What changed in Phillips Edison & Company, Inc.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of Phillips Edison & Company, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+248 added−273 removedSource: 10-K (2024-02-12) vs 10-K (2023-02-21)
Top changes in Phillips Edison & Company, Inc.'s 2023 10-K
248 paragraphs added · 273 removed · 197 edited across 7 sections
- Item 7. Management's Discussion & Analysis+117 / −113 · 94 edited
- Item 1. Business+49 / −69 · 29 edited
- Item 1A. Risk Factors+50 / −55 · 47 edited
- Item 5. Market for Registrant's Common Equity+13 / −13 · 12 edited
- Item 2. Properties+12 / −11 · 10 edited
Item 1. Business
Business — how the company describes what it does
29 edited+20 added−40 removed27 unchanged
Item 1. Business
Business — how the company describes what it does
29 edited+20 added−40 removed27 unchanged
2022 filing
2023 filing
Biggest changeIn our ongoing commitment to sustainability, we can highlight the following achievements: • Completion of the retrofit of 92% of our portfolio to LED, which puts us well ahead of our goal to retrofit 100% of our portfolio by 2025. • 17 solar array systems in our shopping centers producing over 4.5MW of solar energy. • Over 55 million gallons of water conserved through the implementation of xeriscaping and our “Smart Water Control Program,” which in turn has generated cost savings of $0.9 million. • Establishment of a new waste diversion program aimed at achieving a 25% total diversion rate at eligible properties by 2030. • Installations of EV amenities at 22% of our properties in route to achieving our target of installing EV amenities at 50% of our eligible properties by 2030. • WELL Health-Safety recertification for our company headquarters in Cincinnati, Ohio, a certification that less than 1% of buildings in the state of Ohio have received.
Biggest changeWe are proud to highlight the milestones below, as of December 31, 2023, in our ongoing sustainability journey: • Exterior Lighting: Completed the retrofit of 98.1% of our wholly-owned portfolio to LED parking lot lighting, moving closer to our goal of retrofitting 100% of our portfolio by 2025. • Renewable Energy: Installed 14 solar array systems to date. • Water Conservation: Conserved over 62 million gallons of water in 2023 (through September) through the implementation of xeriscaping and our “Smart Water Control Program”, generating cost savings of over $200,000. • EV Charging Stations: Installed EV chargers at 17.7% of our eligible properties to date. • Waste Management: Achieved a waste diversion rate of approximately 26.0% at properties with a landlord-controlled waste program. • Building Certifications: Secured WELL Health-Safety recertification for our company headquarters in Cincinnati, Ohio and Institute of Real Estate Management Certified Sustainable Property Certifications at 163 properties in 2023, bringing the total number of properties with certifications to 172.
Further, we provide our Neighbors with responsive customer service, 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.
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 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, 2022, our portfolio was 97.4% 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.
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, 2023, our portfolio was 97.4% 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.
Additionally, we operate a third-party investment management business providing property management and advisory services to two unconsolidated institutional joint ventures, in which we have a partial ownership interest, and one private fund (collectively, the “Managed Funds”). The majority of our revenues are lease revenues derived from our real estate investments.
Additionally, we operate a third-party investment management business providing property management and advisory services to two 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.
As of December 31, 2022, we are 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.
As of December 31, 2023, we are 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.
As of December 31, 2022, for our wholly-owned shopping centers, 86% 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.
As of December 31, 2023, for our wholly-owned shopping centers, 85% 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.
Our Board has adopted Corporate Governance Guidelines that, among other things, establish criteria and expectations for our directors, and our N&G Committee has responsibility for evaluating our Board. We are cognizant of “overboarding” and none of our directors serve on more than two other public company boards.
Our Board has adopted Corporate Governance Guidelines that, among other things, establish criteria and expectations for our directors, and our N&G Committee has responsibility for annually evaluating our Board and each of its committees. We are cognizant of “overboarding” and none of our directors serve on more than two other public company boards.
We believe our investment grade balance sheet and our available liquidity of $709.4 million under our senior unsecured revolving credit facility provide us with the financial capacity to pursue external growth initiatives in an accretive and prudently capitalized manner.
We believe our investment grade balance sheet and our available liquidity of $606.6 million under our senior unsecured revolving credit facility provide 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, which will position us for long-term growth.
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 2024, which will position us for long-term growth.
As of December 31, 2022, we wholly-owned 271 shopping centers. Additionally, we owned a 14% interest in Grocery Retail Partners I LLC (“GRP I”), a joint venture with Northwestern Mutual Life Insurance Company, which owned 20 shopping centers, and a 20% equity interest in Necessity Retail Partners (“NRP”), a joint venture with an affiliate of TPG Real Estate.
As of December 31, 2023, we wholly-owned 281 shopping centers. Additionally, we owned a 14% interest in Grocery Retail Partners I LLC (“GRP I”), a joint venture with Northwestern Mutual Life Insurance Company, which owned 20 shopping centers. We also owned a 20% equity interest in Necessity Retail Partners (“NRP”), a joint venture with an affiliate of TPG Real Estate.
In May 2022, we sold the final property in our NRP joint venture. In total, our managed portfolio of wholly-owned shopping centers and those owned through our unconsolidated joint ventures comprised approximately 33.3 million square feet located in 31 states.
In May 2022, we sold the final property in our NRP joint venture. In total, our managed portfolio of wholly-owned shopping centers and those owned through our unconsolidated joint venture comprised approximately 34.4 million square feet located in 31 states.
HUMAN CAPITAL— As of December 31, 2022, we had approximately 290 associates located in 20 states across the country, with concentrations in our corporate offices in Cincinnati, Ohio; Park City, Utah; and Atlanta, Georgia. Approximately 52% of our workforce is female and 48% is male.
As of December 31, 2023, we had approximately 290 associates located in 20 states across the country, with concentrations in our corporate offices in Cincinnati, Ohio; Park City, Utah; and Atlanta, Georgia. Approximately 51% of our workforce is female and 49% is male.
We operate under the direction of our Board, which is comprised of eight directors, seven of whom are independent per applicable Nasdaq Global Select Market (“Nasdaq”) and U.S. Securities and Exchange Commission (“SEC”) rules. Our Audit, Nominating and Governance (“N&G”), and Compensation Committees are comprised solely of independent directors who complete annual self-assessments.
We operate under the oversight of our Board, which is comprised of nine directors, seven of whom meet the independence criteria set forth by the Nasdaq Global Select Market (“Nasdaq”) and U.S. Securities and Exchange Commission (“SEC”) rules. Our Audit, Nominating and Governance (“N&G”), and Compensation Committees are comprised solely of independent directors who complete annual self-assessments.
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.
However, it PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 4 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.
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.
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 PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 3 investment grade rating.
We believe recent trends such as: (i) population shifts from urban to suburban communities in certain geographic locations; (ii) the increase in work from home initiatives; (iii) the importance of last mile delivery; (iv) the increase in “shop local” trends; and (v) low supply and lack of new construction will create additional leasing demand and growth opportunities for 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.
Our property managers maintain a local presence in order to effectively manage costs while maintaining a pleasant, clean, and safe environment where retailers can be successful and customers can enjoy a great shopping experience.
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.
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.
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. PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 6
Our senior leadership team is 18% female and 82% male, while manager roles and above are approximately 36% female and 64% male. For the year ended December 31, 2022, our overall turnover rate was 16%, with voluntary turnover being 13%, compared to our previous three year overall turnover average of 16% with a voluntary turnover rate of 11%.
Our senior leadership team is 18% female and 82% male, while manager roles and above are approximately 39% female and 61% male. For the year ended December 31, 2023, our overall turnover rate was 8%, with 6% voluntary turnover, compared to our previous three year overall turnover average of 13%, with 10% voluntary turnover.
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.
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.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 3 • Funding External Growth —We believe our effective shelf registration statement and At-the-Market offering (“ATM”) program allow us to access equity and debt capital previously not available to us, further enhancing our financial flexibility and external growth potential.
We believe our effective shelf registration statement and At-the-Market offering (“ATM”) program allow us to access equity and debt capital, further enhancing our financial flexibility and external growth potential.
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.
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.
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.
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 Baa3 (Outlook: Stable) with Moody’s Investors Services and BBB- (Outlook: Positive) with S&P Global Ratings.
As of December 31, 2022, approximately 71% 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 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, 2023, approximately 70% of our ABR, including the pro rata portion attributable to properties owned through our unconsolidated joint venture, is generated from Neighbors providing necessity-based goods and services.
Brady 55 General Counsel, Chief Ethics & Compliance Officer, 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.
Effective January 1, 2024, Robert Myers became President. 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.
Our commitment to an inclusive work environment is reinforced by two associate-led business resource groups: PECO Multicultural Opportunities, Resources & Education (“PECO MORE”), and PECO Networking Opportunities for Women (“PECO NOW”). PECO MORE is dedicated to furthering diversity and inclusion within the Company, the communities that we serve, and the commercial real estate industry.
We established three associate-led resource groups, PECO Multicultural Opportunities, Resources & Education (“PECO MORE”), PECO Networking Opportunities for Women (“PECO NOW”), and PECO Connect to help further diversity, inclusion, collaboration, and communication throughout the Company.
More information about our corporate responsibility strategy, goals and reporting is available on our website, which is not incorporated by reference and should not be considered part of this Annual Report on Form 10-K. INFORMATION ABOUT OUR EXECUTIVE OFFICERS— The following table details information for our executive officers as of December 31, 2022: Name Age Title Joined PECO Jeffrey S.
We are compliant with Nasdaq’s Board Diversity Rule and have three female directors and two directors who are members of underrepresented racial or ethnic minorities. More information about our CRSP is available on our website and in our Corporate Responsibility Report, which are not incorporated by reference and should not be considered part of this Annual Report on Form 10-K.
Edison 62 Chairman & Chief Executive Officer Co-Founder Devin I. Murphy 62 President 2013 Robert F. Myers 50 Chief Operating Officer & Executive Vice President 2003 John P. Caulfield 42 Chief Financial Officer, Executive Vice President & Treasurer 2014 Tanya E.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS— The following table details information for our executive officers as of December 31, 2023: Name Age Title Joined PECO Jeffrey S. Edison 63 Chairman & Chief Executive Officer Co-Founder Devin I. Murphy (1) 63 President 2013 Robert F. Myers (1) 51 Chief Operating Officer & Executive Vice President 2003 John P.
Employee Health and Wellness — Our “Beyond Benefits” wellness program is an essential element of our culture and focuses on our associates’ emotional, physical, and financial well-being.
Our “Beyond Benefits” wellness program is integral to our Company’s culture and is designed to address our associates’ emotional, physical, and financial well-being. The program includes sponsoring wellness activities and challenges designed to improve the overall health of our associates. • Inclusion and Belonging: At PECO, fostering connection and inclusivity is a core commitment of our culture.
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We target investments with attractive going-in yields and growth potential in markets with demographic profiles that support necessity-based retail concepts. • Neighbor-base —We believe our centers act as the last mile delivery solution for our omni-channel Neighbors.
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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.
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PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 4 CORPORATE RESPONSIBILITY— Being a responsible corporate citizen has always been integral to our corporate strategy and we operate under a clear mission statement of “creating great omni-channel grocery-anchored shopping center experiences and improving our communities, one shopping center at a time”.
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CORPORATE RESPONSIBILITY AND SUSTAINABILITY— Our corporate responsibility and sustainability program (“CRSP”), which we also refer to as our “PECO-ECO Promise™”, is designed to align with our corporate mission and strategic initiatives.
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We strive to have a strong corporate culture based on our four core values - Do the Right Thing, Have Fun and Get it Done, Think Big Act Small, Always Keep Learning – which are designed to drive accountability in all aspects of our business with the overarching goal of achieving long-term growth and value creation for our stakeholders.
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With a mission of “creating great omni-channel grocery-anchored shopping center experiences and improving our communities, one shopping center at a time”, we strive to have a positive impact on all our stakeholders. Our CRSP is overseen by our full Board of Directors (the “Board”) reflecting our comprehensive approach to strong governance. In addition, we have a dedicated director liaison, Ms.
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We recognize that successful corporate responsibility is both internally and externally focused. Our General Counsel has overall responsibility for leading and managing our Environmental, Social and Governance (“ESG”) Team and reporting on our corporate responsibility and ESG matters to our Board of Directors (the “Board”).
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Silfen, providing oversight to our PECO-ECO Team members based on her significant experience in energy innovation and sustainability. Our PECO-ECO Team is led by our General Counsel, who provides regular updates to the full Board on our CRSP.
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The ESG Team, comprised of department heads from Portfolio Management, Construction, Property Management, Leasing, Investor Relations, Marketing, Human Resources, and Legal is tasked with conducting more detailed materiality and risk assessments and identifying opportunities with measurable key performance indicators and enhanced reporting, with the overall goal of driving long-term growth and value creation for all of our stakeholders.
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Our PECO-ECO Promise™ is based on four pillars that are guided by our mission and our goal of driving long-term value creation for our stakeholders: our People and Culture, Environmental Stewardship, Community, and Oversight and Ethics: PEOPLE AND CULTURE— At PECO, our associates are our greatest asset.
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We have a highly engaged team of dedicated associates, as reflected in our sixth consecutive recognition as a top place to work by the Cincinnati Enquirer in 2022. One way we keep a pulse on engagement is by regularly surveying our associates about a variety of company topics.
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We believe in fostering a work environment where every team member feels valued, respected, and empowered.
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In 2022, we had a 96% participation rate in our associate experience survey that was conducted utilizing a third-party tool. Results indicated a 90% engagement index score. Additionally, our Board, and specifically our Compensation Committee, is actively engaged and oversees our human capital management practices.
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To achieve this, our key areas of focus 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 seven consecutive years by Cincinnati Enquirer.
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We believe that the following components of human capital management are important: Culture and Inclusion — We believe our team of highly engaged associates plays a key role in achieving long-term success for our stakeholders. We are committed to a company culture that is collaborative, inclusive, and that provides significant opportunities for professional and personal development.
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By granting 100% of eligible associates service-based restricted stock units in PECO, we empower and 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 the professional development of our associates.
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Our culture is shaped by our core values (Do The Right Thing, Have Fun and Get it Done, Think Big Act Small, and Always Keep Learning) that empower and encourage our associates to “think and operate like owners.” Our strong culture enables us to attract, develop and retain high performing and talented individuals who we believe help us to drive our business strategies and objectives, including attractive risk-adjusted returns for our stockholders.
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Established in 2007, PECO University is a hub for learning and development of our associates, encompassing our online learning platform, PECO U online, leadership development, mentoring programs, and more.
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We provide associates with competitive salaries, bonuses, incentives, and opportunities for equity ownership. One unique aspect of our compensation philosophy is that each associate in the Company, regardless of level or tenure, has the opportunity for equity grants on an annual basis.
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PECO’s commitment to continuous learning includes an annual talent management process, workshops on development goal plans, and the PECO Mentor Match program, an internal mentoring program. • Health and Well-Being: We strive to create a workplace that prioritizes the well-being of our associates.
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During the year ended December 31, 2022, 100% of eligible associates received grants of service-based restricted stock units in the Company. Upon vesting, associates will receive shares of common stock, which encourages our associates to “think and operate like owners” of the Company.
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ENVIRONMENTAL STEWARDSHIP— Environmental stewardship is an important component of our commitment to sustainability, encapsulated in our PECO-ECO Promise™. We recognize that sustainable practices are not only beneficial for the environment but also important for our business success and contributing to the well-being of the communities we operate in.
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PECO MORE’s programming has focused on providing education, raising awareness, and hosting events around Veterans Day, the Chinese New Year, Black History Month, Pride Month, and Dia de los Muertos (Day of the Dead). PECO NOW was recognized for excellence by the Innovating Commerce Serving Communities (“ICSC”) in 2016.
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A key component of our sustainable practices is focused on improving operational efficiencies and resource reductions within our portfolio. Our initiatives include calculating our Scope 1 and Scope 2 GHG emissions, participating in the Global Real Estate Sustainability Benchmark ("GRESB") Real Estate Assessment, pursuing energy efficiency, developing on-site solar projects, and installing electric vehicle (“EV”) charging stations.
