Phillips Edison & Company Inc - Ordinary Shares - New Stock

Good day, and welcome to Phillips Edison & Company's Third Quarter 2026 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.

Thank you. I'm joined by our Chairman and CEO, Jeff Edison; President, Bob Myers; and CFO, John Caulfield.

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 risks and uncertainties as described in our SEC filings.

Today, we'll reference certain non-GAAP financial measures and information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in our press release and supplemental information package, both of which have been posted on our website. Our caution on forward-looking statements also applies to our earnings presentation, which was also posted.

Following our prepared remarks, we'll open the call to Q&A. [Operator Instructions]. With that, I'll turn the call over to Jeff Edison. Jeff?

Thank you, Kim, and thank you, everyone, for joining us today. PECO delivered another strong quarter. Same-Center NOI increased 5.3% and Core FFO per share increased 9.2%. These results reflect the strength of our grocery-anchored neighborhood centers and the consistent execution of the PECO operating engine. We are pleased to increase the midpoint of our earnings guidance for the full year. These results are especially meaningful given the continued uncertainty in the broader economy.

While the headlines continue to change, the fundamentals we see across PECO's portfolio remain solid. The consumer remains resilient. PECO's grocers and necessity-based neighbors continue to drive strong traffic, and we're not seeing any signs of weakness as we look towards 2027. That resilience is supported by the essential nature of PECO's portfolio. 74% of our ABR comes from necessity-based goods and services, providing consistent demand and supporting durable cash flow through economic cycles.

PECO delivers more alpha with less beta. Our alpha comes from strong leasing, disciplined acquisitions and a growing development and redevelopment pipeline. Lower beta comes from our grocery-anchored durability, necessity-based cash flow, investment-grade balance sheet and access to multiple sources of capital. Our results continue to show that high occupancy does not limit PECO's internal growth. We renew the right neighbors at higher rents. We increase contractual rent bumps. We improve lease terms, and we create new space through outparcels and redevelopment. Our active development and redevelopment pipeline is nearly $90 million today. We see an opportunity to grow it beyond $100 million while maintaining our attractive returns. Across a portfolio of rightsized centers averaging 113,000 square feet, these projects create meaningful incremental growth.

Acquisitions provide another source of growth. Assets acquired to date in 2026 were 94% leased on average compared with 98% leased across our existing portfolio. That gap represents visible upside for PECO. We know how to lease these centers to enhance the merchandising mix and to use our data and local market knowledge to move operating performance to the level of our existing portfolio. We continue to target unlevered IRRs of 9% for grocery-anchored acquisitions and 10% or better for Everyday Retail. Everyday Retail expands our opportunity set while staying close to what we know, necessity-based retail, neighborhood locations and markets where our operating engine can create value.

Our investment strategy remains disciplined and focused. We allocate capital where we believe PECO can generate the best long-term growth and returns, whether it's through our existing portfolio, grocery-anchored and Everyday Retail acquisitions, development and redevelopment or our joint ventures. We continue to grow when the opportunity, returns and cost of capital makes sense for PECO. That means staying flexible, raising equity when public markets are attractive and using dispositions and joint ventures when private market pricing is more compelling. This disciplined approach allows PECO to be opportunistic while investing in dependable long-term growth.

We've told investors that PECO's high-quality portfolio is built to deliver long-term Same-Center NOI growth of 3% to 4% and a mid to high single-digit Core FFO per share growth. We continue to deliver against those targets. As we look to 2027, we have increased visibility from leasing, development and redevelopment, our pipeline of acquisitions and our investment management business. We believe PECO is well positioned to deliver strong growth in 2027, and we'll provide more detail during our December 16 virtual business update.

PECO's 6.2% dividend increase in September reflects our confidence in the durability of PECO's cash flow. We believe PECO's earnings growth and durable dividend yield combine to target an annual total return to our shareholders of 9% to 10%. That is the opportunity we see for PECO, more alpha through consistent execution and growth, less beta from our rightsized grocery-anchored necessity-based portfolio and our strong balance sheet.

With that, I'll turn it over to Bob. Bob?

Thank you, Jeff. The retail environment remains very active with broad retailer demand for space across our portfolio. That demand is reflected in our 92.2% portfolio retention, 97.5% portfolio lease occupancy and 95.1% inline leased occupancy. These results demonstrate the quality of our centers, the health of our neighbors and the value retailers place on being located in PECO's grocery-anchored neighborhood centers.

Our team is taking advantage of this environment. We use national relationships, local market knowledge and data research to decide which neighbors to retain and where we can improve lease economics. During the quarter, comparable renewal rent spreads reached a record high 25.2% and comparable new lease spreads remained strong at 26.3%. Keeping the right neighbors in place means less downtime, lower TI costs and better economics for PECO. During the quarter, we achieved record high renewal rent CAGRs while improving nonmonetary lease terms that give us more flexibility to manage our centers.

The PECO team looks at the full economics of every lease, today's rent, future rent growth and the rights we need to keep improving the center. This work contributed to Same-Center NOI growth of 5.3%, 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 the third quarter. These trends continue to support rent growth and long-term value across PECO's portfolio.

Moving on to acquisitions. Year-to-date through October 26, we've acquired $519 million in assets at PECO's share, including 12 grocery-anchored and 4 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. Then 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'll continue to pursue concessions while remaining disciplined on price and returns. 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 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're growing intentionally to deliver more alpha at PECO, and we'll provide an update on Everyday Retail during our December 16 business update.

I will now turn the call over to John. John?

Thank you, Bob. Third quarter Nareit FFO increased to $98 million or $0.69 per diluted share, representing 7.8% per share growth and 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. We expect healthy rent growth to continue in the fourth quarter. 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 3-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. 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. 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. 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. 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. 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. 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 the fourth quarter than the third quarter. Growth acquisition guidance remains $600 million to $700 million, which we increased on October 1. We now expect dispositions in a range of $175 million to $210 million.

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 we'll provide more detail at our December 16 business update. 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 Instructions] Our first question is going to come from the line of Haendel St. Juste with Mizuho.

I wanted to talk about the external growth and 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? And I think you mentioned, John, you can fully fund your '27 potential investments here without any incremental equity. But curious how much of that could be between kind of on balance sheet, off balance sheet and what role dispositions -- how much of a role dispositions would play?

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? And then we'll talk about sort of where that capital is coming from?

Yes. Thanks, Jeff. 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. And we've closed on $519 million so far this year, and we have a very strong pipeline where we've either been awarded or under contract on another $250 million. So we're 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%, 7.5% returns where we're recycling those into new assets generating between 9% and 10% unlevered returns. So we're excited about the portfolio that we've acquired this year. There is more competition. But if you look at what we've acquired in Everyday Retail, we've averaged about a 6.8% cap rate. If you look at what our blend has been across the year, it's about 6.5%, and we are still solving for above a 9%. So the discipline is in place. The market is active. The competitive bid set is active, but we're 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're in a very good spot in terms of continuing to see activity and taking advantages of that.

And then I'll jump in quickly on the funding. So ultimately, from a funding perspective, we are excited about the expanding our investment management business. And so we have additional funding that will be drawn there for the -- whether some of it will be later this year, it's 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're looking at is match funding. Your question was getting to what our forward dispositions look like. And the best part is that we don't have anything we have to sell.

These are things that are opportunistic or as Bob said, maybe in 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. And I would think that we've 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's going to give us the room to sell assets as well.

And just Haendel, to add to that, I mean the -- we're basically raising capital in the low 6s on a cap rate, and we're putting that to work in the mid-6s. So we're getting a spread from the start. And then we're looking at these assets as long-term growth vehicles for us. They're going to help generate '27, '28 and '29 growth. So we're excited about sort of not only getting a kick to start, but also that what we're going to see on a longer-term basis. So thank you for your question.

Your next question comes from the line of Andrew Reale with Bank of America.

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? And 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?

Great. Thanks, Andrew. Bob, do you want to take that one?

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. What I appreciate about the mix is that we're able to generate higher rents, spend less TI money, get them into the space sooner and paying rent. And honestly, they're all entrepreneurs. I mean, so we just like to partner alongside with them in terms of making sure that they're profitable, but we've 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're even higher if you look at the local mix. So that's an advantage.

The key is merchandising around how you continue to focus on necessity-based goods and services. And look, there's no new supply coming on the market. So the demand is very vibrant. All the meetings that we're having at ICSC and the conversations with retailers want to be with the #1, #2 grocer, and that's what we've been providing. So health ratios are strong at about 10%. And if you look at our high retention rate of 92.2% and our spreads of 25%, I mean it feels like we're in a very good spot right now. That's our focus.

Yes. Andrew, just to add on to that, we want to make sure that we're explaining that we're very focused on this merchandising. And over time, the mid-20s for local is the right mix because as -- the reason we're so focused on the merchandising is we can't drive rents unless we can drive sales. And the merchandising that we're laying out will maximize the production of the center, which then allows us to grow our rents. And the reason we're having market-leading rents is a big piece of that is our retailers are doing well because we're merchandising to each specific market where we have a property. And that's a really critical part of how we think about the business, but also how we act on a day-to-day basis. And 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.

Your next question comes from the line of Michael Griffin with Evercore.

So I saw recently that Kroger announced expansion plans through 2029 of upwards of 100 new centers. I'm just curious how your portfolio could stand to benefit from this? Clearly, you're a large landlord partner for them. It's good to see the expansion and the focus on sales productivity. But does this come through the opportunity set within the redevelopment bucket, maybe re-tenanting another grocer with one of these Kroger expansion? Just curious if you can give some commentary there, that would be helpful.

Great question, Griff, and something we've talked a lot about. Bob, do you want to take that on what we're doing there?

Sure. Thanks, Michael. In all our conversations with Kroger, they are expanding. They're not only expanding, but they're reinvesting a lot of capital into their existing stores. So being the #1 landlord of Kroger, we have some insight to that. We've walked alongside them with some ground-up development opportunities. We're in the process of securing some ground to partner with them on that front. So I think it's going to come from both ground-up development opportunities. I think they'd like to do 40 new locations this year that's ground up. And then in addition, any existing sites. And obviously, you're aware of the Giant Eagle expansion, and they're very focused on that as well. So we're glad that Kroger is our partner and that we're 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.

Yes, Griff, the only thing I would add in there is we think that the 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. So we're very -- we think that's going to be a real positive for PECO.

Your next question comes from the line of Caitlin Burrows with Goldman Sachs.

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're getting any increased pushback from tenants on higher rents? I know you have talked in the past about upside to occupancy costs.

Great. Thanks, Caitlin. Bob, do you want to talk a little bit about that?

Yes. I appreciate the question. Honestly, it was just a timing issue of the deals that were executed in the third quarter. We've 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 the fourth quarter, we'll certainly finish well into the 30s in terms of a year. So it's just purely a timing issue.

I think that -- I'm not seeing any pushback on any retailers in terms of pricing. And we would see that, which is interesting, right, between 92.2% retention and record high 25% retention, the neighbors are strong. They're making money. I think the key is making sure that you're merchandising appropriately and then you're keeping their health ratios within that 10% to 11%. So I'm not seeing any issues with it. That was purely a timing thing. We're going to finish the year at an exceptional level, and we feel real good about the strength of the portfolio.

Your next question comes from the line of Jamie Feldman with Wells Fargo.

So Same-Center NOI accelerated to 5.3% in the third quarter, and it's 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 the fourth quarter and what's driving it? Is it rent commencement timing, bad debt, expense comparisons or maybe intentional vacancy for remerchandising? And then does the quarter -- does 4Q's outlook change how you think about your long-term range of 3% to 4% heading into 2027?

Thanks for the question, Jamie. John, do you want to take that?

Absolutely. Thanks for the question, Jamie. So ultimately, in the fourth quarter, similar to the third quarter, we're seeing great strength from our neighbors, as Bob just said. The execution remains strong. Really, we're not seeing it as a moderation necessarily. We're looking at it as kind of the timing of recoveries from Q3 to Q4. And that can vary from quarter-to-quarter. We've seen that in years past. Ultimately, we tightened the bad debt range for our guidance, we are which is now at a 60 to 80 basis point range. And there's nothing that we're seeing that's really going to soften related to '26.

And as we look to '27, I think we're 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 metrics. And so ultimately, we actually think that we're just getting started. The neighbors are strong. The acquisition market is open, and we're positioned very well to take advantage of that.

Your next question comes from the line of Rich Hightower with Barclays.

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. And you did mention sort of noneconomic lease terms changing, but I wonder if the sort of 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're seeing currently.

Yes. Rich, thank you for the question. Bob, do you want to talk a little bit about the options and as well as sort of how that may change in the current environment?

Yes. It's absolutely changing. Thanks, Rich, for the question. It's a great question because obviously, we're very focused on continuing to find ways to grow CAGR and ABR across the portfolio. And when you're 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 don't like to give them. The issue is we've 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.

On the inline neighbors, we're able to continue to push and negotiate options away from not only new deals, but also further renewals. You touched on this, but the nonmonetary clauses, we're all over. And you think about removing exclusives and caps and restrictions and co-tenancies and no build areas, we've been very successful in our ability to negotiate those items to free up potential development land, redevelopment categories, outparcels. So it's 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're not allowed to give options. So sometimes the retailers will need it just given their capital that they're investing in the property, and they want to make sure that they're going to stay there. And then our job is to really try to push those to 15%, 20% or better. So it's a combination of everything, and we are in the environment to take advantage of everything.

Your next question comes from the line of Ronald Kamden with Morgan Stanley.

This is Caroline on for Ron. I appreciate the commentary that you gave on the transaction markets. I was wondering if you could give a little bit of color into what you're seeing in cap rates in the traditional retail or anchored centers versus more of the Everyday Retail centers from an IRR or cap rate perspective. And then you spoke a little bit too on the mid-20s local mix for the grocery-anchored centers. And so I was just wondering what you were seeing is kind of a similar rate as to how you were thinking about the exposure of local tenants for the Everyday Retail centers?

Bob, do you want to talk a little bit about sort of where we're seeing the cap rates on the grocery as well as the Everyday Retail? And then I think the second question was really just local mix. What kind of local mix are we seeing in the Everyday Retail?

Yes. Thank you. Appreciate the question. Cap rates have been running anywhere between 5.8% and a 6.5% for what I would consider core grocery-anchored opportunities. When I think about Everyday Retail, there's a lot of properties that are between a 6.3% and a 7.5% depending on what markets. That's been pretty consistent. I mentioned it earlier, but when you look at the bid sheets, we typically -- we'll see 6% to 8% offers on grocery-anchored product. We'll see probably 5% offers come in on Everyday Retail.

But if you look at our Everyday Retail portfolio, we've averaged a 6.8%. And if you look at our grocery anchored, we've been really around 6.3%, 6.5%. So I'm 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 10% and 11%. And we've kept that discipline in place, and we've seen a lot of success in that.

In terms of merchandising mix with local, yes, our local neighbors on our core grocery has been around 26%. But if you look at the Everyday Retail category, we're 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. So we typically will start one of these properties and the balance will be 60% national, regional, 40% local. And then what we'll do over our remerchandising efforts and our strategy over our hold period, we'll improve that down. It might end up closer to 30%.

But I like that because we're able to really spend less TIs, reinvest some capital, push rents. There's a tremendous amount of mark-to-market opportunities when you're buying the Everyday Retail assets that we're buying today. I mean we're buying right. We're getting the unlevered returns. We average around $335 a foot on these purchases. So we're really excited about the space. Granted, we have $300 million today. We'd like to grow it to $1 billion over the next 24 months. So we're highly engaged. We're seeing -- we're doing a lot of different things to attract the opportunity sets 50,000 centers out there. So we want to continue with the discipline and take advantage of it where we see there's an opportunity.

Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

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've talked increasingly about development as an opportunity, and you mentioned in your prepared remarks the desire to grow that piece. How should we think about your appetite for ground-up development from here? How large could that become? And then could development ultimately become a meaningful enough piece of the investment program to offset some compression in acquisition returns?

Sean, thank you for the question. So I guess I want to make sure I understand. You want to get a feel for like how we're looking at our development and our redevelopment businesses. The sort of -- they're kind of 2 separate questions, I think there. And we were talking primarily about the development around our existing centers and the redevelopment around those existing centers part of our business. But Bob, you want to go through sort of both those pieces and where we're trying to take it?

Yes, absolutely. Thanks, Sean, for the question. So this year, we'll finish somewhere between $80 million and $85 million of our redevelopment and development buckets, and we're generating returns between 9% and 12%. So we like that. We continue to look for opportunities, not only on the acquisition side that provides some ground-up development or outparcel development opportunities. I look out the next 3 years, we have a nice pipeline that we've always said that we do $50 million, give or take, a year, but our pipeline is well above that. So I think as I look out the next 3 years, there's a nice pipeline of another couple of hundred million dollars in the works.

The nice thing is that we're pairing that with buying as much as we're buying on the acquisition side. Jeff touched on this earlier, but our portfolio that we've acquired this year is 94% occupied, but our portfolio is 97.5%. So there's room not only in occupancy for organic growth but also there's a lot of development opportunity in terms of the outparcels that we're acquiring or purchasing adjacent. This year, we've purchased 5 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's a wonderful complement to our Same-Center NOI growth plans over the next year. So we're going to do both. We're 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's happening, and this is a nice year for us at $80 million. And we'll see what next year brings, but we should be in the same ZIP code.

Yes. And Bob, do you want to touch a little bit on the ground-up development, that piece? Obviously, it's a small piece of what we do, but...

It's 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 7 parcels. We have activity on all 7 parcels. So we're doing a nice job with that, but it's 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 don't get the pop on the NOI for 3 or 4 years out. There's 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're Kroger's largest landlord and Publix's second largest landlord, they're active. So we're going to walk alongside them in terms of their ground-up plans. And meanwhile, what we're 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. And again, we'll focus on the 9% to 12% returns. But I think so far, we've developed about 42 of those over the last 4 years, and we've been consistently not only seeing demand for it, but that's why you saw us acquire 5 pieces of dirt this year.

Your next question comes from the line of Connor Mitchell with UBS.

So it seems like the consumer remains resilient. There's 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 just retailer credit blips, the Wendy's or Leslie's. And while these are very limited exposure to your portfolio, I'm just curious if there has -- if either of these blips or something else you're kind of 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.

Yes.

John, I'll let you...

That's a broad question. Yes.

Thank you for the question. Ultimately, as we look at it, we actually are seeing great strength from the locals. So we were not impacted by the Wendy's franchise piece. And from Leslie's, I believe it was 5 basis points of rent. I think we had 6 locations, and we actually have strong comp rent. So we actually will be able to take those more quickly to market. But although I think there's actually only -- I think 5 of them may be saying are being discussed. But I think this is 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. And 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. But 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 #1 non-grocer use retailer is the T.J. Maxx brand, and that's 1.3% of our revenue. I think that the local neighbor continues to -- the economics are better. The 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 reduced and tightened our bad debt range. It's been lower than it has been in the past. The forward pipeline is really strong. The renewal rates are high. So there isn't anything that we're seeing. And 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. And it is something that we watch. But ultimately, we look at it from a diversification standpoint and are really positive about it. But there isn't anything that gives us concern at this time.

Your next question comes from the line of Jakub Dingo with JPMorgan.

This is Jakub in for Mike Mueller. Like 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 leased occupancy. Is there anything to call out here? And where do you see this falling by end of 2027?

Jakub, thanks for the call. Bob, do you want to just explain that because it's pretty straightforward?

Yes. Thanks, Jakub. Yes, the answer is real easy on that one. We've been at 95.4%, 95.5% inline occupancy. It moved to 95.1% purely because of the new acquisitions we brought online. So if you look at the acquisitions that we've acquired, we've been in the low 90s, and that's solely 100% has to do with just the new acquisitions.

Your next question comes from the line of Eric Borden with BMO Capital Markets.

On the Northwestern Mutual contributions, how closely does the timing line up with the acquisitions that you have under contract? And then after the recurring fee income, should we expect any temporary earnings dilution while you put those proceeds back to work?

Yes. I'll take the first part and then John, you want to talk about sort of the timing of the stuff. So yes, 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 -- that's how it's set up. I think it's set up in 3 tranches. We've closed the first tranche and I think the second one will be in December and the third one will be in January. So we -- and 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've now been in for 8 years and have extended all of it for 10 years going forward. John, do you want to...

And regarding the question around earnings. We are very pleased that we were able to raise our guidance. And to Jeff's point, we've matched it very well, which is why we have the stage closing. We will finish the year at a lower debt-to-EBITDA basis than we had anticipated originally, and that's just going to give us additional acquisition capacity for next year. So I don't anticipate earnings dilution or moderation. We raised our FFO per share guidance into the mid-6% growth range. And I would anticipate that next year, we're using this capital to time it well. We certainly have a strong 1031 program, but we will be -- I would anticipate an expanded acquisition profile for 2027, which is what we've been building for, and this is a great opportunity for me to plug. I hope everyone attends our December 16 business update, where we'll share more color on that.

Your next question comes from the line of Floris Van Dijkum with Ladenburg.

I 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?

Thanks, Floris, for the question. Bob, do you want to take that?

Yes. Floris, hope you're doing well. We're really pumped up on the Everyday Retail. So 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 moving occupancy, we moved occupancy between 250 and 300 basis points already. These assets are throwing off an average NOI CAGR above 5%. So that's a nice complement. Again, I think our focus is to grow it to $1 billion over the next 24 months. So we're definitely leaned into it.

So if I look at the spreads, we're seeing new leasing spreads of 40%. We're seeing renewal spreads above 25%. And 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.

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% plus return on our Everyday Retail. And 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.

Maybe, Jeff, a follow-up question on just how your strategy is different from the one public peer out there in terms of -- and how much availability -- because I think one of the differentiating factors, if I'm not mistaken, is that you tend to buy clustered around your existing grocery-anchored 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?

Yes. We -- I mean, we see everything that our peers are seeing. What we're really looking for, Floris, is unique opportunities where we know a very specific market. And we think we can find -- not we think, we've been able to find the right kind of merchandising mix for centers that we're 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's a very different strategy than our peers have, which is more to buy sort of a triple net opportunity. And because of that, that's how we're able to get these increased CAGRs of 5% plus and be able to grow IRRs of 11% plus. We can't do that if we're buying into long-term leases with national tenants that are very stable and with little upside. We're looking for upside, but we're also looking to take advantage of our knowledge of specific markets where we can see outsized returns.

Your next question comes from the line of Paulina Rojas with Green Street.

Very few new grocery-anchored centers are being built, but many owners, it really seems like everyone is adding outparcel developments, small buildings to existing sites. So 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 outparcels are having any meaningful impact? Is it meaningful competition? Or it's really a drop in the market everywhere?

Well, I'll start, Bob, and then you can jump in. Well, I think it's the second. These are a drop in the bucket. I mean if you build a Starbucks and it's 2,000 square feet in the scheme of things, that's not going to impact the overall market, which is much more -- obviously much more sizable. But these really are, I think, a demand -- there's a high demand for this kind of property among a series of certain national potential neighbors. So that is what we're focused on is where we can find them doing that.

And then the balance, which again is a small number, but is a high octane kind of investment, where we can build small store space that and in most cases, it's fully occupied before we complete the construction. And that is an incremental growth in where we're getting that 9% to 12% yield out of the box on these redevelopment and development deals. So we're really excited about that part. We think it's additive. We wish it was a bigger market, as I think you were kind of alluding to, but we will continue to grow it at the pace that we can because at 9% to 12% yield, we can make a lot of money there, and that we'll keep focused on that.

Bob, did you have anything to add on that one?

The only other thing I would add is that a lot of these opportunities are either in our existing parking lots or they're on ground that would be adjacent. I mean I look at our pipeline and what we've executed on, we've acquired a lot of adjacent parcels next to our public anchored projects. And a lot of cases, as we're tying up the land and we're going through due diligence, we're already lining up the retailers like Jersey Mike's or Firehouse Subs or the Pacific Dentals or Mavis. There's a lot of active retailers just given that there's not a lot of supply out there. So it's really been a great opportunity for us to capitalize on to generate the returns of 9% to 12%. So we're very focused on continuing to find those opportunities.

That concludes the question-and-answer session. Mr. Edison, I'd like to turn it back to you for closing comments.

Well, thanks, everybody, for being on today. And in closing, I want to reiterate how pleased we are with our third quarter 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.

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 December 16 business update. 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.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Welcome to the Phillips Edison roundtable. Happy to have Jeff Edison, CEO of the company, with us here today and maybe introduce your team and then opening remarks, please.

John, our CFO; and Kim, our Head of IR. And in terms of opening remarks, it's [ great to ] live in interesting times. You don't need things to be this interesting because it's really trying to figure out what's going on. I mean we're in one of the best operating environments we've been in. We saw a little run-up over the last 45 days ago. And then all of a sudden, it starts going back. And the operating market is as good as it's ever been in terms of leasing, leasing margins, leasing occupancy, all just very, very strong, like record kind of strong. And not just like good, but really as good as they've been.

The acquisition market, our volume is going to be as high as it's been, quite a bit higher actually than it's been any time since we've been public. And at numbers that we think are very consistent with what we've been targeting. We have 9% unlevered IRRs on what we're buying. We're buying in at about a 6.7% initial yield. So very strong dynamic there. So you got great operating environment. You've got a great acquisition market where we're seeing -- we're selling stuff at basically a 5.9% yield. So we're buying at a 6.7%, we're selling at a 5.9%. We have a really strong ask and buy on that side.

Again, we've increased our disposition numbers as well at those kind of rates. So like, yes, if you -- if I woke up and I said this is as good of an environment as you can get, but the market is not trading. And there are obviously a lot of explanations for that. What we're focused on is continuing to do the things that we influence, which is put great numbers on the board, which I think we have and will continue to do throughout the year. And then the market will do what the market does. Over time, we -- what we're committed to is growing our FFO per share mid- to high single digits, paying a 3.5% plus dividend and getting a 10% return for investors year in, year out in a hard asset, low leverage business, we think that's a good return.

And our management team owns more of PECO than any other of our peers in terms of percentage of it that's owned by the teams. So we're not talking -- I mean, we are skin in the game, and we're going to keep skin in the game because we believe in this business, and we think that it is particularly in an environment where there's uncertainty, we have a lot less beta in what we do, but we're convinced that we've got a really good alpha, and we're putting scores on the board that would say we've got good alpha. So that's our opening remarks, what we're feeling. But as we said, we're going to keep taking advantage of what is a very strong market and growing the business.

Maybe on the flip side of that, I mean, you look at recent news, grocer earnings, right, you talked about softer consumer spending, some pressure there on kind of the lower end, lower income consumer. I guess what are you seeing across your portfolio today?

So the consumer is actually doing really well. And it was 2 months ago, we were talking about the K and like everything is going to be lift up or the lower end of the market is not going to do well. Well, that's sort of gone because the lower end is growing faster. Our market is the top of the game anyway because we're -- if you look at our median household income of our centers, it's whatever 17%, 18% higher than the median. So like we're -- that's what we service. And that's what we're in density and incomes that are above what Kroger is and Publix are, which are our 2 largest tenants.

So we're doing well in that. So this concept that the consumer is having trouble is one that like I mean you guys -- I mean, the credit card debt and all that, like those are actually pretty healthy right now. They're not -- you're hearing news, you're hearing stories like all the consumers like in trouble and having but you're not seeing it. We're not seeing it. And one of the things that we look at really closely is our local neighbors. Those are the -- what would be called mom-and-pops, but they're really the true entrepreneurs, the people who are like counting on that business as their -- what they're going to pay their rent with and what they're going to pay for the house and like that's what they live on. They make -- every time when they renew a lease, they come back to us and they have to make a decision like what are they going to do?

And they can walk from the deal if it's not profitable. or if they see the future is not profitable, they can extend for a year or 2 and just kind of see what happens or they can extend their leases for long term. And they come at us negotiating and we keep a very close look at that. Today, that retailer is looking for longer term. And they're renewing at 90% of their spaces. So you think about that, that means the person who knows the consumer the best, which you can have all the talking heads, you can have all the research you want. There's nobody who knows the consumer better than the entrepreneurial local retailer because they actually know when somebody's husband or wife got laid off. They know like they know why they're buying something and what's too expensive, what's not. That is their job.

They're making the bet on a long-term basis. They want to be there. They're trying to tie up the space for as long as they can. That to me is probably -- I mean, it's certainly one of the things we watch really closely and encourages us that we have -- we're in a much better position than what you're kind of hearing about from their perception of consumer.

Maybe taking that -- expanding that a little bit as you think about the shopping center space overall, what are the biggest risks facing the industry or the sector over the next 12 to 24 months, do you think?

So we're -- our stuff is grocery-anchored shopping centers, rightsized grocery-anchored shopping centers with small stores that provide necessity-based goods to. So my answer to you is based on that. So there are a lot of people in the open-air space who are doing more discretionary spending and that stuff. That's not where we spend our time. In that particular market, the necessity-based side, it's like very strong, like it is -- the consumer is not -- we're not seeing the consumer react in any sort of dramatic way. As a matter of fact, they're actually spending more. And so that would be, we think, a positive.

I think that when we look at -- that's a negative side of question why we want to try to be positive. But I think if you look at it from a risk perspective, that is kind of how we conservatively approach the business. When you're focused on necessity-based goods and services, you're focused on the best retailers of the grocer. Ultimately, that's why we often talk about we have less beta. And so when you look at the different things going on and your first question was talking about kind of retailer earnings, I mean, there is an adjustment, but they -- the large nationals, Jeff highlighted the locals, but less, they're incredibly adaptable.

So Kroger's same-store sales were a little softer, but they reaffirmed their profit guide. And so ultimately, as you look at that, they're continuing to grow. They're going to continue to operate. We actually think that -- I think some of the things from the headlines that we're hearing is perhaps it's interest rates or inflation?

Well, actually, these retailers, they actually like some inflation that allows them to pass along price increases more easily. And when we look at interest rates, we actually think that's an advantage to us because when we talk about the acquisition market, that has just made it that much more expensive for the levered buyer. And so in our space, maintaining the balance sheet that we have and being lowly levered like we are, then those moves give us an opportunity to play a bit more offense in that market. But ultimately, I mean, I think when we've back tested and we look at the GFC and we look at the pandemic and things, our real estate has performed exceptionally well because of the resilience of the local retailer of that grocer and the consumer spending for necessity-based goods and services.

Maybe just on the grocer specifically, any concerns about grocer health or M&A potentially leading to closures? I mean we had Kroger and Giant Eagle announced earlier this year. Any updates on divestitures there or closures?

So you're going to see any M&A activity is not going to be -- include closures. They can't get it through the government if there is a -- if that is part of the plan. Now long term, could that happen? Yes. It's not going to happen in any kind of short-term merger conversations. That being said, I don't know as many people know as there is, like Kroger is built on mergers. They have -- I think they have close to 19 different brands that they keep. They're going to keep the Giant Eagle brand when that transaction closes because they actually use the brand and the brands are really important to the local customer that they don't change it.

They bring in their product, they bring in a lot of things to change the way the business is run, but they don't change the name. And that's so like I think the Giant Eagle thing is a good example. And I think you will continue to see particularly the family-owned, the Snips of the world, maybe some -- maybe the Cub Foods, you'll see potentially some of the Albertsons brands potentially getting sold. Like you will see some of that -- there'll be some M&A transactions. But that's actually more normal for the grocery business than not having it, which really has been blocked by the government with the Albertsons thing, just basically put a stop on any kind of M&A activity until that was resolved. That took 2.5 years, 3 years to get resolved and not happening. I think that will -- is probably a pretty good overall.

I think the other piece is that when we look at the PECO portfolio specifically, this really goes to the importance of having the #1 or #2 grocer in the market, which over 80% of our shopping centers have the #1 or #2 grocer in the market because when these pieces come up and there are those questions, we look at it and we're able to say, this is a great grocery-anchored location and ultimately gives us confidence in that someone will be there.

And you go kind of go and say, okay, Albertsons didn't have the sale. Well, maybe they'll separate certain brands. We know the markets that they're actually very successful in and then in other places. And that sort of grocery knowledge allows us to curate our portfolio to be quite strong.

And it's a critical part of understanding like where you -- like it's not whether you have Albertsons or Kroger, it's what market you have Kroger. If you have Kroger in Denver, you have the dominant player in Denver. Like they just -- King Soopers just kills it compared to everyone else. And -- but if you have the Albertsons there, let's say these are okay, but they're not great. You're going to pay, there'll be 50 to 100 basis points difference in cap rate between a Kroger center in Denver and a Safeway own center. So that -- but -- and it's that way in literally every market across the country, which is why you need to -- it's not whether you have Kroger or Albertsons or -- but what markets you have them.

I just want to stop there to see if there's any questions from the audience. Okay.

Doing really good, John.

On nonmonetary clauses, right, as we think about on renewals, the renegotiation of that, whether it's restrictions, can you quantify the incremental NOI that can be there to get unlocked?

It's very complicated to give you a hard number on that because it is things like being able to develop an outlot that you couldn't get the approval before. There's also the -- and the controls are almost all at the grocer level. Our small stores have very little control of what we do and we don't give them control. We never have given them control of how we operate the shopping center.

Some of the anchors will have visibility things. So the negotiations with them are more about sight lines and the ability to put outlots into spaces. And then probably the most important, and this is particularly important when you're buying a property is what restrictions they have on what merchandising mix you can put in the center. That is -- because that can definitely constrain what you can do in terms of turning around the shopping center and getting the right merchandising mix for that shopping center. And that's really changed a lot in the last 3 to 5 years as they still ask for stuff.

I mean the grocer always ask for stuff and any of the anchors who have some of the exclusives, they ask for stuff in exchange for that. But it used to be no. I mean the answer was no for a long time. Now you're getting some -- you're getting the ability to kind of trade certain pieces for that. And it does unlock outlots, it unlocks leasing opportunities. Importantly, it allows you to merchandise your center to the right kind of retailers, which allow you to grow rents more. Those are the pieces that we're seeing in...

More about today.

Today than we have in for a long, long time.

Got it. And then maybe switching to external growth acquisitions, which is a big part of your strategy. Maybe talk about kind of what you're seeing in the transaction market out there. Clearly, you're seeing from all the meetings we've been in, cap rates continue to compress. Like talk about kind of the competition that you're facing today in the market.

Yes. So we started the year targeting $400 million to $500 million of acquisitions this year. We increased that at midyear to $500 million to $600 million. Currently, what we bought and have under control is at the very high end of that range. So we've had a very strong acquisition activity so far in the year. And it's been in a wide variety of markets, but nothing that we would -- that wasn't sort of where you would think Florida and Texas being the biggest, California being large, Washington. We bought some stuff in South Carolina. We bought some stuff in Minnesota.

So it is, as you'd expect, the PECO it's spread across the country, which is what our platform is. There are more buyers in the market. Grocery-anchored shopping centers are in favor. They're in favor among institutional buyers. They're in favor in family offices. So there are more buyers in the market, and each segment probably has a little bit more demand than it has historically. Most people were underweight grocery-anchored shopping centers. And I'm going to keep focused on grocery-anchored shopping centers, not on power centers and malls and other parts of retail because that's the market we know, and I don't really -- we're not in those other markets. But the institutional demand has been high.

When there is strong institutional demand, pricing usually gets way beyond something we're willing to get involved in. We've looked at a lot of portfolios this year and the private equity buyers have been the buyers of that. These are multibillion-dollar portfolios, so they're sizable and -- but private equity has had the biggest bid on -- the highest bid on all literally every single major real estate or retail real estate portfolio with that is predominantly grocery-anchored. So that has -- we've been participants. We have not been winners of any of that because the pricing has gotten to levels that we're not going to go to.

How far off do you think you were percentage-wise?

Yes. We were probably 20%. I mean, 15% to 20%. So sizable. I mean not a little. It wasn't -- it was not 0.5% and -- but in most cases, it's been a private equity firm that was sort of buying on a thesis as opposed to -- they were going to buy, like they were going to buy it and whatever they had to pay for it, they're going to buy it. And that includes buy something [indiscernible] as the 2 sort of biggest -- buying the biggest portfolios.

There are some -- there are a couple of others, the Slate portfolio and one other that where it's going to be sort of private equity, but it's going to be -- they're going to be high return private equity, more opportunistic kind of stuff. That's what is playing out in the market. So we're -- I mean, we continue to do what we do really well, which is buy asset by asset, market by market. And our markets are a 3-mile radius around where the center is the #1 or #2 grocer. And in that market, we can -- we've had tremendous success in performance and performance better even than what we underwrite to. So that's been what we will continue to keep focused on.

And if I can, I'd like to tie this question into the kind of the first bit of the question because I actually think there's a real opportunity here because we review several hundred million dollars worth of properties every week in investment committee. So we have a great pulse on the private market values and where shopping centers are pricing. And if we look over the last 45 days, 2 months, I think the retail stocks in PECO, our stock has retreated on headline concerns about the consumer. And I think the continued strength is a real buying opportunity in the public space because institutions are buying, we are buying -- we know where this is valued. And I think ultimately, as that consumer remains strong, the hope will be that there will be improvement there. And so...

Yes. If you think about the stuff we've sold this year, I think we've announced it's about $150 million, but we're going to be somewhere between $100 million and $200 million in terms of guidance. That product is sold at a 5.9% yield, initial yield. We bought at a 6.6% yield. That is -- I mean, you can make a lot of money doing that. And then when you add on to that, that what we're selling is stuff that -- and these are transactions. So it's not like where we think the market is, it's where the market is.

And our ability to sell at those -- at that kind of a spread, I think gives us confidence that we're not only going to get spread, but we also -- the growth is -- the stuff we're selling is probably, in our mind, a 7% yield or 7% unlevered IRR that the buyer is going to get, and we're buying at a 9%. So we're not only spread investing at the beginning, we're also adding a really strong growth opportunity to the company on a long-term basis. And that's a 7-year underwriting for the stuff we're buying. So that gives you -- as well as what we're selling. I think it's a great trade, and I think it will provide outsized growth for the company over a long period of time.

And with rates at -- when you look at where 10-year treasury is above 5%, does that sort of hinder your ability to continue to acquire?

Well, we'll see -- I mean, it's kind of early on the rate changes. We haven't seen any sort of major changes yet, but we would anticipate there being some. We'll have -- we kind of got to -- I think we kind of got to wait and see if it does have any kind of major impact on volume and what our competitors are willing to pay.

I do think that it brings in a point that we talk about internally a lot, which is match funding. And so ultimately, the ability of where we've been able to sell assets to buy assets on the -- as Jeff was talking about that difference in IRR, we have been the largest individual asset buyer of grocery-anchored shopping centers, the largest one in the country for the past 15 years. I mean we have bought throughout all cycles over 35 years that Jeff has been running this business. And so there will be opportunities. Interest rates definitely will have an impact, but it takes a little bit longer, but that match funding is really important.

We raised equity in the second quarter, and we're able to deploy that accretively and then add to our growth. And that's kind of what we're looking at. And so the first piece with interest rates going up, it's actually helpful because now the levered buyer, it just got a lot more expensive for them. So ultimately, all cash buyers and when you're 30% levered, those moves have a lesser impact on us. That said, it should have an impact on cap rates. That actually should improve the yield and the returns, and that will come about. But that's why I think, well, we're kind of doing both sides. And I should say we have the ability internally to acquire $300 million of assets every year with leverage neutral.

