Phillips Edison & Company, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS PHILLIPS EDISON & COMPANY, INC. CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2024 AND DECEMBER 31, 2023 (Condensed and Unaudited) (In thousands, except per share amounts) June 30, 2024 December 31, 2023 ASSETS Investment in real estate: Land and improvements $ 1,813,970 $ 1,768,487 Building and improvements 3,907,875 3,818,184 In-place lease assets 506,054 495,525 Above-market lease assets 74,835 74,446 Total investment in real estate assets 6,302,734 6,156,642 Accumulated depreciation and amortization ( 1,655,987 ) ( 1,540,551 ) Net investment in real estate assets 4,646,747 4,616,091 Investment in unconsolidated joint ventures 24,129 25,220 Total investment in real estate assets, net 4,670,876 4,641,311 Cash and cash equivalents 7,058 4,872 Restricted cash 3,890 4,006 Goodwill 29,066 29,066 Other assets, net 196,041 186,411 Total assets $ 4,906,931 $ 4,865,666 LIABILITIES AND EQUITY Liabilities: Debt obligations, net $ 2,042,483 $ 1,969,272 Below-market lease liabilities, net 112,770 108,223 Accounts payable and other liabilities 118,120 116,461 Deferred income 18,158 18,359 Total liabilities 2,291,531 2,212,315 Commitments and contingencies (see Note 8) — — Equity: Preferred stock, $ 0.01 par value per share, 10,000 shares authorized, zero shares issued and outstanding at June 30, 2024 and December 31, 2023 — — Common stock, $ 0.01 par value per share, 1,000,000 shares authorized, 122,408 and 122,024 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively 1,224 1,220 Additional paid-in capital (“APIC”) 3,554,309 3,546,838 Accumulated other comprehensive income (“AOCI”) 11,356 10,523 Accumulated deficit ( 1,287,271 ) ( 1,248,273 ) Total stockholders’ equity 2,279,618 2,310,308 Noncontrolling interests 335,782 343,043 Total equity 2,615,400 2,653,351 Total liabilities and equity $ 4,906,931 $ 4,865,666 See notes to consolidated financial statements. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 2 PHILLIPS EDISON & COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (Condensed and Unaudited) (In thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenues: Rental income $ 158,286 $ 148,980 $ 316,354 $ 296,708 Fees and management income 2,522 2,546 5,087 5,024 Other property income 707 611 1,376 1,469 Total revenues 161,515 152,137 322,817 303,201 Operating Expenses: Property operating 27,399 24,674 53,933 49,736 Real estate taxes 19,474 18,397 38,328 36,453 General and administrative 11,133 11,686 22,946 23,219 Depreciation and amortization 61,172 59,667 121,378 118,165 Total operating expenses 119,178 114,424 236,585 227,573 Other: Interest expense, net ( 23,621 ) ( 20,675 ) ( 46,956 ) ( 40,141 ) (Loss) gain on disposal of property, net ( 10 ) 75 ( 15 ) 1,017 Other expense, net ( 1,720 ) ( 904 ) ( 2,649 ) ( 1,659 ) Net income 16,986 16,209 36,612 34,845 Net income attributable to noncontrolling interests ( 1,715 ) ( 1,758 ) ( 3,671 ) ( 3,775 ) Net income attributable to stockholders $ 15,271 $ 14,451 $ 32,941 $ 31,070 Earnings per share of common stock: Net income per share attributable to stockholders - basic and diluted (see Note 10) $ 0.12 $ 0.12 $ 0.27 $ 0.26 Comprehensive income: Net income $ 16,986 $ 16,209 $ 36,612 $ 34,845 Other comprehensive (loss) income: Change in unrealized value on interest rate swaps ( 1,996 ) 6,562 909 63 Comprehensive income 14,990 22,771 37,521 34,908 Net income attributable to noncontrolling interests ( 1,715 ) ( 1,758 ) ( 3,671 ) ( 3,775 ) Change in unrealized value on interest rate swaps attributable to noncontrolling interests 202 ( 712 ) ( 92 ) ( 8 ) Reallocation of comprehensive income upon conversion of noncontrolling interests 6 28 16 1 Comprehensive income attributable to stockholders $ 13,483 $ 20,329 $ 33,774 $ 31,126 See notes to consolidated financial statements. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 3 PHILLIPS EDISON & COMPANY, INC. CONSOLIDATED STATEMENTS OF EQUITY FOR THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023 (Condensed and Unaudited) (In thousands, except per share amounts) Three Months Ended June 30, 2024 and 2023 Common Stock APIC AOCI Accumulated Deficit Total Stockholders’ Equity Noncontrolling Interests Total Equity Shares Amount Balance at April 1, 2023 117,259 $ 1,172 $ 3,382,368 $ 15,181 $ ( 1,186,074 ) $ 2,212,647 $ 360,294 $ 2,572,941 Change in unrealized value on interest rate swaps — — — 5,850 — 5,850 712 6,562 Common distributions declared, $ 0.2799 per share — — — — ( 33,091 ) ( 33,091 ) — ( 33,091 ) Distributions to noncontrolling interests — — — — — — ( 4,107 ) ( 4,107 ) Share-based compensation 20 — 1,270 — — 1,270 1,964 3,234 Conversion of noncontrolling interests 164 2 4,126 28 — 4,156 ( 4,156 ) — Net income — — — — 14,451 14,451 1,758 16,209 Balance at June 30, 2023 117,443 $ 1,174 $ 3,387,764 $ 21,059 $ ( 1,204,714 ) $ 2,205,283 $ 356,465 $ 2,561,748 Balance at April 1, 2024 122,323 $ 1,223 $ 3,551,678 $ 13,144 $ ( 1,266,541 ) $ 2,299,504 $ 337,894 $ 2,637,398 Change in unrealized value on interest rate swaps — — — ( 1,794 ) — ( 1,794 ) ( 202 ) ( 1,996 ) Common distributions declared, $ 0.2925 per share — — — — ( 36,001 ) ( 36,001 ) — ( 36,001 ) Distributions to noncontrolling interests — — — — — — ( 4,212 ) ( 4,212 ) Share-based compensation 25 — 1,168 — — 1,168 2,057 3,225 Conversion of noncontrolling interests 60 1 1,463 6 — 1,470 ( 1,470 ) — Net income — — — — 15,271 15,271 1,715 16,986 Balance at June 30, 2024 122,408 $ 1,224 $ 3,554,309 $ 11,356 $ ( 1,287,271 ) $ 2,279,618 $ 335,782 $ 2,615,400 See notes to consolidated financial statements. