Phillips Edison to Merge With Phillips Edison Grocery Center REIT II

Phillips Edison & Company, Inc. (PECO), a public non-listed REIT (PNLR), said July 18 that it has agreed to merge with Phillips Edison Grocery Center REIT II, Inc., a PNLR it currently sponsors and manages, creating a $6.3 billion REIT focused exclusively on grocery-anchored shopping centers.

The stock-for-stock merger will create a national portfolio of 323 grocery-anchored shopping centers encompassing approximately 36.7 million square feet, located across 33 states.

Jeff Edison, chairman, CEO, and co-founder of PECO, said the merger is the next step on the path to liquidity for both sets of shareholders.

“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,” Edison said.

Edison said the current operating environment and long-term fundamentals support the sector: “This merger demonstrates our unwavering confidence in the asset class.”

As a combined entity, occupancy is expected to increase 43 basis points to 94 percent. The merger will also boost the percentage of earnings from real estate from 92 percent to approximately 97 percent.

The transaction is expected to close in the fourth quarter of 2018. 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 (EVPS) of $11.05. With the merger, the advisory agreement between REIT II and PECO will be terminated, effectively eliminating $14 million in annual expenses for REIT II.

PECO moved to an internal management structure at the end of 2017 upon the acquisition of its former sponsor. At the same time, the company also discarded its former name, Phillips Edison Grocery Center REIT I, Inc.