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PECO NOW’s mission statement focuses on fostering a community where every woman at PECO understands her value, is inspired to share her perspectives, and has courage to make decisions. PECO NOW has focused on increasing leadership opportunities for numerous female associates and sponsoring collaborative networking events.
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We are also focused on attaining sustainable property certifications, implementing water conservation measures, and managing waste effectively.
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As part of our external community efforts in 2022, we continued our partnership with ICSC and their Launch Academy, which was designed to recruit and prepare racially or ethnically diverse undergraduate students for a career in the commercial real estate industry. Our support included hosting two Launch Academy interns and sponsoring a professional development session for all program participants.
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COMMUNITY— Through our mission of “creating great omni-channel grocery-anchored shopping center experiences and improving our communities, one shopping center at a time”, we strive to actively engage with our Neighbors and the local communities that we serve. Our focus is on being Locally Smart ™ and understanding the unique needs of each community.
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PECO was proud to fund a $5,000 ICSC Foundation scholarship to an underrepresented student with interest in pursuing a career in real estate and the shopping center industry. In addition to our support of ICSC’s early career development efforts, we hosted interns in our Cincinnati and Atlanta offices.
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This commitment to our communities extends to its physical spaces, with initiatives like Front Row to Go ® providing convenient curbside pickup for our local shoppers, and a retailer mix that offers storefront windows and drive-through stores for additional convenience for local shoppers.
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Of the 32 students we hired in 2022 for an internship position, 50% either worked for PECO for multiple semesters or were converted to full-time hires. Almost 30% of the 2022 PECO internship class identified as racially or ethnically diverse. The PECO internship program has been a key element in our early career talent pipeline.
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PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 5 Our community commitment is also evident in our initiatives like our PECO Community Partnership, an award-winning, associate-led program that encourages community involvement and connects our associates to causes they care about.
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Learning and Development — “Always Keep Learning” is one of our core values. We are committed to continuous learning and both personal and professional development of our associates as part of what we call PECO XP, or the PECO Experience. During 2022, our associates took part in over 4,700 hours of internal training hours across the Company.
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In 2023, PECO Community Partnership sponsored 15 community service events and contributed over 440 service hours, including a volunteer day in partnership with Keep Cincinnati Beautiful at Green Man Park where 69 associates participated in a park cleanup and revitalization project. PECO's partnership with communities also extends to disaster relief efforts, exemplified by our Incident Response Team.
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Trainings ranged from business oriented sessions such as finance for non-finance associates and cybersecurity awareness to department specific soft-skill training utilizing the DiSC © model for increased communication, empathy, and team building among associates. A cohort style frontline leadership program was launched and completed during the year.
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This team provides support to Neighbors and communities impacted by disasters, such as Hurricane Idalia in August 2023, as part of PECO's commitment to being there for its Neighbors and communities during challenging times. OVERSIGHT AND ETHICS— Our governance framework guides our decision-making and accountability.
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This program focused on developing managerial skills and providing support for first-level managers promoted during the COVID-19 pandemic. Additionally, two female focused development programs were introduced at PECO in 2022.
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Supported by an experienced executive management team, we maintain a robust system of corporate governance policies, designed to foster an ethical culture committed to the PECO-ECO Promise™ and to driving our goal of creating long-term value. We believe our corporate governance structure closely aligns our interests with those of our stockholders.
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One was an internally created program sponsored by PECO NOW with the primary goal of developing future female leaders in the organization by creating opportunities for collaboration, networking, personal development, and innovation.
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Caulfield 43 Chief Financial Officer, Executive Vice President & Treasurer 2014 Tanya E. Brady 56 General Counsel, Executive Vice President & Secretary 2013 (1) Devin Murphy stepped down as President effective December 31, 2023 and became Managing Director of Investment Management effective January 1, 2024 through his retirement date of June 30, 2024.
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The other was a cohort style program for females currently in mid-level leadership roles designed to create community, share knowledge, enhance leadership skills, and provide additional access to senior leadership team members.
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PECO has continued our commitment to continuous learning and development in 2022 with our annual Company-wide talent management process, where all associates are expected to set development goals for the upcoming year.
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Managers are expected to hold coaching conversations designed to focus on career progression and put action items in place to keep each PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 5 associate moving forward as part of this process as well.
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To help facilitate this process in 2022, associates were offered an interactive workshop specifically focused on creating and enhancing their development goal plans. We also completed our first round of PECO Mentor Match, a formal mentoring program focused on career development, with over 240 recorded hours of mentorship activities.
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Together with an external partner, we offer a full wellness platform providing Health Savings Account incentive contributions for biometric screening results, preventive care, and activity-based items such as step counts, nutrition tracking, and workout activity minutes.
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To keep associates engaged in wellness activities during 2022, we held four wellness challenges where individuals and teams could earn incentive dollars for winning competitions that tracked steps, workout activity, and nutrition.
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In May 2022, we also invested in a month-long focus on mental health providing a broad range of activities such as a “It’s Okay to Not be Okay” webinar, bring your dog to work day, our third annual Mental Health May 5k, and frequent communications with resources, articles, and support to raise awareness and acceptance of mental health issues.
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In October 2022, prior to the associate open enrollment period, we hosted a Wellness Week with a variety of fitness activities and a stress management seminar, nutrition workshop, and wellness fair.
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We believe a ll of these efforts have facilitated a continued dedication to wellness and preventive care among our associates, and as a result, we were recognized for the third year in a row by Healthiest Employers LLC as one of the "Healthiest Employers of Ohio" in 2022.
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ENVIRONMENTAL STEWARDSHIP— We believe that sustainable business practices fit with our core value of “Do The Right Thing” while at the same time acting in the best interests of all our stakeholders by having a positive impact on our properties and the communities in which they are located.
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We participate in the Global Real Estate Sustainability Benchmark ("GRESB") Real Estate Assessment, and our Corporate Social Responsibility Report is designed to align with a number of the 17 United Nations Sustainable Development Goals. Our sustainability initiatives include energy efficiency, alternative power sources, water conservation, sustainable design and waste management, among others.
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Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
47 edited+3 added−8 removed270 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
47 edited+3 added−8 removed270 unchanged
2022 filing
2023 filing
Biggest changeRisks Related to Our Business and Operations • Our revenues and cash flows will be affected by the success and economic viability of our anchor Neighbors. • A significant percentage of our revenues is derived from non-anchor Neighbors, and our net income and ability to make distributions to stockholders may be adversely affected if these Neighbors are not successful. • We may be unable to sell shopping centers when desired, at an attractive price, or at all, and the sale of a property could cause significant tax payments. • We face competition and other risks in pursuing acquisition opportunities that could increase the cost of such acquisitions and/or limit our ability to grow, and we may not be able to generate expected returns or successfully integrate completed acquisitions into our existing operations. • We share ownership of our unconsolidated joint ventures and do not have exclusive decision-making power, and as such, we are unable to ensure that our objectives will be pursued. • Our real estate assets may decline in value and be subject to significant impairment losses, which may reduce our net income.
Biggest changeRisks Related to Our Business and Operations • Our revenues and cash flows will be affected by the success and economic viability of our anchor Neighbors. • A significant percentage of our revenues is derived from non-anchor Neighbors, and our net income and ability to make distributions to stockholders may be adversely affected if these Neighbors are not successful. • We may be unable to sell shopping centers when desired, at an attractive price, or at all, and the sale of a property could cause significant tax payments. • We face competition and other risks in pursuing acquisition opportunities that could increase the cost of such acquisitions and/or limit our ability to grow, and we may not be able to generate expected returns or successfully integrate completed acquisitions into our existing operations. • We share ownership of our unconsolidated joint ventures and do not have exclusive decision-making power, and as such, we are unable to ensure that our objectives will be pursued. • Our real estate assets may decline in value and be subject to significant impairment losses, which may reduce our net income. • We actively reinvest in our portfolio in the form of development and redevelopment projects, which have inherent risks that could adversely affect our financial condition, cash flows, and results of operations. • The continued shift in retail sales towards e-commerce may adversely affect our financial condition, cash flows, and results of operations. • Actual incremental unlevered yields for our development and redevelopment projects may vary from our underwritten incremental unlevered yield range. • Pandemics, epidemics, or other health crises may have a negative effect on our and our Neighbors’ businesses, financial condition, results of operations, cash flows, and liquidity.
Risks Related to Our Indebtedness and Liquidity We have substantial indebtedness, and we may need to incur additional indebtedness, including recourse debt, in the future, which could adversely affect our business, financial condition, and ability to make distributions to our stockholders.
Risks Related to Our Indebtedness and Liquidity We have substantial indebtedness, and we may need to incur additional indebtedness, including recourse debt, in the future, which could adversely affect our business, financial condition, and ability to make distributions to our stockholders.
We intend to evaluate distributions throughout 2023, and it is possible that stockholders may not receive distributions equivalent to those previously paid by us for various reasons, including: (i) we may not have enough cash to pay such distributions due to changes in our cash requirements, indebtedness, capital spending plans, operating cash flows, or financial position; (ii) decisions on whether, when, and in what amounts to make any future distributions will remain at all times entirely at the discretion of the Board, which reserves the right to change our distribution practices at any time and for any reason; (iii) our Board may elect to retain cash for investment purposes, working capital reserves, or other purposes, or to maintain or improve our credit ratings; and (iv) the amount of distributions that our subsidiaries may distribute to us may be subject to restrictions imposed by state law, state regulators, and/or the terms of any current or future indebtedness that these subsidiaries may incur.
We intend to evaluate distributions throughout 2024, and it is possible that stockholders may not receive distributions equivalent to those previously paid by us for various reasons, including: (i) we may not have enough cash to pay such distributions due to changes in our cash requirements, indebtedness, capital spending plans, operating cash flows, or financial position; (ii) decisions on whether, when, and in what amounts to make any future distributions will remain at all times entirely at the discretion of the Board, which reserves the right to change our distribution practices at any time and for any reason; (iii) our Board may elect to retain cash for investment purposes, working capital reserves, or other purposes, or to maintain or improve our credit ratings; and (iv) the amount of distributions that our subsidiaries may distribute to us may be subject to restrictions imposed by state law, state regulators, and/or the terms of any current or future indebtedness that these subsidiaries may incur.
In addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect the share price of our common stock or result in fluctuations in the price or trading volume of shares of our common stock, including: • the annual yield from distributions on shares of our common stock as compared to yields on other financial instruments; PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 20 • equity issuances by us, or future sales of substantial amounts of shares of our common stock by our existing or future stockholders, or the perception that such issuances or future sales may occur; • increases in market interest rates or a decrease in our distributions to stockholders that lead purchasers of shares of our common stock to demand a higher yield; • changes in market valuations of similar companies; • fluctuations in stock market prices and volumes; • additions or departures of key management personnel; • our operating performance and the performance of other similar companies; • actual or anticipated differences in our quarterly operating results; • changes in expectations of future financial performance or changes in estimates of securities analysts; • publication of research reports about us or our industry by securities analysts; • failure to qualify as a REIT; • adverse market reaction to any indebtedness we incur in the future; • strategic decisions by us or our competitors, such as acquisitions, divestments, spin offs, joint ventures, strategic investments, or changes in business strategy; • the passage of legislation or other regulatory developments that adversely affect us or our industry; • speculation in the press or investment community; • changes in our earnings; • failure to satisfy the listing requirements of Nasdaq; • failure to comply with the requirements of the Sarbanes-Oxley Act; • actions by institutional stockholders; • changes in accounting principles; and • general market conditions, including factors unrelated to our performance.
In addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect the share price of our common stock or result in fluctuations in the price or trading volume of shares of our common stock, including: • the annual yield from distributions on shares of our common stock as compared to yields on other financial instruments; PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 19 • equity issuances by us, or future sales of substantial amounts of shares of our common stock by our existing or future stockholders, or the perception that such issuances or future sales may occur; • increases in market interest rates or a decrease in our distributions to stockholders that lead purchasers of shares of our common stock to demand a higher yield; • changes in market valuations of similar companies; • fluctuations in stock market prices and volumes; • additions or departures of key management personnel; • our operating performance and the performance of other similar companies; • actual or anticipated differences in our quarterly operating results; • changes in expectations of future financial performance or changes in estimates of securities analysts; • publication of research reports about us or our industry by securities analysts; • failure to qualify as a REIT; • adverse market reaction to any indebtedness we incur in the future; • strategic decisions by us or our competitors, such as acquisitions, divestments, spin offs, joint ventures, strategic investments, or changes in business strategy; • the passage of legislation or other regulatory developments that adversely affect us or our industry; • speculation in the press or investment community; • changes in our earnings; • failure to satisfy the listing requirements of Nasdaq; • failure to comply with the requirements of the Sarbanes-Oxley Act; • actions by institutional stockholders; • changes in accounting principles; and • general market conditions, including factors unrelated to our performance.
Many retailers in our shopping centers provide services or sell goods that are unable to be performed online (such as haircuts, massages, and fitness centers) or that have historically been less likely to be purchased online (such as grocery stores, restaurants, and coffee shops); however, the continuing increase in e-commerce sales in all retail categories (including online orders for immediate delivery or pickup in store) may cause retailers to adjust the size or number of retail locations in the future or close stores.
Many retailers in our shopping centers provide services or sell goods that are unable to be performed online (such as haircuts, massages, and fitness centers) or that have historically been less likely to be purchased online (such as grocery stores, restaurants, and coffee shops); however, the continuing increase in e-commerce sales (including online orders for immediate delivery or pickup in store) may cause retailers to adjust the size or number of retail locations in the future or close stores.
Risks Related to Our REIT Status and Other Tax Risks • Failure to qualify as a REIT would cause us to be taxed as a regular C corporation, which would substantially reduce funds available for distributions to stockholders. • If the Operating Partnership fails to qualify as a partnership for U.S. federal income tax purposes, we would fail to qualify as a REIT and would suffer adverse consequences. • Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.
Risks Related to Our REIT Status and Other Tax Risks • Failure to qualify as a REIT would cause us to be taxed as a regular C corporation, which would substantially reduce funds available for distributions to stockholders. • If the Operating Partnership fails to qualify as a partnership for U.S. federal income tax purposes, we would fail to qualify as a REIT and would suffer adverse consequences. • Complying with REIT requirements may cause us to forgo otherwise attractive opportunities or liquidate otherwise attractive investments.
Cybersecurity attacks include attempts to gain unauthorized access to our data and/or computer systems to disrupt operations, corrupt data, or steal confidential information. We may face such cybersecurity attacks through malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our information technology (IT) systems.
Cybersecurity attacks include attempts to gain unauthorized access to our data and/or computer systems to disrupt operations, corrupt data, or steal confidential information. We may face such cybersecurity attacks through malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our information technology (“IT”) systems.
Changes in our disposition strategy or changes in the marketplace may PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 10 alter the holding period of an asset or asset group, which may result in an impairment loss and such loss may be material to our financial condition or operating performance.
Changes in our disposition strategy or changes in the marketplace may PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 9 alter the holding period of an asset or asset group, which may result in an impairment loss and such loss may be material to our financial condition or operating performance.
We believe that our organization and method of operation has enabled and will continue to enable us to meet the PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 15 requirements for qualification and taxation as a REIT for U.S. federal income tax purposes. However, we cannot assure you that we will qualify as such.
We believe that our organization and method of operation has enabled and will continue to enable us to meet the PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 14 requirements for qualification and taxation as a REIT for U.S. federal income tax purposes. However, we cannot assure you that we will qualify as such.
These and other factors could adversely affect our financial condition, cash flows, and results of operations. PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 11 The continued shift in retail sales towards e-commerce may adversely affect our financial condition, cash flows, and results of operations.
These and other factors could adversely affect our financial condition, cash flows, and results of operations. PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 10 The continued shift in retail sales towards e-commerce may adversely affect our financial condition, cash flows, and results of operations.
Retailers are increasingly affected by e-commerce and changes in customer buying habits, which have been further accelerated as a result of the COVID-19 pandemic, including the delivery or curbside pick-up of items ordered online.
Retailers are increasingly affected by e-commerce and changes in customer buying habits, which were further accelerated as a result of the COVID-19 pandemic, including the delivery or curbside pick-up of items ordered online.
These alternatives could increase our costs or reduce our equity. Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.
