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Phillips Edison Grocery Center REITs Cut Ties with AR Global Advisors

Phillips Edison Grocery Center REIT I Inc. and Phillips Edison Grocery Center REIT II Inc., two publicly registered non-traded REITs, have severed ties with their respective AR Global affiliated external advisers, American Realty Capital II Advisors LLC and American Realty Capital PECO II Advisors LLC.

The REITs paid AR Global Investments a combined $15.5 million to terminate all contractual and economic relationships, and in exchange, AR Global and its affiliates agreed to sell all of their Class B units in the operating partnership; redeem all of their interests in the special limited partner of both REITs; terminate all fee sharing arrangements with the REITs’ advisors; and release of all claims against the REITs and certain affiliates.

AR Global, the successor business of AR Capital, was once the leading sponsor of non-traded direct investment programs before terminating its sponsored offerings following a series of scandals in recent years.

These include the 2014 American Realty Capital Properties (NYSE: ARCP) accounting cover-up and 2017 criminal conviction of former CFO Brian Block, the 2015 shutdown of Realty Capital Securities amid proxy fraud charges and $3 million fine by the state of Massachusetts, and the 2016 RCS Capital (NYSE: RCAP) bankruptcy.

Phillips Edison Grocery Center REIT I and II amended their operating partnership agreements to remove the AR Global affiliates as limited partners in all capacities. The agreement also decreases the number of Class B units to be issued on a quarterly basis by 15 percent for services provided by the advisers. In addition, the REITs amended their advisory agreements with Phillips Edison NTR and Phillips Edison NTR II to reduce all fees payable to them by 15 percent.

In other company news, Phillips Edison Grocery Center REIT I shareholders will vote on a proposal to internalize management of the company on September 20th. The REIT has agreed to acquire the real estate assets and third-party asset management business of its sponsor and external advisor, Phillips Edison Limited Partnership, in a stock and cash transaction valued at approximately $1 billion. If the transaction is approved, it will create an internally-managed, non-traded grocery-anchored shopping center REIT with 230 properties and an expected enterprise value of approximately $4 billion.

Phillips Edison Grocery Center REIT I invests in grocery-anchored neighborhood shopping centers having a mix of national and regional retailers selling necessity-based goods and services. The offering was declared effective in August 2010 and raised nearly $1.8 billion before closing in the first quarter of 2014. The company’s portfolio consists of 158 properties with a combined purchase price of approximately $2.5 billion.

Phillips Edison Grocery Center REIT II was declared effective in November 2013 and closed in September 2015 after raising $1.1 billion in investor equity. The company owns a retail portfolio of 80 properties purchased for approximately $1.6 billion.

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