluding items that may cause short-term fluctuations in net income (loss). • EBITDA re —The National Association of Real Estate Investment Trusts (“Nareit”) defines EBITDA re as net income (loss) computed in accordance with GAAP before: (i) interest expense; (ii) income tax expense; (iii) depreciation and amortization; (iv) gains or losses from disposition of depreciable property; and (v) impairment write-downs of depreciable property. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA re on the same basis. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 19 • 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. • Nareit FFO Attributable to Stockholders and OP Unit Holders (“Nareit FFO”)—Nareit defines Funds From Operations (“FFO”) as net income (loss) computed in accordance with GAAP, excluding: (i) gains (or losses) from sales of property and gains (or losses) from change in control; (ii) depreciation and amortization related to real estate; (iii) impairment losses on real estate and impairments of in-substance real estate investments in investees that are driven by measurable decreases in the fair value of the depreciable real estate held by the unconsolidated partnerships and joint ventures; and (iv) adjustments for unconsolidated partnerships and joint ventures, calculated to reflect FFO on the same basis. We calculate Nareit FFO in a manner consistent with the Nareit definition. • Net Debt—We calculate net debt as total debt, excluding discounts, market adjustments, and deferred financing expenses, less cash and cash equivalents. • Net Debt to Adjusted EBITDA re —This ratio is calculated by dividing net debt by Adjusted EBITDA re (included on an annualized basis within the calculation). It provides insight into our leverage rate based on earnings and is not impacted by fluctuations in our equity price. • Net Debt to Total Enterprise Value—This ratio is calculated by dividing net debt by total enterprise value, as defined below. It provides insight into our capital structure and usage of debt. • NOI—We calculate NOI as total operating revenues, adjusted to exclude non-cash revenue items, less property operating expenses and real estate taxes. NOI provides insight about our financial and operating performance because it provides a performance measure of the revenues and expenses directly involved in owning and operating real estate assets and provides a perspective not immediately apparent from net income (loss). • Same-Center—We use this term to refer to a property, or portfolio of properties, that have been owned and operational for the entirety of each reporting period (i.e., since January 1, 2022). • Total Enterprise Value—We calculate total enterprise value as our net debt plus our equity market capitalization on a fully diluted basis. OVERVIEW We are a REIT and one of the nation’s largest owners and operators of omni-channel grocery-anchored shopping centers. Our portfolio primarily consists of neighborhood centers anchored by the #1 or #2 grocer tenants by sales within their respective formats by trade area. Our Neighbors are a mix of national, regional, and local retailers that primarily provide necessity-based goods and services. As of June 30, 2023, we owned equity interests in 294 shopping centers, including 274 wholly-owned shopping centers and 20 shopping centers owned through one unconsolidated joint venture, which comprised approximately 33.6 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 the NRP joint venture as a result of its planned expiration. With the monetization of the joint venture, we exceeded the targeted return and as such were paid compensation of $2.5 million during the three months ended June 30, 2022 and $0.1 million and $2.7 million during the six months ended June 30, 2023 and 2022, respectively, which is recorded in Fees and Management Income in our consolidated statements of operations. We received no compensation during the three months ended June 30, 2023. PORTFOLIO AND LEASING STATISTICS —Below are statistical highlights of our wholly-owned portfolio as of June 30, 2023 and 2022 (dollars and square feet in thousands): June 30, 2023 June 30, 2022 Number of properties 274 269 Number of states 31 31 Total square feet 31,378 30,935 ABR $ 449,314 $ 421,019 % ABR from omni-channel grocery-anchored shopping centers 97.4 % 97.2 % Leased occupancy %: Total portfolio spaces 97.8 % 96.8 % Anchor spaces 99.4 % 98.7 % Inline spaces 94.8 % 93.2 % Average remaining lease term (in years) (1) 4.5 4.6 (1) The average remaining lease term in years excludes future options to extend the term of the lease. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 20 The following table details information for our unconsolidated joint venture as of June 30, 2023, which is the basis for determining the prorated information included in the subsequent tables (dollars and square feet in thousands): June 30, 2023 Joint Venture Ownership Percentage Number of Properties ABR GLA GRP I 14% 20 $ 31,350 2,213 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, 2023 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. Conversely, we may experience rental rate decline when occupancy at our centers is low or during periods of economic recession, as the leverage during new and renewal lease negotiations may shift to prospective and existing Neighbors. See “Results of Operations - Leasing Activity” below for further discussion of leasing activity. