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    PECO
    Earnings call· Jun 2026(Q2 FY26)

    Phillips Edison & Company, Inc. PECO

    Jul 24, 2026 Source

    Executive summary

    Phillips Edison & Company Q2 FY26 — Strong Leasing, Increased Acquisition Guidance, and Positive Outlook

    Phillips Edison & Company delivered strong Q2 FY26 results, driven by robust demand for grocery-anchored spaces, leading to record occupancy and significant rent spreads. The company raised its full-year acquisition and FFO guidance, leveraging a strong balance sheet and diversified capital sources. Management emphasized a disciplined, long-term approach to value creation, focusing on internal growth, strategic acquisitions, and portfolio recycling, positioning PECO for continued growth into 2027 and beyond.

    Highlights

    5

    • NAREIT FFO per share grew 8.1% and Core FFO per share grew 7.8% in Q2 FY26.

    • Same-center NOI growth was 3.8% in Q2 FY26, with full-year guidance increased to 3.7% at the midpoint.

    • Full-year gross acquisitions guidance was increased by $100 million to a range of $500 million to $600 million.

    • Leased portfolio occupancy remained high at 97.3%, with in-line occupancy reaching a record high of 95.5%.

    • Comparable renewal rent spreads were 21.2% and new rent spreads were 33.7% in Q2 FY26.

    Concerns

    3

    • Bad debt, while lower than expected, was approximately 70 basis points of revenue in Q2 FY26.

    • A short-term cash flow gap was noted due to dispositions being ahead of pace, impacting near-term FFO.

    • Acquisition cap rates have not reduced despite higher interest rates, indicating a competitive market.

    Guidance & targets

    8
    CategoryTargetConfidence
    Gross acquisitions
    $500 million to $600 million
    high materiality
    High
    Bad debt
    in line or slightly better than 2025
    medium materiality
    High
    NAREIT FFO per share
    6.3% increase over 2025 at the midpoint
    high materiality
    High
    Core FFO per share
    6.2% increase over 2025 at the midpoint
    high materiality
    High
    Same-center NOI growth
    3.7% growth at the midpoint
    high materiality
    High
    Dispositions
    $100 million to $200 million
    medium materiality
    High
    Un-levered IRR target (Grocery-Anchored centers)
    9%
    medium materiality
    High
    Un-levered IRR target (Everyday retail centers)
    10%
    medium materiality
    High

    Operational metrics

    33
    Rents from necessity-based goods and services
    74
    Q2 FY26

    74% of PECO's rents come from necessity-based goods and services.

    NAREIT FFO
    $93.7 million
    Q2 FY26

    Second quarter 2026 NAREIT FFO increased to $93.7 million.

    Net acquisition capacity
    $250 million
    FY26

    Capacity to buy about $250 million this year while remaining leverage neutral.

    Un-levered IRR target for everyday retail centers
    9.5
    Long-term

    Targeted un-levered IRRs for everyday retail centers are between 9%, 9.5%, and 10% or better.

    New leasing spreads
    33.7
    Q2 FY26

    Comparable new rent spreads remained strong at 33.7% during the quarter. In Q&A, management also referred to new leasing spreads at 34%, 35%.

    Positive variance in other non-property income
    $0.02
    Q2 FY26

    Comprised of some investment income and some other income, with a non-recurring $1 million from a non-operating piece of land.

    Acquisition cap rate range
    6.4%-7.5%
    Q2 FY26

    Disciplined buying between 6.4% and 7.5% cap rates.

    Foot traffic growth
    2YoY
    June

    Portfolio generated 2% year-over-year traffic growth in June.

    Foot traffic growth
    2
    YTD

    Portfolio generated 2% traffic growth year-to-date.

    Bad debt
    70
    Q2 FY26

    Bad debt was lower than expected.

    Leased anchor occupancy
    98.4
    Q2 FY26

    Leased anchor occupancy remained strong.

    Leased in-line occupancy
    95.5
    Q2 FY26

    Leased in-line occupancy reached a record high.

    Economic in-line occupancy
    94.8
    Q2 FY26

    Economic in-line occupancy reached a record high.

