Good morning, everyone. Welcome to Citi's 2024 Global Property CEO Conference. I'm Craig Mailman with Citi Research, and we are pleased to have with us Phillips Edison and CEO Jeff Edison. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. For those in the room or the webcast, you can go to liveqa.com and enter code GPC24 to submit any questions if you do not want to raise your hand. Jeff, we'll turn it over to you to introduce your company and team, provide any opening remarks, tell the audience the top reasons investors should buy your stock today, and then we can get into Q&A. Great. Thank you. Thank you, for having us today. With me today is Kim Green, our Head of IR; Devin Murphy, the head of our asset management team; Bob Myers, our President; and John Caulfield, our CFO. Again, thank you for being here today. As we enter this year and are looking at what sort of the horizon looks like for PECO this year, you know, I think we're in a very similar situation to what we've been talking about sort of the end of last year, which is a really outstanding operating environment, and a but a more difficult acquisition market. And, you know, if you, if you look at PECO's core strategy, you see that is one of the key parts of our strategy is, you know, when 70% of your retailers are necessity goods, that gives you a different perspective on what could, you know, what the variability will be this year in the market. So we're optimistic about that part. I think we have pretty good visibility in the year and think that we're gonna have another strong leasing year. And again, you know, we as we've talked about in the past, you know, that we've got tailwinds that continue to be very strong in our business, which is what's really driving a lot of the operating results, and it includes, you know, work from home, it includes suburbanization, it includes, you know, transfer to the Sun Belt, all bringing more shoppers closer to our centers, you know, more of the day, which is obviously very positive on the demand side. And then on the supply side, you know, there's very limited new development, and that has put us in a position where, you know, we're able to have sort of market-leading occupancy, market-leading spreads. You know, probably as we said, probably as good an operating environment as we've had. The one issue in the business is, you know, as you know, you know, we have a really strong internal engine that drives very strong same-center NOI growth. We also have an external program where we're really trying to drive acquisitions, and that's the part of the market that we feel less certain about, going into this year and, you know, sort of looking out through the end of the year. You know, we continue to have more opportunities than we did last year at this time, so we're better than last year, but we're still not back to where we had been in the previous year. So we'll see what happens this year on the acquisition side. We continue to guide towards $200 million-$300 million of acquisitions, and, you know, we have set our balance sheet up so that we can do significantly more than that if the opportunity arises. So we're excited about the, you know, so what's gonna happen this year, particularly on the operating side, and then, we'll see what happens on the acquisition side. That's helpful. And maybe, you know, sticking with the acquisition story, funding, right? How do you guys kind of weigh equity versus debt today as you kind of blend it in to where you can buy? Well, you know, when you're in an environment where you have interest rates moving dramatically, prices on equity moving, you know, our target is to make sure that you're match funding your acquisitions with your total cost of capital, and that's how we approach it, that's how we approached it last year and actually the year before, giving us a long runway, and a really strong balance sheet so that we can be opportunistic when the opportunities are there, but taking a relatively conservative position on the balance sheet. John? I would say we're 5.1x levered, so and we have over $600 million of liquidity. So when you look at our acquisition, you know, guidance of $200 million-$300 million, we feel very confident and comfortable with our ability to fund that. As we look at it, as Jeff said, we're looking to be opportunistic. We're gonna, you know, approach each market when it's in a favorable position versus when it's an unfavorable one. Last year and the year before, the debt market was more in an unfavorable, more volatile position, so we took an opportunity to over-equitize. Well, now the debt markets are improving, and so, you know, we feel very confident in our ability to fund our plans. Where do you think debt costs are for PECO right now as you look out? You know, what are the near-term funding needs from just a maturity standpoint? So we have no meaningful maturities until November of 2025, so we have a very long runway. In terms of a new debt cost, I would say it's between 5.75% and 6%, which, if you look at the acquisitions we made last year, the weighted average cap rate was 6.6%, and so we do have