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 21 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, 2023: The following charts present the composition of our portfolio by Neighbor industry as of June 30, 2023: PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 22 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, 2023 (dollars and square feet in thousands): Neighbor (1) ABR % of ABR Leased Square Feet % of Leased Square Feet Number of Locations (2) Kroger $ 27,831 6.1 % 3,411 11.0 % 62 Publix 26,567 5.9 % 2,519 8.1 % 61 Albertsons 18,343 4.0 % 1,709 5.5 % 31 Ahold Delhaize 17,738 3.9 % 1,249 4.0 % 23 Walmart 8,971 2.0 % 1,770 5.7 % 13 Giant Eagle 7,384 1.6 % 760 2.5 % 10 Sprouts Farmers Market 6,566 1.5 % 421 1.4 % 14 TJX Companies 6,201 1.4 % 516 1.7 % 18 Raley's 4,592 1.0 % 288 0.9 % 5 Dollar Tree 3,519 0.8 % 343 1.1 % 35 SUPERVALU 3,280 0.7 % 336 1.1 % 5 Starbucks Corporation 2,586 0.6 % 57 0.2 % 32 Lowe's 2,469 0.5 % 369 1.2 % 4 Subway Group 2,409 0.5 % 90 0.3 % 62 Anytime Fitness, Inc. 2,368 0.5 % 140 0.5 % 29 Food 4 Less (PAQ) 2,305 0.5 % 118 0.4 % 2 Pet Supplies Plus 2,253 0.5 % 148 0.5 % 19 United Parcel Service 2,245 0.5 % 82 0.3 % 65 Kohl's Corporation 2,241 0.5 % 365 1.2 % 4 Office Depot 2,237 0.5 % 179 0.6 % 8 Total $ 152,105 33.5 % 14,870 48.2 % 502 (1) Neighbors are grouped by parent company and may represent multiple subsidiaries and banners. (2) Number of locations excludes auxiliary leases with grocery anchors such as fuel stations, pharmacies, and liquor stores. Additionally, if a parent company has multiple subsidiaries or banners in a single shopping center, those subsidiaries are included as one location. RESULTS OF OPERATIONS KNOWN TRENDS AND UNCERTAINTIES —The economy continues to face inflation risk, which may negatively impact some of our Neighbors and increase our operating and construction costs. Substantially all of our leases contain provisions designed to mitigate the adverse effect of inflation, including requirements for Neighbors to pay their allocable share of operating expenses that includes common area maintenance, utilities, real estate taxes, insurance, and certain capital expenditures. Additionally, many of our leases are for terms of less than ten years, which allows us to target increased rents to current market rates upon renewal. In addition to inflation, macroeconomic and geopolitical risks may create challenges that could negatively impact market conditions in the United States. Additionally, 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 JUNE 30, 2023 FORM 10-Q 23 SUMMARY OF OPERATING ACTIVITIES FOR THE THREE MONTHS ENDED JUNE 30, 2023 AND 2022 Three Months Ended June 30, Favorable (Unfavorable) Change (Dollars in thousands) 2023 2022 $ % Revenues: Rental income $ 148,980 $ 137,230 $ 11,750 8.6 % Fees and management income 2,546 4,781 (2,235) (46.7) % Other property income 611 505 106 21.0 % Total revenues 152,137 142,516 9,621 6.8 % Operating Expenses: Property operating 24,674 22,852 (1,822) (8.0) % Real estate taxes 18,397 16,473 (1,924) (11.7) % General and administrative 11,686 11,376 (310) (2.7) % Depreciation and amortization 59,667 60,769 1,102 1.8 % Total operating expenses 114,424 111,470 (2,954) (2.7) % Other: Interest expense, net (20,675) (17,127) (3,548) (20.7) % Gain on disposal of property, net 75 2,793 (2,718) (97.3) % Other expense, net (904) (1,457) 553 38.0 % Net income 16,209 15,255 954 6.3 % Net income attributable to noncontrolling interests (1,758) (1,727) (31) (1.8) % Net income attributable to stockholders $ 14,451 $ 13,528 $ 923 6.8 % Our basis for analyzing significant fluctuations in our results of operations generally includes review of the results of our same-center portfolio, non-same-center portfolio, and revenues and expenses from our management activities. We define our same-center portfolio as the 262 properties that were owned and operational prior to January 1, 2022. We define our non-same-center portfolio as those properties that were not fully owned and operational in both periods owing primarily to real estate asset activity occurring after December 31, 2021, which includes five properties disposed of and eleven properties acquired. Below are explanations of the significant fluctuations in the results of operations for the three months ended June 30, 2023 and 2022: Rental Income increased $11.8 million primarily as follows: • $7.2 million increase primarily related to our same-center portfolio as follows: ▪ $4.4 million increase primarily due to a $0.42 increase in average minimum rent PSF and a 1.1% improvement in average occupancy; and ▪ $3.5 million increase primarily due to an