Q2 2025 Phillips Edison & Co Inc Earnings Call
Operator: Please note that this call is being recorded.
Kimberly Green: I will now turn the call over to Kimberly Green, Head of Investor Relations. Kimberly, you may begin. 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.
Good day and welcome to Phillips. Edison & company's second quarter 2025 earnings call. 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Kimberly Green: Once we conclude our prepared remarks, we will open a call to Q and A. After today's call, an archived version will be published on our website. As a reminder, today's discussion may contain forward-looking statements about the company's view of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current beliefs and expectations. and are subject to various risks and uncertainties. as described in our edition. specifically.
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 cfield, once we conclude our prepared remarks, we will open a call to Q&A. After today's call an archived. Version will be published on our website. As a reminder, today's discussion May
Kimberly Green: And our discussion today will reference certain non-GAAP information regarding our use of the and Reconciliations of these measures to our GAP results are available in our early 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.
Jeff Edison: Now, I'd like to turn the call over to Jeff Edison, our chief executive. Jeff. Thank you, Kim. And thank you everyone for joining us today.
Speaker Change: Contain forward-looking statements about the company's view of future business, and financial performance, including Ford earnings guidance and future market conditions. These are based on Management's, current beliefs, and expectations, and are subject to various risks and uncertainties as described in our SEC filings specifically in our most recent form, 10K and 10q. And our discussion today will reference certain non-gaap Financial measures information regarding our use of these measures and reconciliations of these measures to our Gap. Results are available. In our earnings, press release and supplemental information packets, 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. Now, I'd like to turn the call over to Jeff Edison, our chief executive officer Jeff.
Jeff Edison: The PICO team is pleased to deliver another quarter of Solid Growth. Dane Center, NOI, increase four. The core FFO per share increased 8.5%.
Thank you, Kim. And thank you everyone for joining us today.
The Pico team is pleased to deliver another quarter of solid growth.
Jeff Edison: Given the continued strength of our business, we are pleased to increase our full year 2025 earnings guidance for Same Center NOI, Core FFO for Share, and NARIT FFO for Share. I'd like to thank our PECO associates for their hard work in maintaining our unique competitive advantages and driving value at the property. We believe PECO's growth-tracking strategy and necessity-based focus have helped to create a resilient portfolio that also delivers steady growth. We are driving strong rent spreads, increasing occupancy, and generating dependable, high-quality cash flows. This consistency in performance and growth is attributable to several factors. First and foremost, it takes an experienced and locally smart team to bring the best retailers to our center.
Speaker Change: Pain center, noi increased 4.2% and core ffo per share. Increased 8.5%, given the continued strength of our business. We are pleased to increase our full year 2025 earnings guidance. For the same Center on AI Core ffo per share and NAIT ffo per share.
I'd like to thank our Pico Associates for their hard work. In maintaining our unique competitive advantages and driving value at the property level.
Speaker Change: We Believe Pecos, broad Rancor strategy, and necessity, based Focus have helped to create a resilient portfolio that also delivers steady growth.
Speaker Change: We are driving strong rent, spreads, increasing occupancy and generating Dependable, high quality cash flows.
This consistency in performance and growth is attributable to several factors.
Jeff Edison: Our neighbors create positive community experiences built around our growth. Second, it takes decades to build the strong grocer and national-neighbor relationships that PICO enjoys. These relationships give us an advantage in working together to optimize our property. These relationships also are critical to our acquisition strategy. Third, it requires a portfolio focused on right-sized neighborhood centers located in suburban trade areas with compelling demographic trends and continued macroeconomic tailwind. Strong demand from national retailers continues to fill our pipeline of ground-up out-parcel development and repositioning activity. Fourth, it takes a dedicated team to acquire and curate a high-quality, gross-ranked portfolio that is expected to deliver 3-4% SaneCenter NOI growth year after year.
Speaker Change: First and foremost, it takes an experienced and locally, smart team to bring the best retailers to our centers.
Speaker Change: Our neighbors create positive community experiences built around our groceries.
Speaker Change: Second, it takes decades, to build the strong grosser and National neighbor relationships that Pico enjoys.
Speaker Change: These relationships give us an advantage in working together to optimize our properties. These relationships also are critical to our acquisition strategy
Speaker Change: Third, it requires a portfolio focused on right size, neighborhood Centers, located in Suburban trade, areas with compelling demographic, Trends and continued macroeconomic Tailwind.
Speaker Change: Strong demand from National retailers continues to fill our pipeline of ground up out, partial development and repositioning activity.
Jeff Edison: And lastly, it requires a strong balance sheet with great liquidity to invest in the properties and the portfolio. Our long operating history and track record have built these strengths for PECO that give us both offensive and defensive advantages in the market.
Speaker Change: Forth. It takes a dedicated team to acquire and curate a high quality growth anchored portfolio. That is expected to deliver 3 to 4% same Center noi growth year after year.
Speaker Change: And lastly, it requires a strong balance sheet, with great liquidity to invest in the properties and the portfolio.
Jeff Edison: Because of these advantages, we believe PECO is able to deliver mid-to-high single-digit core FFO for share growth annually on a long-term basis. The market continues to focus on tariffs and U.S. economic stability. As it relates to PECO's grocers and neighbors, we feel very good about our portfolio. As a reminder, 70% of our ABR comes from necessity-based goods and services. This provides predictable, high-quality cash flows and downside protection, quarter after quarter. This also limits our exposure to discretionary goods, which are at risk of greater impact from tariffs. We estimate that approximately 85% of our neighbors, based on ABR, will experience limited impact from tariffs.
Speaker Change: Our long operating history, and track record have built these drinks for Pico that give us both offensive and defensive advantages in the market.
Advantages We Believe Pico is able to deliver mid to high single-digit core ffo per share growth annually on a long-term basis.
Speaker Change: The market continues to focus on tariffs and the US economic stability.
Speaker Change: As it relates to Pecos, groceries and neighbors. We feel very good about our portfolio.
Speaker Change: As a reminder, 70% of our ABR comes from necessity based goods and services. This provides predictable, high quality cash, flows and downside protection. Quarter after quarter.
Jeff Edison: Reporting that estimate is the strength of our naval retention and leasing spreads in the second quarter, which Bob will speak about in a moment. Our neighbors are watching the consumer close. They continue to benefit from their location in the neighborhood, where our top grocers drive strong foot traffic to our center. We continue to see leasing demand for our existing spaces, along with a healthy development and redevelopment pipeline. We are seeing strong demand from retailers who want to be located at PECO's grocery-anchored neighborhood shopping center. especially from small shop retailers in categories like quick service restaurants, health and beauty, medical retail, and personal services.
This also limits our exposure to discretionary Goods which are at risk of Greater impact from tariffs. We estimate that. Approximately 85% of our neighbors based on ABR will experience limited impact from tariffs
Speaker Change: Supporting that estimate is the strength of our neighbor retention and leasing spreads in the second quarter, which Bob will speak about in a moment.
Speaker Change: Our neighbors are watching the consumer closely, they continue to benefit from their location. In the neighborhood, where our Top gers Drive strong foot traffic to our centers.
We continue to see leasing demand for our existing spaces along with the healthy development and Redevelopment pipeline.
Jeff Edison: These are the types of neighbors that perform well because they are part of people's everyday routine. And importantly, the PECO team continues to find smart, accretive acquisitions that add long-term value to our portfolio. Our acquisitions activity is another differentiator in PICO's strategy. The PICO team is acquiring in the market through all cycles. Carefully and deliberately acquiring centers that fit our gross ranker strategy and right-size format while also delivering long-term growth potential. This has been part of our DNA for over 30 years.
We are seeing strong demand from retailers, who want to be located at Pecos. Grocery anchored neighborhood shopping centers especially from small shop retailers in categories like Quick Service restaurants Health and Beauty medical retail and personal services.
Speaker Change: These are the types of neighbors that perform well because they are part of people's everyday routines.
Speaker Change: And importantly, the Pico team continues to find Smart a Creed of Acquisitions that add long-term value to our portfolio.
Our active Acquisitions activity, is another differentiator in Pico strategy.
Speaker Change: The Pico team is acquiring in the market through all Cycles carefully and deliberately acquiring centers, that fit our growth Rancor strategy and right-size format. While also delivering long-term growth potential,
Jeff Edison: We're not just maintaining a high quality portfolio, we're building. What sets PICO apart is that we know exactly what we're looking for. And we have one of the best operating platforms, StackQuickly, and. And that puts PICO in a unique position to grow cash flows in a way that's both disciplined and opportunistic. During the second quarter, we purchased $133 million of assets in PECO's total share. When you include assets acquired subsequent to quarter end, this brings our year-to-date gross acquisitions at PicoShare to $287 million. Despite recent market volatility, we remain confident in our ability to acquire high-quality centers at attractive returns.
Speaker Change: This has been part of our DNA for over 30 years.
Speaker Change: We're not just maintaining a high-quality portfolio. We're building 1.
What sets Pico apart is that we know exactly what we're looking for.
Speaker Change: And we have 1 of the best operating platforms that quickly and execute.
Speaker Change: And that puts Pico in a unique position to grow cash flows in a way, that's both disciplined and opportunistic.
Speaker Change: During the second quarter, we purchased 133 million of Assets in Pecos. Total share.
Speaker Change: When you include assets acquired subsequent to quarter end. This brings our year-to-date gross Acquisitions at pico share to 287 million.
Jeff Edison: We are pleased to affirm our guidance range of $350 to $450 million in gross acquisitions this year. We continue to successfully find attractive acquisition opportunities below replacement costs with strong growth profiles that we believe will exceed our unlevered 9% IRR target. We will acquire more if attractive opportunities materialize, but we are comfortable with our current pace and IRR target.
Speaker Change: Despite recent Market volatility. We remain confident in our ability to acquire high quality centers at attractive returns.
Speaker Change: We are pleased to affirm our guidance range of 350 to 450 million dollars in Gross Acquisitions this year.
Speaker Change: We continued to successfully, find attractive acquisition opportunities below. Replacement costs with strong growth profiles that we believe will exceed our unlevered. 9% irr targets.
Speaker Change: We will acquire more if attractive opportunities materialize.
Jeff Edison: We will continue to be disciplined buyers as we look forward.
Speaker Change: What? We are comfortable with our current pace and irr targets?
Jeff Edison: In summary, we are very pleased with our results this quarter and our ability to raise guidance for the remainder of the year. While it is still early to understand the full impact tariffs could have on PICO or our neighbors, we continue to see a resilient consumer, and we believe our portfolio will outperform as retailer demand remains strong. Our confidence is driven by the stability of our high quality cash flows and the PICO team's ability to deliver solid growth and create value for our shareholders.
Speaker Change: We will continue to be disciplined buyers as we look forward.
In summary.
Speaker Change: We are very pleased with our results, this quarter and our ability to raise guidance for the remainder of the year.
Speaker Change: While it is still early to understand the full impact tariffs could have on Pico or our neighbors. We continue to see a resilient consumer and we believe our portfolio will outperform as retailer demand remains strong.
Jeff Edison: Given our demonstrated track record through various cycles, we believe an investment in PICO provides shareholders with a favorable balance of defense and offense. In summary, we believe the quality of our cash flows reduces our beta. and the strength of our growth increases our health.
Speaker Change: Our confidence is driven by the stability of our high quality cash flows and the Pico team's ability to deliver solid growth and create value for our shareholders.
Speaker Change: Given our demonstrated track record through various Cycles. We believe in investment in Pico provide shareholders, with a favorable, balance of defense and offense.
Speaker Change: In summary, we believe the quality of our cash flows, reduces our beta.
Jeff Edison: Less beta, more alpha.
And the strength of our growth increases our Alpha.
Speaker Change: Less beta.
More Alpha.
Bob Myers: I will now turn the call over to Bob. Thank you, Jeff. And thank you for joining us. As Jeff said, PECO's grocery-anchored focus and necessity-based neighbor mix creates strong leasing momentum. That momentum is clear in our operating results again this quarter. Our long operating history has given us an informed measure of what drives quality and value at the shopping center level. We continue to believe SOAR provides important measures of quality. Occupancy Advantages of the market and retention. This is most evident in our continued high occupancy strong rent spreads and high retention In terms of leasing activity, we continue to capitalize on elevated renewal demand.
