Phillips Edison & Company, Inc. Common Stock 2026 Q3 Earnings Call

I am joined by our Chairman and CEO, Jeff Edison, President Bob Myers, and CFO John Caulfield. As a reminder, today's discussion may contain forward-looking statements about the company's view of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to risks and uncertainties as described in our SEC filings. Today, we will reference certain non-GAAP financial measures, and information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in our press release and supplemental information packet, both of which have been posted on our website. Our caution on forward-looking statements also applies to our earnings presentation, which was also posted. Following our prepared remarks, we will open the call to Q&A. Given the number of participants, we respectfully ask that you limit to one question.

Please rejoin the queue if you have follow-up questions. With that, I will turn the call over to Jeff Edison.

Jeff? Thank you, Kim. Thank you, everyone, for joining us today.

PECO delivered another strong quarter. Same-center NOI increased 5.3%, and core FFO per share increased 9.2%. These results reflect the strength of our grocery-anchored neighborhood centers and the consistent execution of the PECO operating engine. We are pleased to increase the midpoints of our earnings guidance for the full year. These results were especially meaningful given the continued uncertainty in the broader economy. While the headlines continue to change, the fundamentals we see across PECO's portfolio remain solid. The consumer remains resilient, PECO's grocers and necessity-based neighbors continue to drive strong traffic, and we are not seeing any signs of weakness as we look towards 2027. That resilience is supported by the essential nature of PECO's portfolio. 74% of our ABR comes from necessity-based goods and services, providing consistent demand and supporting durable cash flow through economic cycles.

PECO delivers more alpha with less beta. Our alpha comes from strong leasing, disciplined acquisitions, and a growing development and redevelopment pipeline. Lower beta comes from our grocery-anchor durability, necessity-based cash flow, investment-grade balance sheet, and access to multiple sources of capital. Our results continue to show that high occupancy does not limit PECO's internal growth. We renew the right neighbors at higher rents. We increase contractual rent bumps. We improve lease terms, and we create new space through outparcels and redevelopment. Our active development and redevelopment pipeline is nearly $90 million today. We see an opportunity to grow it beyond $100 million while maintaining our attractive returns. Across a portfolio of right-sized centers averaging 113,000 square feet, these projects create meaningful incremental growth. Acquisitions provide another source of growth. Assets acquired to date in 2026 were 94% leased on average, compared with 98% leased across our existing portfolio.

That gap represents visible upside for PECO. We know how to lease these centers, to enhance the merchandising mix, and to use our data and local market knowledge to move operating performance towards the level of our existing portfolio. We continue to target unlevered IRRs of 9% for grocery-anchored acquisitions and 10% or better for Everyday Retail. Everyday Retail expands our opportunity set while staying close to what we know, necessity-based retail, neighborhood locations, and markets where our operating engine can create value. Our investment strategy remains disciplined and focused. We allocate capital where we believe PECO can generate the best long-term growth and returns, whether it's through our existing portfolio, grocery-anchored and Everyday Retail acquisitions, development or redevelopment, or our joint ventures. We continue to grow when the opportunity, returns, and cost of capital make sense for PECO.

That means staying flexible, raising equity when public markets are attractive, and using dispositions and joint ventures when private market pricing is more compelling. This disciplined approach allows PECO to be opportunistic while investing in dependable long-term growth. We've told investors that PECO's high-quality portfolio is built to deliver long-term, same-center NOI growth of 3%-4% and a mid to high single-digit core FFO for share growth. We continue to deliver against those targets. As we look to 2027, we have increased visibility from leasing, development and redevelopment, our pipeline of acquisitions, and our investment management business. We believe PECO is well-positioned to deliver strong growth in 2027, and we'll provide more detail during our December 16th virtual business update. PECO's 6.2% dividend increase in September reflects our confidence in the durability of PECO's cash flow.

We believe PECO's earnings growth and durable dividend yield combine to target an annual total return to our shareholders of 9%-10%. That is the opportunity we see for PECO. More alpha through consistent execution and growth, less beta from our right-sized, grocery-anchored, necessity-based portfolio, and our strong balance sheet. With that, I'll turn it over to Bob.

Bob? Thank you, Jeff. The retail environment remains very active, with broad retailer demand for space across our portfolio.

That demand is reflected in our 92.2% portfolio retention, 97.5% portfolio leased occupancy, and 95.1% in-line leased occupancy. These results demonstrate the quality of our centers, the health of our neighbors, and the value retailers place on being located in PECO's grocery-anchored neighborhood centers. Our team is taking advantage of this environment. We use national relationships, local market knowledge, and data research to decide which neighbors to retain and where we can improve lease economics. During the quarter, comparable renewal rent spreads reached a record high 25.2%, and comparable new lease spreads remained strong at 26.3%. Keeping the right neighbors in place means less downtime, lower TI costs, and better economics for PECO.

During the quarter, we achieved record high renewal rent CAGRs while improving non-monetary lease terms that give us more flexibility to manage our centers. The PECO team looks at the full economics of every lease, today's rent, future rent growth, and the rights we need to keep improving the center. This work contributed to same-center NOI growth of 5.3%, which was driven primarily by higher rents. The continued growth in PECO's minimum rent has us well-positioned to finish the year and as we head into 2027. Retention and collections remain solid. Demand for available space is competitive, and rent spreads and occupancy costs are healthy. Bad debt remains relatively low and was in line with expectations at around 70 basis points of revenue during the third quarter. These trends continue to support rent growth and long-term value across PECO's portfolio. Moving on to acquisitions. Year to date through October 26th, we've acquired $519 million in assets at PECO's share, including 12 grocery-anchored and four Everyday Retail centers.

These centers are meeting or exceeding our unlevered IRR targets. With new assets, our team moves quickly into execution mode by leasing vacant space and bringing each property up to PECO's maintenance and appearance standards. Then the team begins to execute the underwriting plan. This is how we turn disciplined acquisitions into tomorrow's earnings growth. Given the strength of our pipeline, we recently increased our full-year gross acquisition guidance to $600 million-$700 million. The current macroeconomic environment is creating opportunities to negotiate more favorable pricing on select acquisitions. PECO's scale, relationships, and execution gives us leverage in those discussions, and we'll continue to pursue concessions while remaining disciplined on price and returns. That same discipline shapes our approach to Everyday Retail.

We target necessity-based neighborhood centers near leading grocers in markets where our leasing relationships, operating engine, and data analysis provide an advantage. We own $300 million of Everyday Retail today and continue to target $1 billion, which we expect to achieve in the next 24 months. We're growing intentionally to deliver more alpha at PECO and will provide an update on Everyday Retail during our December 16th business update. I will now turn the call over to John.