Phillips Edison & Co. (PECO) Q3 2026 Earnings Report, Transcript and Summary

Good day, and welcome to Phillips Edison & Company's Third Quarter 26 Earnings Call. Please note that this call is being recorded. I will now turn the call over to Kimberly A. Green, Head of Investor Relations. Kimberly, you may begin.

Thank you. I am joined by our Chairman and CEO, Jeffrey S. 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. Jeff, we 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 press release and supplemental information packet both of which have been posted on our website. Caution on forward-looking statements also applies to our earnings presentation, which was also posted. Following our prepared remarks, we will open the call to Q and A. Given the number of participants, we respectfully ask that you limit to 1 question. Please rejoin the queue if you have follow-up questions. With that, I will turn the call over to Jeffrey S. Edison. Jeffrey?

Thank you, Kimberly. And thank you everyone for joining us today. ECO 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 PICO operating engine. We are pleased to increase the midpoint of our earnings guidance for the full year. These results were 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. Pico's grocers and necessity based neighbors continue to drive strong traffic and we are not seeing any signs of weakness as we look toward 2027. That resilience is supported by the essential nature of PICO's portfolio. 74% of our ABR comes from necessity based goods and services. Providing consistent demand and supporting durable cash flow through economic cycles. Pico 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 to 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 the portfolio of right sized centers averaging 113 thousand square feet, these projects create meaningful incremental growth. Acquisitions provide another source of growth. Assets acquired to date in 2026, 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 towards 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 PICO can generate the best long term growth and returns. Whether it is 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 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, redevelopment, our pipeline of acquisitions, and our investment management business. We believe PECO is well positioned to deliver strong growth in 2027 and we will provide more detail during our December 16 virtual business update. PICO's 6.2% dividend increase in September reflects our confidence in the durability of PECO's cash flow. We believe PICO's earnings growth and durable dividend yield combined 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 right sized grocery anchored necessity based portfolio and our strong balance sheet. With that, I will turn it over to Bob. Bob?

Thank you, Jeffrey. 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% in line 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 rights to manage our centers. The PICO team looks at the full economics of every lease. Total 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 PICO'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 have 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 PICO'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. PICO's scale relationships, and execution gives us leverage in those discussions. And we will continue to pursue concessions while remaining disciplined on price and returns. 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 are growing intentionally to deliver more alpha to PICO, and we will 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 $101 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 $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 EBITDAR was 5.2 times on a trailing 12-month basis and was 5 times on a last quarter annualized basis. We expect to end the year closer to 5x net debt to annualized adjusted EBITDAR 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 PICO's total prorated share of debt for its JVs. Importantly, PICO 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 in duration for the market. In the current rate environment, the 3 year term loan offered a track execution at the shorter end of the interest rate curve, while allowing PICO 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 return 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. Gross acquisition guidance remained $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 PICO, invest externally with discipline, and maintain the strength and flexibility of our balance sheet. Are confident in our ability to convert these opportunities into continued strong growth and we will 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?

Thank you. We will now begin the question and answer session. To raise your hand and join the queue. Our first question is going to come from the line of Haendel St. Juste with Mizuho. Please go ahead.

Hey, guys. Thanks for taking the question. Wanted to talk about the external growth, the transaction market specifically. Curious as you look into the marketplace, what you might be seeing real time, any change in cap rates, and sense of more assets in the marketplace, And I think you mentioned, John, you can fully fund your 2027 potential investments here without any incremental equity. But curious how much of that could be between kind of on balance sheet, off balance sheet and what role dispositions how much of a role dispositions would play? Thank you.

Cool. Well, Haendel, thank you for the call. For the question. Let's answer it in 2 ways. 1 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 will talk about sort of where that capital is coming from.

Yeah. Thanks, Jeffrey. Good morning, Haendel. What I would say about the current environment here is external growth has been positive. We have 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 have closed on $519 million so far this year, and we have a very strong pipeline where we have either been awarded or under contract on another $250 million. So we are in a very, very solid position of being very active in this space, finishing the year strong while also building out a very strong pipeline into next year. John can speak more to the dispositions We are very diligent about recycling some of our stabilized assets that are closer to 7.5% returns where we are recycling those into new assets generating between 9% and 10% unlevered returns. So we are excited about the portfolio that we have acquired this year. There is more competition. But if you look at what we have acquired in everyday retail, we. We have averaged about a 6.8 cap rate. If you look at what, you know, our blend has been across the year, it is about 6.5. And we are still solving for above a 9. So the discipline's in place. The market is active. The competitive bid set is active. But we are not seeing a lot of movement in cap rates. Interest rates kinda spiked and then they came back down, but I feel like we are in a very good spot in terms of continuing to see activity and taking advantages of that.