Our leverage target is [ low to mid 5x ] because we retained over $120 million of cash flow to the dividend, which we just raised 6%. And so between the retained cash flow of the growth and the EBITDA of the overall business, it gives us that capital to deploy. And depending on the environment, it could be more for development and redevelopment we're building outparcels. We have not done it yet, but certainly, stock repurchases would be something to consider. But at the same time, we're not going to go back and forth, right, just issued it last month and going to buy it back this month. The disconnect is -- we're focused on long-term growth, Jeff mentioned being owners and operators. Today's acquisitions are driving NOI growth in '27, '28, '29 and beyond, and we're really focused on that long-term growth of the company.

Maybe on the platform, I mean, with investors that look at your company, your stock, I mean, what would you want investors to better understand about sort of your strategy, the differentiation of your strategy versus other shopping center REITs?

Yes. One, it's product differentiation. I mean we are grocery-anchored shopping center buyers. We buy centers at the corner of Main and Main that deliver necessity-based goods to the consumer. That is what we do. You'll see in terms of like who our leading neighbors are. I mean we're Kroger's largest landlord. We're Publix's second largest landlord. We're one of Sprouts' top 5 landlords. We are in the grocery-anchored shopping center business. Our top list is not our center tenants, it's grocers.

And that, I think, is unique in the business and part of what we think that combined with our necessity-based focus on the small store space provides a really good foundation, which fundamentally has less beta than other retail. If you just think of in your own life experience, there's stuff you do discretionary wise and there's stuff you do necessity-based. Food is probably your #1 necessity-based thing. Now you may buy the restaurant instead of buying it at the grocery store, but food is not one of the things you say, yes, maybe I'll eat next week. I mean it's -- but the shirt, you might buy next week, right? You might -- or buy later. Like that's the beauty of our product.

So there is less beta naturally in buying necessity-based things. That's -- what we've combined that with is the ability to have 2 really strong channels of growth. One is internally being able to grow the cash flow from property -- on a property-by-property basis. And then the second is to use our expansion, both on the development, redevelopment side, but also on the acquisition side to give us more alpha. And that is what we love about the business. And as a large shareholder, that's what I love about this business. It's over -- and we've been doing it for a long time, and we went back actually and looked at, okay, what returns have we gotten for our investors over 35 years.

And if you look at it, and there are different sort of segments, the first segment did extremely well, like 40% IRRs over 35 years. We don't have a lot of those investments in our lives, but that one was great. When you -- as you move out, it ends up kind of circling around 12% to 13% unlevered IRRs -- or levered IRR. So these are numbers that we've proven we can sustain over extended periods of time, not just -- and so if you think about 35 years, we think everything is happening now. We've had a lot of these experiences over time that have -- that these -- this necessity-based retail has actually survived through and not only survived, but delivered really strong returns to the investors.

Okay. We've got a couple of minutes here, time for rapid fire questions, yes. All right. Number one, if long-term rates stay higher for longer, which has the biggest impact on your sector? Is it higher refinancing costs? Is it lower transaction activity or less new supply?

Less new supply.

Okay. Over the next 3 years, will third-party capital become a more important source of growth for public REITs than balance sheet capital? Yes or no?

Yes.

And finally, for your sector, will next year's same-store NOI growth be higher, the same or lower versus this year?

For what?

For your sector, same-store NOI growth next year, is it higher, same or lower?

I think it will be similar.

Okay. All right. Thank you everybody.

Thank you.

I think out of respect for everyone's time, we'll try to get started on time here. But again, Rich Hightower with the Barclays REIT team. So, thank you for being here, everyone in the room and everyone online. I'll do a quick round of intros and then we'll get going on the questioning. But immediately to my right is Michael Bilerman, EVP, CFO, and CIO of Tanger. To his right, then we have Ross Cooper, President and CIO of Kimco. And then finally, at the far end, John Caulfield, EVP and CFO of Phillips Edison & Company.

So, I appreciate you gentlemen being here, of course. But I think maybe just for the benefit of the folks in the room and listening in, if they're not quite familiar with your companies, just give us 60 seconds on who you are, what sort of differentiates you within the retail REIT sector at large, and we'll go from there. So, Michael, I'll start with you.

Great. We're Tanger Inc., ticker SKT. We're obviously a retail REIT, about $6.5 billion to $7 billion of EV, $4.5 billion of equity market cap. We are an open-air REIT that's focused on the outlet channel as well as open-air lifestyle centers, 38 outlets. Who's been to an outlet?

I've been to one.

All right. Good. So, you know what outlet centers are and open-air lifestyle centers. We've been in business for over 40 years. We've been traded on the NYSE for over 30. And just from a financial structure perspective, our current dividend of $1.25 represents about 60% of our cash flow. The industry is about 75%. So, we're keeping more of our free cash flow to invest. And then from a leverage perspective, we're currently at 4.7x debt-to-EBITDA relative to a 5 to 7x target. So, we not only have additional free cash flow to drive our growth, but we have a balance sheet positioned for growth. Sounds good.

Ross Cooper, President and Chief Investment Officer at Kimco. I've been at the company now over 20 years. We own currently about 564 shopping centers, about 100 million square feet gross, diversified geographically throughout the country, but primarily in the top 20 or so major MSAs. We own all types of format of open-air retail, but primarily grocery-anchored and mixed-use shopping centers. We've been in existence since the late 1950s, public since 1991, and current enterprise value is plus or minus $24 billion. So, we continue to look for opportunities to grow the portfolio, grow the earnings stream. We've seen a tremendous amount of success operationally, which we'll get into in the panel. And I won't steal too much of the thunder of the conversation, but excited to be here.

And my name is John Caulfield. I'm the Chief Financial Officer for Phillips Edison & Company. I've been at PECO for about 12 years. I think we are sort of the new kid on the block relative to this. We've been publicly traded for 5, but we have been around for 35 years. We focus exclusively on grocery-anchored shopping centers. So, for us, it's -- we own about 330 of them in 31 states. We focus on the 3-mile trade ring in the neighborhood where that grocery -- we have the #1 or #2 grocer, and then we have in-line neighbors, which is what we call our tenants.

And we are ultimately that place in the community that people go to 2 and 3 times a week. In terms of overall growth profile, we also have a very low leverage, right around 5x on a debt-to-EBITDA basis, with a low- to mid-5x target. We look to grow our internal cash flow 3% to 4% a year. We also call that same-center NOI growth. But ultimately, we're looking to grow our earnings per share at a mid- to high single-digit FFO per share annually, combined with a 3% to 3.5% dividend, which we think will deliver 9% to 10% annual return to our investors. And I think it's a great representation of different styles of open-air retail, Rich.

Yes. I'll jump off from there, and we'll get to the earnings and total return algorithms. We'll dive more into that later as well. But broadly speaking, I mean, I think as I look around the different REIT sectors, retail, both within the grocery-anchored, more sort of necessity-based, and even within the more discretionary categories, it's got one of the best supply versus demand fundamental setups. I think, I mean, senior housing is probably the other one that immediately comes to mind, and I'm sure we can name others, but retail is very favorably positioned.

So, John, I'll start with you, and we'll kind of come back this way. Talk about what that fundamental backdrop looks like for PECO, and explain how that flows through into leasing and occupancy, and kind of what's the opportunity from here as being driven by that fundamental backdrop?

Yes. So, occupancy of retail is very high in this environment. And part of it is because new construction is very expensive. It does have the opportunity to happen. There are places we spend our development dollars on building out parcels in our parking lots, trying to buy adjacent land. But ultimately, overall retail is high. But that allows us to have pricing power. Ultimately, we're seeing -- this is, I believe, the third or fourth year in a row where our renewal spreads are over 20%. So, as rents are coming up on renewals, that's so important because we put in very little capital dollars for that.

So, retail real estate, particularly those owned by the REIT, is the best in the market. I mean, I don't -- I haven't seen the stat, Michael, you might know this or Ross, it's some fraction that the REITs actually own. And generally, the REITs own the best. And so, for us, we're focused on that 3-mile trade ring. And we have 83% of our centers have the #1 or #2 grocer in the market. And ultimately, that brings the foot traffic that allows the retailers to be successful, and high occupancy gives us the ability to further push rents, which improves the merchandising mix, ultimately improves their sales, allows us to push rents more, and it kind of goes from there.

So, I think that it is a very positive environment. And I think that sometimes there's a concern of, well, maybe there's -- all the growth is gone. And I would say absolutely not. We continue to generate -- and that's why I think about the percentage that the REITs own, we have a lot of transaction volume. We buy a lot of centers. We're going to buy between $500 million and $600 million of assets this year, but we're also selling $100 million to $200 million of assets this year, and that gives us opportunity to refresh what our teams are working on. We do all of our own leasing and all of our own property management, all our own portfolio management, and we're able to drive rents because we're in the market. And that's -- that's what we specialize in.

Ross, keep us going on the fundamental side.

Yes. Just adding on to that, I think you articulated it, but I completely agree. I mean, it's very difficult to see that the supply-demand dynamics, which are very much in our favor as landlords, is going to change anytime soon. We ran some studies, and some others' research have reported that we would need to see anywhere from 50% upwards of 65% in terms of market rent increases on retail rents in order for a developer to justify any substantial amount of new development. When you think about construction costs, borrowing costs, and all the challenges of difficulty of building new retail, owning high-quality infill real estate where the consumer lives is a very good value proposition, and that's really what we've leaned into in terms of density markets and where we're focusing our efforts.

In terms of the growth trajectory, particularly for Kimco, we see tremendous opportunity, both in terms of internal growth as well as external growth, in the sense of recycling capital. So, from an internal standpoint and an organic standpoint, we're seeing occupancy levels that are approaching all-time highs, but we still have about 110 basis points to achieve our all-time anchor occupancy. And so, we still see some room to grow. And while we've reached small shop all-time highs from an occupancy standpoint, just around 92.9%, given the quality of the portfolio and the lack of new supply, we believe that there still continues to be room to run.

And to John's point, in terms of growth, from a market rent standpoint, there is significant spreads between where our leases are currently paying rent and where the market is. The challenge and our job is to get to that, and how do we get to there quicker to create that upside. Because when you think about it, currently today, the retention rates for retailers are also at all-time highs. So, tenants that are coming due on their lease are staying in place over 90% of the time. Historically, that was somewhere in the mid- to upper 70s.

So, you're seeing fewer, limited churn, less CapEx going into replacing these tenants, and therefore, your ability to really enhance the bottom line. And then you couple that with some capital recycling. And what I mean by that is within our portfolio at Kimco, we have upwards of 10% of our annual base rents that are coming from long-term flat leases. Think about a Costco or a Home Depot or a Walmart, really the best credit tenants in our business. But the challenge with those leases is that they have control for an extended period of time, and the growth in those contractual rents is fairly limited.

So, we've taken the opportunity in a market where there's been dislocation between the private market pricing and the public market pricing, selling and disposing of those assets and reinvesting them in multi-tenant shopping centers that have a higher growth profile in addition to a higher going-in yield. So, that really enhances the trajectory of the growth profile for the company. The other initiative that we've taken at Kimco, as we've evaluated our real estate over the last decade or so, it became very clear to us that we have a significant amount of property that's underutilized, single-story shopping centers with a massive parking field that's non-income-producing as it relates to that parking field.

And we've, in certain select cases, been able to densify with multifamily and other uses. And so, we're starting to really crystallize the value and monetize some of those entitlements and multifamily projects that we've built. We sold 2 large multifamily projects just this year, one at a 4.9% cap and the other at a 5.1% cap. And then again, we can reinvest those at a higher going-in yield, but more importantly, at a 300-plus basis point spread on the growth profile. So, that also is enhancing our growth profile, and we think there's a long runway to continue to execute on that strategy.

Keep going.

So, I think building off of what John and Ross were talking about, the whole demand-supply environment for retail real estate, irrespective of the type. I mean, you had a whole big article today about the enclosed mall business, right, and that coming back really is driven by the fact that we haven't had supply for almost 20 years. And we go back to -- we're at the financial services conference. So, if I say GFC, everyone knows what I'm talking about. But you go back to that point, retail supply was 1.5% of stock, which meant every year, the market was adding 1.5%.

You went into the GFC, it plummeted to 20 to 30 basis points. And it has remained at those levels for almost 20 years. We had that COVID thing. We had coming out of all these elements. And so, we just didn't build enough of it. And so, I think, Ross, to your point, rents would have to rise so dramatically to make development work that makes the existing amount of real estate that much more valuable, whether it's in grocery-anchored 3- to 5-mile ring or in the large-format neighborhood community centers that Kimco owns, but also for outlets and open-air lifestyle centers that we own.

And what we're finding today is bricks-and-mortar retail is such a key component of a retailer and brand's omnichannel strategy. They need to have that bricks-and-mortar retail. How many people have ordered stuff online and returned 30% of it, right? Exactly. So, all of that has to go somewhere. And increasingly, what you're finding is the cost to return is now you have a cost that's no longer free. And so, where are you going to bring it? You're going to bring it to your store. If you don't have that store in your local market, that brand does not have value. And so, in the outlet world, we are a utility for the brands and retailers, right?

And you called it discretionary, but yes, they're discretionary items, but our brands and retailers need somewhere to clear all of their excess inventory. They need somewhere to make their made-for-outlet product, which they earn a significant amount on that branding. And they need to bring that newness into that customer, and all being operated in an open-air environment, which from a cost perspective, benefits us all because it's cheaper. When you think about being in an enclosed structure like this, a lot of air condition, a lot of roof, all these things that you got to maintain.

We, in an open-air format, we benefit from having these single-story buildings that sit on large plots of land that provide each of us the opportunity to densify, whether that's building out lots or building other things. The demand, I would say, right now for retail is very strong because there's not a lot of supply, and the retailers need their places to grow. And so, all this tying back to our growth algorithm, we really focus on the internal growth. Our rents today are at 9.7% of a tenant sales. I think a little bit different than the centers that Ross and John own and operate, we get tenant sales for the vast majority of our tenants. We don't give them options.

And so, we feel today our rents relative to their sales are below. But the big part is we continue to focus on remerchandising our centers, reducing the amount of lower-productive tenants to bring in higher productive ones that can pay us additional rent. And our portfolio at 16 million square feet, 3,000 stores, our average size is only 5,000 square feet, which is pretty small from a tenancy perspective. We're not dealing with big boxes to re-tenant and household names from all the brands and retailers that you and your others like to shop.

There's a lot of potential follow-ons in what each of you just said. But one thing, I think, really for myself, but also, I think the benefit of the people in the room, the news flow around different retailers, in many cases, headlines can be negative, and we can name who those are. But at root, when we compare it to your leasing stats that you put up every quarter, record occupancy, as you said, double-digit leasing spreads on a blended basis, as you said. Explain the delta there between perception and reality and the fact -- I mean, we brought this up in a meeting, DICK'S Sporting Goods had a terrible quarter for an isolated reason, but they're leasing tons of space, and they're doing it very aggressively. So, help us understand what that's -- whether it's Michael's tenant base at one end of the spectrum or John's at the other end and Ross somewhere in between. Help us understand that.

Yes. Don't believe everything that you read. But the reality is that we've seen a really strong demand within retail for quite some time. And even in the depths of the -- going back to the financial crisis, the pandemic, I mean, we have not seen occupancy go below 92%. Some of that has to do with the fact that we have long-term credit leases. You think about our business, everyday goods and services and necessities, people need a place to go, eat, shop, dine, be around other people as we saw in the pandemic, how critical it was to be essential.

People are social creatures by nature. And so, I think that when you think about the most profitable transaction for a retailer, as Michael was articulating, it's in the store with returns now much more difficult in terms of timing and cost, the retailer want to get you to that store to shop. And if you're buying in the store, chances are you're going to return less, you have a much better margin on that product when you're acquiring it. And most likely, you're going to buy something maybe impulsively or otherwise, you see something that you may not have realized that you needed and you're going to go and you're going to spend and you're going to buy.

We, at Kimco, have upwards of 87% of our assets that have that grocery component. So, when you think about traffic, foot traffic at the shopping center, it's up over 3% year-over-year. So, you continue to see a very healthy consumer in our demographic in our shopping center. There's no doubt that there are certain segments of the population that are having a more difficult time in this economy. The Kimco everyday goods and services in the upper middle income demographic is still seeing a tremendous amount of success from a traffic standpoint, from a tenancy standpoint, from an occupancy and a leasing demand and velocity standpoint. You mentioned DICK'S, and I think the example there is that they had a very challenging situation a couple of weeks ago where they came out with earnings and due to the Foot Locker acquisition and some other supply challenges, they had a very tough day in the market from a trading standpoint.

But when you're talking to them about their portfolio, their desire to expand, nothing has slowed down. There's a tremendous desire to continue to grow, House of Sport, their field concept, other prototypes that they have. And that's just one example of many. So, we have seen no slowdown in the velocity of our retailers looking to continue to grow their store network, and we'll continue to lean into that pretty aggressively.

Our focus, about 74% of our rent comes from necessity-based goods and services, people coming every day. To what Ross was saying, just under -- a little under 30% of our rent comes from the grocery stores and Kroger had a weaker print as well as some of the other retailers. The sophistication and the adaptability of these retailers cannot be understated and ultimately, talking about health ratios, I will say we're actually very similar. If you look at our inline, we're right around 10% on a health ratio, which is really their ability to pay.

So, sales, so their occupancy costs to their sales. The grocers, though, are 2.4% because ultimately, they have much thinner margins. But when you think about what these grocery stores have done, Walmart was not in the business of grocery, then you had online and the expansion and now you have Whole Foods came around. This is before Amazon. Now you have Simple Truth, that was the Kroger brand is having incredible growth. The adaptation of these retailers is not to be understated. I think it's interesting, we talked a few years ago, everyone was going, "Oh my gosh, there's so much going on. Why are these retailers continuing to expand?"

It's because there is no other place for them to go. Talking about foot traffic, they know the locations in the market where they want to be. And if there is a rare occupancy available, they need to act then because their opportunity to get to that space is a decade plus, if not more than that away. So, they're going to move and they're looking at it going, we can be in a small portion of the cycle or a bigger, they're going to go. I think that it's interesting, quick service revenue -- or quick service restaurants.

I continue to say Americans are going to eat out. We've looked at it. And since 2000, QSR has always grown. In the GFC, it will go down some. It's always positive. And so, when you think about the coffee concepts and all the variety of things, the new bakeries that are coming, ultimately, the consumer is resilient. The consumer is going to continue to spend and we all have to eat. And that's where we play.

I think delineating because you talked about perception versus reality. And where I think that breaks down is the fact that retailers, branded merchandise gets a lot more airplay than its size of the stock market, right? Because we all understand it. I'd like to say a lot of REITs have household names, but unfortunately, Tanger does, I think we do. But a lot don't, right? You had Equity Residential and AvalonBay, the 2 largest multifamily landlords that got together to become Vivmark. No one knows what those names.

Public Storage, the largest self-storage landlord, all you know is Orange, okay? So, these retailers have brand names and they're companies just like every other. So, they're going to have hits, misses, whether it's in their capital allocation, whether it's in their fashion, and they tend to get blown out of proportion, right? In retail, because all of us service 2 customers, it is the most unique asset class. You think about real estate, we're here at a hotel. It's only -- it's a one-to-one relationship.

In retail, you have 2 customers. The retailers that pay us rent, and we're 96% fixed rent, right? We're not volatile like a retailer. We don't get to miss a season. We actually don't sell anything. We sell our loyalty program, but -- but put that aside, we don't sell a product. And so, that whole ability to the retailers that pay us rent, but then the customers who show up and shop with us every day and the environment that they want to shop in. And our job is to bring as much of that newness to what is in our centers, whether they're drawing from a 3- to 5-mile ring in John's portfolio coming 2 to 3 times a week or coming to our assets, which draw from a 30-, 40-, 50-mile ring.

Everyone is going to go to Dollywood, I hope, to celebrate Dolly Parton and you'll go to our asset in Sevierville. And it's one of the top outlets that we have, and I couldn't pronounce Sevierville when I first got to Tanger 4 years ago. But the Smoky Mountains are great. And so, those retailers, I think that's part of the reason why you see that disconnect. I think the other aspect really comes down to quality, right? And John, you mentioned this. The REITs generally own the better-quality centers in the better-quality markets. So, if you're a retailer on the other side, we're all transparent.

We all talked about our balance sheet strength and reinvesting capital to our assets. A retailer is doing their business in our centers, right? You guys can be in any office building that you want. But the retailer cares about those 4 walls, who their co-tenants are, what are we doing? And I think that's why the retail REITs are seeing a disproportionate amount of that. And then the last thing I'll end on is credit. To your point, there's been some hits and misses in retail. But at the end of the day, where we have to be concerned is at what point does it break that bankruptcy or balance sheet becomes a risk.

And thankfully, I would say our watch list, we mentioned on our 2Q call is at the lowest level that it has been in years. Now, part of that is we've seen some bankruptcies take space, take hold. But there's not this newness where from a credit perspective, we're worried about the tenant not paying their rent.

Again, more we could dive into. I'll pause for any questions from the audience. Sorry, the lights are tough to see hands. We can keep rocking and rolling otherwise.

Well, maybe I might redirect. I actually think -- I think we would be remiss if we didn't highlight -- I think retail real estate is very unique because we have everyday opportunities to see how there are private values of our portfolios and public values of our portfolios. And I think that is where the opportunity for you all lie in all of our stocks. So, there are transactions going on every day. So, our investment committee is going on right now and where we are looking at 10 to 12 assets, a couple of hundred million dollars of value every week, and we can see that major institutions, many of whom you work for are buying directly into private real estate and the public real estate is at a discount because of some of these headline opportunities.

And I think that helps us reconcile the headline to the ground level because in our space, and Ross can certainly speak to this, like we're going to buy so much this year, but that's why we know that there is a great opportunity in our equity for incremental ownership. And that also just shows that one is right, one is wrong, but ultimately, there is growth there in addition to the growth that we see from an earnings perspective. And I think that's -- and we also recycle. So, we're selling and we're buying ultimately very similar on the return spreads.

And there is a very strong market for right now. So, we're not seeing anything cracks or anything from the consumer from a fundamental perspective. In addition, there's a strong bid from the private markets that we are participating in as well. And so, I think that there really is a great opportunity right now for investment.

It's a good segue into capital allocation. So, just -- why don't we just keep going down that line. But tell us what you're seeing in the marketplace, cap rate-wise, quality-wise, depth of the market, depth of the bidding -- who's in the bidding tenor, so to speak. Interest rates are going up, so that may complicate things a little bit. And why don't we just go down the line and just tell us what you're focused on and where the biggest opportunities are.

So, we have strong internal growth and external growth. We are very large -- we buy individual assets. Our average asset size is somewhere between $25 million and $35 million a piece. So, we are looking across the country in a variety of markets. When I think about capital allocation for us, after our dividend, we also have a low payout ratio. We retain almost $120 million that we're reinvesting. And our first choice would be some of our development opportunities because we're building out parcels.

And when we talk about the difficulty of building, I already own the land, getting through the consent process and all that, we have teams that work on that, but those are good. We get 9% to 12% cash-on-cash returns in that business. So, that would be -- we would love to do more of that, but also it's a relatively small footprint. We are also an active acquirer. And ultimately, what that does is that keeps us in touch with the market, allows us the opportunities to know so that we can both sell and buy in the market. And we buy every asset to a 9% unlevered return.

And that, we think, is great. We get good going-in yields. We have a team that can generate that growth, and that is ultimately what is going to continue to propel that internal growth as we move along. So -- and obviously, it always depends because at a certain point, it could be equity issuance, it could be equity buyback. You mentioned interest rates. I actually think that's an opportunity for us -- so, interest rates are, I'm not sure I was guessing we were going to hit 5% today. I hope we...

I think we touched it.

Sure. Ultimately, in our space, a lot of times like who's buying? You have the institutions, but you also have the individual, maybe it's in the larger scale, you could have private equity. But in the smaller scale, the developers, it hurts them. That's an opportunity for us because we can all close all cash. That levered buyer is now in a worse position. So, I think there is an opportunity for us to buy accretively there. But maintaining strong balance sheet is what gives us that ability to continue to invest in that way. And that, I think, is first and foremost, because you get in a box and bad things happen, but we have that opportunity to invest and continue our forward growth.

Yes. Just playing off of that, I mean, touching on your valuation commentary previously, and I mentioned a few of the examples where we're selling these flat long-term leases in the low 5% cap range, some of our multifamily product in the 4.9% to 5.1% range. And we're doing that while the implied cap rate of our own company is trading right around 7%. So, talking about opportunity, that's where we see that major dislocation, that disconnection between the private markets and the public markets. Now, you can use that to your advantage.

Obviously, we have the ability to buy back our own stock in our own company, which you've seen us do in the past when that dislocation has persisted. We're seeing cap rates today, back to your initial question from institutional quality real estate, in some cases, right around that flat 5% cap rate, low to mid-5% cap rate, again, at the same point in time where the implied cap rate of our own company is closer to a 7%.

So, we can take advantage of selling some of these ground leases, some of the multifamily and then buying assets that have that spread going in, but more importantly, have that 300 plus or minus percent -- 300 basis point spread on the compound annual growth rate. So, that's a very important factor for us. We've been utilizing 1031 exchanges because we do have some pretty sizable taxable gains on some of these assets that we've owned for a long time. So, it gives us an opportunity to recycle capital accretively without having to utilize any outside capital, flexing the balance sheet or issuing equity at a point in time where there is dislocation with that cost of capital.

We also have utilized what we call our structured investment program, which is another way for us to participate in quality real estate that we like just from a different perspective. So, we're investing preferred equity or mezzanine financing, where we're sitting in a different piece of the capital stack. Typically, if a senior loan is on a property from 0 to, call it, 60% loan-to-value, we'll go from 60% up to 80%, in some cases, pushing up to 85-ish percent loan to value. And by doing that, we can participate in good real estate with high-quality operators in a more passive position, but generate very attractive returns that are at a meaningful spread to our cost of capital.

And most importantly, we have a right of first offer and/or right of first refusal on those assets that give us an opportunity to acquire those assets at some point in the future. And we've acquired 3 assets from this program over the last couple of years where we've exercised our right to meet the market. And we have a substantial amount of ROFOs and ROFRs on other real estate that at a point in time, we anticipate will give us an opportunity to buy.

So, it's almost what we call -- it's not a loan-to-own program. It's a loan to ROFR program is one way to think about it to give us future optionality because the reality is in this environment, and it's a good problem, but there is a lot of institutional capital, a lot of institutional demand for our sector, arguably significantly more capital than there is opportunity to buy in terms of supply of quality on the market. So, there's a lot of competition, and we have to find ways to differentiate ourselves. So, we can be aggressive when there's windows of opportunity to buy shopping centers at prices that make sense.

We always have the ability to look at our own company and buy back stock if we think there's a major dislocation. And in the interim, we can utilize our structured investment program to generate high-quality returns and have optionality in the future, coupled with, as John mentioned, a redevelopment program where we're generating, on average, double-digit ROIs on that capital for outparcels and expansion and other retail redevelopments within our shopping centers. So, a lot of opportunity and optionality to invest capital even in a very competitive market.

Great. Michael?

I don't know if I like being cleanup or if I like going first.

That's why I sat in the middle...

You're very strategic. Very strategic. I got to introduce myself first. That was it. But what's really interesting about retail real estate, we spend a lot of time talking about how we have such an undersupply. But from an institutional ownership perspective, it's low as well. And rightfully so, there have been some pockets of weakness over the last 2 decades. However, they were probably more blown out of proportion than they have been where you look at where a number of the retail REIT portfolios are today.

And what you're finding over the last 3 years in terms of transaction activity was 2022 and not a ton happening, a little bit started to open up post COVID. '23 was really you started to see some transactions, but they were more asset specific into '23 and '24. What happened in '25 and so far in '26 is it really is a sector allocation. So, if you think about what happened in multifamily or industrial or in data centers, where the institutions were so underweight, 2 things happened.

One, you got massive amount of supply. So, we talk about retail today being in the basis points. In those other sectors, you got up to 6%, 7%, 8%, 9% of supply relative to stock, which you bring more supply in, usually not good. And the other thing that happened is there was a significant amount of a consolidation wave that drove cap rates down. And yes, cap rates have been compressing in retail, whether -- it doesn't matter what products we own because we're finding the same thing across everything. And so, it really pushes us to really find the deals where we can add value.

And I'd say from being a very operationally intensive company, I mentioned at the beginning, 42 assets, $6.5 billion, 6 assets are in 50-50 JVs. So, call it 38, just to make math easy, okay? These are like $150 million, $170 million a piece. They're not your $25 million grocery-anchored center. No, not that there's anything wrong with it, but we have boots on the ground.

We each have our own seg -- it works great.

That's why I picked you three.

We're not the best looking. So, part of that is really important for us because our acquisitions, we've done 8. We brought 8 new assets into the portfolio over the last few years. One of that was a strategic partnership that we have a promoted interest. One was a development, and then we did 6 acquisitions, 2 of existing outlets -- and at least in the outlet world, we're a very small part, but a critically important utility for the brands and retailers. That sector is consolidated. So, we've been fortunate we found 2 opportunities. We think that there are others, but those are generally off market because it's hard to compete on outlets without a platform.

In open-air lifestyle centers, we operate similar to John, a lot in the middle markets, middle America. I'd like to tell of our competitors sort of get out, but what people are finding is, hey, guess what, there's people that live in these markets. We know that because population growth around our centers the last 15 years has been 2x the national average, right? We -- our outlets have been positioned in the right spots. So, we have to find areas where we can find deals that we can drive. We've been fortunate. Our deals have carried north of an 8% yield on them in a market that has very low cap rates and drive accretion through that free cash flow.

And our free cash flow yield, which is, again, cash after we pay our dividends, after we pay all of our CapEx, about $90 million to $100 million a year on an equity base of $4.5 billion and a debt base of $1.8 billion. That octane is really powerful. I mean, it's free, and we have to make a decision what we do with it. We feel we have very good external growth opportunities. But as Ross and John talked about, opportunities to invest capital in our portfolio to create value, ground leasing and outparcel, building a building for one of the fast casual restaurants that people still want to go to. And so, we think that there's a tremendous amount of opportunity to partner with capital and continue to grow accretively.

So, we've got 2 minutes left. I want to do a little bit of a lightning round. Let's bring it all together. What's the earnings growth algorithm for your company over the next 3 years? It's going to be some combination of same-store...

I'll go first and then I'll take the hard one. Look, all we can do as a company, right, is -- I'm a recovering analyst. I forgot to mention.

You're taking more notes than I am.

Yes, I'd like to be prepared. So, we're very simple. It's driving our internal growth, intensifying the real estate that we already own and pursuing disciplined and prudent external growth. And we wrap that all in a balance sheet that has strong access to different sources of capital as well as having that leverage capacity. The only thing we can do is manage our assets better than others and know when to buy, when to sell, when to develop, when to redevelop, and then make sure we're managing our debt and equity.

We can't control what the market values our cash flows at. I mean, we drive ourselves crazy. But if we become singular focused on driving growth, then I think over the long term, stocks will have a gravitational pull because we focus on growth, that means the dividend will then grow. And if you look back at correlation of REITs, there's a very weak correlation on rates. I know that sounds crazy on interest rates. Dividend growth and total shareholder return are very tightly correlated. Why? Because if you're increasing your dividend, you can only increase your dividend increasing your payout ratio or driving your cash flow. So, dividend growth is the output of doing the right things from a capital perspective. And then if you can communicate and be transparent, we think multiple and cash flow will follow.

Ross, you got 15 seconds.

I think we're about out of time. I agree with everything that Michael said. The one thing that I would add is that while we can't control the future, we know what we can control. And if we continue to operate and execute at the level that we have been, we've seen over the last 3 years, including '26 based upon our projections in terms of midpoint of guidance and whatnot, that for 3 years running, we'll be north of 5% from an FFO growth standpoint while managing the balance sheet to an A-/A3 credit rating. So, if we continue to focus on balance sheet, continue to focus on execution and generate that growth, we think that the rest will follow.

Great. John, last word.

The punchline on all of us, I think the importance of retail real estate is the stability of all of our cash flows in a time when other investments have greater volatility, that consistency and that is what we all deliver, but in particular, for PECO, necessity-based grocery-anchored shopping centers, it's in our materials. We're going to drive 3% to 4% same-store NOI growth, which means that we're growing our properties organically 3% to 4% every year. What does that turn into? Mid- to high single-digit earnings per share growth. When you take that mid- to high single-digit per share growth on an annual basis and add our dividend, we are aiming to deliver to investors 9% to 10% returns every year. I can't control the stock price, which is the valuation thing, which Rich, we need your help with. But aside from that, back to what Ross said, the things that we can, we know that it will matter in markets, and that's what we are working to do.

Thank you so much, guys.

Thank you.

Thank you.

Thank you.

Good day, and welcome to the Phillips Edison & Company's Second Quarter 2026 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.

Thank you. I'm joined today by our Chairman and CEO, Jeff Edison; President, Bob Myers; and CFO, John Caulfield.

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 SEC filings. 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 GAAP results are available in our earnings press release and supplemental information packet, both of which have been posted to our website.

Please note that we have also posted a presentation and our caution on forward-looking statements also applies to these materials. Following our prepared remarks, we will open the call to Q&A. [Operator Instructions] With that, I'll turn the call over to Jeff Edison. Jeff?

Thank you, Kim, and thank you, everyone, for joining us today. During the second quarter, the PECO team delivered Nareit FFO per share growth of 8.1%, core FFO per share growth of 7.8% and same-center NOI growth of 3.8%. Our strong performance is due to a combination of high demand for spaces in our grocery-anchored shopping centers and our team's ability to capture that demand with occupancy gains, great rent spreads and superior operations. We're continuing to expand our ability to drive growth and create value while maintaining a strong balance sheet and a thoughtful approach to investing in long-term growth. These disciplines have always been core to PECO.

As we look toward the second half of 2026 and into 2027, we believe PECO is well positioned to deliver what we view as compelling combination for our investors, more alpha with less data. While macroeconomic headlines continue to evolve, the fundamentals supporting PECO's portfolio remain consistent. We're seeing continued traffic resiliency across our portfolio. Our centers generated 2% year-over-year traffic growth in June and 2% traffic growth year-to-date. While consumers are increasingly seeking value, they're continuing to make frequent trips to necessity-based destinations, which reinforces the strength of our grocery-anchored strategy.

We also continue to see leading grocers invest in their businesses. Krogers' announced acquisition of Giant Eagle underscores the value large grocers place on growing market share and expanding their brick-and-mortar footprint in attractive markets. As Krogers' largest landlord and a long-time partner to both companies, we view this as another positive indicator for the long-term strength of the grocery-anchored shopping center sector. But healthy operating fundamentals are only part of the story.

The larger opportunity is how PECO converts these fundamentals into long-term earnings growth. We have a number of ways we can create value, including strong internal growth from leasing, occupancy, rent spreads, retention and development and redevelopment activity. We are also growing through acquisitions, joint ventures and portfolio recycling. We think like owners, every capital decision begins with a simple question, where can today's dollar create the highest return opportunities?

During June and July, we continued to strengthen our capital position by raising $92 million of equity to invest accretively in long-term earnings growth. Given the strength of our first half performance and the opportunities we continue to see, we're pleased to increase our full year guidance for gross acquisitions to a range of $500 million to $600 million. Importantly, we're accomplishing this without changing our disciplined investment approach. We continue to target un-levered IRRs of 9% for our grocery-anchored centers and 10% for everyday retail centers. We believe patience and discipline matter more than volume. Our objective isn't simply to grow the portfolio. It's to strengthen quality while refreshing and enhancing our growth profile.

As we look ahead, we see attractive investment opportunities that allow us to create incremental shareholder value while preserving our balance sheet strength. Portfolio recycling remains another important competitive advantage. As assets mature or no longer meet our long-term return objectives, we recycle that capital into opportunities with stronger growth prospects. A strong acquisition market also means a strong disposition market, and we're taking advantage of both. A meaningful part of the active transaction market is institutional investor participation. The strength of retail real estate delivering necessity-based goods and services continues to attract direct investment. Our joint venture partners have recognized this for years, and we're very pleased with the returns that we have generated for them. We continue to explore the expansion of our current joint ventures as well as investments in new opportunities.

At the same time, we remain equally focused on reducing risk. Growth is most valuable when it is funded responsibly, which we are doing through our recent equity issuance, portfolio recycling, joint ventures and the strength of our balance sheet. Our growth plans are not dependent on a single source of capital, and that flexibility allows us to remain disciplined through volatile markets while still pursuing opportunities that meet our return thresholds. That is what differentiates PECO. We are the cycle-tested leader in rightsized grocery-anchored neighborhood centers located where America's top grocers are most profitable. PECO's portfolio is built around the daily needs of the consumer, supported by grocer stability, necessity-based demand and a national operating platform that has delivered consistent growth through multiple economic cycles. That starts with the stability of our grocers as the backbone of our earnings.

Our centers are anchored by leading grocers and complemented by retailers that provide necessity-based goods and services, creating consistent traffic and durable cash flow. Consumers continue to shop close to home, and our neighbors want space at our centers in the neighborhood. The result is high occupancy, strong retention and the ability to push rents while maintaining a high-quality cash flow profile.

PECO also has a differentiated ability to execute tactically across markets. We are not limited to one geography or one capital channel. Our national footprint, Locally Smart market knowledge and vertically integrated platform allow us to identify opportunities across the country, whether that is core grocery-anchored acquisitions, under-managed or under-occupied everyday retail centers, development, joint ventures or portfolio recycling. That flexibility helps us allocate capital where the long-term risk-adjusted returns are most attractive. Everyday retail enhances that growth profile without changing who we are.

Grocery-anchored neighborhood centers remain our core business, but everyday retail gives us another way to use the PECO operating machine. Our leasing relationships, national accounts team, data and merchandising expertise to re-lease, re-merchandise and improve smaller centers in strong trade areas. We continue to see everyday retail as complementary growth opportunity that can generate attractive returns while reinforcing our focus on necessity-based close-to-home retail.

Our balance sheet further distinguishes PECO. We have an investment-grade profile, significant liquidity and proven access to both debt and equity capital markets, along with joint ventures and portfolio recycling. That gives us the capacity to match-fund growth responsibly. Our growth plans are not dependent on a single source of capital. Instead, we continue to allocate capital toward the highest return opportunities available to us. Taken together, PECO offers a combination that's hard to replicate, a resilient grocery-anchored base, strong internal growth from occupancy, rent spreads and development and redevelopment activity, a complementary everyday retail opportunity, a disciplined national acquisition platform and one of the strongest balance sheets in the sector. We believe that combination positions PECO to deliver durable same-center NOI growth and mid-to-high single-digit core FFO per share growth over the long term, more alpha, less beta.

