Phillips Edison & Co (NASDAQ:PECO) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Phillips Edison & Co reported a 5.3% increase in same-center NOI and a 9.2% increase in Core FFO per share, demonstrating strong performance from its grocery-anchored centers.
The company raised its earnings guidance for the full year and highlighted the resilience of its necessity-based portfolio, with 74% of ABR coming from such goods and services.
Phillips Edison & Co’s active development and redevelopment pipeline is nearly $90 million, with plans to grow beyond $100 million, focusing on high-return projects.
Acquisitions are a key growth driver, with $519 million in assets acquired year-to-date, and the company raised its full-year gross acquisition guidance to $600-$700 million.
The company plans to grow its everyday retail segment to $1 billion over the next 24 months, targeting necessity-based neighborhood centers.
Phillips Edison & Co maintains a strong balance sheet with a new $350 million unsecured term loan and no significant debt maturities until 2030.
Management remained confident in achieving long-term same-center NOI growth of 3% to 4% and mid to high-single-digit Core FFO growth.
Full Transcript
OPERATOR
Good day and welcome to Phillips Edison & Co’s third quarter 2026 earnings call. Please note that this call is being recorded. I will now turn the call over to Kimberly Green, Head of Investor Relations. Kimberly, you may begin.
Kimberly Green (Head of Investor Relations)
Thank you. I’m joined by our Chairman and CEO Jeff Edison, President Bob Myers, and CFO John Caulfield. As a reminder, today’s discussion may contain forward-looking statements about the company’s view of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management’s current beliefs and expectations and are subject to risks and uncertainties as described in our SEC filings.
Today, we’ll reference certain non-GAAP financial measures, and information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in our press release and supplemental information packet, both of which have been posted on our website. Our caution on forward-looking statements also applies to our earnings presentation which was also posted following our prepared remarks. We’ll open the call to Q&A. Given the number of participants, we respectfully ask that you limit to one question. Please rejoin the queue if you have follow-up questions. With that, I’ll turn the call over to Jeff Edison.
Jeffrey Edison (Chief Executive Officer)
Thank you, Kim, and thank you, everyone, for joining us today. Phillips Edison & Co 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 Phillips Edison & Co operating engine. We are pleased to increase the midpoints 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 Phillips Edison & Co’s portfolio remain solid. The consumer remains resilient. Phillips Edison & Co’s grocers and necessity-based neighbors continue to drive strong traffic and we’re not seeing any signs of weakness as we look towards 2027. That resilience is supported by the essential nature of Phillips Edison & Co’s portfolio. 74% of our ABR comes from necessity-based goods and services, providing consistent demand and supporting durable cash flow through economic cycles.
Phillips Edison & Co 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 anchor 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 Phillips Edison & Co’s internal growth. We renew the right neighbors at higher rents, we increase contractual rent bumps, we improve lease terms, and we create new space through outparcels and redevelopment.
Our active development and redevelopment pipeline is nearly $90 million. Today we see an opportunity to grow it beyond $100 million while maintaining our attractive returns across a portfolio of right-size centers averaging 113,000 square feet. These projects create meaningful incremental growth. Acquisitions provide another source of growth. Assets acquired to date in 2026 were 94% leased on average compared with 98% leased across our existing portfolio. That gap represents visible upside for Phillips Edison & Co. 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 toward 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 Phillips Edison & Co can generate the best long-term growth and returns. Whether it’s through our existing portfolio, grocery-anchored and everyday retail acquisitions, development and redevelopment, or our joint ventures, we continue to grow when the opportunity returns and cost of capital makes sense. For Phillips Edison & Co, 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 Phillips Edison & Co to be opportunistic while investing in dependable long-term growth. We told investors that Phillips Edison & Co’s high-quality portfolio is built to deliver long-term same-center NOI growth of 3% to 4% and a mid- to high-single-digit Core FFO per share growth. We continue to deliver against those targets. As we look to 2027, we have increased visibility from leasing, development and redevelopment, our pipeline of acquisitions, and our investment management business. We believe Phillips Edison & Co is well positioned to deliver strong growth in 2027 and will provide more detail during our December 16th virtual business update.
Phillips Edison & Co’s 6.2% dividend increase in September reflects our confidence in the durability of Phillips Edison & Co’s cash flow. We believe Phillips Edison & Co’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 Phillips Edison & Co. More alpha through consistent execution and growth, less beta from our right-size grocery-anchored necessity-based portfolio and our strong balance sheet.
With that, I’ll turn it over to Bob.
