Phillips Edison Issuer Tender Offer Presents Limited Liquidity Opportunity for Investors
On November 10, 2020, Phillips Edison & Company, Inc. (PECO, or the Company) formally announced its offer to shareholders to purchase up to 4,500,000 shares of the Company’s common stock at a price of $5.75 per share, expiring on December 15, 2020 unless extended or withdrawn. Filed with the SEC as an issuer tender offer under Rule 13e-4, PECO is providing a limited and disadvantageous opportunity for liquidity to shareholders at a price slightly above the recent secondary market average of $5.27 but well below PECO’s current estimated net asset value of $8.75 per share. As such, PECO investors who acquired their shares at the offering price of $10 will incur substantial investment losses through the tender offer.
Formed as a Maryland corporation in 2009, PECO is structured as a non-traded real estate investment trust (REIT) focused on investing in “well-occupied, grocery-anchored, neighborhood and community shopping centers . . . in strong demographic markets throughout the United States.” Initially offered to investors at $10 per share, PECO continues to experience financial distress during the COVID-19 pandemic, as with other high-traffic REITS. The tender offer documents filed with the SEC explain the $5.75 purchase price as indicative of challenges currently facing the industry. PECO notes that share prices of the Company’s REIT peers “have declined significantly below their respective estimated net asset values, primarily as a result of the ongoing market uncertainty caused by the COVID-19 pandemic.” Additionally, with respect to PECO’s own shares, “approximately 67,000 shares were sold through a secondary market maker at an average price per share of $5.27” during the six months leading up to October 31, 2020.
As is characteristic of non-traded REITs, limited opportunities exist for investors to exit their positions as they might otherwise do by selling shares of publicly traded stocks or ETFs on a liquid national securities exchange. Non-traded REIT shareholders must often hold their investments for a lengthy period of time, in some instances for as long as 7 to 10 years, until some liquidity event occurs. Aside from such a liquidity event, investors in non-traded REITs such as PECO are left with limited options, including selling shares through an inefficient and thinly traded secondary market, often at a disadvantageous price.
In this case, PECO’s recent tender offer presents a limited opportunity for liquidity, applicable to approximately 9% of its total issued and outstanding shares. Due to the discounted price, PECO shareholders who participate in the tender offer may sustain losses of over 40% of their initial investment, exclusive of any distributions received to date. And due to the limited number of shares subject to the tender offer, not all PECO shareholders may be able to participate and exit some or all of their position.
As we have previously discussed, investors in PECO may have arbitration claims to be pursued before FIRNA in the event that they invested upon the recommendation of a financial advisor who lacked a reasonable basis, or otherwise misled the investor such as by failing to inform of PECO’s various risk components including its illiquidity. The attorneys at Giarrusso Law Group LLC have extensive experience in handling claims on behalf of investors in non-traded REITs, as well as similar complex and illiquid investment products. Investors may pursue a claim to recover monies through securities arbitration before FINRA, or in some instances, through litigation. Investors who wish to discuss a possible claim are invited to contact us at (201) 771-1115 or info@gialawgroup.com for a no-cost, confidential consultation.