REITs at 65: Phillips Edison CEO Says Aggressive Growth Possible Because of REIT Structure

Nice to be here Sarah, thanks for having me.

Well, thanks for the question. The REIT structure has allowed PICO to efficiently raise capital in both the retail and institutional markets. This model has allowed PICO to become one of the largest owners and operators of grocery anchored shopping centers. The REIT structure has been helpful in our long-term growth. Today, PICO manages 328 shopping centers, including 303 wholly owned centers comprising 35 million square feet across 31 states and 25 shopping centers that we own in three institutional joint ventures. PICO's aggressive growth is made possible because of our REIT structure.

Well, it hasn't been easy. We believe PICO is the most aggressive operator in the shopping center space. We're continuously looking for opportunities to grow our business and grow it better. So, how do we stay aggressive? We believe it's due to several key things. First, we stay true to our core grocery-anchored strategy and remain focused on necessity-based retail. Second, we take a long-term view of the business. Third, we're committed to building and keeping talent. Fourth, we are committed to innovation, and so are our grocers and neighbors. For example, our grocers continue to capitalize on the shift to omni-channel, and this approach has been successful for them. In addition, PICO is actively using technology including artificial intelligence to help run our business better. PICO was recently honored at the 2024 RealComm conference with the digital innovation award known as the Digi Awards. It's an annual award, and this one was given for the best use of AI. PICO won the top honors from a field of many finalists. This is PICO's third Digi Award. This award is a meaningful and well-deserved recognition of the PICO team as we continue to stay on the cutting edge of technology. This reinforces PICO's position as a leader in the shopping center space. The PICO team is very excited about AI. Currently, we have 20 active AI projects focused on efficiency and improvements. Many of these projects help our leasing, transactions, and property management team free up time so they can focus on driving value at the property level. We're excited about adding more projects in the future. And lastly, we strategically manage our portfolio. PICO's unique competitive advantages and fully integrated operating platform have proven resilient through many economic cycles.

Yeah, the REIT structure has made investing in real estate accessible to everyone. The format is really great in that it democratizes investing in the best real estate in the world. PICO's investors can own the best necessity-based grocery-anchored shopping centers across growing suburban markets through investment in PICO, and our retail investors can invest alongside some of the biggest institutional investors in the world. PICO has a large retail investor base and has benefited from the REIT structure. Today, retail investors own 25% of our common shares, which is much higher than the shopping center peer average. With our investors' support, we can continue to provide them with strong high-quality cash flows and market leading growth.

Probably focus here on PICO, but beyond PICO's strong operating and financial performance, we also evaluate our performance through a lens of being a responsive landlord in the communities where we operate. Our mission is to create great grocery-anchored omni-channel shopping experiences and improve our neighborhoods one center at a time. PICO shopping centers are located in the neighborhood at the corner of Main and Main. We're highly focused on positive impacts within the neighborhood. So, how are we positively impacting our communities? Our shopping centers create significant economic impact for the local townships and municipalities. We provide jobs and opportunities for social connection. We support local small businesses. We enhance the communities where we operate through development and redevelopment projects. And we connect the neighborhood to top grocers and retailers offering necessity-based goods and services. As you can see, PICO is a critical part of the infrastructure of the communities we serve. We are also committed to best-in-class environmental sustainability efforts, and we're proud to be number one in the GRESB scores of the retail centers group. In addition to staying true to what we do best, we're committed to fostering a culture that attracts exceptional people and empowers them to deliver excellence. We believe we have the best team in the REIT space. We're proud of PICO's high employee satisfaction with 94% of our associates telling us they feel that PICO has an outstanding future. We believe our approach makes PICO a preferred landlord. This is validated by our 95% satisfaction score in our most recent neighbor survey.

Well, we're excited about the future growth opportunities at PICO. Here's why we're excited. First, we own and operate high-quality grocery-anchored neighborhood shopping centers anchored by the number one or two grocer by sales in a market. This focus drives regular recurring foot traffic from customers in a three-mile trade area. In addition, 70% of our rents come from necessity-based goods and services. These categories include grocery stores, quick-service restaurants, beauty and healthcare, and medical retail or medtail as we call this growing category. We believe consumers will continue to visit and spend in these categories even if they do reduce spending on vacations, luxury items, and other discretionary purchases. Second, our differentiated strategy, strong operating results, and consistent cash flow growth allow PICO to provide regular income and strong total returns to our shareholders. Third, we're an omni-channel landlord. Our neighborhood centers are complementary to e-commerce, and our grocers have thrived in this emerging omni-channel environment. Our brick-and-mortar centers are a critical component to both last-mile delivery and BOPUS. Grocers have embraced BOPUS as delivering groceries continues to be logistically and economically challenging. Our brick-and-mortar assets are conveniently located in the neighborhoods they serve, and this makes them ideal for BOPUS customers. Importantly, as the needs of consumers and our neighbors change, we are successfully evolving with them. And lastly, we are well aligned and experienced. Management is one of PICO's largest stockholders. We believe it's hard to be better aligned than having meaningful skin in the game. As PICO's largest blended stockholder, I have never sold a share of PICO and I have no plans of selling those shares.

Our operations team members are what we call locally smart. They're dedicated to curating a dynamic mix of national, regional, and local retailers. Creating the right merchandising mix at every property fosters the sense of market-specific community at every PICO center. We bring the best national, regional, and local retailers to the community which gives them the best shopping experience.

The PICO team continues to prioritize capital allocation to support our long-term growth plans, both internal and external. This includes investing in our development and redevelopment projects as well as strategic and accretive acquisitions. We leverage PICO's strong balance sheet to pursue growth opportunities that align with our grocery-anchored neighborhood centers and our strategy there. Our low leverage at approximately 32% loan-to-value gives us the financial capacity to meet our growth goals. We also have diverse sources of capital that we can use to grow and match-fund our investment activity.

At its heart, PICO is a growth company. We're excited about the growth opportunities ahead, both internal and external. The PICO team is focused on executing our growth plans while navigating these challenges. We continue to drive strong long-term growth through our leasing activity, ground-up development and redevelopment projects, strategic portfolio management, and accretive acquisitions primarily focused on growing our portfolio of core grocery-anchored neighborhood centers.

As I mentioned earlier, the REIT format democratizes investing in the best real estate. PICO's investors can own the best necessity-based grocery-anchored shopping centers across growing suburban markets in the United States, and our retail investors can invest alongside the biggest institutional investors in the world. PICO is well positioned to continue to successfully grow as we look forward. We are very excited about the future of REITs and especially the future of PICO.