Phillips Edison & Company, Inc. (PECO) Q1 2026 Earnings Call Transcript

Good day and welcome to Phillips Edison and Company's first quarter 2026 earnings call. Please note that this call is being recorded. I will now turn the call over to Kimberly Green, Head of Investor Relations. Kimberly, you may begin.

Thank you. I'm joined today by our Chairman and CEO, Jeff Edison, President Bob Myers, and CFO John Caulfield. As a reminder, today's discussion may contain forward-looking statements about the company'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. In our discussion today, we'll 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, both of which have been posted on our website. Please note that we have also posted a presentation and our caution on forward-looking statements also applies to these materials. Following our prepared remarks, we will open the call to Q&A. Given the number of participants on the call today, we respectfully ask that you be limited to one question. Please rejoin the queue if you have follow-up questions. With that, I'll turn the call over to Jeff Edison. Jeff?

Thank you, Kim, and thank you, everyone, for joining us today. We're pleased to report another quarter of strong results, which reflect the strength of our high-quality portfolio and the consistency of our execution. The PICO team delivered NAIREIT FFO per share growth of 4.7%, core FFO per share growth of 6.2% and same center rental high growth of 3.5%. We're pleased to increase our full year 2026 guidance. Our growth rates for NARID FFO and core FFO per share are in the mid to high single digits consistent with our long-term targets. We are operating in a time where there are many ongoing uncertainties both domestically and globally interest rates have been volatile the global trade picture is shifting and conflicts overseas continue to affect markets technology especially ai is changing how companies work add in an active election cycle at high energy cost and it's no surprise that there is a general feeling of uncertainty in times like this the market tends to reward businesses that have stability and that's exactly where pico plays growth anchored necessity-based everyday retail pico offers resilience while also offering steady growth we believe pico is built to deliver growth across changing economic cycles our long-term growth targets remain unchanged we are maintaining our focus and driving value at the property levels our retailers are healthy and continue to look long term. We're seeing a resilient consumer, and our top grocers and necessity-based retailers continue to drive solid foot traffic to our centers. One of the dynamics we're watching closely is the gap between private and public market pricing of assets. This influences our capital decisions, including how we fund growth and where we invest. And it's why the PICO team states disciplined about accessing the most efficient capital. Our platform can raise capital in the public markets, through institutional joint ventures, and through asset recycling. We believe markets in 2026 will reward companies with a focused growth strategy and the ability to fund growth responsibly. TECO is well-positioned to continue to do both. In summary, we're pleased with first quarter results and our outlook for 2026. We operate in a resilient part of retail. We're located in the neighborhood close to your home. We're disciplined about our investments, and most importantly, we have the best teams in the business. With our shares trading at a discount to our long-term growth profile, we believe PECA represents an attractive opportunity to invest in a leading operator that can deliver mid-to-high single-digit annual earnings growth. We will continue to drive more alpha with less beta. With that, I'll turn the call over to Bob. Bob?

Thank you, Jeff, and thank you for joining us, everyone. Our first quarter results were marked by solid leasing activity and success in growing cash flows. We continue to see high retailer demand with no current signs of slowing. Necessity-based categories, including quick service and fast casual restaurants, health and wellness, beauty, fitness, and medtail, continue to be excellent drivers of demand. 74% of Pico's rents come from necessity-based goods and services. Pico's leasing team remains focused on capturing demand and driving continued high occupancy, while pushing very impressive comparable rent spreads. our pricing power remains market-leading. During the first quarter, least portfolio occupancy remained high at 97.1%. Least anchor occupancy remained strong at 98.4%, and least in-line occupancy remained high at 95%. Our rent spreads reflect an extremely positive retailer environment. During the first quarter, PICO delivered comparable renewal rent spreads of 21.2%. Solid retention during the quarter means less downtime and lower tenant improvement costs, which translates to better economics for PICO. Looking at comparable new rent spreads, they remain strong at 36.2% during the quarter. In-line leasing deals executed during the first quarter, both new and renewal, achieved average annual rent bumps of 2.7%. This is another important contributor to our long-term growth. As it relates to bad debt, we actively monitor the health of our neighbors. Bad debt was lower than expected in the first quarter at around 60 basis points of revenue. We continue to expect bad debt in 2026 to be in line with 2025, which came in at just 78 basis points of revenue for the year. Our retailers remain healthy. We have a highly diversified neighbor mix with no meaningful rent concentration outside of our grocers. Turning to development and redevelopment, ECO has 19 projects under active construction. our total investment in this activity is estimated to be approximately 74 million with average estimated yields between 9 and 12 percent during the first quarter six projects were stabilized with over 87 000 square feet of space delivered to our neighbors this reflects incremental noi of approximately 1.7 million annually we are focused on growing pico's development and redevelopment pipelines, which is an important driver of growth. In addition, the PICO team continues to find accretive acquisitions that add long-term value to our portfolio. Our year-to-date acquisition activity through this week reflects $185 million. This includes five grocery-anchored shopping centers, three everyday retail centers, and land for future development. Currently in our pipeline, we have approximately $150 million in assets that we've been awarded or under contract that we expect to close by the end of the second quarter. Our pipeline reflects a combination of grocery-anchored neighborhood shopping centers, everyday retail centers, and joint venture opportunities. I will now turn the call over to John. John?