Bob Myers (President)
Thank you, Jeff. The retail environment remains very active with broad retailer demand for space across our portfolio. That demand is reflected in our 92.2% portfolio retention, 97.5% portfolio leased 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 Phillips Edison & Co’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 Phillips Edison & Co. During the quarter we achieved record high renewal rent CAGRs while improving non-monetary lease terms that give us more flexibility to manage our centers. The Phillips Edison & Co team looks at the full economics of every lease: today’s rent, future rent growth, and the rights we need to keep improving the center. This work contributed to same-center NOI growth of 5.3%, which was driven primarily by higher rents.
The continued growth in Phillips Edison & Co’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 Phillips Edison & Co’s portfolio.
Moving on to acquisitions, year to date through October 26th, we’ve acquired $519 million in assets at Phillips Edison & Co’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 Phillips Edison & Co’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 to $700 million. The current macroeconomic environment is creating opportunities to negotiate more favorable pricing on select acquisitions. Phillips Edison & Co’s scale, relationships, and execution give us leverage in those discussions and we’ll continue to pursue concessions while remaining disciplined on price and returns.
That same discipline shapes our approach to everyday retail. We target necessity-based neighborhood centers near leading grocers in markets where our leasing relationships, operating engine, and data analysis provide an advantage. We own $300 million of everyday retail today and continue to target $1 billion, which we expect to achieve in the next 24 months. We’re growing intentionally to deliver more alpha to Phillips Edison & Co and will provide an update on everyday retail during our December 16 business update.
I will now turn the call over to John.
John Caulfield (Chief Financial Officer)
Thank you, Bob. Third quarter NAREIT FFO increased to $98 million, or $0.69 per diluted share, representing 7.8% per share growth. Gross and Core FFO increased to $100.7 million, or $0.71 per diluted share, representing 9.2% per share growth. Same-center NOI increased 5.3%, primarily due to higher rents and recoveries driven by growth in economic occupancy. We expect healthy rent growth to continue in the fourth quarter. Our same-center NOI growth rate for Q4 will be impacted by the timing of recovery income compared with the prior-year quarter.
We are pleased to guide to the higher end of our original 3% to 4% same-center NOI growth guidance for the full year. This past Friday we closed a new $350 million three-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 $175 million of initial proceeds to repay our existing $162 million term loan, with the balance used to reduce revolver borrowings. Pro forma for the closing of the new term loan, we have approximately $950 million of total liquidity at the end of the quarter.
Net debt to annualized Adjusted EBITDAre was 5.2 times on a trailing twelve-month basis and was five times on a last-quarter annualized basis. We expect to end the year closer to five times net debt to annualized Adjusted EBITDAre, and even lower on a last-quarter annualized basis pro forma for a $350 million unsecured debt issuance. Phillips Edison & Co’s weighted average interest rate was 4.5%. Our weighted average maturity was five and a half years including extension options, and approximately 85% of total debt was fixed rate, which includes Phillips Edison & Co’s total prorated share of debt for its JVs.
Importantly, Phillips Edison & Co has no meaningful debt maturities until 2030. This provides additional flexibility as we execute our growth and funding plans. We continue to view the unsecured bond market as an important source of long-term capital and expect to remain a repeat issuer over time. At the same time, we will be disciplined about selecting the right instrument and duration for the market in the current rate environment. The three-year term loan offered attractive execution at the shorter end of the interest rate curve while allowing Phillips Edison & Co 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 Phillips Edison & Co to pursue the best risk-adjusted returns, whether on balance sheet or through our joint ventures. Based on the opportunities and funding sources we see today, we believe we have ample capacity to execute our plan in 2027 while remaining strategic and disciplined. Regarding guidance for 2026, our increased same-center NOI guidance reflects 3.75% growth at the midpoint. We increased the midpoint of Core FFO per share guidance, which reflects growth of 6.5%. We also increased the midpoint of NAREIT FFO per share guidance, which reflects growth of 6.3%.
NAREIT and Core FFO growth are expected to have higher G&A expense in the fourth quarter than the third quarter. Gross acquisition guidance remains $600 million to $700 million, which we increased on October 1st. 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 Phillips Edison & Co, 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 will provide more detail at our December 16 business update.
Phillips Edison & Co delivers more alpha through our proven operating engine and disciplined growth strategy. Phillips Edison & Co 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. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, again, press star one. Our first question is going to come from the line of Handel St. Juste with Mizuho. Please go ahead.
Handel St. Juste (Analyst)
Hey guys, thanks for taking the question. I 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 ’27 potential investments here without any incremental equity. But curious how much of that could be between kind of on balance sheet, off balance sheet, and what role dispositions, how much of a role dispositions would play.
Thank you.
Jeffrey Edison (Chief Executive Officer)
Cool. Well, Handel, thank you for the question. Let’s answer it in two ways. One is sort of the source of capital, and the second is sort of the market, I think it was. Bob, do you want to talk about the current acquisition market? And then we’ll talk about sort of where that capital is coming from.
