Phillips Edison at Citi’s CEO Conference: Strategic Growth Insights

Phillips Edison & Co Inc (NASDAQ: PECO) presented a robust strategic outlook at Citi’s 30th Annual Global Property CEO Conference 2025 on Tuesday, 04 March 2025. The company emphasized its focus on necessity-based retail, particularly grocery-anchored centers, while acknowledging challenges such as increased competition. The leadership team highlighted their strong financial performance and future growth strategies.

Key Takeaways

• Phillips Edison targets $400 million in acquisitions, focusing on grocery-anchored centers.
• Same-store NOI growth is projected at 5.2% for the current year.
• The company maintains a leverage ratio of 5.0x debt to EBITDA.
• Successful bond offerings and equity raising indicate strong capital access.
• Minimal exposure to bankruptcies with Kroger and Publix as major tenants.

Financial Results

Phillips Edison outlined ambitious financial goals, aiming for:

• Same-store NOI growth of 3% to 4% long-term, with 5.2% targeted for 2025.
• Mid to high single-digit growth in FFO per share annually.
• A dividend yield target of 3% to 4%.
• A 9% unlevered IRR for acquisitions.
• A leverage ratio of 5.0x debt to EBITDA.
• $73 million in equity raised during the fourth quarter.

Operational Updates

The company reported strong operational performance with:

• High occupancy rates and lease renewals at 20% cash on cash.
• Embedded rent bumps of 10 to 20 basis points, aiming for 30 to 50 basis points long-term.
• $40 to $50 million in development opportunities.
• Positive Placer data indicating strong consumer health and retailer sales.
• Asset acquisitions worth $275 million in early 2023, boosting occupancy from 87% to 98%.

Future Outlook

Phillips Edison is set to expand its portfolio with:

• A focus on grocery-anchored centers, while exploring shadow-anchored and unanchored retail opportunities.
• Aiming for long-term same-store growth of 3% to 4% annually.
• Leveraging its defensive portfolio to navigate economic cycles.
• Capitalizing on high demand for smaller retail spaces to drive growth.

Q&A Highlights

During the Q&A session, executives addressed:

• Acquisition visibility with $100 million in assets purchased in December and a $150 million backlog.
• Increased competition but more market opportunities.
• Strong capital access due to successful financial maneuvers.
• Select opportunities in unanchored retail, underwritten to a 10% unlevered IRR.
• No significant impact expected from the Kroger and Albertsons merger termination.

Phillips Edison’s comprehensive strategy and financial resilience position it well for continued success. For more detailed insights, refer to the full transcript below.

Full transcript - Citi’s 30th Annual Global Property CEO Conference 2025:

Operator: And enter code GPC25 to submit questions.

Jeff, we’ll turn it over to you to introduce your company and team, provide any opening remarks, tell the audience the top reasons that investors should buy your stock today, and then we can get into Q and A.

Jeff, BECO: Great. Well, thank you, Craig, and thanks everybody for I think this is the last one of the day. So we’ll try and keep you awake and keep it on course. So the reason we think you should invest in BECO is pretty simple. We think we deliver more alpha with less beta.

If you look at what being in the necessity based retail business is with the number one or two grocer in the market, that’s what we do. And we’ve done it for thirty years. And it’s a slice of the market where you’re protected because of the necessity based nature of it and the fact that 31% of our income comes from the grocer. And we in times that are challenging like they are right now, I always ask questions like, at what point how bad do things have to get where you stop eating? And it’s a pretty that’s a pretty tough bar.

So what we do is we have the ability to drive traffic through the grocer, which is on average is 1.6 times a week. The customer comes to our center. And in doing that, that creates the traffic flow that allow our small stores to do well. And we are very targeted in terms of what we’re looking for, which is the number one or two grocer, and then we look for the right size. We our focus is 115,000 square feet, For the total center, about 50,000 of that is the grocer.

What that does, we think that is a big advantage is that we have very little exposure to big box retail. What we’re focused on is delivering necessity goods close to your home. So that when you wake up on Saturday and you have to get your hair done, you got to get you want to get a workout in, you want to get your groceries, we’re where you think about. And that’s what we’ve built over this thirty year period of time. Today, we have 300 centers, and we’ve been the biggest buyer of Grosshanker centers probably for the last twenty years.

