Release Date: April 25, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Phillips Edison & Co Inc (PECO, Financial) reported a strong quarter with a 3.9% increase in same-center NOI.
- High occupancy rates were maintained, with portfolio occupancy at 97.1% and anchor occupancy at 98.4%.
- The company achieved record high in-line renewal rent spreads of 21.7% and new leasing rent spreads of 28.1%.
- PECO's focus on necessity-based goods and services, which make up 71% of ABR, provides insulation from potential tariff disruptions.
- The company has a strong acquisition pipeline and affirmed its guidance for $350 million to $450 million in gross acquisitions for the year.
Negative Points
- There are concerns about the impact of tariffs and potential economic recession on PECO's operations.
- The company faces challenges with upcoming swap expirations, which could increase variable rate exposure.
- Despite strong leasing activity, there is uncertainty in the capital markets that could affect future growth.
- The economic environment remains volatile, which could impact consumer behavior and retailer demand.
- PECO's stock is trading at a cap rate that is higher than the cap rates of recent acquisitions, indicating tighter investment spreads.
Q & A Highlights
Q: Can you provide insights into the seasonality of leasing and how recent months have performed?
A: Bob Myers, President, explained that first-quarter occupancy typically sees a slight decline due to seasonality. However, current occupancy remains strong at 97.1%, with in-line occupancy at 94.6%. Leasing activity is robust, with more leases out for signature now than last year. Retailers are eager to grow, and leasing spreads are expected to improve further.
Q: What factors could influence the FFO guidance for the year, and what might drive results to the higher end of the range?
A: John Caulfield, CFO, noted that while the first quarter included a non-recurring lease termination fee, the company remains cautiously optimistic. Improvements in capital markets and certainty around debt costs could push results to the higher end. The focus is on long-term growth, with a strong acquisition pipeline supporting this outlook.
Q: How is PECO managing its variable rate exposure, and what are the plans for upcoming swap expirations?
A: John Caulfield stated that the company is comfortable with its current 14% variable rate exposure and plans to manage upcoming swap expirations by issuing fixed bonds. The goal is to maintain a laddered maturity structure and a long-term target of 90% fixed-rate debt.
Q: Are there any signs of slowing rent payments from retailers, and how is bad debt trending?
A: John Caulfield reported no significant changes in rent payment trends, with bad debt actually lower than a year ago. The company continues to monitor retailer health closely, but no regional or category-specific issues have been noted.
Q: How does PECO view the potential impact of a recession on its portfolio, and what categories might be affected first?
A: Jeffrey Edison, CEO, explained that while PECO is not anticipating a recession, the company is prepared for potential impacts. Historically, discretionary spending is affected first, with consumers trading down in products and eating at home more. However, necessity-based retail, like grocery, tends to perform well during downturns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
