Phillips Edison & Company, Inc. NASDAQ: PECO reported third-quarter results marked by higher rental rates, strong tenant retention and continued acquisition activity, while raising the midpoints of its 2026 earnings guidance.
Same-center net operating income rose 5.3% during the quarter, while core funds from operations increased 9.2% per diluted share to $0.71. NAREIT FFO increased 7.8% per share to $0.69, or $98 million, and core FFO totaled $100.7 million.
Chairman and CEO Jeff Edison said the results reflected demand for the company’s grocery-anchored neighborhood centers and its necessity-based tenant base. The company said 74% of annualized base rent comes from necessity-based goods and services.
“The consumer remains resilient, PECO’s grocers and necessity-based neighbors continue to drive strong traffic, and we are not seeing any signs of weakness as we look towards 2027,” Edison said.
Leasing Activity Supports Rent Growth
Portfolio leased occupancy stood at 97.5%, with in-line leased occupancy of 95.1% and portfolio retention of 92.2%. President Bob Myers said the slight change in in-line occupancy from prior levels was attributable to recently acquired properties, which have carried lower occupancy than the existing portfolio.
Comparable renewal rent spreads reached a quarterly record of 25.2%, while comparable new-lease spreads were 26.3%. Myers said the new-lease figure reflected the timing and mix of deals completed during the quarter, rather than a shift in leasing conditions, and said management expects to finish the year with new-lease spreads in the 30% range.
Management said tenant demand remains broad, and that occupancy costs are generally in the 10% to 11% range. Bad debt was approximately 70 basis points of revenue during the third quarter, in line with expectations. The company tightened its full-year bad-debt outlook to a range of 60 to 80 basis points.
Myers also said Phillips Edison is seeking to improve non-economic lease terms, including reducing tenant options, exclusives, caps, restrictions, co-tenancies and no-build provisions. Such changes can create added flexibility for redevelopment and outparcel development, he said.
Acquisitions and Everyday Retail Expansion
Through Oct. 26, Phillips Edison had acquired $519 million of assets at its share, including 12 grocery-anchored centers and four Everyday Retail properties. The company raised its full-year gross acquisition guidance to $600 million to $700 million earlier in October.
The acquired assets were 94% leased on average, compared with 98% leased occupancy across the existing portfolio. Edison said that gap represents an opportunity to improve operations through leasing, merchandising changes and local-market knowledge.
Management said it has reviewed 567 potential transactions this year, compared with 450 last year, and presented 270 deals to its investment committee, compared with 233 a year earlier. Myers said Phillips Edison had been awarded or placed under contract on an additional $250 million of properties.
The company targets unlevered internal rates of return of about 9% for grocery-anchored acquisitions and 10% or more for Everyday Retail acquisitions. Myers said core grocery-anchored transactions have generally traded at cap rates between 5.8% and 6.5%, while Everyday Retail opportunities have ranged from 6.3% to 7.5%.
Phillips Edison owns about $300 million of Everyday Retail assets and continues to target $1 billion in that category over the next 24 months. Myers said the company’s Everyday Retail portfolio has increased occupancy by roughly 250 to 300 basis points since acquisition and has generated average NOI growth above 5%.
Development Pipeline and Capital Position
The company’s active development and redevelopment pipeline totaled nearly $90 million. Management said it sees potential to expand the pipeline above $100 million while maintaining targeted returns. Phillips Edison expects to complete between $80 million and $85 million of redevelopment and development projects this year, with expected returns of 9% to 12%.
Myers said the company has acquired five outparcels during the year and already has letters of intent or leases pending on all of them. Phillips Edison has developed roughly 42 similar projects over the past four years, he said.
On the financing side, CFO John Caulfield said the company closed a new $350 million, three-year unsecured term loan at an initial interest rate of SOFR plus 80 basis points, 30 basis points below the rate on the term loan it repaid. Initial proceeds of $175 million were used to repay an existing $162 million term loan and reduce revolver borrowings.
Pro forma for the new loan, Phillips Edison had approximately $950 million of total liquidity. Net debt to annualized adjusted EBITDAre was 5.2 times on a trailing 12-month basis at quarter-end, and Caulfield said the company expects to end the year closer to 5 times. Approximately 85% of debt was fixed rate, with a weighted average interest rate of 4.5% and a weighted average maturity of five and a half years, including extension options.
The company said it has no meaningful debt maturities until 2030. Its current plan does not assume equity issuance, with investments expected to be funded through retained cash flow, dispositions, joint-venture proceeds and debt.
Updated Outlook
Phillips Edison increased the midpoint of its 2026 same-center NOI guidance to 3.75% growth and said it expects to finish at the higher end of its original 3% to 4% range. It also raised the midpoint of its core FFO-per-share guidance, which now reflects 6.5% growth, and its NAREIT FFO-per-share guidance, which reflects 6.3% growth.
Management expects higher general and administrative expenses in the fourth quarter than in the third quarter. The company now expects dispositions of $175 million to $210 million for the full year.
Edison said Phillips Edison expects to provide further detail on its 2027 outlook, Everyday Retail strategy and growth plans during a virtual business update scheduled for Dec. 16.
About Phillips Edison & Company, Inc. (NASDAQ:PECO)
Phillips Edison & Company, Inc is a real estate investment trust focused on owning, operating and developing grocery-anchored shopping centers in the United States. Its properties are typically located in established communities and are designed to provide consumers with convenient access to essential goods and services.
The company's portfolio includes neighborhood and community shopping centers anchored by grocery stores, alongside complementary tenants such as restaurants, personal care providers, medical offices and other service-oriented businesses.
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