And we have very strong connections in that business, which allow us to continue to have very strong external growth, which is the alpha part of our story, both in our ability to grow the existing base income, but also to have a strong acquisition process. We’ve targeted $400,000,000 as the midpoint of our guidance for this year. We bought close to 300 2 years ago, 300 last year. We’re targeting 400 for this year. So this is a this is the external part of our business that allows outsized alpha on the stock.

So that’s our the driver behind our business. With me is Bob Myers, our President Kimberly Green, who runs our Investor Relations and John Caulfield, who is our CFO. So with that, we’ll open it for questions.

Operator: Perfect. Thanks, Jeff. Maybe just to kick it off here, you’ve outlined kind of long term same store NOI growth of 3% to 4%. Can you walk us through the math and the puts and takes that kind of get you at the low end or the high end?

Jeff, BECO: Yes. The 3% to 4% is same center growth. Same store. What we are targeting, what we’ve laid out our guidance is 5.2% for this year. We our long term target is to be in the mid to high single digit FFO per share growth a year with a 3% to 4% dividend, allowing us to get our investors a 10% return with one of the best balance sheets, so in a relatively low leveraged environment, which we think gives us a solid return.

John Caulfield, CFO, BECO: Sure. So I’ll take the question. So our guidance is 3% to 3.5%. As we look at it, Jeff highlighted the diversification we have in our portfolio, really the the minimal exposure to some of these bankruptcies that we’re seeing in the headlines. And so when we think about that that range, the long term range is three to four.

This year, we’re at three to three and a half. Last year, we began this opportunity to remerchandise some of our centers because the the anchor activity outside the grocery was incredibly strong. And so we had multiple boxes that we were able to take back and release at very high spreads. Third quarter, we had eight of them, and we released them at over a % leasing spreads. So, ultimately, it’s the best thing for the center, but that is, you know, outside of what we normally do.

There’s a little bit more downtime. And that’s so occupancy in our three to three and a half percent is actually a little bit of a headwind. What you’re seeing is that in the base of our same store growth, we have a 10 to a 20 basis points of embedded rent bumps, like organic. We continue to move that, each year as we renew leases and and sign new ones. So we think over the long term, that 10, hundred and 20 could be a 30 to a 50.

Our leasing spreads have been outstanding in 2024 in this environment and continue in ’25. We are renewing leases at 20% cash on cash, leases and putting in embedded rent funds. And so that’s also, gonna contribute, let’s say, a 50, or excuse me, a 25 to a 50 basis points. So when you look at sorry. The last piece that will go in there is we do have forty to fifty million of development opportunities and redevelopment.

It’s primarily outparcels that we build, but we get very attractive returns on that. And that’s gonna give us another hundred to a 25 basis points. So as we look at the low end, you would say that, you know, perhaps there’s a little bit more, you know, churn of our neighbors as we’re looking to recapture and push leasing spreads that’ll benefit us in the future. If we look to the high end of our same store, it would be accelerating some of those openings that we’ve got, as well as as further pushing rent spreads even higher than we have today.

Operator: And I know this year, we’ve had a, you know, an uptick in bankruptcies. You guys are are less focused on some of those anchors. But in a typical year, what what do you dial in for bad debt?

John Caulfield, CFO, BECO: So last year, our bad debt was 75 basis points. This year, we expanded the range just to give us some flexibility. So it’s 60 to and 20 basis points in our guidance, but I would expect it to be in line with basically last year around, let’s call it, 75 to 80 basis points. The bankruptcies that have been in the headlines around Party City, Big Lots, Joann Fabrics, In aggregate, all of them combined at 60 basis points worth of rent. And so we just have we our concentration is with our grocers.

We’re Kroger’s biggest landlord. Republic’s second largest landlord. That is that is our focus in concentration. Outside of the grocer, our largest individual concentration is are the TJ Maxx brands at 1.4% of rent. Everything else is less than 1%.

That is not a grocer. So that diversification really does contribute to the less beta that Jeff referenced. Perfect.

Operator: If anyone in the room has a question, just raise your hand. Jeff, you had mentioned acquisitions, you’re kind of dialing in a little bit of an acceleration this year relative to the last two years. Can you just talk about what the visibility you have about that $400,000,000 is today? And also kind of what you guys are underwriting from an IRR perspective or going in cap rate, kind of how you think about the world?

