Phillips Edison & Company, Inc. · NASDAQ:PECO
Phillips Edison & — Phillips Edison Grocery Center REIT I — Merger or Acquisition (May 2017)
51 slides from Phillips Edison &'s merger presentation, May 22, 2017
Slide 1: Phillips Edison Grocery Center REIT I to Acquire Phillips Edison Limited Partnership
Phillips Edison Grocery Center REIT I to Acquire Phillips Edison Limited Partnership May 2017
Slide 2: Forward-Looking Statement Disclosure
2 · FORWARD - LOOKING STATEMENT DISCLOSURE Certain statements contained in this press release may be considered forward - looking statements within the meaning of Section 27 A of the Securities Act of 1933 , as amended (the “Securities Act”), and Section 21 E of the Securities Exchange Act of 1934 ,
Slide 3: Information Disclosure
3 · INFORMATION DISCLOSURE Additional Information About the Transaction and Where to Find It This communication does not constitute a solicitation of materials of any vote or approval in respect of the proposed transac tio n involving PECO I or otherwise. In connection with the proposed transaction,
Slide 4: Table of Contents
4 · TABLE OF CONTENTS Section 1 The Transaction Page 5 Section II The Portfolio Page 16 Section III Why Grocery? Page 25 Section IV The Platform Page 39 Phillips Edison represents the unique opportunity to invest in what is becoming the most attractive space within shopping center real estate 4
Slide 5: The Transaction
PHILLIPS EDISON & COMPANY | 5 The Transaction
Slide 6: PECO I to Acquire PELP
6 · Phillips Edison Limited Partnership Real Estate 76 Shopping Centers 1 Necessity Retail Partners (20% Interest) 12 Shopping Centers Property Count as of 3/31/2017 PECO I TO ACQUIRE PELP Phillips Edison Grocery Center REIT II, Inc. 78 Shopping Centers Phillips Edison Grocery Center REIT I, Inc. 15
Slide 7: Details: PECO I to Acquire PELP
7 · DETAILS: PECO I TO ACQUIRE PELP PECO I PELP • Externally managed non - traded REIT with estimated $3.0B TEV • 154 shopping centers with 16.8M square feet of GLA • IPO closed in 2014; raised $1.75B • Vertically integrated owner and operator of 76 shopping centers • Exclusively focused on grocery
Slide 8: Transaction Consideration
8 · TRANSACTION CONSIDERATION • Assets acquired include 76 real estate assets and 100% of PELP’s third - party asset management businesses • Transaction consideration excludes internalization fees 1 in accordance with PECO I’s advisory agreement with PELP • Earnout structure incentivizes future perf
Slide 9: Transaction Capital Structure
9 · TRANSACTION CAPITAL STRUCTURE • Transaction to be immediately accretive: Estimated pro forma FFO per share for Q1 2017 is higher by approximately 8 - 10% relative to the performance of stand - alone PECO I * • Estimated pro forma dividend coverage expected to exceed 100% (on a FFO/Total Dividend
Slide 10: Overview of PELP
10 · 2016 FFO/Share: $0.58 Projected accretion of 8 - 10% on estimated pro forma FFO per share for Q1 2017 * SSNOI Growth (‘16 v ‘15): 3.2% REAL ESTATE • National platform focused from its inception in 1991 on grocery - anchored shopping centers • Owns and operates 76 shopping centers, in 25 states,
Slide 11: Overview of PELP: Asset Management Business
11 · ASSET MANAGEMENT BUSINESS • $4.8B of third - party assets under management as of December 31, 2016 • Consistent asset management fees from PECO I, PECO II, PECO III and Necessity Retail Partners, a value - added joint venture between PECO II and TPG Real Estate • Generates annual fee and manage
Slide 12: Combination of Complementary Portfolios
12 · COMBINATION OF COMPLEMENTARY PORTFOLIOS 12 PELP PECO I COMBINED Property Count 76 in 25 states 154 in 28 states 230 in 32 states Square Feet 8.7 million 16.8 million 25.5 million Leased Occupancy 90.0% 96.0% 93.9% % ABR from Grocers, National, and Regional Tenants 76% 79% 78% PELP PECO I COMBIN
Slide 13: Projected Timeline