Looking ahead, we continue to believe the building blocks for 2027 are becoming increasingly visible. The investments we're making today are anticipated to support long-term earnings growth, not simply near-term volume. With that, I'll turn the call over to Bob. Bob?

Thank you, Jeff, and thank you for joining us, everyone. PECO's operating team remains focused on generating more alpha, and I'll let John speak to the beta.

Our second quarter results were marked by a record high number of leases and success in growing cash flows. We continue to see high retailer demand with no current signs of slowing. Necessity-based categories, including quick service and fast casual restaurants, health and wellness, beauty, fitness, services and medtail continue to be excellent drivers of demand. 74% of PECO's rents come from necessity-based goods and services.

Second quarter leased portfolio occupancy remained high at 97.3%. Leased anchor occupancy remained strong at 98.4% and leased in-line occupancy was a record high 95.5%. In addition, economic in-line occupancy was a record high 94.8%. During the second quarter, PECO's national leasing activity continued to be outstanding. New deals included 7 Brew, Cold Stone, Firehouse Subs, Wingstop, Jersey Mike's and [indiscernible]. Retailers growing with PECO during the quarter included new deals with Crisp & Green, Happy Lemon, The Peach Cobbler, sweetFrog, Club Studio, Fitstop, CLO Medspa and Escapology.

Our rent spreads continue to reflect an extremely positive retailer environment. During the second quarter, PECO delivered comparable renewal rent spreads of 21.2%. Solid retention during the quarter means less downtime and lower tenant improvement costs, which translates to better economics for PECO. Looking at comparable new rent spreads, they remain strong at 33.7% during the quarter. In-line leasing deals executed during the second quarter were very strong.

On renewal activity, PECO averaged record-high annual rent bumps of 3.1%. This is another important contributor to our long-term growth. We are also pleased with record high portfolio ABR per square foot during the second quarter, which was driven by respective highs for both anchors and in-line retailers. As it relates to bad debt, we are actively monitoring the health of our neighbors. Bad debt was lower than expected in the second quarter at approximately 70 basis points of revenue. Given the strength we've seen in the first half of 2026, we have lowered our guidance range. We expect bad debt for the year to be in-line or slightly better than 2025.

Turning to development and redevelopment. PECO has 21 projects under active construction. Our total investment in this activity is estimated to be approximately $82 million, with average estimated yields between 9% and 12%. Year-to-date, 11 projects have stabilized with over 212,000 square feet of space delivered to our neighbors. This reflects incremental NOI of approximately $3.4 million annually. We are focused on continuing to grow PECO's development and redevelopment pipeline, which is an important driver of growth.

In addition, the PECO team continues to find accretive acquisitions that add long-term value to our portfolio. Our year-to-date acquisition activity through this week reflects $278 million at PECO's share. This includes 8 grocery-anchored shopping centers, 3 everyday retail centers, an out-parcel and land for future development. Currently in our pipeline, we have over $225 million in assets that we've been awarded or are under contract that we expect to close in the second half. Our pipeline reflects a combination of grocery-anchored neighborhood shopping centers, everyday retail centers and opportunities for our joint ventures.

I will now turn the call over to John. John?

Thank you, Bob, and good morning and good afternoon, everyone. Second quarter 2026 Nareit FFO increased to $93.7 million or $0.67 per diluted share. Second quarter core FFO increased to $95.5 million or $0.69 per diluted share and same-center NOI increased 3.8% in the quarter, primarily due to higher revenue, which was driven by increases in average rents and economic occupancy.

PECO continues to focus on growth while maintaining lower beta. The acquisitions activity Bob mentioned was funded by dispositions, new equity raise and our revolver. As Jeff mentioned, we remain disciplined about accessing the most efficient capital and match funding our opportunities. PECO continues to have one of the best balance sheets in the sector. This strength was recently recognized by Moody's, which revised PECO's outlook to positive, reflecting our consistent operating performance, disciplined balance sheet management and strong liquidity position. We believe Moody's positive outlook validates the strength of PECO's operating platform and credit profile. With $857 million in liquidity at the end of the second quarter, we remain well positioned to execute our accelerated growth plans.

Our net debt to trailing 12-month annualized adjusted EBITDAre was 5.1x at quarter end and was 5.0x on a last quarter annualized basis. At the end of the second quarter, PECO's outstanding debt had a weighted average interest rate of 4.4% and a weighted average maturity of 5.6 years when including all extension options and 95.9% of our total debt was fixed rate debt, which includes PECO's share of debt for our JVs.

Turning to guidance. We are pleased to increase our full year 2026 guidance for Nareit FFO per share, which reflects a 6.3% increase over 2025 at the midpoint. We also increased guidance for 2026 core FFO per share, which represents a 6.2% increase over 2025 at the midpoint. We also updated our guidance for same-center NOI growth, which reflects 3.7% growth at the midpoint. These are very strong growth rates and consistent with our long-term targets for growth. As Jeff mentioned, we also increased our full year 2026 guidance for gross acquisitions to a range of $500 million to $600 million. As it relates to dispositions in 2026, we continue to target a range of $100 million to $200 million in asset sales. We've provided ranges for the other guidance items used in your models in our earnings materials.

In summary, PECO delivered solid results this quarter, which allowed us to raise our earnings guidance and gross acquisitions guidance. We continue to see a resilient consumer, and we believe our portfolio will outperform as necessity-based retailer demand remains strong. As Jeff said, the investments we're making today position us exceptionally well for 2027 and beyond. In an environment where investors continue to see dependable growth and stability, we believe PECO is uniquely positioned to deliver both.

With that, we'll open the line for questions. Operator?

[Operator Instructions] Your first question comes from Andrew Reale with Bank of America.

Just on the guidance, you raised the gross acquisition outlook by $100 million. You also improved the same-store NOI, noncash and collectibility assumptions. I guess, first, John, you just mentioned this, I think. Can you just confirm that the net acquisition outlook is also increasing by that $100 million?

And second, John, maybe if you could just bridge the moving pieces of the revised FFO guidance and maybe help us understand why the increase was a little bit modest at just $0.01 given there were a number of positive updates in the quarter.

Great. John, do you want to take that?

Sure. First question was, yes, it is a net acquisition increase of $100 million. And as we think about the funding for that, we were able -- pleased to raise a little over $90 million at the end of the quarter. And the leverage that we sit at now is at 5x on an LQA basis on a debt to EBITDA.

When we look at guidance, I think it's important that we're very pleased with our first half performance and our ability to raise that full year guidance really for all of our metrics. 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. So when we look at that, it's better strength, it's economic occupancy growth and really pushing that, that's going to -- allowed us to raise that guide.

At the FFO level, the midpoint of our guidance range is now above 6% for both NAREIT and core. Our dispositions are ahead of pace, but we view that as a positive given the strength of our acquisition pipeline that Bob talked about and the opportunity to reinvest that capital at higher spreads. So when we look at the timing, there is a short-term cash flow gap, but this activity positions us really well for 2027. So overall, we're very confident in our increased guidance and remain focused on delivering results at or above that level.

Your next question comes from the line of Haendel St. Juste with Mizuho.

My question is on the acquisitions guide, the uptick here. I'm curious if the new guide is a run rate to think of beyond 2026 or more a reflection of your ability to opportunistically sell assets, some non-core assets in the strong bid in the market today? And generally speaking, how do you think about using equity to fund incremental acquisitions?

Great. Well, thanks, Haendel. The -- we are we had a very good first half of the year on the acquisition side. We feel really good about what we were able to buy. And we -- looking forward, we think there's good opportunity there. We have a variety of sources where we're -- of capital we're going to use to buy that. John, I don't know if you want to go -- why don't you go through it sort of the different pieces that we're looking at to fund our -- in addition to the equity that you already mentioned.

Yes. So Haendel, we would look at it and say we've got debt capacity, we raised equity. I will note that -- and I should have said this earlier, the remain -- our guidance for the year does not assume any additional equity issuance from here. And so when we think about what we've been able to buy as well as what we have in front of us, I would say that this is a great market that we can look to even exceed that acquisition guidance we gave. When we think about the years ahead, we still believe that we can buy about $300 million on a net basis every year and remain leverage-neutral. And so what we've actually got is that capacity, which is about $250 million.

So when you consider what we have to buy this year as well as the future, I think we would like to see that we are able to pursue a higher acquisition guidance as we look forward, but we're really going to look at it on that net basis because we want to preserve that balance sheet capacity and protect the business.

Your next question comes from the line of Caitlin Burrows with Goldman Sachs.

Congrats on a great quarter. Maybe as we look at the acquisitions that you did in the quarter, you mentioned earlier how they are great for '26, but they set the stage for continued growth in '27. So maybe not going through all of them in the interest of time, but maybe if you guys could talk about like the largest two or three deals or maybe most interesting two or three deals from the quarter and what you see as the real upside potential for them?

Great. Well, thanks, Caitlin. Bob, do you want to walk through a couple of the assets that we own?

Yes. Thank you, Jeff, and thank you for the question, Calin. I think in April, we purchased an asset in Renton, Washington that's anchored by a Safeway that really had a lot of I would say, missed leasing opportunities, had some pretty good vacancy. The current occupancy is 82.8%. We feel like we can make an immediate impact to that. So we're excited on that one. That particular asset, as we underwrote it, would certainly solve for well above a 10% un-levered return.

There's another asset that's -- I like a lot of the mark-to-market opportunities that we're seeing with what we're buying with -- it doesn't matter if it's Sprouts or Kroger, Cub Foods. A lot of the assets that we're acquiring really have some nice 20%, 30%, 40% mark-to-market opportunities. And we've been very focused on buying acquisitions that are still solving either between a 9%, 9.5%, 10% or better. And we're seeing that certainly in our everyday retail category as well where we're generating over 5% CAGR. Even in the 12 assets that we've acquired in everyday retail, we've already moved occupancy 450 basis points. So you'll continue to see us lean into where we stay disciplined on our un-levered returns. But it's an assortment. We're going to stay focused on the core grocery-anchored centers and complement it. And I think we've always said this, less than 10% of our overall portfolio in everyday retail to give us that extra squeeze.

Your next question comes from the line of Floris Van Dijkum with Ladenburg Thalmann.

I guess it's more of a follow-up question to Caitlin's. I think she's was on the same train of thought as I was. But obviously, to get to 10% of the portfolio on everyday retail requires you to buy more of that product today. How do you think about particularly as the returns are more attractive? And then maybe as a side note, I noticed you bought a Lunds asset in Eden Prairie, 100% leased. I think I know the asset actually, but I think there's a bunch of unanchored retail right here. As you think about making new acquisitions of grocery-anchored centers. Are you also looking at at the same time, thinking about acquiring some of the everyday retail centers adjacent to those properties?

Floris, thanks for the question. And Bob, do you want to walk through a little bit of the sort of the breakup of what we bought and then also what we've got looking forward. And then with regard, Floris, to the last question about will we buy -- are we looking at additional retail that might fit with our acquisitions?

It's one of the things that is -- we look at very closely. And where we can find those opportunities, the things that we would really like to do because there are already markets that we understand that we do. And we do those around our existing centers, but also on the acquisition side, looking for those specific everyday retail opportunities where we can grow the portfolio in markets that we're very familiar with. Bob, do you want to go through?

Yes. Thanks, Jeff. And Floris, thanks for the question. We're really excited about the everyday retail category. I'm going to kind of dissect your question here a little bit. The first question was Prairie View Center in Minneapolis. The Lunds & Byerlys, that asset happens to be a great asset in a market that we've done really well with in terms of our overall results. We like Lunds & Byerlys. They're a little bit more of a specialty grocer. It's well occupied, but we really feel like there's an opportunity to push rents from the low 20s into the high 30s, maybe even low 40s.

To answer your question specifically on everyday retail around some of those core markets where we have the incomes and the demos and the education, we're leaning into that. We've identified over 50,000 of these opportunities across the countries that are close to the #1, #2 grocers, which is obviously our strategy, where we can generate over 10% un-levered returns. If you look at the 12, that we've already acquired, I mean, we're spending about $325 a foot on these. We're generating un-levered returns about 10.5%. They have great incomes, great education, great demos. We're going to continue to lean into that.

The last part of the question is when I look at the pipeline of what we have in the queue, we have over $230 million that we've already been awarded in addition to what we've closed on. So we're already well on our path in the low 500s, which is why we raised part of our guidance. We're seeing 30% more opportunities than we did last year. There are just a lot of momentum and a lot of opportunities in this everyday retail space. And I mentioned this answer earlier, we've already moved occupancy 450 basis points. This is an area that we can do exceptionally well, and we're just taking opportunities of situations where the assets might be a little bit older. They might have been under-managed, but there's some real opportunities to use our leasing and operations platform and our national platform to really enhance merchandising. So we're doing it the way we want to do it. We're going to be patient and stay very disciplined. The pipeline right now, Floris, is if you look at what we have under contract or been awarded, I would say it's 40% everyday retail, 60% grocery. And we're being very selective about what we're buying.

Your next question comes from the line of Michael Griffin with Evercore ISI.

Jeff, I think you started off in your prepared remarks, maybe making some commentary around sort of grocer sentiment. Obviously, we saw, I think, a large tenant of yours reported earnings earlier this week, took down their outlook, kind of made some comments around the cautious consumer. So I mean, I understand that it's asset and center-specific, but is there any read-through that whether folks are trading down at the grocery store? Whether it's going to -- people are getting kind of squeezed at the sticker shock when they're out there buying food. Like is it just a canary in the coal mine of what could be a worry in terms of ultimately translating to leasing demand for PECO as it relates to grocers?

That's a great question and one that we have spent a lot of time sort of internally talking about. The Albertsons announcement, I don't think should be a surprise to anybody. I mean, for 3 years, the last 3 years, they've been operating under-- really contracted to sell to Kroger. They're going to take some time to work through that, the emergence of that. And during that time frame, the story is that they had to actually operate under three different business plans because they weren't sure what was going to happen.

Well, now they're refocused. They are reinvesting in price, which is a very important part of their thing. But we got to keep in mind, they are the fourth largest grocer in the country, and they have some very, very strong banners and some very strong locations. We have a great relationship with them and have worked with them for a long time. It does highlight one of the important things that we do, which is we curate our portfolio so that we don't really have like a portfolio of Albertsons. We have a very specific portfolio that is -- trying to set up to make sure that we don't run into problems if any one of our grocers were to run into problems. And Bob can give you a little detail on our Albertsons portfolio.

But Albertsons is just one of the indicators. I mean you hear what Walmart is doing, you hear what Kroger is doing. They're reinvesting in price, and they're doing that specifically because they are sensing some consumer weakness on the -- and they they know it like in real time because they're looking at them trading to private label from a branded more expensive product. And so they're watching this happen. And when you see them start to talk about investing in price, that's what they're focused on.

Fortunately, we -- if you look at our performance, we had -- if you look at foot traffic, we had 2% increase in foot traffic in June. We had the same thing year-to-date is up about 2%. So there -- we're not seeing it on the ground, but it's certainly something that you're going to -- we're going to want to keep a look at. And we'll be watching as that moves forward.

Your next question comes from the line of Jamie Feldman with Wells Fargo.

So new and renewal spreads remain strong. Can you talk about the composition of the spreads between the embedded mark-to-market versus just strong incremental demand? And as you think about those two levers, how should we think about your expectations heading into the back half of the year and even into 2027?

Bob, maybe you can talk about the strength of how we've been able to get it. And John, maybe you can give us a little breakdown on how that breaks out?

Yes, absolutely, Jeff. So I guess I would start by just simply saying if you look at our overall results, you think about occupancy being 97.3% and anchor occupancy at 98.4% and our in-line occupancy is at an all-time high of 95.5%. We continue just to see very strong retailer demand. We're also retaining 90% of all of our neighbors, and we're spending less than $1 a foot to keep those.

I always look at our pipeline reports, leases out for signature, renewals out for signature. And I would certainly say that there is a tremendous amount of demand. We have a great pipeline and the spreads are consistent. You have new leasing spreads at 34%, 35%. You have renewal spreads at 21%, 22%. And we just don't see anything slowing down. Our main focus is still on necessity-based goods and services. 74% of our rent rolls would reflect necessity-based goods and services. Fast casual restaurants, health and wellness, beauty, fitness, services, medtail, all those uses make up the -- I mean, the majority of our deals that we've executed and the pipeline going forward.

We attend all these ICSC events and all the retailers continue to look for growth opportunities in our portfolio, and we're trying to create some of those. So there will be some mark-to-market opportunities. We're going to try to keep health ratios around 10%, 10.5%. We believe that we can continue to move occupancy in line another 100 basis points. I do think we'll move anchor occupancy up another 50 to 60 basis points by year-end. We're in a very good spot, and I don't see anything slowing down. Jeff already spoke to the 2% traffic in the foot traffic that we're seeing. We're -- we have momentum. We feel very good about where we're at.

John, do you want to give a little breakdown on the growth?

I think the thesis is -- the answer is it's both because the mark-to-market is also being driven by the demand because if I think about the renewal spreads that have been over 20% now for many quarters, that's really because we have demand from other neighbors looking for that space. So we are in the -- able to drive that. And we do have leasing agents that are Locally Smart that only focus on our centers, but actually watch the market comps in the space.

It's because of our presence with the best asset in our area that is able to drive that. So when we think about it, we -- Bob talked about what we see going ahead, and it's very consistent with what we've been delivering. So I could say that, that is the mark-to-market, but it's hand-in-hand with the demand.

[Operator Instructions] Your next question comes from Todd Thomas with KeyBanc.

I wanted to follow up on the core FFO guidance and the results in the quarter as we're kind of working through some of the updated assumptions and moving pieces. It also looked like there was a positive variance in other non-property income in that line. It was about $0.02 comprised of some investment income and some other income. Can you just speak to that, whether that was contemplated in the guidance and if any of that income is expected to be recurring?

Sure. John, do you want to walk through that?

Yes. Thanks, Todd. So I'll say the first piece is, yes, there was income related to an easement on a nonoperating piece of land, and that was about a little less than $1 million in the quarter. And that I do not anticipate is recurring.

The other piece that you're referring to is, we do have investment income. So we have an insurance captive that is continuing to grow, and it does have marketable securities. So the growth there, which we've actually seen is the participation in the market. And so that was contemplated, and we do include that in our numbers and anticipate that, that is going to continue to grow with time as the assets in that business increase. But it's a core component of our business and growth.

But overall, in the FFO, really, it's delivering the same-store growth. It's -- we're -- I've got to go back to Haendel. Haendel, man, I have one swap left, I'm 96% fixed. So I appreciate that, hopefully chuckling at that. So from a fixed standpoint, really, when we look at the remainder of the year, the pieces that remain in our guide is really going to be around the acquisitions that we closed and that's just going to lead into better growth in '27.

Okay. Is the investment income, is that piece good to consider as sort of a run rate at that $1.1 million? Is that how we should think about that? Or is there a way to quantify what that variation might look like?

It's going to vary. It's a market -- it's an insurance captive securities portfolio. So it's participating in a balanced strategy between equity and fixed income. So some of it's going to be cash incoming, some of it's equity. But for the most part, I do think that we look at that as sort of durable income. And if you needed a run rate, that's probably the best I've got.

Your next question comes from the line of Michael Goldsmith with UBS.

Jeff, you mentioned that the building blocks for 2027 are becoming increasingly visible. Would you be willing to share some of those building blocks and how you're thinking about the growth beyond this year? But if it's still too early to provide that level of detail, do you believe same-store NOI and FFO growth can accelerate from current levels just given where occupancy stands today and the potential for transaction cap rate compression?

We would love to tell you right now, but we do have a get together at the -- in December where we will give our sort of guidance for next year. But I think the point that I'm trying to emphasize is that we continue to make long-term decisions, and those decisions are what you buy today and how that can influence growth not only over the next quarter, but over the next 3 to 5 years. And that's sort of the mentality we have in our acquisition growth model as well as our development model and really our disposition model, all of them are based upon being able to create long-term value and that it doesn't happen tomorrow, it happens over time, and that's sort of what we were trying to emphasize there.

Your next question comes from the line of Rich Hightower with Barclays.

I wanted to get your perspective on the Kroger, Giant Eagle merger, which I think you referenced in the prepared comments. And specifically, I know Kroger is increasingly using the storefront as a fulfillment center for online shopping, which keeps growing. How do you sort of think about that as a landlord? How do you position the portfolio for that sort of dynamic in the grocery industry? What should we be looking out for sitting in our seats out here?

Yes. I mean we're very excited about the announcement. Kroger, when they come into a new market like this, they invest in the store, they invest in price, and they push sales, all of which are very beneficial to the 10 Giant Eagle stores that we have today. They will keep their -- if history repeats itself, they will keep the -- both the management team as well as the label of Giant Eagle. And we've -- our exposure there is 10 centers. They're in very great locations with very strong sales. So we feel really positive about that. So for us, it's kind of a win-win situation.

The other piece here that I think is a message to the market, which I think is really important is that Kroger has a lot of places they can put their money. They're putting them into bricks-and-mortar retail where they can -- where they believe is the best way for them to invest their capital, which is an indicator of the strength of the grocers and of their long-term view of the store will be the center, which to us is obviously critical. And if we can generate more sales, it's going to generate more rents, all of which is a very positive thing for us.

And then you've got an improved credit, all very positive pieces for us. So we're looking forward to that, and I think we'll see even better results from a very strong portfolio of Giant Eagle stores going forward. So great news for us. And I think you'll continue to see that kind of activity, and I think the Albertsons Kroger deal sort of changed the dynamic of monster deals, but I don't think it will change the impact of regional opportunities like this.

Your next question comes from the line of Ronald Kamden with Morgan Stanley.

Just wanted to follow up on the comments on the in-line occupancy, obviously hitting a record high here, and you talked about maybe another 100 basis points to go, which would be like 96%, 96.5%, 97%. I guess I'd love to hear what's different this time around versus history? What categories are really active this cycle? And maybe what are you sort of staying away from?

Sure. Bob, do you want to take that?

Yes, absolutely. Thanks, Ron. Appreciate the question. We were really excited. We saw a very nice increase in occupancy this last month, in this last quarter. It's interesting when I look at our overall leasing results and the demand that we've seen, we've had like a 25% increase in overall leases completed second quarter over first quarter, which shows momentum. I've hit the categories, but it's still consistent with fast casual, health and wellness, beauty, fitness, services and medtail.

One of the biggest strategies that we've incorporated in the company is when you're 97.3% and 95.5%, and I do think there's another 100 basis points of occupancy lift, may take us 24-months to get there selectively because we are -- we are recycling and being very specific about our merchandising approach and our everyday retail approach. We want there to be longevity. And truly, we are partners with all of our neighbors. So we want them to be highly successful.

But one of the incentives I put in place for our leasing team was this targeted approach where we went out and identified 100 different spaces that were the largest NOI generators and ABR generators that we had left to lease. And we put bounties on them. We put additional incentives on them, and we're getting it done. We're seeing that the retailer demand in those categories are supporting our lease-up scenarios. And I believe as of about 1 week ago, out of those 100 spaces, we've leased about 65 of them already. And I think as I look at setting incentives in place for next year, we'll do the same thing. We'll go through the portfolio. We'll see what vacant spaces that we have, what do we want to lease. And the success in all this is leasing the vacancies that, quite frankly, have been vacant for a few years. So we're investing capital. We're cleaning them up, the demand is there. And that's why we're seeing all the success, not only in spreads, but demand and some of the incentives that we have in place. It's really all about focus and accountability, Ron.

Your next question comes from the line of Mike Mueller with JPMorgan.

[indiscernible] rates are you seeing notable fluctuation [indiscernible] given the closer to 4.7%?

Mike, you were breaking up on me. John, did you hear that?

Yes. It was very soft, Mike.

Sorry about that. Yes. I was just saying, have you seen any notable fluctuations with cap rates this year, just given how the 10-year has bounced around and we bounced back up to close to 4.7%?

Yes. The market remains pretty aggressive, pretty competitive. And we're seeing more product in the market, but we are not seeing any like reduction in cap rates because of the higher interest rates. If anything, it's become more competitive. So yes, I think it's not exactly tying into an increased interest rate environment. But because of the -- I think it's the demand for retail real estate is very strong right now among a lot of different parts of the market.

Your next question comes from the line of Caitlin Burrows with Goldman Sachs.

I feel like a topic across the industry is that a lot of peers want to be acquisitive, but it's very competitive, and I don't think we've talked about that yet today. So I was wondering, as you guys think about the deals you've done year-to-date or in 2Q, I imagine it was quite competitive. So wondering, is it just that you guys are looking in maybe markets or submarkets that others aren't some prior relationship or something else? Like what do you think has given you these edges because, again, I'm imagining that it was a competitive market.

Yes. I think, Caitlin, and Bob jump in as well. The market has been competitive. And what -- for us, it just means we got to be more disciplined. We've got to see more product and then we got to make sure that we're working on projects that we can actually transact in and get that -- so we can get the volume at the returns that we're focused on. And the team has been able to put the scores on the board at, I think it was a 6.7% for the 6 months, the first 6 months of the year. And we -- but we got to shop harder, and we got to work harder with -- to find opportunities that -- where we can get growth out of the portfolio and not just immediate growth, but long-term growth out of these properties.

So it is -- we do have the benefit of being in 30 states. That does allow us to look broader in terms of where we can find product. But most importantly, it's getting out and pound in the street to find those opportunities, and that's what we've been able to do in the first half and what we've got tied up for the second half.

So maybe it's like opening up the top of your own funnel, some?

Yes, a little bit. And -- but not necessarily changing where the focus of what we do, but more on seeing more markets, more properties in a broader market so that we can make sure that we're keeping the funnel full and enough coming out of the bottom to keep us moving forward. And we feel pretty good about that. Bob, any additions there, Bob?

Yes. The only thing I would add is we're seeing a lot of product. As I mentioned earlier, I mean, I think when I look at our stats, we've seen a 33% increase in the amount of deals coming through the pipeline. And even what we presented to our investment committee, we've seen an increase of about 25%.

The other thing that we did, Caitlin, was we added resources in our acquisitions department. We ended up hiring an acquisition officer out West by the name of Dan Sutherland that comes with a tremendous amount of experience. So we have 4 highly qualified acquisition officers really focused on each of their markets, and that's opening up opportunities. It's also giving us opportunities to find off-market situations. So a handful of the deals that we were able to acquire this year have been off market. We continue to look at those opportunities as well.

So as Jeff mentioned, between everyday retail and our core grocery strategy, I think we're well positioned. We have the right resources. We're staffed appropriately to really win in the space. And we do want to take advantages of what I would say are inefficiencies in the market. We've stayed disciplined buying between 6.4% and 7.5% cap rates. So Jeff mentioned it at 6.7%. Our pipeline is still real close to 6.5% for the second half, and we're still solving for the returns that we wanted between 9% and 11% un-levered.

I will now turn the conference back over to Mr. Jeff Edison for closing comments.

Well, thank you, everybody, for being on the call. I just want to highlight a few things that are takeaways we hope you see because we did beat and raise, we did meet our mid- to high FFO per share growth for the quarter and for the first half of the year. We're at 95.5% small-store occupancy. Our retention is at 90%. Our new rent spreads are at 33.7% and our renewal spreads are at 21.2% with really strong annual rent bumps, contractual. So leasing is really strong.

Our FFO performance is strong. Our acquisitions, we increased our guidance by $100 million. We -- and I think this is really important. We got an upgrade from Moody's on our debt. We also reduced our debt-to-EBITDA to 5x on an LQA basis. We disposed of almost $100 million worth of projects that were at a 6.3% cap and were an IRR below 7.5%. So we're going to be able to use that capital very accretively. Our development and redevelopment activities at $84 million almost versus $50 million last year. We got two AI awards, which we're proud of in terms of The Digie Realcomm Award and The ICSC Tech Innovation Award. And those are just a couple of -- some of the things that got us to the kind of performance that we did for the first half. And I think they lead to really exciting opportunities for the second half and into next year.

So we believe that as we've told you enough times probably, this is what we do. We deliver alpha by a variety of different -- from a variety of different areas in the company, but we have that strong low beta that gives us the security. And so as we think about it, it was a great first half, and we're looking forward to next half. I want to make a special thanks -- shout out to the PECO associates, their hard work is what gets these things done. This doesn't happen on its own. And I also want to thank our shareholders and our neighbors for their continued support. So thanks, everybody, for being on the call today, and I hope you have a great weekend. And hopefully, we look forward to a strong second half of the year.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Welcome to PECO's ICSC Recap webcast. We appreciate you taking the time to be with us today. I'm Kim Green, Head of Investor Relations at PECO. Joining me today are Vasili Lyhnakis, Senior Vice President of Leasing and Portfolio Management; Dave Wik, Senior Vice President, Head of Acquisitions and Dispositions; Marissa Visconsi, Vice President of Leasing; and Ashley Casey, Senior Director of National Accounts Leasing.

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 SEC filings, specifically in our most recent Form 10-K and 10-Q.

ICSC is one of the most important weeks of the year for PECO. It brings together retailers, owners, brokers, developers and industry experts, and it gives us a real-time read on leasing demand, retailer expansion plans and transaction activity across the industry.

The PECO team has been attending ICSC Las Vegas for 35 years. This year, ICSC saw nearly 35,000 attendees, an increase over last year, and there were over 850 exhibitors and more than 5,000 retailers attended. The PECO team hosted over 400 meetings in 2 days. PECO utilizes ICSC to negotiate new deals and close pending deals, explore potential acquisition opportunities and build and strengthen relationships.

ICSC also offers valuable insights into current trends and emerging opportunities in the shopping center sector. What we want to share with you today is what ICSC reinforced for PECO. Over the next 45 minutes or so, you will hear directly from our ops leaders, what they heard, what surprised them and how those insights are shaping our outlook for the balance of the year and beyond.

This is a high-energy group with incredible perspective. So we'll keep the conversation moving, share real examples from ICSC and leave time for your questions throughout the webcast. If you have a question, please submit it through the webcast portal at any time. We ask that you keep your questions focused on leasing and acquisitions.

With that, let's start the roundtable.

Vasili, our first question is for you. Can you provide an overview of the current leasing environment? And also what stood out most to you this year at ICSC?

Yes. Thanks, Tim, and welcome, everybody, that's joined today. So ICSC for us is a valuable opportunity to connect with our existing partners, our existing neighbors and potential new neighbors. And so we believe that getting together throughout the year, this one time -- this is our Super Bowl event here for PECO. And so we send all these associates down with all this expertise, and we're trying to get real-time feedback with what's going on in the marketplace. And so that's why we wanted to get together today to share with everybody what we learned from this event.

I think what stood out to me mostly was that PECO's strategy is working and that the external environment is supporting it. So one, you've got high retail demand. These retailers, as we learned from the show, want to be in grocery-anchored shopping centers where PECO is located in suburban markets with the #1, #2 grocer.

Secondly, we are benefiting from pricing power, and that is because of the limited supply out there and the very strong demand, we're able to really drive rents in our properties.

And then third, I'd say that we got great visibility into -- going into ICSC, not just from the leasing front and hearing -- we'll hear from Ashley on new tenants that are emerging and growing, but also from the acquisition front, which gives us confidence in both our operating platform and our external growth pipeline.

I think despite some uncertainties out there within the marketplace, the one thing that I will say is that the tone overall was very, very positive, and we feel like we're very well positioned going forward.

Thank you, Vasili. A follow-up for you. Can you share some insights that the PECO team saw heading into ICSC?

Yes. So as you mentioned, we had over, what, 400 meetings going into this. And there is so much work that goes into preparing for ICSC. In 1.5 days time to have over 400 meetings, these meetings are very, very intentional. Ashley Casey, Marissa Visconsi, they're working together, and they're trying to identify sites where we can continue to grow with these retailers.

I'll tell you, it's never been more important than now is building upon these relationships because evident, if you look at our portfolio today, we're at 97% occupancy. Our leasing rates are at all-time highs, and we have a very high retention rate. So there's really no signs of slowing down. These retailers are telling us that they want to be in grocery-anchored necessity-based retail properties in these suburban markets.

So it's just evident with all the hard work that the leasing team and the national accounts team that does going into this, we're going to continue to find opportunities, but these relationships are more important than ever before.

And another follow-up question for you. There continued to be -- there continues to be headlines regarding the consumer backdrop, given higher energy prices, higher inflation and consumer credit, Vasili, what did you hear from PECO's retailers regarding the consumer?

So I really appreciate that question because there's a lot of information out there about consumer confidence right now on the decline. And lucky for us, we're in the grocery-anchored business. So the grocers since 2019, we've seen our overall grocer sales per square foot have increased by over 46%. So we're driving traffic to our properties.

Next, I'd say that where we like to play, our format is why we win. We're -- look, Marissa and Ashley, they're delivering us deals all the time where we're rightsized. The format being you got the grocer on one side, you might have a drug store fitness center on the other side. But everything in between, we can merchandise to the environment. So despite that there might be some declining noise out there, we can actually augment and focus away from discretionary categories and lean more into necessity-based goods and services where PECO actually does very well, whether it's food and beverage or health and beauty, all these retailers want to be located in these type of situations.

And the last thing that I want to point out is 74% of our ABR comes from necessity-based goods and services. So when you look at PECO's demographics and particularly our income levels, we're above the U.S. median income level. So we've got a little bit more discretionary spending than some of our peers.

And then because we're highly focused, Dave's team, acquiring really attractive A+ sites, these retailers are not willing to put capital investment into B centers or C centers. So they're willing to hold out and wait for these opportunities to present itself, which is why, again, it's so important that we're working closely with the national accounts team and Marissa's team in leasing so that we can curate a merchandising mix that's going to allow us to not just win in '26, but beyond into '27 and '28.

Thank you, Vasili. Dave, can you share the latest read on the transaction market? And what stood out most to you this year at ICSC?

Yes. Thanks, Kim. I think a lot like what Vasili said is, I mean, just tons of positivity coming out of Vegas this year. What stood out the most to me is just how in favored retail is right now. There is so much smart capital trying to invest in a space that, frankly, we've loved for a long time.

So even so, we continue to find attractive acquisition opportunities. We always have, and I think we always will. Our pipeline remains very strong. Given what we've already bought, coupled with what we have under contract, we recently affirmed our guidance of $400 million to $500 million in gross acquisitions this year. So yes, pricing is a challenge, and I think it will be for the foreseeable future, but our national platform allows us to find inefficiencies in the market.

So for example, if Publix in Florida or King Soopers in Denver get priced too efficiently, we can fit in. We can buy Sprouts in Palm Springs or Kroger in Dallas or Safeway in Seattle. So we're not tied to one single market and have to buy at whatever market pricing is. So we see this as a distinct advantage to PECO.

Also, we primarily play in that kind of $20 million to $50 million deal size. And yes, this requires more manpower, but we're built for it, and our team thrives on deal velocity. We love to buy larger deals, and we look at every portfolio that hits the market. But we find our sweet spot in that kind of $20 million to $50 million range, just trades a little less efficient than those larger deals do.

Also, I think as you guys have heard, we've expanded our buy box into the everyday retail space. We're, frankly, in the first inning in this category, and we think there's a ton of opportunity here. There's a lot more inefficiency in everyday retail than there is in the grocery-anchored space, and we see a ton of potential here.

In just 24 months, we've constructed over $220 million everyday retail portfolio, and our pipeline is robust. We've also added better and strength to our sourcing team as we continue to focus on and ramp up our everyday retail acquisitions over the next few years. So ultimately, ICSC left us feeling really good about the PECO team's ability to sustain our strong acquisitions momentum, not only for the rest of this year but into next year.

Thank you, Dave. Marissa, what most interested you from your conversations in Las Vegas?

What stood out most from my conversations in Vegas was the continued flight to value and performance. Retailers are expanding, but with a much sharper focus on unit economics and site efficiency. High AUV QSR brands are leading expansion. For example, 7 Brew's rapid growth from roughly 100 to over 1,000 locations in just a few years, with about 2.7 million AUVs reinforced what we saw at ICSC. Drive-thru focused, efficient formats are outperforming and driving significant demand.

From a leasing perspective, 2025 was very productive for me with over 60 new leases executed across fitness, QSR, service and medical users. This volume proves strong demand for grocery-anchored centers, service-oriented concepts and continued rebound in fitness. While retails are still expanding, growth is increasingly disciplined, which aligns directly with our strategy.

Thank you, Marissa. Ashley, can you share a story coming out of Las Vegas as it relates to one of these growing categories? And what was most interesting to you this year?

Yes. I'm going to echo quite a bit of what Marissa just said. But one of the more interesting things I heard at the show was regarding fitness and the salon suite category. They're both really evolving the way that they're using space within our types of centers.

On the fitness side, we see a lot of strong growth. LA Fitness is targeting around 40 new deals in 2026. Planet Fitness is planning roughly 180 openings and other operators are actively seeking white space in the market.

What's notable is that grocers are increasingly receptive to fitness. They're now seeing them as part of the integral consumer journey. And so they really play well into driving repeat visits and increasing dwell time in our centers. And at the same time, we're seeing growth in the salon suite sector, which I find to be a really interesting model.

They're essentially leases within leases. So you can have one 5,000 square foot space and then have 20 to 30 small individual beauty salon owners within that space, leasing space within that 5,000 square foot space. Brands like Solo Salons and IMAGE Studios who we met with in Vegas are continuing to expand, especially in the high-income suburban trade areas. And so what ties these both together is that they are service-based daily use concepts that fit extremely well alongside the grocer.

Thank you, Ashley. Vasili, a 2-part question. Can you speak to leasing negotiations for 2027 and 2028. Did those come up in Vegas?

And then second part, did you hear any retailers say that they're slowing down their store opening plans?

So I'll answer the question in reverse. So we did not hear any slowdown from the retail demand. As mentioned earlier, with demand being where it's at for flight to quality is what I think we're hearing from the retailers. They want to make sure that they're at the #1, #2 grocer in the suburban markets at the intersection of Main and Main.

And so demand is -- look, I've been leasing here for over 20 years. I've never seen the demand this strong. And when you look at '27 and '28, '26 is going to be a strong year for us. But one of the deals that Marissa procured, she's got a shopping center that, I believe, is 100% at occupancy. And I'm not going to name the operator, the retailer. Their lease is up at the end of Q3, and we had to make the tough decision not to renew them. They were doing over $600,000 in revenue.

However, Marissa was able to deliver same category. And so they're able to utilize the space with very little capital going into it. And their sales projections are $1.7 million. And when you have that kind of sales projections coming in, what do you think PECO is going to do? PECO is going to be the beneficiary of pushing these rents at higher levels. So yes, we're not seeing any kind of slowdown. In fact, right now, as I mentioned earlier, Ashley, Marissa these meetings are so valuable because the retailers are sitting down with us, even when we're at 100% occupancy saying, guys, how do we get into your shopping centers. And so we like where we're at. I think PECO is in a good place.

Thank you. Vasili, another question for you from our webcast. Can you share an update on our grocers, what did we hear at ICSC from PECO's grocers?

