Good morning, and welcome to Phillips Edison & Company’s Second Quarter 2022 Results Presentation. My name is Tanya and I will be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release, quarterly financial supplement, and 10-Q were issued yesterday, August 4th after market close. These documents and a replay of today's call can be accessed on the Investors section of the Phillips Edison & Company website at phillipsedison.com. I would now like to turn the call over to Kimberly Green, Vice President of Investor Relations with Phillips Edison & Company. Please proceed.

Thank you everyone for joining us today. 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. During today's presentation, Jeff will highlight our strong second quarter performance; Devin will discuss our excellent operational results; and John will review our financial results, our recent capital markets activity, and increased guidance. Following our prepared remarks, we'll take questions. Before we begin, I'd like to remind our audience that statements made during today's call may be considered forward-looking, which are subject to various risks and uncertainties as described in our SEC filings. We'll also refer to 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 release and supplemental information packet which were issued yesterday. Participants should refer to PECO's filings to learn more about these risks and other factors and for information regarding our financial and operating results. Now, I'd like to turn the call over to Jeff Edison, our Chief Executive Officer. Jeff?

Thank you, Kim. Good morning everyone or good afternoon everyone. Our strong second quarter results confirmed that PECO's differentiated strategy of owning and operating high-quality small format grocery-anchored centers is driving performance. The PECO team's focused execution combined with the strength of our national and local neighbors are resulting in financial performance beyond our internal expectations. Occupancy ended the quarter at an all-time high of 96.8%, and we're using our position of strength to continue to drive our pricing power. Customers are closer to PECO's grocery-anchored centers throughout the entire day, which is driving retailers to our neighborhood centers to meet this increased demand. We continue to benefit from the resiliency of PECO's grocery-anchored portfolio with more than 70% of our rents coming from necessity-based goods and services. We continue to see strong foot traffic to grocery-anchored centers as visits remain a part of customers' everyday routine. When they shop for groceries or haircuts, or visit local restaurants; medical beauty, fitness, and restaurants all continued to exhibit increased leasing demand. This translates to strong rent growth for PECO. While retailers continue to offer an omnichannel presence, in-person services are essential. Given these dynamics, we expect to continue to see strong tenant demand and restaurant rent spreads. Higher costs and inflation headwinds are limiting new supply of grocery-anchored centers as the barriers for new construction are higher than they've ever been. We expect these trends will continue to positively impact existing shopping centers. There'll be fewer new builds coming online and existing neighbors will be unlikely to relocate because of these costs and high occupancy levels. While we're not currently seeing a slowdown in the strong demand for space at our grocery-anchored centers, we remain cautiously optimistic in our actions and continue to incorporate macro-economic realities into our decision-making. We remain focused on managing our neighbor mix and credit quality as we prepare for market disruptions. One place we are starting to see some movement is in the transactions market. As such, we're updating our acquisitions guidance for the year and John will provide more detail. PECO is reassessing acquisitions based on our evolving cost of capital. As interest costs and inflation headwinds impact the transaction market, we remain cautious in our capital allocation decisions, including the timing and volume of acquisitions to ensure that we're acquiring assets that are accretive to our financial results and meet our return expectations. We're excited to add Centennial Lakes, a Whole Foods-anchored center to our portfolio during the quarter. Centennial Lakes Plaza is located in Minneapolis, Minnesota at the entrance to a 24-acre City Park Space that drives additional foot traffic to the grocery-anchored center beyond the strong traffic generated by our neighbors. We believe the lease-up potential and below-market rents in place at this center provide great opportunities for NOI growth. We think movement in the transaction market will create opportunities for PECO. Our national footprint, experience, and reputation give us a unique advantage to be opportunistic. We expect our unlevered IRR for future acquisitions to be in the range of 8.5% to 9% plus in this environment. Our goal is to ensure we achieve these unlevered returns and that all acquisitions are accretive to our earnings. We will continue to evaluate opportunities with the same diligence we've always exercised. Although we are cautious about the transaction market and particularly the timing of transactions, we remain optimistic about how our grocery-anchored portfolio will perform. And we're able to raise our guidance for same-center NOI and core FFO per share growth given the strong operating results that the PECO team has delivered to date. Now, I will turn the call over to Devin, who will speak in more detail about our strong operating results for the quarter. Devin?

