Q3 2024 Phillips Edison & Co Inc Earnings Call
Speaker Change: Good day and welcome to Phillips Edison and companies third quarter 2020 for earnings call.
Speaker Change: Please note that this call is being recorded. I will now turn the call over to Kimberly Green, head of investor relations. Kimberly, you may begin.
Kimberly Green: Thank you, operator. I'm joined on this call by our chairman and chief executive officer Jeff Edison, President Bob Myers, and Chief Financial Officer John Caulfield.
Kimberly Green: Once we conclude our prepared remarks, we will open the call to Q&A. After today's call, an archive version will be published on our website. As you remind, during today's discussion, we will be continuing forward-looking statements about the company's view of future business and financial performance, including forward-earning guidance and future market conditions.
Kimberly Green: These are based on management's current beliefs and expectations and are subject to various risks and in certain shoes as described in your SDC violence, specifically in our most recent form 10-tay and 10-tiy.
Kimberly Green: In our discussion today, we'll reference certain non-gap financial measures.
Kimberly Green: Information regarding our use of these measures and reconfiliations of these measures to our gap results, our available and our earnings press release and supplemental information packet, which have been posted on our website. Please note that we have also posted a presentation with additional information. Our caution on forward looking statements also applies to these materials.
Kimberly Green: Now I'd like to turn the call over to Jeff Edison or Chief Executive Officer Jeff.
Jeff Edison: Thank you, Kim, and thank you everyone for joining us today.
Jeff Edison: The Pico team delivered another solid quarter of growth with same-center N.O.I. increasing by 3.2%. N.A. Reef F.O. Pershare growth increased 9.1%. And Core F.F.O. Pershare growth increased 6.9%.
Jeff Edison: The ongoing strength of our performance is attributable to our differentiated and focused strategy. Peacock owns white-sized high-quality growth-rankered neighborhood shopping centers. These centers are anchored by the number one or two growth-surprise sales in the markets.
Jeff Edison: Our results are generated at the property level. They are driven by our integrated operating platform and our exceptional, locally smart and cyclotested team.
Jeff Edison: The entire Pico team continues to drive significant value at the property level. You can see that reflected in our sector leading operating metrics.
Jeff Edison: The experience and talent on Pico's team is significant. We have experts in every aspect of the growth-rankered real estate industry. We remain committed to successfully executing our growth strategy to deliver long-term value to our shareholders.
Jeff Edison: Our high quality portfolio anchored by top processors in favorable suburban markets provides a long-term steady earnings growth profile.
Jeff Edison: We believe Pico is well positioned to continue to grow and provide market leading returns.
Speaker Change: Peacock's delivered on our core strategy for over 30 years. We have developed a season team that has been together for a long time. Our team is highly engaged, highly focused and deep.
Speaker Change: Peacock is a growth company. We have consistently delivered on both internal and external growth. We are well positioned to take advantage of growth opportunities.
Speaker Change: We're acquiring high quality centers with a capacity to buy more as Bible Highlight in a moment. We are a best-in-class operator. In addition, we're prudent with our balance sheet management.
Speaker Change: We have strong liquidity and no meaningful maturity until 2027. We believe these factors will drive solid earnings growth in 2025 and beyond.
Speaker Change: Here today we acquired nine shopping centers and several lamp parcels for a total of $211 million. We continue to find attractive acquisition opportunities. Activity in the fourth quarter remains strong.
Speaker Change: Given the current environment, we are updating our acquisition guidance to 275 to 325 million dollars of debt acquisitions for the year.
Speaker Change: We continue to have the capabilities and leverage capacity to acquire more as attractive opportunities materialize.
Speaker Change: Moving to the Crowger Albertson's merger, the market still gives the merger a low probability of occurring. If the merger does not occur, our Albertson's anchored centers will continue the strong performance they have produced today.
Speaker Change: Should the merger close, our remaining Alberts and Stores would be operated by Croker, which reinvest regularly in their stores and produces higher sales buy-ins on average, this would have a positive impact on our portfolio. I will now turn the color to Bob to provide more color on the operating environment.
Bob Myers: Thank you, Jeff. Good afternoon everyone and thank you for joining us.
Bob Myers: We have another quarter of strong operating results in leasing momentum. We continue to see high retailer demand with no current signs of slowing down.
Bob Myers: Peacows leasing team continues to convert retailer to man in the high occupancy with higher rents at our centers. For folio occupancy remained high and ended the quarter at 97.8% least, a sequential increase of 30 basis points.
Bob Myers: Anchor occupancy of 99.4% increase 60 basis points sequentially as we executed eight anchor leases.
Bob Myers: Inline occupancy into the quarter at 95%. New neighbors added in the third quarter included quick service restaurants such as Jersey Mike's Duncan Donuts and Tropical Smoothie along with several med-tail uses, health and beauty retailers and other necessity-based goods and services.
Bob Myers: In terms of Newlys Activity, we continue to have success in driving higher rents. Comparable new rent spreads for the third quarter or 55%. Our inline new rent spreads remain strong at 28.3% in the quarter.
Bob Myers: As it relates to bad debt in the third quarter, we actively monitor the health of our neighbors. We're not concerned about bad debt in the near term, particularly given the strong retailer demand, and we don't have any meaningful concentrations.
Bob Myers: From an operations standpoint, we have always taken on the aggressive stance to get spaces back. And today's environment, the Peacock team is taking an even more aggressive stance on opportunities where we can get higher rent spreads and improve the merchandising at the center.
Speaker Change: According to Placer AI, Tico's suburban markets offer retailers several advantages in today's environment.
