Phillips Edison & Company, Inc. Q1 FY2025 earnings call

• Jeff Edison highlighted the PECO team's strong quarter with same-center NOI growth of 3.9% and noted a resilient consumer despite macroeconomic uncertainties. He emphasized strategic decision-making to position PECO for growth. - Bob Myers discussed strong leasing activity, including record high in-line renewal rent spreads, high neighbor retention (91%), and a diversified neighbor mix with limited exposure to distressed retailers. Portfolio occupancy remained high, with in-line occupancy ending at 94.6%. - John Caulfield reported first quarter Nareit FFO of $89 million ($0.64 per diluted share) and Core FFO of $90.8 million ($0.65 per diluted share), benefiting from a one-time lease termination fee. The balance sheet was strong with $760 million liquidity and net debt to adjusted EBITDAR at 5.3x.

Phillips Edison & Company (PECO) reported a strong first quarter with same-center NOI increasing by 3.9%. Retailer demand remained robust, with high occupancy (portfolio occupancy ended at 97.1%, anchor occupancy at 98.4%). Leasing metrics were strong: comparable renewal rent spreads were 20.8%, in-line renewal rent spreads reached a record high of 21.7%, comparable new leasing rent spreads were 28.1%. 71% of the Average Base Rent (ABR) comes from necessity-based goods and services, providing resilience against economic uncertainties.

• PECO affirmed full-year guidance, with same-center NOI growth expected to be between 3% and 3.5%. - Nareit FFO per share is projected to increase by 5.7% at the mid-point compared to 2024, and Core FFO per share by 5.1% at the mid-point. - Gross acquisitions for the year are guided to be in the range of $350 million to $450 million, with confidence in acquiring high-quality centers at attractive returns.

• Potential impact of tariffs on retail operations and neighbor performance. - Macroeconomic uncertainty affecting consumer spending and retailer demand. - Interest rate volatility impacting financing costs and investment returns. - Potential recessionary effects on necessity-based retail categories, though PECO is relatively insulated due to its focus on grocery-anchored and necessity-based goods.

Q: Caitlin Burrows asked about leasing seasonality and March/April leasing trends.

A: Bob Myers responded that leasing demand remains strong, with more leases out for signature than last year, and no signs of slowdown.

Q: Haendel St. Juste inquired about variable rate exposure and interest rate swaps.

A: John Caulfield explained that PECO is managing its balance sheet to ladder maturities and replace term loans with fixed bonds, aiming for a long-term fixed balance sheet.

Q: Samir Khanal asked about approach to shop tenants facing tariff impacts.

A: Jeff Edison stated that 80% of neighbors are in service categories with limited tariff impact, and demand remains strong for necessity-based retail.

Q: Dori Kesten asked about rent payment delays.

A: John Caulfield replied that bad debt is lower year-over-year and no significant delays noted.

Q: Omotayo Okusanya questioned acquisitions and cap rates.

A: Jeff Edison noted PECO focuses on unlevered IRR above 9% and is not cap rate buyers, with strong backlog of acquisitions.

Q: Todd Thomas asked about occupancy trends and bankruptcy activity.

A: Bob Myers said occupancy will stabilize and improve as spaces are backfilled with strong retailer interest.

Q: Floris van Dijkum asked about IRR expectations in uncertain markets.

A: Jeff Edison stated IRR targets remain around 9%, with cap rates potentially adjusting in recessionary scenarios.

Q: Mike Mueller asked about recession impact on portfolio categories.

A: Jeff Edison mentioned dining and discretionary categories could be first affected, but PECO is insulated by necessity-based focus.