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Section 1: S-4 (S-4)

Document


As filed with the Securities and Exchange Commission on September 4, 2019
Registration No. 333-
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
 
PHILLIPS EDISON & COMPANY, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland
6798
27-1106076
(State or other jurisdiction of incorporation or organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer Identification Number)

11501 Northlake Drive
Cincinnati, Ohio 45249
(513) 554-1110
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Jeffrey S. Edison
Chief Executive Officer
11501 Northlake Drive
Cincinnati, Ohio 45249
(513) 554-1110
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
Copies to:
Tanya Brady, Esq.
Phillips Edison & Company, Inc.
11501 Northlake Drive
Cincinnati, Ohio 45249
Tel: 513-554-1110
Yoel Kranz, Esq.
David H. Roberts, Esq.
Goodwin Procter LLP
620 Eighth Avenue
New York, New York 10018
Tel: 212-813-8800
Michael E. McTiernan, Esq.
Hogan Lovells US LLP
555 Thirteenth Street, NW
Washington, DC 20004
Tel: 202-637-5600
 
Approximate date of commencement of proposed sale of the securities to public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions to the closing of the merger described herein.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ¨
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ¨ 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check One):
Large Accelerated Filer
¨
Accelerated Filer
¨
 
 
 
 
Non-Accelerated Filer
þ
Smaller reporting company
¨
 
 
 
 
Emerging growth company
¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ¨
Exchange Act Rule 14d-1(d) (Cross-Border Issuer Third Party Tender Offer) ¨
 




CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered
Amount to be registered
Proposed maximum offering price per share
Proposed maximum aggregate offering price
Amount of registration fee
Common Stock, $0.01 par value per share . . . . . . . . . . . . .
4,610,152 shares(1)
N/A
$30,380,901.68(2)
$3,682.17(3)
(1)
Represents the estimated maximum number of shares of common stock of Phillips Edison & Company, Inc. (“PECO”), $0.01 par value per share (‘‘PECO common stock’’), to be issued or reserved in connection with the merger described herein, including pursuant to the option to receive additional shares of PECO common stock in lieu of the cash portion of the merger consideration. The number of shares of PECO common stock to be registered is the sum of (a) the product of multiplying 6,306,405 shares of Class A common stock of Phillips Edison Grocery Center REIT III, Inc. (“PECO III”), $0.01 par value per share (“Class A common shares”), the number of Class A common shares estimated to be outstanding immediately prior to the merger, and the Class A exchange ratio of 0.6693 (the number of shares of PECO common stock that a holder of Class A common shares will receive for each Class A common share), plus (b) the product of multiplying 113,817 shares of Class I common stock of PECO III, $0.01 par value per share (“Class I common shares”), the number of Class I common shares estimated to be outstanding immediately prior to the merger, and the Class I exchange ratio of 0.7436 (the number of shares of PECO common stock that a holder of Class I common shares will receive for each Class I common share), plus (c) the product of multiplying 319,372 shares of Class T common stock of PECO III, $0.01 par value per share (“Class T common shares”), the number of Class T common shares estimated to be outstanding immediately prior to the merger, and the Class T exchange ratio of 0.7749 (the number of shares of PECO common stock that a holder of Class T common shares will receive for each Class T common share), plus (d) the quotient of (i) the product of multiplying 6,306,405 Class A common shares times by $0.0939 (the cash consideration per Class A common share) divided by (ii) $11.10 (PECO’s current estimated net asset value per share), plus (e) the quotient of (i) the product of multiplying 113,817 Class I common shares times by $0.0941 (the cash consideration per Class I common share) divided by (ii) $11.10 (PECO’s current estimated net asset value per share), plus (f) the quotient of (i) the product of multiplying 319,372 Class T common shares times by $0.0989 (the cash consideration per Class T common share) divided by (ii) $11.10 (PECO’s current estimated net asset value per share).
(2)
Estimated solely for purposes of calculating the registration fee required by Section 6(b) of the Securities Act of 1933, as amended (the “Securities Act”), and calculated pursuant to Rule 457(f)(2) under the Securities Act.
(3)
Determined in accordance with Section 6(b) of the Securities Act at a rate equal to $121.20 per $1 million of the proposed maximum aggregate offering price.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 





Information contained herein is subject to completion or amendment. A registration statement relating to the securities offered by this proxy statement/prospectus has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy these securities be accepted prior to the time the registration statement becomes effective.
PROXY STATEMENT AND PROSPECTUS—SUBJECT TO COMPLETION, DATED SEPTEMBER 4, 2019
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MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT
To the Stockholders of Phillips Edison Grocery Center REIT III, Inc.:
The board of directors (the “PECO III Board”) of Phillips Edison Grocery Center REIT III, Inc. (“PECO III”), on the recommendation of a special committee of the PECO III Board consisting exclusively of independent directors (the “PECO III Special Committee”) and the board of directors (the “PECO Board”) of Phillips Edison & Company, Inc. (“PECO”) have each approved an Agreement and Plan of Merger (with the unanimous vote of the independent directors), dated as of September 3, 2019 as it may be amended from time to time (the “merger agreement”) by and among PECO, Phillips Edison Grocery Center Operating Partnership I, L.P. (“PECO OP”), REIT Merger Sub, LLC (“Merger Sub”), and PECO III. Pursuant to the merger agreement, PECO III will merge (the “merger”) with and into Merger Sub, with Merger Sub surviving as a wholly-owned subsidiary of PECO OP. The obligations of PECO and PECO III to effect the merger are subject to the satisfaction or waiver of certain customary conditions set forth in the merger agreement, including the approval of PECO III stockholders. PECO III is co-sponsored by PECO and Griffin Capital Company, LLC (“Griffin” and together with PECO, the “co-sponsors”). PECO III’s advisor is jointly owned by affiliates of PECO and Griffin.
Stockholder Consideration
At the effective time of the merger and by virtue of the merger, each outstanding share of PECO III common stock and each fraction thereof, will be canceled and converted into the right to receive merger consideration as follows: (i) holders of PECO III Class A common stock will receive 0.6693 shares of PECO common stock and $0.0939 in cash per each share of Class A common stock they hold; (ii) holders of PECO III Class I common stock will receive 0.7436 shares of PECO common stock and $0.0941 in cash per each share of Class I common stock they hold; and (iii) holders of PECO III Class T common stock will receive 0.7749 shares of PECO common stock and $0.0989 in cash per each share of Class T common stock they hold. All stockholders will have the ability to receive additional shares of PECO common stock in lieu of the cash portion of the merger consideration, based on the most recent estimated net asset value per share (“EVPS”) of PECO common stock of $11.10.
Summary of Benefits of the Merger
Merger Consideration Represents Significant Premium to PECO III’s Estimated Net Asset Value Per Share: The merger consideration, on an aggregate basis and for each of the Class A, Class I and Class T shares, represents a significant premium over both the mid-point ($6.54) and high end ($6.88) of the EVPS range of PECO III, as determined by the PECO III Special Committee based on the advice of its financial advisor.
Valuation Support from PECO III’s Advisor/Co-Sponsors: The weighted average merger consideration of $7.59 per share (based on PECO’s most recent EVPS of $11.10) offered by PECO includes the following commitments of PECO III’s advisor and co-sponsors: effectively waiving the reimbursement of all organization or offering expenses incurred in PECO III’s private and public offerings that are currently owed to the advisor; effectively waiving or crediting all asset management fees and acquisition fees and expenses owed or paid to the advisor by PECO III since its inception; waiving all disposition fees that would be owed to the advisor in connection with the merger; paying all of PECO III’s merger transaction expenses; and incremental cash contributions from the co-sponsors.
Enhanced Distribution: The distribution rate that PECO III stockholders will receive after the consummation of the merger will be significantly higher than the recently reduced distribution rate PECO III intends to pay, which is based on its anticipated cash flows from operations as a stand-alone company.
Significantly Improved Liquidity Event Prospects: PECO is significantly better positioned than PECO III to achieve a successful liquidity event as a result of PECO’s significantly greater scale, its internalized management, and its superior asset, geographic, and tenant diversification.
Best Available Option for PECO III: The PECO III Special Committee considered possible alternatives to the merger, including continuing to operate PECO III on a stand-alone basis, liquidating the company, or seeking a business combination with or sale of assets to another party, and believes that the merger is the best available option for PECO III and its stockholders given relative valuation, timing and transaction cost considerations. Any such alternative to the merger would not include the benefit of the aforementioned commitments of the advisor and co-sponsors and would likely result in significantly reduced proceeds paid to PECO III stockholders.




Special Meeting
In connection with the merger, PECO III will hold a virtual special meeting of stockholders at [●] Eastern Time on [●], 2019 via live webcast at www.virtualshareholdermeeting.com/PER2019SM. At the special meeting, PECO III stockholders will be asked to consider and vote on the merger, in addition to the other items set forth in the PECO III Notice of Special Meeting of Stockholders. No matter the size of your investment in PECO III, your vote is very important.

YOUR VOTE IS VERY IMPORTANT
Proxy Vote
As noted above, based on the unanimous recommendation of the PECO III Special Committee, comprised entirely of non-management independent directors, the PECO III Board (with the unanimous vote of the independent directors) approved the terms and conditions of the merger as set forth in the merger agreement and believe it is advisable and in the best interests of PECO III and its stockholders.
Therefore, it is recommended that you vote “FOR” approval of the merger and the other transactions contemplated by the merger agreement, as well as the other proposals set forth in the Notice of Special Meeting of Stockholders.
Your Vote Matters
Whether or not you expect to participate in the PECO III special meeting via live webcast, please authorize a proxy to vote on your behalf as promptly as possible by completing, signing, dating and mailing your proxy card in the pre-addressed postage-paid envelope provided or by authorizing your proxy by one of the other methods specified in this proxy statement. This saves the company time and money as we will no longer have to solicit your vote.
This proxy statement/prospectus provides you with detailed information about the PECO III special meeting, the merger agreement, the merger and other related matters. A copy of the merger agreement is included as Annex A to this proxy statement/prospectus. We encourage you to read this proxy statement/prospectus in its entirety before voting, including the merger agreement and the other annexes.
In particular, you should carefully consider the discussion in the section of this proxy statement/prospectus entitled “Risk Factors” beginning on page 15.
On behalf of PECO III’s management team, the PECO III Board, and the PECO III Special Committee, we thank you for your support and urge you to vote “FOR” the approval of each of the matters presented.
Sincerely,
399469425_mcdadesig.jpg     
Mark D. McDade
Chair of the Special Committee of the Board of Directors of Phillips Edison Grocery Center REIT III, Inc.

Neither the SEC, nor any state securities regulatory authority has approved or disapproved of the merger or the securities to be issued under this proxy statement/prospectus or has passed upon the adequacy or accuracy of the disclosure in this proxy statement/prospectus. Any representation to the contrary is a criminal offense.





NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
OF
PHILLIPS EDISON GROCERY CENTER REIT III, INC.
11501 Northlake Drive
Cincinnati, Ohio 45249
Dear Stockholder:
You are cordially invited to participate in the special meeting of stockholders (the “PECO III Special Meeting”) of Phillips Edison Grocery Center REIT III, Inc., a Maryland corporation (“PECO III”), that will be held at [●] Eastern Time on [●], 2019 via live webcast at www.virtualshareholdermeeting.com/PER2019SM.
The purpose of the PECO III Special Meeting is to consider and vote upon the following proposals:
1.
Approve the transactions contemplated by the agreement and plan of merger, dated September 3, 2019, by and among PECO III, Phillips Edison & Company, Inc., a Maryland corporation (“PECO”), and certain of their respective affiliates, a copy of which is attached as Annex A to this proxy statement/prospectus, including the merger of PECO III with and into a wholly-owned subsidiary of PECO (as further discussed in the section titled “The Merger” beginning on page 50) (collectively, the “Merger Proposal”).
The PECO III Board of Directors recommends a vote FOR this proposal.
2.
Approve the amendment of the PECO III charter as set forth in the form of Articles of Amendment attached as Annex B to this proxy statement/prospectus, to be effective only upon stockholder approval of the Merger Proposal.
The PECO III Board of Directors recommends a vote FOR this proposal.
3.
Adjourn the PECO III Special Meeting, if necessary or appropriate, as determined by the Chair of the PECO III Special Meeting, to solicit additional proxies in favor of the Merger Proposal if there are not sufficient votes to approve the Merger Proposal.
The PECO III Board of Directors recommends a vote FOR this proposal.
4.
Attend to such other business as may properly come before the PECO III Special Meeting and any adjournment or postponement thereof.
The PECO III Board of Directors has fixed [●], 2019 as the record date for the PECO III Special Meeting. Only the holders (the “PECO III stockholders”) of record of shares of PECO III common stock (“PECO III common stock”) as of the close of business on [●], 2019 are entitled to notice of and to vote at the PECO III Special Meeting and any adjournment or postponement thereof.
This proxy statement/prospectus and proxy card is dated as of [●], 2019 and is first being mailed to you on or about [●], 2019.
YOUR VOTE IS VERY IMPORTANT
Whether or not you plan to participate in the PECO III Special Meeting via live webcast, please authorize a proxy to vote your shares as promptly as possible. To authorize a proxy, complete, sign, date and mail your proxy card in the pre-addressed postage-paid envelope provided or, if the option is available to you, call the toll-free telephone number listed on your proxy card or use the internet as described in the instructions on the enclosed proxy card to authorize your proxy. Authorizing a proxy will assure that your vote is cast and counted at the PECO III Special Meeting if you do not participate via live webcast. If your PECO III common stock are held in ‘‘street name’’ by your broker or other nominee, only your broker or other nominee can vote your PECO III common stock at the PECO III Special Meeting and your vote cannot be cast unless you provide instructions to your broker or other nominee on how to vote or obtain a legal proxy from your broker or other nominee. You should follow the directions provided by your broker or other nominee regarding how to instruct your broker or other nominee to vote your PECO III common stock. You may revoke your proxy at any time before it is voted. Please review the proxy statement/prospectus accompanying this notice for more complete information regarding the transactions contemplated by the Merger Proposal and the PECO III Special Meeting.
By Order of the Board of Directors,
399469425_jcelectronicsig.jpg
John Caulfield, Secretary
Cincinnati, Ohio





ADDITIONAL INFORMATION
PECO and PECO III file reports and other important business and financial information with the Securities and Exchange Commission, which we refer to herein as the SEC, that are not included in or delivered with this proxy statement/prospectus. The SEC also maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers, including PECO and PECO III, who file electronically with the SEC. The address of that site is www.sec.gov.
Copies of annual, quarterly and current reports, proxy statements and other information required to be filed with the SEC by PECO and PECO III are available to PECO and PECO III stockholders, respectively, without charge upon written or oral request, excluding any exhibits to those documents. PECO stockholders and PECO III stockholders can obtain any of these documents by requesting them in writing or by telephone from the appropriate company at:
PECO
Phillips Edison & Company, Inc.
11501 Northlake Drive
Cincinnati, Ohio 45249
Attention: Investor Relations
(513) 338-2743
www.phillipsedison.com
PECO III
Phillips Edison Grocery Center REIT III, Inc.
11501 Northlake Drive
Cincinnati, Ohio 45249
Attention: Investor Relations
(513) 338-2743
www.grocerycenterREIT3.com
If you are a PECO III stockholder and would like to request documents, please do so by [●], 2019, to receive them before the PECO III Special Meeting. If you request any documents from PECO or PECO III, PECO or PECO III, as applicable, will mail them to you by first class mail, or another equally prompt means, within one business day after PECO or PECO III receives your request.
See “Where You Can Find More Information” on page 129.

ABOUT THIS DOCUMENT
This proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed by PECO (File No. [●]) with the SEC, constitutes a prospectus of PECO for purposes of the Securities Act of 1933, as amended, with respect to the shares of PECO common stock to be issued to PECO III stockholders in exchange for shares of PECO III common stock pursuant to the merger agreement. In addition, it constitutes a notice of meeting and proxy statement with respect to the PECO III Special Meeting.
You should rely only on the information contained in this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in this proxy statement/prospectus. This proxy statement/prospectus is dated [●], 2019. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than that date.
Neither our mailing of this proxy statement/prospectus to PECO III stockholders nor the issuance by PECO of shares of its common stock to PECO III stockholders pursuant to the merger agreement will create any implication to the contrary.
This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person or entity to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this proxy statement/prospectus regarding PECO has been provided by PECO and information contained in this proxy statement/prospectus regarding PECO III has been provided by PECO III.




TABLE OF CONTENTS

 
Page
QUESTIONS AND ANSWERS
SUMMARY
The Companies
The Merger
Commitments of PECO III’s Advisor and Co-Sponsors
Recommendation of the PECO III Board of Directors
Interests of PECO’s and PECO III’s Directors and Executive Officers in the Merger
Directors and Executive Officers of the Combined Company
Summary of Risks Related to the Merger
The PECO III Special Meeting
Opinion of the PECO III Special Committee’s Financial Advisor
Dissenters’ and Appraisal Rights in the Merger
Conditions to Completion of the Merger
Regulatory Approvals Required for the Merger
No Solicitation or Change in Recommendation with Competing Proposal
Termination of Merger Agreement
Expenses
Material U.S. Federal Income Tax Consequences of the Merger
Accounting Treatment of the Merger
Comparison of Rights of PECO Stockholders and PECO III Stockholders
Selected Historical Financial Information of PECO
Selected Historical Financial Information of PECO III
Unaudited Comparative Per Share Information
Comparative PECO and PECO III Distribution Information
RISK FACTORS
Risks Related to the Merger
Risks Related to the Combined Company
Risks Related to PECO’s Structure and an Investment in PECO
General Risks Related to Investments in Real Estate
Risks Associated with Debt Financing
Risks Related to Organization and Qualification as a REIT
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
THE COMPANIES
Phillips Edison & Company, Inc. and Phillips Edison Grocery Center Operating Partnership I, L.P.
Phillips Edison Grocery Center REIT III, Inc.
REIT Merger Sub, LLC
THE PECO III SPECIAL MEETING
Date, Time, Place and Purpose of the PECO III Special Meeting
Recommendation of the PECO III Board of Directors
PECO III Record Date; Who Can Vote at the PECO III Special Meeting
Required Vote; Quorum
Abstentions and Broker Non-Votes
Manner of Submitted Proxy

i



 
Page
Revocation of Proxies or Voting Instructions
Solicitation of Proxies; Payment of Solicitation Expenses
PROPOSALS SUBMITTED TO PECO III STOCKHOLDERS
Merger Proposal
Charter Proposal
Adjournment Proposal
THE MERGER
General
Background of the Merger
Recommendation of the PECO III Board of Directors and Its Reasons for the Merger
Opinion of the PECO III Special Committee’s Financial Advisor
Interests of PECO’s Directors and Executive Officers in the Merger
Interests of PECO III’s Directors and Executive Officers in the Merger
Affiliation of PECO and PECO III
Termination Agreement
Directors and Executive Officers of the Combined Company After the Merger
Regulatory Approvals Required for the Merger
U.S. Federal Income Tax Considerations
Accounting Treatment
Issuance of Shares in the Merger
Distributions
THE MERGER AGREEMENT
Form, Effective Time and Closing of the Merger
Governing Documents
Merger Consideration; Effects of the Merger
Representations and Warranties
Definitions of “Acquired Company Material Adverse Effect” and “PECO Material Adverse Effect”
Covenants and Agreements
Conditions to Completion of the Merger
Termination of the Merger Agreement
Miscellaneous Provisions
DESCRIPTION OF CAPITAL STOCK
General
Common Stock
COMPARISON OF RIGHTS OF PECO STOCKHOLDERS AND PECO III STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCKHOLDERS SHARING AN ADDRESS
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO FINANCIAL STATEMENTS
Annex A: Agreement and Plan of Merger, dated September 3, 2019, by and among Phillips Edison & Company, Inc., REIT Merger Sub, LLC, Phillips Edison Grocery Center Operating Partnership I, L.P. and Phillips Edison Grocery Center REIT III, Inc.
A-1
Annex B: Form of Articles of Amendment
Annex C: PECO Management’s Discussion & Analysis of Financial Condition and Results of Operations

ii



 
Page
Annex D: PECO III’s Management’s Discussion & Analysis of Financial Condition and Results of Operations
Annex E: Opinion of Duff & Phelps, LLC


