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PECO Pullback Presents a Retail REIT Worth Shopping ForPhillips Edison & Company, Inc. NASDAQ: PECO reported higher second-quarter funds from operations and same-center net operating income, citing sustained demand for space at its grocery-anchored shopping centers, record in-line occupancy and strong leasing spreads. The company also raised its 2026 outlook for earnings, same-center NOI growth and acquisitions.

Chairman and CEO Jeff Edison said the company generated 8.1% year-over-year growth in NAREIT FFO per share, 7.8% growth in Core FFO per share and 3.8% same-center NOI growth during the second quarter. He attributed the performance to occupancy gains, leasing activity, rent spreads and operating execution across the portfolio.

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“Our centers generated 2% year-over-year traffic growth in June and 2% traffic growth year-to-date,” Edison said, adding that consumers continued to make frequent trips to necessity-based retail destinations despite seeking value.

Occupancy and Leasing Reach New Highs President Bob Myers said second-quarter leasing activity reached a record number of leases, while retailer demand showed “no current signs of slowing.” Necessity-based categories such as quick-service and fast-casual restaurants, health and wellness, beauty, fitness, services and medical retail continued to drive activity. The company said 74% of its rent comes from necessity-based goods and services.

Portfolio leased occupancy was 97.3%. Leased anchor occupancy was 98.4%. Leased in-line occupancy reached a record 95.5%. Economic in-line occupancy reached a record 94.8%. Comparable renewal rent spreads were 21.2%. Comparable new rent spreads were 33.7%. Annual rent bumps on in-line renewal leases averaged a record 3.1%. Myers said the company retained roughly 90% of its tenants and spent less than $1 per square foot to retain them. He said Phillips Edison expects it can increase in-line occupancy by another 100 basis points over time and lift anchor occupancy by 50 to 60 basis points by year-end.

The company reported lower-than-expected bad debt of about 70 basis points of revenue in the quarter and reduced its full-year bad-debt outlook. Management now expects bad debt for 2026 to be in line with or slightly better than 2025.

FFO, NOI and Balance Sheet CFO John Caulfield said second-quarter NAREIT FFO rose to $93.7 million, or $0.67 per diluted share, while Core FFO increased to $95.5 million, or $0.69 per diluted share. Same-center NOI rose 3.8%, primarily because of higher average rents and economic occupancy.

Phillips Edison raised its full-year 2026 guidance for NAREIT FFO per share, Core FFO per share and same-center NOI growth. At the midpoint, the updated outlook implies 6.3% growth in NAREIT FFO per share from 2025, 6.2% growth in Core FFO per share and 3.7% same-center NOI growth.

Caulfield said the increased FFO outlook reflects strong first-half operations and healthy tenant credit trends. However, he noted that asset sales occurring ahead of reinvestment in acquisitions create a short-term cash-flow gap, while positioning the company for growth in 2027.

The company ended the quarter with $857 million of liquidity. Net debt to trailing 12-month annualized adjusted EBITDAre was 5.1 times at quarter-end and 5.0 times on a last-quarter annualized basis. Its debt had a 4.4% weighted average interest rate and a 5.6-year weighted average maturity, including extension options. Fixed-rate debt represented 95.9% of total debt, including Phillips Edison’s share of joint-venture debt.

Moody’s revised the company’s outlook to positive, which Caulfield said reflected operating performance, balance-sheet management and liquidity.

Acquisition Target Increased Management raised 2026 gross acquisition guidance to $500 million to $600 million, an increase of $100 million. Caulfield confirmed in response to an analyst question that the net acquisition outlook also increased by $100 million.

The company completed $278 million of acquisitions at its share year to date through the week of the call, including eight grocery-anchored shopping centers, three everyday retail centers, an outparcel and land for future development. It had more than $225 million of awarded or contracted assets expected to close in the second half.

Management said acquisitions have been funded through dispositions, equity issuance and the company’s revolving credit facility. Phillips Edison raised $92 million of equity during June and July, though Caulfield said the full-year guidance does not assume additional equity issuance.

The company continues to target unlevered internal rates of return of 9% for grocery-anchored centers and 10% for everyday retail centers. Myers said the acquisition pipeline consists of about 60% grocery-anchored properties and 40% everyday retail assets. He said the company has identified more than 50,000 potential everyday retail opportunities near leading grocers and has acquired 12 such assets to date, where it has increased occupancy by 450 basis points.

Phillips Edison also maintained 2026 disposition guidance of $100 million to $200 million. Edison said the company had sold nearly $100 million of properties at a 6.3% capitalization rate and with an IRR below 7.5%, intending to redeploy that capital into higher-return opportunities.

Development Pipeline and Grocery Outlook The company has 21 active development and redevelopment projects with estimated investment of about $82 million and estimated average yields of 9% to 12%. Eleven projects stabilized year to date, delivering more than 212,000 square feet and approximately $3.4 million of annual incremental NOI, according to Myers.

