Phillips Edison & Company, Inc. (NASDAQ:PECO) Q4 2022 Earnings Call Transcript

Jeffrey Edison: Yes. So Tayo, thanks for the question. We are not hearing that from our grocers that they are still sort of ringing the bell on inflation, not on a deflationary environment. And they still are in having very positive operating results where they’re actually a fact able to pass those costs on to their customers. So as long as that continues, that will be positive. Certainly, I think you’re saying the deflationary environment is not positive. And we would agree. I mean, the grocers, they like — they love that 2% to 3% inflation. It’s certainly too high right now from their perspective, and they don’t see from our conversations that coming down in the short term. I don’t know if Devin, if you have any other thoughts on that.

Devin Murphy: No, that makes sense, Jeff. That makes sense.

Operator: We’ll go next now to Juan Sanabria at BMO Capital Markets.

Juan Sanabria: Hi, good morning. Thanks for the time. Just hoping you could provide a little perspective on the acquisition market and pricing and where the bid-ask spreads are today. I’m just curious if you could give us the yields for the fourth and first quarter acquisitions and kind of what is baked through the assumptions for ’23 guidance?

Jeffrey Edison: Let me give you — I’ll give you some general. I don’t think we’re now putting out there those yet in terms of last year. But John, if we are, you can step in. But what — what’s happening in the market is what happens a lot of times when there’s a change in the cost of capital. And that is — it takes time for the buyers and sellers to reduce that spread. And so volume is down clearly in the second half of last year, and we’re starting into this year. Overall volume is down. And so I would — and we would anticipate that continuing until that sort of bid ask starts to narrow a bit. We are finding select opportunities that we are very excited about, and we think these were — our positions where we’ve got a seller with that is motivated to sell and is moving to what we think is the newer market pricing quicker than maybe the overall market is.

And so we are going to actively look for those opportunities and take advantage of them when they come. So, I would say it’s — our feeling has been that it’s about 100 basis points in terms of that of initial yield, and it’s probably at least 100 plus on the unlevered IRR. So that’s a pretty big move. And it is going to take some time, I think, to fully realize that. And there’s probably, potentially depending on what happens with rates, the ability for that to widen even more. So we will see, but we’re continuing to look at everything that’s coming on the market. And hopefully, we can find some good opportunities. We feel like we found a couple so far and we’re going to continue to look at those and take advantage of that if we can find them.