These alternatives could increase our costs or reduce our equity. Complying with REIT requirements may cause us to forgo otherwise attractive opportunities or liquidate otherwise attractive investments.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 21 If we pay distributions from sources other than our cash flows from operations, we may not be able to sustain our distribution rate, we may have fewer funds available for investment in shopping centers and other assets, and our stockholders’ overall returns may be reduced.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 20 If we pay distributions from sources other than our cash flows from operations, we may not be able to sustain our distribution rate, we may have fewer funds available for investment in shopping centers and other assets, and our stockholders’ overall returns may be reduced.
Our portfolio is predominantly comprised of omni-channel neighborhood grocery-anchored shopping centers, and during the year ended December 31, 2022, our holdings in Florida and California accounted for 12.0% and 10.9%, respectively, of our ABR (including our wholly-owned portfolio as well as the prorated portion of shopping centers owned through our joint ventures).
Our portfolio is predominantly comprised of omni-channel neighborhood grocery-anchored shopping centers, and during the year ended December 31, 2023, our holdings in Florida and California accounted for 12.2% and 10.9%, respectively, of our ABR (including our wholly-owned portfolio as well as the prorated portion of shopping centers owned through our joint ventures).
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 14 We and the Operating Partnership entered into an additional tax protection agreement (the “2021 TPA”) on July 19, 2021 with Mr. Edison, Mr. Murphy, and Mr. Myers, which will become effective upon the expiration of the 2017 TPA.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 13 We and the Operating Partnership entered into an additional tax protection agreement (the “2021 TPA”) on July 19, 2021 with Mr. Edison, Mr. Murphy, and Mr. Myers, which will become effective upon the expiration of the 2017 TPA.
We are currently required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, and as of December 31, 2022, we are required to have our independent registered public accounting firm attest to the same, as required by Section 404 of the Sarbanes-Oxley Act of 2002.
We are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, and are required to have our independent registered public accounting firm attest to the same, as required by Section 404 of the Sarbanes-Oxley Act of 2002.
We have obtained, and may continue to obtain, lines of credit, and other long-term financing that are secured by our shopping centers and other assets. On December 31, 2022, we had indebtedness of $1.9 billion comprised of $1.4 billion in unsecured debt, $0.4 billion in outstanding secured loan facilities, and $0.1 billion in mortgage loans and finance lease obligations.
We have obtained, and may continue to obtain, lines of credit, and other long-term financing that are secured by our shopping centers and other assets. On December 31, 2023, we had indebtedness of $2.0 billion comprised of $1.5 billion in unsecured debt, $0.4 billion in outstanding secured loan facilities, and $0.1 billion in mortgage loans and finance lease obligations.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 9 We may be unable to sell shopping centers when desired, at an attractive price, or at all, and the sale of a property could cause significant tax payments.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 8 We may be unable to sell shopping centers when desired, at an attractive price, or at all, and the sale of a property could cause significant tax payments.
The actual total cost to complete a development or redevelopment project may differ substantially from our estimates due to various factors, including unanticipated expenses, delays in the estimated start and/or completion date of planned development projects, effects of the COVID-19 pandemic, and other contingencies.
The actual total cost to complete a development or redevelopment project may differ substantially from our estimates due to various factors, including unanticipated expenses, delays in the estimated start and/or completion date of planned development projects, and other contingencies.
We will monitor the amount of the PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 16 dividend and other income from our TRS entities and will take actions intended to keep this income, and any other non-qualifying income, within the limitations of the REIT income tests.
We will monitor the amount of the PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 15 dividend and other income from our TRS entities and will take actions intended to keep this income, and any other non-qualifying income, within the limitations of the REIT income tests.
While the unpredictable nature of pandemics precludes any prediction as to one’s ultimate adverse impact, a worsening of the economic, political, and social environment as a result presents material risks and uncertainties with respect to our and our Neighbors’ business, financial condition, results of operations, cash flows, liquidity, and ability to satisfy debt service obligations.
The unpredictable nature of pandemics, epidemics, and other health crises precludes any prediction as to one’s ultimate adverse impact. A worsening of the economic, political, and social environment as a result presents material risks and uncertainties with respect to our and our Neighbors’ business, financial condition, results of operations, cash flows, liquidity, and ability to satisfy debt service obligations.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 8 Risks Related to Our Business and Operations Our revenues and cash flows will be affected by the success and economic viability of our anchor Neighbors.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 7 Risks Related to Our Business and Operations Our revenues and cash flows will be affected by the success and economic viability of our anchor Neighbors.
However, to the extent that we engage in such activities through a TRS, the income associated with such activities will be PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 17 subject to a corporate income tax.
However, to the extent that we engage in such activities through a TRS, the income associated with such activities will be PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 16 subject to a corporate income tax.
As of January 31, 2023, we would have directly or indirectly controlled approximately 89.2% of the OP units. Furthermore, as of January 31, 2023, Mr. Edison had voting control over approximately 6.6% of the OP units (considering OP units owned by us), and therefore could have influence over votes on change of control transactions.
As of December 31, 2023, we would have directly or indirectly controlled approximately 89.3% of the OP units. Furthermore, as of December 31, 2023, Mr. Edison had voting control over approximately 6.9% of the OP units (considering OP units owned by us), and therefore could have influence over votes on change of control transactions.
Although a significant amount of our outstanding debt has fixed interest rates, we borrow funds at variable interest rates under our credit facilities and term loans. As of December 31, 2022, 14.6% of our outstanding debt was variable rate debt.
Although a significant amount of our outstanding debt has fixed interest rates, we borrow funds at variable interest rates under our credit facilities and term loans. As of December 31, 2023, 22.4% of our outstanding debt was variable rate debt.
As of December 31, 2022, 28 of our 271 wholly-owned shopping centers, four outparcels, and the land under which one of our properties is located, comprising approximately 10.9% of our ABR, are subject to the protection described in clause (i) above, and the potential “make-whole amount” on the estimated aggregate amount of built-in gain subject to such protection is approximately $149.0 million.
As of December 31, 2023, 28 of our 281 wholly-owned shopping centers, four outparcels, and the land under which one of our properties is located, comprising approximately 10.5% of our ABR, are subject to the protection described in clause (i) above, and the potential “make-whole amount” on the estimated aggregate amount of built-in gain subject to such protection is approximately $122.7 million.
Development and redevelopment activities require various government and other approvals for entitlements and any delay in or failure to receive such approvals may significantly delay this process or prevent us from recovering our investment.
We actively pursue opportunities for outparcel development and existing property redevelopment. Development and redevelopment activities require various government and other approvals for entitlements and any delay in or failure to receive such approvals may significantly delay this process or prevent us from recovering our investment.
If such individuals were to depart from the Company within a PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 13 specified time prior to such transaction or within such specified time after such a transaction, we may be required to negotiate waivers of such covenants or obtain replacement financing, which we may not be able to do on satisfactory terms or at all.
If such individuals were to depart from the Company within a specified time prior to such transaction or within such specified time after such a transaction, we may be required to negotiate waivers of such covenants or obtain replacement financing, which we may not be able to do on satisfactory terms or at all.
Terrorist activities or violence occurring at our properties also may directly affect their value through damage, destruction, or loss. Insurance for such acts may be unavailable or cost more, which could result in an increase to our operating expenses and adversely affect our results of operations.
Terrorist activities or violence occurring at our properties also PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 17 may directly affect their value through damage, destruction, or loss. Insurance for such acts may be unavailable or cost more, which could result in an increase to our operating expenses and adversely affect our results of operations.
Under the MGCL and our charter, our stockholders have a right to vote only on limited matters. Our Board’s broad discretion in setting policies and our stockholders’ inability to exert control over those policies increases the uncertainty and risks our stockholders face.
Under the Maryland General Corporation Law, as amended (“MGCL”) and our charter, our stockholders have a right to vote only on limited matters. Our Board’s broad discretion in setting policies and our stockholders’ inability to exert control over those policies increases the uncertainty and risks our stockholders face.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 18 There are some types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or sublimits.
There are some types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution, or environmental matters, that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or sublimits.
In addition to our own IT systems, we also depend on third parties to provide IT services relating to several key business functions, such as administration, accounting, communications, document management and storage, human resources, payroll, tax, investor relations, and certain finance functions.
In addition to our own IT PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 18 systems, we also depend on third parties to provide IT services relating to several key business functions, such as administration, accounting, communications, document management and storage, human resources, payroll, tax, investor relations, and certain finance functions.
When evaluating investment decisions, many investors and shareholders look not only at company ESG disclosures, PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 12 but also to ESG rating systems that have been developed by third-party groups to allow comparisons between companies.
When evaluating investment decisions, many investors and shareholders look not only at company ESG disclosures, but also to ESG rating systems that have been developed by third-party groups to allow comparisons between companies.
Failure to participate in certain of the third-party ratings systems, failure to score well in those ratings systems, or failure to provide certain ESG disclosures could result in reputational harm when investors or others compare us against similar companies in our industry, could result in investor engagement on our ESG initiatives and disclosures or increased costs relating to ESG initiatives, and could cause certain investors to be unwilling to invest in our stock, which could adversely impact our ability to raise capital.
Failure to participate in certain of the third-party ratings systems, failure to score well in those ratings systems, failure to provide certain ESG disclosures, or unfavorable comparisons in these areas to other companies, could result in reputational harm when investors or others compare us against similar companies in our industry, could result in investor engagement on our ESG initiatives and PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 11 disclosures or increased costs relating to ESG initiatives, and could cause certain investors to be unwilling to invest in our stock, which could adversely impact our ability to raise capital.
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 incremental NOI at stabilization. Pandemics, such as the COVID-19 pandemic, had, and may continue to have, a negative effect on our and our Neighbors’ businesses, financial condition, results of operations, cash flows, and liquidity.
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 incremental NOI at stabilization. Pandemics, epidemics, or other health crises may have a negative effect on our and our Neighbors’ businesses, financial condition, results of operations, cash flows, and liquidity.
An interruption in the business operations of our Neighbors or a deterioration in their reputation resulting from a cybersecurity attack, including unauthorized access to customers’ credit card data and other confidential information, could indirectly negatively affect our business and cause lost revenues. As of December 31, 2022, we have not had any material incidents involving cybersecurity attacks.
An interruption in the business operations of our Neighbors or a deterioration in their reputation resulting from a cybersecurity attack, including unauthorized access to customers’ credit card data and other confidential information, could indirectly negatively affect our business and cause lost revenues.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 19 Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations and, in some cases, may be critical to the operations of certain of our Neighbors.
Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations and, in some cases, may be critical to the operations of certain of our Neighbors.
We and such third parties employ a number of measures to prevent, detect, and mitigate these threats, including password protection, firewalls, backup servers, malware detection, intrusion sensors, threat monitoring, user training, and periodic penetration testing; however, there is no guarantee that such efforts will be successful in preventing a cybersecurity attack.
We and such third parties employ a number of measures to prevent, detect, and mitigate these threats, including password protection, firewalls, backup servers, malware detection, intrusion sensors, threat monitoring, user training, and periodic penetration testing; however, there is no guarantee that such cybersecurity risk management programs and processes, including our and their policies, controls, and procedures, will be fully implemented, complied with or effective in protecting our and their systems and information.
We actively reinvest in our portfolio in the form of development and redevelopment projects, which have inherent risks that could adversely affect our financial condition, cash flows, and results of operations. We actively pursue opportunities for outparcel development and existing property redevelopment.
Accordingly, there can be no assurance that we will not record impairment charges in the future related to our assets. We actively reinvest in our portfolio in the form of development and redevelopment projects, which have inherent risks that could adversely affect our financial condition, cash flows, and results of operations.
Sales proceeds are then used to fund the construction of developments, redevelopments, expansions, and acquisitions, and to repay debt. An increase in market capitalization rates or a decline in NOI may cause a reduction in the value of shopping centers identified for sale, which would have an adverse effect on the amount of cash generated.
An increase in market capitalization rates or a decline in NOI may cause a reduction in the value of shopping centers identified for sale, which would have an adverse effect on the PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 12 amount of cash generated.
We and our stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation, or administrative interpretation.
We and our stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation, or administrative interpretation. If our assets are deemed to be plan assets, we may be exposed to liabilities under Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the IRC.
If our assets are deemed to be plan assets, we may be exposed to liabilities under Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the IRC. In some circumstances where an ERISA plan holds an interest in an entity, the assets of the entity are deemed to be ERISA plan assets unless an exception applies.
In some circumstances where an ERISA plan holds an interest in an entity, the assets of the entity are deemed to be ERISA plan assets unless an exception applies.
These subjective assessments have a direct effect on our net income because recording an impairment charge results in an immediate negative adjustment to net income, which may be material.
These subjective assessments have a direct effect on our net income because recording an impairment charge results in an immediate negative adjustment to net income, which may be material. During the year ended December 31, 2023, we incurred no impairment charges. We will continue to evaluate the risk profile of each asset and may potentially recognize impairments in future quarters.
In March 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic caused, and may continue to cause, significant disruptions to the United States and global economy and has contributed to significant volatility and negative pressure in financial markets.
As was experienced during the COVID-19 pandemic, such crises could cause significant disruptions to the United States and global economy and contribute to significant volatility and negative pressure in financial markets.
Our financial results and business operations may be negatively affected by such an incident or the resulting negative media attention.
The primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our Neighbors, and private data exposure. Our financial results and business operations may be negatively affected by such an incident or the resulting negative media attention.
As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. The primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our Neighbors, and private data exposure.
While we do not believe these incidents have had a material impact to date, as our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced.
While we believe our collections have returned to levels consistent with those prior to the onset of the pandemic, there are no assurances that the COVID-19 pandemic, or another pandemic, will not have a further negative impact on our business and financial performance in the future, especially if there is a negative impact to customers’ willingness or ability to frequent our Neighbors’ businesses.
Our business, and the businesses of our Neighbors, could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic, epidemic, or other health crisis, like the COVID-19 pandemic, especially if there is a negative impact to customers’ willingness or ability to frequent our Neighbors’ businesses.
Removed
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 7 • We actively reinvest in our portfolio in the form of development and redevelopment projects, which have inherent risks that could adversely affect our financial condition, cash flows, and results of operations. • The continued shift in retail sales towards e-commerce may adversely affect our financial condition, cash flows, and results of operations. • Actual incremental unlevered yields for our development and redevelopment projects may vary from our underwritten incremental unlevered yield range. • Pandemics, such as the COVID-19 pandemic, had, and may continue to have, a negative effect on our and our Neighbors’ businesses, financial condition, results of operations, cash flows, and liquidity.
Added
Government responses, including quarantines, restrictions on travel, mandatory closures of businesses, or other restrictions, as well as changes in consumer behavior, could negatively impact our tenants and their ability to operate their businesses, which could impact our ability to collect on current or past due rent payments or fully recover amounts due under the terms of a lease agreement in the event of a default by a Neighbor.
Removed
During the years ended December 31, 2022 and 2021, we incurred impairment charges of $0.3 million and $6.8 million, respectively, related to real estate assets that were under contract or actively being marketed for sale at a disposition price that was less than the carrying value.
Added
Sales proceeds are then used to fund the construction of developments, redevelopments, expansions, and acquisitions, and to repay debt.
Removed
We recorded such impairment charges as we sold assets with greater risk to improve the quality of our portfolio. We will continue to evaluate the risk profile of each asset and may potentially recognize impairments in future quarters. Accordingly, there can be no assurance that we will not record additional impairment charges in the future related to our assets.
Added
As have many companies, we and our third party vendors have been impacted by security incidents in the past, and will likely continue to experience security incidents of varying degrees.
Removed
Many countries, including the United States, as well as certain states and cities, including where our shopping centers are located, initially reacted by instituting quarantines, restrictions on travel, and/or mandatory closures of businesses, as well as other restrictions. The COVID-19 pandemic impacted our historical business and financial performance.
Removed
We believe substantially all our Neighbors are contractually obligated to continue with their rent payments as documented in our lease agreements with them. There is no guarantee that we will ultimately be able to collect on current and past due amounts, particularly if there are additional pandemics or tightening of restrictions in the future.
Removed
Moreover, in the event of any default by a Neighbor under its lease agreement or relief agreement, we may not be able to fully recover, and/or may experience delays in recovering and additional costs in enforcing our rights as landlord to recover, amounts due to us under the terms of the lease agreement and/ or relief agreement.
