Bob Myers: 0.3%, which was driven primarily by higher rents. The continued growth in PECO's minimum rent has us well-positioned to finish the year and as we head into 2027. Retention and collections remain solid. Demand for available space is competitive, and rent spreads and occupancy costs are healthy. Bad debt remains relatively low and was in line with expectations at around 70 basis points of revenue during Q3.
Bob Myers: These trends continue to support rent growth and long-term value across PECO's portfolio. Moving on to acquisitions. Year-to-date through 26 October, we have acquired $519 million in assets at PECO's share, including 12 grocery-anchored and four everyday retail centers. These centers are meeting or exceeding our unlevered IRR targets. With new assets, our team moves quickly into execution mode by leasing vacant space and bringing each property up to PECO's maintenance and appearance standards.
Bob Myers: The team begins to execute the underwriting plan. This is how we turn disciplined acquisitions into tomorrow's earnings growth. Given the strength of our pipeline, we recently increased our full-year gross acquisition guidance to $600 million to $700 million. The current macroeconomic environment is creating opportunities to negotiate more favorable pricing on select acquisitions. PECO's scale, relationships, and execution gives us leverage in those discussions, and we will continue to pursue concessions while remaining disciplined on price and returns.
Bob Myers: That same discipline shapes our approach to everyday retail. We target necessity-based neighborhood centers near leading grocers in markets where our leasing relationships, operating engine, and data analysis provide an an advantage. We own $300 million of everyday retail today and continue to target $1 billion, which we expect to achieve in the next 24 months. We are growing intentionally to deliver more alpha to PECO and will provide an update on everyday retail during our 16 December business update. I will now turn the call over to John. John?
John Caulfield: Thank you, Bob. Q3 Nareit FFO increased to $98 million or $0.69 per diluted share, representing 7.8% per-share growth. Core FFO increased to $100.7 million or $0.71 per diluted share, representing 9.2% per-share growth. Same-center NOI increased 5.3%, primarily due to higher rents and recoveries driven by growth in economic occupancy.
John Caulfield: We expect healthy rent growth to continue in Q4. Our same-center NOI growth rate for Q4 will be impacted by the timing of recovery income compared with the prior year quarter. We are pleased to guide to the higher end of our original 3% to 4% same-center NOI growth guidance for the full year. This past Friday, we closed a new $350 million three-year unsecured term loan at an initial rate of SOFR plus 80 basis points. This is 30 basis points lower than the term loan it repaid.
John Caulfield: We used the $175 million of initial proceeds to repay our existing $162 million term loan, with the balance used to reduce revolver borrowings. Pro forma for the closing of the new term loan, we have approximately $950 million of total liquidity. At the end of the quarter, net debt to annualized adjusted EBITDA was 5.2x on a trailing 12-month basis and was 5x on a last quarter annualized basis.
John Caulfield: We expect to end the year closer to 5x net debt to annualized adjusted EBITDA and even lower on a last quarter annualized basis. Pro forma for our $350 million unsecured debt issuance, PECO's weighted average interest rate was 4.5%. Our weighted average maturity was 5.5 years, including extension options, and approximately 85% of total debt was fixed rate, which includes PECO's total prorated share of debt for its JVs.
John Caulfield: Importantly, PECO has no meaningful debt maturities until 2030. This provides additional flexibility as we execute our growth and funding plans. We continue to view the unsecured bond market as an important source of long-term capital and expect to remain a repeat issuer over time. At the same time, we will be disciplined about selecting the right instrument and duration for the market.
John Caulfield: In the current rate environment, the 3-year term loan offered attractive execution at the shorter end of the interest rate curve while allowing PECO to pay down the existing term loan, reduce revolver borrowings, and preserve flexibility. As a reminder, our current plan does not assume equity issuance. We are match funding our investments with an efficient combination of retained cash flow, dispositions and JV proceeds, and debt while protecting leverage and per-share growth.
John Caulfield: This flexibility allows PECO to pursue the best risk-adjusted returns, whether on balance sheet or through our joint ventures. Based on the opportunities and funding sources we see today, we believe we have ample capacity to execute our plan in 2027 while remaining strategic and disciplined. Regarding guidance for 2026, our increased same-center NOI guidance reflects 3.75% growth at the midpoint.
