Phillips Edison & Company, Inc. (NASDAQ:PECO) Q1 2026 Earnings Call Transcript

Phillips Edison & Company, Inc. (NASDAQ:PECO) Q1 2026 Earnings Call Transcript April 24, 2026

Operator: Good day, and welcome to Phillips Edison & Company, Inc.’s First 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: Thank you. I am joined today by our Chairman and CEO, Jeffrey S. Edison, President, Robert F. Myers, and CFO, John P. 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 various risks and uncertainties as described in our SEC filings. Our discussion today will reference certain non-GAAP financial measures. Information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in our earnings press release and supplemental information packet, both of which have been posted on our website.

Please note that we have also posted a presentation, and our caution on forward-looking statements also applies to these materials. Following our prepared remarks, we will open the call to Q&A. Given the number of participants on the call today, we respectfully ask that you be limited to one question. Please rejoin the queue if you have follow-up questions. With that, I will turn the call over to Jeffrey S. Edison. Jeff?

Jeffrey S. Edison: Thank you, Kimberly, and thank you everyone for joining us today. We are pleased to report another quarter of strong results, which reflect the strength of our high-quality portfolio and the consistency of our execution. The Phillips Edison & Company, Inc. team delivered NAREIT FFO per share growth of 4.7%, core FFO per share growth of 6.2%, and same-center NOI growth of 3.5%. We are pleased to increase our full-year 2026 guidance. Our growth rates for NAREIT FFO and core FFO per share are in the mid to high single digits, consistent with our long-term targets. We are operating in a time where there are many ongoing uncertainties, both domestically and globally. Interest rates have been volatile. The global trade picture is shifting, and conflicts overseas continue to affect markets.

Technology, especially AI, is changing how companies work. Add in an active election cycle and high energy costs, and it is no surprise that there is a general feeling of uncertainty. In times like this, the market tends to reward businesses that have stability. And that is exactly where Phillips Edison & Company, Inc. plays: grocer-anchored, necessity-based, everyday retail. Phillips Edison & Company, Inc. offers resilience while also offering steady growth. We believe Phillips Edison & Company, Inc. is built to deliver growth across changing economic cycles. Our long-term growth targets remain unchanged. We are maintaining our focus on driving value at the property level. Our retailers are healthy and continue to look long term. We are seeing a resilient consumer, and our top grocers and necessity-based retailers continue to drive solid foot traffic to our centers.

One of the dynamics we are watching closely is the gap between private and public market pricing of assets. This influences our capital decisions, including how we fund growth and where we invest, and it is why the Phillips Edison & Company, Inc. team stays disciplined about accessing the most efficient capital. Our platform can raise capital in the public markets, through institutional joint ventures, and through asset recycling. We believe markets in 2026 will reward companies with a focused growth strategy and the ability to fund growth responsibly. Phillips Edison & Company, Inc. is well positioned to continue to do both. In summary, we are pleased with first quarter results and our outlook for 2026. We operate in a resilient part of retail.

We are located in the neighborhood close to your home. We are disciplined about our investments. And most importantly, we have the best teams in the business. With our shares trading at a discount to our long-term growth profile, we believe Phillips Edison & Company, Inc. represents an attractive opportunity to invest in a leading operator that can deliver mid to high single-digit annual earnings growth. We will continue to drive more alpha with less beta. With that, I will turn the call over to Robert F. Myers. Bob?

Robert F. Myers: Thank you, Jeff, and thank you for joining us, everyone. Our first quarter results were marked by solid leasing activity and success in growing cash flows. We continue to see high retailer demand with no current signs of slowing. Necessity-based categories, quick service and fast casual restaurants, health and wellness, beauty, fitness, and med tail continue to be excellent drivers of demand. Seventy-four percent of Phillips Edison & Company, Inc.’s rents come from necessity-based goods and services. Phillips Edison & Company, Inc.’s leasing team remains focused on capturing demand and driving continued high occupancy while pushing very impressive comparable rent spreads. Our pricing power remains market leading.