13 · AUGUST JULY PROJECTED TIMELINE May 2017 • Executed Contribution Agreement July 2017 • Proxy mailed to stockholders September 2017 • Stockholder vote • Receipt of required non recourse debt consents Q4 2017 • Transaction expected to close MAY JUNE SEPTEMBER Q4 2017 13
Slide 14: Key Takeaways
14 · KEY TAKEAWAYS • The result of this transaction will be the largest internally managed REIT exclusively focused on grocery - anchored properties • Expected to be immediately accretive to FFO per share • Estimated pro forma dividend coverage expected to exceed 100% • Strengthens balance sheet • I
Slide 15: Goal: To Provide Liquidity for PECO I Stockholders
15 · GOAL: TO PROVIDE LIQUIDITY FOR PECO I STOCKHOLDERS • Exclusive focus on grocery - anchored shopping centers: the most attractive space in shopping center real estate • Integrated veteran management team vested in the success of PECO I through a meaningful ownership stake • $4 billion TEV combin
Slide 16: The Portfolio
PHILLIPS EDISON & COMPANY | 16 The Portfolio
Slide 17: Pro Forma Property Count
17 · Property Count As of 3/31/2017 PRO FORMA PECO I Post Transaction Phillips Edison Grocery Center REIT I, Inc. Real Estate 230 Shopping Centers Asset Manager Necessity Retail Partners (20% Interest) 12 Shopping Centers Phillips Edison Grocery Center REIT II, Inc. 78 Shopping Centers Phillips Edis
Slide 18: Pro Forma Phillips Edison Has a National Footprint
18 · PRO FORMA PHILLIPS EDISON HAS A NATIONAL FOOTPRINT Diversified National Presence 346 properties under management across 33 states 1 Pro forma PECO I All Assets Under Management Pro forma PECO I Owned Only FL 8% OH 7% GA 7% IL 4% TX 3% CA 3% MA 3% VA 3% NC 2% Other 60%
Slide 19: Pure-Play Grocery-Anchored Portfolio Relative to Peers
19 · PURE - PLAY GROCERY - ANCHORED PORTFOLIO RELATIVE TO PEERS 91 % 74 % 69 % 45 % 40 % 31 % 28 % 23 % 21 % 16 % 16 % 10 % 22 % 21 % 44 % 49 % 54 % 12 % 47 % 46 % 52 % 63 % 78 % 9 % 4 % 10 % 11 % 11 % 15 % 60 % 30 % 33 % 32 % 21 % 12 % PF PECO I ROIC REG WRI BRX KIM AKR FRT UE RPAI AAT DDR Grocery-
Slide 20: Pro Forma PECO I Portfolio Details
20 · PRO FORMA PECO I PORTFOLIO DETAILS Notes: Portfolio data as of 3/31/2017; All other financial data pro forma is as of 3/31/2017 Portfolio Highlights Financial Stats Total Assets (count) 230 Total GLA 25.5 Median Income - 3 mile (000s) $55,641 Population - 3 mile (000s) 58,024 Anchor Term (yrs)
Slide 21: Investment Management Track Record of Capital Raised
21 · INVESTMENT MANAGEMENT TRACK RECORD OF CAPITAL RAISED History of building deep relationships, representing a broad spectrum of equity capital sources throughout all cycles - $3.9 Billion in total High Net Worth LP’s $200 Million Institutional LP’s $695 Million Public REITs $3.0 Billion 2000: Fun
Slide 22: Investment Management Track Record of Value Creation
22 · INVESTMENT MANAGEMENT - TRACK RECORD OF VALUE CREATION (1) For purposes of performance figures and the information above, “Fund” means Phillips Edison Strategic Investment Fund LLC (“S IF I”), Phillips Edison Strategic Investment Fund II LLC (“SIF II”), Phillips Edison & Company Shopping Center
Slide 23: PECO I Board of Directors
PECO I – BOARD OF DIRECTORS Leslie T. Chao Mr. Chao retired as Chief Executive Officer of Chelsea Property Group, a subsidiary of Simon Property Group, Inc. (NYSE: SPG) , i n 2008. Previously he served in various senior capacities at Chelsea, including President and Chief Financial Officer, from 198
Slide 24: Phillips Edison & Company Management
PHILLIPS EDISON & COMPANY – MANAGEMENT Robert F. Myers , Chief Operating Officer Bob Myers joined Phillips Edison in 2003 as a Senior Leasing Manager, was promoted to Regional Leasing Manager in 2005 and be cam e Vice President of Leasing in 2006. He was named Senior Vice President of Leasing and Op
Slide 25: Why Grocery?
PHILLIPS EDISON & COMPANY | 25 Why Grocery?