John Caulfield: We increased the midpoint of Core FFO per share guidance, which reflects growth of 6.5%. We also increased the midpoint of Nareit FFO per share guidance, which reflects growth of 6.3%. Nareit and Core FFO growth are expected to have higher G&A expense in Q4 than Q3. Gross acquisition guidance remains $600 million to $700 million, which we increased on 1 October. We now expect dispositions in a range of $175 million to $210 million.
John Caulfield: As we look to 2027, our focus remains consistent. Execute on the internal growth opportunities across the portfolio, raise capital at the best cost to PECO, invest externally with discipline, and maintain the strength and flexibility of our balance sheet. We are confident in our ability to convert these opportunities into continued strong growth, and will provide more detail at our 16 December business update.
John Caulfield: PECO delivers more alpha through our proven operating engine and disciplined growth strategy. PECO delivers less beta through durable grocery-anchored and necessity-based cash flow, low leverage, and no meaningful debt maturities until 2030. With that, we will open the line for questions. Operator?
Operator: Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, again, press star one. Our first question is going to come from the line of Haendel St. Juste with Mizuho. Please go ahead.
Haendel St. Juste: Hey, guys. Thanks for taking the question. I wanted to talk about the external growth, the transaction market specifically. Curious, as you look into the marketplace, what you might be seeing real-time, any change in cap rates and sense of more assets in the marketplace. I think you mentioned, John, you can fully fund your 2027 potential investments here without any incremental equity. But curious how much of that could be between on balance sheet, off balance sheet, and what role dispositions, how much of a role dispositions would play? Thank you.
Jeff Edison: Well, Haendel, thank you for the question. Let's answer it in two ways. One is sort of the source of capital, and the second is sort of the market, I think was the question. Bob, do you want to talk about the current acquisition market? Then we'll talk about sort of where that capital is coming from.
Bob Myers: Yeah. Thanks, Jeff. Good morning, Haendel. What I would say about the current environment here is the external growth has been positive. We reviewed 567 deals this year compared to 450 last year. We have an investment committee meeting every Monday. We presented 270 deals this year compared to 233 deals. We have closed on $519 million so far this year, and we have a very strong pipeline where we have either been awarded or under contract on another $250 million.
Bob Myers: So, we are in a very, very solid position of being very active in this space, finishing the year strong while also building out a very strong pipeline into next year. John can speak more to the dispositions. We are very diligent about recycling some of our stabilized assets that are closer to 7% to 7.5% returns, where we are recycling those into new assets generating between 9% and 10% unlevered returns. We are excited about the portfolio that we have acquired this year.
Bob Myers: There is more competition, but if you look at what we have acquired in everyday retail, we have averaged about a 6.8 cap rate. If you look at what our blend has been across the year, it is about 6.5, and we are still solving for above a 9. The discipline is in place. The market is active. The competitive bid set is active, but we are not seeing a lot of movement in cap rates. Interest rates kind of spiked, and then they came back down, but I feel like we are in a very good spot in terms of continuing to see activity and taking advantages of that.
Jeff Edison: Yeah.
John Caulfield: I will jump in quickly on the funding. Ultimately, from a funding perspective, we are excited about expanding our investment management business, and so we have additional funding that will be drawn there. Some of it will be later this year, it is in our guidance table, and then the remaining piece will happen in early 2027. I think the key piece here for us is that we are looking at it as match funding. Your question was getting to what our forward dispositions look like, and the best part is that we do not have anything we have to sell.
John Caulfield: These are things that are opportunistic or, as Bob said, maybe some cases the IRR is a little bit lower, but ultimately, we have a very strong portfolio, so we have the ability to increase and decrease that. I would think that we have begun our active recycling, but the key piece is sort of match funding with our acquisition opportunities, and as long as we see great acquisition opportunities, that is going to give us the room to sell assets as well.
Jeff Edison: Yes. Handel, to add to that, we are basically raising capital in the low 6s on a cap rate, and we are putting that to work in the mid-6s. So, we are getting a spread from the start, and then we are looking at these assets as long-term growth vehicles for us. They are going to help generate 2027, 2028, and 2029 growth. So, we are excited about not only getting a kick to start, but also what we are going to see on a longer-term basis. Thank you for your question.
Haendel St. Juste: Thank you.
Operator: Your next question comes from the line of Andrew Reale with Bank of America. Please go ahead.