Yeah. And then I will jump in quickly on the funding. Ultimately, from a funding perspective, you know, we are excited about the, expanding our investment management business. And so we have additional, you know, funding that will be drawn there for the, whether some of it will be later this year. it is our guidance table, and then the remaining piece will happen in early 2027. You know, I think the key piece here for us is that, you know, we are looking at it as match funding. Your question was getting to what our forward dispositions look like. And the best part is that we do not have anything we have to sell. These are things that are opportunistic or, you know, as Bob said, you know, maybe some cases, the IRR is a little bit lower, but, ultimately, we have a very strong portfolio. So we have the ability to increase and decrease that. And I would think that we have begun our active recycling but the key piece is sort of match funding with our acquisition. And as long as we see great acquisition opportunities, that is gonna give us the room to, to sell assets as well.

Yeah. And just, Haendel, to add to that, I mean, we. The we are basically raising capital in the low sixes on a cap rate, and we are putting that to work in the mid sixes. So we are getting a spread from the start, and then we are we are looking at these assets as long term growth vehicles for us. They are gonna help generate 2027, 2028, and 2029 growth. So we are excited about sort of not only getting a kick to start, but also that. What we are going to see on a longer term basis. So, thank you for your question. Thank you.

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

Hi, good afternoon. Thanks for taking my question. Maybe just 1 on the tenant mix. Just looking at your slide deck, 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, you want to take that 1?

Yes. Thanks, Andrew. Appreciate the question. Merchandising mix has always been 1 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 is 26%, 74% of our rent role 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 are able to generate higher rents, spend less TI money, get them in the space sooner and paying rent, And, honestly, they are all entrepreneurs. I mean, so we just like to partner alongside of them in terms of making sure that they are profitable But we have seen a lot of success in hitting. I mean, if you look at our renewal spreads this last quarter, they were, like, 25.2%. And they are even higher if you look at the local mix. So that is an advantage The key is merchandising around how you continue to focus on necessity based goods and services And look. there is no new supply coming on the market, so the demand is very vibrant. All the meetings that we are having at ICSC and the with retailers wanna be with the number 1, number 2 grocer and that is what we have 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%, mean, it is. It feels like we are in a very good spot right now. that is our focus.

Yeah. Hey, Andrew. Just to add on to that, we wanna make sure that you are. That we are explaining, like, we are very focused on this merchandising. And over time, you know, the mid twenties for local is the right mix because as. The reason we are so focused on the merchandising is we cannot drive rents unless we can drive sales. And the merchandising that we are laying out will maximize the production of the center, which then allows us to grow our rents and you. If you reason we are having market leading rents is a big piece of that is our retailers are doing well because we are merchandising to each specific market where we have a property. And that is a really critical part of how we think about the business, but also how, you know, we act on a day to day basis and that whole being locally smart is all part of that. PECO's you have to merchandise to each center that you own if you really wanna maximize the sales that we can do and then, therefore, the rents.

Your next question comes from the line of Michael Griffin with Please go ahead.

Great. Thanks. So I saw recently that Kroger announced a expansion plans through 2029. Of upwards of 100 new centers. I am just curious how your portfolio could stand to benefit from this. Clearly, you are a large landlord partner for them. it is good to see the expansion and the focus on sales productivity. But does this come through the opportunity set within the redevelopment bucket? Maybe retenanting another grocer with 1 of these Kroger expansion just curious if you can give some commentary there. That would be helpful.

Great question, Michael. Something we have thought a lot about. Bob, you want to take that on what we are doing there?

Sure. Thanks, Michael. In all our conversations with Kroger, they are expanding. They are they are not only expanding, but they are reinvesting a lot of capital into their existing stores. So being the number 1 landlord of Kroger, you know, we have some insight to that. We have walked along side them with some ground up development opportunities we are in the process of securing some ground to partner with them on that front. So I think it is gonna come from both ground up development opportunities I think they would like to do 40 new locations this year that is ground up. And then in addition, you know, any existing sites. And, obviously, you are aware of the Giant Eagle expansion, and they are very focused on that as well. So we are glad that Kroger's our partner and that we are their largest landlord. We are gonna continue to see them making the right invest in their store, and we are helping them with their, strategic layouts across the country.

