Phillips Edison & Company(US:PECO)2024-07-26 19:17Financial Data and Key Metrics Changes - The second quarter 2024 Nareit FFO increased by 3.3% to $78.4 million or $0.57 per diluted share, driven by increased rental income from strong property operations [71] - Core FSO increased by 2.9% to $80 million, or $0.59 per diluted share, supported by higher occupancy levels and strong leasing spreads, partially offset by higher interest expenses [71] - Same-center NOI growth for the quarter was 1.9%, with rental income growth of 4.3% year-over-year [53] Business Line Data and Key Metrics Changes - Inline occupancy reached a record high of 95.1%, with new neighbors added including quick service restaurants and health and beauty retailers [47] - Comparable new rent spreads for the second quarter were 34.4%, while inline new rent spreads were 31.9%, compared to a trailing 12-month average of 29% [67] - Renewal rent spreads increased by 20.5%, with inline renewal spreads at 19.7%, compared to a trailing 12-month average of 18.5% [67] Market Data and Key Metrics Changes - The average population in PECO's three-mile trade area is 67,000, with a median household income of $87,000, which is 12% higher than the U.S. median [49] - Unemployment in PECO markets is 20% lower than the national average at 3.2% [69] - Leasing demand remains historically high, with strong retailer interest in grocery-anchored shopping centers [70] Company Strategy and Development Direction - The company is focused on acquiring grocery-anchored shopping centers, with a reaffirmed acquisition guidance of $200 million to $300 million for the year [63] - A new joint venture with Cohen & Steers aims to expand acquisition capabilities and access to growth capital, targeting stabilized yield on investment [64][66] - The company plans to invest $40 million to $50 million annually in ground-up development and repositioning opportunities, with expected cash on cash yields between 9% and 12% [70] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the strong operating environment, highlighting high demand for grocery-anchored centers and the resilience of consumers [84] - The company anticipates continued growth in same-center NOI and rental income, despite challenges from high inflation and interest rates [55] - Management remains confident in the ability to deliver solid operating results due to a healthy neighbor mix and grocery-anchored strategy [84] Other Important Information - The company has approximately $743 million of liquidity to support its acquisition plan and no meaningful debt maturity until 2027 [72] - 91% of PECO's total debt is fixed rate, with a weighted average interest rate of 4.2% [54] - The company has a disciplined approach to acquisitions, exceeding underwritten returns by approximately 130 basis points over the past three years [42] Q&A Session Summary Question: Can you discuss the difference between the $200 million to $300 million acquisition guidance and the potential to exceed it? - Management indicated that the guidance is based on current market conditions, but if attractive products meeting strict underwriting criteria are found, they could exceed this range [4][20] Question: What is the timeline for activating land parcels acquired? - The company plans to have most sites pre-leased and operational within 12 months after closing [6] Question: How is the company handling bad debt with wavering tenants? - Management is moving quickly to recapture space from tenants not paying on time, given the strong demand and rental rates [8][10] Question: What are the drivers for the anticipated acceleration in same-store NOI growth? - The acceleration is expected due to improved recovery income and continued growth in minimum rent, with occupancy exceeding 95% [14][53] Question: Can you provide details on the joint venture with Cohen & Steers? - The joint venture allows the company to acquire assets that do not meet its balance sheet requirements, expanding its growth opportunities [22][78]