During the first quarter, leased portfolio occupancy remained high at 97.1%. Leased anchor occupancy remained strong at 98.4%, and leased inline occupancy remained high at 95%. Our rent spreads reflect an extremely positive retailer environment. During the first quarter, Phillips Edison & Company, Inc. delivered comparable renewal rent spreads of 21.2%. Solid retention during the quarter means less downtime and lower tenant improvement costs, which translates to better economics for Phillips Edison & Company, Inc. Looking at comparable new rent spreads, they remained strong at 36.2% during the quarter. Inline leasing deals executed during the first quarter, both new and renewal, achieved average annual rent bumps of 2.7%. This is another important contributor to our long-term growth.

As it relates to bad debt, we actively monitor the health of our neighbors. Bad debt was lower than expected in the first quarter at around 60 basis points of revenue. We continue to expect bad debt in 2026 to be in line with 2025, which came in at just 78 basis points of revenue for the year. Our retailers remain healthy. We have a highly diversified neighbor mix with no meaningful rent concentration outside of our grocers. Turning to development and redevelopment, Phillips Edison & Company, Inc. has 19 projects under active construction. Our total investment in this activity is estimated to be approximately $74 million with average estimated yields between 9% and 12%. During the first quarter, six projects were stabilized with over 87 thousand square feet of space delivered to our neighbors.

This reflects incremental NOI of approximately $1.7 million annually. We are focused on growing Phillips Edison & Company, Inc.’s development and redevelopment pipelines, which is an important driver of growth. In addition, the Phillips Edison & Company, Inc. team continues to find accretive acquisitions that add long-term value to our portfolio. Our year-to-date acquisition activity through this week reflects $185 million. This includes five grocery-anchored shopping centers, three everyday retail centers, and land for future development. Currently in our pipeline, we have approximately $150 million in assets that we have been awarded or are under contract that we expect to close by the end of the second quarter. Our pipeline reflects a combination of grocery-anchored neighborhood shopping centers, everyday retail centers, and joint venture opportunities.

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

John P. Caulfield: Thank you, Bob, and good morning and good afternoon, everyone. Our strong first quarter results demonstrate what we have built at Phillips Edison & Company, Inc.: a high-performing grocery-anchored and necessity-based portfolio that generates reliable, high-quality cash flows. First quarter 2026 NAREIT FFO increased to $92.9 million, or $0.67 per diluted share. First quarter core FFO increased to $96.4 million, or $0.69 per diluted share. And same-center NOI increased 3.5% in the quarter, primarily due to higher revenue driven by increases in average rents and economic occupancy. Turning to our balance sheet, this quarter we extended our weighted average duration on our maturity and increased our percentage of fixed-rate debt, which is important in times of interest rate volatility.

In February, we completed a public debt offering of $350 million aggregate principal amount of 4.75% senior notes due 2033. The proceeds were used to repay term loans that were maturing in 2027 and a portion of our revolver. With $810 million in liquidity at the end of the quarter, we have the capacity to execute our growth plan. Our net debt to trailing twelve-month annualized adjusted EBITDAR was 5.3x at quarter end and was 5.1x on a last quarter annualized basis. At the end of the first quarter, Phillips Edison & Company, Inc.’s outstanding debt had a weighted average interest rate of 4.4% and a weighted average maturity of 5.8 years when including all extension options, and 94% of our total debt is fixed-rate debt, which includes Phillips Edison & Company, Inc.’s share of debt for our JVs. We are pleased to increase our 2026 guidance.

Key drivers of our increased guidance include a continued strong operating environment, strong year-to-date acquisitions activity, and our recent bond offering. Our updated guidance for 2026 NAREIT FFO per share reflects a 5.9% increase over 2025 at the midpoint, and our updated guidance for 2026 core FFO per share represents a 5.8% increase over 2025 at the midpoint. We are pleased with these strong growth rates. We are reiterating our full-year 2026 guidance of 3% to 4% same-center NOI growth, and we are pleased to reaffirm our full-year 2026 guidance of $400 million to $500 million in gross acquisitions at Phillips Edison & Company, Inc.’s share. The Phillips Edison & Company, Inc. team is not just maintaining a high-quality portfolio; we are building one.