Bob Myers (President)
Yeah. Thanks, Jeff. Good morning, Handel. What I would say about the current environment here is the external growth has been positive. We’ve reviewed 567 deals this year compared to 450 last year. We have an investment committee meeting every Monday. We presented 270 deals this year compared to 233 deals. And we’ve closed on $519 million so far this year, and we have a very strong pipeline where we’ve either been awarded or are under contract on another $250 million.
So we’re in a very, very solid position of being very active in this space, finishing the year strong while also building out a very strong pipeline into next year. John can speak more to the dispositions. We are very diligent about recycling some of our stabilized assets that are closer to 7%–7.5% returns, where we’re recycling those into new assets generating between 9% and 10% unlevered returns. So we’re excited about the portfolio that we’ve acquired this year. There is more competition, but if you look at what we’ve acquired in everyday retail, we’ve averaged about a 6.8 cap rate. If you look at what our blend has been across the year, it’s about 6.5, and we are still solving for above a 9.
So the discipline’s in place. The market is active. The competitive bid set is active, but we’re not seeing a lot of movement in cap rates. Interest rates kind of spiked and then they came back down. But I feel like we’re in a very good spot in terms of continuing to see activity and taking advantages of that.
John Caulfield (Chief Financial Officer)
Yeah, then I’ll jump in quickly on the funding. So ultimately, from a funding perspective, we are excited about expanding our investment management business, and so we have additional funding that will be drawn there, whether some of it will be later this year—it’s in our guidance table—and then the remaining piece will happen in early 2027. I think the key piece here for us is that we’re looking at it as match funding. Your question was getting to what our forward dispositions look like, and the best part is that we don’t have anything we have to sell.
These are things that are opportunistic or, as Bob said, maybe in some cases the IRR is a little bit lower, but ultimately we have a very strong portfolio. So we have the ability to increase and decrease that. And I would think that we’ve begun our active recycling. But the key piece is sort of match funding with our acquisition opportunities. And as long as we see great acquisition opportunities, that’s going to give us the room to sell assets as well.
Jeffrey Edison (Chief Executive Officer)
And just, Handel, to add to that, we’re basically raising capital in the low sixes on a cap rate and we’re putting that to work in the mid sixes. So we’re getting a spread from the start, and then we’re looking at these assets as long-term growth vehicles for us. They’re going to help generate ’27, ’28, and ’29 growth. So we’re excited about not only getting a kick to start, but also what we’re going to see on a longer-term basis. So thank you for your question.
OPERATOR
Thank you. Your next question comes from the line of Andrew Riel with Bank of America. Please go ahead.
Andrew Riel (Analyst)
Hi, good afternoon. Thanks for taking my question. Maybe just one 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.
Jeffrey Edison (Chief Executive Officer)
Great. Thanks, Andrew. Bob, you want to take that one?
Bob Myers (President)
Yes, thanks, Andrew. Appreciate the question. Merchandising mix has always been one of the most important aspects of creating value at our properties and for shareholders. The local mix plays a big role in it. Even though it’s 26% and 74% of our rent roll is necessity based, it still has the consistency in our local tenants with having quick service, fast casual, health, wellness, beauty, fitness, and medtail. What I appreciate about the mix is that we’re able to generate higher rents, spend less TI money, get them in the space sooner and paying rent, and honestly they’re all entrepreneurs, so we just like to partner alongside of them in terms of making sure that they’re profitable.
But we’ve seen a lot of success in hitting. If you look at our renewal spreads this last quarter, they were like 25.2%, and they’re even higher if you look at the local mix, so that’s an advantage. The key is merchandising around how you continue to focus on necessity-based goods and services. And look, there’s no new supply coming on the market, so the demand is very vibrant. All the meetings that we’re having at ICSC and the conversations with retailers want to be with the number one, number two groceries, and that’s what we’ve been providing.
So health ratios are strong at about 10%, and if you look at our high retention rate of 92.2% and our spreads of 25%, it feels like we’re in a very good spot right now. That’s our focus.
Jeffrey Edison (Chief Executive Officer)
Yeah. Hey Andrew, just to add on to that, we want to make sure that we’re explaining we’re very focused on this merchandising, and over time the mid-twenties for local is the right mix because the reason we’re so focused on the merchandising is we can’t drive rents unless we can drive sales. And the merchandising that we’re laying out will maximize the production of the center, which then allows us to grow our rents. And the reason we’re having market-leading rents is, a big piece of that is our retailers are doing well because we’re merchandising to each specific market where we have a property.
And that’s a really critical part of how we think about the business but also how we act on a day-to-day basis. And that whole being locally smart is all part of that because you have to merchandise to each center that you own if you really want to maximize the sales that we can do and then therefore the rent.
