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Operator: Good day and welcome to Phillips Edison & Company’s Third Quarter 2024 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.

Kimberly Green : Thank you, operator. I’m joined on this call by our Chairman and Chief Executive Officer, Jeff Edison; President, Bob Myers; and Chief Financial Officer, John Caulfield. Once we conclude our prepared remarks, we will open the call to Q&A. After today’s call, an archived version will be published on our website.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 in our earnings press release and supplemental information packet 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, our Chief Executive Officer. Jeff?

Jeff Edison : Thank you, Kim. And thank you, everyone, for joining us today. The PECO team delivered another solid quarter of growth with same center NOI increasing by 3.2%, Nareit FFO per share growth increased 9.1%, and Core FFO per share growth increased 6.9%. The ongoing strength of our performance is attributable to our differentiated and focused strategy. PECO owns right-sized, high-quality, grocery-anchored neighborhood shopping centers. These centers are anchored by the Number #1 or #2 grocer by sales in a market. Our results are generated at the property level. They are driven by our integrated operating platform and our exceptional, locally smart, and cycle-tested team. The entire PECO team continues to drive significant value at the property level.

You can see that reflected in our sector leading operating metrics. The experience and talent on PECO’s team is significant. We have experts in every aspect of the grocery-anchored real estate industry. We remain committed to successfully executing our growth strategy to deliver long-term value to our shareholders. Our high-quality portfolio anchored by top grocers in favorable suburban markets provides a long-term steady earnings growth profile. We believe PECO is well-positioned to continue to grow and provide market-leading returns. PECO is delivered on our core strategy for over 30 years. We have developed a seasoned team that has been together for a long time. Our team is highly engaged, highly focused, and deep. PECO is a growth company.

We have consistently delivered on both internal and external growth. We are well positioned to take advantage of growth opportunities. We’re acquiring high quality centers with the capacity to buy more. As Bob will highlight in a moment, we are a best in class operator. In addition, we are prudent with our balance sheet management. We have strong liquidity and no meaningful maturities until 2027. We believe these factors will drive solid earnings growth in 2025 and beyond. Year-to-date, we acquired nine shopping centers and several land parcels for a total of $211 million. We continue to find attractive acquisition opportunities. Activity in the fourth quarter remains strong. Given the current environment, we are updating our acquisitions guidance to $275 million to $325 million of debt acquisitions for the year.

We continue to have the capabilities and leverage capacity to acquire more as attractive opportunities materialize. Moving to the Kroger-Albertsons merger, the market still gives the merger a low probability of occurring. If the merger does not occur, our Albertsons anchored centers will continue the strong performance they have produced to-date. Should the merger close, our remaining Albertson stores would be operated by Kroger, which reinvest regularly in their stores and produces higher sales volumes on average. This would have a positive impact on our portfolio. I will now turn the call over to Bob to provide more color on the operating environment. Bob?

Bob Myers : Thank you, Jeff. Good afternoon, everyone and thank you for joining us. We have another quarter of strong operating results and leasing momentum. We continue to see high retailer demand with no current signs of slowing down. PECO’s leasing team continues to convert retailer demand into high occupancy with higher rents at our centers. Portfolio occupancy remained high and ended the quarter at 97.8% leased, a sequential increase of 30 basis points. Anchor occupancy of 99.4% increased 60 basis points sequentially as we executed eight anchor leases. Inline occupancy ended the quarter at 95%. New neighbors added in the third quarter included quick service restaurants such as Jersey Mike’s, Dunkin’ Donuts, and Tropical Smoothie, along with several med tail uses, health and beauty retailers, and other necessity-based goods and services.

In terms of new lease activity, we continue to have success in driving higher rents. Comparable new rent spreads for the third quarter were 55%. Our inline new rent spreads remained strong at 28.3% in the quarter. As it relates to bad debt in the third quarter, we actively monitor the health of our neighbors. We are not concerned about bad debt in the near term, particularly given the strong retailer demand, and we don’t have any meaningful concentrations. From an operations standpoint, we have always taken an aggressive stance to get spaces back. In today’s environment, the PECO team is taking an even more aggressive stance on opportunities where we can get higher rent spreads and improve the merchandising at the center. According to Placer.ai, PECO’s suburban markets offer retailers several advantages in today’s environment.

Chipotle, Chick-fil-A, Wingstop, and Jersey Mike’s are some examples of retailers that have been focusing on suburban markets for the expansion. National Retailers continue to raise their long-term store targets in our markets because these locations have proven to deliver the same or better store-level economics as traditional locations. In addition, retailers are increasingly looking to open smaller-sized locations in spaces between 2,000 and 3,000 square feet. PECO’s small shop average lease size has remained consistent at 2,300 square feet. For over 30 years, we have excelled in leasing this small shop format, and we continue to see strong demand for these spaces. We continue to capitalize on strong renewal demand and are making the most of the opportunity to improve lease language at renewal and drive rents higher.

