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Merger To Create $6.3B Grocery Center REIT

A Sprouts Farmers Market in Spring Cypress Village shopping center in Houston

Phillips Edison & Co. has initiated another merger to grow what is already one of the largest REITs in the country focused solely on grocery-anchored shopping centers.

The REIT has agreed to a stock-for-stock merger with a fund it created, Phillips Edison Grocery Center REIT II, it announced Wednesday. The transaction, valued at $1.9B, will pay Grocery Center REIT II shareholders 2.04 shares of Phillips Edison & Co. for every Grocery Center share, based on a valuation of the former at $22.54 per share and the latter at $11.05 per share as of May 9.

Phillips Edison, which had already advised and managed the properties of its spinoff REIT, will now have a portfolio of 323 grocery-anchored shopping centers across 33 states totaling 36.7M SF, worth a total of $6.3B. Also part of the transaction is a 20% ownership interest in a joint venture that Grocery Center REIT II had with TPG Real Estate called Necessity Retail Group.

Existing Phillips Edison shareholders are expected to own 71% of the company, with former Grocery Center REIT II shareholders taking 29%. Phillips Edison will either assume or refinance its offshoot's $801M in outstanding debt. The merger is expected to close in the fourth quarter.

The merger is an effort to simplify the management of the portfolio, which is entirely made up of perhaps the healthiest portion of the retail real estate market. As malls and traditional power centers plummet in value, grocery stores (and by extension, the centers they anchor) remain strong in the face of the e-commerce revolution.

With few owners eager to sell their best-performing assets and competition among grocery stores remaining fierce, Phillips Edison Chairman and CEO Jeff Edison said the merger "will greatly improve our access to the capital markets" to facilitate further acquisitions.

“We remain bullish on the current operating environment as well as the long-term fundamentals supporting grocery-anchored shopping centers, and this merger demonstrates our unwavering confidence in the asset class,” Edison said in a press release.