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 4 PHILLIPS EDISON & COMPANY, INC. CONSOLIDATED STATEMENTS OF EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (Condensed and Unaudited) (In thousands, except per share amounts) Six Months Ended June 30, 2024 and 2023 Common Stock APIC AOCI Accumulated Deficit Total Stockholders’ Equity Noncontrolling Interests Total Equity Shares Amount Balance at January 1, 2023 117,126 $ 1,171 $ 3,383,978 $ 21,003 $ ( 1,169,665 ) $ 2,236,487 $ 360,946 $ 2,597,433 Change in unrealized value on interest rate swaps — — — 55 — 55 8 63 Common distributions declared, $ 0.5598 per share — — — — ( 66,119 ) ( 66,119 ) — ( 66,119 ) Distributions to noncontrolling interests — — — — — — ( 8,180 ) ( 8,180 ) Share-based compensation 153 1 ( 340 ) — — ( 339 ) 4,045 3,706 Conversion of noncontrolling interests 164 2 4,126 1 — 4,129 ( 4,129 ) — Net income — — — — 31,070 31,070 3,775 34,845 Balance at June 30, 2023 117,443 $ 1,174 $ 3,387,764 $ 21,059 $ ( 1,204,714 ) $ 2,205,283 $ 356,465 $ 2,561,748 Balance at January 1, 2024 122,024 $ 1,220 $ 3,546,838 $ 10,523 $ ( 1,248,273 ) $ 2,310,308 $ 343,043 $ 2,653,351 Issuance of common stock 46 — — — — — — — Change in unrealized value on interest rate swaps — — — 817 — 817 92 909 Common distributions declared, $ 0.585 per share — — — — ( 71,939 ) ( 71,939 ) — ( 71,939 ) Distributions to noncontrolling interests — — — — — — ( 8,355 ) ( 8,355 ) Share-based compensation 86 1 1,280 — — 1,281 3,541 4,822 Conversion of noncontrolling interests 252 3 6,191 16 — 6,210 ( 6,210 ) — Net income — — — — 32,941 32,941 3,671 36,612 Balance at June 30, 2024 122,408 $ 1,224 $ 3,554,309 $ 11,356 $ ( 1,287,271 ) $ 2,279,618 $ 335,782 $ 2,615,400 See notes to consolidated financial statements. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 5 PHILLIPS EDISON & COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (Condensed and Unaudited) (In thousands) Six Months Ended June 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 36,612 $ 34,845 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of real estate assets 120,487 117,068 Depreciation and amortization of corporate assets 891 1,097 Net amortization of above- and below-market leases ( 2,989 ) ( 2,490 ) Amortization of deferred financing expenses 2,383 1,800 Amortization of debt and derivative adjustments 1,534 1,394 Loss (gain) on disposal of property, net 15 ( 1,017 ) Straight-line rent ( 4,439 ) ( 5,824 ) Share-based compensation 4,822 3,706 Return on investment in unconsolidated joint ventures 136 75 Other ( 197 ) ( 654 ) Changes in operating assets and liabilities: Other assets, net ( 11,083 ) ( 10,042 ) Accounts payable and other liabilities ( 6,573 ) ( 9,568 ) Net cash provided by operating activities 141,599 130,390 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate acquisitions ( 116,211 ) ( 69,464 ) Capital expenditures ( 30,886 ) ( 47,617 ) (Payments) proceeds from sale of real estate, net ( 8 ) 7,089 Return of investment in unconsolidated joint ventures 1,081 1,130 Insurance proceeds for property damage claims 2,788 1,859 Net cash used in investing activities ( 143,236 ) ( 107,003 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facility 229,000 236,000 Payments on revolving credit facility ( 363,000 ) ( 147,000 ) Proceeds from notes payable 341,698 — Payments on mortgages and loans payable ( 136,962 ) ( 45,535 ) Distributions paid ( 60,015 ) ( 66,321 ) Distributions to noncontrolling interests ( 7,014 ) ( 7,964 ) Net cash provided by (used in) financing activities 3,707 ( 30,820 ) NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 2,070 ( 7,433 ) CASH, CASH EQUIVALENTS, AND RESTRICTED CASH: Beginning of period 8,878 17,349 End of period $ 10,948 $ 9,916 RECONCILIATION TO CONSOLIDATED BALANCE SHEETS: Cash and cash equivalents $ 7,058 $ 5,564 Restricted cash 3,890 4,352 Cash, cash equivalents, and restricted cash at end of period $ 10,948 $ 9,916 PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 6 PHILLIPS EDISON & COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (Condensed and Unaudited) (In thousands) Six Months Ended June 30, 2024 2023 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 42,911 $ 36,643 SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES: Right-of-use (“ROU”) assets obtained in exchange for new lease liabilities 8 888 Accrued capital expenditures 4,424 6,684 Assumed other liabilities 225 — Assumed debt obligations, net — 9,615 Assumed below-market debt — 444 Change in distributions payable 11,924 ( 202 ) Change in distributions payable - noncontrolling interests 1,341 216 See notes to consolidated financial statements. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 7 Phillips Edison & Company, Inc. Notes to Consolidated Financial Statements (Condensed and Unaudited) 1. ORGANIZATION Phillips Edison & Company, Inc. (“we,” the “Company,” “PECO,” “our,” or “us”) was formed as a Maryland corporation in October 2009. Substantially all of our business is conducted through Phillips Edison Grocery Center Operating Partnership I, L.P. (the “Operating Partnership”), a Delaware limited partnership formed in December 2009. We are a limited partner of the Operating Partnership, and our wholly-owned subsidiary, Phillips Edison Grocery Center OP GP I LLC, is the sole general partner of the Operating Partnership. We are a real estate investment trust (“REIT”) that invests primarily in omni-channel grocery-anchored neighborhood and community shopping centers that have a mix of creditworthy national, regional, and local retailers that sell necessity-based goods and services in strong demographic markets throughout the United States. In addition to managing our own shopping centers, our third-party investment management business provides comprehensive real estate and asset management services to two unconsolidated institutional joint ventures, Grocery Retail Partners I LLC (“GRP I”) and Necessity Retail Partners (“NRP”), in which we have partial ownership interests, and one private fund (collectively, the “Managed Funds”) as of June 30, 2024. In July 2024, through a subsidiary, we entered into a joint venture agreement with an affiliate of Cohen & Steers Income Opportunities REIT, Inc. (“Cohen & Steers”) targeting $ 300 million in total equity. We contributed $ 3.2 million for the purchase of one property at formation of the new joint venture, Necessity Retail Venture LLC (“NRV” or the “NRV joint venture”), in exchange for a 20 % ownership interest in NRV. Cohen & Steers acquired an 80 % ownership interest in NRV by contributing $ 12.9 million for the purchase of the one property. In May 2024, we issued $ 350 million of 5.750 % senior notes due 2034 at an issue price of 98.576 % in an underwritten offering (“2024 Bond Offering”). The notes are fully and unconditionally guaranteed by us. As of June 30, 2024, we wholly-owned 286 real estate properties. Additionally, we owned a 14 % interest in GRP I, which owned 20 properties. