Phillips Edison & Co. Merger To Create $6.3B REIT

CINCINNATI, OH–Phillips Edison & Co. has entered into an agreement to merge with Phillips Edison Grocery Center REIT II to create a $6.3 billion REIT that will be focused exclusively on grocery-anchored shopping centers.

The stock-for-stock transaction will create an entity with a national portfolio of 323 grocery-anchored shopping centers encompassing approximately 36.7 million square feet located across 33 states. The merger includes REIT II’s 20% ownership interest in Necessity Retail Partners, a joint venture with TPG Real Estate that presently owns 14 grocery-anchored shopping centers.

The merger is the next step on the path for liquidity for both sets of shareholders, said Jeff Edison, chairman and CEO of PECO, in a prepared statement. The combined entity will have better access to the capital markets, he explained, which can be tapped for other strategic investments and growth opportunities.

“The transaction also highlights the value and growth opportunities inherent in our investment management platform,” Edison said. “In REIT II, we raised $1.1 billion in equity in 2014 and 2015 and have acquired real estate valued at approximately $1.9 billion since. PECO earned fees as the external advisor and property manager, and now, PECO has the opportunity to merge with this complementary, institutional-quality portfolio, materially increasing its size, scale and diversification.”

In exchange for each share of REIT II common stock, REIT II shareholders will receive 2.04 shares of PECO common stock, which is equivalent to $22.54 per share based on PECO’s most recent estimated net asset value per share of $11.05. PECO’s most recent EVPS of $11.05 and REIT II’s most recent EVPS of $22.80 were both established on May 9, 2018 by the companies’ respective boards of directors based on property valuations performed by an independent valuation firm.

REIT II will not pay any internalization or disposition fees in connection with the transaction, and the advisory agreement will be terminated at closing. REIT II’s outstanding debt of approximately $801 million is expected to be refinanced or assumed by PECO at closing under the terms of the agreement.

On a pro forma basis, following the closing of the transaction PECO shareholders are expected to own approximately 71% of the combined company, and former REIT II shareholders are expected to own approximately 29%. Upon closing of the transaction, two of the three REIT II independent directors will join the board of the combined company, which will consist of seven directors.

The closing of the transaction is subject to the satisfaction of customary conditions, including approval from both PECO and REIT II shareholders and obtaining certain other third-party consents. The transaction is expected to close in the fourth quarter of 2018.

Under the terms of the merger agreement, REIT II may solicit, receive, evaluate, and enter into negotiations for alternative proposals from third-parties for a period of 30 days continuing through August 15, 2018.

The special committee intends to actively solicit alternative proposals during this period.