Andrew Reale: Hi, good afternoon. Thanks for taking my question. Maybe just one on the tenant mix. Just looking at your slide deck, it looks like local tenants are now about 26% of your ABR. I guess first of all, amongst that cohort, what proportion of those local tenants do you consider to be necessity-based? Then just any color on how that group has been performing, if there have been any increase in delayed payments or changes to overall health among that group of local tenants.
Jeff Edison: Great. Thank you, Andrew. Bob, you want to take that one?
Bob Myers: Yes. Thanks, Andrew. Appreciate the question. Merchandising mix has always been one of the most important aspects of creating value at our properties and for our shareholders. The local mix plays a big role in it. Even though it's 26% and 74% of our rent roll is necessity-based, it still has the consistency in our local tenants with having quick service, fast casual, health, wellness, beauty, fitness, and medtail.
Bob Myers: What I appreciate about the mix is that we are able to generate higher rents, spend less TI money, get them in the space sooner and paying rent. And honestly, they are all entrepreneurs. We just like to partner alongside of them in terms of making sure that they are profitable. But we have seen a lot of success in hitting. I mean, if you look at our renewal spreads this last quarter, they were like 25.2%, and they are even higher if you look at the local mix. So that is an advantage.
Bob Myers: The key is merchandising around how you continue to focus on necessity-based goods and services. Look, there is no new supply coming on the market, so the demand is very vibrant. All the meetings that we are having at ICSC and the conversations with retailers want to be with the number one, number two grocer, and that is what we have been providing. So health ratios are strong at about 10%. If you look at our high retention rate of 92.2% and our spreads of 25%, I mean, it feels like we are in a very good spot right now. That is our focus.
Jeff Edison: Yeah. Hey, Andrew, just to add on to that, we want to make sure that we are explaining that we are very focused on this merchandising, and over time, the mid-20s for local is the right mix because the reason we are so focused on the merchandising is we cannot drive rents unless we can drive sales. The merchandising that we are laying out will maximize the production of the center, which then allows us to grow our rents.
Jeff Edison: The reason we are having market-leading rents is a big piece of that is our retailers are doing well because we are merchandising to each specific market where we have a property. That is a really critical part of how we think about the business, but also how we act on a day-to-day basis. That whole being locally smart is all part of that, because you have to merchandise to each center that you own if you really want to maximize the sales that we can do, and then therefore the rents.
Operator: Your next question comes from the line of Michael Griffin with Evercore. Please go ahead.
Michael Griffin: Great, thanks. I saw recently that Kroger announced expansion plans through 2029 of upwards of 100 new centers. I am just curious how your portfolio could stand to benefit from this, because clearly you are a large landlord partner for them. It is good to see the expansion and the focus on sales productivity. Does this come through the opportunity set within the redevelopment bucket, maybe re-tenanting another grocer with one of these Kroger expansions? Just curious if you can give some commentary there. That would be helpful.
Jeff Edison: Great question, Griffin. Something we have thought a lot about. Bob, you want to take that on what we are doing there?
Bob Myers: Sure. Thanks, Michael. In all our conversations with Kroger, they are expanding. They are not only expanding, but they are reinvesting a lot of capital into their existing stores. So being the number 1 landlord of Kroger, we have some insight to that. We have walked alongside them with some ground-up development opportunities where we are in the process of securing some ground to partner with them on that front.
Bob Myers: I think it is going to come from both ground-up development opportunities. I think they would like to do 40 new locations this year that is ground up, and then in addition, any existing sites. Obviously, you are aware of the Giant Eagle expansion, and they are very focused on that as well. We are glad that Kroger is our partner and that we are their largest landlord. We're going to continue to see them making the right investments in their store, and we're helping them with their strategic layouts across the country.
Jeff Edison: Yeah, Griff, the only thing I would add in there is we think that their purchase of the Giant Eagle stuff and that portfolio is just going to strengthen our ability in those markets, because the Giant Eagles are dominant in both Cleveland and in Pittsburgh, and that's just going to make our centers there even stronger. We think that's going to be a real positive for PECO.
Michael Griffin: Awesome. Thanks, guys.
Jeff Edison: Yep.
Operator: Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Please go ahead.
Caitlin Burrows: Hi, everyone. Maybe just on the lease pricing side, it looks like new lease spreads ticked down in the quarter, but are still over 30% in the trailing 12 months, so impressive. Can you just talk about the quarter and then more generally on pricing, whether you are getting any increased pushback from tenants on higher rents? I know you have talked in the past about upside to occupancy costs. Thanks.
