Phillips Edison & Company to Merge with Phillips Edison Grocery Center REIT II

July 18, 2018

Phillips Edison & Company to Merge with Phillips Edison Grocery Center REIT II

July 18, 2018 | Luke Schmidt | Blue Vault

Bagged Grocery Produce Items on a Wooden Plank

On July 17, 2018, Phillips Edison & Company, Inc. (“PECO”) and Phillips Edison Grocery Center REIT II, Inc. (“REIT II”) entered into an agreement and plan of merger, with PECO being the surviving entity.  The transaction will be a 100% stock-for-stock merger with REIT II. This merger will create a national portfolio of 323 grocery-anchored shopping centers encompassing approximately 36.7 million square feet located across 33 states with a total enterprise value of approximately $6.3 billion.  In addition, this merger includes REIT II’s 20% ownership 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 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.  This ratio is based on the valuation of each entity, including factoring in PECO’s growing investment management business, as well as transaction costs.  PECO’s most recent NAV per share of $11.05 and REIT II’s most recent NAV per share of $22.80 were both established on May 9, 2018 by the companies’ respective board of directors.  After the closing of the proposed merger, management will be the combined company’s largest shareholder, owning approximately 7.3% of the common stock.

On a pro forma basis, immediately following the closing of the transaction, PECO shareholders are expected to own approximately 71% of the combined company, with former REIT II shareholders owning the remaining 29%.  The closing of this transaction is subject to approval from both PECO and REIT II shareholders and obtaining other third-party consents.  PECO and REIT II have the expectation to hold stockholder meetings in November 2018 to vote on this merger.  It is expected to close in the fourth quarter of 2018.

In connection with this proposed transaction, PECO is temporarily suspending its distribution reinvestment plan (“DRIP”) for the month of July 2018.  As a result, DRIP participants will receive their July 2018 distribution in cash.  PECO expects that the DRIP will resume in August 2018 after the filing of a joint preliminary proxy statement.  The share repurchase program will also be temporarily suspended for the month of July 2018, with the expectation to resume in August 2018.  PECO does not expect funding to be available for standard repurchases for the remainder of 2018.

Sources:  SEC, Phillips Edison Press Release, Blue Vault


Learn more about Phillips Edison & Company on the Blue Vault Sponsor Focus page


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