Phillips Edison & Co Inc Q4 2024 Earnings Call Transcript

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

Question: Jeffrey Spector - BofA Securities - Analyst : First question, I wanted to ask, Jeff, I guess, how you feel today versus one year ago, let's say, in terms of whether it's tenant demand for space and then the external opportunities, I think John said a $150 million pipeline. I'm not sure where that -- how that compares to let's say, one year ago? If you could discuss that.

Question: Jeffrey Spector - BofA Securities - Analyst : And then my follow-up question, I guess, just looking -- thinking about the high occupancy level, how are you balancing that with your retention? Is there any shifts or thoughts on reducing that retention? Or you're happy to keep that retention, of course, if the -- it's a quality tenant they're delivering. But how are you balancing that as you head into '25.

Question: Haendel St. Juste - Mizuho Securities USA LLC - Analyst : So I wanted to talk a bit more about your plans to ramp acquisitions over the near term. I think you mentioned $350 million to $400 million. I guess I'm curious how much of a role that dispositions or perhaps some of your more mature, maybe slower growth, lower IR assets could play as a source of funding here. I'm sure the IR is on some of what you're looking to buy probably exceeds some of the returns on these gross assets. So how do you balance the merits of that capital recycling strategy to improve the long-term growth profile of portfolio versus, say, perhaps sourcing it with new equity or disposed?

Question: Haendel St. Juste - Mizuho Securities USA LLC - Analyst : I certainly appreciate the color there. As a follow-up, maybe hoping you guys could add some more color on the reserve here, 75 to 100 basis points seems a little conservative from maybe in relation to the known tenant credit concern on your watch list. So I guess I'm curious on that as well as REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 5:00PM, PECO.OQ - Q4 2024 Phillips Edison & Co Inc Earnings Call what the credit loss was in 2024 and perhaps what you might be hearing on the ground from some of your more local tenants or neighbors on the potential act of tariffs and higher labor costs.

Question: Caitlin Burrows - Goldman Sachs Group, Inc. - Analyst : Jeff, or somebody else. I don't know if you want to finish up on that last topic.

Question: Caitlin Burrows - Goldman Sachs Group, Inc. - Analyst : I will say thank you on behalf of -- I think it was Haendel, but whoever just went. But this is Caitlin then. Maybe just looking at the signed but not occupied spread, it was 100 basis points at the end of the year, which is high for PECO. So wondering if you could just give a little discussion on that, what we should take away from it, what is driving it? And I mean, I feel like it would suggest higher occupancy, but you mentioned that economic occupancy could actually be a headwind this year. So how those items fit together?

Question: Caitlin Burrows - Goldman Sachs Group, Inc. - Analyst : Got it. Makes sense. And then maybe back to acquisitions. You mentioned before how you're a disciplined buyer. Maybe on the volume front, I'm wondering like how big is your universe of potential acquisitions? And if you look at the volume from '22 to from '23 to '24 to '25, it's gone up each year. So wondering if you think you could long term like continue at this level? Or how sustainable is it? Or do you think in not looking for like 2028 guidance. But yes, how sustainable is this pace or like an increased pace over time?

Question: Dori Kesten - Wells Fargo Securities - Analyst : I believe you said you provided some seller financing on a recent disposition. I might have missed this, but should we be thinking of that as a one-off or potentially part of a larger program?

Question: Ronald Kamdem - Morgan Stanley - Analyst : Just two quick ones. Just starting on the sort of the acquisition, obviously, some activity on the consolidated as well as some of the JVs. Maybe if you could just provide a little bit more color on some of those -- the joint venture partnerships, how that's been going? And is that and do you see yourself sort of doing more of that in the future?

Question: Ronald Kamdem - Morgan Stanley - Analyst : Great. And then my second one is just digging into something that was brought up before on the call, which is the portfolio is full and you're trying to find opportunities for sort of more pricing power or to plus the organic growth. I just have an update on what the focus is going to be sort of this year. Is it on the rent bumps? Is it all the options? Is it on maybe tolerating a little bit more, a little bit lower retention etat push rents, just is there sort of thematically some things we should be thinking about at this full portfolio, how you're going to be pushing rents?