Speaker Change: Chipotle, Chick-Colay, Wing Stop and Jersey Mike are some examples of retailers that have been focusing on suburban markets for the expansion.
Speaker Change: National Retailers continue to raise their long-term store targets and our markets because these locations have proven to deliver the same or better store-level economics as traditional locations.
Speaker Change: In addition, retailers are increasingly looking to open smaller sized locations and spaces between 2003,000 square feet.
Speaker Change: Peacos Small Shop Aborigines, Leasides has remained consistent at 2,300 square feet. For over 30 years, we have excelled in leasing this small shop format, and we continue to see strong demand for these spaces.
Speaker Change: We continue to capitalize on strong renewal demand and are making the most of the opportunity to improve lease-language at renewal and drive rents higher. In the third quarter, we achieved the 19.8% increase in comparable renewal rent spreads.
Speaker Change: are in my renewal spreads remained high at 19.6% in the quarter.
Speaker Change: These increases in spreads reflect the continued strength of the leasing and retention environment. We expect new and renewals spreads to continue to be strong throughout the balance of this year and into the foreseeable future.
Speaker Change: Our neighbor retention remained high at 92% while growing brands at attractive rates. Higher retention means less downtime and lower TI spend. In the third quarter, we spend only 73 cents per score for the contingent improvements for renewals.
Speaker Change: We also remain successful at driving higher contractual running creases.
Speaker Change: Our new and renewal in line leases executed in the quarter had average annual contractual rent bumps up to and 3% respectively. Another important contributor to our long-term growth.
Speaker Change: The leasing spreads that we are achieving in the strength of our leasing pipeline, our clear evidence of the continued high demand for space and our grocery anchor neighborhood shopping centers. Peacock's pricing power is reflection of the strength of our focus strategy and the quality of our portfolio.
Speaker Change: Today we believe the consumer remains resilient. Our Grocers continue to drive strong, revocering foot traffic to our centers. Consumers continue to visit grocery stores 1.6 times per week.
Speaker Change: and the American. There are approximately 30,000 average trips per week to each peak-o-center. This equates to nearly 500 million total trips to peak-o-center in total during the last 12 months. Strong foot traffic benefits in line neighbor sales and enhances our ability to drive entire.
Speaker Change: Peacos, three-mile trade area demographics include an average population of 67,000 people and an average median household income of 87,000, which is 12% higher than the US median.
Speaker Change: These demographics are online with the store demographics of program publics which are peak those top two neighbors.
Speaker Change: Our centers are situated in trade areas where our top brochures are profitable and our neighbors are successful.
Speaker Change: and the SSE-based focus on our properties is important when demographics are considered. If you are comparing a public to an Apple store or high-end fashion, the demographics that each retailer needs to be successful are very different.
Speaker Change: 70% of our rent comes from the city base goods and services and our demographics are very strong in supporting our neighbors.
Speaker Change: He so continues to benefit from a number of positive macroeconomic trends that create strong tailwinds in driverless neighbor demand.
Speaker Change: These trends include a resilient consumer, hybrid work, migration through the Sunbelt, population shifts that favor suburban neighborhoods and the importance of physical locations in last mile delivery.
Speaker Change: Leasing demand continues to be at historically high levels for our inline spaces, as these macro-tailwinds have retailers more focused on having stores in our centers.
Speaker Change: The impact of these demand factors is further amplified due to limited new supply over the last 10 years and going forward given that current economic returns do not justify new construction of shopping centers.
Speaker Change: In addition to our strong rental road trends, we continue to expand our pipeline of ground up out-plars and development and repositioning projects.
Speaker Change: Here's a date to the third quarter we stabilize 10 projects and delivered over 274,000 square feet of space to our neighbors.
Speaker Change: He's 10 projects at incremental N.O.I. have approximately 4.2 million annually. They provide superior risk adjusted returns and have a meaningful impact on a long term N.O.I. growth.
Speaker Change: We continue to expect to invest 40 to 50 million annually in ground up development and repositioning opportunities with weighted average cash on cash yields between 9 and 12%.
Speaker Change: This activity remains a great use of free cash flow and produces attractive returns with less risk. Our team continues to say focused on growing this pipeline as returns are treated to the portfolio.
Speaker Change: The overall demand environment, the stability of our centers, the strength of our brochures, the health of our inline neighbors and the capabilities of our team give us confidence in our ability to continue to deliver solid operating results.
Speaker Change: I will now turn the call over to John John?
John: Thank you, Bob and good morning and good afternoon, everyone. I'll start by addressing third quarter results, then provide an update on the balance sheet and finally speak to our updated 2024 guides.
John: 3rd quarter 2024, May read Epifo increased 12.5% to 81.6 million dollars, or 60 cents per diluted share, driven by an increase in rental income from our strong property operations.
John: This quarter was impacted by the right off of approximately $1.2 million in deferred financing costs related to debt extinguished by our bond offerings this year, which is just under a penny.
John: 3rd quarter core SFO increased 9.6% to 84.4 million dollars, or 62 cents per diluted share. Driven by increased revenue at our properties from higher occupancy levels and strong leasing spreads, partially offset by the higher interest expense.
John: Our same center N.O.I. growth in the quarter was 3.2% driven by rental income growth of 4.5% year over year, partially offset by lower tenant recovery income and higher property level expenses.
John: Turning to the balance sheet, we have approximately $752 million of liquidity to support our acquisition plans and no meaningful maturity until 2027.
John: are net debt to adjust an EBITDA, remained at 5.1 times. Our debt had a weighted average interest rate of 4.4% and a weighted average maturity of 6 years when including all extension options.
John: In September, Pico completed a public debt offering of $350 million of $4.95 per cent senior nose due 235. Proceeds were used to replenish the liquidity on our line and repay term loans that were due in 2025 and 26.