increase in recoverable income attributed to an increase in real estate taxes and common area maintenance spending as well as a 1.1% improvement in average occupancy. • $4.6 million increase primarily related to our acquisition activity, net of dispositions. Fees and Management Income: • The $2.2 million decrease in fees and management income was primarily due to realized performance income received in 2022 for the achievement of certain performance targets related to our NRP joint venture. Property Operating Expenses increased $1.8 million primarily as follows: • $1.2 million increase from our same-center portfolio and corporate operating activities primarily due to increases in recoverable expenses attributed to higher common area maintenance costs, along with compensation expense; and • $0.6 million increase primarily due to our acquisition activity, net of dispositions. Real Estate Tax Expenses: • The $1.9 million increase in real estate tax expenses is primarily due to our acquisition activity, net of dispositions, and less appeal settlement income than 2022. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 24 Interest Expense, Net: • The $3.5 million increase was primarily due to higher interest rates in 2023. Interest Expense, Net was comprised of the following (dollars in thousands): Three Months Ended June 30, 2023 2022 Interest on unsecured term loans and senior notes, net $ 11,538 $ 9,512 Interest on secured debt 4,666 5,147 Interest on revolving credit facility, net 2,756 521 Non-cash amortization and other 1,724 1,818 (Gain) loss on extinguishment or modification of debt and other, net (1) (9) 129 Interest expense, net $ 20,675 $ 17,127 Weighted-average interest rate as of end of period 3.9 % 3.2 % Weighted-average term (in years) as of end of period 3.9 4.9 (1) Includes defeasance fees related to early repayments of debt. Gain on Disposal of Property, Net: • The $2.7 million decrease was primarily related to the sale of one property and two outparcels with a net gain of $0.1 million during the three months ended June 30, 2023, as compared 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 (see Note 4). Other Expense, Net: • The $0.6 million decrease was primarily related to an increase in the value of our marketable securities and a decrease in transaction and acquisition expenses, partially offset by a decrease in the equity in net income of our unconsolidated joint ventures. Other Expense, Net was comprised of the following (in thousands): Three Months Ended June 30, 2023 2022 Transaction and acquisition expenses $ (1,261) $ (2,035) Federal, state, and local income tax expense (119) (97) Equity in net income of unconsolidated joint ventures 105 1,228 Other 371 (553) Other expense, net $ (904) $ (1,457) PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 25 SUMMARY OF OPERATING ACTIVITIES FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022 Six Months Ended June 30, Favorable (Unfavorable) Change (Dollars in thousands) 2023 2022 $ % Revenues: Rental income $ 296,708 $ 275,978 $ 20,730 7.5 % Fees and management income 5,024 7,242 (2,218) (30.6) % Other property income 1,469 1,459 10 0.7 % Total revenues 303,201 284,679 18,522 6.5 % Operating Expenses: Property operating 49,736 46,172 (3,564) (7.7) % Real estate taxes 36,453 33,964 (2,489) (7.3) % General and administrative 23,219 22,908 (311) (1.4) % Depreciation and amortization 118,165 117,995 (170) (0.1) % Total operating expenses 227,573 221,039 (6,534) (3.0) % Other: Interest expense, net (40,141) (35,326) (4,815) (13.6) % Gain on disposal of property, net 1,017 4,161 (3,144) (75.6) % Other expense, net (1,659) (5,822) 4,163 71.5 % Net income 34,845 26,653 8,192 30.7 % Net income attributable to noncontrolling interests (3,775) (3,046) (729) (23.9) % Net income attributable to stockholders $ 31,070 $ 23,607 $ 7,463 31.6 % 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, 2023 and 2022” above. Below are explanations of the significant fluctuations in the results of operations for the six months ended June 30, 2023 and 2022: Rental Income increased $20.7 million as follows: • $11.8 million increase related to our same-center portfolio primarily as follows: ▪ $9.3 million increase primarily due to a $0.40 increase in average minimum rent PSF and a 1.1% improvement in average occupancy; and ▪ $4.3 million increase primarily due to an increase in recoverable income attributed to an increase in real estate taxes and common area maintenance spending as well as a 1.1% improvement in average occupancy; partially offset by ▪ $1.7 million decrease primarily due to lower lease buyout income. • $8.9 million increase primarily related to our acquisition activity, net of dispositions. Fees and Management Income: • The $2.2 million decrease in fees and management income was primarily due to $0.1 million realized performance income in 2023 as compared to $2.7 million in 2022 for the achievement of certain performance targets related to our NRP joint venture. Property Operating Expenses increased $3.6 million primarily as follows: • $2.4 million increase from our same-center portfolio and corporate operating activities primarily due to increases in recoverable expenses attributed to higher common area maintenance costs, along with compensation expense; and • $1.2 million increase primarily due to our acquisition activity, net of dispositions. Real Estate Tax Expenses: • The $2.5 million increase in real estate tax expenses is primarily due to our acquisition activity, net of dispositions, and less appeal settlement income than 2022. