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Section 1: 10-K (10-K)

Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
x    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-54691
 
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PHILLIPS EDISON & COMPANY, INC.
(Exact name of registrant as specified in its charter)
 
Maryland
27-1106076
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
11501 Northlake Drive
Cincinnati, Ohio
45249
(Address of principal executive offices)
(Zip Code)
(513) 554-1110
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
None
 
None
 
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
   Yes  ¨    No  þ  
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ¨    No  þ  
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨  
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).  Yes  þ    No  ¨  
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.    
Large accelerated filer
¨
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
þ
Smaller reporting company
¨
 
 
 
 
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨
Indicate by check mark whether the Registrant is a shell company (as defined in rule 12b-2 of the Act).    Yes  ¨    No  þ  



There is no established public market for the Registrant’s shares of common stock. On May 8, 2019, the Board of Directors of the Registrant approved an estimated value per share of the Registrant’s common stock of $11.10 based substantially on the estimated market value of its portfolio of real estate properties as of March 31, 2019. Prior to May 8, 2019, the estimated value per share was $11.05. For a full description of the methodologies used to establish the estimated value per share, see Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities - Market Information, of this Form 10-K. As of June 28, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter, there were approximately 283.1 million shares of common stock held by non-affiliates.
As of March 2, 2020, there were approximately 290.3 million outstanding shares of common stock of the Registrant.
Documents Incorporated by Reference: Portions of the Registrant’s Proxy Statement for its 2020 annual meeting of stockholders, which will be filed with the SEC by April 30, 2020, are incorporated by reference into Part III of this Report.




PHILLIPS EDISON & COMPANY, INC.
FORM 10-K
TABLE OF CONTENTS
 
 
PART I
 
ITEM 2.    
ITEM 3.    
 
 
 
 
PART II
 
ITEM 7.    
ITEM 9.    
 
 
 
 
PART III
 
 
 
 
 
PART IV
 
 
 
 



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Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K of Phillips Edison & Company, Inc. (“we,” the “Company,” “our,” or “us”) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in those acts. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” “perceived,” “initiatives,” “focus,” “seek,” “objective,” “goal,” “strategy,” “plan,” “potential,” “potentially,” “future,” “should,” “could,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the U.S. Securities and Exchange Commission (“SEC”). Such statements include, in particular, statements about our plans, strategies, and prospects, and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. These risks include, without limitation, (i) changes in national, regional, or local economic climates; (ii) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our portfolio; (iii) vacancies, changes in market rental rates, and the need to periodically repair, renovate, and re-let space; (iv) changes in interest rates and the availability of permanent mortgage financing; (v) competition from other available properties and the attractiveness of properties in our portfolio to our tenants; (vi) the financial stability of tenants, including the ability of tenants to pay rent; (vii) changes in tax, real estate, environmental, and zoning laws; (viii) the concentration of our portfolio in a limited number of industries, geographies, or investments; and (ix) any of the other risks included in this Annual Report on Form 10-K, including those set forth in Part I, Item 1A. Risk Factors. Therefore, such statements are not intended to be a guarantee of our performance in future periods.
Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this Form 10-K.


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w PART I
ITEM 1. BUSINESS
All references to “Notes” throughout this Annual Report on Form 10-K refer to the footnotes to the consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data.
Overview
Phillips Edison & Company, Inc. (“we,” the “Company,” “our,” or “us”) is an internally-managed real estate investment trust (“REIT”) that is one of the nation’s largest owners and operators of grocery-anchored shopping centers. Additionally, we operate an investment management business providing property management and advisory services to third-party owned grocery-anchored real estate. Our portfolio primarily consists of well-occupied, grocery-anchored neighborhood and community shopping centers having a mix of national, regional, and local retailers providing internet-resistant, necessity-based goods and services in strong demographic markets throughout the United States.
We were formed as a Maryland corporation in October 2009 and have elected to be taxed as a REIT for U.S. federal income tax purposes. Substantially all of our business is conducted through Phillips Edison Grocery Center Operating Partnership I, L.P. (“Operating Partnership”), a Delaware limited partnership formed in December 2009. We are a limited partner of the Operating Partnership, and our wholly-owned subsidiary, Phillips Edison Grocery Center OP GP I LLC, is the sole general partner of the Operating Partnership. The majority of our revenues are lease revenues derived from our owned real estate investments.
On October 31, 2019, we completed a merger with Phillips Edison Grocery Center REIT III, Inc. (“REIT III”), a public non-traded REIT that was advised and managed by us, in a transaction valued at approximately $71 million. This resulted in the acquisition of three properties, as well as a 10% equity interest in Grocery Retail Partners II LLC (“GRP II”), a joint venture with Northwestern Mutual Life Insurance Company (“Northwestern Mutual”) that owns three properties; see Note 6 for more detail.
In November 2018, we completed a merger (the “Merger”) with Phillips Edison Grocery Center REIT II, Inc. (“REIT II”), a public non-traded REIT that was advised and managed by us (see Note 4). In the same month, we also contributed or sold 17 properties in the formation of Grocery Retail Partners I LLC (“GRP I” or the “GRP I joint venture”), a joint venture with Northwestern Mutual; see Note 8 for more detail.
In October 2017, we completed a transaction to acquire certain real estate assets and the third-party investment management business of Phillips Edison Limited Partnership (“PELP”) in exchange for stock and cash (the “PELP transaction”); see Note 5 for more detail.

As of December 31, 2019, we wholly-owned 287 real estate properties. Additionally, we owned a 20% equity interest in Necessity Retail Partners (“NRP”), a joint venture that owned eight properties; a 15% interest in GRP I, which owned 17 properties; and a 10% interest in GRP II, which owned three properties. In total, our managed portfolio of wholly-owned properties and those owned through our joint ventures comprises approximately 35.3 million square feet located in 31 states.
Business Objectives and Strategies
Our business objective is to own, operate, and manage well-occupied, grocery-anchored shopping centers to generate cash flows, income growth, and capital appreciation in order to create value for, and continue paying distributions to, our stockholders. We seek to achieve this objective through our focus on core operations; strategic growth and portfolio management; and responsible balance sheet management. Altogether, our goal is to provide great grocery-anchored shopping experiences and improve our communities one center at a time.
Focus on Core Operations—We believe our focus on our operating fundamentals will continue to provide stability and ultimately generate growth in our portfolio and optimize returns for our stockholders.
Property Management Services—We add value by overseeing all aspects of operations at our properties. 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. We utilize our effective accounting, billing, and tax review platform to facilitate our daily operations.
Leasing—Our national footprint of experienced leasing professionals is dedicated to (i) creating the optimal merchandising mix at our centers, (ii) increasing occupancy at our centers, (iii) maximizing rental income through capitalizing on below-market rent opportunities by means of increasing rents as leases expire, and (iv) executing leases with contractual rent increases.
Strategic Growth and Portfolio Management—Our goal is to identify growth opportunities within our existing portfolio of properties as well through the use of our existing management resources and knowledge.
Development and Redevelopment—Our team of seasoned professionals identifies opportunities to unlock additional value at our properties through investments in our development and redevelopment program. Our strategies include outparcel development, footprint reconfiguration, anchor repositioning, and anchor expansion, among others. We expect these opportunities to increase the overall yield and value of our properties, which will allow us to generate higher returns for our stockholders while creating great grocery-anchored shopping center experiences.
Investment Management—Our investment management business provides comprehensive real estate, asset management, and accounting and support services to third-party funds. Seeding joint venture portfolios is a desirable alternative to disposing of individual properties as we retain ownership interests while simultaneously

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increasing our high-margin fee revenue earned by providing management services to those properties. Our investment management business will expand our platform and relationships while preserving our balance sheet and will afford us the opportunity to consider acquisitions in the future similar to what we have done historically.
Responsible Balance Sheet Management—Our strategy is to improve and monitor our leverage ratios and debt maturities and dispose of certain shopping centers in order to maximize our potential future valuation in the public equity markets. 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.
Reducing Leverage—We are actively using capital raised through our disposition program and the seeding of joint ventures to lower our debt profile. We believe this will strengthen our balance sheet and provide capacity for future investment opportunities. We strive to maintain an appropriately staggered debt maturity profile, which will position us well for long-term growth.
Disposition Program—We are actively evaluating our portfolio for opportunities to dispose of assets that no longer meet our growth and investment objectives due to stabilization or perceived future risk. These dispositions provide us with capital to fund acquisitions, fund redevelopment opportunities at owned properties, and reduce our leverage.
Competition
We are subject to significant competition in seeking real estate investments and tenants. We compete with many third parties engaged in real estate investment activities including other REITs, specialty finance companies, savings and loan associations, banks, insurance companies, mutual funds, institutional investors, investment banking firms, hedge funds, and other persons. Some of these competitors, including larger REITs, have greater financial resources than we do and may potentially enjoy competitive advantages that result from, among other things, increased access to capital, lower cost of capital, and enhanced operating efficiencies. In addition to these entities, we also face competition from smaller landlords and companies at the local level in seeking tenants to occupy our shopping centers. In these local markets, we seek to attract potential tenants and retain existing tenants from the same tenant base as do local landlords and entities of varying sizes. This further increases the number of competitors we have and the type of competition that we face in seeking to execute on our business objectives and strategies.
Segment Data
Our principal business is the ownership and operation of community and neighborhood shopping centers. We do not distinguish our principal business or group our operations by geography or size for purposes of measuring performance. Accordingly, we have presented our results as a single reportable segment.
Environmental Matters
As an owner of real estate, we are subject to various environmental laws of federal, state, and local governments. Compliance with federal, state, and local environmental laws has not had a material, adverse effect on our business, assets, results of operations, financial condition, and ability to pay distributions, and we do not believe that our existing portfolio will require us to incur material expenditures to comply with these laws and regulations.
Corporate Headquarters and Employees
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. As of December 31, 2019, we had approximately 300 employees.
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 Securities and Exchange Commission (“SEC”). The SEC maintains an Internet site at www.sec.gov that contains the reports, proxy and information statements, and other information regarding issuers, including ours that are filed electronically.
We make available, free of charge, the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports on our website, www.phillipsedison.com. These reports are available as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The contents of our website are not incorporated by reference.


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ITEM 1A. RISK FACTORS
You should specifically consider the following material risks in addition to the other information contained in this Annual Report on Form 10-K. The occurrence of any of the following risks might have a material adverse effect on our business and financial condition. The risks and uncertainties discussed below are not the only ones we face, but do represent those risks and uncertainties that we believe are most significant to our business, operating results, financial condition, prospects and forward-looking statements.
Risks Related to Our Structure and an Investment in Us
Because no public trading market for our shares currently exists and our share repurchase program is limited, it is difficult for our stockholders to sell their shares and, if our stockholders are able to sell their shares, it may be at a discount to the public offering price at which stockholders originally purchased the shares.
There is no public trading market for our shares of common stock. Until our shares of common stock are listed on a stock exchange, if ever, stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase standards.
Under the share repurchase program (“SRP”), any shares repurchased will be at the lesser of $10.00 per share or our most recent estimated value per share (“EVPS”). Currently, standard repurchases under the SRP are suspended and repurchases are limited to those upon a stockholder’s qualifying death, disability, or determination of incompetence. In addition, we may choose to repurchase fewer shares than have been requested in any particular month to be repurchased under the SRP, or none at all, in our discretion at any time. We may repurchase fewer shares than have been requested to be repurchased due to lack of readily available funds because of adverse market conditions beyond our control, the need to maintain liquidity for our operations, or because we have determined that paying off our debt or investing in real property or other illiquid investments or other items is a better use of our capital than repurchasing our shares. In addition, the amount of shares repurchased in any calendar year is limited to no more than 5% of the weighted average number of shares outstanding during the prior calendar year, and the cash available for repurchases at any particular date is generally limited to the proceeds from the DRIP during the period consisting of the preceding four fiscal quarters, less any cash already used for redemptions since the start of that same period; however, subject to the limitations described above on the number of shares repurchased, we may use other sources of cash at the discretion of the Board. Further, the Board may modify, suspend, or terminate the SRP at any time upon 30 days’ notice. If the full amount of all shares of our common stock requested to be repurchased on a particular date are not repurchased, funds will be allocated pro rata based on the total number of shares of common stock being repurchased, except that (1) we will repurchase all shares of a stockholder who would hold less than half of the minimum purchase requirement as described in the most recently effective registration statement and (2) if stockholder would, after a pro rata repurchase, hold more than half but less than all of the minimum repurchase requirement, we would not repurchase any shares that would reduce his or her ownership below the minimum purchase requirement. In addition, because we are not required to authorize the recommencement of a suspension of the SRP, including the currently suspended standard repurchases, within any specified period of time, we may effectively terminate the SRP, or a portion of it, by suspending it indefinitely. As a result, your ability to have your shares repurchased by us may be limited and at times you may not be able to liquidate your investment.
Therefore, it is difficult for our stockholders to sell their shares promptly or at all. If a stockholder is able to sell his or her shares, it may be at a discount to the EVPS and to the public offering price at which the stockholder originally purchased the shares. It is also likely that our shares would not be accepted as the primary collateral for a loan. Because of the illiquid nature of our shares, investors should purchase our shares only as a long-term investment and be prepared to hold them for an indefinite period of time.
The EVPS of our common stock is based on a number of assumptions that may not be accurate or complete and is also subject to a number of limitations.
Effective May 8, 2019, the Board approved an EVPS of our common stock of $11.10 based substantially on the estimated “as is” market value of our portfolio of real estate properties in various geographic locations in the United States and the estimated value of in-place contracts of our third-party asset management business as of March 31, 2019. Our EVPS is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different EVPS, and this difference could be significant. The EVPS is not audited and does not represent a determination of the fair value of our assets or liabilities based on accounting principles generally accepted in the United States (“GAAP”), nor does it represent a liquidation value of our assets and liabilities, the price a third party would pay to acquire us, the price at which our shares of common stock would trade in secondary markets, or the amount at which our shares of common stock would trade on a national securities exchange.
Accordingly, we can give no assurance that:
our shares would trade at or near the EVPS if listed on a national securities exchange;
a stockholder would be able to resell his or her shares at the EVPS;
a stockholder would ultimately realize distributions per share equal to the EVPS upon a liquidation of our assets and settlement of our liabilities;
a stockholder would receive an amount per share equal to the EVPS upon a sale of the Company;
a third party would offer the EVPS in an arm’s-length transaction to purchase all or substantially all of our shares of common stock;
another independent third-party appraiser or third-party valuation firm would agree with our EVPS; or
the methodologies used to calculate our EVPS would be acceptable to the Financial Industry Regulatory Authority (“FINRA”) for use on customer account statements or that the EVPS will satisfy the applicable annual valuation requirements under the Employee Retirement Income Security Act of 1974 (“ERISA”).