Slide 26: Advantages of Our Grocery-Anchored Focus
26 · ADVANTAGES OF OUR GROCERY ANCHORED FOCUS Grocery is the most attractive space in shopping center real estate • Average customer trips per week is 1.6 1 • Consistent demand generator — non - cyclical • Recession resistant NECESSITY - BASED • 18,000 avg. total trips per week • Benefits in - line
Slide 27: Grocery Sales Have Outperformed All Other Retail Sales
27 · GROCERY SALES HAVE OUTPERFORMED ALL OTHER RETAIL SALES Monthly Retail Store Sales per U.S. Census Data¹ Sources: U.S. Census Advanced Monthly Retail Trade Report as of February 2017 and NAICS retailer codes Note: Grocery includes supermarkets and other grocery stores, excluding convenience stor
Slide 28: Food and Beverage Is More Resistant to E-Commerce
28 · FOOD AND BEVERAGE IS MORE RESISTANT TO E - COMMERCE THAN OTHER RETAIL SECTORS Digital’s Share of U.S. Retail Sales by Type of Retailer Sources: U.S. Census Bureau, BI intelligence estimates, Cushman & Wakefield research and U.S. Department of commerce 28 0% 10% 20% 30% 40% 50% 60% 2005 2006 200
Slide 29: Store Closures Are Concentrated in Non-Grocery Retail
29 · STORE CLOSURES ARE CONCENTRATED IN NON - GROCERY RETAIL, PARTICULARLY APPAREL 46.5 % 22.7 % 9.7 % 5.8 % 4.0 % 3.4 % 2.4 % 1.7 % Apparel, Footwear & Accessories Electronics Department Store Books Supermarket Sporting Goods Discount Store Office Supply Sources: TNT Store Closure Database Note: Th
Slide 30: Investment Strategy: Investment Thesis
30 · INVESTMENT STRATEGY INVESTMENT THESIS GENERAL NOTES: (1) PROPRIETARY SCORECARD THAT USES A SERIES OF ALGORITHMS TO BE NCHMARK INDIVIDUAL ASSETS BASED ON A DEFINED SET OF CHARACTERIST ICS INCLUDING THOSE FEATURED ON THIS SLIDE. (2) HEALTH RATIO IS THE AMOUNT OF ANNUAL RENT AS A PERCENTAGE OF ANN
Slide 31: Investment Strategy
31 · INVESTMENT STRATEGY • #1 or #2 grocer in market with a favorable health ratio 2 • Walmart established in marketplace • Average population target of 55,000+ in a three - mile radius • Average HHI target of $65,000+ • Employment diversity and drivers FOCUS ON MAJOR GROCERY FORMATS TRADITIONAL NOT
Slide 32: Properties Located in Uncrowded Markets
32 · PROPERTIES LOCATED IN UNCROWDED MARKETS x Established position in markets outside the Top 15 GSA MSAs, supported by 25+ year operating history x Limited competition from public peers, which tend to focus on crowded major MSAs x Positioning outside Top 15 MSAs enables Phillips Edison to compete
Slide 33: Portfolio Breakdown by Top MSAs
33 · PORTFOLIO BREAKDOWN BY TOP MSAS Notes: Includes Pro Forma PECO I properties as of 12/31/16 (227) MSA data is as of 7/1/16 Top 5 MSAs Properties in Top MSAs 18.1% of the portfolio 33 Number of Pro Forma Metropolitan Statistical Area Rank in Population PECO I Properties 1 Atlanta-Sandy Springs-Ro
Slide 34: Secondary Market Retail Returns Beat Core Markets
34 · Initial Entry Levered Free Cash Flows Levered Investment Cap Rate LTV 4 Year 1 Year 2 Year 3 Year 4 Year 5 IRR PF PECO I Markets 3 $100.0 6.5% 40.0% $5.9 $6.1 $6.5 $6.7 $6.9 14.4% Top 25 Shopping Center Markets¹ $100.0 5.4% 40.0% $4.9 $5.0 $5.2 $5.4 $5.5 11.8% DELTA: 259 bps SECONDARY MARKET RE
Slide 35: Spread Between Cap Rates in A Markets vs. B Markets Has Widened
35 · SPREAD BETWEEN CAP RATES IN A MARKETS VS. B MARKETS HAS WIDENED Sources: Real Capital Analytics B Market Cap Rates Have Closely Tracked A Market Cap Rates Historically 0.0 % 2.0 % 4.0 % 6.0 % 8.0 % 10.0 % 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 10Y U.S. T
Slide 36: Our Stores Are Right-Sized
36 · OUR STORES ARE RIGHT - SIZED 106 K 160 K PECO I Peers Source: Cushman & Wakefield Research ¹ Peers include AAT, AKR, BRX, DDR, FRT, KIM, REG, ROIC, RPAI, UE and WRI. Average Property Size (Square Feet) Commentary x Our assets are ~ 1/3 smaller than our peers’ assets , and our non - anchor store
Slide 37: Economics of Small Box vs. Big Box Retailers
37 · ECONOMICS OF SMALL BOX VS. BIG BOX RETAILERS Our smaller tenants have more attractive unit economics than our anchor tenants, generating an IRR of ~14% over a 15 year period versus ~9% for anchor tenants Cash Flows IRR Assumes a 15 - year hold, classifying small box as ~2,000 sq. ft. at a 6.50%
