Good day and welcome to Philip Edison & Company's third quarter 2026 earnings call. Please note that this call is being recorded. I will now turn the call over to Kimberly Green, head of investor relations. Kimberly, you may begin. Thank you.

I'm joined 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 in future market conditions. These are based on management's current beliefs and expectations and are subject to risks and uncertainties as described in our SEC filings. Today we'll reference certain non-GAAP financial measures and information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in our press release and supplemental information packet, both of which have been posted on our website. Our caution on forward-looking statements also applies to our earnings presentation, which was also posted. Following our prepared remarks, we'll open the call to Q&A. Given the number of participants, we respectfully ask that you limit to one question. Please rejoin the queue if you have follow-up questions. With that, I'll turn the call over to Jeff Edison.

Jeff? Thank you, Kim, and thank you, everyone, for joining us today. PICO delivered another strong quarter. Same Center NOI increased 5.3% and Core FFO per share increased 9.2%. These results reflect the strength of our grocery-anchored neighborhood centers and the consistent execution of the PECO operating engine. We are pleased to increase the midpoints of our earnings guidance for the full year. These results are especially meaningful given the continued uncertainty in the broader economy. While the headlines continue to change, the fundamentals we see across PECOS portfolio remain solid. The consumer remains resilient, PECOS grocers and necessity-based neighbors continue to drive strong traffic, and we're not seeing any signs of weakness as we look towards 2027. That resilience is supported by the essential nature of PECOS portfolio. 74% of our ABR comes from necessity-based goods and services, providing consistent demand and supporting durable cash flow through economic cycles. FIGO delivers more alpha with less beta. Our alpha comes from strong leasing, disciplined acquisitions, and a growing development and redevelopment pipeline. Lower beta comes from our growth-ranker durability, necessity-based cash flow, investment-grade balance sheet, and access to multiple sources of capital. Our results continue to show that high occupancy does not limit PICO's internal growth. We renew the right neighbors at higher rents, we increase contractual rent bumps, we improve lease terms, and we create new space throughout parcels and redevelopment. Our active development and redevelopment pipeline is nearly $90 million today. We see an opportunity to grow it beyond $100 million while maintaining our attractive returns. Across a portfolio of right-sized centers averaging 113,000 square feet, these projects create meaningful incremental growth. Acquisitions provide another source of growth. Assets acquired to date in 2026 were 94% leased on average, compared with 98% leased across our existing portfolio. That gap represents visible upside for PICO. We know how to lease these centers, to enhance the merchandising mix, and to use our data and local market knowledge to move operating performance toward the level of our existing portfolio. We continue to target unlevered IRRs of 9% for grocery-anchored acquisitions and 10% or better for everyday retail. Everyday retail expands our opportunity set while staying close to what we know, necessity-based retail, neighborhood locations, and markets where our operating engine can create value. Our investment strategy remains disciplined and focused. We allocate capital where we believe PECO can generate the best long-term growth and returns, whether it's through our existing portfolio, grocery-anchored and everyday retail acquisitions, development and redevelopment, or our joint ventures. We continue to grow when the opportunity, returns, and cost of capital make sense for PECO. That means staying flexible, raising equity when public markets are attractive, and using dispositions and joint ventures when private market pricing is more compelling. This disciplined approach allows PICO to be opportunistic while investing in dependable, long-term growth. We've told investors that PICO's high-quality portfolio is built to deliver long-term, same-center NOI growth of 3 to 4 percent and a mid-to-high single-digit core FFO for share growth. We continue to deliver against those targets. As we look to 2027, we have increased visibility from leasing, development and redevelopment, our pipeline of acquisitions, and our investment management business. We believe PICO is well positioned to deliver strong growth in 2027 and will provide more details during our December 16th virtual business update. PICO's 6.2% dividend increase in September reflects our confidence in the durability of PICO's cash flow. We believe PICO's earnings growth and durable dividend yield combine to target an annual total return to our shareholders of 9% to 10%. That is the opportunity we see for PICO. More alpha through consistent execution and growth, less beta from our right-sized, grocery-anchored, necessity-based portfolio and our strong balance sheet. With that, I'll turn it over to Bob. Bob?