    Comparable renewal rent spreads
    21.2
    Q2 FY26

    Delivered comparable renewal rent spreads of 21.2%.

    Annual rent bumps (renewal activity)
    3.1
    Q2 FY26

    Averaged record high annual rent bumps on renewal activity.

    Portfolio ABR per square foot
    record high
    Q2 FY26

    Driven by respective highs for both anchors and in-line retailers.

    Development project estimated yields
    9%-12%
    Ongoing

    Average estimated yields for projects under active construction.

    Incremental NOI from stabilized projects
    $3.4 million
    Annually

    Reflects incremental NOI from 11 projects stabilized year-to-date, delivering over 212,000 square feet of space.

    Liquidity
    $857 million
    Q2 FY26

    Total liquidity at the end of the second quarter.

    Net debt to trailing 12-month annualized adjusted EBITDAre
    5.1x
    Q2 FY26

    At quarter end.

    Net debt to last quarter annualized adjusted EBITDAre
    5.0x
    Q2 FY26

    On a last quarter annualized basis.

    Weighted average interest rate (debt)
    4.4
    Q2 FY26

    Weighted average interest rate on outstanding debt.

    Weighted average maturity (debt)
    5.6
    Q2 FY26

    Weighted average maturity when including all extension options.

    Fixed rate debt
    95.9
    Q2 FY26

    Percentage of total debt that was fixed rate, including PECO's share of JV debt.

    Long-term net acquisition capacity
    $300 million
    Annually

    Believed capacity to buy about $300 million on a net basis every year and remain leverage neutral.

    Occupancy increase in everyday retail acquisitions
    450
    YTD

    Occupancy moved up 450 basis points across 12 everyday retail assets acquired.

    Acquisition cost per square foot (everyday retail)
    $325
    YTD

    Spending about $325 per foot on everyday retail acquisitions.

    Un-levered returns (everyday retail acquisitions)
    10.5
    YTD

    Generating un-levered returns of 10.5% on everyday retail acquisitions.

    Leases completed increase
    25QoQ
    Q2 FY26

    25% increase in overall leases completed Q2 over Q1.

    Tenant retention rate
    90
    Q2 FY26

    Retaining 90% of all Neighbors.

    Cost to retain tenants
    Less than $1
    Q2 FY26

    Spending less than $1 per foot to keep tenants.

    Acquisition deal flow increase
    33YoY
    YTD

    Seen a 33% increase in the amount of deals coming through the pipeline compared to last year.

    Investment committee presentations increase
    25
    YTD

    Seen a 25% increase in deals presented to the investment committee.

    Industry KPIs

    6
    MetricValueDetails
    Credit loss ratio70bps
    Same store rent revenue growth3.8%%
    Investment volume and initial cash yield$278 millionUSD
    Rent recapture rate on renewals re leasing21.2%%
    Sourced opportunity volume and selectivity33%%
    Blended acquisition cap rate and spread vs cost6.4%-7.5%%

    Orderbook & backlog

    1
    Assets under contract/awarded for acquisition$230 millionQ2 FY26

    Expected to close in the second half of 2026. Pipeline is 40% everyday retail, 60% grocery.

    Deals & partnerships

    2
    KrogerAcquisition of Giant Eagle

    Kroger's announced acquisition of Giant Eagle underscores the value large grocers place on growing market share and expanding brick-and-mortar footprint. PECO is Kroger's largest landlord and a long-time partner to both companies.

    VariousYear-to-date acquisition activity$278 million

    PECO share of acquisitions year-to-date, including 8 grocery-anchored shopping centers, 3 everyday retail centers, and out-parcel and land for future development.

    Capital programs

    1
    Development and redevelopment activityunderway$84 million

    Benefit: 21 projects under active construction; 11 projects stabilized year-to-date, delivering over 212,000 square feet of space and $3.4 million incremental NOI annually.

    Total estimated investment for 21 projects under active construction. Average estimated yields between 9% and 12%. This figure was stated as $84 million in closing remarks, compared to $82 million mentioned earlier in the call.

    Risks & headwinds

    3
    Consumer weakness and trading downOngoing

    Grocers sensing consumer weakness, leading to investment in price and trading down to private label.