Bob Bob: I will now turn the call over to Bob Bob.
Speaker Change: Long, operating history is giving us an informed measure of what drives quality and value at the shopping center level. We continue to believe sore provides important. Measures of quality, spreads occupancy, advantages of the market and retention. This is most evident in our continued High occupancy, strong, rent, spreads and high retention.
Bob Myers: The PECO team remains focused on maximizing opportunities to improve lease language at renewal and drive rents higher. In the second quarter, we delivered strong, comparable renewal rent spreads of 19.1%. Our in-line renewal rent spreads remained high at 20.7% in the quarter. Comparable new leasing rent spreads for the second quarter were 34.6%, and our inline new rent spreads were 28.1% in the quarter. These spreads reflect the continued strength of the leasing and retention environment. We expect new and renewal spreads to continue to be strong throughout the balance of this year and into the foreseeable future. Leasing deals we executed during the second quarter, both new and renewal, achieved average annual rent bumps of 2.7%, another important contributor to our long-term growth.
Speaker Change: In terms of leasing activity, we continue to capitalize on elevated, renewal demand the Pico team remains focused on maximizing opportunities, to improve lease language at renewal and drivers higher. And the second quarter, we delivered strong comparable, renewal rent, spreads of 19.1%, our inline renewal rent spreads remained high at 20.7% in the quarter.
Bob Myers: Portfolio occupancy remained high and ended the quarter at 97.4% leased. Anchor occupancy remained strong at 98.9%. A sequential increase of 50 bases. During the quarter, PECO executed leases with Dollar Tree, Planet Fitness, Ace Hardware, and Southeast Pickleball. Inline occupancy ended the quarter at 94.8 percent, a sequential increase of 20 basis. Small shop retailers added during the quarter included Cold Stone, Firehouse Subs, H&R Block, and Pacific Dental Services, along with several other Medtel neighbors and health and beauty retailers. Given our robust leasing pipeline, we expect inline occupancy to remain high throughout the year.
Speaker Change: Comparable, new leasing rent, spreads for the second quarter or 34.6%. And our inline new rent, spreads were 28.1% in the quarter. These spreads reflect, the continued strength of the leasing and retention environment. We expect new and renewal spreads to continue to be strong throughout the balance of this year, and into the foreseeable future. Leasing deals. We executed during the second quarter, both new and renewal achieved average annual rent bumps of 2.7%, another important contributor to our long-term growth.
Speaker Change: Portfolio occupancy remained high and ended the quarter at 97.4%. Leased anchor occupancy, remained strong at 98.9% a sequential increase of 50 basis points. During the quarter Pico executed leases with Dollar Tree Planet Fitness Ace Hardware and Southeast pickle ball.
Bob Myers: very positive. As it relates to bad debt in the second quarter, we actively monitor the health of our neighbors. Bad debt in the quarter was up from a year ago, but in line on a year-to-date basis and well within our guidance. We are not concerned about bad debt in the near term, particularly given the strong retailer demand. We continue to have a highly diversified mix with no meaningful rent concentration outside of our grocery. The key advantage of PECO's suburban locations is that our centers are situated in markets where our top grocers are profitable. PECO's three-mile trade area demographics include an average population of 68,000 people and an average median household income of $92,000.
Inline occupancy ended the quarter at 94.8% a sequential increase at 20 basis points, small shop, retailers added during the quarter included, Cold Stone, Firehouse, Subs H&R, Block and Pacific dental services along with several other Med tail, neighbors, and health and beauty retailers, given our robust leasing pipeline. We expect inline occupancy to remain high throughout the year which is very positive.
Speaker Change: As it relates to bad debt. In the second quarter, we actively monitor the health of our neighbors bad debt in the quarter was up from a year ago, but in line on a year-to-date basis and well, within our guidance range, we are not concerned about bad debt in the near term, particularly given the strong retailer demand. We continue to have a highly Diversified mix with no meaningful rent concentration outside of our groceries.
Bob Myers: This is 15% above the U.S. median. These demographics are in line with the store demographics of Kroger and Publix, which are PECO's top two neighbors. Our markets also benefit from low unemployment rates, which are below the shopping center peer average. We believe the necessity-based focus of our properties is important when demographics are considered. When looking at our very limited exposure to distressed retailers, the top 10 neighbors currently on our watch list represent approximately 2% of AVR. This is not by accident. It is a product of many years of being locally smart and intentionally cultivating our portfolio of grocery-anchored neighborhood centers located in lively trade areas with compelling demographic trends.
Speaker Change: A key advantage of Pico Suburban locations. Is that our centers are situated in markets, where our top, groceries are profitable Pecos 3-mile trade area demographics. Include an average population of 68,000 people and an average median household income of 92,000. This is 15% above the US median.
Speaker Change: These demographics are in line with the store demographics of Kroger and Publix which are Pecos top 2 neighbors. Our markets also benefit from low unemployment rates which are below the shopping center period. We believe that necessity based focus of our properties is important when demographics are considered
Bob Myers: Our Navy retention remained high at 94% in the second quarter while growing rents at attractive rates. High retention results in better economics with less downtime and dramatically lower tenant improvement costs. Lower capital spend results in better returns. In the second quarter, we spent only 49 cents per square foot on tenant improvements for renewal. In addition to our strong rental growth and retention trends, we continue to expand our pipeline of ground-up out-parcel development and repositioning projects. At the end of the second quarter, we had 21 projects under active construction, with an average estimated yield between 9 and 12 percent.
Speaker Change: When looking at our very limited exposure to distressed retailers, that top 10 neighbors, currently on our watch lists represent approximately 2% of AVR. This is not by accident. It is a product of many years of being locally, smart and intentionally cultivating our portfolio of grocery anchored neighborhood Centers located in Lively trade, areas with compelling demographic, trends
Speaker Change: Our neighbor retention remained, high at 94% in the second quarter, while growing rents at attractive rates, High retention results, and better, economics with less downtime and dramatically lower tenant Improvement costs lower Capital. Spend results in better returns and the second quarter we spend only 49 cents per square foot on tenant improvements for renewals
Bob Myers: Year-to-date, nine projects have been stabilized. This activity delivered over 180,000 square feet of space to our neighbors, with incremental NOI of approximately $3.7 million annually. The overall demand environment, the balance of PECO's defense and offense, the stability of our high-quality cash flows, and the capabilities of the PECO team give us continued confidence in our ability to deliver strong growth in 2025 and in the long term.
Speaker Change: In addition to our strong rental growth and retention Trends, we continue to expand our pipeline of ground up out, parcel development and repositioning projects. At the end of the second quarter, we had 21 projects under active construction. With an average estimated yield between 9 and 12% year to date 9 projects have been stabilized this activity, delivered over, 180,000 square feet of space to our neighbors with incremental noi of approximately 3.7 million annually.
John Caulfield: I will now turn the call over to John. Thank you, Bob, and good morning and good afternoon. I'll start by highlighting second quarter results, then provide an update on the balance.
Speaker Change: The overall demand environment, the balance of Pecos defense and offense. The stability of our high-quality cash flows and the capabilities of the Pico team. Give us continued confidence in our ability to deliver strong growth in 2025. And then the long term
John Cfield: I will now turn the call over to John.
Speaker Change: John.
John Cfield: Thank you, Bob and good morning and good afternoon everyone.
John Caulfield: And finally, speak to our increased 2025 guidelines. Our second quarter results demonstrate what we've built. A high-performing, grocery-anchored, and necessity-based portfolio that generates reliable, high-quality cash flow. Second quarter NARED FFO increased to $86 million, or $0.62 per diluted share, which reflects year-over-year per share growth of 8%. Second Quarter Core FFO increased to $88.2 million or $0.64 per dilution. which reflect year over year per share growth of eight and a half. Our same-center NOI growth in the quarter was 4.2%.
I'll start by highlighting second quarter results, then provide an update on the balance sheet, and finally speak to our increased 2025 guidance.
John Cfield: Our second quarter results, demonstrate what we built at pico.
High-performing, grocery anchored and necessity based portfolio, that generates reliable high quality cash flows.
John Cfield: Second quarter, May read ffo increase to 86 million or 602 cents per diluted share, which reflects year-over-year per, share growth of 8.8%.
Second quarter core. Ffo increased to 88.2 million or 64 cents per diluted share, which reflects year-over-year per share, growth of 8 and a half percent.
John Caulfield: Turning to the balance sheet, we have approximately $972 million of liquidity to support our acquisition plans and no meaningful maturities until 2027. Our net debt to trailing 12-month annualized adjusted EBITDAR was 5.4 times as of June 30, 2025. This was 5.3 times on a last quarter annual. It's also important to track in quarters with elevated activity. Our debt had a weighted average interest rate of 4.4% and a weighted average maturity of 5.7 years when including all extensions. At the end of the second quarter, 95% of PECO's total debt... in line with our target of 90.
John Cfield: Center noi growth in the quarter was 4.2%.
John Cfield: Turning to the balance sheet, we have approximately 972 million of liquidity to support our acquisition plans and no meaningful maturities until 2027.
Our net debt to trailing 12 months annualized. Adjusted evid was 5.4 times as of June 30th 2025.
John Cfield: This was 5.3 times on a last quarter annualized basis, which is also important to track in quarters with elevated acquisition volume.
John Cfield: Our debt, had a weighted average interest rate of 4.4% and a weighted average maturity of 5.7 years when including all extension options.
John Caulfield: During the quarter, PICO completed a bond offering of $350 million in aggregate principal of 5.25% senior notes due 2035. Proceeds from the offering were used to replenish the liquidity on our revolver, effectively match funding the $287 million in properties acquired to date at PICO.
John Cfield: At the end of the second quarter, 95% of Pecos total debt was fixed rate which is in line with our Target of 90%.
During the quarter Pico completed, a bond offering of 350 million in aggregate principal of 5.25% senior notes, due to 2032.
John Caulfield: Asha The PICO team is not just maintaining a high-quality portfolio, we're building it. We continue to have one of the best balance sheets in the sector, which has us well positioned for continued excellence. As Jeff mentioned, we are pleased to raise our 2025 guidance. key drivers of our increased guidance.
John Cfield: Proceeds from the offering were used to replenish liquidity on our revolver. Effectively match funding. The 287 million in properties acquired to date at pico share.
John Cfield: As Jeff mentioned, the Pico team is not just maintaining a high quality portfolio, we're building 1.
John Cfield: We continue to have 1 of the best balance sheets in the sector which has us well positioned for continued external growth.
John Cfield: As Jeff mentioned, we are pleased to raise our 2025 guidance.
John Caulfield: http://www.kenhub.com and our recent bond office. We updated our guidance range for 2025 same-center NOI growth to 3.1% to 3.6%. As we continue to enhance our neighbor mix, our actions in 2024 to improve merchandising and capture market-to-market rent growth with new neighbors are still a slight headwind to 2025 growth. As we have said previously, the PICO team is focused on the long term, and our actions to replace neighbors are important. Our updated guidance for 2025 NARED FFO per share reflects a 6.3% increase over 2024 at the mid- and our updated guidance for 2025 core FFO per share represents a 6% increase over 2024 at.
John Cfield: Key drivers of our increased guidance. Include a continued strong operating environment, strong year-to-date acquisition activity and our recent Bond offering.
John Cfield: We updated our guidance range for 2025 same Center. Noi growth to 3.1% to 3.6%
As we continue to enhance our neighbor, mix our actions in 2024, to improve, merchandising and capture mark-to-market. Rent growth with new neighbors are still a slight headwind to 2025 growth.
As we have said, previously, the Pico team is focused on the long term and our actions to replace neighbors are intentional.
John Cfield: Our updated guidance for 200225 na ffo per share reflects a 6.3%. Increase over 2024 at the midpoint
John Caulfield: We also affirmed our 2025 whole year gross. We believe our low leverage gives us the financial capacity to meet our growth targets. We also have diverse sources of capital that we can use to grow and match fund our investments. These sources include additional debt issuance, dispositions, and equity. Match funding our capital sources with our investments is an important component of our investment strategy.