Yes. Great question. So the portfolio management team had over 30 meetings with grocers. So we met with Kroger. We met with Publix. Albertsons, Safeway, Harris Teeter, Whole Foods, Walmart. And believe it or not, Trader Joe's decided they weren't going to come down in recon this year. But I personally have flown out twice just in the last 6 months, along with Marissa and our other portfolio managers to have face-to-face meetings with these grocers and really try to understand what's going on.

Look, we all know development right now. There's a few projects that are coming out of the ground, but development is really, really hard to execute right now. Land costs, cost of material and labor, it's very hard to pencil in. So these grocers have done a really good job in remerchandising their stores, doing upgrades to their stores. And look, grocery is at the core of our business. And I think even though we benefit from a variety of ways with these relationships, the one that's probably the most critical is when we're evaluating the shopping center that Dave is looking to acquire.

And I'll do some storytelling here, but Dave and his team was able to secure a really strong site up in the Northwest area. And as they were about to lock in the purchase and sale agreement, they're tasking us to go out and make phone calls and say, "Hey, tell us about the performance of your store. " I mean it's the first phone call we make is let's talk to these grocers and find out what's happening at the property level.

And on the phone, the guy was like, "have you guys gotten control of this? And we're like, yes, we got control of the asset. " He goes, we haven't even announced this yet, but we're about to do a multimillion dollar upgrade to the shopping center. So that was a huge win for us. We ended up getting awarded the deal. We ended up purchasing the deal. And I don't think that there's very many institutional players out there like PECO that this has been a priority of our business for the past 35 years. This is not something new where we're like, "Hey, let's just go meet these people." This is what PECO has been doing for 35 years.

And look, another deal that Dave earlier touched on, there was a deal that we really wanted to own. It's got one of the strongest demographics inside the entire PECO portfolio. Twice the deal had fallen out of contract with other buyers. Well, we learned while digging into the deal that there was a lot of hair on it from the grocer. And so we realized that if we can somehow remove this one clause that we would unlock value right from the onset.

So we actually met with the grocer in person, sat across the table from them and said, "Hey, we really like what you guys are doing. " And they don't call us a landlord. They actually call us their partner. And they go, we really like what you guys are doing out there. So they go, we're going to work this out. And right from the closing, Dave was able to secure millions of dollars in value creation, which we didn't really go out and tell everybody externally because that's just not the way we operate and play. But you know what, this is the business that we're in. This is the business that we're going to continue to be in. So overall, I'd say that the grocery meetings were very, very strong.

Thank you, Vasili. Marissa, a question for you. With grocery-anchored retail remaining resilient, what is PECO's current strategy to drive higher rent growth while maintaining in-line occupancy at or above 95%?

Our strategy is centered on driving rent growth through selective leasing and precise deal structuring, while maintaining best-in-class occupancy. We're focused on curating a tenant mix that drives daily traffic, complements the anchor and supports higher rents.

We're equally disciplined on renewals and backfills, marking space to market, upgrading tenancy and capturing demand for necessity-based and service-oriented users. This approach allows us to push rents while consistently maintaining in-line occupancy at or above 95%. A clear example is at Arapahoe Marketplace in Greenwood Village, Colorado, where we backfilled sleep feet shoes with Kura Sushi, an 80-plus unit growth-oriented national concept, upgrading the merchandising mix, increasing traffic and driving stronger rent across the center.

Thank you, Marissa. Ashley, a question for you. Can you share an update on our restaurant neighbors specifically, what did the national accounts team here from your QSR meetings in Las Vegas?

The occupiers that we met with were very growth oriented. And not only that, they're looking into multiyear expansion. So we're hearing the 2026 pipeline is full and now they're looking to 2027, 2028.

For example, we met with Dave's Hot Chicken, real estate decision-makers. They told us that they have 433 stores open right now. They're opening 43 more in 2026, and they're targeting 145 new store openings in 2027. Their average unit volumes are nearly $3 million. So it's one of the strongest productivity stories we're hearing in QSR today.

But broadly, we came out of the show with a really encouraging mindset about the QSR pipeline at large. In our meetings, the brands that are performing best are moving ahead with site selection, especially in the urban trade areas or suburban trade areas with strong daily traffic drivers like grocers and strong traffic patterns. So this is important because it tells us that restaurants that remain healthy and growing are growing where the real estate works.

Thank you, Ashley. All right. We have quite a few questions about everyday retail. Vasili, can you speak to demand for everyday retail centers?

Yes, absolutely. So this is a new space for us, but I don't think it's anything that we're quite not familiar with. So the way we're thinking about everyday retail, we just call it more neighbors coming into our portfolio. So if you look at the orientation of a shopping center, again, I don't know I geek out on this stuff, but when you look at the orientation of the shopping center and you look at like, okay, there might be some shop spaces to the left to the right of the grocer and then you look at like the peripheral stuff, the stuff that sits on the outparcel, we call that like the jewelry of our shopping centers. That's where we actually can really maximize and push rents.

And so if you think about everyday retail and PECO's format, look, Ashley, Marissa, they lease to the small shop operators in that 2,500 square foot, 3,000, 5,000 square foot space. And these everyday retail shops are sitting right up on the road. So they've got great visibility, really strong access, the environment, which is situated near where we already currently own grocery-anchored shopping centers, we're able to realize mark-to-market rents where some of these prior owners probably weren't comfortable pushing some of these rents.

But because of the strong demand and the relationships that these 2 professionals here have built on over the years, we know that we can put our team to work and get incremental growth over the years. So while it's kind of a new space for us, the way we're thinking about it, it's just more neighbors.

Thank you Vasili. Ashley, as a follow-up on everyday retail, what excites the national accounts leasing team when we acquire a center. What are some opportunities you see as it relates to leasing an everyday retail center?

Yes. So this is one of my favorite notices to get across my desk. Thanks to Dave and his team. What excites us most about everyday retail acquiring is the leasing upside embedded in the real estate. We purchase near strong daily needs traffic drivers, and we immediately start looking for tenants that strengthen that ecosystem.

One of the biggest advantages we have at Phillips Edison is that our leasing agents are constantly in the market. They know the brokers. They know the real estate community. They know who's growing in that market. And maybe most importantly, they know how that trade area is shifting. So we heard from our retailer conversations that users want to be near the strong daily needs traffic drivers, the strongest grocers. We consistently heard this from our service, medical, wellness and restaurant users. that grocery is still the traffic driver and our everyday retail centers benefit from that halo.

Thank you, Ashley. Marissa, anything you want to add on everyday retail?

Yes. Thanks, Kim. In February of 2026, we acquired Plaza West Covina in West Covina, California that had 2 vacant spaces at closing. Within weeks, we advanced one space to lease with a leading Mexican QSR concept and finalized business terms with LaserAway at ICSC for the second vacancy, which is expected to go to lease shortly. As a result, we expect the asset to have full occupancy within just a few months of acquisition.

Thank you, Marissa. All right. Dave, a question for you. Given the strong activity in the acquisition pipeline of PECO as well as the current interest rate environment, how is PECO responding? Are we buying more? And are we adjusting PECO's IRR targets?

Sweet, I thought you forgot about me. I get it, though. I love hearing updates from our leasing team and all the exciting new concepts, all the deals that we're doing. And frankly, they make us look good. I feel like we count on them, as Vasili mentioned a number of times, in our acquisition process. And I think it's a huge competitive advantage for us.

We know that we've got a team that can create value, and it just -- it helps us underwrite more precisely and it helps us win deals. So I love hearing them and their updates. But as far as acquisitions go, yes, we started out the year strong with $185 million acquired to date. But we also have a strong pipeline, as I referenced, and another $200 million plus under contract that makes us believe we can deliver something similar in the second quarter to what we did in the first quarter.

So we certainly could be above the midpoint of our guidance, but it's still early. And as I mentioned a few minutes ago, we did recently affirm our guidance for $400 million to $500 million for the year. So despite the competitive buying environment, we're confident in our ability to acquire high-quality centers at attractive returns.

As far as the IRR targets go, yes, I mean, certainly, my team would love to have targets lower than 9%, but we're finding those. And we've got conviction that we can continue to find those. So yes, we're committed to the 9% unlevered IRR that Jeff Edison preaches.

We've kind of always had a very thoughtful disciplined approach to our acquisitions. So we're focused on growing our shopping center portfolio accretively at the right price while achieving that 9% IRR for grocery and 10% unlevered IRRs for our everyday retail centers.

Thank you, Dave. And maybe a follow-up question for you, a few follow-up questions. How -- maybe speak to cap rates? How stable are cap rates? What is pushing them in one direction or the other? Can you speak to current pricing and what cap rate should we expect in the second half of 2026?

Yes. Yes, happy to. I think as I mentioned, I mean, there's a ton of institutional capital flooding the open-air retail space. So cap rates have definitely compressed over the last 12 to 18 months, especially as it relates to high-quality grocery-anchored deals in growth markets.

That said, I think it's hard to see cap rates compressing much further than where they are based on where interest rates are. I think they could compress maybe a little bit further on some of the larger deals and portfolio deals and recap transactions given that, that's where most of the institutional capital is focused from an investment standpoint.

But for us, cap rate compression isn't necessarily a major concern for us because we can buy in markets where pricing is less efficient and in the everyday retail space where there's also a bit more inefficiency than in grocery-anchored centers. And frankly, cap rate compression helps us as it relates to dispositions.

That was my follow-up -- next follow-up question, Dave. So a question from the webcast participants. Does that make capital recycling more attractive in this environment?

Yes. I think the short answer is yes. I mean we've seen it in deals that we've taken to market in recent months where maybe an asset that would have gotten 4 or 5 offers maybe 12 to 18 months ago, we're now seeing up to 10 offers. So as a result, we're able to push pricing to levels that we haven't really seen before. So yes, I think given the right opportunity, we're also getting a lot of inbound calls from people that are just looking for off-market deals.

And we're happy to talk to them. They're probably going to pay a little bit more in the market if we pick up the phone call and they want to do a deal. So yes, I think I've been with Phillips Edison a long time, and we've always tried to capitalize on opportunity. And I think that's certainly one in today's environment.

Thank you Dave. A question on AI, artificial intelligence. Ashley, can you share how -- some more color on how AI and data are being used to better mind from a leasing standpoint and help inform leasing decisions today?

Sure. Yes, AI is a tool that we use every day. It's making a strong leasing department even stronger. It's not replacing the judgment of our teams, however. The real value here is being able to process more information faster so we can make better decisions around tenant targeting, void analysis, merchandising strategy, et cetera. It helps us move faster in the field.

Our teams can absorb real estate strategy, real estate criteria, local demographics, traffic patterns and category trends much faster than they could years ago. This is a market where quality space is scarce and retailers want to move quickly. Speed and precision matter.

One example is when a space might look like it should go into one category based on the traditional leasing playbook, but the data shows a better opportunity. So we're using traffic and void analysis to see where the strongest unmet demand truly is.

Thank you, Ashley. Marissa, a question from the webcast for you. What was the most common request from retailers at ICSC this year regarding store footprint and format?

Great question. The most consistent theme we saw at ICSC was strong demand for neighborhood center space, particularly smaller shop formats. Retailers are increasingly focused on rightsizing their footprint with the highest demand clustering around spaces in the 2,000 to 2,500 square foot range. This reflects a broader shift toward efficient service-oriented concepts that complement the grocer and drive daily traffic.

We're seeing strong demand from boutique fitness like Club Pilates and Solidcore, along health and wellness users like Milan Laser and LaserAway.

On the food side, concepts like Nothing Bundt Cakes and other emerging brands are also targeting smaller footprints to maximize productivity while maintaining a strong physical presence.

Thank you, Marissa. A follow-up question for you. Are retailers more focused on speed to open or rent economics right now.

Yes. We're seeing a shift towards speed to open becoming a top priority. While rent economics remain important, many retailers are increasingly focused on opening and generating revenue quickly. With elevated construction costs and unpredictable time lines, tenants are getting more strategic. Concepts like Sourdough & Co are bringing in construction support and permit expeditors upfront to accelerate delivery.

Dave's Hot Chicken, Pava and Shipley Do-Nuts are targeting second-generation restaurant spaces to minimize build-out and open faster. So overall, speed to revenue is playing a much bigger role in the site selection and deal strategy.

Thank you, Marissa. Dave, a question for you again. How does PECO win deals today relative to private buyers and public peers?

Well, I don't want to give away any secrets. But the short answer is we've been doing this for a long time. We have a veteran team that has deep relationships in this business. And ultimately, this is a relationship business. Sellers and brokers, they want to sell the people that they trust and people that they have some history of transacting with. So PECO's transactions team, I think, has as much history as any other firm in this business.

Thank you, Dave. Vasili, a question for you. Are there any signs of changes in the leasing process, including shifts and negotiation dynamics or lease durations?

Well, I kept hearing from both Ashley and Marissa, speed is where we're winning right now. And if anything, one observation I've noticed is that the turnaround times are much shorter, meaning that when the legal team is drafting the lease to the time they're finishing it through, we're used to seeing leases getting out in 30, 60 days. Now we're getting these leases signed in like 2 weeks or less.

And I think, again, I keep harping on this, and I think Dave touched on this, Ashley, everyone's touched on this, but this is a relationship business. And so Marissa right now, she's working with a Great Clips operator. And because of that relationship, they worked together before. They're committed. They're like, yes, we're going to get the store open.

And I think the other part of that is that they recognize that there's scarcity out there in like good quality real estate. So they know because Marissa, if another deal presents itself, I mean, she does need to present it and see if there's a better opportunity for the company. So these retailers right now, as Marissa mentioned, they're bringing in their own construction teams, expeditors. So the good news for PECO is that we're getting rent in the door a lot sooner.

Thank you, Vasili. Ashley, anything you want to add on that one?

Yes. As Vasili said, when a retailer is serious, they want to move faster. That's where our national accounts team can really add value. We sit at the intersection of that retailer relationship and the field execution. So part of our job is to keep the process moving as efficiently as possible across markets, across regions.

We help to streamline that communication and align expectations early, so that the process becomes more efficient and more collaborative between retailer and Phillips Edison, their partner. So retailers value having a team at Phillips Edison that can help them navigate multiple regions and multiple deals while still pairing that national relationship with the local expertise.

Thank you, Ashley. All right. I'd like to have some fun at the end here and with a rapid fire lightening around for our off leaders. So let's start with the first question. One retail category or retailer you're most excited about? Marissa?

QSR.

Ashley?

[indiscernible].

Vasili?

I'm just going to pick a retailer. I love working with Great Clips. I'm going to -- I know it's rapid fire, but like I just got to tell you guys, 5 minutes from my house is a Kroger banner at Smith [ Food ] in Utah where I live. And they've got this app right now. And so they actually -- and Ashley might be able to touch on this more, but they consider themselves a technology company that happens to cut hair.

So I get on the app, and I can find my current location and it kind of geocodes and says, all right, Vasili, if you want to go to this exact location, you're 20 minutes out or you can drive another 10 minutes and go over here. So I'm a huge fan of these guys. They're continuing to evolve. And we're seeing a lot of retailers evolve, but they're the one retailer that I'm super hot on.

All right. And continuing the rapid fire. One thing investors misunderstood, one thing investors misunderstand about grocery-anchored retail. Dave?

I mean so much for rapid fire. I'm going to go with simplicity. I just think this business is more complex than a lot of investors assume it is. I think that's an advantage for us.

Vasili?

Wow, I didn't think about that question, Kim. So there's fire on that misconception. I mean, look, these grocers work with very low margins. And so they're constantly figuring out ways to get more customers in their doors. I mean I think there was a blur last week about Kroger is going to even get way more competitive right now on pricing.

I don't know if you guys read that, but that was the news article I read. So yes, I think consumers want convenience and these grocers are near where the consumers shop and live. So it's a great recipe for where PECO likes to play.

Great. Marissa?

While some legacy retailers are closing, many new and innovative concepts are expanding to meet today's consumer demand driving the next wave of retail growth.

And Ashley.

Embedded growth.

Good rapid fire. All right. Last one for everyone. One thing that made you optimistic coming out of ICSC. Ashley?

Consistency.

Vasili?

Yes. I would echo that speaking with some of our peer group, everybody seems very positive with the outlook that the retailers are not looking just in front of them, but they're looking into the future.

I have a similar answer..

So you go, Marissa.

[ Milan's ] Energy is so positive. Retailers aren't sitting on the sidelines. They're talking about growth, relocations and opportunities.

And Dave.

Yes, I'll go with anticipated supply. I think there's so much demand in the market right now, almost unprecedented that I think based on the conversations that we had and the meetings we had in Vegas that the supply will be there. The comment is pricing is just too hard to pass up, and I think there's going to be more on the market for us to buy.

All right. Well, this concludes our ICSC recap. Thank you, Vasili, Dave, Marissa and Ashley for leading our conversation today. And thank you for everyone for joining us. If you have any additional questions or if we didn't get to your questions, please reach out to us, and we'll get back to you quickly.

We look forward to seeing many of you next week in New York at NAREIT REIT week. And this concludes our webcast today, and have a great rest of your day. Thank you.

All right. Thanks, everyone. Thanks for having us.

Thank you.

Good day, and welcome to Phillips Edison & Company's First Quarter 2026 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.

Thank you. I'm joined today by our Chairman and CEO, Jeff Edison; President, Bob Myers; and CFO, John Caulfield.

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 SEC filings. 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 GAAP results are available in our earnings press release and supplemental information packet, both of which have been posted on our website.

Please note that we have also posted a presentation and are cautioned on forward-looking statements also applies to these materials. Following our prepared remarks, we will open the call to Q&A. Given the number of participants on the call today, we respectfully ask that you'd be limited to one question. Please rejoin the queue if you have follow-up questions. With that, I'll turn the call over to Jeff Edison. Jeff?

Thank you, Kim, and thank you, everyone, for joining us today. We're pleased to report another quarter of strong results, which reflect the strength of our high-quality portfolio and the consistency of our execution. The FICO team delivered NAREIT FFO per share growth of 4.7%, core FFO per share growth of 6.2% and same-center NOI growth of 3.5%. We're pleased to increase our full year 2026 guidance. Our growth rates for NAREIT FFO and core FFO per share are in the mid- to high single digits, consistent with our long-term targets.

We are operating at a time where there are many ongoing uncertainties, both domestically and globally. Interest rates have been volatile. The global trade picture is shifting and conflicts overseas continue to affect markets. technology, especially AI is changing how companies work, add in an active election cycle and high energy cost, and it's no surprise that there is a general feeling of uncertainty. In times like this, the market tends to reward businesses that have stability, and that's exactly where PECO plays. Grocery-anchored necessity-based everyday retail.

PECO offers resilience, while also offering steady growth. We believe PECO is built to deliver growth across changing economic cycles. Our long-term growth targets remain unchanged. We are maintaining our focus and driving value at the property level. Our retailers are healthy and continue to look long term. We're seeing a resilient consumer and our top grocers and necessity-based retailers continue to drive solid foot traffic to our centers. One of the dynamics we're watching closely is the gap between private and public market pricing of assets? This influences our capital decisions, including how we fund growth and where we invest. And it's why the PECO team stays disciplined about accessing the most efficient capital.

Our platform can raise capital in the public markets through institutional joint ventures and through asset recycling. We believe markets in 2026 were reward companies with a focused growth strategy and the ability to fund growth responsibly. TECO is well positioned to continue to do both. In summary, we're pleased with first quarter results and our outlook for 2026. We operate in a resilient part of retail. We're located in the neighborhood close to your home. We're disciplined about our investments. And most importantly, we have the best teams in the business. With our shares trading at a discount to our long-term growth profile, we believe PECO represents an attractive opportunity to invest in a leading operator that can deliver mid- to high single-digit annual earnings growth. We will continue to drive more alpha with less beta.

With that, I'll turn the call over to Bob. Bob?

Thank you, Jeff, and thank you for joining us, everyone. Our first quarter results were marked by solid leasing activity and success in growing cash flows. We continue to see high retailer demand with no current signs of slowing. Necessity-based categories, including quick service and fast casual restaurants, health and wellness, beauty, fitness and med tail continue to be excellent drivers of demand of PECO's rents come from necessity-based goods and services.

PECO's leasing team remains focused on capturing demand and driving continued high occupancy. While pushing very impressive comparable rent spreads, our pricing power remains market-leading. During the first quarter, lease portfolio occupancy remained high at 97.1%. And leased anchor occupancy remained strong at 98.4%, and leased in-line occupancy remained high at 95%. Our rent spreads reflect an extremely positive retailer environment. During the first quarter, PECO delivered comparable renewal rent spreads of 21.2%. And Solid retention during the quarter means less downtime and lower tenant improvement costs, which translates to better economics for PECO.

Looking at comparable new rent spreads, they remain strong at 36.2% during the quarter. in-line leasing deals executed during the first quarter, both new and renewal achieved average annual rent bumps of 2.7%. This is another important contributor to our long-term growth. As it relates to bad debt, we actively monitor the health of our neighbors. Bad debt was lower than expected in the first quarter at around 60 basis points of revenue. We continue to expect bad debt in 2026 to be in line with 2025, which came in at just 78 basis points of revenue for the year.

Our retailers remain healthy. We have a highly diversified neighbor mix with no meaningful rent concentration outside of our grocers. Turning to development and redevelopment. PECO has 19 projects under active construction. Our total investment in this activity is estimated to be approximately $74 million with average estimated yields between 9% and 12%. During the first quarter, 6 projects were stabilized with over 87,000 square feet of space delivered to our neighbors. This reflects incremental NOI of approximately $1.7 million annually. We are focused on growing PECO's development and redevelopment pipelines, which is an important driver of growth.

In addition, the PECO team continues to find accretive acquisitions that add long-term value to our portfolio. Our year-to-date acquisition activity through this week reflects $185 million, this includes 5 grocery-anchored shopping centers, 3 everyday retail centers and land for future development. Currently, in our pipeline, we have approximately $150 million in assets that we've been awarded were under contract that we expect to close by the end of the second quarter. Our pipeline reflects a combination of grocery-anchored neighborhood shopping centers, everyday retail centers and joint venture opportunities. I will now turn the call over to John. John?

Thank you, Bob, and good morning, and good afternoon, everyone. Our strong first quarter results demonstrate what we've built at PECO, high-performing grocery-anchored and necessity-based portfolio that generates reliable, high-quality cash flows. First quarter 2026 NAREIT FFO increased to $92.9 million or $0.67 per diluted share. First quarter core FFO increased to $96.4 million or $0.69 per diluted share and same-center NOI increased 3.5% in the quarter primarily due to higher revenue, which was driven by increases in average rents and economic occupancy.

Turning to our balance sheet. This quarter, we extended our weighted average duration on our maturities and increased our percentage of fixed rate debt, which is important in times of interest rate volatility. In February, we completed a public debt offering of $350 million aggregate principal amount of 4.75% senior notes due 2033. The proceeds were used to repay term loans that were maturing in 2027 and a portion of our revolver. With $810 million in liquidity at the end of the quarter, we have the capacity to execute our growth plans. Our net debt to trailing 12-month annualized adjusted EBITDAR was 5.3x at quarter end and was 5.1x on a last quarter annualized basis.

At the end of the first quarter, PECO's outstanding debt at a weighted average interest rate of 4.4% and a weighted average maturity of 5.8 years when including all extension options. And 94% of our total debt was fixed rate debt, which includes PECO's share of debt for our JVs. We are pleased to increase our 2026 guidance. Key drivers of our increased guidance included continued strong operating environment, strong year-to-date acquisitions activity and our recent bond offering. Our updated guidance for 2026 May REIT FFO per share reflects a 5.9% increase over 2025 at the midpoint and our updated guidance for 2026 core FFO per share represents a 5.8% increase over 2025 at the midpoint. We are pleased with these strong growth rates.

We are reiterating our full year 2020 guidance of 3% to 4% same-center NOI growth and we are pleased to reaffirm our full year 2026 guidance of $400 million to $500 million in gross acquisitions at TECO share. The PECO team is not just maintaining a high-quality portfolio we're building one. We continue to have one of the best balance sheets in the sector, which has us well positioned for continued external growth. As Jeff mentioned, we remain disciplined about accessing the most efficient capital -- these sources include additional debt issuance, dispositions, joint ventures and equity issuance when the markets are more favorable. Year-to-date, we've sold $29 million of assets at PECO share.

We plan to sell between $100 million and $200 million in assets in 2026. In summary, we're very pleased with our results this quarter and our ability to raise guidance for the remainder of the year. We continue to see a resilient consumer, and we believe our portfolio will outperform as necessity-based retailer demand remains strong. Looking beyond 2026, we continue to believe that PICO can consistently deliver 3% to 4% same-center NOI growth and achieved mid- to high single-digit core FFO per share growth on a long-term basis. We also believe that our long-term AFFO growth can be higher as more of our leasing mix is weighted towards renewal activity. We believe our targets for core FFO per share and AFFO growth will allow PECO to outperform the growth of our shopping center peers on a long-term basis. With that, we will open the line for questions. Operator?

[Operator Instructions]. Your first question comes from Andrew Reale with Bank of America.

We can appreciate your necessity-focused tenant base is positioned to weather some macro uncertainty. But just curious to hear any latest color on your conversations with some of these discretionary or off-price mom-and-pop tenants in the current environment. Maybe just any incremental changes in their tone or plans versus, say, 6 months ago? And how do those conversations compare to what you're hearing on the necessity side?

Well, Andrew, great question because it's one that we are very focused on trying to read where -- what kind of feedback we can get there. Bob, I don't know if you want to give a little color to that and how we're -- what we're seeing.

Yes, absolutely. So Andrew, thank you for the question. This is something that we monitor all the time and probably our best indicator, not only are we on the ground locally smart. We also -- the visibility that we have would suggest that we have the best renewal pipeline and new leasing pipeline that we've seen at about the last 6 to 9 months, An interesting fact is we just approved 28 deals in the last 9 days. The feedback that we're getting with high retention and leasing spreads at 21.2% and this last quarter reflect strength and that we're not seeing any cracks from that.

Occupancy costs continue to remain very strong at 10%. So we're seeing a lot of success with market-leading spreads. And we're not seeing any pullbacks either from the local tenants or from the national retailer demand. Even all the retailers that we meet with at ICSC are looking for new sites in 2026, '27 and '28. So we feel very good about where we're at currently.

Your next question comes from the line of Haendel St. Juste with Mizuho.

So I wanted to ask about transactions. Obviously, you guys had a very active start to the year, $185 million. I think you cited in the quarter, another $150 million, I think, under negotiation and contracts. So I guess I'm more curious on kind of what your seeing or picking up in your conversations? Or any change in either the volume of buyers out there underwriting competition that suggest that there could be people pulling back in light of the macro, the choppiness we're seeing? And then thoughts on perhaps the deployment of capital over the next few months, is there a willingness to maybe scale back a little bit to see if there's any changes in pricing or anything that could be the result of the choppy macro.

Yes. And, it's a great question. We -- it's all -- it's a simple supply-demand issue. And what we're seeing is that there is a very ample supply of product coming on the market, and yes, there are more buyers, particularly, we've had some major transactions take place in the business that we haven't seen for a while that are substance, $1 billion-plus kind of acquisitions. So you -- you continue to see a strong appetite, and I think it's all driven by sort of what Bob was talking about in the last question, which is we're in a really good operating environment.

And in these bad operating environment, there continue to be a strong group of buyers out there that are keeping that happening. But we're also seeing a lot of product. And I mean, I think our opportunities this year are up 70% over last year at this time. So we are seeing a lot of product, but we do have competition. Bob, anything else you want to add on that?

The only other thing I would add is we continue to see a lot of product. We have investment committee every week, and we're reviewing anywhere between 5 and 10 new projects weak. What's interesting is that -- and Jeff is right on top of it. We reviewed 195 deals this year compared to 115 last year. The deals that we're underwriting were up about 26% and the deals that have been presented to investment committee is up 40%. And if anything, we're continuing to see more product hit the market than less. I think there's real sellers.

Yes, there is more competition. There's more buyers out there. But quite frankly, you've seen the success that we had with the 10 acquisitions that we acquired year-to-date we're buying these at a cap rate of about 6.6%, 6.7%, and we're still solving for our unlevered returns above 9%. And so we don't see anything really slowing down. And if you look at $150 million pipeline and the $185 million that we've closed, we're sitting in a great spot to certainly be in the range of our guidance between $400 million and $500 million, if not more, based on the opportunity set that we see.

And the change in the cap rate for the pipeline, the $150 million versus $185 million revenue?

It's consistent with that 6.5% to 6.75%.

Your next question comes from the line of Michael Griffin with Evercore ISI.

Just on the leasing pipeline and particularly as it relates to renewal I mean it seems like you've really gotten some continued strong demand there. I guess, Bob, in your conversations with folks when leases are coming up for negotiation, I'm thinking particularly some maybe these bigger boxes, these grocers. Is there any I guess, opportunity to shorten the number of option periods to embed some kind of rent step-ups.

I realize you're able to really get those with the in-line tenants, but the kind of the bigger boxes, is there any way to -- in those lease negotiations to get maybe more leverage on the landlord side to try to get some earnings growth or some rent bumps throughout the course of a new term?

Yes. It's a great question. Certainly, we acquire most of our grocers that we've inherited over the past 25, 30 years. And as you know, they already have embedded options for the next 30 years, and they're typically flat. Sometimes you get lucky, they might be 5%. That's something, if we ever have the opportunity to renegotiate with them or in a case where they're paying percentage rent, something like that, where we can blend the rent together and reset the terms or if we decide to give, say, an anchor that's a grocer and inducement in a lot of cases, we're able to negotiate added term and some sort of bumps that go along with that. We're capitalizing on as much as that as we can.

Probably the biggest value is just through consents on restrictions, no build areas where given the relationships of being the #1 grocer an owner in the market, it gives us flexibility to create a lot of value. So we're picking up value in other places. And then as you mentioned, our in-line tenants that were negotiating new leases with, we limit the amount of options. If we do give options, we want to see 20% with good 3%, 4% CAGR year after year. So it's a combination of that and it's a combination during our renewals of cleaning up items that are nonmonetary clauses. Think about caps and restrictions, no builds, a lot of those types of things that we're able to unlock value. And I'm glad we're doing it because we are 97.1% occupied. So we continue to find leverage to those avenues.

Your next question comes from the line of Caitlin Burrows with Goldman Sachs.

I guess given the strong operating environment, your comments that you bought land and that you want to increase development and redevelopment your latest take on your own development redevelopment and the industry more broadly?

Well, thanks, thanks for the question, Caitlin. It's -- we've I think we've announced -- we have about $70 million of development work that we are on right now for this year. And we continue to be able to do that at very attractive returns. So it's an important part of our business. It's not the major part of our business, but it's one that we are looking for opportunities all the time. Bob, any other thoughts on that?

Yes. The only thing I would add is that we purchased two parcels so far this year, and they're right beside our grocers. A great example would be one that we acquired in North Point, Florida. It's about 5.8 acres and we're going to create 5 different pads. Our centers public anchored right across the street. It does $1,000 a foot and it's full. So there continues to be a tremendous amount of demand, and we already have a lot of this pre-leased.

So we continue to find those type of opportunities, the other land parcel that we acquired is an old bank. And you guys know this. I mean, banks are wonderful opportunities to repurpose and bring in a Starbucks or Chipotle or SIG or somebody that's hot in demand, and we're able to generate somewhere between 9% and 12% returns on those ground-up development opportunities, which is consistent with us, we've increased our development pipeline from over the past few years of $40 million to $50 million to $74 million this year as an example. So we want to continue to lean into those opportunities and continue to look for ways to create value at each of our properties.

Your next question is in the line of Ronald Kamden with Morgan Stanley.

Just a quick 2-parter. Just on the in line occupancy, just thoughts on getting to 96 and 97. And what sort of the blocking and tackling amount needs to get done to get there? And then a quick follow-up. I think I see your -- your neighbors, your local neighbors, concentration ticked up to '26, I think, versus '25 last quarter, just don't know if that was intentional or where you're comfortable with that local neighbor exposure?

Great. Bob, do you want to take the 95% in line question as well as sort of the small movement in local leasing.

Yes, there hasn't been -- there's no real movement on the local side between '25 or '26. And that's right on top of each other. Can you ask the question again on the 95% on inline?

Sure thing. Just any -- what's the upside from there? What do we need to do -- to get to sort of the 96, 97 and what's the plan?

All right. Perfect. So one of the initiatives that we put in place this past year was a bounty targeted space approach. And we really wanted to identify our top 100 spaces that would create the highest ABR on an annual basis. We put our leasing team on that. I put different incentives in place for that. And already through April, we've executed, I believe, 28 deals on those particular spaces with another 24 at LOI or lease out. So we're almost 50% of the way there. That's your needle mover.

So with very high retention numbers of 90% to 93% and you complement it with these types of initiatives on a targeted space approach. That's how you get the other 100, 150 basis points. And we're seeing a lot of success in it. So I'm really excited about where we'll finish the year.

Your next question comes from the line of Cooper Clark with Wells Fargo.

Retention came down year-over-year, while new rates were up significantly. Just curious how much of this was maybe intentional and a result of you proactively deciding to take back space and not renew certain tenants just given the ability to drive strong pricing power with potentially healthy operators? And then just any color on how we should think about that dynamic and retention levels moving forward.

Great. Thanks, Cooper. Bob, do you want to take that?

Yes. Appreciate the question. Great question. So our retention rate this quarter was 88%. That had to do with a 64,000 square foot box that we knew was going to vacate about 3 years ago. We knew that we already have 3 tenants lined up to backfill at significantly higher levels of Brent. What's interesting is if you exclude that onetime situation, our retention for the quarter would have been 92.4%. So it's not a crack. It's not an indication.

Yes, normal part of our business is that you capture spaces where we see better opportunities to do mark-to-market rent adjustments. So we will always be focused on merchandising and finding the right necessity-based goods and services retailer that, one, we can continue to get attractive leasing spreads but have the right complement where we can continue to drive consumer demand.

Your next question comes from the line of Michael Goldsmith with UBS.

You took a FFO guidance, but none of the underlying components moved higher. So can you provide a little bit of context of what drove the higher earnings expectation? Is it acquisition timing? Is it a termination fee income or anything else? Just trying to get a sense of what's driving the greater confidence in your earnings here?

Great. Well, thanks, question, Michael. It is a variety of things. John, do you want to go through what we -- what the pieces there?

So we started the year at a great pace with the strong operating environment like Bob has been talking about and strong year-to-date acquisition activity and our recent bond offering. In the quarter, our bad debt was near the lower end of our range, and we were pleased that the bond offering was at an interest rate lower than we budgeted. But it's still early in the year. And one thing we're watching is the SOFR curve, which is higher than where we started the year. And when we look at bad debt, we maintain that range we considered each of the ranges.

And when we consider the balance of what goes into each, we really like the ranges where they are. But overall, after a good first quarter we're more optimistic about the year than when where we started. And that gave us confidence to raise our ranges for FFO. It's early. It's Q1. We'll have opportunities to really refine. But we are very happy that our growth rates are in the mid- to high single digits for 2026, which is consistent with our long-term growth targets. And that gives us a good a more confident outlook for the year.

Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

Jeff, I just wanted to circle back. You indicated in your prepared remarks that you're closely watching private and public market valuations. Can you just elaborate a little bit on that comment, what you see as the spread today, perhaps relative to where you're trading, the acquisition cap rates that you're achieving and so forth. And maybe just to follow up on that a little bit, what actions does the company take as a result?

Yes. Great question and one we've spent a fair amount of time looking at. And our view is that in the private markets today, and there's some fairly major transactions that have taken place is there is 50 to 75 basis points difference between where the public markets are and where the private markets are. And so that makes the private markets a better source of capital. And if you look at the major transactions that have happened in our space this year, they are -- the winners are the people -- the private equity capital across the board. It's not like they've won a little bit.

They took all of the chips off the table in terms of the major transactions. So you I think for the public companies, we have to continue to find the cheapest source of capital as we look forward we can continue to take advantage of the opportunities that are in the marketplace. And that's what we will be doing over the year. And that -- that means you're always looking at everything. You're looking at joint ventures, you're looking at issuing equity you're looking at selling assets, all of which are part of figuring out where can you get the cheapest source of capital so you could continue to fund your growth going forward. And that's what we're focused on. And I think it's -- the markets come up and down and change over time, but we're -- that's what we're focused on.

Okay. That's helpful. But I'm just curious, you reiterated the disposition volume for the year that you're anticipating? I mean, do you lean into dispositions a little bit more as the year progresses? Or do you lean a little bit more on joint venture capital than you have year-to-date. Any sort of changes around the edges, just given that spread that you're seeing in the market?

Yes. I think -- yes, I think there is a little bit more lean in because it's attractive. And you'll see some leaning in.

Your next question comes from the line of Floris Van Dijkum with Ladenburg.

Following up on the capital allocation. I noticed that -- I think you closed on two unanchored centers during the quarter and you have one that has happened subsequent maybe talk a little bit more about the return expectations and why you think this makes sense for PECO to pursue these centers? And why should investors be excited about you're venturing away from your typical grocery anchored.

Thanks, Floris, for the question. I'll take a quick shot and Bob, obviously, follow-up as well. We -- I think we've made it kind of clear over the last 12 months that we're really excited about very specific opportunities to take advantage of everyday retail that -- where we think we can get outsized returns. And it's a much more inefficient market. than our core market. And we think there's a place for that in our portfolio where we can use our market knowledge and our locally smart ability to know markets to take advantage of that.

And so we think it's a great opportunity for the company to get outsized returns for part of our portfolio, and we're going to continue to look for those opportunities. it's hard. And it's a big market. You've got to find the inefficiencies. But that's what we're really good at. And then what we're the best at is taking those properties and turning them into really strong assets. And you'll see in our buying -- we're buying stuff where we can take the PECO machine and create a lot of value in those properties. And that's -- we're excited about it. The first two are great examples of what I think we'll be able to show the market what we can do with them. Bob, any add-ons there?

Yes. Thanks, Floris, for the question. Great question. I'm really excited about this strategy. So far as an organization over the last, I'd say, 2.5 years, we've closed on 12 assets so far. So 12 assets for about $221 million. The reason I like this strategy so much is that we're finding opportunities to buy properties from less sophisticated owners where we're able to put our national account teams on them. The criteria that we set out when we acquired these are exceptional demos. So 110,000 median incomes in 3 miles, 100,000 people in 3 miles.

The criteria about configuration sightlines I'd love to see them about 45% local tenants, 55 national, which gives us the opportunity to continue to increase spreads and rents. As an example, when you look at the subset of 12 and why I'm so excited about it, they all have 5% CAGRs. What a great complement to our 3 to 4. And in some cases, we've acquired some that are 8% to 10% CAGR. And we've already moved the needle 310 basis points in occupancy on this subset of 12.

And that's because we are in a great environment, one of the best operating environments that we've seen. What I'm also excited about is our new leasing spreads in this category have been 45% and our renewal spreads are 27%. And so there's some inefficiencies that we have found, while not overpaying for assets, if you look at what we've acquired in this space, it's a 6.9 cap and we're solving for between 10 and 11 in percent unlevered returns. Our average purchase price is about $321 a foot, and it allows us to lease at the Phillips Edison way which we just do exceptionally well with our operating results and the team that we have on the ground.