Jeff, BECO: Yes. So we underwrite to a 9% unlevered IRR. So and we’ve actually exceeded that on the for the first three years as a public company in terms of our ability to outperform what we underwrote to. So 9% is the unlevered focus. And the other part of the question was?

Operator: Just what visibility do you have on that $400,000,000

Jeff, BECO: So we bought $100,000,000 of assets in December. We have as we I think we announced a few weeks ago, we have $150,000,000 backlog going into the year. And we’re seeing today probably close to 100% more product on the market than what we saw this time last year. So I think that along with the backlog we have going forward beyond the $150,000,000 gives us pretty good visibility, at least for the first half of the year that we’ll be well on that target, the midpoint of $400,000,000 for this year.

Operator: And are you I’m kind of curious, some of your REAP peers have been kind of targeting some of the bigger centers or maybe there’s been a little bit less competition, so a little bit better pricing that may change. But are you seeing what are you seeing on the competition side for the smaller community grocery anchored centers?

Jeff, BECO: We shop in a very different market than they do. Our average center is probably $35,000,000 30 5 million dollars acquisition. And the competition we’re seeing is probably is accelerated from last year, but we’re also seeing a lot more product on the market. So that gives us pretty good a pretty good feeling that we will see a pretty strong volume this year.

Operator: I mean, is there a chance that you can exceed that $400,000,000 Do

Jeff, BECO: you have the capital in place or line of sight on that capital to do more if it’s available? We’re really disciplined in our buying. If we can find product that meets our requirements and gets to that nine plus unlevered IRR, we would definitely exceed that number. And if we don’t, we won’t. That is sort of a that’s how we look at it.

We hate giving guidance on acquisitions, but it’s an important part of our business. And we so we do give that guidance. But hopefully, it will be a better year than and will give us the ability to to exceed that number?

John Caulfield, CFO, BECO: We we absolutely do have have the ability. We have a a very strong demonstrated access to capital. We’re five point zero times on, levered on a debt to EBITDA basis. Last year, we had two very successful bond offerings where triple b flat b double a two, stable with both agencies. You know, we want to continue our plans as a, a repeat issuer in the unsecured bond market.

We raised equity in the fourth quarter of about $73,000,000. And so we are very open that if we find the opportunities, you know, we can invest it and support it accretively with our cost of capital.

Operator: And I know you guys are primarily focused on the grocery anchored. But given the kind of the long term control that the grocers have and the minimal rent bumps and your focus on getting that 3% to 4% same stores. You guys are targeting acquisitions. What are your thoughts on unanchored retail as a potential asset class or mixing in? I know TJX is a very small piece of it, but mixing in some of those off price discounters as your anchor where you’re able to get some annual bumps.

Jeff, BECO: So our focus is on that grocery anchored center, and that will be the vast majority of what we are investing in. But we do see opportunity in the both the shadow anchored where you don’t own the grocer, but you do own the small store space. And that is a part of our acquisition strategy. We kind of underwrite that to a 9.5 unlevered IRR. And then the unanchored centers are select opportunities that we find in markets where we have a strong presence that we think there is opportunity.

Those are we think they’re riskier assets, so we underwrite those to attend. But they and that we think there’s definitely opportunity there. And it’s a lot of this is driven by the fact that the level of new construction in our space is diminutive. So it’s very small. And so we the product we buy, we think, in the markets that we are most familiar with and have the most boots on the ground, we think we can find some opportunities there.

It will remain less than 10% of our business, but it is we do think there is opportunity there.

Operator: And then on the health of the consumer, what are your retailer customers telling you? And maybe what are you seeing on Placer data or other kind of tracking systems that you have on the foot traffic that’s been happening at your centers?

Jeff, BECO: The Placer numbers continue to be positive. We’re seeing increased growth and our retailers are seeing good sales. So we’re not really seeing any kind of slowdown in that market. We’re obviously watching for it in the just with the confusion that’s going on. I think the necessity based nature of our retail, we’re kind of the last thing that people cut out of their budget.

We’re not in that discretionary side where that is much more volatile.

