Phillips Edison & Co (NASDAQ:PECO) reported first-quarter financial results on Friday. The transcript from the company's first-quarter earnings call has been provided below.
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Summary
Phillips Edison & Co reported a 4.7% growth in NAREIT FFO per share and a 6.2% growth in core FFO per share for Q1 2026, with same center NOI growth of 3.5%.
The company increased its full year 2026 guidance and expects mid to high single digit growth in NAREIT FFO and Core FFO per share.
Operational highlights include high occupancy rates with 97.1% overall, 98.4% in leased anchor occupancy, and 95% in leased inline occupancy, with renewal rent spreads of 21.2%.
Phillips Edison & Co is actively involved in development and redevelopment, with 19 projects under construction, totaling an estimated $74 million in investment.
The company has engaged in $185 million in acquisitions year-to-date, including grocery anchored shopping centers and development land.
Management emphasized resilience in the retail sector, focusing on necessity-based goods and services, and maintaining strong retailer relationships.
The sentiment around capital markets indicates a preference for private over public market valuations, suggesting a lean towards more private market transactions.
Phillips Edison & Co highlighted strong leasing demand and plans to drive additional growth through targeted space approaches and development initiatives.
Full Transcript
OPERATOR
Good day and welcome to Phillips Edison & Co'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.
Kimberly Green (Head of Investor Relations)
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 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 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 and 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 Edison (Chairman and CEO)
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 PECO team delivered NAREIT FFO per share growth of 4.7%, core FFO per share growth of 6.2% and same center NOI growth of 3.5%. We're pleased to increase our full year 2026 guidance. Our growth rates for NAREIT 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 and 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 PECO plays Grocery anchored necessity based everyday retail. PECO offers resilience while also offering steady growth. We believe PECO 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 PECO team stays 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 and the ability to fund growth responsibly. PECO 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 PECO 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 Myers (President)
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 (medical retail) continue to be excellent drivers of demand. 74% of PECO's rents come from necessity based goods and services. PECO'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. Lease portfolio occupancy remained high at 97.1%. Leased anchor occupancy remained strong at 98.4% and leased 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 PECO. Looking at comparable new rent spreads, they remain strong at 36.2% during the quarter. Inline 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, PECO 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%. 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 PECO's development and redevelopment pipelines which is an important driver of growth. In addition, the PECO team continues to find accretive acquisitions that add long term value to 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 Caulfield (Chief Financial Officer)
John thank you Bob and good morning 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 NAREIT 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 3.5% in the quarter primarily due to higher revenue which was driven by increases in average rent 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. 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 twelve 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 PECO's outstanding debt at 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 is fixed rate debt which includes Pico 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 NAREIT 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 3 to 4% same Center NOI growth and we are pleased to reaffirm Our full year 2026 guidance of 400 to $500 million in gross acquisitions at PECO's 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 of assets at PECO's share. We plan to sell between 100 and 200 million dollars 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 to 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.
OPERATOR
Thank you. If you would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question again, press star one. 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.
Andrew Real (Equity Analyst)
Good afternoon. Thanks for taking my question. You know, 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, you know, 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?
Jeff Edison (Chairman and CEO)
Well, Andrew, great question because it's one that we are, you know, very focused on trying to read where, what 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,
Bob Myers (President)
what, what we're doing. 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 and about the last six to nine months, an interesting fact, we just approved 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 either from the local tenants or from the national retailer demand. Even all the retailers that we meet with at ICSC (International Council of Shopping Centers) here are looking for new sites in 20, 26, 27 and 28. So we feel very good about where we're at currently. Thank you.
OPERATOR
Your next question comes from the line of Handel Saint just with Mizuho. Please go ahead.
Handel Saint Juste
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 decided 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, the macro, the choppiness we're seeing, and then thoughts on perhaps that the, 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.
Jeff Edison (Chairman and CEO)
Yeah. And great. It's a great question where we, you know, the, it's, it's. It's a simple supply demand issue. And what we're seeing is that there's is a very ample supply of product coming on the market. And yes, there are more buyers. Particularly we've had some major transactions take place in the business that we haven't seen for a while that are of substance, billion plus kind of acquisitions. So you continue to see a strong appetite. And I think, I think it's 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 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?