In the third quarter, we achieved a 19.8% increase in comparable renewal rent spreads. Our inline renewal spreads remained high at 19.6% in the quarter. These increases in spreads reflect the continued strength of the leasing and retention environment. We expect new and renewal spreads to continue to be strong throughout the balance of this year and into the foreseeable future. Our neighbor retention remained high at 92% while growing rents at attractive rates. Higher retention means less downtime and lower TI spend. In the third quarter, we spent only $0.73 per square foot on tenant improvements for renewals. We also remain successful at driving higher contractual rent increases. Our new and renewal inline leases executed in the quarter had average annual contractual rent bumps of 2% and 3% respectively, another important contributor to our long-term growth.

The leasing spreads that we are achieving and the strength of our leasing pipeline are clear evidence of the continued high demand for space in our grocery anchored neighborhood shopping centers. PECO’s pricing power is a reflection of the strength of our focused strategy and the quality of our portfolio. Today, we believe the consumer remains resilient. Our grocers continue to drive strong reoccurring foot traffic to our centers. Consumers continue to visit grocery stores 1.6 times per week. There are approximately 30,000 average trips per week to each PECO Center. This equates to nearly 500 million total trips to PECO Centers in total during the last 12 months. Strong foot traffic benefits inline neighbor sales and enhances our ability to drive rents higher.

PECO’s three-mile trade area demographics include an average population of 67,000 people and an average median household income of 87,000, which is 12% higher than the US Median. These demographics are in-line with the store demographics of Kroger and Publix, which are PECO’s top two neighbors. Our centers are situated in trade areas where our top grocers are profitable and our neighbors are successful. The necessity-based focus on our properties is important when demographics are considered. If you are comparing a Publix to an Apple store or high-end fashion, the demographics that each retailer needs to be successful are very different. 70% of our rent comes from necessity-based goods and services, and our demographics are very strong in supporting our neighbors.

PECO continues to benefit from a number of positive macroeconomic trends that create strong tailwinds and drive robust neighbor demand. These trends include a resilient consumer, hybrid work, migration to the Sunbelt, population shifts that favor suburban neighborhoods, and the importance of physical locations and last-mile delivery. Leasing demand continues to be at historically high levels for our in-line spaces, as these macro tailwinds have retailers more focused on having stores in our centers. The impact of these demand factors is further amplified due to limited new supply over the last 10 years, and going forward, given that current economic returns do not justify new construction of shopping centers. In addition to our strong rental growth trends, we continue to expand our pipeline of ground-up outparcel development and repositioning projects.

Year-to-date through the third quarter, we stabilized 10 projects and delivered over 274,000 square feet of space to our neighbors. These 10 projects add incremental NOI of approximately $4.2 million annually. They provide superior risk-adjusted returns and have a meaningful impact on our long-term NOI growth. We continue to expect to invest $40 million to $50 million annually in ground-up development and repositioning opportunities with weighted average cash on cash yields between 9% and 12%. This activity remains a great use of free cash flow and produces attractive returns with less risk. Our team continues to stay focused on growing this pipeline as returns are accretive to the portfolio. The overall demand environment, the stability of our centers, the strength of our grocers, the health of our in-line neighbors, and the capabilities of our team give us confidence in our ability to continue to deliver solid operating results.

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

John Caulfield: Thank you, Bob, and good morning and good afternoon everyone. I’ll start by addressing third quarter results, then provide an update on the balance sheet and finally speak to our updated 2024 guidance. Third quarter 2024 NAREIT FFO increased 12.5% to $81.6 million or $0.60 per diluted share, driven by an increase in rental income from our strong property operations. This quarter was impacted by the write-off of approximately $1.2 million in deferred financing costs related to debt extinguished by our bond offerings this year, which is just under $0.01. Third quarter core FFO increased 9.6% to $84.4 million or $0.62 per diluted share, driven by increased revenue at our properties from higher occupancy levels and strong leasing spreads, partially offset by the higher interest expense.

Our same-center NOI growth in the quarter was 3.2%, driven by rental income growth of 4.5% year-over-year, partially offset by lower tenant recovery income and higher property-level expenses. Turning to the balance sheet. We have approximately $752 million of liquidity to support our acquisition plans and no meaningful maturities until 2027. Our net debt to adjusted EBITDA remained at 5.1 times. Our debt had a weighted average interest rate of 4.4% and a weighted average maturity of six years when including all extension options. In September, PECO completed a public debt offering of $350 million of 4.95% senior notes due 2035. Proceeds were used to replenish the liquidity on our line and repay term loans that were due in 2025 and 2026. As of September 30, 2024, 93% of PECO’s total debt was fixed rate which is near our target range of 90%.

We expect PECO’s fixed rate to be at approximately 90% at year-end. PECO continues to have one of the best balance sheets in the sector, which has us well-positioned for continued external growth. Turning to our guidance for 2024. We have updated the net income per share range to $0.48 to $0.50. We’ve updated our guidance for NAREIT FFO to a range of $2.35 to $2.39 per share. This reflects 5.3% growth over 2023 at the midpoint. The updated range was primarily due to the write-off of deferred financing costs related to debt extinguished in connection with our two 10-year bond offerings this year. We’ve updated our guidance for core FFO to a range of $2.40 to $2.44, increasing the midpoint by $0.01. This reflects 3.4% growth over 2023 at the midpoint.