John Cfield: and our updated guidance for 2025 core ffo per share represents a 6%, increase over 2,024 at the midpoint
John Cfield: We also offered our 2025 whole year gross acquisition guidance.
We believe our low leverage gives us the financial capacity to meet our growth targets. We also have diverse sources of capital that we can use to grow and match fund our investment activities.
John Cfield: These sources include additional debt, issuance dispositions and Equity issuance.
John Caulfield: Please note that our guidance for the remainder of 2025 does not assume any equity issues. We continue to believe this portfolio and this team are well-positioned to deliver mid-to-high single-digit core FFO per share growth on an annual basis. We also believe that our long-term AFFO growth can be higher as more of our leasing mix is weighted towards renewal. We believe our targets for growth in core FFO and AFFO will allow PICO to outperform the growth of our shopping center peers on a long-term basis.
John Cfield: Match funding, our Capital sources with our investments is an important component of our investment strategy.
John Cfield: Please note that our guidance for the remainder of 2025 does not assume any Equity issuance.
John Cfield: We continue to believe this portfolio and this team are well, positioned to deliver mid to high single-digit core ffo per share growth on an annual basis.
We also believe that our long-term afo growth can be higher as more of our leasing mix is weighted towards renewal activity.
Operator: With that, we will open the line for questions. Thank you.
We believe our targets for growth and core ffo and afo will allow Pico to outperform the growth of our shopping center peers on a long-term basis.
John Cfield: With that, we will open the line for questions. Operator.
Operator: To ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw your question, again, press star 1. We do ask that you limit yourself to one question and a follow-up.
Caitlin Burrows: Your first question comes from Caitlin Burrows with Goldman Sachs. Please go ahead. Hi, good afternoon, everyone. I guess we hear the transaction market is competitive, but Jeff, like you went through, you did have a strong first half. So what do you think has allowed Pico to win these transactions? And it looks like shadow anchored centers have been a focus this year. What is driving? Yeah, thanks, Caitlin, for the question. We, yeah, we had a really good first half. I think it, it kind of goes back to the fact that, you know, we buy properties one at a time, market by market.
Speaker Change: Thank you to ask a question. Please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw your question, again press star 1, we do ask that you limit yourself to 1, question in a follow-up.
Operator: Your first question comes from Caitlyn Burroughs with Goldman Sachs. Please go ahead.
Has allowed Pico to win these transactions and it looks like Shadow. Anchored, centers have been a focus this year. What is driving that
Jeff Edison: And if you step back, and you look at it, that's how we were able to actually get this volume. It didn't come in, you know, a big chunk of buying something, it came in, like being active in a lot of markets. And, you know, we set up our acquisition team to be able to do that over a long period of time. And it's hard, but we've been able to, you know, put that in place. And I think that's how we've been able to get to those numbers. And, you know, as you know, we're very focused on a very disciplined approach to our acquisitions.
Speaker Change: Yeah. Um, thanks Caitlin for the question. Um, we yeah we we, we had a really good first half. Um, I think it it kind of goes back to the fact that, you know, we buy properties 1 at a time Market by market. And if you step back and you look at it, that's how we were able to actually get this volume. Um, it didn't come in, you know, a big chunk of buying something. It it came in like being active in a lot of markets and, you know, we've set up our acquisition team to be able to do that over a long period of time and it it it's hard. Um, but we've been able to, you know, put that in place. And and I think that's how we've been able to to get to those numbers and, you know, as, as you know, we're we're, we're very focused on a very disciplined approach to our Acquisitions and
Jeff Edison: I think we feel really good about that and we're actually really excited about the opportunities because if you look at the anchors that we were able to expand our exposure to like H-E-B and Walmart, Target to a small amount, these are really good retailers that we're sort of spreading out a little bit of our exposure to.
Bob Myers: So, we feel great about the first quarter and excited about what we can do hopefully in the second half. Got it. And then also in the prepared remarks, you guys mentioned how the kind of turnover of some tenants that you focused on 2024 in 24 was still a headwind to growth in 25. I guess, as you guys think about tenant retention going forward and the decisions you made in 24, what do you think those headwinds will be done? And is it to what extent will be something that's kind of ongoing that tenant replacement versus kind of done?
Um, this is, uh, um, I think, I, I think we, we feel, we feel really good about that. And we're, we're actually really excited about the opportunities because if you look at the anchors that we were able to, you know, expand our exposure to, like HB and, and Walmart, um, Target a little to, to a small amount. These are really good retailers that we, you know, we we're, we're, we're sort of, spreading out a little bit of our exposure to. So we feel we feel great about the first, uh, quarter and, uh, excited about, you know, what, what what we can do hopefully in the second half.
Speaker Change: Got it. Um, and then also, in the prepared remarks, you guys mentioned how, um, the kind of turnover of some tenants that you focused on 2024, in 24 was still a headwind to growth in 25. I guess, as you guys think about tenant retention going forward and the uh, decisions you made in 24. Um, what do you think those headwinds will be done and is it to what extent will it be? Something that's kind of ongoing that tenant replacement versus kind of done for the moment.
Bob Myers: Bob, do you want to talk a little bit about policing activity and how we're sort of looking at that as... Opportunity and as well as Edwin Sure. Yeah, thanks for the question I guess I'll start a little bit on what I would call the junior anchor side So when our occupancy dropped a little bit in the first quarter on the anchor side There was just noise there from Joanne Big Lots Party City and some of those neighbors that we knew wasn't a surprise to us We've actually been able to backfill about 70% of those currently So specifically to answer your question, you know We only have probably 15 spaces over 10,000 feet that are vacant in our portfolio So a lot of the backfilling and recapturing of some of those specific neighbors as an example, the rent will come online in 2026 and it'll probably be the second half of 26 and maybe some will dribble into 27 The good news is the leasing demand continues to be remain very strong for those junior boxes and on the inline and we continue to just See from the retailers that they're they're hungry for sites to open in 26 27 and 28 And again, we just don't see any new supply coming on.
Speaker Change: um, Bob, you want to, uh, talk a little bit about leasing activity and, and how we're sort of looking at that, um, uh, as
Speaker Change: Opportunity and, and, as well as Edwin, sure, yeah. Thanks for the question. I, I guess I'll start a little bit on what I would call the junior anchor side. So, when our occupancy dropped a little bit in the first quarter on the anchor side, there was just noise there from Joanne Big, Lots Party City and, and some of those neighbors that we knew wasn't a surprise to us. We've actually been able to backfill about 70% of those currently. So, specifically to answer your question, you know, we only have probably 15 spaces over 10,000 feet that are vacant in our portfolio. So a lot of the back filling and recapturing of some of those specific neighbors. As an example, the rent will come online in 2026 and it'll probably be the second half of 26 and maybe some will dribble into 27. The good news is the leasing demand continues to be remain very strong for
Speaker Change: For those Junior boxes and on the inline. And we continue to just
Bob Myers: So we're in a very good spot and and you see that The retailers are wanting to follow the number one number two grocer because you can see it in our spreads with 35% new leasing spreads 19% Renewal spreads and you know 94% retention is very very strong So we're encouraged by the activity.
Speaker Change: See from the retailers that they're, they're hungry for sites to open in 2627 and 28. And again, we just don't see any new Supply coming on. So we're in a very good spot and and you see that
Samir Khanal: We don't see anything slowing down and we feel real good about Selectively being locally Spartan merchandising around those opportunities Your next question comes from the line of Samir Khanal with Bank of America. Please go ahead. Thank you.
Speaker Change: the retailers are wanting to follow the number 1, number 2 grocery because you can see it in our spreads with 35% new leasing spreads 19%, uh, renewal spreads. And you know, 94% retention is is very, very strong. So we're encouraged by the activity, we don't see anything slowing down and we feel real good about selectively being locally, Spartan merchandising around those opportunities.
Speaker Change: Thank you.
Your next question comes from the line of Samir canal with Bank of America. Please go ahead.
John Caulfield: Good afternoon, everyone. I guess, Jeff or John, can you talk about the deceleration and same-strain OI growth that you're expecting in the second half based on on the guidance, you know, sort of the puts and takes to get to the sort of the 2.7% on average, after having close to 4% in the first half. Thank Samir, I thought you were going to focus on how great it is that we had all that great growth in the first half.
Jeff Edison: Thank you, uh, good afternoon everyone. I guess it's Jeff or John
Um, can you talk about the deceleration and same stino I growth?
Jeff Edison: That you're expecting in the second half. Based on on the guidance, you know, sort of the puts and takes
To get to the sort of the 2.7% on average, um, after having close to 4% in the first half. Thanks.
John Caulfield: John, do you want to cover sort of what we're looking at for the second half on same-center growth? Certainly. Thanks for the question. Definitely one that I was expecting.
John Cfield: Samar I thought you were going to focus on how great it is that we had all that great growth in the first half. Um, John do you want to, you want to, you want to cover the sort of what what we're looking at for the second half on on, uh,
Jeff Edison: Uh, same Center growth.
John Caulfield: So first, for this reason, we don't provide quarterly guidance. As we look at our earnings on Samesore NOI and FFO, we are projecting more consistent growth for the balance. Our same-center growth last year was weighted to the fourth quarter. The fourth quarter alone was over 6.5%, which skews the quarter-by-quarter growth numbers. So, as we look at our Q3 and Q4 forecasts, they're actually consistent and growing, improving sequentially from Q2 this year. So, I think it's more a function of 2024 than any real deceleration as we look at continued growth from where we stand today. And that's for same-center NOI, for NAREDFO, and for CORE.
Q3 and Q4 forecast, they're actually consistent and growing. Improving sequentially from Q2 this year. So I think it's more a function of 2024 than any real deceleration. As we look at continued growth from where we stand today and actually, and that's for same Center, noi for Nate faux and for core pho.
John Caulfield: Got it. Okay. No, that's helpful.
Samir Khanal: And then just a follow up to Caitlin's question on acquisitions. You've been doing a lot more of the shadow anchored properties the last two quarters. I know the market is competitive for the core product right now. So just talk about kind of what you're seeing for core versus maybe shadow and unanchored. And I'm wondering if pricing is sort of getting out of hand or just kind of, are you getting priced out of some of the core product here? Thanks. Yeah. Yeah, Samir, thanks. So we, through the first half of the year, will have bought three unanchored centers.
Speaker Change: Got it. Okay, no, that that's helpful. And then and then on the just a just a follow up to Caitlin, Caitlin's question on Acquisitions. Um, you know, you've been doing a lot more of the, the shadow anchored properties. The last 2 quarters, you know, I know the market is competitive for the core product right now.
So just talk about kind of what you're seeing for core versus maybe Shadow and unanchored. And I'm wondering if if, you know, if if pricing is sort of getting out of hand or just kind of, are you getting priced out of some of the core product here. Thanks. Yeah.
Jeff Edison: That's 14% of what we bought. Seven shadow anchors, which is 50% of what we bought, and four anchored centers that represent 35% of what we bought. It's really hard to look by quarter and have a view of, like, a change. These were actually stores that we were very excited about getting, and we, you know, so I, we saw these as great opportunities. I mean, if you think about it, like, the average sales of the shadow anchored centers we did is over $1,000 a foot on the grocer. So we've got, like, A quality grocer, these are all centers that are, that the grocer actually owns their store in these stores, the shadows.
Speaker Change: Um, yes sir, thanks. Um, so we uh, in the through the first half of the year we'll have bought 3 Unruh centers, that's 14% of the um of what we bought. Uh 7 Shadow anchors, which is 50% of what we bought and 4 anchored centers. Um with the the represent 35% of what we bought. Um, you you it's it's really hard to look. Quarter guy by quarter and have a view of like a change. Um, the these were actually stores that we were very excited about getting and we
Jeff Edison: And so our small stores get the full benefit. We don't have that sort of flat part of our cash flow, which is the grocer anchor. So we saw these as great opportunities for us to get increased growth and really stable, strong, strong properties.
Jeff Edison: So it's, we, I wouldn't say that this is caused by the market, other than these are the properties that came on the market and that sort of fit with what we were trying to get, which is that number one or two grocer, driving the customer to the center day in, day out, because that's what allows us to really grow. No, I appreciate that. Thanks.