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Furthermore, we have not made any adjustments to the valuation of our EVPS for the impact of other transactions occurring subsequent to May 8, 2019, including, but not limited to, (i) acquisitions or dispositions of assets; (ii) the issuance of common stock under the dividend reinvestment plan (“DRIP”); (iii) net operating income (“NOI”) earned and dividends declared (see Item 7 of this 10-K for the calculation of NOI); (iv) the repurchase of shares; and (v) changes in leases, tenancy, or other business or operational changes. The value of our shares of common stock will fluctuate over time in response to developments related to individual real estate assets, the management of those assets, and changes in the real estate and finance markets. Because of, among other factors, the high concentration of our total assets in real estate and the number of shares of our common stock outstanding, changes in the value of individual real estate assets or changes in valuation assumptions could have a very significant impact on the value of our shares of common stock. The EVPS also does not take into account any disposition costs or fees for real estate properties, debt prepayment penalties that could apply upon the prepayment of certain of our debt obligations, or the impact of restrictions on the assumption of debt. Accordingly, the EVPS may or may not be an accurate reflection of the fair market value of our stockholders’ investments and will not likely represent the amount of net proceeds that would result from an immediate sale of our assets.
Accordingly, investors should not rely on the EVPS in making a decision to buy or sell shares of our common stock.
The actual value of shares that we repurchase under the SRP may be substantially less than the price we pay.
Under the SRP, we repurchase eligible shares at the lesser of $10.00 per share or the most recent EVPS. This price we pay is likely to differ from the price at which a stockholder could resell his or her shares or the price at which our shares would trade if listed on a national securities exchange. Thus, when we repurchase shares of our common stock, the repurchase may be dilutive to our remaining stockholders.
If we do not successfully implement a liquidity transaction, stockholders may have to hold their investment for an indefinite period.
There currently is no public trading market for shares of our common stock, and our charter does not contain a requirement to effect a liquidity event by a specific date. In the future, our Board may consider various forms of liquidity, each of which is referred to as a liquidity event, including, but not limited to: (1) the listing of shares of common stock on a national securities exchange; (2) the sale of all or substantially all of our assets; (3) a sale or merger that would provide stockholders with cash and/or securities of a publicly traded company; or (4) the dissolution of the Company. However, there can be no assurance that we will cause a liquidity event to occur. If we do not pursue a liquidity transaction, shares of our common stock may continue to be illiquid and stockholders may, for an indefinite period of time, be unable to easily convert their investment to cash and could suffer losses on their investments.
If we continue to 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 properties and other assets, and our stockholders’ overall returns may be reduced.
Our organizational documents permit us to pay distributions from any source without limit (other than those limits set forth under Maryland law). To the extent we continue to fund distributions from borrowings, we will have fewer funds available for investment in real estate properties and other real estate-related assets, and our stockholders’ overall returns may be reduced.
At times, we may need to borrow funds to pay distributions, which could increase the costs to operate our business. Furthermore, if we cannot cover our distributions with cash flows from operations, we may be unable to sustain our distribution rate. For the year ended December 31, 2019, we paid gross distributions to our common stockholders and noncontrolling interests of $220.2 million, including distributions reinvested through the DRIP of $67.4 million. For the year ended December 31, 2019, our net cash provided by operating activities was $226.9 million, which represents a surplus of $6.7 million, or 3.1%, of our distributions paid, while our funds from operations (“FFO”) Attributable to Stockholders and Convertible Noncontrolling Interests were $217.0 million, which represents a shortfall of $3.2 million, or 1.5%, of the distributions paid. The shortfall was funded by cash flows from operations. For the year ended December 31, 2018, we paid distributions of $153.4 million, including distributions reinvested through the DRIP of $44.1 million. For the year ended December 31, 2018, our net cash provided by operating activities was $153.3 million, which represents a shortfall of $0.1 million, or 0.1%, of our distributions paid, while our FFO Attributable to Stockholders and Convertible Noncontrolling Interests was $156.2 million, which represents a surplus of $2.8 million, or 1.8% of our distributions paid.
We cannot assure stockholders that we will be able to continue paying distributions at the rate currently paid.
We expect to continue our current distribution practices. Stockholders, however, may not receive distributions equivalent to those previously paid by us for various reasons, including the following:
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, or as a result of unknown or unforeseen liabilities incurred in connection with the PELP transaction, the Merger with REIT II, or the merger with REIT III;
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;
our Board may elect to retain cash to maintain or improve our credit ratings; and
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.
Stockholders have no contractual or other legal right to distributions that have not been authorized by the Board and declared by the Company.

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We are highly dependent on key personnel, and the loss of key personnel or inability to attract and retain personnel could adversely affect our business.
We are highly dependent on the leadership and performance of our senior management and other key personnel. Our future success is dependent, in part, on our ability to attract, retain and motivate qualified senior management and other key personnel. Competition for these individuals is intense and we cannot be assured that we will retain all of our senior management members or other key personnel or that we will be able to attract and retain other highly qualified individuals for these positions in the future. Losing any one or more of these persons may have a material adverse effect on our business and operating results.
We have agreed to nominate Mr. Edison to our Board for each annual meeting through 2027 and for Mr. Edison to continue serving as Chairman of the Board through 2020.
As part of the PELP transaction, we agreed to nominate Jeffrey S. Edison to the Board for each annual meeting through 2027, subject to certain terminating events. In addition, our bylaws provide that Mr. Edison will continue to serve as Chairman of the Board until October 7, 2020, subject to certain terminating events, including the listing of our common stock on a national securities exchange. As a result, it is possible that Mr. Edison may continue to be nominated as a director and serve as Chairman of the Board in circumstances when the independent directors would not otherwise have nominated or elected him.
The Operating Partnership’s limited partnership agreement grants certain rights and protections to the limited partners, which may prevent or delay a change of control transaction that might involve a premium price for our shares of common stock.
The Operating Partnership’s limited partnership agreement grants certain rights and protections to the limited partners, including granting them the right to consent to a change of control transaction. Furthermore, Mr. Edison currently has voting control over approximately 51.5% of the Operating Partnership’s limited partnership units (exclusive of those owned by us) and therefore could have a significant influence over votes on change of control transactions.
We may be liable for potentially large, unanticipated costs arising from our acquisition of companies contributed or transferred in the PELP transaction, the Merger, and the merger with REIT III.
Prior to completing the PELP transaction, the Merger, and the merger with REIT III, we performed certain due diligence reviews of the business of PELP, REIT II, and REIT III. Our due diligence review may not have adequately uncovered all of the contingent or undisclosed liabilities we may incur as a consequence of the PELP transaction, the Merger, or the merger with REIT III. Any such liabilities could cause us to experience potentially significant losses, which could materially adversely affect our business, results of operations and financial condition.
In addition, we have agreed to honor and fulfill, following the closing, the rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the closing of each of the PELP transaction, the Merger, and the merger with REIT III in existence at closing in favor of a manager, director, officer, trustee, agent or fiduciary of any company contributed or transferred under the PELP transaction, the Merger, or the merger with REIT III or their respective subsidiaries contained in (1) the organizational documents of such company or subsidiary and (2) all existing indemnification agreements of such companies and their subsidiaries. For six years after the closing, we may not amend, modify or repeal the organizational documents of companies contributed under the PELP transaction, the Merger, or the merger with REIT III and their respective subsidiaries in any way that would adversely affect such rights. We may incur substantial costs to address such claims and are limited in our ability to modify such indemnification obligations.
The tax protection agreement, during its term, could limit the Operating Partnership’s ability to sell or otherwise dispose of certain properties and may require the Operating Partnership to maintain certain debt levels that otherwise would not be required to operate its business.
We and the Operating Partnership entered into a tax protection agreement at the closing of the PELP transaction, pursuant to which if the Operating Partnership (1) sells, exchanges, transfers, conveys or otherwise disposes of certain properties in a taxable transaction for a period of ten years commencing on the closing, or (2) fails, prior to the expiration of such period, to maintain minimum levels of indebtedness that would be allocable to each protected partner for tax purposes or, alternatively, fails to offer such protected partners the opportunity to guarantee specific types of the Operating Partnership’s indebtedness in order to enable such partners to continue to defer certain tax liabilities, the Operating Partnership will indemnify each affected protected partner against certain resulting tax liabilities. Therefore, although it may be in the stockholders’ best interest for us to cause the Operating Partnership to sell, exchange, transfer, convey or otherwise dispose of one of these properties, it may be economically prohibitive for us to do so during the ten year protection period because of these indemnity obligations. Moreover, these obligations may require us to cause the Operating Partnership to maintain more or different indebtedness than we would otherwise require for our business. As a result, the tax protection agreement will, during its term, restrict our ability to take actions or make decisions that otherwise would be in our best interests.
If the fiduciary of an employee benefit plan subject to ERISA (such as a profit sharing, Section 401(k) or pension plan) or an owner of a retirement arrangement subject to Section 4975 of the Internal Revenue Code (such as an individual retirement account) fails to meet the fiduciary and other standards under ERISA or the IRC as a result of an investment in our stock, the fiduciary could be subject to penalties and other sanctions.
There are special considerations that apply to employee benefit plans subject to ERISA (such as profit sharing, Section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (“IRC”) (such as an individual retirement account or “IRA”) that are investing in shares of our common stock. Fiduciaries and IRA owners investing the assets of such a plan or account in our common stock should satisfy themselves that:
the investment is consistent with their fiduciary and other obligations under ERISA and the IRC;
the investment is made in accordance with the documents and instruments governing the plan or IRA, including the plan’s or account’s investment policy;

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the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the IRC;
the investment in our shares, for which no public market currently exists, is consistent with the liquidity needs of the plan or IRA;
the investment will not produce an unacceptable amount of “unrelated business taxable income” for the plan or IRA;
our stockholders will be able to comply with the requirements under ERISA and the IRC to value the assets of the plan or IRA annually; and
the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the IRC.
Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the IRC may result in the imposition of civil and criminal penalties and could subject the fiduciary to claims for damages or for equitable remedies, including liability for investment losses. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the IRC, the fiduciary or IRA owner who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In addition, the investment transaction must be undone. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified as a tax-exempt account and all of the assets of the IRA may be deemed distributed and subjected to tax. ERISA plan fiduciaries and IRA owners should consult with counsel before making an investment in our common stock.
If stockholders invested in our shares through an IRA or other retirement plan, they may be limited in their ability to withdraw required minimum distributions.
If stockholders established an IRA or other retirement plan through which they invested in our shares, federal law may require them to withdraw required minimum distributions (“RMDs”) from such plan in the future. Our SRP limits the amount of repurchases (other than those repurchases as a result of a stockholder’s death or disability) that can be made in a given year. As a result, they may not be able to have their shares repurchased at a time in which they need liquidity to satisfy the RMD requirements under their IRA or other retirement plan. Even if they are able to have their shares repurchased, the applicable share repurchase price is the lower of $10.00 per share or the EVPS of our common stock as determined by our Board, and this value is expected to fluctuate over time. As such, a repurchase may be at a price that is less than the price at which the shares were initially purchased. If stockholders fail to withdraw RMDs from their IRA or other retirement plan, they may be subject to certain tax penalties.
Risks Related to the Retail Industry
The continued shift in retail sales towards e-commerce may adversely affect our revenues and cash flows.
Retailers are increasingly affected by e-commerce and changes in customer buying habits, including the delivery or curbside pick-up of items ordered online. Retailers are considering these e-commerce trends when making decisions regarding their brick and mortar stores and how they will compete and innovate in a rapidly changing e-commerce environment. 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. Our grocer tenants are incorporating e-commerce concepts through home delivery or curbside pickup, which could reduce foot traffic at our centers. This shift may adversely affect our occupancy and rental rates, which would affect our revenues and cash flows. Changes in shopping trends as a result of the growth in e-commerce may also affect the profitability of retailers that do not adapt to changes in market conditions. These conditions may adversely impact our results of operations and cash flows if we are unable to meet the needs of our tenants or if our tenants encounter financial difficulties as a result of changing market conditions. While we devote considerable effort and resources to analyze and respond to tenant trends, tenant and consumer preferences, and consumer spending patterns, we cannot predict with certainty what future tenants will want, what future retail spaces will look like, or how much revenue will be generated at traditional brick and mortar locations. If we are unable to anticipate and respond promptly to trends in the market (such as space for a drive through or curbside pickup), our occupancy levels and rental rates may decline.
Our business is dependent on perceptions by retailers and shoppers as to the safety, convenience, and attractiveness of our shopping centers.
We are dependent on perceptions by retailers or shoppers as to the safety, convenience, and attractiveness of our shopping centers. Such perceptions may be affected by any number of factors within our control (including property maintenance, landscaping, and lighting) as well as those outside of our control (including negative publicity about crime in the area or public road work). If retailers and shoppers perceive competing shopping centers and other retailing options to be safer, more convenient, or of a higher quality, our revenues may be adversely affected.
Changing economic and retail market conditions in geographic areas where our shopping centers are concentrated may reduce our revenues and cash flows.
Economic conditions in markets where our shopping centers are concentrated can greatly influence our financial performance. During the year ended December 31, 2019, our properties in Florida and California accounted for 12.3% and 10.3%, respectively, of our Annualized Base Rent (“ABR”). Our revenues and cash flows may be adversely affected by this geographic concentration if market conditions, such as supply of or demand for retail space or retail shopping trends, deteriorate more significantly in Florida or California compared to other geographic areas.
Actual or threatened epidemics, pandemics, outbreaks, or other public health crises may adversely affect our tenants’ financial condition and the profitability of our properties.
Our business and the businesses of our tenants could be materially and adversely affected by the risks, or the public perception of the risks, related to an epidemic, pandemic, outbreak, or other public health crisis, such as the recent outbreak of novel coronavirus (COVID-19). The risk, or public perception of the risk, of a pandemic or media coverage of infectious

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diseases could cause employees or customers to avoid our properties, which could adversely affect foot traffic to our tenants’ businesses and our tenants’ ability to adequately staff their businesses. Such events could adversely impact tenants’ sales and/or cause the temporary closure of our tenants’ businesses, complete or partial closure of one or more of our tenants’ distribution centers, temporary or long-term disruption in our tenants’ supply chains from local and international suppliers, and/or delays in the delivery of our tenants’ inventory, all of which could severely disrupt their operations and have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Real Estate Investments and Operations
Adverse economic, regulatory, market, and real estate conditions may adversely affect our financial condition, operating results, and cash flows.
Our portfolio is predominantly comprised of neighborhood grocery-anchored shopping centers. Therefore, our performance is subject to risks associated with owning and operating these types of real estate assets, including, but not limited to: (1) changes in national, regional, and local economic climates or demographics; (2) competition from other available properties and e-commerce, and the attractiveness of our properties to our tenants; (3) increased competition for real estate assets targeted by our investment strategies; (4) adverse local conditions, such as oversupply or reduction in demand for similar properties in an area and changes in real estate zoning laws that may reduce the desirability of real estate in an area; (5) vacancies, changes in market rental rates, and the need to periodically repair, renovate, and re-lease space; (6) ongoing disruption and/or consolidation in the retail sector, the financial stability of our tenants and the overall financial condition of our tenants, including their ability to pay rent and expense reimbursements; (7) increases in operating costs, including common area expenses, utilities, insurance and real estate taxes, which are relatively inflexible and generally do not decrease if revenue or occupancy decreases; (8) increases in the costs to repair, renovate, and re-lease space; (9) changes in interest rates and the availability of financing, which may render the sale or refinance of a property or loan difficult or unattractive; (10) earthquakes, tornadoes, hurricanes, wildfires, or other natural disasters, civil unrest, terrorist acts, or acts of war, which may result in uninsured or underinsured losses; (11) epidemics, pandemics, or other widespread outbreaks or resulting public fear that disrupt the businesses of our tenants causing them to fail to pay rent on time or at all; and (12) changes in laws and governmental regulations, including those governing usage, zoning, the environment, and taxes. These and other factors could adversely affect our financial condition, operating results, and cash flows.
Our real estate assets may decline in value and be subject to significant impairment losses, which may reduce our net income.
Our real estate properties are carried at cost less depreciation unless circumstances indicate that the carrying value of these assets may not be recoverable. We routinely evaluate whether there are any impairment indicators, including property operating performance, property occupancy trends, and actual marketing or listing price of properties being targeted for disposition, such that the value of the real estate properties (including any related tangible or intangible assets or liabilities) may not be recoverable. Through the evaluation, we compare the current carrying value of the asset to the estimated undiscounted cash flows that are directly associated with the use and ultimate disposition of the asset. Our estimated cash flows are based on several key assumptions, including rental rates, costs of tenant improvements, leasing commissions, anticipated holding periods, and assumptions regarding the residual value upon disposition, including the estimated exit capitalization rate. These key assumptions are subjective in nature and may differ materially from actual results. Changes in our disposition strategy or changes in the marketplace may 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. To the extent that the carrying value of the asset exceeds the estimated undiscounted cash flows, an impairment loss is recognized equal to the excess of carrying value over fair value.
The fair value of real estate assets is subjective and is determined through the use of comparable sales information and other market data if available. 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, 2019, we incurred $87.4 million of impairment charges related to real estate assets currently under contract or actively marketed for sale at a disposition price that was less than the carrying value. We have recorded such impairment charges as we have been selling non-core assets to improve the quality of our portfolio. We are targeting to complete this phase of our disposition program in the first half of 2020, but impairments may occur in the future as we expect core dispositions to continue as we continue to pay off debt to delever our balance sheet. Accordingly, there can be no assurance that we will not record additional impairment charges in the future related to our assets.
Our revenues and cash flows will be affected by the success and economic viability of our anchor tenants.
Anchor tenants (a tenant occupying 10,000 or more square feet) occupy large stores in our shopping centers, pay a significant portion of the total rent at a property, and contribute to the success of other tenants by attracting shoppers to the property. Our revenues and cash flows may be adversely affected by the loss of revenues and additional costs in the event a significant anchor tenant (1) becomes bankrupt or insolvent, (2) experiences a downturn in its business, (3) materially defaults on its lease, (4) decides not to renew its lease as it expires, (5) renews its lease at lower rental rates and/or requires tenant improvements, or (6) renews its lease but reduces its store size, which results in down-time and additional tenant improvement costs to us to re-lease the space. Some anchors have the right to vacate their space and may prevent us from re-tenanting by continuing to comply and pay rent in accordance with their lease agreement. Vacated anchor space, including space owned by the anchor, can reduce rental revenues generated by the shopping center in other spaces because of the loss of the departed anchor's customer drawing power. In the event that we are unable to re-lease the vacated space to a new anchor tenant in such situations, we may incur additional expenses in order to re-model the space to be able to re-lease the space to more than one tenant.
If a significant tenant vacates a property, co-tenancy clauses in select lease contracts may allow other tenants to modify or terminate their rent or lease obligations. Co-tenancy clauses have several variants: they may allow a tenant to postpone a store opening if certain other tenants fail to open their stores; they may allow a tenant to close its store prior to lease