Removed
Moreover, a resurgence of the COVID-19 pandemic or another pandemic, and/or renewed restrictions intended to prevent and mitigate the spread of the disease, and resulting consumer behavior and economic slowdown or recession could have additional adverse effects on our business in the future, including but not limited to the heightening of many of the other risks and uncertainties described in this “Risk Factors” section.
Removed
In addition, the COVID-19 pandemic has left many state and local governments with reduced tax revenue, which may lead such governments to increase taxes or otherwise make significant changes to their state and local tax laws. If such changes occur, we may be required to pay additional taxes on our assets or income.
Item 2. Properties
Properties — owned and leased real estate
10 edited+2 added−1 removed5 unchanged
Item 2. Properties
Properties — owned and leased real estate
10 edited+2 added−1 removed5 unchanged
2022 filing
2023 filing
Biggest changeFor additional portfolio information, refer to “Schedule III - Real Estate Assets and Accumulated Depreciation” (dollars and square feet in thousands): State ABR (1) % ABR ABR/Leased Square Foot GLA (2) % GLA % Leased Number of Properties Florida $ 52,878 12.0 % $ 14.12 3,899 12.4 % 96.0 % 49 California 48,079 10.9 % 20.55 2,412 7.7 % 97.0 % 25 Georgia 37,499 8.5 % 13.20 2,862 9.1 % 99.2 % 29 Texas 35,283 8.0 % 17.03 2,108 6.7 % 98.3 % 18 Ohio 25,488 5.8 % 10.81 2,408 7.7 % 97.9 % 20 Colorado 24,563 5.6 % 17.80 1,408 4.5 % 98.0 % 12 Illinois 24,208 5.5 % 15.52 1,637 5.2 % 95.3 % 14 Virginia 21,980 5.0 % 16.80 1,363 4.3 % 96.0 % 13 Minnesota 17,971 4.1 % 14.65 1,265 4.0 % 96.9 % 12 Massachusetts 16,259 3.7 % 14.72 1,146 3.7 % 96.4 % 9 Nevada 13,124 3.0 % 21.93 623 2.0 % 96.0 % 5 Pennsylvania 12,068 2.7 % 12.27 1,001 3.2 % 98.3 % 6 Wisconsin 11,966 2.7 % 11.40 1,061 3.4 % 99.0 % 9 Arizona 10,376 2.4 % 14.39 736 2.3 % 98.0 % 6 Maryland 9,459 2.2 % 20.70 467 1.5 % 97.7 % 4 South Carolina 9,329 2.1 % 11.19 867 2.8 % 96.2 % 8 North Carolina 8,184 1.9 % 12.49 659 2.1 % 99.5 % 10 Indiana 6,981 1.6 % 8.71 832 2.7 % 96.2 % 5 Michigan 6,903 1.6 % 9.58 723 2.3 % 99.7 % 5 Kentucky 6,511 1.5 % 10.67 616 2.0 % 99.1 % 4 Tennessee 5,896 1.3 % 8.61 692 2.2 % 99.0 % 4 Connecticut 5,825 1.3 % 14.12 421 1.3 % 98.0 % 4 New Mexico 5,591 1.3 % 14.52 404 1.3 % 95.3 % 3 Oregon 4,724 1.1 % 15.48 314 1.0 % 97.2 % 4 Kansas 4,503 1.0 % 12.21 376 1.2 % 98.0 % 3 New Jersey 4,152 0.9 % 24.50 169 0.5 % 100.0 % 1 Washington 2,741 0.6 % 16.16 173 0.6 % 98.1 % 2 Iowa 2,623 0.6 % 7.67 360 1.1 % 95.2 % 3 Missouri 2,577 0.6 % 11.91 222 0.7 % 97.6 % 2 New York 1,796 0.4 % 11.29 163 0.5 % 97.3 % 1 Utah 450 0.1 % 30.90 15 — % 100.0 % 1 Total $ 439,987 100.0 % $ 14.38 31,402 100.0 % 97.4 % 291 (1) We calculate ABR as monthly contractual base rent as of December 31, 2022, multiplied by twelve months.
Biggest changeFor additional portfolio information, refer to “Schedule III - Real Estate Assets and Accumulated Depreciation” (dollars and square feet in thousands): State ABR (1) % ABR ABR/Leased Square Foot GLA (2) % GLA % Leased Number of Properties Florida $ 58,036 12.2 % $ 14.57 4,088 12.6 % 97.4 % 51 California 51,936 10.9 % 21.52 2,504 7.7 % 96.4 % 26 Texas 43,072 9.1 % 18.21 2,474 7.6 % 95.6 % 20 Georgia 40,979 8.6 % 13.75 3,028 9.3 % 98.4 % 31 Illinois 28,540 6.0 % 16.71 1,804 5.6 % 94.6 % 16 Ohio 25,316 5.3 % 11.04 2,336 7.2 % 98.2 % 19 Colorado 24,850 5.2 % 18.41 1,408 4.3 % 95.9 % 12 Virginia 22,724 4.8 % 17.15 1,359 4.2 % 97.5 % 13 Minnesota 19,688 4.1 % 15.55 1,325 4.1 % 95.5 % 13 Massachusetts 16,944 3.6 % 15.22 1,146 3.5 % 97.1 % 9 Nevada 14,824 3.1 % 24.30 623 1.9 % 97.9 % 5 Pennsylvania 12,264 2.6 % 12.45 1,001 3.1 % 98.4 % 6 Wisconsin 11,990 2.5 % 11.47 1,057 3.3 % 98.9 % 9 Arizona 10,741 2.3 % 14.81 735 2.3 % 98.6 % 6 South Carolina 10,086 2.1 % 11.81 863 2.7 % 99.0 % 8 Maryland 9,568 2.0 % 21.01 463 1.4 % 98.4 % 4 North Carolina 8,409 1.8 % 12.91 658 2.0 % 99.0 % 10 Tennessee 8,132 1.7 % 10.20 802 2.5 % 99.4 % 5 Indiana 7,261 1.5 % 8.85 832 2.6 % 98.6 % 5 Kentucky 6,849 1.5 % 11.18 616 1.9 % 99.5 % 4 Michigan 6,772 1.4 % 9.59 724 2.2 % 97.6 % 5 New Mexico 6,044 1.3 % 15.02 404 1.2 % 99.6 % 3 Connecticut 5,982 1.3 % 14.35 421 1.3 % 99.0 % 4 Oregon 4,765 1.0 % 16.14 316 1.0 % 93.4 % 4 Kansas 4,684 1.0 % 12.53 374 1.2 % 100.0 % 3 New Jersey 4,245 0.9 % 25.05 169 0.5 % 100.0 % 1 Washington 2,886 0.6 % 16.69 173 0.5 % 100.0 % 2 Iowa 2,822 0.6 % 8.00 360 1.1 % 98.1 % 3 Missouri 2,589 0.5 % 11.89 222 0.7 % 98.2 % 2 New York 1,823 0.4 % 11.58 163 0.5 % 96.3 % 1 Utah 461 0.1 % 31.70 15 — % 100.0 % 1 Total $ 475,282 100.0 % $ 15.03 32,463 100.0 % 97.4 % 301 (1) We calculate ABR as monthly contractual base rent as of December 31, 2023 multiplied by twelve months.
The following charts present the composition of our portfolio, including our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint venture, by Neighbor type as of December 31, 2022: The following charts present the composition of our portfolio by Neighbor industry as of December 31, 2022: PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 25 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).
The following charts present the composition of our portfolio, including our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint venture, by Neighbor type as of December 31, 2023: The following charts present the composition of our portfolio by Neighbor industry as of December 31, 2023: PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 25 NECESSITY-BASED GOODS AND SERVICES —We define “necessity-based goods and services” as goods and services that are indispensable, necessary, or common for day-to-day living, or that tend to be inelastic (i.e., those for which the demand does not change based on a consumer’s income level).
We estimate that approximately 71% of our ABR, including the pro rata portion attributable to properties owned through our unconsolidated joint venture, is generated from Neighbors providing necessity-based goods and services.
We estimate that approximately 70% of our ABR, including the pro rata portion attributable to properties owned through our unconsolidated joint venture, is generated from Neighbors providing necessity-based goods and services.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 23 LEASE EXPIRATIONS —The following chart shows the aggregate scheduled lease expirations, excluding our Neighbors who are occupying space on a temporary basis, after December 31, 2022 for each of the next ten years and thereafter for our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint venture: Our ability to create rental rate growth generally depends on our leverage during new and renewal lease negotiations with prospective and existing Neighbors, which typically occurs when occupancy at our centers is high or during periods of economic growth and recovery.
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 December 31, 2023 for each of the next ten years and thereafter for our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint venture: Our ability to create rental rate growth generally depends on our leverage during new and renewal lease negotiations with prospective and existing Neighbors, which typically occurs when occupancy at our centers is high or during periods of economic growth and recovery.
Further, during the fiscal year 2022, our occupancy improved 1.1% to 97.4%, indicating continued demand for leasing spaces at our centers. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview - Leasing Activity” of this filing on Form 10-K for further discussion of leasing activity.
Further, during the fiscal year 2023, our occupancy remained high, ending the year at 97.4%, indicating continued demand for leasing spaces at our centers. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview - Leasing Activity” of this filing on Form 10-K for further discussion of leasing activity.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 24 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.
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.
For our wholly-owned properties, the expiring leases have an ABR of $16.38 per square foot. While we cannot predict what rental rates we will achieve in 2023 as we renew or replace these expiring leases, the comparable rent spread of new leases signed during 2022 was 32.2%, and the comparable rent spread for lease renewals executed in 2022 was 14.6%.
While we cannot predict what rental rates we will achieve in 2024 as we renew or replace these expiring leases, the comparable rent spread of new leases signed during 2023 was 25.2%, and the comparable rent spread for lease renewals executed in 2023 was 16.2%.
For our wholly-owned properties and those owned through our unconsolidated joint venture, during the 2023 fiscal year, we have a total of 595 leases expiring, representing 2.3 million square feet of GLA. For our wholly-owned properties, during the 2023 fiscal year, we have 547 leases expiring, representing 2.2 million square feet of GLA.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 24 For our wholly-owned properties and those owned through our unconsolidated joint venture, during the 2024 fiscal year, we have a total of 670 leases expiring, representing 2.8 million square feet of GLA.
PROPERTIES REAL ESTATE INVESTMENTS —The following table details information for our wholly-owned properties and those owned through our unconsolidated joint venture as of December 31, 2022, which is the basis for determining the prorated information included in the subsequent tables (dollars and square feet in thousands): Ownership Percentage Number of Properties ABR GLA Wholly-owned properties 100% 271 $ 435,712 31,093 GRP I 14% 20 30,542 2,209 In May 2022, we sold the final property in our NRP joint venture.
PROPERTIES REAL ESTATE INVESTMENTS —The following table details information for our wholly-owned properties and those owned through our unconsolidated joint venture as of December 31, 2023, which is the basis for determining the prorated information included in the subsequent tables (dollars and square feet in thousands): Ownership Percentage Number of Properties ABR GLA Wholly-owned properties 100% 281 $ 470,819 32,153 GRP I 14% 20 31,908 2,213 The following table presents information regarding the geographic location of our properties, including wholly-owned and the prorated portion of those owned through our unconsolidated joint venture, by ABR as of December 31, 2023.
TOP TWENTY NEIGHBORS —The following table presents our top 20 Neighbors by ABR, including our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint venture, as of December 31, 2022 (dollars and square feet in thousands): Neighbor (1) ABR % of ABR Leased Square Feet % of Leased Square Feet Number of Locations (2) Kroger $ 27,830 6.3 % 3,411 11.2 % 62 Publix 24,125 5.5 % 2,321 7.6 % 57 Albertsons 18,232 4.1 % 1,709 5.6 % 31 Ahold Delhaize 17,738 4.0 % 1,249 4.1 % 23 Walmart 8,971 2.0 % 1,770 5.8 % 13 Giant Eagle 7,362 1.7 % 759 2.5 % 10 Sprouts Farmers Market 6,494 1.5 % 421 1.4 % 14 TJX Companies 6,030 1.4 % 516 1.7 % 18 Raley's 4,592 1.1 % 289 0.9 % 5 Dollar Tree 3,621 0.8 % 343 1.1 % 36 SUPERVALU 3,244 0.7 % 336 1.1 % 5 Lowe's 2,470 0.6 % 369 1.2 % 4 Subway Group 2,415 0.5 % 93 0.3 % 65 Starbucks Corporation 2,369 0.5 % 53 0.2 % 32 Anytime Fitness, Inc. 2,308 0.5 % 140 0.5 % 29 Food 4 Less (PAQ) 2,305 0.5 % 118 0.4 % 2 Kohl's Corporation 2,241 0.5 % 365 1.2 % 4 Office Depot 2,237 0.5 % 179 0.6 % 8 United Parcel Service 2,211 0.5 % 83 0.3 % 65 Save Mart 2,174 0.5 % 258 0.8 % 5 Total $ 148,969 33.7 % 14,782 48.5 % 488 (1) Neighbors are grouped by parent company and may represent multiple subsidiaries and banners.
TOP TWENTY NEIGHBORS —The following table presents our top 20 Neighbors by ABR, including our wholly-owned properties and the prorated portion of those owned through our unconsolidated joint venture, as of December 31, 2023 (dollars and square feet in thousands): Neighbor (1) ABR % of ABR Leased Square Feet % of Leased Square Feet Number of Locations (2) Kroger $ 28,459 6.0 % 3,474 11.0 % 63 Publix 26,570 5.6 % 2,519 8.0 % 61 Albertsons 19,361 4.1 % 1,777 5.6 % 32 Ahold Delhaize 17,829 3.8 % 1,249 3.9 % 23 Walmart 8,971 1.9 % 1,770 5.6 % 13 Giant Eagle 7,384 1.6 % 759 2.4 % 10 Sprouts Farmers Market 6,663 1.4 % 421 1.3 % 14 TJX Companies 6,262 1.3 % 516 1.6 % 18 Raley's 4,599 1.0 % 288 0.9 % 5 Dollar Tree 3,859 0.7 % 369 1.2 % 37 UNFI (SuperValu) 3,476 0.7 % 336 1.1 % 5 Starbucks Corporation 2,983 0.5 % 64 0.2 % 35 Trader Joe's 2,727 0.5 % 122 0.4 % 9 H-E-B 2,492 0.5 % 164 0.5 % 2 Lowe's 2,469 0.5 % 369 1.2 % 4 Subway Group 2,448 0.5 % 88 0.3 % 61 Anytime Fitness, Inc. 2,430 0.5 % 140 0.4 % 29 Food 4 Less (PAQ) 2,305 0.5 % 118 0.4 % 2 United Parcel Service 2,304 0.5 % 82 0.3 % 65 H&R Block, Inc. 2,284 0.5 % 97 0.3 % 56 Total $ 155,875 32.6 % 14,722 46.6 % 544 (1) Neighbors are grouped by parent company and may represent multiple subsidiaries and banners.
Removed
The following table presents information regarding the geographic location of our properties, including wholly-owned and the prorated portion of those owned through our unconsolidated joint venture, by ABR as of December 31, 2022.
Added
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 23 TOP TEN CITIES —The following table presents the top ten city markets by ABR of our wholly-owned properties as of December 31, 2023 (dollars in thousands): City ABR (1) % ABR Atlanta $ 33,644 7.1 % Chicago 26,067 5.5 % Dallas 24,709 5.2 % Sacramento 20,986 4.5 % Minneapolis 18,439 3.9 % Denver 17,731 3.8 % Washington, D.C. 14,915 3.2 % Las Vegas 14,824 3.1 % Houston 14,609 3.1 % Tampa 13,791 2.9 % Total $ 199,715 42.3 % (1) We calculate ABR as monthly contractual base rent as of December 31, 2023 multiplied by twelve months.
Added
For our wholly-owned properties, during the 2024 fiscal year, we have 635 leases expiring, representing 2.8 million square feet of GLA. For our wholly-owned properties, the expiring leases have an ABR of $15.07 per square foot.
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−1 removed0 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−1 removed0 unchanged
2022 filing
2023 filing
Biggest changeITEM 3. LEGAL PROCEEDINGS 26 ITEM 4 . MINE SAFETY DISCLOSURES 26 PART II. ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES 27 ITEM 6. [RESERVED] 28 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 29 ITEM 7A.
