Phillips Edison (PECO) risk factors, FY2024 10-K

Risks Related to Our Business and Operations

1. 01Our revenues and cash flows will be affected by the success and economic viability of our anchor Neighbors
2. 02A significant percentage of our revenues is derived from non-anchor Neighbors, and our net income and ability to make distributions to stockholders may be adversely affected if these Neighbors are not successful
3. 03We may be unable to collect balances due from Neighbors in bankruptcy
4. 04We may be restricted from leasing space to certain retailers
5. 05We may be unable to sell shopping centers when desired, at an attractive price, or at all, and the sale of a property could cause significant tax payments
6. 06We 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
7. 07We share ownership of our unconsolidated joint ventures and do not have exclusive decision-making power, and as such, we are unable to ensure that our objectives will be pursued
8. 08Our real estate assets may decline in value and be subject to significant impairment losses, which may reduce our net income
9. 09our 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
10. 10We actively reinvest in our portfolio in the form of development and redevelopment projects, which have inherent risks that could adversely affect our financial condition, cash flows, and results of operations
11. 11Adverse economic, regulatory, market, and real estate conditions may adversely affect our financial condition, cash flows, and results of operations
12. 12The continued shift in retail sales towards e-commerce may adversely affect our financial condition, cash flows, and results of operations
13. 13Actual incremental unlevered yields for our development and redevelopment projects may vary from our underwritten incremental unlevered yield range
14. 14Our business, and the businesses of our Neighbors, could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic, epidemic, or other health crisis, especially if there is a negative impact to customers’ willingness or ability to frequent our Neighbors’ businesses
15. 15Increased scrutiny on metrics and reporting related to Environmental, Social and Governance factors may impose additional costs and expose us to new risks
16. 16We use artificial intelligence technologies in our business, and the use of these technologies involve technological and legal risk

Risks Related to Our Indebtedness and Liquidity

1. 17We have substantial indebtedness, and we may need to incur additional indebtedness, including recourse debt, in the future, which could adversely affect our business, financial condition, and ability to make distributions to our stockholders
2. 18We may not be able to access financing on favorable terms, or at all
3. 19Covenants in our loan agreements may restrict our operations and adversely affect our financial condition and ability to make distributions to our stockholders
4. 20Covenants in certain of our loan agreements specify that certain named individuals must remain a member of management and/or the Board or require certain level of management or Board continuity in connection with a fundamental transaction
5. 21Higher market capitalization rates and lower NOI for our shopping centers may adversely impact our ability to sell shopping centers and fund developments and acquisitions, and may dilute earnings
6. 22Increases in interest rates could increase the amount of our interest payments and adversely affect our ability to pay distributions to our stockholders
7. 23Hedging 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 our financial condition, cash flows, and results of operations

Risks Related to Our Corporate Structure and Organization

1. 24The Operating Partnership’s limited partnership agreement grants certain rights and protections to the limited partners, which allows them to vote in connection with a change of control transaction that might involve a premium price for shares of our common stock
2. 25Furthermore, as of December 31, 2024, Mr. Edison had voting control over approximately 6.4% of the OP units (considering OP units owned by us), and therefore could have influence over votes on change of control transactions
3. 26Our stockholders have limited control over changes in our policies and operations, which increases the uncertainty and risks our stockholders face
4. 27Our charter, bylaws, and Maryland law contain terms that may discourage a third party from acquiring us in a manner that could result in a premium price to our stockholders
5. 28Our 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

Risks Related to Our REIT Status and Other Tax Risks

1. 29Failure to qualify as a REIT would cause us to be taxed as a regular C corporation, which would substantially reduce funds available for distributions to stockholders
2. 30Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows
3. 31If 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
4. 32The Operating Partnership has a carryover tax basis on certain of its assets as a result of our acquisition of PELP, and our merger with Phillips Edison Grocery Center REIT II, Inc. (“REIT II”), and the amount that we have to distribute to stockholders therefore may be higher
5. 33Our property taxes could increase due to property tax rate changes or reassessment, which could impact our cash flow
6. 34We use taxable REIT subsidiaries, which may cause us to fail to qualify as a REIT
7. 35Our 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
8. 36REIT 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
9. 37Complying with REIT requirements may cause us to forgo otherwise attractive opportunities or liquidate otherwise attractive investments
10. 38The prohibited transactions tax may limit our ability to engage in transactions, including disposition of assets, which would be treated as sales for U.S. federal income tax purposes
11. 39We 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 accounting principles generally accepted in the United States (“GAAP”) or other economic measures
12. 40Our qualification as a REIT could be jeopardized as a result of an interest in joint ventures or investment funds
13. 41Distributions paid by REITs do not qualify for the reduced tax rates that apply to other corporate distributions
14. 42Legislative or regulatory tax changes could adversely affect us or our stockholders
15. 43If our assets are deemed to be plan assets, we may be exposed to liabilities under Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the IRC

Risks Related to Business Continuity

1. 44Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could adversely affect our cash flows and stockholder returns
2. 45Climate change may adversely affect our business, financial condition, cash flows, and results of operations
3. 46As an owner and/or operator of real estate, we could become subject to liability for environmental violations, regardless of whether we caused such violations, and our efforts to identify environmental liabilities may not be successful

Regulatory and Legal Risks

1. 47Compliance or failure to comply with the ADA, and fire, safety, and other regulations could result in substantial costs and may decrease cash available for stockholder distributions
2. 48We could be subject to legal or regulatory proceedings that may adversely affect our cash flows and results of operations

Risks Related to Our Common Stock

1. 49The market price and trading volume of shares of our common stock may be volatile
2. 50The number of shares of our common stock available for future issuance or sale could adversely affect the market price of our common stock
3. 51in our OP units, or the perception that such issuances might occur, could adversely affect the market price of our common stock
4. 52Future offerings of debt securities, which would be senior to our common stock upon liquidation, and/or preferred equity securities, which may be senior to our common stock for purposes of dividend distributions or upon liquidation, may adversely affect the market price of our common stock
5. 53If we pay distributions from sources other than our cash flows from operations, we may not be able to sustain our distribution rate, we may have fewer funds available for investment in shopping centers and other assets, and our stockholders’ overall returns may be reduced
6. 54Our distributions to stockholders may change, which could adversely affect the market price of shares of our common stock
7. 55Increases in market interest rates may result in a decrease in the value of shares of our common stock
8. 56If we fail to maintain an effective system of internal control over financial reporting and disclosure controls, we may not be able to accurately and timely report our financial results