Phillips Edison & Company, Inc. Q3 2026 Earnings Conference Call - PHILLIPS EDISON & COMPANY INC

Explicit Guidance:

• FY2026 Same-Center NOI Growth: Guidance increased to the high end of the original range, with a midpoint of 3.75% growth.
• FY2026 Core FFO per Share Growth: Midpoint of guidance increased to reflect 6.5% growth.
• FY2026 NAREIT FFO per Share Growth: Midpoint of guidance increased to reflect 6.3% growth.
• FY2026 Gross Acquisition Volume: Increased to $600–$700 million (raised from prior estimates on Oct 1).
• FY2026 Disposition Volume: Expected range of $175–$210 million.
• FY2026 Bad Debt Ratio: Tightened guidance range to 60–80 basis points of revenue.
• FY2026 Development/Redevelopment Spend: Expected to conclude the year between $80–$85 million.
• FY2026 Weighted Average Interest Rate: Pro forma rate of 4.5% following recent debt refinancing.
• FY2027 Outlook: Management targets long-term same-center NOI growth of 3–4% and mid-to-high single-digit core FFO per share growth, expressing confidence in achieving these targets.

Business-Segment Outlook:

• Everyday Retail Expansion: Current portfolio at $300 million; targeting growth to $1 billion within the next 24 months.
• Everyday Retail Metrics: Targeting 10%+ unlevered IRRs; new leasing spreads averaging 40% and renewal spreads >25% reported in this asset class.
• Local Tenant Mix: Maintaining a ~26% local tenant mix for grocery-anchored centers; for everyday retail, aiming to transition initial 40% local/60% national mix down to ~30% local over the hold period to maximize national footprint.
• Pipeline Growth: Active development and redevelopment pipeline currently at nearly $90 million, with visibility to grow beyond $100 million.
• Acquisition Pipeline: Active pipeline of $250 million in assets under contract or awarded as of Q3; 519 assets reviewed vs. 450 the prior year with 519 closed YTD.
• Lease Economics: Comparable renewal rent spreads reached a record high of 25.2%; comparable new lease spreads at 26.3% (Q3), with full-year visibility into the high 30s.
• Occupancy Targets: Portfolio retention at 92.2%, portfolio lease occupancy at 97.5%, and in-line leased occupancy at 95.1%.

Market and Competitive Outlook:

• Cap Rates: Grocery-anchored opportunities trading at 5.8–6.5% cap rates; everyday retail centers at 6.3–7.5% depending on market.
• Pricing Environment: No significant pushback on rent increases observed despite tight occupancy; demand for space described as "broad" and "very vibrant."
• Supply Dynamics: Limited new supply in the market; ground-up development described as a "drop in the bucket" with high pre-leasing rates for small out-parcels ($2–4M).
• Competition: Active bid sets (5–8 offers) for both grocery and everyday retail assets; PECO leveraging scale to negotiate concessions.
• Retailer Health: Strong performance across grocery and necessity-based neighbors; localized tenant health ratios holding at ~10%.

Macro / Industry Outlook:

• Consumer Resilience: Management views the broader economy as uncertain but sees "no signs of weakness" in necessity-based sectors heading into 2027; consumer data indicates continued strength.
• Interest Rates: Interest rates spiked and corrected downward; 85% of debt is fixed, with no meaningful maturities until 2030.
• Regulation/Supply: No mention of adverse regulatory changes or tariffs impacting the outlook.
• Economic Cycle: Strategy designed to deliver "more alpha with less beta" via necessity-based cash flows that provide durability through cycles.

Strategic Initiatives:

• Everyday Retail Strategy: Intentional expansion of necessity-based neighborhood centers near leading grocers; plan to reach $1 billion in ABR by late 2027/early 2028.
• Capital Allocation: No assumption of equity issuance; funding matched via retained cash flow, dispositions, JV proceeds, and debt.
• Debt Management: Closed $350M unsecured term loan (3-year, SOFR + 80bps); liquidity at $950M; weighted average maturity of 5.5 years.
• Joint Ventures: Continue to grow asset management business; raising equity in low-sixes cap rates to deploy in mid-sixes acquisitions.
• Development Focus: Pairing acquisitions with immediate out-parcel development opportunities (50% of acquired portfolio is development-ready land); targeting 9–12% IRRs on development projects.
• Strategic Partnerships: Deepening ties with Kroger (largest landlord) and leveraging Kroger's 2026–2029 expansion plans for ground-up and redevelopment opportunities.
• Investment Management: Expecting additional funding for investment management business to draw down in late 2026 and early 2027.

Risks and Headwinds to Outlook:

• Tenant Credit Events: Limited exposure to specific retailer bankruptcies (e.g., Wendy's, Leslie's) noted; PECO views these as opportunities to re-tenant rather than risks.
• Recovery Income Timing: Q4 Same-Center NOI growth may be impacted by the timing of recovery income comparisons relative to Q3 prior year.
• Expense Management: Non-GAAP expenses expected to be higher in Q4 than Q3, though this is factored into the guidance.
• Acquisition Discpline: Risk of paying too much if discipline on price and returns is not maintained; management emphasizes strict IRR thresholds (9% for grocery, 10%+ for everyday).
• Market Volatility: Interest rate fluctuations and cap rate compression could impact acquisition pricing, though current environment viewed as favorable for negotiation.

Management Tone on the Future:

• Confidence Level: High confidence; management explicitly states they "feel real good about the strength of the portfolio" and are "confident" in delivering 2027 growth.
• Trend: Positive and opportunistic; emphasizing the ability to turn "disciplined acquisitions into tomorrow's earnings growth" and noting an "active" market.
• Forward Visibility: Increased visibility on leasing, development, and acquisitions compared to prior quarters; no need for hedging against near-term weakness.
• Capital Returns: Targeting 9–10% annual total return to shareholders via the combination of earnings growth and durable dividend yield.
• Change in Stance: Increased full-year earnings guidance midpoints and acquisition volume targets, signaling a more aggressive stance on growth despite macro uncertainty.

Miscellaneous:

• Upcoming Events: December 16th virtual business update will provide detailed updates on Everyday Retail strategy, 2027 outlook, and acquisition pipeline.
• Leverage Metrics: Net debt to annualized adjusted EBITDA expected to close FY2026 at ~5.0x (down from 5.2x).
• Dividend: 6.2% dividend increase implemented in September reflecting confidence in cash flow durability.
• Investment Targets: Maintaining target unlevered IRRs of 9% for grocery-anchored acquisitions and 10%+ for everyday retail.