Biggest changeITEM 3. LEGAL PROCEEDINGS 26 ITEM 4 . MINE SAFETY DISCLOSURES 26 PART II. ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES 27 ITEM 6. [RESERVED] 28 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 29 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 44
Removed
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 45 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 45
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
12 edited+1 added−1 removed5 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
12 edited+1 added−1 removed5 unchanged
2022 filing
2023 filing
Biggest changeWe declared and paid 2021 monthly distributions of $0.085 per share, or $1.02 annualized, for each month beginning January 2021 through September 2021. We declared and paid 2021 monthly distributions of $0.09 per share, or $1.08 annualized, for October 2021 through December 2021.
Biggest changeWe declared and paid monthly distributions of $0.0975 per share, or $1.17 annualized, for each month beginning September 2023 through December 2023. The December 2023 and January 2024 distributions of $0.0975 per share were paid on January 2, 2024 and February 1, 2024, respectively. Holders of ownership units of Phillips Edison Grocery Center Operating Partnership I, L.P.
Treasury Regulation §1.1061-6(c) and §1061 of the IRC, the One Year Amounts and Three Year Amounts disclosures are both zero with respect to direct and indirect holders of “applicable partnership interests” for us and our subsidiary REIT, Phillips Edison Institutional REIT, LLC.
Treasury Regulation §1.1061-6(c) and §1061 of the IRC, the One Year Amounts and Three Year Amounts disclosures are both zero with respect to direct and indirect holders of “applicable partnership interests” for us and our subsidiary REIT, Phillips Edison Institutional REIT, LLC for all years presented.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 27 The table below summarizes repurchases of our common stock made during the three months ended December 31, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan or Program (in thousands) October 1, 2022 - October 31, 2022 — $— — $250,000 November 1, 2022 - November 30, 2022 — — — 250,000 December 1, 2022 to December 31, 2022 (1) 3,596 31.84 — 250,000 (1) Represents common shares surrendered to us to satisfy statutory minimum tax withholding obligations associated with the vesting of restricted stock awards under our equity-based compensation plan.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 27 The table below summarizes repurchases of our common stock made during the three months ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan or Program (in thousands) October 1, 2023 - October 31, 2023 — $— — $250,000 November 1, 2023 - November 30, 2023 — — — 250,000 December 1, 2023 to December 31, 2023 (1) 21,649 36.48 — 250,000 (1) Represents common shares surrendered to us to satisfy statutory minimum tax withholding obligations associated with the vesting of restricted stock awards under our equity-based compensation plan.
UNREGISTERED SALE OF SECURITIES —During the year ended December 31, 2022, we issued an aggregate of approximately 1,169,000 shares of common stock in redemption of approximately 1,169,000 OP units. These shares of common stock were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
UNREGISTERED SALE OF SECURITIES —During the year ended December 31, 2023, we issued an aggregate of approximately 517,000 shares of common stock in redemption of approximately 517,000 OP units. These shares of common stock were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
(the "Operating Partnership") ("OP units") will receive distributions at the same rate as common stockholders, subject to certain withholdings. The timing and amount of distributions is determined by our Board and is influenced in part by our intention to comply with REIT requirements of the Internal Revenue Code of 1986, as amended (the “IRC”).
(the "Operating Partnership") ("OP units") will receive distributions at the same rate as common stockholders, subject to any applicable withholding. The timing and amount of distributions are determined by our Board and is influenced in part by our intention to comply with REIT requirements of the Internal Revenue Code of 1986, as amended (the “IRC”).
Ticker / Index 7/15/2021 12/31/2021 6/30/2022 12/31/2022 PECO $ 100 $ 120 $ 124 $ 120 S&P 500 100 110 88 90 FTSE Nareit All Equity REITs 100 113 90 85 FTSE Nareit Equity Shopping Centers 100 114 93 100
Ticker / Index 7/15/2021 12/31/2021 6/30/2022 12/31/2022 6/30/2023 12/31/2023 PECO $ 100 $ 120 $ 124 $ 120 $ 131 $ 142 S&P 500 100 110 88 90 105 114 FTSE Nareit All Equity REITs 100 113 90 85 90 97 FTSE Nareit Equity Shopping Centers 100 114 93 100 101 112
The tax characterization of our distributions declared for the years ended December 31, 2022 and 2021 was as follows: 2022 2021 Common stock: Ordinary dividends 77.4 % 62.8 % Non-dividend distributions 22.6 % 18.1 % Capital gain distributions (1) — % 19.1 % Total distributions per share of common stock 100.0 % 100.0 % (1) Pursuant to U.S.
The tax characterization of our distributions declared for the years ended December 31, 2023 and 2022 was as follows: 2023 2022 Common stock: Ordinary dividends 75.9 % 77.4 % Non-dividend distributions 24.0 % 22.6 % Capital gain distributions (1) 0.1 % — % Total distributions per share of common stock 100.0 % 100.0 % (1) Pursuant to U.S.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION —Pursuant to our underwritten initial public offering (“underwritten IPO”) on July 19, 2021, our common stock is traded on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “PECO.” As of February 1, 2023, we had approximately 117.3 million shares of common stock outstanding, held by a total of 9,872 stockholders of record.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION —Pursuant to our underwritten initial public offering (“underwritten IPO”) on July 19, 2021, our common stock is traded on the Nasdaq Global Select Market (“Nasdaq”) under the ticker symbol “PECO.” As of February 5, 2024, we had approximately 122.2 million shares of common stock outstanding, held by approximately 8,000 stockholders of record.
We declared and paid 2022 monthly distributions of $0.0933 per share, or $1.12 annualized, an increase of 3.7%, for each month beginning September 2022 through December 2022. The December 2022 and January 2023 distributions of $0.0933 per share were paid on January 3, 2023 and February 1, 2023, respectively.
In 2022, we declared and paid monthly distributions of $0.09 per share, or $1.08 annualized, for each month beginning January 2022 through August 2022. We declared and paid monthly distributions of $0.0933 per share, or $1.12 annualized, an increase of 3.7%, for each month beginning September 2022 through December 2022.
On August 3, 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.
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.
As a REIT, we have made, and intend to continue to make, distributions each taxable year equal to at least 90% of our taxable income (excluding capital gains and computed without regard to the dividends paid deduction). We declared and paid 2022 monthly distributions of $0.09 per share, or $1.08 annualized, for each month beginning January 2022 through August 2022.
As a REIT, we have made, and intend to continue to make, distributions each taxable year equal to at least 90% of our taxable income (excluding capital gains and computed without regard to the dividends paid deduction).
We relied on the exemption under Section 4(a)(2) based upon factual representations received from the limited partners who received the shares of common stock. DIVIDEND REINVESTMENT PLAN (“DRIP”) AND SHARE REPURCHASE PROGRAMS —On August 4, 2021, as a result of our underwritten IPO, our Board approved the termination of the DRIP and the original share repurchase program.
We relied on the exemption under Section 4(a)(2) based upon factual representations received from the limited partners who received the shares of common stock. SHARE REPURCHASE PROGRAM —On August 3, 2022, our Board approved a new share repurchase program of up to $250 million of common stock.
Removed
On February 8, 2023, our board of directors (the “Board”) authorized 2023 distributions for February, March, and April of $0.0933 per share to the stockholders of record at the close of business on February 21, 2023, March 15, 2023, and April 17, 2023, respectively. Holders of ownership units of Phillips Edison Grocery Center Operating Partnership I, L.P.
Added
In 2023, we declared and paid monthly distributions of $0.0933 per share, or $1.12 annualized, for each month beginning January 2023 through August 2023. On September 1, 2023, our Board of Directors (the “Board”) authorized a 4.5% increase of our monthly distribution rate to $0.0975 per common share.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
94 edited+23 added−19 removed68 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
94 edited+23 added−19 removed68 unchanged
2022 filing
2023 filing
Biggest changePHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 32 • As of December 31, 2022, our debt maturity profile with the respective principal payment obligations is as follows (including the impact of derivatives on weighted-average interest rates): PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 33 LEASING ACTIVITY —Below is a summary of leasing activity for our wholly-owned properties for the years ended December 31, 2022 and 2021 (1) : Total Deals Inline Deals 2022 2021 2022 2021 New leases: Number of leases 390 538 375 517 Square footage (in thousands) 1,230 1,805 819 1,193 ABR (in thousands) $ 23,750 $ 30,889 $ 19,919 $ 24,622 ABR PSF $ 19.31 $ 17.11 $ 24.33 $ 20.63 Cost PSF of executing new leases $ 36.25 $ 28.44 $ 39.56 $ 29.55 Number of comparable leases 145 228 143 224 Comparable rent spread 32.2 % 15.7 % 26.5 % 15.7 % Weighted average lease term (in years) 8.1 8.1 7.4 6.4 Renewals and options: Number of leases 611 597 551 537 Square footage (in thousands) 3,554 3,834 1,213 1,130 ABR (in thousands) $ 49,625 $ 47,603 $ 29,172 $ 25,891 ABR PSF $ 13.96 $ 12.42 $ 24.04 $ 22.92 ABR PSF prior to renewals $ 12.77 $ 11.68 $ 21.18 $ 20.86 Percentage increase in ABR PSF 9.3 % 6.3 % 13.4 % 9.9 % Cost PSF of executing renewals and options $ 1.89 $ 0.63 $ 1.10 $ 1.23 Number of comparable leases (2) 472 496 459 475 Comparable rent spread (2) 14.6 % 8.1 % 15.2 % 10.2 % Weighted average lease term (in years) 4.9 4.8 4.2 4.1 Portfolio retention rate 90.7 % 87.8 % 77.5 % 79.4 % (1) PSF amounts may not recalculate exactly based on other amounts presented within the table due to rounding.
Biggest changePHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 33 LEASING ACTIVITY —Below is a summary of leasing activity for our wholly-owned properties for the years ended December 31, 2023 and 2022 (1) : Total Deals Inline Deals 2023 2022 2023 2022 New leases: Number of leases 348 390 334 375 Square footage (in thousands) 1,077 1,230 763 819 ABR (in thousands) $ 23,416 $ 23,750 $ 19,813 $ 19,919 ABR PSF $ 21.75 $ 19.31 $ 25.98 $ 24.33 Cost PSF of executing new leases $ 33.04 $ 36.25 $ 37.22 $ 39.56 Number of comparable leases 137 145 135 143 Comparable rent spread 25.2 % 32.2 % 24.8 % 26.5 % Weighted average lease term (in years) 8.6 8.1 7.2 7.4 Renewals and options: Number of leases 648 611 590 551 Square footage (in thousands) 3,642 3,554 1,360 1,213 ABR (in thousands) $ 58,529 $ 49,625 $ 35,311 $ 29,172 ABR PSF $ 16.07 $ 13.96 $ 25.96 $ 24.04 ABR PSF prior to renewals $ 14.50 $ 12.77 $ 22.44 $ 21.18 Percentage increase in ABR PSF 10.8 % 9.3 % 15.7 % 13.4 % Cost PSF of executing renewals and options $ 0.52 $ 1.89 $ 0.91 $ 1.10 Number of comparable leases (2) 485 472 470 459 Comparable rent spread (2) 16.2 % 14.6 % 17.7 % 15.2 % Weighted average lease term (in years) 5.0 4.9 4.3 4.2 Portfolio retention rate 93.9 % 90.7 % 84.9 % 77.5 % (1) PSF amounts may not recalculate exactly based on other amounts presented within the table due to rounding.
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 the last two reporting periods (i.e., since January 1, 2021). • Total Enterprise Value—We calculate total enterprise value as our net debt plus our equity market capitalization on a fully diluted basis.
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 the last two reporting periods (i.e., since January 1, 2022). • Total Enterprise Value—We calculate total enterprise value as our net debt plus our equity market capitalization on a fully diluted basis.
Our debt activity during the year ended December 31, 2022 was as follows: • In May 2022, we amended our credit facility agreement (the “Amendment”) to, among other things, increase the total amount available under our unsecured revolving credit facility from $500 million to $800 million.
Our debt activity during the year ended December 31, 2022 was as follows: • In May 2022, we amended our credit facility agreement to, among other things, increase the total amount available under our unsecured revolving credit facility from $500 million to $800 million.
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 (“FFO”)—To arrive at Core FFO, we adjust Nareit FFO Attributable to Stockholders and OP Unit Holders, 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 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.
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.
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.
Further, we are also party to an agreement with our institutional joint venture partner in which any potential liability under such guarantee will be apportioned between us and our joint venture partner based on our respective ownership percentage in the joint venture. As of December 31, 2022, GRP I had an outstanding debt balance of $174.0 million.
Further, we are also party to an agreement with our institutional joint venture partner in which any potential liability under such guarantee will be apportioned between us and our joint venture partner based on our respective ownership percentage in the joint venture. As of December 31, 2023, GRP I had an outstanding debt balance of $174.0 million.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 29 • 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.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 29 • 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.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 40 OTHER CONTRACTUAL COMMITMENTS AND CONTINGENCIES AND OFF BALANCE SHEET ARRANGEMENTS —We enter into leases as a lessee as part of our real estate operations in the form of ground leases of land for certain properties, and as part of our corporate operations in the form of office space and office equipment leases.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 40 OTHER CONTRACTUAL COMMITMENTS AND CONTINGENCIES AND OFF BALANCE SHEET ARRANGEMENTS —We enter into leases as a lessee as part of our real estate operations in the form of ground leases of land for certain properties, and as part of our corporate operations in the form of office space and office equipment leases.
UNDERWRITTEN INITIAL PUBLIC OFFERING —On July 19, 2021, we closed our underwritten IPO, through which we issued 19.6 million shares, including the underwriters’ overallotment election, of a new class of common stock, $0.01 par value per share, at an initial price to the public of $28.00 per share.
IMPACT OF THE UNDERWRITTEN IPO —On July 19, 2021, we closed our underwritten IPO, through which we issued 19.6 million shares, including the underwriters’ overallotment election, of a new class of common stock, $0.01 par value per share, at an initial price to the public of $28.00 per share.
We anticipate that obligations related to capital improvements, as well as redevelopment and development, in 2023 can be met with cash flows from operations, cash flows from dispositions, or borrowings on our unsecured revolving credit facility. Generally, we expect our development and redevelopment projects to stabilize within 24 months.
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.
FINANCIAL HIGHLIGHTS —Owning, operating, and managing well-occupied omni-channel grocery-anchored real estate is a core part of our business strategy, and as of December 31, 2022, 97.2% of our ABR was derived from omni-channel grocery-anchored shopping centers.
FINANCIAL HIGHLIGHTS —Owning, operating, and managing well-occupied omni-channel grocery-anchored real estate is a core part of our business strategy, and as of December 31, 2023, 97.2% of our ABR was derived from omni-channel grocery-anchored shopping centers.
At December 31, 2022, the Operating Partnership had issued and outstanding its 2.625% senior notes. The obligations of the Operating Partnership to pay principal, premiums, if any, and interest on the 2.625% senior notes are fully and unconditionally guaranteed by us on a senior basis.
At December 31, 2023, the Operating Partnership had issued and outstanding its 2.625% senior notes. The obligations of the Operating Partnership to pay principal, premiums, if any, and interest on the 2.625% senior notes are fully and unconditionally guaranteed by us on a senior basis.
FINANCIAL LEVERAGE RATIOS —We believe our net debt to Adjusted EBITDA re , net debt to total enterprise value, and debt covenant compliance as of December 31, 2022 allow us access to future borrowings as needed in the near term.
FINANCIAL LEVERAGE RATIOS —We believe our net debt to Adjusted EBITDA re , net debt to total enterprise value, and debt covenant compliance as of December 31, 2023 allow us access to future borrowings as needed in the near term.
As of December 31, 2022, we were in compliance with the restrictive covenants of our outstanding debt obligations and we expect to continue to meet the requirements of these covenants over the next twelve months.
As of December 31, 2023, we were in compliance with the restrictive covenants of our outstanding debt obligations and we expect to continue to meet the requirements of these covenants over the next twelve months.
The aforementioned adjustments, as well as any reserve for disputed charges, are recorded as a reduction of Rental Income on the consolidated statements of operations. Our revenue collectibility estimates are made based on historical experience, the current economic climate, and other Neighbor-specific factors.