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expiration if another tenant closes its store prior to lease expiration; or they may allow a tenant to pay reduced levels of rent until a certain number of tenants open their stores within the same shopping center.
The leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A lease transfer to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases.
A significant percentage of our revenues is derived from non-anchor tenants and our net income and ability to make distributions to stockholders may be adversely affected if these tenants are not successful.
A significant percentage of our revenues is derived from non-anchor tenants. Such tenants may be more vulnerable to negative economic conditions as they have more limited resources than anchor tenants. A property may incur vacancies either by the expiration of a tenant lease, the continued default of a tenant under its lease, or the early termination of a lease by a tenant. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in less cash available to distribute to stockholders. In order to maintain tenants, we may have to offer inducements, such as free rent and tenant improvements, to compete for attractive tenants. If we are unable to attract the right type or mix of non-anchor tenants into our shopping centers, our revenues and cash flows may be adversely affected. In addition, if we are unable to attract additional or replacement tenants, the resale value of the property could be diminished, even below our cost to acquire the property, because the market value of a particular property depends principally upon the value of the cash flow generated by the leases associated with that property. Such a reduction on the resale value of a property could also reduce the value of our stockholders’ investments.
We face considerable competition in the leasing market and may be unable to renew leases or re-lease space as leases expire. Consequently, we may be required to make rent or other concessions and/or incur significant capital expenditures to retain and attract tenants, which could adversely affect our financial condition, operating results, and cash flows.
There are numerous shopping venues, including other shopping centers and e-commerce, that compete with our portfolio in attracting and retaining retailers. This competition may hinder our ability to attract and retain tenants, leading to increased vacancy rates, reduced rents, and/or increased capital investments. For leases that renew, rental rates upon renewal may be lower than current rates. For those leases that do not renew, we may not be able to promptly re-lease the space on favorable terms or with reasonable capital investments. In these situations, our financial condition, operating results, and cash flows could be adversely affected. See Item 2. Properties for information regarding scheduled lease expirations and leases renewed subsequent to December 31, 2019 and the ABR of new leases signed during 2019.
We may be unable to sell properties when desired or at an attractive price, and the sale of a property could cause significant income tax payments.
Our properties, including related tangible and intangible assets, represent the majority of our total consolidated assets and they may not be readily convertible to cash. As a result, our ability to sell one or more of our properties, including properties held in joint ventures, in response to changes in economic, industry, or other conditions, may be limited. The real estate market is affected by many factors, such as general economic conditions, availability and terms of financing, interest rates and other factors, including supply and demand for space, that are beyond our control. There may be less demand for lower quality properties that we have identified for ultimate disposition in markets with uncertain economic or retail environments, and where buyers are more reliant on the availability of third party mortgage financing. If we want to sell a property, we can provide no assurance that we will be able to dispose of it in the desired time period or at all, or that the sales price of a property will be attractive at the relevant time or even exceed the carrying value of our investment. Moreover, if a property is mortgaged, we may not be able to obtain a release of the lien on that property without the payment of a substantial prepayment penalty, which may restrict our ability to dispose of the property, even though the sale might otherwise be desirable.
Some of our properties have a low tax basis, which may result in a taxable gain on sale. We intend to utilize tax-free exchanges under Section 1031 of the Code to mitigate taxable income (“1031 exchanges”); however, there can be no assurance that we will identify exchange properties that meet our investment objectives for acquisitions. In the event that we do not utilize Section 1031 exchanges, we may be required to distribute the gain proceeds to stockholders or pay income tax, which may reduce our cash flows available to fund our commitments and distributions to stockholders.
Our performance depends on the financial health of tenants in our portfolio and our continued ability to collect rent when due.
Significant tenant distress across our portfolio could adversely affect our financial condition, operating results, and cash flows. Our income is substantially derived from rental income on real property. As a result, our performance depends on the collection of rent from tenants in our portfolio. Our income would be adversely affected if a significant number of our tenants failed to make rental payments when due. In addition, many of our tenants rely on external sources of financing to operate and grow their businesses, and disruptions in credit markets could adversely affect our tenants’ ability to obtain financing on favorable terms or at all. If our tenants are unable to secure necessary financing to continue to operate or expand their businesses, they may be unable to meet their rent obligations, renew leases, or enter into new leases with us, which could adversely affect our financial condition, operating results, and cash flows.
In certain circumstances, a tenant may have a right to terminate its lease. For example, in certain circumstances, a failure by an anchor tenant to occupy their leased premises could result in lease terminations or reductions in rent paid by other tenants in those shopping centers. In such situations, we cannot be certain that we will be able to re-lease space on similar or economically advantageous terms. The loss of rental revenues from a significant number of tenants and difficulty in replacing such tenants could adversely affect our financial condition, operating results, and cash flows.

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We may be unable to collect balances due from tenants in bankruptcy.
The bankruptcy or insolvency of a significant tenant or a number of smaller tenants may adversely affect our financial condition and our ability to pay distributions to our stockholders. Generally, under bankruptcy law, a debtor tenant has the legal right to reject any or all of their leases and close related stores. If the tenant rejects the lease, we will have a claim against the tenant’s bankruptcy estate. Although rent owing for the period between filing for bankruptcy and rejection of the lease may be afforded administrative expense priority and paid in full, pre-bankruptcy arrears and amounts owing under the remaining term of the lease will be afforded general unsecured claim status (absent collateral securing the claim). General unsecured claims are the last claims paid in a bankruptcy, and, therefore, funds may not be available to pay such claims in full. Moreover, amounts owing under the remaining term of the lease will be capped. As a result, it is likely that we would recover substantially less than the full value of any unsecured claims we hold. Additionally, we may incur significant expense to recover our claim and to re-lease the vacated space. In the event that a tenant with a significant number of leases in our shopping centers files bankruptcy and rejects its leases, we may experience a significant reduction in our revenues and may not be able to collect all pre-petition amounts owed by the bankrupt tenant.
Long-term leases with our tenants may not result in fair value over time.
From time to time, we enter into long-term leases with our shopping center tenants. Long-term leases do not typically allow for significant changes in rental payments and do not expire in the near term. If we do not accurately judge the potential for increases in market rental rates when negotiating these long-term leases, significant increases in future property operating costs could result in receiving less than fair value from these leases, which would adversely affect our revenues and the funds available for distributions to stockholders.
We may be restricted from re-leasing space to certain tenants at our particular shopping centers.
Some of our leases contain provisions that give a specific tenant the exclusive right to sell particular types of goods or services within that shopping center. These provisions may limit the number and types of prospective tenants to which we are able to lease space in a particular shopping center, which may result in increased costs to find a permissible tenant and decreased revenues if one or more spaces sit vacant or we have to accept lower rental rates or a less qualified tenant to fill the space.
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 continue to evaluate the market for acquisition opportunities and we may acquire properties when we believe strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully integrate, operate, reposition, or redevelop them is subject to several risks. We may be unable to acquire a desired property because of competition from other real estate investors, including from other well-capitalized REITs and institutional investment funds. Even if we are able to acquire a desired property, competition from such investors may significantly increase the purchase price. We may also abandon acquisition activities after expending significant resources to pursue such opportunities. Once we acquire new properties, these properties may not yield expected returns for several reasons, including: (1) failure to achieve expected occupancy and/or rent levels within the projected time frame, if at all; (2) inability to successfully integrate new properties into existing operations; and (3) exposure to fluctuations in the general economy, including due to the time lag between signing definitive documentation to acquire a new property and the closing of the acquisition. If any of these events occur, the cost of the acquisition may exceed initial estimates or the expected returns may not achieve those originally contemplated, which could adversely affect our financial condition, operating results, and cash flows.
We share ownership of our joint ventures and do not have exclusive decision-making power, and as such, we are unable to ensure that our objectives will be pursued.
We have invested capital, and may invest additional capital, in joint ventures instead of owning directly. In these investments, we do not have exclusive decision-making power over the development, financing, leasing, management, and other aspects of these investments. As a result, the joint venture partners might have interests or goals that are inconsistent with ours, take action contrary to our interests, or otherwise impede our objectives. These activities are subject to the same risks as our investments in our wholly-owned properties. In addition, these investments and other future similar investments may involve risks that would not be present were a third party not involved, including the possibility that the joint venture partners might become bankrupt, suffer a deterioration in their creditworthiness, or fail to fund their share of required capital contributions. Conflicts arising between us and our partners may be difficult to manage and/or resolve and it could be difficult to manage or otherwise monitor the existing business arrangements.
In addition, joint venture arrangements may decrease our ability to manage risk and implicate additional risks, such as (1) potentially inferior financial capacity, diverging business goals and strategies and the need for our venture partners’ continued cooperation; (2) our inability to take actions with respect to the joint ventures’ activities that we believe are favorable to us if our joint venture partners do not agree; (3) our inability to control the legal entities that have title to the real estate associated with the joint ventures; (4) our lenders may not be easily able to sell our joint venture assets and investments or may view them less favorably as collateral, which could negatively affect our liquidity and capital resources; (5) our joint venture partners can take actions that we may not be able to anticipate or prevent, which could result in negative impacts on our debt and equity; and (6) our joint venture partners’ business decisions or other actions or omissions may result in harm to our reputation or adversely affect the value of our investments.
If we set aside insufficient capital reserves, we may be required to defer necessary capital improvements.
If we do not have enough reserves for capital to supply needed funds for capital improvements throughout the life of the investment in a property and there is insufficient cash available from our operations, we may be required to defer necessary improvements to a property, which may cause that property to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential tenants being attracted to the property. If this happens,

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we may not be able to maintain projected rental rates for affected properties, and our results of operations may be negatively affected.
We face considerable competition for tenants and the business of retail shoppers. Consequently, we actively reinvest in our portfolio in the form of development and redevelopment projects. Development and redevelopment projects have inherent risks that could adversely affect our financial condition, operating results, and cash flows.
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. We may not recover our investment in development or redevelopment projects. We are subject to other risks associated with these activities, including the following risks:
we may be unable to lease developments and redevelopments to full occupancy on a timely basis;
the occupancy rates and rents of a completed project may not be sufficient to make the project profitable;
actual costs of a project may exceed original estimates, possibly making the project unprofitable;
delays in the development or construction process may increase our costs;
construction cost increases may reduce investment returns on development and redevelopment opportunities;
we may abandon redevelopment opportunities and lose our investment due to adverse market conditions;
the size of our development and redevelopment pipeline may strain our labor or capital capacity to complete projects within targeted timelines and may reduce our investment returns;
a reduction in the demand for new retail space may reduce our future development and redevelopment activities, which in turn may reduce our net operating income; and/or
changes in the level of future development activity may adversely impact our results from operations by reducing the amount of internal general overhead costs that may be capitalized.
If we fail to reinvest in our portfolio or maintain its attractiveness to retailers and consumers, if our capital improvements are not successful, or if retailers or consumers perceive that shopping at other venues (including e-commerce) is more convenient, cost-effective, or otherwise more compelling, our financial condition, operating results and cash flows could be adversely affected.
Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce our cash flows and the return on our stockholders’ investments.
We maintain insurance coverage with third-party carriers who provide a portion of the coverage of potential losses, including commercial general liability, fire, flood, extended coverage and rental loss insurance on all of our properties. We currently self-insure a portion of our commercial insurance deductible risk through our captive insurance company. To the extent that our captive insurance company is unable to bear that risk, we may be required to fund additional capital to our captive insurance company or we may be required to bear that loss. As a result, our operating results may be adversely affected.
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. Insurance risks associated with potential acts of terrorism could sharply increase the premiums that we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases insist that commercial property owners purchase coverage against terrorism as a condition for providing mortgage loans. Such insurance policies may not be available at reasonable costs, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate, or any, coverage for such losses. Changes in the cost or availability of insurance could expose us to uninsured casualty losses. If any of our properties incur a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss, which may reduce the value of stockholders’ investments. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions to stockholders.
Climate change may adversely affect our properties, operations, and business.
Climate change, including the impact of global warming, creates physical and financial risk. Physical risks from climate change include an increase in sea level and changes in weather conditions, such as an increase in storm intensity and severity of weather (e.g. floods, tornadoes, or hurricanes) and extreme temperatures. The occurrence of one or more natural disasters, such as hurricanes, tropical storms, tornadoes, wildfires, floods, and earthquakes (whether or not caused by climate change), could cause considerable damage to our properties, disrupt our operations and negatively affect our financial performance. To the extent any of these events result in significant damage to or closure of one or more of our shopping centers, our operations and financial performance could be adversely affected through lost tenants and an inability to lease or re‑lease the space. In addition, these events could result in significant expenses to restore or remediate a property, increases in fuel or other energy costs or a fuel shortage, and increases in the costs of (or making unavailable) insurance on favorable terms if they result in significant loss of property or other insurable damage. As of December 31, 2019, our real estate investments, including our wholly-owned and the prorated portion of those owned through our unconsolidated joint ventures, in California, Florida, Texas, and Georgia represented 38.9% of our ABR, making us particularly susceptible to weather events and natural disasters in those states. In addition, compliance with new or more stringent laws or regulations or stricter interpretations of existing laws may require material expenditures by us. For example, various federal, state, and regional laws and regulations have been implemented or are under consideration to mitigate the effects of climate change caused by greenhouse gas emissions. Among other things, “green” building codes may seek to reduce emissions through the imposition of standards for