The um, you know, so I I, I we we, we saw these as great opportunities. I mean, if you think about like the average sales of the of the Shadow anchored centers, we did is over a thousand dollars, a foot on the ger. Um, so we've got like the, a quality growth. So these are all centers that are that the gross are actually owns their store in these in these stores, uh, the Shadows. Um, and so our small stores, get the full benefit. Um, we don't have that sort of flat part of our cash flow, um, which is the, the, the growth Rancor. So we, we saw these as, as great opportunities for us to to get increased growth and uh, really stable strong, strong strong, uh, properties. So it's, uh, we I, I wouldn't say that this is caused by the market other than these are the properties that came on the market and that, that, that sort of fit with what we were trying to get. Which is that number 1 or 2 growths are driving. The the customer to the center day in day out because that's what allows us to really grow around.
Haendel Juste: Your next question comes from the line of Haendel St.
Speaker Change: No, I appreciate that. Thanks. Yeah, yeah.
Haendel Juste: Juste with Mizuho, please go ahead. Hey, guys. Good, well, I don't know if it's good morning or afternoon out there, but it's afternoon here. I was hoping you could add a bit more color on the transaction market broadly, the opportunities you're looking at. Maybe there's anything under LOI at the moment, but looking at, you know, kind of $280 million of acquisitions completed year to date, I guess I'm really curious, you know, what's holding you back from moving the guide up a bit here? It seems like you're pretty far along and seems like, you know, the remaining delta is pretty achievable here.
Handel Stuss: Your next question comes from the line of hendel stuss with m m mujo, please go ahead.
Haendel Juste: Yeah.
Haendel Juste: Haendel, thanks for the question. Yeah, we are very excited about, you know, having put, you know, $290 million on the board for the first half. And we're, you know, we are prepared to do more than guidance if we find the opportunities. I would say that our macro look at the market right now is that it's actually fairly stable. There is more product on the market and there are more buyers. And we are finding certain buyers that are getting very aggressive, you know, which is where we've got to keep our discipline and stay out of that competition or the desire to be in that and stay true to what we do.
Handel Stuss: Hey guys, uh, good, well, I don't know if it's good morning or afternoon out there, but, uh, it's afternoon here. Um, I was hoping you could add a bit more Colour on the transaction Market. Broadly, the opportunities you're looking at, uh, maybe there's anything under Loi at the moment, but looking at, you know, kind of 280 million of Acquisitions completed year to date, I guess, I'm really curious. You know, what's holding you back from, uh, moving the guide up a bit here? Seems like you're pretty far along in. Uh, seems like, uh, you know, the remaining Delta, this pretty achievable here. Yeah. Um, thank thanks for the uh, question. Uh, yeah, we we are very excited about, you know, having put, you know, 200 million 290 million uh, on on the, on the board for the the first half. Um, and we're, you know, we we are prepared to do more than than guidance if, if we find the opportunities, um, I would say that our macro look at the market right now is that, uh, it's a, it's it's actually fairly stable. Um, there is more product on the market.
Haendel Juste: And I think so I think we did that in the first half. If we can find the same amount in the second half, we'll do it. We're a little bit, I think, cautious there in terms of what the second half is going to look like. So that's why we maintained our guidance. Got it, got it. Appreciate that.
Handel Stuss: And there are more buyers and we are finding certain buyers that are getting very aggressive, um, you know, which is where we've got to keep our discipline and stay out of uh, the that that competition, um, or or the desire to be in that and stay true to what we do. And and I think so, I I think we did that in the first half if we can find the same amount in the second half, we'll do it. Um, we're a little bit, I think, uh, cautious there in terms of what the second half.
Is going to is going to look like. Um so that's why we maintained our our guidance.
John Caulfield: And then one just on variable rate debt. Pretty low today, 5%. I think there's some swaps expiring later this year, John.
John Caulfield: I know it's one of your favorite topics, but I'm curious on the outlook or the plan there and what you feel is a comfortable level of variable rate debt. Thanks. John, do you want to take that? Oh, yeah. Haendel, I saw your note, and I've been looking forward to this question, man. I know you love variable rate debt and so on, so, okay, I appreciate the question. So yes, currently we're 95% fixed, and so we continue to monitor and look at the markets, but we want to approach the debt capital markets and the equity capital markets.
Got it, got appreciate that. Uh and then 1 uh just on the variable rate that pretty low today, 5%. I think there's some swap expiring later this year, John, I know it's 1 of your favorite topics but I'm curious on the Outlook or the plan there and what you feel is a a comfortable level of variable rate debt. Thanks.
Speaker Change: John, you want to take that?
John Caulfield: The key thing for us is making sure that we're in a position where we choose to move because we like the market and the opportunity, not because we have to. That's kind of why we went in June and we did 5.25% debt and extending our maturity ladder while also continuing our pattern and reputation in that unsecured bond market. So as I look to the swap market, you know, the swaps that are expiring, our debt profile, we want to continue to be a repeat issuer in that market. We feel we've been well received. I would note that we continue to talk to the agencies where trip will be flat, but notice that our balance sheet is very comparable to those of our peers that are either positive or even more highly rated than we are.
John Caulfield: So, you know, we continue to talk to them, think there's opportunity, and we want to use that. So we're going to manage our variable rate exposure through additional maturities in that the last several years to do that. And we'll just keep extending from there. So we don't have any plans to further put it, you know, more swaps in place, unless it matches with things that we do in the term. So, we will manage it through issuance and at the same time, you know, are grateful for the deal we got done and again, our long-term target is, you know, we target about 90% fixed.
And look at the markets, but we want to approach the debt Capital markets and the equity Capital markets opportunistically. The key thing for us is making sure that we're in a position where we choose to move, because we, we like the market and the opportunity, not because we have to, that's kind of why we went in June, and we did 5.25% debt, um, and extending our, our maturity ladder, while also continuing our pattern and, and reputation in that unsecured bond market. So, as I look to the swap Market, you know, the swaps that are expiring our debt profile. We want to continue to be a repeat issuer. In that market, we we feel we've been well, received, I would note that we continue to talk to the agencies where trip will be flat. Um, but but notice that our balance sheet is very comparable to those of our peers that are either positive or even more highly rated than we are. So, you know, we continue to talk to them saying there's opportunity and we want to use that. So we're going to manage our variable rate exposure through
Speaker Change: Um, additional maturities that market, we're going to continue to buy assets and do what we've been doing in the last several years to do that.
John Caulfield: So we'll, that's what we're going to look at on the system. Got it, got it. Appreciate the color and thanks.
Um and and we'll just keep extending from there. So we don't have any plans to, to further, put it, you know, more swaps in place unless it matches with things that we do in the term loan Market. Um, so we will manage it through issuance and at the same time, um, you know, our grateful for, for the deal we got done. And again, our long-term Target is, you know, we target about 90% fixed.
Speaker Change: So we'll that's what I'm going to look at on a sustained basis.
Speaker Change: Got it. Got it. Thanks.
Ronald Kamdem: Your next question comes from the line of Ronald Kamden with Morgan Stanley. Please go ahead. Hey, just two quick ones. So just one on the, just to remind us on the occupancy side, you know, I'm looking at the anchor at 90, almost 99, in line, almost 95. Just how do you guys think about sort of the structural ceiling there and the sort of the things that you're doing to maybe maximize either rent spreads or rent escalators? Just the interplay between what your peak occupancy you think it is and, you know, where you can get more pricing power.
Speaker Change: Your next question comes from the line of Ron. Ronald Camden with Morgan Stanley. Please go ahead.
Jeff Edison: Great. Thanks, Ron.
Ronald Camden: Hey, just 2 quick ones. Uh, so just 1 on the just remind us on the occupancy side. Um, you know, I'm looking at the anchor at at 90 almost 99 and line almost 95. Just how do you guys think about sort of the structural ceiling there? And the sort of the things that you're doing to to maybe maximize either rent, spreads or rent escalators. Just the interplay between what your Peak occupancy, you think it is and you know where you can get more pricing power. Thanks.
Bob Myers: So before I turn it over to Bob, We're going to keep saying this, and I know some of you will buy it, some of you won't, but we truly believe that occupancy is the... It's our stores making a decision about where they want to be. And if you have the highest occupancy, our view is you have the highest quality assets. And we have consistently been able to do that because the retailers are telling us with their leases that we have the best properties. And so we're really happy and about, you know, the getting to these occupancy levels.
Ronald Camden: Great, thanks. Thanks John. Um, so before before I turn it over uh, to Bob, um, we're going to keep saying this and I I know some of you will buy some of you, well but we we truly believe that occupancy is the
Bob Myers: We're very happy to be partnered with our neighbors to be able to achieve those goals.
Bob: It, it, it's our, uh, stores making a decision about where they want to be. And if you have the highest occupancy, our view is, you have the highest quality assets and we have consistently been able to do that because our the retailers are telling us with their leases that we have, the best properties. And so, we're, we're, we're really happy and, and about, you know, the, the getting to these occupancy levels and I and, uh, um, and
We're.
Bob Myers: So Bob, you want to talk a little bit about, I presume, where we might be able to take it? Absolutely. Yeah, I appreciate the question. We've done really well in the first half of the year. We moved anchor occupancy up about 50 basis points and inline about 20 basis points, and that certainly comes as a result of the retailer demand. I think we have another 100 to 150 basis points of inline occupancy, so I really feel that we can get in the 96s up from the 94.8, I believe it is, today. I think anchor occupancy will always be 99.2, 99.3.
Bob: Very happy to be, you know, partners with our neighbors to be able to get that to achieve those goals. So Bob, you want to talk a little bit about occupancy and where we we might be able to take it.
Bob Myers: We still have some work to do to get that, but I feel good about the leasing demands, the LOIs that we have out for signature.
Bob Myers: I think one real important strategy in our business, though, is that we run a parallel path of not only growing occupancy in our current portfolio, but also on the acquisition side. I mentioned this over the last year or two, but in 2023, we bought a great portfolio, a combination of 14 to 16 assets that were around 87% occupied, and today those are 98. In 2024, we acquired $300 million. That was at 93.1%. That currently sits at 95%, and we're already making good traction on the assets that we've acquired this year. The demand is as strong as we've seen it in years, and I just feel like we're going to continue to move occupancy up, and you see it through the retention.
Uh, absolutely. Yeah, appreciate the question. We've, uh, we've done really well in the first half of the year, we moved. Anchor occupancy up about 50 basis points, and in line about 20 basis points, and that certainly comes as a result of the retailer demand. I think we have another 100 to 150 basis points of inline occupancy. So I I really feel that we can get in the 96s up from the the 90 94.8. I believe it is. Today, I think anchor occupancy will always be 99.2 999.3. We still have some some work to do to get that but I feel good about the leasing demands the Louis that we had out for Signature. I think 1 real important strategy in our business though is that we run a parallel path of not only growing occupancy in our Port current portfolio but also on the acquisition side and I mentioned this you know over the last year or 2 but and and 2023, we bought a great portfolio combination of 14 to 16 assets that were around
Bob Myers: When you're retaining 94% of your neighbors at spreads of 20%, and you're only spending 49 cents a foot in tenant improvements to execute that, that is money well spent. So I feel really good about the current environment, our occupancy, and that's a long-winded answer to your question, but yes, I do feel like we still have room in occupancy. Super helpful. Okay.
87% occupied and today those are 98 and 2024. We acquired 300 million that was at 93.1% that currently sits at 95% and we're already making good traction on the assets that we've acquired this year. The demand is as strong as we've seen it and in years and I just feel like, you know, we're going to continue to move ochy up and you see it through the retention. When you're, when you're retaining, 94% of your neighbor's at spreads of 20% and you're only spending 49 cents a foot and tenant improvements to execute that, that is money. Well spent. So I feel really good about uh, the current environment our occupancy
Bob: To your question. But yes, I do feel like we still have room and occupancy.
Ronald Kamdem: Look, my second question is on tariffs, right? I mean, you guys have put out some data on what you think your tariff risk is. Clearly you reiterated sort of the credit loss and you raise the same store, so nothing in your portfolio. But I guess as you're sort of taking a step back and talking to tenants, I'm curious about sort of the categories that are most impacted and where do you think, like what's happening on the ground? Like who's eating that incremental cost on tariff that we know people are paying? Is it the tenants? Is it the consumer?
