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 2023 Annual Report on Form 10-K, filed with the SEC on February 12, 2024. 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 2023 Annual Report on Form 10-K, filed with the SEC on February 12, 2024, 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 SEPTEMBER 30, 2024 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 SEPTEMBER 30, 2024 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, 2023). • 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 September 30, 2024, we owned equity interests in 311 shopping centers, including 290 wholly-owned shopping centers and 21 shopping centers owned through two unconsolidated joint ventures, which comprised approximately 35.2 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. 2024 SENIOR NOTE ISSUANCES —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. In September 2024, we issued $350 million of 4.950% senior notes due 2035 at an issue price of 98.458% in an underwritten offering. The 2024 senior note issuances are fully and unconditionally guaranteed by us. PORTFOLIO AND LEASING STATISTICS —Below are statistical highlights of our wholly-owned portfolio as of September 30, 2024 and 2023 (dollars and square feet in thousands): September 30, 2024 September 30, 2023 Number of properties 290 275 Number of states 31 31 Total square feet 32,902 31,425 ABR $ 497,082 $ 453,028 % ABR from omni-channel grocery-anchored shopping centers 96.6 % 97.4 % Leased occupancy %: Total portfolio spaces 97.8 % 97.8 % Anchor spaces 99.4 % 99.3 % Inline spaces 95.0 % 94.9 % Average remaining lease term (in years) (1) 4.4 4.4 (1) The average remaining lease term in years excludes future options to extend the term of the lease. PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 FORM 10-Q 20 The following table details information for our unconsolidated joint ventures as of September 30, 2024, which is the basis for determining the prorated information included in the subsequent tables (dollars and square feet in thousands): September 30, 2024 Joint Venture Ownership Percentage Number of Properties ABR GLA GRP I 14% 20 $ 32,743 2,213 NRV 20% 1 $ 2,795 121 LEASE EXPIRATIONS —The following chart shows the aggregate scheduled lease expirations for our over 3,000 Neighbors, excluding our Neighbors who are occupying space on a temporary basis, after September 30, 2024 for each of the next ten years and thereafter for our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint ventures: 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 SEPTEMBER 30, 2024 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 ventures, by Neighbor type as of September 30, 2024: The following charts present the composition of our portfolio by Neighbor industry as of September 30, 2024: PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 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 70% of our ABR, including the pro rata portion attributable to properties owned through our unconsolidated joint ventures, is generated from Neighbors providing necessity-based goods and services. TOP 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 ventures, as of September 30, 2024 (dollars and square feet in thousands): Neighbor (1) ABR % of ABR Leased Square Feet % of Leased Square Feet Number of Locations (2) Kroger $ 29,022 5.8 % 3,546 10.9 % 64 Publix 26,622 5.3 % 2,520 7.8 % 61 Albertsons 19,701 3.9 % 1,781 5.5 % 32 Ahold Delhaize 17,905 3.6 % 1,249 3.8 % 23 Walmart 8,823 1.8 % 1,770 5.4 % 13 Giant Eagle 7,390 1.5 % 759 2.3 % 10 Sprouts Farmers Market 6,732 1.3 % 421 1.3 % 14 TJX Companies 6,298 1.2 % 516 1.6 % 18 Raley's 4,599 0.8 % 288 0.9 % 5 Dollar Tree 4,545 0.8 % 424 1.3 % 42 Starbucks Corporation 3,528 0.7 % 73 0.2 % 37 Big Y 3,487 0.7 % 167 0.5 % 3 UNFI (SuperValu) 3,476 0.7 % 336 1.0 % 5 Trader Joe's 2,798 0.6 % 122 0.4 % 9 Subway Group 2,659 0.5 % 92 0.3 % 62 Pet Supplies Plus 2,564 0.5 % 161 0.5 % 21 United Parcel Service 2,496 0.5 % 87 0.3 % 69 H-E-B 2,492 0.5 % 164 0.5 % 2 H&R Block, Inc. 2,487 0.5 % 96 0.3 % 57 Lowe's 2,469 