The aforementioned adjustments, as well as any reserve for disputed charges, are recorded as a reduction of Rental Income on the consolidated statements of operations and comprehensive income (“consolidated statements of operations”). Our revenue collectibility estimates are made based on historical experience, the current economic climate, and other Neighbor-specific factors.
As of December 31, 2022, our future contractual finance lease obligations included $0.3 million during 2023, and $0.3 million thereafter. We have an off-balance sheet arrangement that includes being the limited guarantor of a $175 million mortgage loan secured by Grocery Retail Partners I LLC (“GRP I”) properties.
As of December 31, 2023, our future contractual finance lease obligations included $0.3 million during 2024. We have an off-balance sheet arrangement that includes being the limited guarantor of a $175 million mortgage loan secured by Grocery Retail Partners I LLC (“GRP I”) properties.
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 254 properties that were owned and operational prior to January 1, 2021.
Our basis for analyzing significant fluctuations in our results of operations generally includes review of the results of our same-center portfolio, non-same-center portfolio, and revenues and expenses from our management activities. We define our same-center portfolio as the 262 properties that were owned and operational prior to January 1, 2022.
Currently, neither our operating leases nor our finance leases have residual value guarantees or other restrictions or covenants. We expect to fund these obligations through existing financing or cash flows from operations. As of December 31, 2022, our future contractual obligations as a lessee included operating lease obligations of $0.7 million during 2023, and $6.8 million thereafter.
Currently, neither our operating leases nor our finance leases have residual value guarantees or other restrictions or covenants. We expect to fund these obligations through existing financing or cash flows from operations. As of December 31, 2023, our future contractual obligations as a lessee included operating lease obligations of $0.7 million during 2024, and $7.3 million thereafter.
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 cause current market conditions in the United States to worsen.
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.
Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA re on the same basis. • 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—Nareit defines 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.
Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect EBITDA re on the same basis. • 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.
Future Debt Obligations —As of December 31, 2022, including the impact of our swap agreements, our future contractual debt obligations were $115.2 million of debt principal and interest payments during 2023, and $2.1 billion of debt principal and interest payments thereafter (see Note 8).
Future Debt Obligations —As of December 31, 2023, including the impact of our swap agreements, our future contractual debt obligations were $115.7 million of debt principal and interest payments during 2024, and $2.2 billion of debt principal and interest payments thereafter (see Note 8).
Our underwritten incremental unlevered yields on development and redevelopment projects are expected to average between 9%-11%. Our current in process projects represent an estimated total investment of $50.3 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.
Our underwritten incremental unlevered yields on development and redevelopment projects are expected to average between 9%-12%. Our current in process projects represent an estimated total investment of $33.7 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.
During the year ended December 31, 2022, we had a net cash outlay of $0.2 million from changes in working capital as compared to a net cash inflow of $4.0 million during the same period in 2021.
During the year ended December 31, 2023, we had a net cash outlay of $9.4 million from changes in working capital as compared to a net cash outlay of $0.2 million during the same period in 2022.
Differentiated and Focused Strategy —We actively monitor the commercial real estate sector for shopping centers that meet our investment objectives. Capital raised through our underwritten IPO combined with our effective shelf registration statement and ATM program allow us to access equity and debt capital that we intend to use, in part, to grow our portfolio of assets.
Differentiated and Focused Strategy —We actively monitor the commercial real estate sector for shopping centers that meet our investment objectives. Our effective shelf registration statement and ATM program allow us to access equity and debt capital that we intend to use, in part, to grow our portfolio of assets.
For the years ended December 31, 2022 and 2021, Same-Center NOI represents the NOI for the 254 properties that were wholly-owned and operational for the entire portion of all comparable reporting periods.
For the years ended December 31, 2023 and 2022, Same-Center NOI represents the NOI for the 262 properties that were wholly-owned and operational for the entire portion of all comparable reporting periods.
FINANCING ACTIVITIES —Our net cash used in financing activities was primarily impacted by the following: • Debt borrowings and payments — During the year ended December 31, 2022, we had $1.3 million in net repayment of debt as compared to $402.3 million in net repayment of debt during the same period a year ago.
FINANCING ACTIVITIES —Our net cash provided by (used in) financing activities was primarily impacted by the following: • Debt borrowings and payments — During the year ended December 31, 2023, we had $64.2 million in net borrowings as compared to $1.3 million in net repayment of debt during the same period a year ago.
While we do not believe there is a reasonable likelihood of a material change in the estimates or PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 44 assumptions that we use to recognize revenue, if actual payment levels were to vary significantly from estimates, we may be exposed to decreases in rental income that could be material or increases of non-cash straight-line income when a cash-basis Neighbor moves back to accrual accounting in accordance with GAAP.
While we do not believe there is a reasonable likelihood of a material change in the estimates or assumptions that we use to recognize revenue, if actual payment levels were to vary significantly from estimates, we may be exposed to decreases in rental income that could be material or increases of non-cash straight-line income when a cash-basis Neighbor moves back to accrual accounting in accordance with GAAP.
We define our non-same-center portfolio as those properties that were not fully owned and operational in both periods owing to real estate asset activity occurring after December 31, 2020, which includes 27 properties disposed of and 16 properties acquired.
We define our non-same-center portfolio as those properties that were not fully owned and operational in both periods owing primarily to real estate asset activity occurring after December 31, 2021, which includes five properties disposed of and 18 properties acquired.
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 DECEMBER 31, 2023 FORM 10-K 36 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.
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.
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. We are currently targeting acquisitions of $200 million - $300 million annually.
PORTFOLIO AND LEASING STATISTICS —Below are statistical highlights of our wholly-owned portfolio as of December 31, 2022 and 2021 (dollars and square feet in thousands): 2022 2021 Number of properties 271 268 Number of states 31 31 Total square feet 31,093 30,691 ABR $ 435,712 $ 405,281 % ABR from omni-channel grocery-anchored shopping centers 97.2 % 96.7 % Leased occupancy %: Total portfolio spaces 97.4 % 96.3 % Anchor spaces 99.3 % 98.1 % Inline spaces 93.8 % 92.7 % Average remaining lease term (in years) (1) 4.5 4.6 (1) The average remaining lease term in years excludes future options to extend the term of the lease.
PORTFOLIO AND LEASING STATISTICS —Below are statistical highlights of our wholly-owned portfolio as of December 31, 2023 and 2022 (dollars and square feet in thousands): 2023 2022 Number of properties 281 271 Number of states 31 31 Total square feet 32,153 31,093 ABR $ 470,819 $ 435,712 % ABR from omni-channel grocery-anchored shopping centers 97.2 % 97.2 % Leased occupancy %: Total portfolio spaces 97.4 % 97.4 % Anchor spaces 98.9 % 99.3 % Inline spaces 94.7 % 93.8 % Average remaining lease term (in years) (1) 4.4 4.5 (1) The average remaining lease term in years excludes future options to extend the term of the lease.
As of December 31, 2022, the notional amount of our interest rate swaps was $0.8 billion. As of December 31, 2022, our future interest rate swap recoverables are $15.9 million during 2023 and $11.2 million thereafter.
As of December 31, 2023, the notional amount of our interest rate swaps was $0.7 billion. As of December 31, 2023, our future interest rate swap recoverables are $15.8 million during 2024 and $11.3 million thereafter.
Our Neighbors are a mix of national, regional, and local retailers that primarily provide necessity-based goods and services. As of December 31, 2022, we owned equity interests in 291 shopping centers, including 271 wholly-owned shopping centers and 20 shopping centers owned through one unconsolidated joint venture, which comprised approximately 33.3 million square feet in 31 states.
Our Neighbors are a mix of national, regional, and local retailers that primarily provide necessity-based goods and services. As of December 31, 2023, we owned equity interests in 301 shopping centers, including 281 wholly-owned shopping centers and 20 shopping centers owned through one unconsolidated joint venture, which comprised approximately 34.4 million square feet in 31 states.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our 2021 Annual Report on Form 10-K, filed with the SEC on February 16, 2022. PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 36 NON-GAAP MEASURES See “Key Performance Indicators and Defined Terms” above for additional information related to the following non-GAAP measures.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our 2022 Annual Report on Form 10-K, filed with the SEC on February 21, 2023. NON-GAAP MEASURES See “Key Performance Indicators and Defined Terms” above for additional information related to the following non-GAAP measures.
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. No shares were issued under the ATM program during the fourth quarter of 2022.
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.
The increase in property operations was primarily due to a $15.6 million, or 4.5%, improvement in Same-Center NOI as compared to 2021, and the execution of our acquisition strategy.
The increase in property operations was primarily due to a $16.2 million, or 4.2%, improvement in Same-Center NOI as compared to 2022, and the execution of our acquisition strategy.
Debt Activity —During the years ended December 31, 2022 and 2021, we took steps to increase debt amounts available to us for future investment activity.
Debt Activity —During the years ended December 31, 2023 and 2022, we took steps to appropriately ladder our debt maturities and increase debt amounts available to us for future investment activity.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 38 The following table presents our calculation of EBITDA re and Adjusted EBITDA re for the years ended December 31, 2022, 2021, and 2020 (in thousands): 2022 2021 2020 Calculation of EBITDA re Net income $ 54,529 $ 17,233 $ 5,462 Adjustments: Depreciation and amortization 236,224 221,433 224,679 Interest expense, net 71,196 76,371 85,303 Gain on disposal of property, net (7,517) (30,421) (6,494) Impairment of real estate assets 322 6,754 2,423 Federal, state, and local tax expense 806 327 491 Adjustments related to unconsolidated joint ventures 1,987 1,431 3,355 EBITDA re $ 357,547 $ 293,128 $ 315,219 Calculation of Adjusted EBITDA re EBITDA re $ 357,547 $ 293,128 $ 315,219 Adjustments: Change in fair value of earn-out liability 1,809 30,436 (10,000) Transaction and acquisition expenses 10,551 5,363 539 Amortization of unconsolidated joint venture basis differences 220 1,167 1,883 Realized performance income (1) (2,742) (675) — Other impairment charges — — 359 Adjusted EBITDA re $ 367,385 $ 329,419 $ 308,000 (1) Realized performance income includes fees received related to the achievement of certain performance targets in our NRP joint venture.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 38 The following table presents our calculation of EBITDA re and Adjusted EBITDA re for the years ended December 31, 2023, 2022, and 2021 (in thousands): 2023 2022 2021 Calculation of EBITDA re Net income $ 63,762 $ 54,529 $ 17,233 Adjustments: Depreciation and amortization 236,443 236,224 221,433 Interest expense, net 84,232 71,196 76,371 Gain on disposal of property, net (1,110) (7,517) (30,421) Impairment of real estate assets — 322 6,754 Federal, state, and local tax expense 438 806 327 Adjustments related to unconsolidated joint ventures 3,721 1,987 1,431 EBITDA re $ 387,486 $ 357,547 $ 293,128 Calculation of Adjusted EBITDA re EBITDA re $ 387,486 $ 357,547 $ 293,128 Adjustments: Impairment of investment in third parties 3,000 — — Change in fair value of earn-out liability — 1,809 30,436 Transaction and acquisition expenses 5,675 10,551 5,363 Amortization of unconsolidated joint venture basis differences 17 220 1,167 Realized performance income (1) (75) (2,742) (675) Adjusted EBITDA re $ 396,103 $ 367,385 $ 329,419 (1) Realized performance income includes fees received related to the achievement of certain performance targets in our NRP joint venture.
The following table presents our calculation of Nareit FFO Attributable to Stockholders and OP Unit Holders and Core FFO for the years ended December 31, 2022, 2021, and 2020 (in thousands, except per share amounts): 2022 2021 2020 Calculation of Nareit FFO Attributable to Stockholders and OP Unit Holders Net income $ 54,529 $ 17,233 $ 5,462 Adjustments: Depreciation and amortization of real estate assets 232,571 217,564 218,738 Impairment of real estate assets 322 6,754 2,423 Gain on disposal of property, net (7,517) (30,421) (6,494) Adjustments related to unconsolidated joint ventures 842 72 1,552 Nareit FFO attributable to stockholders and OP unit holders $ 280,747 $ 211,202 $ 221,681 Calculation of Core FFO Nareit FFO attributable to stockholders and OP unit holders $ 280,747 $ 211,202 $ 221,681 Adjustments: Depreciation and amortization of corporate assets 3,653 3,869 5,941 Change in fair value of earn-out liability 1,809 30,436 (10,000) Transaction and acquisition expenses 10,551 5,363 539 Loss on extinguishment or modification of debt and other, net 1,025 3,592 4 Amortization of unconsolidated joint venture basis differences 220 1,167 1,883 Realized performance income (1) (2,742) (675) — Other impairment charges — — 359 Core FFO $ 295,263 $ 254,954 $ 220,407 Nareit FFO Attributable to Stockholders and OP Unit Holders/Core FFO per diluted share Weighted-average shares of common stock outstanding - diluted 130,332 116,672 111,156 Nareit FFO attributable to stockholders and OP unit holders per share - diluted $ 2.15 $ 1.81 $ 1.99 Core FFO per share - diluted $ 2.27 $ 2.19 $ 1.98 (1) Realized performance income includes fees received related to the achievement of certain performance targets in our NRP joint venture.
The following table presents our calculation of Nareit FFO and Core FFO for the years ended December 31, 2023, 2022, and 2021 (in thousands, except per share amounts): 2023 2022 2021 Calculation of Nareit FFO Attributable to Stockholders and OP Unit Holders Net income $ 63,762 $ 54,529 $ 17,233 Adjustments: Depreciation and amortization of real estate assets 234,260 232,571 217,564 Impairment of real estate assets — 322 6,754 Gain on disposal of property, net (1,110) (7,517) (30,421) Adjustments related to unconsolidated joint ventures 2,636 842 72 Nareit FFO attributable to stockholders and OP unit holders $ 299,548 $ 280,747 $ 211,202 Calculation of Core FFO Attributable to Stockholders and OP Unit Holders Nareit FFO attributable to stockholders and OP unit holders $ 299,548 $ 280,747 $ 211,202 Adjustments: Depreciation and amortization of corporate assets 2,183 3,653 3,869 Change in fair value of earn-out liability — 1,809 30,436 Impairment of investment in third parties 3,000 — — Transaction and acquisition expenses 5,675 10,551 5,363 Loss on extinguishment or modification of debt and other, net 368 1,025 3,592 Amortization of unconsolidated joint venture basis differences 17 220 1,167 Realized performance income (1) (75) (2,742) (675) Core FFO attributable to stockholders and OP unit holders $ 310,716 $ 295,263 $ 254,954 Nareit FFO/Core FFO Attributable to Stockholders and OP Unit Holders per diluted share Weighted-average shares of common stock outstanding - diluted 132,970 130,332 116,672 Nareit FFO attributable to stockholders and OP unit holders per share - diluted $ 2.25 $ 2.15 $ 1.81 Core FFO attributable to stockholders and OP unit holders per share - diluted $ 2.34 $ 2.27 $ 2.19 (1) Realized performance income includes fees received related to the achievement of certain performance targets in our NRP joint venture.
(2) Includes operating revenues and expenses from non-same-center properties which includes properties acquired or sold and corporate activities. PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 37 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.
(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.
The following table highlights our property acquisitions during the years ended December 31, 2022 and 2021 (dollars in thousands): 2022 2021 Number of properties acquired 7 9 Number of outparcels acquired (1) 4 5 Contract price $ 280,515 $ 307,551 Total price of acquisitions (2) 282,000 308,358 (1) Outparcels acquired are adjacent to shopping centers that we own.
The following table highlights our property acquisitions during the years ended December 31, 2023 and 2022 (dollars in thousands): 2023 2022 Number of properties acquired 11 7 Number of outparcels acquired (1) 3 4 Contract price $ 278,480 $ 280,515 Total price of acquisitions (2) 270,262 282,000 (1) Outparcels acquired are adjacent to shopping centers that we own.
(2) For the year ended December 31, 2022, amounts reported are net of insurance proceeds for property damage claims. We expect our capital expenditures to reach $105 million - $115 million in 2023, which includes $50 million - $60 million related to development and redevelopment projects.
