Phillips Edison & Company, Inc.

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

Thank you, operator. I'm joined on this 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 Once we conclude our prepared remarks, we will open the call to Q&A. After today's call, an archived version will be published on our website. As a reminder, today's discussion may contain forward-looking statements about PICO'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, including 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 have been posted to 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. Before we get into our results for this quarter, I would like to acknowledge the recent two-year anniversary of PICO's IPO. I would also like to highlight the progress the PICO team has made during this period and reiterate our optimism for the future and our long-term growth plans. PICO's strategy remains simple and consistent. We exclusively own and operate grocery-anchored neighborhood shopping centers. More than 30% of our rents come from our grocers. On average, customers visit our grocers nearly two times a week. We are 98% occupied, which gives us strong pricing power. Leasing demand is at historically high levels for our inline spaces, and we have limited exposure to big box retailers. We are lowly levered with a great balance sheet. and well-positioned for accretive acquisitions in a highly fragmented market. These components have not changed. We remain focused on owning shopping centers anchored by the number one or two grocer within a market. Our neighbor base has an omnichannel strategy, and more than 70% of our rents come from neighbors selling necessity goods and services. Our centers are situated in targeted trade areas with favorable demographics, where our top grocers make money and our neighbors are successful. Each of these components remain critical to our success. We continue to believe that format drives results. Our average center is 115,000 square feet, which is the smallest in the REIT shopping center space. This enhances our pricing power. Our smaller centers allow for better FFO growth because they yield higher retention rates and strong leasing spreads. Our retention rates averaged 87% between 2017 and 2021. Today, retention is at 94%, reaching a record high of 95% in the first quarter of 2023. High retention rates result in less downtime and lower tenant improvement costs. Lower capital costs result in better returns. From 2017 to 2020, our average cash leasing spreads were 8.8%, providing a meaningful avenue for NOI growth. Combined, comparable rent spreads for new and renewal leases were 10.1% in 2021. Today, we are executing record high renewal spread rates of 17.7%, new rent spreads north of 25%, and 18.9% rent spreads when all combined. At the time of the IPO, PICO's total portfolio occupancy had exceeded pre-COVID levels and was at 96% leased. Today, leased portfolio occupancy is at a record high, 98%. Since the IPO, we have pushed annual rent bumps in our new and renewal leases from 2% to nearly 3% on average. Additionally, our smaller format centers and lower exposure to secondary anchors require less CapEx than other retail real estate formats. Lower CapEx leads to higher AFFO. Over 30 years, we have built a fully integrated operating platform and become one of the nation's largest owners and operators of neighborhood grocery anchor shopping centers. We continue to deliver on the operating side, which is reflected in our consistently strong financial results. Since the IPO, we have exceeded market expectations for NOI, FFO, and AFFO growth. The quality of our performance is an important differentiator. As a reminder, we define the quality of our performance and our portfolio through the use of the acronym SOAR. This includes spreads, occupancy, the advantages of the markets we're in, and retention. PICO? has a strong track record of external growth through acquisitions. We have selectively acquired new assets that fit our focus strategy. At the time of the IPO, we told you our plan was to purchase a billion dollars of assets over the next three years. Since then, the markets have changed. We cannot control the markets, but we can control our response to them, which remains extremely disciplined and opportunistic. the transaction market continues to be fragmented and sporadic, as we saw with the dramatically lower volume of activity in the first half of the year. While we are currently seeing activity increasing, we believe cap rates are still adjusting slowly in the private markets in response to the higher interest rates. There are still gaps between buyer and seller expectations. As we sit here today, We are reiterating our guidance for $200 to $300 million of net acquisitions this year. That said, if the market remains inconsistent, as we saw in the first half of the year, we may be at the low end of that range. We have a very disciplined acquisition process. We remain focused on accretively growing our shopping center portfolio at the right price, while achieving our acquisition hurdle of a 9% unlevered IRR. For the remainder of this year, we remain confident in our business plan as reflected in our guidance increase. Looking beyond 2023, we believe our portfolio can deliver mid to high single digit FFO per share growth on a long-term basis, given our internal and external growth drivers. In addition, we still have one of the lowest levered balance sheets in the shopping center space, which gives us the financial capacity to meet our acquisition objectives. The IPO was a major milestone for our company, but it was just the beginning. We remain focused, motivated, and committed to successfully executing our growth strategy, which we believe continues to generate more alpha and less beta. I will now turn the call over to Devin. Devin?