0.5 % 369 1.1 % 4 Total $ 160,093 31.7 % 14,941 45.9 % 551 (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 SEPTEMBER 30, 2024 FORM 10-Q 23 SUMMARY OF OPERATING ACTIVITIES FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 Three Months Ended September 30, Favorable (Unfavorable) Change (Dollars in thousands) 2024 2023 $ % Revenues: Rental income $ 161,780 $ 149,566 $ 12,214 8.2 % Fees and management income 2,856 2,168 688 31.7 % Other property income 891 740 151 20.4 % Total revenues 165,527 152,474 13,053 8.6 % Operating Expenses: Property operating 27,528 24,274 (3,254) (13.4) % Real estate taxes 19,569 19,028 (541) (2.8) % General and administrative 11,114 10,385 (729) (7.0) % Depreciation and amortization 68,328 58,706 (9,622) (16.4) % Total operating expenses 126,539 112,393 (14,146) (12.6) % Other: Interest expense, net (24,998) (21,522) (3,476) (16.2) % (Loss) gain on disposal of property, net (19) 53 (72) (135.8) % Other expense, net (1,068) (4,883) 3,815 78.1 % Net income 12,903 13,729 (826) (6.0) % Net income attributable to noncontrolling interests (1,301) (1,484) 183 12.3 % Net income attributable to stockholders $ 11,602 $ 12,245 $ (643) (5.3) % 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 270 properties that were owned and operational prior to January 1, 2023. 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, 2022, which includes one property disposed of and 19 properties acquired. Below are explanations of the significant fluctuations in the results of operations for the three months ended September 30, 2024 and 2023: Rental Income increased $12.2 million primarily as follows: • $3.4 million increase primarily related to our same-center portfolio as follows: ▪ $4.8 million increase primarily due to a $0.47 increase in average minimum rent PSF; partially offset by ▪ $0.9 million decrease due to the impact of straight-line rent adjustments. • $8.8 million increase primarily related to our acquisition activity, net of dispositions. Property Operating Expenses increased $3.3 million primarily as follows: • $2.1 million increase from our same-center portfolio and corporate operating activities primarily due to an increase in common area maintenance spending and higher compensation and insurance costs; and • $1.2 million increase primarily due to our acquisition activity, net of dispositions. PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 FORM 10-Q 24 Interest Expense, Net: • The $3.5 million increase was primarily due to increased debt outstanding and higher interest rates in 2024. Interest Expense, Net was comprised of the following (dollars in thousands): Three Months Ended September 30, 2024 2023 Interest on unsecured term loans and senior notes, net $ 16,008 $ 12,216 Interest on secured debt 4,252 4,536 Interest on revolving credit facility, net 1,255 2,212 Non-cash amortization and other 2,252 2,183 Loss on extinguishment or modification of debt and other, net (1) 1,231 375 Interest expense, net $ 24,998 $ 21,522 Weighted-average interest rate as of end of period 4.4 % 4.1 % Weighted-average term (in years) as of end of period 5.9 4.2 (1) Includes defeasance fees related to early repayments of debt Other Expense, Net: • Other Expense, Net was comprised of the following (in thousands): Three Months Ended September 30, 2024 2023 Transaction and acquisition expenses $ (1,181) $ (580) Impairment of investment in third parties — (3,000) Federal, state, and local income tax expense (446) (120) Equity in net (loss) income of unconsolidated investments (10) 115 Other income (loss) 569 (1,298) Other expense, net $ (1,068) $ (4,883) PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 FORM 10-Q 25 SUMMARY OF OPERATING ACTIVITIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 Nine Months Ended September 30, Favorable (Unfavorable) Change (Dollars in thousands) 2024 2023 $ % Revenues: Rental income $ 478,134 $ 446,274 $ 31,860 7.1 % Fees and management income 7,943 7,192 751 10.4 % Other property income 2,267 2,209 58 2.6 % Total revenues 488,344 455,675 32,669 7.2 % Operating Expenses: Property operating 81,461 74,010 (7,451) (10.1) % Real estate taxes 57,897 55,481 (2,416) (4.4) % General and administrative 34,060 33,604 (456) (1.4) % Depreciation and amortization 189,706 176,871 (12,835) (7.3) % Total operating expenses 363,124 339,966 (23,158) (6.8) % Other: Interest expense, net (71,954) (61,663) (10,291) (16.7) % (Loss) gain on disposal of property, net (34) 1,070 (1,104) (103.2) % Other expense, net (3,717) (6,542) 2,825 43.2 % Net income 49,515 48,574 941 1.9 % Net income attributable to noncontrolling interests (4,972) (5,259) 287 5.5 % Net income attributable to stockholders $ 44,543 $ 43,315 $ 1,228 2.8 % 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 September 30, 2024 and 2023” above. Below are explanations of the significant fluctuations in the results of operations for the nine months ended September 30, 2024 and 2023: Rental Income increased $31.9 million as follows: • $10.0 million increase related to our same-center portfolio primarily as follows: ▪ $14.1 million increase primarily due to a $0.47 increase in average minimum rent PSF and a 0.2% improvement in average occupancy; partially offset by ▪ $2.3 million decrease due to the impact of straight-line rent adjustments; and ▪ $1.8 million decrease primarily due to an increase in amounts reserved for Neighbors identified as credit risks. • $21.9 million increase primarily related to our acquisition activity, net of dispositions. Property Operating Expenses increased $7.5 million primarily as follows: • $4.5 million increase from our same-center portfolio and corporate operating activities primarily due to higher compensation costs, an increase in common area maintenance spending, and higher insurance costs; and • $2.9 million increase primarily due to our acquisition activity, net of dispositions. Real Estate Tax Expenses: • The $2.4 million increase in real estate tax expenses was primarily due to our acquisition activity, net of dispositions. PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 FORM 10-Q 26 Interest Expense, Net: • The $10.3 million increase was primarily due to increased interest rates and debt outstanding in 2024. Interest Expense, Net was comprised of the following (dollars in thousands): Nine Months Ended September 30, 2024 2023 Interest on unsecured term loans and senior notes, net $ 44,800 $ 35,046 Interest on secured debt 13,252 14,090 Interest on revolving credit facility, net 6,302 6,536 Non-cash amortization and other 6,370 5,625 Loss on extinguishment or modification of debt and other, net (1) 1,230 366 Interest expense, net $ 71,954 $ 61,663 Weighted-average interest rate as of end of period 4.4 % 4.1 % Weighted-average term (in years) as of end of period 5.9 4.2 (1) Includes defeasance fees related to early repayments of debt Other Expense, Net: • Other Expense, Net was comprised of the following (in thousands): Nine Months Ended September 30, 2024 2023 Transaction and acquisition expenses $ (3,501) $ (3,179) Impairment of investment in third parties — (3,000) Federal, state, and local income tax expense (1,047) (357) Equity in net (loss) income of unconsolidated investments (7) 310 Other income (loss) 838 (316) Other expense, net $ (3,717) $ (6,542) PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 FORM 10-Q 27 LEASING ACTIVITY —Below is a summary of leasing activity for our wholly-owned properties for the three months ended September 30, 2024 and 2023 (1) : Total Deals Inline Deals 2024 2023 2024 2023 New leases: Number of leases 78 82 70 78 Square footage (in thousands) 334 279 157 166 ABR (in thousands) $ 7,437 $ 5,676 $ 4,251 $ 4,473 ABR PSF $ 22.27 $ 20.36 $ 27.05 $ 26.86 Cost PSF of executing new leases $ 34.79 $ 29.01 $ 41.52 $ 36.92 Number of comparable leases 32 43 28 42 Comparable rent spread 55.0 % 26.3 % 28.3 % 25.3 % Weighted-average lease term (in years) 10.4 10.3 7.4 7.1 Renewals and options: Number of leases 190 149 168 138 Square footage (in thousands) 1,241 660 390 328 ABR (in thousands) $ 18,219 $ 12,657 $ 10,514 $ 8,688 ABR PSF (all