Jeff Edison: Great. Thanks, Caitlin. Bob, you want to talk a little about that?
Bob Myers: Yeah. Good morning, Caitlin. Yeah, appreciate the question. Honestly, it was just a timing issue of the deals that were executed in Q3. We have been consistently putting up numbers in the low to mid-30s on our new leasing spreads. So the 26.3%, I believe, the number for new leasing spreads this quarter, that was just purely just the deals that were executed. If you look at the full year and you look at the visibility that we have out into Q4, we will certainly finish well into the 30s in terms of a year.
Bob Myers: So it is just purely a timing issue. I am not seeing any pushback on any retailers in terms of pricing. We would see that, which is interesting, right? Between 92.2% retention and record high 25.2% 25% retention, the neighbors are strong. They are making money. I think the key is making sure that you are merchandising appropriately, and then you are keeping their health ratios within that 10% to 11%. So I am not seeing any issues with it. That was purely a timing thing. We are going to finish the year in an exceptional level, and we feel real good about the strength of the portfolio.
Caitlin Burrows: Got it. Thanks.
Bob Myers: Yep.
Operator: Your next question comes from the line of Jamie Feldman with Wells Fargo. Please go ahead.
Jamie Feldman: Great. Thanks for taking the question. Same-center NOI accelerated to 5.3% in Q3, and it is 4.3% year-to-date. I believe the updated full year range is 3.5% to 4%. Can you talk about the implied moderation in Q4 and what is driving it? Is it rent commencement timing, bad debt, expense comparisons, or maybe intentional vacancy for remerchandising? Then, does this Q4's outlook change how you think about your long-term range of 3% to 4% heading into 2027?
Jeff Edison: Hey, Jamie. Thanks for the question. John, you want to take that?
John Caulfield: Absolutely. Thanks for the question, Jamie Feldman. So ultimately, in Q4, similar to Q3, we are seeing great strength from our neighbors, as Bob Myers just said. The execution remains strong. Really, we are not seeing it as a moderation necessarily. We are looking at it as the timing of recoveries from Q3 to Q4, and that can vary from quarter-to-quarter. We have seen that in years past. Ultimately, we tightened the bad debt range for our guidance, which is now at a 60 to 80 basis point range.
John Caulfield: And there is nothing that we are seeing that is really going to soften related to 2026. As we look to 2027, I think we are feeling really strongly about us being able to continue to deliver on our long-term targets of 3% to 4% on a same-store basis, and then mid to high single digits on our FFO per share metric. Ultimately, we actually think that we are just getting started. The neighbors are strong, the acquisition market is open, and we are positioned very well to take advantage of that.
Operator: Your next question comes from the line of Rich Hightower with Barclays. Please go ahead.
Rich Hightower: Good afternoon, everybody. Thanks for taking the question here. So I think if I look in the renewal spreads and the impact of options on that number, it looks like options obviously are a very tenant-friendly feature of a lease typically. So maybe talk about that dynamic in the portfolio. You did mention non-economic lease terms changing, but I wonder if the renewal option part of that specifically is changing as well, and what that means for the business going forward in the very strong market rent environment we are seeing currently.
Jeff Edison: Yeah. Rich, thank you for the question. Bob, you want to talk a little bit about the options as well as sort of how that may change in the current environment?
Bob Myers: Yeah. It is absolutely changing. Thanks, Rich, for the question. It is a great question because obviously we are very focused on continuing to find ways to grow CAGR and ABR across the portfolio. When you are 97.5% occupied, we have room to continue to move not only occupancy. Options are definitely one of those things that are very tenant-friendly. We do not like to give them. The issue is we have acquired so many large grocery stores in our portfolio that they lock the property down at least 50% of the ABR, give or take, for the next 30 years with either flat options or very mild options.
Bob Myers: On the inline neighbors, we are able to continue to push and negotiate options away from not only new deals, but also further renewals. You touched on this, but the non-monetary clauses were all over. You think about removing exclusives, caps, restrictions, co-tenancies, and no-build areas, we have been very successful in our ability to negotiate those items to free up potential development land, redevelopment categories, out parcels.
Bob Myers: So it is a little bit of everything. Options are definitely the one that we start with. I tell our leasing team during every new lease negotiation that you are not allowed to give options. Sometimes the retailers will need it, just given their capital that they are investing in their property, and they want to make sure that they are going to stay there. Our job is to really try to push those to 15%, 20% or better. So it is a combination of everything, and we are in the environment to take advantage of everything.