Question: Omotayo Okusanya - Deutsche Bank AG - Analyst : Okay. Sorry about that. Most of my questions have been answered, but I just had a question about the pavilion transaction. If you could talk a little bit about why they need to provide seller financing. You guys haven't really done that much in the past and also what we on those note receivable.

Question: Omotayo Okusanya - Deutsche Bank AG - Analyst : -- How soon do you get paid back? May I ask that on the note?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : All right. I wanted to go back and ask about the joint venture with Northwestern Mutual, Specifically, you have an existing relationship there. Is this expected to be a new growth vehicle? And are there any differentiating factors in the investments being sourced now between this venture, the deals that you're looking at Cohen & Steers and also what you're looking at on balance sheet?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Will all deals going forward with Northwestern Mutual in this fund be at similar economics or 31% stake for PECO's interest? Or is every deal sort of negotiated separately?

Question: Todd Thomas - KeyBanc Capital Markets Inc - Analyst : Okay. Got it. And then I just wanted to go back to the discussion on tenant retention and some of the proactive remerchandising initiatives that you discussed in 2024. I guess, what's the drag that activity creates or is created on 2025 growth. And are you targeting more of that in '25? And then John, I'm just curious, again, retention has been very elevated 88%. I think it was closer to 90% full year. What's embedded in the model and guidance with regard to tenant retention

Question: Floris Gerbrand van Dijkum - Compass Point Research & Trading - Analyst : Just a follow-up here on the acquisition guidance. The $400 million at midpoint did you say that 10% of that was -- or $100 million is your share in the JVs? Or is what -- how much of that capital is going to be as part of JV acquisitions versus on-balance sheet acquisitions.

Question: Floris Gerbrand van Dijkum - Compass Point Research & Trading - Analyst : Got it. Okay. And then is there a difference in return expectations? And maybe walk us through how do you allocate deals that you see between being on balance sheet or going to the Cohen & Steers or the Northwest or your other JV how do you manage that conflict or potential conflict?

Question: Michael Mueller - JPMorgan Chase & Co - Analyst : Just a quick one. Can you remind us where the average portfolio blended escalators increase to today? And where you think that could go over, say, the next three to five years?

Question: Juan Sanabria - BMO Capital Markets - Analyst : All right. Just trying to square a couple of things to an earlier comment or question you had a similar retention plan in '25 versus '24 versus '23. So I just wanted to make sure that is there going to be a drag from retention on same-store NOI growth to see? And as a part of that, how should we think about the snow, it's a bit elevated 100 basis points to end the year in '24 evolving over the course. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 5:00PM, PECO.OQ - Q4 2024 Phillips Edison & Co Inc Earnings Call

Question: Paulina Rojas - Green Street Advisors - Analyst : The capital acquisitions increased in 4Q from six safe, I think, over the first nine-months to close to 7.5% in 4Q, if I'm doing the math right. Can you elaborate on the drivers behind that change, including both market trends that you're seeing and perhaps the asset mix asset mix that you acquired? And also related to that, if you could provide a cap rate for the property you sold subsequent to quarter end -- [Pavilion San Matteo] ?

Question: Paulina Rojas - Green Street Advisors - Analyst : Yes. The second part is, I believe you sold something subsequent to quarter end, [Pavilion San Matteo]? and I was asking for the cap rate for that one. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 07, 2025 / 5:00PM, PECO.OQ - Q4 2024 Phillips Edison & Co Inc Earnings Call

Question: Caitlin Burrows - Goldman Sachs Group, Inc. - Analyst : I know we're past the hour, but I was wondering if you could talk a little bit about the leasing pipeline and interest level. I feel like the topic hasn't really come up, so maybe that's because everyone just assumes it's strong. But like when you're not renewing a tenant today, how deep is the interested pool of new retailers? And how does that compare to a year ago? And anything else we should know?

Question: Caitlin Burrows - Goldman Sachs Group, Inc. - Analyst : Great. And then just you quickly -- you mentioned some that visibility to leasing spreads is good. It sounds like '24 spreads were boosted by anchor boxes, which isn't so regular for you. So do you guys think it would be fair to think that '24 -- sorry, 2025 spreads will still be strong, but possibly below last year's reported levels?