Yeah. Grif, the only thing I would add in there is, you know, we think that with this the. Their purchase of the Giant Eagle stuff and that portfolio is just gonna strengthen our ability in those markets because the Giant Eagle is the dominant in both Cleveland and in Pittsburgh, and that is just gonna make our centers there even stronger. So we are very. We think that is gonna be a real positive for PECO. Awesome. Thanks, guys. Yep.

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

Hi, everyone. Maybe just on the lease pricing side, it looks like new lease spreads ticked down in the quarter, but still over 30% in the trailing 12-months? So impressive. Can you just talk about the quarter and then more generally on price whether you are getting any increased pushback from tenants on higher rents? I know you have talked in the past about upside to occupancy costs. Thanks.

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

Yeah. Good morning, Caitlin. Yeah. Appreciate the question. Honestly, it was just a timing issue of the deals that were executed in the third quarter. We have been consistently putting up numbers in the low to mid-30s on our new leasing spreads. So the 26.3 I believe, the number for new leasing spreads this quarter That was just purely just the deals that were executed. If you look at the full year, and you look at the visibility that we have out into the fourth quarter, we will certainly finish well into the 30s. In terms of a year. So it is just purely a timing issue. I think that. I am not seeing any pushback on any retailers terms of pricing. And, you know, we would see that, which is interesting. Right? Between 92.2% retention and 2020 record-high 25% retention. The neighbors are strong. They are making money. I think the key is making sure that you are merchandising appropriately. And then you know, you are keeping their health ratios within that 10% to 11%. So I. I am not seeing any issues with it. I have purely a timing thing. We are gonna finish the year in an exceptional level, and we feel real good about the strength of the portfolio. Got it. Thanks. Yep.

Next question comes from the line of James Feldman with Wells Fargo. Please go ahead.

Great. Thanks for taking the question. So same store NOI accelerated to 5.3% in the third quarter, and it is 4.3% year to date. I believe the updated full year range is 3.5% to 4%. Can you talk about the implied moderation in the fourth quarter and what is driving it? Is it rent commencement timing, bad debt, expense comparisons? Or maybe intentional vacancy for remerchandising? And then, you know, does the quarter. Does 4Q's outlook change how you think about your long-term range of 3% to 4% heading into 2027?

Hey, John. Thanks for the question, James. John, you want to take that?

Absolutely. Thanks for the question, James. So ultimately, in the fourth quarter, similar to the third quarter, we are seeing great strength from our neighbors, as Bob just said. The execution remains strong. Really, we are not seeing it as a moderation necessarily. We are looking at it as kind of the timing of recoveries from Q3 to Q4, and that can vary from quarter to quarter. We have seen that in years past. Ultimately, we tightened the bad debt range, for our guidance. We are. which is now at a 60 to 80 basis point range. And there is nothing that we are seeing that is really going to, you know, soften related to 2026. And as we look to 2027, I think we are feeling really strongly about us being able to continue to deliver on our long-term targets of 3% to 4% on a same store basis. And then mid to high single digits on our FFO per share metric. And so, ultimately, we actually think that, you know, we are just getting started. The neighbors are strong. The acquisition market is open. And we are positioned very well to take advantage of that.

Your next question comes from the line of Richard Hightower with Barclays. Please go ahead.

Good afternoon, everybody. Thanks for taking the question here. So I think if I look in the renewal, you know, spreads and the impact of options, on that number. It looks like options obviously are very, tenant-friendly feature of the lease typically. Maybe talk about that dynamic in the portfolio. And, you know, you did mention sort of non economic lease terms changing, but I wonder if the renewal option part of that specifically changing as well and what that what that means for the business going forward in the in the very strong market rent environment we are seeing currently.

Yeah. Richard, thanks. Thank you for the question. Bob, you want to talk a little bit about the options and. As well as sort of how that may change in the current environment.