In addition, we have reaffirmed the midpoint and narrowed our range for same-center NOI growth, given the continued strong operating environment. Included in our guidance is the negative impact of uncollectible reserves. We are affirming the range previously provided, given the continued strong health of our neighbors. However, we will likely be at the high end of the range for the year. We currently have several acquisitions in our pipeline either under contract or in contract negotiation. This activity allows us to increase our acquisition guidance for the year, as Jeff mentioned earlier. Looking beyond 2024, we believe our internal and external growth opportunities, give us a long-term growth outlook in the mid-to-high single digits for core FFO per share.

We expect a comparable or faster growth rate for AFFO because there should be less tenant improvement dollars invested, as we continue to increase same-center occupancy. I would like to mention that PECO will be hosting a virtual business update on Thursday, December 19. We plan to provide an update on the business and our preliminary outlook for 2025. Please save the date, and additional details will be shared by our Investor Relations team in the coming weeks. With that, we will open the line for questions. Operator?

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Jeff Spector with Bank of America. Please go ahead.

Jeffrey Spector: Great. Good afternoon. Thank you. I guess if I could focus my question, follow-up on the transaction market. First, I guess can you talk about the acquisitions that you made during the quarter, the strategy I see the occupancy is lower than your occupancy.

Jeff Edison: Sure, Jeff. Thank you for the question. I’ll take the first part about the market, and then Bob, maybe you can talk a little bit about the specific properties that we did buy. So the market was, I think, very similar to what we talked about after the second quarter, which is there was more product on the market but also more buyers. We found that we did find some, we think great opportunities in the market, so we are excited about the stuff that we were able to buy. But we think that — that’s a trend that will continue as retail has taken on a much more positive look in investors’ eyes. There are new entrants who have come into the market on the buying side, and we anticipate that will continue. But we also are seeing a lot more products in the market, which is allowing us to find some great opportunities to buy. Bob, do you want to talk a little bit about the specifics of the assets that we bought?

Bob Myers: Yes, absolutely. Thanks, Jeff. So we acquired six properties in the third quarter and three of those properties were anchored by King Soopers, Pete’s, and Big Y. You mentioned the occupancy being a little bit lower. I think the Big Y deal was 91%, and then Pete’s was 96.6% and then Colorado Springs at 90%. What I liked about the quality of the assets, not only are they solving for above a 9% unlevered return, they also provided some development opportunity. And I think when I think about the property, Ridgeview marketplace, there is a pad out there that we are already working with several national retailers for either a ground lease scenario or a build-to-suit. Last year, as an example in the fourth quarter, we acquired eight assets that had a blended occupancy of around 84%.

So as we are building out the portfolio, part of our acquisition strategy is to find some great properties that are anchored by the #1, #2 grocer and continue to give us upside and strong NOI growth year-over-year. We also acquired three outparcels, which are adjacent to our Publix locations where our national account team has done a great job of identifying potential new retailers for those sites. So always looking for some of those development opportunities as well.

Jeffrey Spector: Great. Thank you, very helpful. And actually, Jeff answered my — I was going to have a follow-up on the transactions. Maybe if I could then turn my follow-up to the restaurant category. I know there is a lot of subcategories within restaurants. You talked about a number of restaurant retailers joining the portfolio. I guess, it seems like there is some mixed things on restaurants in different parts of the country. Any views you could share on restaurants and how you’re thinking about the various categories? Thank you.

Jeff Edison: I’ll take a little and Bob, you jump in as well. The restaurant business has obviously as you pointed out, multiple segments to it. And what we have found is that the formal sit-down restaurants have been more volatile than the quick-service, and we are seeing that in our portfolio as well. The majority of our restaurants are quick-service and have continued to perform well throughout cycles. And we are certainly seeing strong appetite for new locations from those quick service restaurants and we don’t see anything really slowing down there. And we certainly – we are not seeing anything particularly from the visitations and sales that would indicate that there was a slowdown in the — on the quick-service restaurant side. Any additions to that, Bob?

Bob Myers: The only thing I’d add is I was down in Atlanta at the Southeast conference meeting with retailers. And I mean the Starbucks, the Chipotles, the Wingstop’s, they’re all very, very busy. Dave’s Hot Chicken, Swig, First Watch, CAVA, we just have a long list of fast casual concepts that are looking to secure sites in ’25, ’26, and ’27. So I’m not seeing a slowdown in the fast casual aspect. It is the biggest part of our leasing pipeline as I look out. So it is still very strong, so I’m encouraged by the activity that exists and what we will continue to see.

Jeffrey Spector: Great. Thank you.

Jeff Edison: Thanks Jeff.