    Mitigation: PECO's portfolio is curated to avoid over-concentration; strong foot traffic (2% YoY in June) and focus on necessity-based retail provide resilience.

    Short-term cash flow gap from dispositionsNear-term

    Dispositions are ahead of pace, creating a short-term cash flow gap.

    Mitigation: Reinvesting capital from dispositions at higher spreads, positioning for better growth in 2027.

    Competitive acquisition marketOngoing

    Cap rates for acquisitions are not reducing despite higher interest rates, indicating a competitive market.

    Mitigation: Disciplined investment approach, broader search across 30 states, increased acquisition resources, and focus on off-market deals to find opportunities that meet return thresholds.

    What to watch in Q3 FY26

    5

    Anchor occupancy

    By year-end (FY26)
    Current98.4%
    Target98.9%-99.0%

    Why it matters

    Indicates continued strength in anchor tenant demand and portfolio stability, contributing to NOI growth.

    I do think we'll move anchor occupancy up another 50 to 60 basis points by year-end.

    Q&A highlights

    6

    Can you confirm the net acquisition outlook increase and bridge the modest FFO guidance increase despite positive updates?

    Confirmed a $100 million net acquisition increase. Explained that the modest FFO increase is due to a short-term cash flow gap from dispositions being ahead of pace, but this positions the company well for 2027. Emphasized strong operating fundamentals and healthy tenant credit trends.

    “The operating fundamentals remain strong, as you said, and tenant credit trends are healthy. When I think about the guide for same center, which I would note is now in the upper range of our long-term target of 3x to 4x. This gives us room to move out neighbors where we can drive more rent growth and improve merchandising.”

    asked by Andrew Reale · answered by John Caulfield

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Capital Allocation and Growth Drivers

    PECO employs a multi-faceted approach to capital allocation, prioritizing opportunities that generate the highest returns. This includes strong internal growth from leasing, occupancy gains, and rent spreads, complemented by development, redevelopment, acquisitions, joint ventures, and portfolio recycling. The company recently raised $92 million in equity to fund accretive long-term growth, demonstrating flexibility in capital sourcing and a commitment to matching funding opportunities responsibly.

    02

    Grocery-Anchored Strategy and Market Fundamentals

    The company's core strategy focuses on grocery-anchored neighborhood centers, which continue to exhibit strong traffic resiliency, with 2% year-over-year traffic growth in June and year-to-date. The announced Kroger-Giant Eagle acquisition underscores the value large grocers place on brick-and-mortar expansion, reinforcing the long-term strength of PECO's necessity-based retail portfolio. Notably, 74% of PECO's rents are derived from necessity-based goods and services, providing durable cash flow.

    03

    Leasing Momentum and Occupancy Records

    PECO achieved record-high in-line occupancy of 95.5% and economic in-line occupancy of 94.8% in Q2 FY26, with overall leased portfolio occupancy at 97.3%. This was driven by high retailer demand, particularly from necessity-based categories like quick service restaurants, health and wellness, and medtail. Comparable renewal rent spreads were 21.2% and new rent spreads were 33.7%, reflecting a positive retailer environment and strong pricing power, with average annual rent bumps of 3.1% on renewals.

    04

    Development and Acquisition Pipeline

    The company has 21 development and redevelopment projects under active construction, totaling an estimated $84 million investment with average estimated yields between 9% and 12%. Year-to-date acquisitions totaled $278 million (PECO share), including 8 grocery-anchored and 3 everyday retail centers. An additional $230 million in assets are under contract or awarded for H2 FY26 closing, with the pipeline split 40% everyday retail and 60% grocery.

    05

    Balance Sheet Strength and Financial Outlook

    PECO maintains a strong investment-grade balance sheet with $857 million in liquidity. Moody's revised its outlook to positive, validating the company's consistent operating performance and credit profile. Net debt to trailing 12-month annualized adjusted EBITDAre was 5.1x at quarter-end, with 95.9% of debt fixed rate. The company increased its full-year 2026 guidance for NAREIT FFO per share, Core FFO per share, and same-center NOI growth, anticipating continued strong performance.

    AI-generated summary of the company’s earnings call. Not investment advice.