John: As I said, September 30th, 2024, 93% of Peacos totaled that was fixed-repe, which is near our target range of 90%. We expect Peacos sixth rate to be in approximately 90% a year-end.
John: See if you can continue to have one of the best balance sheets in the sector, which has us well positioned for continued external growth.
John: Turning to our guidance for 2024, we have updated the net income per share range to 48 cents to 50 cents.
John: We've updated our guidance for Nairi FFO to arrange of $2.35 to $2.39 per share. This reflects 5.3% growth over 2023 at the midpoint.
John: The updated rain was primarily due to the right off of deferred financing costs related to debt extinguishing connection with our two tenure bond offerings this year.
John: We've updated our guidance for Core of a Photo to a range of $2.40 to $2.44 increasing the midpoint by any. This reflects 3.4% growth over 2023 at the midpoint.
John: In addition, we have reaffirmed the midpoint in narrowed our range for same-center N.O.I. growth, given the continued strong operating environment.
John: Included in our guidance is the negative impact of unclutchal reserves. We are affirming the range previously provided given the continued strong health for neighbors. However, we will likely be at the high end of the range for the year.
John: We currently have several acquisitions in our pipeline, either under contract or in contract negotiation. This activity allows us to increase our acquisition guidance for the year, as Jeff mentioned earlier.
John: Looking beyond 2024, we believe our internal and external growth opportunities give us a long-term growth outlook in the mid-to-high single digits for core of a pho-per-share.
John: We expect a comparable or faster growth rate for AFSO because there should be less tenant improvement dollars invested as we continue to increase same-center occupancy.
John: I'd like to mention that Peekot will be hosting a virtual business update on Thursday, December 19. We plan to provide an update on the business and our preliminary outlook for 2025. Please save the date and additional details will be shared by our Investor relations team in the coming weeks.
John: With that, we will open the line for questions. Operator?
Speaker Change: Thank you. To ask a question, please press star 1 on your telephone keypad. And if you would like to withdraw that question, again, press star 1. We also ask that you limit yourself to one question in one follow-up.
Speaker Change: Here's our question comes from the line of Jeff Bector with Bank of America. Please go ahead.
Jeff Bector: Great, good afternoon. Thank you. I guess if I could focus my question, follow up on the transaction market. First, I guess, can you talk about the acquisitions that you made during the quarter the strategy of the occupancy is lower than your occupancy?
Speaker Change: and I'll take the first part about the market and then Bob maybe can talk a little bit about the specific properties that we did buy. So, you know, the market.
Speaker Change: I think very similar what we talked about after the second quarter which
Speaker Change: is...
Speaker Change: There was more products on the market, but also more buyers. We found that we did find some great opportunities in the market, so we're excited about the stuff that we were able to buy, but we think that that's a trend that will continue as retail is taken on a much more positive look and investors' eyes. There are new entrance who have come into the market on the buying side.
Speaker Change: and we anticipate that will continue but we also are seeing a lot more product in the market which is allowing us to find some great opportunities to buy. I hope you wanted to talk a little bit about the specifics of the assets that we want.
Speaker Change: Yeah, absolutely, thanks Jeff. So we acquired six properties in the third quarter and three of those properties were anchored by, you know, King Super's Peaks.
Speaker Change: and Big Why. You mentioned the occupancy being a little bit lower. I think the Big Why deal was 91% and then...
Speaker Change: Pates was 96.6% and then Colorado Springs at 90%.
Speaker Change: What I liked about the quality of the assets not only are they solving for above a 9% Unlevered return, they also provided some development opportunity.
Speaker Change: and I think about the property, Ridgeview Marketplace. There's a pad out there that we're already working with several national retailers.
Speaker Change: and Peter Graham Lee-Synary or a build the soup.
Speaker Change: You know...
Speaker Change: Last year as an example, the fourth quarter required eight assets that had a blended occupancy of around 84%. So as we're building out the portfolio, part of our acquisition strategy is to find
Speaker Change: Some great properties that are anchored by the number one number two brochure and continue to give us Upside and Strong in a wide growth year over year. We also acquired three out parcels which are Jason to our publics.
Speaker Change: Locations where our National Account team has done a great job of identifying potential new retailers for those sites. So, always looking for some of those development opportunities as well.
Speaker Change: Great, thank you very helpful and actually Jeff answered my, I was going to have a fall up on the transactions. Maybe if I could then turn my fall to the up.
Speaker Change: to the restaurant category. I know there's a lot of subcategories within restaurants you talked about a number of, you know, restaurant.
Speaker Change: Retailers joining the portfolio, I guess?
Speaker Change: It seems like there's some mixed things on restaurants and different parts of the country. Any views you could share on restaurants and how you're thinking about the various categories? Thank you.
Speaker Change: I'll pick a little and Bob, you don't jump in as well.
Speaker Change: The restaurant business has obviously a huge point out multiple segments to it. And...
Speaker Change: What we have found is the formal sit-down restaurants have been more volatile than the quick service and we're seeing that in our portfolio as well. The majority of our restaurants are quick service and have continued to perform well throughout cycles and we're certainly
Speaker Change: Seeing strong appetite for new locations from those quick service restaurants. We don't see anything really slowing down there. And we're not seeing anything particularly from the...
Speaker Change: The visitations and sales that would indicate that there was a slowdown on the quick service restaurant side. Any of this is that Bob?
Speaker Change: The only thing I would add is, you know, I was down in Atlanta at the Southeast Conference, meeting with retailers and I made the Starbucks, the Chipotle, the wing stops.