Rich Hightower: Good. Thank you.
Jeff Edison: Yep. Thanks, Rich.
Operator: Your next question comes from the line of Ronald Kamden with Morgan Stanley. Please go ahead.
Caroline Long: Hi. This is Caroline on for Ron. Thanks for taking the question. I appreciate the commentary that you gave on the transaction markets. I was wondering if you would give a little bit of color into what you are seeing in cap rates in the traditional grocery-anchored centers versus more of the everyday retail centers from an IRR or cap rate perspective. Then you spoke a little bit too on the mid-20s local mix for the grocery-anchored centers, so I was just wondering what you were seeing as kind of a similar rate as to how you were thinking about the exposure of local tenants for the everyday retail centers. Thank you.
Jeff Edison: Cool. Bob, do you want to talk a little bit about sort of where we are seeing the cap rates on the grocery and as well as the everyday retail? Then I think the second question was really just local mix. What kind of local mix are we seeing in the everyday retail?
Bob Myers: Yep. Thank you. Appreciate the question. Cap rates have been running anywhere between a 5.8 and a 6.5 for what I would consider core grocery-anchored opportunities. When I think about everyday retail, there is a lot of properties that are between a 6.3 and a 7.5, depending on what markets. That has been pretty consistent. I mentioned it earlier, but when you look at the bid sheets, we typically will see 6 to 8 offers on grocery-anchored product.
Bob Myers: We will see probably 5 offers come in on everyday retail. But if you look at our everyday retail portfolio, we have averaged a 6.8, and if you look at our grocery-anchored, we have been really around a 6.3, 6.5. I am not seeing a lot of movement on that. In terms of unlevered returns, our grocery product is a 9 or 9.5, and our everyday retail is between a 10 and 11.
Bob Myers: We have kept that discipline in place, and we have seen a lot of success in that. In terms of merchandising mix with local, our local neighbors on our core grocery has been around 26%. But if you look at the everyday retail category, we are very intentional about finding opportunities that we can take our national account team, focus them on remerchandising around necessity-based goods and services with a national name.
Bob Myers: We typically will start one of these properties, and the balance will be 60% national/regional, 40% local. Then what we will do over our remerchandising efforts and our strategy over our hold period, we will improve that down. It might end up closer to 30%, but I like that because we are able to really spend less TIs, reinvest some capital, push rents. There is a tremendous amount of mark-to-market opportunities when you are buying the everyday retail assets that we are buying today.
Bob Myers: I mean, we are buying right, we are getting the unlevered returns. We average around $335 a foot on these purchases. We are really excited about the space. Granted, we have $300 million today. We would like to grow it to $1 billion over the next 24 months. We are highly engaged. We are doing a lot of different things to attract the opportunity. That is 50,000 centers out there. We want to continue with the discipline and take advantage of it where we see there is an opportunity.
Jeff Edison: Thanks, Caroline.
Operator: Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please go ahead.
Sean Glass: This is Sean Glass on for Todd. You added meaningfully to the active development and redevelopment pipeline this quarter despite stabilizing 17 projects year-to-date. You have talked increasingly about development as an opportunity, and you mentioned your prepared remarks desire to grow that piece. How should we think about your appetite for ground-up development from here? How large could that become? Could development ultimately become a meaningful enough piece of the investment program to offset some compression in acquisition returns?
Jeff Edison: Sean, thank you for the question. I want to make sure I understand. You want to get a feel for how we are looking at our development and our redevelopment businesses? They are kind of two separate questions, I think, there. We were talking primarily about the development around our existing centers and the redevelopment around those existing centers part of our business. Bob, you want to go through sort of both those pieces and where we are trying to take it?
Bob Myers: Yep, absolutely. Thanks, Sean, for the question. This year, we will finish somewhere between $80 million and $85 million of our redevelopment and development buckets, and we are generating returns between 9% and 12%. We like that. We continue to look for opportunities not only on the acquisition side that provide some ground-up development or out-parcel development opportunities. I look out the next three years, we have a nice pipeline that we have always said that we do $50 million, give or take, a year, but our pipeline is well above that.