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

Caitlin Burrows: Hi, everyone. Maybe we’ll just start on the bad debt side. I know that, that metric for PECO is very low versus other REITs. John, you mentioned that it could come in at the high-end, which is what you’ve been saying all year, so it’s not something new. I know in the first quarter, it came up a lot and you pointed out then and now how PECO is being deliberate with tenants that are behind on rents. So I was wondering if you could give some more detail on what this means for PECO and how it plays out. Like for example, those tenants that impacted the 1Q bad debt, have they ended up leaving the portfolio and the replacements were already part of the 55% new lease spreads? Or just how have that process played out or how will it play out?

Jeff Edison: Caitlin, thank you. John, you want to take that?

John Caulfield: Sure. Thanks for the question, Caitlin. So bad debt was 86 basis points year-to-date. Keep in mind, we are only talking about a few hundred thousand dollars here. And as Bob mentioned, we are finding opportunities to enhance the merchandising mix of our centers with 55% new leasing spreads and continued strong retailer demand. We’re just — we’re not concerned about the environment. I would say that those neighbors as we said, we’ve been more aggressive in taking those spaces over the year. And I think our re-leasing of those spaces has been really strong, which is you can kind of see if you look at our total occupancy on a lease basis, it is been very constant. The economics stepped back a little bit. That’s what you are seeing there when you think about the process. Ultimately, we are pleased to be able to reaffirm our same-store guide and look at these opportunities to drive further rents, and it will be a benefit to 2025 and beyond.

Caitlin Burrows: And in terms of that benefit, it’s just that then you can get back the space and complete new leases, yes?

John Caulfield: Yes. And so I mean, ultimately, we do like our renewal business with 19% renewal spreads and no downtime. But overall we think this is a great opportunity to improve the merchandising and to drive the rent spreads at the properties.

Caitlin Burrows: Got it. Makes sense. And then just a quick one on the full year same-store guide, it implies a big pickup. I know you had previously talked about recoveries, timing could drive that. But just wondering, is that it? Is there anything else? And kind of how much visibility do you have on that to reaffirm the same-store midpoint?

John Caulfield: Yes, sure. I’ll take that 1 as well. I mean ultimately, it is — we do believe that there will be an acceleration here in the fourth quarter, part of it will be a little bit of a comp to last year. But I mean, I think one of the benefits of Phillips Edison is the overall consistency to our business. And so even though quarter-to-quarter, the numbers move into fourth quarter, we are expecting to be outsized. Ultimately, the 3% to 4% that we guide to and this year, the 3.5% to 4%, is it consistency? I wouldn’t say there is anything that’s too unusual in that other than the timing of recoveries. I think the biggest piece this year to last year was that our spend was different last year than it was this year in terms of that cadence. When we look to next year, which we are not going to talk about yet, hopefully it either matches or smoother.

Caitlin Burrows: Thanks.

Jeff Edison: Thanks, Caitlin.

Operator: Your next question comes from the line of Haendel St. Juste from Mizuho Securities. Please go ahead.

Ravi Vaidya: Hi there. This is Ravi Vaidya on the line for Haendel. Hope you guys are doing well? Can you offer some additional color on the 2025 guide? The savings with interest expense and G&A appear to provide about a $0.04 lift and the same-store midpoint was maintained. So what are the offsets that resulted in only a $0.01 increase? Is it higher bad debt expense or watch list? Or just what are some of the moving parts there?

Jeff Edison: John, you want to take that?

John Caulfield: Sure. Hi Ravi, I’m going to say I think you said 2025 guide, I think you mean the ’24 guide because that was the component. So the ’25 guide is a plug nope, — we are planning to talk about that in our December virtual update that I hope you’ll join for. With regards to the 2024 guidance, we are very pleased to be able to raise guidance this quarter. When comparing the components to the original guidance, there is about $0.02 less in lease buyout income than we expected because now we anticipate that those neighbors will actually stay longer than originally anticipated. So we raised guidance for acquisitions but they’re later in the year and don’t have a significant impact on core FFO. But that acquisition timing does come through as lower interest costs in our guidance.

We did not issue equity in the quarter, which is, I think, something that people have asked about. Net-net, after these different pieces, we are comfortable raising guidance by $0.01, which we believe will collect solid growth at the midpoint.

Ravi Vaidya: Got it. That’s helpful. And yes, I was talking about ’24 guide. I will be sure to join in for the seminar later. Just one more here. Can you discuss how you are planning on funding acquisitions? I believe that you said that above $250 million in acquisition, you would likely need to raise additional equity. Are you planning on doing so or are you comfortable with letting leverage tick up a bit from the [5.1 times] (ph) currently?

Jeff Edison: So we don’t have any equity plans to increase but we would consider that at the right — with the right pricing if we were to have more outsized acquisitions. For this year, I think we will be able to meet our targets without any — without — with very minimal impact on the balance sheet. And we’re looking forward to a really good year next year, so that would probably entail a more detailed look at where we’d raise the capital.

Ravi Vaidya : Got it. Thank you so much.

Jeff Edison: Yeah. Thanks Ravi.

Operator: Your next question comes from the line of Dori Kesten with Wells Fargo. Please go ahead.

Dori Kesten: Thanks good morning. Since you announced the JV with Cohen & Steers, have you seen an increase in, I guess the number or maybe a variety of deals that is, I guess being put before you?

