Phillips Edison & Company, Inc. (PECO) stock intrinsic value fair value estimate & owner earnings analysis

Phillips Edison & Company owns and operates neighborhood shopping centers anchored by grocery stores across the United States, leased to more than 3,500 tenants. Its largest grocery names are Kroger (about 5.2% of base rent) and Publix (about 4.9%), and no single tenant or city dominates: the ten largest metro areas, led by Atlanta, Chicago and Dallas, make up about 43% of base rent. Cash comes from rent and expense recoveries. In 2025 same-center net operating income rose 3.8% and leased occupancy was 97.6%. How we measure earnings. We start from operating cash flow, remove year-to-year swings in working capital, subtract stock compensation (a real cost that the cash figure adds back) and subtract only the capital spending needed to keep the centers competitive (tenant improvements, leasing costs and upkeep). Spending judged to be for growth is treated as discretionary and not deducted. Money spent acquiring new centers is not deducted, but it is also not credited as future growth. Owner earnings per share (the share count includes the operating-partnership units held by outside investors, because their share of cash flow is inside the total) were about $1.58 in 2019, $1.41 in 2020, $1.48 in 2021, $1.36 in 2022, $1.53 in 2023, $1.67 in 2024 and $1.53 in 2025. We use the 2021-2025 median of $1.53 as the normal level. Depreciation and lease-intangible amortization are large non-cash charges and are correctly added back, because the buildings are maintained and re-leased rather than wearing out; the cost of that upkeep is captured in the capital spending we deduct. Some of the 2025 capital spending ($136 million versus about $95 million in each of 2023 and 2024) reflects redevelopment, and the company expects $140-160 million in 2026, of which $70-90 million is development and redevelopment. The key observation is that owner earnings per share have been roughly flat for seven years (about $1.58 in 2019 and $1.53 in 2025) even though the company kept acquiring centers (about $360 million in 2025) and same-center income grew. The acquisitions were paid for with new shares, new debt and retained cash, and higher capital spending and interest absorbed much of the rest. Owner earnings per share fell about 8% in 2025 from 2024, so we do not assume a rebound: the first year of every case starts at or below the 2025 level. Base case: about $27.50 per share. Owner earnings start at $1.53 and grow 1% a year for ten years, then hold flat. The growth is credited only from what has been demonstrated: contractual rent steps and re-leasing at high occupancy in a portfolio whose same-center income has grown in each recent year, offset by the fact that per-share results have not grown in practice. Not credited: future acquisitions at any pace, share-count-funded growth, and the 9-12% yields the company targets on redevelopments beyond what is already under way (about $69.5 million of projects in process). After year ten, we assume earnings simply persist, because grocery-anchored centers with 97.6% occupancy and a diversified tenant base are a structural, decades-long income stream and upkeep is already deducted. Bear case: about $18.50 per share. The company carries about $2.4 billion of debt at an average 4.5% rate and has been refinancing maturities at higher rates (its 2025 notes were issued at 5.25%; 2024 issues at 4.95% and 5.75%), with a $161.8 million term loan now due in January 2027 and its revolving facility in January 2029. We assume that interest pressure and continued heavy re-leasing and redevelopment spending pull owner earnings per share to about $1.30 (below the 2022 low of $1.36), flat for ten years, then decline about 2% a year as older shopping centers lose ground to alternatives. A grocery anchor closing at a large centre would fit this path. Bull case: about $32 per share. Owner earnings grow 3% a year for ten years, close to the 3.8% same-center income growth achieved in 2025, then hold flat. This requires that rent growth actually reach owner earnings rather than being absorbed by capital spending and interest, as it has not in recent years. What would make this wrong: if rising capital spending proves permanent and rent growth stays below it, the bear case is closer to the truth; if the company begins to cut its need for external capital while same-center growth persists, the bull case applies. We did not value the company on its own reported adjusted measures, only on the cash-flow figures in its audited filings. We could not review the most recent quarterly report as part of this update. The share count used includes operating-partnership units, which matches the cash flow being valued. The margin-of-safety price of $16.50 sits below the bear case. The business is stable and well diversified, but it is leveraged with maturing debt to refinance at higher rates, so the margin-of-safety price includes a wide cushion.