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Phillips Edison Grocery Center REIT I To Acquire Real Estate Assets and Asset Management Business from Phillips Edison Limited Partnership

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Phillips Edison Grocery Center REIT I Inc. entered into a definitive contribution agreement on May 18, 2017 to acquire real estate assets and the third-party asset management business of its sponsor and external advisor, Phillips Edison Limited Partnership, in a stock and cash transaction valued at approximately $1 billion, subject to closing adjustments.

Upon the closing of the transaction, this highly strategic acquisition will create an internally-managed, non-traded grocery-anchored shopping center REIT with an expected total enterprise value of approximately $4 billion. The resulting enterprise will own a high-quality, nationally-diversified portfolio of 230 shopping centers in 32 states that is well positioned to drive sustained growth and create enhanced value for all shareholders. PECO I estimates that, on a pro forma basis, funds from operation would have increased by 8-10% on a per share basis for the three months ended March 31, 2017 relative to actual results.

Under the terms of the agreement, PELP will receive approximately 45.2 million operating partnership units in PECO I’s operating partnership, Phillips Edison Grocery Center Operating Partnership I LP, inclusive of 4.8 million class B Units in PECO I OP already outstanding, and approximately $50 million in cash in exchange for the contribution of PELP’s ownership interests in 76 shopping centers and its third party asset management business.

“Shareholders of PECO I will benefit from a combined enterprise with internalized management, increased size and scale, higher earnings potential, greater earnings growth potential, improved dividend coverage and enhanced access to capital,” said Stephen Quazzo, the chair of the special committee of PECO I’s board of directors, in a prepared statement. “Importantly, we expect this strategic transaction to be immediately accretive to FFO per share, and it positions PECO I well for future capital market opportunities including potential liquidity alternatives.”

Each OP unit is exchangeable for PECO I common shares. PECO I’s board of directors recently reaffirmed that the company’s common stock has an estimated value per share of $10.20 as of March 31, 2017. An independent third party valuation firm, Duff & Phelps, provided a range of the estimated value per share of the company’s common stock based substantially on its estimate of the market value of the company’s portfolio as of March 31, 2017.

The cash portion of the consideration will be used to retire certain minority interests in PELP to help ensure the combined company maintains its qualification as a REIT.

Management will receive no cash consideration in this transaction and will be subject to traditional and customary lockup provisions. Additionally, PECO I will not pay any internalization fees in connection with the transaction, i.e., no consideration is being paid for the advisory services that PELP provides to PECO I.

Outstanding debt of approximately $501 million is expected to be refinanced or assumed by PECO I at closing under the terms of the agreement. The agreement also includes an earn-out structure with an opportunity for PELP to receive up to an additional 12.49 million OP units if certain milestones are achieved related to a liquidity event for PECO I shareholders and fundraising targets in PELP’s third non-traded REIT, Phillips Edison Grocery Center REIT III.

On a pro forma basis, immediately following the closing of the transaction, PECO I shareholders are expected to own approximately 80.2%, and former PELP shareholders are expected to own approximately 19.8% of the combined company. The transaction was approved by the independent special committee of PECO I’s board of directors, which had retained independent financial and legal advisors. The closing of the transaction is subject to the satisfaction of customary conditions. Although not required by law or under PECO I’s governing documents, PECO I has conditioned the closing of the transaction on the receipt of the approval of its shareholders. PELP will also seek the approval of its partners. The transaction is expected to close during the fourth quarter of 2017.