iii



QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
The following are answers to some questions that PECO III stockholders may have regarding the proposed transaction between PECO and PECO III and about PECO III’s Special Meeting. PECO III urges you to read carefully this entire proxy statement/prospectus, including the Annexes, because the information in this section does not provide all the information that might be important to you.
Unless stated otherwise, all references in this proxy statement/prospectus to:
‘‘acquired companies’’ are to PECO III and each of its subsidiaries;
“advisor” are to PECO-Griffin REIT Advisor, LLC, a Delaware limited liability company, which is jointly owned by affiliates of PECO and Griffin;
“Amended PECO III Charter” are to the charter of PECO III as amended by the PECO III charter amendment;
‘‘Code’’ are to the Internal Revenue Code of 1986, as amended;
‘‘Combined Company’’ are to PECO and its consolidated subsidiaries (including the Surviving Entity) after the closing of the merger;
“co-sponsors” are to PECO and Griffin, who are the co-sponsors of PECO III;
‘‘Exchange Act’’ are to the Securities Exchange Act of 1934, as amended;
“Griffin” are to Griffin Capital Company, LLC, a Delaware limited liability company and the co-sponsor of PECO III;
‘‘merger agreement’’ are to the agreement and plan of merger, dated as of September 3, 2019, by and among PECO, Merger Sub, PECO OP, and PECO III, as it may be amended from time to time, a copy of which is attached as Annex A to this proxy statement/prospectus;
‘‘merger’’ is to the merger of PECO III with and into Merger Sub, with Merger Sub surviving the merger;
‘‘Merger Sub’’ are to REIT Merger Sub, LLC, a Maryland limited liability company and wholly owned subsidiary of PECO OP;
‘‘ordinary course of business’’ are to, with respect to an action taken by any person or entity, an action that (i) is consistent with the past practices of such person or entity and is taken in the ordinary course of the normal day-to-day operations of the business of such person or entity; (ii) is not required to be authorized by the board of directors of such person or entity (or by any person or entity or group of persons or entities exercising similar authority) and is not required to be specifically authorized by the parent company (if any) or the holders of the capital stock or other equity interests of such person or entity; and (iii) is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any person or entity or group of persons or entities exercising similar authority), in the ordinary course of the normal day-to-day operations of other persons or entities that are in the same line of business as such person or entity;
‘‘Outside Date’’ is to July 3, 2020;
‘‘PECO’’ are to Phillips Edison & Company, Inc., a Maryland corporation, and co-sponsor of PECO III;
‘‘PECO Board’’ are to the board of directors of PECO;
‘‘PECO common stock’’ are to the common stock of PECO, $0.01 par value per share;
‘‘PECO III’’ are to Phillips Edison Grocery Center REIT III, Inc., a Maryland corporation;
‘‘PECO III Board’’ are to the board of directors of PECO III;
‘‘PECO III charter amendment’’ are to the proposed amendment to the charter of PECO III set forth in the form of Articles of Amendment attached as Annex B to this proxy statement/prospectus;
‘‘PECO III charter approval’’ are to the affirmative vote of the holders of outstanding shares of PECO III common stock entitled to cast a majority of the votes entitled to be cast on the PECO III charter amendment;
‘‘PECO III common stock’’ are collectively to the Class A, Class I, and Class T common stock of PECO III, $0.01 par value per share;
‘‘PECO III merger approval’’ are to the affirmative vote of the holders of outstanding shares of PECO III common stock entitled to cast a majority of all the votes entitled to be cast on the merger;
‘‘PECO III Special Committee’’ are to the special committee of the PECO III Board that was formed by the PECO III Board in connection with the merger and the other transactions contemplated by the merger agreement;
‘‘PECO OP’’ are to Phillips Edison Grocery Center Operating Partnership I, L.P., a Delaware limited partnership;
‘‘PECO parties’’ are to PECO, PECO OP, and Merger Sub;
‘‘SEC’’ are to the U.S. Securities and Exchange Commission;
‘‘Securities Act’’ are to the Securities Act of 1933, as amended; and

1



“Surviving Entity” are to REIT Merger Sub, LLC, a wholly owned subsidiary of PECO OP, after the effective time of the merger.
Q: Why am I receiving this proxy statement/prospectus?
A: The PECO III Board is using this proxy statement/prospectus to solicit proxies from PECO III stockholders in connection with the merger agreement and the transactions contemplated thereby. In addition, PECO is using this proxy statement/prospectus as a prospectus for PECO III stockholders because PECO is issuing shares of PECO common stock in connection with the merger. The merger cannot be completed unless:
the holders of PECO III common stock vote to approve the PECO III charter amendment; and
the holders of PECO III common stock vote to approve the merger and the other transactions contemplated by the merger agreement.
PECO III will hold a special meeting of its stockholders to obtain these approvals and to consider and vote on other proposals as described elsewhere in this proxy statement/prospectus. This proxy statement/prospectus contains important information about the merger and the other proposals being considered and voted on at the special meeting of stockholders of PECO III and you should read it carefully. The enclosed voting materials allow you to vote your shares of PECO III common stock without participating in the meeting via live webcast. Approval by PECO stockholders is not required to consummate the merger.
YOUR VOTE IS VERY IMPORTANT. YOU ARE ENCOURAGED TO AUTHORIZE YOUR PROXY AS PROMPTLY AS POSSIBLE.
Q: What is the proposed transaction?
A: Subject to the terms and conditions of the merger agreement, at the effective time of the merger, PECO III will merge with and into Merger Sub, with Merger Sub surviving the merger as the Surviving Entity, which will be a wholly owned subsidiary of PECO OP.
Q: What will happen in the proposed transaction?
A: At the effective time of the merger and by virtue of the merger, each outstanding share of PECO III common stock and each fraction thereof, will be canceled and converted into the right to receive merger consideration per share, as follows:
(i)
holders of PECO III Class A common stock will receive 0.6693 shares of PECO common stock and $0.0939 in cash per each share of Class A common stock they hold;
(ii)
holders of PECO III Class I common stock will receive 0.7436 shares of PECO common stock and $0.0941 in cash per each share of Class I common stock they hold; and
(iii)
holders of PECO III Class T common stock will receive 0.7749 shares of PECO common stock and $0.0989 in cash per each share of Class T common stock they hold.
All stockholders will have the ability to receive additional shares of PECO common stock in lieu of the cash portion of the merger consideration, based on PECO’s most recent EVPS of $11.10.
See ‘‘The Merger Agreement—Merger Consideration; Effects of the Merger’’ beginning on page 107 for detailed descriptions of the merger consideration and treatment of securities.
Q: Why is each class of PECO III common stock receiving different merger consideration?
A: The stockholders of each class of PECO III common stock have paid, on average, different purchase prices per share, and certain classes have received fewer distributions to date than others. For example, the average purchase price of Class T stockholders is higher than that of Class I stockholders and the average purchase price of Class I stockholders is higher than that of Class A stockholders. PECO took into account these differences in determining the consideration it was willing to pay holders of each class of PECO III common stock in the merger. However, the merger consideration per share for each Class A, Class I and Class T stockholder is significantly higher than both the mid-point ($6.54) and high-end ($6.88) of the EVPS range of PECO III common stock on an aggregate basis, as determined by the PECO III Special Committee based on the advice of its financial advisor.
Q: Am I being asked to vote on any other proposals at the special meeting in addition to the Merger Proposal?
A: Yes. At the PECO III Special Meeting, PECO III stockholders will be asked to consider and vote upon the following additional proposals:
To approve the PECO III charter amendment.
To approve one or more adjournments of the PECO III Special Meeting to another date, time or place, if necessary or appropriate, as determined by the Chair of the PECO III Special Meeting, to solicit additional proxies in favor of the

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proposal to approve the merger and the other transactions contemplated by the merger agreement or in favor of the proposal to approve the PECO III charter amendment.
Q: What happens if PECO III’s stockholders do not approve the merger?
A: Although any final decision would be subject to the decision of the PECO III Board, the PECO III Special Committee determined that given the expenses of operating as a public company, the small size of PECO III, and the significant challenges to growth, continuing to operate as a stand-alone business is not in the best interest of PECO III’s stockholders. Therefore PECO III would likely pursue alternatives, such as a liquidation or a sale to another party. However, the PECO III Special Committee believes that the merger with PECO is the best available option for PECO III and its stockholders given relative valuation, timing and transaction cost considerations. If the merger is not approved by PECO III stockholders, any such alternative to the merger would not include the significant financial benefit of the aforementioned commitments of the advisor and co-sponsors and would likely result in significantly reduced proceeds paid to stockholders. In addition, the recently reduced distribution rate PECO III intends to pay would likely need to be further reduced in the future if PECO III continued as a stand-alone company.
Q: Will PECO III continue to pay distributions prior to the closing of the merger?
A: Yes. In connection with the execution of the merger agreement, the PECO III Board, upon the recommendation of the PECO III Special Committee, declared a reduced distribution for each of September and October 2019 to all PECO III stockholders of record at the close of business on September 16, 2019 and October 15, 2019, respectively, equal to $0.0085 per share, payable on or about October 1, 2019 and November 1, 2019, respectively. The new distribution rate is based on the PECO III Special Committee and PECO III Board’s analysis of PECO III’s anticipated operating cash flows for the distribution period. PECO III intends to continue to pay distributions covered by its operating cash flows until the closing of the merger. The merger agreement permits the authorization and payment by PECO III of distributions in the ordinary course of business, provided that such distributions are covered by ongoing operating cash flows from the business, and any distribution that is reasonably necessary to maintain its REIT qualification and/or to avoid the imposition of U.S. federal income or excise tax.
Q: What fees will PECO III’s advisor receive in connection with the merger?
A: None. In connection with the merger, the advisor has waived any disposition fees that would otherwise have been payable under the advisory agreement upon consummation of the merger.
Q: Why is PECO III proposing to amend the PECO III charter? What is the effect of the PECO III charter amendment?
A: The PECO III charter amendment would remove the limitations on roll-up transactions. If the merger is not completed, the PECO III charter amendment will not be effected either.
See “Proposals Submitted to PECO III Stockholders—Charter Proposal’’ beginning on page 48 for a detailed description of the PECO III charter amendment.
Q: When and where is the special meeting of the PECO III stockholders?
A: The PECO III Special Meeting will be held via live webcast at www.virtualshareholdermeeting.com/PER2019SM on [●], 2019, at [●] Eastern Time.
Q: Who can vote at the PECO III Special Meeting?
A: All holders of PECO III common stock of record as of the close of business on [●], 2019, the record date for determining stockholders entitled to notice of and to vote at the PECO III Special Meeting, are entitled to receive notice of and to vote at the PECO III Special Meeting. As of the record date, there were [●] shares of PECO III common stock outstanding and entitled to vote at the PECO III Special Meeting, held by approximately [●] holders of record. Each share of PECO III common stock is entitled to one vote on each proposal presented at the PECO III Special Meeting.
Q: How can I vote?
A: PECO III Stockholders may vote by proxy before the PECO III Special Meeting by Internet, telephone, or by mail. For information on how to vote, see ‘‘The PECO III Special Meeting—Manner of Submitted Proxy’’ beginning on page 46.
Q: Do any of PECO III’s executive officers or directors have interests in the merger that may differ from those of PECO III stockholders?
A: No director or executive officer of PECO III has any interest in the merger that is different from that of any other stockholder of PECO III, or has any other interest in the merger, other than because the person is a director, officer and/or