Your next question comes from the line of Juan Sanabria with BMO Capital Markets.

All my best friends call me Ron, if that's okay. Just curious on maybe going back to Caitlin's question on new supply. Are there any pockets of the country where you are seeing new greenfield development, I think you may be pocketed the Sunbelt that you'd call out or are watching?

So there are -- again, overall, across the country, it's a really small amount. And there are specific cases where grocery stores are looking for specific locations where you are seeing some growth. I mean you're seeing public grow north from their existing platform. You're seeing HCB add additional centers in -- or additional stores in Texas. But they're specific and they're very small. And -- but part of our business is to make sure that we know what's going on in every market that we're in because it doesn't matter if they're building one in a specific market, if it's near one of our centers, it's a competitor and we got to beat it.

We got to figure out how we're going to win in that. we're just not seeing much at all in our markets. And I think that's what is creating the operating environment we have where there's a ton of opportunity to be aggressive on your leasing and reach occupancy, very high occupancy levels and be able to really drive rents. And that's what we're -- I think we're proving out with our performance.

Your next question comes from the line of Sidney Rome with Barclays Capital.

I noticed that you maintained $5 million to $8 million of collectibility adjustment guidance. And I was wondering if you could elaborate a bit on the specific categories or tenant types driving that assumption today. Have you seen any early signs of stress in first quarter trends for 2020?

Well, thank you, Sidney, for the question. John, do you want to take that?

Sidney, so I will say that our performance is one of the advantages of our business model is the diversification that we have across our neighbors. And so I would say the components are pretty consistent with what they have been, but the overall volume is a little lower. One thing that I find interesting is, so for us, we get questions about a watch list and things like that, and people are looking for national names.

For us, it's actually at every center. We're always -- especially when you're a idly occupied as we are, we're always looking for new leasing opportunities or places to get in there. But for that, we have one at every center. And the absolute count of neighbors that we are focused on actually declined this quarter compared to last. And usually, especially when you consider the volume of acquisitions that we're adding every quarter to see that number sort of come down and broadly come down was a very positive sign. Of course, I'm still the cautious one of the group. But we feel really good about the year, but are still leaving those pieces. And as Bob was talking about categories in an earlier question, there isn't any one particular space. We continue to see great demand and really strong performance at each one of our assets. So I wish it's something more specific, but overall, things are quite good.

Your next question comes from the line of Paulina Rojas with Green Street.

And you have indicated that you have a health ratio or OCR for your in-line tenants that sits at about 10%, and you also mentioned that you see room to gradually push that up to 13%. Can you walk us through the thinking behind that feeling that you see. Whether it's occurred on prior high watermarks or any other benchmark? And I think at the end of the day, I'm curious about what that means downstream for the tenant I don't know their margins, but I wonder what a shift like that would mean on an EBITDA basis, for example, for the average in line.

Well, it's a great question, Paulina. And it's a very complicated question, as you know. And the is such a generic number because each specific retail category has a different health ratio that's healthy for them. And we're using broad numbers here, but it is a very -- it's very specific to the type of retailer what a healthy number is. And our -- we also get the advantage of inflation and the growth in sales, which is allowing us to grow to keep at 10% while we're actually growing rents because of the growth in sales.

But Bob, you want to talk a little bit about sort of your views on the health ratio and how we're doing on the leasing side?

Yes, absolutely. So great question. I think for me, when it comes down to merchandising and health ratios, most importantly, we want to make sure that our neighbors are profitable. We have seen a lot of success over the last 2 or 3 years with not only our retention rates, but also our renewal increases being 18% to 21%. And again, Paulina the visibility that we have out with 125 renewals out for signature show no slowdown or cracks. We've been able to hold that what I would say, 9.5% to 10% ratio pretty static over the last 3 years, while still maintaining those types of renewal spreads.

I do think there's room to move to 10% to 13%, 14% over time, very use in merchant specific, as Jeff had highlighted over the next several years. The other thing that's been helpful in this 10% and what gives me confidence to increase it over time is that we're starting with ABRs on average of our in-line neighbors at $27. So it's a lot different increasing rents at $50 than it is $27. So there's a combination of a lot of things, as Jeff mentioned, that goes into that health ratio. But bottom line for us, it's all about keeping our neighbors healthy, profitable and being a good partner.

Your next question comes from the line of Mike Mueller with JPMorgan.

Just another quick JV question. How much of the investments that are being made in those programs going to be influenced by your equity cost, particularly if your equity cost improves a lot, where on balance sheet looks much more attractive?

And I'm not clearly sure, Mike, what you're getting at there. Are -- I guess, maybe...

I'm sorrry. I was just saying if your equity cost, if you like, what's the sensitivity of, I guess, the transaction flow that the JVs will see depending on whether or not you like your equity cost and how attractive on balance sheet is or not?

Yes. So what our JV strategy is primarily to expand what we can buy. So there -- we're buying things in our JVs that we would not buy on the balance sheet. And that's an important part of why we set this up. And so we're not -- like if our cost of equity changed dramatically, we would still be buying the same stuff with these particularly because that's the level of ownership we want in those properties, and we think we can add value there to those properties.

But we also get a fee structure that's complementary. And so it's -- for us, it's expanding what -- where we can buy and what we can buy. And without putting the full 100% exposure we would from the balance sheet. And that's worked out, I think, very well for us historically, and it's working out great in the -- or the 3 JVs that we have going right now.

This concludes our question-and-answer session. I will now turn the conference back over to Jeff Edison for some closing remarks. Jeff?

So in closing, I want to reiterate how pleased we are with our first quarter results. Our grocery-anchored neighborhood shopping centers are driving solid foot traffic and market-leading pricing power. We continue to see a strong operating environment. While the macro environment remains volatile, PECO is well positioned to perform through cycles. We offer both stability and steady growth.

PECO's disciplined execution and operating strength reinforce our increased guidance for core FFO per share growth with our shares trading at a discount to our long-term growth profile, we believe PECO represents an attractive opportunity to invest in a leading operator that can deliver mid- to high single-digit annual earnings growth. The PECO team remains focused on executing our strategy and generating stable long-term value. We will continue to drive more alpha with less beta.

I'd like to thank our PECO associates for their continued hard work, and I'd also like to thank our shareholders and neighbors for their continued support. And to all of you, thanks for being on the call today. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you all for joining, and you may now disconnect.

I'm Craig Mailman with Citi Research, and we're pleased to have with us Phillips Edison and CEO, Jeff Edison. This session is for Citi clients only and disclosures will be made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions.

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

Sounds great. Welcome, everybody. Thank you for making it out here early this morning. We hope we're worth your getting up early. With me is Bob Myers, our President; and John Caulfield, our CFO.

And the reason we think to invest in PECO is the same reason it's been for a long time. We are a company that has very strong internal growth from our properties, which is a very high-quality portfolio. We also get -- have a strong acquisition and development and redevelopment program, which give us external growth. So that internal growth and external growth are engines of being able to grow our FFO per share.

At the same time, we're focused on necessity-based retail. We're focused on that neighborhood shopping center close to your home where you buy your necessity goods. So it's a very stable business and has been stable through multiple cycles. And so when you put those 2 together, you've got the alpha of the internal and external growth, but you've got a very low beta. And we think that's the premise for investing in PECO.

I want to add just a little bit more color to that. Our portfolio -- we've been in business for 35 years. Our portfolio has approximately 330 shopping centers in it. And we are a grocery [Audio Gap] second largest landlord with about 65 centers.

We have a very strong philosophy and discipline in our acquisition strategy where we believe that format drives results. Jeff touched on it, but our average shopping center size is 113,000 square feet. We're not in the power space. We are in necessity goods and services. Our average in-line space is 2,500 square feet. That's very strategic for us to do that because that gives you the most opportunities to lease those spaces. It's a lot easier to lease 2,500 feet or 1,200 feet than it is 25,000 to 30,000 feet.

You'll see when you look at our stats that we have the highest occupancy in the space at 97.3% and our in-line occupancy at 95.1%. Our anchor occupancy is currently at 98.7%, so we have a lot of pricing power. We have the best leasing spreads in the space, the best renewal spreads. We're seeing renewal spreads over 20% currently. And we've delivered on that for the last 3 or 4 years and the visibility that our team has looks very favorable, even increases above and beyond that. New leasing spreads have danced between 30% and 35%, depending on the quarter.

What's so great about having high retention with the quality of portfolio at 93% is you don't spend much capital at all to retain them. You have the pricing power. I believe last quarter, we spent $0.24 a foot. And that's very different than spending $50, $60 a foot to re-tenant somebody. So we have the benefit of pricing power, and that's the integrity that Jeff spoke about in terms of our portfolio.

That's helpful. I mean your rent spreads are very strong. I guess one of the pushbacks I always get from clients just about the retail backdrop is generally across the board, right, given the supply backdrop, the demand backdrop. Clearly, you guys feels like outpunching the competition and the ability to capture the value in your centers, but it's still a pretty fragmented industry.

Kind of what do you view as the impediments as you talk to tenants about driving that even further? And maybe what are some of the nonmonetary considerations you guys are getting in lease negotiations today versus 5 to 10 years ago that we don't necessarily see fall to the bottom line, but inert the value of the center or opportunities you guys have over time to unlock value?

Yes. I'll take the first one and then Rob jump in. So there has been very little construction in our space for a long time. And that has been one of the big drivers for our ability to drive occupancy to record levels for us. And we have the highest occupancy in the shopping center space, primarily driven by the -- well, not all driven by the demand that our retailers have for being in the #1 or #2 grocery-anchored center in the markets that we're in. And that has given us pricing power.

And what -- as you referenced, what that's allowed us to do is to have the largest leasing spreads, both on renewals and but also new leases as well. And that is a powerful driver of our ability. The reason they're not -- we're not able to do that all at once is because we obviously have lease terms that are staggered and that -- it's that period of time that we're bringing everyone to market. But we have -- we anticipate that continuing because of the strong pricing power that we have.

Yes. Just to add on to that a little bit. You asked a couple of different questions there. What are some of the nonmonetary items that we're seeing. So we renew about 600 neighbors every single year through our cycle. And again, the retention is 93%. The renewal spreads have been 20%, with above 3% CAGR.

What's been very helpful in that in the renegotiations, you now have flexibility where you can go back in and you can renegotiate either options, can caps, restrictions, exclusives, no build areas, you're able to free up a lot of that as part of the leverage and negotiation. So we're very focused on doing that. That will allow us to continue to move our overall occupancy, our in-line occupancy another 100 to 150 basis points.

And what we're finding in terms of having leverage, sure, there's no new supply coming on the market that's really competing with us. But our necessity-based focus with fast casual, health and beauty services, Medtail is really where those neighbors want to be with the #1, #2 grocer.

And what we've been very focused on is making sure that our neighbors are profitable. And one thing about profitability is you got to make sure that the rents aren't crazy high. So our rents on average for in-line are $27, $28 a foot compared to some of our peers that are $40 to $50. It's easier to take an increase from $27 up 20% over every 3- or 5-year cycle versus starting at $40 or $50. Our average health ratio for in-line neighbors is 10%. We feel that we can gradually move that up to 11%, 12% and 13%, while keeping our neighbors very profitable.

So what does that imply on the breakout between the grocery tenant versus your in-line to get to that and bring that 10% up to maybe 11%, 12% or 13%?

Yes. So our grocers health ratios are approximately 2.3%. So my comment is very specific on our in-line neighbors. Yes, that would be right around the 10%.

Okay. That wasn't a blend. That was the in-line guide.

You got it.

Got you. Thank you for clarifying.

Sure.

And on the option side of things, what are you guys doing with the grocery type tenants versus in-line? Because I know this has been one of the issues is everyone's got this huge mark-to-market. But when you have multiple extension options, we might not be here to see that mark-to-market realized one day.

So as these kind of anchor boxes are rolling, what are you guys doing? And how does that negotiation go with some of these tenants that are used to controlling that box for 20 years with minimal kind of bumps as they go along?

When you look at the layout, about 28% of our income comes from the grocer. And we consider that effectively a flat rent, and it will be flat with their full control for 10 to 30 years depending on the lease term. So we're not going -- none of our projections anticipate getting that space back or getting that space and being able to do dramatic rent bumps.

Our focus is on the small store space outside of that grocery anchor, and that's where we get our growth. And that's what we're -- when we talk about rent spreads, that's where we're able to get and move those rents, which allow us to have what we -- what's our target, which is we want to be able to deliver mid- to high single-digit FFO per share growth, pay a 3% to 4% dividend and have 10% to 12% annual increase in value year in, year out with a relatively low beta investment. That's our thought process through that. And all of that includes that anchor structure that we have today.

And then just kind of shifting gears a little bit. You talked about on your business update being able to buy $300 million with no additional equity. Stock in the group have been kind of trading strong here. Would you issue equity today at these levels?

We're a lot closer than we were, let's say, 4 weeks ago, 5 weeks ago. It's still a little early for us, but it certainly is an option. The beauty is the way we think about it is not -- can we raise the capital. It's where can we match fund the capital we raise with really good investments that will give us that long-term growth and give us a wider breadth of a portfolio, that's what we're looking for.

So it's -- they're all -- as you know, they're all the pieces that are part of where you get your capital, but they're really driven by the acquisition market and what we can find that really will be -- will make our portfolio better. And that's what we're looking for, and we'll continue to have that be the driver of our capital, but it is -- it's a little nicer to be closer to where you'd be interested in raising capital than we were short a little short time ago.

And the market is pretty competitive, right? The private guys are back in looking to buy. And so you earmarked $300 million. What's the visibility on that? And I guess that dovetails back to like you would seemingly issue equity if you're going to outpace that significantly, right? And it gives you more runway.

So what do you feel like the visibility is on that $300 million you talked about? Are you finding more that fits the buy box that would maybe have you guys look at equity today, even -- maybe just walk through the opportunity set.

Yes. So we've targeted $400 million to $500 million of acquisitions this year. So $450 million at the midpoint, let's say. We can do $300 million of it without going back to the markets using just free cash flow and the growth in our -- the rest of the cash flow.

So I would say that our -- we feel good about the guidance. Whether we can outpace the guidance will be driven by the market and what comes to market and what we see as opportunities there. So it's a -- the market will drive our -- the acquisition market will drive our decision. But as you point out, the private markets have been -- are very aggressive on pricing right now in terms of what they're buying.

And we're not -- we've been doing this for 35 years. We're very disciplined in terms of what we buy. And if we can buy it, we'll buy as much of it as we can. And if we -- if the pricing gets outside where, we won't buy it. That's -- it's been kind of that simple over a long period of time. But it takes a very disciplined plan to do that. And these other pieces like when we're raising equity and debt and all the rest, they're really driven by this -- the acquisition machine we have, but also what the market is.

Maybe I'll jump in here. I think part of it is the market is extremely large. And that ultimately, in the grocery-anchored #1 and #2, there's approximately 5,800 centers that would fit our primary criteria, valuation notwithstanding. And then we have everyday retail centers, which we've begun talking about as well, which have over 50,000 opportunities in markets that we already are in.

And so yes, there is greater volume in the private transaction market, which also tells us that we believe that there continues to be opportunities in the public markets for improvement and closer to where we believe the value of our portfolio is. And so as we look at these opportunities, we do think we feel very confident in our ability to hit our acquisition targets and exceed those.

But we are disciplined buyers. We buy our grocery-anchored product to a 9% unlevered IRR. Every asset we buy clears that 9%. On the everyday retail, it clears a 10% IRR. And we're very successful at that. We bought over $1 billion in the last 5 years, and all of those are above those numbers and actually exceeding their underwriting. So we feel very good about the opportunity set there. And as Jeff was saying, we look to match it to the best cost of capital that we can.

And to get that 9% or 10%, depending on the asset you're hitting, what's kind of the going-in cap rate you need given your underwriting on rents and your platform's ability to lease things up maybe better than some other one. Kind of where is that going in versus maybe where you estimate your cost of capital is today blended either debt or equity or straight up debt?

I'll go ahead and take that one. So we've -- to what Jeff and John has already discussed, I was going back through our numbers. We looked at 600 deals last year, and we ended up underwriting about 300. So yes, the market is a little bit more competitive now, but we're also seeing a lot more opportunity. The 600 last year and the 300 we underwrote was double what we saw in 2024. What's interesting about what we've seen so far in '26 is we've closed on $77 million, I believe, through January, and we have another pipeline that we've been awarded of another $150 million to $200 million that will close by the early second quarter. So we're off and running.

With that being said, even though we underwrote 300 deals last year and saw over 600 opportunities, I've seen a 70% increase in the opportunities this year. So we're going to continue to see opportunities. John touched on our return thresholds. We've seen a lot of success in what we've acquired year-to-date. We are disciplined buyers. We stay in our box in terms of delivering the 9% to 10% unlevered return. So we do feel like we're in a very good spot to be between $400 million and $500 million. We're seeing all the opportunities, and we're well positioned.

In terms of cap rates, if you look at what we've acquired in 2000 -- I believe it was '23, we averaged about 6.6%. We were 6.7% and '25 and '24, and then our everyday retail has been dancing right around 6.9%. Now we look at deals all the time. There are some that are 5.5s, 5.75s. There's some that are 7.5%. So it all depends on the amount of vacancy and the occupancy lift and whether or not we feel like our team can execute to get it above a 9% or a 10%.

I will share in our everyday retail category; we own about $180 million. It's early days for us. We have 9 so far. And over the last 2 years, we've already moved the needle from 92% occupancy to about 96%. We're also seeing exceptional new leasing spreads at 45% and renewal spreads at 27%. Our average cost per center is right around $320 a foot.

We like that space. Those opportunities have serious alpha associated with them. And in some cases, the centers that we're acquiring are 80% occupied, some are 90% and some are even 100% that have mark-to-market opportunities. Those assets will generate, in some cases, between 4.5%, upwards to 9% NOI growth over the period. So when you blend that with our other existing portfolio, which we delivered 3.8% on last year, it's a really nice recipe for a lot of growth in alpha in our organization.

And I guess since the financial crisis, the REIT industry has been very focused on bringing debt-to-EBITDA down, running at a lower leverage balance sheet. But you guys had an extensive history in the private market, right? And so you've seen both sides of things.

I guess from a high level, the debate internally may be about what the right leverage number to run at given -- you guys are going in close to a 7. So the LTV at 5x debt-to-EBITDA is different than if you're a 5 or a 6 cap buyer, right? And just as you compete with the private guys who run at higher leverage, I'm just kind of curious about the intellectual debates about where the right leverage number is versus maybe where public investors feel like you should be trading. And I know it's a little bit dogmatic on our side since the GFC, but I don't know. Any thoughts on that?

Yes. I think it's a great question. It's a little frustrating right now to see some of the private equity firms looking for 18% to 20% returns on their equity using 65%, 70% leverage and competing with us. They love our product because it -- it does have growth, but it's also very stable, so they can get -- they can leverage up quite a bit.

That adds some competition, particularly for the portfolio deals that are out there. They don't tend to mess with our markets that much. We're individual buyers of assets. That gives us a ton of power in these markets. So I don't think that's a big problem.

But I do think that our view on leverage is -- it's part of our low beta thing. So whether it -- is 30% or 40% debt, is that -- does that change the risk profile? Probably not. But it is where the market is today. And I think it's a very important to make sure that you are in that part of the market so that you -- so that there's a relatively even comparison because we all know it's really expensive to delever. And those that have done it, have gotten out of whack, that's been a real problem.

So unless the investors say, look, we want more leverage, we are where we're going to be in that mid- to low 5% to 5.5% debt-to-EBITDA.

We did have a question come in from the audience. Do you have any interest in the outparcel on-street/convenience asset type, multi-tenant, not single tenant as a potential growth to your acquisition pipeline buybox, similar to curb strategy?

That is the everyday retail that we talk about. And so yes, we do have interest in it. We actually spoke quite a bit about it on our business update, and we think that there's a great opportunity there. We can buy $1 billion over the next 3 to 5 years.

It is a different product. I wouldn't put it directly in curb's basket. We don't compete with them very often in terms of product on. We look to buy properties where we can use -- that are close to existing properties where we can use the PECO machine to create value, not just buy assets that will have a certain cash flow, but actually be able to take it, remerchandise it, add capital.

We're spending capital on these properties. We're trying to get to a 10, you've got to be working the properties. And we're -- if that market is more of a 7% to 8% unlevered IRR business from what we've seen than where we are. So that's our -- we have a slightly different strategy there.

I know we've hit the acquisition side a lot. Maybe on the dispose side, what you guys are seeing there, kind of what your focus has been on and some of the cap rates you're getting to kind of redeploy into new investments.

So last year, we sold about $145 million. Every year, we've always sold a handful of assets, either risk-averse assets or what I would consider flat assets that were 100% stabilized. When you look at what we're selling, that's exactly the profile. It's going to have a little bit of both in it.

Some of the assets that we've already stabilized that are generating a forward-looking IRR of a 6.5%, 7%, we're looking for more growth than that. That's why we're focused on recycling that capital into buying new acquisitions that will deliver the 9% to 10%. I think this year, it's likely to think that we would sell between $100 million and $200 million. There's a lot of demand out there. So we're testing the market. Cap rates that we're seeing on the product we're taking range from 5.2% up to 6.8%, 6.9%. It just depends on the market, the anchor and so forth.

You guys have, as you kind of said, the beta with some of the alphas. You guys' kind of look at the model, you have the strong underlying sustainable growth, but where is the upside maybe as you guys look at the algorithm? I know external growth is one of them, but where is the kind of the real opportunity to push for investors?

Well, I think the real opportunity is really the macro dynamics of our business, which is there's very little grocery-anchored shopping center space being built. We own some of the best, and we're buying the other parts of it. And we've been able to sort of redefine a little bit of the REIT markets in terms of where you can go to create really strong returns and that will -- but with limited risk.

And that's where when you can go into Cincinnati and buy the #1 or #2 grocer in a market and pay significantly less than what you'd have to pay in L.A. or...

Here?

Or here. Yes, or here. There are -- we've been able to sort of expand that, and that gives us the opportunity to find better returns with -- still with very low risk. And not all businesses can apply to that because they are different in different markets.

The #1 or #2 grocer is sort of a -- if you have the #1 or #2 grocer, you have basically a monopolistic position on the market where if a national retailer is coming into that market, that's where they want to be. They want to be next to the 1 or 2 anchor or grocery anchor. And that has been a sort of -- we think that's what's allowed us to get the kind of returns we have and it's -- you're starting to see some of our peers sort of step into some of that a little bit who have sworn it off as the end of the world if you ever have to do that.

It's what we've done for 35 years. We know those markets. We know how to actually make a lot of money in those markets and with less competition. And that's one of the things that is, I think, gives PECO that ability to have outsized growth while maintaining that low beta.

Good job not naming names on the -- those companies pivoting.

Well, we've been getting abused by it for a while. So it's kind of like, all right, well, maybe...

It can't be [indiscernible].

Exactly.

As you guys look at kind of guidance for the year, kind of what gets you to the low end and the high end.

So I'll take that. So ultimately, I would say continued strength in the consumer, getting to our economic occupancy faster, moving neighbors in sooner, continued strength in our spread. As Bob said, we've seen leasing renewal spreads over 20% in our pipeline, which looks out for another 6 months. It continues to be that strong along with new leases out.

I would say strength in the acquisition market and really perhaps better going in yields relative to that cost of capital. I would say all of that is going to -- would help us to get to the higher end. The lower end, it would be more disruption from the consumer, perhaps slightly higher bad debt. But again, even on bad debt, I mean, it was just under 80 basis points last year. This is a very low beta profile.

I would also say when you were talking about with leverage and things like that going back to the GFC and the pandemic, the occupancy loss is meaningfully less than anyone realized. So ultimately, we lost 60 basis points of occupancy in the pandemic. We lost close to 1.5%, like 1.5% in the GFC. That's all it was -- and both of those were recovered within 12 months. So I think that's part of what everyone realizes about the strength of grocery-anchored shopping centers is that lower beta profile.

So we actually feel really good about our guidance numbers for the year. And actually, each year, we understand the opportunities to exceed expectations, and that's what we're on our path to do.

And on the watch list, how does that look this year? And as you think about it, too, as you guys' kind of blend more towards everyday retail without the anchor, kind of do you feel like that conversation becomes less important for you guys or at least on the margin, right, versus some others?

I think the watch list is always something that has been -- we kind of entertain the question, but I mean, we just don't have concentration outside the grocers. Our job is to make sure that, that grocer is present and healthy and happy. But ultimately, we just don't have concentration. Our largest non-grocery concentration are the T.J. Maxx brands at 1.3% of our rent. So ultimately, we don't have exposure to those large pieces. As we bring in everyday retail, ultimately, part of the beauty of that is, is that it is where we know our business. It's ultimately...

That'll wake us up, right?

Ultimately, it's more neighbors to our platform. And we believe that our guidance is 60 to 100 basis points of bad debt, and we think it will be right in there. But ultimately, giving us a chance where we know this portfolio can deliver 3% to 4% same-store growth on an annual and long-term basis. We think that if you increase the everyday result, there's an opportunity to actually increase that. And that's all even with the bad debt profile. So that is part of the strategy is to avoid having a large watch list.

I'm going to pivot a little bit to AI. Hopefully, it's smooth. But you guys have a -- as you said, a more defensive portfolio. One of the big topics in retail has been agent to commerce and the impact on brick-and-mortar from that. What's your views on that? Kind of how do you feel your assets are positioned if that shift continues to happen?

Well, the -- there has been a consistent sort of headwind for retail for a long time and starting with the sort of Internet and shopping online and that piece. I think it's kind of been it's -- a lot of that conversation has been eliminated because of the realization that customer acquisition is very expensive online. That is one of the reasons that the grocers have moved to BOPIS, one of the reasons that they've moved to -- they'd much rather have you shopping in their store.

And the consumer has kind of gone along with it saying, that is actually what I want. I do want options. I want to be able to get my stuff -- order my stuff online. I want to be able to pick it up in the store, but I also really want to be able to shop inline. So that's sort of taken that part away.

What's AI going to do on top of that? We -- there'll be a lot of sort of supply chain issues that will be -- that AI will become a very important part of. We hope that will drive down costs, drive up margins for the retailers, which would be -- which would allow them to pay more rent, which would be a very positive thing. The -- but the disruption that we're going to see in, I think, a number of other areas is probably going to be less there in the -- on the retail side from our view.

And then from a PECO perspective, we've had a data analyst for, I think, 7 or 8 years inside PECO, helping us to use our data to make better decisions. And for us, AI is just sort of taking that and stepping it up a notch. And we're -- we have 21 AI projects going right now inside the company. We are -- we're committed to using it as an important part of running the company part of it, not the retailers' part of it, but there are tremendous opportunities we think there to make the company more efficient and be able -- and better in areas using AI.

And that's why we've committed to it. That's why we've committed literally for as long as PECO has been around, we've been heavy investors in technology and this for us is the next step, and it's a very promising step. I mean I think it's -- there's some really interesting things that we're pretty excited about that will help us to be even better than we are, and that we're excited about that.

Perfect. And then just on our rapid fires here, what do you think same-store for the retail group will be next year?

4%.

And then M&A, more, fewer, the same amount of companies this time next year.

Few.

And quick - one more quick one. Who do you -- do you have one particular kind of platform of AI that you prefer over the others like Google, OpenAI, Anthropic?

We're using Microsoft.

Microsoft?

Yes. And it's -- there's -- it's a bet that a lot of people -- you're having to think through the bet on what is -- who's going to be the survivor. Our bet is that Microsoft will be one of the survivors.

Thank you, guys, so much.

Thanks, everybody.

Thanks, everybody, for coming.

Good afternoon, and welcome to Phillips Edison & Company's Fourth 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.

Thank you. I'm joined today by our Chairman and CEO, Jeff Edison; President, Bob Myers; and CFO, John Caulfield. Following our prepared remarks, we will open the call to Q&A. After today's call, an archived version will be published on our Investor Relations 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 SEC filings. 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 GAAP results are available in our earnings press release and supplemental information packet, both of 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. Jeff?

Thank you, Kim, and thank you, everyone, for joining us today. We are pleased to report strong 2025 results which reflect NAREIT FFO per share growth of 7.2%, core FFO per share growth of 7% and same-center NOI growth of 3.8%. In addition, our strong 2026 guidance growth rates for NAREIT FFO and core FFO per share are in the mid-single digits.

While the market may continue to be nervous about the health of the consumer and the impact of tariffs on retailers, our outlook remains unchanged. As it relates to PECO's neighbors and grocers, we continue to feel very good about our portfolio. We are seeing a resilient consumer, and our top grocers and necessity-based retailers continue to drive solid foot traffic to our centers.

As it relates to the transactions market, it's no surprise that the strong fundamentals of grocery-anchored shopping centers continue to attract increased attention to the market. We remain confident in our ability to deliver on our gross acquisitions guidance of $400 million to $500 million in 2026 at PECO share. We acquired approximately $400 million in acquisitions at PECO share in 2025. We have demonstrated consistent success in finding core grocer-anchored opportunities, as well as undermanaged and underoccupied Everyday Retail centers.

Additionally, we have the joint venture expertise and partnerships to continue to acquire across the investment spectrum of grocery-anchored retail. We continue to be disciplined buyers, investing in acquisitions above our cost of capital. We continue to target an unlevered IRR of 9% for our grocery-anchored acquisitions and above 10% for our Everyday Retail centers.

In summary, we are pleased with our results for 2025 and our outlook for 2026. PECO's core business is our grocery anchored shopping center business. We are the leader in owning rightsized neighboring shopping centers focused on necessity-based retail. Our Locally Smart operating platform is driving strong rent and NOI growth. We remain confident in our ability to execute our plans and deliver solid growth in 2026 and beyond.

We believe the quality of our portfolio and the strength of our operating platform give PECO the best opportunity in our space to produce sector-leading FFO per share growth and AFFO growth. We believe an investment in PECO provides significant upside opportunity backed by high-quality cash flows, strong fundamentals and sustained long-term growth.

With our shares trading at a discount to our long-term growth profile, we believe PECO represents an attractive opportunity to invest in a leading operator that can deliver mid- to high single-digit annual earnings growth. We will continue to drive more alpha with less beta.

With that, I'll now turn it over to Bob. Bob?

Thank you, Jeff, and thank you for joining us, everyone. We continue to see high demand for necessity-based retail with no current signs of slowing. PECO's leasing team remains focused on capturing this demand, driving our in-line occupancy to tie for a record high while pushing very impressive comparable rent spreads. Retailers want to be located at our centers, where top grocers drive consistent and reoccurring foot traffic.

PECO continues to deliver strong internal growth. Our leasing activity and occupancy remain at very high levels. The PECO team executed 1,026 leases totaling approximately 6 million square feet in 2025. We believe this activity represents a substantial increase in value at the property level.

Portfolio occupancy remained high and ended the year at 97.3% leased. Anchor occupancy remained strong at 98.7%, and in-line leased occupancy ended the year at a record high 95.1%, a sequential increase of 30 basis points. Our portfolio retention rate remained high at 93% at year-end. High retention means less downtime and lower tenant improvement costs, which translates to better economics for PECO. We expect to see consistent retention in the future.

PECO delivered comparable renewal rent spreads of 20% in the fourth quarter. Comparable new leasing rent spreads for the quarter remained strong at 34.3%. Our leasing spreads reflect a retail environment, which continues to be extremely positive. We are leveraging PECO's pricing power resulting from the demand of our high-quality portfolio, strong leasing spreads and embedded rent escalators. Leasing deals we executed during 2025, both new and renewal, achieved average annual in-line rent bumps of 2.7%. This is another important contributor to our long-term growth.

As it relates to bad debt, we actively monitor the health of our neighbors. We expect bad debt in 2026 to be in line with 2025, which came in at approximately 78 basis points of revenue for the year. Given our current pipeline and visibility, along with strong retailer demand and the lack of new supply, we are comfortable with our guidance range for bad debt. We have a highly diversified neighbor mix with no meaningful rent concentration outside of our grocers.

Turning to development and redevelopment. PECO has 20 projects under active construction. Our total investment in these projects is estimated to be approximately $70 million, with average estimated yields between 9% and 12%. 23 projects were stabilized in 2025. This represents over 400,000 square feet of space delivered to our neighbors and incremental NOI of approximately $6.8 million annually. We are focused on growing our pipeline of development and redevelopment projects. This activity remains an important driver of growth.

In addition, the PECO team continues to find accretive acquisitions that add long-term value to our portfolio. Our year-to-date activity reflects $77 million, including 2 core grocery-anchored shopping centers. Currently in our pipeline, we have visibility into approximately $150 million in assets that we've been awarded or under contract that we expect to close either by the end of the first quarter or early in the second quarter. Given the strength of the market, the pipeline we are targeting and the team we have at PECO, we believe we can achieve our targets for gross acquisitions in 2026, our current pipeline reflects a combination of core, grocery-anchored neighborhood shopping centers, Everyday Retail centers and joint venture opportunities.

I will now turn the call over to John. John?

Thank you, Bob, and good morning, and good afternoon, everyone. Our fourth quarter results demonstrate what we've built at PECO: A high-performing grocery-anchored and necessity-based portfolio that generates reliable, high-quality cash flows. The PECO team continues to operate from a position of strength and stability.

Fourth quarter NAREIT FFO increased to $88.8 million or $0.64 per diluted share. Fourth quarter core FFO increased to $91.1 million or $0.66 per diluted share.

Turning to our balance sheet. We have a strong liquidity position. Combined with our proven access to the equity and debt markets, we have the ability to execute our growth plans. As a reminder, PECO can acquire $300 million of acquisitions annually and remain within our target leverage range. As of December 31, 2025, we have approximately $925 million of liquidity to support our acquisition plans.

Our net debt to trailing 12-month annualized adjusted EBITDAre was 5.2x at year-end and was 5.1x on a last quarter annualized basis. As a reminder, our fixed rate debt target is approximately 90%, and we finished the year at 85%. We anticipate addressing our floating rate debt through financing activity in 2026, where we will look to access the debt market opportunistically. We believe fixed income investors appreciate the high-quality cash flows and stability of grocery-anchored, necessity-based retail, and we continue to believe we are an underrated credit relative to our higher rated shopping center peers.

Moving on to guidance. We provided strong guidance for 2026 in December. Our outlook reflects continued solid earnings growth. Net income guidance for 2026 is in the range of $0.74 to $0.77 per share. Our same-center NOI growth for 2026 is projected to be in a range of 3% to 4%. Our guidance for NAREIT FFO per share for 2026 reflects a 5.5% increase over 2025 at the midpoint, and our guidance for core FFO per share for 2026 represents 5.4% year-over-year growth at the midpoint. Our guidance for 2026 does not assume any equity issuance. Our growth and investment plans are not dependent on access to the equity capital markets.

The PECO team continues to have significant financial capacity to support our long-term growth plans. We have diverse sources of capital that we can use to grow and match fund our investment activity. These sources include additional debt issuance, dispositions, joint ventures and equity issuance when the markets are more favorable. We sold approximately $145 million of assets in 2025 at PECO share, and we plan to sell between $100 million and $200 million in 2026.

Similar to our acquisitions, we evaluate our portfolio on an IRR basis and are reinvesting proceeds from these dispositions into assets with higher long-term IRRs. We are focused on maintaining our high-quality portfolio while improving PECO's long-term growth profile. This activity provides PECO the opportunity to realize the gains we've achieved while investing in future growth. We believe this approach helps drive solid NOI growth long term.

In summary, PECO delivered outstanding results in 2025, and we are positioned very well to continue that growth for 2026. Looking beyond 2026, we continue to believe that PECO can consistently deliver 3% to 4% same-center NOI growth and achieve mid- to high single-digit core FFO per share growth on a long-term basis. We also believe that our long-term AFFO growth can be higher, as more of our leasing mix is weighted towards renewal activity. We believe our targets for core FFO per share and AFFO growth will allow PECO to outperform the growth of our shopping center peers on a long-term basis.

With that, we will open the line for questions. Operator?

[Operator Instructions] Our first question will come from the line of Andrew Reale with Bank of America.

You're expecting to do even more volume externally this year. So as we think about this level of competition for high-quality grocery-anchored assets and how that's sort of intensified over the last year, could you speak to the diversity of opportunities within your pipeline and what looks most attractive to you externally right now?

Sure. Thanks for the question, Andrew. So on the acquisition side, what we're seeing is, as you point out, there's more competition there. But we're also seeing a lot of product on the market. And we think that, that is probably going to balance itself out in a way that creates enough opportunities. And I think that's why we have a high level of confidence that we can reach our targets that we've laid out for the acquisition pace. Bob, any -- your thoughts on that?

Yes, Jeff, I'll just add that as a comparison to 2025, we saw really over 200% of new potential opportunities. We underwrote about 50% more than the year previous and double the amount of deals we presented to Investment Committee. So that was in 2025 compared to '24 and '26, and I know it's early time in the year. But we've already seen about a 70% increase in the opportunities that we're looking at and about a 67% increase in the deals that we've underwritten and 10%, what we presented to Investment Committee.

You will continue to see us stay disciplined on our unlevered return targets of 9% and 10%. We're going to be very focused on continuing our core strategy of grocery-anchored shopping centers. We will complement it at a very small percentage with our Everyday Retail category. So both areas are going to be very active for us this year. We feel real good about our acquisitions that we completed year-to-date and our pipeline going forward.

Okay. Very helpful. And then just any update on the [ Ocala ] development parcel, especially as it relates to the timing of that project? And are there any other large-scale strategic land acquisitions currently in your pipeline?

Bob, do you want to take that?

Yes. Another great question. We're excited about the [ Ocala ] market and the growth that we're seeing, given it's 1 of the nation's fastest-growing communities and areas, 10,000 new homes being built within a 5-mile radius. Again, we acquired the land for a grocer that we expect to spin off midyear, and then we'll be left with 7 outparcels that we're currently marketing for ground lease opportunities. So we're in a good spot. And I believe as of a couple of weeks ago, our -- we're looking at hitting targets of unlevered returns above 9.5%, 10% on that project. So we feel real good about leaning into that market. Obviously, that's a reflection of our grocery relationships that we've established over 30 years.

In terms of any new larger grocery scale development projects, we have a pipeline, and we're discussing that with our grocers. We have a couple of deals under contract that we're working on, but nothing real close that I would say would strike this year as I thought.

Our next question is going to come from the line of Michael Griffin with Evercore.

Sorry about that. I was on mute. Apologies. I was -- I wanted to start off and ask just about occupancy in the portfolio. Both leased and economic is pretty meaningfully above the peer set. I guess, number one, do you feel like we're reaching almost a terminal occupancy level, probably more so on the anchors than the in-line neighbors? But number two, just given where your occupancy is you think that gives you more leverage when it comes for these renewal negotiations, maybe being able to push more on rent escalators or with an anchor lease potentially shortening options or building in some kind of internal growth into those?

Yes. Before Bob, before I turn it over to you, Grif, thanks for the question. Our belief is that the reason our occupancy is higher is because more retailers want to be in our grocery-anchored locations. And the necessity-based retailers see us as where they want to be, which is giving us a higher level of stabilized occupancy than anyone else in the space. And we think that will continue, and we believe that there is upside from where we are today.