an opportunity. But what we have is because we've worked to manage our maturities, we have the ability to be patient and flexible. So we're going to access the market when we feel that it is, you know, opportunistic. And what's the kind of just overarching thought process on, you know, issuing debt when it's, if the market comes your way? You could still park cash in 5%-5.5%, you know, interest-bearing accounts and having it on hand if you have a good pipeline of deals, versus maybe trying to save on that 25 basis points of dilution because you don't have anything, but, you know, so you're gonna try to raise debt once the pipeline gets full, or you kind of run the line up, right? Kind of what's the throttle back and forth between the line usage versus, you know, locking in longer term capital? So our target is to again do this match funding. So we wanna match fund the debt with longer term, longer duration, like our properties are in longer duration. So, if there's a trigger event, that's what we're trying to make sure that we do match fund that. And, you know, again, it's being opportunistic with regard to where is the acquisition market? Where is our ability to place significant amounts, more or less than our target in terms of that plan, and then to make sure that we've got the right setup, both equity and debt. I don't know, John, if you had any other? I would say, I think the piece is that, you know, we're focused on just, as he said, match funding, but also, I mean, for us, we are active users of our line because it ultimately allows us that flexibility. But we're $180 million drawn on an $800 million line with additional capacity. So definitely, I hear what you're saying and watching to make sure that we're not put in a box on either the equity or the debt side, but it's gonna be a function of, as Jeff said, if the acquisition opportunities are there, we're certainly interested in managing that liquidity and forecast. The visibility at this point and the $200 million-$300 million of acquisitions, kind of what's in the pipeline? Are you close to putting anything under contract? Kind of what could the cadence be on that, or is that still sort of a, you know, a fill for guidance at this point? Well, we have closed on one project that I think has been disclosed, Kim, accurately? I hope that's and I would say that we have a relatively okay backlog, but we've seen twice as many projects in our committee as we did last year at this time. So we are generally optimistic that the volume will be there. But again, the bid-ask continues to be challenging in an environment where there's uncertainty on interest rates and you know that some of our competitors in the for these acquisitions are facing. Any questions from the audience? So to stick on acquisitions, what has been sort of the return environment? It feels like things have gotten a little bit better, at least from the commentary of the last quarter or so. Kind of for your assets and your markets, where have cap rates gone? Can you describe a little bit the competitive landscape, for the bidding pools at this point? Yeah. So last year, second and third quarter were probably the least amount of transactions that we've seen in 10 years. It was a really slow pace, and there was really as large of a bid-ask spread as we'd seen in a long time. Today, that certainly has narrowed, and as you know, we're not really a cap rate buyer, we're an IRR buyer, and we're really looking at where we can take the project over time. We continue to be focused on a nine unlevered or more. And you know, we found that last year. Last year, we underwrote to over a 9.5 in terms of the properties we bought, and we bought $275 million net of net acquisitions last year. So I would say that, you know, we're optimistic we'll be able to do that. I think that will translate probably into 6.5%, somewhere between a 6.4% and a 6.7% kind of cap rate for necessity-based, grocery-anchored shopping centers that are in that 115,000 sq ft category. The market has bifurcated in terms of power and grocery, and bigger centers and smaller centers. So there are sort of multiple things being laid over on the acquisition side to get to exactly like what a cap rate is, but I'm really describing our business in terms of that necessity-based retail, that's that 115,000 with a 50,000-60,000 sq ft grocer in it, you know, sort of at the corner of Main and Main, right by our house. That's the centers that we're buying, and that's where they're trading. That's helpful. And, you know, you guys are more necessity-based. At this point, kind of what's your current outlook for the health of the consumer and your demographics? People feel like at the lower end, they've been a little bit more pressed, at the middle to higher end, people are generally in a little bit better shape, but consumer spending continues to chug along, right? Defying expectations. So I'm just kind of curious, as you guys look at your exposure, what you're underwriting for kind of the health of tenant credit, the health of the consumer. I would say that people have, for a long time, underestimated the markets