Phillips Edison & Co. (PECO) Q2 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the Phillips Edison and Company's Second Quarter 26 Earnings Call. Please note that this call is being recorded. I will now turn the call over to Kimberly A. Green, Head of Investor Relations. Kimberly? You may begin.

Thank you. I am joined today by our chairman and CEO, Jeffrey S. 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. And our discussion today 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 both of which have been posted to our website. Please note that we have also posted a presentation and are cautioned on forward-looking statements also applies to these materials. Following our prepared remarks, we will open the call for Q&A. Given the number of participants on the call today, we respectfully ask that you be limited to 1 question. Please rejoin the queue if you have follow-up questions. With that, I will turn the call over to Jeffrey S. Edison.

Jeffrey?

Thank you, Kimberly, and thank you everyone for joining us today. During the second quarter, the PECO team delivered NAREIT FFO per share growth of 8.1%. Core FFO per share growth of 7.8%, and same center NOI growth of 3.8%. Our strong performance is due to a combination of high demand for spaces in our grocery anchored shopping centers and our team's ability to capture that demand with occupancy gains, great rent spreads, and superior operations. We are continuing to expand our ability to drive growth and create value while maintaining a strong balance sheet, and a thoughtful approach to investing in long term growth. These disciplines have always been core to PECO. As we look through the second half of 2026, and into 2027, we believe PECO is well positioned to deliver what we view as compelling combination for our investors. More alpha with less beta. While macroeconomic headlines continue to evolve, the fundamentals supporting PECO's portfolio remain consistent. We are seeing continued traffic resiliency across our portfolio. Our centers generated 2% year over year traffic growth in June, and 2% traffic growth year to date. While consumers are increasingly seeking value, they are continuing to make frequent trips to necessity based destinations. Which reinforces the strength of our growth tracker strategy. We also continue to see leading grocers invest in their businesses. Kroger's announced acquisition of Giant Eagle underscores the value large grocers place on growing market share and expanding their brick and mortar footprint in attractive markets. As Kroger's largest landlord and longtime partner to both companies, we view this as another positive indicator for the long term strength of the grocery anchored shopping center sector. But healthy operating fundamentals are only part of the story. The larger opportunity is how PICO converts these fundamentals into long term earnings growth. We have a number of ways we can create value. Including strong internal growth from leasing, occupancy, rent spreads, retention, and development and redevelopment activity. We are also growing through acquisitions, joint ventures, and portfolio recycling. We think like owners. Every capital decision begins with a simple question. Where can today's dollar create the highest return opportunities? During June and July, we continued to strengthen our capital position by raising $92 million of equity to invest accretively in long term earnings growth. Given the strength of our first half performance and the opportunities we continue to see, we are pleased to increase our full year guidance for gross acquisitions to a range of $500 million to $600 million Importantly, we are accomplishing this without changing our disciplined investment approach. We continue to target unlevered IRRs of 9% for our grocery anchored centers and 10% for everyday retail centers. We believe patience and discipline matter more than volume. Our objective is not simply to grow the portfolio. it is to strengthen quality while refreshing and enhancing our growth profile. As we look ahead, we see attractive investment opportunities that allow us to create incremental shareholder value while preserving our balance sheet strength. Portfolio recycling remains another important competitive advantage. As assets mature, or no longer meet our long term return objectives, we recycle that capital into opportunities with stronger growth prospects. A strong acquisition market also means a strong disposition market. And we are taking advantage of both. A meaningful part of the active transaction market is institutional investor participation. The strength of retail real estate delivering necessity based goods and services continues to attract direct investment. Our joint venture partners have recognized this for years. And we are very pleased with the returns that we have generated for them. We continue to explore the expansion of our current joint ventures as well as investments in new opportunities. At the same time, we remain equally focused on reducing risk Growth is most valuable when it is funded responsibly. Which we are doing through our recent equity issuance. Portfolio recycling, joint ventures, and the strength of our balance sheet. Our growth plans are not dependent on a single source of capital. And that flexibility allows us to remain disciplined through volatile markets while still pursuing opportunities that meet our return thresholds. That is what differentiates PECO. We are the cycle tested leader in right sized grocery anchored neighborhood centers located where America's top grocers are most profitable. PECO's portfolio is built around the daily needs of the consumer. Supported by grocery stability, necessity based demand, and a national operating platform that has delivered consistent growth through multiple economic cycles. That starts with the stability of our grocers as the backbone of our earnings. Our centers are anchored by leading grocers and complemented by retailers that provide necessity based goods and services, creating consistent traffic and durable cash flow. Consumers continue to shop close to home, and our neighbors want space at our centers in the neighborhood. The result is high occupancy, strong retention, and the ability to push rents while maintaining a high quality cash flow profile. PECO also has a differentiated ability to execute tactically across markets. We are not limited to 1 geography or 1 capital channel. Our national footprint, locally smart market knowledge, and vertically integrated platform allow us to identify opportunities across the country. Whether that is core broker anchored acquisitions, undermanaged or under occupied everyday retail centers, development, joint ventures, or portfolio recycling. That flexibility helps us allocate capital where the long term risk adjusted returns are most attractive. Everyday retail enhances that growth profile without changing who we are. Grocery-anchored neighborhood centers remain our core business, but everyday retail gives us another way to use the PECO operating machine. Our leasing relationships, national accounts team, data, and merchandising expertise. To release, remerchandise, and improve smaller centers in strong trade areas. We continue to see everyday retail as complementary growth opportunity that can generate attractive returns while reinforcing our focus on necessity based close to home retail. Our balance sheet further distinguishes PECO. We have an investment grade profile, significant liquidity, and proven access to both debt and equity capital markets. Along with joint ventures, and portfolio recycling. That gives us the capacity to match fund growth responsibly. Our growth plans are not dependent on a single source of capital. Instead, we continue to allocate capital towards highest return opportunities available to us. Taken together, PICO offers a combination that is hard to replicate. A resilient grocery anchored base, strong internal growth from occupancy, rent spreads, and development and redevelopment activity. A complimentary everyday retail opportunity, a disciplined national acquisition platform, and 1 of the strongest balance sheets in the sector We believe that combination positions PICO to deliver durable same center NOI growth and mid to high single digit core FFO per share growth over the long term. More alpha, less beta. Looking ahead, we continue to believe the building blocks for 2027 are becoming increasingly visible. The investments we are making today are anticipated to support long term earnings growth not simply near term volume. With that, I will turn the call over to Bob.