Operator: And I know in the past we’ve met, I’ve brought up your demographics and you guys have pushed back that they’re not that different, right? Can you walk through the perception of your demos, which are a little bit lower than peers, but not at the low end of the income level for The U. S?

Jeff, BECO: I think we define quality based upon where our retailers define quality. And if you look at our occupancy, we have the highest occupancy in the shopping center space. We have the highest retention rates. We have the highest rent spreads on those retained tenants. And we have some of the best spreads on our new leasing.

So the retailers who are voting with their leases are voting for our properties. And it’s not sort of rocket science in that they want to be near the number one or two grocer. They know the risk to them of opening a new store where they know how that traffic will work, and they know from the sales of the grocer what they can do, it’s a much lower risk investment for them than it is going somewhere outside of that. And that’s driven our ability to drive market leading rent spreads and market leading occupancy. And we really look very closely at like we can all talk about like which demos are best, But what we want is we want the demos that are best for the retailers.

We’re Kroger’s large landlord. We’re Publix’s second largest landlord. And there are a lot of retailers who want to be around those top grocers. And that drives our decision. The and the demos were I think our median household income average is 20% above the median for the country and densities are in the 68,000 to 70,000 in our three mile radius.

What’s really different about our business is we don’t compete in Orlando, we don’t compete in Tampa. What we where we compete is a three mile radius on two main streets in a market. And we have to win in that three mile radius. We have to be where the shopper wants to go. And that is a getting the right merchandising mix into that center so that when they wake up on Saturday and they’re looking for where they want to get their necessity stuff, they come to our center.

And that’s a very different look than if you’re in the power center business where you have a much more regional draw, where you’re looking out in a wider range. We have a very specific areas that we have to compete in, and that’s why it’s kind of a different look than you might see with others. And if you look at where Kroger and Publix make their money, they make their money at our kind of centers. And that’s why they’re there and that’s why we’re there.

Operator: And I’ve asked this of all your peers. The evolution of retail with the lack of supply and the demand, right? This is some of the best fundamentals we’ve seen in years. And at the same time, there’s a lot of well, there’s only so much we can push because we don’t want to put our retailers out of business. But at a certain point, right, you would think there could be some possibility to reprice retail real estate to the upside.

And part of that is on the anchors, right? And groceries have historically kind of flat leases, a long time to have control. You have these mark to markets, but they’re theoretical because you can never get to them, right? We’ll all be dead in this room before that happens. So I’m just curious as some of the anchor boxes do come up for expiration in the near to medium term, kind of what are the steps you guys are taking to try to if you can’t get fully just economic concessions out of them in the form of higher rents, what are some of the other concessions you’re looking at that may be non economic, but give you opportunities to extract value out of your centers in other ways?

Jeff, BECO: Let me start and then you’ll jump in. The other concessions, Bob, maybe you can cover that. But what we’re focused on is the profitability of our retailers. And we look at that primarily through health ratio, which is across the board less than 10% for our retailers. They can make money at that kind of a rent.

And we have room to grow that. And that’s why we’ve been able to get some of the highest rent spreads and the highest retention rent spreads in the space, because they’ve on average been there ten years, these retailers have. And they are now coming up and they’re saying, okay, do I want to stay there? And they’re staying there with a 20% increase and 3% annual growth because they’re profitable. If they weren’t profitable, they wouldn’t be staying.

And that’s our that’s how we look at our ability to continue to grow rents at outsized pace because of the that. And the lack of demand lack of supply is sort of a big piece of that.

Bob Myers, President, BECO: Yes. I’d also add that the conversations we’re having with the grocers and some of the non monetary clauses would be, you know, just working with us on restrictions. I can give you an example on a HEB deal that we bought recently in Texas where they had some restrictions on uses and given our relationships with the grocers, we were able to talk them into giving us consent to put in a very, very nice high end retailer at the shopping center. So again, being an owner, Kroger’s largest landlord, public second largest landlord, relationships with the grocers, restrictions. The other thing that we also see is a lot of consents on outparcel developments.

In front of a lot of these grocery stores, there’s a lot of parking, parking ratios five to one, six to one, and some of the parking goes untapped. But we have a very nice strategy in Phillips Edison where we’re developing $40,000,000 to $50,000,000 of small strip centers in these outparcels. So in some cases, we’ll do Starbucks, Chipotle, Chick fil A’s, other cases, we may be adding fuel for the grocer. So you may not always see it in terms of lease structure economically with the grocer that may have four or five year options. And in some cases, those may be flat.