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design, construction materials, water and energy usage and efficiency, and waste management. Such codes could require us to make improvements to our existing properties, increase the costs of maintaining or improving our existing properties or developing new properties, or increase taxes and fees assessed on us or our properties.
As an owner and/or operator of real estate, we could become subject to liability for environmental violations, regardless of whether we caused such violations.
We could become subject to liability in the form of fines or damages for noncompliance with environmental laws and regulations. These laws and regulations generally govern wastewater discharges; air emissions; the operation and removal of underground and above-ground storage tanks; the use, storage, treatment, transportation and disposal of solid hazardous materials; the remediation of contaminated property associated with the disposal of solid and hazardous materials; and other health and safety-related concerns. U.S. federal, state, and local laws and regulations relating to the protection of the environment may require us, as a current or previous owner or operator of real property, to investigate and clean up hazardous or toxic substances or petroleum product releases at a property or at impacted neighboring properties. Some of these laws and regulations may impose joint and several liability on tenants, owners, or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. Under various federal, state, and local environmental laws, ordinances, and regulations, a current or former owner or operator of real property may be liable for the cost to remove or remediate hazardous or toxic substances, wastes, or petroleum products on, under, from, or in such property. These costs could be substantial and liability under these laws may attach whether or not the owner or manager knew of, or was responsible for, the presence of such contamination. Even if more than one person may have been responsible for the contamination, each liable party may be held entirely responsible for all of the clean-up costs incurred. We may be subject to regulatory action and may also be held liable to third parties for personal injury or property damage incurred by the parties in connection with any such laws and regulations or hazardous or toxic substances. The costs of investigation, removal or remediation of hazardous or toxic substances, and related liabilities, may be substantial and could materially and adversely affect us. The presence of hazardous or toxic substances, or the failure to remediate the related contamination, may also adversely affect our ability to sell, lease or redevelop a property or to borrow money using a property as collateral.
Our efforts to identify environmental liabilities may not be successful.
Although we believe that our portfolio is in substantial compliance with U.S. federal, state and local environmental laws and regulations regarding hazardous or toxic substances, this belief is based on limited testing. Nearly all of our properties have been subjected to Phase I or similar environmental audits. These environmental audits have not revealed, nor are we aware of, any environmental liability that we believe is reasonably likely to have a material adverse effect on us. However, we cannot assure you that: (1) previous environmental studies with respect to the portfolio revealed all potential environmental liabilities; (2) any previous owner, occupant or tenant of a property did not create any material environmental condition not known to us; (3) the current environmental condition of the portfolio will not be affected by tenants and occupants, by the condition of nearby properties, or by other unrelated third parties; or (4) future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations or the interpretation thereof) will not result in environmental liabilities.
Compliance or failure to comply with the Americans with Disabilities Act and fire, safety, and other regulations could result in substantial costs and may decrease cash available for stockholder distributions.
Our properties are, or may become subject to, the Americans with Disabilities Act of 1990, as amended (“ADA”), which generally requires that all places of public accommodation comply with federal requirements related to access and use by disabled persons. Compliance with the ADA’s requirements could require the removal of access barriers and noncompliance may result in the imposition of injunctive relief, monetary penalties, or in some cases, an award of damages. While we attempt to acquire properties that are already in compliance with the ADA or place the burden of compliance on the seller or other third party, such as a tenant, we cannot assure stockholders that we will be able to acquire properties or allocate responsibilities in this manner. In addition, we are required to operate the properties in compliance with fire and safety regulations, building codes, and other land use regulations, as they may be adopted by governmental entities and become applicable to the properties. We may be required to make substantial capital expenditures to comply with these requirements, and these expenditures may reduce our net income and may have a material adverse effect on our ability to meet our financial obligations and make distributions to our stockholders.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures and the existence of a disaster recovery and business continuity plans for our internal information technology systems, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war, and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions, which we may not be able to recover fully or at all from our insurance providers.
We and our tenants face risks relating to cybersecurity attacks, which could cause loss of confidential information and other disruptions to business operations, and compliance with new laws and regulations regarding cybersecurity and privacy may result in substantial costs and may decrease cash available for distributions.
Our business is at risk from and may be adversely affected by cybersecurity attacks. These attacks could include attempts to gain unauthorized access to our data and/or computer systems to disrupt operations, corrupt data, or steal confidential information. Attacks can be both individual and highly organized attempts by very sophisticated hacking organizations. 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. The risk of a cybersecurity attack, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from

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around the world have increased. The techniques and sophistication used to conduct cyber attacks and breaches of IT systems, as well as the sources and targets of these attacks, change frequently and are often not recognized until such attacks are launched or have been in place for a period of time.
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 tenants. In addition to our own IT systems, we also depend 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. Any of our IT systems and those provided by third parties contain personal, financial, or other information that is entrusted to us by our tenants and employees as well as proprietary PECO information and other confidential information related to our business. 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.
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 tenants, and private data exposure. Our financial results and business operations may be negatively affected by such an incident or the resulting negative media attention. A cybersecurity attack could (1) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our tenants; (2) compromise the confidential or proprietary information of our tenants, employees, and vendors, which others could use to compete against us or for disruptive, destructive, or otherwise harmful purposes and outcomes; (3) result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space; (4) require significant management attention and resources to remedy and damages that result; (5) result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines; (6) result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT; (7) subject us to claims for breach of contract, damages, credits, penalties, or termination of leases or other agreements or relationships; (8) cause reputational damage that adversely affects tenant, investor, and employee confidence in us, which could negatively affect our ability to attract and retain tenants, investors, and employees; (9) result in significant remediation costs, some or all of which may not be recoverable from our insurance carriers; and (10) result in increases in the cost of obtaining insurance on favorable terms, or at all, if the attack results in significant insured losses. Such security breaches also could result in a violation of applicable federal and state privacy and other laws, and subject us to private consumer, business partner, or securities litigation and governmental investigations and proceedings, any of which could result in our exposure to material civil or criminal liability, and we may not be able to recover these expenses from our service providers, responsible parties, or insurance carriers. Similarly, our tenants rely extensively on IT systems to process transactions and manage their businesses and thus are also at risk from and may be adversely affected by cybersecurity attacks. An interruption in the business operations of our tenants 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, 2019, we have not had any material incidences involving cybersecurity attacks.
To mitigate the risk of a cybersecurity attack or other data security breach, new laws and regulations have been implemented by governments, including the state of California, and several other states currently have privacy or cybersecurity legislation under consideration. Compliance with new or more stringent laws or regulations or stricter interpretations of existing laws regarding cybersecurity and privacy may require us to make significant expenditures and may cause increases in the cost of (or make unavailable) insurance on favorable terms, and these expenditures and increased costs may reduce our net income and may have an adverse effect on our ability to meet our financial obligations and make distributions to our stockholders.
We could be subject to legal or regulatory proceedings that may adversely affect our cash flows and results of operations.
As an owner and operator of public shopping centers, from time to time, we are party to legal and regulatory proceedings that arise in the ordinary course of business. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such litigation or proceedings. We could experience an adverse effect to our cash flows, financial condition, and results of operations due to an unfavorable outcome.
Risks Related to Capital Recycling Strategy and Capital Structure
Higher market capitalization rates and lower NOI at our properties may adversely impact our ability to sell properties and fund developments and acquisitions, and may dilute earnings.
As part of our capital recycling strategy, we sell properties that no longer meet our growth and investment objectives due to stabilization or perceived future risk. These sales proceeds are used to fund the construction of new outparcel 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 properties identified for sale, which would have an adverse effect on the amount of cash generated. In order to meet the cash requirements of our capital recycling program, we may be required to sell more properties than initially planned, which may have a negative effect on our earnings. Additionally, the sale of properties resulting in significant tax gains may require higher distributions to our stockholders or payment of additional income taxes in order to maintain our REIT status. We intend to utilize 1031 exchanges to mitigate taxable income, however there can be no assurance that we will identify exchange properties that meet our investment objectives for acquisitions.
We have substantial indebtedness and we may need to incur additional indebtedness in the future; our debt financing could adversely affect our business and financial condition.
We have obtained, and are likely to continue to obtain, lines of credit, and other long-term financing that are secured by our properties and other assets. On December 31, 2019, we had indebtedness of $2.4 billion, which comprises $395.0 million in outstanding secured loan facilities, $1.7 billion in unsecured debt, and $324.6 million in mortgage loans and finance lease obligations. In connection with executing our business strategies, we expect to evaluate the possibility of additional

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acquisitions and strategic investments, and we may elect to finance these endeavors by incurring additional indebtedness. We may also incur mortgage debt on properties that we already own in order to obtain funds to acquire additional properties or make other capital investments. In addition, we may borrow as necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes, including borrowings to satisfy the REIT requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders (computed without regard to the dividends-paid deduction and excluding net capital gain). In connection with executing our business strategies, we expect to evaluate the possibility of additional acquisitions and strategic investments, and we may elect to finance these endeavors by incurring additional indebtedness. However, we cannot guarantee that we will be able to obtain any such borrowings on satisfactory terms.
High debt levels could have material adverse consequences for the Company, including hindering our ability to adjust to changing market, industry, or economic conditions; limiting our ability to access the capital markets to refinance maturing debt or to fund acquisitions or emerging businesses; requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on our debt, thereby limiting the amount of free cash flow available for future operations, acquisitions, distributions, stock repurchases, or other uses; making us more vulnerable to economic or industry downturns, including interest rate increases; and placing us at a competitive disadvantage compared to less leveraged competitors.
If we mortgage a property and there is a shortfall between the cash flows from that property and the cash flows needed to service mortgage debt on that property, then the amount of cash available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. Additionally, we may give full or partial guarantees to lenders of mortgage debt on behalf of the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. Currently, we are a limited guarantor on a mortgage loan for each of our NRP and GRP I joint ventures. In each case, our guarantee is limited to being the non-recourse carveout guarantor and the environmental indemnitor.
We may also obtain recourse debt to finance our acquisitions and meet our REIT distribution requirements. If we have insufficient income to service our recourse debt obligations, our lenders could institute proceedings against us to foreclose upon our assets.
We may not be able to access financing or refinancing sources on favorable terms, or at all.
We may finance our assets over the long-term through a variety of means, including repurchase agreements, credit facilities, issuance of commercial mortgage-backed securities, collateralized debt obligations, and other structured financings. Our ability to execute this strategy will depend on various conditions in the markets for financing in this manner that are beyond our control, including lack of liquidity and greater credit spreads. We cannot be certain that these markets will remain an efficient source of long-term financing for our assets. If our strategy is not viable, we will have to find alternative forms of long-term financing for our assets, as secured revolving credit facilities and repurchase facilities may not accommodate long-term financing. This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flows, thereby reducing cash available for distribution to our stockholders and funds available for operations as well as for future business opportunities.
Covenants in our loan agreements may restrict our operations and adversely affect our financial condition.
When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan agreements into which we enter may contain covenants that limit our ability to further mortgage a property or discontinue insurance coverage. In addition, loan documents may limit our ability to replace a property’s property manager or terminate certain operating or lease agreements related to a property. These or other limitations would decrease our operating flexibility and our ability to achieve our operating objectives, which may adversely affect our ability to make distributions to our stockholders.
We have acquired, and may continue to acquire or finance, properties with lock-out provisions, which may prohibit us from selling a property or may require us to maintain specified debt levels for a period of years on some properties.
A lock-out provision is a provision that prohibits the prepayment of a loan during a specified period of time. Lock-out provisions may include terms that provide strong financial disincentives for borrowers to prepay their outstanding loan balance and exist in order to protect the yield expectations of lenders. We currently own 15 properties with loans that are subject to lock-out provisions prohibiting prepayment. We may acquire additional properties in the future subject to such provisions. Lock-out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties when we may desire to do so. Lock-out provisions may prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness prior to or at maturity, or increasing the amount of indebtedness with respect to such properties. Lock-out provisions could impair our ability to take other actions during the lock-out period that could be in the best interests of our stockholders and, therefore, may have an adverse impact on the value of our shares relative to the value that would result if the lock-out provisions did not exist. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.
We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined.
As of December 31, 2019, we had approximately $1.7 billion of indebtedness that is tied to the London Interbank Offered Rate (“LIBOR”) of which $1.4 billion of the LIBOR-based indebtedness was fixed through the use of interest rate swaps. Additionally, we have a revolving credit facility that is tied to LIBOR with a capacity of $500.0 million of which we have no outstanding balance (excluding letters of credit, which reduce availability) as of December 31, 2019. In July 2017, the United

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Kingdom regulator that regulates LIBOR announced its intention to phase out LIBOR rates by the end of 2021. The Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has proposed replacing LIBOR in derivatives and other financial contracts with a new index calculated by short-term repurchase agreements - the Secured Overnight Financing Rate. At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR, and it is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021, or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Such developments and any other legal or regulatory changes in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination and, in certain situations, could result in LIBOR no longer being determined and published. If a published U.S. dollar LIBOR rate is unavailable after 2021, the interest rates on our indebtedness that is indexed to LIBOR will be determined using various alternative methods, any of which may result in interest obligations that are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. dollar LIBOR was available in its current form. Further, the same costs and risks that may lead to the unavailability of U.S. dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results, and cash flows.
Increases in interest rates could increase the amount of our loan payments and adversely affect our ability to pay distributions to our stockholders.
Although a significant amount of our outstanding debt has fixed interest rates, we do borrow funds at variable interest rates under our credit facilities and term loans. As of December 31, 2019, 10.6% of our outstanding debt was variable rate debt. Increases in interest rates would increase our interest expense on any variable rate debt to the extent we have not hedged our exposure to changes in interest rates. In addition, increases in interest rates will affect the terms under which we refinance our existing debt as it matures, to the extent we have not hedged our exposure to changes in interest rates, resulting in higher interest rates and increased interest expense. Either of these events would reduce our future earnings and cash flows, which may adversely affect our ability to service our debt and meet our other obligations and also may reduce the amount we are able to distribute to stockholders.
Hedging activity may expose us to risks, including the risks that a counterparty will not perform and that the hedge will not yield the economic benefits we anticipate, which may adversely affect us.
From time to time, we manage our exposure to interest rate volatility by using interest rate hedging arrangements that involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes, and that we may be required to pay the counterparty if interest rates decrease in the future below the hedged amount. There can be no assurance that our hedging arrangements will qualify for hedge accounting or that our hedging activities will have the desired beneficial impact on our results of operations. Should we desire to terminate a hedging agreement, there may be significant costs and cash requirements involved to fulfill our obligations under the hedging agreement. Failure to hedge effectively against interest rate changes may adversely affect our results of operations.
Risks Related to Corporate Organization and Structure
Our stockholders have limited control over changes in our policies and operations, which increases the uncertainty and risks our stockholders face.
Our Board determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. Our Board may amend or revise these and other policies without a vote of the stockholders. Under the Maryland General Corporation Law (“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.
Although we have currently opted out of the protection of the MGCL relating to deterring or defending hostile takeovers, the Board could elect to become subject to these provisions of Maryland law in the future, which may discourage others from trying to acquire control of us and may prevent our stockholders from receiving a premium price for their stock in connection with a business combination.
Under Maryland law, “business combinations” between a Maryland corporation and certain interested stockholders or affiliates of interested stockholders are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. Also under Maryland law, control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by stockholders by a vote of two-thirds of the votes entitled to be cast on the matter. These restrictions may have the effect of delaying, deferring, or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide our stockholders a premium price for their shares of common stock.
Our charter limits the number of shares a person may own, which may discourage a takeover that could otherwise result in a premium price to our stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. To help us comply with the REIT ownership requirements of the IRC, among other purposes, our charter prohibits a person from directly or constructively owning more than 9.8% in value of our aggregate outstanding stock or more than 9.8% in value or number of shares, whichever is more restrictive, of our aggregate outstanding common stock, unless exempted by our Board. This restriction may have the effect of delaying, deferring or preventing a change in control of

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us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.
Our charter permits the Board to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party from acquiring us in a manner that could result in a premium price to our stockholders.
Our Board may classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, and terms or conditions of redemption of any such stock. Thus, our Board could authorize the issuance of preferred stock with priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock could also have the effect of delaying, deferring or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.
Because Maryland law permits the Board to adopt certain anti-takeover measures without stockholder approval, investors may be less likely to receive a “control premium” for their shares.
In 1999, the State of Maryland enacted legislation that enhances the power of Maryland corporations to protect themselves from unsolicited takeovers. Among other things, the legislation permits our Board, without stockholder approval, to amend our charter to:
stagger our Board into three classes;
require a two-thirds stockholder vote for removal of directors;
provide that only the Board can fix the size of the Board;
require that special stockholder meetings may only be called by holders of a majority of the voting shares entitled to be cast at the meeting; and
provide the Board with the exclusive right to fill vacancies on the Board, with any individual elected to fill such a vacancy to serve for the full term of the directorship.
Under Maryland law, a corporation can opt to be governed by some or all of these provisions if it has a class of equity securities registered under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and has at least three independent directors. Our charter does not prohibit our Board from opting into any of the above provisions permitted under Maryland law. Becoming governed by any of these provisions could discourage an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our securities.
Our rights and the rights of our stockholders to recover claims against our officers and directors are limited, which could reduce our stockholders’ and our recovery against them if they cause us to incur losses.
Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter, in the case of our directors and officers, requires us to indemnify our directors and officers to the maximum extent permitted by Maryland law. Additionally, our charter limits the liability of our directors and officers for monetary damages to the maximum extent permitted under Maryland law. As a result, we and our stockholders may have more limited rights against our directors, officers, employees and agents than might otherwise exist under common law, which could reduce our stockholders’ and our recovery against them. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents in some cases which would decrease the cash otherwise available for distribution to stockholders.
Risks Related to Organization and Qualification as a REIT
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.
We believe that the Operating Partnership is organized and will be operated in a manner so as to be treated as a partnership, and not an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. As a partnership, the Operating Partnership will not be subject to U.S. federal income tax on its income. Instead, each of its partners, including us, will be allocated that partner’s share of the Operating Partnership’s income. No assurance can be provided, however, that the Internal Revenue Service will not challenge the Operating Partnership’s status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the Internal Revenue Service were successful in treating the Operating Partnership as an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, would cease to qualify as a REIT. Also, the failure of the Operating Partnership to qualify as a partnership would cause it to become subject to U.S. federal corporate income tax, which would reduce significantly the amount of its cash available for debt service and for distribution to its partners, including us.
The Operating Partnership has a carryover tax basis on certain of its assets as a result of the PELP transaction and the Merger, and the amount that we have to distribute to stockholders therefore may be higher.
As a result of each of the PELP transaction and the Merger, certain of the Operating Partnership’s properties have carryover tax bases that are lower than the fair market values of these properties at the time of the acquisition. As a result of this lower aggregate tax basis, the Operating Partnership will recognize higher taxable gain upon the sale of these assets, and the Operating Partnership will be entitled to lower depreciation deductions on these assets than if it had purchased these properties in taxable transactions at the time of the acquisition. Such lower depreciation deductions and increased gains on sales allocated to us generally will increase the amount of our required distribution under the REIT rules, and will decrease the portion of any distribution that otherwise would have been treated as a “return of capital” distribution.

