Investors in Phillips Edison & Co. (“PECO”, formerly known as Phillips Edison Grocery Center REIT I) got bad news when PECO announced its plans to suspend monthly distributions, share repurchases, and its distribution reinvestment plan, indicating that the suspensions will be temporary. PECO also reportedly borrowed $200 million on its $500 million revolving credit facility in order to increase its liquidity.
Monthly distributions and the distribution reinvestment plan were suspended after the March 2020 distribution, which PECO paid in cash on April 1, 2020. The share repurchase program, including death, qualifying disability or determination of incompetence (DDI) requests, was also suspended.
PECO began selling shares in or about August 2010 as a publicly registered, non-traded REIT. and raised approximately $1.8 billion from investors. PECO owns grocery store-based shopping centers and oversees a portfolio of 317 properties.
As a publicly registered non-traded REIT, PECO was permitted to sell securities to the investing public at large, and as such, the non-traded REIT was marketed nationwide to numerous unsophisticated retail investors. In certain instances, some investors may not have been fully informed by their financial advisor as to the complex nature and risks associated with non-traded REITs.
Non-traded REITs pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors and stockbrokers who recommend these complex investments. To begin, one significant risk associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%; in the case of PECO, its prospectus indicates that investors were charged a “selling commission” of 7%. In addition to high commissions, non-traded REITs like PECO generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.
Furthermore, non-traded REITs like PECO are generally illiquid investments. Unlike traditional stocks and mutual funds, non-traded REITs cannot be readily sold and resold on deep and liquid national securities exchanges. Typically, investors in non-traded REITs can only exit their investment position through redemption directly with the sponsor, and even then on a limited basis, and often at a disadvantageous price. Or, investors may be able to sell shares through a limited and fragmented secondary market. However, prices in the secondary market have ranged from $6.25 to $6.65 a share- far below PECO’s estimated NAV per share of $11.10. Shares originally were sold to the public for $10.
Last year, PECO announced plans to merge with Phillips Edison Grocery Center REIT III Inc., an affiliated non-traded REIT it co-sponsors with Griffin Capital Company. Phillips Edison Grocery Center REIT III shareholders approved the merger in November 2019.
Investors in PECO and other non-traded REITs may have viable FINRA arbitration claims if their stockbroker or financial advisor made an unsuitable recommendation to purchase the investments or solicited the investments via a misleading sales presentation. Attorneys at the firm are admitted in New York, New Jersey and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules). Investors may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at firstname.lastname@example.org for a no-cost, confidential consultation.