Thank you, Bob, and good morning and And good afternoon, everyone. Our strong first quarter results demonstrate what we've built at PICO, a high-performing, grocery-anchored, and necessity-based portfolio that generates reliable, high-quality cash flows. First quarter 2026 Nareed FFO increased to $92.9 million, or $0.67 per diluted share. First quarter core FFO increased to $96.4 million, or $0.69 per diluted share. and same center noi increased three and a half percent in the quarter primarily due to higher revenue which was driven by increases in average rents and economic occupancy turning to our balance sheet this quarter we extended our weighted average duration on our maturities and increased our percentage of fixed rate debt which is important in times of interest rate volatility in february we completed a public debt offering of 350 million dollars aggregate principal amount of 4.75% senior notes due 2033. The proceeds were used to repay term loans that were maturing in 2027 and a portion of our revolver. With $810 million in liquidity at the end of the quarter, we have the capacity to execute our growth plans. Our net debt to trailing 12-month annualized adjusted EBITDA was 5.3 times at quarter end and was 5.1 times on a last quarter annualized basis. At the end of the first quarter, PICO's outstanding debt had a weighted average interest rate of 4.4% and a weighted average maturity of 5.8 years when including all extension options, and 94% of our total debt was fixed rate debt, which includes PICO's share of debt for our JVs. We are pleased to increase our 2026 guidance. Key drivers of our increased guidance include a continued strong operating environment, strong year-to-date acquisitions activity, and our recent bond offering. Our updated guidance for 2026 May REIT FFO per share reflects a 5.9% increase over 2025 at the midpoint, and our updated guidance for 2026 core FFO per share represents a 5.8% increase over 2025 at the midpoint. We are pleased with these strong growth rates we are reiterating our full year 2026 guidance of three to four percent same center noi growth and we are pleased to reaffirm our full year 2026 guidance of 400 to 500 million dollars in gross acquisitions at pico share the pico team is not just maintaining a high quality portfolio we're building one we continue to have one of the best balance sheets in the sector which has us well positioned for continued external growth as jeff mentioned we remain disciplined about accessing the most efficient capital these sources include additional debt issuance dispositions joint ventures and equity issuance when the markets are more favorable year to date we've sold 29 million dollars of assets at pico share we plan to sell between 100 and 200 million in assets in 2026. In summary, we're very pleased with our results this quarter and our ability to raise guidance for the remainder of the year. We continue to see a resilient consumer, and we believe our portfolio will outperform as necessity-based retailer demand remains strong. Looking beyond 2026, we continue to believe that PICO can consistently deliver 3-4% same-center NOI growth and achieve mid to high single-digit core FFO per share growth on a long-term basis. We also believe that our long-term AFFO growth can be higher as more of our leasing mix is weighted towards renewal activity. We believe our targets for core FFO per share and AFFO growth will allow PICO to outperform the growth of our shopping center peers on a long-term basis. With that, We will open the line for questions. Operator?

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again, press star 1. As a gentle reminder, please limit yourself to one question. If you have a follow-up, you may re-queue. Your first question comes from Andrew Real with Bank of America. Please go ahead.

Good afternoon. Thanks for taking my question. We can appreciate your necessity-focused tenant base's position to weather some macro uncertainty, but just curious to hear any latest color on your conversations with some of these discretionary or off-price mom-and-pop tenants in the current environment, maybe just any incremental changes in their tone or plans versus, say, six months ago? And how do those conversations compare to what you're hearing on the necessity side?

