Phillips Edison (PECO) Expands Portfolio, Buys Texas Property
Phillips Edison & Company, Inc. PECO recently concluded the buyout of Lake Pointe Market in Rowlett, TX, marking its 12th shopping center in the highly attractive market of the greater Dallas/Fort Worth Metroplex. The 96.7% occupied center is shadow-anchored by a Tom Thumb — the #1 grocer by sales in its three-mile trade area and one of the state’s top-ranking grocers.
Given the strong demographics and economic fundamentals of this market, the company is likely to gain from the potential to develop ground-up outparcel retail spaces, increase occupancy and boost the existing merchandising mix through the recapture of below-market leases.
Specifically, the 40,600-square feet grocery-anchored neighborhood shopping center is strategically located at the high-traffic intersection of Dalrock Road and Lakeview Parkway, benefiting from more than 2 million annual visits.
In addition, situated in a three-mile trade area with an estimated population of more than 52,500 residents and an average household income of $119,300, Lake Pointe Market is likely to attract a reasonable amount of traffic, thereby boosting sales and strong retailer demand.
Furthermore, the dynamic merchandising mix of the shopping center comprises a blend of leading national, regional and local retailers. Of this, necessity-based goods and services retailers, including H&R Block, Bank of America, Supercuts and OneMain Financial and a variety of local shops, account for more than 70% of the mix. This is likely to aid PECO in generating stable revenues, making its latest purchase seem prudent.
Per Jeff Edison, chairman and chief executive at PECO, “We remain focused on our goal of accretively growing our grocery-anchored neighborhood shopping center portfolio – at the right price – while achieving our acquisition hurdle of a 9% unlevered IRR. In addition, we still have one of the lowest levered balance sheets in the shopping center space, which gives us the financial capacity to meet our acquisition objectives.”
Robust retail demand and muted new supply are continuing to drive the recovery in the retail real estate industry. Given this backdrop, PECO, one of the United States’ largest owners and operators of omni-channel grocery-anchored shopping centers, remains well-poised to prosper.
The company is focused on bolstering its external growth via strategic acquisitions in the suburban and Sun Belt markets, which are diversified by grocery, geography and merchandising mix. In the six months ended Jun 30, 2023, it acquired four properties for $69.5 million.
In sync with this strategy, the company has identified a large, addressable market of more than 5,800 grocery-anchored neighborhood shopping centers anchored by the #1 or #2 grocer by sales in the market. It expects to make acquisitions worth $200 million to $300 million in 2023.
With a robust balance sheet position and ample financial flexibility, PECO is well-positioned to capitalize on long-term growth opportunities.
Shares of this Zacks Rank #2 (Buy) company have gained 18.0% in the past three months compared with the industry's growth of 5.4%.
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Other Stocks to Consider
Some other top-ranked stocks from the retail REIT sector are Regency Centers REG, Essential Properties Realty Trust EPRT and Tanger Factory Outlet Centers SKT, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Regency Centers’ 2023 FFO per share has moved marginally upward in the past month to $4.15.
The Zacks Consensus Estimate for Essential Properties Realty Trust’s ongoing year’s FFO per share has been revised marginally upward in the past month to $1.66.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ current-year FFO per share has been raised marginally in the past month to $1.88.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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