We continue to have one of the best balance sheets in the sector, which has us well positioned for continued external growth. As Jeff mentioned, we remain disciplined about accessing the most efficient capital. These sources include additional debt issuance, dispositions, joint ventures, and equity issuance when the markets are more favorable. Year to date, we have sold $29 million of assets at Phillips Edison & Company, Inc.’s share. We plan to sell between $102.1 billion in assets in 2026. In summary, we are very pleased with our results this quarter, and our ability to raise guidance for the remainder of the year. We continue to see a resilient consumer, and we believe our portfolio will outperform as necessity-based retailer demand remains strong.

Looking beyond 2026, we continue to believe that Phillips Edison & Company, Inc. can consistently deliver 3% to 4% same-center NOI growth and achieve mid to high single-digit core FFO per share growth on a long-term basis. We also believe that our long-term AFFO growth can be higher as more of our leasing mix is weighted towards renewal activity. We believe our targets for core FFO per share and AFFO growth will allow Phillips Edison & Company, Inc. to outperform the growth of our shopping center peers on a long-term basis. We will now open the call for questions. Operator?

Q&A Session

Operator: Thank you. As a gentle reminder, please limit yourself to one question. You may re-queue. Your first question comes from Andrew Reel with Bank of America. Please go ahead.

Andrew Reel: Good afternoon. Thanks for taking my question. We can appreciate your necessity-focused tenant base is positioned to weather some macro uncertainty, but just curious to hear any latest color on your conversations with some of these discretionary or off-price mom-and-pop tenants in the current environment—maybe any incremental changes in their tone or plans versus, say, six months ago—and how do those conversations compare to what you are hearing on the necessity side?

Jeffrey S. Edison: Great question, Andrew, because it is one that we are very focused on as we try to read what kind of feedback we can get there. Bob, would you like to give a little color to that and what we are seeing?

Robert F. Myers: Absolutely. Thank you for the question, Andrew. This is something that we monitor all the time, and probably our best indicator—not only are we on the ground, locally smart—we also have visibility that would suggest that we have the best renewal pipeline and new leasing pipeline in about the last six to nine months. An interesting fact is we just approved 28 deals in the last nine days. The feedback that we are getting—with high retention and leasing spreads at 21.2% this last quarter—reflects strength, and we are not seeing any pullbacks, even from the local tenants or from national retailer demand. All the retailers that we meet with at ICSC are looking for new sites in 2026, 2027, and 2028. Occupancy costs continue to remain very strong at 10%. We feel very good about where we are at currently.

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

Haendel St. Juste: I wanted to ask about transactions. Obviously, you had a very active start to the year—$185 million in the quarter—and another $150 million in negotiation and under contract. What are you seeing or picking up in your conversations? Are there any changes in either the volume of buyers out there, underwriting, or competition that suggest people could be pulling back in light of the choppy macro? And thoughts on deployment of capital over the next few months—any willingness to scale back a bit to see if there are changes in pricing as a result of the choppy macro?

Jeffrey S. Edison: Great question, Haendel. It is a simple supply-demand issue. We are seeing a very ample supply of product coming on the market. Yes, there are more buyers, and we have had some major transactions take place in the business that we have not seen for a while that are of substance—billion-plus kind of acquisitions. You continue to see a strong appetite, and it is all driven by what Bob was talking about in the last question: we are in a really good operating environment. In that operating environment, there continue to be a strong group of buyers out there. But we are also seeing a lot of product. Our opportunities year to date are up 70% over last year at this time. So we are seeing a lot of product, but we do have competition. Bob, anything else you want to add?