OPERATOR
Your next question comes from the line of Michael Griffin with Evercore. Please go ahead.
Michael Griffin (Analyst)
Great, thanks. So I saw recently that Kroger announced expansion plans through 2029 of upwards of 100 new centers. I’m just curious how your portfolio could stand to benefit from this. Clearly you’re a large landlord partner for them. It’s good to see the expansion and the focus on sales productivity. But does this come through the opportunity set within the redevelopment bucket, maybe re-tenanting another grocer with one of these Kroger expansions? Just curious if you can give some commentary there, that’d be helpful.
Jeffrey Edison (Chief Executive Officer)
Great question, Griffin. Something we thought a lot about. Bob, you want to take that on what we’re doing there?
Bob Myers (President)
Sure. Thanks, Michael. In all our conversations with Kroger, they are expanding. They’re not only expanding, but they’re reinvesting a lot of capital into their existing stores. So being the number one landlord of Kroger, you know, we have some insight to that. We’ve walked alongside them with some ground-up development opportunities where we’re in the process of securing some ground to partner with them on that front. So I think it’s going to come from both ground-up development opportunities.
You know, I think they’d like to do 40 new locations this year. That’s ground up. And then in addition, you know, any existing sites and obviously you’re aware of the Giant Eagle expansion and they’re very focused on that as well. So we’re glad that Kroger is our partner and that we’re their largest landlord. We’re going to continue to see them making the right investments in their store and we’re helping them with their strategic layouts across the country.
Jeffrey Edison (Chief Executive Officer)
Yeah, Griff, the only thing I would add in there is, you know, we think that their purchase of the Giant Eagle stuff and that portfolio is just going to strengthen our ability in those markets because the Giant Eagles are dominant in both Cleveland and in Pittsburgh. And that’s just going to make our centers there even stronger. So we think that’s going to be a real positive for Phillips Edison & Co.
Michael Griffin (Analyst)
Awesome. Thanks, guys.
OPERATOR
Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Please go ahead.
Caitlin Burrows (Analyst)
Hi everyone. Maybe just on the lease pricing side. It looks like new lease spreads ticked down in the quarter but are still over 30% in the trailing 12 months, so impressive. Can you just talk about the quarter and then more generally on pricing, whether you’re getting any increased pushback from tenants on higher rents? I know you have talked in the past about upside to occupancy costs. Thanks.
Jeffrey Edison (Chief Executive Officer)
Great. Thanks, Caitlin. Bob, you want to talk a little about that?
Bob Myers (President)
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’ve been consistently putting up numbers in the low to mid-30s on our new leasing spread. So the 26.3, I believe the number for new leasing spreads this quarter, that was just purely the deals that were executed. If you look at the full year and you look at the visibility that we have out into the fourth quarter, we’ll certainly finish well into the 30s in terms of a year.
So it’s just purely a timing issue. I think that I’m not seeing any pushback on any retailers in terms of pricing and we would see that, which is interesting. Right between 92.2% retention and record high 25% retention. The neighbors are strong, they’re making money. I think the key is making sure that you’re merchandising appropriately and then you’re keeping their health ratios within that 10 to 11%. So I’m not seeing any issues with it. That was purely a timing. We’re going to finish the year at an exceptional level and we feel real good about the strength of the portfolio.
Caitlin Burrows (Analyst)
Got it, thanks.
OPERATOR
Your next question comes from the line of Jamie Feldman with Wells Fargo. Please go ahead.
Jamie Feldman (Analyst)
Great. Thanks for taking the question. So same-store NOI accelerated to 5.3% in the third quarter and it’s 4.3% year to date. I believe the updated full-year range is three and a half to four. Can you talk about the implied moderation in the fourth quarter and what’s driving it? Is it rent commencement timing, bad debt expense comparisons or maybe intentional vacancy for remerchandising? And then, you know, does 4Q’s outlook change how you think about your long-term range of 3 to 4% heading into 2027?
Jeffrey Edison (Chief Executive Officer)
Hey John. Thanks for the question, Jamie. John, you want to take that?
John Caulfield (Chief Financial Officer)
Absolutely. Thanks for the question, Jamie. So ultimately in the fourth quarter, similar to the third quarter, we’re seeing great strength from our neighbors. As Bob just said, the execution remains strong. Really, we’re not seeing it as a moderation necessarily. We’re looking at it as kind of the timing of recoveries from Q3 to Q4 and that can vary from quarter to quarter. We’ve seen that in years past. Ultimately we tightened the bad debt range for our guidance, which is now at a 60 to 80 basis point range. And there’s nothing that we’re seeing that’s really going to soften related to 26 and as you look to 27, I think we’re feeling really strongly about us being able to continue to deliver on our long-term targets of 3 to 4% on a same-store basis and then mid to high single digits on our FFO per share metrics. And so ultimately we actually think that we’re just getting started.