Jeff Edison: Dori, thanks for the question. We’ve been the largest buyer of shopping centers now for 10 years, and we see everything that comes on to the market. So I wouldn’t say we are seeing more than we saw before because we saw these all before. There was a time where we just would not buy them. We wouldn’t look at them because they didn’t fit into the box. Our box is a little bit bigger with Cohen & Steers. And so we are actually able to look more seriously at more properties because of the JV. But I wouldn’t say, that we are seeing a lot more deals than we did before because we had seen it before and had discarded those. Does that make sense Dori?

Dori Kesten: Yeah, it make sense. If you had to choose high end or low end of your net acquisitions guide for where you’re most likely to end the year at this point, which side would you lean into?

Jeff Edison: We’re optimistic, Dori. We have — we’re — we have some great activity and some good activity looking like in the fourth quarter, so we are generally positive about the acquisition market.

Dori Kesten: Okay, thank you.

Operator: Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Please go ahead.

Omotayo Okusanya: Hi, good afternoon. Could you please talk a little bit about your in-line occupancy? It looks like it went down a little bit this quarter. I don’t know whether that’s kind of just from some of the planned take-back of space that you guys have been doing, or could you just kind of talk about that a little bit?

Jeff Edison: Sure. I don’t know Bob, do you want to take the occupancy? Just talk a little bit about where we are. And I think you are talking about the in-line occupancy, right or total?

Omotayo Okusanya: Inline occupancy. I think anchor went up this quarter but I think inline went down a little bit.

Bob Myers: Yes. I’ll touch on that, Jeff. So no I appreciate the question. Our overall occupancy increased from 97.5% to 97.8% for the quarter. And as you mentioned, we have seen nice movement in our anchor occupancy that moved from 98.8% to 99.4%. Our inline occupancy went from 95.1% to 95%. So again, not much movement in the inline and I do believe the 95% is certainly leading our space, consistent with our 92% retention demand that we are seeing from our retailers. I’m not seeing any cracks. I also believe that we can move that inline occupancy number another 100 basis points to 150 basis points over the next 24 months. So there is still nice upside in that number. But I’m very confident and comfortable with our current occupancy numbers. They are very strong.

Omotayo Okusanya: Thank you.

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

Todd Thomas: Hi, thanks. Good afternoon. Jeff, it sounds like the acquisition pipeline is pretty active. Do you think 2025 could be a more active year than 2024, just given what you’re seeing and where your current cost of capital is? And then are some of the acquisitions you are eyeing in the pipeline in the new fund or do you see the majority of the activity right now on balance sheet?

Jeff Edison: I’d say, Todd, we are optimistic that it will be a better – it is been a solid acquisition market this year. We are optimistic that it could be stronger next year, primarily just there will be more product on the market. We will have more buyers but I think it will be a more stable market. Interest rates are going to obviously creates the turmoil of what — how strong that market is. But I’d say, generally today, from what we see, we are optimistic that there will be strong activity. And obviously we’ve prepared ourselves and the balance sheet that allows us to take advantage of that if the opportunities were to come. And you said there was one other question you had, Todd. What was the other?

Todd Thomas: Yes, I was just wondering with what you are seeing in the pipeline today, is some of that sort of earmarked for the new fund with Cohen & Steers? Or is the majority of that or a good amount of that on balance sheet at this point?

Jeff Edison: Yes. The vast majority will be on balance sheet. We will — we are hopeful that we’ll get some great — really good opportunity with Cohen & Steers as well. But as you look at it this year, I think we bought one property into the Cohen & Steers, and we bought over $200 million on the balance sheet. So that would — I think that we anticipate that probably being continuing.

Todd Thomas: Okay. And then my other question, I wanted to follow up on Caitlin’s question and the new lease spreads, the activity in this quarter. How much of the new lease spreads 55%, big number for the company, how much of that included some of that recapturing activity that you mentioned earlier in the year when you talked about taking back some space and sort of cleaning out some potential bad debt or credits? And any visibility on whether we might expect new lease spreads to maintain at an elevated level in the fourth quarter and into 2025?

Jeff Edison: Well, Bob, I’ll let you take that. I would like to believe that we are going to have 50% rent spreads for a long time. We all know that’s not totally realistic. But we — I mean, we are in a strong market and we will continue to see strong lease spreads. 50% is that’s a bigger number than is long-term sustainable. But still, it is showing the strength of the portfolio and our ability to have pricing power in the right situations. But in terms of sort of go-forward new leasing spreads, Bob anything you want to add there?

Bob Myers: Yes. What I would add is at the 55%, obviously, that’s an increase up from 34.4%. We did have the benefit of leasing eight anchor spaces in the third quarter. Our leasing spreads on those were over 100%. So it is a combination of both recapturing some inline space and some anchor leases. To Jeff’s point, we are really pleased with 55% but the visibility that I see going out, I would say, over the next several months, they are not going to be at 55%. But if you look at our history around 25% to 35%, I think they are still going to be elevated but they won’t be at the 55% mark. The other thing I will mention is we expect retention to stay high. But in addition to that, I mean, our renewal spreads and given the visibility that I see, have the potential to be elevated. So we are encouraged by not only retention but the retailer demand and the health of our neighbors. So we are seeing good things.