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We use taxable REIT subsidiaries, which may cause us to fail to qualify as a REIT.
To qualify as a REIT for federal income tax purposes, we hold, and plan to continue to hold, substantially all of our non-qualifying REIT assets and conduct certain of our non-qualifying REIT income activities in or through one or more taxable REIT subsidiaries (each a “TRS”). A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. A TRS also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to income tax as a regular C-corporation.
The net income of our TRS entities is not required to be distributed to us and income that is not distributed to us will generally not be subject to the REIT income distribution requirement. However, our TRS entities may pay dividends. Such dividend income should qualify under the 95%, but not the 75%, gross income test. We will monitor the amount of the 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 we expect these actions will prevent a violation of the REIT income tests, we cannot guarantee that such actions will in all cases prevent such a violation.
Our ownership of TRS entities is subject to limitations that could prevent us from growing our management business, and our transactions with our TRS entities could cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on an arm’s-length basis.
No more than 20% of the value of a REIT’s gross assets may consist of interests in TRSs. Compliance with this limitation could limit our ability to grow our management business. The IRC also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We will monitor the value of investments in our TRS entities in order to ensure compliance with TRS ownership limitations and will structure our transactions with our TRS entities on terms that we believe are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the TRS ownership limitation or be able to avoid application of the 100% excise tax.
REIT distribution requirements could adversely affect our ability to execute our business plans, including because we may be required to borrow funds to make distributions to stockholders or otherwise depend on external sources of capital to fund such distributions.
We generally must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) in order to continue to qualify as a REIT. To the extent that we satisfy the distribution requirement but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we may elect to retain and pay income tax on our net long-term capital gain. In that case, if we so elect, a stockholder would be taxed on its proportionate share of our undistributed long-term gain and would receive a credit or refund for its proportionate share of the tax we paid. A stockholder, including a tax-exempt or foreign stockholder, would have to file a federal income tax return to claim that credit or refund. Furthermore, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws.
We intend to make distributions to our stockholders to comply with the REIT requirements of the IRC and to avoid corporate income tax and the 4% excise tax. We may be required to make distributions to our stockholders at times when it would be more advantageous to reinvest cash in its business or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
If we do not have other funds available, we could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to enable us to distribute enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. 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.
To continue to qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to stockholders and the ownership of our stock. As discussed above, we may be required to make distributions to you at disadvantageous times or when we do not have funds readily available for distribution. Additionally, we may be unable to pursue investments that would be otherwise attractive to us in order to satisfy the requirements for qualifying as a REIT.
We must also ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets, including certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets can consist of the securities of any one issuer (other than government securities and qualified real estate assets) and no more than 20% of the value of our gross assets may be represented by securities of one or more TRS. Finally, no more than 25% of our assets may consist of debt investments that are issued by “publicly offered REITs” and would not otherwise be treated as qualifying real estate assets. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences, unless certain relief provisions apply. As a result, compliance with the REIT requirements may hinder our ability to operate solely on the basis of profit maximization and may require us to liquidate investments from our portfolio, or refrain from making otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to stockholders.

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The prohibited transactions tax may limit our ability to engage in transactions, including disposition of assets, which would be treated as sales for federal income tax purposes.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of dealer property, other than foreclosure property. We may be subject to the prohibited transaction tax upon a disposition of real property. Although a safe-harbor exception to prohibited transaction treatment is available, we cannot assure you that we can comply with such safe harbor or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of our trade or business. Consequently, we may choose not to engage in certain sales of real property or may conduct such sales through a TRS.
It may be possible to reduce the impact of the prohibited transaction tax by conducting certain activities through a TRS. However, to the extent that we engage in such activities through a TRS, the income associated with such activities will be subject to a corporate income tax. In addition, the IRS may attempt to ignore or otherwise recast such activities in order to impose a prohibited transaction tax on us, and there can be no assurance that such recast will not be successful.
We may recognize substantial amounts of REIT taxable income, which we would be required to distribute to our stockholders, in a year in which we are not profitable under GAAP principles or other economic measures.
We may recognize substantial amounts of REIT taxable income in years in which we are not profitable under GAAP or other economic measures as a result of the differences between GAAP and tax accounting methods. For instance, certain of our assets will be marked-to-market for GAAP purposes but not for tax purposes, which could result in losses for GAAP purposes that are not recognized in computing our REIT taxable income. Additionally, we may deduct our capital losses only to the extent of our capital gains in computing our REIT taxable income for a given taxable year. Consequently, we could recognize substantial amounts of REIT taxable income and would be required to distribute such income to you in a year in which we are not profitable under GAAP or other economic measures.
Our qualification as a REIT could be jeopardized as a result of an interest in joint ventures or investment funds.
We may hold certain limited partner or non-managing member interests in partnerships or limited liability companies that are joint ventures or investment funds. If a partnership or limited liability company in which we own an interest takes or expects to take actions that could jeopardize our qualification as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause us to fail a REIT gross income or asset test, and that we would not become aware of such action in time to dispose of our interest in the partnership or limited liability company or take other corrective action on a timely basis. In that case, we could fail to continue to qualify as a REIT unless we are able to qualify for a statutory REIT “savings” provision, which may require us to pay a significant penalty tax to maintain our REIT qualification.
Distributions paid by REITs do not qualify for the reduced tax rates that apply to other corporate distributions.
The maximum tax rate for “qualified dividends” paid by corporations to non-corporate stockholders is currently 20%. Distributions paid by REITs to non-corporate stockholders generally are taxed at rates lower than ordinary income rates, but those rates are higher than the 20% tax rate on qualified dividend income paid by corporations. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, to the extent that the preferential rates continue to apply to regular corporate qualified dividends, the more favorable rates for corporate dividends may cause non-corporate investors to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market price of shares of our common stock.
Legislative or regulatory tax changes could adversely affect us or our stockholders.
At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. We cannot predict when or if any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. Any such change could result in an increase in our, or our stockholders’, tax liability or require changes in the manner in which we operate in order to minimize increases in our tax liability. A shortfall in tax revenues for states and municipalities in which we operate may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets or income or be subject to additional restrictions. These increased tax costs could, among other things, adversely affect our financial condition, the results of operations, and the amount of cash available for the payment of dividends. We and our stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation, or administrative interpretation.
On December 22, 2017, H.R. 1, known as the “Tax Cuts and Jobs Act” (the “TCJA”), was enacted into law. The TCJA makes major changes to the IRC, including a number of provisions of the IRC that affect the taxation of REITs and their stockholders. The effect of the significant changes made by the TCJA remains uncertain, and administrative guidance, which has and will continue to be issued on an ongoing basis, is required in order to fully evaluate the effect of many provisions.
Our stockholders are urged to consult with their own tax advisors with respect to the impact that the TCJA and other legislation may have on their investment and the status of legislative, regulatory or administrative developments and proposals and their potential effect on their investment in shares of our common stock.
The TCJA imposed further limits on the deductibility of certain executive compensation expense, which could result in greater taxes for our TRS or the need to increase distributions to our stockholders.
Section 162(m) of the IRC limits the annual compensation deduction available to publicly-held corporations to $1 million for certain “covered employees”. Prior to the enactment of the TCJA, a publicly held corporation’s covered employees included its chief executive officer and the three other most highly compensated executive officers (other than the chief financial officer). Further, certain “performance-based compensation” was excluded from the $1 million compensation limitation. The TCJA made certain changes to Section 162(m), effective for taxable years beginning after December 31, 2017, including, among other things, expanding the definition of “covered employee” to include the chief financial officer and repealing the performance-

21



based compensation exception to the $1 million compensation limitation. The TCJA provided certain transition rules for compensation provided to covered employees pursuant to a written binding contract that was in effect on November 2, 2017 and that was not modified in any material respect on or after that date.
On December 20, 2019, the U.S. Treasury Department published proposed regulations that reflect changes made to Section 162(m) from the TCJA. The proposed regulations, among other things, expanded the definition of compensation to include a publicly-held corporate partner’s distributable share of a partnership’s deduction for compensation expense attributed to compensation paid by the partnership for services performed by a covered employee of the publicly-held corporation, subject to certain transition relief. The expanded definition of compensation applies to any compensation deduction that is otherwise allowable for tax years ending on or after December 20, 2019.
As a REIT, we are generally not subject to federal income taxes other than through our TRS entities. The application of the proposed regulations to our structure is uncertain until more guidance is issued by the U.S. Treasury Department. Moreover, the IRS has previously issued private letter rulings holding that, under certain circumstances, Section 162(m) does not apply to compensation paid to employees of a REIT’s operating partnership. If the proposed regulations and Section 162(m) apply to our compensation arrangements, we may be required to make additional distributions to stockholders to comply with the REIT distribution requirements and minimize our U.S. federal income tax liability for the REIT, and a larger portion of our distributions that would otherwise have been treated as a return of capital for our stockholders may be subject to U.S. federal income tax as dividend income as a result of our increased taxable income. Any such compensation allocated to our TRS entities, whose income is subject to U.S. federal income tax, would result in an increase in income taxes due to the inability to deduct compensation in excess of $1 million.
If our assets are deemed to be plan assets, we may be exposed to liabilities under Title I of 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. This is known as the “look-through rule.” Under those circumstances, the obligations and other responsibilities of plan sponsors, plan fiduciaries and plan administrators, and of parties in interest and disqualified persons, under Title I of ERISA or Section 4975 of the IRC, may be applicable, and there may be liability under these and other provisions of ERISA and the IRC. We believe that our assets should not be treated as plan assets because the shares of our common stock should qualify as “publicly-offered securities” that are exempt from the look-through rules under applicable Treasury Regulations. We note, however, that because certain limitations are imposed upon the transferability of shares of our common stock so that we may qualify as a REIT, and perhaps for other reasons, it is possible that this exemption may not apply. If that is the case, and if we are exposed to liability under ERISA or the IRC, our performance and results of operations could be adversely affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable. 


22



ITEM 2. PROPERTIES
Real Estate Investments—As of December 31, 2019, we wholly-owned 287 properties throughout the United States. In addition, we also have an ownership interest in 28 properties through three separate joint ventures.
The following table presents information regarding the geographic location of our properties, including wholly-owned and the prorated portion of those owned through our joint ventures, by ABR as of December 31, 2019. For 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
 
$
48,138

 
12.3
%
 
$
12.48

 
4,139

 
12.7
%
 
93.2
%
 
54

California
 
40,433

 
10.3
%
 
18.21

 
2,319

 
7.1
%
 
95.8
%
 
25

Georgia
 
32,522

 
8.3
%
 
11.98

 
2,805

 
8.6
%
 
96.8
%
 
29

Texas
 
31,665

 
8.1
%
 
15.19

 
2,161

 
6.6
%
 
96.5
%
 
18

Ohio
 
28,298

 
7.2
%
 
9.92

 
2,982

 
9.1
%
 
95.7
%
 
26

Illinois
 
22,760

 
5.8
%
 
14.65

 
1,647

 
5.0
%
 
94.3
%
 
15

Virginia
 
18,075

 
4.6
%
 
13.57

 
1,430

 
4.4
%
 
93.2
%
 
14

Colorado
 
17,115

 
4.4
%
 
14.75

 
1,187

 
3.6
%
 
97.7
%
 
11

Massachusetts
 
15,848

 
4.0
%
 
13.97

 
1,170

 
3.6
%
 
96.9
%
 
10

Pennsylvania
 
11,449

 
2.9
%
 
11.57

 
1,076

 
3.3
%
 
91.9
%
 
7

Minnesota
 
11,193

 
2.9
%
 
12.48

 
919

 
2.8
%
 
97.6
%
 
10

Arizona
 
11,008

 
2.8
%
 
11.64

 
1,012

 
3.1
%
 
93.4
%
 
9

South Carolina
 
10,458

 
2.7
%
 
8.75

 
1,298

 
4.0
%
 
92.1
%
 
11

North Carolina
 
9,073

 
2.3
%
 
11.60

 
811

 
2.5
%
 
96.4
%
 
13

Wisconsin
 
8,926

 
2.3
%
 
9.93

 
944

 
2.9
%
 
95.2
%
 
8

Maryland
 
8,737

 
2.2
%
 
19.64

 
464

 
1.5
%
 
95.9
%
 
4

Tennessee
 
8,091

 
2.1
%
 
8.09

 
1,039

 
3.2
%
 
96.2
%
 
7

Indiana
 
7,327

 
1.9
%
 
8.50

 
897

 
2.8
%
 
96.0
%
 
6

Michigan
 
6,658

 
1.7
%
 
9.36

 
724

 
2.2
%
 
98.3
%
 
5

Connecticut
 
5,508

 
1.4
%
 
13.96

 
419

 
1.3
%
 
94.2
%
 
4

Oregon
 
5,235

 
1.3
%
 
14.42

 
374

 
1.1
%
 
97.2
%
 
5

New Mexico
 
5,167

 
1.3
%
 
13.83

 
404

 
1.2
%
 
92.5
%
 
3

Kentucky
 
4,732

 
1.2
%
 
9.71

 
502

 
1.5
%
 
97.1
%
 
3

Nevada
 
4,676

 
1.2
%
 
18.54

 
255

 
0.8
%
 
98.7
%
 
3

Kansas
 
4,675

 
1.2
%
 
10.76

 
452

 
1.5
%
 
96.1
%
 
4

New Jersey
 
4,394

 
1.1
%
 
16.45

 
272

 
0.8
%
 
98.3
%
 
2

Iowa
 
2,976

 
0.8
%
 
8.60

 
360

 
1.1
%
 
96.2
%
 
3

Washington
 
2,586

 
0.7
%
 
15.18

 
170

 
0.5
%
 
100.0
%
 
2

Missouri
 
2,445

 
0.6
%
 
11.18

 
222

 
0.7
%
 
98.7
%
 
2

New York
 
1,641

 
0.3
%
 
10.05

 
163

 
0.5
%
 
100.0
%
 
1

Utah
 
451

 
0.1
%
 
30.97

 
15

 
%
 
100.0
%
 
1

Total
 
$
392,260

 
100.0
%
 
$
12.60

 
32,632

 
100.0
%
 
95.4
%
 
315

(1) 
We calculate ABR as monthly contractual rent as of December 31, 2019, multiplied by 12 months.
(2) 
Gross leasable area (“GLA”) is defined as the portion of the total square feet of a building that is available for tenant leasing.
Additionally, the following table details information for our joint ventures, which is the basis for determining the prorated information included in the preceding and subsequent tables (dollars and square feet in thousands):
Joint Venture
 
Ownership Percentage
 
Number of Properties
 
ABR
 
GLA
Necessity Retail Partners
 
20%
 
8

 
$
12,695

 
924

Grocery Retail Partners I
 
15%
 
17

 
24,543

 
1,909

Grocery Retail Partners II
 
10%
 
3

 
3,806

 
312



23



Lease Expirations—The following chart shows, on an aggregate basis, all of the scheduled lease expirations after December 31, 2019, for each of the next ten years and thereafter for our wholly-owned properties and the prorated portion of those owned through our joint ventures: 403269941_chart-6d1c9b3cc338557c8bd.jpg
Our ability to create rental rate growth generally depends on our leverage during new and renewal lease negotiations with prospective and existing tenants, which typically occurs when occupancy at our centers is high or during periods of economic growth and recovery. Conversely, we may experience rental rate decline when occupancy at our centers is low or during periods of economic recession, as the leverage during new and renewal lease negotiations may shift to prospective and existing tenants. Based on our high occupancy rate as of December 31, 2019, as well as the current economic outlook, we expect to meet or exceed average rental rates on expiring leases in 2020. However, economic circumstances may arise that can impact certain national, regional, and local leasing markets which may result in executing leases at rents that are equal to or lower than current amounts, which could cause actual trends to change from our current expectations.
For our wholly owned portfolio, during the 2020 fiscal year, we have a total of 549 leases expiring, representing 2.7 million square feet of GLA. These expiring leases have an ABR of $12.30 per square foot. The ABR of new leases signed during 2019 was $14.95 per square foot. Subsequent to December 31, 2019, we renewed approximately 0.5 million total square feet and $6.0 million of total ABR of future expiring leases.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview - Leasing Activity, for further discussion of leasing activity.