Slide 38: Economics of Small Box vs. Big Box Retailers
38 · ECONOMICS OF SMALL BOX VS. BIG BOX RETAILERS Our smaller tenants have more attractive unit economics than our anchor tenants, generating an IRR of ~14% over a 15 year period versus ~9% for anchor tenants Power Anchor Cap Rate 7.75% Initial Term (yrs) 10 Initial TI / Sq. Ft. $35.00 Square Feet 1
Slide 39: The Platform
PHILLIPS EDISON & COMPANY | 39 The Platform
Slide 40: Management & PELP's Fully Integrated Operating Platform
40 · MANAGEMENT & PELP’S FULLY INTEGRATED OPERATING PLATFORM Highly experienced management team with a fully integrated operating platform with • Executive management averages 15 years at Philips Edison and 28 in commercial real estate • Fully integrated platform provides synergies and efficiencies
Slide 41: Senior Leadership Team - Operations
41 · SENIOR LEADERSHIP TEAM - OPERATIONS WEST REGION 1 NORTH REGION 1 MID - ATLANTIC REGION 1 SOUTHEAST REGION 1 NOTE: (1) CERTAIN EMPLOYEES HAVE MULTI - REGIONAL ROLES AND MAY BE COUNTED TWICE In addition, the operations team is complemented by a fully integrated platform of more than 160 associate
Slide 42: In-House Leasing
42 · GROCER RELATIONS NEW TENANT RELATIONS EXISTING TENANT RELATIONS NATIONAL ACCOUNTS OUTPARCEL PROGRAM REDEVELOPMENT EMERGING TRENDS National footprint with strategically focused teams NATIONAL, FULLY INTEGRATED OPERATING PLATFORM: IN - HOUSE LEASING New Leases Renewals NOTE: (1) 2017 LEASING STAT
Slide 43: In-House Acquisitions
43 · NATIONAL, FULLY INTEGRATED OPERATING PLATFORM: IN - HOUSE ACQUISITIONS Head of Western Acquisitions Head of Midwest Acquisitions Head of Southeast Acquisitions Head of Northeast Acquisitions Vice President of Transactions Director of Underwriting Senior Vice President of Acquisitions SENIOR LEA
Slide 44: In-House Acquisitions: Acquisitions Activity
44 · NATIONAL, FULLY INTEGRATED OPERATING PLATFORM: IN - HOUSE ACQUISITIONS ACQUISITIONS ACTIVITY • Reviewed 3,134 deals • Underwrote 581 active opportunities • Sent out 434 LOIs • Closed on 77 grocery anchored centers representing $1.2 billion and 6 million square feet • 33 off - market and direct
Slide 45: Support Departments Built to Drive Scalable Efficiencies
45 · SUPPORT DEPARTMENTS BUILT TO DRIVE SCALABLE EFFICIENCIES Back office platform focused on process efficiencies, driving high incremental margins with each new asset under management Finance Information Technology Accounting Legal Risk Management • Property Accounting • Financial Reporting • CAM
Slide 46: Shareholder Aligned Company Culture
46 · SHAREHOLDER ALIGNED COMPANY CULTURE • Ownership culture aligned with shareholders • Every associate receives ownership units after 1 year of service • Fosters environment of innovation and encourages associates to “act like an owner” • Culture of learning • PECO University: training department
Slide 47: For more information please contact
For more information please contact: • Phillips Edison & Company: Michael Koehler, Director of Investor Relations InvestorRelations@PhillipsEdison.com (513) 338 - 2743
Slide 48: Appendix
PHILLIPS EDISON & COMPANY | 48 Appendix
Slide 49: Funds from Operations
49 · Funds from Operations Funds from operations (“FFO”) is a non - GAAP performance financial measure that is widely recognized as a measure of REIT operati ng performance. We use FFO as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be net income (loss), compute
Slide 50: Same-Center Net Operating Income
50 · Same - Center Net Operating Income We present Same - Center NOI as a supplemental measure of our performance. We define NOI as total operating revenues, adjusted to exclude lease buy - out income and non - cash revenue items, less property operating expenses and real estate taxes. Same - Center
Slide 51: Reconciliation of Non-GAAP Financials
51 · RECONCILIATION OF NON - GAAP FINANCIALS 51
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