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stockholder of PECO. The members of the PECO III Special Committee and the PECO III Board were aware of and considered these interests, among other matters, in evaluating the merger agreement and the merger, and in recommending that PECO III stockholders vote FOR the proposal to approve the merger and the other transactions contemplated by the merger agreement. For a description of these interests, see the section entitled “The Merger—Interests of PECO III’s Directors and Executive Officers in the Merger” beginning on page 64.
Q: Will my rights as a PECO III stockholder change as a result of the merger?
A: PECO III stockholders will have different rights following the effective time of the merger due to the differences between the governing documents of PECO and PECO III. For more information regarding the differences in stockholder rights, see “Comparison of Rights of PECO Stockholders and PECO III Stockholders” beginning on page 124.
Q: When is the merger expected to be completed?
A: PECO and PECO III expect to complete the merger as soon as reasonably practicable following satisfaction of all of the required conditions set forth in the merger agreement. If PECO III stockholders approve the merger and the PECO III charter amendment and if the other conditions to closing the merger are satisfied or waived, it is currently expected that the merger will be completed in the fourth quarter of 2019. However, there is no guarantee that the conditions to the merger will be satisfied or that the merger will close.
Q: If I am a PECO III stockholder and the merger is consummated, how will my receipt of PECO common stock in exchange for my PECO III common stock be recorded? Will I have to take any action in connection with the recording of such ownership of PECO common stock? Will such shares of PECO common stock be certificated or in book-entry form?
A: Pursuant to the merger agreement, as soon as practicable following the merger effective time, PECO will cause DST Systems, Inc., the transfer agent in connection with the merger, to record the issuance on the stock records of PECO of the amount of PECO common stock equal to the stock merger consideration which is issuable to each holder of PECO III common stock (including any fractional shares thereof) pursuant to the merger agreement. If the merger is consummated, you will not have to take any action in connection with the recording of your ownership of PECO common stock. Shares of PECO common stock issued as merger consideration to you will not be certificated and will be in book-entry form and will be recorded in the books and records of PECO.
Q: What do I need to do now?
A: After you have carefully read this proxy statement/prospectus, please respond by completing, signing and dating your proxy card or voting instruction card and returning it in the enclosed pre-addressed postage-paid envelope or, if available, by submitting your proxy by one of the other methods specified in your proxy card or voting instruction card as promptly as possible so that your shares of PECO III common stock will be represented and voted at the PECO III Special Meeting.
Please refer to your proxy card or voting instruction card forwarded by your broker or other nominee to see which voting options are available to you. The method by which you submit a proxy will in no way limit your right to vote at the PECO III Special Meeting if you later decide to participate in the meeting via live webcast. However, if your shares of PECO III common stock are held in the name of a broker or other nominee, you must obtain a legal proxy, executed in your favor, from your broker or other nominee, to be able to vote in person at the PECO III Special Meeting. Obtaining a legal proxy may take several days.
Q: How do I elect to receive additional shares of PECO common stock in lieu of the cash consideration?
A: A separate stock election form will be mailed to all PECO III stockholders of record as of the record date. If you prefer to receive shares of PECO common stock in lieu of the cash consideration based on PECO’s most recent EVPS of $11.10 you must complete the election form and return it in the pre-addressed postage-paid envelope included with the form. If we do not receive an election form from you prior to [●], 2019, you will receive the cash merger consideration in cash via the same method you receive cash distributions - via direct deposit to the account on file or check mailed to the address on file. If you wish to receive the cash portion of the merger consideration in cash, you do not need to return the election form.
Q: How will my proxy be voted?
A: All shares of PECO III common stock entitled to vote and represented by properly completed proxies received prior to the PECO III Special Meeting, and not revoked, will be voted at the PECO III Special Meeting as instructed on the proxies. If you properly sign, date and return a proxy card, but do not indicate how your shares of PECO III common stock should be voted on a matter, the shares of PECO III common stock represented by your proxy will be voted as the PECO III Board recommends. If your shares are held in street name through a broker or other nominee and you do not provide voting instructions to your broker

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or other nominee, your PECO III common stock will NOT be voted at the PECO III Special Meeting and may result in broker non-votes.
Q: Can I revoke my proxy or change my vote after I have delivered my proxy?
A: Yes. You may revoke your proxy or change your vote at any time before your proxy is voted at the PECO III Special Meeting. For information on how to revoke your proxy or change your vote, see ‘‘The PECO III Special Meeting—Revocation of Proxies or Voting Instructions’’ beginning on page 46.
Q: Will a proxy solicitor be used?
A: Yes. PECO III has contracted with Broadridge Financial Solutions, Inc. (“BFS”) to assist in the distribution of proxy materials and the solicitation of proxies. PECO, on behalf of PECO III, expects to pay BFS fees of approximately $58,000 to solicit proxies plus other fees and expenses for other services related to this proxy solicitation, including the review of proxy materials, dissemination of brokers’ search cards, distribution of proxy materials, operating online and telephone voting systems and receipt of executed proxies. PECO III will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to PECO III’s stockholders.
Q: Who can answer any other questions I have?
A: If PECO III stockholders have any questions about the merger or how to submit your proxy, or need additional copies of this proxy statement/prospectus, the enclosed proxy card or voting instructions, you should contact PECO III or BFS:
PECO III:
Phillips Edison Grocery Center REIT III, Inc.
Attention: Investor Relations
11501 Northlake Drive
Cincinnati, Ohio 45249
(833) 347-5717
BFS:
Broadridge Financial Solutions, Inc.
51 Mercedes Way Edgewood
New York, NY 11717
(855) 835-8316


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SUMMARY
The following summary highlights some of the information contained in this proxy statement/prospectus. This summary may not contain all of the information that is important to you. For a more complete description of the merger agreement, the merger and the other transactions contemplated by the merger agreement, PECO and PECO III encourage you to read carefully this entire proxy statement/prospectus, including the attached Annexes and the other documents to which we have referred you because this section does not provide all the information that might be important to you with respect to the merger at the PECO III Special Meeting. See also the section entitled “Where You Can Find More Information” on page 129. We have included page references to direct you to a more complete description of the topics presented in this summary.
The Companies
Phillips Edison & Company, Inc. and Phillips Edison Grocery Center Operating Partnership I, L.P. (See page 35)
PECO is a public, internally managed, non-traded REIT that was formed as a Maryland corporation in October 2009 and elected to be taxed as a REIT for U.S. federal income tax purposes for the year ended December 31, 2010 and each year thereafter.
PECO focuses its investment strategy on well-occupied, grocery-anchored neighborhood and community shopping centers having a mix of creditworthy national and regional retailers selling necessity-based goods and services in diversified markets with growth potential throughout the United States. PECO also operates an investment management business with approximately $725 million of third-party assets under management as of June 30, 2019. PECO owns its interests in all of its properties and conducts substantially all of its business through PECO OP, a Delaware limited partnership formed in December 2009. The principal executive office of PECO and PECO OP is located at 11501 Northlake Drive, Cincinnati, Ohio 45249, and its telephone number is (513) 554-1110.
Phillips Edison Grocery Center REIT III, Inc. (See page 40)
PECO III is a public non-traded REIT that was formed as a Maryland corporation in April 2016 and elected to be taxed as a REIT for U.S. federal income tax purposes for the year ended December 31, 2017 and each year thereafter. PECO III is co-sponsored by PECO and Griffin and is externally managed by the advisor, an entity jointly owned by affiliates of PECO and Griffin.
Historically, PECO III has been externally advised and paid fees to its advisor under the advisory agreement. In connection with the merger, the advisory agreement will be terminated immediately prior to the closing of the merger.
PECO III invests primarily in well-occupied, grocery-anchored neighborhood and community shopping centers having a mix of creditworthy national and regional retailers selling necessity-based goods and services in strong demographic markets throughout the United States. PECO III owns its interests in all of its properties and conducts substantially all of its business through Phillips Edison Grocery Center Operating Partnership III, L.P., a Delaware limited partnership formed in October 2016. The principal executive office of PECO III is located at 11501 Northlake Drive, Cincinnati, Ohio 45249, and its telephone number is (513) 554-1110.
REIT Merger Sub, LLC (See page 44)
REIT Merger Sub, LLC is a limited liability company formed in Maryland on August 16, 2019. Pursuant to the terms of the merger agreement, Merger Sub will survive the merger as a wholly-owned subsidiary of PECO OP. Merger Sub’s principal executive office will be located at 11501 Northlake Drive, Cincinnati, Ohio 45249, and its telephone number is (513) 554-1110.

The Merger
The Merger Agreement (See page 106)
The PECO parties and PECO III have entered into the merger agreement attached as Annex A to this proxy statement/prospectus, which is incorporated herein by reference. PECO and PECO III encourage you to carefully read the merger agreement in its entirety because it is the principal document governing the merger and the other transactions contemplated by the merger agreement.
The merger agreement provides that the closing of the merger will take place at 10:00 a.m. Eastern Time on the first business day following the date on which the last of the conditions to closing of the merger has been satisfied or waived.
The Merger (See page 50)
Subject to the terms and conditions of the merger agreement, at the effective time of the merger, PECO III will merge with and into Merger Sub, with Merger Sub surviving the merger as the Surviving Entity, which will be a wholly owned subsidiary of PECO OP.

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The Merger Consideration (See page 106)
At the effective time of the merger and by virtue of the merger, each outstanding share of PECO III common stock and each fraction thereof, will be canceled and converted into the right to receive merger consideration per share, as follows: (i) holders of PECO III Class A common stock will receive 0.6693 shares of PECO common stock and $0.0939 in cash per each share of Class A common stock they hold; (ii) holders of PECO III Class I common stock will receive 0.7436 shares of PECO common stock and $0.0941 in cash per each share of Class I common stock they hold; and (iii) holders of PECO III Class T common stock will receive 0.7749 shares of PECO common stock and $0.0989 in cash per each share of Class T common stock they hold. All stockholders will have the ability to receive additional shares of PECO common stock in lieu of the cash portion of the merger consideration, based on PECO’s most recent EVPS of $11.10.
Commitments of PECO III’s Advisor and Co-Sponsors
PECO and Griffin, in their roles as co-sponsors and co-advisors to PECO III, have built a meaningful relationship with the PECO III stockholders and their financial advisors and are prepared to invest in their collective brands and reputations amongst the retail investor community. Accordingly, it was important to PECO and Griffin that the merger consideration included:
Distribution Yield Support: The cash portion of the merger consideration of $0.0941 per share of PECO III common stock will provide PECO III stockholders, on average, when combined with the current PECO annualized distribution of $0.67 per share, the equivalent of a 5.5% distribution rate on their original PECO III investment for two years following the close of the merger, assuming the current PECO annualized distribution rate remains consistent.
Differing Stockholder Class Merger Consideration: The merger consideration offered by PECO in the transaction to Class I and Class T stockholders is higher than Class A stockholders to account for the fact that Class I and Class T stockholders most recently invested, paid a higher average purchase price per share, and received fewer distributions than Class A stockholders.
Valuation Support: The average merger consideration of $7.59 per share to be received by PECO III stockholders represents a significant premium over PECO’s estimated net asset value per share of PECO III common stock to take into account the following commitments of the advisor and co-sponsors:
effectively waiving the reimbursement of all organization or offering expenses incurred in PECO III’s private and public offerings that are currently owed to the advisor,
effectively waiving or crediting all asset management fees and acquisition fees and expenses owed or paid to the advisor by PECO III since its inception,
waiving all disposition fees that would be owed to the advisor in connection with the merger,
paying all of PECO III’s merger transaction expenses,
a cash contribution from PECO of $3.9 million, and
a cash contribution from Griffin of $2.8 million.
Recommendation of the PECO III Board of Directors (See page 55)
On September 3, 2019, after careful consideration, the PECO III Board (with the unanimous vote of the independent directors), based on the unanimous recommendation of the PECO III Special Committee, (i) determined that the merger and the other transactions contemplated by the merger agreement are advisable and in the best interests of PECO III and its stockholders and (ii) authorized and approved the merger and the other transactions contemplated by the merger agreement and authorized, approved and adopted the merger agreement. Certain factors considered by the PECO III Special Committee and the PECO III Board in reaching their decisions to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement can be found in the section entitled “The Merger—Recommendation of the PECO III Board of Directors and Its Reasons for the Merger” beginning on page 55.
The PECO III Board (with the unanimous vote of the independent directors), based on the unanimous recommendation of the PECO III Special Committee, recommends that the PECO III stockholders vote (i) FOR the proposal to approve the merger and the other transactions contemplated by the merger agreement, (ii) FOR the proposal to approve the PECO III charter amendment, and (iii) FOR the proposal to approve one or more adjournments of the PECO III Special Meeting to another date, time or place, if necessary or appropriate, as determined by the Chair of the PECO III Special Meeting, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement or the proposal to approve the PECO III charter amendment.
Interests of PECO’s and PECO III’s Directors and Executive Officers in the Merger (See page 64)
PECO’s directors, executive officers, and their affiliates own approximately 3.1% of the outstanding shares of PECO III common stock that may be voted on the merger. Affiliates of PECO, excluding its directors and executive officers, own approximately 1.4% of the outstanding shares of PECO III common stock that may be voted on the merger.