24



Portfolio Tenancy—Prior to the acquisition of a property, we assess the suitability of the grocery-anchor tenant and other tenants in light of our investment objectives, namely, future NOI growth potential, opportunities for development and redevelopment, and providing stable cash flows for distributions. Generally, we assess the strength of the anchor tenant through consideration of company factors, such as its financial strength and market share in the geographic area of the property, as well as location-specific factors, such as the store’s sales, local competition, and demographics. When assessing the tenancy of the non-anchor space at the property, we consider the tenant mix in light of our portfolio, the proportion of national and national-franchise tenants, the creditworthiness of specific tenants, and the timing of lease expirations. When evaluating non-national tenancy, we attempt to obtain credit enhancements to leases, which typically come in the form of deposits and/or guarantees from one or more individuals.
We define national tenants as those tenants that operate in at least three states. Regional tenants are defined as those tenants that have at least three locations in fewer than three states. The following charts present the composition of our portfolio, including our wholly-owned properties and the prorated portion of those owned through our joint ventures, by tenant type as of December 31, 2019:
403269941_chart-8fc98ea3a67158de923.jpg403269941_chart-c8191fa3e720589fbb0.jpg

The following charts present the composition of our portfolio by tenant industry as of December 31, 2019:
403269941_chart-744934198e275dbe87e.jpg403269941_chart-922873edb4c955e68f1.jpg

25



The following table presents our top twenty tenants by ABR, including our wholly-owned properties and the prorated portion of those owned through our joint ventures, as of December 31, 2019 (dollars and square feet in thousands):
Tenant(1)
 
ABR
 
% of ABR
 
Leased
Square Feet
 
% of Leased Square Feet
 
Number of Locations(2)
Kroger
 
$
27,263

 
7.0
%
 
3,530

 
11.3
%
 
67

Publix
 
22,137

 
5.6
%
 
2,252

 
7.2
%
 
57

Ahold Delhaize
 
17,431

 
4.4
%
 
1,278

 
4.1
%
 
25

Albertsons-Safeway
 
16,658

 
4.2
%
 
1,629

 
5.2
%
 
31

Walmart
 
8,933

 
2.3
%
 
1,770

 
5.7
%
 
13

Giant Eagle
 
8,085

 
2.1
%
 
823

 
2.6
%
 
12

TJX Companies
 
5,196

 
1.3
%
 
463

 
1.5
%
 
16

Sprouts Farmers Market
 
4,885

 
1.2
%
 
334

 
1.1
%
 
11

Dollar Tree
 
4,094

 
1.0
%
 
441

 
1.4
%
 
45

Raley's
 
3,788

 
1.0
%
 
253

 
0.8
%
 
4

SUPERVALU
 
3,480

 
0.9
%
 
386

 
1.2
%
 
8

Subway Group
 
3,136

 
0.8
%
 
130

 
0.4
%
 
94

Schnuck's
 
2,953

 
0.8
%
 
329

 
1.1
%
 
5

Save Mart
 
2,619

 
0.7
%
 
309

 
1.0
%
 
6

Southeastern Grocers
 
2,599

 
0.7
%
 
291

 
0.9
%
 
8

Anytime Fitness, Inc.
 
2,573

 
0.7
%
 
173

 
0.6
%
 
37

Lowe's
 
2,407

 
0.6
%
 
371

 
1.2
%
 
4

Kohl's Corporation
 
2,214

 
0.6
%
 
365

 
1.2
%
 
4

Food 4 Less (PAQ)
 
2,124

 
0.5
%
 
118

 
0.4
%
 
2

Petco Animal Supplies, Inc.
 
2,084

 
0.5
%
 
127

 
0.4
%
 
11

Total
 
$
144,659

 
36.9
%
 
15,372

 
49.3
%
 
460

(1) 
Tenants are grouped by parent company and may represent multiple subsidiaries and banners.
(2) 
Number of locations excludes auxiliary leases with grocery anchors such as fuel stations, pharmacies, and liquor stores. Additionally, in the event that a parent company has multiple subsidiaries or banners serving as tenants in a shopping center, those subsidiaries are included as one location.

ITEM 3. LEGAL PROCEEDINGS
From time to time, we are party to legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any legal proceedings for which we are not covered by our liability insurance or the outcome is reasonably likely to have a material impact on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

w PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
As of March 2, 2020, we had approximately 290.3 million shares of common stock outstanding, held by a total of 63,847 stockholders of record. The number of stockholders is based on the records of our registrar and transfer agent. Our common stock is not currently traded on any exchange, and there is no established trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all.
Valuation Overview
On May 8, 2019, the independent directors of our Board increased the estimated value per share (“EVPS”) of our common stock to $11.10. The valuation was based substantially on the estimated “as is” market value of our portfolio of real estate

26



properties in various geographic locations in the United States (“Portfolio”) and the estimated value of in-place contracts of our third-party asset management business as of March 31, 2019.
We provided the EVPS to assist broker-dealers that participated in our public offering in meeting their customer account statement reporting obligations under National Association of Securities Dealers Conduct Rule 2340 as required by the Financial Industry Regulatory Authority (“FINRA”). This valuation was performed in accordance with the provisions of Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Institute for Portfolio Alternatives (“IPA”) in April 2013 (“IPA Valuation Guidelines”).
We engaged Duff & Phelps, LLC (“Duff & Phelps”), an independent valuation expert that has expertise in appraising commercial real estate assets, to provide a calculation of the range in EVPS of our common stock as of March 31, 2019. Duff & Phelps prepared a valuation report (“Valuation Report”) that provided this range based substantially on its estimate of the “as is” market value of the Portfolio and the estimated value of in-place contracts of the third-party asset management business. Duff & Phelps made adjustments to the aggregate estimated value of our Portfolio to reflect balance sheet assets and liabilities provided by our management as of March 31, 2019, before calculating a range of estimated values based on the number of outstanding shares of our common stock as of March 31, 2019. These calculations produced an EVPS in the range of $10.07 to $11.48 as of March 31, 2019. The Independent Directors ultimately increased the EVPS of our common stock to $11.10 on May 8, 2019. We previously established an EVPS on May 9, 2018 of $11.05 based substantially on the estimated “as is” market value of our Portfolio and the estimated value of in-place contracts of our third-party asset management business as of March 31, 2018. Prior to that, we established an EVPS on November 8, 2017, of $11.00 based substantially on the estimated market value of our Portfolio and our third-party asset management business as of October 5, 2017. We expect to review the EVPS at least annually.
The following table summarizes the material components of the EVPS of our common stock as of March 31, 2019 (in thousands, except per share amounts):
 
Low
 
High
Investment in Real Estate Assets:
 
 
 
Phillips Edison real estate valuation
$
5,559,360

 
$
6,008,660

Management company
25,000

 
25,000

Joint venture properties(1)
104,005

 
112,430

Total market value
5,688,365

 
6,146,090

 
 
 
 
Other Assets:
 
 
 
Cash and cash equivalents
9,013

 
9,013

Restricted cash
73,642

 
73,642

Accounts receivable
48,905

 
48,905

Derivative assets, net
9,849

 
9,849

Prepaid expenses and other assets
12,512

 
12,512

Total other assets
153,921

 
153,921

 
 
 
 
Liabilities:
 
 
 
Notes payable and credit facility
2,436,518

 
2,436,518

Mark to market - debt
(3,188
)
 
(3,188
)
Joint venture net liabilities, including debt(1)
58,992

 
58,992

Accounts payable and accrued expenses
71,485

 
71,485

Total liabilities
2,563,807

 
2,563,807

 
 
 
 
Net Asset Value
$
3,278,479

 
$
3,736,204

 
 
 
 
Common stock and OP units outstanding
325,408

 
325,408

Net Asset Value Per Share
$
10.07

 
$
11.48

(1) 
Represents our pro rata share of the properties owned by our joint ventures.
Our goal is to provide an estimate of the market value of our shares. However, the majority of our assets consist of commercial real estate and, as with any valuation methodology, the methodologies used were based upon a number of assumptions and estimates that may not have been accurate or complete. Different parties with different assumptions and estimates could have derived a different EVPS, and those differences could have been significant. These limitations are discussed further under “Limitations of Estimated Value per Share” below.

27



Valuation Methodologies—Our goal in calculating an EVPS was to arrive at a value that was reasonable and based off of what we deemed to be appropriate valuation and appraisal methodologies and assumptions and a process that was in accordance with the IPA Valuation Guidelines. The following is a summary of the valuation methodologies and components used to calculate the EVPS.
Independent Valuation Firm—Duff & Phelps was retained by us on February 28, 2019, as authorized by the independent directors of the Board, to provide independent valuation services. Duff & Phelps, who is not affiliated with us, is a leading global valuation advisor with expertise in complex valuation work. Duff & Phelps had previously provided services to us pertaining to the allocation of acquisition purchase prices for financial reporting purposes in connection with the Portfolio, for which it received usual and customary compensation. Duff & Phelps may be engaged to provide professional services to us in the future. The Duff & Phelps personnel who prepared the valuation had no present or prospective interest in the Portfolio and no personal interest with us.
Duff & Phelps’ engagement for its valuation services was not contingent upon developing or reporting predetermined results. In addition, Duff & Phelps’ compensation for completing the valuation services was not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of us, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of its Valuation Report. We agreed to indemnify Duff & Phelps against certain liabilities arising out of this engagement.
Duff & Phelps’ analyses, opinions, or conclusions were developed, and the Valuation Report was prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. The Valuation Report was reviewed, approved and signed by individuals with the professional designation of MAI (Member of the Appraisal Institute). The use of the Valuation Report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. Duff & Phelps did not inspect the properties that formed the Portfolio.
In preparing the Valuation Report, Duff & Phelps relied on information provided by us regarding the Portfolio. For example, we provided information regarding building size, year of construction, land size and other physical, financial, and economic characteristics. We also provided lease information, such as current rent amounts, rent commencement and expiration dates, and rent increase amounts and dates.
Duff & Phelps did not investigate the legal description or legal matters relating to the Portfolio, including title or encumbrances, and title to the properties was assumed to be good and marketable. The Portfolio was also assumed to be free and clear of liens, easements, encroachments and other encumbrances, and to be in full compliance with zoning, use, occupancy, environmental and similar laws unless otherwise stated by us. The Valuation Report contains other assumptions, qualifications and limitations that qualify the analysis, opinions and conclusions set forth therein. Furthermore, the prices at which our real estate properties may actually be sold could differ from their appraised values.
The foregoing is a summary of the standard assumptions, qualifications and limitations that generally apply to the Valuation Report.
Real Estate Portfolio Valuation—Duff & Phelps estimated the “as is” market values of the Portfolio as of March 31, 2019, using various methodologies. Generally accepted valuation practice suggests assets may be valued using a range of methodologies. Duff & Phelps utilized the income capitalization approach with support from the sales comparison approach for each property. The income approach was the primary indicator of value, with secondary consideration given to the sales approach. Duff & Phelps performed a study of each market to measure current market conditions, supply and demand factors, growth patterns, and their effect on each of the subject properties.
The income capitalization approach simulates the reasoning of an investor who views the cash flows that would result from the anticipated revenue and expense on a property throughout its lifetime. Under the income capitalization approach, Duff & Phelps used an estimated net operating income (“NOI”) for each property, and then converted it to a value indication using a discounted cash flow analysis. The discounted cash flow analysis focuses on the operating cash flows expected from a property and the anticipated proceeds of a hypothetical sale at the end of an assumed holding period, with these amounts then being discounted to their present value. The discounted cash flow method is appropriate for the analysis of investment properties with multiple leases, particularly leases with cancellation clauses or renewal options, and especially in volatile markets.
The sales comparison approach estimates value based on what other purchasers and sellers in the market have agreed to as a price for comparable improved properties. This approach is based upon the principle of substitution, which states that the limits of prices, rents and rates tend to be set by the prevailing prices, rents and rates of equally desirable substitutes. Duff & Phelps gathered comparable sales data throughout various markets as secondary support for its valuation estimate.
The following summarizes the range of capitalization rates that were used to arrive at the estimated market values of our Portfolio:
 
Range in Values
Overall Capitalization Rate
6.41% - 6.93%
Terminal Capitalization Rate
6.88% - 7.38%
Discount Rate
7.48% - 7.98%
Management Company Valuation—Duff & Phelps estimated the aggregate market value associated with our third-party asset management business using various methodologies. Duff & Phelps considered various applications of the income approach, market approach, and underlying assets approach, with the income approach determined to be the most reliable method for purposes of the analysis. The income approach analysis considered the projected fee income earned for services provided pursuant to various management and advisory agreements over the expected duration of that contract, assuming normal and customary renewal provisions. Such services include property management services performed for the properties in the Portfolio, as well as property and asset management services for certain unaffiliated real estate investment portfolios. In

28



performing this analysis, solely fee income related to properties owned as of March 31, 2019 was considered. The income approach also considered a reasonable level of expenses to support such activities, as well as other adjustments, and a discount rate that accounted for the time value of money and the risk of achieving the projected cash flows. The result of the income approach analysis was the aggregate market value of the third-party asset management business, from which an estimated market value of net tangible assets (liabilities) was subtracted (added), to result in the aggregate intangible value of the management company.
Sensitivity Analysis—While we believe that Duff & Phelps’ assumptions and inputs were reasonable, a change in these assumptions would have impacted the calculations of the estimated value of the Portfolio, the estimated value of our third-party asset management business, and our EVPS. The table below illustrates the impact on Duff & Phelps’ range in EVPS if the terminal capitalization rates or discount rates were adjusted by 25 basis points and assumes all other factors remain unchanged. Additionally, the table illustrates the impact if only one change in assumptions was made, with all other factors held constant. Further, each of these assumptions could change by more than 25 basis points or 5%.
 