Well, Andrew, great question, because it's one that we are, you know, very focused on trying to read where, you know, what kind of feedback we can get there. Bob, I don't know if you want to give a little, you know, color to that and how we're, you know, what we're seeing.

Yeah, absolutely. So, Andrew, thank you for the question. This is something that we monitor all the time and probably our best indicator not only are we you know on the ground locally smart we also the visibility that we have would suggest that you know we have the best renewal pipeline and new leasing pipeline that we've seen at about the last six to nine months uh interesting fact that we just approved nine 28 deals in the last nine days the feedback that we're getting with high retention and leasing spreads at 21.2% this last quarter reflect strength and that we're not seeing any cracks from that. Occupancy costs continue to remain very strong at 10%. So we're seeing a lot of success, you know, with market leading spreads and we're not seeing any pullbacks even from the local tenants or from the national retailer demand. Even all the retailers that we meet with at ICSC are looking for new sites in 2026, 27, and 28. So we feel very good about where we're at currently.

Thank you.

Your next question comes from the line of Handel St. Juice with Mizuho. Please go ahead.

Hey there. So I wanted to ask about transactions. Obviously, you guys had a very active start to the year, $185 million. I think you've cited in the quarter, another $150, I think, under negotiation and contract. So I guess I'm more curious on kind of what you're seeing or picking up in your conversations, are there any change in either the volume of buyers out there, underwriting, competition that suggests that there could be people pulling back in light of the macro, the choppiness we're seeing? And then thoughts on perhaps the deployment of capital over the next few months. Is there a willingness to maybe scale back a little bit to see if there's any changes in pricing or anything that could be the result of the choppy macro? Thanks.

Yeah. And it's a great question. It's a simple supply-demand issue. And what we're seeing is that there is a very ample supply of product coming on the market. And yes, there are more buyers, particularly – and we've had some major transactions take place in the business that we you know, we haven't seen for a while that are, you know, of substance, you know, billion-plus kind of acquisitions. So you continue to see a strong appetite, and I think it's all driven by sort of what Bob was talking about in the last question, which is that we're in a really good operating environment, and in that operating environment, there continue to be a strong a group of buyers out there that are keeping that happening, but we're also seeing a lot of product. And, you know, I mean, I think our opportunities this year are up 70% over last year at this time. So we are seeing a lot of product, but we do have competition. Bob, anything else you want to add on that?

The only other thing I would add is we continue to see a lot of product. You know, we have investment committee every week and we're reviewing anywhere between five and 10 new projects a week. What's interesting is that, and Jeff is right on top of it, we reviewed 195 deals this year compared to 115 last year. The deals that were underwriting were up about 26%, and the deals that have been presented to investment committees up 40%. If anything, we're continuing to see more product hit the market than less. I think there's real sellers yes there is more competition there's more buyers out there but quite frankly you've seen the success that we had with the 10 acquisitions that that we acquired you know year to date you know we're buying these at a cap rate of about a you know a six six six seven and we're still solving for our unlevered returns above nine percent so we don't see anything really slowing down and if you look at 150 million pipeline and the 185 that we've closed you know we're sitting in a great spot you know to certainly be in the range of our guidance between four and five hundred million if not more based on the opportunity set that we see and no change in the cap rate

for the pipeline the 150 versus 185 done already it's consistent with that six and a half to six seven five got it got it thank you guys appreciate it yep thanks your next question comes from the line of Michael Griffin with Evercore ISI. Please go ahead.

Great, thanks. Just on the leasing pipeline and particularly as it relates to renewals, I mean, it seems like you've really gotten some continued strong demand there. I guess, Bob, in your conversations with folks when leases are coming up for negotiation, I'm thinking particularly some of maybe these bigger boxes, these grocers, is there any, I guess, opportunity to shorten the number of option periods to embed some kind of rent step-ups? I realize you're able to really get those with the in-line tenants, but the kind of the bigger boxes, is there any way to, you know, in those lease negotiations to get maybe more leverage on the landlord side to try to, you know, get some earnings growth or some rent bumps throughout the course of a new term? Thank you.