The neighbors are strong. The acquisition market is open and we’re positioned very well to take advantage of that.
OPERATOR
Your next question comes from the line of Rich Hightower with Barclays. Please go ahead.
Rich Hightower (Analyst at Barclays)
Good afternoon everybody. Thanks for taking the question here. So I think if I look in the renewal spreads and the impact of options on that number, it looks like options obviously are a very tenant-friendly feature of a lease typically. So maybe talk about that dynamic in the portfolio, and you did mention sort of non-economic lease terms changing, but I wonder if the sort of renewal option part of that specifically is changing as well and what that means for the business going forward in the very strong market rent environment we’re seeing currently.
Jeffrey Edison (Chief Executive Officer)
Yeah, Rich, 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?
Bob Myers (President)
Yeah, it’s absolutely changing. Thanks, Rich, for the question. It’s a great question because obviously we’re very focused on continuing to find ways to grow CAGR and ABR across the portfolio. And when you’re 97.5% occupied, you know we have room to continue to move. Not only occupancy; options are definitely one of those things that are very tenant friendly; we don’t like to give them. The issue is we’ve acquired so many large grocery stores in our portfolio that they lock the property down at least 50% of the ABR, you know, give or take for, you know, the next 30 years, with either flat options or very mild options.
On the inline neighbors, we’re able to continue to push and negotiate options away from not only new deals but also further renewals. You touched on this, but the non-monetary clauses we’re all over. And you think about removing exclusives and caps and restrictions and co-tenancies and no-build areas. We’ve been very successful in our ability to negotiate those items to free up potential development land, redevelopment categories, outparcels. So it’s a little bit of everything. Options are definitely the one that we start with. I tell our leasing team during every new lease negotiation that you’re not allowed to give options.
So sometimes the retailers will need it just given the capital that they’re investing in their property, and they want to make sure that they’re going to stay there, and then our job is to really try to push those to 15, 20% or better. So it’s a combination of everything and we are in the environment to take advantage of everything.
Rich Hightower (Analyst at Barclays)
Great, thank you.
Jeffrey Edison (Chief Executive Officer)
Yep, thanks, Rich.
OPERATOR
Your next question comes from the line of Ronald Camden with Morgan Stanley. Please go ahead.
Caroline (Analyst at Morgan Stanley)
Hi, this is Caroline on for Ron. Thanks for taking the question. I appreciate the commentary that you gave on the transaction markets. I was just wondering if you’d get a little bit of color into what you’re seeing in cap rates in the traditional retail or anchored centers versus more of the everyday retail centers from an IRR or cap rate perspective. And then you spoke a little bit too on the mid-20s local mix for the grocery-anchored centers, and so I was just wondering what you were seeing as kind of a similar rate as to how you were thinking about the exposure of local tenants for the everyday retail centers.
Thank you.
Jeffrey Edison (Chief Executive Officer)
Bob, you want to talk a little bit about sort of where we’re seeing the cap rates on the grocery as well as the everyday retail? And then I think the second question was really just local mix — what kind of local mix are we seeing in the everyday retail?
Bob Myers (President)
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 core grocery-anchored opportunities. I think about everyday retail, there’s a lot of properties that are between a 6.3 and a 7.5 depending on what markets. That’s been pretty consistent. I mentioned it earlier, but when you look at the bid sheets we typically will see 6 to 8 offers on grocery-anchored product; we’ll see probably 5 offers come in on everyday retail.
But if you look at our everyday retail portfolio, we’ve averaged a 6.8 and if you look at our grocery-anchored, we’ve been really around 6.3, 6.5. So I’m not seeing a lot of movement on that. In terms of unlevered returns, our grocery product is a 9 or 9.5 and our everyday retail is between a 10 and 11. And we’ve kept that discipline in place and we’ve seen a lot of success in that. In terms of merchandising mix with local, our local neighbors on our core grocery has been around 26%, but if you look at the everyday retail category, we’re very intentional about finding opportunities that we can take our national account team, focus them on remerchandising around necessity-based goods and services with a national name. So we typically will start one of these properties and the balance will be 60% national/regional, 40% local. And then what we’ll do over our remerchandising efforts and our strategy over our hold period will improve that down.
It might end up closer to 30%, but I like that because we’re able to really spend less TIs, reinvest some capital, push rent. There’s a tremendous amount of mark-to-market opportunities when you’re buying the everyday retail assets that we’re buying today. I mean, we’re buying right, we’re getting the unlevered returns. We average around $335 a foot on these purchases. So we’re really excited about the space. Granted, we have 300 million today; we’d like to grow it to a billion dollars over the next 24 months.