Jeff Edison: I'm just curious how that's playing out on your grounds and what you're hearing.
Jeff Edison: Yeah, we're probably not the best ones to ask about it because the necessity-based side, which is where we are, just we don't have a ton of exposure to tariffs. But I will, like our views have been that for that, you know, small part, the 15% that we think will have some impact, the story they've told us to date is that they have been able to pass that on to the supplier, the majority of it. And if it stays in that low teens kind of a percentage, that they feel pretty comfortable that they will be able to absorb that between a combination of them taking a little bit of hit on their profits, but the majority coming from the supplier, and then moderate impact on the buyer.
Super helpful. Um, look my second question is on tariffs, right? I mean, you guys have put out some data on, on your, what you think your tariff risk is, um, clearly you reiterated sort of the credit loss and, and you raised the same store. So so, so, nothing nothing in your portfolio, but I guess as you're sort of taking a step back and talking to tenants, I'm, I'm curious about sort of the categories that are most impacted, and where do you think, like, what what's happening on the ground? Like, who's eating that incremental cost on tariff, that we know people are paying? Is it is it, is it the tenants? Is it the consumer? Just I I'm just curious how that's playing out on your grounds and what you're hearing from your tenants. Thanks. Yeah. Um, we're, we're, we're probably not the best ones to ask about it because the, the necessity based side which is where we are. Um, just we, we don't have a ton of exposure to tariffs, um, but I will, like our views have been that for that, you know, small part, the 15%
Bob: That we think will have some impact. Um, they're the the, the story they've told us today is that they, um, have been able to pass that on to the supplier, the majority of it. And if it stays in that, uh, low teens kind of a percentage that they feel pretty comfortable, that they will be able to absorb that.
Jeff Edison: So if you, and so that, I think that's our view on where that impact is going to happen, how long it's going to take and how, you know, where we're going to see it. I mean, as Bob pointed out, I mean, we're certainly not seeing it on the ground on a leasing basis. So, you know, that part, you know, we still don't see any cracks from that. So we're, I mean, we're, as they say, we're very cautious, probably more cautious, but still, you know, have a little bit of optimism there that this is not going to have the kind of impact that we thought it would, you know, just three months ago.
Jeff Edison: helpful. Thanks so much.
Bob: Between a combination of them, taking a little bit of hit on their profits, um, the butt, but the majority coming from the, uh, supplier. Um, and then moderate impact on the, um, uh, buyer. So, if, if you that, and so that I, I think that's our view on on where that impact is going to happen. Um, how long it's going to take and how, you know, where where we're going to see it. I mean, as Bob pointed out, I mean, we're certainly not seeing it on the ground on a leasing basis. Um, so, uh, you know, that, that part, uh, we, you know, we still don't see any cracks from that. So we're, I mean, we're as they say we're very, we're, we're cautious, probably more cautious, but, but still, you know, have a little bit optimism there that this is not going to have the kind of impact that we thought it would, you know, just 3 months ago.
Todd Thomas: Yep. Your next question comes from the line of Todd Thomas with KeyBank Capital Markets. Please go ahead. Hi, thanks. Just first question, I wanted to follow up on Samir's question around the same story, growth and growth outlook.
Helpful, thanks so much.
Bob: Yep.
Speaker Change: Your next question comes from the line of Todd Thomas with keybanc capital markets. Please go ahead.
John Caulfield: Bob, you know, you talked about Michael Mueller, Jeffrey Spector, Dori Kesten, Juan Sanabria, Ravi Vaidya, Jeffrey Edison, John Caulfield, Ronald Kamdem, Kim Green, Phillips Edisn, Robert Myers, Daniel Purpura, I'll jump in on this one actually to Todd. It is the same. So we disclose the quarter and the year on the same basis. So the same store pool is calculated as all assets acquired before 1.1 of 2012. Okay. before 25 or 2020. Sorry, 1-1-24. Sorry, man. That's okay. 1-1-24. Got it. So the assets acquired last year and the assets acquired this year are not in the Right.
Hi, thanks. Um, I just first question. I wanted to follow up on, uh, some of yours question around the same store or growth and, and growth Outlook. Um, Bob, you know, you talked about some of the things that you've completed on recent acquisitions and, um, certainly some upside on some of those more recent deals. Um, just curious the methodology for
Speaker Change: Your your quarterly pool is that different than the full year pool. The way that you. You calculate that.
Speaker Change: I'll jump in on this 1 actually, so it's
It is the same so we we disclose the quarter in the year on the same basis. So the same store pool is calculated as all assets acquired, um, before 1 1 of 2025
Speaker Change: Okay. Um,
John Caulfield: Okay. Um, that's helpful.
Before 205, or 2024, sorry 1124. Sorry man, that's good call 1124. Okay, got it. So the assets acquired last year and the assets acquired this year are not in the same Center pool.
John Caulfield: And then, um, John, just sticking with you. So, you know, you talked about some of the funding. sources for acquisitions going forward. Obviously, you have a lot of options, you know, equity debt. You've talked about retained earnings and free cash flow. Does the stock price where it is today and the company's cost of equity, does that limit the amount of acquisition volume that you can achieve? And how do positions factor into the equation today? store. So, you know, thank you for the recap there. Yeah, we actually are very happy with the amount of liquidity that we have and the ability that we have to participate in the transaction market.
Speaker Change: Right. Okay, um, that's helpful. And then um, John just sticking with you. So, you know, you talked about some of the funding um, sources. Uh, for for, for Acquisitions going forward, obviously you have a lot of options, um, you know, Equity debt. Um, you've talked about retained earnings and free cash flow. Um, does the stock price where it is today, and the company's cost of equity, does that limit the amount of of acquisition volume, that that you can achieve and and how did this positions, um, factor into the equation today?
John Caulfield: I wouldn't say that the equity issuance is limiting where we are, or say the equity price isn't where, is limiting us today. I mean, we do believe that the stock is at a discount relative to private market values, relative to our peers that are in the same business we are, which is grocery and food shopping centers. And so, you know, I think the key thing for us that you've heard us talk about previously is match funding. And so, we're being opportunistic and want to find those acquisitions that make the most sense. I do think that, you know, I mentioned in the prepared remarks that we don't have any equity issuance planned in our guide for 2025, and are very happy that we can execute on our growth plans without needing to go to the equity markets.
John Caulfield: The pieces that I would say is we are very committed to our mid-five times on a leverage basis. So, we're going to stay in this area. I do think that we're looking at it if it's a great transaction market and there's competition out there, it also means it's a good disposition market as well. So, I think you will see us go through and capture some of the gains that we've realized over the years. So, we'll look to sell some of that in the back half of the year. But to Jeff's earlier comment, if the acquisitions present themselves, we will look forward to taking our share.
John Caulfield: Okay, what's the pricing?
John Cfield: And want to find those Acquisitions that, that make the most sense. Um, I do think that, you know, I mentioned in the prepared remarks, that we don't have any Equity issuance planned, um, in our guide for 2025, and are very happy that we can execute on our growth plans without, you know, needing to go to the equity markets. Um, the pieces that I would say is we are very committed to our mid 5 times on a leverage basis. Um, so we're going to stay in this area. I do think that we're looking at it, if it's a great transaction market and there's competition out there. It also means it's a good disposition Market as well. So I think you will see us, um, go through and and capture some of the, uh, the gains that that we've realized over the years. So we'll look to sell some of that in the back half of the year, but to to Jeff's earlier comment, if the Acquisitions uh, present themselves, we will look forward to taking our share of that.
John Caulfield: I realize you're on Robert Mueller, Donald Trump, Michael Mueller, Jeffrey Spector, Dori Kesten, John Caulfield, Robert Myers, Daniel Purpura, Phillips Edisn, John Caufield, Ronald Kamden, Kim Green, How should we think about the cap rate spread between, you know, what you're buying and what you might look to sell? Sure. So, we haven't been really, and I talked about this in the first quarter or year end, we talked about, you know, we hadn't been selling as much as we wanted to. So, some of the things that we're selling, you know, to start will be closer to the seven, seven and a half range, I would say, as we look forward on a weighted basis.
Okay. What what's the pricing? I, I realize you're underwriting to a 9% labor, irr, Target, um, on on New Deals. But what's the um,
John Cfield: How should we think about the the cap rate spread, uh, between you know what you're buying and and and what you might look to sell?
John Caulfield: But still, you know, capturing great returns for Pico. And then that's relative to kind of the range of what we've been buying at. So, the difference isn't very great. But then we will, we are, you know, taking opportunities to monetize, you know, other assets that are meaningfully lower than that. So, I think that probably gives you And all of that would be captured in the guidance numbers we provide. Okay, helpful.
Sure. So we haven't been really in a I talked about this in the in the first quarter, a year, end where we talked about, um, you know, we, we hadn't been selling as much as we wanted to. So some of the things that we're selling, you know, to start will be closer to the 7 7 and a half range. I would say as we look forward on a weighted basis,
Um but but still you know, capturing great returns for Pico um and then that's relative to kind of the range of what we've been buying at. So the the difference isn't isn't very great but then we will, we are, you know, taking opportunities to monetize, you know, other assets that are are meaningfully lower than that. So um I think that probably gives you some guidelines and all of that would be captured in the guidance numbers. We've provided
Mike Mueller: Thank you. Your next question comes from the line of Mike Mueller with JPMorgan. Please go ahead. Yeah, hi. Is there a max percentage of the portfolio that you'd want to have in shadow anchored or unanchored centers?
Speaker Change: Okay, helpful. Thank you.
You're next question comes from the line of Mike Mueller with JP Morgan. Please go ahead.
Yeah. Hi um I guess is there a Max percentage of the portfolio that you'd want to have in in Shadow anchored or unanchored centers?
Jeff Edison: Hey Mike, thanks for the question. So I think if you look at the unanchored, 10% is probably the number that we're thinking there. The shadow anchored we see as very interchangeable with our core anchored stuff. I mean, these are the exact same projects, you just own a little different piece of it. And you own the small store space, which gives us more upside. It's 7% of our portfolio today, so not worth spending a ton of time talking about in terms of impact. But we see it as a really great opportunity to be able to buy some of these centers that have, in our mind, a lot of upside because of the strength of the grocer and the dominance it has in the marketplace.
Speaker Change: um,
Speaker Change: Thank hey, Mike, thank thanks for that for the question. Um, so um, I think if you look at the um, unanchored, um, we we've kind of we we 10% is probably the number that we're thinking there, um, the, the, uh, Shadow anchored, you know, we we, we see as very interchangeable with, uh, our core anchored stuff. I mean it's it's it's I mean, the these are the exact same projects. You just don't a little different piece of it. Um, and you own the small store space which gives us more upside. Um you know it's it's a it's 7% of our portfolio today. So not worth spending a ton of time talking about and
Jeff Edison: So I would say that I'm hopeful that we'll be well above – and the 7% includes what we bought in the first half of the year. So I'm hopeful that we can get that number higher than that, but it will be driven by sort of what opportunities come in the marketplace.
Jeff Edison: And maybe just one quick follow-up to that, if you're looking at, as you mentioned, you know, the, you know, it's just part of the center, it's interchangeable, so if you're looking at a traditional... shopping center that you would own that's grocery anchored, where you own the grocer. What do you think is a cap rate differential for, you know, that center that comes with the grocer versus one that's shadow anchored? How different is it? So, that's a very complicated question and obviously has, I mean, we're making a number of generalizations to come up with what that is because each property varies a lot in terms of risk, what the tenant makeup is, and then occupancy and the rest.
Terms of impact. But if we we see it as a really great opportunity to be able to buy some of these centers that have in our mind, a lot of upside because of the strength of the grosser and and the you know, the dominance it has in the marketplace. So we're I, I, I would say that, um, you know, I I hope I'm hopeful that we'll be well above. So and a 7% includes what we bought in the first half of the year. So, I'm I'm, I'm hopeful that we can get that number, you know, higher than that. But uh, it will be driven by, you know, sort of what opportunities come in the marketplace.
And maybe just 1 quick follow up to that if if you're looking at as you mentioned you know the the because it's just a part of the center it's interchangeable. So if you're looking at a traditional
Speaker Change: Shopping center, that you would own. That's grocery anchored where you own the grocery store.