Robert F. Myers: The only other thing I would add is we continue to sell our product. We have investment committee every week, and we are reviewing anywhere between five and ten new projects a week. We have reviewed 195 deals this year compared to 115 last year. The deals that we are underwriting are up about 26%, and the deals that have been presented to investment committee are up 40%. If anything, we are continuing to see more product hit the market than less. I think there are real sellers. Yes, there is more competition. There are more buyers out there. But you have seen the success we have had with the ten acquisitions that we acquired year to date—we are buying these at a cap rate of about 6.5% to 6.75%, and we are still solving for our unlevered returns above 9%.

We do not see anything really slowing down. If you look at the $150 million pipeline and the $185 million that we have closed, we are in a great spot to be in the range of our guidance between $405.1 billion, if not more, based on the opportunity set that we see.

Haendel St. Juste: And no change in the cap rate for the pipeline versus the $185 million already done?

Robert F. Myers: It is consistent with that 6.5% to 6.75%.

Haendel St. Juste: Got it. Thank you.

Operator: Your next question comes from the line of Michael Griffin with Evercore ISI. Please go ahead.

Michael Griffin: Thanks. On the leasing pipeline, particularly as it relates to renewals, it seems like you have really seen continued strong demand. In your conversations when leases are coming up for negotiation—thinking particularly about some bigger boxes and grocers—is there any opportunity to shorten the number of option periods or embed rent step-ups? I realize you are able to get those with the inline tenants, but with the bigger boxes, is there any way in those lease negotiations to get more leverage on the landlord side to drive earnings growth or rent bumps throughout the course of a new term?

Robert F. Myers: Great question. Certainly, most of our grocers that we have inherited over the past 25 to 30 years already have embedded options for the next 30 years, and they are typically flat. Sometimes you get lucky and they might be 5%. If we ever have the opportunity to renegotiate with them—or in a case where they are paying percentage rent—where we can blend the rent together and reset the terms, or if we decide to give an anchor that is a grocer an inducement, in a lot of cases we are able to negotiate added term and some sort of bumps that go along with that. We are capitalizing on as much of that as we can. Probably the biggest value is just through consents on restrictions, no-build areas, or, given the relationships of being the number one grocer owner in the market, it gives us flexibility to create a lot of value.

So we are picking up value in other places. And then, as you mentioned, with our inline tenants that we are negotiating new leases with, we limit the amount of options; if we do give options, we want to see, you know, 20% with good 3% to 4% CAGRs year after year. It is a combination of that and, during our renewals, cleaning up items that are nonmonetary clauses—think caps and restrictions, no-builds—where we are able to unlock value. I am glad we are doing it because we are 97.1% occupied, so we continue to find leverage through those avenues.

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

Caitlin Burrows: Given the strong operating environment, your comments that you bought land, and that you want to increase development and redevelopment, what is your latest take on your own development and redevelopment and the industry more broadly?

Jeffrey S. Edison: Thanks for the question, Caitlin. We have announced we have about $70 million of development work that we are on right now for this year, and we continue to be able to do that at very attractive returns. It is an important part of our business. It is not the major part of our business, but it is one that we are looking for opportunities in all the time. Bob, any other thoughts?

Robert F. Myers: The only thing I would add is that we purchased two parcels so far this year, and they are right beside our grocers. A great example is one that we acquired in North Port, Florida. It is about 5.8 acres. We are going to create five different pads. Our center is Publix-anchored right across the street; it does $1 thousand a foot and it is full. There continues to be a tremendous amount of demand, and we already have a lot of this pre-leased. We continue to find those high-opportunity sites. The other land parcel that we acquired is an old bank, and banks are wonderful opportunities to repurpose and bring in a Starbucks or Chipotle or Swig—somebody that is hot and in demand. We are able to generate somewhere between 9% and 12% returns on those ground-up development opportunities, which is consistent with us.

We have increased our development pipeline over the past few years from $40 million to $50 million to $74 million this year, as an example. We want to continue to lean into those opportunities and continue to look for ways to create value at each of our properties.

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

Ronald Kamden: Just a quick two-parter. On the 95% inline occupancy, thoughts on getting to 96% to 97%? What sort of blocking and tackling needs to get done to get there? And then a quick follow-up: I think I see your local neighbors concentration ticked up to 26% versus 25% last quarter. Was that intentional, and where are you comfortable with that local neighbor exposure?