So we’re highly engaged. We’re doing a lot of different things to attract — the opportunity set’s 50,000 centers out there. So we want to continue with the discipline and take advantage of it where we see there’s an opportunity.
Jeffrey Edison (Chief Executive Officer)
Thanks, Caroline.
OPERATOR
Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please go ahead.
Sean Glass (Analyst at KeyBanc Capital Markets)
This is Sean Glass on for Todd. You added meaningfully to the active development/redevelopment pipeline this quarter. Despite stabilizing 17 projects year to date, you’ve talked increasingly about development as an opportunity and you mentioned in your prepared remarks 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?
Jeffrey Edison (Chief Executive Officer)
Sean, thank you for the question. So I guess I want to make sure I understand — you want to get a feel for how we’re looking at our development and our redevelopment businesses. Are they sort of… They’re kind of two 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 both those pieces and where we’re trying to take it?
Bob Myers (President)
Yep, absolutely. Thanks, Sean, for the question. So this year we’ll finish somewhere between $80 and $85 million of our redevelopment and development buckets and we’re generating returns between 9 and 12%. So we like that. We continue to look for opportunities not only on the acquisition side that provide some ground-up development or outparcel development opportunities. I look out the next three years — we have a nice pipeline that, you know, we’ve always said that we do $50 million, give or take, a year, but our pipeline is well above that.
So I think as I look out the next three years, you know, there’s a nice pipeline of another couple hundred million dollars in the works. The nice thing is that, you know, we’re pairing that with, you know, buying as much as we’re buying on the acquisition side. You know, Jeff touched on this earlier, but our portfolio that we’ve acquired this year is 94% occupied, but our portfolio is 97.5%. So there’s room not only in occupancy for, you know, organic growth, but also there’s a lot of development opportunity in terms of, you know, the outparcels that we’re acquiring or purchasing.
You know, Jason, this year we’ve purchased five outparcels and we already have active LOIs and leases out for signature on all of them. So we continue to look for those opportunities. I think it’s a wonderful complement to our same-center NOI growth plans over the next year. So we’re going to do both. We’re going to stay focused on our internal growth, but also the development side of the external business that can generate, you know, additional alpha for us on NOI.
It’s happening and this was a nice year for us at, you know, $80 million and, you know, we’ll see what next year brings. But we should be in the same zip code.
Jeffrey Edison (Chief Executive Officer)
Yeah. And Bob, you want to touch a little bit on the ground-up development — that piece, obviously it’s a small piece of what we do,
Bob Myers (President)
but it’s 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 seven parcels. We have activity on all seven parcels, so we’re doing a nice job with that, but it’s pretty small in terms of what that is. The partnership that we have with Kroger is going to create some opportunities. The world’s a little different in terms of grocery ground-up development because you really don’t get the pop on the NOI for three or four years out.
There’s a long process there of entitlements and development and going vertical and everything that needs to happen to unlock that. So we want to run a parallel path not only with our focus, given that we’re Kroger’s largest landlord, Publix’s second-largest landlord — they’re active — so we’re going to walk alongside them in terms of their ground-up plans. In the meanwhile, what we’re trying to do is focus and unlock as many outparcel opportunities as we can. Most of those opportunities are going to be between $2 million and $4 million. And again, we’ll focus on the 9 to 12% returns. I think so far we’ve developed about 42 of those over the last four years, and we’ve been consistently not only seeing demand for it, but that’s why you saw us acquire five pieces of dirt this year.
OPERATOR
Your next question comes from the line of Connor Mitchell with UBS. Please go ahead.
Connor Mitchell (Analyst at UBS)
Great. Thanks for taking my question. So it seems like the consumer remains resilient. There’s still plenty of retailer tenant demand — I’ve seen in your results and the comments through the call today. However, we have seen a couple of retailer credit blips — you know, the Wendy’s or Leslie’s. And while these are very limited exposure to your portfolio, I’m just curious if either of these blips or something else you’re seeing in the market has maybe changed your view of either the tenant mix or the underwriting potential for acquisitions — maybe taking a more conservative view — or even maybe changing your process for bad debt assumptions and casting a wider net for maybe a slightly larger watch list just to keep an eye on any potential issues.
Jeffrey Edison (Chief Executive Officer)
Yeah. So John, I’ll let you address that question.
John Caulfield (Chief Financial Officer)
Yep, go ahead. Thanks, guys. 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 five basis points of rent. I think we had six locations and we actually have strong comp rent, so we actually will be able to take those more quickly to market, although I think there’s actually only — I think five of them may be staying or being discussed.
