Item 1. Business
ITEM 1. BUSINESS
All references to “Notes” throughout this Annual Report on Form 10-K refer to the footnotes to the consolidated financial statements in “Part II, Item 8. Financial Statements and Supplementary Data”.
OVERVIEW —Phillips Edison & Company, Inc. (“we,” the “Company,” “PECO,” “our,” or “us”), a real estate investment trust (“REIT”) founded in 1991, is one of the nation’s largest owners and operators of omni-channel grocery-anchored shopping centers. Additionally, we operate a third-party investment management business providing property management and advisory services to four unconsolidated institutional joint ventures, in which we have partial ownership interests, and one private fund (collectively, the “Managed Funds”). The majority of our revenues are lease revenues derived from our real estate investments. Our portfolio primarily consists of neighborhood centers anchored by the #1 or #2 grocer tenants by sales within their respective formats by trade area. As of December 31, 2024, our portfolio was 97.7% leased. Our tenants, who we refer to as “Neighbors,” are a mix of national, regional, and local retailers that primarily provide necessity-based goods and services. We believe our locations are in fundamentally strong demographic markets throughout the United States. Our brick and mortar assets positively contribute to our Neighbors’ omni-channel strategies and act as the last mile delivery solution.
We were formed as a Maryland corporation in October 2009 and have elected to be taxed as a REIT for U.S. federal income tax purposes. 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.
As of December 31, 2024, we wholly-owned 294 shopping centers. Additionally, we owned (i) a 14% interest in Grocery Retail Partners I LLC (“GRP I”), a joint venture with The Northwestern Mutual Life Insurance Company (“Northwestern Mutual”), which owned 20 shopping centers, (ii) a 20% equity interest in Necessity Retail Venture LLC (“NRV”), a joint venture with an affiliate of Cohen & Steers Income Opportunities REIT, Inc. (“Cohen & Steers”), which owned one shopping center, (iii) a 31.25% interest in Neighborhood Grocery Catalyst Fund LLC (“NGCF”), a joint venture with certain investors, including LS BDC Holdings, LLC, a subsidiary of Lafayette Square USA, Inc. and Northwestern Mutual, which owned one property, and (iv) a 20% equity interest in Necessity Retail Partners (“NRP”), a joint venture with an affiliate of TPG Real Estate, which sold its final property in May 2022 and is set to expire in 2025. In total, our managed portfolio of wholly-owned shopping centers and those owned through our unconsolidated joint ventures comprised approximately 35.7 million square feet located in 31 states.
BUSINESS OBJECTIVES AND STRATEGIES —Our business objective is to own, operate, and manage well-occupied grocery-anchored shopping centers in order to deliver long-term growth and value creation to all stakeholders while acting as a responsible corporate citizen. We seek to achieve this objective by generating cash flows, income growth, and capital appreciation for our stockholders through our differentiated and focused strategy, responsible balance sheet management, and integrated operating platform. Our goal is to create great grocery-anchored shopping experiences and improve our communities, one center at a time.
Differentiated and Focused Strategy — We believe our differentiated strategy drives strong financial and operational performance and future growth, including showing resiliency during economic down cycles.
• Omni-Channel Grocery-Anchored Neighborhood Shopping Centers —We focus on investing in omni-channel shopping centers anchored by the #1 or #2 grocer by sales within their respective trade area. As of December 31, 2024, for our wholly-owned shopping centers, 84% of our annualized base rent (“ABR”) was generated from shopping centers anchored by such grocers. Grocery-anchored shopping centers generally have strong foot traffic leading to high demand for leasing Neighbor spaces, which enhances our ability to increase lease revenue. These centers provide an attractive last-mile solution to residents of our communities by providing “Buy Online, Pick-Up in Store”, curbside pick-up, and grocery delivery options. We target investments with attractive going-in yields and growth potential in markets with demographic profiles that support necessity-based retail concepts.
• Neighbor-Base —As of December 31, 2024, approximately 69% 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. We believe our focus on necessity-based goods and services retailers limits our exposure to distressed retailers and allows us to demonstrate resiliency during times of real estate and economic down cycles.
• Targeted Portfolio —We focus on owning centers in trade areas with favorable demographics that align with those of leading grocers. Further, we seek to invest in small format centers where leasing activity is concentrated in smaller tenant spaces and limits exposure to high-risk retailers. We believe that smaller centers provide higher growth potential because they enjoy a positive leasing dynamic as: (i) we believe retailer demand is strongest for inline space, which contains less than 10,000 square feet of gross leasable area (“GLA”); (ii) there is less exposure to big box retailers, which we believe have higher risk because they require larger capital expenditures and have fewer leasing opportunities; and (iii) smaller centers typically have lower capital expenditures. We intend to grow our portfolio through targeted acquisitions that align with our differentiated and focused strategy.
