Executive Summary / Key Takeaways

• Resilient Core Strategy: Phillips Edison & Company (PECO) demonstrates consistent strength through its specialized focus on necessity-based, grocery-anchored neighborhood shopping centers, a strategy proven resilient across economic cycles and insulating it from broader retail volatility and tariff impacts.
• Robust Operational Performance: The company continues to drive impressive leasing metrics, including high occupancy (97.4% total, 98.9% anchor, 94.8% inline as of Q2 2025) and strong rent spreads (34.6% new, 19.1% renewal in Q2 2025), translating directly into solid Same-Center NOI growth of 4.2% in Q2 2025 and 4.1% for H1 2025.
• Disciplined, Accretive Growth: PECO's active acquisition strategy, targeting $350-$450 million in gross acquisitions for 2025 with an unlevered IRR exceeding 9%, is a key differentiator, leveraging its integrated platform to identify and enhance value in properties, including shadow-anchored and select unanchored centers.
• Strong Financial Foundation: A well-managed balance sheet with ample liquidity ($972 million as of Q2 2025), no meaningful maturities until 2027, and 95% fixed-rate debt provides significant financial flexibility to execute its growth initiatives and navigate interest rate environments.
• Positive Outlook: Management's increased 2025 guidance for Same-Center NOI (3.1%-3.6%), NAREIT FFO, and Core FFO (6% increase at midpoint) reflects confidence in its operational momentum and strategic execution, projecting mid-to-high single-digit Core FFO per share growth annually long-term.

PECO's Enduring Strategy and Market Foundation

Phillips Edison & Company (PECO) has cultivated a distinctive niche within the retail real estate sector since its founding in 1991, focusing exclusively on omni-channel grocery-anchored neighborhood and community shopping centers. This specialized approach, deeply embedded in the company's DNA for over three decades, positions PECO as a provider of necessity-based goods and services, inherently more resilient to economic fluctuations than discretionary retail. The company's portfolio, comprising 303 wholly-owned properties and interests in 24 joint venture centers across 31 states as of June 30, 2025, is strategically anchored by top-tier grocers, typically the #1 or #2 by sales in their respective markets. This foundational strategy has enabled PECO to demonstrate remarkable stability and recovery through challenging periods, including the 2008 Global Financial Crisis and the 2020 COVID-induced downturn, where it consistently exhibited the lowest occupancy loss and fastest recovery among its peers.

PECO's operational prowess is a significant differentiator, stemming from its vertically integrated platform and a "locally smart" team. This integrated approach allows for granular control over property management, tenant relations, and acquisition underwriting. The company leverages data from sources like Placer.ai to monitor foot traffic, which averages approximately 30,000 trips per week per center, totaling nearly 500 million trips annually across its portfolio. This consistent foot traffic is a tangible benefit, driving sales for inline tenants and enhancing PECO's pricing power during lease negotiations. The operational platform also supports efficient management, contributing to a 96% tenant satisfaction score, which in turn fosters strong tenant retention and reduces re-leasing costs. While not a technology company in the traditional sense, PECO's systematic, data-informed operational platform serves as a critical technological differentiator, enabling superior execution and value creation in a fragmented market.

Competitive Landscape: A Differentiated Approach

PECO operates within a competitive landscape populated by prominent retail REITs such as Realty Income Corporation (O), Kimco Realty Corporation (KIM), and Federal Realty Investment Trust (FRT). While these competitors also engage in retail property ownership, PECO's distinct focus on grocery-anchored, necessity-based centers provides a unique market position. Realty Income, with its emphasis on net leases and single-tenant properties, often achieves streamlined cash flow, but PECO's multi-tenant, community-focused centers offer greater adaptability to local market needs and a more diversified tenant base. Kimco, a major player in open-air shopping centers, shares PECO's grocery-anchored focus, but PECO's vertically integrated platform and deep local market expertise may provide a competitive edge in operational efficiency and tenant relationship management. Federal Realty, known for high-quality retail and mixed-use properties in affluent markets, offers broader strategic versatility, yet PECO's specialized grocery focus allows for more concentrated performance in its core segment.

PECO's competitive advantages, or moats, are rooted in its specialized strategy and operational excellence. Its strong brand in grocery-anchored centers, combined with its integrated operating platform, translates into tangible benefits such as enhanced operational control, which can lead to superior margins through efficient management and stronger customer loyalty. This operational platform, supported by data analytics, enables PECO to maintain notably better performance in tenant retention and cost management compared to competitors with broader or less integrated portfolios. For instance, PECO's ability to drive high rent spreads and manage tenant improvement costs effectively (e.g., $0.49 per square foot for renewals in Q2 2025) underscores the efficiency derived from its focused approach.

Despite its strengths, PECO faces vulnerabilities inherent to physical retail, including potential impacts from e-commerce shifts and dependencies on specific markets or tenants. However, its necessity-based tenant mix and proactive re-merchandising strategy mitigate these risks. The retail REIT industry also presents significant barriers to entry, including high capital requirements and the need for established networks, which protect PECO's market position by limiting new competition.