Yeah. it is absolutely changing. Thanks, Richard, for the question. it is a great question because, obviously, we are very focused on continuing to find ways to grow CAGR and ABR across the portfolio. And when you are 97.5% occupied, you know, We have room to continue to move not only occupancy, Options are definitely 1 of those things that are very tenant friendly. We do not like to give them. The issue is we have acquired so many large grocery stores in our portfolio. They lock the property down at least 50% of the ABR you know, give or take for, you know, the next 30 years with either flat options or very mild options. On the in line neighbors, we are able to continue to push and negotiate options away from not only new deals, but also further renewals. You touched on this, but the nonmonetary clauses were all over. And you think about removing exclusives and caps and restrictions and co tenancies and no build areas, we have been very successful in our ability to negotiate those items to free up potential development land, redevelopment categories, outparcels, So it is a little bit of everything, Options are definitely the 1 that we start with. I tell our leasing team, during every new lease negotiation that you are not allowed to give options. So sometimes the retailers will need it just given their capital that they are investing in their property, and they wanna make sure that they are gonna stay there. And then our job is to really try to push those to, you know, 15%, 20% or better. So it is a combination of everything, and we are in the environment to take advantage of everything. Good. Thank you. Yep. Thanks, Chris.

Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Please go ahead.

Hi. This is Caitlin on for Ronald. Thanks for taking the question. I appreciate the commentary that you gave on the transaction markets as I was wondering if you could give a little bit of color into what you are 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 a similar rate as to how you were thinking about the exposure of local tenants for the everyday retail centers. Thank you.

Bob, you want to talk a little bit about sort of where we are 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?

Yep. Thank you. Appreciate the question. Cap rates have been running anywhere between a 5.8 and a 6.5 for what I would consider a core grocery anchored opportunities. Think about everyday retail. there is a lot of properties that are between a 6.3 and a 7.5 depending on what markets. that is been pretty consistent. I mentioned it earlier, but when you look at the bid sheets, we typically will see 6 to 8 offers on grocery anchored products We will see probably 5 offers come in on everyday retail. But if you look at our everyday retail portfolio, we have averaged a 6.8. And if you look at our grocery anchored, we have been really around 6.3, 6.5. So I am not seeing a lot of movement on that. In terms of unlevered returns. Our grocery product is a 9 or 9.5, and our everyday retail is between a 10 and 11. And we have kept that discipline in place, and we have seen a lot of success in that. In terms of merchandising mix with local, yeah, our local neighbors on our, you know, core grocery has been around 26%. But if you look at the everyday retail category, we are very intentional about finding opportunities that we can take our national account team focus them on re merchandising around necessity based goods and services with a national name. So we typically will start 1 of these properties, and the balance will be 60% national regional, 40% local, and then we will do over our remerchandising efforts and our strategy over our hold period will improve that down. It might end up closer to 30%, But I like that because we are able to really spend less TIs reinvest some capital, push rents. there is a tremendous amount of mark to market opportunities when you are buying the everyday retail assets that we are buying today. I mean, we are buying right getting the unlevered returns. Average around $335 a foot. On these purchases. So we are really excited about the space. Granted, we have $300 million today. We would like to grow it to $1 billion. Over the next 24 months. So we are highly engaged. We are seeing we are doing a lot of different things to attract, you know, the opportunity sets, 50 thousand centers out there. We wanna continue with the discipline and take advantage of it where we see there is an opportunity.

Thanks, Caitlin.

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

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. Talked increasingly about development as an opportunity, and you mentioned your prepared remarks desire to grow that piece. How should we think about your appetite for ground up development from here? How large could that become? 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 the. I guess I wanna make sure I understand. You are. You want to get a feel for, like, how we are looking at our development and our redevelopment businesses? Are they sort of. They are 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 are trying to take it?