that we're in. You know, our median household income is well above the median household income for the country. It's also above what the median household income for Publix and for Kroger, who are our two largest neighbors. We're Kroger's largest landlord, we're Publix's second largest landlord, and we have, over time, been able to show the market the resiliency of necessity-based retail in the communities that we serve. And if you look at history a little bit, and you step back and say, "Well, you know, you guys are really vulnerable because you're serving the average American, their necessity goods." And we're like, "Yeah, we did, and we did it during the great financial crisis." We lost less than 2% of our occupancy, the lowest of any of the peers. It, when everyone was saying, "Oh, you know, your consumer is gonna get smashed and get hit." So then you move forward 10 years, you hit the pandemic. Now, now we're gonna show you guys how bad these markets that you're in are." And all of a sudden, you know, we lose less than 1% of our occupancy, the lowest, and we're back to where we were, the fastest of any of the peers. So we're gonna continue to have this conversation with people over a long period of time. The facts just don't bear out the. Our operating history doesn't bear out the fact that there's any sort of question in these markets. And, you know, our consumer is very healthy. You know, they're, you know, employment drives a lot of the buying behavior of the average American, particularly their necessity goods, because that's one area that I think people sort of. They blend in. If you're a high-end discretionary merchant, you have a very different customer relationship in a recession than what we have. Because people continue to buy their groceries, they continue to do their necessity goods, no matter what the cycle is. You know, we just look at it, and there's less beta in our properties than there is other properties where, you know, you may not buy a, you know, your shoe, you know, some nice shoes or a new dress, you're cutting back. But you're gonna cut back on those things well before you cut back on your groceries, you know, your fitness, your medical, like, those things that we provide are the last on the list to be slowed down. The only other thing I would add on that is, you know, the metrics tell the story. You know, we have the highest occupancy in the space at 97.4%. Our inline occupancy is at 94.7%. Our retention's at 94%, and we continue to. I think we ended up at 4.2% Same-Center NOI growth this past year. So the demand's the best we've seen it in the space. You're gonna continue to see strong retailer demand from fast casual, health and wellness, services, and medtail. And with our footprint, owning the number one and number two grocer at 115,000 sq ft, we have great visibility into the next six months, and the outlook is in line and very consistent with what we've done in the past. You look at our renewal spreads at 16.2%, I mean, that's, that's, you know, leading the peer set. In addition, leasing spreads at 25.2% last year, so a very, very healthy environment for our type of product. Tenant credit has been an issue last year with Bed Bath & Beyond, Rite Aid cropped up. Saw some news about JOANN’s over the weekend. I mean, what's kind of your view of tenant credit, kind of for the industry, but you know, put that against your portfolio as you guys sort of laid out initial guidance on what kind of expectations you have laid in there, and what your view is just generally on the expectations of what could happen versus the cadence of things that have actually played out? Anyone want to? So we had two Bed Bath & Beyonds. And so when you look at our portfolio, we are highly diversified. Our largest non-grocer, because that's where our concentration is, is the grocer, but our largest non-grocer are the TJ Maxx brands at 1.3% of our ABR. And so ultimately, the focus and the strategy of Phillips Edison, which is we believe that format drives results, is we have minimized our exposure to that secondary box. And if you look at, you mentioned JOANN, you've got Bed Bath & Beyond, there's some other names there, they tend to be in that category. For us, outside the grocer, our spaces are 2,500 sq ft, which have significant depth of demand. And so if you're looking at it from a credit perspective, our portfolio has had bad debt in the 60-80 basis points over a long period of time. Jeff mentioned our performance in the two last major events, but as we look at it, we have a very resilient portfolio. Our neighbors are very strong, but it's really a diversification that comes with our footprint, and we believe our centers are differentiated in the markets they're in. In the evolving kind of Kroger, Albertsons situation, I mean, is that a net positive impact for your portfolio? Or, you know, what, what is the view there relative to maybe six to 12 months ago in terms of, your exposure and footprint there? So our view is it's a net positive if the transaction goes through, but it's important to note that the market is saying they don't think it's going