Thank you, Jeff and hello, everyone. Thank you for joining our call. I will now review our operational and leasing highlights for the quarter and year-to-date. At the end of the second quarter, leased portfolio occupancy totaled 96.8% compared to 94.7% at June 30th, 2021, up 210 basis points reaching a historically high level. Anchor leased occupancy increased 190 basis points from a year ago to 98.7%, and in-line leased occupancy increased by 260 basis points over last year to 93.2%. We're excited about the record occupancy that we've achieved and as you can see, these occupancy levels are driving immediate, measurable growth in our financial results. Our high occupancy levels are continuing to give us pricing power and allow us to grow rents at attractive rates. We believe that given the current operating environment, we can increase in-line occupancy to 95% and total occupancy to between 97% and 98%. During the second quarter, we executed 105 new leases and 160 renewal leases and options totaling 1.6 million square feet of space. We continue to see robust demand from retailers. Comparable new lease spreads were 39% and comparable renewal rent spreads were 14.4%. Our total combined rent spread for the quarter, including new renewal and options was 10.7%. This quarter, we're excited to bring to our centers national neighbors, including Autozone, Dollar Tree, Five Below, Nectar Juice Bar, T.J. Maxx, and Wingstop. And we also signed deals with many savvy small business operators who can drive traffic to our centers through their unique offerings and operational excellence. Tacopros is one such operator. This fast-casual Mexican street food concept started in business in 2019 and continues to expand. They currently have four open locations in the Chicagoland area and will be opening their fifth location in our Oak Mill Station Center. Effectively using social media campaigns and collaborations with up-and-coming brands, Tacopros is focused on attracting customers with their unique international foods and healthier lifestyle options, including protein bowls and vegetarian alternatives. Building on the coffee trend, another one of our local tenants, SR Coffee started out as a mobile coffee truck, opened their first brick-and-mortar location last year, and signed a lease to open their second location in our neighborhood center in Ashburn, Virginia this quarter. An omnichannel operator at SR, Ashburn location will provide a newly built full coffee bar featuring its signature Blend Coffee, which seats in spring water for 22 hours, and dining space for their locally-sourced breakfast and lunch options. Successful local operators prosper in our neighborhood centers and the proof can be found in our strong retention rates. During the second quarter, we had a retention rate of 92.1%. Record occupancy, strong leasing spreads, high retention rates, and an optimal merchandise mix of successful neighbors operating in our grocery-anchored centers all point toward a portfolio that is well-positioned to deliver solid operational results in all economic environments. I will now discuss our development and redevelopment activity. Our development and redevelopment activities continue to be strong as we develop and expand our pipeline of ground-up and repositioning projects. We currently have 23 ground-up and redevelopment projects under active construction. Of these, 19 are being developed on land we already own and four are being developed on adjacent land that we have acquired. Our total investment in these 23 projects is estimated to be $60 million, with an average estimated yield between 10% to 12%. Six of these projects were stabilized during the quarter and we delivered over 45,000 square feet of new space to our neighbors. We continue to look hard for new capital projects where we can achieve the attractive risk-adjusted returns that we require. I will now turn the call over to John.

Thank you, Devin and good morning and good afternoon everyone. Second quarter 2022 Nareit FFO increased 18.8% to $71.1 million, or $0.55 per diluted share. This result benefited from an increase in rental income, reduced interest expense, and the realization of the promote incentive in our Necessity Retail Partners joint venture. Our second quarter core FFO increased 11.8% to $71.8 million, driven by increased revenue at our properties from higher occupancy levels and strong leasing spreads as well as lower interest expense from a reduced leverage. On a per-share basis, core FFO decreased to $0.56 per diluted share as a result of the incremental shares we issued in our July 2021 underwritten IPO. Our second quarter same-center NOI increased to $89.7 million, up 4.3% from a year ago. This improvement was primarily driven by higher occupancy and a 2.8% increase in average base rent per square foot, which was partially offset by lower collectability reserve reversals in the current period when compared to 2021. Turning to the balance sheet, our leverage ratio continues to be one of the strongest in the sector as a result of our continued earnings growth, as well as our prudent balance sheet management with our net debt to adjusted EBITDAre of 5.5 times as of June 30th compared to 5.6 times at December 31st, 2021. At June 30th, 2022, our debt had a weighted average interest rate of 3.2% and a weighted average maturity of 4.9 years. Approximately 87% of our debt was fixed-rate. At the end of the period, we had approximately $784.4 million of total liquidity, including $741 million of borrowing capacity available on our $800 million credit facility. We have no significant debt maturities until 2024. Between the free cash flow generated by our portfolio and the significant capacity available on our revolver, we can be strategic in our timing when accessing the debt market. This is a nice place to be given the current capital market environment. In the second quarter, we utilized our ATM facility for the first time and raised a total of $90.1 million in gross proceeds. Our weighted average share price was $34.23. With the macro market concerns around recession, inflation, and rising interest rates, we believe the importance of a fortress balance sheet has increased. This equity returns us to our IPO leverage, which gives us meaningful capacity and flexibility to pursue accretive acquisitions as they arise in the market and extend our acquisition runway beyond 2024. We still have a target leverage level of low to mid-six times net debt to EBITDAre, but this increases our capacity and flexibility. In addition, the Board recently authorized and approved a new $250 million share repurchase program. The Board and Management team view this program as an important addition to our capital allocation decision-making process as we evaluate opportunities in the future. It's another tool in our toolbox, if you will. Turning to guidance, as Jeff mentioned, we're updating our net acquisition guidance to a range of $200 million to $300 million for 2022. This reflects our current assessment of the transaction market. We continue to see assets that would allow us to meet and exceed original targets for the year. But with market volatility and uncertainty ahead, we don't want to force an acquisition plan to hit a number, particularly if patience could lead to even better opportunities in the future. Acquisitions are a critical part of our long-term growth strategy and we will continue to participate in the market but are exercising caution in the current instance. Our strong internal growth allows us to raise our Nareit FFO and core FFO per share guidance. Our new range for core FFO per share increased to $2.19 to $2.25. Additionally, we're increasing our same-center NOI guidance to a range of 3.75% to 4.5%. These changes are a result of the continued strong demand for space in our grocery-anchored centers, the great leasing spreads generated by our renewal team, as well as the health of our national and local neighbors, which are driving our high retention rates. With that, I would like to turn the call back over to Jeff to offer some additional remarks. Jeff?