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 26 Interest Expense, Net: • The $4.8 million increase was primarily due to higher interest rates in 2023 partially offset by lower loss on extinguishment or modification of debt. Interest Expense, Net was comprised of the following (dollars in thousands): Six Months Ended June 30, 2023 2022 Interest on unsecured term loans and senior notes, net $ 22,830 $ 19,428 Interest on secured debt 9,554 10,678 Interest on revolving credit facility, net 4,324 768 Non-cash amortization and other 3,442 3,423 (Gain) loss on extinguishment or modification of debt and other, net (1) (9) 1,029 Interest expense, net $ 40,141 $ 35,326 Weighted-average interest rate as of end of period 3.9 % 3.2 % Weighted-average term (in years) as of end of period 3.9 4.9 (1) Includes defeasance fees related to early repayments of debt. Gain on Disposal of Property, Net: • The $3.1 million decrease was primarily related to the sale of land acquired by local authorities, as well as the sale of one property and two outparcels with a net gain of $1.0 million during the six months ended June 30, 2023, as compared 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 (see Note 4). Other Expense, Net: • The $4.2 million decrease was primarily related to the settlement of the earn-out liability in January 2022, an increase in the value of our marketable securities, and a decrease in transaction and acquisition expenses, partially offset by a decrease from equity in income of our unconsolidated joint ventures. Other Expense, Net was comprised of the following (in thousands): Six Months Ended June 30, 2023 2022 Transaction and acquisition expenses $ (2,599) $ (4,080) Federal, state, and local income tax expense (237) (194) Equity in net income of unconsolidated joint ventures 195 1,174 Increase in fair value of earn-out liability (see Note 12) — (1,809) Other 982 (913) Other expense, net $ (1,659) $ (5,822) PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 27 LEASING ACTIVITY —Below is a summary of leasing activity for our wholly-owned properties for the three months ended June 30, 2023 and 2022 (1) : Total Deals Inline Deals 2023 2022 2023 2022 New leases: Number of leases 94 105 91 98 Square footage (in thousands) 286 404 233 225 ABR (in thousands) $ 5,709 $ 7,479 $ 5,348 $ 5,479 ABR PSF $ 19.98 $ 18.51 $ 22.98 $ 24.40 Cost PSF of executing new leases $ 27.82 $ 35.10 $ 32.77 $ 35.18 Number of comparable leases 33 38 32 37 Comparable rent spread 25.1 % 39.0 % 25.1 % 24.5 % Weighted-average lease term (in years) 6.8 9.0 7.1 7.6 Renewals and options: Number of leases 191 160 170 141 Square footage (in thousands) 1,282 1,225 383 290 ABR (in thousands) $ 18,451 $ 15,132 $ 9,803 $ 7,290 ABR PSF $ 14.39 $ 12.35 $ 25.62 $ 25.17 ABR PSF prior to renewals $ 13.05 $ 11.49 $ 21.91 $ 22.46 Percentage increase in ABR PSF 10.2 % 7.5 % 16.9 % 12.1 % Cost PSF of executing renewals and options $ 0.44 $ 0.55 $ 1.26 $ 0.75 Number of comparable leases (2) 143 120 139 118 Comparable rent spread (2) 17.7 % 14.4 % 18.9 % 13.4 % Weighted-average lease term (in years) 5.0 5.5 4.3 4.2 Portfolio retention rate 93.8 % 92.1 % 86.3 % 85.3 % (1) PSF amounts may not recalculate exactly based on other amounts presented within the table due to rounding. (2) Excludes exercise of options. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 28 Below is a summary of leasing activity for our wholly-owned properties for the six months ended June 30, 2023 and 2022 (1) : Total Deals Inline Deals 2023 2022 2023 2022 New leases: Number of leases 192 197 186 186 Square footage (in thousands) 550 661 424 411 ABR (in thousands) $ 11,858 $ 12,421 $ 10,349 $ 9,800 ABR PSF $ 21.56 $ 18.80 $ 24.42 $ 23.86 Cost PSF of executing new leases $ 31.22 $ 32.69 $ 35.62 $ 34.37 Number of comparable leases 63 72 62 70 Comparable rent spread 26.1 % 36.6 % 26.2 % 25.8 % Weighted-average lease term (in years) 8.1 8.1 7.1 7.5 Renewals and options: Number of leases 356 312 324 287 Square footage (in thousands) 2,083 1,744 707 613 ABR (in thousands) $ 32,362 $ 24,379 $ 18,131 $ 14,592 ABR PSF $ 15.53 $ 13.98 $ 25.64 $ 23.81 ABR PSF prior to renewals $ 14.07 $ 12.84 $ 22.10 $ 21.14 Percentage increase in ABR PSF 10.4 % 8.8 % 16.0 % 12.7 % Cost PSF of executing renewals and options $ 0.48 $ 0.58 $ 1.22 $ 0.81 Number of comparable leases (2) 269 248 263 244 Comparable rent spread (2) 17.0 % 14.6 % 18.1 % 14.0 % Weighted-average lease term (in years) 5.0 5.1 4.4 4.0 Portfolio retention rate 94.4 % 90.6 % 84.7 % 81.6 % (1) PSF amounts may not recalculate exactly based on other amounts presented within the table due to rounding. (2) Excludes exercise of options. NON-GAAP MEASURES See “Key Performance Indicators and Defined Terms” above for additional information related to the following non-GAAP measures. SAME-CENTER NOI —Same-Center NOI is presented as a supplemental measure of our performance, as it highlights operating trends such as occupancy levels, rental rates, and operating costs for our same-center portfolio. 