through. I mean, the Albertsons stock at its strike price is still trading at a 23%-24% discount to where it would execute on the transaction. The FTC is going to fight it, they've already, you know, they've filed the lawsuit. It was pretty certain early on that Kroger and Albertsons had adopted a strategy that if it did go to court, they were willing to do that, so I assume that we're gonna have a legal battle. And, you know, the government doesn't win all the time in these. I mean, I think they've lost six cases in the last, you know, few years, and there's a lot of precedent in grocery mergers. So my guess is this is gonna be a bitter fight between the government and Kroger and Albertsons, but it's really a toss-up in terms of what happens. For us, if it does happen, we'll have a couple of centers probably go into the C&S PropCo deal. We've estimated anywhere from zero to 10, so we don't have a great handle on it in terms of what that would be, and only because Kroger doesn't know exactly what they're gonna what that's gonna look like. That, that part will be part of it, and then the other centers will become Kroger centers, and if they do, you know, Kroger's sales are better on a per-store basis than what Safeway Albertsons is. So we think that will be positive for our centers. They also tend to put more capital back into their stores, which again, I think would be positive as well. So generally, yeah, we think we'd like it to go through. We think it's good for the communities that we're in, and we think it's good for the stores. And if it doesn't happen, you know, these were really strong Safeways that we have, our Albertsons and Safeways that we had, and so we'll continue to operate that way. It'll be uncertain because I think it's pretty sure. We have a fairly high level of confidence that a transaction or multiple transactions will happen, because the ownership of Albertsons wants to get out, and if they do, and they're a public company, I think that will happen in some form. Any questions in the room? Perfect. Moving on to internal growth, you know, redevelopment has been a key for you and your peers, and I guess you guys expect roughly about 100 basis points of contribution a year. Could you just walk through sort of the depth of this opportunity in the portfolio and any potential for this to increase over time, the contribution? Bob, you wanna talk? Well, there's sort of two, I think there are two points. So one, but how financially how we get there, like how do the, how do the numbers work? And the other is what's happening on the ground in terms of retailers and, and where we're finding demand. Sure. So right now, we're giving guidance that our redevelopment development pipeline is between $40 million and $50 million a year. So we do have visibility out for the next three or four years on that. So I feel like we will be in that range for the next two or three years. The only other thing I'd mention about our development pipeline, these are smaller projects, typically $2 million-$3 million in size. You know, our yields will range anywhere from 9%-12%. So smaller projects that you might find in your parking areas, where you're gonna build a five to seven or 8,000 sq ft, you know, building. We've seen a lot of demand from Starbucks. I think we completed six Starbucks deals last year. Chipotle, we've done some Chick-fil-A deals. Drive-through components are very important to those types of retailers, so we're gonna continue to lean in with our national account team on building out that pipeline. But so far, it's been very positive with good returns. So drive-throughs have been increasingly kind of relevant for a lot of end cap type tenants, Starbucks, fast casual, you name them. Could you, you know, we kind of think 30,000 sq ft, but when you get down to the ground dealing with local municipalities, how are they reacting to the prospect of putting these in? How difficult is it with traffic patterns and egress and ingress into centers? Kind of, is there an appetite for it at the local level, or are you guys feeling like there's a lot of pushback, even if it could work at the center from a space perspective? I'm not seeing a lot of pushback, honestly. The issue, you hit it right on, right on the head, it's stacking, right? I mean, to put a Starbucks or a Chipotle in, or a McDonald's, right? You have to have enough acreage to be able to do it, and the municipalities have been very favorable working with us on that. You know, I think during COVID, we ended up putting drive-through windows on the majority of, about 78, I believe, of our end caps, because municipalities, they wanted businesses to thrive. They wanted retailers to continue to stay open and make money. So, I feel like they're still in that mindset of growth. Once you guys do the redevelopments, the 9%-12% return is more of an immediate kind of benefit, but longer term, the value that you're creating at that overall center to be able to potentially kind of curate with a new tenancy that would wanna be near a Starbucks or what have you. I mean, what's the long-term benefit from just a value perspective