Management also discussed grocer industry developments, including Kroger’s announced acquisition of Giant Eagle. Edison called the transaction positive for Phillips Edison, which has 10 Giant Eagle-anchored centers. He said Kroger’s investment in brick-and-mortar stores signaled confidence in physical grocery locations as a channel for sales and fulfillment.

While Edison acknowledged that grocers are responding to consumer caution by investing in price and observing shifts toward private-label products, he said Phillips Edison has not seen a deterioration in portfolio traffic. The company plans to continue monitoring consumer behavior and retailer health while pursuing growth through leasing, development, acquisitions, joint ventures and portfolio recycling.

About Phillips Edison & Company, Inc. (NASDAQ:PECO)Phillips Edison & Company, Inc is a publicly traded real estate investment trust (REIT) that specializes in the acquisition, ownership and operation of grocery-anchored, necessity-based shopping centers. The company's investment strategy is centered on properties that benefit from everyday consumer demand, seeking to deliver stable cash flows through long-term, triple-net leases with national and regional tenants in the grocery, drugstore and essential retail sectors.

In addition to its core retail portfolio, Phillips Edison & Company provides integrated services covering property management, asset management, leasing, development and acquisition sourcing.

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The Zacks REIT and Equity Trust - Retail industry is positioned for growth as demand for necessity-based shopping strengthens. Properties anchored by grocers, discount retailers, healthcare providers and other essential tenants benefit from steady traffic and leasing activity. Constrained new development supports occupancy, rental growth and asset values.

Physical stores remain vital as shopping venues, pickup and return locations, and fulfillment centers, increasing the appeal of well-located retail space. Phillips Edison & Company, Inc. (PECO - Free Report) , Tanger Inc. (SKT - Free Report) and American Assets Trust, Inc. (AAT - Free Report) could benefit from these trends. However, economic and geopolitical uncertainty may weigh on discretionary spending and leasing demand.

Industry Description The Zacks REIT and Equity Trust - Retail industry comprises REITs that own, develop, manage and lease various retail properties, including regional malls, outlet centers, grocery-anchored shopping venues and power centers with big-box retailers. Net lease REITs focus on freestanding properties, where tenants bear rent and most operating expenses. Retail REIT performance is significantly impacted by economic conditions, employment levels and consumer spending trends. Key drivers of demand include the geographic location of properties and the demographics of surrounding trade areas. While the industry faced significant challenges from declining foot traffic, store closures and retailer bankruptcies in the past, it is now experiencing a rebound, driven by renewed consumer interest in in-store shopping, signaling a positive shift in the retail landscape.

What's Shaping the Future of the REIT and Equity Trust - Retail Industry? Need-Based and Value Retail Will Lead Growth: Retail REITs are likely to benefit most from tenants that serve household needs. Grocery stores, discount chains, health and wellness businesses and other value-focused retailers attract customers because they offer useful products at practical prices. These businesses generate repeat visits, which helps shopping centers maintain traffic and supports nearby tenants. As retailers become careful about where they open new stores, landlords with the right tenant mix should remain in a stronger position. Properties anchored by essential and value-oriented businesses can offer stable leasing demand and are better protected when consumer confidence weakens. This trend gives landlords a chance to fill available space with tenants that match changing shopping habits. Retail REITs that focus on convenience, affordability, and everyday services should therefore be better placed to grow and maintain occupancy.

Limited New Supply Will Support Existing Properties: The limited amount of new retail construction is another positive force shaping the industry. With fewer projects entering the market, existing shopping centers face less competition for tenants. Retailers looking to expand have a limited choice of locations, which is helping landlords protect occupancy and maintain rental growth. This supply advantage is useful because the market is less likely to become oversupplied. Owners are also focused on improving properties, updating layouts and bringing in stronger tenants rather than competing with newly built centers. Well-located properties with flexible space and local traffic are expected to continue to hold their value. For retail REITs, limited construction creates a supportive operating environment and gives established landlords more control over how they improve and position their portfolios.

Consumer Pressure May Create Uneven Results: The main concern is that consumer spending may become less reliable as households face higher living costs and economic uncertainty. Shoppers may continue to spend, but they are likely to become more selective and place importance on essentials, discounts and clear value. This could create a wider gap between different types of retailers. Businesses that depend on optional purchases may delay expansion, close weaker stores, or ask for more flexible lease terms. As a result, retail REIT performance may become less even across the sector. Landlords with strong finances, adaptable properties and tenants that meet everyday needs should manage the pressure effectively. However, owners with greater exposure to discretionary retail may face slower leasing, weaker demand and a risk of vacancies if consumer caution continues.