Bob Myers: I think as I look out the next three years, there is a nice pipeline of another couple hundred million dollars in the works. The nice thing is that we are pairing that with buying as much as we are buying on the acquisition side. Jeff touched on this earlier, but our portfolio that we acquired this year is 94% occupied, but our portfolio is 97.5%. So there is room not only in occupancy for organic growth, but also there is a lot of development opportunity in terms of the outparcels that we are acquiring or purchasing adjacent.
Bob Myers: This year, we purchased five outparcels, and we already have active LOIs and leases out for signature on all of them. So we continue to look for those opportunities. I think it is a wonderful complement to our same-center NOI growth plans over the next year. So we are going to do both. We are going to stay focused on our internal growth, but also the development side of the external business that can generate additional alpha for us on NOI. It is happening, and this was a nice year for us at $80 million. We will see what next year brings, but we should be in the same zip code.
Jeff Edison: Yeah. Bob, you want to touch a little bit on the ground-up development, that piece? Obviously, it is a small piece of what we do, but
Bob Myers: It is a small piece. At this point, everybody is familiar with the Ocala asset that we acquired, and then we ended up selling a parcel to Super Walmart. We retained seven parcels. We have activity on all seven parcels. So we are doing a nice job with that, but it is pretty small in terms of what that is. The partnership that we have with Kroger is going to create some opportunities. The world is a little different in terms of grocery ground-up development because you really do not get the pop on the NOI for 3 or 4 years out.
Bob Myers: There is a long process there of entitlements and development and going vertical and everything that needs to happen to unlock that. So we want to run a parallel path, not only with our focus, given that we are Kroger's largest landlord, Publix's second-largest landlord. They are active, so we are going to walk alongside them in terms of their ground-up plans.
Bob Myers: Meanwhile, what we are trying to do is focus and unlock as many outparcel opportunities as we can. Most of those opportunities are going to be between $2 million and $4 million. Again, we will focus on the 9% to 12% returns. I think so far, we have developed about 42 of those over the last four years, and we have been consistently not only seeing demand for it, but that is why you saw us acquire five pieces of dirt this year.
Operator: Your next question comes from the line of Connor Mitchell with UBS. Please go ahead.
Connor Mitchell: Great. Thanks for taking my question. It seems like the consumer remains resilient. There is still plenty of retailer tenant demand, as seen in your results and the comments through the call today. However, we have seen a couple of retailer credit blips, the Wendy's or Leslie's. While these are very limited exposure to your portfolio, I am curious if either of these blips or something else you are seeing in the market has maybe changed your view of either the tenant mix or the underwriting potential for acquisitions, maybe taking a more conservative view, or even maybe changing your process for bad debt assumptions and casting a wider net for maybe a slightly larger watch list just to keep an eye on any potential issues. Thanks.
Bob Myers: Yeah. John, I will let you. That is a broad question. Yeah. Yep. Go ahead.
John Caulfield: Thanks, guys.
Bob Myers: Go.
John Caulfield: All right, and thank you for the question. Ultimately, as we look at it, we actually are seeing great strength from the locals. We were not impacted by the Wendy's franchise piece. From Leslie's, I believe it was 5 basis points of rent. I think we had six locations, and we actually have strong comp rent, so we actually will be able to take those more quickly to market.
John Caulfield: Although I think there's actually only, I think, five of them maybe staying or being discussed. I think this actually reinforces our overall strategy, because when I look at it, I love, I actually think the locals are a really great addition to our centers. Ultimately, to the comments that have been made previously, we want to ensure that their sales are productive and increasing and able to sustain this rent growth.
John Caulfield: Ultimately, our overall diversification across our portfolio is one of the strengths that is actually part of the lower beta part. If you exclude the grocers, our number one non-grocer use retailer is the TJ Maxx brand, and that's 1.3% of our revenue. I think that the local neighbor continues. The economics are better. Their retention with us is outstanding, and that is actually a good opportunity. We're not seeing anything at the ground level in terms of we've reduced and tightened our bad debt range.
John Caulfield: It's been lower than it has in the past. The forward pipeline is really strong. The renewal rates are high. There isn't anything that we're seeing. I actually think if you look at the macro data, the consumer continues to be quite strong. The credit card data is showing that they're doing all right. It is something that we watch, but ultimately, we look at it from a diversification standpoint and are really positive about it. There isn't anything that gives us concern at this time.
Operator: Your next question comes from the line of Jacob Dingo with JPMorgan. Please go ahead.
