Phillips Edison & Company, Inc. (PECO) Q4 2025 Earnings Call Transcript
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Overview
The company has a positive outlook with increased guidance for 2025, stable bad debt levels, and strategic asset dispositions. They focus on high-return acquisitions, disciplined growth in everyday retail, and proactive leasing strategies. Despite some unclear responses, the company's strong financial metrics, optimistic guidance, and strategic plans suggest a positive sentiment. The market cap indicates moderate volatility, likely resulting in a positive stock price movement (2% to 8%) over the next two weeks.
Key Financial Performance
NAREIT FFO per share $0.64 per diluted share in Q4 2025, reflecting a 7.2% year-over-year growth. This growth is attributed to the strong performance of the grocery-anchored and necessity-based portfolio.
Core FFO per share $0.66 per diluted share in Q4 2025, reflecting a 7% year-over-year growth. The increase is driven by strong leasing activity and high occupancy rates.
Same-center NOI growth 3.8% year-over-year growth in 2025. This growth is due to strong rent escalations, high retention rates, and robust leasing spreads.
Portfolio occupancy 97.3% at year-end 2025, with anchor occupancy at 98.7% and in-line leased occupancy at a record high of 95.1%. The high occupancy rates are driven by strong demand for necessity-based retail and grocery-anchored centers.
Comparable renewal rent spreads 20% in Q4 2025. This reflects the strong pricing power and demand for PECO's high-quality portfolio.
Comparable new leasing rent spreads 34.3% in Q4 2025. This is attributed to the positive retail environment and strong demand for PECO's centers.
Development and redevelopment projects 20 projects under active construction with a total investment of approximately $70 million, yielding between 9% and 12%. Additionally, 23 projects were stabilized in 2025, delivering incremental NOI of approximately $6.8 million annually.
Bad debt Approximately 78 basis points of revenue in 2025, expected to remain consistent in 2026. This is due to the diversified neighbor mix and strong retailer demand.
Liquidity Approximately $925 million as of December 31, 2025, supporting acquisition plans and growth initiatives.
Net debt to adjusted EBITDA 5.2x at year-end 2025, reflecting a stable financial position.
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Operating Highlights
Development and Redevelopment Projects: PECO has 20 projects under active construction with a total investment of approximately $70 million, yielding between 9% and 12%. In 2025, 23 projects were stabilized, delivering over 400,000 square feet of space and generating incremental NOI of approximately $6.8 million annually.
Acquisitions: PECO acquired approximately $400 million in acquisitions at PECO share in 2025 and targets $400 million to $500 million in 2026. The acquisitions focus on grocery-anchored opportunities and Everyday Retail centers, with an unlevered IRR target of 9% for grocery-anchored acquisitions and above 10% for Everyday Retail centers.
Leasing Activity: PECO executed 1,026 leases totaling approximately 6 million square feet in 2025. Portfolio occupancy ended the year at 97.3%, with anchor occupancy at 98.7% and in-line leased occupancy at a record high of 95.1%. Comparable renewal rent spreads were 20%, and new leasing rent spreads were 34.3% in Q4 2025.
Financial Performance: NAREIT FFO per share grew by 7.2%, core FFO per share grew by 7%, and same-center NOI grew by 3.8% in 2025. PECO provided 2026 guidance with mid-single-digit growth rates for NAREIT FFO and core FFO per share.
Portfolio Retention: Retention rate remained high at 93% at year-end 2025, reducing downtime and tenant improvement costs.
Capital Management: PECO has $925 million in liquidity to support acquisition plans and targets $100 million to $200 million in asset sales for 2026. Proceeds from dispositions are reinvested into higher IRR assets to improve long-term growth.
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Risk or Challenges
Market Conditions: Concerns about the health of the consumer and the impact of tariffs on retailers could pose risks to the company's operations and financial performance.
Debt Management: The company has floating rate debt that it plans to address through financing activity in 2026, which could expose it to interest rate risks depending on market conditions.
Acquisition Strategy: The company’s ability to achieve its acquisition targets depends on market conditions and its capacity to find suitable grocery-anchored opportunities, which may not always align with its cost of capital or IRR targets.
Bad Debt: Bad debt levels are expected to remain consistent with 2025 levels, but any deterioration in tenant health could increase bad debt and impact revenue.
Development and Redevelopment Projects: The company has 20 active projects with significant capital investment. Delays or cost overruns in these projects could impact financial performance.
Asset Dispositions: The company plans to sell $100 million to $200 million in assets in 2026. Failure to achieve favorable sale terms or reinvest proceeds effectively could impact growth.
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Guidance & Outlook
2026 Guidance for NAREIT FFO and Core FFO per Share: Projected mid-single-digit growth rates for NAREIT FFO and core FFO per share in 2026.
Gross Acquisitions Guidance for 2026: Targeting $400 million to $500 million in gross acquisitions at PECO share, focusing on grocery-anchored opportunities and Everyday Retail centers.