Thanks, John. Now, before we take your questions, I'd like to quickly recap our quarter. Our second quarter results highlight the strength of PECO's differentiated strategy of owning and operating small format neighborhood centers anchored by the number one or two grocer in the market. This drives high recurring foot traffic and neighbor demand and results in strong financial and operating performance. Our neighbors are thriving in our grocery-anchored centers, as evidenced by our strong retention rates and renewal spreads significantly above historical levels. Demand for space in grocery-anchored centers remained solid, and PECO's leasing team continues to convert this demand into new leases with record occupancy at the end of the quarter. PECO is a growth company, positioned to gain share as we identify and buy grocery-anchored shopping centers from a target market of 5,800 identified grocery-anchored shopping centers across the United States. Overall, we're in a great position to successfully execute our growth strategy. Having operated through multiple cycles in the past 30 years, our experienced cycle-tested team and integrated operating platform have performed well in the first half of 2022. With a fortress balance sheet and liquidity, we are prepared for changes or opportunities as they arise. With that, we'll begin the Q&A portion of our call. Operator?

Certainly. Our first question will come from Craig Schmidt of Bank of America. Your line is open.

Anyway, my question is on the goal for occupancy; it seems really high. I mean, wouldn't your structural vacancy inhibit you by getting as high as 98%? Are you seeing it otherwise?

Thanks for your question, Craig. Two years ago, we might have thought that occupancy target was very ambitious. However, looking at our leasing backlog and its strength heading into this quarter, we believe we can increase occupancy, particularly in the small store space, by 100 to 200 basis points from the current level. We will continue to monitor the situation, but right now, we see potential for growth from our current position. Devin, do you have anything to add?

No, Jeff, I agree.

Great. And then the barriers for the construction of shopping centers with brochures, how long do you think that might last?

I can try to make a prediction, but in our discussions with grocers, there are certain markets where some development will occur. However, this is very limited compared to the overall number of grocery centers available. You really need to assess each retailer and market individually. Across the country, where we have a nationwide presence, you'll find that most markets are seeing very few new grocery-anchored centers being built. I don't anticipate this changing in the near future. There will be occasional developments, but in terms of percentage, it will be small. Therefore, when retailers look to expand, they have a limited number of centers to choose from, which contributes to our pricing power. This factor has also helped us achieve strong occupancy numbers.

Great. Thank you.

Thanks, Craig.

Our next question will come from Hyoung Jhang of JPMorgan. Your line is open.

Yes, hi. So, you guys keep a pretty tight spread between leased and physical occupancy historically. I guess, just looking forward as you continue to grow leased occupancy? Do you expect to keep the spread between the two less than 100 basis points?

Well, thanks for your question. John, do you want to take that one?

