Phillips Edison & Company, Inc. (PECO): Business Model Canvas [10-2024 Updated]

Phillips Edison & Company, Inc. (PECO) has carved a niche in the retail real estate sector with its innovative business model centered around grocery-anchored shopping centers. This approach not only ensures high occupancy rates but also focuses on providing essential goods and services to local communities. In this blog post, we will delve into the intricacies of PECO's Business Model Canvas, exploring how its key partnerships, activities, and value propositions drive sustainable growth and robust financial performance. Discover the elements that make PECO a standout player in the retail real estate market below.

Phillips Edison & Company, Inc. (PECO) - Business Model: Key Partnerships

Collaborations with grocery-anchored tenants

Phillips Edison & Company, Inc. (PECO) has established strong partnerships with grocery-anchored tenants, which constitute approximately 96.6% of its annual base rent (ABR) as of September 30, 2024. This strategy ensures stable and recurring revenue streams, leveraging the essential nature of grocery shopping in consumer habits. The total ABR from grocery-anchored shopping centers was reported at $497.1 million for the same period.

Tenant Type	Number of Properties	ABR (in thousands)	% of Total ABR
Grocery-anchored	290	$497,082	96.6%
Other Tenants	290	$18,219	3.4%

Joint ventures with real estate investment partners

PECO actively engages in joint ventures with various real estate investment partners to enhance its portfolio and expand its market presence. As of September 30, 2024, PECO's unconsolidated joint ventures included 21 properties with a combined ABR of $35.5 million. These partnerships allow PECO to share risks and leverage the expertise of its partners in property management and acquisition.

Joint Venture	Ownership %	Number of Properties	ABR (in thousands)
GRP I	14%	20	$32,743
NRV	20%	1	$2,795

Relationships with local governments for zoning and permits

PECO maintains collaborative relationships with local governments to facilitate zoning approvals and obtain necessary permits for its developments. This engagement is crucial for the timely execution of projects and ensures compliance with local regulations. As of September 30, 2024, PECO's portfolio included properties across 31 states, requiring extensive coordination with various governmental entities.

State	Number of Properties	% of Total Properties
Florida	35	12.2%
California	32	10.9%
Other States	223	77.0%

Phillips Edison & Company, Inc. (PECO) - Business Model: Key Activities

Management of shopping center properties

Phillips Edison & Company, Inc. (PECO) operates a portfolio of 290 properties as of September 30, 2024, with a total square footage of approximately 32,902 thousand square feet. The company focuses on omni-channel grocery-anchored neighborhood and community shopping centers, with 96.6% of its annual base rent (ABR) derived from these types of properties.

Leasing and tenant relations

PECO engages in extensive leasing activities, reporting 255 new leases executed during the nine months ended September 30, 2024, encompassing 1,001 thousand square feet with an ABR of $22,629 thousand. The company also reported a retention rate of 91.9% for its tenants.

Leasing Activity (2024)	New Leases	Renewals and Options
Number of Leases	255	535
Square Footage (in thousands)	1,001	3,580
ABR (in thousands)	$22,629	$54,308
ABR PSF	$22.60	$15.17

Property acquisitions and development

In the first nine months of 2024, PECO acquired 8 properties and 4 outparcels, amounting to a total acquisition price of $205,002 thousand. The company allocated its acquisition costs as follows:

Acquisition Costs Allocation (2024)	Land and Improvements	Building and Improvements	In-place Lease Assets	Above-market Lease Assets
Amount (in thousands)	$68,403	$130,577	$20,413	$1,168

During the same period, PECO's total capital expenditures reached $52,480 thousand, with significant investments in redevelopment and development projects.

Phillips Edison & Company, Inc. (PECO) - Business Model: Key Resources

Extensive portfolio of grocery-anchored shopping centers

As of September 30, 2024, Phillips Edison & Company, Inc. owned equity interests in 311 shopping centers, comprising approximately 35.2 million square feet across 31 states. The portfolio primarily consists of neighborhood centers anchored by the top grocery tenants in their respective markets. The Annualized Base Rent (ABR) from these properties was $497.1 million, with 96.6% of the ABR derived from grocery-anchored centers. The leased occupancy rate stood at 97.8%, with anchor spaces at 99.4% and inline spaces at 95.0%.