Bob?

Thank you, Jeffrey, and thank you for joining us, everyone. PICO's operating team remains focused on generating more alpha. And I will let John speak to the beta. Our second quarter results were marked by a record high number of leases 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, services, and medtail continue to be excellent drivers of demand. 74% of PECO's rents come from necessity based goods and services. Second quarter leased portfolio occupancy remained high at 97.3%. Leased anchor occupancy remained strong at 98.4% and leased in line occupancy was a record high 95.5%. In addition, economic in line occupancy was a record high 94.8%. During the second quarter, PICO's national leasing activity continued to be outstanding. New deals included 7 Brew, Cold Stone, Firehouse Subs, Wingstop, Jersey Mike's, and Urgent Vet. Retailers growing with PECO during the quarter included new deals with Crisp and Green, Happy Lemon, the peach cobbler, sweet frog, Club Studio, Fit Stop, Clio Med Spa, Escapeology. Our rent spreads continue to reflect an extremely strong retailer environment. During the second quarter, PECO 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 PECO. Looking at comparable new rent spreads, they remain strong at 33.7% during the quarter. In line leasing deals executed during the second quarter were very strong. On renewal activity, PICO averaged record high annual rent bumps of 3.1%. This is another important contributor to our long term growth. We are also pleased with record high portfolio ABR per square foot during the second quarter, which was driven by respective highs for both anchors and inline retailers. As it relates to bad debt, we are actively monitoring the health of our neighbors. Bad debt was lower than expected in the second quarter at approximately 70 basis points of revenue. Given the strength we have seen in the first half of 26, we have lowered our guidance range. We expect bad debt for the year to be in line or slightly better than 2025. Turning to development and redevelopment. PECO has 21 projects under active construction. Our total investment in this activity is estimated to be approximately $82 million. With average estimated yields between 9% and 12%. Year to date, 11 projects have stabilized with over 212 thousand square feet of space delivered to our neighbors. This reflects incremental NOI of approximately $3.4 million annually. We are focused on continuing to grow PICO's development and redevelopment pipeline, 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 $278 million at PICO's share. This includes 8 grocery anchored shopping centers, 3 everyday retail centers, an outparcel and land for future development. Currently in our pipeline, we have over $225 million in assets that we have been awarded or under contract that we expect to close in the second half. Our pipeline reflects a combination of grocery anchored neighborhood shopping centers, everyday retail centers, and opportunities for our joint ventures. I will now turn the call over to John.

John?