In other cases, you may get a 5% or 10% increase every five years. But you can unlock value at these properties in their parking lots and through waivers and consents.

Operator: And are you having success trying to get kind of shorter option periods? Are they still pushing for maybe a ten, twenty year lease with another twenty or thirty years of control?

Jeff, BECO: The grocers are not giving up their options and they’re very important to our mix. But remember, when we buy these properties and we we’re not big portfolio buyers, we buy individual assets that fit what we’re doing. When we buy into those, the nine unlevered includes a basically flat grosser income. So we it’s we buy into it knowing that, but we can still get the growth. And it gives us a great stability.

I mean, if you look at that when you’ve got a you know the checks coming from Kroger, and that is that’s powerful.

Operator: Any questions from the audience?

Jeff, BECO: There’s definitely I mean, we love H E B and there is opportunity there. The we just actually closed last week on a center where that H E B is the anchor. H E B has tended to own their own real estate. So what we would be buying there is the small store space around an H E B, which we’re very willing to do because it the amount of attraction they have and the quality they bring to the center gives us the ability to really grow rents in those markets. And but there we’ll we haven’t been able to get a lot of development work with them, primarily because they’ve already picked out and owned a lot of the real estate that they’re going to where they’re going to go.

And so we’re that we’d love to, we’d love to do more of it.

Bob Myers, President, BECO: Yes. I think over the last two or three years, I’ve only seen three or four HEB deals come up for sale. We acquired one fourth quarter of 20 20 three. And then as Jeff mentioned, we just recently acquired some shadow space in HEB Deauta Houston. So we like HEB a lot.

Operator: Any other questions? So you guys had a long history as a private company. Now you’ve been public. Is there anything that in this current environment you kind of miss being a private company that you could do that the public investors don’t quite understand, but are long term value enhancing?

Jeff, BECO: I think we bring a lot of the value

Bob Myers, President, BECO: of

Jeff, BECO: a private company to how we operate. We are very cash flow driven. We want to drive cash flow growth. And that’s a very private company thing, but it is it’s also, we think, the key to doing it. And the other is as a private investor, you’re off you think longer term.

You are we obviously are reporting quarter to quarter and doing that and we’ve been successful in that part. But where our focus is, is creating long term value in the company. And that, I think, is something that we learned over the thirty years that we’re building this business. And we bring it in to the decision we make every day. And we have a company that we built where we’ve got a very focused strategy, and it is a differentiated strategy from the rest of our peers.

But we also have a team that thinks like an owner. And when they think like an owner and they make decisions like an owner, we find that that helps to drive really, really strong results.

Operator: So you guys run a defensive portfolio, leverages at five times, you’re finding acquisitions. I mean, what is it that you worry about in this environment?

Jeff, BECO: What happened today? We’re a little worried about that. But

John Caulfield, CFO, BECO: Has anyone checked Twitter in the last twenty minutes?

Operator: Listen. I try I I have not asked that question before lunch because who knows how that’s gonna play out, but please feel free to, apply on what how you guys think that could play out for your tenant base and retailer base. Yes.

Jeff, BECO: The thing that we like about our business is through the cycles, and we’ve been through them all. I mean, we’ve been through the cycles over the last thirty years. Our necessity based focus does protect us on the downside. And that grosser income, that 31%, that’s really flat. When things aren’t going well, that really flat income is actually really very powerful.

So we I think the way we sort of think about it is we can sail through pretty tough times and have. I mean, if you look at the great financial crisis and you look at the pandemic, during the great financial crisis, we lost 1.6% of occupancy. And we were the fastest that was the smallest amount of loss of our peers. We were also the first to be back to that same level in the PSC. And it was the same thing in the pandemic.

We lost 60 basis points of occupancy and then we were back to that the fastest of any of the peers. So we I mean, I think when we look at times that are where there’s a lot of up and down, we’re looking for the opportunity. We’re looking for what opportunities is that going to create for us to be able to buy properties, to develop properties, to to to grow our our portfolio? With and and you with the strong balance sheet, it gives us a lot of flexibility.