Financial Performance: A Foundation of Quality Cash Flows

PECO's financial performance in the first half of 2025 underscores the strength of its strategic focus and operational execution. For the three months ended June 30, 2025, total revenues increased by 10.05% year-over-year to $177.75 million, driven by robust rental income growth of 9.59% to $173.47 million. For the six months ended June 30, 2025, total revenues grew 10.29% to $356.06 million, with rental income up 9.89% to $347.65 million. This growth is a direct result of strong leasing momentum and strategic acquisitions.

The company's Same-Center Net Operating Income (NOI) increased by 4.2% in Q2 2025 and 4.1% for the first half of 2025, reaching $114.46 million and $229.56 million, respectively. This consistent internal growth is fueled by high portfolio occupancy, which stood at 97.4% as of June 30, 2025, with anchor spaces at 98.9% and inline spaces at 94.8%. Leasing spreads remain a key driver of revenue growth, with comparable new lease spreads at 34.6% (total) and 28.1% (inline) in Q2 2025, and comparable renewal spreads at 19.1% (total) and 20.7% (inline). The average annual rent bumps on new and renewal inline leases were 2.7% in Q2 2025, contributing to long-term revenue stability. Tenant retention remained high at 93.6% in Q2 2025, reflecting strong tenant satisfaction and reducing re-leasing costs.

PECO's profitability metrics reflect its efficient operations. Its TTM Gross Profit Margin stands at 71.26%, Operating Profit Margin at 25.62%, Net Profit Margin at 9.91%, and EBITDA Margin at 48.34%. These margins are competitive within the retail REIT sector, demonstrating effective cost management and strong revenue generation from its properties.

Cash flow generation remains robust, with TTM Operating Cash Flow at $334.71 million and Free Cash Flow at $239.63 million, providing ample internal capital for investments and distributions.

The company's acquisition strategy is a significant contributor to external growth. In the first half of 2025, PECO acquired 10 properties and 12 outparcels for a total of $268.11 million. These acquisitions, including shadow-anchored and select unanchored centers, are carefully chosen for their growth potential, often exceeding the company's target unlevered IRR of 9%. For instance, shadow-anchored centers are targeted for 50-100 basis points wider unlevered IRR than core grocery, and unanchored centers for at least 100 basis points wider. PECO's development and redevelopment pipeline further enhances value, with 21 projects under active construction as of Q2 2025, targeting 9-12% yields and delivering incremental NOI.

PECO maintains a strong balance sheet, providing significant financial flexibility. As of June 30, 2025, the company had approximately $972 million in liquidity and no meaningful debt maturities until 2027. Its debt structure is predominantly fixed-rate, with 95% of total debt fixed as of Q2 2025, aligning with its 90% target and mitigating interest rate risk. The recent issuance of $350 million in 5.25% senior notes due 2032 in June 2025, used to replenish its revolving credit facility, exemplifies its disciplined match-funding approach for acquisitions. The company's net debt to trailing 12-month annualized Adjusted EBITDAre was 5.4x as of June 30, 2025, a prudent leverage level that supports continued growth.

Outlook and Risks: Growth Amidst Macroeconomic Currents

PECO's management has increased its full-year 2025 guidance, reflecting confidence in its continued strong operating environment, robust year-to-date acquisition activity, and recent bond offering. The company now projects Same-Center NOI growth between 3.1% and 3.6%. NAREIT FFO per share and Core FFO per share are expected to increase by 6.3% and 6% respectively over 2024 at the midpoint. PECO affirmed its gross acquisition guidance range of $350 million to $450 million for 2025, with no equity issuance assumed in the guidance. This outlook is underpinned by the expectation of continued strong retailer demand, particularly from necessity-based tenants, and the ongoing benefits of its proactive re-merchandising strategy.

Despite a generally resilient consumer, macroeconomic uncertainties persist. Potential risks include slower economic growth or a recession, which could impact consumer spending. However, PECO's necessity-based focus (70% of ABR) and suburban market positioning (average median household income 15% above U.S. median) provide a degree of insulation. Management estimates that approximately 85% of its tenants will experience limited impact from tariffs, with grocers expecting to pass on costs to consumers. While credit card delinquencies are a rising concern, PECO notes that strong employment, a key driver of consumer behavior, remains favorable in its markets. The company's limited exposure to distressed retailers (top 10 on watch list represent less than 2% of ABR) further mitigates tenant-specific risks. The ongoing lack of new shopping center supply is a significant tailwind, intensifying demand for PECO's well-located, existing properties.

Conclusion

Phillips Edison & Company stands as a compelling investment in the retail REIT sector, distinguished by its unwavering focus on grocery-anchored, necessity-based shopping centers. This deeply ingrained strategy, refined over three decades, has consistently delivered resilient financial performance and robust growth, even amidst challenging economic backdrops. The company's integrated operational platform, leveraging data and local market expertise, serves as a powerful differentiator, enabling superior leasing outcomes, efficient property management, and accretive acquisitions.

PECO's strong financial health, characterized by ample liquidity, a conservative debt structure, and disciplined capital allocation, provides a solid foundation for its ambitious growth targets. The increased 2025 guidance and long-term projections for mid-to-high single-digit FFO growth underscore management's confidence in its ability to continue creating shareholder value. While macroeconomic headwinds and competitive dynamics are ever-present, PECO's specialized market positioning, operational excellence, and strategic agility position it favorably to outperform. For discerning investors, PECO offers a compelling blend of predictable, high-quality cash flows and significant growth potential, embodying the "less beta, more alpha" investment thesis.