Phillips Edison & Co Inc Q2 2025 Earnings Call Transcript

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

Question: Caitlin Burrows - Goldman Sachs Group Inc - Analyst : Hi, good afternoon, everyone. I guess we hear the transaction market is competitive. But Jeff, like you went through, you did have a strong first half. So what do you think has allowed PECO to win these transactions? And it looks like shadow-anchored centers have been a focus this year? What is driving that?

Question: Caitlin Burrows - Goldman Sachs Group Inc - Analyst : Got it. And then also in the prepared remarks you guys mentioned how the kind of turnover of some tenants that you focused on 2024. And 2024 was still a headwind to growth in 2025. I guess as you guys think about tenant retention going forward and the decisions you made in 2024, when do you think those headwinds will be done? And to what extent will be something that's kind of ongoing that tenant replacement versus kind of done for the moment?

Question: Caitlin Burrows - Goldman Sachs Group Inc - Analyst : Thank you.

Question: Samir Khanal - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Thank you. Good afternoon, everyone. I guess, Jeff or John, can you talk about the deceleration in same-store NOI growth that you're expecting in the second half based on the guidance, sort of the puts and takes to get to the sort of the 2.7% on average after having close to 4% in the first half. Thanks.

Question: Samir Khanal - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Got it. Okay. No, that's helpful. And then on the -- just a follow-up to Caitlin's question on acquisitions. You've been doing a lot more of the shadow anchored properties over the last two quarters. I know the market is competitive for the core product right now. So just talk about kind of what you're seeing for core versus maybe shadow and unanchored. And I'm wondering if pricing is sort of getting out of hand? Or just kind of are you getting priced out of some of the core product here.

Question: Samir Khanal - Bofa Merrill Lynch Asset Holdings Inc - Analyst : No, I appreciate that. Thanks, yeah.

Question: Haendel St. Juste - Mizuho Securities USA LLC - Analyst : I was hoping you could add a bit more color on the transaction market broadly, the opportunities you're looking at, maybe there's anything under LOI at the moment, but looking at, kind of $280 million of acquisitions completed year-to-date, I guess I'm really curious, what's holding you back from, moving the guide up a bit here. It seems like you're pretty far along, and seems like the remaining delta is pretty achievable here.

Question: Haendel St. Juste - Mizuho Securities USA LLC - Analyst : Got appreciate that. And then one just on variable rate debt, pretty low today, 5%. I think there's some swaps expiring later this year, John. I know it's one of your favorite topics, but I'm curious on the outlook or the plan there and what you feel is a comfortable level of variable rate debt. Thanks.

Question: Haendel St. Juste - Mizuho Securities USA LLC - Analyst : Got it. I appreciate the color. And thanks.

Question: Ronald Kamdem - Morgan Stanley & Co Ltd - Analyst : Just two quick ones. So just one on the -- just remind us on the occupancy side. I'm looking at the anchor at 90% -- almost 99% in line, almost 95%. Just how do you guys think about sort of the structural ceiling there and the sort of the things that you're doing to maybe maximize either rent spreads or rent escalators? Just the interplay between what your peak occupancy you think it is and where you can get more pricing power?

Question: Ronald Kamdem - Morgan Stanley & Co Ltd - Analyst : Super helpful. Look, my second question is on tariffs, right? I mean you guys have put out some data on your -- what you think your tariff risk is. Clearly, you reiterated sort of the credit loss and raise the same store. So nothing in your portfolio. But I guess, as you're sort of taking a step back and talking to tenants, I'm curious about sort of the categories that are most impacted, and where do you think -- like what's happening on the ground? Who's eating that incremental cost on tariff that we know people are paying? Is it the tenants? Is it the consumer? I'm just curious how that's playing out on your grounds and what you're hearing from your tenants.

Question: Ronald Kamdem - Morgan Stanley & Co Ltd - Analyst : Helpful, thanks so much.

