Phillips Edison Merger to Create $6.3 Billion Retail-Focused Non-Traded REIT
Phillips Edison & Company Inc. (PECO), an internally-managed real estate investment trust, has agreed to merge with Phillips Edison Grocery Center REIT II Inc., a public non-traded REIT its currently advises and manages.
Phillips Edison & Company Inc. (PECO), an internally-managed real estate investment trust, has agreed to merge with Phillips Edison Grocery Center REIT II Inc., a publicly registered non-traded REIT it currently advises and manages, to create a $6.3 billion REIT focused on grocery-anchored shopping centers.
The 100 percent stock-for-stock deal will create a national portfolio of 323 grocery-anchored shopping centers totaling approximately 36.7 million square feet. The transaction is expected to close in the fourth quarter of 2018, upon approval of both companies’ shareholders and other third parties.
The companies noted that the combined enterprise will have: larger size and scale, 3.2 percent higher annualized base rent per square foot, a 2.4 percent increase in average household income, and a 3.8 percent increase in population density within a 3-mile radius of the center, and broader tenant diversification.
In addition, the merger includes Phillips Edison Grocery Center REIT II’s 20 percent ownership interest in Necessity Retail Partners, a joint venture with TPG Real Estate that presently owns 14 grocery-anchored shopping centers.
“This strategic merger of two highly complementary grocery-anchored shopping center portfolios is the next step on the path to liquidity for both sets of shareholders,” said Jeff Edison, chairman and chief executive officer of PECO. “The enhanced size, scale and prominence of the combined portfolio will greatly improve our access to the capital markets, which can be used to support ongoing strategic investments, as well as to drive future growth opportunities.”
In exchange for each share of Phillips Edison Grocery Center REIT II common stock, shareholders will receive 2.04 shares of PECO common stock, which is equivalent to $22.54 per share based on the most recent estimated net asset value per share of $11.05. Phillips Edison Grocery Center REIT II has a NAV per share of $22.80.
Phillips Edison Grocery Center REIT II will not pay any internalization or disposition fees in connection with the transaction, and the advisory agreement will be terminated at closing. Its outstanding debt of approximately $801 million is expected to be refinanced or assumed by PECO at closing.
On a pro forma basis, immediately following the closing of the transaction, PECO shareholders are expected to own approximately 71 percent of the combined company, and former Phillips Edison Grocery Center REIT II shareholders are expected to own approximately 29 percent.
The boards of both REITs have unanimously approved the transaction. At closing, two of the three Phillips Edison Grocery Center REIT II independent directors will join the board of the combined company, which will consist of seven directors.
Under the terms of the merger agreement, Phillips Edison Grocery Center REIT II may solicit and enter into negotiations for alternative proposals from third-parties for a period of 30 days continuing through August 15, 2018. Phillips Edison Grocery Center REIT II intends to actively solicit alternative proposals during this period.
Both companies will temporarily suspend their respective distribution reinvestment plans (DRIP) for the month of July 2018, and DRIP participants will receive their July 2018 distribution (payable on August 1, 2018) in cash. The companies expect that the DRIP will resume in August 2018.
The companies’ share repurchase programs will also be temporarily suspended for the month of July 2018 and are expected to resume in August 2018. The next repurchase for death, disability, and incompetence is expected to take place on August 31, 2018. Paperwork must be on file and in good order by August 24, 2018 at 6:00 pm Eastern Time.
PECO Chairman and Chief Executive Officer Jeff Edison, Chief Financial Officer Devin Murphy, and Executive Vice President Mark Addy will host a presentation addressing the merger on Thursday, July 19 at 10:00 a.m. Eastern Time.
Participants are asked to dial-in five minutes prior to the start time and should ask to join the “Phillips Edison & Company” call.
Webcast link: https://services.choruscall.com/links/peco180719-10.html
U.S. listen-only: (888) 346-2646
International listen-only: (412) 317-5249
A webcast replay will be available approximately one hour after the presentation end and can be found in the events and presentations section of the Phillips Edison & Company website.
Phillips Edison & Company Inc. (formerly known as Phillips Edison Grocery Center REIT I Inc.) is one of the nation’s largest owners and operators of grocery-anchored shopping centers. As of March 31, 2018, the company’s $4 billion portfolio was comprised of 237 properties and totaled approximately 26.4 million square feet. The offering was declared effective by the SEC in August 2010 and raised approximately $1.8 billion in investor equity before closing in February 2014, according to Summit Investment Research.
Phillips Edison Grocery Center REIT II Inc. invests in well-occupied grocery-anchored neighborhood shopping centers with a mix of national and regional retailers selling necessity-based goods and services, in strong demographic markets throughout the United States. As of March 31, 2018, the company owned a $1.9 billion retail portfolio consisting of 86 grocery-anchored shopping centers totaling approximately 10.3 million square feet. The company’s initial public offering launched in November 2013 and closed in September 2015 after raising $1.1 billion in investor equity, according to Summit Investment Research.