Sure. Hey, Hyoung, how are you doing? Yes, that has been our historical level of being about 60 basis points and we think that we can continue that. And I think the advantage for us comes back to the size of our centers and our anchor occupancy, as high as it is, most of it is when you get to that 60 basis points is going to be in-line. And when you look at the average space, that outside the grocery at 2,300 square feet, it allows us to get them in paying rent very quickly. We have incentives in place for the operating team. So, the operations team know that every day is a day of lost rent. So, they're working actively to move them in. It's also an advantage of our local neighbors because they also move in and we get them paying very quickly, even at times a step or two faster than the nationals. So, we feel very good about that and really focus on both driving the total lease but then also driving the rent-paying occupancy.

Got it. Thank you. Nice quarter.

Thank you. It was a good quarter, but that spread you're referring to and its consistency over time is one of the financial indicators that highlights the difference in our strategy between a big box concept, where the leasing process takes significantly longer to move from lease to operation, and our smaller format.

Thanks.

And our next question will come from Haendel St. Juste of Mizuho. Your line is open.

Hi, good morning. This is Ravi on the line or Haendel St. Juste. Hope you guys are doing well. Your variable debt exposure right now after counting the swap is about 13%. Is this the level that you're comfortable at or you're trying to reduce exposure with additional swaps? What is your target variable debt rate exposure?

John, you want to take that one?

Sure. Hey, Ravi. Yes, we are 87% fixed right now, and we do utilize swaps on our term loans and from our perspective an advantage of only being five-and-a-half times debt-to-EBITDA and having a lot of maturities scheduled is the ability to allow a greater percentage to float at 13%. We are constantly evaluating what the REIT market is, but believe that at this time we are watching and we're being very patient. Thankfully, we have expanded our revolver to $800 million in the quarter that gives us timing in terms of accessing financing in itself. But from a rate perspective, we're watching and at this point are very comfortable with a 13%. And we'll be opportunistic on rates, whether it be through issuing in the unsecured bond market or swapping from a term loan perspective as we go forward. But yes, we are comfortable with 87% at this time.

Got it. Thanks. That's helpful. Just one more. Your leasing spreads are really strong this quarter, can you please comment on what sort of mark-to-market opportunities are embedded across the portfolio? Given the elevated leasing demand?

Dev, do you want to take that one?

Sure. Thank you for the question. This quarter, our in-line spreads exceeded 14%, and our new lease spreads surpassed 39%. We believe that if we were to adjust for market value on in-line properties, there would likely be a 15% to 20% increase. This growth is driven by our pricing power, which is reflected in our rising occupancy rates, now up over 200 basis points, along with improved retention rates, which have increased by over 600 basis points. Our lease spreads are rising, and we continue to see favorable contractual rent increases. This pricing strength is a result of limited supply in our sector, largely due to construction costs that would require rents to jump 40% to 50% from current levels to yield attractive development returns. Demand is also supported by macro trends such as suburbanization, remote work, and migration to the Sunbelt, all of which are beneficial for us. Therefore, we believe these factors create significant mark-to-market opportunities within our portfolio.

Thank you. Appreciate the color.

Our next question will come from Floris van Dijkum of Compass Point. Your line is open.

Thank you for taking my question. I have two questions. First, regarding the sign-not-open spread of 60 basis points, which is significantly lower than some of your sector peers, it suggests that much of your earnings growth will likely come from your lease spreads. You've had some very attractive lease spreads, but with 10% to 15% of your leases expiring each year, you're looking at roughly 10% to 15% spreads, which is solid growth. Are you also implementing other strategies to enhance your same-store underlying growth, such as increasing your fixed rent bumps? Can you provide some insight on how those negotiations are progressing? Additionally, I'd like to discuss redevelopments, as they may present another opportunity within your portfolio to improve returns. How much further can you expand that pipeline?

Of course, Dev, I'll turn it over to you in a moment. Our belief has always been that transitioning from leased occupancy to economic occupancy in a shorter timeframe is a significant advantage. What the 60 basis points you mentioned illustrates is that we are not just discussing this; we are actively signing leases and collecting rent much faster than most of our competitors. This advantage allows us to see results much quicker as we lease the space compared to if there were a larger gap. That's our perspective on the matter. Devin, would you like to address anything else regarding leasing or redevelopments?

Sure. Thanks, Jeff. Hi, Floris, I appreciate your question. Our historical spread has been around 60 basis points, which is where it stands currently. Our portfolio has several characteristics that allow us to achieve this favorable metric compared to our peers. First, our retention rate is consistently above 90%, which is a significant factor. Second, our average tenant size helps us get tenants into spaces more quickly. For example, it takes us an average of 5.7 months to secure a small shop tenant. We are also taking proactive measures to maintain this metric, such as preordering certain components like HVAC equipment. Supply chain delays have affected how quickly we can get tenants into spaces, so we're working to mitigate those issues by having equipment ready in advance. We believe we can sustain this metric over time. As Jeff mentioned, this approach enables us to have tenants start paying rent much more quickly, benefiting everyone involved. Regarding your second question, are you referring to our redevelopment pipeline?