Todd Thomas: Okay. But it sounds like the anchor deals really moved the needle this quarter. It wasn’t so much about some of the re-capturings that took place a little bit earlier in the year. Is that right?

Bob Myers: We certainly got the benefit of some of the anchor deals.

Jeff Edison: And some of the anchor deals were actually part of the recapture that we talked about too. So it’s — they do come together a little bit in kind of a messy way to get a real detailed thing but we are — obviously, great results.

Bob Myers: And to your point Jeff, just want to add on that. In the first quarter, our anchor occupancy was 98.4%. So we’ve moved at 100 basis points over two quarters. So to Jeff’s point yes, we did recapture some of those anchor space and have re-leased them at over 100% spreads.

Todd Thomas: All right. That’s helpful.

Jeff Edison: Todd, one thing I would add, a lot of our acquisitions, you’ll notice, have higher vacancy than what our portfolio does. And we have also had really strong performance on the acquisitions we’ve had and been able to find pretty good opportunity in those properties, including both some moderate sized boxes but also the inline stuff. We’ve been very, very happy with the progress we’ve been able to make there.

Operator: Your next question comes from the line of Floris Van Dijkum with Compass Point. Please go ahead.

Floris Van Dijkum: Hi, guys. Good day. Thanks for taking my question. So I want to delve into the acquisition market a little bit more. If I look at you — you are trading at a premium to consensus NAV, a premium to our NAV, like a 6.5% implied cap rate. Maybe if you could talk about, what are the cap rates that you would consider for acquisitions? Talk about the cap rates a little bit on the deals that just closed, and are cap rates seeing upward pressure or downward pressure? Or are they relatively stable in your view? And then I guess the other question is maybe also again on the acquisitions front. Maybe if you could comment on larger portfolio transactions. I know there is a big Publix portfolio that was in the market, probably still in the market today. If you can talk a little bit about obviously, you’re looking at everything, talk about your appetite for doing potential larger transactions as well portfolio transactions.

Jeff Edison: Well, Floris, thank you for the question. I — we’re — what we like your help on is finding those properties where you could buy our properties have cap because you can’t. Our NAV, we believe, is a lot better than 6.5% and should be priced that way. But that being said, you know and I hope most of our analysts who are on the phone, now we are not a cap rate buyer. What we’re trying to buy is return to the overall company, and we use the unlevered IRR, as that target, that target north of 9% for our grocer-anchored shop centers. And that can start at a lot of different cap rates and get to the 9% in a lot of different ways. I would say that we — this quarter, we found some really great opportunities that are — we believe are going to be well north of a 9%.

But they probably were a little bit more aggressive cap rates than we would have liked. But we are — we’ve got a lot of growth opportunities in them. And that’s one of the things that we’re trying to find as we look at it. And getting the right returns, given the risk profile of the properties, what we are really looking at really hard. So I would say that we are not seeing big movement in cap rates. We are seeing some anomalies that are out there where certain properties get very aggressively priced. But that’s more the exception than the rule. The core market is it is — it got this increased demand from people who are getting into the grocer-anchored shopping center into the retail that hasn’t been there. So there are more [boxes] (ph) there.

There’s also as I said earlier, there is more supply coming in. So people who have kind of been out of the market for a couple of years are looking and they are saying, hey, well, am I going to wait another cycle until I sell? And a lot of them are pulling the trigger to do that. At the same time, the recent volatility in interest rates kind of creates another issue that sort of is on top of that. So it’s a complicated market right now. But overall, we are generally really positive about it. And we think that there’s going to be a significant product, both in the fourth quarter but also next year. On the portfolio question, we look at everything that comes on the market. Our criteria has been really consistent. And it is we want to maintain a very strong discipline that we are buying #1 or #2 grocer in the market, but there is a — that we can get to that 9% unlevered IRR in the portfolio.

So the problem that we have seen with — and the reason we haven’t bought for our portfolio is we feel like they’ve been a portfolio premiums instead of portfolio discounts. If you can help us find some portfolios that are trading at a discount, we’d love to buy them. And we set our balance sheet up, so that we can do that if the opportunity arises. But to-date, we have not seen many portfolios that meet our criteria. And therefore, we have not been really active in that market.

Floris Van Dijkum : Thanks Jeff.

Jeff Edison : Thanks Floris.

Operator: Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.

Juan Sanabria: Hi, just hoping to follow up on the balance sheet on the questioning from earlier. I think, John, you said that the fixed floating ratio would stay relatively stable into year-end but yet you have acquisitions assumed in the fourth quarter. So just curious on what we should be assuming for funding for those incremental deals.

Jeff Edison: John, do you want to take that one?