across the different centers? I know it's a longer game, 'cause it take 10 years to kind of retenant, but just what you've seen so far on maybe some of these redevelopment dollars and that ability to recurate a center over time. I say, I think from a financial aspect, I mean, we believe that we can generate 75-125 basis points in same-center NOI growth, given the $40 million or $50 million that we're putting in. More specifically on the projects we're talking about, when we're talking about an individual, you know, out parcel, that 9%-12% is a cash-on-cash yield. And so ultimately, we're very happy to generate those kind of cash returns. But you're right, the actual cap rate of the individual out parcel is tighter than that, so there's absolute value creation there. But I think from our strategy standpoint, the biggest, by far, traffic generator is the grocer. And so for us, making sure that we have a strong, healthy grocer, the right grocer in that market, is even more important. Absolutely, we'd love to have the Starbucks. I don't know that I need to own the Starbucks, but I would like to have the Starbucks to do that. And it is, it is positive, but the biggest generator is the grocer. But yes, we're talking 9%-12% on a cash basis. Well, and that's. Great example, real quick, is that McDonald's. We sold a McDonald's deal last year at a 3.5% cap. So there are some opportunities to step into some pretty attractive pricing on McDonald's and Chick-fil-A's. The only thing I would add there is when you're serving a community, like each one of our 300 centers do, you actually. It's really critical that you have the right merchandising mix, and 'cause that merchandising mix will drive the amount of traffic you have at the center and will allow you to be able to maximize rents over a sustained period of time. And things like a Starbucks has. I mean, it has. We're We're actually creating value the day they open the door, but they also add a longer-term value because people who shop at Starbucks are also have other similar traits, and the additional traffic that a Starbucks drives more traffic to your small stores, which then allows you to have better small stores and brings the whole merchandising mix up. So there are a number of benefits of a Chipotle and a Starbucks that they bring to your center. Not just the traffic, but also who is the traffic that's coming, and that's been a side benefit of our redevelopment and development plan. That's helpful. And, you know, going to the other side of same-store occupancy, you guys have had, you know, nice high levels here. Kind of, what's the confidence that you can continue to drive that higher? Where do you think it could ultimately kind of top out? What's the kind of that frictional point in the portfolio, in your opinion? Sure. So right now, we're at 97.4% occupancy, with in-line at 94.7%. We feel like we can move in-line occupancy another 100 to 150 basis points, so somewhere around 96%-96.3%. That's internally. On the acquisition side, we acquired 14 assets last year. Eight of them had some sort of redevelopment or development component. The average occupancy across all 14 assets was 87%. The assets that we closed, about $185 million in the fourth quarter, we were 84%. So we're gonna continue to run a parallel path on finding some acquisitions that have some occupancy growth. So overall in the portfolio, but then internally, our in-line occupancy number, we feel like we can continue to move in another 100-150 basis points. So upside in both areas for our portfolio. The leasing spreads you guys quoted were strong. I'm just curious, as we've talked about maybe remerchandising centers over time, how much of that is driven by bringing some new tenants in with the capacity to pay more, either a national franchise on the shop space, or just your ability with kind of top-line inflation in the last couple of years, that your existing tenancy can absorb this and pay these higher rents? You want? Sure. So when I look at the health of the consumer and our retailer, for our retailers, it's really occupancy costs. So right now, our average occupancy cost is around 9.4% for our in-line tenants. We feel like we have room to move that up to 12%, so the retailers will not only stay healthy but continue to make money. So there's some runway over long term, and obviously, we are at 94% retention with renewal spreads at 16.2%. And even as I have visibility out the next six months, I mean, I'm seeing numbers in line with that, if not better. So, you know, the health of the retailer is very positive in our shopping centers, and the demand is there. I think what we've seen over the last several years is that their sales are outpacing even the increases that we're getting, so it's creating that space there. So when it comes to a merchandising mix, it, there's certainly elements there that you'll consider, but when you're as highly occupied as we are, you're pushing for cash. And so we believe that they're very healthy, and the economics are not the same. If you look at renewing a space at the renewal levels we're talking about versus retenanting, meaning