Phillips Edison & Company’s Listing on Nasdaq
October 6, 2021 | James Sprow
Phillips Edison & Company, Inc. (“PECO”) is an internally-managed real estate investment trust (“REIT”) that is one of the nation’s largest owners and operators of grocery-anchored shopping centers. It was formed in 2009 as a nontraded REIT, conducting its business through Phillips Edison Grocery Center Operating Partnership I, L.P. In October 2017 it internalized its management structure through the acquisition of Phillips Edison Limited Partnership. Additionally, it operated an investment management business providing property management and advisory services to third-party owned grocery-anchored real estate. The REIT’s portfolio primarily consists of well-occupied, grocery-anchored neighborhood and community shopping centers having a mix of national, regional, and local retailers providing necessity-based goods and services.
The REIT was originally named “Phillips Edison – ARC Shopping Center REIT Inc.” Its IPO of 150 million shares of common stock at a price of $10.00 per share was on a “best efforts” basis through Realty Capital Securities, LLC, the dealer manager, an affiliate of American Realty Capital II, LLC, one of the REIT’s sponsors. (The relationship with American Realty Capital II ended on December 3, 2014.) The offering was declared effective by the SEC on August 12, 2010.
The REIT’s advisor prior to the internalization was Phillips Edison NTR LLC, which was directly owned by Phillips Edison Limited Partnership and Michael Phillips and Jeffrey Edison, principals of the sponsor.
Mergers with Two Nontraded REITs Managed by PECO
In November 2018, the REIT completed a merger with Phillips Edison Grocery Center REIT II, Inc., a public non-traded REIT that was advised and managed by PECO. In the same month, it also contributed or sold 17 properties in the formation of Grocery Retail Partners I LLC (“GRP I”), a joint venture with Northwestern Mutual Life Insurance Company.
On October 31, 2019, PECO completed a merger with Phillips Edison Grocery Center REIT III, Inc., a public non-traded REIT that was advised and managed by PECO, in a transaction valued at approximately $71 million. This resulted in the acquisition of three properties, as well as a 10% equity interest in Grocery Retail Partners II LLC (“GRP II”), a joint venture with Northwestern Mutual that owns three properties. On October 1, 2020, GRP I acquired GRP II, and PECO’s ownership in the combined entity was adjusted to approximately 14%.
As of June 30, 2021, the REIT wholly-owned 272 real estate properties. Additionally, it owned a 14% interest in Grocery Retail Partners I LLC, a joint venture that owned 20 properties, and a 20% equity interest in Necessity Retail Partners, a joint venture that owned two properties.
Preparation for Listing
On June 18, 2021, the REIT’s stockholders approved an amendment to its charter that effected a change of each share of its common stock outstanding at the time the amendment became effective into one share of a newly created class of Class B common stock. The Class B common stock will be identical to the common stock that will be listed on the Nasdaq through the IPO described below except that it will not be listed and exchange tradeable. On the sixth-month anniversary of the listing of PECO’s common stock for trading on Nasdaq (approximately January 15, 2022), each share of Class B common stock will automatically convert into one share of the listed common stock. At that time, shareholders holding Class B common stock will be able to obtain full liquidity for their shares by trading them on Nasdaq.
The six-month delay in making Class B shares eligible for trading on Nasdaq is a common strategy used by nontraded REITs that list their shares to mitigate possible market pressure created by the desire of existing shareholders to liquidate their holdings.
As of June 30, 2021, after giving effect to the recapitalization, the REIT had approximately 93,639,517 shares of common stock and Class B common stock issued and outstanding, held by a total of 61,688 stockholders of record.
On July 2, 2021, the REIT’s board of directors approved an amendment to its articles of incorporation to effect a one-for-three reverse stock split. Concurrent with the reverse split, the Operating Partnership enacted a one-for-three reverse split of its outstanding Operating Partnership units.
Duff & Phelps, an independent valuation expert, calculated a range of PECO’s common stock’s estimated value per share (“EVPS”) as of March 31, 2021. The estimated value per share approved by PECO’s independent directors was $31.65, adjusted for the reverse 3:1 stock split. The previous established EVPS, based upon substantially the same methodology and process, was $26.25 as of March 31, 2020.
Listing on Nasdaq
On July 19, 2021, the REIT closed its underwritten initial public offering through which it offered 17.0 million shares of a new class of common stock, at an initial price of $28.00 per share. These shares are listed on the Nasdaq Global Select Market under the trading symbol “PECO”. The underwriters have since exercised a 30-day option to purchase additional shares of common stock to cover overallotments, and, accordingly, on August 2, 2021, the REIT settled the sale of an additional 2.55 million shares, with gross proceeds of $71.4 million.
PECO’s common stock began trading on Nasdaq on July 15, 2021, opening trading at $28.00 per share and closing at $27.83, on volume of 6,715,500 shares. On October 5, 2021, the shares closed at $31.18, up over 12% since the listing. The forward dividend yield based upon the monthly dividend of $0.085, or $1.08 annualized, was 3.46%. The REIT’s common shares, which were originally offered to the public at $10.00, would have a cost basis of $30.00 when adjusted for the reverse stock split.
On August 4, 2021, as a result of the underwritten IPO, the REIT’s Board approved the termination of the DRIP and the SRP. The DRIP had been suspended since April 2021. The SRP, which was limited to repurchases resulting from the DDI of stockholders, had been suspended since March 2021, and the SRP for standard repurchases had been suspended since August 2019.
Sources: SEC, Yahoo! Finance