leases) $ 14.68 $ 19.17 $ 26.93 $ 26.47 ABR PSF prior to renewals (all leases) $ 13.28 $ 17.21 $ 23.21 $ 22.84 Percentage increase in ABR PSF (comparable leases only) 10.5 % 11.4 % 16.0 % 15.9 % Cost PSF of executing renewals and options $ 0.70 $ 0.41 $ 0.68 $ 0.82 Number of comparable leases (2) 136 109 134 107 Comparable rent spread (2) 19.8 % 16.9 % 19.6 % 17.2 % Weighted-average lease term (in years) 5.2 4.6 4.6 4.3 Portfolio retention rate 91.9 % 93.1 % 81.2 % 87.5 % (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 SEPTEMBER 30, 2024 FORM 10-Q 28 Below is a summary of leasing activity for our wholly-owned properties for the nine months ended September 30, 2024 and 2023 (1) : Total Deals Inline Deals 2024 2023 2024 2023 New leases: Number of leases 255 274 233 264 Square footage (in thousands) 1,001 829 539 590 ABR (in thousands) $ 22,629 $ 17,534 $ 15,481 $ 14,822 ABR PSF $ 22.60 $ 21.16 $ 28.72 $ 25.11 Cost PSF of executing new leases $ 33.89 $ 30.48 $ 43.02 $ 35.98 Number of comparable leases 116 106 105 104 Comparable rent spread 37.7 % 26.2 % 32.9 % 25.8 % Weighted-average lease term (in years) 9.3 8.8 8.1 7.1 Renewals and options: Number of leases 535 505 474 462 Square footage (in thousands) 3,580 2,744 1,026 1,035 ABR (in thousands) $ 54,308 $ 45,019 $ 28,584 $ 26,819 ABR PSF (all leases) $ 15.17 $ 16.41 $ 27.86 $ 25.90 ABR PSF prior to renewals (all leases) $ 13.71 $ 14.83 $ 23.92 $ 22.34 Percentage increase in ABR PSF (comparable leases only) 11.1 % 10.7 % 16.4 % 16.0 % Cost PSF of executing renewals and options $ 0.38 $ 0.46 $ 0.71 $ 1.09 Number of comparable leases (2) 400 378 387 370 Comparable rent spread (2) 19.0 % 17.0 % 19.5 % 17.8 % Weighted-average lease term (in years) 5.3 4.9 4.6 4.3 Portfolio retention rate 89.3 % 94.1 % 83.2 % 85.5 % (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 nine months ended September 30, 2024 and 2023, Same-Center NOI represents the NOI for the 270 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 SEPTEMBER 30, 2024 FORM 10-Q 29 The table below presents our Same-Center NOI (dollars in thousands): Three Months Ended September 30, Favorable (Unfavorable) Nine Months Ended September 30, Favorable (Unfavorable) 2024 2023 $ Change % Change 2024 2023 $ Change % Change Revenues: Rental income (1) $ 113,290 $ 108,458 $ 4,832 $ 338,207 $ 324,123 $ 14,084 Tenant recovery income 35,685 35,695 (10) 106,167 106,377 (210) Reserves for uncollectibility (2) (1,459) (893) (566) (3,860) (2,169) (1,691) Other property income 734 734 — 2,031 2,178 (147) Total revenues 148,250 143,994 4,256 3.0 % 442,545 430,509 12,036 2.8 % Operating expenses: Property operating expenses 22,394 20,674 (1,720) 68,168 64,237 (3,931) Real estate taxes 18,132 18,930 798 54,346 55,355 1,009 Total operating expenses 40,526 39,604 (922) (2.3) % 122,514 119,592 (2,922) (2.4) % Total Same-Center NOI $ 107,724 $ 104,390 $ 3,334 3.2 % $ 320,031 $ 310,917 $ 9,114 2.9 % (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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 12,903 $ 13,729 $ 49,515 $ 48,574 Adjusted to exclude: Fees and management income (2,856) (2,168) (7,943) (7,192) Straight-line rental income (1) (2,148) (2,265) (6,585) (8,129) Net amortization of above- and below-market leases (1,743) (1,294) (4,732) (3,784) Lease buyout income (393) (587) (844) (1,016) General and administrative expenses 11,114 10,385 34,060 33,604 Depreciation and amortization 68,328 58,706 189,706 176,871 Interest expense, net 24,998 21,522 71,954 61,663 Loss (gain) on disposal of property, net 19 (53) 34 (1,070) Other expense, net 1,068 4,883 3,717 6,542 Property operating expenses related to fees and management income 983 649 2,328 1,675 NOI for real estate investments 112,273 103,507 331,210 307,738 Less: Non-same-center NOI (2) (4,549) 883 (11,179) 3,179 Total Same-Center NOI $ 107,724 $ 104,390 $ 320,031 $ 310,917 Period-end Same-Center Leased Occupancy % 97.9 % 97.8 % (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. PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 FORM 10-Q 30 