Speaker Change: What, what do you think is a cap rate differential for, you know, that Center that comes with the grosser versus 1, the shadow anchored, how how different different is it?
Jeff Edison: But I think generally our look is we think we can get about 100 basis points. 50 to 100 basis points wider unlevered IRR from our shadow anchor than we can from our core grocery. So I think that's a way of looking at it. From a pricing standpoint, on a cap rate basis, it's more complicated, but let's just say it would be 50 basis points to 75 basis points difference between a shadow and an ONC. Got it. Okay.
Speaker Change: Um, so, um, the you know, that's a very complicated question. Um, and obviously has, I mean, we're making that a number of generalizations to come up with what that is, because they each property varies a lot in terms of like Risk, the what the tenant makeup is and and and and then you know, occupancy and the rest. Um, but I think generally our look is we
Speaker Change: We think we can get about a 100 basis points.
Speaker Change: Would be 50 basis points, uh, to 75 basis points difference, um, between a, uh, a shadow and an and an own.
Jeff Edison: Thank you.
Speaker Change: Got it. Okay, thank you.
Paulina Rojas: Your next question comes from the line of Paulina Rojas with Green Street. Please go ahead. Good morning. Some metrics suggest the consumer that is very ...pessimistic and a lot of caution, while others point to a more constructive outcome. From your perspective, how are consumers that shop in your centers behaving today? Are you seeing any trend in terms of... them trading down, changes in visit frequency, or other shifts that are worth highlighting. Yeah, great. Thanks, Paulina. Thanks for the question.
Your next question comes from the line of Paulina Rojas with Green Street. Please go ahead.
Paulina Rojas: Good morning.
Paulina Rojas: Um, some metrics, uh, suggest the consumer that is very
Paulina Rojas: pessimistic and a lot of caution. While others point to more constructive Outlook,
From your perspective, how are consumers in that shop in your centers behaving today? Are you seeing any Trends in terms of them trading Down Changes in, uh visit frequency or other shifts that are worth highlighting?
Jeff Edison: Yeah, there's this dichotomy in the market that's really weird, which is all the polling, all the consumer sentiment, all that stuff is negative, and yet sales continue to grow. So the consumer is sort of saying one thing and then doing another. And I, you know, our views and our, you know, from the placer information and other information, we continue to see really strong foot traffic at our centers. And, you know, that is as current as, you So we're, you know, what you're, there is a sort of sentiment. And I, our view is look at employment.
Yeah, um great thanks, Paulina. Thanks for for the question. Um, yeah, it's it's there, there's this, there's this dichotomy in the in the market. That's really weird, which is
All pulling all the, you know the the consumer sentiment all that stuff you know is negative and yet sales continue to grow. Um so the consumer is sort of saying 1 thing and then doing another and uh I you know, our our views and our and our you know from from the Play Store
Paulina Rojas: Information and other information. We we consider we continue to see really strong foot traffic at our centers. Um and you know it it that that is as current as you know, within the last 15 to to 20 days. So we're you know, the what
Jeff Edison: And if we actually just did a study on our properties, and I think our properties were 30, had a 30% lower unemployment rate than the nation. So I, and I think employment is what drives consumer behavior more than what they think about, you know, what's happening in Washington, DC, or what's going to happen to the, you know, the different things are changing. They, the job is a driver there. And, you know, we continue to see really strong employment numbers, you Until we see a major change in that, I, we think the consumer is going to stay the same.
Jeff Edison: And, and our retailers are telling us the same thing with their, you know, their, the time they've been with us, their renewal pace, all the rents of which they're willing to move to, they're all telling us that they, they believe the consumer is strong.
Paulina Rojas: You're there is a sort of sentiment um and I our our view um is look at employment. Um, and if we we actually just did a study on our our properties and um, I think our our properties were 30 had a 30% lower, uh, unemployment rate than the nation. Um, so I and I think employment is what drives consumer Behavior more than what they think about. You know, what's happening in Washington DC, or what's going to happen to the, you know, the, the different things they're changing. They, they they, the, the, the job is, is a driver there. And, um, you know, we we continue to see really strong employment numbers, um, you know, from a historical standpoint. So, until we see a, a major change in that. I, I, we, we, we, we think the consumer is going to stay the same and, and our retailers are telling this the same thing with their, you know,
Paulina Rojas: The the the time they've been with us, they're renewal Pace all the the rents at, which they're willing to move to. They're they're all telling us that they they believe the consumer is strong.
Paulina Rojas: Thank you.
Paulina Rojas: And then a second question. We saw that Kroger announced a series of store closures. So first question is, are you aware of any locations within your portfolio that may be impacted? And then different parties, we're also seeing a number of grocers pursuing expansion strategies. So I'm intrigued, which grocers are you seeing most actively expanding in your market?
Thank you. And then
Paulina Rojas: the second question, we
We saw that. Kroger, and recently announced the series of store closures
So, first question is, are you aware of any locations within your portfolio that may be impacted?
And then some parties. We're also seeing a number of groceries and pursuing expansion strategies.
Paulina Rojas: So I wanna make sure I got your questions right. One question was, which grocers are expanding in our markets? And the other is, what impact Kroger's announcement of closing 60 stores, did I get that right? Yes, exactly right.
Paulina Rojas: So I'm I'm in trade. Which closures are you seeing most uh, actively expanding in your markets?
So I, I want to make sure I got your questions, right? Um, what 1 question was who, which grocery stores are expanding in our markets? And the other is, uh, what what? What impact Kroger's, announcement of closing, 60 stores has, are those? Is that did I get that, right?
Bob Myers: Bob, you want to talk about the Kroger exposure and then we can talk a little bit about the grocers that are expanding. Yeah, yeah, thanks Jeff. So in terms of the Kroger announcement and the 60 stores, we had one on the list. So that's our exposure. And it wasn't a surprise. We've been working with Kroger on that particular location now for about five years. The good news is, you know, we expect them to close this month in that site, but we already have another grocer that's going to backfill it. So it's still a good grocer location.
Yes, exactly, right. Okay. Bob, you want to, you want to talk about the Kroger exposure and then we can talk a little bit about the the the groceries that are expanding.
Yeah, yeah. Thanks Jeff.
Bob Myers: So we just haven't, you know, that's what we know currently in terms of what Kroger shared with us. We had a meeting at their corporate headquarters last week. And right, you know, at this point, it's, you know, they had all their store closings on hold as they were trying to do the merger with Albertsons over the last three years. So it's not a surprise that the announcement came out. And it wasn't a surprise for us, Paulina, to have the one.
Bob Myers: The answer to the second question in terms of our markets and that are expanding, and they are, they're very selective about it, but it's Sprouts, it's Kroger, it's Publix, it's Whole Foods and Walmart. Those seem to be the grocers that are active in either, you know, they're all committing money to remodels, and Publix is still very motivated on their tear down and rebuild concepts. Kroger's looking to expand in some markets. And again, since, you know, we're Kroger's number one landlord and Publix number two landlord, you know, we're working alongside them to see if we can assist in any way.
Paulina Rojas: Paulina to have uh, the 1 that the answer to the second question in terms of our markets and groceries that are expanding and they are, they're very selective about it, but it's Sprouts, it's Kroger, it's public, it's Whole Foods and Walmart. Those seem to be the groceries that are active in either. Uh, you know, they're they're, they're all committing money to remodels and public is still very motivated on their tear down rebuild Concepts Kroger's looking to expand in some new markets. And again since you know we're Kroger's number 1 landlord and Public's number 2 landlord. You know, we're uh we're working alongside them to see if we can assist in any way.
Jeff Edison: The only thing I would add to that, Paulina, is these are not massive changes. These are small, I mean, like in the scheme of things, it's a very small amount of space that that's happening.
Jeff Edison: And the only two I would add to Bob's list would be H-E-B and ALDI, both sort of playing a growth strategy. And, I mean, in all honesty, ALDI doesn't have a very big impact in our business. But they probably have the most aggressive expansion plan of any of the grocers. It's just they just don't have that much impact because their sales per store are just not that big. It's almost like having a dollar store go in versus a grocer. But they've been doing well, and we'll continue to follow them.
Yeah, the only thing I would add to that Paulina is, um, the these, uh, these are not massive changes. These are small. I mean, we like in the scheme of things, they're they're it's it's a very small amount of space that, that that's happening. And the only 2, I would add to Bob's list would be HB and all the, um, both sort of playing, uh, you know, uh, a growth strategy. Um, and I mean, in all honesty, I I'll do not have a very big impact in our business, uh, but they they they probably have the most aggressive expansion plan, um, of of, any of the groceries. It's just they they just don't have that much impact because their sales per store are are
Are just not that big. Um, it's, it's almost like having a dollar store go in versus a, a grocery. Um, but they're, you know, they, they they, they've been doing well and, you know, we'll, we'll, we'll continue to follow them.
Paulina Rojas: Thank you so much.
Speaker Change: Thank you so much.
Juan Sanabria: Your next question comes from the line of Juan Sanabria with BMO Capital. Please go ahead. Hi, thanks for the time. I just wanted to follow up on the prior line of questioning around same-store NOI. You know, the guidance implies, like was mentioned before, a second half slowdown. I noticed expenses year to date on the same-store side are running very, very low.
Your next question comes from the line of 1 Senate Bria, with BMO Capital. Please go ahead.
John Caulfield: So, just curious if the implied de-sell is in part related to maybe timing on expenses and if you could just elaborate on kind of what the range of expectations are there for same-store NOI or if there's just a level of conservatism assumed. Okay. Great. Thanks, Juan.
John Caulfield: John, do you want to take that? Sure I will. So thanks for the question. As I mentioned before, I think as we look at same-store NOI, and if I think about it in an absolute dollar rather than a relative from last year, we see growth from Q2 to Q3. I would again point out that last year, it was the timing of expensing and the spend and the recoveries associated with that that moved that to the fourth quarter. And so I think we see a bit smoother this year just related to some of our spend in the mix that I had referenced last year.
Speaker Change: Hi. Thanks for the time. I just wanted to follow up on the prior line of questioning around same store on AI. Um, you know, the the guidance implies like was mentioned before a second half slowdown. Um, and I noticed expenses year to date on the same store side are running very, very low. So just curious, if if the implied decel is in part related to maybe timing on expenses and and if you could just elaborate on that kind of what the range of expectations are there for Sims trying to away or if there's just a level of conservatives and assumed, okay,
John Cfield: So great. Thanks Juan. Um John do you want to take that?
John Cfield: Sure, I will. Um, so thanks for the question as I mentioned before. I think as we look at same store, noi and and if I think about it in an absolute dollar rather than a relative from last year, we see growth from Q2 to 3 to 4, um, I would, again point out that last year, it was the timing of expensing and the spend and the recovery is associated with that, that that moved that to the fourth quarter and
John Caulfield: I would say that, you know, from an expense standpoint, there may be some more expenses, but overall, we see NOI growth in the portfolio sequentially from here. And, you know, again, it's tough to provide. quarterly guidance because of some of these factors but that's the part I would say is if we just focus on this year forward you know we do see growth and last year at six and a half percent in the fourth quarter was was more time Gotcha.
John Caulfield: And then just on the disposition that you mentioned. So what's the kind of the numbers, dollar values we're talking about for just positions that are assumed in guidance, just to think of the as an offset versus the gross acquisition guidance? Yeah, so we aren't giving guidance on that, but I would say that we're, you know, we kind of see $50 to $100 million of dispos for the year as, you know, kind of fairway, almost a year in, year out, that we will continue to have those opportunities, assuming we get the pricing in the market.
John Cfield: And so I think we we see a bit smoother this year, just related to some of our spend in the mix that I had referenced last year. I would say that you know from an expense standpoint there may be some more expenses but overall we see noi growth in the portfolio sequentially from here and um you know again it's it's tough to provide um you know quarterly guidance because of some of these factors. But that's the part I would say is if we just focus on this year forward, you know we we do see growth and last year at 6 and a half percent in the fourth quarter was was more timing related.
Gotcha. And then just on on the disposition that you mentioned, um,
So what's the kind of the the numbers dollar values? We're talking about for uh dispositions that are assumed in Guidance just to think of the Au as an offset versus the gross acquisition guidance.