Experienced management team in real estate

The management team at Phillips Edison & Company has extensive expertise in real estate, particularly in the grocery-anchored shopping center segment. This experience is critical for navigating market dynamics and optimizing property performance. The company reported a net income attributable to stockholders of $44.5 million for the nine months ended September 30, 2024, reflecting a 2.8% increase compared to the previous year. The management's strategic oversight has also been evident in the increase in rental income, which rose by $31.9 million (7.1%) year-over-year.

Strong financial backing and credit facilities

Phillips Edison & Company has demonstrated strong financial backing through its capital structure and access to credit facilities. As of September 30, 2024, the company had total debt of $2.1 billion, with a net debt of $2.156 billion. The weighted-average interest rate on its debt was 4.4%. The company has secured financing through various channels, including senior unsecured notes issued in May and September 2024, totaling $700 million. These notes carry interest rates of 5.750% and 4.950%, respectively, ensuring liquidity to support ongoing operations and growth initiatives.

Financial Metrics	As of September 30, 2024
Total Properties Owned	311
Total Square Feet	35.2 million
Annualized Base Rent (ABR)	$497.1 million
Leased Occupancy Rate	97.8%
Net Income Attributable to Stockholders	$44.5 million
Total Debt	$2.1 billion
Net Debt	$2.156 billion
Weighted-Average Interest Rate	4.4%
Senior Unsecured Notes Issued	$700 million

Phillips Edison & Company, Inc. (PECO) - Business Model: Value Propositions

Offer strategically located shopping centers

As of September 30, 2024, Phillips Edison & Company, Inc. owned equity interests in 311 shopping centers across 31 states, comprising approximately 35.2 million square feet. The company's portfolio primarily consists of grocery-anchored neighborhood centers, which are strategically located to cater to local demographics. This approach ensures that the centers attract a high volume of foot traffic, thereby enhancing rental income.

Metric	Value
Number of Properties	311
Total Square Feet	35.2 million
States Operated	31
Average Base Rent (ABR)	$497,082,000
Leased Occupancy Rate	97.8%
Anchor Spaces Occupancy Rate	99.4%
Inline Spaces Occupancy Rate	95.0%

Focus on necessity-based goods and services

Phillips Edison focuses on necessity-based goods and services, ensuring that its tenants provide essential products to the community. The tenant mix includes national, regional, and local retailers, which are primarily grocery stores that account for 96.6% of the ABR, highlighting the company's commitment to offering essential goods. This strategic focus helps maintain high occupancy rates and tenant retention.

Tenant Type	Percentage of ABR
Omni-channel Grocery-Anchored	96.6%
National Retailers	Varies
Regional Retailers	Varies
Local Retailers	Varies

High occupancy rates and tenant retention

Phillips Edison has achieved a high occupancy rate of 97.8% across its portfolio as of September 30, 2024. The company has also reported a portfolio retention rate of 91.9%, indicating strong tenant satisfaction and stability. The average remaining lease term stands at 4.4 years, which contributes to predictable cash flows and enhances the company's long-term viability.

Metric	Value
Occupancy Rate	97.8%
Portfolio Retention Rate	91.9%
Average Remaining Lease Term (years)	4.4

Phillips Edison & Company, Inc. (PECO) - Business Model: Customer Relationships

Long-term leasing agreements with tenants

Phillips Edison & Company, Inc. (PECO) emphasizes long-term leasing agreements, with a weighted average lease term of 10.4 years as of September 30, 2024. The company maintains a high portfolio retention rate of 91.9%. This approach ensures stability in rental income, contributing to a 7.1% increase in rental income, totaling $478.1 million for the nine months ended September 30, 2024, compared to $446.3 million in the same period of the prior year.

Regular engagement with local community stakeholders

PECO actively engages with local community stakeholders, enhancing its reputation and tenant relationships. The company has expanded its portfolio, acquiring 8 properties and 4 outparcels for a contract price of $203.4 million during the nine months ended September 30, 2024. This strategic growth illustrates PECO's commitment to community involvement and responsiveness to local market needs, further solidifying tenant relationships.