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. The following table presents our calculation of Nareit FFO and Core FFO (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Calculation of Nareit FFO Attributable to Stockholders and OP Unit Holders Net income $ 12,903 $ 13,729 $ 49,515 $ 48,574 Adjustments: Depreciation and amortization of real estate assets 67,887 58,144 188,374 175,212 Loss (gain) on disposal of property, net 19 (53) 34 (1,070) Adjustments related to unconsolidated joint ventures 745 646 2,055 1,989 Nareit FFO attributable to stockholders and OP unit holders $ 81,554 $ 72,466 $ 239,978 $ 224,705 Calculation of Core FFO Attributable to Stockholders and OP Unit Holders Nareit FFO attributable to stockholders and OP unit holders $ 81,554 $ 72,466 $ 239,978 $ 224,705 Adjustments: Depreciation and amortization of corporate assets 441 562 1,332 1,659 Impairment of investment in third parties — 3,000 — 3,000 Transaction and acquisition expenses 1,181 580 3,501 3,179 Loss on extinguishment or modification of debt and other, net 1,231 375 1,230 366 Amortization of unconsolidated joint venture basis differences 3 4 8 12 Realized performance income (1) — — — (75) Core FFO attributable to stockholders and OP unit holders $ 84,410 $ 76,987 $ 246,049 $ 232,846 Nareit FFO/Core FFO Attributable to Stockholders and OP Unit Holders per diluted share Weighted-average shares of common stock outstanding - diluted 136,578 132,800 136,458 132,335 Nareit FFO attributable to stockholders and OP unit holders per share - diluted $ 0.60 $ 0.55 $ 1.76 $ 1.70 Core FFO attributable to stockholders and OP unit holders per share - diluted $ 0.62 $ 0.58 $ 1.80 $ 1.76 (1) Realized performance income includes fees received related to the achievement of certain performance targets in our NRP joint venture. PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 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 September 30, Nine Months Ended September 30, Year Ended December 31, 2024 2023 2024 2023 2023 Calculation of EBITDA re Net income $ 12,903 $ 13,729 $ 49,515 $ 48,574 $ 63,762 Adjustments: Depreciation and amortization 68,328 58,706 189,706 176,871 236,443 Interest expense, net 24,998 21,522 71,954 61,663 84,232 Loss (gain) on disposal of property, net 19 (53) 34 (1,070) (1,110) Federal, state, and local tax expense 446 120 1,047 357 438 Adjustments related to unconsolidated joint ventures 1,075 918 2,937 2,802 3,721 EBITDA re $ 107,769 $ 94,942 $ 315,193 $ 289,197 $ 387,486 Calculation of Adjusted EBITDA re EBITDA re $ 107,769 $ 94,942 $ 315,193 $ 289,197 $ 387,486 Adjustments: Impairment of investment in third parties — 3,000 — 3,000 3,000 Transaction and acquisition expenses 1,181 580 3,501 3,179 5,675 Amortization of unconsolidated joint venture basis differences 3 4 8 12 17 Realized performance income (1) — — — (75) (75) Adjusted EBITDA re $ 108,953 $ 98,526 $ 318,702 $ 295,313 $ 396,103 (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 equity 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 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 September 30, PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 FORM 10-Q 32 2024, no shares of our common stock were issued under this ATM program. During the nine months ended September 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 nine months ended September 30, 2023, we issued 2.0 million shares of our common stock under this ATM program for net proceeds of $70.1 million, after approximately $0.7 million in commissions. 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 nine months ended September 30, 2024, we issued no shares of our common stock under this ATM program. As of September 30, 2024, approximately $250 million of common stock remained available for issuance under the current ATM program. DEBT —The following table summarizes information about our debt as of September 30, 2024 and December 31, 2023 (dollars in thousands): September 30, 2024 December 31, 2023 Total debt obligations, gross $ 2,134,003 $ 1,986,735 Weighted-average interest rate 4.4 % 4.2 % Weighted-average term (in years) 5.9 3.9 Revolving credit facility capacity (1) $ 800,000 $ 800,000 Revolving credit facility availability (2) 742,904 606,550 (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. 