Bob Myers (President)
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, you know, a week. What's interesting is that Jeff is right on top of it. You know, 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 we acquired year to date. We're buying these at a cap rate of about a 6.6 to 6.7. And we're still solving for our unlever above 9%. 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 4 and 500 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 the 185 done already. It's consistent with that. 6.5 to 6.75.
Handel Saint Juste
Got it. Thank you guys, appreciate it. Yep, thanks.
OPERATOR
Your next question comes from the line of Michael Griffin with Evercore isi. Please go ahead.
Michael Griffin (Equity Analyst)
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 leasing prices are coming up for negotiation, I'm thinking particularly some, 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.
Bob Myers (President)
Yep. It's a, 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're, 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 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 of 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 groceries, you know, an 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, 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.
OPERATOR
Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Please go ahead.
Caitlin Burrows (Equity Analyst)
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, redevelopment. What's your latest take on your own development, redevelopment and the industry more broadly?
Bob Myers (President)
Well, thanks, thanks for the question, Caitlin. It's, you know, 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 purchased two parcels so far this year and they're right beside our grocers. You know, 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, and it's full. So there continues to be a tremendous amount of demand and we already have a lot of this pre leased. So we continue to find those 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, 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 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 each of our properties. Thank you.
OPERATOR
Your next Question comes from the line of Ronald Camden with Morgan Stanley. Please go ahead.
Ronald Camden
Hey, just a quick, quick two parter. Just on the 95% in line occupancy. Just thoughts on getting to 96 and 97 and what sort of the blocking and tackling that needs to get done to get there and then the quick follow up. I think I see your, your in line, your neighbors, your local neighbors concentration ticked up to 26%, I think, versus 25 last quarter. Just don't know if that was intentional or where you're comfortable with that local neighbor exposure.
Jeff Edison (Chairman and CEO)
Great. Thanks. Thanks, Rahul. Bob, you want to take the 95% in line question as well as, you know, sort of the small movement in local leasing?
Bob Myers (President)
Yeah, there hasn't been, you know, there's, there's no real movement on the local side between 25 or 26%. That's right on top of each other. Can you ask the question again on the 95% on inline? Sure thing. Just, just any ups? What's the upside from there? What do we need to do to get to sort of 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 identify our top 100 spaces that would create, you know, 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, that's your needle mover. So with very high retention numbers of 90 to 93% and you know, you, 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.
Ronald Camden
Thanks so much.
OPERATOR
Your next question comes from the line of Cooper Clark with Wells Fargo. Please go ahead.
Cooper Clark (Equity Analyst)
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, Cooper. Bob. You want to take that?
Bob Myers (President)
Yep. Appreciate the question. Great question. So our retention rate this quarter was 88%. That had 100% 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 there. You capture 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. Great, thank you.
OPERATOR
Your next question comes from the line of Michael Goldsmith with ubs. Please go ahead.
Michael Goldsmith (Equity Analyst)
Good afternoon. Thanks a lot for taking my question. You took a BFFO 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. Thanks.
John Caulfield (Chief Financial Officer)
Great. Well, thanks for the question, Michael. It is a variety of things. John, do you want to go through what we. What the piece are everyone. So we started the year at a great pace with a strong operating environment like Bob has been talking about and you know, 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. 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 term growth targets. And that gives us a good, more confident outlook for the Year.
OPERATOR
Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please go ahead.
Todd Thomas (Equity Analyst)
Yeah, hi. Thanks. Good afternoon, Jeff. 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.
Jeff Edison (Chairman and CEO)
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, they are, the winners are the, are the people, you know, the, the private equity capital across the board. It's not like they won a little bit. They, they took all of the, all the chips off the table in terms of the major transactions. So you, I think, you know, for, for the, the public companies, you know, we have to continue to find the cheapest source of capital as we look forward, 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, 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, where can you get the cheapest source of capital so you can continue to fund your, your growth going forward. And that's what we're doing focused on. And I think it's, you know, the markets come up and down and change over time, but we're, that's what we're focused on.
Todd Thomas (Equity Analyst)
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, any sort of changes around the edges just given that, that spread that you're, that you're seeing in the market?