John Caulfield: I think the key there is you just have to be as disciplined on your dispos as you are on your acquisitions. I mean, they're just, you know, they're the same thing, just on the different side. And where we can manage our portfolio and from a growth standpoint and, you know, from a risk standpoint, we're going to be, you know, more active, I think, than we have been in the last three years, probably less, a little bit less active than we've been over the last 10. But we will continue to push that.
John Cfield: Yeah, I um, so we, we aren't giving guidance on that, um, but I would say that we're, you know, our Pro we kind of see 50 to 100 million dollars of of dispos for the year as, um, you know, kind of Fairway. Um, I almost a year in year out that we will continue to have those, you know, those opportunities assuming we can get the pricing in the market, but it's I I think the, the key there is you just have to be as disciplined on your disposal as you are on your Acquisitions. I mean, they're, they're just the
We will continue to to, to push that.
John Caulfield: Thank you. Yep.
John Cfield: Thank you.
John Cfield: Yeah.
Rich Hightower: Your next question comes from the line of Rich Hightower from Barclays. Please go ahead. Hey, good afternoon, guys. Thanks for taking the question. You know, forgive the ignorance, but back to the Kroger question for a second. Are there any, you know, in a situation like that, are there any co-tenancy, you know, issues that crop up that need to be dealt with? Just how should we think about those situations in general to the extent, you know, they kind of happen periodically? And then I've got one follow-up after that.
Speaker Change: Your next question comes from the line of Rich high tower from Barkley's. Please go ahead. Hey, good afternoon guys. Thanks for taking the question. Um you know for forgive the the ignorance but back to the Kroger question for a second. Um, are there any, you know, in a situation like that, are there any co-tenancy, um, you know, issues that that crop up that need to be dealt with? Just how, how should we think about those situations in general to the extent? Um, you know, they they kind of happen. Periodically. Um, and then I've got 1 follow-up after that.
Bob Myers: Bob, you want to take that one? Yeah, sure, yeah. Yeah, so in this particular example, in this site that they're closing, there's no co-tenancies. I think when you get into co-tenancies, you're typically in the power space. So you think about Ross, they typically have co-tenancy language with two or three other junior boxes or possibly an anchor. We just don't see that in our portfolio with our grocer anchored focus. Our grocers are the anchor. So typically, it's going to be the co-tenants that would want that to make sure that Kroger is going to stay there. In our example, we're absolutely fine.
Bob you want. You want to take that 1?
Speaker Change: Yeah, sure. Yeah.
Bob Myers: We just don't see it much in our space. That is really more of a different strategy, which I see a lot in the power space.
Rich Hightower: Okay, that's very helpful.
Yeah. So in this particular example and this site that they're closing, there's no Co Tendencies. I think when you get into code Tendencies you're typically in the power space. So you think about Ross they typically have code tendency language with 2 or 8 2 or 3 other Junior boxes, or possibly an anchor. We just don't see that in our portfolio with our brochure anchored Focus. Uh, our brochures are the anchor. So typically, it's going to be the coat, tenants that would want that, to make sure that Kroger's going to stay there. And our example, you know, we, uh, we're we're absolutely fine. We just don't see it much in our space. That, that is really more of a different strategy, which I would I see a lot in the power space.
John Caulfield: And then just, you know, quickly on the modeling side, I know guidance does not foresee equity issuance. But is there any incremental debt issuance baked into the guide? Or is that not?
John Caulfield: Sean, do you want to take that? Sure. So, from an incremental debt issuance, I would say that, you know, we've talked about the sources and uses. We don't explicitly have another bond offering planned this year, but as we look ahead in addressing Haendel's variable rate interest, it's a possibility. I think the key piece that I would highlight from my previous answer is we want to access the markets opportunistically and very thoughtfully. So, we will look to manage the maturity calendar as well as any debt that we are getting related to acquisitions to match fund the acquisitions and to turn that out.
Okay, that's very helpful. Um and then just, you know, quickly on the modeling side, I know guidance does not foresee Equity issuance, um, but is there any incremental debt issuance baked into the guide or or is that not the case?
Sean: Sean, you want to take that?
John Caulfield: So, I'll stay with that.
Sure. So from a, an incremental debt issuance, I would say that, you know, we've talked about the sources and uses we don't explicitly have another Bond offering planned this year, but as we look ahead and addressing andell's variable rate interest it's a possibility. I think the key piece that I would highlight from my previous answer is we want to access the markets opportunistically and and very thoughtfully. So we will look to manage the maturity calendar as well as any debt that we are getting related to Acquisitions to match funds to the Acquisitions and to turn that out. So, um,
John Caulfield: All right. Great.
Sean: I think I'll stay with that.
John Caulfield: Thank you.
Speaker Change: All right, great. Thank you.
Cooper Clark: Your next question comes from the line of Cooper Clark with Wells Fargo, please go ahead. Hi, thanks for taking the question. Just wanted to touch on the updated bad debt guidance held at the midpoint, but tighten the range. Just wondering if there's any more visibility into the back half of the year and what outcomes could get you to the higher low end. Anything to call out there?
Sean: Very good.
Your next question comes from the line of cooper, cooper Clarke with Wells Fargo, please go ahead.
Hi. Thanks for taking the question. Just wanted to touch on the updated bad debt. Guidance held at the midpoint but tighten the range just wondering if there's any more visibility into the back half of the year and uh, what outcomes could get you to the higher low end, anything to call out there.
John Caulfield: I think John gets to get that one. That's fun. Yeah, thanks for the question, Cooper. So, look, I think for us, it's pretty consistent. As we look at the second quarter, it was consistent with the first quarter, 25. And if you look at it, you know, six months at 25, it's pretty consistent with 24. Overall, we're not concerned with the level that we've got and give us the confidence to tighten the range. You know, when we were looking at the strong leasing demand and leasing spreads that Bob talked about, you know, we're achieving 35% on new leases and 19% of renewal spreads.
John Caulfield: And we were still able to deliver 4% same-store NOI growth. So, you know, as we look at the remainder of the year, I mean, we have great conversations and relationships with our retailers. You know, I would say we think it's probably consistent where we are. We intentionally set the range wider at the beginning of the year and are pleased with the portfolio performance so far that allowed us to tighten it up. So, I guess the other piece is that, you know, the nature of our neighborhood grocery anchored shopping centers is that, you know, it's small pieces.
Sean: I think John gets to get that 1. That's fun. Yeah, thanks for the question Cooper. So, um, look, I think for us, it's, it's pretty consistent as we look at the second quarter, it was consistent with the first quarter 25, and if you look at it, you know, it's 6 months to 25, it's pretty consistent with 24. Um, overall we're not concerned with the level that we've got and give us the confidence to tighten the range. You know, when we've, we're looking at the strong leasing demand and a leasing spread that Bob talked about, you know, we're achieving 35% on new leases and 19% of renewal spreads and we were still able to deliver 4%, same story. I know I growth. So, you know, as we look at the remainder of the year, I mean we have great conversations and relationships with our retailers, you know, I would say we think it's probably consistent where we are. We intentionally set the range wider at the beginning of the year and our our pleased with the portfolio performance, so far, that allowed us to tighten it up. So, um, I guess the other piece is that, you know, the nature of our neighborhood
John Caulfield: So, each neighbor is a small component. So, we're not impacted by, you know, as greatly impacted as the large anchor bankruptcies. And so, I think you're going to see kind of this, you know, incremental here and there, but, you know, we really feel good about our centers over the Great, thanks.
Grocery and good shopping centers is, is that, you know, it's small pieces. So, each neighbor is a small component so we don't we're not impacted by.
You know as greatly impacted as the large anchor bankruptcies. And so I think you're going to see kind of this you know incremental here and there. But you know we really feel good about our our centers over the long run.
John Caulfield: And just a quick follow up, anything specifically that led you to tighten it on the low end or really just kind of tighten in the range more generally? I think for us, it was just tightening the reins more generally, consistent with what we've been Great, thank you.
Great, thanks. And just a quick follow-up. Anything specifically that led you to tighten it on the, uh, low end or, um, really just kind of tightening the range more generally
Sean: I think for us it was just tight tightening the range more generally um, consistent with what we've been experiencing
Great. Thank you.
Ken Billingsley: Your next question comes from the line of Ken Billingsley with Compass Point Research and Trading. Please go ahead. Hello. I have a question. It's a little more granular, and it's about option leases. For the second quarter, it was 7.1 percent, and looking on an annual basis, it was 4.8. Anything that's unique about the second quarter? I know last year it was a little bit higher than the rest of the quarters. Anything unique about the second quarter that drives that? So, help me with that again, what was the, you said the option leases? The rent spread, page 40 of the supplement, option leases, rent spread was 7.1%, total's 4.8%.
Sean: Your next question comes from the line of Ken Billingsley with compass, point, research and trading, please go ahead.
Speaker Change: And the annual basis, it was 4.8, anything that you unique about the second quarter. Um, I know last year, it was a little bit higher than the rest of the, uh, rest of the quarters. Anything unique about the second quarter, that drives that
Speaker Change: So um, how it can help me with that? Again, the what was the, what the the you said the option? Leases
John Caulfield: I mean, obviously, I'm just curious of, is there anything unique about why the second quarter tends to roll that way? It's higher than last year, but it seems to be elevated in prior years as well.
Uh, the the rent P page, 40 of the supplement, option, leases rent, spread was 7.1%, uh, totals 4.8. Um,
I mean, obvious, I'm I'm just curious of, um, is there anything you need about? Why the second quarter tends to roll that way? Um, it's higher than last year but it it seems to be elevated in Prior years as well.
John Caulfield: John, do you wanna cover that? Sure. So Ken, I wish I had a better answer for you, but it kind of depends on whether or not it's grocers that are rolling or other leases in the case, because as grocers roll, those tend to be lower. If we have options with other neighbors, that can tend to be higher. So unfortunately, doing 40 options in the quarter, It's just unfortunately.
Yeah.
John Caulfield: Okay, and the other question I have, and this is getting back to the question about your cap rate spread between what you're buying and selling on the, what was the spread on the acquisition, the cap rate on this? on the acquisitions for the quarter and maybe for year to date. Doors. So I'll take that one. Oh, no, go ahead. No, no, I mean, are you saying, are you asking the cap, the cap rate of what we, year to date, what the cap rate is? Is that? Yeah, what you're requiring, yes. I mean, you gave a range of seven to seven and a half is what you're targeting, but what is it, what do you have, like, specific?
John do you want to you want to cover that? Sure. Sure. Can I wish I had a better answer for you but it it's it kind of depends on whether or not it's groceries that are rolling or or other leases in the case because as as groceries roll those tend to be lower. Um if we have options with with other, you know, neighbors that can tend to be higher. So unfortunately you know, doing 40 options in the quarter. It it's you know, it's just unfortunately mixed
Speaker Change: Mix. Okay. Uh, and and the other question I have, um, and, and this is getting back to the question about your cap rate spread between what you're buying and selling, uh, on the, what, what was the spread on the acquisition? The cap rate on this, um,
Speaker Change: On the Acquisitions for the quarter and maybe for year to date.
Sure. So I'll take that 1. Oh no, go ahead Jeff.
John Caulfield: And if you said it earlier, I may have missed it. Well, the, I mean, year to date is 6.3 cap rate is what we bought stuff at. And we so that that that's at, you know, based on on on the sort of the full market of what we market value of what we bought. Great. I appreciate it.
No, no. I I mean I I are you saying are you asking the cap? The cap rate of of what we what year to date? What the cap rate is? Is that yeah? What's your acquiring? Yes, I know you gave a range of 7 to 7 and a half is what you're targeting. But um what is it? What could do? You have like specific? And if you if you said it earlier I I may have missed it.
Jeff Edison: Well the um I mean year year to date is 6.3 cap rate is what we bought stuff at.
And uh, we um so that that that's at um, uh, you know, ba based on on, on the sort of the, the full Market of of what we market value of what we bought.
John Caulfield: Thank you for taking my questions. Yeah. Thanks, Jim.
Great. Uh, I appreciate it. Thank you for taking my questions.
