Assessing Phillips Edison & Co (PECO) as a Resilient REIT in a High-Yield, Low-Beta Environment

In an economic climate marked by rising interest rates, inflationary pressures, and market volatility, investors are increasingly prioritizing assets that offer both income stability and downside protection. Phillips Edison & Company (PECO), a REIT specializing in grocery-anchored neighborhood shopping centers, emerges as a compelling candidate for those seeking resilience. By analyzing PECO's portfolio composition, disciplined acquisition strategy, and robust balance sheet, this article evaluates how the company is positioned to deliver sustained Core FFO and NOI growth in a high-yield, low-beta environment.

The Resilience of Grocery-Anchored Retail

PECO's core strength lies in its grocery-anchored portfolio, which accounted for 100% of its wholly-owned properties as of June 30, 2025. The company's 303 wholly-owned centers—spanning 34.0 million square feet across 31 states—are anchored by major grocery chains like Kroger, Publix, Albertsons, and Ahold Delhaize. These anchors generate consistent foot traffic and create a “destination” effect, which benefits inline tenants.

The grocery-anchored model is inherently defensive. Unlike discretionary retail, grocery stores cater to necessity-based demand, making them less vulnerable to economic downturns. PECO's portfolio occupancy metrics underscore this resilience: leased anchor occupancy reached 98.9%, with same-center occupancy at 99.1% as of Q2 2025. Inline tenants also performed well, with 94.8% occupancy, reflecting strong demand for ancillary services like pharmacies, banks, and restaurants.

PECO's focus on grocery anchors also provides pricing power. During Q2 2025, the company achieved a 34.6% rent spread on new leases and 19.1% on renewals, driven by inelastic demand and limited retail supply in suburban markets. This ability to command rent increases is a critical advantage in a high-rate environment, where cap rates are tightening.

Strategic Acquisitions: Fueling Growth Without Overleveraging

PECO's disciplined acquisition strategy further enhances its appeal. In Q2 2025, the company acquired six shopping centers for $133.3 million at its prorated share, including properties like Clayton Station (anchored by Safeway) and Westgate Shopping Center (Target-anchored). These acquisitions were strategically located in suburbs of major cities like San Francisco, Columbus, and Cleveland, where demand for mixed-use retail remains strong.

What sets PECO apart is its ability to acquire high-quality assets without compromising its balance sheet. The company's trailing twelve-month net debt to annualized adjusted EBITDAre stood at 5.4x as of June 2025, well below the 6.5x average for the retail REIT sector. This conservative leverage ratio, combined with $972 million in liquidity (including a $1.0 billion revolving credit facility), allows PECO to capitalize on opportunistic deals without overextending.

Moreover, PECO's joint venture model provides additional flexibility. By co-owning 24 centers through three institutional joint ventures, the company can scale its portfolio while sharing capital risks. For example, the acquisition of New Bern Plaza (a grocery-anchored center in Raleigh, NC) was funded through a joint venture, preserving PECO's liquidity while expanding its footprint in a high-growth market.

A Low-Beta Play in a High-Yield Environment

PECO's low volatility and predictable cash flows make it an attractive low-beta investment. The company's portfolio is geographically diversified across 31 states, mitigating regional economic risks. Its focus on necessity-based retail also insulates it from consumer spending shifts that plague discretionary retailers.

Additionally, PECO's debt structure is optimized for a rising-rate environment. As of June 2025, 95% of its debt was fixed-rate, with a weighted-average interest rate of 4.4% and a maturity of 5.7 years. This reduces refinancing risks and aligns with the current Federal Reserve trajectory. The company's recent $350 million senior note issuance at 5.25% further solidifies its cost of capital.

Investment Thesis: Why PECO Stands Out

In a market where many REITs are struggling with cap rate compression and margin pressures, PECO's combination of defensive assets, disciplined growth, and financial prudence is rare. Key metrics to monitor include:
- Same-center NOI growth: PECO's 3.35% guidance for 2025 reflects confidence in its ability to sustain cash flow expansion.
- Debt metrics: The company's liquidity and leverage ratios provide a buffer against rate hikes.
- Acquisition pipeline: With $287 million in acquisitions already executed in 2025 and a $350–$450 million guidance range for the year, PECO is well-positioned to scale its portfolio organically.

For income-focused investors, PECO's 4.2% dividend yield (as of July 2025) offers a compelling alternative to high-yield bonds, particularly given its strong coverage ratios (FFO payout ratio of 72%). While the REIT sector faces headwinds from inflation and rate uncertainty, PECO's grocery-anchored model and low-beta profile make it a resilient, high-conviction play.

Conclusion

Phillips Edison & Company is a testament to the power of strategic specialization in retail real estate. By anchoring its portfolio to necessity-driven retail, maintaining a conservative balance sheet, and executing disciplined acquisitions, PECO has built a moat that protects it from macroeconomic swings. In a high-yield, low-beta environment, this REIT stands out as a defensive growth story—one that offers both income stability and the potential for long-term capital appreciation. For investors seeking resilience in an uncertain market, PECO deserves a closer look.