Robert F. Myers: There has not been any real movement on the local side between 25% or 26%—that is right on top of each other. On the 95% inline question, one of the initiatives we put in place this past year was a bounty targeted space approach. We identified our top 100 spaces that would create the highest ABR on an annual basis. We put our leasing team on that and put different incentives in place. Through April, we have executed 28 deals on those particular spaces with another 24 at LOI or lease out, so we are almost 50% of the way there. That is your needle mover. With very high retention numbers of 90% to 93%, complemented by these targeted space initiatives, that is how you get the other 100 to 150 basis points. We are seeing a lot of success, and I am really excited about where we will finish the year.

Operator: Your next question comes from the line of Cooper R. Clark with Wells Fargo. Please go ahead.

Cooper R. Clark: Thanks for taking the question. Retention came down year over year while new rents were up significantly. How much of this was you proactively deciding to take back space and not renew certain tenants, given the ability to drive strong pricing power with potentially healthy operators? Any color on how to think about that dynamic and retention levels moving forward?

Robert F. Myers: Great question. Our retention rate this quarter was 88%. That had 100% to do with a 64 thousand square foot box that we knew was going to vacate about three years ago. We already have three tenants lined up to backfill it at significantly higher levels of rent. If you exclude that one-time situation, our retention for the quarter would have been 92.4%. It is not a crack or an indication. A normal part of our business is capturing spaces where we see better opportunities to do mark-to-market rent adjustments. We will always be focused on merchandising and finding the right necessity-based goods and services retailer so we can continue to get attractive leasing spreads and drive consumer demand.

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

Michael Goldsmith: Good afternoon, and thanks for taking my question. You took up the FFO guidance, but none of the underlying components moved higher. Can you provide a little bit of context for what drove the higher earnings expectation? Is it acquisition timing, termination fee income, or anything else? Just trying to get a sense of what is driving the greater confidence in earnings here.

Jeffrey S. Edison: Thanks for the question, Michael. It is a variety of things. John, do you want to go through the pieces?

John P. Caulfield: Good afternoon, everyone. We started the year at a great pace, with a strong operating environment like Bob has been talking about, strong year-to-date acquisition activity, and our recent bond offering. In the quarter, our bad debt was near the lower end of our range, and we were pleased that the bond was at an interest rate lower than we budgeted. It is still early in the year, and one thing we are watching is the SOFR curve, which is higher than where we started the year. When we look at bad debt, we maintained that range. We considered each of the ranges. We like the ranges where they are. Overall, after a good first quarter, we are more optimistic about the year than where we started, and that gave us confidence to raise our ranges for FFO.

It is early—it is Q1—we will have opportunities to refine, but we are very happy that our growth rates are in the mid to high single digits for 2026, which is consistent with our long-term growth targets. That gives us a good and more confident outlook for the year.

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

Todd Michael Thomas: Hi. Good afternoon. Jeff, you indicated in prepared remarks that you are closely watching private and public market valuations. Can you elaborate on that comment—what you see as the spread today relative to where you are trading, the acquisition cap rates you are achieving, and so forth? And what actions does the company take as a result?

Jeffrey S. Edison: Great question, and one we have spent a fair amount of time looking at. Our view is that in the private markets today—there are some fairly major transactions that have taken place—there is a 50 to 75 basis point difference between where the public markets are and where the private markets are. That makes the private markets a better source of capital. If you look at the major transactions that have happened in our space this year, the winners are the private equity capital across the board. For the public companies, we have to continue to find the cheapest source of capital so we can continue to take advantage of the opportunities in the marketplace. That means you are always looking at everything: joint ventures, issuing equity, selling assets—all of which are part of figuring out where you can get the cheapest source of capital so you can continue to fund your growth going forward.

That is what we are focused on. The market comes up and down and changes over time, but that is our focus.