Floris Dijkum: Your next question comes from the line of Floris Van Dijkum with Leidenburg-Bellman. Please go ahead. Hey, thanks, guys, for taking my question. So. Jeff, you mentioned something really interesting. You said that, if I recall correctly in answering one of the previous questions, about 10% of your total acquisition volume is likely going to be in these unanchored centers. Could you maybe elaborate a little bit on the cap rates and the rationale behind buying some of those assets? Are they, you know, where's their location? What's the strategic rationale, et cetera? Yeah, well, thank you for the question.
Speaker Change: Thanks, Dan.
Speaker Change: Your next question comes from the line of Flores vendigum with ladenburg Salman. Please go ahead.
Hey uh, thanks guys for taking my question. Um so um,
Speaker Change: Uh, Jeff you mentioned something really interesting. You said that if I, if I recall uh, correctly in answering 1 of uh the previous questions about 10% of your total acquisition volume, is likely going to be in these unanchored centers. Could you maybe a elaborate a little bit on the cap rates and the rationale behind buying buying some of those assets, are they, you know, um, you know, where's their location? Uh, what's the Strategic rationale, uh, Etc.
Jeff Edison: I'll dig in, and Bob, you know, join in with me. This is a new initiative we've been talking about, you know, and implementing over, really, over the last year and a half. And it basically is taking the view that at centers that we own and in markets where we are really locally smart and have, you know, a very strong presence in the markets, there are selected and there are select unanchored centers that we find really intriguing in terms of both initial yield, but also our ability to grow the rents in them. And because we have boots on the ground in these markets, we actually have a really good insight into them.
Speaker Change: Yeah. Uh, well, thank you, uh, for the question. I I'll get dig dig in and Bob you, you know, join in with me. The it's, this is a new issue. We've been talking about. Uh, you know, and and implementing over really, really over the last year and a half. Um, and it basically is take taking the view that at centers that we own and in markets, where we are really locally smart and have, you know, a very strong presence in the markets, um, there are selected, um, and that there are select, um, unanchored centers that we find really intriguing in terms of both initial yield, but also our ability to grow the rents in them.
Jeff Edison: And so, we've started to gradually buy a few of these as we've gone to make sure that we're testing them from a risk perspective, from a return perspective, from our ability to really grow rents at these centers. And we've had very, I mean, our results have been very positive. So, we continue to see this as an opportunity for us to grow. And it's, you know, it will probably be in that 10 percent to, you know, maybe it could get to 15 percent, but I would say it probably would remain below 10 percent of our total portfolio.
Jeff Edison: But I do believe it will add incremental growth to what we do with a risk profile that we, again, we feel really good about because these are in really strong markets, strong locations, great traffic. They tend to be closer to, you know, very close to a grocery that's driving traffic to the area. So, they create, we think, really good retail locations that we can buy at yields that will get us a return at least 100 base points wide of what we can get on the own gross ranker centers. So, that's why we're excited about it.
Bob Myers: I don't know, Bob, if you have any things you want to add to there, but we, you know, we're excited about that opportunity. Yeah, the only thing I would add, Jeff, is that we've acquired 11, all right? So, it's about 3.5% of our entire portfolio. It's a small part of our business. Markets like Minneapolis, Chicago, Houston, Dallas, Atlanta, South Florida, Denver, as an example. It's early indications, early days, but I'm super excited about the opportunity set. You know, we have a very strict criteria in terms of how we operate. Can we get consistent spreads? Can we still get 20% renewal spreads, 30% new leasing spreads?
Speaker Change: With the risk profile that we, again, we we feel really good about because these are in really strong markets, strong locations, great traffic that they, they tend to be closer to, you know, very close to a grocery. That's that's driving traffic to the area. So they they create we we think really good retail locations that we can buy at yields that will get us a, a return at least at least 100 base points. Why do what we can get on the uh gross rank? The, the own gross, anchored centers, so that that's why we're excited about it. Um, I don't know, Bob, if you have any things you want to add to their but it it we we, you know, we're excited about that opportunity.
yeah, the only
Bob Myers: And when I went through all the numbers on the activity so far, our new leasing spreads on our unanchored piece is right around 43%, and our renewal spreads were in the mid-30s with CAGRs above 3%. So, again, as Jeff mentioned, we're going to be very opportunistic about the It is a natural complement to what we do well day in and day out. So, early indications are very positive, and if we can be selective over the next two or three years and continue to acquire this type of product type, I think we'll do very well. These assets have a CAGR above 5.5%, so a great complement to growing same-center NOI.
thing I would add Jeff is that we've we've acquired 11. All right, so it's about 3.5% of our entire portfolio. It's a small part of our business markets, like Minneapolis Chicago, Houston Dallas, Atlanta, South Florida. Uh Denver as an example, it's early indications early days but I'm super excited about the opportunity set. You know, we have a very strict criteria in terms of how we operate can we get consistent spreads, can we still get 20% renewals spreads, 30% new leasing spreads and what I went through all the numbers on the activity. So far our new leasing spreads on our unanchored.
Piece is a is right around 43% and our renewal spreads are in the mid-30s with keggers above 3%. So again, as Jeff mentioned, we're going to be very opportunistic about the space. It is a natural complement to what we do well day in and day out. So early indications are very positive and if we can be selectively over the next 2 or 3 years in a continued to acquire this type of product type. Um I think we'll do very well. These assets have a kegger above 5 and a half percent, so a great compliment to Growing same Center. Noi
Bob Myers: And it may be just a follow up, just because I noticed the one asset that you listed unanchored, it's 84% leased. How quickly are you able to ramp up occupancy in those assets as well? Yeah, so a great example is the assets that we bought in in Denver. And I believe that when It was in the low 80s and we've already leased 13,000 feet so we're in the upper 90s on that within two months of acquiring the asset. So that's not uncommon. As I mentioned, you know, when we acquired in 2023, a portfolio that was 87% occupied, within a year we were 98%.
And maybe just a follow up just because I noticed the the 1K, right? It's you know, 84% leased how quickly are you able to ramp up occupancy in in in in those assets as well?
Yeah. So a great example is the assets that we bought in uh, in Denver and I believe that 1
Speaker Change: trying to see what the occupancy it was in the low 80s.
Speaker Change: And we've already leased 13,000 ft. So we're in the upper 90s on that within 2 months of acquiring the asset.
Bob Myers: So we're already seeing one of the assets in Houston, we've already completed six new leases in a period of a year. So we're seeing, again, retailer demand, as long as you're buying with the right criteria in mind, it happens quickly.
Speaker Change: So that's not uncommon. As I mentioned, you know, when we acquired in 2023, a portfolio that was 87% occupied within a year, we were 98%. So we're already seeing 1 of the Assets in Houston. We've already completed 6 new leases and a period of a year. So we're we're seeing again retail
Demand. As long as you're buying with the right criteria in mind, it happens quickly.
Floris Dijkum: Thanks, Bob.
Jeff Edison: Maybe my follow-up is related, I guess, on the acquisitions for JVs. You do have a couple of JV partnerships. How do you feed those? Is there more demand from your JV partners to acquire more assets in this kind of environment? And have their return expectations changed over the last 12 to 18 months? Yes, so we have two JVs that we are currently buying into, and What we've done is we've basically set a target for each of the funds that is outside of PECO's balance sheet. And, you know, we now have bought, I think, at least four properties between the two.
Speaker Change: Thanks B. Maybe my follow-up is, is, uh, related, I guess, uh, on the, uh, the Acquisitions. Uh, for JVS, you, you do have a couple of JV Partnerships, how do you feed those? And how do you is there more demand from your JV Partners to acquire more Assets in in this kind of environment? And and and have their return expectations uh, changed over the uh, over the last, you know, uh, 12 to 18 months.
Speaker Change: um, yeah, so the, um, we have 2, um, JVS that we are, uh, currently buying um, buying into um, and um,
Jeff Edison: And we'll, I think we'll make even better progress in the second half of this year on those. But they, I mean, the way we look at it is we own, Floris, we own four centers today that we wouldn't own without these JVs. And we think we're going to be able to make very strong returns on our equity investment as well as, you know, the fees in doing that on these properties. So we see it as another, you know, growth opportunity. And in terms of whether we're going to buy more or less, you know, that, again, is going to be really driven by the what's in the market and how well it fits with both of these funds.
Speaker Change: Uh, what, what we've done is, we've we've basically set a, uh, a target for each of the funds that is outside of of Pecos balance sheet. And, um, you know, we, we now have bought, I think I, I believe it's 4 4, 4 properties between the 2. Um, and we'll I think we'll, we'll, we'll, we'll make even better progress in the second half of this year, um, on those. Um, but they, I mean, the way we look at it is we own Flores? We, we own 4 centers today that we wouldn't own without these JVS and we think we're going to be able to make very strong.
Jeff Edison: But we do anticipate having one of them fully placed by the end of this year. It's a smaller fund. And the second one will continue for some period of time. Yep.
Speaker Change: we do anticipate having 1 of them uh, fully
Um placed uh by the end of of this year it's a smaller fund. Um and the second 1 will will continue for some uh period of time.
Operator: Thanks, Lawrence. Thanks for the questions.
Speaker Change: Thanks Beth.
Jeff Edison: So this concludes our question and answer session and I will now turn the conference back to Jeff Edison for some closing remarks.
Yep. Thanks Loris. Thanks for the questions.
Jeff Edison: Yeah, great. Thank you, everyone, for being on today. We appreciate it. And thank you, operator, for helping us. In closing, the PECO team continued our solid performance in the second quarter. Given our strong leasing momentum, year-to-date acquisitions activity, and recent bond offering, we're pleased to increase our full year 2025 earnings guidance for same center NOI, Neri FFO Brashear and Cor FFO Brashear. The balance of PECO's defense and offense, the stability of our high-quality cast flows, and the capabilities of the PECO team give us continued confidence in our ability to deliver strong growth in 2025 and over the long term.
Speaker Change: So this concludes our question and answer session, and I will now turn the conference back to Jeff, Edison for some closing remarks, Jeff.
Jeff Edison: Yeah, great. Thank you everyone for, uh, being on today. We, we appreciate it and thank you operator for helping us. Um, in closing the Pico team continued, our solid performance in the second quarter, given our strong leasing momentum year to date Acquisitions activity and recent Bond offering. We're pleased to increase our full year 2025 earnings guidance for same Center on AI.
Ffo per share and core ffo per share.
Jeff Edison: Because of our unique format and competitive advantages, we believe PECO is able to deliver mid-to-high single-digit core FFO per share growth annually on a long-term basis. The PICO team remains focused on delivering on this expectation and driving value at the property level. Given our demonstrated track record through various cycles, we believe an investment in PICA provides shareholders with a favorable balance of quality cash flows, mitigation of downside risk, and strong internal and external growth. In summary, and I think you've heard this before, we believe the quality of our cash flows reduces our beta, and the strength of our growth increases our alpha.
Jeff Edison: The balance of Pecos defense and offense. The stability of our high-quality cash flows and the capabilities of the Pico team. Give us continued confidence in our ability to deliver strong growth in 2025 and over the long term.
Jeff Edison: Because of our unique format and competitive advantages, We Believe Pico is able to deliver. Mid to high single-digit core ffo per share growth annually on a long-term basis.
Jeff Edison: The Pico team remains focused on delivering.
Jeff Edison: On this expectations and driving value at the property level.
Jeff Edison: Given our demonstrated track record through various Cycles. We Believe an investment in Pico provides shareholders, with a favorable balance of quality cash flows. Mitigation Of downside risk and strong internal and external growth.
Jeff Edison: Less beta, more alpha.
Jeff Edison: In summary. And I think you've heard this before, we believe the quality of our cash flows, reduces our beta and the strength of our growth increases our Alpha
Jeff Edison: On behalf of the management team, I'd like to thank our shareholders, PECO associates, and our neighbors for their continued support. And thank you all for being on the call today. Have a great weekend. This concludes today's conference call. Thank you for your participation and you may now disconnect.
less beta more Alpha.
Jeff Edison: On behalf of the management team. I'd like to thank our shareholders, Pico Associates and our neighbors for their continued support. And thank you all for being on the call today. Have a great weekend.
This concludes today's conference call. Thank you for your participation and you may now disconnect