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PECO III’s directors, executive officers, and their affiliates collectively own approximately 2.9% of the outstanding shares of PECO III common stock that may be voted on the merger.
Directors and Executive Officers of the Combined Company (See page 65)
The board of directors and executive officers of PECO immediately prior to the effective time of the merger will continue to serve as the board of directors and executive officers of the Combined Company, with Jeffrey S. Edison continuing to serve as the Chairman of the PECO Board and Chief Executive Officer of the Combined Company. For more information on PECO’s directors and executive officers, see “The Merger—Directors and Executive Officers of the Combined Company After the Merger” beginning on page 65.
Summary of Risks Related to the Merger (See page 15)
You should consider carefully the risk factors described below together with all of the other information included in this proxy statement/prospectus before deciding how to vote. The risks related to the merger and the other transactions contemplated by the merger agreement are described under the section “Risk Factors—Risks Related to the Merger.” Certain of the risks related to the merger and the other transactions contemplated by the merger agreement, include, amongst others, the following:
PECO III stockholders will collectively own a small percentage of the stock of the Combined Company after the merger and, consequently, will have less influence over the management and policies of the Combined Company after the merger than they currently exercise over the management and policies of PECO III;
completion of the merger is subject to many conditions and if these conditions are not satisfied or waived, the merger will not be completed, which could negatively affect the future business and financial results of PECO III;
the pendency of the merger could adversely affect the business and operations of PECO III;
the merger agreement contains provisions that could discourage a potential competing acquirer of PECO III from proposing an alternative transaction that may be more advantageous to PECO III’s stockholders or could result in a competing acquisition proposal being at a lower price than it might otherwise be;
if the merger is not consummated by the Outside Date, either PECO or PECO III may terminate the merger agreement; and
if and when the Combined Company completes a liquidity event, the market value ascribed to the shares of common stock of the Combined Company upon the liquidity event may be significantly lower than the estimated net asset value per share of PECO and PECO III considered by the PECO III Special Committee and the PECO III Board in approving and recommending the merger.
The PECO III Special Meeting (See page 45)
The special meeting of the PECO III stockholders will be held at [●] Eastern Time on [●], 2019 via live webcast at www.virtualshareholdermeeting.com/PER2019SM.
At the PECO III Special Meeting, the PECO III stockholders will be asked to consider and vote upon the following matters:
1.
a proposal to approve the merger and the other transactions contemplated by the merger agreement;
2.
a proposal to approve the PECO III charter amendment;
3.
a proposal to approve one or more adjournments of the PECO III Special Meeting to another date, time or place, if necessary or appropriate, as determined by the Chair of the PECO III Special Meeting, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement and/or the proposal to approve the PECO III charter amendment; and
4.
such other business as may properly come before the meeting and any adjournment or postponement thereof.
Approval of the proposal to approve the merger and the other transactions contemplated by the merger agreement requires the affirmative vote of a majority of all of the votes entitled to be cast on such proposal.
Approval of the proposal to approve the PECO III charter amendment requires the affirmative vote of a majority of all of the votes entitled to be cast on such proposal.
Approval of the proposal to approve one or more adjournments of the PECO III Special Meeting to another date, time or place, if necessary or appropriate, as determined by the Chair of the PECO III Special Meeting, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement requires the affirmative vote of a majority of all of the votes cast on such proposal.
At the close of business on the record date, directors and executive officers of PECO III and their affiliates were entitled to vote [●] shares of PECO III common stock, or [●]% of the shares of PECO III common stock issued and outstanding on that date and affiliates of PECO were entitled to vote [●] shares of PECO III common stock, or [●]% of the shares of PECO III common

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stock issued and outstanding on that date. PECO III currently expects that all PECO III directors and executive officers will vote their shares of PECO III common stock in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement and the proposal to amend the charter as well as the other proposals to be considered at the PECO III Special Meeting, although none of them is contractually obligated to do so.
YOUR VOTE AS A PECO III STOCKHOLDER IS VERY IMPORTANT. Accordingly, please sign and return the enclosed proxy card whether or not you plan to participate in the PECO III Special Meeting via live webcast.
Opinion of the PECO III Special Committee’s Financial Advisor (See page 57)
In connection with the merger, Duff & Phelps, LLC (“Duff & Phelps”) delivered a written opinion, dated September 3, 2019 (the “Opinion”), to the PECO III Special Committee that, based upon and subject to the assumptions, qualifications and limiting conditions set forth in its Opinion, as of such date, the merger consideration to be received by the holders of the Class A common stock, the Class T common stock and the Class I common stock from PECO in the merger was fair from a financial point of view to the holders of each such class of PECO III common stock (without giving effect to any impact of the merger on any particular stockholder other than in its capacity as a stockholder). The full text of Duff & Phelps’ Opinion, which sets forth, among other things, the assumptions made, certain matters considered, and limitations on the review undertaken in connection with the Opinion, is attached as Annex E to this proxy statement/prospectus and is incorporated herein by reference.
Duff & Phelps provided the Opinion solely for the use and benefit of the PECO III Special Committee in connection with its consideration of the merger. The Opinion (i) did not address the merits of the underlying business decision to enter into the merger versus any alternative strategy or transaction; (ii) did not address any transaction related to the merger; (iii) was not a recommendation as to how the PECO III Special Committee, the PECO III Board or any stockholder should vote or act with respect to any matters relating to the merger, or whether to proceed with the merger, any related transaction or any alternative strategy or transaction; (iv) did not address the fairness of the merger consideration to the stockholders of any class of PECO III’s stock relative to the fairness of the merger consideration to the stockholders of any other class of PECO III common stock, and only addresses the fairness of the merger consideration to the stockholders of each class of PECO III common stock on an absolute basis as to that particular class; and (v) did not indicate that the merger consideration is the best possibly attainable under any circumstances; instead, it merely states whether the merger consideration is within or above a range implied by certain financial analyses. The decision as to whether to proceed with the merger, any related transaction or any alternative strategy or transaction may depend on an assessment of factors unrelated to the financial analysis on which the Opinion is based. For more information, see “The MergerOpinion of the PECO III Special Committee’s Financial Advisor” beginning on page 57.
Dissenters’ and Appraisal Rights in the Merger (See page 108)
No dissenters’ or appraisal rights or rights of objecting stockholders will be available with respect to the merger or the other transactions contemplated by the merger agreement.
Conditions to Completion of the Merger (See page 116)
A number of conditions must be satisfied or waived, where legally permissible, before the merger can be consummated. These include, among others:
approval by PECO III stockholders of the merger and the other transactions contemplated by the merger agreement, including the PECO III charter amendment;
declaration of effectiveness of the Form S-4 registration statement, of which this proxy statement/prospectus is a part, and the absence of any stop order suspending the effectiveness of such Form S-4 and any threat by the SEC to do so, or any commencement or threat of any proceeding to that effect; and
truth and accuracy of the representations and warranties of each party made in the merger agreement as of the closing, subject to certain materiality standards.
Neither PECO nor PECO III can give any assurance as to when or if all of the conditions to the consummation of the merger will be satisfied or waived or that the merger will occur.
See ‘‘The Merger Agreement—Conditions to Completion of the Merger’’ beginning on page 116 for more information.
Regulatory Approvals Required for the Merger (See page 85)
PECO and PECO III are not aware of any material federal or state regulatory requirements that must be complied with, or regulatory approvals that must be obtained, in connection with the merger or the other transactions contemplated by the merger agreement.

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No Solicitation and Change in Recommendation with Competing Proposal (See page 110)
Under the merger agreement, PECO III has agreed not to, and to cause its subsidiaries not to, directly or indirectly: (i) solicit, initiate or knowingly facilitate, encourage or assist any inquiry or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, a Competing Proposal (as defined in the merger agreement); (ii) engage in, continue or otherwise participate in any discussions or negotiations regarding any proposal or offer that constitutes, or would reasonably be expected to lead to, a Competing Proposal, or furnish to any other person or entity information or afford to any other person or entity access to the business, properties, assets or personnel of the acquired companies, in each case, in connection with, or for the purpose of knowingly encouraging, facilitating or assisting, a Competing Proposal; (iii) enter into any contract (including any letter of intent or agreement in principle) with respect to a Competing Proposal; (iv) grant any waiver, amendment or release under any standstill or confidentiality agreement or any takeover statute (provided that, notwithstanding anything contained in the merger agreement to the contrary, PECO III may waive any provision that prohibits a confidential proposal being made to the PECO III Special Committee or the PECO III Board); or (v) otherwise knowingly facilitate any effort or attempt to make a Competing Proposal.
However, prior to the approval of the merger by the PECO III stockholders, PECO III may, under certain specified circumstances, engage in discussions or negotiations with and provide non-public information regarding itself to a third party making an unsolicited, written Competing Proposal. Under the merger agreement, PECO III is required to notify PECO promptly if it receives any inquiry or any request for negotiation regarding a Competing Proposal and must provide to PECO a copy of any Competing Proposal (including a copy of any acquisition agreement and any related transaction documents and financing commitments, if any) and a written summary of any other material terms of any Competing Proposal not made in writing.
Before the approval of the merger by the stockholders of PECO III, the PECO III Board may, under certain specified circumstances, withdraw its recommendation of the merger and terminate the merger agreement to enter into an alternative acquisition agreement with respect to a Superior Proposal if the PECO III Special Committee and the PECO III Board determine in good faith, after consultation with outside legal counsel, that failure to take such action would be inconsistent with the directors’ duties under applicable law.
For more information regarding the limitations on PECO III, the PECO III Board and the PECO III Special Committee to consider other proposals, see “The Merger Agreement—Covenants and Agreements—No Solicitation and Change in Recommendation with Competing Proposal” beginning on page 110.
Termination of the Merger Agreement (See page 118)
The merger agreement may be terminated at any time by the mutual consent of the PECO parties and PECO III in a written instrument, even after receipt of the PECO III merger approval.
In addition, the merger agreement may also be terminated prior to the effective time of the merger by either PECO or PECO III under the following conditions, each subject to certain exceptions:
there has been a breach by the other party of any representation, warranty, agreement, covenant, or other obligation set forth in the merger agreement, which causes a condition of the merger agreement not to be satisfied (and such breach is not curable prior to the Outside Date or, if curable, not cured within the required timeline) (provided that the terminating party is not then in material breach of any representation, warranty, agreement, covenant, or other obligation set forth in the merger agreement);
the merger is not consummated by the Outside Date;
a governmental entity has issued a final, non-appealable judgment permanently restraining, enjoining or otherwise prohibiting the consummation of the merger or the other transactions contemplated by the merger agreement; or
the holders of PECO III common stock do not approve the PECO III charter amendment or the merger and the other transactions contemplated by the merger agreement.
The merger agreement may also be terminated by PECO if, prior to the PECO III merger approval by the PECO III stockholders, the PECO III Board:
fails to recommend to the PECO III stockholders that they approve the merger (the “PECO III Board recommendation”) or fails to include the PECO III Board recommendation in this proxy statement/prospectus;
changes, qualifies, withholds, withdraws or modifies, or publicly proposes to change, qualify, withhold, withdraw or, in a manner adverse to PECO, modify, the PECO III Board recommendation;
takes any formal action or makes any recommendation, public statement or other disclosure in connection with a tender offer or exchange offer other than as provided in the merger agreement;
adopts, approves or recommends, or publicly proposes to approve or recommend to the PECO III stockholders a Competing Proposal; or