Yep. It's a great question. Certainly, we acquire most of our grocers that we've inherited over the past 25, 30 years. And as you know, they already have embedded options for the next 30 years. And they're typically flat. Sometimes you get lucky, they might be 5%. That's something if we ever have the opportunity to renegotiate with them or in a case where they're paying percentage rent, something like that, where we can blend the rent together and reset the terms. Or if we decide to give say an anchor that's a grocer an inducement a lot of cases we're able to negotiate added term and some sort of bumps that go along with that we're capitalizing on as much as that as we can probably the biggest value is just through consents on restrictions no build areas we're given the relationships of being the number one grocer you know and owner in the market it gives us flexibility to create a lot of value. So, we're picking up value in other places. And then, as you mentioned, our inline tenants that we're negotiating new leases with, we limit the amount of options. If we do give options, we want to see, you know, 20% with good 3%, 4% CAGRs, you know, year after year. So, it's a combination of that, and it's a combination during our renewals of cleaning up items that are non-monetary clauses. You know, think about, you know, caps and restrictions, no builds, you know, a lot of those types of things that we're able to unlock value. And I'm glad we're doing it because we are, you know, 97.1% occupied, so we continue to find, you know, leverage through those avenues.

Great. Thanks.

Your next question comes from the line of Caitlin Burroughs with Goldman Sachs. please go ahead.

Hi, everyone. Good morning. Good afternoon. I guess given the strong operating environment, your comments that you bought land and that you want to increase development and redevelopment, what's your latest take on your own development and redevelopment and the industry more broadly?

Well, thanks for the question, Caitlin. I think we've announced we have about $70 million of development work that we are on right now for this year. And we continue to be able to do that at very attractive returns. So it's an important part of our business. It's not the major part of our business, but it's one that we are looking for opportunities all the time. Bob, any other thoughts on that?

Yeah, the only thing I would add is that we We've purchased two parcels so far this year, and they're right beside our grocers. A great example would be one that we acquired in North Point, Florida. It's about 5.8 acres, and we're going to create five different pads. Our center is Publix-anchored right across the street. It does $1,000 a foot, and it's full. So there continues to be a tremendous amount of demand, and we already have a lot of this pre-lease. So we continue to find those type of opportunities. The other land parcel that we acquired is an old bank, and you guys know this. I mean, banks are wonderful opportunities to repurpose and bring in a Starbucks or Chipotle or Swig or, you know, somebody that's hot and in demand. And we're able to generate somewhere between 9% and 12% returns on those ground-up development opportunities, which is consistent with us. You know, we've increased our development pipeline from over the past few years of $40 million to $50 million to $74 million this year, as an example. So we want to continue to lean into those opportunities and continue to look for, you know, ways to create value at each of our properties.

Thank you.

Your next question comes from the line of Ronald Camden with Morgan Stanley.

Please go ahead. hey uh just a quick uh quick two-parter just on the 95 percent um in line occupancy just thoughts on getting to 96 and 97 and what sort of the the blocking and tackling money to get done to get there and then the quick follow-up i think i see your uh your in line your neighbors your local neighbors concentration ticked up to 26 percent i think versus 25 last quarter just don't know if was intentional or where where you're comfortable with that uh local neighbor exposure thanks great thanks thanks rob bob you want to you want to take uh the 95 in line uh question as well as

uh you know sort of the the small movement in local uh leasing yeah there hasn't been you know there's there's no real movement on the local side between 25 or 26 percent uh that's right on top of each other um can you ask the question again on the 95 percent on inline sure thing just uh just any ups what's the upside from there uh what do we need to do to get sort of the 96 97 and what's the plan thanks all right perfect thank you so one of the initiatives that we put in place this past year was a bounty targeted space approach and we really wanted to uh identify our top 100 spaces that would create the highest ABR on an annual basis. We put our leasing team on that. I put different incentives in place for that. And already through April, we've executed, I believe, 28 deals on those particular spaces with another 24 at LOI or lease out. So we're almost 50% of the way there, that's your needle mover. So with very high retention numbers of 90 to 93% and, you know, you complement it with these types of initiatives on a targeted space approach, that's how you get the other 100, 150 basis points. And we're seeing a lot of success in it. So I'm really excited about where we'll finish the year. Thanks so much.

Your next question comes from the line of Cooper Clark with Wells Fargo. Please go ahead.

Great. Thanks for taking the question. Retention came down year over year while new rates were up significantly. Just curious how much of this was maybe intentional and a result of you proactively deciding to take back space and not renew certain tenants, just given the ability to drive strong pricing power with potentially healthy operators.

