Phillips Edison & Company, Inc.PECO

Phillips Edison & Company, Inc. Leases Disclosure

10-KFiled Feb 10, 20263 min read
3. LEASES
Lessor—The majority of our leases are largely similar in that the leased asset is retail space within our properties, and the lease agreements generally contain similar provisions and features, without substantial variations. All of our leases are currently classified as operating leases. Lease income related to our operating leases was as follows for the years ended December 31, 2025, 2024, and 2023 (in thousands):
202520242023
Rental income related to fixed lease payments(1)
$527,114 $486,328 $446,576 
Rental income related to variable lease payments(1)(2)
167,211 150,350 138,691 
Straight-line rent amortization(3)
9,569 8,552 9,539 
Amortization of lease assets8,480 6,507 5,126 
Lease buyout income2,517 867 1,222 
Adjustments for collectibility(4)
(5,705)(5,015)(3,653)
Total rental income$709,186 $647,589 $597,501 
(1)Includes rental income related to lease payments before assessing for collectibility.
(2)Variable payments are primarily related to tenant recovery income.
(3)Includes revenue adjustments to straight-line rent for tenants considered non-creditworthy.
(4)Includes general reserves as well as adjustments for tenants considered non-creditworthy for which we are recording revenue on a cash basis, per ASC 842.
Approximate future fixed contractual lease payments to be received under non-cancelable operating leases in effect as of December 31, 2025, assuming no new or renegotiated leases or option extensions on lease agreements, and including the impact of rent abatements and tenants who have been moved to the cash basis of accounting for revenue recognition purposes, were as follows (in thousands):
YearAmount
2026$524,958 
2027474,837 
2028401,693 
2029319,679 
2030233,872 
Thereafter642,541 
Total$2,597,580 
No single tenant comprised 10% or more of our aggregate annualized base rent (“ABR”) as of December 31, 2025. As of December 31, 2025, our wholly-owned real estate investments in Florida and California represented 12.0% and 10.7% of our ABR, respectively. As a result, the geographic concentration of our portfolio makes it particularly susceptible to adverse natural or economic events in the Florida (see “Hurricanes Helene and Milton” in Note 4) and California real estate markets.
Lessee—Lease assets and liabilities, grouped by balance sheet line where they are recorded, consisted of the following as of December 31, 2025 and 2024 (in thousands):
Balance Sheet InformationBalance Sheet Location 20252024
ROU assets, net - operating leasesInvestment in Real Estate$3,526 $3,632 
ROU assets, net - operating and finance leasesOther Assets, Net1,659 870 
Operating lease liabilityAccounts Payable and Other Liabilities 5,013 4,714 
Finance lease liabilityDebt Obligations, Net480 31 
As of December 31, 2025, the weighted-average remaining lease term was approximately 2.5 years for finance leases and 18.0 years for operating leases. The weighted-average discount rate was 6.2% for finance leases and 4.8% for operating leases.
Future undiscounted payments for fixed lease charges by lease type, inclusive of options reasonably certain to be exercised, were as follows as of December 31, 2025 (in thousands):
Undiscounted
YearOperatingFinance
2026$508 $208 
2027509 198 
2028511 114 
2029533 — 
2030468 — 
Thereafter4,979 — 
Total undiscounted cash flows from leases7,508 520 
Total lease liabilities recorded at present value5,013 480 
Difference between undiscounted cash flows and present value of lease liabilities $2,495 $40 
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About Leases Disclosures

Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.

Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.

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