10



fails to make or reaffirm the PECO III Board recommendation within five business days following PECO III’s written request to do so following PECO III’s or its representatives’ receipt of a Competing Proposal or any material change thereto.
For more information regarding the rights of PECO and PECO III to terminate the merger agreement, see ‘‘The Merger Agreement—Termination of the Merger Agreement’’ beginning on page 118.
Payment of Expenses (See page 120)
Generally, all fees and expenses incurred in connection with the merger and the other transactions contemplated by the merger agreement will be paid by PECO. However, upon termination of the merger agreement in certain circumstances, the merger agreement provides for PECO III to pay all of its own expenses and to reimburse PECO for up to $900,000 of PECO’s transaction expenses.
See “The Merger Agreement—Miscellaneous Provisions—Payment of Expenses” on page 118 for more information.
Material U.S. Federal Income Tax Considerations of the Merger (See page 85)
The receipt of the merger consideration for each share of PECO III common stock pursuant to the merger agreement will be a taxable transaction for U.S. federal income tax purposes. Generally, for U.S. federal income tax purposes, PECO III stockholders will recognize gain or loss as a result of the merger measured by the difference, if any, between the fair market value of merger consideration received and the stockholder’s adjusted tax basis in their PECO III common stock. Tax matters can be complicated and the tax consequences of the merger to PECO III stockholders will depend on their particular tax situations.
For further discussion of certain U.S. federal income tax consequences of the merger and the ownership and disposition of PECO’s common stock, see ‘‘The Merger—U.S. Federal Income Tax Considerations’’ beginning on page 85.
Holders of shares of PECO III common stock should consult their tax advisors to determine the tax consequences to them (including the application and effect of any state, local or non-U.S. income and other tax laws) of the merger and the ownership and disposition of PECO’s common stock.
Accounting Treatment of the Merger (See page 106)
PECO prepares its financial statements in accordance with U.S. generally accepted accounting principles, which we refer to herein as GAAP. The merger will be treated as an asset acquisition under GAAP. See ‘‘The Merger—Accounting Treatment’’ beginning on page 106 for more information.
Comparison of Rights of PECO Stockholders and PECO III Stockholders (See page 124)
The rights of PECO III stockholders are currently governed by and subject to the provisions of the Maryland General Corporation Law (the ‘‘MGCL’’), and the charter and bylaws of PECO III. Upon consummation of the merger, the rights of the former PECO III stockholders who receive shares of PECO common stock in the merger will continue to be governed by the MGCL and will be governed by the PECO charter and bylaws, rather than the charter and bylaws of PECO III. PECO’s charter and bylaws contain provisions different from PECO III’s charter and bylaws in various ways.
For a summary of certain differences between the rights of PECO stockholders and PECO III stockholders, see ‘‘Comparison of Rights of PECO Stockholders and PECO III Stockholders’’ beginning on page 124.
Selected Historical Financial Information of PECO (See page F-2)
Presented below is the selected historical consolidated financial data of PECO as of and for the periods indicated. The selected historical consolidated financial data of PECO for each of the fiscal years ended December 31, 2018, 2017, 2016, 2015, and 2014, has been derived from PECO’s historical audited consolidated financial statements. We have included in this proxy statement/prospectus PECO’s historical audited consolidated financial statements for the year ended December 31, 2018, beginning on page F-2. The selected historical financial information for the six months ended June 30, 2019, has been derived from PECO’s unaudited interim consolidated financial statements, which are included in this proxy statement/prospectus beginning on page F-46.
You should read the historical financial information together with the financial statements included in this proxy statement/prospectus and their accompanying notes beginning on page F-8 and PECO management’s discussion and analysis of operations and financial condition of PECO attached to this proxy statement/prospectus as Annex C.

11



 
 
As of and for the six months ended June 30,
 
As of and for the years ended December 31,
(in thousands, except per share amounts)
 
2019
 
2018(1)
 
2017(1)
 
2016
 
2015
 
2014
Balance Sheet Data:(2)
 
 
 
 
 
 
 
 
 
 
 
 
Investment in real estate assets at cost
 
$
5,364,662

 
$
5,380,344

 
$
3,751,927

 
$
2,584,005

 
$
2,350,033

 
$
2,201,235

Cash and cash equivalents
 
17,772

 
16,791

 
5,716

 
8,224

 
40,680

 
15,649

Total assets
 
4,976,453

 
5,163,477

 
3,526,082

 
2,380,188

 
2,226,248

 
2,141,196

Debt obligations, net
 
2,423,405

 
2,438,826

 
1,806,998

 
1,056,156

 
845,515

 
640,889

Operating Data:
 
 
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
265,350

 
$
430,392

 
$
311,543

 
$
257,730

 
$
242,099

 
$
188,215

Property operating expenses
 
(43,799
)
 
(77,209
)
 
(53,824
)
 
(41,890
)
 
(38,399
)
 
(32,919
)
Real estate tax expenses
 
(35,278
)
 
(55,335
)
 
(43,456
)
 
(36,627
)
 
(35,285
)
 
(25,262
)
General and administrative expenses(3)
 
(26,750
)
 
(50,412
)
 
(36,348
)
 
(31,804
)
 
(15,829
)
 
(8,632
)
Interest expense, net
 
(50,842
)
 
(72,642
)
 
(45,661
)
 
(32,458
)
 
(32,390
)
 
(20,360
)
Net (loss) income
 
(47,960
)
 
46,975

 
(41,718
)
 
9,043

 
13,561

 
(22,635
)
Net (loss) income attributable to
 
 
 
 
 
 
 
 
 
 
 
 
       stockholders
 
(41,765
)
 
39,138

 
(38,391
)
 
8,932

 
13,360

 
(22,635
)
Cash Flow Data:
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows provided by operating
 
 
 
 
 
 
 
 
 
 
 
 
         activities
 
$
100,069

 
$
153,291

 
$
108,861

 
$
103,076

 
$
106,073

 
$
75,671

Cash flows used in investing activities(4)
 
(26,987
)
 
(258,867
)
 
(640,742
)
 
(191,328
)
 
(110,744
)
 
(718,828
)
Cash flows (used in) provided by
 
 
 
 
 
 
 
 
 
 
 
 
         financing activities
 
(104,830
)
 
162,435

 
509,380

 
90,685

 
29,732

 
195,500

Per Share Data:
 
 
 
 
 
 
 
 
 
 
 
 
Net (loss) income per share-basic
 
 
 
 
 
 
 
 
 
 
 
 
        and diluted
 
$
(0.15
)
 
$
0.20

 
$
(0.21
)
 
$
0.05

 
$
0.07

 
$
(0.13
)
Common stock distributions declared
 
0.34

 
0.67

 
0.67

 
0.67

 
0.67

 
0.67

(1)
Includes the impact of the acquisition of assets from Phillips Edison Limited Partnership in October 2017 and the merger with Phillips Edison Grocery Center REIT II, Inc. in November 2018.
(2)
Certain prior period balance sheet amounts have been restated to conform with PECO’s adoption in 2016 of Accounting Standards Update (‘‘ASU’’) 2015-03, Simplifying the Presentation of Debt Issuance Costs.
(3)
Certain prior period amounts have been reclassified to conform with current year presentation.
(4)
Certain prior period cash flows used in investing activities amounts have been restated to conform with PECO’s adoption in 2018 of ASU 2016-18, Statement of Cash Flows (Topic 230).
Selected Historical Financial Information of PECO III
Selected historical financial information of PECO III has been omitted as permitted under rules applicable to smaller reporting companies.
Unaudited Comparative Per Share Information (See page F-2)
The following table sets forth for the year ended December 31, 2018, and the six months ended June 30, 2019, selected per share information for PECO and PECO III common stock on a historical basis and for the Combined Company on a pro forma basis after giving effect to the merger accounted for as an asset acquisition. The information in the table is unaudited. You should read the tables below together with the historical consolidated financial statements and related notes of PECO and PECO III, which are included in this proxy statement/prospectus beginning on page F-2 and F-73, respectively.
The pro forma Combined Company net earnings per share for the six months ended June 30, 2019, and the year ended December 31, 2018, include the combined net earnings attributable to the common stockholders of PECO and PECO III on a pro forma basis as if the transaction was consummated on January 1, 2018, and, with respect to net asset value per share of common stock, on June 30, 2019.
The PECO pro forma combined per share data is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transactions had been consummated on January 1, 2018 (the beginning of the earliest period presented), nor is it necessarily indicative of future operating results or financial position. The pro forma adjustments are estimates based upon information and assumptions available at the time of the filing of this proxy statement/prospectus.

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The PECO III pro forma equivalent information shows the effect of the mergers from the perspective of an owner of PECO III common stock and the information was computed by multiplying the PECO pro forma combined information by the average exchange ratio of 0.6756.
 
PECO
 
PECO III
 
Historical
 
Pro Forma Combined
 
Historical
 
Pro Forma Combined
For the year ended December 31, 2018
 
 
 
 
 
 
 
Net income (loss) per share-basic and diluted
$
0.20

 
$
0.19

 
$
(0.20
)
 
$
0.13

Common stock distributions declared
0.67

 
0.67

 
0.60

 
0.45

For the six months ended June 30, 2019
 
 
 
 
 
 
 
Net loss per share-basic and diluted
$
(0.15
)
 
$
(0.15
)
 
$
(0.15
)
 
$
(0.10
)
Common stock distributions declared
0.34

 
0.34

 
0.30

 
0.23

As of June 30, 2019
 
 
 
 
 
 
 
Estimated net asset value per share
$
11.10

 
$
11.10

 
$
6.54

(1) 
$
7.50

(1)  
Represents the mid-point of the EVPS range of PECO III common stock on an aggregate basis, as determined by the PECO III Special Committee based on the advice of its financial advisor.
Comparative PECO and PECO III Distribution Information
PECO’s Market Price and Distribution Data
There is no established public trading market for shares of PECO common stock. At the close of business on [●], 2019, there were approximately [●] holders of record of shares of PECO common stock. The following table sets forth the distributions declared on PECO common stock for the first and second quarters of 2019 and for the 2018 and 2017 fiscal years, which correspond to PECO’s respective quarterly fiscal periods for financial reporting purposes.
 