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Set forth below is a summary of the significant accounting estimates and policies that management believes are important to the preparation of our condensed consolidated interim financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by management. For example, significant estimates and assumptions have been made with respect to the useful lives of assets, remaining hold periods of assets, recoverable amounts of receivables, and other fair value measurement assessments required for the preparation of the consolidated interim financial statements. As a result, these estimates are subject to a degree of uncertainty. There were no changes to our significant accounting policies during the six months ended June 30, 2024, except for those discussed below. For a full summary of our significant accounting policies, refer to our 2023 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 12, 2024. Basis of Presentation and Principles of Consolidation —The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q should refer to our audited consolidated financial statements for the year ended December 31, 2023, which are included in our 2023 Annual Report on Form 10-K. In the opinion of management, all normal and recurring adjustments necessary for the fair presentation of the unaudited consolidated financial statements for the periods presented have been included in this Quarterly Report. Our results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the operating results expected for the full year. The accompanying consolidated financial statements include our accounts and the accounts of the Operating Partnership and its wholly-owned subsidiaries (over which we exercise financial and operating control). The financial statements of the Operating Partnership are prepared using accounting policies consistent with our accounting policies. All intercompany balances and transactions are eliminated upon consolidation. Income Taxes —Our consolidated financial statements include the operations of wholly-owned subsidiaries that have jointly elected to be treated as taxable REIT subsidiary entities and are subject to U.S. federal, state, and local income taxes at regular corporate tax rates. We recognized federal, state, and local income tax expense of $ 0.5 million and $ 0.1 million for the three months ended June 30, 2024 and 2023, respectively, and $ 0.6 million and $ 0.2 million for the six months ended June 30, 2024 and 2023, respectively. We retained a full valuation allowance for our net deferred tax asset as of December 31, 2023. During the second quarter of 2024, we concluded that it was more likely than not that a significant portion of our net deferred tax asset will be realized. We reached this conclusion as certain of our taxable REIT subsidiary entities reported positive cumulative pre-tax earnings in recent years, and are projected to generate future pre-tax earnings. We have released $ 0.5 million of the valuation allowance for the three and six months ended June 30, 2024. Income tax expense for the quarter ended June 30, 2024 was reduced by an amount equal to the amount of the valuation allowance PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 8 released during the quarter ended June 30, 2024. We anticipate that there will be a small valuation allowance at December 31, 2024 for certain state net operating losses that we do not believe will be realized. All income tax amounts are included in Other Expense, Net on our consolidated statements of operations and comprehensive income (“consolidated statements of operations”). Recently Issued or Adopted Accounting Pronouncements —There were no recently issued or adopted accounting pronouncements during the six months ended June 30, 2024 that impacted the Company. 3. LEASES Lessor —The majority of our leases are largely similar in that the leased asset is retail space within our properties, and the lease agreements generally contain similar provisions and features, without substantial variations. All of our leases are currently classified as operating leases. Lease income related to our operating leases was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Rental income related to fixed lease payments (1) $ 120,199 $ 111,080 $ 238,282 $ 219,944 Rental income related to variable lease payments (1)(2) 35,084 33,829 73,261 69,592 Straight-line rent amortization (3) 1,832 3,148 3,825 5,591 Amortization of lease assets 1,553 1,249 2,959 2,465 Lease buyout income 205 74 451 429 Adjustments for collectibility (4) ( 587 ) ( 400 ) ( 2,424 ) ( 1,313 ) Total rental income $ 158,286 $ 148,980 $ 316,354 $ 296,708 (1) Includes rental income related to lease payments before assessing for collectibility. (2) Variable payments are primarily related to tenant recovery income. (3) Includes revenue adjustments to straight-line rent for tenants considered non-creditworthy. (4) Includes general reserves as well as adjustments for tenants considered non-creditworthy for which we are recording revenue on a cash basis, per Accounting Standards Codification (“ASC”) Topic 842, Leases . Approximate future fixed contractual lease payments