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, 2023 and 2022, Same-Center NOI represents the NOI for the 262 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, 2023 FORM 10-Q 29 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) 2023 2022 $ Change % Change 2023 2022 $ Change % Change Revenues: Rental income (1) $ 102,927 $ 98,497 $ 4,430 $ 206,508 $ 197,183 $ 9,325 Tenant recovery income 33,567 30,063 3,504 67,461 63,210 4,251 Reserves for uncollectibility (2) (357) 177 (534) (1,269) (661) (608) Other property income 568 466 102 1,368 1,366 2 Total revenues 136,705 129,203 7,502 5.8 % 274,068 261,098 12,970 5.0 % Operating expenses: Property operating expenses 20,396 19,186 (1,210) 41,934 39,866 (2,068) Real estate taxes 17,341 16,054 (1,287) 34,670 33,333 (1,337) Total operating expenses 37,737 35,240 (2,497) (7.1) % 76,604 73,199 (3,405) (4.7) % Total Same-Center NOI $ 98,968 $ 93,963 $ 5,005 5.3 % $ 197,464 $ 187,899 $ 9,565 5.1 % (1) Excludes straight-line rental income, net amortization of above- and below-market leases, and lease buyout income. (2) Includes billings that will not be recognized as revenue until cash is collected or the Neighbor resumes regular payments and/or we deem it appropriate to resume recording revenue on an accrual basis, rather than on a cash basis. 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, 2023 2022 2023 2022 Net income $ 16,209 $ 15,255 $ 34,845 $ 26,653 Adjusted to exclude: Fees and management income (2,546) (4,781) (5,024) (7,242) Straight-line rental income (1) (3,284) (3,319) (5,864) (5,128) Net amortization of above- and below-market leases (1,262) (1,078) (2,490) (2,080) Lease buyout income (74) (176) (429) (2,141) General and administrative expenses 11,686 11,376 23,219 22,908 Depreciation and amortization 59,667 60,769 118,165 117,995 Interest expense, net 20,675 17,127 40,141 35,326 Gain on disposal of property, net (75) (2,793) (1,017) (4,161) Other expense, net 904 1,457 1,659 5,822 Property operating expenses related to fees and management income 711 1,287 1,026 2,357 NOI for real estate investments 102,611 95,124 204,231 190,309 Less: Non-same-center NOI (2) (3,643) (1,161) (6,767) (2,410) Total Same-Center NOI $ 98,968 $ 93,963 $ 197,464 $ 187,899 (1) Includes straight-line rent adjustments for Neighbors for whom revenue is being recorded on a cash basis. (2) Includes operating revenues and expenses from non-same-center properties which includes properties acquired or sold and corporate activities. NAREIT FFO AND CORE FFO —Nareit FFO is a non-GAAP financial performance measure that is widely recognized as a measure of REIT operating performance. Core FFO is an additional financial performance measure used by us as Nareit FFO includes certain non-comparable items that affect our performance over time. We believe that Core FFO is helpful in assisting management and investors with assessing the sustainability of our operating performance in future periods. Nareit FFO and Core FFO should not be considered alternatives to net income (loss) under GAAP, as an indication of our liquidity, nor as an indication of funds available to cover our cash needs, including our ability to fund distributions. Core FFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate our business plan in the manner currently contemplated. Accordingly, Nareit FFO and Core FFO should be reviewed in connection with other GAAP measurements, and should not be viewed as more prominent measures of performance than net income (loss) or cash flows from operations prepared in accordance with GAAP. Our Nareit FFO and Core FFO, as presented, may not be comparable to amounts calculated by other REITs. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 30 The following table presents our calculation of Nareit FFO and Core FFO (in thousands, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Calculation of Nareit FFO Attributable to Stockholders and OP Unit Holders Net income $ 16,209 $ 15,255 $ 34,845 $ 26,653 Adjustments: Depreciation and amortization of real estate assets 59,115 59,849 117,068 116,169 Gain on disposal of property, net (75) (2,793) (1,017) (4,161) Adjustments related to unconsolidated joint ventures 645 (1,186) 1,343 (481) Nareit FFO attributable to stockholders and OP unit holders $ 75,894 $ 71,125 $ 152,239 $ 138,180 Calculation of Core FFO Attributable to Stockholders and OP Unit Holders Nareit FFO attributable to stockholders and OP unit holders $ 75,894 $ 71,125 $ 152,239 $ 138,180 Adjustments: Depreciation and amortization