Phillips Edison & Company (PECO) Q2 2025 Earnings Call July 25, 2025 12:00 PM ET Company ParticipantsKimberly Green - SVP & Head - IRJeffrey Edison - Chairman & CEORobert Myers - PresidentJohn Caulfield - CFO, Executive VP & TreasurerCaitlin Burrows - Vice PresidentSamir Khanal - Director - US REITsRonald Kamdem - MD & Head - US REITs and CRE ResearchMichael Muller. - Venture CapitalistJuan Sanabria - Managing DirectorRich Hightower - MD - U.S. REIT ResearchCooper Clark - VP - Equity ResearchFloris van Dijk ...

Financial Data and Key Metrics Changes - Same center NOI increased by 4.2% and core FFO per share increased by 8.5% in Q2 2025 [4][22] - NAREIT FFO increased to $86 million or $0.62 per diluted share, reflecting year-over-year per share growth of 8.8% [22] - Core FFO increased to $88.2 million or $0.64 per diluted share, reflecting year-over-year per share growth of 8.5% [22] - The company raised its full-year 2025 earnings guidance for same center NOI, core FFO per share, and NAREIT FFO per share [4][25] Business Line Data and Key Metrics Changes - The company reported strong leasing momentum with comparable renewal rent spreads of 19.1% and new leasing rent spreads of 34.6% in Q2 [15][16] - Portfolio occupancy remained high at 97.4% leased, with anchor occupancy at 98.9% [16][17] - Bad debt increased from a year ago but remained within guidance range, indicating strong retailer demand [18] Market Data and Key Metrics Changes - Approximately 70% of the company's ABR comes from necessity-based goods and services, providing predictable cash flows [8] - The average population in the three-mile trade area is 68,000 with a median household income of $92,000, which is 15% above the US median [19] - The company has limited exposure to distressed retailers, with the top 10 neighbors on the watch list representing about 2% of ABR [20] Company Strategy and Development Direction - The company focuses on a grocery-anchored portfolio and necessity-based retail, which has created a resilient portfolio [5][6] - The acquisition strategy is disciplined, targeting high-quality centers below replacement costs with strong growth profiles [12][26] - The company aims for mid to high single-digit core FFO per share growth annually on a long-term basis [7][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the consumer and the company's ability to outperform as retailer demand remains strong [13] - The company anticipates continued strong leasing demand and a healthy development pipeline [10] - Management noted that while tariffs are a concern, approximately 85% of neighbors based on ABR will experience limited impact [8][68] Other Important Information - The company has approximately $972 million of liquidity to support acquisition plans and no meaningful maturities until 2027 [23] - The weighted average interest rate of the company's debt is 4.4%, with 95% of total debt being fixed rate [24] - The company completed $133 million in asset purchases during the quarter, bringing year-to-date gross acquisitions to $287 million [12] Q&A Session Summary Question: What has allowed PICO to win transactions in a competitive market? - Management attributed success to a disciplined acquisition strategy and active participation in multiple markets [29][30] Question: When will tenant replacement headwinds be resolved? - Management indicated that backfilling efforts are ongoing, with strong demand for junior boxes and inline spaces [32][35] Question: What is the outlook for same store NOI growth in the second half? - Management projected consistent growth for the remainder of the year, with expectations for sequential improvement [40][41] Question: How is the transaction market currently? - Management noted that while there is more product on the market, they remain disciplined in their acquisition strategy [49][50] Question: What is the company's stance on variable rate debt? - Management confirmed that 95% of debt is fixed and they will manage variable rate exposure opportunistically [51][54] Question: How does the company view consumer behavior amidst economic uncertainty? - Management observed strong foot traffic and sales growth despite negative consumer sentiment, attributing this to low unemployment rates [94][96] Question: Are there any impacts from Kroger's store closures? - Management confirmed one Kroger location on the closure list but noted a replacement grocer is already secured for that site [102][103]