to be received under non-cancelable operating leases in effect as of June 30, 2024, assuming no new or renegotiated leases or option extensions on lease agreements, and including the impact of rent abatements and tenants who have been moved to the cash basis of accounting for revenue recognition purposes, are as follows (in thousands): Year Amount Remaining 2024 $ 235,959 2025 458,773 2026 395,388 2027 327,469 2028 255,681 Thereafter 647,683 Total $ 2,320,953 No single tenant comprised 10% or more of our aggregate annualized base rent (“ABR”) as of June 30, 2024. As of June 30, 2024, our wholly-owned real estate investments in Florida and California represented 12.3 % and 10.8 % of our ABR, respectively. As a result, the geographic concentration of our portfolio makes it particularly susceptible to adverse weather or economic events in the Florida and California real estate markets. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 9 4. REAL ESTATE ACTIVITY Acquisitions — The following table summarizes our real estate acquisition activity (dollars in thousands): Six Months Ended June 30, 2024 2023 Number of properties acquired 4 4 Number of outparcels acquired (1)(2) 2 — Contract price $ 115,352 $ 78,650 Total price of acquisitions (3) 116,211 69,464 (1) Outparcels acquired are adjacent to shopping centers that we own. (2) During the six months ended June 30, 2024, we acquired an outparcel adjacent to a property that is owned by our unconsolidated joint venture, GRP I. Therefore, the outparcel is an addition to our total property count. (3) Total price of acquisitions includes closing costs less credits and assumed liabilities. Subsequent to June 30, 2024, we acquired one property and one outparcel for $ 11.3 million. The aggregate purchase price of the assets acquired during the six months ended June 30, 2024 and 2023 were allocated as follows (in thousands): June 30, 2024 June 30, 2023 ASSETS Land and improvements $ 44,313 $ 25,084 Building and improvements 70,883 49,877 In-place lease assets 10,997 592 Above-market lease assets 503 7,112 Below-market debt — 444 Total assets 126,696 83,109 LIABILITIES Debt obligations, net — 9,615 Below-market lease liabilities 10,260 4,030 Other liabilities assumed 225 — Total liabilities 10,485 13,645 Net assets acquired $ 116,211 $ 69,464 The weighted-average amortization periods for in-place, above-market, and below-market lease intangibles and below-market debt acquired during the six months ended June 30, 2024 and 2023 are as follows (in years): June 30, 2024 June 30, 2023 Acquired in-place leases 11 12 Acquired above-market leases 12 8 Acquired below-market leases 15 18 Assumed below-market debt — 2 Property Dispositions —We sold no properties during the six months ended June 30, 2024, but we recognized a minimal loss on disposal of property due to miscellaneous write-off activity and expenses related to previous and future potential dispositions. During the six months ended June 30, 2023, we sold one property and two outparcels at a contract price of $ 6.3 million, received $ 7.1 million in proceeds, and recognized a gain on disposal of property of $ 1.0 million which was primarily due to land acquired from us by local authorities. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 10 5. OTHER ASSETS, NET The following is a summary of Other Assets, Net outstanding as of June 30, 2024 and December 31, 2023 (in thousands): June 30, 2024 December 31, 2023 Other assets, net: Deferred leasing commissions and costs $ 54,487 $ 53,379 Deferred financing expenses (1) 8,984 8,984 Office equipment, including capital lease assets, and other 25,091 24,073 Corporate intangible assets 6,686 6,686 Total depreciable and amortizable assets 95,248 93,122 Accumulated depreciation and amortization ( 53,446 ) ( 53,205 ) Net depreciable and amortizable assets 41,802 39,917 Accounts receivable, net (2) 42,803 44,548 Accounts receivable - affiliates 1,029 803 Deferred rent receivable, net (3) 66,735 62,288 Derivative assets 12,686 12,669 Prepaid expenses and other 15,345 10,745 Investment in third parties 6,794 6,875 Investment in marketable securities 8,847 8,566 Total other assets, net $ 196,041 $ 186,411 (1) Deferred financing expenses per the above table are related to our revolving credit facility, and as such we have elected to classify them as an asset rather than as a contra-liability. (2) Net of $ 3.1 million and $ 1.9 million of general reserves for uncollectible amounts as of June 30, 2024 and December 31, 2023, respectively. Receivables that were removed for tenants considered to be non-creditworthy were $ 6.6 million and $ 6.0 million as of June 30, 2024 and December 31, 2023, respectively. (3) Net of $ 5.2 million and $ 4.6 million of receivables removed as of June 30, 2024 and December 31, 2023, respectively, related to straight-line rent for tenants previously or currently considered to be non-creditworthy. 6. DEBT OBLIGATIONS The following is a summary of the outstanding principal balances and interest rates, which includes the effect of derivative financial instruments, for our debt obligations as of June 30, 2024 and December 31, 2023 (dollars in thousands): Interest Rate (1) June 30, 2024 December 31, 2023 Revolving credit facility SOFR + 1.1 % $ 47,000 $ 181,000 Term loans (2) 3.3 % - 6.6 % 829,750 964,750 Senior unsecured notes due 2031 2.6 % 350,000 350,000 Senior unsecured notes due 2034 5.8 % 350,000 — Secured loan facilities 3.4 % - 3.5 % 395,000 395,000 Mortgages 3.5 % - 6.4 % 93,865 95,677 Finance lease liability 171 308 Discount on notes payable ( 14,424 ) ( 6,302 ) Assumed market debt adjustments, net ( 396 ) ( 858 ) Deferred financing expenses, net ( 8,483 ) ( 10,303 ) Total $ 2,042,483 $ 1,969,272 Weighted-average interest rate (3) 4.2 % 4.2 % (1) Interest rates are as of June 30, 2024. (2) Our term loans carry an interest rate of the Secured Overnight Financing Rate (“SOFR”) plus a spread. While