Thank you, Jeff. The retail environment remains very active, with broad retailer demand for space across our portfolio. That demand is reflected in our 92.2% portfolio retention, 97.5% portfolio leased occupancy, and 95.1% in-line leased occupancy. These results demonstrate the quality of our centers, the health of our neighbors, and the value retailers place on being located in PICO's grocery-anchored neighborhood centers. Our team is taking advantage of this environment. We use national relationships, local market knowledge, and data research to decide which neighbors to retain and where we can improve lease economics. During the quarter, comparable renewal rent spreads reached a record high 25.2% and comparable new lease spreads remain strong at 26.3%. Keeping the right neighbors in place means less downtime, lower TI costs, and better economics for PECO. During the quarter, we achieved record high renewal rent CAGRs while improving non-monetary lease terms that give us more flexibility to manage our centers. The PECO team looks at the full economics of every lease, today's rent, future rent growth, and the rights we need to keep improving the center. This work contributed to same-center NOI growth of 5.3%, which was driven primarily by higher rents. The continued growth in PICO's minimum rent has us well positioned to finish the year and as we head into 2027. Retention and collections remain solid. Demand for available space is competitive, and rent spreads and occupancy costs are healthy. Bad debt remains relatively low and was in line with expectations at around 70 basis points of revenue during the third quarter. These trends continue to support rent growth and long-term value across PICO's portfolio. Moving on to acquisitions, year-to-date through October 26th, we've acquired $519 million in assets at PICO's share, including 12 grocery-anchored and four everyday retail centers. These centers are meeting or exceeding our unlevered IRR targets. With new assets, our team moves quickly into execution mode by leasing vacant space and bringing each property up to PICO's maintenance and appearance standards. Then the team begins to execute the underwriting plan. This is how we turn disciplined acquisitions into tomorrow's earnings growth. Given the strength of our pipeline, we recently increased our full-year gross acquisition guidance to $600 to $700 million. The current macroeconomic environment is creating opportunities to negotiate more favorable pricing on select acquisitions. PICO's scale, relationships, and execution gives us leverage in those discussions, and we'll continue to pursue concessions while remaining disciplined on price and returns. That same discipline shapes our approach to everyday retail. We target necessity-based neighborhood centers near leading grocers in markets where our leasing relationships, operating engine, and data analysis provide an advantage. We own $300 million of everyday retail today and continue to target $1 billion, which we expect to achieve in the next 24 months. We're growing intentionally to deliver more Alpha to PECO. and we'll provide an update on everyday retail during our December 16th business update. I will now turn the call over to John. John?

Thank you, Bob. Third quarter NAREIT FFO increased to $98 million or 69 cents per diluted share, representing 7.8% per share growth. and Core FFO increased to $100.7 million, or 71 cents per diluted share, representing 9.2% per share growth. Same Center NOI increased 5.3%, primarily due to higher rents and recoveries driven by growth in economic occupancy. We expect healthy rent growth to continue in the fourth quarter. Our Same Center NOI growth rate for Q4 will be impacted by the timing of recovery income compared with the prior year quarter. We are pleased to guide to the higher end of our original 3% to 4% Sync Center NOI growth guidance for the full year. This past Friday, we closed a new $350 million three-year unsecured term loan at an initial rate of SOFR plus 80 basis points. This is 30 basis points lower than the term loan it repaid. We used the $175 million of initial proceeds to repay our existing $162 million term loan with the balance used to reduce revolver borrowings. Growth formula for the closing of the new term loan, we have approximately $950 million of total liquidity. At the end of the quarter, net debt to annualized adjusted EBITDA was 5.2 times on a trailing 12-month basis and was five times on a last quarter annualized basis. We expect to end the year closer to five times net debt to annualized adjusted EBITDA, and even lower on a last quarter annualized basis. Pro forma for our $350 million unsecured debt issuance, PICO's weighted average interest rate was 4.5%. Our weighted average maturity was 5.5 years, including extension options, and approximately 85% of total debt was fixed rate, which includes PICO's total prorated share of debt for its JVs. PICO has no meaningful debt maturities until 2030. This provides additional flexibility as we execute our growth and funding plans. We continue to view the unsecured bond market as an important source of long term capital and expect to remain a repeat issuer over time. At the same time, we will be disciplined about selecting the right instrument and duration for the market. In the current rate environment, the three year term loan offered attractive execution at the shorter end of the interest rate curve, while allowing PICO to pay down the existing term loan, reduce revolver borrowings, and preserve flexibility. As a reminder, our current plan does not assume equity issuance. We are match funding our investments with an efficient combination of retained cash flow, dispositions and JV proceeds, and debt while protecting leverage and per share growth. This flexibility allows PICO to pursue the best risk-adjusted returns, whether on balance sheet or through our joint ventures. Based on the opportunities and funding sources we see today, we believe we have ample capacity to execute our plan in 2027 while remaining strategic and disciplined. Regarding guidance for 2026, our increased same center NOI guidance reflects 3.75% growth at the midpoint. We increased the midpoint of core FFO per share guidance, which reflects growth of 6.5%. We also increased the midpoint of NAREID FFO per share guidance, which reflects growth of 6.3%. Nareed and Core FFO Growth are expected to have higher G&A expense in the fourth quarter than the third quarter. Gross acquisition guidance remains $600 million to $700 million, which we increased on October 1st. We now expect dispositions in a range of $175 million to $210 million. As we look to 2027, our focus remains consistent. Execute on the internal growth opportunities across the portfolio. raise capital at the best cost to PICO, invest externally with discipline, and maintain the strength and flexibility of our balance sheet. We are confident in our ability to convert these opportunities into continued strong growth and will provide more detail at our December 16th business update. PICO delivers more alpha through our proven operating engine and discipline growth strategy. Pico delivers less beta through durable grocery-anchored and necessity-based cash flow, low leverage, and no meaningful debt maturities until 2030. With that, we will open the line for questions. Operator?

