Phillips Edison & Company, Inc. Q2 FY2025 earnings call

PECO team delivered solid growth with same-center NOI up 4.2% and core FFO per share up 8.5%. They increased full-year 2025 guidance for same-center NOI, core FFO per share, and NAREIT FFO per share. The grocery-anchored strategy and necessity-based focus create a resilient portfolio. The team has an experienced local team, strong grocer and neighbor relationships, a rightsized portfolio in suburban trade areas with good demographics. There's strong leasing momentum with high renewal and new leasing spreads, high occupancy. Active acquisition activity with $287 million year-to-date, and affirmed gross acquisitions guidance of $350 million to $450 million. Balance sheet has approximately $972 million liquidity, net debt to trailing 12-month annualized adjusted EBITDAre 5.4x, and 95% fixed-rate debt.

Same-center NOI increased 4.2% and core FFO per share increased 8.5% in the second quarter. 70% of ABR comes from necessity-based goods and services. Leasing activity in the second quarter had comparable renewal rent spreads of 19.1%, in-line renewal 20.7%, comparable new leasing 34.6%, and in-line new 28.1%. Portfolio occupancy ended the quarter at 97.4% leased, with anchor occupancy at 98.9% (up 50 basis points) and in-line occupancy at 94.8% (up 20 basis points). Year-to-date gross acquisitions at PECO's share totaled $287 million, with $133 million in the second quarter.

Raised 2025 same-center NOI growth guidance to 3.1% to 3.6%. Updated 2025 NAREIT FFO per share guidance with a 6.3% increase over 2024 at midpoint. Updated 2025 core FFO per share guidance with a 6% increase over 2024 at midpoint. Affirmed full-year gross acquisitions guidance of $350 million to $450 million.

Limited exposure to tariffs with approximately 85% of neighbors based on ABR experiencing limited impact. Bad debt in the second quarter was up from a year ago but within guidance range. Recent market volatility, but confident in acquiring high-quality centers at attractive returns.

Q: What allows PECO to win transactions?

A: Jeff Edison stated it's due to a disciplined acquisition approach, being active in many markets, and focusing on grocery-anchored properties.

Q: When will tenant replacement headwinds end?

A: Robert F. Myers said backfilling is ongoing, leasing demand remains strong, and rent will come online in 2026 and beyond.

Q: Deceleration in same-store NOI growth?

A: John P. Caulfield mentioned more consistent growth expected, with 2024's 6.5% in the fourth quarter being timing-related and sequential growth in Q3/Q4.

Q: Tariffs impact?

A: Jeffrey S. Edison said limited exposure, tenants are absorbing incremental costs, and there's a dichotomy between consumer sentiment and strong foot traffic.

Q: Grocer expansion and Kroger closures?

A: Robert F. Myers said there was one Kroger location in the portfolio to be backfilled, and grocers like Sprouts, Kroger, Publix, Whole Foods, and Walmart are expanding.