John Caulfield, CFO, BECO: I also think that, you know, we have a defensive portfolio, but we also have an offensive portfolio. And I I think it’s noteworthy that the on the defensive piece, it’s it’s not just the grocer, but, you know, I think you were asking questions about non grocery anchors and the ability to get bumps and things like that. That’s actually, I would argue, where omnichannel has been or the ecommerce has been the most disruptive. And we just had the latest wave, and who knows what the next wave will be. And so, ultimately, part of our resilience is that we have a 15,000 square foot center.

Our our concentration is with the grocer and then small shop. When you have those large box anchors, your list of potential replacements is shorter than for the average space in our center, which is 2,500 square feet, and that page is worth of demand. That demand then allows us to be very offensive. And so over a long period of time, we believe this portfolio can can deliver three to 4% same store growth on an annual day in, day out basis. And then we’re able to use that leverage, and we’re in 31 states.

And, ultimately, our footprint in competing on that center or on that corner gives us a very large market that’s very addressable. We we think that’s all almost 6,000 shopping centers that we can own, and we own 300 today. And we have to buy a very small piece of that. We’re targeting from an offensive standpoint, 9% unlevered IRR returns, which I haven’t heard what people have said this conference, but we’re tracking. We we believe that that is stronger than many of our peers are targeting in an with a still more defensive portfolio.

And ultimately, we’re driving towards mid to high single digit core FFO per share growth over a long period of time. This year, our guidance is approximately 5%, but that’s also because there’s almost 200 basis points of interest rate headwinds in there. We’d be at almost 7%. So we know we can deliver that mid to high single digit growth, which is why it goes back to, we believe that we do have that defensive portfolio, but we also have an opportunity to outperform, with stronger growth and stronger returns for our investors.

Bob Myers, President, BECO: And and I wanna give you an example. In 02/2023, we acquired $275,000,000 worth of assets, about 14 properties. When we acquired those, they were 87% occupied. And eighteen months later, we were at 98% occupied. In 2024, we purchased 18 properties, right around 93.1% occupied and we’ve already moved that to 94.4%.

So format drives results and what we’re finding is that retailers want to be aligned with the number one, number two grocer in the markets where we exist, where the grocers are making money. Retail demand is one of the strongest environments I’ve seen in over twenty, twenty five years in this business. You will continue to see Phillips Edison focus on a necessity based merchant. So I think fast casual restaurants, health and beauty, med tale as examples. When I meet with the retailers, they’re going through our rent rolls, trying to find locations to open in 2025, ’twenty six and ’twenty seven.

So again, we have some very nice tailwinds. As we’ve touched on, our occupancy at 98%, in line at 95%, new leasing spreads at 35%, renewal spreads at 20%, plus annual escalators of 3%. We’re in a very, very strong offensive position to continue to provide superior results for the next few years.

Operator: Just curious, you mentioned Kroger and Albertsons are two of your biggest tenants. That merger clearly fell apart. We’ve had a CEO change over at Kroger. Any kind of concern about strategy shift or fallout from the merger dying and having new management over at Kroger?

Jeff, BECO: No. I mean, who knows what the story is what happened. But the, I mean, a company like Kroger has had a succession plan for Rodney for years. It’s not they didn’t expect this to happen yesterday or the day before, but they have a plan. And when you see the Board member who’s moving in on an interim basis, I mean, this is a Board that has a very consistent strategy.

I’d be shocked if there are any major changes because of that. And Albertsons did the same thing. I mean, they just announced that their CEO is moving out. But they’re putting in their the woman who ran there, who is their Chief Operating Officer. And word is that she’s very strong and will be a very positive impact on that.

And the merger for us was one that we obviously been looking at for two point five years. And the overall, we have really strong Albertsons in terms of the sales and we have really strong cover. So we’re not we think it’s kind of it’ll stay on sort of steady course.

Operator: Perfect. We’ll just end here with the rapid fires. For retail in 2026, what do you think same store NOI growth overall could be?

Jeff, BECO: 3.5%.

Operator: And twelve months from now, more, less or the same amount of public retail companies?

Jeff, BECO: Probably less.

Operator: Great. Thank you.

Jeff, BECO: Yep. Thank you. Thanks, everybody, for your time. We appreciate it.

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