And then just any color on how we should think about that dynamic and retention levels moving forward great thanks thanks cooper um bob you want to take that yep appreciate the question uh great question so our retention rate this quarter was 88 percent that had a hundred percent to do with a 64 000 square foot box that we knew was going to vacate about three years ago we knew that we already have three tenants lined up to backfill it at significantly higher levels of rent. What's interesting is if you exclude that one-time situation, our retention for the quarter would have been 92.4%. So it's not a crack. It's not an indication. Yes, normal part of our business is to recapture spaces where we see better opportunities to do mark-to-market rent adjustments. So we will always be focused on merchandising and finding the right necessity-based goods and services retailer that, one, we can continue to get attractive leasing spreads but have the right complement where we can continue to drive consumer demand.

Your next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Good afternoon. Thanks a lot for taking my question. You took up the FFO guidance, but none of the underlying components moved higher. So, can you provide a little bit of context of what drove the higher earnings expectation? Is it acquisition timing? Is it termination fee income or anything else, just trying to get a sense of what's driving the greater confidence in earnings here?

Great. Well, thanks for the question, Michael. It is a variety of things. John, do you want to go through what the fees are?

Good afternoon, everyone. So we started the year at a great pace with a strong operating environment, like Bob has been talking about, and strong year-to-date acquisition activity and our recent bond offering. In the quarter, our bad debt was near the lower end of our range, and we were pleased that the bond offering was at an interest rate lower than we budgeted. But it's still early in the year, and one thing we're watching is the SOFR curve, which is higher than where we started the year. And when we look at bad debt, we maintain that range. Look, we considered each of the ranges, and when we consider the balance of what goes into each, we really like the ranges where they are. But overall, after a good first quarter, we're more optimistic about the year than where we started, and that gave us confidence to raise our ranges for FFO. It's early. It's Q1. We'll have opportunities to really refine, but we are very happy that our growth rates are in the mid to high single digits for 2026, which is consistent with our long-term growth targets. And that, you know, gives us a good, more confident outlook for the year.

Your next question comes from the line of Todd Thomas with KeyBank Capital Markets. Please go ahead.

Yeah, hi, thanks. Good afternoon. Jeff, you know, I just wanted to circle back. You indicated in your prepared remarks that you're closely watching private and public market valuations. Can you just elaborate a little bit on that comment, what you see as the spread today? perhaps relative to where you're trading, the acquisition cap rates that you're achieving, and so forth? And maybe just to follow up on that a little bit, what actions does the company take as a result? Thanks.

Yeah, great question, and one we've spent a fair amount of time looking at. And, you know, our view is that in the private markets today, and there's some fairly major transactions that have taken place, is there is 50 to 75 basis points difference between where the public markets are and where the private markets are. And, you know, so that makes the private markets a better source of capital. And if you look at the major transactions that have happened in our space this year, the winners are the people, you know, the private equity capital across the board. It's not like they won a little bit. They took all of the chips off the table in terms of the major transactions. So I think, you know, for the public companies, you know, we have to continue to find the cheapest source of capital as we look forward so that we can continue to take advantage of the opportunities that are in the marketplace. And that's, you know, what we will be doing over the year. And, you know, and that means you're always looking at everything. You're looking at, you know, joint ventures. You're looking at issuing equity. You're looking at selling assets. all of which are part of, you know, figuring out where can you get the cheapest source of capital so you can continue to fund your growth going forward. And that's what we're focused on. And I think it's, you know, the markets come up and down and change over time. But that's what we're focused on.

Okay, that's helpful. But I'm just curious, you reiterated the disposition, you know, volume for the year that you're anticipating. I mean, do you lean into dispositions a little bit more as the year progresses, or do you lean a little bit more on joint venture capital than you have year-to-date, you know, any sort of changes around the edges, just given that spread that you're seeing in the market?

Yeah, I think, yes, I think there is a little bit more lean in because it's attractive, and, you know, you'll see some leaning in.

Okay, thank you.

Your next question comes from the line of Floris Van Dijcom with Leidenberg. Please go ahead.

Thanks, guys, for taking my question. Following up on the capital allocation, I noticed that I think you closed on two unanchored centers during the quarter, and you have one that has happened subsequent. Maybe talk a little bit more about the return expectations and why you think this makes sense for PICO to pursue these centers, and why should investors be excited about, you know, your venturing away from your typical grocery anchors?