Thank you, Bob, and good morning and good afternoon, everyone. Second quarter 26 NAREIT FFO increased to $93.7 million or $0.67 per diluted share. Second quarter core FFO increased to $95.5 million or $0.69 per diluted share. And same center NOI increased 3.8% in the quarter, primarily due to higher revenue, which was driven by increases in average rents and economic occupancy. PICO continues to focus on growth while maintaining lower beta. The acquisitions activity Bob mentioned was funded by dispositions, new equity raise, and our revolver. As Jeff mentioned, we remain disciplined about accessing the most efficient capital and match funding our opportunities. PICO continues to have 1 of the best balance sheets in the sector. This strength was recently recognized by Moody's which revised PICO's outlook to positive, reflecting our consistent operating performance disciplined balance sheet management, and strong liquidity position. We believe Moody's positive outlook validates the strength of PECO's operating platform and credit profile. With $857 million in liquidity at the end of the second quarter, we remain well positioned to execute our accelerated growth plans. Our net debt to trailing 12-month annualized adjusted EBITDAR was 5.1x at quarter end and was 5.0x on a last quarter annualized basis. At the end of the second quarter, PICO's outstanding debt had a weighted average interest rate of 4.4% and a weighted average maturity of 5.6 years. When including all extension options. And 95.9% of our total debt was fixed rate debt which includes PICO's share of debt for our JVs. Turning to guidance, we are pleased to increase our full year 2026 guidance for NAREIT FFO per share, which reflects a 6.3% increase over 2025 at the midpoint. We also increased guidance for 2026 core FFO per share which represents a 6.2% increase over 2025 at the midpoint. We also updated our guidance for same center NOI growth which reflects 3.7% growth at the midpoint. These are very strong growth rates and consistent with our long term targets for growth. As Jeff mentioned, we also increased our full year 2020 guidance for gross acquisitions to a range of $500 million to $600 million As it relates to dispositions in 2026, we continue to target a range of $100 million to $200 million in asset sales. We have provided ranges for the other guidance items used in your models in our earnings materials. In summary, PECO delivered solid results this quarter, which allowed us to raise our earnings guidance and gross acquisitions guidance. We continue to see a resilient consumer, and we believe our portfolio will outperform as necessity based retailer demand remains strong. As Jeff said, the investments we are making today position us exceptionally well for 2027 and beyond, in an environment where investors continue to see dependable growth and stability, we believe PECO is uniquely positioned to deliver both. With that, we will open the line for questions.

Operator? Thank you. We will now begin the question and answer session. Thank you. Your first question comes from Andrew Reel with Bank of America. Please go ahead.

Good afternoon. Thanks for taking my question. Just on the guidance, you raised the gross acquisition outlook by $100 million You also improved the same store NOI noncash and collectability assumptions. I guess, first, John, you just mentioned this, I think. Can you just confirm that the net acquisition outlook is also increasing by that 100 million And second, John, maybe if you could just bridge the moving pieces of the revised FFO guidance and maybe help us understand why the increase was a little bit modest at just $0.01 given there were a number of positive updates in the quarter? Thank you.

Great. John, you want to take that?

Sure. Afternoon, Andrew. First question was, yes. It is a net acquisition increase. Of a $100 million. And as we think about the funding for that, we were able, pleased to raise a little over $90 million, at the end of the quarter. And the leverage that we sit at now is at 5 on an LQA basis on a debt to EBITDA. We look at guidance, I think it is important that we are very pleased with our first half performance our ability to raise that full year guidance really for all of our metrics. The operating fundamentals remain strong, as you said, and tenant credit trends are healthy. When I think about the guide for same center, which I would note is now in the upper range, of our long term target of 3% to 4%, this gives us room to move out neighbors where we can drive more rent growth and improve merchandising. So when we look at that, it is better strength. it is economic, occupancy growth. And really pushing that is gonna, you know, allowed us to raise that guide. At the FFO level, the midpoint of our guidance range is now above 6% for both NAREIT and core. Our dispositions are ahead of pace, but we view that as a positive given the strength of our acquisition pipeline that Bob talked about. And the opportunity to reinvest that capital at higher spreads. So when we look at the timing, there is a short term cash flow gap but this activity positions us really well for 2027. So overall, we are very confident in our increased guidance. And remain focused on delivering results at or above that level.

Thank you. Your next question comes from the line of Haendel St. Juste with Mizuho. Please go ahead.

Hey, guys. Good morning. I guess good afternoon to you. My question is on the acquisitions guide, the uptick here. Curious if the new guide is of run rate to think of beyond 2026 or more reflection of your ability to opportunistically sell assets some noncore assets since a strong bid in the market today And generally speaking, how are you thinking about using equity to fund incremental acquisitions? Thanks.