most of the rates are fixed through the use of swaps, a portion of these loans are not subject to a swap, and thus are still indexed to SOFR. (3) Includes the effects of derivative financial instruments that were effective as of June 30, 2024 and December 31, 2023 (see Notes 7 and 12). PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 11 2024 Debt Activity— In May 2024, we completed the 2024 Bond Offering. The purchase price paid for the 5.750 % notes due 2034 was 98.576 % of the principal amount, resulting in gross proceeds of $ 345.0 million. The notes are fully and unconditionally guaranteed by us. In May 2024, we utilized proceeds from the 2024 Bond Offering to pay down $ 202 million of our revolving credit facility and $ 135 million of our $ 240 million term loan that is set to mature in November 2025. Debt Allocation — The allocation of total debt between fixed-rate and variable-rate as well as between secured and unsecured, excluding market debt adjustments, discount on senior notes, and deferred financing expenses, net, and including the effects of derivative financial instruments as of June 30, 2024 and December 31, 2023 is summarized below (in thousands): June 30, 2024 December 31, 2023 As to interest rate (1) : Fixed-rate debt $ 1,889,036 $ 1,540,985 Variable-rate debt 176,750 445,750 Total $ 2,065,786 $ 1,986,735 As to collateralization: Unsecured debt $ 1,576,750 $ 1,495,750 Secured debt 489,036 490,985 Total $ 2,065,786 $ 1,986,735 (1) Fixed-rate debt includes, and variable-rate debt excludes, the portion of such debt that has been hedged by interest rate derivatives. As of June 30, 2024, $ 700 million in variable-rate debt is hedged to a fixed rate for a weighted-average period of 1 year (see Notes 7 and 12). 7. DERIVATIVES AND HEDGING ACTIVITIES Risk Management Objective of Using Derivatives —We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposure to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of our debt funding, and through the use of derivative financial instruments. Specifically, we enter into interest rate swaps to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our investments and borrowings. Cash Flow Hedges of Interest Rate Risk —Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of derivatives designated, and that qualify, as cash flow hedges are recorded in AOCI and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the six months ended June 30, 2024 and 2023, such derivatives were used to hedge the variable cash flows associated with certain variable-rate debt. Amounts reported in AOCI related to these derivatives will be reclassified to Interest Expense, Net as interest payments are made on the variable-rate debt. During the next twelve months, we estimate that an additional $ 9.8 million will be reclassified from AOCI as a decrease to Interest Expense, Net. In January 2024, we entered into an interest rate swap which has a notional amount of $ 150 million and swaps SOFR for a fixed rate of approximately 3.45 % effective September 2024 and maturing December 2025. The following is a summary of our interest rate swaps that were designated as cash flow hedges of interest rate risk as of June 30, 2024 and December 31, 2023 (dollars in thousands): June 30, 2024 December 31, 2023 Count 5 4 Notional amount (1) $ 700,000 $ 700,000 Fixed SOFR 2.1 % - 3.4 % 2.1 % - 3.4 % Maturity date 2024 - 2026 2024 - 2026 Weighted-average term (in years) 1.1 1.5 (1) Notional amount excludes interest rate swaps that were not effective as of June 30, 2024 and December 31, 2023. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 12 The table below details the nature of the gain and loss recognized on interest rate derivatives designated as cash flow hedges in the consolidated statements of operations (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Amount of gain recognized in Other Comprehensive Income $ 2,524 $ 12,062 $ 9,978 $ 10,110 Amount of gain reclassified from AOCI into Interest Expense, Net ( 4,520 ) ( 5,500 ) ( 9,069 ) ( 10,047 ) Credit-risk-related Contingent Features —We have agreements with our derivative counterparties that contain provisions where, if we default, or are capable of being declared in default, on any of our indebtedness, we could also be declared to be in default on our derivative obligations. As of June 30, 2024, there were no derivatives with a fair value in a net liability position, which would include accrued interest but exclude any adjustment for nonperformance risk related to these agreements. 8. COMMITMENTS AND CONTINGENCIES Litigation —We are involved in various claims and litigation matters arising in the ordinary course of business, some of which involve claims for damages. Many of these matters are covered by insurance, although they may nevertheless be subject to deductibles or retentions. Although the ultimate liability for these matters cannot be determined, based upon information currently available, we believe the resolution of such claims and litigation will not have a material adverse effect on our consolidated financial statements. Environmental Matters —In connection with the ownership and operation of real estate, we may potentially be liable for costs and damages related to environmental matters. In addition, we may own or acquire certain properties that are subject to environmental remediation. Depending on the nature of the environmental matter, the seller of the property, a tenant of the property, and/or another third party may be responsible for environmental remediation costs related to a property. Additionally, in connection with the purchase of certain properties, the respective sellers and/or tenants may agree to indemnify us against future remediation costs. We also carry environmental liability insurance on our properties that provides limited coverage for any remediation liability and/or pollution liability for third-party bodily injury and/or property