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. and if you would like to withdraw your question, again, press star one. Our first question is going to come from the line of Handel St. Just with Mizuho. Please go ahead.

Hey, guys. Thanks for taking the question. I wanted to talk about the external growth, the transaction market specifically. Curious, as you look into the marketplace, what you might be seeing real time, any change in cap rates and sense of more assets in the marketplace. And I think you mentioned, John, you can fully fund your 27 potential investments here without any incremental equity. But curious how much of that could be between kind of on balance sheet, off balance sheet and what role this position, how much of a role this position would play. Thank you. Cool.

Well, Handel, thank you for the call for the question. Let's answer it in two ways. One is sort of the source of capital and the second is sort of the market. I think it was was the question. Bob, do you want to talk about the current acquisition market? And then we'll talk about sort of where that capital is coming from.

Yeah, thanks, Jeff. Good morning, Handel. What I would say about the current environment here is the external growth has been positive. We've reviewed 567 deals this year compared to 450 last year. You know, we have an investment committee meeting every Monday We presented 270 deals this year compared to 233 deals. And we've closed on $519 million so far this year, and we have a very strong pipeline where we've either been awarded or under contract on another $250 million. So we're in a very, very solid position of being very active in this space, finishing the year strong while also building out a very strong pipeline into next year. John can speak more to the dispositions. We are very diligent about recycling some of our stabilized assets that are closer to 7%, 7.5% returns where we're recycling those into new assets generating between 9% and 10% unlevered returns. So we're excited about the portfolio that we've acquired this year. There is more competition. But if you look at what we've acquired in everyday retail, we've averaged about a 6.8 cap rate. If you look at what our blend has been across the year, it's about 6.5, and we are still solving for above a 9. So the discipline's in place. The market is active. The competitive bid set is active, but we're not seeing a lot of movement in cap rates. Interest rates kind of spiked, and then they came back down. but I feel like we're at a very good spot in terms of continuing to see activity and taking advantages of that. Yeah.

And then I'll jump in quickly on the funding. So ultimately from a funding perspective, you know, we are excited about the expanding our investment management business. And so we have additional, you know, funding that will be drawn there for the weather. Some of it will be later this year. It's in our guidance table and then the remaining piece will happen in early 2027. You know, I think the key piece here for us is that, you know, we're looking at is match funding. Your question was getting to what our forward dispositions look like. And the best part is, is that we don't have anything we have to sell. These are things that are opportunistic or, you know, as Bob said, you know, maybe some cases the IRR is a little bit lower, but but ultimately we have a very strong portfolio. So we have the ability to increase and decrease that. And I would think that We've begun our active recycling, but the key piece is sort of match funding with our acquisition opportunities. And as long as we see great acquisition opportunities, that's going to give us the room to sell assets as well.

And just, Handel, to add to that, I mean, we're basically raising capital in the low sixes on a cap rate, and we're putting that to work in the mid sixes. We're getting a spread from the start, and then we're looking at these assets as long-term growth vehicles for us. They're going to help generate 27, 28, and 29 growth. So we're excited about sort of not only getting a kick to start, but also what we're going to see on a longer-term basis. So thank you for your question. Thank you.

Your next question comes from the line of Andrew Real with Bank of America. Please go ahead.

Hi, good afternoon. Thanks for taking my question. Maybe just one on the tenant mix. Just looking at your slide deck, looks like local tenants are now about 26% of your ABR. I guess, first of all, amongst that cohort, what proportion of those local tenants do you consider to be necessity-based? And then just any color on how that group has been performing if there have been any increase in delayed payments or changes to overall health among that group of local tenants.

Great. Thanks, Andrew. Bob, you want to take that one?