 
Distributions Declared Per Share
 
Annualized Rate (1)
 
Amount per
$1,000 Invested(1)
2019
 
 
 
 
 
 
Second Quarter
 
$
0.1675

 
6.70
%
 
$
16.75

First Quarter
 
$
0.1675

 
6.70
%
 
$
16.75

2018
 
 
 
 
 
 
Fourth Quarter
 
$
0.1675

 
6.70
%
 
$
16.75

Third Quarter
 
$
0.1675

 
6.70
%
 
$
16.75

Second Quarter
 
$
0.1675

 
6.70
%
 
$
16.75

First Quarter
 
$
0.1675

 
6.70
%
 
$
16.75

2017
 
 
 
 
 
 
Fourth Quarter
 
$
0.1675

 
6.70
%
 
$
16.75

Third Quarter
 
$
0.1675

 
6.70
%
 
$
16.75

Second Quarter
 
$
0.1675

 
6.70
%
 
$
16.75

First Quarter
 
$
0.1675

 
6.70
%
 
$
16.75

(1) 
At $10.00 per share initial investment.
PECO III’s Market Price and Distribution Data
There is no established public trading market for shares of PECO III common stock. At the close of business on [●], 2019, the record date for the PECO III Special Meeting, there were approximately [●] holders of record of shares of PECO III common stock. The following table sets forth the distributions declared on PECO III common stock for the first and second quarters of 2019 and for the 2018 and 2017 fiscal years, which correspond to PECO III’s respective quarterly fiscal periods for financial reporting purposes. On September 3, 2019, in connection with the execution of the merger agreement, the PECO III Board, upon the recommendation of the PECO III Special Committee, declared a reduced distribution for each of September and October 2019 to all PECO III stockholders of record at the close of business on September 16, 2019 and October 15, 2019, respectively, equal to $0.0085 per share, payable on or about October 1, 2019 and November 1, 2019, respectively.

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Distributions Declared Per Share (1)
 
Annualized Rate(2)
 
Amount per
$1,000 Invested(2)
2019
 
 
 
 
 
 
September
 
$
0.0085

 
1.02
%
 
$
0.85

July through August
 
$
0.10

 
6.00
%
 
$
10.00

Second Quarter
 
$
0.15

 
6.00
%
 
$
15.00

First Quarter
 
$
0.15

 
6.00
%
 
$
15.00

2018
 
 
 
 
 
 
Fourth Quarter
 
$
0.15

 
6.00
%
 
$
15.00

Third Quarter
 
$
0.15

 
6.00
%
 
$
15.00

Second Quarter
 
$
0.15

 
6.00
%
 
$
15.00

First Quarter
 
$
0.15

 
6.00
%
 
$
15.00

2017
 
 
 
 
 
 
Fourth Quarter
 
$
0.15

 
6.00
%
 
$
15.00

Third Quarter
 
$
0.15

 
6.00
%
 
$
15.00

Second Quarter
 
$
0.15

 
6.00
%
 
$
15.00

First Quarter
 
$
0.15

 
6.00
%
 
$
15.00

(1) 
Based on a daily rate of $0.00164384, rounded to the nearest hundredth.
(2) 
At $10.00 per share initial investment.
If PECO continues to pay quarterly cash distributions at the rate of $0.1675 per share, after giving effect to the Class A stock exchange ratio of 0.6693, this distribution, from the perspective of a holder of PECO III Class A common stock, would be approximately $0.0821 more than the $0.0255 per share quarterly equivalent based upon PECO III’s most recent distribution declared for September 2019; after giving effect to the Class I stock exchange ratio of 0.7436, this distribution, from the perspective of a holder of PECO III Class I common stock, would be approximately $0.0946 more than the $0.0255 per share quarterly equivalent based upon PECO III’s most recent distribution declared for September 2019; and after giving effect to the Class T stock exchange ratio of 0.7749, this distribution, from the perspective of a holder of PECO III Class T common stock, would be approximately $0.0998 more than the $0.0255 per share quarterly equivalent based upon PECO III’s most recent distribution declared for September and October 2019.
PECO Equity Compensation Plan Information
The following table provides information as of December 31, 2018, regarding shares of PECO common stock that may be issued under PECO’s equity compensation plans, consisting of the Amended and Restated 2010 Long-Term Incentive Plan (the ‘‘2010 PECO LTIP Plan’’) and the Amended and Restated 2010 Independent Director Stock Plan (the “2010 PECO Director Plan”):
Plan Category
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (a)
 
Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights (b)
 
Number of Securities Remaining Available for Future Issuance Under Equity Compensation
Plans (excluding securities reflected in column (a))(1)(2) (c)
Equity compensation plans approved by security holders
 
1,007,000

 
$

 
7,190,000

Equity compensation plans not approved by security holders
 

 

 

Total / weighted average
 
1,007,000

 
$

 
7,190,000

(1) 
Includes 1 million phantom stock units, which will not vest in shares of stock but rather are paid in cash upon vesting. They are included in this table as they currently reduce the number of securities available for future issuance under the 2010 PECO LTIP Plan; however, they will be added back into the pool of securities available for future issuance under the 2010 PECO LTIP Plan upon vesting or forfeiture.
(2) 
As of December 31, 2018, there were 7.0 million shares of PECO common stock available for grants under the 2010 PECO LTIP Plan and 0.2 million shares of PECO common stock available for grants under the 2010 PECO Director Plan.


14



RISK FACTORS
In addition to the other information included in this proxy statement/prospectus, including the matters addressed in the section entitled ‘‘Cautionary Statement Concerning Forward-Looking Statements,’’ you should carefully consider the following risks before deciding how to vote your shares of common stock of PECO III. In addition, you should read and consider the risks associated with each of the businesses of PECO and PECO III because these risks will also affect the Combined Company. These risks can be found in the respective Annual Reports on Form 10-K for the year ended December 31, 2018 and subsequent Quarterly Reports on Form 10-Q of PECO and PECO III. You should also read and consider the other information in this proxy statement/prospectus, including the Annexes. See ‘‘Where You Can Find More Information’’ on page 129.
Risks Related to the Merger
The exchange ratio will not be adjusted, other than as expressly contemplated in the merger agreement.
At the effective time of the merger and by virtue of the merger, each outstanding share of PECO III common stock and each fraction thereof, will be canceled and converted into the right to receive merger consideration per share, as follows: (i) holders of PECO III Class A common stock will receive 0.6693 shares of PECO common stock and $0.0939 in cash per each share of Class A common stock they hold; (ii) holders of PECO III Class I common stock will receive 0.7436 shares of PECO common stock and $0.0941 in cash per each share of Class I common stock they hold; and (iii) holders of PECO III Class T common stock will receive 0.7749 shares of PECO common stock and $0.0989 in cash per each share of Class T common stock they hold. All stockholders will have the ability to receive additional shares of PECO common stock in lieu of the cash portion of the merger consideration. The most recent estimated net asset value per share of PECO common stock is $11.10 per share.
Except as expressly contemplated in the merger agreement, no change in the applicable exchange ratio will be made for any reason, including the following:
changes in the respective businesses, operations, assets, liabilities and prospects of PECO and PECO III;
changes in the estimated value per share of either the shares of PECO common stock or PECO III common stock;
interest rates, general market and economic conditions and other factors generally affecting the businesses of PECO and PECO III;
federal, state and local legislation, governmental regulation and legal developments in the businesses in which PECO and PECO III operate; and
other factors beyond the control of PECO and PECO III, including those described or referred to elsewhere in this ‘‘Risk Factors’’ section.
PECO III stockholders’ influence will be diluted by the merger.
The merger will result in PECO III stockholders having an ownership stake in the Combined Company that is substantially smaller than their current stake in PECO III. Upon completion of the merger, we estimate that former PECO III stockholders will own approximately 1.36% of the issued and outstanding shares of the Combined Company on a fully diluted basis (determined as if each PECO OP unit were exchanged for one share of PECO common stock). Consequently, PECO III stockholders, as a general matter, will have substantially less influence over the management and policies of the Combined Company after the effective time of the merger than they currently exercise over the management and policies of PECO III.
Completion of the merger is subject to many conditions and if these conditions are not satisfied or waived, the merger will not be completed.
The merger agreement is subject to many conditions which must be satisfied or waived in order to complete the merger. The mutual conditions of the parties include, among others: (i) the approval by the PECO III stockholders of the merger; (ii) the approval by PECO III stockholders of the PECO III charter amendment and the merger; (iii) the absence of any law, order or injunction that would prohibit, restrain, enjoin or make illegal the consummation of the merger or any judgment, order, decree, award, ruling, decision, verdict, subpoena, injunction or settlement entered, issued, made or rendered by, or any consent agreement, memorandum of understanding or other contract with, any governmental entity (whether temporary, preliminary or permanent) of a court of competent jurisdiction in effect preventing, restraining or enjoining the consummation of the merger; and (iv) the effectiveness of the registration statement on Form S-4 to be filed by PECO for purposes of registering the PECO common stock to be issued in connection with the merger. In addition, each party’s obligation to consummate the merger is subject to certain other conditions, including, among others: (a) the accuracy of the other party’s representations and warranties (subject to customary materiality qualifiers and other customary exceptions); (b) the other party’s compliance with its covenants and agreements contained in the merger agreement (subject to customary materiality qualifiers); (c) the absence of any change, event, circumstance or development arising during the period from the date of the merger agreement until the effective time of the merger that has had or is reasonably likely to have a material adverse effect on the other party; and (d) the receipt by PECO III of an opinion of counsel of PECO to the effect that PECO has been organized and has operated in

