Phillips Edison & Co Inc Q3 2024 Earnings Call Transcript

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

Question: Jeffrey Spector - BofA Securities - Analyst : I guess if I could focus my question, follow-up on the transaction market. First, I guess, can you talk about the acquisitions that you made during the quarter, the strategy I see, the occupancy is lower than your occupancy.

Question: Jeffrey Spector - BofA Securities - Analyst : Great, very helpful. And actually, Jeff answered my -- I was going to have a follow-up on the transactions. Maybe if I could then turn my follow-up to the restaurant category. I know there's a lot of subcategories within restaurants. You talked about a number of restaurant retailers joining the portfolio. I guess, it seems like there's some mixed things on restaurants in different parts of the country. Any views you could share on restaurants and how you're thinking about the various categories?

Question: Caitlin Burrows - Goldman Sachs Group, Inc. - Analyst : Maybe we'll just start on the bad debt side. I know that, that metric for PECO is very low versus other REITs. John, you mentioned that it could come in at the high end, which is what you've been saying all year so it's not something new. I know in the first quarter, it came up a lot and you pointed out then and now how PECO is being deliberate with tenants that are behind on rents. So I was wondering if you could give some more detail on what this means for PECO and how it plays out. Like for example, those tenants that impacted the 1Q bad debt, have they ended up leaving the portfolio and the replacements were already part of the 55% new lease spreads? Or just how have that process played out or how will it play out?

Question: Caitlin Burrows - Goldman Sachs Group, Inc. - Analyst : And in terms of that benefit, it's just that then you can get back the space and complete new leases, yes? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 4:00PM, PECO.OQ - Q3 2024 Phillips Edison & Co Inc Earnings Call

Question: Caitlin Burrows - Goldman Sachs Group, Inc. - Analyst : Got it. Makes sense. And then just a quick one on the full year same-store guide, it implies a big pickup. I know you had previously talked about recoveries, timing could drive that. But just wondering, is that it? Is there anything else? And kind of how much visibility do you have on that to reaffirm the same-store midpoint?

Question: Ravi Vaidya - Mizuho Securities USA - Analyst : This is Ravi Vaidya on the line for Haendel. Hope you guys are going well. Can you offer some additional color on the 2025, guide? The savings with interest expense and G&A appear to provide about a $0.04 lift and the same-store midpoint was maintained. So what are the offsets that resulted in only a $0.01 increase? Is it higher bad debt expense or watch list? Or just what are some of the moving parts there?

Question: Ravi Vaidya - Mizuho Securities USA - Analyst : Got it. That's helpful. And yes, I was talking about '24 guide. I'll be sure to join in for the seminar later. Just one more here. Can you discuss how you're planning on funding acquisitions? I believe that you said that above $250 million in acquisition, you would likely need to raise additional equity. Are you planning on doing so or are you comfortable with letting leverage tick up a bit from the 5.1 times currently?

Question: Dori Kesten - Wells Fargo Securities - Analyst : Since you announced the JV with Cohen & Steers, have you seen an increase in, I guess, the number or maybe a variety of deals that is, I guess, being put before you?

Question: Dori Kesten - Wells Fargo Securities - Analyst : Yes, that makes sense. If you had to choose high end or low end of your net acquisitions guide for where you're most likely to end the year at this point, which side would you lean into?

Question: Omotayo Okusanya - Deutsche Bank AG - Analyst : Could you please talk a little bit about your in-line occupancy? It looks like it went down a little bit this quarter. I don't know whether that's kind of just from some of the planned take-back of space that you guys have been doing, or could you just kind of talk about that a little bit?