Yes. Thanks, Andrew. Appreciate the question. Merchandising mix has always been one of the most important aspects of creating value at our properties and for our shareholders. The local mix plays A big role in it. Even though it's 26% and 74% of our rent role is necessity-based, it still has the consistency in our local tenants with having quick service, fast casual, health, wellness, beauty, fitness, and med tail. What I appreciate about the mix is that we're able to generate higher rents, spend less TI money, get them in the space sooner, and paying rent. And honestly, they're all entrepreneurs. I mean, so we just like to partner alongside of them in terms of making sure that they're profitable. But we've seen a lot of success in hitting. I mean, if you look at our renewal spreads this last quarter, they were like twenty five point two percent and they're even higher if you look at the local mix. So that's an advantage. The key is merchandising around how you continue to focus on necessity based goods and services. and look, there's no new supply coming on the market so the demand is very vibrant. All the meetings that we're having at ICSC and the conversations with retailers want to be with the number one, number two grocer and that's what we've been providing. So health ratios are strong at about 10% and if you look at our high retention rate of 92.2% and our spreads of 25%, I mean, it feels like we're in a very good spot right now. That's our focus.

Hey, Andrew, just to add on to that, we want to make sure that we're explaining that we're very focused on this merchandising. And over time, the mid-20s for local is the right mix because the reason we're so focused on the merchandising is we can't drive rents unless we can drive sales. And the merchandising that we're laying out will maximize the production of the center. and many, many more.

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

Great, thanks. So I saw recently that Kroger announced expansion plans through 2029 of upwards of 100 new centers. I'm just curious how your portfolio could stand to benefit from this. Clearly, you're a large Landlord, partner for them. It's good to see the expansion and the focus on sales productivity, but does this come through the opportunity set within the redevelopment bucket, maybe retenanting another grocer with one of these Kroger expansions? Just curious if you can give some commentary there. That'd be helpful.

Great question, Griff, and something we've thought a lot about. Bob, do you want to take that on what we're doing there?

Sure. Thanks, Michael. In all our conversations with Kroger, They are expanding. They're not only expanding, but they're reinvesting a lot of capital into their existing stores. So being the number one landlord of Kroger, we have some insight to that. We've walked alongside them with some ground-up development opportunities. We're in the process of securing some ground to partner with them on that front. So I think it's going to come from both ground-up development opportunities I think they'd like to do 40 new locations this year that's ground up and then in addition any existing sites and obviously you're aware of the Giant Eagle expansion and they're very focused on that as well. So we're glad that Kroger's our partner and that we're their largest landlord. We're going to continue to see them making the right investments in their store and we're helping them with their strategic layouts across the country.

Awesome. Thanks, guys. Yep.

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

Hi, everyone. Maybe just on the lease pricing side, it looks like new lease spreads ticked down in the quarter, but are still over 30% in the trailing 12 months. So impressive. Can you just talk about the quarter and then more generally on pricing, whether you're getting any increased pushback from tenants on higher rents? I know you have talked in the past about upside to occupancy costs. Thanks.

Great. Thanks, Caitlin. Bob, do you want to talk a little about that?

Yeah. Good morning, Caitlin. Yeah, I appreciate the question. Honestly, it was just a timing issue of the deals that were executed in the third quarter. We've been consistently putting up numbers in the low to mid 30s on our new leasing spread. So the 26.3, I believe, the number for new leasing spreads this quarter That was just purely just the deals that were executed. If you look at the full year and you look at the visibility that we have out into the fourth quarter, we'll certainly finish well into the 30s in terms of a year. So it's just purely a timing issue. I'm not seeing any pushback on any retails in terms of pricing. And we would see that, which is interesting, right? Between 92.2% Retention, and record high 25% retention. The neighbors are strong. They're making money. I think the key is making sure that you're merchandising appropriately, and then you're keeping their health ratios within that 10% to 11%. So I'm not seeing any issues with it. That was purely a timing thing. We're going to finish the year at an exceptional level, and we feel real good about the strength of the portfolio.

Got it. Thanks.

Yep.

Your next question comes from the line of Jamie Feldman with Wells Fargo. Please go ahead.

Great. Thanks for taking the question. So same-star NOI accelerated to 5.3% in the third quarter, and it's 4.3% year-to-date. I believe the updated full-year range is 3.5 to 4. Can you talk about the implied moderation in the fourth quarter and what's driving it? Is it rent commencement timing, bad debt, expense comparisons? or maybe intentional vacancy for re-merchandising. And then, you know, does the quarter, does 4Q's outlook change how you think about your long-term range of 3% to 4% heading into 2027? Hey, John.