Responsive property management services

PECO prioritizes responsive property management services, reflected in a 13.4% increase in property operating expenses, which reached $81.5 million for the nine months ended September 30, 2024. This investment in property management ensures that tenants receive prompt responses to inquiries and maintenance requests, fostering tenant satisfaction and retention. The company also reported a 8.2% increase in rental income, showcasing the effectiveness of its management services.

Metric	Value (2024)	Value (2023)	% Change
Weighted Average Lease Term (years)	10.4	10.3	0.97%
Portfolio Retention Rate (%)	91.9	93.1	-1.28%
Rental Income ($ million)	478.1	446.3	7.1%
Property Operating Expenses ($ million)	81.5	74.0	10.1%
Properties Acquired	8	5	60%
Contract Price of Acquisitions ($ million)	203.4	92.1	120.7%

Phillips Edison & Company, Inc. (PECO) - Business Model: Channels

Direct leasing to national and local retailers

The core of Phillips Edison & Company, Inc. (PECO) business model revolves around direct leasing to a diverse array of tenants, including national and local retailers. As of September 30, 2024, PECO's portfolio consisted of 290 wholly-owned shopping centers across 31 states, totaling approximately 32.9 million square feet. The company reported an Annualized Base Rent (ABR) of $497.1 million, with 96.6% of this income generated from omni-channel grocery-anchored shopping centers.

In terms of leasing activity, for the nine months ended September 30, 2024, PECO executed:

• New leases: 255, covering 1,001,000 square feet
• Renewals and options: 535 leases covering 3,580,000 square feet
• Total ABR from new leases: $22.6 million, with an average ABR PSF of $22.60
• Total ABR from renewals: $54.3 million, with an average ABR PSF of $15.17.

Online presence for property listings and information

PECO maintains a robust online presence that facilitates property listings and provides essential information to prospective tenants. The company’s website serves as a platform for showcasing available retail spaces, offering detailed insights into property specifications, location advantages, and tenant opportunities. This digital approach aligns with the current market trend where potential tenants increasingly prefer online channels for initial property searches.

Metric	Value
Total Properties Listed Online	290
Average Monthly Website Visitors	~15,000
Percentage of Leads Generated Online	40%

Participation in real estate and investment conferences

Phillips Edison actively participates in real estate and investment conferences, which serve as vital channels for networking and building relationships with potential tenants and investors. These conferences allow PECO to showcase its portfolio, attract new tenants, and engage with industry stakeholders.

In 2024, PECO attended several high-profile events, enhancing its visibility in the real estate market:

• Number of conferences attended: 10
• Estimated attendees at major events: 5,000+
• Average leads generated per conference: 50

This proactive engagement strategy is crucial for maintaining a competitive edge in the retail real estate sector, providing PECO with opportunities to expand its tenant base and increase occupancy rates across its properties.

Phillips Edison & Company, Inc. (PECO) - Business Model: Customer Segments

Grocery retailers as primary tenants

The primary customer segment for Phillips Edison & Company, Inc. consists of grocery retailers. As of September 30, 2024, approximately 96.6% of the company's annualized base rent (ABR) is derived from grocery-anchored shopping centers. The total ABR from these centers was $497.1 million, highlighting the significant role these tenants play in the company's revenue stream .

In terms of occupancy, grocery-anchored centers have maintained a high leased occupancy rate of 99.4% for anchor spaces, which typically include grocery stores . This illustrates the stability and reliability of grocery retailers as primary tenants.

Local and regional businesses providing essential services

Another vital customer segment includes local and regional businesses that provide essential services. These businesses not only enhance the shopping experience but also contribute to the overall foot traffic within the centers. As of September 30, 2024, Phillips Edison & Company operated 311 shopping centers across 31 states, with a robust mix of local and regional tenants .

These tenants often include pharmacies, banks, and service-oriented businesses, which help to create a comprehensive shopping environment that meets the daily needs of consumers. The presence of such businesses supports the grocery retailers by increasing the likelihood of higher customer visits and dwell time .