Speaker Change: They're all very, very busy dates hot chicken, Swig, first watch, Kava. We just have a long list of fast casual concepts that are looking to secure sites in 25, 26 and 27. So I'm not seeing a slowdown in the fast casual aspect.
Speaker Change: It is the biggest part of our leasing pipeline as I look out, so it's still very strong. So I'm encouraged by the activity that exists and what we'll continue to see.
Speaker Change: Great, thank you.
Speaker Change: Thanks for watching.
Speaker Change: Here next question comes from the line of Caitlyn Burrows with Goldman Sachs, please go ahead.
Speaker Change: Hi everyone. Maybe we'll just start on the bad-death side. I know that that metric for Peacows very low versus other reach. John, you mentioned that it could come in at the high end, which is what you've been saying all year. So, it's not something new. I know in the first quarter it came up a lot and you pointed out then and now how Peacows being deliberate would tend to consider.
Speaker Change: Behind-on-run, so as soon as you could give some more detail on what this means for Pico and how it plays out, like, for example, those tenants that impacted the one-cube bad debt have they ended up leaving the portfolio and the replacements were already part of the 55% new lease spreads are just how the process played out or how will it .
Speaker Change: Thank you. Thank you. John, you want to take that?
Speaker Change: Do we're thanks for the question Caitlin.
Speaker Change: So, bad that was 86 basis points here today. Even mine, Roland's talking about a few hundred thousand dollars here. And as Bob mentioned, we are finding opportunities to enhance the merchandise and mix of our centers.
Speaker Change: with 55% of the existing spread that continues to be strong.
Speaker Change: We're not concerned about the environment. I would say that those neighbors, as we said, we've been more aggressive in taking those spaces over the year. I think our releasing of those spaces has been really strong, which is you can see if you look at our total occupancy on a lease basis, it's been very constant. The economics step back a little bit. That's what you're seeing there when you think about the process.
Speaker Change: Ultimately, we're pleased to be able to reaffirm our Same Store Guide and look at these opportunities to drive further rents, and it'll be a benefit to 2025 and beyond.
Speaker Change: and in terms of that benefit it's just that then you can get back the space and complete new leases yes
Speaker Change: yes and so I mean ultimately we do like you know a renewal business you know with with 19% renewal spreads and no downtime but overall we think this is a great opportunity to improve the merchandising and to drive the rent spreads at the properties
Speaker Change: Got it. Makes sense. And then just a quick one on the full year same-star guide. It implies a big pickup. I know you had previously talked about recoveries. Timing could drive that. But just wondering, is that it? Is there anything else? And kind of how much visibility do you have on that to reaffirm the same-star midpoint?
Speaker Change: Yeah, sure. I'll take that one as well. I mean, ultimately, it is, we do believe that there will be an acceleration here in the fourth quarter. Part of it will be a little bit of the comp to last year. But, I mean, I think one of the benefits of Phillips Edison is the overall consistency.
Speaker Change: to our business. And so even though quarter to quarter, the numbers move into fourth quarter, we are expecting to be outsized. Ultimately, we, you know, the three to 4% that we guide to in this year, the three and a half to 4% is a consistency. I wouldn't say there anything that's too unusual in that other than the timing of recoveries. I think the biggest piece this year to last year was that our spend was different last year than it was this year in terms of that cadence. When we look to next year, which we're not going to talk about yet, hopefully it either matches or smoother.
Speaker Change: Thanks.
Speaker Change: Thanks, Caitlin.
Speaker Change: Your next question comes from the line of Hendel St. Just from Mizuho Securities. Please go ahead.
Speaker Change: Hi there, this is Ravi Vaidhy on the line for Handel, hope you guys are doing well.
Speaker Change: Can you offer some additional color in the 2025 guide? The savings with interest expense and G&A appear to provide about a four cent lift and the same midpoint was maintained. Sorry, excuse me. So what are the offsets that resulted in only a one cent increase? Is it a higher bad debt expense or watch list? Well, what are some of the moving parts there?
Speaker Change: John, you want to take that?
John: Hey, Robbie, and I'm going to say, I think you said 25 guide. I think you mean the 24 guide, because that was the component. So the 25 guide is a plug. Nope. We are planning to talk about that in our December virtual update that I hope you'll join for.
John: With regards to the 2024 guidance, we are very pleased to be able to raise guidance this quarter.
Speaker Change: I'm comparing the exponents to the original guidance.
Speaker Change: there's about two cents less in lease buyout income than we expected because now we anticipate that those neighbors will actually stay longer than originally anticipated. So we raised guidance for acquisitions, but they're later in the year and don't have a significant impact on core FFO, but that acquisition timing does come through as lower interest costs in our guidance.
Speaker Change: We did not issue equity in the quarter, which is, I think, something that people have asked about. Net-net after these different pieces, we're comfortable raising guidance by a penny, which we believe will collect solid growth at the midpoint.
Speaker Change: Got it. That's helpful. And yes, I was talking about 24.
Speaker Change: I'll be sure to join in for the seminar later. Just one more here, can you discuss how you're planning on funding acquisitions? I believe that you said that above $250 million in acquisitions.
Speaker Change: and others.
Speaker Change: So, we don't have any equity plans to increase, but we would consider that with the right pricing if we were to have more outsized.
Speaker Change: acquisitions.
Speaker Change: For this year, I think we will be able to
Speaker Change: meet our targets without any, with very minimal impact on the balance sheet. And we're looking forward to a really good year next year. So that would probably entail a more detailed look at where we'd raise the capital.
Speaker Change: Got it. Thank you so much.
Speaker Change: Yeah, thanks Robbie.
Speaker Change: Your next question comes from the line of Dory Keston with Wells Fargo. Please go ahead.