Obviously, not a ton on the anchor side as we are in the -- in the very high 90s on that. But we still think there's 1 or 2 points that we can get of additional growth in the in-line stores. So we're excited about that. We believe very strongly that the retailers are voting with their leases, and they're leasing a lot of our space. And that's why we are at the highest level of the of our peers. Bob, do you want to talk a little more about the tenant demand and what we're seeing there in the tenant side?

Yes. I'll continue to give a little bit more color in terms of occupancy. We're currently at 97.3%. And as I look at our anchor occupancy, we're at 98.7%. And I do believe that there's anchor demand. We're seeing it with our spaces that are over 10,000 feet and the amount of leases that we have out for signature and letters of intent. I believe that we still have room to move that number to 99.1% to 99.3% this year. I would also tell you that our in-line leased occupancy is a record high 95.1%. I don't see it slowing down. And given the visibility I have in the pipeline, it's very active. There's no new supply. Retailer demand and our necessity-based focus has been very positive. I would say that we believe that we have 100 to 150 basis points of continued in-line upside as well. Feel real good about that.

In terms of leverage, that was a great question. 93% is our current retention of our occupancy. That's strong. And if you look at our fourth quarter numbers, at 93%, we only spent $0.24 a foot in terms of TIs to renew that with over 20% renewal spreads with over a 3% CAGR. So we are driving the CAGR. We're getting exceptional first year increases.

And the pipeline I have on that, I probably have 150 renewals out for signature currently, and the numbers are even more accelerated than what I just shared with you. So again, I think -- we're in a very good spot given the retailer demand. Our focus on having the #1, #2 grocer. We just don't see anything slowing down.

The other thing that we're working on as part of the renewal process is renegotiating some of the nonmonetary clauses as you think about caps and restrictions in no build area. We do have the leverage to negotiate that to give us more flexibility in our pipeline and our existing portfolio continue to create NOI growth.

And then maybe just circling back on the Everyday Retail portion of the acquisition pipeline. It seems like in addition to the core grocery anchor, you could get some real kind of kicker on earnings accretion and external growth of these properties. But I'm curious, maybe Jeff or Bob, if you could comment how you kind of weigh the potential differences in credit and sort of maybe some tenant health? Not concerns, but just a different tenant makeup of these kind of unanchored strips that you might be targeting for Everyday Retail relative to your core grocery-anchored tenant base?

It's a great question. I'll take a little bit, and then, Bob, why don't you jump in, too. As we look at Everyday Retail, we see it as, hopefully, over the next 3 years, we get that to be $1 billion of assets. So it's always going to be a piece of our company, not our main focus on the -- which is going to be on the grocery-anchored side. But there is a -- we believe, a unique opportunity to take advantage of certain places where we can find properties that we can use the PECO machine that knows that where every neighbor wants to be in that market, and we can bring them to locations that they can't -- when they can't get into 1 of our existing centers. And that's a very powerful tool that we think will be able to drive outsized results in that particular niche of the market.

And we're excited about it. And we think it's going to create some great opportunities for us to get outsized growth where -- from what we're getting in our traditional grocery-anchored centers.

Our next question is going to come from the line of Haendel St. Juste with Mizuho.

First question on capital deployment. I appreciate your comments on the acquisition strategy. I guess I'm curious also on the other capital allocation alternatives that you're considering. So maybe some comments on how you're thinking about either ramping up redev, ground-up development? And also potentially buying back the stock here, which looks like it's trading somewhere in the low to [ mid-60s ] on implied cap rate, which isn't that much different. A little higher than acquisition cap rates, but it's an immediate return. So just curious on how you're thinking about capital deployment beyond acquisitions?

Great question, Haendel. And 1 that we obviously think about a lot. And all of the pieces that you're talking about are part of our regular conversation -- on our allocation of capital. The ground-up development is a very strong part of where we think there is opportunity. Small. It's not going to be a major piece. It's going to be -- we hope we can get it to the size that we're talking about with Everyday Retail. That because we think we can get outsized returns there.

So that will continue to be a part of our property. We'll put up, we think, $70 million of sort of redev and capital that we will put into the ground up this year. We kind of burn that $50 million to $70 million range, $70 million last year, $70 million this year. Probably more like $50 million going forward, but we hope we can get that to $70 million. So we love that part of our business. Obviously, the allocation to the acquisition side between our traditional grocery anchored stuff and our Everyday Retail, again, a piece where we think there's opportunity to -- if we can find it and get to the unlevered IRRs that we are targeting, we think there's opportunity to allocate capital there as well.

And as we -- I think we've said a few times, we can purchase $300 million of property and do redev in -- $300 million property without going back to the market and keeping our leverage where it is today. So we have opportunities for that growth, and we want to continue to where we find the opportunity to be able to take advantage of that. So all of those are part of it.

We are always looking at share buyback since we started. We've looked at that. Right now, we're in sort of that tweener zone where it's really not a great time to be issuing equity. But also, it's not -- we don't -- we think we can get better returns for our investors with buying properties than we can and doing our readout than we can buying our stock back. So we're in that sort of between range. And that's why we've laid out the vision for this year that we have, and we're excited by it. I think we can do some really exciting things.

The 1 piece that is an addition here is the dispositions. And the dispositions give us more opportunity to buy at a larger scale. And that is something that we'll be looking at this year as well.

That's great color. I wanted to ask a question about Amazon. Some headlines out there that they're closing some stores, some Amazon Go Fresh locations. I guess I'm curious, one, if you have much, if any, exposure there and if that's impacting your conversations or impacting grocery demand for space?

Yes. So Amazon Fresh is closing their stores. It's not a surprise to us that they are. They really have had a tough time with bricks and mortar retail, and they're trying to figure that out. I think that Whole Foods is their avenue, and you're hearing things about them expanding that banner. That's sort of the next step in their bricks-and-mortar campaign, which I think they're going to keep trying different things until they find something that works. And to date, they have not found anything that can work. They have made some announcements about more delivery on the grocery side, which we're watching pretty closely. And our feeling is that the -- if you look at it today, over 80% of grocery delivery, just the delivery part of grocery is done from the store.

And so how do they make it work from -- when you don't have the store footprint that a Kroger has, that a Walmart has and the rest of the traditional grocers have? It's going to be tough. And so we'll continue to watch it. You never underestimate them. They're a great company. So we'll keep watching them and seeing what they do. To date, they've been under impressive on the bricks-and-mortar side.

Our next question is going to come from the line of Caitlin Burrows with Goldman Sachs.

Maybe as a follow-up to some of the other questions, John, you talked about it a little bit, but how does cost of capital influence PECO's acquisition pace? Do you feel constrained at all? Would a higher share price make you interested in the higher acquisition target for the year?

Great question, Caitlin. Thank you. The answer is yes, a higher stock price would encourage us to be more active on the acquisition side. We have the capital to -- and the ability to meet the targets that we've set for this year without issuing additional equity. So we're prepared for that.

We also are going to be active on the disposition side so that we can use that additional capital to perhaps be able to grow even faster than what we have talked about in our guidance. So we think that if there are opportunities, we will find the capital to be able to do it. And hopefully, that's in a share price that is commensurate with where we think it should be. If not, we will -- we've got multiple other channels that we can use to get that growth. And there's a lot of interest from outside parties to JV with us and other things like that where we could add to the growth that we have projected now.

Got it. Okay. And then maybe just on the bad debt side, it did pick up a little in 4Q. Can you discuss what led to that? How much visibility you had to it? And then to what extent your expectations for 2026 might have evolved since the business update in December? Or is it kind of all in line with the past couple of months' expectations?

John, do you want to take that?

Sure. They always leave the fun ones for me. Thanks for the question, Caitlin. Look, ultimately, if you're comparing towards the fourth quarter of '24, I would say that was the lower run rate. Overall this year, our bad debt has really actually been pretty consistent. We finished this year around 78 basis points. And as we look forward, that is pretty consistent with where we believe it will be. So when we set the guidance in December, the information and the data points we have from January and February so far are very consistent with that.

We're really encouraged by the continued leasing demand that we have and are encouraging our teams to find the best operators, the best merchandising mix for our properties that are going to allow us to drive rent and make our neighbors successful. So we don't see anything on the bad debt side that is concerning the fourth quarter. It was a little elevated, but ultimately still very consistent with what we've seen this year and what we expect in '26.

Our next question is going to come from the line of Omotayo Okusanya with Deutsche Bank.

John, this one's for you. You had made a comment earlier on about just your overall credit rating and kind of your in-house view that you probably should be at a higher kind of credit rating. Just curious, when you talk to the rating agencies at this point, what's kind of preventing that from happening? And then kind of if and when it does, how do you expect that to kind of impact your cost of debt?

Thanks for the question, Tayo, and thank you for the opportunity to use this as a platform. So we do believe we are an underrated credit when we compare our leverage level compared to our peers. We have the same leverage metrics or better in some cases than they do. The rating agencies at this point are more focused on scale. If you look to those that have achieved A ratings in our space, they are quite a bit larger than us. So as we look at it, we think our continued scale and acquisition activity are going to give us opportunities to increase our debt issuance in the unsecured bond market. It will hopefully give us opportunity to access the equity markets to increase our institutional holdings and our float.

Ultimately, we think the -- [ one ] is usually have been told 25 basis points per credit notch. But I will say that the fixed income investors are definitely paying attention. And I do think they have compressed that range for us. So while I do believe there is benefit to a ratings increase, the fixed income investors do recognize the strength of our grocery-anchored portfolio, our performance, our track record. So ultimately, I think right now, if we issue 10-year debt, it'd probably be around 5.25% I think that, that could be better if we were in a higher rated position. It is a conversation that I continue to impress upon the rating agencies. At this point, I think it's going to be around scale. But we're going to continue to fight the fight.

Got you. That's helpful. Then if I may just follow-up still on the balance sheet. Again, your variable rate debt, the percent of the variable rate debt is a little higher than probably most of your peers. Just thinking -- how are you guys thinking about that in light of whatever [ facing have about ] where interest rates are going on a going-forward basis? The viewpoint of maybe putting swaps on some of that stuff to kind of reduce it, or how do you kind of think through that?

We finished the year at 85%. We have a long-term target of 90% fixed rate. We believe in this environment, the key piece that we watch is really our maturity calendar, and that's the piece that I'm focused on. So we have some maturities that are coming up in January of 2027 that we are going to work on this year. And when we access longer-dated capital, that will be fixed in that component and naturally move us in that way.

We believe that the market currently is a position where there's questions around what will happen with short-term rates. But I do think that stability is there. And I think the curve being more positively sloped now there isn't a penalty per se for this. We are focused on making sure that it's available and opportunistic and not in a position where we must move our preferred method of this is the same way that we've done in the last few years, which is going to be continuing to acquire and match funding those acquisitions will -- as well as working on our refinancing activity is going to allow us to add duration and fixed rate coupons to our [ debt stack ].

Our next question is going to come from the line of Ronald Kamdem with Morgan Stanley.

This is [ Caroline ] on for Ron. You've mentioned being active on the disposition side. I was just wondering if you could share a little bit more about what you're seeing or anticipating? And overall, just a little more color on what you're seeing in terms of cap rates and unlevered IRRs for those dispositions?

Sure. Caroline, thanks for the question. Bob, do you want to talk a little bit about the disposition side?

Yes. Great question. We ended up selling about $140 million worth in 2025. And that was something that we wanted to be more intentional about in terms of property recycling. And really, our core strategy on the disposition side is trading out assets that we've stabilized where we have unlevered return targets that might be, say, 7% and replacing it with our strategies and the opportunities we're seeing today with unlevered returns between 9% and 10%, 10.5%.

In terms of expectations for 2026, we'll continue to do the same thing. We put a budget in place between $100 million and $150 million to execute the same strategy.

Our next question is going to come from the line of Floris Van Dijkum with Ladenburg.

Going back to capital allocation. Maybe just -- if you can talk a little bit about why your everyday or unanchored strategy isn't bigger if you're getting higher IRRs? And -- is there not enough an opportunity set there? Or I would have thought it would be bigger actually. If you can maybe talk about that? And then also, on the dispositions, do you think of -- where do you think you can sell assets at? Is it a 5.5, sub-5 cap on some of your assets?

Floris, thanks. The -- on the capital allocation side, with regard to Everyday Retail, we've set targets of getting to $1 billion over the next 3 years. We hope we can do it quicker than that. And if the opportunities arise, we will do that. As you know, we're really disciplined about this business. We want to make sure that it is the kind of product where when we put the PECO machine to work on it, that we can get accelerated and outsized returns. That means we have to be disciplined. We won't -- we might not go as fast as if we were just buying straight triple-net deals that are more homogenous.

But we think that's where the opportunity is in this space, and we think that we can find that product and -- and if we find more of that product, we'll buy more of that product. And that is -- that will be the -- the governor will be on whether we can find that level of opportunities. So that's our key sort of allocation question there.

And in terms of dispositions, there are really 2 buckets, Floris, that we look at in -- when we're selling properties. One is projects where there is not a ton of upside where we have put the machine to work on it, we stabilize the product, and we think we can get good pricing on it that will price it in -- where the -- in our mind, the unlevered IRR would be in that 7%, 7.5% kind of range. That's a bucket that we did. And we sold a project in California last year at a [ 5.7%, 5.8% ] cap rate that fit into that bucket.

The other bucket is just more of a derisking bucket where we see that we can get good pricing, but where we think that the IRR will still be in that 7% -- 6.5%, 7% range. But we -- but it's more because we think we can take some risk out of the portfolio and selling it. So those are the 2 buckets we tend to take to market more than what we actually anticipate executing on because we want to make sure that we're getting the pricing and we have the variety of product that allows us to make sure that if we get the pricing, we sell it. If we don't get the price, then we don't sell it, because these are all solid assets that we will hold long term otherwise. But that is how we approach the disposition market. And then obviously, that ties into how it helps to manage the balance sheet as well. Does that answer your question, Floris?

It helps. Thanks, Jeff. No, again, the spread between the unanchored and the noncore sales is pretty wide. So...

Yes.

My follow-up...

We're excited about that, Floris. We think there is an opportunity there. And that is why we're in it. That's why we think we're getting paid to take what is -- I think the risk that people believe is there is a lot less than what we think. And that's why we're excited about it.

Maybe my follow-up -- I think I might have asked this on a previous call, but the -- your renewal spreads were really strong, but your option sort of impacts your overall -- your average spreads still including options were still 13-plus percent, so very solid. But what are you doing on the options in going forward leases? Because obviously, are you signing new leases with no options so that, again, some of that break on spread is removed going forward?

Yes. The answer is yes. Bob, do you want to talk a little bit about sort of option strategy on the leasing side?

Yes. Floris, it's a great question. This is something that we're very focused on. Certainly, with 93% retention and the leverage we have on the renewal side, we're getting a lot of that in the negotiation with your 20% increases and 3.25% CAGRs as an example. On the new deal side, our new leasing spread was around 34%, and we're seeing CAGRs anywhere between 2% and 3% on new deals. So that's in terms of the existing portfolio.

I think as part of our negotiation strategy on new deals, we simply say no. If a tenant wants to have an option, we always start with saying no. I know the options don't benefit the landlords. However, when you have a nice portfolio that has the integrity of a lot of national and regional tenants in it, they're investing a lot of capital alongside us in the space. So they do want some protection above and beyond either their 5- or 10-year primary terms. So it makes sense.

On those, what we've really been pushing for -- and it's hard to get -- is 20% increases during each option period plus a 3% CAGR on top of that. I incentivized my leasing team to drive that behavior. We're moving in that direction. But it is a difficult one, but you're spot on in terms of continuing to figure out ways to have less options and higher CAGRs.

Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

I wanted to ask a couple of questions around acquisitions and JV activity, in particular, where you've seen a measured pace of activity. Bob, you mentioned that you're seeing a pickup in offerings. And I guess, 2 questions here. Should we expect to see JV activity ramp up a little bit more meaningfully in 2026? And then second, Jeff, I think you commented that you're having discussions with some other potential sources of capital. Are there other potential JV partners that you are having discussions with for another vehicle, perhaps?

So I'll answer the second one, and Bob, do you want to jump in on the JV activity for this year? Todd, we're always talking to potential JV partners who have specific needs that might fit into our overall necessity-based grocery-anchored shopping center focus. And that -- this is no different than that. And we will continue to have those conversations. And in the right case, that will be an opportunity like it was with the 2 JVs that we have. And when your stock is not trading where you want it to, the JV opportunity is 1 that you've got to keep looking at more closely. Bob, do you want to talk about activity this year a little bit?

Yes. We continue to see increased opportunity. We have a weekly meeting for Investment Committee with our partners. And we're typically presenting anywhere between 2 and 4 new sites weekly to the team. So I do think that we'll see more activity this year than we have in the past. I think we're going to see more product. And things are heading in the right direction behind the opportunity set, the pricing opportunities that we're seeing.

I think we'll close out our 1 fund. We need 1 or 2 more deals that we currently have under contract. So that will close out one. And then our Cohen & Steers joint venture has not only been very successful early days, but is well equipped with capital to continue to take advantage of market opportunities which we're seeing. So I'm encouraged by the activity in the joint ventures.

Okay. And then with regards to -- you continue to talk about sort of IRRs north of 9% for core acquisitions for grocery-anchored acquisitions. And then I think you said north of 10% for Everyday Retail. Can you just walk through sort of the basic framework and underwriting assumptions that you're looking at or targeting for those sort of IRR hurdles?

Sure. Why don't Bob, do you want to walk through sort of just how we're -- the -- just so, Todd, I mean the simple answer is that we do very standard underwriting, and it's consistent across everything we look at. And it's something we've refined over 30 years that we've been in this business. And it's been very -- we've refined it to the point where we are very accurate in it. And if you -- we do once a year as we go back, we look at everything that we underwrote and we compare it to what we performed on. And we're -- we performed about 1% above where -- what our underwriting is across a portfolio over a decade.

So it shows that we have the -- we believe we have the right system in place to actually get to what we're going to -- what we believe will happen in the portfolio, and it's proven itself out.

And Jeff, I will add. When you specifically look at our Everyday Retail, the 9 centers that we have, roughly $180 million. One upside opportunity that helps us get above the 10% unlevered return is the current occupancy and vacancy and mark-to-market opportunities. So we've done a very good job given the lack of new supply coming on the market and the leverage to be able to push rents.

As an example, on that 9 property portfolio, we've generated over 45% new leasing spreads and over 27% renewal spreads with CAGRs. And we're very focused on a solid strategy that's in our core markets, where we can take our national accounts team, we can remerchandise. We're very focused on transitioning our merchandising focus towards necessity-based goods and services. If you think about fast casual, health and beauty, Medtail services. Those are the areas where we're seeing demand and we're seeing validity and our overall merchandising.

Right now, you'll typically see in this strategy that we'll acquire between -- it's been between 6.7 and 7. Maybe we'll go down to 6.5 if there's more vacancy for growth. But as Jeff pointed out, yes, in our underwriting -- and we do not compress cap rates on the back end of this. So we are taking advantage of pure growth. These will have NOI CAGRs between 4.3% and 6%. We'll be able to move the occupancy, which even in the last year on the 9 properties, we've already moved occupancy from 91.6% to 94.7%, 310 basis points. And we're seeing unlevered returns increase above our underwriting, to Jeff's point, 100 basis points. We're above 11. So that's the benefit of the strategy as we continue to use our operational expertise to remerchandise and create value long term. That's why we're also excited about over the next 3 or 4 years, growing this part of our business to $700 million to $1 billion over time, the Phillips Edison way.

Okay. That's really helpful color. I appreciate that. One last one, John, a quick 1 on the guidance. It includes gross acquisitions, $400 million to $500 million. But it seems like there's this $100 million to $200 million of dispositions that's also contemplated for the year. Is that embedded in the range? Or is the disposition activity not currently factored into the guidance specifically?

It is in our guidance. The dispositions are considered in the guidance that we provided. Yes.

Our next question is going to come from the line of Cooper Clark with Wells Fargo.

Great. I guess, just to stay on the disposition pipeline, curious as you think about marketing deals today, what the depth of the bidder pools looks like and the buyer profiles you're seeing?

Cooper, thanks for the question. The buyer profile is pretty dispersed. I mean, there's a breadth to it that is pretty solid. And certainly, more solid -- it was pretty solid last year. So it's very comparable to what we saw last year in terms of the level and the variety of buyers. We don't see that changing this year, and we certainly haven't seen it so far this year. Obviously, we're still finding enough product to meet our goals, but it's a more -- it's a broader market, and it's a broader level of interest.

And each property has its own little character. And as -- and each character has its own set that different buyers, whether it's a family office or whether it's an institutional buyer looking at it, how are they going to evaluate and see value in it. And that's what we're -- that's what we do. And we find those specific opportunities where we can find that the right buyer for our product.

Our next question is going to come from the line of Hong Zhang with JPMorgan.

I guess my first question, you've talked in the past about the potential to proactively take back space in order to push rents higher in the long term. Where you sit today, do you see any opportunities this year that could potentially be a little bit of a headwind to occupancy, but ultimately push rents higher in the longer term?

Bob, do you want to talk about that?

Yes, I appreciate the question. I don't believe we're going to see any headwinds in terms of occupancy. What I'm encouraged by -- we will be very selective from a merchandising standpoint or recapturing spaces where either a neighbor doesn't choose to step up to current market rent or we're not seeing the renewal increases or viability and the profitability of the neighbors. So that will be a case-by-case decision, asset by asset.

Given the 93% retention and what we saw in the fourth quarter is a trend only spending $0.24 a foot, it's just a lot better economic decision than replacing a new neighbor and pushing the rents. The rents have to be extremely high on that first year renewal spread when you're investing somewhere, say, between $22 and $28 a foot and tenant improvements.

So the good news is we'll continue to have flexibility to remerchandise the way we can be just given the lack of supply and the leverage we have in our existing portfolio. I don't see any signs of occupancy weakening. Again, it will just be case by case and mark-to-market opportunities so we can maximize the value of the portfolio.

Your next question is going to come from the line of Michael Goldsmith with UBS.

Earlier, you talked about maybe having 100 basis points of upside for the shop occupancy. It seems like the demand is there. So what needs to change in order for you to realize that upside?

Bob, do you want to talk about the upside?

Great question. So that is a topic that we continue to discuss on what we can do. One initiative that we put in place is getting ahead of the curve, whether we discuss supply chain or making improvements to the space where we can turn them faster. In every portfolio, you'll have some spaces that are located in unique spots or spaces that are tired. And I think that will be a new strategy as we see where our portfolio is today, not only identifying spaces where we should invest capital earlier.

But the other thing that I've done with our leasing team is I put incentives in place on our top 100 vacant opportunities that generate the highest NOI for the center. And I'm compensating it like a bounty program if we can get those leased. One thing we've seen a lot of success at Phillips Edison is when you have incentive pay and commissions to drive a behavior, it works. That's part of the reason why you're seeing new leasing spreads, renewal spreads and the integrity of our portfolio. This is something I'm excited about. This is going to help move the needle another 100, 150 basis points with a targeted space leasing approach.

Your next question is going to come from the line of [ Sidney Rome ] with Barclays.

With regards to the $400 million to $500 million acquisition guide alongside higher interest expense, I know you commented on $100 million to $150 million of disposition budget. But I was hoping you could help us bridge how much of the remaining funding comes from incremental debt versus free cash flow generation?

[ Sidney ], thank you for the question. John, do you want to talk about the allocation there between the 2?

Thanks for the question. We generate over $100 million. Actually, this year, we think it will be closer to over $120 million of cash flow available to us after distributions. As we said earlier, about $70 million of that will likely go towards our development and redevelopment activity. And then you consider the proceeds from the disposition activity. So as we look to the debt market share, we will utilize incremental debt capital but also to refinance it.

So the math there, I think I kind of pointed to the pieces that could do it. But ultimately, we would be looking at 1 to 2 bond offerings this year or other debt offerings that we would look at, depending upon pricing at the time. So we're going to, again, work too on those January maturities, but I would say we have over $900 million of liquidity available to us between our revolver. And at the end of the year, we had some dollars available in 1031 proceeds that have been invested in the acquisitions we've already closed. So we feel really good about the availability of debt capital in the markets across types in addition to the free cash flow generation that we have.

Our next question is going to come from the line of Paulina Rojas with Green Street.

Good afternoon. Can you please share some rough [ marca ] guidelines on how CapEx has deferred between your Everyday Retail and typical grocery-anchored centers?

Paulina, thank you for the question. I want to make sure I get it. You're saying what capital are we spending on the our core grocery stuff versus capital on Everyday Retail. Is that -- and is that the comparison you're looking at?

Yes, correct. Ideally, as a percent of NOI or something like that.

John, do you want to walk through that?

Absolutely. As we look at it, we are targeting over 10% on [ levered ] IRRs. And to Bob's point earlier, actually, even 100 basis points or higher above that. For us at this point in the strategy, I would say that the capital as a percentage of NOI actually looks a lot like our grocery anchored centers because of the growth that we're generating. As we stabilize these assets, we do believe they will be very efficient from a CapEx perspective as you get to renewing neighbors and just pushing rents, that because of the character of how we are evaluating these everyday centers and opportunities to push rents that are in place, but more so change the merchandising mix, upgrade the merchandising rates. We talk about it because we also have similarly that there's market data that suggests the capital for these centers should be more efficient. I think that is a data point to look at. I'm looking at it as an opportunity to get above a 10% unlevered when you include the impact of this capital.

So when we look at the Everyday Retail in its current state, it actually looks a lot like the 12% to 13% of AFFO CapEx that we're spending at these centers generally because they're smaller, not as many opportunities to build out parcels given the footprint. But we think that it has the capability. But right now, we're focused on remerchandising, releasing, pushing rents, and that will ultimately get to that capital efficiency.

Yes. And Paulina, we're programming that in our underwriting. So we oftentimes, when we're buying some of the Everyday Retail, we have significant capital that we're putting in upfront to redo the centers to bring in the merchandising that we want to have at that center. And then you get to what John is talking about, which is on a stabilized basis, we think it will be less of a cost. But if you truly want to turn around the capital we think is necessary.

This concludes our question-and-answer session. I will now turn the conference back to Jeff Edison for some closing remarks. Jeff?

Yes. Thank you, operator. In closing, I want to reiterate that PECO performed very well in 2025. Our grocery anchored, necessity-based portfolio provided both growth and stability. We're carrying that momentum into 2026.

Our high-quality, reliable cash flows continue to grow as a result of our solid operational metrics and disciplined investment strategy. We remain confident in our ability to execute on our acquisition plans and are focused on generating attractive long-term IRRs. With our shares trading at a discount to our long-term growth profile, we believe PECO represents an attractive opportunity to invest in a leading operator that can deliver mid- to high single-digit annual earnings growth. We will continue to drive more alpha with less beta.

In conclusion, I want to thank our PECO associates for their continued hard work, and I'd like to thank our shareholders and our neighbors for their continued support. With that, we'll end our conversation. And thank you, and have a great day, everyone.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Good day, and welcome to PECO's business update. Please note that this webcast is being recorded. I'm Kimberly Green, Head of Investor Relations. I'm joined by our Chairman and CEO, Jeff Edison; President, Bob Myers; and CFO, John Caulfield. Please note that today's prepared video remarks have been prerecorded, and our Q&A session will be held live. Once we conclude our prepared remarks, we will open the webcast for your questions. After today's webcast, an archived version will be posted to our Investor Relations 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 SEC filings, specifically in our most recent Form 10-K and 10-Q. In our discussion today, we'll reference certain non-GAAP financial measures. Information regarding our use of these measures and reconciliations of these measures to our GAAP results are available for download on our website. Please note that we have also posted a presentation, our caution on forward-looking statements also applies to these materials.

Now I'd like to turn the webcast over to Jeff Edison. Jeff?

Thank you, Kim, and thank you, everyone, for joining us today. We're excited to provide an update on PECO's long-term growth initiatives. I'll start with these 3 main takeaways. First, PECO's growth company. Our growth is fueled by internal and external opportunities and is executed by one of the best teams in the business. We're not just creating long-term value. We're delivering solid, dependable cash flow growth and setting new standard for performance for grocery-anchored and necessity-based retail. We believe that PECO can consistently deliver 3% to 4% same-center NOI growth and achieve mid- to high single-digit core FFO per share growth year after year.

We have a long-term view of the business. We're aligned with our investors. We think like owners because we are owners. This mindset ensures that every decision we make today is focused on delivering solid growth well beyond 2026. And third, PECO's expertise in grocery-anchored and necessity-based retail provides unique strength and stability. Given our track record through various cycles, we believe an investment in PECO provides a favorable balance of quality cash flows, mitigation of downside risk and solid long-term growth. We believe PECO offers less beta with more alpha.

PECO was founded as a growth company, almost 35 years ago. Today, we're one of the largest owners and operators of grocery-anchored neighborhood shopping centers, with a clear path to increasing our enterprise value to over $10 billion. Our integrated operating platform driven by highly engaged associates allows us to add unique value at the property level.

We manage every aspect of our business in-house and leverage our locally smart expertise to make PECO a preferred landlord. PECO's 95% neighbor satisfaction score from our annual survey validates our locally smart approach. The PECO's team's ability to execute at the property level continues to deliver results.

We are pleased to increase the midpoint of our full year 2025 earnings guidance. The midpoints of our increased 2025 guidance for NAREIT and core FFO per share represent a 7% growth and 6.8% growth, respectively. We're pleased with our preliminary 2026 guidance growth rates for NAREIT FFO and core FFO per share, which are in the mid-single digits. In a moment, Bob will highlight initiatives that strengthen our competitive advantages and drive incremental growth. These initiatives include ground-up development, centers where the grocer owns their space and everyday retail. We're excited about these initiatives because they're natural complements to our core business.

Over time, we believe everyday retail can grow to approximately 10% of our total portfolio. PECO's core focus will continue to be rightsized, grocery-anchored neighborhood shopping centers anchored by the #1 or 2 grocer by sales in the market. As an investor, you want growth, stability, resiliency and strong shareholder returns. We believe PECO will deliver outsized growth in 2025, and Bob and John will share how we plan to continue this momentum in 2026 and well beyond. With mid-to-high single-digit core FFO per share growth and a dividend yield of approximately 3.8%, we target total shareholder returns of 10% or higher on a long-term basis.

We expect 2026 to be a great year for shopping centers. PECO is leading the way. Our core grocery-anchored strategy is proven, and we're just getting started on several incremental growth initiatives. We believe now is the time to invest in PECO.

With that, I'll turn it over to Bob. Bob?

Thank you, Jeff, and thank you, everyone, for joining us today. The PECO team was in New York last week for ICSC. We continue to see high retailer demand for necessity-based retail with no current signs of slowing. PECO's leasing team continues to convert this demand into significantly higher rents. As we heard at ICSC, retailers want to be located at our centers where top grocers drive consistent and recurring foot traffic. This is most evident in what we call SOAR, spreads, occupancy, advantages of the market and retention. You've heard us say it before. We believe SOAR provides important measures of quality.

PECO continues to have significant pricing power demonstrated by strong rent spreads and embedded rent escalators, which are often in the 2% to 3% range for new and renewal leases, respectively. Rent spreads should continue to be strong into the foreseeable future. PECO's occupancy is among the highest in the space, and we expect occupancy to remain high throughout 2026. We believe we can deliver another 100 to 150 basis points of same center in-line leased occupancy. That said, we believe our portfolio can deliver 3% to 4% same-center NOI growth, long term without occupancy growth.

We continue to see many advantages to the suburban markets where we operate our centers. PECO centers are located in trade areas with strong household incomes and growing populations where our grocers and retailers have been profitable. Retention is also an important measure of quality. Our portfolio retention rate was 93% for the first 3 quarters of 2025. High retention means less downtime and lower tenant improvement costs, which translate to better economics for PECO, we expect continued strong retention as we look ahead to 2026.

In addition to our strong leasing activity, rental growth and high retention trends, we are utilizing our competitive advantages to complement our core grocery-anchored portfolio with incremental growth initiatives. We believe the addition of everyday retail, often referred to unanchored centers complements and enhances our portfolio returns, same-center NOI growth, and FFO per share growth while leveraging PECO's core competencies. These centers offer reliable fundamentals similar to our core properties with a stronger long-term growth profile.

Everyday retail centers are located in the same trade areas as our grocery-anchored centers, growing suburban markets with strong median household incomes. We've identified nearly 50,000 everyday retail centers across the U.S., a huge opportunity. With PECO's scale and locally smart approach to the market, we're ready to lead the way in acquiring, owning and leasing these assets.

We are excited about everyday retail, and we are already seeing success in everyday retail centers we've acquired to date. We have invested approximately $181 million into 9 everyday retail centers since 2023. When we look at these 9 centers, we are seeing underwritten unlevered IRRs, 10% and higher, acquisition cap rates between a 6.4% and 7.6%. New rent spreads averaging above 40%. Renewal rent spreads averaging above 25%, and population density and household incomes above our core portfolio.

We believe we can scale everyday retail to $700 million to $1 billion over the next 5 years. This would represent about 7% to 10% of PECO's portfolio. With 29% of PECO's ABR coming from grocers today, we believe everyday retail delivers more alpha while the overall portfolio continues to provide less beta.

Strong demand from national retailers continues to fill our pipeline a ground-up outparcel development and repositioning activity. We will spend about $50 million per year on average, although 2025 and '26 will be closer to $70 million. The increase is due to several teardown rebuild projects for Publix, which are delivering strong returns. We included a case study in our materials for one of these assets.

We also recently acquired 34 acres for a grocery-anchored development project with an initial investment of $10 million. Ocala, Florida is a high-growth trade area with more than 10,000 new homes expected to be built over the next 5 years. We expect to sell part of the land to a national grocer, and then the PECO team plans to develop several outparcels. We'll share more details as the project progresses. We are interested in pursuing more opportunities with leading grocers across the U.S. Grocery-anchored development takes time and patience. That said, we believe there are advantages to working with the nation's top grocers on their expansion plans.

We are optimistic about the opportunity over the long term. Moving on to acquisitions. We continue to believe that PECO offers the best opportunity for external growth within the shopping center space. These investments continue to be core to PECO's long-term growth plans.

Given the strength of the market, the pipeline we are targeting, and the team we have at PECO, we believe we can acquire $400 million to $500 million of gross acquisitions in 2026. Our core strategy remains focused on acquiring rightsized grocery-anchored neighborhood shopping centers, anchored by the #1 or 2 grocer by sales in the market.

Today, this represents 84% of total ABR. PECO holds the #1 position among its peers in percent of grocery-anchored centers at 95% of ABR. Part of our core strategy includes centers where grocery space is owned by the grocer, often referred to as shadow anchored. We own 23 of these centers today, representing about 8% of our wholly owned portfolio by count and about 5% of our owned GLA. The PECO team remains excited about these centers. When compared to our total portfolio, these centers have delivered solid same-center NOI growth and comparable strong retention rates, while delivering higher in-line leased occupancy, higher ABR and higher new rent spreads.

We expect these high-growth assets to continue to be a growing component of our core grocery-anchored portfolio. Beyond our balance sheet acquisitions, our investment management platform continues to expand our deal flow and PECO's access to capital. Our joint venture with Northwestern Mutual and Lafayette Square is ahead of expectations and should reach capacity in early 2026. The Cohen & Steers joint venture has seen occupancy lift above underwriting, and we expect additional acquisitions in this venture next year.

In summary, PECO's core business is grocery-anchored. We are the leader in owning rightsized neighborhood shopping centers focused on necessity-based retail. We are confident in our ability to execute on our plans and deliver solid growth well beyond 2026. This will be driven by both internal and external growth initiatives.

With that, I'll turn it over to John. John?

Thank you, Bob, and good morning and good afternoon, everyone. I'll start by addressing portfolio recycling, then provide an update on the balance sheet, and finally speak to our increased 2025 guidance and preliminary guidance for 2026. The PECO team continues to have significant financial capacity to support our long-term growth plans. We have diverse sources of capital that we can use to grow and match fund our investment activity. These sources include additional debt issuance, dispositions and equity issuance.

In 2025, we've seen a meaningful increase in transaction activity across the U.S. both in assets coming to market and interested buyers. We believe that private markets are more appropriately valuing grocery-anchored shopping centers compared to the public markets. This gives us an opportunity to lean into portfolio recycling. We aim to sell assets with an IRR of 8% or below and then use the proceeds to help fund acquisitions above our target 9% unlevered IRR. Year-to-date, through December 12, we have sold approximately $106 million of assets in 2025, and we plan to sell between $100 million and $200 million in assets in 2026.

As long-term owners of these properties, we focus on IRR. However, we also watch for accretion and dilution to earnings. We expect minimal short-term impact from dispositions to 2026 FFO. In 2025, the cap rate on dispositions was slightly lower than our acquisitions, and we would expect them to be close in 2026. We are maintaining a high-quality portfolio while improving PECO's long-term growth profile. This activity provides PECO the opportunity to realize the gains we've achieved while investing in future growth. We believe this approach helps drive solid NOI growth long term.

Turning to our investment-grade balance sheet, we have a strong liquidity position, combined with our proven access to the equity and debt markets, we have the ability to execute our growth plans. It's important to note that PECO can acquire $300 million of acquisitions annually and remain leverage neutral. PECO generates over $100 million of free cash flow after our dividend and maintenance capital expenditures. When we're growing same-center NOI between 3% and 4% annually, we generate additional leverage capacity from our solid growth in adjusted EBITDA. We have a long-term leverage target of low to mid-5x net debt to adjusted EBITDAR, and we hold BBB flat and Baa2 investment-grade ratings from S&P and Moody's, respectively.

PECO's Board of Directors increased the company's dividend rate by 5.7% this year. We offer a predictable income stream for our investors through monthly dividends. We believe an investment in PECO provides shareholders with the right balance of stability and growth. PECO's strong financial position, including our well-laddered debt maturities and a low payout ratio supports future stability and dividend growth. We believe that performance over time and consistent earnings growth will be rewarded in the capital markets.

Moving on to guidance and our long-term growth targets. As it relates to full year 2025, we are pleased to increase the midpoint of our guidance for NAREIT and core FFO per share. Through December 12, we have completed $396 million of gross acquisitions at PECO share, which is at the midpoint of our guidance. Our early pipeline for 2026 is strong. We have updated additional full year 2025 guidance components in today's presentation materials.

Next, I'll walk you through some of our assumptions for 2026. From a macroeconomic standpoint, PECO's outlook for next year does not assume a recession. We continue to see a resilient consumer and our top grocers and necessity-based retailers continue to drive solid foot traffic to our centers. As we look at retailer health, we continue to feel very good about PECO's portfolio. PECO has among the lowest exposure to at-risk retailers. Our watch list remains small. We're not concerned about bad debt in the near term and expect bad debt for next year to be in line with 2025.

We are comfortable with our preliminary guidance range for bad debt due to our visibility into PECO's strong leasing pipeline. Should we see a weaker economic environment, we believe PECO's grocery-anchored necessity-based focus will demonstrate the resiliency of our portfolio as we saw during both the GFC and pandemic.