• Macroeconomic Trends —We continually monitor the macroeconomic environment to identify trends that are positive for the growth potential of our shopping centers. We believe recent trends such as: (i) population shifts to the Sun Belt and from urban to suburban communities in certain geographic locations; (ii) the continued presence of hybrid work initiatives; (iii) the importance of last mile delivery; (iv) low supply and lack of new construction coupled with high occupancy; and (v) continued consumer resilience will create additional leasing demand and growth opportunities for our shopping centers.
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Balance Sheet Management Positioned for External Growth — Our strategy is to grow our portfolio by pursuing acquisitions in a disciplined manner, while maintaining an attractive leverage profile and flexible balance sheet to preserve our investment grade rating. We believe this is a critical part of maintaining access to multiple forms of capital, including common stock, unsecured debt, bank debt, and mortgage debt, to maximize availability and minimize our overall cost of capital.
• Funding External Growth —We have identified a target market of approximately 5,800 centers across the United States and believe we have a long runway for external growth. We believe our investment grade balance sheet, our senior unsecured revolving credit facility, and our At-the-Market offering (“ATM”) program allow us to access debt and equity capital, further enhancing our financial flexibility and providing us with the financial capacity to pursue external growth initiatives in an accretive and prudently capitalized manner. Additionally, our investment management platform enables us to source and manage incremental sources of capital through unconsolidated joint ventures, which provide us incremental fee revenue opportunities.
• Debt Maturity Profile—We believe we have maintained an appropriately staggered debt maturity profile with no meaningful maturities in 2025, which will position us for long-term growth. Our outstanding debt obligations are composed primarily of (i) unsecured debt, including term loans, senior notes, and a revolving credit facility, and (ii) secured mortgage debt.
• Investment Grade Ratings —Our current investment grade ratings are Baa2 (Outlook: Stable) with Moody’s Investors Services and BBB (Outlook: Stable) with S&P Global Ratings.
• Revolving Credit Facility Availability —As of December 31, 2024, we had available liquidity of $738.9 million under our senior unsecured revolving credit facility. On January 9, 2025, we amended our senior unsecured revolving credit facility. The amendment increases the aggregate borrowing capacity of the facility to $1 billion and extends the maturity date to January 2029, with options to extend the maturity for two additional six-month periods.
Internal Growth Through Our Integrated Operating Platform — We believe our internally-staffed, vertically-integrated operating platform to lease and manage omni-channel grocery-anchored neighborhood shopping centers will continue to provide stability and generate growth in our existing portfolio, optimizing returns for our stockholders.
• Leasing —Our national footprint of experienced and Locally Smart ™ leasing professionals is dedicated to increasing net operating income (“NOI”) at our centers by: (i) maximizing rental rates while improving the credit profile of our rental revenue; (ii) attracting high-quality retailers while improving the merchandising mix; (iii) capitalizing on below-market rent opportunities by increasing rents as leases expire; (iv) executing leases with contractual rent increases; and (v) increasing occupancy.
• Property Management Services —We believe we add value by overseeing all aspects of operations at our properties. Our Locally Smart ™ property managers effectively manage costs while maintaining a pleasant, clean, and safe environment where retailers can be successful and customers can enjoy a great shopping experience. Further, we provide our Neighbors with responsive customer service and marketing tools, as well as other sophisticated solutions, such as a centralized accounting, billing, and tax review platform to facilitate our daily operations.
• Development and Redevelopment —Our team of seasoned professionals identify opportunities to unlock additional value at our properties through investments in our outparcel and redevelopment program. Our strategies include outparcel development, footprint reconfiguration, anchor repositioning, and anchor expansion, among others. These projects create opportunities to increase the overall yield and value of our properties, which we believe will allow us to deliver long-term growth and value creation to all stakeholders while creating great grocery-anchored shopping center experiences.
COMPETITION— Our business is inherently competitive. We believe that the competition is highly fragmented. We are subject to considerable competition in both seeking shopping centers to acquire and attracting and retaining Neighbors in our existing shopping centers. We compete with institutional investors and other REITs, as well as local, regional, and national owner-operators for property acquisitions. We compete with other properties including malls, lifestyle centers, power centers, community centers, neighborhood centers, free-standing retail, and main street retail in attracting new Neighbors and retaining existing Neighbors when their leases expire. The competition for Neighbors varies depending on the characteristics of each property.