Devin, I wanted to ask about your high occupancy levels in the sector and your attractive rent spreads, along with the ongoing strong demand you've mentioned. Are you considering adjusting your lease terms to secure higher fixed rent increases or other beneficial terms for yourselves?

Got it, so yes, if you look at what our CAGRs have been over time. Like, if you look at our renewal CAGR forms. If you look at what it was in the second quarter of 2021, it was 2.2%, this quarter, it was 2.64%. So we are increasing our CAGRs as well as getting these attractive spreads. So we are pushing hard to increase our CAGRs as well as getting these attractive spreads. So we are pushing hard to get as much rent growth as we possibly can. And as we've discussed on the call, there are many factors that are giving us this increased pricing power that we intend to continue to take advantage of. And if you look at the metrics, you can see that we're able to, A, get wider spreads and B, get higher CAGRs. The returns are very attractive and we've been able to maintain those attractive rates of return. We would like to do as much of this as we possibly can do. And we're actively looking for those opportunities. As we indicated, there is approximately $60 million of this currently under in the pipeline. And as you know, we're doing it on land we currently own, but we're also acquiring land that's adjacent to our centers to do it on. So, we believe that we can do around $50 million of this a year. Our current pipeline is slightly higher than what we've guided to on a go-forward basis. And we're going to work as hard as we can to find as many of those opportunities as we can, because those returns, as you know, are highly attractive.

Thanks, Devin.

Thank you. Moving forward. Our next question comes from Tayo Okusanya of Credit Suisse. Your line is open.

Oh, yes. Good afternoon. Congrats on a strong quarter. My question has to do with the stock repurchase program. I mean, the stock is up 15% over the past 12 months. It's basically flat year-to-date. It's really down maybe 3%, in the past three months. I'm just kind of curious, why the decision was made to have a program in place and when you may actually buy back stock under what circumstances?

It's a great question. As John mentioned in his prepared remarks, this is simply adding a tool to our toolbox. Currently, we have no intention of using it. However, the market has changed, and we want to have that option available if it becomes a smart use of capital at some point. It's being implemented not for any short-term use, but we want to be prepared to utilize it when the right opportunity arises.

I want to emphasize that we believe there will be acquisition opportunities, and our focus is on using our capital for external growth to drive the business forward. While this is something our competitors have, we would consider it if the market changes significantly. For now, we are dedicated to pursuing that external growth strategy.

That's a clarification that's very helpful. And then again, the cautious optimism about the future; kind of fully get it, because of the uncertainty out there. Could you just talk a little bit about, again, within your portfolio or generally, when you kind of think about inflection points, is there any kind of retail categories that maybe you are starting to see soften up within your portfolio or even in a particular market, kind of irrespective of just how strong your results were in the quarter?

Our agents are providing solid feedback, and when we examine our backlog of leases and retention rates, we are not currently observing any concerning trends. We haven't identified any categories that could signal potential issues. We are actively monitoring the situation but have yet to notice any red flags. Devin, do you have any additional comments on this?

Jeff, I would like to emphasize that our portfolio benefits from a highly diverse tenant base, which gives us a positive outlook on current issues. Our centers are primarily anchored by the leading grocers in their markets, who are performing very well. Notably, our top tenants, such as Kroger, Publix, and Albertsons, are experiencing high single-digit growth in same-store sales while maintaining their profit margins. This strong performance among our grocery tenants, who make up the largest part of our tenant base, gives us confidence. Additionally, our largest non-grocery tenant is T.J. Maxx, which accounts for less than 1.5% of our annual base rent. Our small shop tenants, such as Subway, Starbucks, and UPS, each represent around 1% or less of our rents. This diversity is a significant advantage for our strategy, and we currently have no specific categories that raise concerns.

Thank you.

One moment. This concludes our question-and-answer session. I would like to turn the call back over to Mr. Edison for closing comments.

Thank you all for joining the call. On behalf of our entire management team, I want to extend our gratitude for the ongoing support from our stockholders, associates, agents, and our neighbors. We are well positioned to effectively implement our unique strategy of owning and managing small format neighborhood centers anchored by the top one or two grocers in the market. We believe the best is yet to come for PECO. While we are cautiously optimistic as we face a potentially challenging environment, we feel confident about our current position. We look forward to providing you with updates in the near future. Thank you once again for being on the call.

Ladies and gentlemen, this concludes today's conference. You may now disconnect.