Phillips Edison & Company(US:PECO)2022-11-04 23:00Financial Data and Key Metrics Changes - Third quarter 2022 Nareit FFO increased by 26.4% to $72 million or $0.55 per diluted share, benefiting from increased rental income and reduced interest expense [42] - Core FFO increased by 15.4% to $76.6 million, driven by higher occupancy levels and strong leasing spreads [42] - Same-center NOI increased to $92.5 million, up 4.3% from a year ago, primarily due to higher occupancy and increased average base rent per square foot [43] Business Line Data and Key Metrics Changes - Record occupancy level reached 97.1%, driving measurable growth in financial results [19] - Over 70% of rents come from necessity-based goods and services, with grocery sales in the U.S. growing by 8.4% year-to-date [20] - Average in-line neighbor health ratio stands at 10%, with expectations for incremental growth [60] Market Data and Key Metrics Changes - Suburban markets are gaining at the expense of urban markets, with retailers experiencing higher visits per location in suburban areas [30][28] - Migration trends since 2018 have made secondary markets more appealing for retailers, leading to increased demand in these areas [28][30] Company Strategy and Development Direction - The company focuses on owning grocery-anchored neighborhood shopping centers, capitalizing on structural and macroeconomic trends [9] - Future organic growth is expected from increased occupancy, contractual rent increases, and redevelopment activities [12] - The company is targeting an unlevered IRR of 9% and above for new acquisitions, reflecting a cautious approach in the current market [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledges inflationary impacts and higher interest rates but believes the portfolio is well-positioned for a recession [10] - The company has a strong balance sheet, low leverage, and is located in growing markets, providing a competitive advantage [15] - Management remains optimistic about the grocery sector's performance, with grocers expected to continue driving foot traffic to centers [56] Other Important Information - The proposed merger between Kroger and Albertsons is viewed positively, as it strengthens the largest neighbor and enhances profitability [16] - The company has 17 projects under active construction, with an estimated total investment of $55 million and expected yields between 10% and 12% [36] Q&A Session Summary Question: Broader transaction market and cap rates - Management noted that the market is shifting to a buyer's market, with cap rates expanding and a focus on IRR rather than cap rates [52][53] Question: Impact of food inflation on grocer tenants - Foot traffic remains constant, but average spend per visit is higher, with grocers seeing sales increases and holding margins [55][56] Question: Health ratio for in-line tenants - The health ratio has held consistently at 10%, with potential for growth to around 12% as sales continue to grow [60][61] Question: Competition in the acquisition market - Competition has decreased significantly, with fewer active buyers compared to a year ago, making it more favorable for the company [78][81] Question: Impact of propco deal on the portfolio - Management is closely monitoring the situation, emphasizing the importance of having strong operators for grocery stores [84][85] Question: Out of period collections and bad debt - The company is back to normal levels of collections, with bad debt expected to return to historical levels in 2023 [90][91] Question: Assumptions for IRR calculations - IRR calculations are project-specific, with a focus on operational performance and maintaining or expanding cap rates [94][96] Question: $1 billion investment plan - The company is on track to meet its $1 billion acquisition target, with sufficient balance sheet capacity to pursue opportunities [110]