Dory Keston: Thanks. Good morning. Since you announced the J.D. Wood Cohen Steers, have you seen an increase in the number or maybe a variety of deals that is being put before you?
Speaker Change: Thanks for the question, um, you know, we we
Speaker Change: We've been the largest buyer of shopping centers now for 10 years, and we see everything that comes onto the market.
Speaker Change: What we're not so I wouldn't say we're seeing more than we saw before because we saw these these all before
Speaker Change: There was a time where we just would not buy them. We wouldn't look at them because they didn't fit into the box. Our box is a little bit bigger with Cohen Steers, and so we're actually able to look more seriously at more properties because of the JV. But I wouldn't say that we're seeing a lot more deals than we did before, because we had seen these before and had discarded those.
Speaker Change: Does that make sense to her?
Speaker Change: Yeah, that makes sense. If you had to choose, you know, high-end or low-end of your net acquisitions guide for where you're most likely to end the year, at this point, which side would you lean into?
Speaker Change: We're optimistic, Dory. We have some great activity and some good activity looking like in the fourth quarter, so yeah, we're generally positive about the acquisition market.
Speaker Change: and many others. Thank you. Thank you.
Speaker Change: Okay, thank you. Yep.
Speaker Change: Your next question comes from the line of Otameok Okasana with Deutsche Bank. Please go ahead.
Otameok Okasana: Hi, yes, good afternoon. Um, could you please...
Otameok Okasana: Talk a little bit about your inline occupancy. It looks like it went down a little bit this quarter. I don't know whether that's kind of just from some of the planned take back of space that you guys have been doing or we're just going to talk about that a little bit.
Speaker Change: Sure. I don't know, Bob, do you want to take the occupancy?
Bob Myers: Just talk a little bit about where we are and I think you're talking about the inline occupancy, right? Or total?
Speaker Change: Inline occupancy. I think anchor went up this quarter, but I think inline went down a little bit.
Bob Myers: Yeah, I'll touch on that Jeff. So, no, appreciate the question. Our overall occupancy increased from 97.5 to 97.8 percent for the quarter and as you mentioned
Speaker Change: We have seen nice movement in our anchor occupancy that moved from 98.8% to 99.4%. Our inline occupancy went from 95.1% to 95%.
Speaker Change: So, again, not much movement in the inline, and I do believe the 95% is certainly leading our space, consistent with our 92% retention demand that we're seeing from our retailers. I'm not seeing any cracks.
Speaker Change: I also believe that we can move that inline occupancy number another 100 to 150 basis points over the next 24 months. So there's still a nice upside in that number, but I'm very confident and comfortable with our current occupancy numbers. They're very strong.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Todd Thomas with KeyBank. Please go ahead.
Todd Thomas: Hi, thanks. Good afternoon. Just, Jeff, you know, it sounds like the acquisition pipeline's pretty active. Do you think 2025 could be a more active year than 2024, just given what you're seeing and where your current cost of capital is? And then, you know, are some of the acquisitions you're eyeing in the pipeline in the new fund, you know, or do you see, you know, the majority of the activity right now on balance sheet?
Todd Thomas: and many more. Thank you. Thank you.
Todd Thomas: Thank you. Thank you.
Speaker Change: I would say, Todd, we are optimistic that it will be a better
Speaker Change: It's been a solid acquisition market this year. We are optimistic that it could be stronger next year. Primarily just the there will be more product on the market.
Speaker Change: We will have more buyers, but I think it will be...
Speaker Change: It'll be a more stable market.
Speaker Change: you know, interest rates are going to obviously create the turmoil of what...
Speaker Change: how strong that market is, but I would say generally today from what we see, we're optimistic that there will be strong activity and obviously we've prepared ourselves with a balance sheet that allows us to take advantage of that if the opportunities were to come. And you said there was one other question you had, Todd.
Todd Thomas: What was the other?
Todd Thomas: Yeah, I was just wondering you know with with what you're seeing in the pipeline today is is some of that you know sort of earmarked for the new the new fund with Cohen and Steers or is You know the majority of that or you know a good amount of that on balance sheet at this point
Todd Thomas: Yeah, the vast majority will be on ballot sheets.
Todd Thomas: We are hopeful that we'll get some great, really good opportunity with Cohen and Steers as well. But, you know, as...
Todd Thomas: if you look at it.
Todd Thomas: this year I think we bought one property into the Cohen and Steers and we bought you know over 200 million into on the balance sheet so that would you know I think that
Todd Thomas: that we anticipate that probability being, you know, continuing.
Speaker Change: Okay and then my other question I wanted to follow up on you know Caitlin's question and and the the new lease spreads the the activity in this this quarter you know how much of the the new lease spreads
Speaker Change: you know, 55% big number for the company, you know, how much of that included some of that recapturing activity that you mentioned earlier in the year when you talked about taking back some space and sort of, you know, cleaning out, you know, some potential bad debt or credits and any visibility on whether we might expect new lease spreads to maintain at an elevated level in the fourth quarter and into 2025.
Speaker Change: Well, Bob, I'll let you take that. I would like to believe that we're going to have 50% rent spreads for a long time. We all know that's not.
Speaker Change: totally realistic, but we'd like, I mean, we, we do.
Speaker Change: We're in a strong market.
Speaker Change: we will continue to see strong lead spreads, you know, 50%.
Speaker Change: is, you know, that's a bigger number than, you know, is long-term sustainable. But still, it's, you know, it is showing the strength of, you know, the portfolio and our ability to have, you know, pricing power in the right situations. But in terms of sort of going forward, new leasing spreads, Bob, anything you want to add there?