Thanks for the question, Jamie. John, you want to take that?

Absolutely. Thanks for the question, Jamie. So ultimately in the fourth quarter, similar to the third quarter, we're seeing great strength from our neighbors. As Bob just said, the execution remains strong. Really, we're not seeing it as a moderation necessarily. We're looking at it as kind of the timing of recoveries from Q3 to Q4. And that can vary from quarter to quarter. We've seen that in years past. Ultimately, we tightened the bad debt range for our guidance, which is now at a 60 to 80 basis point range. and there's nothing that we're seeing that's really gonna soften related to 26. And as we look to 27, I think we're feeling really strongly about us being able to continue to deliver on our long-term targets of three to 4% on a same store basis and then mid to high single digits on our FFO per share metrics. And so ultimately we actually think that we're just getting started. The neighbors are strong, the acquisition market is open and we're positioned very well to take advantage of that.

Your next question comes from the line of Rich Hightower with Berkley's. Please go ahead.

Good afternoon, everybody. Thanks for taking the question here. So I think if I look in the renewal spreads and the impact of options on that number, it looks like options obviously are a very tenant friendly feature of a lease typically. So maybe talk about that dynamic in the portfolio. And you did mention sort of non-economic lease terms changing, but I wonder if the sort of renewal option part of that specifically is changing as well and what that means for the business going forward in the very strong market rent environment we're seeing currently.

Yeah. Rich, thank you for the question. Bob, you want to talk a little bit about the options as well as sort of how that may change in the current environment?

It's absolutely changing. Thanks, Rich, for the question. It's a great question because obviously we're very focused on continuing to find ways to grow CAGR and ABR across the portfolio. And when you're 97.5% occupied, we have room to continue to move not only occupancy. Options are definitely one of those things that are very tenant friendly. We don't like to give them. The issue is we've acquired so many large grocery stores in our portfolio that they lock the property down at least 50% of the ABR, give or take, for the next 30 years with either flat options or very mild options. On the inline neighbors, we're able to continue to push and negotiate options away from not only new deals but also further renewals. You touched on this. But the non-monetary clauses, we're all over. And you think about removing exclusives and caps and restrictions and co-tenancies and no-build areas. We've been very successful in our ability to negotiate those items to free up potential development land, redevelopment categories, out parcels. So it's a little bit of everything. Options are definitely the one that we start with. I tell our leasing team during every new lease negotiation that you're not allowed to give options. So sometimes the retailers will need it just given their capital that they're investing in their property and they want to make sure that they're going to stay there. And then our job is to really try to push those to 15%, 20% or better. So it's a combination of everything and we are in the environment to take advantage of everything.

Great. Thank you.

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

Hi, this is Caroline on for Ron. Thanks for taking the question. I appreciate the commentary that you gave on the transaction markets. I was wondering if you get a little bit of color into what you're seeing in cap rates in the traditional retail are anchored. Jennifer Robison, And then you spoke a little bit too on the mid-20s local mix for the grocery anchored centers. And so I was just wondering what you were seeing is kind of a similar rate as to how you were thinking about the exposure of local tenants for the everyday retail centers.

Thank you. Bob, you want to talk a little bit about sort of where we're seeing the cap rates on the grocery as well as the everyday retail? And then I think the second question was really just local mix. What kind of local mix are we seeing in the everyday retail?

Yep. Thank you. Appreciate the question. Cap rates have been running anywhere between a 5.8 and a 6.5 for What I would consider core grocery anchored opportunities. I think about everyday retail, there's a lot of properties that are between a six, three, and a seven and a half, depending on what markets. That's been pretty consistent. I mentioned it earlier, but when you look at the bid sheets, we typically, we'll see six to eight offers on grocery anchored product. We'll see probably five offers come in on everyday retail. But if you look at our everyday retail portfolio, we've averaged a 6.8. And if you look at our grocery anchored, we've been really around a 6.3, 6.5. So I'm not seeing a lot of movement on that. In terms of unlevered returns, our grocery product is a 9 or 9.5, and our everyday retail is between a 10 and 11. And we've kept that discipline in place, and we've seen a lot of success in that. In terms of merchandising mix with local, yeah, our local neighbors on our core grocery has been around 26%. But if you look at the everyday retail category, we're very intentional about finding opportunities that we can take our national account team, focus them on re-merchandising around necessity-based goods and services with a national name. So we typically will start one of these properties, and the balance will be 60% national, regional, 40% local, and then what we'll do over our re-merchandising efforts and our strategy over our hold period, we'll improve that down. It might end up closer to 30%, but I like that because we're able to really spend less TIs, reinvest some capital, push rents. There's a tremendous amount of mark-to-market opportunities when you're buying the everyday retail assets that we're buying today. I mean, we're buying right. We're getting the unlevered returns. We average around $335 a foot on these purchases. So we're really excited about the space. Granted, we have $300 million a day. We'd like to grow it to a billion dollars over the next 24 months. So we're highly engaged. We're doing a lot of different things to attract, you know, the opportunity sets 50,000 centers out there. So we want to continue with the discipline and take advantage of it where we see there's an opportunity.

