Phillips Edison & Company, Inc.PECO
Phillips Edison & Company, Inc. Income Taxes Disclosure
| 10. INCOME TAXES | ||
General—We have elected to be taxed as a REIT under the IRC. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement to annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains. We intend to continue to adhere to these requirements and to maintain our REIT status. As a REIT, we are entitled to a deduction for some or all of the distributions we pay to our stockholders. Accordingly, we are generally subject to U.S. federal income taxes on any taxable income that is not currently distributed to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income taxes and may not be able to qualify as a REIT until the fifth taxable year following the year of disqualification.
Notwithstanding our qualification as a REIT, we may be subject to certain state and local taxes on our income or properties. In addition, our consolidated financial statements include the operations of certain wholly-owned entities that have jointly elected to be treated as TRS entities and are subject to U.S. federal, state, and local incomes taxes at regular corporate tax rates. As a REIT, we may also be subject to certain U.S. federal excise taxes if we engage in certain types of transactions.
Income tax benefits from uncertain tax positions are recognized in the consolidated financial statements only if we believe it is more likely than not that the uncertain tax position will be sustained based solely on the technical merits of the tax position and consideration of the relevant taxing authority's widely understood administrative practices and precedents. We do not believe that we have any uncertain tax positions at December 31, 2025 and 2024.
The statute of limitations for the federal income tax returns remain open for the 2022 through 2024 tax years. The statute of limitations for state income tax returns remain open in accordance with each state's statute.
Our accounting policy is to classify interest and penalties as a component of income tax expense. We accrued no interest and penalties as of December 31, 2025 and 2024.
Deferred Tax Assets and Liabilities—Deferred income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year in which these temporary differences are expected to reverse. Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including future reversal of existing taxable temporary differences, the magnitude and timing of future projected taxable income, and tax planning strategies. We had deferred tax assets of $4.1 million and $3.5 million at December 31, 2025 and 2024, respectively, net of a valuation allowance of $0.1 million for both years. Additionally, we had deferred tax liabilities of $4.5 million at December 31, 2025 and 2024. Our deferred tax assets and liabilities result from the activities of our TRS entities. As of December 31, 2025, the TRS entities have state NOL carryforwards of approximately $3.5 million, which will expire as determined under each state's statute.
Differences between the net income presented on the consolidated statements of operations and taxable income are primarily related to (i) the differences in the periods over which depreciation and amortization expenses are recognized for financial reporting purposes and tax purposes, (ii) the difference in the periods in which gains on the disposition of real estate are recognized for financial reporting purposes and tax purposes, (iii) the timing of the recognition of rental income for financial reporting purposes and tax purposes, and (iv) the timing of the expense recognition of certain ordinary and necessary center repair expenditures.
Distributions—The following table reconciles Net Income Attributable to Stockholders to REIT taxable income before the dividends paid deduction for the years ended December 31, 2025, 2024, and 2023 (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Net income attributable to stockholders | $ | 111,303 | $ | 62,685 | $ | 56,848 | |||||||||||
| Net income from TRS entities | (2,822) | (10,298) | (9,768) | ||||||||||||||
| Net income attributable to REIT operations | 108,481 | 52,387 | 47,080 | ||||||||||||||
| Book/tax differences | 19,764 | 59,885 | 54,311 | ||||||||||||||
| REIT taxable income | 128,245 | 112,272 | 101,391 | ||||||||||||||
| Less: Capital gains | — | — | (96) | ||||||||||||||
| REIT taxable income subject to 90% dividend requirement | $ | 128,245 | $ | 112,272 | $ | 101,295 | |||||||||||
Total gross distributions to our stockholders exceeded 100% of REIT taxable income for the years ended December 31, 2025, 2024, and 2023.
The tax characterization of our distributions declared for the years ended December 31, 2025, 2024, and 2023 was as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Common stock: | |||||||||||||||||
| Ordinary dividends | 82.0 | % | 77.4 | % | 75.9 | % | |||||||||||
| Non-dividend distributions | 18.0 | % | 22.6 | % | 24.0 | % | |||||||||||
Capital gain distributions(1) | — | % | — | % | 0.1 | % | |||||||||||
| Total distributions per share of common stock | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
(1)Pursuant to U.S. Treasury Regulation §1.1061-6(c) and §1061 of the IRC, the One Year Amounts and Three Year Amounts disclosures are both zero with respect to direct and indirect holders of “applicable partnership interests” for us and our subsidiary REIT, Phillips Edison Institutional REIT, LLC for all years presented.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 10, 2026 | Showing above |
| 2024 | Feb 11, 2025 | |
| 2023 | Feb 12, 2024 | |
| 2022 | Feb 21, 2023 | |
| 2021 | Feb 16, 2022 | |
| 2020 | Mar 12, 2021 | |
| 2019 | Mar 12, 2020 | |
| 2018 | Mar 13, 2019 | |
| 2017 | Mar 30, 2018 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.