Todd Michael Thomas: You reiterated the disposition volume for the year. Do you lean into dispositions a little bit more as the year progresses, or lean a bit more on joint venture capital than you have year to date? Any changes around the edges given that spread you are seeing in the market?

Jeffrey S. Edison: I think yes, there is a little bit more lean-in because it is attractive, and you will see some leaning in.

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

Floris Van Dijkum: Thanks for taking my question. Following up on the capital allocation, I noticed that you closed on two unanchored centers during the quarter, and you have one that has happened subsequent. Maybe talk a little bit more about the return expectations and why you think this makes sense for Phillips Edison & Company, Inc. to pursue these centers, and why investors should be excited about venturing away from your typical grocery anchors.

Jeffrey S. Edison: Thanks, Floris, for the question. We have made it clear over the last twelve months that we are really excited about very specific opportunities to take advantage of everyday retail where we think we can get outsized returns. It is a much more inefficient market than our core market, and we think there is a place for that in our portfolio, where we can use our market knowledge and our locally smart ability to know markets to take advantage of that. We think it is a great opportunity for the company to get outsized returns for part of our portfolio, and we are going to continue to look for those opportunities. It is hard, and it is a big market—you have to find the inefficiencies—but that is what we are really good at.

We are the best at taking those properties and turning them into really strong assets. In our buying, we are targeting properties where we can take the Phillips Edison & Company, Inc. machine and create a lot of value. The first two are great examples of what we will be able to show the market we can do with them. Bob?

Robert F. Myers: Thanks, Floris. I am really excited about this strategy. Over the last two and a half years, we have closed on 12 assets for about $221 million. We are finding opportunities to buy properties from less sophisticated owners where we can put our national accounts team on them. The criteria we set: exceptional demographics—$110 thousand median incomes in three miles, 100 thousand people in three miles—plus configuration and sight lines. I like to see about 45% local tenants, 55% national, which gives us the opportunity to continue to increase spreads and rents. Looking at the subset of 12, they have 5% CAGRs, a great complement to our 3% to 4%. In some cases, we have acquired some that are 8% to 10% CAGRs. We have already moved the needle 310 basis points in occupancy on this subset of 12.

Our new leasing spreads in this category have been 45%, and our renewal spreads are 27%. There are inefficiencies we have found while not overpaying for assets. In this space, we have acquired at a 6.9% cap and are solving for 10% to 11% unlevered returns. Our average purchase price is about $321 a foot. It allows us to lease it the Phillips Edison & Company, Inc. way, which we do exceptionally well with our operating results and the team on the ground.

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

Juan Carlos Sanabria: Thanks. Only my best friends call me Juan, if that is okay. Just curious—going back to Caitlin’s question on new supply—are there any pockets of the country where you are seeing new greenfield development? Maybe pockets of the Sunbelt that you would call out or are watching?

Jeffrey S. Edison: Overall across the country, it is a really small amount. There are specific cases where grocery stores are looking for specific locations where you are seeing some growth. You are seeing Publix grow north from their existing platform; you are seeing H-E-B add additional stores in Texas. But they are specific and very small. Part of our business is to make sure that we know what is going on in every market we are in. Even if there is one being built in a specific market near one of our centers, if it is a competitor we have to beat it—we have to figure out how we are going to win. We are just not seeing much at all in our markets. I think that is creating the operating environment we have where there is a ton of opportunity to be aggressive on leasing, reach very high occupancy levels, and drive rents. That is what we are proving out with our performance.

Operator: Your next question comes from the line of Analyst with Barclays. Please go ahead.

Analyst: Thank you so much for taking the question. I noticed that you maintained $5 million to $8 million of collectibility adjustments guidance. Could you elaborate on the specific categories or tenant types driving that assumption today? Have you seen any early signs of stress in first quarter trends for 2026?

Jeffrey S. Edison: Thank you for the question. John, do you want to take that?