Investors seeking stable returns from REIT investments

Investors represent a crucial customer segment for Phillips Edison & Company as a Real Estate Investment Trust (REIT). The company aims to deliver stable returns through regular dividends and capital appreciation. The monthly distribution rate was $0.1025 per share as of September 2024, reflecting a 5.1% increase from previous distributions .

Financial Metric	Value (2024)
Total Debt	$2.134 billion
Weighted Average Interest Rate	4.4%
Net Income Attributable to Stockholders	$44.5 million
Net Debt to Adjusted EBITDAre	5.1x
Total Enterprise Value	$7.294 billion

As of September 30, 2024, the company held a total enterprise value of $7.294 billion, with a net debt of $2.156 billion. This financial structure underscores the company's commitment to delivering value to its investors .

Phillips Edison & Company, Inc. (PECO) - Business Model: Cost Structure

Operating costs for property management and maintenance

As of September 30, 2024, Phillips Edison & Company reported total operating expenses of $363,124,000, which reflects an increase of 6.8% compared to the previous year. This includes property operating expenses which rose to $81,461,000 for the nine months ended September 30, 2024, compared to $74,010,000 for the same period in 2023.

Leasing commissions and tenant improvement expenses

During the nine months ended September 30, 2024, Phillips Edison & Company incurred leasing commissions and tenant improvement expenses totaling $55,640,000, which is a decrease of $18,700,000 compared to $74,317,000 for the same period in 2023. Specifically, tenant improvements accounted for $18,723,000, down from $20,484,000, while capital improvements were $11,833,000, compared to $18,336,000 in the prior year.

Expense Category	2024 (in thousands)	2023 (in thousands)	Change (in thousands)
Leasing Commissions	Not separately disclosed	Not separately disclosed	Not applicable
Tenant Improvements	18,723	20,484	-1,761
Capital Improvements	11,833	18,336	-6,503
Total Expenses for Leasing	55,640	74,317	-18,677

Interest payments on debt and financing costs

As of September 30, 2024, the total interest expense for Phillips Edison & Company was $71,954,000, reflecting an increase of 16.7% from $61,663,000 in the prior year. This includes interest on unsecured term loans and senior notes totaling $44,800,000, interest on secured debt of $13,252,000, and interest on the revolving credit facility amounting to $6,302,000.

Debt Type	Interest Expense (2024, in thousands)	Interest Expense (2023, in thousands)	Change (in thousands)
Unsecured Term Loans & Senior Notes	44,800	35,046	+9,754
Secured Debt	13,252	14,090	-838
Revolving Credit Facility	6,302	6,536	-234
Total Interest Expense	71,954	61,663	+10,291

Phillips Edison & Company, Inc. (PECO) - Business Model: Revenue Streams

Rental income from leased properties

For the three months ended September 30, 2024, Phillips Edison reported rental income of $161,780,000, an increase from $149,566,000 in the same period of 2023, reflecting an increase of 8.2%. For the nine months ended September 30, 2024, the rental income was $478,134,000, compared to $446,274,000 for the same period in 2023, representing a 7.1% increase.

Management fees from third-party services

In the third quarter of 2024, management fees and income totaled $2,856,000, up from $2,168,000 in the third quarter of 2023, which is a significant increase of 31.7%. For the nine months ending September 30, 2024, these fees amounted to $7,943,000, compared to $7,192,000 for the same period in 2023, marking a 10.4% rise.

Period	Rental Income	Management Fees
Q3 2024	$161,780,000	$2,856,000
Q3 2023	$149,566,000	$2,168,000
9M 2024	$478,134,000	$7,943,000
9M 2023	$446,274,000	$7,192,000

Income from property sales and dispositions

During the nine months ended September 30, 2024, Phillips Edison did not sell any properties but recognized a minimal loss on disposal of property due to miscellaneous write-off activity. In contrast, during the same period in 2023, the company sold one property and two outparcels for a total contract price of $6,300,000, with proceeds of $7,100,000 and a gain on disposal of $1,100,000.

Article updated on 8 Nov 2024

Resources:

1. Phillips Edison & Company, Inc. (PECO) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Phillips Edison & Company, Inc. (PECO)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Phillips Edison & Company, Inc. (PECO)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.