Unlevered IRR Targets for Acquisitions: Targeting an unlevered IRR of 9% for grocery-anchored acquisitions and above 10% for Everyday Retail centers.
2026 Same-Center NOI Growth: Projected to be in the range of 3% to 4%.
Bad Debt Guidance for 2026: Expected to remain in line with 2025 levels, approximately 78 basis points of revenue.
Development and Redevelopment Projects: 20 active projects with a total investment of approximately $70 million, targeting yields between 9% and 12%.
2026 Net Income Guidance: Projected in the range of $0.74 to $0.77 per share.
Long-Term Growth Projections: Expected 3% to 4% same-center NOI growth and mid- to high single-digit core FFO per share growth on a long-term basis.
Asset Dispositions in 2026: Plan to sell between $100 million and $200 million in assets, reinvesting proceeds into higher long-term IRR assets.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the company's strategy for acquisitions in the grocery-anchored assets market?
A:The company is seeing increased competition but also a lot of product on the market, which they believe will balance out and create enough opportunities. They are confident in reaching their acquisition targets, focusing on grocery-anchored shopping centers and complementing it with everyday retail at a small percentage. They aim for unlevered return targets of 9% to 10%.
Q:What is the update on the Ocala development parcel?
A:The Ocala market is growing rapidly with 10,000 new homes being built within a 5-mile radius. The company acquired land for a grocer expected to spin off midyear and is marketing 7 outparcels for ground lease opportunities. They are targeting unlevered returns above 9.5% to 10% on the project. There are no other large-scale grocery development projects expected to close this year.
Q:What is the company's view on occupancy levels in their portfolio?
A:The company believes their higher occupancy levels are due to retailers' preference for grocery-anchored locations. Current occupancy is 97.3%, with anchor occupancy at 98.7% and in-line leased occupancy at 95.1%. They see potential for 100 to 150 basis points of additional in-line occupancy growth. Retention is strong at 93%, with renewal spreads over 20% and a 3% CAGR.
Q:How does the company view the everyday retail portion of their acquisition pipeline?
A:The company sees everyday retail as a complementary strategy, aiming to grow it to $1 billion in assets over the next three years. They believe it offers opportunities for outsized growth by leveraging their expertise to bring tenants to locations they cannot access otherwise. They remain disciplined in their approach to ensure high returns.
Q:What is the company's approach to capital deployment beyond acquisitions?
A:The company is considering ground-up development, redevelopment, and stock buybacks. They plan to invest $70 million in redevelopment and ground-up projects this year. They aim to balance acquisitions and redevelopment without issuing additional equity, and they are exploring dispositions to fund growth. They are cautious about stock buybacks, focusing on better returns through acquisitions and redevelopment.
Q:What is the company's exposure to Amazon Fresh and its impact on grocery demand?
A:The company has limited exposure to Amazon Fresh, which has struggled with brick-and-mortar retail. They believe traditional grocers with store footprints are better positioned for grocery delivery, as over 80% of grocery delivery is done from stores. They are monitoring Amazon's developments but see no significant impact on grocery demand.
Q:How does the cost of capital influence the company's acquisition pace?
A:A higher stock price would encourage more acquisition activity. The company has the capital to meet its current acquisition targets without issuing additional equity. They are also exploring dispositions and joint ventures to fund growth if needed.
Q:What is the company's outlook on bad debt?
A:Bad debt was consistent at 78 basis points in 2025, slightly elevated in Q4 but within expectations. The company sees no concerning trends and expects bad debt levels to remain stable in 2026, supported by strong leasing demand and tenant selection.
Q:What is the company's perspective on its credit rating and variable rate debt?
A:The company believes it is underrated compared to peers and is working to achieve a higher credit rating, which could lower debt costs. They aim to maintain 90% fixed-rate debt and are focused on managing their maturity calendar. They see stability in short-term rates and plan to add fixed-rate debt through acquisitions and refinancing.
Q:What is the company's strategy for dispositions?
A:The company sold $140 million in assets in 2025 and plans to sell $100 million to $150 million in 2026. They focus on recycling stabilized assets with lower unlevered returns (around 7%) and replacing them with higher-return opportunities (9% to 10.5%). They also consider derisking the portfolio through selective sales.
Q:Why isn't the everyday retail strategy larger given its higher IRRs?
A:The company aims to grow everyday retail to $1 billion over three years but remains disciplined to ensure high returns. They focus on properties where they can leverage their expertise to achieve outsized growth, which limits the pace of expansion.
Q:What is the company's approach to lease renewals and options?
A:The company is focused on reducing lease options and increasing rent escalations. They aim for 20% increases during option periods with 3% CAGRs. They incentivize their leasing team to negotiate favorable terms and are seeing strong renewal spreads and CAGRs.
Q:What is the company's outlook on joint ventures and acquisitions?