We believe that the principal competitive factors in attracting and retaining Neighbors are the quality of the grocery anchor, location, trade area demographics, tenant mix, physical condition of the shopping center, and occupancy cost. These factors combine to determine the level of occupancy and rental rates that we are able to achieve at our properties. We believe that the quality of our omni-channel grocery-anchored shopping centers enables us to compete effectively for Neighbors. We believe that we maintain a competitive position in the acquisition market due to our track record and positive reputation.
SEGMENT DATA— Our principal business is the ownership and operation of community and neighborhood shopping centers. We do not distinguish our principal business, or group our operations, by geography or size for the purpose of measuring performance. Accordingly, we have presented our results as a single operating and reportable segment.
COMPLIANCE WITH GOVERNMENT REGULATION— Compliance with various governmental regulations has an impact on our business, including our capital expenditures, earnings, and competitive position. The impact of these governmental regulations can be material to our business. We incur costs to monitor and take action to comply with governmental regulations that are applicable to our business, which include, among others: federal securities laws and regulations; REIT and other tax laws and regulations; environmental and health and safety laws and regulations; local zoning, usage, and other regulations relating to real property; and the Americans with Disabilities Act of 1990, as amended (“ADA”). See “Item 1A. Risk Factors” below for a discussion of material risks to us (including those, to the extent material to our competitive position, relating to governmental regulations) and see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this filing on Form 10-K, together with our consolidated financial statements and accompanying footnotes, for a discussion of material information relevant to an assessment of our financial condition and results of
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operations (including, to the extent material, the effects that compliance with governmental regulations may have upon our capital expenditures and earnings).
As of December 31, 2024, we were not aware of any environmental conditions or material costs of complying with environmental or other government regulations that would have a material adverse effect on our overall business. However, it is possible that we are not aware of, or may become subject to, potential environmental liabilities or material costs of complying with government regulations due to changes in requirements or otherwise that could be material to our business.
CORPORATE RESPONSIBILITY AND HUMAN CAPITAL— Our Corporate Responsibility and Sustainability (“CRS”) Program is designed to align with our business objective of driving long-term growth and value creation for all stakeholders by generating cash flow, income growth, managing risk, and capital appreciation. To achieve this alignment, our CRS Program is based on four pillars - our People & Culture, Environmental Management, Community, and Oversight & Ethics - with each pillar focused on its interdependent strategy of (i) driving our PECO Cultural Advantage™ (described below), (ii) maximizing resource efficiencies and mitigating the impact of environmental risks, (iii) executing on our corporate mission of “creating great omni-channel grocery-anchored shopping center experiences and improving our communities, one shopping center at a time,” and (iv) committing to strong corporate governance. Our CRS Program is overseen by our Board of Directors through our Nominating and Governance (“N&G”) Committee, and we regularly review the program’s strategies and goals with our directors. More information about our CRS strategies, goals, and performance is available on our website at www.phillipsedison.com, including in our 2023 Corporate Responsibility Report. The content of our website and other information contained therein, including our Corporate Responsibility Report, are not incorporated by reference herein or in any other filing by the Company with the SEC, and should not be considered part of this Annual Report on Form 10-K.
People & Culture — As of December 31, 2024, we had approximately 300 associates located in 23 states, with the majority located in our corporate headquarters in Cincinnati, Ohio. At PECO, our associates and the culture we foster are vital to how we operate. Our unique culture - which we refer to as our “PECO Cultural Advantage”™ - is carefully curated through the following approach: cultivating an ownership mindset where teamwork and innovative thinking are highly valued; promoting transparency and open communication throughout our Company; caring about the health and well-being of our associates; investing in the growth and development of our associates; fostering a supportive and inclusive environment; and recognizing the hard work of our associates. Some highlights of our PECO Cultural Advantage™ include:
• Engagement and Satisfaction: We empower our associates through personalized coaching and annual stock awards, intended to foster a resilient culture that has earned PECO the title of a Top Place to Work for eight consecutive years by Cincinnati Enquirer. By granting 100% of eligible associates service-based restricted stock units in PECO, we encourage our associates to think and operate like owners, which we believe drives better decision-making and strengthens our culture.