Great. Well, thanks, Haendel. The you know, we are we had we had a very good first half of the year on the acquisition side. We feel really good about what we were able to buy, and we look looking forward, we think there is there is there is good opportunity there. We have a variety of sources where we are used of capital we are gonna use to buy that. John, I do not know if you wanna go why do not you go through it sort of the different pieces that we are we are looking at, to fund our in addition to the to the equity that you already mentioned.

Yeah. So and we would look at it and say we have got debt capacity. We raise equity. I will note that and I should have said this earlier. The remain our guidance for the year does not assume any additional equity issuance from here. And so when we think about what we have been able to buy as well as we have in front of us, I would say that this is, you know, a great market that we can look to even exceed that acquisition guidance we gave. When we think about the years ahead, we still believe that we can buy about $300 million on a net basis every year and remain leverage neutral. And, so what we have actually got is that capacity, which is about $250 million. So when you consider what we have to buy this year as well as the future, I think we would like to see that we are able to pursue a higher, acquisition guidance as we look forward, but we are really gonna look at it on net basis because we want to preserve that balance sheet capacity and, you know, protect the business.

Great. Thank you. Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Please go ahead.

Hi, everyone. Congrats on a great quarter. Maybe as we look at the acquisitions that you did in the quarter, you mentioned earlier how they are great for 2026 they set the stage for continued growth in 2027. So maybe not going through all of them in the interest of time, but maybe if you guys could talk about like the largest 2 or 3 deals or maybe most interesting 2 or 3 deals from the quarter. And what you see as the real upside potential for them?

Great. Well, thanks, Caitlin. Bob, you wanna walk through the a couple of the assets that we have?

Yeah. Thank you, Jeffrey, and thank you for the question, Caitlin. I think in April, we purchased an asset in Renton, Washington that is anchored by a Safeway that really had a lot of I would say, misleasing opportunities, had some pretty good bacon The current occupancy is 82.8%. We feel like we can make an immediate impact to that So we are excited on that 1. That particular asset as we underwrote it, certainly solve for well above a 10% unlevered return. there is another asset you know, that is I like a lot of the mark to market that we are seeing with what we are buying with. It know, it does not matter if it is Sprouts or Kroger, Cub Foods. A lot of the assets that we are acquiring really have some nice 20%, 30%, 40% mark to market opportunities. And we have been very focused on buying acquisitions that are still solving, you know, either between a 9%, 9.5%, 10% or better. We are seeing that certainly in our everyday retail category as well where we are generating over 5% CAGRs. Even in the 12 assets that we have acquired in every everyday retail, we have already moved occupancy 450 basis points. So you will continue to see us lean in to where we stay disciplined on our unlevered But it is an assortment. We are gonna stay focused. On the core grocery anchored centers, and complement it You know, and I think we have always said this, less than 10% of our overall portfolio in everyday retail to give us that extra squeeze. Thanks.

Your next question comes from the line of Floris Van Dijkum with Ladenburg Thalmann. Please go ahead.

Hey, guys. Thanks for taking the question. I guess it is more of a follow-up question to Caitlin. I think she was on the same train of thought as I was. But obviously, to get to 10% of the portfolio on everyday retail, requires you to buy more of that product today, how do you think about centers. Are you also looking at you know, at the same time thinking about you know, acquiring some of the everyday retail centers adjacent to those properties. Floris, thank you.

Thanks for the question. And Bob, do you wanna walk through a little bit of the sort of the breakup of the of what we bought and then also what we have got looking forward. And then, you know, with regard Floris, to the last question about will we buy are we looking at additional retail that might fit with our acquisitions? it is 1 of the things that is very you know, we look at it very closely, and where we can find those opportunities. They are the things that we would really like to do because there are already markets that we understand that we that we do. And we do those around our existing centers, but also on the acquisition side. Looking for those specific everyday retail grow the portfolio in markets that we are very familiar with. Bob, you wanna go through?