of corporate assets 552 920 1,097 1,826 Change in fair value of earn-out liability — — — 1,809 Transaction and acquisition expenses 1,261 2,035 2,599 4,080 (Gain) loss on extinguishment or modification of debt and other, net (9) 129 (9) 1,029 Amortization of unconsolidated joint venture basis differences 7 175 8 219 Realized performance income (1) — (2,546) (75) (2,742) Core FFO attributable to stockholders and OP unit holders $ 77,705 $ 71,838 $ 155,859 $ 144,401 Nareit FFO/Core FFO Attributable to Stockholders and OP Unit Holders per diluted share Weighted-average shares of common stock outstanding - diluted 131,887 129,117 132,004 128,857 Nareit FFO attributable to stockholders and OP unit holders per share - diluted $ 0.58 $ 0.55 $ 1.15 $ 1.07 Core FFO attributable to stockholders and OP unit holders per share - diluted $ 0.59 $ 0.56 $ 1.18 $ 1.12 (1) Realized performance income includes fees received related to the achievement of certain performance targets in our NRP joint venture. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 31 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. Additionally, we believe they are a useful indicator of our ability to support our debt obligations. EBITDA re and Adjusted EBITDA re should not be considered as alternatives to net income (loss), as an indication of our liquidity, nor as an indication of funds available to cover our cash needs, including our ability to fund distributions. Accordingly, EBITDA re and Adjusted EBITDA re should be reviewed in connection with other GAAP measurements, and should not be viewed as more prominent measures of performance than net income (loss) or cash flows from operations prepared in accordance with GAAP. Our EBITDA re and Adjusted EBITDA re , as presented, may not be comparable to amounts calculated by other REITs. 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, 2023 2022 2023 2022 2022 Calculation of EBITDA re Net income $ 16,209 $ 15,255 $ 34,845 $ 26,653 $ 54,529 Adjustments: Depreciation and amortization 59,667 60,769 118,165 117,995 236,224 Interest expense, net 20,675 17,127 40,141 35,326 71,196 Gain on disposal of property, net (75) (2,793) (1,017) (4,161) (7,517) Impairment of real estate assets — — — — 322 Federal, state, and local tax expense 119 97 237 194 806 Adjustments related to unconsolidated joint ventures 918 (885) 1,884 134 1,987 EBITDA re $ 97,513 $ 89,570 $ 194,255 $ 176,141 $ 357,547 Calculation of Adjusted EBITDA re EBITDA re $ 97,513 $ 89,570 $ 194,255 $ 176,141 $ 357,547 Adjustments: Change in fair value of earn-out liability — — — 1,809 1,809 Transaction and acquisition expenses 1,261 2,035 2,599 4,080 10,551 Amortization of unconsolidated joint venture basis differences 7 175 8 219 220 Realized performance income (1) — (2,546) (75) (2,742) (2,742) Adjusted EBITDA re $ 98,781 $ 89,234 $ 196,787 $ 179,507 $ 367,385 (1) Realized performance income includes fees received related to the achievement of certain performance targets in our NRP joint venture. LIQUIDITY AND CAPITAL RESOURCES GENERAL —Aside from standard operating expenses, we expect our principal cash demands to be for: • investments in real estate; • cash distributions to stockholders; • redevelopment and repositioning projects; • capital expenditures and leasing costs; and • principal and interest payments on our outstanding indebtedness. We expect our primary sources of liquidity to be: • operating cash flows; • borrowings from our unsecured revolving credit facility and proceeds from debt financings; • proceeds from any ATM offering activities; • proceeds received from the disposition of properties; and • available, unrestricted cash and cash equivalents. At this time, we believe our current sources of liquidity are sufficient to meet our short- and long-term cash demands. ATM Program —In 2022, 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 and six months ended June 30, 2023, we issued no shares of our common stock under the ATM program. During the three and six months ended June 30, 2022, we issued PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 32 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, 2023, $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 June 30, 2023 and December 31, 2022 (dollars in thousands): June 30, 2023 December 31, 2022 Total debt obligations, gross $ 1,966,020 $ 1,912,784 Weighted-average interest rate 3.9 % 3.6 % Weighted-average term (in years) 3.9 4.4 Revolving credit facility capacity (1) $ 800,000 $ 800,000 Revolving credit facility availability (2) 619,229 709,385 (1) The revolving credit facility matures in January 2026, extendable at our option to January 2027. In addition, the revolving credit facility 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. On July 31, 2023, we amended three senior unsecured term loans with a total notional amount of $475.0 million scheduled to mature during 2024. The amended three senior unsecured term loans have a total notional amount of $484.8 million. The $161.8 million unsecured term loan is priced at SOFR