damage claims for which we may be liable. We are not currently aware of any environmental matters that we believe are reasonably likely to have a material adverse effect on our consolidated financial statements. Captive Insurance —Our captive insurance company, Silver Rock Insurance, Inc. (“Silver Rock”), provides general liability insurance, wind, reinsurance, and other coverage to us and our GRP I joint venture. We capitalize Silver Rock in accordance with applicable regulatory requirements. Silver Rock establishes annual premiums based on the past loss experience of the insured properties. An independent third party was engaged to perform an actuarial estimate of projected future claims, related deductibles, and projected future expenses necessary to fund associated risk management programs. Premiums paid to Silver Rock may be adjusted based on this estimate, and such premiums may be reimbursed by tenants pursuant to specific lease terms. As of June 30, 2024, we had four letters of credit outstanding totaling approximately $ 21.4 million to provide security for our obligations under Silver Rock’s insurance and reinsurance contracts. 9. EQUITY General —The holders of common stock are entitled to one vote per share on all matters voted on by stockholders, including one vote per nominee in the election of our Board of Directors (the “Board”). Our charter does not provide for cumulative voting in the election of directors. At-the-Market Offering (“ATM”) —In February 2022, we and the Operating Partnership entered into a sales agreement relating to the potential sale of shares of common stock pursuant to a continuous offering program. In accordance with the terms of the sales agreement, we could offer and sell shares of our common stock having an aggregate offering price of up to $ 250 million from time to time through our sales agents, or, if applicable, as forward sellers. During the three months ended June 30, 2024, no shares of our common stock were issued under this ATM program. During the six months ended June 30, 2024, we issued approximately 46,000 shares of our common stock at a gross weighted average price of $ 37.05 per share under this ATM program for net proceeds of $ 1.7 million, after approximately $ 17,000 in commissions. During the three and six months ended June 30, 2023, no shares of our common stock were issued under this ATM program. In February 2024, we and the Operating Partnership entered into a new sales agreement relating to the potential sale of shares of common stock pursuant to a continuous offering program, which replaced the previous agreement. In accordance with the terms of the sales agreement, we may offer and sell shares of our common stock having an aggregate offering price of up to $ 250 million from time to time through our sales agents, or, if applicable, as forward sellers. During the three and six months ended June 30, 2024, we issued no shares of our common stock under this ATM program. As of June 30, 2024, approximately $ 250 million of common stock remained available for issuance under the current ATM program. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 13 Distributions —In 2024, we declared and paid monthly distributions of $ 0.0975 per common share and Operating Partnership unit (“OP unit”), or $ 1.17 annualized, for each month beginning January 2024 through June 2024. Distributions paid to stockholders and OP unit holders of record subsequent to June 30, 2024 were as follows (dollars in thousands, excluding per share amounts): Month Date of Record Date Distribution Paid Monthly Distribution Rate Cash Distribution June 6/17/2024 7/2/2024 $ 0.0975 $ 13,237 Convertible Noncontrolling Interests —As of June 30, 2024 and December 31, 2023, we had approximately 13.7 million and 13.8 million outstanding non-voting OP units, respectively. Additionally, certain of our outstanding restricted share and performance share awards will result in the issuance of OP units upon vesting in future periods. Under the terms of the Fourth Amended and Restated Agreement of Limited Partnership, OP unit holders may elect to cause the Operating Partnership to redeem their OP units. The Operating Partnership controls the form of the redemption, and may elect to redeem OP units for shares of our common stock, provided that the OP units have been outstanding for at least one year, or for cash. As the form of redemption for OP units is within our control, the OP units outstanding as of June 30, 2024 and December 31, 2023 are classified as Noncontrolling Interests within permanent equity on our consolidated balance sheets. The table below is a summary of our OP unit activity for the three and six months ended June 30, 2024 and 2023 (dollars and shares in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 OP units converted into shares of common stock (1) 60 164 252 164 Distributions declared on OP units (2) $ 4,212 $ 4,107 $ 8,355 $ 8,180 (1) OP units convert into shares of our common stock at a 1 :1 ratio. (2) Distributions declared on OP units are included in Distributions to Noncontrolling Interests on the consolidated statements of equity. Share Repurchase Program —In August 2022, our Board approved a new share repurchase program of up to $ 250 million of common stock. The program may be suspended or discontinued at any time, and does not obligate us to repurchase any dollar amount or particular number of shares. No share repurchases have been made to date under this program. 