Thanks, Caroline.

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

This is Sean Glass on for Todd. You added meaningfully to the active development redevelopment pipeline this quarter despite stabilizing 17 projects to date. You've talked increasingly about development as an opportunity, and you mentioned your prepared remarks, desire to grow that piece. How should we think about your appetite for ground-up development from here? How large could that become? And then could development ultimately become a meaningful enough piece of the investment program to offset some compression in acquisition returns?

Sean, thank you for the question. So I guess I want to make sure I understand. You want to... You want to get a feel for how we're looking at our development and our redevelopment businesses? They're kind of two separate questions, I think, there. And we were talking primarily about the development around our existing centers and the redevelopment around those existing centers. are part of our business. But Bob, you want to go through sort of both those pieces and where we're trying to take it?

Yep, absolutely. Thanks, Sean, for the question. So this year we'll finish somewhere between $80 and $85 million of our redevelopment and development buckets. And we're generating returns between 9% and 12%. So we like that. continue to look for opportunities not only on the acquisition side that provide some ground up development or out parcel development opportunities. I look out the next three years, we have a nice pipeline that, you know, we've always said that we do 50 million, give or take a year, but our pipeline is well above that. So I think as I look out the next three years, you know, there's a nice pipeline of another couple hundred million dollars in the works. The nice thing is that We're pairing that with buying as much as we're buying on the acquisition side. Jeff touched on this earlier, but our portfolio that we've acquired this year is 94% occupied, but our portfolio is 97.5%. So there's room not only in occupancy for organic growth, but also there's a lot of development opportunity in terms of the out-partials that we're acquiring or purchasing assets. Jason. This year we've purchased five out parcels and we already have active LOIs and leases out for signature on all of them. So we continue to look for those opportunities. I think it's a wonderful complement to our same center NOI growth plans over the next year. So we're going to do both. We're going to stay focused on our internal growth, but also the development side of the external business that can generate additional alpha for us on NOI. It's happening, and this is a nice year for us at $80 million. We'll see what next year brings, but we should be in the same zip code.

Bob, you want to touch a little bit on the ground-up development? That piece, obviously, it's a small piece of what we do.

It's a small piece. At this point, everybody's familiar with the Ocala asset that we acquired, and then we ended up selling a parcel to Super Walmart. We retained seven parcels. We have activity on all seven parcels, so we're doing a nice job with that, but it's pretty small in terms of what that is. The partnership that we have with Kroger is going to create some opportunities. The world's a little different in terms of grocery ground-up development because you really don't get the pop on the NOI, you know, for three or four years out. There's a long process there of entitlements and development and going vertical and everything that needs to happen to unlock that. So we want to run a parallel path, not only with our focus, you know, given that, you know, we're Kroger's largest landlord, Publix's, you know, second largest landlord. They're active. We're going to walk alongside them in terms of their ground-up plans. Meanwhile, what we're trying to do is focus and unlock as many out-parcel opportunities as we can. Most of those opportunities are going to be between $2 million and $4 million. Again, we'll focus on the 9% to 12% returns. I think so far we've developed about 42 of those over the last four years. We've been consistently not only seeing demand for it, but That's why you saw us acquire five pieces of dirt this year.

Your next question comes from the line of Connor Mitchell with UBS. Please go ahead.

Great. Thanks for taking my question. So it seems like the consumer remains resilient. There's still plenty of retailer tenant demand. I've seen in your results and the comments through the call today. However, we have seen a couple of just retailer credit blips, you know, the Wendy's or Leslie's and While these are very limited exposure to your portfolio, I'm just curious if either of these blips or something else you're kind of seeing in the market has maybe changed your view of either the tenant mix or the underwriting potential for acquisitions, maybe taking a more conservative view or even maybe changing your process for bad debt assumptions and casting a wider net for maybe a slightly larger watch list just to Keep an eye on any potential issues. Thanks.

Yeah. So, John, I'd like you to... That's a great question. Yeah.

Yep.

Go ahead.

