Phillips Edison & Company, Inc. (NASDAQ:PECO) reported higher second-quarter funds from operations and same-center net operating income, citing sustained demand for space at its grocery-anchored shopping centers, record in-line occupancy and strong leasing spreads. The company also raised its 2026 outlook for earnings, same-center NOI growth and acquisitions.
Chairman and CEO Jeff Edison said the company generated 8.1% year-over-year growth in NAREIT FFO per share, 7.8% growth in Core FFO per share and 3.8% same-center NOI growth during the second quarter. He attributed the performance to occupancy gains, leasing activity, rent spreads and operating execution across the portfolio.
Occupancy and Leasing Reach New Highs
President Bob Myers said second-quarter leasing activity reached a record number of leases, while retailer demand showed “no current signs of slowing.” Necessity-based categories such as quick-service and fast-casual restaurants, health and wellness, beauty, fitness, services and medical retail continued to drive activity. The company said 74% of its rent comes from necessity-based goods and services.
- Portfolio leased occupancy was 97.3%.
- Leased anchor occupancy was 98.4%.
- Leased in-line occupancy reached a record 95.5%.
- Economic in-line occupancy reached a record 94.8%.
- Comparable renewal rent spreads were 21.2%.
- Comparable new rent spreads were 33.7%.
- Annual rent bumps on in-line renewal leases averaged a record 3.1%.
Myers said the company retained roughly 90% of its tenants and spent less than $1 per square foot to retain them. He said Phillips Edison expects it can increase in-line occupancy by another 100 basis points over time and lift anchor occupancy by 50 to 60 basis points by year-end.
The company reported lower-than-expected bad debt of about 70 basis points of revenue in the quarter and reduced its full-year bad-debt outlook. Management now expects bad debt for 2026 to be in line with or slightly better than 2025.
FFO, NOI and Balance Sheet
CFO John Caulfield said second-quarter NAREIT FFO rose to $93.7 million, or $0.67 per diluted share, while Core FFO increased to $95.5 million, or $0.69 per diluted share. Same-center NOI rose 3.8%, primarily because of higher average rents and economic occupancy.
Phillips Edison raised its full-year 2026 guidance for NAREIT FFO per share, Core FFO per share and same-center NOI growth. At the midpoint, the updated outlook implies 6.3% growth in NAREIT FFO per share from 2025, 6.2% growth in Core FFO per share and 3.7% same-center NOI growth.
Caulfield said the increased FFO outlook reflects strong first-half operations and healthy tenant credit trends. However, he noted that asset sales occurring ahead of reinvestment in acquisitions create a short-term cash-flow gap, while positioning the company for growth in 2027.
The company ended the quarter with $857 million of liquidity. Net debt to trailing 12-month annualized adjusted EBITDAre was 5.1 times at quarter-end and 5.0 times on a last-quarter annualized basis. Its debt had a 4.4% weighted average interest rate and a 5.6-year weighted average maturity, including extension options. Fixed-rate debt represented 95.9% of total debt, including Phillips Edison’s share of joint-venture debt.
Moody’s revised the company’s outlook to positive, which Caulfield said reflected operating performance, balance-sheet management and liquidity.
Acquisition Target Increased
Management raised 2026 gross acquisition guidance to $500 million to $600 million, an increase of $100 million. Caulfield confirmed in response to an analyst question that the net acquisition outlook also increased by $100 million.
The company completed $278 million of acquisitions at its share year to date through the week of the call, including eight grocery-anchored shopping centers, three everyday retail centers, an outparcel and land for future development. It had more than $225 million of awarded or contracted assets expected to close in the second half.
Management said acquisitions have been funded through dispositions, equity issuance and the company’s revolving credit facility. Phillips Edison raised $92 million of equity during June and July, though Caulfield said the full-year guidance does not assume additional equity issuance.
The company continues to target unlevered internal rates of return of 9% for grocery-anchored centers and 10% for everyday retail centers. Myers said the acquisition pipeline consists of about 60% grocery-anchored properties and 40% everyday retail assets. He said the company has identified more than 50,000 potential everyday retail opportunities near leading grocers and has acquired 12 such assets to date, where it has increased occupancy by 450 basis points.
Phillips Edison also maintained 2026 disposition guidance of $100 million to $200 million. Edison said the company had sold nearly $100 million of properties at a 6.3% capitalization rate and with an IRR below 7.5%, intending to redeploy that capital into higher-return opportunities.
Development Pipeline and Grocery Outlook
The company has 21 active development and redevelopment projects with estimated investment of about $82 million and estimated average yields of 9% to 12%. Eleven projects stabilized year to date, delivering more than 212,000 square feet and approximately $3.4 million of annual incremental NOI, according to Myers.
Management also discussed grocer industry developments, including Kroger’s announced acquisition of Giant Eagle. Edison called the transaction positive for Phillips Edison, which has 10 Giant Eagle-anchored centers. He said Kroger’s investment in brick-and-mortar stores signaled confidence in physical grocery locations as a channel for sales and fulfillment.
While Edison acknowledged that grocers are responding to consumer caution by investing in price and observing shifts toward private-label products, he said Phillips Edison has not seen a deterioration in portfolio traffic. The company plans to continue monitoring consumer behavior and retailer health while pursuing growth through leasing, development, acquisitions, joint ventures and portfolio recycling.
About Phillips Edison & Company, Inc. (NASDAQ:PECO)
Phillips Edison & Company, Inc is a publicly traded real estate investment trust (REIT) that specializes in the acquisition, ownership and operation of grocery-anchored, necessity-based shopping centers. The company’s investment strategy is centered on properties that benefit from everyday consumer demand, seeking to deliver stable cash flows through long-term, triple-net leases with national and regional tenants in the grocery, drugstore and essential retail sectors.
In addition to its core retail portfolio, Phillips Edison & Company provides integrated services covering property management, asset management, leasing, development and acquisition sourcing.
