Phillips Edison & Company, Inc. Q3 FY2026 earnings call

• Strong Operational Execution: PICO delivered robust results with same-center NOI growth of 5.3% and Core FFO per share growth of 9.2%, driven by high occupancy (97.5%) and record-high renewal rent spreads of 25.2%.
• Leasing Dynamics: New lease spreads remain strong at 26.3%. Management attributes recent slight dips in quarterly new lease spreads to timing rather than tenant pushback, noting full-year visibility suggests spreads will finish well into the 30s. Non-monetary lease terms are being improved to increase flexibility.
• Acquisition Strategy: Year-to-date acquisitions totaled $519 million across 16 centers (12 grocery-anchored, 4 everyday retail), averaging 94% leased upon close. The company targets unlevered IRRs of 9% for grocery-anchored assets and 10%+ for everyday retail.
• Everyday Retail Growth: PICO owns $300 million in everyday retail assets and aims to reach $1 billion within 24 months. These assets show strong performance with average NOI CAGR above 5% and new leasing spreads of 40%.
• Development Pipeline: The active development and redevelopment pipeline is nearly $90 million, with management targeting growth beyond $100 million. Projects yield attractive returns of 9-12%.
• Balance Sheet Strength: PICO maintains an investment-grade balance sheet with no meaningful debt maturities until 2030. A new $350 million term loan was issued at SOFR + 80 bps, reducing overall interest costs. Total liquidity stands at approximately $950 million.
• Tenant Health: Bad debt remains low at ~70 basis points of revenue. Local tenants (26% of ABR) perform well, contributing to high retention rates and lower TI costs.

The transcript does not break down financial performance by distinct product segments (e.g., Grocery-Anchored vs. Everyday Retail) in absolute terms or specific revenue contribution percentages for the quarter. Management provides consolidated portfolio metrics: Same Center NOI increased 5.3%, Core FFO per share increased 9.2% to $0.71, and NAREIT FFO per share increased 7.8% to $0.69. The portfolio is composed of 74% necessity-based goods/services by Annual Base Rent (ABR). Everyday retail assets represent approximately $300 million of the portfolio, with a target to grow this segment to $1 billion.

• Same-Center NOI: Increased guidance midpoint to reflect 3.75% growth for the full year, up from the previous 3-4% range.
• Core FFO Per Share: Increased guidance midpoint to reflect 6.5% growth, up from previous expectations.
• NAREIT FFO Per Share: Increased guidance midpoint to reflect 6.3% growth.
• Acquisitions: Gross acquisition guidance raised to $600-$700 million (increased on Oct 1).
• Dispositions: Expected range set at $175-$210 million.
• Bad Debt: Guidance tightened to a range of 60-80 basis points of revenue.
• Long-Term Targets: Reiterated long-term goals of 3-4% same-center NOI growth and mid-to-high single-digit Core FFO per share growth.

• Macroeconomic Uncertainty: While fundamentals remain solid, management acknowledges continued uncertainty in the broader economy and headlines, though consumer resilience has been observed.
• Retailer Credit Blips: Mentioned limited exposure to credit issues at retailers like Wendy's and Leslie's; however, impact was minimal (approx. 5 bps for Leslie's) and did not alter underwriting assumptions.
• Competition in Acquisitions: Increased competition in the transaction market with multiple offers on grocery-anchored products, though cap rates have remained relatively stable.
• Development Risks: Ground-up grocery development involves long entitlement and construction timelines (3-4 years), delaying NOI impact compared to out-parcel developments.

Q: Analyst asked about the external transaction market, specifically cap rate movements and how off/on-balance sheet funding supports 2027 investments. / A: Bob Myers noted that while there is more competition (5-8 offers per deal), cap rates remain stable (5.8-6.5% for core grocery). They acquired assets at ~6.5% blended cap rates targeting >9% IRR. John Caulfield explained they use 'match funding' via dispositions and joint ventures (like Northwestern Mutual tranches) rather than incremental equity issuance to fund growth, allowing them to recycle stabilized assets into higher-return opportunities.

Q: Analyst asked about the tenant mix, specifically the proportion of local tenants that are necessity-based and their credit health/delinquencies. / A: Bob Myers clarified that while locals make up 26% of ABR, the focus is on necessity-based categories like fast casual, health, and fitness. These tenants generate higher rents with less TI spend and show excellent retention. Jeff Edison added that the mid-20s local mix is intentional to maximize sales productivity and rent growth, as these entrepreneurs are profitable and resilient.

Q: Analyst asked if Kroger’s expansion plans create redevelopment or retenanting opportunities for PICO. / A: Bob Myers stated that PICO is Kroger’s largest landlord and actively partners with them on ground-up developments. Kroger is expanding and reinvesting in existing stores, and PICO is securing ground to partner on ~40 new locations this year. This strategic alignment helps Pico unlock value through both new development and optimizing existing sites.

Q: Analyst asked about the moderation in Q4 same-center NOI guidance and whether it signals a change in long-term trends. / A: John Caulfield attributed the Q4 slowdown to the timing of recovery income compared to Q3, not operational weakness. He emphasized that bad debt is tight (60-80 bps) and neighbors are strong. Management remains confident in delivering the long-term 3-4% same-center NOI growth target heading into 2027.

Q: Analyst asked about the changing dynamics of lease options and non-economic terms in a strong rental environment. / A: Bob Myers explained that while large grocers lock in flat/mild options for 30 years, PICO aggressively negotiates away options and exclusives for inline neighbors. They prioritize removing caps, co-tenancies, and no-build areas to free up development land. Options are now pushed to 15-20% or better, enhancing long-term cash flow flexibility.