Thanks, guys. All right. And thank you for the question. ultimately as we look at it we actually are seeing great strength from the locals so we were not impacted by the Wendy's franchise piece and from Leslie's I believe it was five basis points of rent I think we had six locations and we actually have strong comp rent so we actually will be able to take those more quickly to market but although I think there's actually only I think five of them maybe staying or being discussed but I think this is actually reinforces our overall strategy. Because when I look at it, I love, I actually think the locals are a really great addition to our centers. And ultimately, to the comments that have been made previously, we want to ensure that their sales are productive and increasing and able to sustain this rent growth. But ultimately, our overall diversification across our portfolio is one of the strengths that is actually part of the lower data part. If you exclude the grocers, our number one non-grocer use retailer is the TJ Maxx brand, and that's 1.3% of our revenue. I think that the local neighbor continues to, the economics are better, their retention with us is outstanding, and that is actually a good opportunity. We're not seeing anything at the ground level in terms of we've reduced or tightened our bad debt range, it's been lower than it has been in the past, the forward pipeline is really strong, the renewal rates are high. So there isn't anything that we're seeing. And I actually think if you look at the macro data, the consumer continues to be quite strong. The credit card data is showing that they're doing all right. And it is something that we watch. But ultimately, we look at it from a diversification standpoint and are really positive about it. But there isn't anything that gives us concern at this time.

Your next question comes from the line of Jacob Dingo with JP Morgan. Please go ahead.

Hi, thanks for taking the question. This is Jacob, billing him for Mike Muller. Like you mentioned, it was another strong quarter in terms of occupancy, but it looked like there was a slight decline, about 40 basis points on in-line leased occupancy. Is there anything to call out here, and where do you see this falling by end of 2027?

Jacob, thanks for the call. Bob, you want to just explain that? Because it's pretty straightforward.

Yeah, thanks, Jacob. Yeah, the answer's real easy on that one. We've been at 95.4, 95.5 inline occupancy. It moved to 95.1 purely because of the new acquisitions we brought online. So if you look at the acquisitions that we've acquired, we've been in the low 90s, and that solely, 100%, has to do with just the new acquisitions. Great. Thank you. Yep.

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

Great. Thanks for taking the question. On the Northwestern mutual contributions, how closely does the timing line up with the acquisitions that you have under contract? And then after the recurring fee income, should we expect any temporary earnings dilution while you put those proceeds back to work? Thank you.

Yeah, I'll take the first problem that, John, you want to talk about sort of the So, yeah, we set it up in tranches because we are basically raising equity for our acquisitions to match fund the acquisitions that we have in the pipeline. And that's how it's set up. I think it's set up in three tranches. We've closed the first tranche, and I think the second one will be in December, and the third one will be in January. And we are matching those up to our acquisition pipelines. that Northwestern Mutual overall will be about $800 million at the time we get fully funded there with the first tranche that we've now been in for eight years and have extended all of it for 10 years going forward. John, you want to talk about something?

And regarding the question around earnings, we are very pleased that we were able to raise our guidance. And to Jeff's point, we've matched it very well, which is why we have the stage closing. we will finish the year at a lower that's the EBITDA basis than we had anticipated originally and that's just going to give us additional acquisition capacity for next year so I don't anticipate earnings dilution or moderation we raised our FFO per share guidance into you know the mid six percent growth range and I would anticipate that next year we're using this capital to to time it well we certainly have a strong 1031 program but we will be I would anticipate an expanded, you know, acquisition profile for 2027, which is what we've been building for. And this is a great opportunity for me to plug. I hope everyone attends our December 16th business update where we'll share more color on that.

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

Hey, guys. Thanks. I wanted to just touch upon everyday retail a little bit more on what the pipeline of new acquisitions looks like and how the composition of total returns for this asset class is between initial yield and NOI growth or annual NOI growth going forward. And how do you see that evolving? Thanks.

Thanks, Floris, for the question. Bob, you want to take that?

Hey, Flores. Hope you're doing well. We're really pumped up on the everyday retail. So again, we're right around $300 million with the 13 assets that we've acquired. If you look at from the time that we acquired them to where we're at today, we've seen a lot of success not only in moving occupancy. We've moved occupancy between 250 and 300 basis points already. These assets are throwing off an average NOI CAGR above 5%. So that's a nice compliment. Again, I think our focus is to grow it to a billion dollars over the next 24 months. So we're definitely leaned into it. So if I look at the spreads, we're seeing new leasing spreads of 40%. We're seeing renewal spreads above 25%. And again, our leasing team and national account team continues to improve not only the merchandising towards more necessity-based, but with more nationals. We like the space a lot, and we're going to continue to lean into it. We're seeing success in our core markets, so we're going to continue to stay very focused on that front of it, Flores.