Zacks Industry Rank Indicates Bright Prospects The Zacks REIT and Equity Trust - Retail industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #95, which places it in the top 38% of 247 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the upward funds from operations (FFO) per share outlook for the constituent companies in aggregate. Looking at the aggregate FFO per share estimate revisions, it appears that analysts are gaining confidence in this group’s growth potential. Over the past year, the industry’s FFO per share estimates for 2026 and 2027 have moved 2.20% and 3.40% north, respectively.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Outperforms Sector and S&P 500 The REIT and Equity Trust - Retail Industry has outperformed the broader Zacks Finance sector as well as the S&P 500 composite so far in the year.

The industry has risen 20.1% during this period compared with the S&P 500’s increase of 10.9% and the broader Finance sector’s growth of 7.1%.

Year-To-Date Price Performance

Industry's Current Valuation On the basis of the forward 12-month price-to-FFO, which is a commonly used multiple for valuing retail REITs, we see that the industry is currently trading at 16.84X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.21X. The industry is trading marginally below the Finance sector’s forward 12-month P/E of 16.85X. These are shown in the chart below.

Forward 12 Month Price-to-FFO (P/FFO) Ratio

 
Over the last five years, the industry has traded as high as 18.72X and as low as 12.21X, with a median of 15.15X.

3 Retail REIT Stocks to Buy Phillips Edison & Company: This REIT, based in Cincinnati, OH, is focused on grocery-anchored neighborhood centers and complementary everyday retail. It owns 326 properties totaling 36.9 million square feet across 31 states. The portfolio is 97% leased, with 94% of annualized base rent from grocery-anchored centers and 74% from necessity-based retailers.

PECO presents a resilient growth story built on essential spending, retailer demand and disciplined capital allocation. For this retail REIT, 82% of rent comes from centers anchored by the number-one or number-two grocer by sales, while portfolio markets average $101,000 in three-mile household income. Strong occupancy supports pricing power, with comparable renewal and new-lease spreads of 21.2% and 36.2% in the first quarter of 2026. A mostly fixed-rate debt profile, liquidity and development yields near 9-12% support durable cash-flow growth.

PECO currently carries a Zacks Rank #2 (Buy). Over the past three months, the Zacks Consensus Estimate for its 2026 and 2027 FFO per share has been revised upward to $2.76 and $2.90, suggesting increases of 6.15% and 5.14% year over year, respectively. The stock has risen 8.8% over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: PECO

Tanger: This Greensboro, N.C.-based REIT specializes in outlet and open-air retail destinations. With 45 years of experience, it operates 38 outlet centers and four lifestyle centers spanning nearly 17 million square feet across 22 U.S. states and Canada. Its properties host more than 3,000 stores, representing more than 800 brands and retail concepts, creating diversified shopping environments.

 Tanger combines resilient operations, leasing momentum and balance-sheet flexibility. Portfolio occupancy stands near 97%, while average tenant sales reached $482 per square foot and blended rent spreads were 10.5% in the first quarter of 2026. Tenant affordability remains supported by a 9.7% occupancy-cost ratio. With net debt to adjusted EBITDAre of 4.8 times, entirely fixed-rate debt and more than $1 billion of liquidity, Tanger has the capacity to reinvest, pursue acquisitions and support shareholder returns.

Tanger currently has a Zacks Rank #2. The Zacks Consensus Estimate for its 2026 FFO per share has been raised marginally over the past month to $2.48, indicating a 6.44% year-over-year increase. The stock has rallied 11% over the past three months.

Price and Consensus: SKT

American Assets Trust: This REIT, headquartered in San Diego, CA, has a diversified portfolio concentrated in high-barrier coastal markets. Its 31 properties span office, retail, multifamily and mixed-use assets across California, Washington, Oregon, Hawaii and Texas, totaling about 6.8 million square feet, 2,302 multifamily units and 369 hotel rooms. Its platform combines long-standing experience with in-house leasing, development and operations expertise.

AAT offers a compelling mix of asset quality, diversification and embedded upside. The portfolio benefits from locations with strong demographics, limited new supply and barriers to entry. An investment-grade balance sheet, 96% unsecured debt and roughly $618 million of liquidity provide flexibility, while no significant maturities until 2027 reduce refinancing pressure. Lease-up potential across the portfolio could add meaningful incremental FFO at stabilization.

American Assets Trust currently carries a Zacks Rank #2. The Zacks Consensus Estimate for 2026 and 2027 FFO per share has witnessed upward revisions to $2.03 and $2.11, indicating a 1.50% and 3.94% increase year over year, respectively. The stock has appreciated 24.1% over the past three months.

Price and Consensus: AAT

Note: Funds from operations (FFO) is a widely used metric to gauge the performance of REITs rather than net income as it indicates cash flow from their operations. FFO is obtained after adding depreciation and amortization to earnings and subtracting the gains on sales.