Thanks, Floris, for the question. I'll take a quick shot at Bob, obviously, follow up as well. You know, I think we've made it kind of clear over the last 12 months that we're really excited about very specific opportunities to take advantage of everyday retail where we think we can get outsized returns. And it's a much more inefficient market than our core market, and we think there's a place for that in our portfolio where we can use our market knowledge and our locally smart ability to know markets to take advantage of that. And so we think it's a great opportunity for the company to get outsized returns for part of our portfolio, and we're going to continue to look for those opportunities. it's hard. And it's a big market. You've got to find the inefficiencies, but that's what we're really good at. And then what we're the best at is taking those properties and turning them into really strong assets. And you'll see in our buying, we're buying stuff where we can take the PICO machine and create a lot of value in those properties. And we're excited about it. The first two are great examples of what I think we'll be able to show the market what we can do with them. Bob, any add-ons there?

Yeah, thanks, Flores, for the question. Great question. I'm really excited about this strategy. So far as an organization, over the last, I'd say, two and a half years, we've closed on 12 assets so far. So 12 assets for about $221 million. dollars. The reason I like this strategy so much is that we're finding opportunities to buy properties from less sophisticated owners where we're able to put our national account teams on them. The criteria that we set out when we acquire these are exceptional demos. So, you know, 110,000, you know, median incomes in three miles, 100,000, you know, people in three miles. The criteria about configuration site lines, I'd love to see them about 45% local tenants, 55% national, which gives us the opportunity to continue to increase spreads in rents. As an example, when you look at the subset of 12, and why I'm so excited about it, they all have 5% CAGRs. What a great complement to our three to four. And in some cases, we've acquired some that are 8% to 10% CAGRs. We've already moved the needle 310 basis points in occupancy on this subset of 12. And that's because we are in a great environment and one of the best operating environments that we've seen. What I'm also excited about is our new leasing spreads in this category have been 45% and our renewal spreads are 27%. So there's some inefficiencies that we have found, while not overpaying for assets. If you look at what we've acquired in this space, it's a 6-9 cap, and we're solving for between 10 and 11 percent unlevered returns. You know, our average purchase price is about $321 a foot, and it allows us to lease it the Phillips Edison way, which we just do exceptionally well with our operating results and the team that we have on the ground.

Your next question comes from the line of Ron Sanabria with BMO Capital Markets. Please go ahead.

Thanks. Only my best friends call me Ron, but that's okay. Just curious, going back to Caitlin's question on new supply, are there any pockets of the country where you are seeing new greenfield development, thinking maybe pockets of the Sunbelt that you'd call out or are watching?

So there are, again, overall across the country, it's a really small amount. And there are specific cases where grocery stores are looking for, you know, specific locations where you are seeing some growth. I mean, you're seeing publics grow north from their existing platform. You're seeing H-E-B add additional centers or add additional stores in Texas. But they're specific, and they're very small. But part of our business is to make sure that we know what's going on in every market that we're in because it doesn't matter if they're building one in a specific market, if it's near one of our centers, it's a competitor, and we've got to figure out how we're going to win in that. We're just not seeing much at all in our markets. And I think that's what is creating the operating environment we have, where there's a ton of opportunity to be aggressive on your leasing and reach very high occupancy levels and be able to really drive rents. And that's what I think we're proving out with our performance.

Your next question comes from the line of Sydney Roam with Barclays Capital. Please go ahead.

Hi, thank you so much for taking the question. I noticed that you maintained 5 to 8 million of collectability adjustments guidance, and I was wondering if you could elaborate a bit on the specific categories or tenant types driving that assumption today.

Have you seen any early signs of stress in first quarter trends for 2026 well thank you sydney for the question john do you want to take that good morning sydney so i will say that our performance is you know one of the advantages of our business model is the diversification that we have across our neighbors and so i would say the components are pretty consistent with what they have been but the overall volume is a little lower uh one thing that i find interesting is you know so for us We get questions about a watch list and things like that, and people are looking for national names. For us, it's actually at every center. We're always, especially when you're as highly occupied as we are, we're always looking for new leasing opportunities or places to get in there. But for that, we have one at every center. And the absolute count of neighbors that we are focused on actually declined this quarter, you know, compared to last. And usually, especially when you consider the volumes of acquisitions that we're adding every quarter, to see that number sort of come down and broadly come down was a very positive sign. Of course, I'm still the cautious one of the group, but we feel really good about the year, but are still leaving those pieces. And as Bob was talking about categories in an earlier question, you know, there isn't any one particular space. We continue to see great demand and really strong performance at each one of our assets. So I wish I had something more specific, but overall, things are quite good.