A:The company expects increased joint venture activity in 2026, supported by strong capital availability from existing partners. They are also in discussions with potential new JV partners. They remain disciplined in acquisitions, targeting unlevered IRRs of 9% for grocery-anchored assets and above 10% for everyday retail.
Q:What are the company's underwriting assumptions for acquisitions?
A:The company uses a consistent underwriting process refined over 30 years, targeting unlevered IRRs of 9% for grocery-anchored assets and above 10% for everyday retail. They do not compress cap rates in their projections and focus on NOI growth through remerchandising and leasing.
Q:How does the company plan to fund its acquisition and redevelopment activities?
A:The company generates over $120 million in free cash flow annually, with $70 million allocated to redevelopment. They plan to use proceeds from $100 million to $150 million in dispositions and may issue 1 to 2 bond offerings to fund acquisitions and refinancing.
Q:What is the company's approach to capital expenditures for everyday retail versus grocery-anchored centers?
A:Capital expenditures for everyday retail are currently similar to grocery-anchored centers, around 12% to 13% of AFFO. The company invests upfront in remerchandising and upgrading everyday retail centers to drive higher returns, aiming for long-term capital efficiency.
Q:What is the company's strategy for increasing shop occupancy?
A:The company is targeting 100 to 150 basis points of additional shop occupancy growth through proactive leasing strategies. They are incentivizing their leasing team to focus on high-value vacant spaces and investing in space improvements to attract tenants.
Q:What is the depth of the bidder pool for dispositions?
A:The bidder pool for dispositions is broad and includes family offices and institutional buyers. The company tailors its marketing strategy to find the right buyer for each property, ensuring competitive pricing.
Q:What is the company's approach to taking back space to push rents higher?
A:The company selectively takes back spaces where tenants do not meet market rent or renewal terms. They focus on remerchandising and maximizing portfolio value while maintaining strong occupancy levels.
Q:What are the company's acquisition and disposition targets for 2026?
A:The company targets $400 million to $500 million in acquisitions and $100 million to $150 million in dispositions for 2026. Disposition proceeds are factored into their guidance and will help fund acquisitions and redevelopment.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on certain topics, such as the exact scale of new grocery development projects expected to close this year, the precise impact of Amazon Fresh closures on grocery demand, and the specific underwriting assumptions for everyday retail acquisitions. Additionally, they used general language when discussing the depth of the bidder pool for dispositions and the potential scale of joint venture activity in 2026.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AFFO investment
CEO President
CFO Caulfield
Everyday Retail
Locally Smart
Myers CFO
NOI ability
NOI addition
PECO core
PECO lease
PECO opportunity
PECO pricing
PECO renewal
PECO retention
PECO share
PECO target
President Investor
Relations reminder
Retail center
Smart platform
ability plan
acquisition Everyday
acquisition PECO
acquisition combination
acquisition cost
activity core
activity increase
addition rate
afternoon Phillips
asset contract
attention market
center venture
core FFO
core grocery
development redevelopment
fundamental
grocery shopping
necessity retail
occupancy record
outlook PECO
quality portfolio
PECO Transcript
Phillips Edison & Company, Inc. (PECO) Q4 2025 Earnings Call Transcript
Positive2-6
The company has a positive outlook with increased guidance for 2025, stable bad debt levels, and strategic asset dispositions. They focus on high-return acquisitions, disciplined growth in everyday retail, and proactive leasing strategies. Despite some unclear responses, the company's strong financial metrics, optimistic guidance, and strategic plans suggest a positive sentiment. The market cap indicates moderate volatility, likely resulting in a positive stock price movement (2% to 8%) over the next two weeks.
Phillips Edison & Company, Inc. (PECO) Q3 2025 Earnings Call Transcript
Positive10-24
The earnings call summary and Q&A reveal positive elements such as increased guidance, strong occupancy and retention rates, and strategic acquisitions. The management's focus on growth and partnerships with top grocers, alongside the balance of rent increases with retention, suggest a positive outlook. However, the cautious approach to acquisitions due to economic risks and the lack of enthusiasm for stock buybacks slightly temper the optimism. Overall, the positive guidance and strategic initiatives outweigh the concerns, leading to a prediction of a positive stock price movement (2% to 8%) in the next two weeks.
Phillips Edison & Company, Inc. (PECO) Presents At BofA Securities 2025 Global Real Estate Conference Transcript
Neutral9-10
Phillips Edison & Company, Inc. (PECO) Q2 2025 Earnings Call Transcript
Positive7-25
The earnings call summary and Q&A reveal strong financial performance, high occupancy rates, and strategic acquisitions, with a focus on maintaining strong tenant relationships and disciplined acquisition strategies. Despite some cautious outlook on acquisitions due to market competition, the overall sentiment is positive, supported by optimistic guidance and strong leasing performance. The market cap suggests moderate sensitivity to these factors, leading to a positive stock price prediction.
PECO Slides
PECO Report
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