you've gotta, you know, you've gotta put new capital in, you have downtime, and then get going, we, we would believe you, you would actually need a re-leasing spread above 50% to match that, you know, 16%-17% that, that we're getting in place. That 250 basis points or so of occupancy cost uplift over time, what does that translate kind of into a financial FFO or same store kind of – and what's the timeframe in years, maybe, that it takes to close that gap as you kind of churn the portfolio? Okay, I thought they were gonna speak. Look, we think that it can be 100-125 basis points. When we look at the mark-to-market, we believe that, as Bob said, as we look at our pipeline and what we can continue to drive, we believe we can be pushing this portfolio in the high teens and on top of that, in terms of spreads. But it does take. We've got to wait for the lease roll. But we're also getting higher rent bumps than we've had historically. And so we're getting 2%-3% escalators in addition to these renewal and new leasing spreads that we're generating, and so we think the path for growth is continuous. We went through some math at our Investment Community Day in December that kind of walked through why we believe we can do it in addition. So we have, you know, real models, but then I did it using external information to prove that we can do this over a long period of time, generating between 3% and 4%. As you split it out between the anchors and the shops, sort of what's your success on the anchors getting some bumps through or getting some of these grocers to pay a little bit more, especially if you're targeting the top one or two grocer in a market? They clearly have a need to be there or a desire to be there. Kind of, what's the success rate on pushing things through to them? So our grocers control their box for the next 30 years. And so ultimately, when you're talking about anchor, for us, it is the grocer. And the most important thing for us is to have a healthy, strong grocer that's going to continue to deliver. There are opportunities that we have to renew them at, at very strong re-leasing spreads, but the most important thing as we look at it is their strength in terms of generating their sales volume, but really, it's generating the foot traffic of the center that allows our inline neighbors to be successful, and then our rent growth is really coming from that inline ABR. If you look at, I think we have more than anyone else, I think we're at 55% or so of our rent comes from inline ABR. And as we said, we think that's actually kind of the more alpha with less beta. Like, the beta piece is we have an investment-grade income stream in the grocer, and our growth really comes from the inline neighbor and their success. As we think about sort of operating costs and the trends there, you know, insurance has come up a lot. Kind of curious on the trends that you're seeing there, then, you know, shrinkage and security have also been a topic. So I'm just kind of, maybe those two aren't the biggest line items, but just walk through maybe what some are, what some of these kind of headlines are translating into. Yeah, I mean, I think we're in an environment. I mean, particularly given the inflationary environment we've been in, that insurance is going to continue to be a pretty big grower from a cost perspective. And fortunately, you know, we pass 90+% of that back to our neighbors. Unfortunately, though, it still puts pressure on them, you know, but we don't see that changing dramatically. And it is, I mean, it's sort of, it's a combination of a lot of things. But primarily, the insurer's desire to eliminate certain kinds of risks and concentrations, and as they look at that, it's a very simple thing to get out of markets and to raise rates. And then was the other question on the real estate taxes, expense side? It's just. You could hit on those if you want to quickly. Yeah, I mean, I think real estate tax is another very, you know, I think that's going to be something that we talk about more, because a lot of municipalities need the cash, and one of the great sources of that is their real estate, and their retail real estate in particular. So we think that there will be ongoing pressures there as well. All of that putting pressure on the retailers as we pass that through to them, and then eventually, you know, that becomes a pressure on your ability to grow rents. But as Bob pointed out, I mean, we're at 9% health ratio with our inline neighbors. So when you look at that, that's a very healthy place to be for us. And we think there's room there to get from 9% to almost 12%, which gives us a lot of room to grow our rents. Great. Rapid fires, real quick. Same-Center NOI for the group in 2025. Could you repeat? It's the same store. For the group. For the group? Not 25. 3%. Property sector, more or less, or fewer companies in 12 months? Same. Best real estate decision: buy, sell, build, redevelop, or repurchase stock? Buy. This session has ended. Right under the bell. All right. We did not waste any time. Thank you very much. Thanks, everybody, for being here. Thank you.