Yeah. Thanks, Jeffrey. And, Floris, thanks for the question. We are really excited about the everyday re retail category. I am I am gonna kinda dissect your question here a little bit. The first question was Prairie View Center in Minneapolis, the Lunds & Byerlys. That asset happens to be a great asset in a market that we have done really well with in terms of our overall results. We like Lunds & Byerlys. They are a little bit more of a specialty grocer. it is well occupied, but we really feel like there is an opportunity to push rents from the low $20s into the high $30s, maybe even low $40s. To answer your questions, specifically on everyday retail around some of those core markets where we have the incomes and the demos and the education, we are leaning into that. We have identified over 50 thousand of these opportunities across the countries that are close to the number 1, number 2 brochures, which is obviously our strategy, where, you know, we can generate over 10% unlevered returns. If you look at the 12 that we have already acquired, I mean, we are spending about $325 a foot on these. We are generating unlevered returns about 10 and a half percent. They have great incomes, great education, great demos, We are gonna continue to lean into that. The last part of the question is when I look at the pipeline of what we have in the queue, you know, we have over $230 million that we have already been awarded in addition to what we have closed on. So we are already well on our path in the low $500 millions, which is why we raised part of our guidance. Seeing 30% more opportunities than we did last year. They are just a lot of momentum and a lot of opportunities in this everyday retail space. And I mentioned, this answer earlier. We have already moved occupancy 450 basis points. This is an area that we can do exceptionally well when we are just taking opportunities of situations where, you know, the assets might be a little bit older, They might have been undermanaged, but there is some real opportunities to use our leasing and operations platform and our national platform to really enhance merchandising. So we are we are doing it the way we wanna do it. We are gonna be patient. And stay very disciplined The pipeline right now, Floris, is if you look at what we have under contract or been awarded, I would say it is 40% everyday retail, 60% grocery. And we are being very selective about what we are buying. Thanks.

Your next question comes from the line of Michael Griffin with Evercore ISI. Please go ahead.

Great. Thanks. Jeffrey, I think you started off in your prepared remarks maybe making some commentary around sort of grocer sentiment You know, obviously, we saw, I think, a large tenant of yours reported earnings earlier this week, took down their outlook, kinda made some comments around the cautious consumer. I mean, I understand that it is asset and center specific, but it vary read through the you know, whether folks are trading down at the grocery store, know, whether it is going to people are getting kinda squeezed at the, you know, sticker shock when they are when they are out there buying food. Like, is it just a canary in the coal mine of what could be a worry in terms of you know, ultimately translating the leasing demand for PECO as it relates to groceries?

Good. Good. that is a great a great question, 1 that we have spent a lot of time, you know, sort of internally talking about. The Albertsons announcement, I do not think should be a surprise to anybody. I mean, for 3 years the last 3 years, they have been operating under really contracted to sell to Kroger. They are going to take some time to work through that. You know, the emergence of that. And they are you know, during that time frame, the story is that they had to actually operate under 3 different business plans because they were not sure what was gonna happen. Well, now they are they are refocused. They are they are reinvesting in price, which is a very important part of their thing. But we gotta keep in mind they are the fourth-largest grocer in the country. And they have some very, very strong brand banners and some very strong locations. We have a great relationship with them and have worked with them for a long time. It does highlight 1 of the important things that we do, which is we curate our portfolio so that do not really have, like, a portfolio of Albertsons. We have a very specific portfolio that is met is trying to set up to make sure that we do not run into problems if any 1 of our grocers were to run into problems. And Bob can give you a little detail on our on our Albertsons portfolio, but Albertsons is just 1 of the indicators. I mean, you hear what Walmart's doing, you hear Kroger's doing. They are they are reinvesting in price and they are doing that specifically because you know, they are they are sensing some consumer weakness on the on and they know it, like, in real time because they are they are looking at them trading to private label from a branded, more expensive product. And so they are they are they are watching this happen. And when you see them start to talk about investing in price, that is what they are they are focused on. Fortunately, we you know, if you look at our performance, you know, we had if you look at foot traffic, we had a 2% increase in foot traffic in June. We had the same thing year to date is about is up about 2%. So they are we are not seeing it on the ground, but it is certainly something that you are you are gonna want to you know, we are gonna wanna keep a look at. And we will we will be watching as they as that moves forward.

Great. Your next question comes from the line of Samir Khanal with Wells Fargo. Please go ahead.

Great. Thank you for taking the question. So and renewal spreads remain strong. Can you talk about the composition of the spreads between the embedded mark to market versus strong incremental demand And as you think about those 2 levers, how should we think about your expectations heading into the back half of the year and even into 2027?

You know, Bob, maybe you can talk about the strength of how we have been able to get it. And, John, maybe you can give us a little breakdown on how that how that breaks out.