Bob Myers: Yeah, what I would add is, you know, at the 55 percent, obviously that's an increase up from 34.4 percent. We did have the benefit of leasing eight anchor spaces in the third quarter. Our leasing spreads on those were over 100 percent. So it was a combination of both recapturing some in-line space and some anchor leases. To Jeff's point,
Jeff Edison: We're really pleased with 55%, but the visibility that I see going out, I would say, over the next several months...
Jeff Edison: they're not going to be at 55%, but if you look at our history around, you know, 25 to 35%, I think they're still going to be elevated, but they won't be at the 55% mark.
Jeff Edison: The other thing I will mention is we expect retention to stay high.
Jeff Edison: But in addition to that, I mean, our renewal spreads and given the visibility that I see.
Jeff Edison: have the potential to be elevated. So we're encouraged by not only retention, but the retailer demand and the health of our neighbors. So we're seeing good things.
Speaker Change: Okay, but it sounds like the anchor deals really moved the needle this quarter. It wasn't so much about some of the recapturings that took place a little bit earlier in the year. Is that right? We certainly got the benefit of some of the anchor deals.
Speaker Change: And some of the anchor deals were actually part of the reCAPTCHA that we talked about, too. They do come together a little bit.
Speaker Change: Kind of a messy way to get a real detailed thing. But I were you know, they obviously great great results
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Well, and to your point, Jeff, just to add on that, in the first quarter our anchor occupancy was 98.4 percent. So we've moved it 100 basis points over two quarters. So to Jeff's point,
Speaker Change: Yes, we did recapture some of those anchor spaces and have released them at over 100% spreads.
Speaker Change: All right, that's helpful. Thank you One thing I would add, you know, a lot of our acquisitions you'll notice have higher Vacancies in our than what our portfolio does and we we have also had really strong performance on the the acquisitions we've had and And and been able to find, you know, pretty good good opportunity in those properties including both you know some Moderate sized boxes, but also the the inline stuff. We've been very very happy with the progress. We've been able to make there
Speaker Change: Your next question comes from the line of Flores Van Dijkum with Compass Point. Please go ahead.
Speaker Change: Hey guys, good day. Thanks for taking my question. So I want to delve into the acquisition market a little bit more.
Speaker Change: If I look at you, you're trading at a premium to consensus NAV, a premium to RNAV, like a 6.5% implied cap rate. Maybe if you could talk about
Speaker Change: What are the cap rates?
Speaker Change: that you would consider for acquisitions.
Speaker Change: seeing upward pressure or downward pressure, or are they relatively stable in your view? And then I guess the other question is maybe also, again, on the acquisitions front,
Speaker Change: Maybe if you could comment on larger portfolio transactions. I know there was a big public portfolio that was in the market, probably still in the market today. If you can talk a little bit about ... Obviously, you're looking at everything.
Speaker Change: Talk about your appetite for doing potential larger transactions as well portfolio transactions
Speaker Change: Well, Flores, thank you for the question. I, you know, we're, what we'd like your help on is finding those properties where you could buy. Our property is a six and a half cap because you can't. It's, it, we, our NAV, you know, we, we, we,
Speaker Change: I believe is a lot better than six and a half and should be priced that way. But that being said, you know, and I hope most of our analysts who are on the phone know, you know, we're not a cap rate buyer. What we're trying to buy is return to the overall company. And we use the unlevered IRR as that target. That target's, you know, north of nine percent for our drug-shrinkered shopping centers. And that can start at a lot of different cap rates and get to the nine in a lot of different ways.
Speaker Change: I would say that we...
Speaker Change: This quarter, we found some really great opportunities that we believe are going to be well north of a nine, but they probably were a little bit more aggressive cap rates than we would have liked. But we've got a lot of growth opportunities in them. And that's one of the things that we're trying to find as we look at it and getting the right returns, given the risk profile of the properties, what we're really looking at really hard.
Speaker Change: I would say that, you know, we are...
Speaker Change: We are not seeing big movement in cap rates. We are seeing some anomalies that are out there where certain properties get very aggressively priced. But that's more the exception than the rule. The core market is changing.
Speaker Change: It's got this.
Speaker Change: and many more. Thank you.
Speaker Change: increased demand from from people are getting into the grocery shopping center and into the retail that hasn't been there so there's more there are more buyers there
Speaker Change: There's also, as I said earlier, there's more supply coming in, so people who have kind of been out of the market for a couple of years are looking and they're saying, okay, well, am I going to wait another cycle until I sell? And a lot of them are pulling the trigger to do that.
Speaker Change: At the same time, the recent volatility in interest rates kind of...
Speaker Change: it creates another issue that sort of.
Speaker Change: You know, we look at everything that comes on the market, you know, our criteria is been really consistent and it is, you know, we want to maintain a very strong discipline that we're buying number one or two grocery in a market that there is a, that we can get to that nine unlevered IRR in the portfolio. So, you know, the problem that we've seen with most, and the reason we haven't bought more portfolios is
Speaker Change: We feel like they've been trading portfolio premiums instead of portfolio discounts.
Speaker Change: If you can help us find some portfolios that are trading at a discount, we'd love to buy them. And we've set our balance sheet up so that we can do that if the opportunity arises, but to date we have not seen...
Speaker Change: many portfolios that meet our criteria and therefore you know we have not been really active in in that market.
Speaker Change: and many more. Thank you. Thank you.
Jeff: Thanks, Jeff.
Jeff: Yeah, thanks Laura.
Speaker Change: Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.
Speaker Change: Thank you for watching. Please subscribe to my channel. See you in the next video.
Speaker Change: Hi, just hoping to follow up on the balance sheet on the questioning from earlier.