Jakub Dingo: Hi, thanks for taking the question. This is Jacob filling in for Mike Mueller. As you mentioned, it was another strong quarter in terms of occupancy, but it looked like there was a slight decline, about 40 basis points on inline lease occupancy. Is there anything to call out here, and where do you see this falling by end of 2027?
Jeff Edison: Jacob, thanks for the call. Bob, you want to just explain that?
Bob Myers: Yeah. Thanks, Jacob. The answer is real easy on that one. We have been at 95.4, 95.5 inline occupancy. It moved to 95.1 purely because of the new acquisitions we brought online. If you look at the acquisitions that we have acquired, we have been in the low 90s, and that solely, 100%, has to do with just the new acquisitions.
Jakub Dingo: Great. Thank you.
Bob Myers: Yep.
Operator: Your next question comes from the line of Eric Borden with BMO Capital Markets. Please go ahead.
Eric Borden: Great. Thanks for taking the question. On the Northwestern Mutual contributions, how closely does the timing line up with the acquisitions that you have under contract? After the recurring fee income, should we expect any temporary earnings dilution while you put those proceeds back to work? Thank you.
Jeff Edison: Yeah. I will take the first part, and then John, you want to talk about the timing of this stuff. We set it up in tranches because we are basically raising equity for our acquisitions to match fund the acquisitions that we have in the pipeline, and that is how it is set up. I think it is set up in three tranches. We have closed the first tranche, and I think the second one will be in December, and the third one will be in January.
Jeff Edison: We are matching those up to our acquisition pipeline. That Northwestern Mutual overall will be about $800 million at the time we get fully funded there, with the first tranche that we have now been in for 8 years and have extended all of it for 10 years going forward. John, you want to talk a little bit about that?
John Caulfield: Regarding the question around earnings, we are very pleased that we were able to raise our guidance. To Jeff's point, we have matched it very well, which is why we have this stage closing. We will finish the year at a lower EBITDA basis than we had anticipated originally, and that is just going to give us additional acquisition capacity for next year. I do not anticipate earnings dilution or moderation.
John Caulfield: We raised our FFO per share guidance into the mid-6% growth range, and I would anticipate that next year, we are using this capital to time it well. We certainly have a strong 1031 program, but I would anticipate an expanded acquisition profile for 2027, which is what we have been building for. This is a great opportunity for me to plug. I hope everyone attends our 16 December business update, where we will share more color on that.
Operator: Your next question comes from the line of Floris van Dijkum with Ladenburg. Please go ahead.
Floris van Dijkum: Hey, guys. Thanks. Wanted to just touch upon everyday retail a little bit more, on what the pipeline of new acquisitions looks like and how the composition of total returns for this asset class is between initial yield and NOI growth, or annual NOI growth going forward, and how do you see that evolving?
Jeff Edison: Thanks, Floris, for the question. Bob, you want to take that?
Bob Myers: Yeah. Hey, Floris. Hope you're doing well. We're really pumped up on the everyday retail. Again, we're right around $300 million with the 13 assets that we've acquired. If you look at from the time that we acquired them to where we're at today, we've seen a lot of success not only in moving occupancy. We've moved occupancy between 250 and 300 basis points already. These assets are throwing off an average NOI CAGR above 5%.
Bob Myers: That's a nice compliment. Again, I think our focus is to grow it to $1 billion over the next 24 months. We're definitely leaned into it. If I look at the spreads, we're seeing new leasing spreads of 40%. We're seeing renewal spreads above 25%. Again, our leasing team and national account team continues to improve not only the merchandising towards more necessity-based, but with more nationals. We like the space a lot, and we're going to continue to lean into it. We're seeing success in our core markets, so we're going to continue to stay very focused on that front of it, Floris.
Jeff Edison: Hey, Floris. This is obviously a growth opportunity for us, but I think you'll also notice the discipline we apply to this is the exact same discipline we apply to the rest of our acquisition business, which is that we want to make sure that we are underwriting this to a point where we can get a 10+% return on our everyday retail. It's not easy to find, but you'll see us gradually growing this business, and as we grow it, we'll be doing it sort of the PECO way, which is meeting a very disciplined underwriting strategy, and that underwriting strategy will lead us to the kind of returns that we expect from this part of our portfolio.