But I think this actually reinforces our overall strategy, because when I look at it, I love — I actually think the locals are a really great addition to our centers, and ultimately, to the comments that have been made previously, we want to ensure that sales are productive and increasing and able to sustain this rent growth. But ultimately our overall diversification across our portfolio is one of the strengths that is actually part of the lower-beta part.
If you exclude the grocers, our number one non-grocer-use retailer is the TJ Maxx brands and that’s 1.3% of our revenue. I think that the local neighbor continues to — the economics are better, their retention with us is outstanding, and that is actually a good opportunity. We’re not seeing anything at the ground level in terms of — you know, we reduced and tightened our bad debt range. It’s been lower than it has been in the past. The forward pipeline is really strong.
The renewal rates are high. So there isn’t anything that we’re seeing. And I actually think if you look at the macro data, the consumer continues to be quite strong. The credit card data is showing that, you know, they’re doing all right. And it is something that we watch, but ultimately we look at it from a diverse standpoint and are really positive about it. There isn’t anything that gives us concern at this time.
OPERATOR
Your next question comes from the line of Jacob Dingo with JP Morgan. Please go ahead.
Jacob Bellingham (Analyst)
Hi. Thanks for taking the question. This is Jacob Bellingham for Mike Mueller. Like you mentioned, it was another strong quarter in terms of occupancy, but it looked like there was a slight decline — about 40 basis points — on inline leased occupancy. Is there anything to call out here? And where do you see this falling by end of 2027?
Jeffrey Edison (Chief Executive Officer)
Jacob, thanks for the call. Bob, you want to just explain that, because it’s pretty straightforward.
Bob Myers (President)
Yep. Thanks, Jacob. Yeah, the answer’s real easy on that one. We’ve been at 95.4, 95.5 inline occupancy. It moved to 95.1 purely because of the new acquisition we brought online. So if you look at the acquisitions that we’ve acquired, you know, we’ve been in the low 90s, and that solely 100% has to do with just the new acquisitions.
Jacob Bellingham (Analyst)
Great. Thank you. Yep.
OPERATOR
Your next question comes from the line of Eric Borden with BMO Capital Markets. Please go ahead.
Eric Borden (Analyst at BMO Capital Markets)
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 proceeds back to work? Thank you.
Jeffrey Edison (Chief Executive Officer)
Yeah, I’ll take the first part and then, John, you want to talk about 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 — that’s how it’s set up. I think it’s set up in three tranches. We’ve closed the first tranche, and I think the second one will be in December and the third will be in January. And we are matching those up to our acquisition pipeline.
Northwestern Mutual overall will be about $800 million at the time we get fully funded there with the first tranche that we’ve now been in for eight years and have extended all of it for 10 years going forward. John, you want to talk about this?
John Caulfield (Chief Financial Officer)
And regarding the question around earnings, we are very pleased that we were able to raise our guidance, and to Jeff’s point, we’ve matched it very well, which is why we have the staged closing. We will finish the year at a lower debt-to-EBITDA basis than we had anticipated originally, and that’s just going to give us additional acquisition capacity for next year. So I don’t anticipate earnings dilution or moderation. We raised our FFO per share guidance into the mid-6% growth range, and I would anticipate that next year we’re using this capital to time it well.
We certainly have a strong 1031 program, but I would anticipate an expanded acquisition profile for 2027, which is what we’ve been building for. And this is a great opportunity for me to plug — I hope everyone attends our December 16th business update where we’ll share more color on that.
OPERATOR
Your next question comes from the line of Floris van Dychkum with Ladenburg. Please go ahead.
Floris van Dychkum (Analyst)
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 is between initial yield and NOI growth, or annual NOI growth, going forward. And how do you see that evolving?
Jeffrey Edison (Chief Executive Officer)
Thanks. Thanks, Floris, for the question. Bob, you want to take that?
Bob Myers (President)
Yeah. Hey, Floris, hope you’re doing well. We’re really pumped up on the everyday retail. So again, we’re right around $300 million with the 13 assets that we’ve acquired. If you look at from the time that we acquired them to where we’re at today, we’ve seen a lot of success not only in moving occupancy — we’ve moved occupancy between 250 and 300 basis points already. These assets are throwing off an average NOI CAGR above 5%. So that’s a nice complement.
Again, I think our focus is to grow it to a billion dollars over the next 24 months. So we’re definitely leaned into it. If I look at the spreads, we’re seeing new leasing spreads of 40%, we’re seeing renewal spreads above 25%. And again, our leasing team and national account team continues to improve not only the merchandising towards more necessity-based but with more nationals. We like the space a lot and we’re going to continue to lean into it.
We’re seeing success in our core markets, so we’re going to continue to stay very focused on that front of it, Floris.