John P. Caulfield: Good morning. One of the advantages of our business model is the diversification that we have across our neighbors. The components are pretty consistent with what they have been, but the overall volume is a little lower. For us, when people ask about a watch list and look for national names, it is actually at every center. Especially when you are as highly occupied as we are, we are always looking for new leasing opportunities or places to get in there, and for that we have one in every center. The absolute count of neighbors that we are focused on actually declined this quarter compared to last. Considering the volumes of acquisition that we are adding every quarter, to see that number broadly come down was a very positive sign.

I am still the cautious one of the group, but we feel really good about the year while still leaving those pieces. As Bob was talking about categories earlier, there is not any one particular space. We continue to see great demand and strong performance at each one of our assets.

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

Paulina Alejandra Rojas-Schmidt: Good morning. You have indicated that your health ratio, or OCR, for your inline tenants sits at about 10%, and you have mentioned that you see room to gradually push that up to 13%. Walk us through the thinking behind that—whether it is anchored on prior high watermarks or other benchmarks. What does a shift like that mean downstream for tenants on an EBITDA basis for the average inline tenant?

Jeffrey S. Edison: Great and very complicated question, Paulina. The 10% is a generic number because each specific retail category has a different health ratio that is healthy for them. We are using broad numbers here, but it is very specific to the type of retailer what a healthy number is. We also get the advantage of inflation and the growth in sales, which allows us to keep it at 10% while we are growing rents because of the growth in sales. Bob, would you like to talk a little about your views on the health ratio and how we are doing on the leasing side?

Robert F. Myers: Absolutely. Most importantly, we want to make sure that our neighbors are profitable. We have seen a lot of success over the last two or three years with not only our retention rates, but also renewal increases being 18% to 21%. The visibility that we have, with 125 renewals out for signature, shows no slowdown or cracks. We have been able to hold that 9.5% to 10% health ratio pretty static over the last three years while maintaining those renewal spreads. I do think there is room to move to 10% to 13% or 14% over time, very merchant-specific, over the next several years. Another helpful factor is that we are starting with ABRs on average of our inline neighbors at $27. It is a lot different increasing rents at $50 than it is at $27. There is a combination of a lot of things that goes into that health ratio, but bottom line for us, it is about keeping our neighbors healthy, profitable, and being a good partner.

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

Michael William Mueller: Hi. Another quick JV question. How much are the investments being made in those programs going to be influenced by your equity cost—particularly if your equity cost improves a lot, where on-balance sheet looks much more attractive?

Jeffrey S. Edison: Our JV strategy is primarily to expand what we can buy. We are buying things in our JVs that we would not buy on the balance sheet, and that is an important part of why we set this up. If our cost of equity changed dramatically, we would still be buying the same stuff with these particular JVs because that is the level of ownership we want in those properties, and we think we can add value there. We also get a fee structure that is complementary. For us, it is expanding where we can buy and what we can buy without putting the full 100% exposure from the balance sheet. That has worked out very well historically, and it is working out great in the JVs we have going right now.

Operator: This concludes our question and answer session. I will now turn the conference back over to Jeffrey S. Edison for some closing remarks. Jeff?

Jeffrey S. Edison: In closing, I want to reiterate how pleased we are with our first quarter results. Our grocery-anchored neighborhood shopping centers are driving solid foot traffic and market-leading pricing power. We continue to see a strong operating environment. While the macro environment remains volatile, Phillips Edison & Company, Inc. is well positioned to perform through cycles. We offer both stability and steady growth. Phillips Edison & Company, Inc.’s disciplined execution and operating strength reinforce our increased guidance for core FFO per share growth. With our shares trading at a discount to our long-term growth profile, we believe Phillips Edison & Company, Inc. represents an attractive opportunity to invest in a leading operator that can deliver mid to high single-digit annual earnings growth.

The Phillips Edison & Company, Inc. team remains focused on executing our strategy and generating stable long-term value. We will continue to drive more alpha with less beta. I would like to thank our Phillips Edison & Company, Inc. associates for their continued hard work and also thank our shareholders and neighbors for their continued support. Thanks for being on the call today. Have a great day.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for joining, and you may now disconnect.