10. EARNINGS PER SHARE Basic earnings per share (“EPS”) is computed by dividing Net Income Attributable to Stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution that could occur from share equivalent activity. The following table provides a reconciliation of the numerator and denominator of the earnings per share calculations (in thousands, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Numerator: Net income attributable to stockholders - basic $ 15,271 $ 14,451 $ 32,941 $ 31,070 Net income attributable to convertible OP units (1) 1,715 1,758 3,671 3,775 Net income - diluted $ 16,986 $ 16,209 $ 36,612 $ 34,845 Denominator: Weighted-average shares - basic 122,391 117,304 122,306 117,264 OP units (1) 13,676 14,238 13,714 14,236 Dilutive restricted stock awards 372 345 436 504 Adjusted weighted-average shares - diluted 136,439 131,887 136,456 132,004 Earnings per common share: Basic and diluted income per share $ 0.12 $ 0.12 $ 0.27 $ 0.26 (1) OP units include units that are convertible into common stock or cash, at the Operating Partnership’s option. The Operating Partnership income or loss attributable to these OP units, which is included as a component of Net Income Attributable to Noncontrolling Interests on the consolidated statements of operations, has been added back in the numerator as these OP units were included in the denominator for all periods presented. OP units are allocated income on a consistent basis with the common stockholder and therefore have no dilutive impact to earnings per share of common stock. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 14 11. RELATED PARTY TRANSACTIONS Revenue —We have entered into agreements with the Managed Funds related to certain advisory, management, and administrative services we provide to their real estate assets in exchange for fees and reimbursement of certain expenses. Summarized below are amounts included in Fees and Management Income. The revenue includes the fees and reimbursements earned by us from the Managed Funds and other revenues that are not in the scope of ASC Topic 606, Revenue from Contracts with Customers, but that are included in this table for the purpose of disclosing all related party revenues (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Recurring fees (1) $ 983 $ 974 $ 1,998 $ 1,986 Realized performance income (2) — — — 75 Transactional revenue and reimbursements (3) 726 724 1,300 1,266 Insurance premiums (4) 813 848 1,789 1,697 Total fees and management income $ 2,522 $ 2,546 $ 5,087 $ 5,024 (1) Recurring fees include asset management fees and property management fees. (2) Realized performance income includes fees received related to the achievement of certain performance targets in our NRP joint venture. (3) Transactional revenue includes items such as leasing commissions and construction management fees. (4) Insurance premium income includes amounts for reinsurance from third parties not affiliated with us. Tax Protection Agreement —Through our Operating Partnership, we are currently party to a tax protection agreement (the “2017 TPA”) with certain partners that contributed property to our Operating Partnership on October 4, 2017, among them certain of our executive officers, including Jeffrey S. Edison, our Chairman and Chief Executive Officer, under which the Operating Partnership agreed to indemnify such partners for tax liabilities that could accrue to them personally related to our potential disposition of certain properties within our portfolio. The 2017 TPA will expire on October 4, 2027. On July 19, 2021, we entered into an additional tax protection agreement (the “2021 TPA”) with certain of our executive officers, including Mr. Edison. The 2021 TPA carries a term of four years and will become effective upon the expiration of the 2017 TPA. As of June 30, 2024, the potential “make-whole amount” on the estimated aggregate amount of built-in gain subject to protection under the agreements is approximately $ 122.2 million. The protection provided under the terms of the 2021 TPA will expire in 2031. We have not recorded any liability related to the 2017 TPA or the 2021 TPA on our consolidated balance sheets for any periods presented, nor recognized any expense since the inception of the 2017 TPA, owing to the fact that any potential liability under the agreements is controlled by us and we believe we will either (i) continue to own and operate the protected properties or (ii) be able to successfully complete tax-deferred exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (unless there is a change in applicable law) or complete other tax-efficient transactions to avoid any liability under the agreements. Other Related Party Matters — As of June 30, 2024, we were the limited guarantor of a $ 175 million mortgage loan secured by GRP I properties. Our guaranty for the GRP I debt is limited to being the non-recourse carveout guarantor and the environmental indemnitor. Further, we are also party to an agreement with GRP I in which any potential liability under such guarantee will be apportioned between us and GRP I based on our respective ownership percentages in the joint venture. We have no liability recorded on our consolidated balance sheets for the guaranty as of June 30, 2024 and December 31, 2023. 12. FAIR VALUE MEASUREMENTS The following describes the methods we use to estimate the fair value of our financial and nonfinancial assets and liabilities: Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, and Accounts Payable —We consider the carrying values of these financial instruments to approximate fair value because of the short period of time between origination of the instruments and their expected realization. Real Estate Investments —The purchase prices of the investment properties, including related lease intangible assets and liabilities, are allocated at estimated fair value based on Level 3 inputs, such as discount rates, capitalization rates, comparable sales, replacement costs, income and expense growth rates, and current market rents and allowances as determined by management. Debt Obligations —We estimate the fair value of our revolving credit facility, term loans, secured portfolio of loans, and mortgages by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by our lenders using Level 3 inputs. The discount rates used approximate current lending rates for loans or groups of loans with similar maturities and credit quality, assuming the debt is outstanding through maturity and considering the debt’s collateral (if applicable). We have utilized market information, as available, or present value techniques to estimate the amounts required to be disclosed. We estimate the fair value of our senior unsecured notes by using quoted prices in active markets, which are considered Level 1 inputs. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 15 The following is a summary of borrowings as of June 30, 2024 and December 31, 2023 (in thousands): June 30, 2024 December 31, 2023 Recorded Principal Balance (1) Fair Value Recorded Principal Balance (1) Fair Value Revolving credit facility $ 47,000 $ 47,202 $ 181,000 $ 181,714 Term loans 823,021 835,229 956,132 970,238 Senior unsecured notes due 2031 344,055 286,087 343,698 284,865 Senior unsecured notes due 2034 341,521 348,537 — — Secured portfolio loan facilities 392,815 358,775 392,575 351,339 Mortgages (2) 94,071 92,907 95,867 94,966 Total $ 2,042,483 $ 1,968,737 $ 1,969,272 $ 1,883,122 (1) As of June 30, 2024 and December 31, 2023, respectively, recorded principal balances include: (i) net deferred financing fees of $ 8.5 million and $ 10.3 million; (ii) assumed market debt adjustments of $ 0.4 million and $ 0.9 million; and (iii) notes payable discounts of $ 14.4 million and $ 6.3 million. (2) Our finance lease liability is included in the mortgages line item, as presented . Recurring and Nonrecurring Fair Value Measurements —Our marketable securities and interest rate swaps are measured and recognized at fair value on a recurring basis, while certain real estate assets and liabilities are measured and recognized at fair value as needed. Fair value measurements that occurred as of and during the six months ended June 30, 2024 and the year ended December 31, 2023 were as follows (in thousands): June 30, 2024 December 31, 2023 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Recurring Marketable securities (1) $ 8,847 $ — $ — $ 8,566 $ — $ — Derivative assets (1)(2) — 12,686 — — 12,669 — (1) We record marketable securities and derivative assets in Other Assets, Net on our consolidated balance sheets. (2) The fair values of the derivative assets exclude associated accrued interest receivable of $ 1.5 million and $ 1.7 million as of June 30, 2024 and December 31, 2023, respectively. Marketable Securities— We estimate the fair value of marketable securities using Level 1 inputs. We utilize unadjusted quoted prices for identical assets in active markets that we have the ability to access. Derivative Instruments— As of June 30, 2024 and December 31, 2023, we had interest rate swaps that fixed SOFR on portions of our unsecured term loan facilities. All interest rate swap agreements are measured at fair value on a recurring basis. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of ASC Topic 820, Fair Value Measurement , we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Although we determined that the significant inputs used to value our derivatives fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparties. However, as of June 30, 2024 and December 31, 2023, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. Real Estate Asset Impairment —Our real estate assets are measured and recognized at fair value, less costs to sell for held-for-sale properties, on a nonrecurring basis dependent upon when we determine an impairment has occurred. There were no impairment charges recorded during the three and six months ended June 30, 2024 and June 30, 2023. On a quarterly basis, we employ a multi-step approach to assess our real estate assets for possible impairment and record any impairment charges identified. The first step is the identification of potential triggering events, such as significant decreases in occupancy or the presence of large dark or vacant spaces. If we observe any of these indicators for a shopping center, we then perform an additional screen test consisting of a years-to-recover analysis to determine if we will recover the net book value of the property over its remaining economic life based upon net operating income (“NOI”) as forecasted for the current PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 16 year. In the event that the results of this first step indicate a triggering event for a center, we proceed to the second step, utilizing an undiscounted cash flow model for the center to identify potential impairment. If the undiscounted cash flows are less than the net book value of the center as of the balance sheet date, we record an impairment charge based on the fair value determined in the third step. In performing the third step, we utilize market data such as capitalization rates and sales price per square foot on comparable recent real estate transactions to estimate the fair value of the real estate assets. We also utilize expected net sales proceeds to estimate the fair value of any centers that are actively being marketed for sale. In addition to these procedures, we also review undeveloped or unimproved land parcels that we own for evidence of impairment and record any impairment charges as necessary. Primary impairment triggers for these land parcels are changes to our plans or intentions with regards to such properties, or planned dispositions at prices that are less than the current carrying values. 13. SUBSEQUENT EVENTS In preparing the condensed and unaudited consolidated financial statements, we have evaluated subsequent events through the date of filing of this report on Form 10-Q for recognition and/or disclosure purposes. Based on this evaluation, we have determined that there were no events that have occurred that require recognition or disclosure, other than certain events and transactions that have been disclosed elsewhere in these consolidated financial statements. PHILLIPS EDISON & COMPANY JUNE 30, 2024 FORM 10-Q 17