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Hi, thanks. Just first question, I wanted to follow up on Samir's question around the same-store growth and growth outlook. Bob, you talked about some of the that you've completed on recent acquisitions and certainly some upside on some of those more recent deals. Just curious, the methodology for your quarterly pool, is that different than the full year pool the way that you calculate that?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Okay. Before '25 or 2024?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Right. Okay. That's helpful. And then, John, just sticking with you. So you talked about some of the funding sources for acquisitions going forward? Obviously, you have a lot of options, equity debt. You've talked about retained earnings and free cash flow. Does the stock price where it is today and the company's cost of equity, does that limit the amount of acquisition volume that you can achieve? And how did this positions factor into the equation today?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Okay. What's the pricing? I realize you're underwriting to a 9% levered IRR target on new deals, but what's the -- how should we think about the cap rate spread between what you're buying and what you might look to sell?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Okay. Helpful. Thank you.

Question: Michael Mueller - JPMorgan Chase & Co - Analyst : Yeah, hi. I guess is there a max percentage of the portfolio that you'd want to have in shadow anchored or unanchored centers?

Question: Michael Mueller - JPMorgan Chase & Co - Analyst : And maybe just one quick follow-up to that. If you're looking at, as you mentioned, the -- just part of the center, it's interchangeable. So if you're looking at a traditional shopping center that you would own that's grocery anchored where you own the grocer, what do you think is a cap rate differential for that center that comes with a grocer versus one that's shadow-anchored? How different is it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 25, 2025 / 4:00PM, PECO.OQ - Q2 2025 Phillips Edison & Co Inc Earnings Call

Question: Paulina Rojas Rojas - Green Street - Analyst : Good morning. Some metrics suggest the consumer that is very pessimistic and a lot of caution, while others point to a more constructive outlook. From your perspective, how are consumers that shop in our center is behaving today? Are you seeing any trend in terms of them trading down, changes in business frequency or other shifts that are worth highlighting?

Question: Paulina Rojas Rojas - Green Street - Analyst : And then a second question, we saw that Kroger simply announced the use of store closures. So first question is, are you aware of any locations within your portfolio that may be impacted? And then on parties. We're also seeing a number of grocers pursuing expansion strategy. So I mean trade, which grocers are you seeing most actively expanding in your markets?

Question: Paulina Rojas Rojas - Green Street - Analyst : Yes, exactly right.

Question: Paulina Rojas Rojas - Green Street - Analyst : Thank you so much.

Question: Juan Sanabria - Bank of Montreal - Analyst : Hi, thanks for your time. Just wanted to follow up on the prior line of questioning around same-store NOI. The guidance implies like was mentioned

Question: Juan Sanabria - Bank of Montreal - Analyst : And then just on the dispositions that you mentioned. So what's the kind of the numbers, dollar values we're talking about for dispositions that are assumed in guidance, just to think of as an offset versus the gross acquisition guidance?

Question: Juan Sanabria - Bank of Montreal - Analyst : All right. Great. Thank you.

Question: Ken Billingsley - Compass Point Research and Trading LLC - Analyst : I have a question that's a little more granular, it's about option leases. For the second quarter, it was 7.1%. And looking on it on an annual basis, it was 4.8%. Anything that's unique about the second quarter? I know last year, it was a little bit higher than the rest of the quarters. Anything unique about the second quarter that drives that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 25, 2025 / 4:00PM, PECO.OQ - Q2 2025 Phillips Edison & Co Inc Earnings Call

Question: Ken Billingsley - Compass Point Research and Trading LLC - Analyst : The rent spread. Page 40 of the supplement. Option leases rent spread was 7.1%, totals 4.8. I'm just curious, is there anything unique about why the second quarter tends to roll that way? It's higher than last year, but seems to be elevated in prior years as well.

Question: Ken Billingsley - Compass Point Research and Trading LLC - Analyst : Mix. Okay. And the other question I have, and this is getting back to a question about your cap rate spread between what you're buying and selling. On the -- what was the spread on the acquisition -- the cap rate on the acquisitions for the quarter and maybe for year-to-date?

Question: Ken Billingsley - Compass Point Research and Trading LLC - Analyst : What you're acquiring? I know you get a range of 7% to 7.5% is what you're targeting. But -- what is it -- what do you have like specific? And if you said it earlier, I may have missed it.

Question: Ken Billingsley - Compass Point Research and Trading LLC - Analyst : Great, I appreciate it. Thank you for taking my questions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 25, 2025 / 4:00PM, PECO.OQ - Q2 2025 Phillips Edison & Co Inc Earnings Call