Jeff Edison (Chairman and CEO)
Yeah, I think, I think we, yes, I think There is a little bit more lean in because it's attractive and you know, you'll see some leaning in.
Todd Thomas (Equity Analyst)
Okay, thank you.
OPERATOR
Your next question comes from the line of Florist Van Dychcombe with Ladenburg. Please go ahead.
Floris Van Dychcombe (Equity Analyst)
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 for Pico to pursue these centers and why should investors be excited about your venturing away from your typical grocery anchors?
Jeff Edison (Chairman and CEO)
Thanks, Floris, for the question I'll take a quick shot at. And Bob, obviously follow up as well. 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 and for the company to get outside 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 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 point, we're buying stuff where we can take the Pico machine and create a lot of value in those properties. And that's we know 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?
Bob Myers (President)
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. 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, sight lines, I'd love to see them. About 45% local tenants, 55 national, which gives us the opportunity to continue to increase spreads and 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 3 to 4. And in some cases, we've quite. 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, one of the best operating environments that we've seen. What I'm also excited about is our new leasing spreads on 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% unlevered returns. You know, our average purchase price is about $321 a foot, and it allows us to lease at the Phillips Edison Way, which we just do exceptionally well with our operating results and the team that we have on the ground.
OPERATOR
Your next question comes from the line of Ron Sanabria with BMO Capital Markets. Please go ahead.
Ron Sanabria (Equity Analyst)
Thanks. Only my best friends call me Ron, but that's okay. Just curious on maybe going back to Caitlin's question on new supply. Are there any pockets of the country
Jeff Edison (Chairman and CEO)
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 specific locations where you are seeing some growth. I mean, you're seeing Publix grow north from their existing platform. You're seeing HCB add additional centers in additional stores in Texas. But, but they're specific and they're, they're very small. And. But, but part of, you know, our business is to make sure that we, we know what's going on in every market that we're in, because we as 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 got to beat it. You know, we 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, you know, occupancy, very high occupancy levels and be able to really drive rents. And that's what we're, I think we're proving out with our performance.
OPERATOR
Your next question comes from the line of Sydney Rome with Barclays Capital. Please go ahead.
Sydney Rome (Equity Analyst)
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?
John Caulfield (Chief Financial Officer)
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. One thing that I find interesting is, you know, so for us, we get a lot of 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, you know, come down and broadly come down was a very positive sign. Of course, I'm still the cautious one of the group, but, you know, 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. Dawn,
OPERATOR
your next question comes from the line of Paulina Rojas with Green Street. Please go ahead.
Paulina Rojas (Equity Analyst)
Good morning. My question is. Hello, everyone. 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%. Can you 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 tenant. 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 inline tenant.
Jeff Edison (Chairman and CEO)
Well, it's a great, 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, you know, we're using broad numbers here, but it is a very, it's very specific to the type of retailer, what a healthy number is.
Bob Myers (President)
And, you know, our. We also get the advantage of, you know, inflation in the growth in sales, which is allowing us to grow the, you know, to keep it 10% while we're actually growing rents because of the growth in sales. But, Bob, what you want to talk a little bit about, you know, sort of your, your. 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%. 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 and a half 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 to, is that we're starting with ABRs on average of our inline neighbors at $27. So it's a lot different increasing rents at $50 than it is $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.
Mike Mueller (Equity Analyst)
Your next question comes from the line of Mike Mueller with JP Morgan. Please go ahead.
Jeff Edison (Chairman and CEO)
Yeah, hi. Just another quick JV question. How much of 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 are you know, I guess maybe. Oh sorry. 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 cost and how, how attractive on balance sheet is or not. Yes. So what our, our JV strategy is primarily to expand the, the what we can buy. So they are the we're buying things in our JVs that we would not buy on the balance sheet and that, that's an important part of of why we set this up. And so we're not like if our cost of equity changed dramatically we, 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, that's complementary and so it's a, for us it's an expanding you know what, 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 historically and it's working out great in the two JBs or three JBs that we have going right now. Yep, thanks Mike.
OPERATOR
This concludes our question and answer session. I will now turn the conference back over to Jeff Edison for some closing remarks. Jeff?
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So in closing 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 the continued hard work and 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.
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Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. And you may now disconnect.
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