Floris van Dijkum: Maybe, Jeff, a follow-up question on just how your strategy is different from the one public peer out there in terms of how much availability, because I think one of the differentiating factors, if I'm not mistaken, is that you tend to buy a cluster around your existing grocery-anchor centers. How much are you seeing competition from other national players, or is this more of a greenfield opportunity still in the areas that you're looking to expand in this segment?
Jeff Edison: Yeah. We see everything that our peers are seeing. What we are really looking for, Floris, is unique opportunities where we know a very specific market, and we think we can find. Not we think, we have been able to find the right kind of merchandising mix for centers that we are buying. And in doing that, we grow occupancy, we grow rents, and we grow the quality of the underlying neighbors that are in that center. That is a very different strategy than our peers have, which is more to buy sort of a triple net opportunity.
Jeff Edison: And because of that is how we are able to get these increased CAGRs of 5% plus and be able to grow IRRs of 11%+. We cannot do that if we are buying into long-term leases with national tenants that are very stable and with little upside. We are looking for upside, but we are also looking to take advantage of our knowledge of specific markets where we can see outsized returns.
Floris van Dijkum: Thanks, Jeff.
Jeff Edison: Thank you. Thanks, Lars.
Operator: Your next question comes from the line of Paulina Rojas with Green Street. Please go ahead.
Paulina Rojas: Good afternoon. Very few new grocery-anchored centers are being built, but many owners, it truly feels like everyone, is adding out-parcel developments, small buildings to existing sites. What has your experience been on the ground with this kind of new supply in terms of its impact on leasing in the market? Are there any markets where these new buildings on the out-parcels are having any meaningful impact? Is it meaningful competition, or it is really a drop in the bucket everywhere?
Jeff Edison: Well, I will start, Bob, and then you can jump in. Paulina, I think it is the second. These are a drop in the bucket. I mean, if you build a Starbucks and it is 2,000 square feet, in the scheme of things, that is not going to impact the overall market, which is much more, obviously, much more sizable. These really are, I think, a demand. There is a high demand for this kind of property among a series of certain national potential neighbors.
Jeff Edison: That is what we are focused on, is where we can find them doing that. Then the balance, which again, is a small number, but is a high-octane kind of investment, where we can build small store space, and in most cases, it is fully occupied before we complete the construction. That is an incremental growth in where we are getting that 9% to 12% yield out of the box on these redevelopment and development deals.
Jeff Edison: We are really excited about that part. We think it is additive. We wish it was a bigger market, as I think you were kind of alluding to. We will continue to grow it at the pace that we can, because at 9% to 12% yields, we can make a lot of money there, and we will keep focused on that. Bob, did you have anything to add on that one?
Bob Myers: The only other thing I would add is, a lot of these opportunities are either in our existing parking lots or they are on ground that would be adjacent. I mean, I look at our pipeline and what we have executed on, we have acquired a lot of adjacent parcels next to our Publix-anchored projects. In a lot of cases, as we are tying up the land and we are going through due diligence, we are already lining up the retailers like Jersey Mike's or Firehouse Subs or the Pacific Dental or Mavis.
Bob Myers: There is a lot of active retailers, just given that there is not a lot of supply out there. So, it has really been a great opportunity for us to capitalize on to generate the returns of 9% to 12%. So, we are very focused on continuing to find those opportunities.
Operator: Thank you. That concludes the question and answer session. Mr. Edison, I would like to turn it back to you for closing comments.
Jeff Edison: Well, thanks everybody for being on today. In closing, I want to reiterate how pleased we are with our Q3 results and our increased full-year earnings guidance. PECO delivered same-center NOI growth of 5.3% and Core FFO per share growth of 9.2%. These results demonstrate the strength of our grocery-anchored and necessity-based portfolio, as well as our consistent execution that the PECO engine continues to do.
Jeff Edison: As we look to 2027, our priorities remain clear: execute on the internal growth opportunities across our portfolio, raise capital at the best cost to PECO, invest externally with discipline, and maintain the strength and flexibility of our balance sheet. We are confident in our ability to convert these opportunities into continued strong growth, and we look forward to providing more detail for you at our 16 December business update.
Jeff Edison: PECO delivers more alpha through our proven operating engine and disciplined growth strategy. PECO delivers less beta through durable grocery-anchored and necessity-based cash flow, low leverage, and no meaningful debt maturities until 2030. I want to thank again the PECO associates for your continued hard work and our shareholders and neighbors for your continued support. Thank you again for being on the call today, and have a great day.
Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
