- Same-Center NOI Growth: Increased by 3.2%.
- NAREIT FFO per Share Growth: Increased by 9.1%.
- Core FFO per Share Growth: Increased by 6.9%.
- Portfolio Occupancy: Ended the quarter at 97.8%, a sequential increase of 30 basis points.
- Anchor Occupancy: Increased to 99.4%, a sequential increase of 60 basis points.
- In-line Occupancy: Ended the quarter at 95%.
- Comparable New Rent Spreads: 55% for the third quarter.
- In-line New Rent Spreads: 28.3% in the quarter.
- Comparable Renewal Rent Spreads: Increased by 19.8% in the third quarter.
- In-line Renewal Spreads: 19.6% in the quarter.
- Neighbor Retention: Remained high at 92%.
- Tenant Improvements for Renewals: $0.73 per square foot in the third quarter.
- NAREIT FFO: Increased 12.5% to $81.6 million or $0.60 per diluted share.
- Core FFO: Increased 9.6% to $84.4 million or $0.62 per diluted share.
- Rental Income Growth: 4.5% year-over-year.
- Liquidity: Approximately $752 million.
- Net Debt to Adjusted EBITDA: 5.1 times.
- Weighted Average Interest Rate: 4.4%.
- Weighted Average Maturity: Six years.
- Fixed Rate Debt: 93% of total debt.
- 2024 Guidance - Net Income per Share: $0.48 to $0.50.
- 2024 Guidance - NAREIT FFO per Share: $2.35 to $2.39.
- 2024 Guidance - Core FFO per Share: $2.40 to $2.44.
Release Date: October 25, 2024
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 3.2% increase in same-center NOI and a 9.1% growth in NAREIT FFO per share.
- The company maintains a high occupancy rate of 97.8%, with anchor occupancy at 99.4%.
- PECO has a strong acquisition pipeline, having acquired nine shopping centers and several land parcels for $211 million year-to-date.
- The company has a robust balance sheet with $752 million in liquidity and no significant debt maturities until 2027.
- PECO achieved a 19.8% increase in comparable renewal rent spreads, reflecting strong leasing demand and pricing power.
Negative Points
- The company faces higher interest expenses, which partially offset revenue gains from higher occupancy levels.
- There is a potential risk associated with the Kroger-Albertsons merger, which could impact Albertsons-anchored centers.
- In-line occupancy slightly decreased to 95%, indicating potential challenges in maintaining tenant retention.
- The company anticipates being at the high end of its uncollectible reserves range, suggesting potential bad debt concerns.
- Despite strong acquisition activity, the company may need to raise additional equity if acquisitions exceed $250 million.
Q & A Highlights
Q: Can you discuss the acquisitions made during the quarter and the strategy behind them, given the lower occupancy compared to your existing portfolio?
A: Jeffrey Edison, CEO: The market has more products and buyers, and we found great opportunities. We acquired six properties, three anchored by King Soopers, Pete's, and Big Y, with occupancy ranging from 90% to 96.6%. These properties offer development opportunities and solve for above a 9% unlevered return. We also acquired three outparcels adjacent to Publix locations for potential new retailers. – Robert Myers, President.
Q: What are your views on the restaurant category, particularly with mixed signals in different parts of the country?
A: Jeffrey Edison, CEO: Quick-service restaurants have been more stable than formal sit-down restaurants. Our portfolio mainly consists of quick-service restaurants, which continue to perform well. We see strong demand for new locations from these restaurants. – Robert Myers, President: Fast casual concepts like Starbucks, Chipotle, and Wingstop are actively seeking new sites, indicating strong demand.
Q: Could you provide more detail on the bad debt situation and how it impacts PECO?
A: John Caulfield, CFO: Bad debt was 86 basis points year-to-date, a small amount. We are aggressive in taking back spaces and re-leasing them at strong spreads, which benefits us in 2025 and beyond. We reaffirmed our same-store guidance and see opportunities to drive rents higher.
Q: How are you planning to fund acquisitions, and are you considering raising additional equity?
A: Jeffrey Edison, CEO: We have no immediate plans to raise equity but would consider it at the right pricing for outsized acquisitions. We expect to meet our targets with minimal balance sheet impact and are optimistic about next year.
Q: Have you seen an increase in deal variety since announcing the JV with Cohen & Steers?
A: Jeffrey Edison, CEO: We see all market deals as the largest buyer of shopping centers. The JV allows us to consider more properties, but we haven't seen a significant increase in deal variety. We maintain a disciplined approach to acquisitions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