Question: Omotayo Okusanya - Deutsche Bank AG - Analyst :

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Jeff, it sounds like the acquisition pipeline is pretty active. Do you think 2025, could be a more active year than '24, just given what you're seeing and where your current cost of capital is? And then are some of the acquisitions you're eyeing in the pipeline in the new fund or do you see the majority of the activity right now on balance sheet?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Yeah, I was just wondering with what you're seeing in the pipeline today, is some of that sort of earmarked for the new fund with Cohen & Steers? Or is the majority of that or a good amount of that on balance sheet at this point?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Okay. And then my other question, I wanted to follow up on Caitlin's question and the new lease spreads, the activity in this quarter. How much of the new lease spreads, 55%, big number for the company, how much of that included some of that recapturing activity that you mentioned earlier in the year when you talked about taking back some space and sort of cleaning out some potential bad debt or credits? And any visibility on whether we might expect new lease spreads to maintain at an elevated level in the fourth quarter and into 2025?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Okay. But it sounds like the anchor deals really moved the needle this quarter. It wasn't so much about some of the recapturings that took place a little bit earlier in the year. Is that right?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : All right. That's helpful.

Question: Floris Gerbrand van Dijkum - Compass Point Research & Trading - Analyst : So I want to delve into the acquisition market a little bit more. If I look at you, you're trading at a premium to consensus NAV, a premium to our NAV, like a 6.5% implied CAP rate. Maybe if you could talk about, what are the CAP rates that you would consider for acquisitions? Talk about the CAP rates a little bit on the deals that just closed, and are CAP rates seeing upward pressure or downward pressure? Or are they relatively stable in your view? And then I guess the other question is maybe also again on the acquisitions front. Maybe if you could comment on larger portfolio transactions. I know there is a big Publix portfolio that was in the market, probably still in the market today. If you can talk a little bit about, obviously, you're looking at everything, talk about your appetite for doing potential larger transactions as well portfolio transactions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 4:00PM, PECO.OQ - Q3 2024 Phillips Edison & Co Inc Earnings Call

Question: Juan Sanabria - BMO Capital Markets Equity Research - Analyst : Just hoping to follow up on the balance sheet on the questioning from earlier. I think, John, you said that the fixed floating ratio would stay relatively stable into year-end, but yet you have acquisitions assumed in the fourth quarter. So just curious on kind of what we should be assuming for funding for those incremental deals.

Question: Juan Sanabria - BMO Capital Markets Equity Research - Analyst : Okay. Have you issued equity post quarter end?

Question: Juan Sanabria - BMO Capital Markets Equity Research - Analyst : Okay. And then just curious if you could make any comments on the kind of the mid- to high-teens earnings growth as we think about '25. Any puts and takes that we should be aware of? Like does the -- being more aggressive on remerchandising or re-tenanting tenants, does that impact that prospective growth or that's kind of par for the course, so to speak?

Question: Michael Mueller - JPMorgan - Analyst : I know you have the '25 event coming up, but John, can you share any early thoughts you have on the swaps expiring next year and how you're thinking about the term loans coming due in '26?

Question: Ronald Kamdem - Morgan Stanley - Analyst : Just two quick ones because a lot has been asked. Just going back to sort of the same-store NOI. I remember back in December, you talked about pricing power and being able to put sort of rent escalators or more favorable lease contracts. Just as we sit here today, just any sort of causative commentary on the rent escalators and any other favorable lease contracts that you guys have been able to get that we may not see just in the re-leasing spreads?

Question: Ronald Kamdem - Morgan Stanley - Analyst : Great. And if I could just follow up on the acquisitions. I think I heard you say that CAP rates maybe was a little bit tighter. You're still going to hit the IRR. So just curious, are you seeing more CAP rate compression? And should we sort of expect that as we roll in the calendar?

Question: Paulina Rojas Schmidt - Green Street Advisors - Analyst : We talk about supply, new supply not penciling in general. And I find interesting, we see doing these pad developments and acquiring more pad developments, and I think all of them are adjacent to your centers. So related to that, two questions is, one, are you seeing more of these type of small-scale developments in your markets as a means to capitalize on the strong retailer demand? And two, can you share a little more color on them in terms of the rents you achieve in these projects and why you think they make economic sense but larger centers don't?

Question: Paulina Rojas Schmidt - Green Street Advisors - Analyst : Yeah. It does. And I have a second one if I can. That is, so from a broader perspective, employment is still low, and retail sales have shown resilience overall. However, one concerning trend has been the rise in credit card delinquencies. And so delinquencies have increased materially to levels that I think we have not seen since, I don't know, 2010, more or less. So what do you think about this trend? And do you think there are any direct implications for your business?