(2) Amounts reported are net of insurance proceeds of $2.6 million and $2.1 million for property damage claims for the years ended December 31, 2023 and 2022, respectively. We expect our capital expenditures to reach $100 million - $110 million in 2024, which includes $40 million - $50 million related to development and redevelopment projects.
We declared and paid 2022 monthly distributions of $0.0933 per share, or $1.12 annualized, an increase of 3.7%, for each month beginning September 2022 through December 2022. The December 2022 and January 2023 distributions of $0.0933 per share were paid on January 3, 2023 and February 1, 2023, respectively.
In 2022, we declared and paid monthly distributions of $0.09 per share, or $1.08 annualized, for each month beginning January 2022 through August 2022. We declared and paid monthly distributions of $0.0933 per share, or $1.12 annualized, an increase of 3.7%, for each month beginning September 2022 through December 2022.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 43 INVESTING ACTIVITIES —Our net cash used in investing activities was primarily impacted by the following: • Real estate acquisitions — During the year ended December 31, 2022, our acquisitions resulted in a total cash outlay of $282.0 million, as compared to a total cash outlay of $308.4 million during the same period in 2021. • Real estate dispositions — During the year ended December 31, 2022, our dispositions resulted in a net cash inflow of $52.0 million, as compared to a net cash inflow of $206.4 million during the same period in 2021. • Capital expenditures — We invest capital into leasing our properties and maintaining or improving the condition of our properties.
INVESTING ACTIVITIES —Our net cash used in investing activities was primarily impacted by the following: • Real estate acquisitions — During the year ended December 31, 2023, our acquisitions resulted in a total cash outlay of $270.3 million, as compared to a total cash outlay of $282.0 million during the same period in 2022. • Capital expenditures — We invest capital into leasing our properties and maintaining or improving the condition of our properties.
REAL ESTATE DISPOSITION ACTIVITY —We continually evaluate our portfolio of assets for opportunities to make strategic dispositions of assets that no longer meet our growth and investment objectives or assets that have stabilized in order to capture their value.
(2) Total price of acquisitions includes closing costs less credits and assumed debt obligations. REAL ESTATE DISPOSITION ACTIVITY —We continually evaluate our portfolio of assets for opportunities to make strategic dispositions of assets that no longer meet our growth and investment objectives or assets that have stabilized in order to capture their value.
Interest Expense, Net was comprised of the following (dollars in thousands): Year Ended December 31, 2022 2021 Interest on unsecured term loans and senior notes, net $ 40,975 $ 40,107 Interest on secured debt 20,768 25,044 Interest on revolving credit facility, net 2,069 870 Non-cash amortization and other 6,359 6,758 Loss on extinguishment or modification of debt and other, net (1) 1,025 3,592 Interest expense, net $ 71,196 $ 76,371 Weighted-average interest rate as of end of year 3.6 % 3.3 % Weighted-average term (in years) as of end of year 4.4 5.2 (1) Includes defeasance fees related to early repayments of debt.
Interest Expense, Net was comprised of the following (dollars in thousands): Year Ended December 31, 2023 2022 Interest on unsecured term loans and senior notes, net $ 48,803 $ 40,975 Interest on secured debt 18,614 20,768 Interest on revolving credit facility, net 8,785 2,069 Non-cash amortization and other 7,662 6,359 Loss on extinguishment or modification of debt and other, net (1) 368 1,025 Interest expense, net $ 84,232 $ 71,196 Weighted-average interest rate as of end of year 4.2 % 3.6 % Weighted-average term (in years) as of end of year 3.9 4.4 (1) Includes defeasance fees related to early repayments of debt.
Accordingly, Nareit FFO, Nareit FFO Attributable to Stockholders and OP Unit Holders, 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.
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 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 December 31, 2022 and 2021 (in thousands): 2022 2021 Net debt: Total debt, excluding discounts, market adjustments, and deferred financing expenses $ 1,937,142 $ 1,941,504 Less: Cash and cash equivalents 5,740 93,109 Total net debt $ 1,931,402 $ 1,848,395 Enterprise value: Net debt $ 1,931,402 $ 1,848,395 Total equity market capitalization (1)(2) 4,178,204 4,182,996 Total enterprise value $ 6,109,606 $ 6,031,391 (1) Total equity market capitalization is calculated as diluted shares multiplied by the closing market price per share, which includes 131.2 million and 126.6 million diluted shares as of December 31, 2022 and 2021, respectively, and the closing market price per share of $31.84 and $33.04 as of December 31, 2022 and 2021, respectively.
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 December 31, 2023 and 2022 (in thousands): 2023 2022 Net debt: Total debt, excluding discounts, market adjustments, and deferred financing expenses $ 2,011,093 $ 1,937,142 Less: Cash and cash equivalents 5,074 5,740 Total net debt $ 2,006,019 $ 1,931,402 Enterprise value: Net debt $ 2,006,019 $ 1,931,402 Total equity market capitalization (1)(2) 4,955,480 4,178,204 Total enterprise value $ 6,961,499 $ 6,109,606 (1) Total equity market capitalization is calculated as diluted shares multiplied by the closing market price per share, which includes 135.8 million and 131.2 million diluted shares as of December 31, 2023 and 2022, respectively, and the closing market price per share of $36.48 and $31.84 as of December 31, 2023 and 2022, respectively.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 39 DEBT —The following table summarizes information about our debt as of December 31, 2022 and 2021 (dollars in thousands): 2022 2021 Total debt obligations, gross $ 1,912,784 $ 1,914,082 Weighted-average interest rate 3.6 % 3.3 % Weighted-average term (in years) 4.4 5.2 Revolving credit facility capacity (1) $ 800,000 $ 500,000 Revolving credit facility availability (2) 709,385 489,329 (1) The revolving credit facility matures in January 2026, extendable at our option to January 2027.
DEBT —The following table summarizes information about our debt as of December 31, 2023 and 2022 (dollars in thousands): 2023 2022 Total debt obligations, gross $ 1,986,735 $ 1,912,784 Weighted-average interest rate 4.2 % 3.6 % Weighted-average term (in years) 3.9 4.4 Revolving credit facility capacity (1) $ 800,000 $ 800,000 Revolving credit facility availability (2) 606,550 709,385 (1) The revolving credit facility matures in January 2026, extendable at our option to January 2027.
Other Expense, Net was comprised of the following (in thousands): Year Ended December 31, 2022 2021 Change in fair value of earn-out liability (see Note 16) $ (1,809) $ (30,436) Equity in net income of unconsolidated joint ventures 1,280 1,695 Transaction and acquisition expenses (10,551) (5,363) Federal, state, and local income tax expense (806) (327) Other (274) 70 Other expense, net $ (12,160) $ (34,361) SUMMARY OF OPERATING ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 For a discussion of the year-to-year comparisons in the results of operations for the years ended December 31, 2021 and 2020, see “ Part II, Item 7.
Other Expense, Net: • Other Expense, Net was comprised of the following (in thousands): Year Ended December 31, 2023 2022 Transaction and acquisition expenses $ (5,675) $ (10,551) Impairment of investment in third parties (see Note 15) (3,000) — Federal, state, and local income tax expense (438) (806) Equity in net income of unconsolidated investments 372 1,280 Change in fair value of earn-out liability (see Note 16) — (1,809) Other 1,429 (274) Other expense, net $ (7,312) $ (12,160) SUMMARY OF OPERATING ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 For a discussion of the year-to-year comparisons in the results of operations for the years ended December 31, 2022 and 2021, see “ Part II, Item 7.
On August 3, 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.
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.
The following table presents our calculation of net debt to Adjusted EBITDA re and net debt to total enterprise value as of December 31, 2022 and 2021 (dollars in thousands): 2022 2021 Net debt to Adjusted EBITDA re - annualized: Net debt $ 1,931,402 $ 1,848,395 Adjusted EBITDA re - annualized (1) 367,385 329,419 Net debt to Adjusted EBITDA re - annualized 5.3x 5.6x Net debt to total enterprise value: Net debt $ 1,931,402 $ 1,848,395 Total enterprise value 6,109,606 6,031,391 Net debt to total enterprise value 31.6% 30.6% (1) Adjusted EBITDA re is based on a trailing twelve month period.
The following table presents our calculation of net debt to Adjusted EBITDA re and net debt to total enterprise value as of December 31, 2023 and 2022 (dollars in thousands): 2023 2022 Net debt to Adjusted EBITDA re - annualized: Net debt $ 2,006,019 $ 1,931,402 Adjusted EBITDA re - annualized (1) 396,103 367,385 Net debt to Adjusted EBITDA re - annualized 5.1x 5.3x Net debt to total enterprise value: Net debt $ 2,006,019 $ 1,931,402 Total enterprise value 6,961,499 6,109,606 Net debt to total enterprise value 28.8% 31.6% (1) Adjusted EBITDA re is based on a trailing twelve month period.
Below is a summary of our capital spending activity, excluding leasing commissions, on a cash basis for the years ended December 31, 2022 and 2021 (in thousands): 2022 2021 Capital expenditures for real estate: Capital improvements $ 17,828 $ 15,862 Tenant improvements 24,194 23,485 Redevelopment and development 53,671 31,579 Total capital expenditures for real estate 95,693 70,926 Corporate asset capital expenditures 3,292 2,194 Capitalized indirect costs (1) 3,430 1,915 Total capital spending activity (2) $ 102,415 $ 75,035 (1) Amount includes internal salaries and related benefits of personnel who work directly on capital projects as well as capitalized interest expense.
Below is a summary of our capital spending activity, excluding leasing commissions, on a cash basis for the years ended December 31, 2023 and 2022 (in thousands): PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 41 2023 2022 Capital expenditures for real estate: Capital improvements $ 22,766 $ 17,828 Tenant improvements 26,663 24,194 Redevelopment and development 38,206 53,671 Total capital expenditures for real estate 87,635 95,693 Corporate asset capital expenditures 963 3,292 Capitalized indirect costs (1) 4,103 3,430 Total capital spending activity (2) $ 92,701 $ 102,415 (1) Amount includes internal salaries and related benefits of personnel who work directly on capital projects as well as capitalized interest expense.
The underwritten IPO has allowed us access to forms of capital not previously available to us, as follows: • In October 2021, we completed the registered offering of $350 million aggregate principal amount of 2.625% senior notes, which resulted in gross proceeds of $345.4 million. • In February 2022, we filed an automatically effective shelf registration statement on Form S-3 providing for the public offering and sale, from time to time, by us of our preferred stock, common stock, debt securities, depository shares, warrants, rights, units, and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. • In connection with our February 2022 Form S-3 filing, we commenced the ATM program through which we may offer and sell shares of our common stock having an aggregate offering price of up to $250 million.
The notes are fully and unconditionally guaranteed by us. • In February 2022, we filed an automatically effective shelf registration statement on Form S-3 providing for the public offering and sale, from time to time, by us of our preferred stock, common stock, debt securities, depository shares, warrants, rights, units, and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. • In connection with our February 2022 Form S-3 filing, we commenced the ATM program through which we may offer and sell shares of our common stock having an aggregate offering price of up to $250 million.
As of December 31, 2022, we had $726.7 million of total liquidity, comprised of $17.3 million of cash, cash equivalents, and restricted cash, plus $709.4 million of borrowing capacity available on our $800 million revolving credit facility.
As of December 31, 2023, we had $615.4 million of total liquidity, comprised of $8.9 million of cash, cash equivalents, and restricted cash, plus $606.6 million of borrowing capacity available on our $800 million revolving credit facility.
Nareit FFO, Nareit FFO Attributable to Stockholders and OP Unit Holders, 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.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 37 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.
During the year ended December 31, 2022, we issued 2.6 million shares of our common stock under the ATM program for net proceeds of $89.2 million, after approximately $0.9 million in commissions. As of December 31, 2022, $159.9 million of common stock remained available for issuance under the ATM program.
During the year ended December 31, 2022, we issued 2.6 million shares of our common stock at a gross weighted average price of $34.23 per share under the ATM program for net proceeds of $89.2 million, after approximately $0.9 million in commissions.
Our fee and management income was $11.5 million for the year ended December 31, 2022, an increase of $1.2 million as compared to the same period in 2021.
Our fee and management income was $9.6 million for the year ended December 31, 2023, a decrease of $1.9 million as compared to the same period in 2022.
The notes are fully and unconditionally guaranteed by us. AT-THE-MARKET OFFERING (“ATM”) —On February 10, 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.
We no longer have Class B common stock authorized for issue. AT-THE-MARKET OFFERING (“ATM”) —On February 10, 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.
As a REIT, we have made, and intend to continue to make, distributions each taxable year equal to at least 90% of our taxable income (excluding capital gains and computed without regard to the dividends paid deduction). We declared and paid 2022 monthly distributions of $0.09 per share, or $1.08 annualized, for each month beginning January 2022 through August 2022.
As a REIT, we have made, and intend to continue to make, distributions each taxable year equal to at least 90% of our taxable income (excluding capital gains and computed without regard to the dividends paid deduction).
See “Debt Activity” above for more details. • Distributions to stockholders and OP unit holders — Cash used for distributions to common stockholders and OP unit holders increased by $22.3 million during the year ended December 31, 2022 as compared to the same period in 2021, primarily due to an increase in shares of common stock outstanding as a result of our underwritten IPO. • Issuance of common stock— During the year ended December 31, 2022, we issued 2.6 million shares of our common stock under the ATM program for net proceeds of $89.2 million.
During the year ended December 31, 2022, we issued 2.6 million shares of our common stock under the ATM program for net proceeds of $89.2 million. • Distributions to stockholders and OP unit holders — Cash used for distributions to common stockholders and OP unit holders increased by $7.8 million during the year ended December 31, 2023 as compared to the same period in PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 43 2022, primarily due to an increase in shares of common stock outstanding as a result of issuances under the ATM program and our distribution increases in both 2022 and 2023.
Highlights of our wholly-owned operational activity as of and for the year ended December 31, 2022 are as follows: • Leased occupancy for our wholly-owned portfolio improved to 97.4% as of December 31, 2022, compared to 96.3% as of December 31, 2021. • Total ABR per leased square foot for executed new leases improved 12.9% to $19.31, and inline ABR per leased square foot for executed new leases improved 17.9% to $24.33 during the year ended December 31, 2022. • For the year ended December 31, 2022, we completed 17 development and redevelopment projects with a total investment of $37.3 million. • As of December 31, 2022, we have 14 development and redevelopment projects in process, which we estimate will have a total investment of $50.3 million. • Created $0.9 million of incremental ABR in 2022 as a result of development and redevelopment projects completed in 2021.
Highlights of our wholly-owned operational activity as of and for the year ended December 31, 2023 are as follows: • Leased occupancy for our wholly-owned portfolio remained high at 97.4% as of December 31, 2023, and inline occupancy improved 0.9% to 94.7%, when compared to December 31, 2022. • Total ABR PSF for executed new leases improved 12.6% to $21.75, and inline ABR PSF for executed new leases improved 6.8% to $25.98 during the year ended December 31, 2023. • For the year ended December 31, 2023, we completed 13 development and redevelopment projects encompassing a total of 0.2 million square feet with a total investment of $34.1 million. • As of December 31, 2023, we have nine development and redevelopment projects in process, which we estimate will have a total investment of $33.7 million. • Created $2.7 million of incremental ABR in 2023 as a result of development and redevelopment projects completed in 2022.
Same-Center NOI Reconciliation —Below is a reconciliation of Net Income to NOI and Same-Center NOI for the years ended December 31, 2022 and 2021 (in thousands): 2022 2021 Net income $ 54,529 $ 17,233 Adjusted to exclude: Fees and management income (11,541) (10,335) Straight-line rental income (1) (12,265) (9,404) Net amortization of above- and below-market leases (4,324) (3,581) Lease buyout income (2,414) (3,485) General and administrative expenses 45,235 48,820 Depreciation and amortization 236,224 221,433 Impairment of real estate assets 322 6,754 Interest expense, net 71,196 76,371 Gain on disposal of property, net (7,517) (30,421) Other expense, net 12,160 34,361 Property operating expenses related to fees and management income 3,046 4,855 NOI for real estate investments 384,651 352,601 Less: Non-same-center NOI (2) (23,408) (6,917) Total Same-Center NOI $ 361,243 $ 345,684 (1) Includes straight-line rent adjustments for Neighbors for whom revenue is being recorded on a cash basis.