Resulting Range in Estimated Value Per Share
 
Increase of 25 basis points
 
Decrease of 25 basis points
 
Increase of 5%
 
Decrease of 5%
Terminal Capitalization Rate
$9.73 - $11.05
 
$10.37 - $11.83
 
$9.61 - $10.94
 
$10.52 - $11.96
Discount Rate
$9.71 - $11.06
 
$10.37 - $11.80
 
$9.54 - $10.90
 
$10.56 - $11.97
Other Assets and Other Liabilities—Duff & Phelps made adjustments to the aggregate estimated values of our investments to reflect our other assets and other liabilities based on balance sheet information provided by us as of March 31, 2019.
Role of the Independent Directors—The independent directors received a copy of the Valuation Report and discussed the report with representatives of Duff & Phelps. The independent directors also discussed the Valuation Report, the Portfolio, the third-party asset management business, our other assets and liabilities, and other matters with management. Management recommended to the independent directors that $11.10 per share be approved as the EVPS of our common stock. The independent directors discussed the rationale for this value with management.
Following the independent directors’ receipt and review of the Valuation Report and the recommendation of management, and in light of other factors considered by the independent directors, the independent directors concluded that the range in EVPS of $10.07 to $11.48 was appropriate. The independent directors agreed to accept the recommendation of management and approved $11.10 as the EVPS of our common stock as of March 31, 2019, which determination was ultimately and solely the responsibility of the independent directors.
Limitations of Estimated Value per Share—We provided this EVPS to assist broker-dealers that participated in our public offering in meeting our customer account statement reporting obligations. This valuation was performed in accordance with the provisions of the IPA Valuation Guidelines. As with any valuation methodology, the methodologies used were based upon a number of estimates and assumptions that may not have been accurate or complete. Different parties with different assumptions and estimates could have derived a different EVPS, and this difference could have been significant. The EVPS is not audited and does not represent a determination of the fair value of our assets or liabilities based on accounting principles generally accepted in the United States (“GAAP”), nor does it represent a liquidation value of our assets and liabilities, the price a third party would pay to acquire us, the price at which our shares of common stock would trade in secondary markets, or the amount at which our shares of common stock would trade on a national securities exchange.
Accordingly, we can give no assurance that:
our shares would trade at or near the EVPS if listed on a national securities exchange;
a stockholder would be able to resell his or her shares at the EVPS;
a stockholder would ultimately realize distributions per share equal to the EVPS upon a liquidation of our assets and settlement of our liabilities;
a stockholder would receive an amount per share equal to the EVPS upon a sale of the Company;
a third party would offer the EVPS in an arm’s-length transaction to purchase all or substantially all of our shares of common stock;
another independent third-party appraiser or third-party valuation firm would agree with our EVPS; or
the methodologies used to calculate our EVPS would be acceptable to FINRA for use on customer account statements or that the EVPS will satisfy the applicable annual valuation requirements under ERISA.
Further, we have not made any adjustments to the valuation of our EVPS for the impact of other transactions occurring subsequent to March 31, 2019, including, but not limited to: (i) acquisitions or dispositions of assets; (ii) the issuance of common stock under the dividend reinvestment plan (“DRIP”); (iii) NOI earned and dividends declared; (iv) the repurchase of shares; and (v) changes in leases, tenancy or other business or operational changes. The value of our shares of common stock will fluctuate over time in response to developments related to individual real estate assets, the management of those assets, and changes in the real estate and finance markets. Because of, among other factors, the high concentration of our total assets in real estate and the number of shares of our common stock outstanding, changes in the value of individual real estate assets or changes in valuation assumptions could have a very significant impact on the value of our shares of common stock. The EVPS does not take into account any disposition costs or fees for real estate properties, debt prepayment penalties that could apply upon the prepayment of certain of our debt obligations, or the impact of restrictions on the assumption of debt. Accordingly, the EVPS of our common stock may or may not be an accurate reflection of the fair market value of our stockholders’ investments and will not likely represent the amount of net proceeds that would result from an immediate sale of our assets.

29



Amended and Restated DRIP—We have adopted the DRIP, through which stockholders may elect to reinvest an amount equal to the distributions declared on their shares of common stock into additional shares of our common stock in lieu of receiving cash distributions. In accordance with the DRIP, participants acquire shares of common stock at a price equal to the estimated value per share. Participants in the DRIP may purchase fractional shares so that 100% of the distributions may be used to acquire additional shares of our common stock. For the year ended December 31, 2019, 6.1 million shares were issued through the DRIP, resulting in proceeds of approximately $67.4 million. For the year ended December 31, 2018, 4.0 million shares were issued through the DRIP, resulting in proceeds of approximately $44.1 million.
Distributions—We elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes commencing with our taxable year ended December 31, 2010. 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).
Unregistered Sales of Equity Securities—During the year ended December 31, 2019, we issued an aggregate of 1.9 million shares of common stock in redemption of 1.9 million Operating Partnership 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. We relied on the exemption under Section 4(a)(2) based upon factual representations received from the limited partner who received the shares of common stock.
Share Repurchases—Our Share Repurchase Program (“SRP”) provides a limited opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and limitations that are discussed below:
During any calendar year, we may repurchase no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.
We have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.
The cash available for repurchases, of which we may use all or a portion, on any particular date will generally be limited to the proceeds from the DRIP during the preceding four fiscal quarters, less any cash already used for repurchases since the beginning of the same period; however, subject to the limitations described above, we may use other sources of cash at the discretion of the Board. The availability of DRIP proceeds is not a minimum repurchase requirement and we may use all or no portion. The limitations described above do not apply to shares repurchased due to a stockholder’s death, “qualifying disability,” or “determination of incompetence.”
Only those stockholders who purchased their shares from us or received their shares from us (directly or indirectly) through one or more non-cash transactions may be able to participate in the SRP. In other words, once our shares are transferred for value by a stockholder, the transferee and all subsequent holders of the shares are not eligible to participate in the SRP.
The Board reserves the right, in its sole discretion, at any time and from time to time, to reject any request for repurchase.
Our Board may amend, suspend, or terminate the program upon 30 days’ notice. We may provide notice by including such information (a) in a current report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or (b) in a separate mailing to the stockholders.
On August 7, 2019, the Board amended the SRP. Under the amended SRP, the repurchase price per share is equal to the lesser of $10.00 or our most recent EVPS. In addition, on August 7, 2019, the Board suspended the SRP for standard repurchases. We will continue to fulfill repurchases sought upon a stockholder's death, “qualifying disability,” or “determination of incompetence” in accordance with the terms of the SRP.

The following table presents all non-employee share repurchases for the years ended December 31, 2019 and 2018 (in thousands, except per share amounts):
 
 
2019
 
2018
Shares repurchased
 
3,311

 
4,884

Cost of repurchases
 
$
35,963

 
$
53,758

Average repurchase price
 
$
10.86

 
$
11.01

In addition, during the year ended December 31, 2019, we repurchased 18,000 shares for an aggregate purchase price of $0.2 million (average price of $11.05 per share) in connection with 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.

30



During the quarter ended December 31, 2019, we repurchased shares as follows (shares in thousands):
Period
 
Total Number of Shares 
Repurchased
 
Average Price Paid per Share(1)(2)
 
Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program(1)
 
Approximate Dollar Value of Shares That May Yet Be Repurchased Under the Program
October 2019
 
109
 
$
10.03

 
109
 
(2) 
November 2019
 
154
 
10.01

 
154
 
(2) 
December 2019
 
242
 
10.07

 
242
 
(2) 
(1) 
We announced the commencement of the SRP in August 2010, and it was subsequently amended in September 2011, April 2016, and August 2019.
(2) 
We currently limit the dollar value and number of shares that may be repurchased under the SRP, as described above.

ITEM 6. SELECTED FINANCIAL DATA

As of and for the Years Ended December 31,
(in thousands, except per share amounts)
2019

2018(1)

2017(2)

2016

2015
Balance Sheet Data:(3)
  

  

  

  


Investment in real estate assets at cost
$
5,257,999

 
$
5,380,344

 
$
3,751,927

 
$
2,584,005

 
$
2,350,033

Cash and cash equivalents
17,820


16,791


5,716


8,224


40,680

Total assets
4,828,195

 
5,163,477

 
3,526,082

 
2,380,188

 
2,226,248

Debt obligations, net
2,354,099


2,438,826


1,806,998


1,056,156


845,515

Operating Data:
  

  

  

  


Total revenues
$
536,706


$
430,392


$
311,543


$
257,730


$
242,099

Property operating expenses
(90,900
)

(77,209
)

(53,824
)

(41,890
)

(38,399
)
Real estate tax expenses
(70,164
)

(55,335
)

(43,456
)

(36,627
)

(35,285
)
General and administrative expenses(4)
(48,525
)
 
(50,412
)
 
(36,348
)
 
(31,804
)
 
(15,829
)
Impairment of real estate assets
(87,393
)
 
(40,782
)
 

 

 

Interest expense, net
(103,174
)

(72,642
)

(45,661
)

(32,458
)

(32,390
)
Net (loss) income
(72,826
)
 
46,975

 
(41,718
)

9,043

 
13,561

Net (loss) income attributable to stockholders
(63,532
)
 
39,138

 
(38,391
)

8,932

 
13,360

Other Operational Data:(4)(5)
 
 
 
 
 
 
 
 
 
Net operating income (“NOI”) for real estate
   investments
$
355,796

 
$
272,450

 
$
204,407

 
$
173,910

 
$
163,017

Funds from operations (“FFO”) attributable to stock-
   holders and convertible noncontrolling interests
217,010

 
156,222

 
84,150

 
110,406

 
115,040

Core FFO(6)
230,866

 
176,126

 
132,011

 
114,636

 
122,421

Cash Flow Data:(7)
  

  

  

  


Net cash provided by operating activities
$
226,875


$
153,291


$
108,861


$
103,076


$
106,073

Net cash provided by (used in) investing activities
64,183


(258,867
)

(640,742
)

(191,328
)

(110,744
)
Net cash (used in) provided by financing activities
(280,254
)

162,435


509,380


90,685


29,732

Per Share Data:
  

  

  

  


Net (loss) income per share—basic and diluted
$
(0.22
)
 
$
0.20

 
$
(0.21
)

$
0.05


$
0.07

Common stock distributions declared
$
0.67


$
0.67


$
0.67


$
0.67


$
0.67

Weighted-average shares outstanding—basic
283,909


196,602


183,784


183,876


183,678

Weighted-average shares outstanding—diluted
327,117

 
241,367

 
196,497

 
186,665

 
186,394

(1) 
Includes the impact of the Merger (see Note 4).
(2) 
Includes the impact of the PELP transaction (see Note 5).
(3) 
Certain prior period balance sheet amounts have been reclassified to conform with our adoption in 2016 of Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs.
(4) 
Certain prior period amounts have been reclassified to conform with current year presentation.
(5) 
See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures, for further discussion and for a reconciliation of the non-GAAP financial measures to Net (Loss) Income.
(6) 
In 2019, we are presenting Core FFO in place of Modified Funds from Operations. Prior years have been updated to conform with the presentation of Core FFO.
(7) 
Certain prior period cash flow amounts have been reclassified to conform with our adoption in 2018 of ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.

31



The selected financial data should be read in conjunction with the consolidated financial statements and notes appearing in this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and notes thereto. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I.
Overview
We are an internally-managed real estate investment trust (“REIT”) and one of the nation’s largest owners and operators of grocery-anchored shopping centers. The majority of our revenues are lease revenues derived from our real estate investments. Additionally, we operate an investment management business providing property management and advisory services to approximately $585 million of third-party assets. This business provides comprehensive real estate and asset management services to three institutional joint ventures, in which we retain an ownership interest, and one private fund (collectively, the “Managed Funds”).
On October 31, 2019, we completed a merger with Phillips Edison Grocery Center REIT III, Inc. (“REIT III”), a public non-traded REIT that was advised and managed by us, in a transaction valued at approximately $71 million. This resulted in the acquisition of three properties, as well as a 10% equity interest in Grocery Retail Partners II LLC (“GRP II”), a joint venture with Northwestern Mutual Life Insurance Company (“Northwestern Mutual”) owning three properties; see Note 6 for more detail.
Below are statistical highlights of our wholly-owned portfolio:
 
December 31, 2019
Number of properties
287

Number of states
31

Total square feet (in thousands)
32,130

Leased occupancy %
95.4
%
Average remaining lease term (in years)(1)
4.7

(1) 
The average remaining lease term in years excludes future options to extend the term of the lease.
The year ended December 31, 2019 was the first full year of operations since the merger with Phillips Edison Grocery Center REIT II, Inc. (the “Merger”) in 2018. The Merger added 86 primarily grocery-anchored shopping centers to our portfolio and contributed favorably to the following Company performance highlights during 2019:
Total revenues increased 24.7% to $536.7 million.
Pro forma Same-Center NOI increased 3.7% to $339.6 million.
FFO increased 38.9% to $217.0 million.
Core FFO increased 31.1% to $230.9 million.
See below in this Item for reconciliations of our non-GAAP measures to Net (Loss) Income.
Our performance for the year is linked to our key initiatives: focus on core operations, strategic growth and portfolio management, and responsible balance sheet management. We believe these initiatives will improve our position for a full-cycle liquidity event.
Focus on Core Operations—During 2019, our leasing focus was to accelerate inline occupancy at our centers, with a focus on our dormant spaces, while maximizing contractual rent increases to drive revenue growth at each of our existing centers. Our wholly-owned property leasing highlights comparing the year ended December 31, 2019 to the year ended December 31, 2018 were as follows:
Total occupancy improved 2.2% to 95.4%, and in-line occupancy improved 5.3% to 90.2%.
Total Annualized Base Rent (“ABR”) per leased square foot increased 4.9% to $12.58 and in-line ABR per leased square foot increased 4.7% to $19.94.
We executed a record 1,026 leases (new, renewal, and options) totaling 4.6 million square feet with comparable new lease spreads of 13.3% and comparable renewal spreads of 8.5%.
Strategic Growth and Portfolio Management—Our current development and redevelopment projects are focused on outparcel development, anchor repositioning, and other initiatives to increase growth and NOI at our existing centers, while our investment management business is identifying opportunities for joint ventures with third parties, both of which will create additional revenue opportunities. Highlights of our development and redevelopment projects, as well as our investment management business as of and for the year ended December 31, 2019 are as follows:
As of and for the year ended December 31, 2019, we had 27 development and redevelopment projects completed or in process, which we estimate will comprise a total investment of $78.1 million.
Recognized $4.9 million in fee and management income from Grocery Retail Partners I LLC (“GRP I” or the “GRP I joint venture”) and GRP II, our seeded joint ventures created in November 2018, for the year ended December 31,

32



2019. Additionally, we recognized $2.8 million in fee and management income from Necessity Retail Partners (“NRP”) for the year ended December 31, 2019.
Responsible Balance Sheet Management—Our management team is identifying mature properties where our growth potential has been maximized and properties at risk of future deterioration, and we are engaging in targeted dispositions of those properties. Proceeds from these dispositions were used to reinvest into acquisitions, for development and redevelopment projects, and to repay outstanding debt.
Realized $223.1 million of cash proceeds from the sale of 21 properties and one outparcel.
Improved our debt to total enterprise value ratio to 39.5% as of December 31, 2019 from 41.1% as of December 31, 2018 (see Liquidity and Capital Resources - Debt below for the calculation of debt to total enterprise value ratio).
Repriced $375 million of our outstanding debt, reducing the spread over LIBOR by 50 basis points, which will save approximately $1.9 million in interest expense annually.
Refinanced existing debt by executing a $200 million fixed-rate secured loan maturing in January 2030. The proceeds from this loan, along with proceeds from property dispositions, were used to pay down $265.9 million of term loan debt maturing in 2020 and 2021. An additional $30.0 million of term loan debt was paid off in January 2020. Following this activity, our next term loan maturity is in 2022.
As a result of our financing and repricing activities, we have reduced our cost of debt and increased our weighted average maturity term. Our debt maturity profile as of December 31, 2019, which does not include the impact of the term loan debt paid off in January 2020, is as follows (including the impact of derivatives on weighted-average interest rates):
403269941_chart-57ae3e3c1dc8e4ea503a04.jpg



33



Leasing Activity—The average rent per square foot and cost of executing leases fluctuates based on the tenant mix, size of the leased space, and lease term. Leases with national and regional tenants generally require a higher cost per square foot than those with local tenants. However, generally such national and regional tenants will also pay higher rates for a longer term.
Below is a summary of leasing activity for the years ended December 31, 2019 and 2018:
 
 
Total Deals (1)
 
Inline Deals(1)(2)
 
 
2019
 
2018(3)
 
2019
 
2018(3)
New leases:
 
 
 
 
 
 
 
 
Number of leases
 
429

 
254

 
411

 
245

Square footage (in thousands)
 
1,475

 
730

 
1,050

 
562

ABR (in thousands)
 
$
22,050

 
$
11,340

 
$
17,998

 
$
9,876

ABR per square foot
 
$
14.95

 
$
15.53

 
$
17.14

 
$
17.57

Cost per square foot of executing new leases(4)
 
$
24.00

 
$
27.91

 
$
26.63

 
$
27.39

Number of comparable leases(5)
 
140

 
85

 
135

 
83

Comparable rent spread(6)
 
13.3
%
 
14.6
%
 
11.2
%
 
11.5
%
Weighted average lease term (in years)
 
7.5

 
7.2

 
6.8

 
6.9

Renewals and options:
 
 
 
 
 
 
 
 
Number of leases
 
597

 
508

 
542

 
453

Square footage (in thousands)
 
3,171

 
2,792

 
1,186

 
1,025

First-year base rental revenue (in thousands)
 
$
38,969

 
$
34,618

 
$
24,675

 
$
19,483

ABR per square foot
 
$
12.29

 
$
12.40

 
$
20.80

 
$
19.02

ABR per square foot prior to renewals
 
$
11.49

 
$
11.64

 
$
18.87

 
$
17.36

Percentage increase in ABR per square foot
 
7.0
%
 
6.6
%
 
10.2
%
 
9.5
%
Cost per square foot of executing renewals and options
 
$
2.53

 
$
2.81

 
$
4.33

 
$
4.51

Number of comparable leases(5)
 
460

 
370

 
441

 
349

Comparable rent spread(6)
 
8.5
%
 
6.7
%
 
11.4
%
 
9.8
%
Weighted average lease term (in years)
 
4.7

 
5.1

 
4.4

 
5.0

Portfolio retention rate(7)
 
85.7
%
 
83.2
%
 
77.7
%
 
77.9
%
1) 
Per square foot amounts may not recalculate exactly based on other amounts presented within the table due to rounding.
2) 
We consider an inline deal to be a lease for less than 10,000 square feet of gross leasable area.
3) 
Leasing activity in 2018 only reflects activity for the REIT II properties from the date they were acquired, November 16, 2018.
4) 
The cost of executing new leases, renewals, and options includes leasing commissions, tenant improvement costs, landlord work, and tenant concessions. The costs associated with landlord work are excluded for repositioning and redevelopment projects, if any.
5) 
A comparable lease is a lease that is executed for the exact same space (location and square feet) in which a tenant was previously located. For a lease to be considered comparable, it must have been executed within 365 days from the earlier of legal possession or the day the prior tenant physically vacated the space.
6) 
The comparable rent spread compares the percentage increase (or decrease) of new or renewal leases (excluding options) to the expiring lease of a unit that was occupied within the past twelve months.
7) 
The portfolio retention rate is calculated by dividing (a) total square feet of retained tenants with current period lease expirations by (b) the square feet of leases expiring during the period.