John Caulfield: Sure, I’ll take that. Thanks, Juan. And I do hope you heard we worked in our prepared remarks to talk a little bit about your analysis in the dialogue that grocer-anchored shopping centers require different demographics across different types. I think it was very thoughtful, but certainly understanding that we make money where our grocers make money. To your question on the balance sheet as we look at it, we have over $750 million of liquidity available to us and our leverage is at 5.1 times. So we are very comfortable for funding the upcoming acquisitions. But as we continue to see more and as Jeff was talking about the acquisition market and our optimism towards that, equity is something that we will consider so long as we can do it on an accretive basis.

So I think we have – we are now BBB flat and Baa2 from the rating agencies with a long-term leverage target of 5.5 times. So we do have room to work with that. But we’re not — I wouldn’t say, that at this moment, we’re saying, hey, we’re going up to that target. So I think you’ll see us in this range. But we are very comfortable in doing that and utilizing equity so long as we can do so in an accretive manner.

Juan Sanabria: Okay. Have you issued equity post quarter end?

John Caulfield: We have not.

Juan Sanabria: Okay. And then just curious if you could make any comments on the kind of the mid-to-high-teens earnings growth as we think about ’25. Any puts and takes that we should be aware of? Like is the being more aggressive on remerchandising or re-tenanting tenants, does that impact that prospective growth or that’s kind of par for the course, so to speak?

Jeff Edison: Yes. We want to encourage you to come to our December call, where we will give you a lot more detail on what we’re seeing and projecting for next year. So we’re really – there is not a lot to add to that, but we do hope that you’ll be there, so we can give you the more detail of the growth that we are anticipating going into next year. I mean, the only thing we would say is we continue to have pricing power on the leasing side. We continue to have strong demand, and we’re seeing an acquisition market where there is solid opportunities. So we are optimistic about what next year will look like.

Juan Sanabria: [I’ll dive in] (ph) thanks.

Operator: Your next question comes from the line of Michael Mueller with JPMorgan. Please go ahead.

Michael Mueller: Yeah, hi. I know you have the ’25 event coming up, but John can you share any early thoughts you have on the swaps expiring next year and how you are thinking about the term loans coming due in ’26?

John Caulfield: Sure, Mike. So I would say that so far, we have followed the balance sheet strategy that we have communicated and what our long-term plan is. We want to be a long-term issuer in the unsecured bond market. We’ve done it twice this year, extending our maturities so that they are now at six years. And we are using that market and would look to use the equity market, if necessary to both fund our acquisitions as well as to transition our balance sheet in this way. And so when we look at those swaps, they are related to the term loan maturities that are fully prepayable. And so we will look to access the bond market opportunistically. And we did that in September ultimately at a time where I think the 10-year was at just under [3.7] (ph).

So we will look to do that. And in terms of the swaps, it is really related to the term loans, and we would look to fund that. I would like to get to a point where I get to a well-laddered maturity. I think we have that and are working towards that. If you noticed in the September deal, it’s a [35] (ph) maturity to go with a [34] (ph) maturity. And so that’s, I think, how you will see us looking to do that so that I have approximately 10% a year on an ongoing basis would be our plans. But we’re very pleased to say that the — we only have $100 million of term-loan left in ’26, and then we’ll look to finance that out as we finance our acquisitions.

Michael Mueller: Got it. Okay, thank you.

Jeff Edison: Thanks Michel.

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

Ronald Kamden: Hi, just two quick ones because a lot has been asked. Just going back to sort of the same-store NOI. I remember back in December, you talked about pricing power and being able to put sort of rent escalators or more favorable lease contracts. Just as we sit here today, just any sort of causative commentary on the rent escalators and any other favorable lease contracts that you guys have been able to get that we may not see just in the re-leasing spreads?

Jeff Edison: Bob, you want to take that one?

Bob Myers: Yes. Thanks for the question. In terms of lease escalators, I will start with the renewals. So on the renewal side, our renewal spread for the quarter was 19.8%. And we are getting annual escalators on top of that, right around 3%. As I have visibility out on our renewal piece, you’re going to continue to see annual escalators between 3% and 4% on top of a very healthy first year increase as well. On new deals, we’re getting increases, annual increases between 2% and 3%, so I’m encouraged by that number as well. Our strong retention has allowed us flexibility and, I would say, our lease negotiations around removing restrictions, exclusives, caps, those sort of things that strengthen our ability to not only drive renewal spreads and new leasing spreads but also enhance our merchandising ability at the property. So that’s what we are seeing.

Ronald Kamden: Great. And if I could just follow up on the acquisitions. I think I heard you say that cap rates maybe was a little bit tighter. You are still going to hit the IRR. So just curious, are you seeing more cap rate compression? And should we sort of expect that as we roll in the calendar? Thanks.

Jeff Edison: Yes. I would say we’re not really seeing significant compression on cap rates, so we really aren’t seeing that. There is obviously a lot of variability in cap rates based upon occupancy and where we can — where you can take the unlevered IRR, which is obviously what we are focused on. So we do get some variability from that regard and why we don’t just focus on cap rate. But there — I think there is some stability in the market where we are getting to a place where supply and demand is more stable than it was over the last couple of years where it was a little bit — there just wasn’t much supply coming on the market, and there was no — very little demand. So that was much more complicated. I think we’re getting to a place where it is more stable.