plus 1.35% and is scheduled to mature on January 31, 2026 extendable with two one-year options to 2028. The $158.0 million and $165.0 million unsecured term loans are priced at SOFR plus 1.35% and mature on January 31, 2027. Debt Obligation Guarantees —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, 2023, 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. As a result of the amendments to SEC Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that: (i) the subsidiary obligor is consolidated into the parent company’s consolidated financial statements; (ii) the parent guarantee is “full and unconditional”; and (iii) subject to certain exceptions as set forth below, the alternative disclosure required by Rule 13-01 of Regulation S-X is provided, which includes narrative disclosure and summarized financial information. We meet the conditions of this requirement and thus, are not presenting separate financial statements. 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 June 30, 2023 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, 2023 and December 31, 2022 (in thousands): June 30, 2023 December 31, 2022 Net debt: Total debt, excluding discounts, market adjustments, and deferred financing expenses $ 1,990,378 $ 1,937,142 Less: Cash and cash equivalents 5,863 5,740 Total net debt $ 1,984,515 $ 1,931,402 Enterprise value: Net debt $ 1,984,515 $ 1,931,402 Total equity market capitalization (1)(2) 4,484,144 4,178,204 Total enterprise value $ 6,468,659 $ 6,109,606 (1) Total equity market capitalization is calculated as diluted shares multiplied by the closing market price per share, which includes 131.6 million and 131.2 million diluted shares as of June 30, 2023 and December 31, 2022, respectively, and the closing market price per share of $34.08 and $31.84 as of June 30, 2023 and December 31, 2022, respectively. (2) Fully diluted shares include common stock and OP units. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 33 The following table presents our calculation of net debt to Adjusted EBITDA re and net debt to total enterprise value as of June 30, 2023 and December 31, 2022 (dollars in thousands): June 30, 2023 December 31, 2022 Net debt to Adjusted EBITDA re - annualized : Net debt $ 1,984,515 $ 1,931,402 Adjusted EBITDA re - annualized (1) 384,665 367,385 Net debt to Adjusted EBITDA re - annualized 5.2x 5.3x Net debt to total enterprise value: Net debt $ 1,984,515 $ 1,931,402 Total enterprise value 6,468,659 6,109,606 Net debt to total enterprise value 30.7% 31.6% (1) Adjusted EBITDA re is based on a trailing twelve month period. See “Non-GAAP Measures - EBITDA re and Adjusted EBITDA re ” above for a reconciliation to Net Income. 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 six months ended June 30, 2023 and 2022, we had capital spend of $47.6 million and $42.9 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, 2023 2022 Capital expenditures for real estate: Capital improvements $ 9,790 $ 4,822 Tenant improvements 12,848 11,924 Redevelopment and development 20,444 22,590 Total capital expenditures for real estate 43,082 39,336 Corporate asset capital expenditures 493 2,085 Capitalized indirect costs (1) 2,183 1,525 Total capital spending activity (2) $ 45,758 $ 42,946 (1) Amount includes internal salaries and related benefits of personnel who work directly on capital projects as well as capitalized interest expense. (2) Amounts reported are net of insurance proceeds for property damage claims for the six months ended June 30, 2023. We anticipate that obligations related to capital improvements, as well as redevelopment and development, in 2023 can be met with cash flows from operations, cash flows from dispositions, or borrowings on our unsecured revolving credit facility. Generally, we expect our development and redevelopment projects to stabilize within 24 months. Our underwritten incremental unlevered yields on development and redevelopment projects are expected to range between 9%-12%. Our current in process projects represent an estimated total investment of $37.5 million. Actual incremental unlevered yields may vary from our underwritten incremental unlevered yield range based on the actual total cost to complete a project and its actual incremental annual NOI at stabilization. See “Key Performance Indicators and Defined Terms” above for further information. REAL ESTATE ACQUISITION ACTIVITY —We actively monitor the commercial real estate market for properties that have future growth potential, are located in attractive demographic markets, and support our business objectives. The following table highlights our property acquisitions (dollars in thousands): Six Months Ended June 30, 2023 2022 Number of properties acquired 4 4 Number of outparcels acquired (1) — 1 Contract price $ 78,650 $ 169,342 Total price of acquisitions (2) 69,464 170,186 (1) Outparcels acquired are adjacent to shopping centers that we own. (2) Total price of acquisitions includes closing costs less credits and assumed debt obligations. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 34 REAL ESTATE 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, 2023 2022 Number of properties sold 1 3 Number of outparcels sold 2 2 Contract price $ 6,250 $ 28,342 Proceeds from sale of real estate, net (1)(2) 7,089 27,077 Gain on disposal of property, net (2) 1,017 4,161 (1) Total proceeds from sale of real estate, net includes closing costs less credits. (2) Activity for the six months ended June 30, 2023 includes land acquired from us by local authorities. DISTRIBUTIONS —We declared and paid 2023 monthly distributions of $0.0933 per share, or $1.12 annualized, for each month beginning January 2023 through July 2023. To maintain our qualification as a REIT, we must make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain, and which does not necessarily equal net income or loss as calculated in accordance with GAAP). We generally will not be subject to U.S. federal income tax on the income that we distribute to our stockholders each year due to meeting the REIT qualification requirements. However, we may be subject to certain state and local taxes on our income, property, or net worth and to federal income and excise taxes on our undistributed income. 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, 2023, we had cash and cash equivalents and restricted cash of $9.9 million, a net cash decrease of $7.4 million during the six months ended June 30, 2023. Below is a summary of our cash flow activity (dollars in thousands): Six Months Ended June 30, 2023 2022 $ Change % Change Net cash provided by operating activities $ 130,390 $ 142,499 $ (12,109) (8.5) % Net cash used in investing activities (107,003) (185,893) 78,890 42.4 % Net cash used in financing activities (30,820) (28,448) (2,372) (8.3) % OPERATING ACTIVITIES —Our net cash provided by operating activities was primarily impacted by the following: • Property operations —Most of our operating cash comes from rental and tenant recovery income received less property operating expenses, real estate taxes, and general and administrative costs paid. Property operations during the six months ended June 30, 2023 were positively impacted by a $9.6 million, or 5.1%, improvement in Same-Center NOI as compared to the same period in 2022. During the six months ended June 30, 2023, we had a net cash outlay of $19.6 million from changes in working capital as compared to a net cash outlay of $3.7 million during the same period in 2022. This change was primarily driven by an increase in real estate tax payments and higher receivables due to reimbursable Neighbor costs. INVESTING ACTIVITIES —Our net cash used in investing activities was primarily impacted by the following: • Real estate acquisitions —During the six months ended June 30, 2023, our acquisitions resulted in a total cash outlay of $69.5 million, as compared to a total cash outlay of $170.2 million during the same period in 2022. • Real estate dispositions —During the six months ended June 30, 2023, our dispositions resulted in a net cash inflow of $7.1 million, as compared to a net cash inflow of $27.1 million during the same period in 2022. • 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, 2023, we paid $47.6 million for capital expenditures, an increase of $4.7 million over the same period in 2022, primarily due to an increase in capital improvements due to timing. 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, 2023, we had $43.5 million in net borrowings primarily as a result of our borrowings under our revolving credit facility. During the six months ended June 30, 2022, we had net payments of $20.6 million primarily as a result of early repayments of mortgage loans from cash on hand, partially offset by borrowings on our revolving credit facility. • Issuance of common stock— During the six months ended June 30, 2023, we issued no shares of our common stock under the ATM program compared to issuing 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, during the six months ended June 30, 2022. PHILLIPS EDISON & COMPANY JUNE 30, 2023 FORM 10-Q 35 • Distributions to stockholders and OP unit holders —Cash used for distributions to common stockholders and OP unit holders increased $3.4 million for the six months ended June 30, 2023 as compared to the same period in 2022, primarily due to an increase in distribution rates and an increase in shares of common stock outstanding. CRITICAL ACCOUNTING ESTIMATES “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” of our 2022 Annual Report on Form 10-K, filed with the SEC on February 21, 2023, contains a description of our critical accounting estimates, including those relating to the valuation of real estate assets and rental income. There have been no significant changes to our critical accounting estimates during 2023. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes from the quantitative and qualitative disclosures about market risk disclosed in “Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our 2022 Annual Report on Form 10-K filed with the SEC on February 21, 2023.