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Phillips Edison Grocery Center REIT III to Merge with Sponsor

September 5, 2019

Phillips Edison Grocery Center REIT III to Merge with Sponsor

September 5, 2019 | James Sprow | Blue Vault

Phillips Edison Grocery Center REIT III Inc., or PECO III, reached a deal to merge with Phillips Edison & Co. Inc., or PECO, following its strategic review.

Under the terms of the deal, the weighted average merger consideration is $7.59 per share, based on PECO's most recent estimated net asset value per share of $11.10.

Once the merger takes effect, holders of PECO III class A common stock will receive 0.6693 PECO common share and 9.39 cents in cash per Class A share they hold; holders of PECO III Class I common stock will receive 0.7436 PECO common share and 9.41 cents in cash per Class I share they hold; and holders of PECO III Class T common stock will receive 0.7749 PECO common share and 9.89 cents in cash per Class T share they hold. All stockholders will have the ability to receive additional shares of PECO common stock in lieu of the cash portion of the merger consideration.

According to the announcement, the merger consideration, on an aggregate basis and for each of the Class A, I and T shares, represents a substantial premium over both the $6.54 midpoint and the $6.88 high end of PECO III's estimated net asset value per-share range. Blue Vault reports that this is a substantial discount from both the private and public offering prices. The Class A shares were sold in a private offering in Q1 2018 at an average price of $9.87 per share.  The Class I and Class T shares were sold in a public offering for $10.00 and $10.42 per share, respectively. 

PECO III's special committee concluded that the proposed merger is the best available option for the company and its shareholders, citing relative valuation, timing and transaction cost considerations, according to a filing. Possible alternatives to the merger explored by PECO III's special committee included continuing to operate as a stand-alone entity, liquidation, or seeking a business combination with or sale of assets to another party.

The proposed merger has been approved by PECO III's special committee of independent directors and PECO's board.

PECO III, a nontraded real estate investment trust focused on grocery-anchored shopping centers, is co-sponsored by PECO and Griffin Capital Co. LLC. PECO III's adviser is jointly owned by affiliates of PECO and Griffin.

PECO III completed a private placement offering of shares of Class A common stock to accredited investors and ceased offering Class A shares in the private offering during the first quarter of 2018. During the private placement offering, the REIT raised $57.7 million in gross offering proceeds from the issuance of 5.9 million Class A shares, inclusive of the DRIP.  

A public offering was declared effective on May 8, 2018, consisting of  (i) $1.5 billion in shares of common stock in the primary offering, consisting of two classes of shares, Class T and Class I, at purchase prices of $10.42 per share and $10.00 per share, respectively, with discounts available to some categories of investors with respect to Class T shares, and (ii) $0.2 billion in Class A, Class T, and Class I shares of common stock pursuant to the DRIP at a price of $9.80 per share.

In connection with a review of potential strategic alternatives, on June 12, 2019, PECO III’s Board of Directors approved the suspension of the public offering and the share repurchase program (“SRP”), effective June 14, 2019. As of June 30, 2019, PECO III had raised $1.1 million and $3.3 million in gross offering proceeds from the issuance of Class I and Class T shares, respectively. 

As of June 30, 2019, PECO III wholly-owned three properties and a 10% equity interest in Grocery Retail Partners II LLC, an unconsolidated joint venture with Northwestern Mutual Life Insurance Company, that owned three properties as of June 30, 2019. 

PECO III wholly owns a shopping center in Ashburn, Virginia, purchased in January 2019 for $31.73 million. The property is anchored by a 49,000 square foot Giant grocery store.  It purchased a shopping center in Sudbury, Massachusetts, in July 2018 for $19.47 million, with Rite Aid, T.J. Maxx, and Walgreens as tenants.  It purchased a shopping center in North Fort Meyers, Florida, in December 2017 for $8.84 million, with Publix Super Markets as the anchor tenant. 

Sources:  S&P Global, SEC, Blue Vault

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July 29, 2015
February 22, 2016
    

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