Yeah. Absolutely, Jeffrey. So I guess I would start by just simply saying, if you look at our overall results, you think about occupancy being 97.3%. And anchor occupancy at 98.4%, and our in line occupancy is at our all time high of 95.5%. We continue just to see very strong retailer demand. We are also retaining 90% of all of our neighbors, and we are spending less than $1 a foot to keep those. Always look at our pipeline reports, leases out for signature, renewals out for signature, And I would certainly say that there is a tremendous amount of demand. We have a great pipeline, and the spreads are consistent. You have new leasing spreads at 34%, 35%. You have renewal spreads at 21%, 22%. And we just do not see anything slowing down. Our main focus is still on necessity based goods and services. 74% of our rent rolls would reflect necessity based goods and services. Fast casual restaurants health and wellness, beauty, fitness services, medtail, all those uses make up the pry more I mean, the majority of our, our deals that we have executed and the pipeline going forward. You know, we attend all these ICSC events, and all the retailers continue to look for growth opportunities in our portfolio. And we are trying to create some of those. So there will be some mark to market opportunities. We are gonna try to keep health ratios around, you know, 10%, 10.5%. We believe that we can continue to move occupancy in line another 100 basis points. I do think we will move anchor occupancy up another 50 to 60 basis points by year end We are in a very good spot, and I do not see anything slowing down. Jeffrey already spoke to the 2% traffic and the foot traffic that we are seeing. We are we have momentum. We feel very good about where we are at.

John, do you wanna break give a little breakdown on the on the on the growth I think the piece is the answer is it is both because the mark to market is also being driven by the demand. Because if I think about the renewal spreads that have been over 20% now for many quarters, that is really because we have demand from other neighbors looking for that space. So we are in the able to drive that. And we do have leasing agents that are locally smart that only focus on our centers. But actually watch the market comps in the space, it is because of our presence with the best asset in our area that is able to drive that. So when we think about it, we Bob talks about what we see going ahead and it is very consistent with what we have been delivering. So I could say that is mark to market, but it is it is it is hand in hand with the demand. Thanks, Samir.

Next question comes from Todd Michael Thomas with KeyBanc. Please go ahead.

Wanted to follow-up on the core FFO guidance and the results in the quarter. As we are kind of working through some of the updated assumptions and moving pieces, it also looked like there was a positive variance in other nonproperty income in that line. It was about 2¢ comprised of some investment income and some other income. Can you just speak to that? Whether that was contemplated in the guidance? And if any of that income is expected to be recurring.

Sure. John, you wanna walk through that?

Yep. Thanks, Todd. So I will say the first piece is, yes, there was income related to an easement on a nonoperable piece of land, and that was about a little less than $1 million in the quarter. And that I do not anticipate as recurring. The other piece that you are referring to is we do have investment income. So we have an insurance captive that is continuing to grow, and it does have marketable securities. So the growth there, which we have actually seen is the participation in the market, And so that was contemplated, and we do include that in our numbers and anticipate that is going to, you know, continue to grow with time as the assets in that business increase. But it is a it is a core component of our business and growth, but overall, on the FFO, really, it is it is delivering the same store growth. it is the you know, we are I gotta go back to Haendel. Haendel, man, I have 1 swap left, 99.6% fixed. So I appreciate that. Chuckling at that. So from a fixed standpoint, really, when we look at the remainder of the year, the pieces that remain in our guide is really gonna be around the acquisitions that we closed and that is that is just gonna lead into better growth in 2027.

Okay. Is the investment income is that piece good to consider as sort of a run rate, at that $1.1 million? Is that how we should think about that, or is there a way to quantify what distribution might look like?

it is a marketable it is a it is an insurance captive securities portfolio, so it is participating in a balanced strategy between equity and fixed income. So some of it is gonna be cash incoming, some of it is equity. But for the most part, I do think that we look at that as sort of durable income And if you needed a run rate, that is probably the best I have got. Okay. Great. Thank you. Sure.

Thanks, Todd. You are next Your next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Good afternoon. Thanks a lot for taking my question. Jeffrey, you mentioned that the building blocks for 2027 are becoming increasingly visible. Would you be willing to share some of those building blocks and how you are thinking the growth beyond this year? But if it is still too early to provide that level of detail, do you believe same store NOI and FFO growth can accelerate from the current level just given where occupancy stands today and the potential for transaction cap rate compression?

We would love to tell you right now, but we do have a get together at the in December where we will give our sort of guidance for next year. But I think we will we will the point that I am trying to emphasize is that we continue to make long term decisions, and those decisions are what you buy today and how that can influence growth not only over the next quarter, but over the next 3 to 5 years. And that sort of the mentality we have in our acquisition growth model as well as our development model and you know, really, disposition model. All of them are based upon being able to create long term value and that it does not happen tomorrow. It happens over time, and that is sort of what we were trying to emphasize there. Got it. Thank you very much. Good luck in the back half. Yeah.

Your next question comes from the line of Richard Hightower with Barclays. Please go ahead.

