Phillips Edison & Company, Inc. Q3 FY2025 earnings call

• Leasing activity remained strong with 94% neighbor retention in the third quarter and growing rents; comparable renewal rent spreads were 23.2% and new leasing rent spreads were 24.5%.
• Development and redevelopment: 22 projects under active construction with total investment estimated at $75.9 million and average estimated yields 9-12%; 14 projects stabilized through September 30, delivering over 222,000 sq ft and incremental NOI of ~$4.3 million annually.
• Acquisitions: Year-to-date gross acquisitions at PECO share totaled $376 million, with $96 million acquired since June 30, including two unanchored centers in growing suburban markets with strong demographics.
• Joint ventures: JV with Lafayette Square and Northwestern Mutual acquired The Village at Sand Hill, with additional assets in the pipeline for JVs in Q4 2025 and 2026.
• Development/redevelopment pipeline: Acquired 34 acres in Ocala, FL for a grocery-anchored retail development, with plans to share details later.

Phillips Edison & Company's third quarter results were driven by its grocery-anchored neighborhood centers, which contribute 70% of its ABR from necessity-based goods and services. Third quarter NAREIT FFO increased to $89.3 million or $0.64 per diluted share, reflecting year-over-year per share growth of 6.7%. Core FFO increased to $90.6 million or $0.65 per diluted share, with year-over-year per share growth of 4.8%.

• Increased guidance for 2025 NAREIT and core FFO per share; midpoints represent 6.8% and 6.6% growth respectively.
• Reaffirmed 2025 same-center NOI growth guidance (midpoint 3.35%), with current forecast for 2025 same-center NOI growth 1-2%.
• Reaffirmed 2025 full-year gross acquisitions guidance, with plans to sell $50-$100 million of assets in 2025 (sold $44 million YTD).
• Plan to share preliminary 2026 guidance and new analysis on unanchored investments during the December 17 virtual business update.

• Market focus on tariffs and U.S. economic stability.
• Tenant credit risk, though bad debt remains within guidance range.
• Competition in the transactions market for grocery-anchored shopping centers.

Q: Can you share more on your thinking around acquiring development land at this point in the cycle?

A: Jeffrey S. Edison and Robert F. Myers discussed acquiring 34 acres in Ocala, FL for a grocery-anchored retail development, expecting a 10.5% unlevered return, and continuing to look for sites if they make sense.

Q: Could you provide more detail on the makeup of your current acquisition pipeline and potential incremental volume before year-end?

A: Jeffrey S. Edison and Robert F. Myers mentioned having acquired 18 assets for $376 million YTD, with deals under contract to close before year-end, well within the guidance range.

Q: Looking at leverage, what is the upper level of leverage you consider and how you think about funding sources?

A: Jeffrey S. Edison stated they aim for debt to EBITDA below 5.5% long-term and are prepared to adjust leverage if opportunities arise.

Q: What's your target size for redevelopment and how is it funded?

A: Robert F. Myers mentioned a pipeline of $50-$60 million a year for redevelopment, funded through free cash flow and dispositions.

Q: Outlook for grocers and consumer spending?

A: Jeffrey S. Edison and Bob Myers stated grocers see a resilient customer, with no dramatic concerns, and are positive about their ability to pass on costs.

Q: Dispositions plan for next year?

A: Robert F. Myers mentioned selling between $100-$200 million next year, focusing on stabilized assets with lower IRR to recycle into higher IRR properties.

Q: Impact of options on leasing spreads and same-store NOI growth?

A: Robert F. Myers and John P. Caulfield discussed focusing on structuring leases without options to improve mark-to-market growth, with strategies to mitigate options.

Q: Cap rates and JV opportunities for grocery-anchored centers?

A: Jeffrey S. Edison mentioned stable cap rates and JVs as opportunities to create value by recycling lower IRR properties.

Q: Funding acquisition pipeline and cap rate on dispositions?

A: John P. Caulfield and Robert F. Myers discussed funding through cash flow and dispositions, with dispositions expected to trade at cap rates between 6.3-6.8%.

Q: Impact of grocery store closure on property value and unanchored centers?

A: Robert F. Myers and Jeffrey S. Edison discussed that cap rates already adjust when grocers are in trouble, and unanchored centers show positive momentum with high returns.

Q: Unanchored centers focus for 2026 and occupancy upside?

A: Robert F. Myers mentioned increased focus on unanchored centers next year with expected solid returns and continued occupancy upside.

Q: G&A increase and growth outlook for 2026?

A: John P. Caulfield stated G&A increase is due to performance-based incentives and investments in technology, with focus on mid to high single-digit FFO per share growth.

Q: Occupancy upside and asset quality of acquired properties?

A: Robert F. Myers and John P. Caulfield discussed occupancy upside potential and focus on acquiring assets with strong demographics and upside, maintaining disciplined investment criteria.