As it relates to interest rates, we anticipate lower short-term rates in the near term. Meanwhile, meaningful recent declines in interest rates should continue to be a positive for real estate values. PECO match funds or acquisitions, so they are accretive on both an immediate and long-term basis.

PECO has no meaningful maturities until 2027, and we will look to refinance those next year. Our preliminary 2026 guidance assumes a mild interest rate headwind, which is lower than 2025. PECO also continues to benefit from a number of positive macroeconomic trends that create strong tailwinds and drive strong neighbor demand. These trends include a resilient consumer migration to the Sunbelt, population shifts that favor suburban neighborhoods, and the importance of physical locations in last-mile delivery.

The impact of these demand factors are further amplified due to limited new supply over the last 10 years and going forward, given that current economic returns make it challenging to justify new construction of shopping centers. Given these assumptions, initial net income guidance for 2026 is in a range of $0.74 to $0.77 per share.

Our same-center NOI growth for 2026 is projected to be in a range of 3% to 4%. We are not currently anticipating any significant onetime items next year. As we head into 2026, we anticipate same-center NOI growth to generally accelerate quarter-to-quarter throughout the year.

Our gross acquisition guidance for 2026 is projected to be in the range of $400 million to $500 million at PECO share. Our guidance for NAREIT FFO for 2026 is estimated to be in a range of $2.65 to $2.71 per share. This reflects a 5.7% increase over 2025 comparing, midpoint to midpoint. Our guidance for core FFO for 2026 is estimated to be in a range of $2.71 to $2.77 per share. This represents a 5.6% increase over 2025 comparing, midpoint to midpoint. We have also provided initial ranges for the other guidance items used in your models in our presentation materials.

As Jeff mentioned, we are pleased with our 2025 and preliminary 2026 guidance growth rates for NAREIT FFO per share and core FFO per share, which are in the mid- to high single digits.

Now I'll walk you through the components of PECO's long-term growth. Looking beyond 2026, we continue to believe our portfolio can deliver 3% to 4% same-center NOI growth annually on a long-term basis. We are at high occupancy levels in our portfolio. And although we believe we can continue to raise occupancy, we are reiterating that we believe we can deliver that 3% to 4% same-center NOI growth annually without additional occupancy lift.

While we do believe that we can still push same-center in-line occupancy higher, we don't need it to deliver same-center NOI growth in this range. High occupancy in our portfolio gives us pricing power to drive strong rent growth through both new and renewal rent spreads as well as higher annual escalators in our leases. Our long-term same-center NOI growth is driven by new and renewal rent spreads and embedded rent bumps that are contributing around 100 basis points to 2026 annual same-center NOI growth and gradually climbing. This was 60 basis points, not long ago.

The PECO team continues to invest in value-creating ground-up outparcel development and repositioning projects. On a long-term basis, we expect to invest about $50 million annually in these opportunities with weighted average cash-on-cash yields between 9% and 12%. As Bob mentioned earlier, our opportunity to invest is higher in 2026, around $70 million, which we're excited about. This activity remains a great use of free cash flow and produces attractive returns with less risk. We continue to grow this pipeline as the returns are accretive to the portfolio. We believe that investing in development and redevelopment project is 1 of the best uses of our capital today, enhancing long-term value.

In summary, PECO's strong NOI growth is the result of our high-quality portfolio and unique competitive advantages. As it relates to the transaction market, we see the strong fundamentals of grocery-anchored shopping centers further strengthening. It's no surprise that grocery-anchored is attracting more attention in the market. We expect the heightened attention to continue as the operating fundamentals of grocery-anchored centers offer a highly attractive growth profile relative to other real estate classes. Does this make the transaction market more challenging? Absolutely. That said, we have strong grocer relationships. We have the best acquisitions team in the business. We have demonstrated success in finding core grocery-anchored opportunities.

We are finding under-managed and under-occupied everyday retail centers, and we have the joint venture expertise and relationships to continue to find exciting opportunities. This is why we are confident in our ability to deliver on our gross acquisitions guidance of $400 million to $500 million at PECO share in 2026. We believe PECO is different than triple net REITs because of the strong internal growth that our operating platform delivers. This amplifies PECO's buying potential annually. As we look to our long-term core FFO per share growth, PECO's core earnings growth is driven by both internal growth and external growth.

Our 3% to 4% same-center NOI growth is worth between 350 and 600 basis points with operating leverage. Our external growth, which includes the initial cap rate spread at acquisition to our cost of capital as well as the nonsame-center NOI growth we create is estimated to deliver 100 to 350 basis points of core FFO per share growth. As we've said previously, we believe this portfolio and this team can 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 activity.

We believe our targets for core FFO per share and AFFO growth will allow PECO to outperform the growth of our shopping center peers on a long-term basis. Lastly, while equity is not required to drive external growth in 2026, we would consider raising equity if our stock were to trade at an accretive level. We are not assuming any equity issuance in our preliminary 2026 full year guidance. PECO is a growth company, and we continue to invest in future growth. We believe the best use of capital today is fueling our internal growth engine through our development and redevelopment activity and driving external growth through acquisitions of core grocery-anchored centers, everyday retail centers and joint venture opportunities.

From an external growth standpoint, we believe we have proven that we are disciplined buyers. We continue to target an unlevered IRR of 9% for our core acquisitions and above 10% for everyday retail centers. If we look at everything we have acquired over the past few years, we continue to outperform our original underwritten return expectations. We will maintain our disciplined approach and focus on accretively growing our portfolio. All of these factors, combined with PECO's unique advantages and our focused strategy give us confidence in our long-term growth plans.

In summary, we believe the quality of our portfolio and the strength of our operating platform will give PECO the best opportunity in our space to maximize FFO and AFFO per share growth. With that, we will take your questions.

Thank you, John. We will now begin the Q&A session. [Operator Instructions] So with that, we'll start with our first question. Our first question comes from Andrew Reale with BofA.

I appreciate the detail around your '26 acquisition outlook. I was just wondering, as competition for high-quality grocery-anchored assets continues to intensify, how does your strategy enable you to source deals and maintain your 9% plus IRR target on new core acquisitions?

Well, Andrew, thanks for the question. I think it kind of gets back to sort of the origins of PECO, which is we've always had really a nationwide look at the -- at our markets, and we shop for product across the country. And what that does is it opens up more markets that we can buy in. We have a bigger sort of place to shop for buying shopping centers. And what that does is it allows us to find inefficiencies in the market, where if you're in -- if you're only focused on 5 or 10 markets that you can go into, that's a much smaller market than where you have to play.

So we like to have a bigger field to play on, and we've proven that we can find properties across the country that meet our top standards, but in doing that, gives us more opportunity to buy more. And that's, I think, why we've been able to consistently be the largest buyer on an individual basis of shopping centers -- or grocery-anchored shopping centers in the United States. Bob, anything else you want to add there?

Yes, I would love to add, it's been an interesting year in the sense. We're seeing a lot more product than we have. Certainly, 2023 was extremely choppy, but when you look at this particular year, when I look at our statistics, we presented over -- we underwrote 585 deals this year compared to 284 deals last year. And we submitted to our investment committee 327 deals compared to 152 deals. So that's a great indication of just, I think, what we're seeing and the amount of volume that's going to be out there. So again, we're going to keep our discipline and solve for our 9% unlevered returns, which we've done successfully. And we feel real good coming out of the New York ICSC show that we're going to continue to see some level of consistent acquisitions.

Great. Any follow-up question, Andrew? Go ahead.

Just a quick follow-up, and I apologize if I missed this during the prepared remarks, but could you quantify your '26 bad debt expectation as a percentage of revenue? And just remind us where that falls versus your long-term historical average?

John, do you want to take that?

I get all the fun questions. So if you look -- to answer '26, let me point to '25. So '25, we set the guidance of 60 to 100 basis points was our guidance range. We're coming in this year. Year-to-date, we're around 75, 80, and I think that's going to finish the year about the same. When I look to '26, the dollars that we provided are about the same, about 60 to 100 basis points. We really don't see anything on the horizon that's changing. We think there's a good consistency here, and we're really pleased with the growth that we're going to put up next year.

Our next question comes from Haendel St. Juste with Mizuho.

Appreciate the presentation, very helpful. My question for you, John, maybe another fun one. Can you talk about the guide a bit more, the FFO guide? What's embedded for G&A and interest expense for '26, and how that compares to '25? I'm curious kind of how much that might be contributing to the growth in year-over-year FFO. And I know there isn't any equity embedded in the guide for next year, but can you clarify if there's any debt issuance embedded in the guide?

Sure. Thanks for the question, Haendel. So when we look to the FFO guide, and you specifically asked about G&A and interest. So when we look at G&A, I think midpoint to midpoint of '26 over '25, it's about 2%. We've made investments in '25 that are really allowing us to scale and really focused on efficiency in our portfolio, and we look at it very closely on operating metrics as well as earnings metrics, and that is something that we will continue to do. So when we look to our growth for '26 and beyond, I would think that we're actually inside of inflation, and I think that's what our target would be there.

When we look at interest expense and our math even on the guide, nominally, like there is some interest rate headwinds still, but ultimately, we've been laddering our maturities, and right now, we would be issuing somewhere. It depends on where the tenure is at the moment, let's say, 5.25%, even inside of that on a new 10-year. So as we look at it, our plans are to have incremental debt issuance, we mentioned it. I think, I said it a few times in the prepared remarks that we can acquire $300 million of assets without incremental equity because of the growth we get in the portfolio and the free cash flow that we retain.

And so we have -- the debt markets are actually very open right now, both on the unsecured basis and all the different ways that we examine it. We want to be a continued repeat issuer in that market. And so we feel really good. But yes, there will be incremental debt that is issued, but we are also committed to our low to mid 5x on a debt-to-EBITDA basis.

And I'm not sure if I missed it, but did you comment on G&A, your expectations for next year versus this year?

Yes. So specifically in the guide in the materials, we give you a range. And so that -- you could use that. But if I look at midpoint to midpoint, it's '26 over '25, I believe it's up 2%.

Our next question comes from Caitlin Burrows with Goldman Sachs.

Can you hear me now?

Yes, we can.

So you mentioned that rent bumps are contributing about 100 basis points to same-store up from about 60 basis points, not long ago. So can you give more details on the conversations you're having with retailers on this topic? How receptive they are versus the pushback and what you think the annual rent bumps can get to over the next, I don't know, 1, 3, 5 years?

Yes. Bob, do you want to talk a little bit about our -- what we're hearing on the leasing side in terms of that? And then, John, if you want to add in, in terms of the pace at which we anticipate that getting that throughout the portfolio.

Absolutely. Thank you for the question, Caitlin. And it's a great question because that's something we've been very focused on doing. If you look at the current market, the lack of supply, our overall occupancy at 97.7%, we do have pricing power and leverage to negotiate some of these rent bumps into it. We're very focused on, not only rent bumps, but improving the integrity of the leases and the nonmonetary clauses that we're getting. So currently on our renewals, we're getting around 22%, 23% year 1 with 3%, 3.5% annual CAGRs. And on our new leases, we're very focused on -- if you look at our leasing spreads, we've been around the 30% mark, and we plan to do that again in the fourth quarter with annual increases between 2% and 3%.

So we feel like we're in a very good space coming out of New York ICSC, the retailers are still very bullish. I'm not seeing any signs, any cracks, anybody pulling back, they're going through our rent rolls focused on stores for '26, '27 and '28. So the visibility that we have as an organization on our renewals and new leases would suggest that we should be able, over a period of time, to continually improve that stat.

And as we look at the contribution to NOI, you're right, it has increased. We're at 100 basis points as a percentage of NOI, our kind of components, long-term guidance would say, 100 to 120, but I think that's because of where we are right now. I mean, I think this could get to 120 to 140 over, I would say, we've been ticking up about 10 basis points a year. I think that's a reasonable take, but right now, Will says 100 to 120, and we'll go up from there as we get there.

Got it. Okay. And then it sounds like maybe we could ask a follow-up. So I guess, just as a follow-up, as we think about the 2026 outlook. I guess, are there any pieces that you could point out that could still create upside to your midpoint or even high end of guidance, maybe what you're assuming for timing of acquisitions? Or is there anything else, like I know sooner economic occupancy can make a big difference for some companies, I'm not sure how meaningful it is for you guys?

Well, let me -- I'll take the first crack, and then John or Bob jump in as well. I think, one area is that in the assumptions in this base model is that we are not going back to the market, to raise any additional equity based upon where pricing is today. And that is -- we're managing our balance sheet on an acquisition side based upon that assumption. So that would be one area where we think there is some upside under certain scenarios. We're obviously not going to go there with where we are today, but it is something that we see as an opportunity, certainly on a longer-term basis to accelerate our acquisition pace and to make sure that we're match funding both the debt and the equity to make sure that our balance sheet stays pristine as it is today. John, any other pieces there that you think may be additional upside opportunity?

I think, to Caitlin, to your point, if I compare the midpoint to the high end, that's really -- I would say you can get there by getting from the midpoint to the higher end of the NOI guidance, which would -- the biggest impact is likely going to be economic commencements earlier. I would also say continued strength or even better strength in new leasing spreads. I would say that capital markets favorability from an interest perspective could be beneficial. I know that there are projections of varying degrees out there as to improvements or detriments for '26, and we've kind of got a nice base case in there. But it's really only $0.03 from the middle to the high. And so just a few pieces there can help us achieve I would highlight that we did update our 2025 guidance, and I think we are pushing on the -- when you compare where we were originally to where we're projecting now, we have seen a nice increase mostly through the strength in the portfolio.

Our next question, I'm going to read from our webcast. [Operator Instructions] So the question comes from Mike Mueller with JPMorgan. Can you speak to the average size and dollar cost of everyday retail centers, is everyday retail a pivot that's being driven by traditional grocery-anchored centers having lower cap rates today that make the math harder to work? Or are we just seeing a lot more growth in the everyday retail acquisitions?

Mike, it's a great question, and one that we're actually really excited about the opportunities that we think that -- where this is sort of a natural extension of our core business to find additional ways to grow, and so we're really excited about it. Bob, you want to kind of walk through sort of our thinking on it and where we are excited about taking it?

Yes, absolutely. So thanks for the question. We are very excited about this. Now so far, we've acquired around 9 assets for $180 million. Average size currently is usually between 40,000 and 50,000 square feet. Our average cap rate on these assets have been right around 6.9%. We are solving for a 10% unlevered return. We are seeing high-quality demographics that are accretive to our overall portfolio. So we're very focused on our core markets. We want to be close to the #1, #2 grocer.

We're looking for growth pockets, and we're seeing a lot of success in it. When I look at our results, and it is early days, and it is a small portion of our business today, but I will say that this is something we're excited about over the next several years, and I think we can grow this business to somewhere between $700 million and $1 billion over the next 4 to 5 years. With that being said, early indications are already showing us that we're seeing new leasing spreads at the 45%, 46% range and renewal spreads at 30%.

So we're capitalizing on the opportunity here to buy assets at that 6.8%, 6.9%, $305 a foot that we can grow and we can put our PECO machine on it and create value for our shareholders.

Yes. Like we're -- I'm glad you asked the question because as you can see, it's something we're excited about. I want to make sure that as we talk about it, we keep its scale in line. I mean, our core business is a grocery-anchored shopping center business. This is something that we think we can add some additional growth to the portfolio through but I don't want it to be mistaken in any way that this is a new core business for us. This is something that we think we can add on and add additional growth through our acquisition process of this product. But we're still -- our core business is the grocery-anchored shopping center business.

Our next question comes from Tayo Okusanya with Deutsche Bank.

Can you hear me now?

We can hear you now. Thank you.

Perfect. Yes. Curious at this point based on whether feedback from ICSC New York or other conversations you're having with the retailers, like what's the view today just around the potential impact of tariffs. I think at 1 point, there was a view of retailers are going to [indiscernible] at the very, very beginning of this whole thing getting implemented. But now if their margins are thinner they may now decide to maybe try to pass it on to consumers. Is that really happening at this point? Is that changing? How are they thinking about their business and their margins or are they much more focused on maybe even potentially tariffs going away through a decision by the Supreme Court?

Yes. It's a great question, Tayo. We -- and I appreciate and if you step back to April, May of this year and you think about where we were on tariffs and where we -- the sort of the whole consciousness of like where is this going and the uncertainty. What I think is happening is we -- the retailers like they always do, they've adapted. And they're the best -- their business is all about supply chain. And that's what they've done. They've adapted to the environment they're in. And some of them have been -- it's hurt some of them more than others.

But at its core, we're kind of through, I think, the dramatic impact, and you're going to see small -- you're to see impacts in specific -- with specific retailers with specific product, but they have moved ahead. And so it could be that we'll see impact into '26. But I mean I'm thinking is that we've had the major hit, and now we're going to be working at the margin. And as we said when this first happened, we were very fortunate to be in the necessity base side of the business. And when we looked at where the impact was going to be, it was 85% of our neighbors were going to be in that low end of impact. So we were very fortunate in that, but I think we're also fortunate that the impact was not more sizable to the more discretionary side of the business and it appears not to have been.

Our next question comes from the line of Todd Thomas with KeyBanc, Todd, you can unmute your line.

Can you hear me okay?

We can.

All right. Great. I guess, first question just around acquisitions. Jeff, Bob, you talked about the growing pipeline. Curious how much of the $400 million to $500 million of acquisitions, you would say that you have line of sight into today? And any insight on the breakout that we should anticipate between on balance sheet and investment management deals that you might anticipate? Just trying to get a sense of sort of the fees and initial returns on that $400 million to $500 million of PECO shares since it seems like the returns are a little bit higher on the joint venture deals.

Todd, thanks for the question. The $400 million to $500 million that we're talking about is at our share. So that has in it what we anticipate doing on the investment management side for our share of the investment. And I think the we feel good that we have a similar pipeline going into next year that we had this year. And so I think in that environment, we feel good about the guidance that we've given on acquisition pace. And there's nothing that we see that is a big contraction in terms of number of products, as Bob pointed out earlier, I mean we're seeing a strong flow of product for sale in our space.

And so we feel good about going into next year that we've given a guidance that gives us a range, but I think we feel really good about being able to get there. Bob, any other things you want to add in there?

The only thing I would add would be, right now, we've closed on right around $395 million at PECO share. So we either finish the year around $395 million or $425 million. We're still negotiating and retrading a particular deal that may or may not close, to Jeff's point, We have somewhere between $150 million and $200 million that we've been awarded or under contract to close either by the end of the first quarter or early second quarter. So we're in a very good spot.

Okay. That's helpful. And then second question for John. I wanted to go back to the interest expense assumption that's underlying guidance, $117 million to $127 million. It looks like you're running at about $115 million-ish on an annualized basis from the third quarter, interest expense amount. And you had $275 million of notional swaps burn off in November and December, an incremental $200 million of swaps expire in September of next year. And you mentioned some potential new debt capital would be reasonable to assume is layered into the year to help fund acquisitions. Can you just provide a little bit more detail around some of the interest expense assumptions?

Happy to. So a couple of things. So I knew that there is likely going to be a swaps question [indiscernible], but I'm glad you helped him out here. So when we look at the swaps that have expired, we're okay. So I think we have one that will expire here in a couple of weeks. At that point, we'll be approximately 84%. We have a long-term target of being 90% fixed. But we -- and we also want to be a long-term issuer in the unsecured bond market, and our plan is to issue debt into that market on an extended basis, and that will help manage us to the number that we're talking about.

I will tell you that we also disclosed that we've sold approximately $106 million of assets as we're sitting here today. So we're actually running without any debt on the line. And while we have provided the gross acquisitions guidance in the prepared remarks, we did also talk to about $100 million to $200 million of dispositions next year, I spent time kind of describing our perspective on recycling. And so all the assets that we're selling, the recycling is truly -- we're going to be putting those right into acquisitions and managing the dilution that I think the market would have concern about. So when you take those factors in there, the $100 million that we've got in term loans next year, we'll likely repay that or put that on the line through a debt issuance. We want to be opportunistic as we look at our interest costs and our debt issuance.

Not timing the market necessarily, but are looking for good windows to do that. So when we are thinking about it from a debt issuance perspective, we have $1 billion line with meaningful liquidity there, that the acquisitions that Bob talked about will be added to the line, give us an opportunity so that we can use those proceeds to start refi in 2027. I think as we look at it, we'll float at the 84% until that next issuance comes later. But I think perhaps the delta you're looking at would be some of the $100 million to $200 million of disposition that would be temporarily housed to then fund additional acquisitions.

Okay. That's helpful. The interest expense headwinds that you referenced in your commentary, though, is that primarily due to the swap expirations?

I would say yes. I mean, when we are running the math, it's small, not enough that when I think about our guidance that it's there. But ultimately, our weighted average interest is around 4.4%. And as I told you, my incremental borrowing cost on a long-term basis is a little above 5%. So it's not a lot, but ultimately, we're excited about being able to deploy that into these assets and acquire.

The other piece I meant to mention is as we think about it, Bob had talked about line of sight on the acquisitions. I would think similarly that more or less as we look at it, we know the volume and the timing. And I would think that from there, from a modeling perspective, you could sort of kind of linearly assume that throughout the year, but the timing and also timing early or late could be beneficial from an earnings perspective.

Our next question comes from Michael Griffin with Evercore.

I appreciate the business update presentation. I know a lot of this conversation was spent on sort of growth opportunities and the year ahead. And maybe as you look at the portfolio, I'm just curious because obviously, the grocer anchor is a big part of the value proposition, but it seems like that is the lower growth part of the center and you make your money on the in-line shops. So just curious if you thought about or if there's the potential to monetize maybe the grocer portion of the center still have it as almost a shadow anchor and then try to redeploy those proceeds into some more of these Everyday Retail centers that you guys were talking about?

Griff, good -- it's a great question. And it is certainly something that is sort of top of mind for us in terms of where is our best cost of capital and what are the vehicles that will allow us to create more growth in the cash flow of the company. So if you think about how we dissect our centers, the grocer is that I mean it kind of has a halo impact on the entire center because it brings in that 1.7 visits a week that our customers in the trade area do. And that helps all of our small stores.

And then the merchandising of our small stores and the traction they have does the exact same thing for the grocer. So they're both sort of having a halo effect on each other. That's how we can drive rents. We can drive rents by driving sales of our small stores. We -- as you point out, our grocers are flat. I mean they're going to be relatively flat for and controlled for a long period of time, which on the 1 hand, is flat, and that's not great for growth, but it's also a very dependable strong amount of cash flow. And it's in the high 20s for us today in terms of what we're getting from our grocer.

So I think if you -- what we're -- what we don't want to do is get away from the -- in our core business from the halo effect that we have from the grocer and that's where your comments about could you peel off the small store space could be attractive to us in the right setting because you -- what you're doing there is you're taking that growth -- the highest growth part of it. And if you kind of did that with the centers that we own today that are anchored, where the anchor owns the space, so they're shadow-anchored or sort of halo centers as we look at them, if you take that, that growth would be about 6% same-store NOI growth versus 4%. And this is over the last 3 years for the entire PECO portfolio.

So there is additional upside in that as you point out. So certainly something that we are in conversation. It's a very complicated transaction. It's unlikely to happen unless it's directly with the grocer because of the complications of it, but something that we see as an enticing potential source of capital that we could get very efficiently.

Thanks, Jeff. Appreciate the color there. And then maybe I think you mentioned sort of tenant credit. The watch list hasn't really changed at all. But if you think about maybe industries or categories you're keeping an eye on. Does the QSR segment start popping up at all? I know I think it's about 20% of the ABR, but it felt like we were hearing some stuff, whether it's around food inflation or customers may be trading down, eating at home as opposed to going out. I mean is there anything in there that we should be worried about heading into '26? And just how is your mind about that segment broadly?

It's a great question and it is top of mind for us because they're a fairly solid piece of our overall portfolio. Interestingly, if you look at -- and this is a generic term that the ICSC use for their fast food, which is a QSR kind of substitute. The last 12 months, the average per square foot sales of $774, that was $763 in '24, and that's as of October -- at the end of October.

So you you're not seeing sales change. And that's where I think people are most concerned is that they're going to get to that point. Are you going to see some of these guys in trouble? Yes, because they're -- that is just the nature of the business. They don't -- and it's more of an operating issue than it is. People leave -- not going to in QSR. So we continue to watch it. Bob, I don't know if you have anything in addition. Obviously, the ICSC, you said, it was really strong from the QSR as well.

Yes. I think it's a great question. And you're right. There is a little bit of noise out there. But that being said, the demand in that category is through the roof. So if we do lose a QSR, we have 2 waiting want the space. And you'll typically find in a great QSR, the locations are great. So I think we're in a very good spot in terms of not seeing any cracks in particular, regarding anything around our merchandising or the retailers. We will continue to focus on QSRs and health and beauty services, Medtail, 70% of our rents are necessity-based. So what we take a lot of pride in is just really working the merchandising at every property. And we continue to see a lot of success and it shows through our occupancy and our spreads.

Our next question comes from the line of Ron Kamdem with Morgan Stanley.

Can you hear me now?

We can, loud and clear.

Okay. Great. Just 2 quick ones for me. The first one is just on the -- the presentation was really helpful. Maybe just on the 100 to 150 basis points occupancy upside you still think is in the in-line portfolio. Maybe can you just provide a little bit more color on how you get there. Is that sort of a 2- to 3-year target? How are you guys thinking about sort of getting that last bit of occupancy?

Bob, do you want to take that?

Yes. Great question. We've been very focused on moving our in-line portfolio another 100 to 150 basis points. So currently, we've been anywhere between 94.8% and 95%, and I think it's very realistic that we can get to 96%, 96.5%. I do a lot of creative things with our leasing team in terms of incentives, bounty spaces, targeted spaces to really pick up the additional 100 to 150 basis points. As an example, when I put that incentive in place 2 years ago, we leased about 35% of those spaces. Last year, we leased 65% of those spaces. So I have a new list again. And I think if we can lease those spaces, we'll get that 100, 150. I think your comment about 2 to 3 years is right on the mark.

Great. Helpful. And then I think this is the first time -- just going back to the Everyday Retail. I think this is the first time you sort of mentioned getting it to 10% of the portfolio and the $700 million to $1 billion target and so forth. I guess I'd love to hear just a little bit more about how these deals are sourced, what the competition sort of looks like and so forth.

I'll start and then Bob, you jump in. That number is over 3 years. We'd like to get to $1 billion over 3 years. And as you know, we are very disciplined in this process just like we are in all the rest of our processes. And we -- that is under the assumption that we will continue to see the kind of results that we have in that space. So it is -- we're excited about it. We're committed to that, but we're also -- we're going to apply the same discipline to buy in those centers that we do to the rest of our portfolio. Bob, do you want to talk a little bit also?

Yes. Great question. What I'm really excited about is there's -- as an example, if there's 6,000 opportunities in our core grocery space that we're looking at every year, there's 50,000 Everyday Retail centers in our markets that we're interested in. We're going to continue to see a lot of supply. Every week an investment committee, our team is reviewing anywhere between 5 and 8 of these opportunities weekly. So they exist. Where we have a competitive edge is we're a cash buyer.

And a lot of times, I'm hopeful that our sophistication will allow us to find opportunities. We could be very selective. We can negotiate hard, we can fall in and out of contract, which we've done which is why if you look at our portfolio of 9, we've averaged a 6.9% cap rate with unlevered returns around a 10.3%, 10.4%. So again, I think it's very real. We're going to take our time. We're going to do it our way, obviously, but I'd love the incremental NOI growth that's going to give our portfolio. John and I, Jeff, all believe that we can drive somewhere between 4% and 5% same-center NOI growth out of these Everyday Retail centers. And that is a nice sweetener at 7% to 10% of our overall portfolio.

Our next question comes from the line of Juan Sanabria, sorry Juan, with BMO, Juan, you can unmute your line.

Can you hear me?

Loud and clear.

Just hoping to piggyback off of Ron's question there. I guess 2 parter. One, how much is assumed within the core or normalized FFO guidance would come from acquisition accretion? And then secondly, is there any sort of breakout you can provide in the $400 million to $500 million of acquisitions that are earmarked for '26. What would be your traditional grocery anchor versus the new Everyday Retail and the shadowing that you talked about a little bit in the prepared remarks.

Sure. Why don't we -- John, do you want to take the first part, and then we'll talk a little bit about sort of the makeup of the portfolio that we plan to buy.

Juan, in our presentation, we provide our kind of wheel of growth on NOI, and we also provide kind of a wheel of growth on FFO. One of the things that I love about the resilience and the reliability of this business is we talk about more alpha and less beta and part of it is the consistency of how our growth fits that wheel. When I look at '25 and when I look to '26. So in '26, specifically, the majority of our growth is coming from the same-store NOI pool and the lift that we received there.

We're also going to receive some FFO lift from the acquisitions that were made in 2025, both from just a timing factor, but also even growth that we're able to realize in these assets before they ever enter the pool. When we look to the contribution from current year acquisitions, that is I would say 75 basis points or less of any of that year and what we're modeling for '26 on a growth basis. So I think when we talk about being able to deliver mid- to high single digits, it is the consistency of our growth that gives us the ability to say that and '26 is right there with it.

And Bob, do you want to talk a little bit about how we're approaching the breakdown of the portfolio in terms of where we think this will come out. I just caveat we're -- these are all assumptions. We're going to go after this market hard, and we're going to take advantage of where we can find product. We -- and I think our discipline is such that we'll give you some guidance of where we think it will happen. But we want to make sure that it's clear. We're going to go where we can find opportunity. So sorry, Bob, but I just want to make sure we're not -- this is not as much of a science in terms of breaking it down.

Yes. And we'll figure it out as we go. But what I will say is most importantly, everybody knows that we're not a cap rate buyer. We're an unlevered return buyer and we've solved for 9, 9.5 and 10 across those categories. At $500 million potentially of next year, I think you should assume that 80% is going to be the core grocery piece and that could be shadow. But again, shadow is defined as the grocer owns the location, and I'm very comfortable with that. So I think I would go 80-20. And if you really want to bifurcate it, my best guess would probably be 60% core grocery owned, 20% shadow and then 20% Everyday Retail. Best guess.

Understood. And totally get it that these are variable or fluid numbers. But -- and just the last question for me. With the higher IRRs, excuse me, targeted for the everyday grocery. Just curious about the risk or the offset and getting that higher potential growth through the cycle and what that may mean in the downside in case we ever do kind of stumble into a recession. So just curious about kind of how you think about the -- clearly you articulated in the upside, but maybe the downside risk over the long term.

Yes. Bob, do you want to talk about where -- sort of how we've looked at it historically and experience we've had.

Yes, absolutely. I think the most important aspect of it is, I mean, given no new supply and the demand has been very aggressive. We've already moved the occupancy in a lot of the shopping centers of the 9 that we've acquired by 500 to 800 basis points. We acquired 1 center in Columbus, Ohio that we acquired at 84%, 85%. We're currently at 98%, 8 months later. So I don't see a slowdown in that. What I'm really excited about is that we have a fully integrated operating platform, and we have our own national accounts team and our national accounts team is very focused on remerchandising these assets.

So we're looking for the inefficiencies, which is why we're able to get to the 10% unlevered as an example, and buy closer to a 6.9% or 7%. So we're already seeing that. Our focus is to take our national account team, remerchandise and find the quality of necessity-based goods and services.

That's where the inefficiency is. A lot of these opportunities are locally owned. So we have the opportunity to bring in our institutional knowledge, our relationships and take that increase in national tenants and necessity-based goods and services. We want to operate in the same way we operate our core grocery-anchored business. And if you look at our results through the great financial crisis, and COVID, we lost the lowest occupancy. And it was because of that strategy. We're going to implement the same strategy with Everyday Retail.

If I might add, I'll just -- I'll also say, so -- he's the bullish one. I'm the conservative one. It's the chairs that we have. So when I think about the question you asked, what we did is we looked at our portfolio of over 330 shopping centers. And I said, okay, there must be aspects that could kind of look like this and my team looked at it. And they went back years, they went back through the pandemic and they said, "Okay, well, what happened?" So just inherently, because you don't have that 30% from the grocer, there was more movement but ultimately, they recovered faster than the in-line spaces. So what we found is that you might have more, but a little more volatility in the time, but the resilience. And to Bob's point about the operating platform, our ability to understand the right uses for these centers, having the right local neighbors that are there.

And I will tell you, in the pandemic, those locals were actually better to work with than some of the national, they opened faster because this is their livelihood and importance to it. So I looked at it, the data, and it actually proved out that there is less volatility and less risk then I think you would otherwise perceive. Obviously, everything could be different in the future.

But there is resilience there. It's the same reason we talk about the local neighbor in our grocery-anchored portfolio. And we think that really makes a lot of sense. And when you look at the kind of the capital position that you're giving to them, the economics make a lot of sense. So it is something we see. I also would add, I don't think I've said it yet, is I think the other piece is the complement of Everyday Retail in a predominantly grocery-anchored portfolio because 30% of our income is coming from the grocer that gives us the stability at a portfolio level to pursue these avenues of growth.

Our next question comes from the line of Rich Hightower with Barclays.

Can you hear me?

Yes.

Okay. Great. So I know that we've covered a lot around on the call, so I really appreciate all the color. I guess 2 quick ones for me. So a lot of the questioning has been around potential upside, let's say, to fiscal '26 guidance. So I'm actually curious what could drive you to the low end, whether it's timing, around deal volume, whether it's something in the bad debt line, what set of circumstances based on what we know today would lead you to the low end? And then I've got 1 follow-up after that.

John, you want to walk through that? Because I mean, I think most of it, these are -- they're the major things that would drive us down are more external things than they are with -- internally that we've got. But do you want to go through that, John?

I spend my days on the conservative end and worrying. You should go back and look at pictures from years ago. This gray was the silver, as I say, it wasn't there. Look, to Jeff's point, the majority of '26 is already done. I mean, like ultimately, there is -- it takes time to execute these deals to work on our redevelopment projects and things moving. So the pieces that would move us to the lower end are going to be macro-related and much more steeper recession than would be expected, a big push that would -- could increase bad debt in some way.

The other piece I would say would be in the capital markets given we are capital intensive, we don't need equity. But to the question earlier, we do need debt. And so if there were a change from what is expected in a meaningful way. Because again, we're almost 90% fixed today. So it wouldn't have that spot. But if rates were to immediately shift in a negative way, it could move us a little bit.

But again, I think when you sensitize these things across the breadth of our portfolio, it's still quite managed, but that could be the difference between 50 basis points on NOI, it could be 50 basis points or so in FFO.

All right. That's great. I guess my second question is around G&A. So if at the midpoint, you're growing 2% in '26. As the portfolio gets bigger and bigger year after year, how do you expect G&A to sort of scale with that growing size of the company and what sort of operating leverage should we sort of anticipate as we model the company out beyond '26?

Well, I'll start, John, and then you can kind of help us with the sort of how the numbers play out. I mean we have -- the stuff that we're talking about today is stuff that we invested in '24, even late '23, '24 and '25. So 1 of the -- we are actively investing in our growth opportunities on a regular basis. Whether that be in specific acquisition areas where we want to have better expertise, whether it's on the AI side. We see that as something that is a key part to creating the growth environment that we have and that we want to continue to push. So I think it's -- we think it's really important to know that we are -- it's not that we don't see a big jump this year. But we -- but the stuff that we're talking about today is stuff we've been investing in consistently over the last 3 years.

And you're going to see us now starting to invest in other things where that will get us the growth on a longer-term basis. And I think it's an important part of sort of help -- having our investors understand how we're thinking about it. And the way we're thinking about it is we take specific parts of our G&A where we grow them. And those are parts that are creating the long-term value and the long-term growth that we're planning.

I would just add 2 things real quick. One is when we look at it in '25, '25 went up, I did have to raise the guide there. But I would point out that we were able to increase that while also increasing our FFO numbers. And that goes to the investment that we're making. The other piece is, and I think it depends upon your news resource, but as many would say, we're actually spending more on AI in '26 than what we're seeing now. We do see the opportunity there. But in order to get there, I'm spending a little bit. But we have invested in technology, and I would argue we are among most efficient of the REITs out there. I think we do a really, really great job at this.

If you're looking for a number, I would think as you look forward, I do think that there are scalability and efficiencies to be obtained from AI. I just don't know that I'd write them in yet. But for me, I would say [ inflationary insight ]. That's probably what I would say. But ultimately, knowing that I'm going to be driving portfolio growth from an NOI and an acquisition standpoint at a greater pace than that.

I'm going to follow up with some questions we received through the webcast. So let's start with occupancy. So this question, maybe for John. We mentioned that we don't need occupancy improvement to meet our earnings growth long term. But could we provide a little color on any occupancy gain that's considered in guidance for 2026.

I do have -- we're always pushing our leasing team. As Bob articulated earlier, we want their targets, but then at the same time, I also have that piece. So when I look at it, and you've heard me speak about this before, in '24, we had more anchor activity than is usual for us. And so when we said 3% to 4% in '25, we had to go with a guide that was 3% to 3.5%. I would say that in '26, we have some of that's going to help us, but actually based on our internal math occupancy lift as a contribution to NOI is close to neutral. So we are closer to that piece of the NOI wheel that says we're pushing this through rent spreads, embedded rent bumps, development and redevelopment. That is where our growth is coming from.

That said, we are looking for the occupancy games, and we're driving our operating team to do that. I would say that the 150 basis points, 100, 200 is over the next 2 to 3 years. But I think because of the timing it will be growth in the future.

John. Next question, maybe just a little bit more color on Everyday Retail. Can we speak to the neighbor profile for -- that we're seeing for Everyday Retail, maybe break out a little color on the mix of national retailers and local retailers and how we think about our neighbor health for Everyday Retail.

Bob, do you want to take that?

Sure. Great question. Currently, out of the 9 shopping centers that we've acquired in Everyday Retail, 53% of the rent roll comes from national and regional tenants and 47% comes from local. That's what I'm excited about because we find that there's a lot of local tenants that we can really push rents. And again, I mentioned in the conversation earlier, new leasing spreads certainly have been 46% renewal spreads at 30% and I'm excited and bullish about our national account team having the opportunity to continue to work the merchandising around necessity-based goods and services.

So the nice thing is we buy these assets at $305 a foot and then what we can do is just work the value and create the value for our shareholders over a long period of time, generating that 4% to 5% same-center NOI growth. So currently, that's the mix, 53:47, with a focus on improving not only necessity-based goods and services, but also more national and regional tenants will come along with that.

Yes. The 1 thing I would add there is we do see incredible opportunity to remerchandise specific centers that we're buying in that space where we can -- we've got the experience. We're locally smart because we own centers right near these centers, and we know what we can do with them when we buy them. So we're bringing the machine, and we're just kind of extending its look so that we can actually bring that to bear on these new centers that we're buying. And as you can see from -- as Bob mentioned, I mean, the results we're getting are really -- are very positive. And it is the PECO machine that creates this value.

Great. Thank you. And we cannot end the day without a question on swaps. John, if you could provide some color on any activity on swaps expiring in the fourth quarter and then also swaps expiring in 2026 and plans to address.