Hey, Flores, this is obviously a growth opportunity for us, but I think you'll also notice the discipline we apply to this is the exact same discipline we apply to the rest of our acquisition business, which is We want to make sure that we are underwriting this to a point where we can get a 10 plus percent return on our everyday retail. And it's not easy to find, but you'll see us gradually growing this business. And as we grow it, we'll be doing it sort of the PICO way, which is meeting a very disciplined underwriting strategy. And that underwriting strategy will lead us to the kind of returns that we expect from this part of our portfolio.

Maybe, Jeff, a follow-up question on just how your strategy is different from the one public peer out there in terms of and how much availability, because I think one of the differentiating factors, if I'm not mistaken, is that you tend to buy a cluster around your existing grocery anchor centers. How much are you seeing competition from other national players? Or is this more of a greenfield opportunity still in the areas that you're looking to expand in this segment?

Yeah, I mean, we see everything that our peers are seeing. What we're really looking for, Flores, is unique opportunities where we know a very specific market and we think we can find, not we think, We've been able to find the right kind of merchandising mix for centers that we're buying. And in doing that, we grow occupancy, we grow rents, and we grow the quality of the underlying neighbors that are in that center. That's a very different strategy than our peers have, which is more to buy sort of a triple net opportunity. and because of that, that's how we're able to get these increased payers of 5% plus and be able to grow IRRs of 11 plus percent. We can't do that if we're buying into long-term leases with national tenants that are very stable and with little upside. We're looking for upside, but we're also looking to take advantage of our knowledge of specific markets where we can see outsized returns. Thanks, Jeff. Thank you. Thanks, Lars.

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

Good afternoon. Very few new grocery anchor centers are being built, but many owners, it truly feels like everyone is adding up parcel developments, small buildings to existing sites. What has your experience being on the ground with this kind of new supply in terms of its impact on living in the market? Are there any markets where these new buildings on the outposts are having any meaningful impact? Is it meaningful competition or it's really a drop in the bucket everywhere?

Well, I'll start, Bob, and then you can jump in. I think it's the second. A drop in the bucket. I mean, if you build a Starbucks and it's 2,000 square feet, in the scheme of things, that's not going to impact the overall market, which is obviously much more sizable. But there's a high demand for this kind of property among and a series of certain national potential neighbors. So that is what we're focused on is where we can find them doing that. And then the balance, which again is a small number, but is a high octane kind of investment. where we can build small store space and in most cases it's fully occupied before we complete the construction. And that is an incremental growth in where we're getting that 9 to 12 yield out of the box on these redevelopment and development deals. So we're really excited about that part. We think it's additive. We wish it was a bigger market, as I think you were kind of alluding to, but we will continue to grow it at the pace that we can because at 9 to 12 yields, we can make a lot of money there, and we'll keep focused on that. Bob, did you have anything to add on that one?

The only other thing I would add is a lot of these opportunities are either in our existing parking lots or they're on ground. That would be adjacent. I mean, I'd look at, you know, our pipeline and what we've executed on. We've acquired a lot of adjacent parcels next to our public's anchored projects. And a lot of cases, as we're tying up the land and we're going through due diligence, we're already lining up, you know, the retailers like Jersey Mike's or Firehouse Subs or the Pacific Dental's or Mavis. You know, there's a lot of active retailers, just given that there's not a lot of supply out there. So it's really been a great opportunity for us to capitalize on to generate the returns of 9% to 12%. So we're very focused on continuing to find those opportunities.

Thank you. That concludes the question and answer session. Mr. Edison, I'd like to turn it back to you for closing comments.

Well, thanks, everybody, for being on today. And in closing, I want to reiterate how pleased we are with our third quarter results. and our increased full-year earnings guidance. PICO delivered same-center NOI growth of 5.3% and core FFO per share growth of 9.2%. These results demonstrate the strength of our growth-ranker and necessity-based portfolio, as well as our consistent execution that the PICO engine continues to do. As we look to 2027, our priorities remain clear. on the internal growth opportunities across our portfolio, raise capital at the best cost to PICO, invest externally with discipline, and maintain the strength and flexibility of our balance sheet. We are confident in our ability to convert these opportunities into continued strong growth, and we look forward to providing more detail for you at our December 16th business update. PICO delivers more alpha through our proven operating engine and disciplined growth strategy. PICO delivers less beta through durable, grocery-anchored, and necessity-based cash flow, low leverage, and no meaningful debt maturities until 2030. I want to thank again the PICO associates for your continued hard work and our shareholders and neighbors for your continued support. Thank you again for being on the call today, and have a great day.

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