Ronald Kamden : Great. That’s it for me. Thanks so much.

Operator: Your next question comes from the line of Paulina Rojas with Green Street. Please go ahead.

Paulina Rojas: Hello everyone. And we talk about supply, new supply not penciling in general. And I find interesting, we see doing these pad developments and acquiring more pad developments, and I think all of them are adjacent to your centers. So related to that, two questions is, one, are you seeing more of these type of small-scale developments in your markets as a means to capitalize on the strong retailer demand? And two, can you share a little more color on them in terms of the rents you achieve in these projects and why you think they make economic sense but larger centers don’t?

Jeff Edison: Sure. Paulina, thank you for the question. We have always had an active [out-lot] (ph) development program at PECO for literally forever. We were a Walgreens developer for a long time and have been very active in that business. And it is a demand-driven business where the retailers looking for visibility and looking for access, drive-thru, et cetera. They want to be out on the main road and they cycle through that over time on how urgent that is. And those are great opportunities for us, where we can take parking lots, where we can take vacant land, and we can turn them into these smaller pad developments. The interesting part is how much they are willing to spend on rent in those locations. And it is the — a select group of retailers who will pay enough to actually make ground-up development work and that is Starbucks, it is Chipotle.

It is the names, the regular names that you see on those [outlots] (ph) that are willing to step up and pay rents that are double to triple what we are getting inline in the existing shopping centers. So these are very aggressive expansion-oriented retailers that believe that having drive-thru, having visibility is worth the additional cost of new construction and then having the benefits of drive-thru and the visibility. So that’s what is driving that. We would love to do more of it because it is a very profitable business for us with really solid returns. Unfortunately, it is difficult because you do — even if those kind of rents, and this gets back to the fact of why there’s so little development going on in our business, it is really hard to make the numbers work from a rent standpoint and a cost standpoint.

Because when you look at paying 2 times to 3 times inline space, it’s got to be really valuable to you as a retailer to be willing to step into those situations. And it is really hard for us to find those locations that you can even make work at 2 times to 3 times existing rent. And that says something about how long it is going to be before major — any kind of major new development in the — on the retail side is going to happen. Does that answer your question?

Paulina Rojas: Yes, it does. Thank you. And I have a second one if I can. That is, so from a broader perspective, employment is still low, retail sales have shown resilience overall. However, one concerning trend has been the rise in credit card delinquencies. And so delinquencies have increased materially to levels that I think we have not seen since, I don’t know, 2010 more or less. So what do you think about this trend? And do you think there are any direct implications for your business?

Jeff Edison: Yes. It is a great question and one that what we have found historically drives our retailer — our retail shoppers’ demand has been really driven by employment because basically, they will — you will see fluctuations in credit card usage and delinquencies. But when people have the ability to leave a job and find another job, that tends to — they tend to continue to spend. So this could — that could be a forecaster of a more complicated customer, probably does. I mean, it has historically been sort of one of the leading indicators of when the customer is going to start to pull back. So I mean, it is certainly something that everyone is kind of watching. But when normally that goes with a time where you’ve got employment issues as well and we just started having those right now, I mean the most — the big employment issues are really at higher level of income than where a lot of the credit card issues are. Does that make sense?

Paulina Rojas: Okay thank you very much.

Jeff Edison: Okay thank you.

Operator: That concludes our question-and-answer session, and I will now turn the call back over to Jeff Edison for some closing remarks. Jeff?

Jeff Edison: Great. Thank you everyone, for being on the call today. In closing during the third quarter, the PECO team continued our strong operating performance. We delivered strong inline lease occupancy. We execute outstanding renewal rent spreads. We had high — record-high new rent spreads, which are among the highest in the peer group. We have among the highest retention in our space. We’re on track to acquire between $275 million and $325 million of net acquisitions for the year which is an increase. Our target unlevered IRRs continue to exceed 9% for our acquisitions. We completed two 10-year bond offerings totaling $700 million, which lengthens again our maturities. We continue to have one of the lowest leveraged balance sheets in the shopping center space.

And despite the interest expense headwinds that everyone is facing, we delivered strong earnings growth. We believe our differentiated and focused strategy, our high quality portfolio, and our talented and innovative team combine to create a market leader in the shopping center space. We are confident that the PECO team will continue to deliver market-leading results for the remainder of the year. PECO’s experienced, inline management team owns 8% of the company. We have meaningful skin in the game and we are committed to driving shareholder value. At PECO, we cultivate a culture in which our leadership team and our associates, they think and they act like owners every day for every decision. Looking beyond 2024, PECO is well-positioned to continue to successfully grow as we look forward.

We believe we provide our investors more alpha and less beta. We look forward to providing an update on our strategy and long-term growth drivers during our December event that we have discussed. So on behalf of the management team, we want to thank our shareholders, our PECO associates, and our neighbors for their continued support. And again, and thank you for your time today. Have a great weekend.

Operator: This concludes today’s conference call, and you may now disconnect.