Happily. So as we look to it, pro forma for the swaps that will expire here in December will be approximately 84% fixed. As we look to our maturity profile, we have $100 million that comes due next year. And then we have some term loans that come due in '27. And so our plan at this time is to refinance those through the unsecured bond market, which would bring our fixed ratio back higher towards our target of 90%.

So in the meantime, we're comfortable floating. We have -- we redid the revolver earlier this year and have very good relationships with our banks and flexibility. So our plan is to allow those to float and then we will opportunistically access the market in 2026. As we look at it, 1 of the things that we're very focused on is being opportunistic and not being in a position where we have to do anything.

So we are very focused on managing our maturity calendar, and making sure that we're managing our leverage and providing our team the growth and the capital that it needs to deliver on all of the operating plans that we've talked about here. And we feel really good about that as we look at 2016.

Thank you, John. All right. This concludes our Q&A session. Thank you, everyone, for your questions today. If you have additional questions, don't hesitate to reach out to us. With that, I'll turn it back over to Jeff for some closing comments.

Thanks, Kim, and thanks, everyone, for your questions and being on the call today. We're excited about the new initiatives as they create great opportunities for PECO. It's important to note, though, that our focus remains our core grocery-anchored shopping center business, where we can deliver more alpha and less beta on a long-term basis. I'd like to take a moment to thank our people associates. We have the best team in the shopping center space.

PECO's highly experienced and cycle-tested team has proven that we can drive value at the property level and deliver market-leading results. In summary, PECO is a growth company. Our growth is fueled by both internal and external opportunities and is executed by one of the best teams in the business. As we head into 2026, PECO is leading the way. Thank you for your time today, and have a great rest of your day.

Good day, and welcome to Phillips Edison & Company's Third 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.

Thank you. I'm joined today by our Chairman and Chief Executive Officer, Jeff Edison; President, Bob Myers; and Chief Financial Officer, John Caulfield. Following our prepared remarks, we will open the call to Q&A. After today's call, an archived version will be published on our Investor Relations website.

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 SEC filings, specifically in our most recent Form 10-K and 10-Q.

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 GAAP results are available in our earnings press release and supplemental information packet which have been posted on our website. Please note, we have also posted a presentation with additional information are cautioned on forward-looking statements also applies to these materials.

Now I'd like to turn the call over to Jeff Edison. Jeff?

Thank you, Kim, and thank you, everyone, for joining us today. The PECO team is pleased to deliver another quarter of solid growth. Given the continued strength of our business, we are pleased to increase our guidance for NAREIT and core FFO per share. The midpoint of our increased full year 2025 NAREIT and core FFO per share guidance represent a 6.8% growth and a 6.6% growth, respectively. I'd like to thank our PECO associates for their hard work in maintaining our unique competitive advantages and driving value at the property level.

The market continues to focus on tariffs and U.S. economic stability. As it relates to PECO's grocers and neighbors, we continue to feel very good about our portfolio. PECO has the highest ownership percentage of grocery-anchored neighborhood shopping centers within our peer group. 70% of our ABR comes 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 we believe are at risk of greater impact from tariffs.

PECO continues to deliver strong internal growth. Our neighbors benefit from their location in the neighborhood where our top grocers drive strong foot traffic to our centers. We have high retention and strong leasing demand from retailers wanting to be located at our neighborhood centers, and we continue to see a healthy pipeline for development and redevelopment.

In addition, the PECO team continues to find smart, accretive acquisitions that add long-term value to our portfolio. When you include assets and land acquired subsequent to quarter end, this brings our year-to-date gross acquisitions at PECO's share to $376 million.

A few shutouts for the quarter. The operating environment and PECO's ability to deliver growth continues as it has for the past several years. Our leasing activity and occupancy remained very strong. We continue to operate from a position of strength and stability.

Moving to the transactions market. Activity for grocery-anchored shopping centers remains competitive. The strength of our activity in the first half of the year allowed us to be more selective in the second half. We remain committed to our unlevered return targets, and we remain confident about our ability to deliver on our full year acquisition guidance.

Including acquisitions closed after the quarter end, we acquired $96 million of assets at PECO share since June 30. This activity includes 2 unanchored centers. These centers offer reliable fundamentals similar to our core grocery anchored properties with a stronger long-term growth profile. They are located in the same trade areas as our grocery-anchored centers, growing suburban markets with strong demographics with a focus on everyday retail. Neighbors located at these centers are delivering necessity-based goods and services within their respective communities. We will share more details on why we believe these everyday retail centers are a natural complement to PECO's long-term growth strategy during our upcoming virtual business update. This webcast is planned for December 17.

We also continue to make great progress with our joint ventures. During the third quarter, our JV with Lafayette Square in Northwestern Mutual acquired the village at Sand Hill. This is a grocery-anchored shopping center located in its Columbia, South Carolina suburb. Our pipeline for the fourth quarter and 2026 also includes additional assets for our JVs.

Lastly, we are actively expanding our development and redevelopment pipeline. We build in our parking lots and acquire adjacent land to our centers. And this quarter, we acquired 34 acres of land in Ocala, Florida. While it's too early to share details of this project, we are working with partners to build a grocery-anchored retail development. As you know, these take a long time. We will share more details on this project as we were able to update you.

We are very pleased with our results for the quarter and our outlook for the balance of 2025, and we are actively growing our leasing and transaction pipelines for 2026. We believe we are the most aggressive operator in the shopping center space. The PECO team is continuously looking for opportunities to grow our business better. We look forward to updating you on our long-term growth plans during our December 17 business update.

I will now turn the call over to Bob. Bob?

Thank you, Jeff, and thank you for joining us. PECO continues to deliver strong leasing activity driven by our grocery-anchored neighborhood centers and necessity-based neighbor mix. This momentum is clear in our operating results again this quarter. Our neighbor retention remained high at 94% in the third quarter, while growing rents at attractive rates. High retention rates result in better economics with less downtime and dramatically lower tenant improvement costs. PECO delivered record high comparable renewal rent spreads of 23.2% in the third quarter. Comparable new leasing rent spreads for the quarter remained strong at 24.5%.

Our continued strong leasing spreads reflect the strength of the retail environment. We expect new and renewal spreads to continue to be strong for the balance of this year and into the foreseeable future. Leasing deals we executed during the third quarter, both new and renewal achieved average annual rent bumps of 2.6%. This is another important contributor to our long-term growth.

Portfolio occupancy remained high and ended the quarter at 97.6% leased, anchor occupancy remained strong at 99.2% and same-store in-line occupancy ended the quarter at 95%, a sequential increase of 20 basis points. Given our robust leasing pipeline, we expect in-line occupancy to remain high throughout the remainder of the year, which is very positive. As it relates to bad debt in the third quarter, we actively monitor the health of our neighbors. Bad debt remains 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 neighbor mix with no meaningful rent concentration outside of our grocers.

Turning to development and redevelopment. PECO has 22 projects under active construction. Our total investment in these projects is estimated to be $75.9 million with average estimated yields between 9% and 12%. Year-to-date, 14 projects were stabilized through September 30. This represents over 222,000 square feet of space delivered to our neighbors and incremental NOI of approximately 4.3 million annually. As Jeff mentioned, we continue to grow our pipeline of development and redevelopment projects. This activity remains an important driver of our growth.

I will now turn the call over to John. John?

Thank you, Bob, and good morning, and good afternoon, everyone. Our third quarter results demonstrate what we've built at PECO, a high-performing grocery-anchored and necessity-based portfolio that generates reliable, high-quality cash flows. As Jeff said, the PECO team continues to operate from a position of strength and stability.

Third quarter NAREIT FFO increased to $89.3 million or $0.64 per diluted share, which reflects year-over-year per share growth of 6.7%. Third quarter core FFO increased to $90.6 million or $0.65 per diluted share, which reflects year-over-year per share growth of 4.8%.

Turning to the balance sheet. We have approximately $977 million of liquidity to support our acquisition plans. We have no meaningful maturities until 2027. Our net debt to trailing 12-month annualized adjusted EBITDA was 5.3x as of September 30, 2025. This was 5.1x from the last quarter on annualized basis.

As Jeff mentioned, we are pleased to update our 2025 guidance. We are reaffirming our guidance range for 2025 same-center NOI growth. This reflects solid full year growth of 3.35% at the midpoint. As we have said previously, the timing of our same-center NOI growth in 2024 presents difficult comparisons for the fourth quarter of 2025. Specifically, the recoveries in 2024 were weighted to the fourth quarter, whereas they are more even quarter-to-quarter in 2025.

Our current forecast for the fourth quarter of 2025 reflects same-center NOI growth between 1% and 2%. We estimate this growth rate would have been closer to 3% if the recoveries in 2024 were more evenly distributed. While we are not providing 2026 guidance at this time, I will remind everyone that we believe this portfolio can deliver same-center NOI growth between 3% and 4% annually on a long-term basis.

As Jeff mentioned, our increased guidance for 2025 NAREIT FFO per share reflects a 6.8% increase over 2024 at the midpoint. And our increased guidance for 2025 core FFO per share represents 6.6% year-over-year growth at the midpoint. Our guidance for the remainder of 2025 does not assume any equity issuance. Importantly, our FFO per share growth is a function of both internal and external growth. PECO is not dependent on access to the equity capital markets to drive our strong growth.

As it relates to this position, the PECO team plans to sell $50 million to $100 million of assets in 2025. Year-to-date, including activities subsequent to quarter end, we sold $44 million of assets at PECO share. The private markets are more appropriately valuing grocery-anchored shopping centers in the public markets. This gives us an opportunity to lean into portfolio recycling. We have an active pipeline for the fourth quarter, and we have plans to do even more in 2026. We plan to share more details during our December 17 business update. Long term, the PECO team is focused on recycling lower IRR properties into higher IRR properties to help drive strong earnings growth. We believe that performance over time and consistent earnings growth should be rewarded in the capital markets.

We also reaffirmed our 2025 full year gross acquisition guidance. We believe our low leverage gives us the financial capacity to meet our growth targets. We have diverse sources of capital that we can use to grow and match fund our investment activity. Match funding our capital sources with our investments is an important component of our investment strategy. We continue to believe the PECO platform is 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 activity. We believe our targets for growth in core FFO and AFFO will allow PECO to outperform the growth of our shopping center peers on a long-term basis.

We look forward to updating you on our long-term growth plans during our December 17 business update. In addition to what Jeff mentioned, we plan to share preliminary 2026 guidance. We also plan to share new analysis and insights related to our unanchored investments or everyday retail centers. We look forward to updating you on our internal and external growth plans.

With that, we will open the line for questions. Operator?

[Operator Instructions] And your first question comes from the line of Andrew Real with Bank of America.

First, can you just share more on your thinking around acquiring development land at this point in the cycle? Why is right now the right time to pursue opportunities like this? And are you evaluating other ground-up development sites at this point in time?

Well, Andrew, thank you for the question. Bob, do you want to talk a little bit about this specific project?

Yes, absolutely. Thanks, Jeff. And Andrew, thank you for the question. We're really excited about this opportunity. We had a nice partnership with a national grocer that was interested in the growth aspects of Southern Ocala. 10,000 new homes and residential opportunities coming into the market over the next 5 years, a lot of positive growth. It's going to be a 34-acre site and we'll end up selling part of it to the grocer and then we'll have 7 outparcels available for us to continue to do what we do year-over-year. I mean we've developed 51 out parcels in our portfolio over the last 5 years, and we'll either do ground leases or build to suit. So this is kind of a one-off scenario.

Will we continue to look for sites in the future? Yes, if it makes sense. In this particular asset, we're going to deliver about a 10.5% unlevered return. So we feel really good about not only being some of the landlords largest -- some of the retailers' largest landlords, but this is a great opportunity for us to step in, in the right market.

Okay. That's helpful color. And then if I could just ask a follow-up. Could you maybe just provide more detail on the makeup of your current acquisition pipeline? And just how much more incremental volume could you potentially close before year-end? I know, Jeff, you had mentioned you're being a little more selective in the second half now. So just curious on where we might shake out relative to the acquisition range.

Yes, I'll give you -- and Bob will follow up as well. The way we're looking at it, we kind of have given you guidance. We're pretty comfortable we're going to be at the bottom end and we're already about $25 million above the bottom end of the range that we've given. And we continue to see good product, and we're continuing to see a volume of product that we feel comfortable will be in good shape in terms of our ability to buy. As you know, going quarter-by-quarter is a little bit difficult because stuff moves 1 month or 2, and that's just the closing process. So it's always a little bumpy. We feel really good about the products we bought. We had a really great first half. It's a little slower, but I would tell you that we feel good about what we're getting. And we bought $400 million -- the midpoint is about $400 million this year. It was $300 million last year. Pretty good -- that's a pretty good increase, and we see that continuing to happen. So Bob, any anything else on the...

Yes. I would like to add that we've acquired 18 assets this year for $376 million, and we do have deals that have been awarded and under contract to close before year-end. So we feel really good about we're going to be well within the range. The other thing I would mention is just we're delivering unlevered returns above 9% in all these categories. So we feel real good about the acquisitions. The other thing I would mention is these blend to like a 91.5%, 92% occupancy going in. And when you look at our portfolio at 97.7%, this continues to give us internal growth in the future for same-center NOI growth. So it is -- it's a dual path in terms of growing earnings and NOI. So we're really excited about what we've acquired so far and early indications would suggest that we're operating them extremely well, and we're getting continued leasing momentum.

Your next question comes from the line of Caitlin Burrows with Goldman Sachs.

Maybe sticking on the acquisition side. So looking at leverage now, it's at 5.1x, which I'd say is totally reasonable. But I guess it sounds like going forward, you might be interested or willing to increase leverage. So wondering if you could discuss a little bit what the kind of upper level is on leverage and how you think about that as a funding source.

Yes, Caitlin, I'll give you and John follow up as well. What we said and continue to believe is we want to be in that 5.5% or below range debt-to-EBITDA on a long-term basis. And we are -- we'd be willing to move around that if we had a clear vision of bringing it back down into that sort of mid- to -- the mid-5s to lower 5s. And we're very happy with where we are. We've got good capacity to continue to grow our acquisition program. And so it's nice to be where we are right now. And if the opportunities come, as you know, we're prepared to take advantage of them if we can. Anything else, John?

No, I think that's good.

And then just as the other kind of source of funds, it sounds like you might lean more into dispositions. And so if we look at the dispositions you guys have done historically, you do give great disclosure on the cap rates of the acquisitions versus dispositions, historically, the dispose have been at higher cap rates. So I was wondering, going forward, are there assets that you would maybe newly looking to sell that would make that process accretive? Or how are you thinking about that acquisition versus disposition cap rate and kind of the types of properties you'd be looking to sell and who the buyers are and what they're willing to pay for them?

Yes. Jeff, do you want to talk about that?

Sure. Thanks, Caitlin. So I think the dilution or accretion on the recycling of assets is going to depend on the mix of assets sold and acquired. I mean, ultimately, as you know, we are IRR buyers and sellers. So we believe that right cycling will be beneficial to our earnings per share over time. And as owners of about 8% of the company, that's really important to us. So I think as we look at it in terms of -- we are achieving victory on a lot of these. We've already sold some properties this year, and we're going to look to do that. But ultimately, I mean, we believe we can do mid- to high single-digit FFO per share growth. And although we're not giving guidance until December, I think that is going to be true in 2026 as well.

So not exactly answering your question because it's going to depend upon the mix of the timing of the closings, but we're managing that very closely. And the relationship you're describing has been true historically. I think it's going to tighten and improve as we look forward. But again, it depends upon the mix.

Yes. And Caitlin, I would just add. I mean, I think the way we think about it is we're going to be trading out of lower growth for higher-growth properties, and that is the strategy of the disposition program. There is some derisking in that, but mostly it's going to be trading to areas where we can get more growth.

Your next question comes from the line of Haendel St. Juste with Mizuho.

This is Ravi Vaidya on the line for Handel. Hope you guys are doing well. I wanted to ask about redevelopment here and the broader redevelopment pipeline. What's your target size for this to be? And how should we consider funding? Is this going to be primarily through free cash flow or through further dispositions?

Okay. Ravi, when you're talking about that, are you talking about all of our redevelopment, including the outline stuff that we're doing? Or is that what you're focused on there?

Yes, both ground up new development and redevelopment of existing pads or any outlook kind of work.

Great. Okay. Bob, do you want to take that?

Yes. No, absolutely. I appreciate the question. So over the last 3 or 4 years, we've generated between $40 million and $55 million in our ground-up redevelopment bucket. And those years, we were solving for between 9% and 12%. We find that this is a wonderful complement to our same-center NOI growth, and we are hopeful to get 100 to 125 basis points towards it through this pipeline. We have a nice pipeline out for the next 3 years. That would be consistent of approximately $50 million to $60 million a year to contribute to that. So we don't see anything slowing down on the development side or redevelopment side, and we've seen a lot of success with generating solid returns.

Got it. That's helpful. And maybe just one on the bad debt. Would you say that this quarter's bad debt expense in the current tenant credit landscape, is that appropriate to consider a run rate going forward into fourth quarter and into '26?

Jeff, do you want to take that?

Sure. Thanks, Ravi. So I would say that, yes, I think that when you look at it, whether it be on a same-store total portfolio, we've been between, let's say, 75 and 80 basis points. I do know that the midpoint of our guidance range is 90 basis points, and it's more just giving ourselves a little bit of elbow room. I will say for the fourth quarter of '25 and for '26, we don't actually see the environment materially changing. So we think that this 70 to 80 basis points in the range that we have is pretty reasonable. I do think that, again, when you look at PECO's demographics at $92,000, we are 15% above the U.S. median and our retailers continue to be very, very successful. So our watch list is lower than anyone else's and very consistent with historical around 2%. And so we feel really good about it, but I think this is a good run rate as we look forward.

Your next question comes from the line of Ronald Kamdem with Morgan Stanley.

Just going back to sort of the occupancy and more of the in-line occupancy here. You're getting good retention rates, you're pushing rents. Just remind us what the message is for the team, how much more occupancy upside you sort of think that is there? And just strategically, how are you guys messaging sort of pushing rents here at the expense of retention rates?

Sure. Bob, do you want to grab that one?

Yes, absolutely. So thank you for the question. So currently, we're at like 94.7%, and we believe that we can generate another 125 to 150 basis points of in-line occupancy. The demand and the retailer interest that we're seeing and all the meetings in our national account team shows very good momentum. The visibility I have out for the next 6 months, 7 months with our pipeline would suggest that we should move in that direction. So feel very good about moving the needle on in-line occupancy. I think in terms of growing rents on the renewal question, in particular at 94% retention, that's a very solid retention number. And I think last quarter, we spent $0.60 a foot in tenant improvements. In this quarter, we spent $1 to generate 23.3% renewal spread. So we feel very good about the retention of 94% and the current spreads we're seeing. So again, I don't see any new supply coming online to compete with that. And I think we'll just keep our neighbors profitable and healthy and look towards the future. I don't see anything slowing down.

Great. And then if I could ask a quick follow-up, just on the unanchored centers. We talked about it last quarter, but as you're sort of looking at more of the opportunities, just what's the update in terms of the opportunity set and sort of the conviction of that strategy?

Great. Bob, you want to grab that one?

Yes. Another great question. I'm really excited about the strategy. We've acquired 8 properties in this category for about $155 million. And we've seen very positive momentum operationally. I believe our centers currently, from what we paid were about $300, $305 a foot. We are seeing unlevered returns between 10.5% and 12%, early indications. We're seeing new leasing spreads above 45% and renewal spreads above 30%. So again, we're going to continue to define the criteria. You'll hear more about this in our December update. But early indications, this is going to be a great complement to growing our same center NOI in the future. So we're really excited about it.

Yes, Ron. Yes, it's a great question. And one thing -- I mean, we have built a phenomenal team at leasing. This -- we kind of look at this as just having more neighbors. We have a way of bringing this finding more neighbors that we can put the machine to work on and get the kind of returns that Bob was talking about. So we're excited about it. Again, as you know, it's a small -- a very small piece of the overall portfolio, and it's -- but it's very consistent with our focus on necessity retail and giving the consumer what they want and being locally smart at the property level. So all those pieces are encouraging to us as well as the results Bob talked about in terms of investment in that product.

Your next question comes from the line of Michael Goldsmith with UBS.

My first question, Jeff, is when you said in the prepared remarks about being more selective in the second half, what do you mean by more selective? Are you looking more on price? Is it more on location? Is it more on shopping center format just trying to get a sense of where that selectivity is leading you?

I think it's tougher underwriting. It's not a difference in terms of what we like, what we do. But in terms of underwriting, with the potential risks of the stability of the economy, I think we took a tougher -- we were titering some of our rent spreads. We were titering on some of our pace of leasing. That's really what I'm saying in terms of and that translates into us offering lower prices than we would at other times to get to that 9% unlevered IRR. And so that's -- I think that's what slowed down some of our pace a bit. It's important to note that. I mean we -- at the midpoint, we're buying $400 million of assets on an individual basis. That's the most, I think, in the space on an individual basis by far. And we think that, that is -- that's $100 million more than we bought last year. We're taking our share of the market. And I think we've had -- it kind of shows the discipline that we've had for 30 years in this business, you've got to be disciplined and you got to make sure that you're not getting ahead of yourself or too aggressive or not aggressive enough in the market. And that -- I think that's what we kind of bring to the market on that.

And my follow-up is, right, on the competition, you said it remains competitive. Has it gotten any more incrementally competitive in the last quarter? And then just like -- if you can provide some color on deals that you don't win, who are you losing to? Is it new -- is it new entrants? Or is it kind of the same folks that are still...

Yes. Yes, I don't think it's gotten more competitive. I think it's -- but it's fairly stabilized. I mean there is good demand out there. And -- it is -- it's the full gamut. I mean, it's some of the REIT peers. It's some of the some institutional players and as well as some private players. So you have a pretty wide range of people looking in the space. So our feeling is that it's kind of -- it's stabilized at where it is and really has been for the last couple of quarters. And -- we think that that's kind of going to be -- is more normalized and probably what we're going to see for the next quarter and certainly -- or maybe the next few quarters as the -- and The beauty is -- with what we've done, we have -- we look broadly at the country, and we're looking for that #1 or 2 grocer to buy. And that breadth gives us the ability to find product consistently over year after year after year. And so we're -- we feel comfortable to have another good year next year. We're not -- that's not a concern. It's just -- it's a little harder shopping to buy than when a lot of others have gotten into the space that we've been in for 30 years.

Good luck in the fourth quarter.

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank.

I was wondering if you could just give a view on the outlook for grocers in general. I think, again, your sales are going up, but just -- but again, just going to hear a lot of conflicting noise around more selective consumer, inflation is kind of causing volumes or trips to grocers to kind of slow down? Just if you just kind of give us an update on general kind of what you're seeing and how you think that space is evolving. We'd appreciate that.

Yes. I want to take a shot and Bob join in as well. From our conversations with the grocers, they continue to see a very resilient customer. And we're not hearing any sort of pull back, any kind of like dramatic concerns. It's kind of business as usual and some -- for some of our grocers, they're -- they see it as really, really positive. I mean you when you talk to Publix and HEB, some of the -- and the trader I mean they are actively growing. And so they see things very positively. And so I would say our feedback overall is that the grocers are thinking long term. They're very positive about what the environment is today and their ability to pass on increases in cost to the consumer. They're always going to be nervous because they're nervous all the time, and they should be because it's a tough -- it's a really tough business, but they're really good at it, and they're great partners for us in the shopping centers that we have.

That's helpful. And then how do you think about -- when you're kind of thinking about sources and uses of capital, how does potential stock buybacks kind of stem into the equation at current stock prices?

We -- the way we look at it is it's a tool, just like selling properties, just like raising public equity. And it's a tool to be used at the right time when you -- when it's the best investment and the best use of your free cash flow. So -- that's the way we think about it. We -- so it's one of the tools, and we wouldn't be hesitant to use it at the right time. And -- but we're not also eager to use it -- particularly in the environment where we are today, where we have really good uses of our capital that we think we can grow significantly. So that's -- it's a great question, and it is one that is part of our sort of regular conversation about where we should be, depending on where the stock price is.

Got you. And then one quick last one for me. How do you think about acquisitions? Again, you already had $376 million year-to-date guidance of $350 million to $450 million. I'm just kind of curious whether there's some conservatism in that number or the way 4Q is shaping up, there may not be a lot of deal activity?

I would say, $100 million a quarter is a pretty decent activity, and we'll we -- that gets us to $400 million for the year. We feel -- which is the midpoint of the guidance, we feel good about that. And I would -- I wouldn't be overly -- don't feel more -- a lot more aggressive than that or we would -- we changed guidance and we -- but we don't feel that we won't meet that either. So we're -- we think the guidance is a pretty good place to be looking at.

Your next question comes from the line of Todd Thomas with KeyBanc.

First question, just regarding dispositions you commented, it sounds like next year will be higher than this year's $50 million to $100 million target. Is there a segment of the portfolio or kind of a larger portion of the asset base that you ideally would like to recycle out of? Is there any insight around how much you might look to sell over time and also whether the plan is to sell assets on a one-off basis or if there could be some larger transactions, perhaps just given the increased competition that you're seeing?

Yes. Jeff, do you want to take that one?

Sure. And then, Bob, you can follow up after that. So Todd, I would say that we're looking at multiple options because I think -- we do think that as there is great competition for grocery-anchored shopping centers in the market. There are a lot of them that we've taken to a stabilized place. And there are buyers out there that are just interested in more of a completely solved button up solution. So that is something you're going to see. I think you will see us sell more next year. It's hard to say because, again, similar to the acquisition timing, it can move quarter-to-quarter in things like that. I wouldn't say and this is where Bob will come in. I wouldn't say we're looking at anything specific on an individual region or things. It's more the IRRs. It's that if we look at forward and realize that we've taken most of the -- or achieve most of the growth in the asset that we will look to sell that. And I think we'd look to sell it individually or as a portfolio. Anything more?

Yes. I'll just add that I think we end up selling between $100 million and $200 million next year. And I believe that it will all be done on one-off basis. So I don't see a portfolio there because we do want to be very surgical as being active portfolio managers. So Jeff touched -- Jeff and John touched on it, but certainly 100% stabilized assets that when I look at our forward IRRs would generate 6.5%, 7% returns, we think we can replace those assets with these 9, 9.5, 10 unlevered return deals and pick up 200 basis points in spread over the long term. So that's what we're focused on and -- that will be our strategy.

Okay. Got it. So it sounds like a little more of an ongoing portfolio sort of asset management process. Just -- the plan is to remain that acquirer is just sort of prune the portfolio over time by selling lower growth assets and upgrading quality and improving growth.

Yes, it is. I think that makes a lot of sense.

Yes.

Okay. And then my last -- just for John, real quick, can you just talk about the drivers behind the interest expense decrease underlying the updated guidance? And are there any updates on the swap expirations in November and December?

Sure. So the -- with regards to the guidance and interest rates, I mean, I think part of it was conservatism for us and then the timing of the acquisitions relative to the guide. I don't think there's anything much, much farther than that. With regards to the swaps, we're 5% floating today. If those burn off and nothing changes, be about 15% floating today. We have a long-term target of about 90%. Ultimately, those -- if they went -- based on where today's rates are and no further cuts, they'd be kind of around 5.3%. We can issue in the long-term debt markets around 5%. But I think we are in a position now where interest rates are coming down, at least that is the perspective of the market. And so we were going to do what we do, which is we are looking opportunistically at extending our balance sheet. We do like the idea of being a repeat issuer in the long-term bond market, and that's where there will be capacity. So I think we're comfortable right now with -- if those expire and we remain floating with that floating rate, but we will be looking to access the bond market. I would point out we don't have any meaningful maturities until 2027. And we -- our actions will be consistent with what we've done in the past.

Your next question comes from the line of Cooper Clark with Wells Fargo.

Just given the supply backdrop and current strength in the leasing environment, I'm curious how we should think about long-term upside to NOI growth on an occupancy neutral basis as you capture upside on spreads, improve escalators and other lease structures?

John, do you want to break -- I think that's probably best broken down in terms of what we see as the pillars of that growth.

Super, I think the pieces for us is we're going to look to deliver 3% to 4% on a long-term basis. Our rent bumps are approximately 110 basis points. And I'll point out that, that's up I think, 50 basis points over the last couple of years. So we think that we've got good continued growth there. And our leasing spreads continue to be very strong on both renewal and new leasing basis. So I think as we look at it, there's a combination of the new leasing and the rent bumps. The development that we're able to do on the outparcels that are already a part of our existing properties to really drive that towards that keeping us in that 3% to 4%. I think that we will continue to buy assets that Jeff or Bob referenced earlier with occupancy availability that will allow us to kind of continue that momentum and move up from there. Bob, I don't know if you have anything you want to add?

I don't have anything to add, Jeff.

Great. And then you noted though, you expect between $100 million and $200 million of dispositions next year. Curious how we should think about additional funding sources in your current cost of capital with respect to the $350 million to $450 million annual long-term acquisitions target?

John, do you want to just give the latter on that?

As we had said on the call, I would say our funding sources are going to be the over $100 million of free cash flow that we generate and retain after the dividend, which I would also highlight, we just raised almost 6% this quarter. So we have the cash flow that we generate. We have the growth in the base. We leverage at 5.1x on the last quarter annualized. And this disposition is going to allow us to recycle using asset management strategies like Todd just talked about, that is going to be able to drive us and propel us forward in executing our growth plans.

Your next question comes from the line of Floris Van Dijkum with Ladenburg.

Guys, I have two questions. By the way, so you guys had, I think, it was at almost 23% renewal spreads. But if you look at your overall spread, there were only 13% because I think 46% of your leasing activities were options. Can you -- and obviously, what would the growth have been if you didn't have those options, what would the growth have been in your same-store NOI? And what are you doing in terms of your new leases where are you limiting options, et cetera, so that you can mark-to-market more rapidly?

So -- Bob, do you want to talk about the options, John, do you want to talk about the -- what Floris -- by the way, hello Floris, good to hear your voice. And -- the -- on the options. And then John, if you could just kind of walk through what that impact would have been without the option. So the growth without the bout options.

Sure. Floris, good to hear from you, and great question on the options. This is absolutely an area that we're very focused on structuring any new renewal or any new lease. This is something that we've approved over time. I know directionally, for our team, I give direction that we don't want to give any tenants an option unless there's a 25% increase in the option period. The challenge with it is national retailers are making a large investment in this space. So they do want to have options, usually 3-, 5-year options as an example, and they certainly want to negotiate that number. But as a foundation to our strategy, we're always starting with no options. And there's a lot of reasons why we say that because the landlord has nothing to gain from it. So we want to push back hard on that as we negotiate options.

And with regards to the math, I would say that it's tough because the options at the biggest portion is coming from our grocers is a part of the strategy. As we look back at the combined leasing spread of all of it, it was 16% last quarter. It's 13% now. I think as Bob said, we have strategies to do that. But I do think this is where the complements come in of more neighbors and other ways, but the new leases was almost 30% over the last 12 months and 21% on renewals over last so the volume of footage is about the same. So you had 25% net growth instead of the 13% net growth adding to your NOI. So it's very strong, but I do think the options are something we try to mitigate, but are still part of the portfolio.

John, I appreciate that. Can I -- my follow-up question is regarding maybe I get your view on cap rates. I mean, we hear that cap rates for grocery anchors are very low relative to other retail types you've been able to acquire an average 6.7% cap rate. Jeff, what is your view on what's going to happen to grocery-anchored cap rates? Are they going to go up? Or are they going to go down? And then also, what is your appetite for -- if there is such strong institutional appetite maybe doing a larger JV with part of your portfolio to where you benefit from getting management fees, maybe not for your lowest growing assets, but to free up some more capital and to prove to the market that your stock is undervalued?

All right. That -- Floris, you asked like four questions there. So let me start with -- the supply-demand dynamic right now is -- it's fairly stabilized. So we don't see a major compression in cap rates from where we are right now. It will be by segment. And again, when we generalize about cap rates, it's a brush you're painting with because it really -- as you know, it's a market-by-market event, and you -- it's going to be very different in the Midwest than it's going to be in Florida, and you've got a lot of variety to talk about there. But I mean, I think generally, we would say that the supply-demand dynamic is fairly stabilized. And the amount of product coming on the market is taking care of the increase in demand from some of the primarily institutional players that have sort of come to the market and added additional capital into the market. So that -- that would be our answer on that.

In terms of JVs, I mean, we do have 2 active JVs that we're growing. We do see that as a way of having growth and getting better returns, as you point out, through the fee structure and owning less of the overall equity. So that is an opportunity. It's not a major part of our business, but it is an opportunity to continue to find places to put the PECO machine to work and create value. And that's what we do. And that -- I think that will be -- continue to be something that we look at -- and we'll look at our disposition program, too, because are there ways to take assets that are slower growth, but that would be -- we'd like to on a long-term basis and maybe take a little less equity in those. So those are all things that we're looking at as opportunities in a market where the values are compressed in our space. So we've got a lot of options, and we'll continue to.

Your next question comes from the line of Hong Zhang with JPMorgan.

I guess just a question on funding your acquisition pipeline for next year. You've traditionally funded your acquisitions through with majority debt. I guess what is the thinking around changing that composition to be more with dispositions next year, especially with rates falling where they are? Because correct me if I'm wrong, but once you get more of a spread, if you were to fund your acquisitions on debt currently?

Well, I'll take the first and then John, you can ask the question. we are always have been and will continue to be focused on keeping a really good balance sheet so that we can take care of -- we can take advantage of opportunities as they arise. that doesn't really change based upon exactly where the rates are. We're really focused on making sure that we have the right capacity. Right now, we have capacity in terms of our target of 5.5. But that's going to be used when we have great opportunity. And that's -- we are very protective of our balance sheet. So John, do you want to go on to talk a little bit about dispos and how we can see that?

Yes. Hong, the piece that I would say is that at 5.1x in the last quarter annualized and a long-term target of 5.5x. We do think we have capacity there in addition to the $100 million of cash flow that we retain. The other piece I would say is that we believe that on a leverage-neutral basis, we can buy $250 million to $300 million of assets a year. So leading into disposition gets to what Jeff was saying, which is that in a market where we believe there are great acquisition opportunities. And an opportunity to recycle assets that we have achieved and stabilized the growth plans that we have that that's something we're going to do. So when we talk about the dispositions, it is balanced based on the acquisition opportunity. We have a very solid portfolio and nothing that we're -- that's melting that we're looking to get rid of quickly. So we're going to be thoughtful and prudent, but it's ultimately so that we can recycle into better IRRs and that kind of balanced plan.

Got it. And then I guess just on thinking about the cap rate on your potential dispositions, I mean you've talked about selling, I guess, stabilized centers. I guess, could you give a general range of what cap rate those centers would trade out to that?

I'll take that one.

Go ahead Bob.

So based on some of the assets that we currently have in the market, we believe that the assets will trade anywhere between a 6.3 and 6.8.

Your next question comes from the line of Paulina Rojas with Green Street.

Among your lease position, you have the sale of point Loomis, which, to my knowledge, included a progress store that recently closed and I understand the buyer is a small grocery operator. And -- so when you consider the sale price of that property, how do you think the store's closure impacted its value, if at all, compared to what it might have been had -- not closed?

Well, Paulina, thank you for the question. Bob, do you want to talk about point Loomis? That's a great story actually.

Well, it is a good story. I mean it's an asset that we've owned now for, I believe, around 8 years. And -- we ended up doing some redevelopment in the parking lot and build a little small outparcel development. We had a really nice bank, Chase Bank. We had Kohl's as an anchor and then we had pick-and-save. We knew that pick-and-save was struggling for the last, I would say, 5 to 7 years. So we had worked with them on 2-year renewals and finally came to a point when they announced that they were going to close to 60 stores that this would be on the list. So it wasn't a surprise. The good news is that we did have another grocer lined up who was an owner operated -- operator that purchased it that we've recently closed. So it was time for us to move on from the asset, and we did well with it. And I think specifically, and Jeff may have a different answer than I do on this. But I think when you lose a grocer like a Kroger, it could certainly impact your cap rate, 100 to 250 basis points.

Yes. The only thing I'd add there, Bob, is once you know that the grocers in trouble, which we've known for 7 years, -- the cap rates already changed. So you're not going to see a 200 basis point change in that cap rate the day that they close, it will have already happened, and that's what happened here. That's -- when we bought the property, we bought it at a cap rate that was very high. And so it was -- we knew we were taking on that risk from the very beginning. And that's how -- why we've made a lot of money on that property, even though it didn't it's not very pretty, but we made a lot of money on it. So that is how we think about it. And that's why you've got to be very -- you got to be thinking really long term because the moment there is a question about the grocer, that's when the cap rate hits.

Yes, that makes sense. And somehow related a little bit. But regarding the new development that you mentioned, I think I heard an IRR of around -- expected IRR around 10%. And I also believe you mentioned that you plan to sell a portion to the grocer. And so I presume you will focus on small shops mostly in that center. And my question is how much would your IRR defer if you retained ownership of the grocer store rather than selling it to the retailer?

All right. So we are going to answer that question, December 17 for you. We really -- we can't really answer that. I don't think we really want to answer that right now. It's early. We want to make sure that we're -- But your point is well taken. If we had to grow -- if we kept the grocer, the IRR would be less, but we'll get -- we'll talk more about that in December. Sorry if that's okay.

Your next question comes from the line of Juan Sanabria with BMO Capital Markets.

Just curious if the plan for '26 may include moving the acquisition volume or focus more towards that unanchored given presumably higher yields or that's not necessarily the case. And as part of that the unanchored centers that you're interested in buying also had that previously mentioned occupancy upside or that not part of that particular story?

Yes. Bob, you want to take that one?

No. Yes, that's a great question. And to answer the question, we're going to speak more in December in terms of our guidance next year. But early indications would suggest that we'd be in the same ZIP code of where we are at this year. In terms of the unanchored strategy, we are going to look more aggressively in that category next year. We are already seeing great results from it and better returns. So I can't tell you specifically if we'll buy $100 million or $200 million of the product next year, but we are finding -- there's 65,000 opportunities in the market in that category. And given our operating expertise, we feel like this is something that we can step into. So we'll be highly selective. We'll be solving for above 10% unlevered returns in the strategy. But again, I just think it's a very solid complement to what we're doing.

Okay. And then just the last one for me. G&A went up the guidance there. If you could just provide a little color as to why and how we should think about growth in '26? Is that more in line with inflation? Is there any sort of tech or other type of investment opportunities you're looking at that may to increase is higher relative to history next year?

John, do you want to take that?

Sure. It's primarily related to performance-based incentive compensation. Ultimately, last year, our growth was lower, and therefore, we have an environment that we incentivized for results and so you're seeing improvement in that as well as investments, as we talked about in technology and resources that are going to allow us to scale as we look forward. So when I think about going forward, I would think we would be in this range here. I still think that we are quite efficient when we look at it on a variety of metrics. But the key piece for us is going to be driving that mid- to high single-digit FFO per share growth going forward.