Phillips Edison & Co Inc Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Caitlin Burrows - Goldman Sachs - Analyst : Hi, good morning, everyone. Maybe starting with leasing. I feel like normal occupancy seasonality is understood, but can you give any color on the seasonality of leasing? And with that in mind, could you differentiate how March leasing went and then how April leasing has gone and any potential pullback or expectations for the May ICSC?

Question: Caitlin Burrows - Goldman Sachs - Analyst : Got it, okay. Good to hear. And then maybe switching over to the guidance side. So it does seem like FFO guidance for the year implies that the 2Q to 4Q average will be roughly the same as 1Q even if you take the lease termination fee out. So I was wondering, John, if you could give some more detail on what's creating that headwind and what could get you to the higher versus lower end of the FFO range. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PECO.OQ - Q1 2025 Phillips Edison & Co Inc Earnings Call

Question: Haendel St. Juste - Mizuho - Analyst : Hey there. I guess good morning. But I had a couple of questions. Maybe first for you, John, on the variable rate exposure. You're at 14% today, I think you're going up to around 25%, 26% later this year with the expiration of the swap. It sounds like you said you're comfortable kind of with the level of today. So I'm wanting to get a bit more clarity on your strategy or thinking here and maybe some thoughts on your plans to address some of the upcoming swap expirations.

Question: Haendel St. Juste - Mizuho - Analyst : Great. Appreciate the color there. One more for me on transactions. Obviously, there's lots of chatter, deals taking a little bit longer, potentially counterparties moving away from the table. So I guess I'm curious more broadly on kind of what you're seeing. Are you sensing any deals taking longer? Are you seeing any changes in cap rates? And then maybe some color on what you're expecting for the balance of the year between on-balance and JV acquisitions?

Question: Samir Kanal - Bank of America - Analyst : Good afternoon, everybody. Hey, Jeff. I guess it's nice to see that leasing still remains strong here. Doesn't look like there's a bit of a pullback. But as we just take a step back and look at kind of your approach to dealing with the shop tenants at this point, right, as renewals come up, has there been a sort of a shift in strategy at all? I mean, you look at kind of your exposure to some of the soft goods, right? You're roughly 10%. So clearly, their margins are going to get impacted, right, with tariffs and costs. So how are you sort of approaching those conversations? Even though you might not be seeing anything today, but as you think about those conversations, I mean, how are you approaching those? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PECO.OQ - Q1 2025 Phillips Edison & Co Inc Earnings Call

Question: Samir Kanal - Bank of America - Analyst : Got it. So it doesn't sound like, at least from your conversations you're having with, whether it was your retailers or kind of retailers broadly speaking, no retailer at this point has sort of pulled back? They're open to buy plans at this point, right? That's what it sounds like.

Question: Samir Kanal - Bank of America - Analyst : Yes, no, it does. Thanks so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PECO.OQ - Q1 2025 Phillips Edison & Co Inc Earnings Call

Question: Dori Kesten - Wells Fargo - Analyst : Thanks. Good morning. We know that the portfolio is pretty defensive-leaning, but have you seen any sort of slowing in the receipt of rent payments, whether it's for certain retailers or certain categories or just in certain markets in the last month? I know it's a relatively short time frame.

Question: Dori Kesten - Wells Fargo - Analyst : Okay. Thanks, John.

Question: Omotayo Okusanya - Deutsche Bank - Analyst : Hi. Yes. Good afternoon, everyone. First one is to start off with acquisitions in the quarter. Again, deals done kind of in the low 6s, the implied cap rate on your stock is about mid-6. So particularly, I know again, the investment spread -- initial investment spreads have been getting tighter, but I don't think I've come across the quarter where it's been negative. So just curious kind of what's happening along those lines, whether there was something unique with these transactions, whether just where market prices are and cap rates keep compressing despite everything that's going on around us.