Speaker Change: I think, John, you said that the fixed floating ratio would stay relatively stable into year-end, but yet you have acquisitions assumed in the fourth quarter. So, just curious on what we should be assuming for funding for those incremental deals.
Speaker Change: John, do you want to you want to take that one? Sure, I'll take that. Thanks, Juan, and I do hope you heard we worked in our prepared remarks to talk a little bit about your analysis and in the dialogue that grocery anchored shopping centers, you know, require different demographics across different types. I think it's very thoughtful but, you know, certainly understanding that we make money where our groceries make money.
Speaker Change: To your question on the balance sheet, as we look at it, we have over $750 million of liquidity available to us, and our leverage is at 5.1 times. So we're very comfortable for...
Speaker Change: the upcoming acquisitions, but as we continue to see more, and as Jeff is talking about the acquisition market and our
Speaker Change: you know, optimism towards that, you know, equity is something that we will consider so long as we can do it on an accretive basis. So I think we have, you know, we have, we're now triple B-flat and B-double A-2 from the rating agencies with a long-term leverage target of five and a half times.
Speaker Change: So we do have room to work with that, but we're not, I wouldn't say that at this moment we're saying, hey, we're going up to that target. So I think you'll see us in this range, but we are very comfortable in doing that and utilizing equity so long as we can do so in an accretive manner.
Speaker Change: Okay, have you issued equity post-quarter end?
Speaker Change: We have not.
Speaker Change: Okay, and then just curious if you could make any comments on the...
Speaker Change: the kind of the mid to high teens earnings growth as we think about 25, any puts and takes that we should be aware of? Like, does the being more aggressive on re-merchandising or re-tenanting tenants, does that impact that prospective growth or that's kind of par for the course, so to speak?
Speaker Change: Yeah.
Speaker Change: We want to encourage you to come to our December call where we will give you a lot more detail on what we're seeing and projecting for next year. So I, you know, we're
Speaker Change: There's not a lot to add to that, but we do hope that you'll be there so we can give you the more detail of the growth that we're anticipating.
Speaker Change: going into next year. I mean, the only thing we would say is, you know, we.
Speaker Change: We continue to have price and power on the leasing side. We continue to have strong demand, and we're seeing an acquisition market where there's solid opportunities. So we're optimistic about what next year will look like.
Speaker Change: I'll dial in. Thanks.
Speaker Change: Your next question comes from the line of Michael Moeller with J.P. Morgan. Please go ahead.
Michael Moeller: Yeah, hi. I know you have the 25 event coming up, but John, can you share any early thoughts you have on the swaps expiring next year and how you're thinking about the term loans coming due in 26?
Michael Moeller: and many more. Thank you. Thank you. Thank you. Thank you.
Speaker Change: You're on mic.
Speaker Change: are working towards that. If you notice in the September deal, it's a 35 maturity, you know, to go with a 34 maturity. And so that's, I think, how you will see us.
Speaker Change: looking to do that so that I have
Speaker Change: approximately 10% a year on an ongoing basis would be our plans. But we're very pleased to say that we only have $100 million of turmoil left in 26, and then we'll look to finance that out as we finance our acquisitions.
Speaker Change: Got it. Okay. Thank you.
Speaker Change: Thanks, Michael.
Speaker Change: Your next question comes from the line of Ronald Camden with Morgan Stanley. Please go ahead.
Ronald Camden: Hey, just two quick ones because a lot has been asked. Just going back to sort of the same story in a while, I remember back in December you talked about pricing power and being able to put sort of rent escalators or more favorable lease contracts. Just as we sit here today, just any sort of causative commentary on the rent escalators and any other favorable lease contracts that you guys have been able to get that we may not see just in the releasing threats?
Speaker Change: Bob, do you want to take that one?
Speaker Change: Thank you for watching. Bye.
Bob Myers: Yeah, thanks for the question. In terms of...
Bob Myers: lease escalators. I'll start with the renewals. So on the renewal side, our renewal spread for the quarter was 19.8% and we are getting annual escalators on top of that.
Bob Myers: right around three percent.
Bob Myers: And as I have visibility out on our renewal piece, you're going to continue to see annual escalators between 3% and 4% on top of a very healthy first year increase as well. On new deals...
Bob Myers: We're getting annual increases between 2% and 3%.
Bob Myers: So, I'm encouraged by that number as well. Our strong retention has allowed us flexibility in, I would say, our lease negotiations around removing restrictions, exclusives.
Bob Myers: caps, those sort of things that strengthen our ability to not only drive renewal spreads and new leasing spreads, but also enhance our merchandising ability at the property. So that's what we're seeing.
Speaker Change: Great. If I could just follow up on the acquisitions, I think I heard you say that cap rates maybe was a little bit tighter, you're still going to hit the IRR. So just curious, are you seeing more cap rate compression and should we sort of expect that as we're rolling the calendar? Thanks.
Speaker Change: Yeah, I would say
Speaker Change #100: We're not really seeing significant compression on cap rates.
Speaker Change #101: No, we really aren't seeing that.
Speaker Change #102: There's, you know, obviously a lot of variability in cap rates based upon...
Speaker Change #102: occupancy and where you can take the unlevered IRR, which is obviously what we're focused on. So we do get some variability from that regard and why we don't just focus on cap rate. But I think there is...
Speaker Change #102: some stability in the market, where we're getting to a place where supply and demand is more stable than it was.
Speaker Change #102: over the last couple of years, where there just wasn't much supply coming on the market.
Speaker Change #102: There was no, very little demand, so that was much more complicated. I think we're getting to a place where it is more stable.
Speaker Change #103: Great. That's it for me. Thanks so much.