Hey. Good afternoon, guys. I wanted to get your perspective on the Kroger Giant Eagle merger, which I think you referenced in the prepared comments. And, you know, specifically, I know, you know, Kroger is increasingly using the storefront as a, you know, fulfillment center for online shopping, which keeps growing. You know, how do you sort of think about that as a landlord How do you position the portfolio for that sort of dynamic in the grocery industry? You know, what should we be looking out for? Sitting in our seats out here?

Yeah. I mean, we were we are we are very excited about the announcement. Kroger, when they come into new a new market like this. They invest in the store. They invest in price, and they push sales. All of which are very beneficial to the 10 Giant Eagle stores that we have today. They will keep they their if history repeats itself, they are they will keep the both the management team as well as the label of Giant Eagle. And, you know, we have our exposure there is 10 centers. They are they are they are in very great locations with very strong sales, so we feel you know, really positive about that. So they for us, it is kind of a win situation. The other piece here that I think is a message to the market, which I think is really important, is that, you know, Kroger has a lot of places they can put their money. They are putting them in bricks and mortar retail where they can where they believe is the is the best way for them to invest their capital, which is an indicator of the strength of the, you know, of the of the grocers and of their long term view of the store will be the center, which to us is obviously critical And we generate more sales, it is gonna generate more rents off all of which is a very positive thing for us. And then you have got the audio an improved credit. All you know, very, very positive pieces for us. So we are we are looking forward to that and I think we will see even better results from a very strong portfolio of Giant Eagle stores going forward. So good, you know, great news for us, and I think you will you know, I think you will continue to see that kind of activity And I, you know, I think the Albertsons broker deal sort of changed the dynamic of monster deals. But I do not think it will change the impact of, you know, regional opportunities like this. Alright. Thank you.

Thank you. Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Please go ahead.

Great. Thanks so much. Just want to follow-up on the comments on the in line occupancy, obviously hitting a record high. Here, and you talked about maybe another 100 basis points to go. You know, which would be, like, 96%, 97%, 96.5%, 97%, I guess I would love to hear what is what is what is different this time around versus history. What categories are really active this cycle? And maybe what are you sort of staying away from? Thanks.

Sure. Bob, you wanna take that?

Yeah. Absolutely. Thanks, Ronald. Appreciate the question. We were really excited. We saw a very nice increase in occupancy this last month and this last quarter. it is When I look at our overall leasing results and the demand that we have seen, we have had, like, a 25% increase in overall leases completed second quarter over first quarter which shows momentum. I have hit the categories, but it is still consistent with fast casual, health and wellness, beauty, fitness, services, and medtail. 1 of the biggest strategies that we have incorporated in is when you are 97.3% and 95.5%, and I do think there is another 100 basis points of occupancy lift, May take us 24 months to get there selectively because we are we are recycling and being very specific about our merchandising approach and our everyday retail approach. We want there to be longevity and truly, we are partners with all of our neighbors. So we want them to be highly successful. But 1 of the incentives I put in place for our leasing team was this targeted approach where we went out and identified you know, 100 different spaces that were the largest NOI generators and ABR generators that we had left to lease. And we put bounties on them. We put additional incentives on them and we are getting it done. We are seeing that the retailer demand in those categories are supporting our lease up scenarios And I believe as of about a week ago, out of those 100 spaces, we have leased about 65 of them already. I think as I look at setting incentives in place for next year, we will we will do the same thing. We will go through the portfolio. We will see what vacant spaces that we have, what do we wanna lease. And, you know, the success in all this is leasing the vacancies that quite frankly, have been vacant for a few years. So we are investing capital. We are cleaning them up. The demand's there. that is why we are seeing all the success. You know, not only in spreads, but demand and some of the incentives that we have in place. it is it is really all about focus and accountability, Ronald. Thank you.

Your next question comes from the line of Mike Mueller with JPMorgan. Please go ahead.

Yeah. Hi. Okay. Great. Notable fluctuations given how the 10-year move around it is backed up closer to 4.7%. Hey, Mike. I you were breaking up on me to John, did you hear that? Yeah. It was very soft, Mike. We could we it was very soft. Sorry about that. Here we much better. Is this better? No. Yeah. Okay. Yeah. I was just saying, have you seen any notable fluctuations with cap rates this year just given how the 10 years bounced around and we have bounced back up to close to 4.7%.

Yeah. You know, the market remains pretty aggressive, pretty competitive. And we have you know, we are we are seeing more product in the market, but we are not seeing any, like, reduction in cap rates because of the higher interest rates. If anything, you know, it is become more competitive. So yeah, I think it is not exactly tying into an increased interest rate environment but because of the I think it is the demand for retail Real estate is very strong right now. Among a lot of different, parts of the of the market. K. Thanks.

Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Please go ahead.

Hi again. I feel like a topic across the industry is that a lot of peers want to be acquisitive, but it is very competitive, and I do not think we have talked about that yet today. So I was wondering as you guys think about the deals you have done year to date or in Q2, I imagine it was quite competitive. So wondering, is it just that you guys are looking in maybe markets or submarkets that others are not some prior relationship or something else? Like, what do you think has given you these edges? Because, again, I am imagining that it was a competitive market.

Yeah. Think Caitlin and Bob, jump in as well. The market has been competitive. And what it what for us, it just means we gotta be more disciplined. We have gotta you know, you we gotta see more product, and then we have gotta, you know, we gotta make sure that we are working on projects that we can actually transact in and get that you know, so we can get the volume at the returns that we are focused on. And, you know, the team's been able to put the scores on the board at I think it was a 6.7 for the for the for the 6 months the first 6 months of the year. And we but we gotta shop harder, and we gotta work harder with to find opportunities that where we can get growth out of the portfolio and not just immediate growth, but long term growth out of these out of these properties. So it is it is a we do have benefit of being in 30 states That does allow us to look broader in terms of the, you know, where we can find product. But most importantly, it is it is getting out and, you know, impound in the pavement to find those opportunities, and that is what we have been able to do in the first half. And what we have got tied up for the second half. So maybe it is like opening up the top of your own funnel? Some? Yeah. A little bit. And but not necessarily changing where the focus of what we do, but more on seeing more markets, more properties in a broader market so that we can make sure that we are you know, keeping the funnel full and, you know, and that is coming out of the bottom. To keep us moving forward. And we feel pretty good about that. Bob, anything any additions there, Bob?

Yeah. The only thing I would add is, you know, we are seeing a lot of product. As I mentioned earlier, I mean, I think when I look at our stats, we have seen a 33% increase in the amount of deals coming through pipeline. And even what we presented to our investment committee, we have seen an increase of about 25% The other thing that we did, Caitlin, was we added--we added resources to our acquisitions department. We ended up hiring an acquisition officer out West by the name of Dan Sutherland. That comes with a tremendous amount of experience. So we have 4 highly qualified acquisition officers really focused on each of their markets, and that is opening up it is also giving us opportunities to find off market situations. So A handful of the deals that we were able to acquire this year have been off market. We continue to look at those opportunities as well. So as Jeffrey mentioned, you know, between everyday retail and our core grocery strategy, I think we are we are well positioned. We have the right resources We are staffed appropriately to really win in the space. And we do wanna take advantages of what I would say are, are inefficiencies in the market. We have stayed disciplined buying between 6.4 and 7.5 cap rates. So Jeff mentioned it at 6.7. Our pipeline is still real close to 6.5 for the second half, and we are still solving for the returns that we wanted between, you know, 9% and 11% unlevered. Thank you.

Thank you. I will now turn the conference back over to Mr. Jeffrey S. Edison for closing comments.

Well, thank you, everybody, for being on the call. I just wanna highlight a few things that I that are takeaways we hope you see because we did beat and raise. We did meet our mid to high FFO per share growth for the quarter and for the first half of the year. We are at 95.5% small-store occupancy. Our retention's at 90%. Our new rent spreads are at 33.7%. And our renewal spreads are at 21.2% with really strong annual rent bumps. Contractual. So leasing's really strong. Our FFO performance is strong. Our acquisitions, we increased our guidance by $100 million. We and I think this is really important. We got an upgrade from Moody's on our debt. We also reduced our debt to EBITDA to 5x on a LQA basis. We dispose of almost a $100 million worth of projects. That were at a 6.3 cap. And were an IRR below a 7.5%. So we so we are gonna be able to use that capital very accretively. We our development and redevelopment activity is at $84 million versus almost versus $50 million last year. We got 2 AI awards, which were proud of in terms of the Digi RealComm award and the ICSC Tech Innovation Award. And those are just a couple of the some of the things that, you know, got us to the kind of performance that we did for the for the first half. And I think they lead to really exciting opportunities for the second half and into next year. So, you know, we believe that, you know, that as we told you enough times probably, this is what we do. We deliver alpha by a variety of different from a variety of different areas in the company, but we have that strong low beta that gives us the security. And, you know, so as we think about it with great first half and we are looking forward to next half, I wanna make a special thanks shout out to the to the PECO associates. They are hard work is what gets these things done. This does not happen on its own, and I also wanna thank our shareholders and our neighbors for their continued support. So thanks everybody for being on the call today, and hope you have a great weekend. And, hopefully, we look forward to a strong second half of the year.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.