Same-Center NOI Reconciliation —Below is a reconciliation of Net Income to NOI and Same-Center NOI for the years ended December 31, 2023 and 2022 (in thousands): 2023 2022 Net income $ 63,762 $ 54,529 Adjusted to exclude: Fees and management income (9,646) (11,541) Straight-line rental income (1) (10,185) (12,265) Net amortization of above- and below-market leases (5,178) (4,324) Lease buyout income (1,222) (2,414) General and administrative expenses 44,366 45,235 Depreciation and amortization 236,443 236,224 Impairment of real estate assets — 322 Interest expense, net 84,232 71,196 Gain on disposal of property, net (1,110) (7,517) Other expense, net 7,312 12,160 Property operating expenses related to fees and management income 2,059 3,046 NOI for real estate investments 410,833 384,651 Less: Non-same-center NOI (2) (14,217) (4,186) Total Same-Center NOI $ 396,616 $ 380,465 (1) Includes straight-line rent adjustments for Neighbors for whom revenue is being recorded on a cash basis.
The increase in fees and management income was primarily due to our joint venture with NRP from which we recognized income related to NRP’s achievement of certain performance targets of $2.7 million for the year ended December 31, 2022, compared to income of $0.7 million in 2021. • Cash paid for interest — During the year ended December 31, 2022, we paid $65.1 million for interest, a decrease of $3.0 million over the same period in 2021, largely due to net repayments of debt outstanding in 2021, partially offset by higher average interest rates in 2022.
The decrease in fees and management income was primarily due to our joint venture with NRP from which we recognized income related to NRP’s achievement of certain performance targets of $0.1 million for the year ended December 31, 2023, compared to income of $2.7 million in 2022.
Interest Expense, Net: • The $5.2 million decrease during the year ended December 31, 2022 as compared to the same period in 2021 was primarily due to net repayments of debt outstanding in 2021, partially offset by higher average interest rates in 2022.
Interest Expense, Net: • The $13.0 million increase during the year ended December 31, 2023 as compared to the same period in 2022 was primarily due to higher interest rates in 2023 partially offset by lower loss on extinguishment or modification of debt.
CASH FLOW ACTIVITIES —As of December 31, 2022, we had cash and cash equivalents and restricted cash of $17.3 million , a net cash decrease of $98.2 million d uring the year ended December 31, 2022.
CASH FLOW ACTIVITIES —As of December 31, 2023, we had cash and cash equivalents and restricted cash of $8.9 million, a net cash decrease of $8.5 million during the year ended December 31, 2023.
As a result of the underwritten IPO, we received gross proceeds of $547.4 million. Basis of Presentation —The basis of presentation of our shares of common stock is described as follows: • Reverse Stock Split —On July 2, 2021, our Board approved an amendment to our charter to effect a one-for-three reverse stock split.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 30 BASIS OF PRESENTATION —The basis of presentation of our shares of common stock is described as follows: • Reverse Stock Split —On July 2, 2021, our Board approved an amendment to our charter to effect a one-for-three reverse stock split.
Gain on Disposal of Property, Net: • The $22.9 million decrease was primarily related to the sale of four properties and four outparcels with a net gain of $7.5 million during the year ended December 31, 2022, as compared to the sale of 24 properties and four outparcels (in addition to other property-related miscellaneous disposals and write-offs) with a net gain of $30.4 million during the year ended December 31, 2021 (see Note 4).
Gain on Disposal of Property, Net: • The $6.4 million decrease was primarily related to the sale of land acquired by local authorities, as well as the sale of one property and two outparcels with a net gain of $1.1 million during the year ended December 31, 2023, as compared to the sale of four properties and four outparcels with a net gain of $7.5 million during the year ended December 31, 2022 (see Note 4).
Property Operating Expenses: • The $2.4 million increase is primarily due to our acquisition activity, net of dispositions. Real Estate Tax Expenses: • The $2.5 million increase in real estate tax expenses was primarily due to our acquisition activity, net of dispositions.
Real Estate Tax Expenses: • The $5.0 million increase in real estate tax expenses is primarily due to our acquisition activity, net of dispositions, and less appeal settlement income in 2023 compared to 2022.
As of December 31, 2022, total leased occupancy improved 1.1% to 97.4% and inline occupancy improved 1.1% to 93.8%, when compared to December 31, 2021.
As of December 31, 2023, total leased occupancy remained high at 97.4% and inline occupancy improved 0.9% to 94.7%, when compared to December 31, 2022.
Below are explanations of the significant fluctuations in the results of operations for the years ended December 31, 2022 and 2021: Rental Income increased $41.0 million as follows: • $20.2 million increase related to our same-center portfolio as follows: ▪ $17.9 million increase primarily due to a $0.39 increase in average minimum rent per square foot due to a 1.3% improvement in average occupancy; and ▪ $4.5 million increase owing largely to an increase in recoverable income attributed to an increase in common area maintenance spending and lower collection reserves as compared to 2021 and the 1.3% improvement in average occupancy; offset by ▪ $2.1 million decrease primarily due to the recovery of prior year income in 2021 and the reversal of reserves for uncollectibility from 2020 in 2021 resulting from the recovery of our portfolio in the wake of the COVID-19 pandemic. • $20.8 million increase primarily related to our acquisition activity, net of dispositions.
Below are explanations of the significant fluctuations in the results of operations for the years ended December 31, 2023 and 2022: Rental Income increased $37.0 million as follows: • $19.3 million increase related to our same-center portfolio primarily as follows: ▪ $16.6 million increase primarily due to a $0.41 increase in average minimum rent PSF and a 1.1% improvement in average occupancy; and ▪ $7.3 million increase primarily due to an increase in recoverable income attributed to an increase in real estate taxes, common area maintenance spending, and insurance costs as well as a 1.1% improvement in average occupancy; partially offset by ▪ $2.2 million decrease primarily due to collections in 2022 of amounts previously reserved; and ▪ $1.3 million decrease primarily due to lower lease buyout income. • $17.7 million increase primarily related to our acquisition activity, net of dispositions.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 34 SUMMARY OF OPERATING ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Favorable (Unfavorable) Change (Dollars in thousands) 2022 2021 $ % (1) Revenues: Rental income $ 560,538 $ 519,495 $ 41,043 7.9 % Fees and management income 11,541 10,335 1,206 11.7 % Other property income 3,293 3,016 277 9.2 % Total revenues 575,372 532,846 42,526 8.0 % Operating Expenses: Property operating 95,359 92,914 (2,445) (2.6) % Real estate taxes 67,864 65,381 (2,483) (3.8) % General and administrative 45,235 48,820 3,585 7.3 % Depreciation and amortization 236,224 221,433 (14,791) (6.7) % Impairment of real estate assets 322 6,754 6,432 95.2 % Total operating expenses 445,004 435,302 (9,702) (2.2) % Other: Interest expense, net (71,196) (76,371) 5,175 6.8 % Gain on disposal of property, net 7,517 30,421 (22,904) (75.3) % Other expense, net (12,160) (34,361) 22,201 64.6 % Net income 54,529 17,233 37,296 NM Net income attributable to noncontrolling interests (6,206) (2,112) (4,094) NM Net income attributable to stockholders $ 48,323 $ 15,121 $ 33,202 NM (1) Line items that result in a percent change that exceed certain limitations are considered not meaningful (“NM”) and indicated as such.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 34 SUMMARY OF OPERATING ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Favorable (Unfavorable) Change (Dollars in thousands) 2023 2022 $ % (1) Revenues: Rental income $ 597,501 $ 560,538 $ 36,963 6.6 % Fees and management income 9,646 11,541 (1,895) (16.4) % Other property income 2,977 3,293 (316) (9.6) % Total revenues 610,124 575,372 34,752 6.0 % Operating Expenses: Property operating 102,303 95,359 (6,944) (7.3) % Real estate taxes 72,816 67,864 (4,952) (7.3) % General and administrative 44,366 45,235 869 1.9 % Depreciation and amortization 236,443 236,224 (219) (0.1) % Impairment of real estate assets — 322 322 NM Total operating expenses 455,928 445,004 (10,924) (2.5) % Other: Interest expense, net (84,232) (71,196) (13,036) (18.3) % Gain on disposal of property, net 1,110 7,517 (6,407) (85.2) % Other expense, net (7,312) (12,160) 4,848 39.9 % Net income 63,762 54,529 9,233 16.9 % Net income attributable to noncontrolling interests (6,914) (6,206) (708) (11.4) % Net income attributable to stockholders $ 56,848 $ 48,323 $ 8,525 17.6 % (1) Line items that result in a percent change that exceed certain limitations are considered not meaningful (“NM”) and indicated as such.
(2) Fully diluted shares include common stock and OP units as of December 31, 2022 and Class B common stock, common stock, and OP units as of December 31, 2021.
(2) Fully diluted shares include common stock and OP units.
The following table highlights our property dispositions during the years ended December 31, 2022 and 2021 (dollars in thousands): 2022 2021 Number of properties sold (1) 4 24 Number of outparcels sold (2)(3) 4 4 Contract price $ 53,987 $ 216,052 Proceeds from sale of real estate, net (4) 52,019 206,377 Gain on sale of property, net (5) 7,517 34,309 (1) We retained an outparcel for one property sold during the year ended December 31, 2021, and therefore the sale did not result in a reduction in our total property count.
The following table highlights our property dispositions during the years ended December 31, 2023 and 2022 (dollars in thousands): 2023 2022 Number of properties sold 1 4 Number of outparcels sold 2 4 Contract price $ 6,250 $ 53,987 Proceeds from sale of real estate, net (1)(2) 7,208 52,019 Gain on disposal of property, net (2) 1,110 7,517 (1) Total proceeds from sale of real estate, net includes closing costs less credits.
We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders. DIVIDEND REINVESTMENT PLAN AND SHARE REPURCHASE PROGRAMS —On August 4, 2021, as a result of our underwritten IPO, our Board approved the termination of the DRIP and the original share repurchase program.
We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders. SHARE REPURCHASE PROGRAM —On August 3, 2022, our Board approved a new share repurchase program of up to $250 million of common stock.
No shares were issued under the ATM program during the fourth quarter of 2022. During the year ended December 31, 2022, we issued 2.6 million shares of our common stock under the ATM program for net proceeds of $89.2 million. As of December 31, 2022, $159.9 million of common stock remained available for issuance under the ATM program.
See “Debt Activity” above for more details. • Issuance of common stock— During the year ended December 31, 2023, we issued 4.2 million shares of our common stock under the ATM program for net proceeds of $147.6 million.
PHILLIPS EDISON & COMPANY DECEMBER 31, 2022 FORM 10-K 42 DISTRIBUTIONS —We elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2010.
(2) Activity for the year ended December 31, 2023 includes land acquired from us by local authorities. DISTRIBUTIONS —We elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2010.
Balance Sheet Management Positioned for External Growth —Our management team has executed strategies to improve the flexibility of our balance sheet, including gaining access to additional forms of liquidity through our effective shelf registration statement and ATM program. This execution well-positions us to maintain our investment grade rating, fund distributions to our stockholders, and invest in our targeted acquisitions.
Balance Sheet Management Positioned for External Growth —Our balance sheet has a leverage profile that well-positions us to maintain and improve our investment grade rating, fund distributions to our stockholders, and invest in our targeted acquisitions.
We no longer have Class B common stock authorized for issue. 2021 BOND OFFERING —In October 2021, the Operating Partnership completed the registered offering of $350 million aggregate principal amount of 2.625% senior notes (“2021 Bond Offering”) priced at 98.692% of the principal amount and maturing in November 2031. The 2021 Bond Offering resulted in gross proceeds of $345.4 million.
The underwritten IPO allowed us access to forms of capital not previously available to us, as follows: • In October 2021, the Operating Partnership completed the registered offering of $350 million aggregate principal amount of 2.625% senior notes (“2021 Bond Offering”) priced at 98.692% of the principal amount and maturing in November 2031.
This change was primarily driven by the timing of receivables and lower performance-based compensation accruals, partially offset by higher real estate tax accruals. • Fee and management income — We also generate operating cash from our third-party investment management business, pursuant to various management and advisory agreements between us and the Managed Funds.
This change was primarily driven by an increase in real estate tax payments. • Cash paid for interest — During the year ended December 31, 2023, we paid $76.5 million for interest, an increase of $11.4 million over the same period in 2022, largely due to higher interest rates in 2023. • Fees and management income — We also generate operating cash from our third-party investment management business, pursuant to various management and advisory agreements between us and the Managed Funds.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
4 edited+2 added−6 removed6 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
4 edited+2 added−6 removed6 unchanged
2022 filing
2023 filing
Biggest changeThe market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. As of December 31, 2022, we had four interest rate swaps that fixed the Secured Overnight Financing Rate (“SOFR”) on $755 million of our unsecured term loan facilities.
Biggest changeThe market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. PHILLIPS EDISON & COMPANY DECEMBER 31, 2023 FORM 10-K 44 As of December 31, 2023, we had four interest rate swaps that fixed SOFR on $700 million of our unsecured term loan facilities.
See further discussion on interest amounts on our variable rate debt in Note 8 and discussion on the swap rate for our interest rate swaps in Note 9. FOREIGN CURRENCY EXCHANGE RISK —We do not have any foreign operations, and thus, we are not exposed to foreign currency fluctuations.
See further discussion on interest amounts on our variable rate debt in Note 8 and discussion on the swap rate for our interest rate swaps in Note 9. FOREIGN CURRENCY EXCHANGE RISK —We do not have any foreign operations, and thus, we are not exposed to foreign currency fluctuations. ITEM 8.
As of December 31, 2022, we had not fixed the interest rate on $279 million of our unsecured debt through derivative financial instruments, and as a result, we are subject to the potential impact of rising interest rates, which could negatively impact our profitability and cash flows.
As of December 31, 2023, we had not fixed the interest rate on $445.8 million of our unsecured debt through derivative financial instruments, and as a result, we are subject to the potential impact of rising interest rates, which could negatively impact our profitability and cash flows.
We estimate that a one percentage point increase in interest rates on the outstanding balance of our variable-rate debt at December 31, 2022 would result in approximately $2.8 million of additional interest expense annually. The additional interest expense was determined based on the impact of hypothetical interest rates on our borrowing cost and assumes no changes in our capital structure.
We estimate that a one percentage point increase in interest rates on the outstanding balance of our variable-rate debt at December 31, 2023 would result in approximately $4.5 million of additional interest expense annually. The additional interest expense was determined based on the impact of hypothetical interest rates on our borrowing cost and assumes no changes in our capital structure.
Removed
LIBOR Transition —In July 2017, the Financial Conduct Authority ("FCA"), which regulates the London Interbank Offered Rate (“LIBOR”), announced that it intended to phase out LIBOR as a benchmark by the end of 2021.
Added
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.
Removed
In November 2020, ICE Benchmark Administration, the administrator of LIBOR, with the support of the Federal Reserve Board and the FCA, announced a plan to consult on ceasing publication of U.S. dollar (“USD”) LIBOR on December 31, 2021 for only the one week and two month USD LIBOR, and on June 30, 2023 for all other USD LIBOR, which the FCA subsequently confirmed in March 2021.
Added
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Consolidated Financial Statements on page F-1 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.
Removed
The Federal Reserve Board concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021. Further, when USD LIBOR will no longer be published, market participants should amend legacy contracts to use SOFR or another alternative reference rate.
Removed
As of December 31, 2021, we had contracts that were indexed to LIBOR that were subsequently transitioned to SOFR during 2022. In May 2022, the Amendment replaced LIBOR with SOFR as the benchmark interest rate for the unsecured revolving credit facility and the two $240 million senior unsecured term loan tranches, maturing in November 2025 and July 2026.
Removed
In August 2022, we amended two of our interest rate swaps with a total notional amount of $430 million to replace LIBOR with SOFR as the benchmark interest rate in conjunction with the Amendment .
Removed
Additionally, in November 2022, we amended our three remaining LIBOR term loans with a notional amount of $475 million to replace LIBOR with SOFR as the benchmark interest rate. In December 2022, our two remaining LIBOR swaps with a total notional amount of $325 million were amended to transition from LIBOR to SOFR as the benchmark interest rate.