Speaker Change #103: Later.
Speaker Change #104: Your next question comes from the line of Paulina Rojas with Green Street. Please go ahead.
Speaker Change #105: Hello, everyone.
Speaker Change #106: We talk about supply, new supply, not penciling in general, and I find interesting we see you doing this pad development and acquiring more pad developments.
Speaker Change #107: I think all of them are adjacent to your centers. So, related to that, two questions. One, are you seeing more of this type of small-scale developments in your markets as a mean to capitalize on the strong retailer demand?
Speaker Change #107: And two, can you share a little more color on them in terms of the rents you achieve in these projects and why you think they make economic sense but larger centers don't?
Speaker Change #108: Thank you. Bye bye.
Speaker Change #109: Paulina, thank you for the question.
Speaker Change #110: You know, we have always had an active outlaw development program at Beko for literally forever. We were a Walgreens developer for a long time and have been very active in that business.
Speaker Change #110: It is a demand-driven business where the retailers looking for visibility and looking for access, you know, drive-through, et cetera, they want to be out on the main road and they cycle through that over time.
Speaker Change #110: you know, how urgent that is. And those are great opportunities for us, where we can take parking lots, where we can take vacant land, and we can turn them into these smaller pad developments.
Speaker Change #110: The interesting part is how much they're willing to spend on rent.
Speaker Change #110: will pay enough to actually make ground-up development work and that, you know, Starbucks is Chipotle. It's the names, the regular names that you see on those outlots that are willing to step up and pay rents that are...
Speaker Change #110: double to triple what we are getting in line in the existing shopping center. So these are very aggressive.
Speaker Change #110: expansion oriented retailers that believe that having drive-thru having visibility is worth
Speaker Change #110: the additional cost of new construction and then having the benefits of drive-thru and the visibility. So that's what is driving that.
Speaker Change #110: We would love to do more of it because it is a very profitable business for us with really solid returns.
Speaker Change #110: from a
Speaker Change #110: from a rent standpoint and a cost standpoint, because, you know, when you look at, you know, paying two to three times.
Speaker Change #110: in-line space. It's got to be really valuable to you as a retailer to be willing to step into those situations.
Speaker Change #110: And it's really hard for us to find those locations that you can even make work at two to three times existing rent. And that says something about how long it's going to be before any kind of major new development on the retail side is going to happen.
Speaker Change #111: Does that answer your question?
Speaker Change #112: Yeah, it does. Thank you.
Speaker Change #113: And I have a second one, if I can, but it's...
Speaker Change #114: So, from a broader perspective, employment is still low, retail sales have shown resilience overall. However, one concerning trend has been the rise in credit card delinquencies.
Speaker Change #115: So delinquencies have increased materially to levels that I think we have not seen since, I don't know, 2010 more or less.
Speaker Change #115: Thank you.
Speaker Change #116: Yeah, it's a great question and one that
Speaker Change #116: You know the
Speaker Change #116: you know, retailer, our retailer, our retail shoppers demand has been really driven by employment.
Speaker Change #116: Basically, you will see fluctuations in credit card usage and delinquencies.
Speaker Change #116: Thank you.
Speaker Change #116: customer.
Speaker Change #117: probably does. I mean it has historically been a sort of one of those leading indicators of when the customer is going to start to pull back. So I mean it's certainly something that you know everyone is kind of watching but
Speaker Change #117: when normally that
Speaker Change #117: goes with.
Speaker Change #117: a time where you've got employment issues as well, and we just aren't having those right now. I mean, the most, the biggest employment issues are really at a higher level of income than where a lot of the credit card issues are.
Speaker Change #118: Okay, thank you very much.
Speaker Change #118: Okay, thank you.
Speaker Change #119: That concludes our question and answer session, and I will now turn the call back over to Jeff Edison for some closing remarks. Jeff?
Jeff Edison: Well, great. Thank you, everyone, for being on the call today. In closing, you know, during the third quarter, the PICO team continued our strong operating performance. We delivered strong in-line lease occupancy. We executed outstanding renewal rent spreads. We had high performance.
Jeff Edison: record-high new rent spreads which are among the highest in the peer group. We have among the highest retention in this in our space.
Jeff Edison: were on track to acquire between $275 million and $325 million of net acquisitions for the year, which is an increase.
Jeff Edison: Our target unlevered IRRs continue to exceed 9% for our acquisitions.
Jeff Edison: We completed two 10-year bond offerings totaling $700 million, which
Jeff Edison: lengthens again our maturities. We continue to have one of the lowest leveraged balance sheets in the shopping center space and you know despite the the interest expense headwinds that everyone's facing, we delivered strong earnings growth.
Jeff Edison: We believe our differentiated and focused strategy, our high-quality portfolio, and our talented and innovative team combine to create a market leader in the shopping center space.
Jeff Edison: that the FECO team will continue to deliver market-leading results for the remainder of the year. Peakfield's experience and line management team owns 8% of the company. We have meaningful skin in the game, and we are committed to driving shareholder value.
Speaker Change #120: At PICO, we cultivate a culture in which our leadership team and our associates, they think and they act like owners, every day, for every decision.
Speaker Change #120: Looking beyond 2024, PICO's well-positioned to continue to successfully grow as we look forward.
Speaker Change #120: We believe we provide our investors more alpha and less beta.
Speaker Change #120: We look forward to providing an update on our strategy and the long-term growth drivers during the December event that we have discussed. So on behalf of the management team, we want to thank our shareholders, our PICO associates and our neighbors for their continued support. And again, thank you for your time today. Have a great weekend.
Speaker Change #121: This concludes today's conference call and you may now disconnect.