Yep. Absolutely. Thanks, Sean, for the question. So this year, we will finish somewhere between $80 and $85 million. Of our redevelopment in development buckets, and we are generating returns between 9-12%. 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, you know, we have 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, you know, there is a nice pipeline of another couple hundred million dollars in the works. The nice thing is that, you know, we are we are pairing that with you know, buying as much as we are buying on the acquisition side. You know? Jeffrey touched on this earlier, but our portfolio that we have acquired this year is 94% occupied. But our portfolio is 97.5%. So there is room not only in occupancy for you know, organic growth, but also there is a lot of development opportunity in terms of, the outparcels that we are acquiring or purchasing, you know, adjacent. This year, we have we have 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 is a wonderful complement to our same center NOI growth plans over the next year. So we are gonna do both. We are gonna stay focused on our internal growth, but also the development side of the external business that can generate you know, additional alpha for us on NOI. it is it is happening, and this is a nice year for us at, you know, $80 million. And then you know, we will see what next year brings, but we should be in the same ZIP code. Yeah. And, Bob, you wanna touch a little bit on the ground up development you know, that piece obviously, it is a small piece of what we do, but it is a small piece. At this point, you know, everybody's 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 are we are doing a nice job with that, but it is pretty small. In terms of what that is. The partnership that we have with Kroger is going to create some opportunities. The world's a little different in terms of grocery ground up development because you really do not get the pop on the NOI, you know, for 3 or 4 years out. there is a long process there of entitlements and development and going vertical and everything that needs to happen to unlock that. So we wanna run a parallel path not only with our focus, you know, given that, you know, we are Kroger's largest landlord and Publix, you know, second largest landlord. They are active. So we are gonna walk alongside them in terms of their ground up plans. And then meanwhile, what we are trying to do is focus and unlock as many outparcel opportunities as we can Most of those opportunities are gonna be between $2 million and $4 million, and again, we will focus on the 9% to 12% returns, but I think so far, we have developed about 42 of those over the last 4 years. And we have been consistently not only seeing demand for it, but that is why you saw us acquire 5 pieces of dirt this year. Your next question comes from the line of Connor Mitchell with UBS.

Please go ahead.

So it seems like the consumer remains resilient. there is still plenty of retailer tenant demand. I have seen in your results and the comments through the call today. However, we have seen a couple of just retailer credit blips, you know, the Wendy's or Leslie's, and while these are very limited exposure to your portfolio, I am just curious if there have, you know, either of these blips or something else you are kind of seeing in the market has maybe changed your view of either tenant mix or the underwriting potential for acquisitions, maybe taking a more conservative view, or even maybe changing your forecast for bad debt assumptions and casting a wider net for maybe a slightly larger watch list just to keep an eye on any potential issues. Thanks.

Yeah. So, John, I will let you take that question. Yeah. Yep. Go ahead.

Thanks, guys. Alright. And 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 is actually only, I think, 5 of them maybe staying or being discussed. But I think this is actually reinforces our overall strategy. PECO's 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 wanna ensure that their sales are productive and increasing and able to sustain this rent growth. But, ultimately, our overall diversification across our portfolio is 1 of the strengths that is actually part of the lower beta part. If you exclude the grocers, our number 1 non grocer use retailer is the TJ Maxx brand. And that is 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 are not seeing anything at the ground level, in terms of, you know, we have reduced and, you know, tightened our bad debt range. it is been lower than it has in the past. The forward pipeline is really strong. The renewal rates are high. So there is not anything that we are 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, you know, they. They are they are doing alright. 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 is not anything that gives us concern at this time.

Your next question comes from the line of Jacob Dingo with JPMorgan. Please go ahead.

Hi, thanks for taking the question. This is Jacob filling in for Michael Mueller. Like you mentioned, it was another strong quarter in terms of occupancy. But looked like there was a slight decline about 40 basis points on in line leased occupancy. Is there anything to call out here? And where do you see this falling by end of 2027?

Jacob, thanks for the call. Bob, you wanna just explain that? it is pretty straightforward.

Yeah. Yep. Thanks, Jacob. Yeah. The answer's real easy on that 1. We have been at 95.4%, 95.5% in-line occupancy. It moved to 95.1%, purely because of the new acquisitions we brought online. So if you look at the acquisitions that we have acquired, you know, we have been in the low 90s, and that is solely 100% has to do with just the new acquisitions. Great. Thank you. Yep.

Next question comes from the line of Eric Borden with BMO Capital Markets. Please go ahead.

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

Yeah. I. I will take the first part, and then, John, you want to talk about sort of the timing of the stuff. So, yeah, 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 is how it is set up. I think it is set up in 3 tranches. We have closed the first tranche, and I think this second will be in December, and the third 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 have now been in for 8 years and have extended all of it for 10 years going forward.

John, do you want to talk about that? And regarding the question around earnings, all. We are very pleased that we are able to raise our guidance. And to Jeffrey's point, we have matched it very well, which is why we have the staged closing. We will finish the year at a lower, debt to EBITDA basis than we had anticipated originally. And that is just gonna give us additional acquisition capacity for next year. So I do not 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 are using this capital to time it well. We certainly have a strong 31 program. But we will be I would anticipate an expanded, you know, acquisition profile for 2027, which is what we have been building for. And this is a great opportunity for me to plug and hope everyone attends our December 16 business update where we will share more color on that.