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. In September 2024, we issued $350 million of 4.950% senior notes due 2035 at an issue price of 98.458% in an underwritten offering. The 2024 senior note issuances are fully and unconditionally guaranteed by us. Debt Obligation Guarantees —At September 30, 2024, the Operating Partnership had issued and outstanding its 2.625%, 4.950%, and 5.750% senior notes. The obligations of the Operating Partnership to pay principal, premiums, if any, and interest on the 2.625%, 4.950%, and 5.750% 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. PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 FORM 10-Q 33 FINANCIAL LEVERAGE RATIOS —We believe our net debt to Adjusted EBITDA re , net debt to total enterprise value, and debt covenant compliance as of September 30, 2024 allow us access to future borrowings as needed in the near term. The following table presents our calculation of net debt and total enterprise value, inclusive of our prorated portion of net debt and cash and cash equivalents owned through our unconsolidated joint ventures, as of September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 December 31, 2023 Net debt: Total debt, excluding discounts, market adjustments, and deferred financing expenses $ 2,162,993 $ 2,011,093 Less: Cash and cash equivalents 6,950 5,074 Total net debt $ 2,156,043 $ 2,006,019 Enterprise value: Net debt $ 2,156,043 $ 2,006,019 Total equity market capitalization (1)(2) 5,138,063 4,955,480 Total enterprise value $ 7,294,106 $ 6,961,499 (1) Total equity market capitalization is calculated as diluted shares multiplied by the closing market price per share, which includes 136.3 million and 135.8 million diluted shares as of September 30, 2024 and December 31, 2023, respectively, and the closing market price per share of $37.71 and $36.48 as of September 30, 2024 and December 31, 2023, respectively. (2) Fully diluted shares include common stock and OP units. The following table presents our calculation of net debt to Adjusted EBITDA re and net debt to total enterprise value as of September 30, 2024 and December 31, 2023 (dollars in thousands): September 30, 2024 December 31, 2023 Net debt to Adjusted EBITDA re - annualized : Net debt $ 2,156,043 $ 2,006,019 Adjusted EBITDA re - annualized (1) 419,492 396,103 Net debt to Adjusted EBITDA re - annualized 5.1x 5.1x Net debt to total enterprise value: Net debt $ 2,156,043 $ 2,006,019 Total enterprise value 7,294,106 6,961,499 Net debt to total enterprise value 29.6% 28.8% (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. PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 FORM 10-Q 34 During the nine months ended September 30, 2024 and 2023, we had gross capital spend of $55.6 million and $74.3 million, respectively. Below is a summary of our capital spending activity, excluding leasing commissions, on a cash basis (in thousands): Nine Months Ended September 30, 2024 2023 Capital expenditures for real estate: Capital improvements $ 11,833 $ 18,336 Tenant improvements 18,723 20,484 Redevelopment and development 18,182 29,276 Total capital expenditures for real estate 48,738 68,096 Corporate asset capital expenditures 690 817 Capitalized indirect costs (1) 3,052 3,078 Total capital spending activity (2) $ 52,480 $ 71,991 (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 of $3.2 million and $2.3 million for property damage claims for the nine months ended September 30, 2024 and 2023, respectively. We anticipate that obligations related to capital improvements, as well as redevelopment and development, in 2024 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 $45.6 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): Nine Months Ended September 30, 2024 2023 Number of properties acquired 8 5 Number of outparcels acquired (1)(2) 4 1 Contract price $ 203,402 $ 92,060 Total price of acquisitions (3) 205,002 83,073 (1) Outparcels acquired are adjacent to shopping centers that we own. (2) During the nine months ended September 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. REAL ESTATE DISPOSITION ACTIVITY —We sold no properties during the nine months ended September 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 nine months ended September 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 $1.1 million which was primarily due to land acquired from us by local authorities. DISTRIBUTIONS —For each month beginning January 2024 through August 2024, we declared and paid monthly distributions of $0.0975 per common share and OP unit. In September 2024, the Board authorized a 5.1% increase of our monthly distribution rate to $0.1025 per common share and OP unit and we declared a monthly distribution of $0.1025 per common share and OP unit for September 2024. 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. PHILLIPS EDISON & COMPANY SEPTEMBER 30, 2024 FORM 10-Q 35 CASH FLOW ACTIVITIES —As of September 30, 2024, we had cash and cash equivalents and restricted cash of $9.3 million, a net cash increase of $0.5 million during the nine months ended September 30, 2024. Below is a summary of our cash flow activity (dollars in thousands): Nine Months Ended September 30, 2024 2023 $ Change % Change Net cash provided by operating activities $ 250,707 $ 218,988 $ 31,719 14.5 % Net cash used in investing activities (259,621) (146,339) (113,282) (77.4) % Net cash provided by (used in) financing activities 9,369 (81,759) 91,128 111.5 % 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 nine months ended September 30, 2024 were positively impacted by a $9.1 million, or 2.9%, improvement in Same-Center NOI as compared to the same period in 2023. During the nine months ended September 30, 2024, we had a net cash inflow of $8.9 million from changes in working capital as compared to a net cash outlay of $7.0 million during the same period in 2023. This change was primarily driven by the timing of interest payments resulting from our 2024 senior note issuances. INVESTING ACTIVITIES —Our net cash used in investing activities was primarily impacted by the following: • Real estate acquisitions —During the nine months ended September 30, 2024, our acquisitions resulted in a total cash outlay of $205.0 million, as compared to a total cash outlay of $83.1 million during the same period in 2023. • Capital expenditures —We invest capital into leasing our properties and maintaining or improving the condition of our properties. During the nine months ended September 30, 2024, we paid $55.6 million for capital expenditures, a decrease of $18.7 million over the same period in 2023. FINANCING ACTIVITIES —Our net cash provided by (used in) financing activities was primarily impacted by the following: • Debt borrowings and payments —During the nine months ended September 30, 2024, we had $130.4 million in net borrowings primarily as a result of our May and September 2024 senior note issuances, payments on our term loans, and net repayments under our revolving credit facility. During the nine months ended September 30, 2023, we had $39.5 million in net repayment of debt primarily as a result of early repayments of mortgage loans. • Distributions to stockholders and OP unit holders —Cash used for distributions to common stockholders and OP unit holders increased $8.7 million for the nine months ended September 30, 2024 as compared to the same period in 2023, primarily due to an increase in shares of common stock outstanding as a result of issuances under the ATM program and our distribution rate increase. CRITICAL ACCOUNTING ESTIMATES “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” of our 2023 Annual Report on Form 10-K, filed with the SEC on February 12, 2024, 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 2024. 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 2023 Annual Report on Form 10-K filed with the SEC on February 12, 2024.