Jeffrey Edison (Chief Executive Officer)
Hey, Floris. This is obviously a growth opportunity for us, but I think you’ll also notice the discipline we apply to this is the exact same discipline we apply to the rest of our acquisition business, which is that we want to make sure that we are underwriting this to a point where we can get a 10-plus percent return on our everyday retail. And, you know, that’s not easy to find. But you’ll see us gradually growing this business, and as we grow it, we’ll be doing it the Phillips Edison & Co 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.
Floris van Dychkum (Analyst)
Maybe. Jeff, follow-up question on, you know, just how your strategy is different from the, you know, the one public peer out there in terms of and how much availability? Because one, I think one of the differentiating factors, if I’m not mistaken, is that you tend to buy clustered around your existing grocery-anchored centers. How much are you seeing competition from other national players or is this more of a greenfield opportunity still in the areas that you’re looking to expand in this segment?
Jeffrey Edison (Chief Executive Officer)
Yeah, we, I mean we see everything that our peers are seeing. What we’re really looking for, Floris, is unique opportunities where we know a very specific market and we think we can find, not we think, we’ve been able to find the right kind of merchandising mix for centers that we’re buying. And in doing that, we grow occupancy, we grow rents, and we grow the quality of the underlying neighbors that are in that center. That’s a very different strategy than our peers have, which is more to buy sort of a triple-net opportunity.
And because of that, that’s how we’re able to get these increased peggers of 5% plus and be able to grow IRRs of 11 plus percent. We can’t do that if we’re buying into, you know, long-term leases with national tenants that are very stable and with little upside. We’re looking for upside, but we’re also looking to take advantage of our knowledge of specific markets where we can see outsized returns.
Floris van Dychkum (Analyst)
Thanks, Jeff.
Jeffrey Edison (Chief Executive Officer)
Thank you. Thanks, Floris.
OPERATOR
Your next question comes from the line of Paulina Rojas with Green Street. Please go ahead.
Paulina Rojas (Analyst)
Good afternoon. Very few new grocery-anchored centers are being built, but many owners, it truly feels like everyone, is adding outparcel developments, small buildings, to existing sites. So what has your experience been on the ground with this kind of new supply in terms of its impact on leasing in the market? Are there any markets where these new buildings on the outparcels are having any meaningful impact? Is it meaningful competition, or it’s really a drop in the bucket everywhere?
Jeffrey Edison (Chief Executive Officer)
Well, I’ll start, Bob, and then you can jump in. I think it’s the second. These are a drop in the bucket. I mean, if you build a Starbucks and it’s, you know, 2,000 square feet, in the scheme of things that’s not going to impact the overall market, which is obviously much more sizable. But these really are, I think, a demand—there’s a high demand for this kind of property among a series of certain national potential neighbors. So that is what we’re focused on, where we can find them doing that.
And then the balance, which again, a small number, but is a high-octane kind of investment where we can build small-store space that in most cases is fully occupied before we complete the construction. And that is incremental growth, where we’re getting that 9 to 12 yield out of the box on these redevelopment and development deals. So we’re really excited about that part. We think it’s additive. We wish it was a bigger market, as I think you were kind of alluding to.
But we will continue to grow it at the pace that we can, because at 9 to 12 yields, we can make a lot of money there. And we will keep focused on that. Bob, did you have anything to add on that one?
Bob Myers (President)
The only other thing I would add is a lot of these opportunities are either in our existing parking lots or they’re on ground that would be adjacent. I mean, I look at our pipeline and what we’ve executed on. We’ve acquired a lot of adjacent parcels next to our Publix-anchored projects. And in a lot of cases, as we’re tying up the land and we’re going through due diligence, we’re already lining up the retailers like Jersey Mike’s or Firehouse Subs or the Pacific Dentals or Mavis.
You know, there’s a lot of active retailers, just given that there’s not a lot of supply out there. So it’s really been a great opportunity for us to capitalize on to generate the returns of, you know, 9 to 12%. So we’re very focused on continuing to find those opportunities.
OPERATOR
Thank you. That concludes the question and answer session. Mr. Edison, I’d like to turn it back to you for closing comments.
Jeffrey Edison (Chief Executive Officer)
Well, thanks everybody for being on today. And in closing I want to reiterate how pleased we are with our third quarter results and our increased full-year earnings guidance. Phillips Edison & Co 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 Phillips Edison & Co 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 Phillips Edison & Co, 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.
Phillips Edison & Co delivers more alpha through our proven operating engine and disciplined growth strategy. Phillips Edison & Co delivers less beta through durable, grocery-anchored and necessity-based cash flow, low leverage, and no meaningful debt maturities until 2030. I want to thank again the Phillips Edison & Co associates for your continued hard work and our shareholders and neighbors for your continued support. Thank you again for being on the call today and have a great day.
OPERATOR
Ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation and you may now disconnect.
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