• Learning and Development: We are committed to continuous learning and career development that is highly individualized and tailored to meet the unique needs of each associate. PECO’s commitment to continuous learning includes an annual talent management process; individual development plans aligned to each associate’s career goals, strengths, and areas for growth; flexible learning methods and modalities so that associates can learn in a way that suits them best and at their own pace; and an internal mentoring program.
• Health and Well-Being: We strive to create a workplace that prioritizes the health, well-being, and safety of our associates. Our “Beyond Benefits” wellness program is integral to our Company’s culture and includes sponsoring wellness activities and challenges designed to improve the overall health of our associates. In 2024, PECO earned a designation as one of the “Healthiest Employers of Ohio” for a fifth consecutive year and earned a place on the Healthiest100™ in America for the second consecutive year.
• Inclusion and Belonging: At PECO, fostering connection and inclusivity is a core commitment of our culture. Our four associate-led resource groups - PECO Multicultural Opportunities, Resources & Education; PECO Networking Opportunities for Women; PECO Impact; and PECO Connect - are designed to help further connection, inclusion, collaboration, community engagement, and communication throughout the Company.
Environmental Management — Our environmental management strategy focuses on maximizing resource efficiencies and mitigating the impact of environmental risks and related issues through the following key initiatives: Scope 1 and Scope 2 Greenhouse Gas (“GHG”) emissions reduction; resource efficiency; water conservation; waste management; building certifications; renewable energy; data management; and climate risk assessment. For example, in 2024, we reduced our market-based Scope 1 and 2 GHG emissions by 31% versus our 2020 baseline, which has improved our resource efficiencies at our properties.
Community — Through our mission of “creating great omni-channel grocery-anchored shopping center experiences and improving our communities, one shopping center at a time”, our centers are integral to the local communities they serve by supporting local entrepreneurs and small business owners; connecting residents to essential and necessity-based goods, services, and amenities; enhancing the communities through development and redevelopment projects; and creating economic impact for the local townships and municipalities through jobs and taxes. As of December 31, 2024, approximately 69% of our ABR was generated from Neighbors providing necessity-based goods and services to the local communities.
Oversight & Ethics — We believe that strong governance practices promote long-term value creation for our stakeholders by fostering a culture of integrity and ethical conduct for our associates; building and maintaining a relationship of trust and respect with our Neighbors, investors, vendors, and the communities that we serve; guiding decision-making through sound and ethical business practices; safeguarding the interest of our stockholders and other stakeholders through comprehensive internal control frameworks with independent oversight and review; assessing enterprise risk management and mitigation strategies for material risks on a regular basis; providing transparency in our reporting and stakeholder disclosures; and prioritizing regular engagement with our stakeholders. Supported by an experienced executive management team, we maintain a robust system of corporate governance policies, designed to foster an ethical culture and drive our goal of creating long-term value for all stakeholders.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS— The following table details information for our executive officers as of December 31, 2024:
Name Age Title Joined PECO
Jeffrey S. Edison 64 Chairman & Chief Executive Officer Co-Founder
Robert F. Myers 52 President 2003
John P. Caulfield 44 Chief Financial Officer, Executive Vice President & Treasurer 2014
Tanya E. Brady 57 General Counsel, Executive Vice President & Secretary 2013
CORPORATE HEADQUARTERS— Our corporate headquarters, located at 11501 Northlake Drive, Cincinnati, Ohio 45249, is where we conduct a majority of our management, leasing, construction, and investment activities, as well as administrative functions such as accounting and finance. Additionally, we maintain two regional offices located in Atlanta, Georgia and Park City, Utah.
ACCESS TO COMPANY INFORMATION— We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy and Information statements, and all amendments to those reports with the SEC. The SEC maintains an internet site at www.sec.gov that contains the reports, proxy and information statements, and other information regarding issuers, including ours that are filed electronically.
We make available, free of charge, the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports on our website, www.phillipsedison.com. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Also available on our website are (i) our Corporate Governance Guidelines, (ii) our Code of Business Conduct and Ethics, and (iii) our Whistleblower Policy. In the event of any changes to these documents, revised copies will be made available on our website. We intend to disclose on our website under “Investors - Governance - Governance Overview” any amendment to, or waiver of, any provisions of our Code of Business Conduct and Ethics applicable to the directors and/or officers of the Company that would otherwise be required to be disclosed under the rules of the SEC or Nasdaq. We also disclose, and intend to disclose, on our website under “Investors” material nonpublic information to comply with our disclosure obligations under Regulation FD. The contents of our website are not incorporated by reference.
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