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

Hey, guys. Thanks. Wanted to just touch upon everyday retail a little bit more on what the pipeline of new acquisitions looks like. And how the composition of total returns for this asset class 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, you want to take them?

Yeah. Hey, Floris. Hope you are doing well. We are really pumped up on the everyday retail. So, again, you know, we are right around $300 million with the 13 assets that we have acquired. If you look at from the time that we acquired them to where we are at today, we have seen a lot of success not only in moving occupancy, We have moved occupancy between 250 and 300 basis points already. These assets are throwing off an average NOI CAGR above 5%. So that is a nice complement. Again, I think our focus is to grow it to $1 billion over the next 24 months. So we are definitely leaned into it. So if I look at, you know, the spreads, we are seeing new leasing spreads of 40%. We are seeing renewal spreads above 25%. And, again, you know, 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 are we are gonna continue to lean into it. We are seeing success in our core markets. So we are gonna continue to stay very focused on that front of it, Floris.

Hey, Floris. This is a, obviously, a growth opportunity for us, but I think you will 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 wanna make sure that we are underwriting this to a point where we can get a 10%-plus return on our everyday retail and, you know, that is not easy to find, but you will see us gradually growing this business. And as we grow it, we will be doing it sort of the PICO 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, Jeffrey, a follow-up question on, you know, just. It how your strategy is different from the, you know, the 1 public peer out there in terms of and how much availability? PECO's 1. I think 1 of the, the differentiating factors, if I am not mistaken, is that you tend to buy you know, in. You know, or clustered around your existing grocery anchored centers. How much are you seeing competition from other national players? And, or is this more of a greenfield opportunity still in the you know, in the areas that you are looking to expand in this segment?

Yeah. We. I mean, we see everything that our peers are seeing. What we are really looking for, Floris, is unique opportunities where we know a very specific market and we think we can find. Not we think We have been able to find the right kind of merchandising mix for centers that we are buying. And in doing that, we grow occupancy, we grow rents, and we grow the quality of the underlying neighbors that are in that center. that is a very different strategy than our peers have, which is more to buy sort of a triple net opportunity. And because of that, that is how we are able to get these increased CAGRs of 5% plus and be able to grow IRRs of 11%-plus. We cannot do that if we are buying into you know, long term leases with national tenants. That are very stable and with little upside. We are we are looking for upside, but we are also looking to take advantage of our knowledge of specific markets where we can see outsized returns. Thanks, Jeffrey. Thank you. Thanks, Floris.

Your next question comes from the line of Paulina Alejandra Rojas-Schmidt with Green Street. Please go ahead.

Good afternoon. Very few new grocery anchored centers are being built. But many owners truly feels like everyone is adding a parcel development 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 in. On the outparcels are having any meaningful impact? Is it meaningful competition, or it is really a drop in the bucket? Everywhere?

Well, I will start, Bob, and then you can jump in. Well, I think it is the second. The. These are a drop in the bucket. I mean, if you build, you know, a Starbucks and it is, you know, 2,000 square feet, In the scheme of things, that is not going to impact the overall market which is much more. Obviously, much more sizable. But there. These really are, I think, a demand. There. there is a high demand for this kind of property among a series of certain national potential neighbors. So that is what we are focused on is, you know, where we can find them doing that And then the balance, which again is a small number, but is a, you know, a high octane kind of investment, where we can build small store space that. And you know, in most cases, it is fully occupied before we complete the construction. And that is a incremental growth in, you know, where we are getting that 9% to 12% yield out of the box on these redevelopment and development deals. So we are we are really excited about that part. We think it is additive. We wish it was a bigger market, as I think you were kind of alluding to. But we will continue to grow it at the pace that we can. At 9% to 12% yields, we can make a lot of money there. And, you know, we will keep focused on that. Bob, did you have anything to add on that 1?

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

Thank you.

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

Well, thanks, everybody, for being on today, 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. ECO 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 wanna thank again the PICO Associates for your continued hard work and our shareholders and neighbors for your continued support. Thank you again for being on the call today. Have a great day.

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