Thanks very much, John.

Your next question comes from the line of Paulina Rojas with Green Street. Please go ahead.

Good morning. My question is about, hello everyone, and you have indicated that you have a health ratio or OCR for your inline tenants that sits at about 10%, and you have also mentioned that you see room to gradually push that up to 13%. Let me walk us through the thinking behind that ceiling that you see, whether it's anchored on prior high watermarks or any other benchmark. I think at the end of the day, I'm curious about what that means downstream for the I don't know their margins, but I wonder what a shift like that would mean on an EBITDA basis, for example, for the average in-line tenant.

Well, it's a great question, Paulina. And it's a very complicated question, as you know. And, you know, the 10% is such a generic number because each specific retail category has a different health ratio that's healthy for them. And we're using broad numbers here, but it's very specific to the type of retailer what a healthy number is. And we also get the advantage of inflation and the growth in sales, which is allowing us to keep it 10% while we're actually growing rents because of the growth in sales. But, Bob, would you want to talk a little bit about, you know, sort of your views on the health ratio and how we're doing on the leasing side?

Yep, absolutely. So, great question. I think for me, you know, when it comes down to merchandising and health ratios, most importantly, we want to make sure that our neighbors are profitable. We have seen a lot of success over the last two or three years with not only our retention rates but also our renewal increases being, you know, 18 to 21 percent. And again, Paulina, the visibility that we have out, you know, with 125 renewals out for signature show no slowdown or cracks. We've been able to hold that, what I would say, 9.5% to 10% health ratio pretty static over the last three years while still maintaining those types of renewal spreads. I do think there's room to move to 10% to 13%, 14% over time. very use and merchant-specific, as Jeff had highlighted over the next several years. The other thing that's been helpful in this 10% and what gives me confidence to increase it over time is that we're starting with ABRs on average of our in-line neighbors at $27. So it's a lot different increasing rents at $50 than it is at $27. So there's a combination of a lot of things, as Jeff mentioned, that goes into that health ratio. But bottom line for us, it's all about keeping our neighbors healthy, profitable, and being a good partner.

Thank you.

Your next question comes from the line of Mike Mueller with J.P. Morgan. Please go ahead.

Yeah, hi. Just another quick JV question. How much are the investments that are being made in those programs going to be influenced by your equity costs, particularly if your equity cost improves a lot where, you know, on balance sheet looks much more attractive?

I'm not, I'm not totally sure, Mike, what, what you're, what you're getting at there.

I, I, you know, I was just saying, if your equity cost, if you like your, what's the sensitivity of, I guess, the transaction flow that the JVs will see depending on, you know, whether or not you like your equity costs and how attractive on balance sheet is or not?

Yes. So, our JV strategy is primarily to expand what we can buy. So, we're buying things in our JVs that we would not buy on the balance sheet. And that's an important part of why we set this up. And so we're not, like, if our cost of equity changed dramatically, we would still be buying the same stuff with these particular, because that's the level of, you know, ownership we want in those properties. And we think we can add value there to those properties, but we also get a fee structure that's complementary. And so it's a – for us, it's an expanding, you know, where we can buy and what we can buy. And without putting the full 100% exposure we would from the balance sheet. And that's worked out, I think, very well for us, you know, historically. And it's working out great in the two JVs – or the three JVs that we have going right now. Thanks. Yep. Thanks, Mike. this concludes our question and answer session i will now turn the conference back over to jeff edison for some closing remarks jeff so in closing uh i want to reiterate how pleased we are with our first quarter results our grocery anchored neighborhood shopping centers are driving solid foot traffic and market leading pricing power we continue to see a strong operating environment While the macro environment remains volatile, PICO is well-positioned to perform through cycles. We offer both stability and steady growth. PICO's disciplined execution and operating strength reinforce our increased guidance for core FFO per share growth. With our shares trading at a discount to our long-term growth profile, we believe PICO represents an attractive opportunity to invest in a leading operator that can deliver mid-to-high single-digit annual earnings growth. The PICO team remains focused on executing our strategy and generating stable long-term value. We will continue to drive more alpha with less beta. I'd like to thank our PICO associates for their continued hard work and I'd also like to thank our shareholders and neighbors for their continued support. And to all of you, thanks for being on the call today. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you all for joining, and you may now disconnect.