34



Results of Operations
Due to the timing of the closing of the Merger with REIT II, there is no financial data included related to the acquired properties in our results of operations prior to its closing on November 16, 2018. The variances to 2018 are primarily related to the Merger unless otherwise stated.
Effective January 1, 2019, we adopted ASU 2016-02, Leases. This standard was adopted in conjunction with the related updates, ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; ASU 2018-11, Leases (Topic 842): Targeted Improvements; ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, and ASU 2019-01, Leases (Topic 842): Codification Improvements, collectively “ASC 842.” ASC 842 requires us to recognize changes in the collectability assessment for our leases in which we are the lessor as an adjustment to rental income. As such, the change in our collectability assessment for the year ended December 31, 2019 was recorded as a decrease to rental revenues. No similar adjustment was made to revenue in 2018.
Further, ASC 842 requires lessors to exclude from variable payments all costs paid by a lessee directly to a third party, which precludes our recognition of real estate tax payments made by tenants directly to third parties as recoverable revenue or expense. As such, we recognized no applicable real estate tax revenue for these direct payments during the year ended December 31, 2019. As the recorded revenue in prior periods was completely offset by the recorded expense, this has no net impact to earnings.

Summary of Operating Activities for the Years Ended December 31, 2019 and 2018
 
 
 
 
 
 
Favorable (Unfavorable) Change
(dollars in thousands, except per share amounts)
 
2019
 
2018
 
$
 
%(1)
Operating Data:
 
 
 
 
 
 
 
 
Total revenues
 
$
536,706

 
$
430,392

 
$
106,314

 
24.7
 %
Property operating expenses
 
(90,900
)
 
(77,209
)
 
(13,691
)
 
(17.7
)%
Real estate tax expenses
 
(70,164
)
 
(55,335
)
 
(14,829
)
 
(26.8
)%
General and administrative expenses
 
(48,525
)
 
(50,412
)
 
1,887

 
3.7
 %
Depreciation and amortization
 
(236,870
)
 
(191,283
)
 
(45,587
)
 
(23.8
)%
Impairment of real estate assets
 
(87,393
)
 
(40,782
)
 
(46,611
)
 
(114.3
)%
Interest expense, net
 
(103,174
)
 
(72,642
)
 
(30,532
)
 
(42.0
)%
Gain on sale or contribution of property, net
 
28,170

 
109,300

 
(81,130
)
 
(74.2
)%
Transaction expenses
 

 
(3,331
)
 
3,331

 
NM

Other expense, net
 
(676
)
 
(1,723
)
 
1,047

 
60.8
 %
Net (loss) income
 
(72,826
)
 
46,975

 
(119,801
)
 
NM

Net loss (income) attributable to noncontrolling interests
 
9,294

 
(7,837
)
 
17,131

 
NM

Net (loss) income attributable to stockholders
 
$
(63,532
)
 
$
39,138

 
$
(102,670
)
 
NM

(1) 
Line items that result in a percent change that exceed certain limitations are considered not meaningful (“NM”) and indicated as such.
Below are explanations of the significant fluctuations in our results of operations for the years ended December 31, 2019 and 2018.
Total Revenues increased $106.3 million as follows:
$132.7 million increase related to the Merger with REIT II, including $158.0 million from the properties acquired, partially offset by a reduction of $25.3 million in management fee revenue previously received from the acquired properties;
$9.0 million increase related to properties acquired before January 1, 2018, primarily driven by an increase in average occupancy from 93.5% to 94.0% and a $0.23 increase in average ABR per square foot as compared to the year ended December 31, 2018;
$26.9 million decrease related to our disposition or contribution of 46 properties and partially offset by our acquisition of ten properties since January 1, 2018. This includes a net decrease of $31.1 million from property revenues, partially offset by a $4.2 million increase in fee and management income received from the joint ventures included as Managed Funds; and
$8.5 million decrease related to the adoption of ASC 842, which included a $5.7 million decrease related to the change in presentation of real estate tax payments paid directly by tenants to third parties, and a $2.8 million decrease related to the change in presentation of our assessment of lease collectability.
Property Operating Expenses increased $13.7 million as follows:
$16.9 million increase related to the properties acquired in the Merger with REIT II;
$2.4 million decrease related to our net disposition activity and operating expenses from our management activities; and

35



$0.8 million decrease related to properties acquired before January 1, 2018 primarily due to the change in presentation of lease collectability resulting from the adoption of ASC 842, partially offset by higher recoverable costs.
Real Estate Taxes increased $14.8 million as follows:
$22.0 million increase related to the properties acquired in the Merger with REIT II;
$2.2 million increase related to properties acquired before January 1, 2018;
$3.7 million decrease related to our net disposition activity; and
$5.7 million decrease related to the change in presentation of real estate tax payments paid directly by tenants to third parties due to the adoption of ASC 842.
General and Administrative Expenses:
The $1.9 million decrease in general and administrative expenses was primarily related to a decrease in compensation and legal expenses, partially offset by higher investor relations expenses for our merger with REIT II.
Impairment of Real Estate Assets:
Our increase in impairment of real estate assets of $46.6 million is related to assets under contract or actively marketed for sale at a disposition price that was less than the carrying value. Upon disposition, we used the proceeds to reduce our leverage, fund redevelopment opportunities in owned centers, and fund acquisitions. We continue to sell properties where we believe our growth potential has been maximized or that are at risk of future deterioration. As such, we may potentially recognize impairment charges in future quarters.
Interest Expense, Net:
The $30.5 million increase was largely due to $464.5 million of debt assumed and new debt entered into in connection with the Merger. Interest Expense, Net was comprised of the following (dollars in thousands):
 
Year Ended December 31,
 
2019
 
2018
Interest on revolving credit facility, net
$
1,827

 
$
2,261

Interest on term loans, net
62,745

 
41,190

Interest on secured debt
23,048

 
24,273

Loss (gain) on extinguishment or modification of debt, net
2,238

 
(93
)
Non-cash amortization and other
13,316

 
5,011

Interest expense, net
$
103,174

 
$
72,642

 
 
 
 
Weighted-average interest rate as of end of year
3.4
%
 
3.5
%
Weighted-average term (in years) as of end of year
5.0

 
4.9

Gain on Sale or Contribution of Property, Net:
The $81.1 million decrease was primarily related to the sale of 21 properties with a gain of $28.2 million during the year ended December 31, 2019, as compared to the sale or contribution of 25 properties (including 17 properties sold or contributed to GRP I) with a gain of $109.3 million during the year ended December 31, 2018.
Transaction Expenses:
Transaction expenses of $3.3 million associated with GRP I, the Merger, and other acquisitions were incurred during the year ended December 31, 2018, which included third-party professional fees, such as financial advisory, consulting, accounting, legal, and tax fees.
Other Expense, Net decreased $1.0 million primarily as follows:
$9.0 million increase in income related to fluctuations in the fair value of our earn-out liability (see Note 18 for more detail);
$1.4 million increase in income from our unconsolidated joint ventures, primarily due to our share of gains on the disposition of five properties by NRP, partially offset by non-cash basis adjustments during the year ended December 31, 2019;
$1.3 million increase in income attributable to the favorable settlement of property acquisition-related liabilities;
$9.7 million expense related to impairment charges, comprised of a $7.8 million impairment recorded on a corporate intangible asset and a $1.9 million impairment recorded on a receivable for organization and offering costs from the suspension of the REIT III public offering in June 2019 prior to the merger with REIT III in October 2019 (see Notes 17 and 18 for more detail); and
$0.8 million increase in expense related to state and local income taxes and other miscellaneous items.



36



Summary of Operating Activities for the Years Ended December 31, 2018 and 2017
For a discussion of the year-to-year comparisons in the results of operations for the years ended December 31, 2018 and 2017, see Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2018 Annual Report on Form 10-K, filed with the SEC on March 13, 2019.
Non-GAAP Measures
Pro Forma Same-Center Net Operating Income—Same-Center NOI represents the NOI for the properties that were owned and operational for the entire portion of both comparable reporting periods. For purposes of evaluating Same-Center NOI on a comparative basis, we are presenting Pro Forma Same-Center NOI, which is Same-Center NOI on a pro forma basis as if the Merger had occurred on January 1, 2018. This perspective allows us to evaluate Same-Center NOI growth over a comparable period. As of December 31, 2019, we had 276 same-center properties, including 84 same-center properties acquired in the Merger. Pro Forma Same-Center NOI is not necessarily indicative of what actual Same-Center NOI growth would have been if the Merger had occurred on January 1, 2018, nor does it purport to represent Same-Center NOI growth for future periods.
Pro Forma Same-Center NOI highlights operating trends such as occupancy rates, rental rates, and operating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Same-Center NOI, and accordingly, our Pro Forma Same-Center NOI may not be comparable to other REITs.
Pro Forma Same-Center NOI should not be viewed as an alternative measure of our financial performance because 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.
The table below compares Pro Forma Same-Center NOI for the years ended December 31, 2019 and 2018 (dollars in thousands):
 
2019
 
2018(1)
 
$ Change
 
% Change
Revenues:
 
 
 
 
 
 
 
Rental income(2)
$
352,409

 
$
350,790

 
$
1,619

 


Tenant recovery income
120,011

 
119,049

 
962

 


Other property income
2,522

 
1,937

 
585

 


Total revenues
474,942

 
471,776


3,166


0.7
 %
Operating expenses:
 
 
 
 
 
 
 
Property operating expenses(2)
69,543

 
73,957

 
(4,414
)
 


Real estate taxes(2)
65,778

 
70,176

 
(4,398
)
 


Total operating expenses
135,321


144,133


(8,812
)

(6.1
)%
Total Pro Forma Same-Center NOI
$
339,621


$
327,643


$
11,978


3.7
 %
(1) 
Adjusted for the same-center operating results of the Merger prior to the transaction date in 2018. For additional information and details about REIT II operating results included herein, refer to the REIT II Same-Center NOI table below.
(2) 
Excludes straight-line rental income, net amortization of above- and below-market leases, and lease buyout income. In accordance with ASC 842, revenue amounts deemed uncollectible are included as an adjustment to rental income for 2019 as compared to property operating expense in 2018. Additionally, in accordance with ASC 842, real estate tax payments made by tenants directly to third parties are no longer recognized as recoverable revenue or expense in 2019.

37



Pro Forma Same-Center Net Operating Income Reconciliation—Below is a reconciliation of Net (Loss) Income to Pro Forma Same-Center NOI for the years ended December 31, 2019 and 2018 (in thousands):
 
2019
 
2018
Net (loss) income
$
(72,826
)
 
$
46,975

Adjusted to exclude:
 
 
 
Fees and management income
(11,680
)
 
(32,926
)
Straight-line rental income
(9,079
)
 
(5,173
)
Net amortization of above- and below-market leases
(4,185
)
 
(3,949
)
Lease buyout income
(1,166
)
 
(519
)
General and administrative expenses
48,525

 
50,412

Depreciation and amortization
236,870

 
191,283

Impairment of real estate assets
87,393


40,782

Interest expense, net
103,174

 
72,642

Gain on sale or contribution of property, net
(28,170
)
 
(109,300
)
Other
676

 
4,720

Property operating expenses related to fees and management income
6,264

 
17,503

NOI for real estate investments
355,796


272,450

Less: Non-same-center NOI(1)
(16,175
)
 
(44,194
)
NOI from same-center properties acquired in the
Merger, prior to acquisition


99,387

Total Pro Forma Same-Center NOI
$
339,621


$
327,643

(1) 
Includes operating revenues and expenses from non-same-center properties which includes properties acquired, sold, or contributed, and corporate activities.
Pro Forma Same-Center Properties—Below is a breakdown of our property count, including same-center properties by origin as well as non-same-center properties:
 
2019
Same-center properties owned since January 1, 2018
192

Same-center properties acquired in the Merger
84

Non-same-center properties
11

Total properties
287

REIT II Same-Center Net Operating Income—NOI from the REIT II properties acquired in the Merger, prior to acquisition, was obtained from the accounting records of REIT II without adjustment. The accounting records were subject to internal review by us. The table below provides Same-Center NOI detail for the non-ownership periods of REIT II (in thousands):
 
2018
Revenues:
 
Rental income(1)
$
106,711

Tenant recovery income
40,354

Other property income
828

Total revenues
147,893

Operating expenses:
 
Property operating expenses
24,808

Real estate taxes
23,698

Total operating expenses
48,506

Total Same-Center NOI
$
99,387

(1) 
Excludes straight-line rental income, net amortization of above- and below-market leases, and lease buyout income.


38



Funds from Operations and Core Funds from Operations—FFO is a non-GAAP performance financial measure that is widely recognized as a measure of REIT operating performance. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) attributable to common stockholders computed in accordance with GAAP, excluding gains (or losses) from sales of property and gains (or losses) from change in control, plus depreciation and amortization, and after adjustments for 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. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We calculate FFO Attributable to Stockholders and Convertible Noncontrolling Interests in a manner consistent with the NAREIT definition, with an additional adjustment made for noncontrolling interests that are not convertible into common stock.
To better align with publicly traded REITs, we are presenting Core FFO in place of Modified Funds from Operations. Core FFO is an additional performance financial measure used by us as FFO includes certain non-comparable items that affect our performance over time. We believe that Core FFO is helpful in assisting management and investors with the assessment of the sustainability of operating performance in future periods. We believe it is more reflective of our core operating performance and provides an additional measure to compare our performance across reporting periods on a consistent basis by excluding items that may cause short-term fluctuations in net income (loss). To arrive at Core FFO, we adjust FFO attributable to stockholders and convertible noncontrolling interests to exclude certain recurring and non-recurring items including, but not limited to, depreciation and amortization of corporate assets, gains or losses on the extinguishment or modification of debt, transaction and acquisition expenses, and amortization of unconsolidated joint venture basis differences.
FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and Core FFO should not be considered alternatives to net income (loss) or income (loss) from continuing operations under GAAP, as an indication of our liquidity, nor as an indication of funds available to cover our cash needs, including our ability to fund distributions. Core FFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate our business plan in the manner currently contemplated.
Accordingly, FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, 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 FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and Core FFO, as presented, may not be comparable to amounts calculated by other REITs.

39



The following table presents our calculation of FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and Core FFO and provides additional information related to our operations (in thousands except per share amounts):
  
2019
 
2018(1)
 
2017(1)
Calculation of FFO Attributable to Stockholders and Convertible Noncontrolling Interests
 
 
 
 
 
Net (loss) income
$
(72,826
)

$
46,975

 
$
(41,718