Question: Omotayo Okusanya - Deutsche Bank - Analyst : Got you. That's super helpful. If I could ask one of John. Just again, with where the stock is at this point and you kind of think about capital allocation decisions, I mean, does stock buyback start to sound a little bit more attractive or not?

Question: Omotayo Okusanya - Deutsche Bank - Analyst : Appreciate it. Thank you, guys.

Question: Todd Thomas - KeyBanc Capital Markets - Analyst : Hi, thank you. I just wanted to go back first to the sequential decline in occupancy. It was described as in line with expectations and I understand the seasonality that you discussed. But just curious where you are in terms of some of the bankruptcy-related activity. I know PECO had relatively REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PECO.OQ - Q1 2025 Phillips Edison & Co Inc Earnings Call less exposure versus some of your peers. Just wondering if you could provide an update there and also discuss occupancy trends into the second quarter and the balance of the year.

Question: Todd Thomas - KeyBanc Capital Markets - Analyst : Okay. But so do you expect occupancy to stabilize and start to improve throughout the balance of the year as you backfill some of that space or is there a little bit more.

Question: Todd Thomas - KeyBanc Capital Markets - Analyst : Okay. And then John, I heard you discuss the lease term fee in the quarter. Sorry if I missed some of the detail but was that primarily one tenant or one lease? And is there any additional detail that you can provide around that tenant and the center and maybe the decision by that tenant to terminate the lease, what happened there exactly? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PECO.OQ - Q1 2025 Phillips Edison & Co Inc Earnings Call

Question: Todd Thomas - KeyBanc Capital Markets - Analyst : Okay. Do you see potential in this environment that more tenants, more national tenants that aren't in bankruptcy, that aren't necessarily on your watch list are being a little bit more thoughtful or careful around their store fleets and portfolios and that there could be some additional activity along these lines?

Question: Floris van Dijkum - Compass Point - Analyst : Hey, good afternoon, guys. You have in your -- you prepared this little deck that talked about how PECO performed during the last more normalized recession with the great financial crisis. And you saw a 250 basis points drop in occupancy. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PECO.OQ - Q1 2025 Phillips Edison & Co Inc Earnings Call Even though your occupancy back then was a lot lower, and I suspect the assets you own today or the average quality of your portfolio is higher as well, and plus the fact that there was a lot of development going on in 2009, 2010 that's not occurring today. How do you think -- is that a worst-case scenario in your view? I guess my question is, I'm trying to figure out what the worst-case scenario is if a recession were to hit. Is that sort of the scenario you're trying to point to?

Question: Floris van Dijkum - Compass Point - Analyst : Yes. Sorry, your answer is a lot more well spoken than my question was. My second question is, there is uncertainty in the markets and as rates are volatile. What do you think this does to your IRR expectations? Are you going to raise them, you think? Or you think you're going to stay around the 9%, 9.5% range going forward?

Question: Floris van Dijkum - Compass Point - Analyst : Yes. And that's another way of saying that you think cap rates could go up but your IRR is going to stay similar?

Question: Floris van Dijkum - Compass Point - Analyst : Thanks, Jeff.

Question: Mike Mueller - JPMorgan - Analyst : Yeah. Hi, I guess sticking to some macro stuff here. If the economic environment does get worse so a recession scenario, I mean, what does your gut tell you are the categories in your portfolio where you could see the pullback in demand happen first?

Question: Mike Mueller - JPMorgan - Analyst : Got it.

Question: Mike Mueller - JPMorgan - Analyst : Yes. No, got it. But it does seem like one of the areas you flagged where if it does happen, it's probably more in the dining? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PECO.OQ - Q1 2025 Phillips Edison & Co Inc Earnings Call

Question: Daniel Purpura - Green Street - Analyst : Good morning, Publix has been pretty active recently buying centers, and it also looks like you have two redevelopments with Publix in your portfolio. Is this just something that's Publix-specific or do you expect to see other grocers more active in the market or pushing to rebuild their stores?