Phillips Edison & Company, Inc.

Good day and welcome to Philip Edison and Company's first quarter 2023 earnings conference call. Please note that this call is being recorded. I will now turn the conference over to Kimberly Greene, head of investor relations. Kimberly, you may begin.

Thank you, operator. I'm joined on today's call by our chairman and chief executive officer, Jeff Edison, our president, Devin Murphy, and our Chief Financial Officer, John Caulfield. Once we conclude our prepared remarks, we will open the call to Q&A. After today's call, an archived version will be available on our Investor Relations website. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties as described in our SEC filings, specifically in our most recent Form 10-K and 10-Q. In our discussion today, we 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, which are on our website. Please note that we have also posted a presentation with additional information. Our caution on forward-looking statements also applies to these materials. Now I'd like to turn the call over to Jeff Edison, our Chief Executive Officer.

Jeff? Thank you, Kim. And thank you, everyone, for joining us today. The PICO team delivered another solid quarter of growth, with Same Center NOI increasing by 4.9% and achieving record highs in occupancy, renewal leasing spreads, and retention. The consistent strength of our operating performance is attributed to both our differentiated focus strategy of exclusively owning gross-ranked neighborhood shopping centers and our team's ability to drive results at the property level. I know you've heard the PICO team say it many times before, but it bears repeating. Format drives results. And not all space is created equal. We focus on exclusively owning right-size neighborhood shopping centers anchored by the number one or two grocer in the market, with over 70% of our rents coming from necessity-based goods and services. Why? Because we know the average American family visits a grocery store 1.6 times per week. Our grocers draw consistent daily foot traffic to our shopping centers, benefiting our small store spaces. While our right-size grocery anchoring format is a critical pillar of our long-term success, we believe the quality of our portfolio continues to be another important differentiator. At PICO, we define the quality of our portfolio through the use of the acronym SOAR. This includes spreads, occupancy, the advantages of our markets, and retention. PICO's high new and renewal leasing spreads are driven by demand from our neighbors. Our retailers provide necessity-based goods and services that serve the essential needs of our communities. We pride ourselves on being locally smart and creating neighborhood centers that have the optimal merchandising mix for the communities they serve. Our leasing pipeline continues to remain strong and there are currently no signs of it slowing. The most active categories continue to be medical, quick serve restaurants, and health and beauty. We're also seeing consistent strong demand across all geographic regions. PICO's record occupancy level of 97.5% combined with the leasing spreads I just mentioned are a sign that retailers are successful at our centers. Our neighbors want to be closer to the customers and in the neighborhood of the communities they serve. Our lease portfolio occupancy increased by 10 basis points sequentially from the fourth quarter and by 130 basis points year over year, reaching an all-time high of 97.5%. We still believe there's occupancy upside in the portfolio. When occupancy as a driver of growth is no longer available, we believe our NOI growth will continue as our rent spread growth increases because of our pricing power. In addition, our exposure to at-risk retailers continues to remain limited. This is deliberate and a result of our grocery-anchored strategy focused on necessity-based goods and services. PECOS' unique advantages in the market are driven by our focus on the number one or two grocer, our strategic presence in the Sun Belt and other fast-growing suburban markets. Our top neighbors are strong grocers. Kroger and Publix are PECO's number one and two neighbors, respectively. PECO is Kroger's largest landlord and Publix's second largest landlord. PECO's trade area demographics are in line with Kroger's and Publix's store demographics. Our centers are close to the end consumer, where America's leading grocers make money, and in turn, our neighbors make money, which allows PECO to make money. In addition, our portfolio is geographically diverse. Rather than focusing exclusively on coastal markets, we focus on well-located suburban markets with growing populations and strong demographics. We compete on the corner of Maine and Maine. Our neighbors are healthy and diverse mix of national, regional, and local retailers who run successful businesses and enable us to grow rents at attractive rates over time. we continue to have excellent success retaining our current neighbors as demonstrated by our first quarter retention rate of 95%, a record high and well ahead of the historical five-year average of 87%. Our local neighbors remain resilient and are successful retailers who have been in our centers on average 8.8 years. Importantly, they differentiate and enhance the merchandising mix that our neighborhood centers offer. With more than 30 years' experience in the grocery-anchored shopping center industry and an informed perspective on what drives quality and success at the property level, we believe SOAR provides important and sustainable measures of quality which drive long-term growth, spreads, occupancy, the advantages of our market, and retention. If history is any indication, PICO's right-sized, grocery-anchored neighborhood shopping centers will continue to be resilient in all market cycles. Devin will provide more details on our cycle-tested performance in a moment. Looking ahead, we continue to benefit from a number of positive structural and macroeconomic trends that create strong tailwinds and drive neighbor demand. These trends include the healthy consumer, hybrid work, migration to the Sun Belt, population shifts that favor suburban communities, and the importance of physical location in last mile delivery. These demand factors are further amplified due to the limited new supply and lack of new retail construction since 2008. When we consider our pricing power indicated by continued strong demand and record high renewal spreads, occupancy, and retention, Combined with the advantages of our markets, our necessity-based retailers, and the aforementioned tailwinds, we believe our growth strategy will continue to generate more alpha with less beta. With higher interest rates and constrained capital availability in the market, we continue to be patient and use our national platform to be opportunistic. On the transaction front, we're pleased with our strong acquisition volume in the first quarter which was largely driven by activity that started last year. These high-quality, right-sized, grocery-anchored neighborhood centers fit well with our PICO portfolio. These properties will drive incremental earnings growth that will allow us to achieve and exceed our acquisition hurdle of a 9% unlevered IRR. We are also pleased with the performance of our acquisitions relative to our underwriting. On average, assets acquired since our IPO are outperforming relative to the underwriting. The transaction market continues to be fragmented and sporadic, and we're seeing a slower pace in the second quarter. While we're seeing cap rates move in the private markets in response to higher interest rates, there are still wide gaps between the buyer and the seller's expectations. That being said, we are affirming our guidance for $200 to $300 million of net acquisitions this year. We provide a wide delta in our range because it allows us to be strategic based on current market conditions and to still deliver on our expectations. We remain focused on accretively growing our shopping center portfolio, and we will continue to be opportunistic as we always are. There's no question that record inflation, rising interest rates, global conflict, and bank failures continue to create challenges. Despite these headwinds, we remain focused on investing in our portfolio and driving cash flow growth. With our combined internal and external growth drivers, we continue to believe our portfolio can deliver mid to high single-digit FFO per share growth on a long-term basis. In addition, we still have one of the lowest levered balance sheets in the shopping center space. With a fortress balance sheet and ample liquidity, we remain prepared for challenges and opportunities that may arise for the rest of this year. I would like to provide a quick update on the proposed Kroger and Albertsons merger. While there haven't been any major new developments in the merger, we remain positive on the impact that it will have on our centers. We continue to believe it is ultimately a positive for PECO, for our centers, and for the communities our centers serve if the merger should occur. If the merger does not occur, our Albertsons Anchored Centers will continue the strong performance that they have enjoyed to date. With that, I will now turn it over to Devin. Devin?