15



conformity with the requirements for qualification and taxation as a REIT. For a more complete summary of the conditions that must be satisfied or waived prior to completion of the merger, see ‘‘The Merger Agreement—Conditions to Completion of the Merger’’ beginning on page 116.
There can be no assurance that the conditions to closing of the merger will be satisfied or waived or that the merger will be completed. Failure to consummate the merger may adversely affect PECO III’s results of operations and business prospects and may divert the attention of certain management and other key employees of PECO III from ongoing business activities, including the pursuit of other opportunities that could be beneficial to PECO III. In addition, PECO or PECO III may terminate the merger agreement under certain circumstances, including, among other reasons, if the merger is not completed by the Outside Date. See ‘‘The Merger Agreement—Termination of the Merger Agreement’’ beginning on page 118.
The pendency of the merger could adversely affect the business and operations of PECO III.
Prior to the effective time of the merger, some customers, prospective customers or vendors of PECO III may delay or defer decisions, which could negatively affect the revenues, earnings, cash flows and expenses of PECO III, regardless of whether the merger is completed. In addition, due to operating restrictions in the merger agreement, PECO III may be unable, during the pendency of the merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
The merger agreement contains provisions that could discourage a potential competing acquirer of PECO III or could result in a competing acquisition proposal being at a lower price than it might otherwise be.
The merger agreement contains provisions that, subject to limited exceptions necessary to comply with the duties of the PECO III Board and the PECO III Special Committee, restrict the ability of PECO III to solicit, initiate or knowingly facilitate any third party proposals to acquire beneficial ownership of at least 20% of the assets of, equity interest in, or businesses of, PECO III. Prior to receiving PECO III merger approval, PECO III may negotiate with a third party after receiving an unsolicited written proposal if the PECO III Board determines in good faith that the unsolicited proposal would reasonably be likely to result in a transaction that is more favorable to the PECO III stockholders from a financial point of view than the merger. Once a third party proposal is received, PECO III must notify PECO within 48 hours following receipt of the proposal and keep PECO informed of the status and terms of the proposal and associated negotiations. In response to such a proposal, PECO III may, under certain circumstances, withdraw or modify its recommendation to PECO III stockholders with respect to the merger, and enter into an agreement to consummate a competing transaction with a third party, if each of the PECO III Board and the PECO III Special Committee determines in good faith that the competing proposal is more favorable to PECO III stockholders from a financial point of view and that failure to take such action would be inconsistent with its duties under applicable law, in which case PECO III would be required to reimburse PECO’s transaction expenses up to $900,000 and to pay all of its own transaction expenses. See ‘‘The Merger Agreement—Covenants and Agreements—No Solicitation and Change in Recommendation with Competing Proposal’’ beginning on page 110 and ‘‘The Merger Agreement—Miscellaneous Provisions—Payment of Expenses’’ beginning on page 118.
These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of PECO III from considering or proposing such an acquisition, even if the potential competing acquirer was prepared to pay consideration with a higher per share value than the value proposed to be received or realized in the merger, or might result in a potential competing acquirer proposing to pay a lower per share value than it might otherwise have proposed to pay because of the added expense that may become payable in certain circumstances under the merger agreement.
The most recent estimated net asset value per share of PECO common stock used to determine the amount of PECO common stock received by stockholders electing to receive PECO common stock in lieu of the cash portion of the merger consideration may not reflect the fair value of PECO common stock.
The most recent EVPS of PECO common stock of $11.10, which will be used to determine the amount of PECO common stock received by PECO III stockholders electing to receive PECO common stock in lieu of the cash portion of the merger consideration, may not reflect the fair value of PECO common stock. See the risk factor below entitled “PECO uses an estimated value of shares of PECO common stock that is based on a number of assumptions that may not be accurate or complete and is also subject to a number of limitations.” In addition, this EVPS is as of March 31, 2019, has not been updated for developments since then, and does not reflect any dilutive impacts of the proposed merger transaction.

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Risks Related to the Combined Company Following the Merger
After the merger is completed, PECO III stockholders who receive shares of PECO common stock in the merger will have different rights that may be less favorable than their current rights as PECO III stockholders.
After the closing of the merger, PECO III stockholders who receive shares of PECO common stock in the merger will have different rights than they currently have as PECO III stockholders. For a detailed discussion of the significant differences between the current rights as a stockholder of PECO III and the rights as a stockholder of the Combined Company following the merger, see “Comparison of Rights of the PECO Stockholders and the PECO III Stockholders” beginning on page 124.
If and when the Combined Company completes a liquidity event, the market value ascribed to the shares of common stock of the Combined Company upon the liquidity event may be significantly lower than the estimated net asset value per share of PECO and PECO III considered by the PECO III Board in approving and recommending the merger.
In approving and recommending the merger, the PECO III Board and the PECO III Special Committee considered the most recent estimated value per share of PECO and PECO III as determined by the PECO Board and the PECO III Special Committee, respectively, with the assistance of their respective third party advisors. The estimated value per share of PECO, which will be the surviving company in the merger, will not be updated in connection with the consummation of the merger. In the event that the Combined Company completes a liquidity event after consummation of the merger, such as a listing of its shares on a national securities exchange, a merger in which stockholders of the Combined Company receive securities that are listed on a national securities exchange, or a sale of the Combined Company for cash, the market value of the shares of the Combined Company upon consummation of such liquidity event may be significantly lower than the current estimated values considered by the PECO Board, the PECO III Board and the PECO III Special Committee and the estimated value per share of PECO that may be reflected on the account statements of stockholders of the Combined Company after consummation of the merger. For example, if the shares of the Combined Company are listed on a national securities exchange at some point after the consummation of the merger, the trading price of the shares may be significantly lower than the current PECO estimated value per share of $11.10.
The Combined Company cannot assure you that it will be able to continue paying distributions at or above the rates currently paid by PECO.
The stockholders of the Combined Company may not receive distributions following the merger at the same rate that PECO stockholders currently receive distributions for various reasons, including the following:
the Combined Company may not have enough cash to pay such distributions due to changes in the Combined Company’s cash requirements, capital spending plans, cash flow or financial position;
decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Combined Company’s board of directors, which reserves the right to change PECO’s current distribution practices at any time and for any reason;
the Combined Company may desire to retain cash to maintain or improve its credit ratings; and
the amount of distributions that the Combined Company’s subsidiaries may distribute to the Combined Company may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.
Stockholders of the Combined Company will have no contractual or other legal right to distributions that have not been authorized by the Combined Company’s board of directors and declared by the Combined Company.
The Combined Company may need to incur additional indebtedness in the future.
In connection with executing the Combined Company’s business strategies following the merger, the Combined Company expects to evaluate the possibility of additional acquisitions and strategic investments, and the Combined Company may elect to finance these endeavors by incurring additional indebtedness. The amount of such indebtedness could have material adverse consequences for the Combined Company, including hindering the Combined Company’s ability to adjust to changing market, industry or economic conditions; limiting the Combined Company’s ability to access the capital markets to refinance maturing debt or to fund acquisitions or emerging businesses; limiting the amount of free cash flow available for future operations, acquisitions, distributions, stock repurchases or other uses; making the Combined Company more vulnerable to economic or industry downturns, including interest rate increases; and placing the Combined Company at a competitive disadvantage compared to less leveraged competitors.

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The Combined Company may incur adverse tax consequences if PECO or PECO III has failed or fails to qualify as a REIT for U.S. federal income tax purposes.
Each of PECO and PECO III has operated in a manner that it believes has allowed it to qualify as a REIT for U.S. federal income tax purposes under the Code and intends to continue to do so through the time of the merger. Following the merger, PECO intends to operate in such a manner. Neither PECO nor PECO III has requested or plans to request a ruling from the Internal Revenue Service, or the IRS, that it qualifies as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury Regulations is greater in the case of a REIT, like each of PECO and PECO III, that holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within the control of PECO or PECO III may affect their ability to qualify as REITs. In order to qualify as a REIT, each of PECO or PECO III must satisfy a number of requirements, including requirements regarding the ownership of its stock and the composition of its gross income and assets. Also, a REIT must make distributions to stockholders aggregating annually at least 90% of its net taxable income, excluding any net capital gains.
If PECO loses its REIT status, or is determined to have lost its REIT status in a prior year, the Combined Company will face serious tax consequences that would substantially reduce its cash available for distribution, including cash available to pay distributions to its stockholders, because:
it would be subject to U.S. federal corporate income tax on its net income for the years it did not qualify for taxation as a REIT (and, for such years, would not be allowed a deduction for distributions paid to stockholders in computing its taxable income);
it could be subject to the federal alternative minimum tax for taxable years prior to 2018 and possibly increased state and local taxes for such periods;
unless it is entitled to relief under applicable statutory provisions, neither it nor any ‘‘successor’’ company could elect to be taxed as a REIT until the fifth taxable year following the year during which it was disqualified; and
for five years following re-election of REIT status, upon a taxable disposition of an asset owned as of such re-election, it could be subject to corporate level tax with respect to any built-in gain inherent in such asset at the time of re-election.
PECO currently owns an entity and may acquire direct or indirect interests in additional entities that, in each case, have elected or will elect to be taxed as REITs under the Code (each, a ‘‘Subsidiary REIT’’). A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to PECO. If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to federal income tax, (ii) shares in such Subsidiary REIT would cease to be qualifying assets for purposes of the asset tests applicable to REITs, and (iii) it is possible that PECO would fail certain of the asset tests applicable to REITs, in which event PECO would fail to qualify as a REIT unless it could avail itself of certain relief provisions.
Even if PECO retains its REIT status, if PECO III is determined to have lost its REIT status for a taxable year ending on or before the merger, PECO III would be subject to adverse tax consequences similar to those described above. Moreover, unless PECO III qualifies as a REIT for its short taxable year ending with the merger, it will not be entitled to a distributions paid deduction from the deemed liquidating distribution resulting from the merger. See “The Merger—U.S. Federal Income Tax Considerations—Material U.S. Federal Income Tax Considerations of the Merger—Consequences of the Merger to PECO III.” PECO III’s failure to qualify as a REIT for a period prior to the merger could substantially reduce the Combined Company’s cash available for distribution, including cash available to pay distributions to its stockholders, because, assuming that PECO otherwise maintains its REIT qualification if PECO III incurred any unpaid tax liabilities prior to the merger (or as a result of the merger), those tax liabilities would be transferred to the Combined Company as a result of the merger.
If there is an adjustment to PECO III’s taxable income or distributions paid deductions, the Combined Company could elect to use the deficiency distribution procedure in order to maintain PECO III’s REIT status. That deficiency distribution procedure could require the Combined Company to make significant distributions to its stockholders and to pay significant interest to the IRS.
As a result of all these factors, PECO’s or PECO III’s failure to qualify as a REIT could impair the Combined Company’s ability to expand its business and have other material adverse effects on the Combined Company. In addition, for years in which PECO does not qualify as a REIT, it would not otherwise be required to make distributions to stockholders.
In certain circumstances, even if PECO qualifies as a REIT, it and its subsidiaries may be subject to certain U.S. federal, state, and other taxes, which would reduce PECO’s cash available for distribution to its stockholders.
Even if PECO and PECO III have qualified and PECO continues to qualify as a REIT, the Combined Company may be subject to some U.S. federal, state and local taxes on its income or property and, in certain cases, a 100% penalty tax, in the event it sells property as a dealer. In addition, the Combined Company’s taxable REIT subsidiaries (“TRSs”) could be subject to U.S.

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federal and state taxes. Any U.S. federal, state or other taxes the Combined Company pays will reduce its cash available for distribution to stockholders. See ‘‘The MergerU.S. Federal Income Tax ConsiderationsMaterial U.S. Federal Income Tax Considerations Applicable to Holders of PECO Common Stock’’ on page 90.
The merger will be taxable to PECO III stockholders; however, PECO III stockholders may not receive a sufficient amount of cash with which to pay any tax.
The merger should be treated as a taxable sale by PECO III of all of its assets followed by a liquidating distribution to the PECO III stockholders. Because the merger consideration consists substantially of PECO Common Stock and only a small amount of cash (or no cash if a PECO III stockholder elects to receive additional shares of PECO Common Stock in lieu of any cash consideration), holders of PECO III common stock may not receive a sufficient amount of cash necessary to pay any tax obligations resulting from the merger. Additionally, there is a risk that since the merger consideration to be received by the holders of Class I and Class T common stock is higher than the average merger consideration paid to all PECO III stockholders, a portion of the consideration received by holders of PECO III Class I and Class T common stock may be deemed to be ordinary income by the IRS and, in such event, could result in tax obligations in excess of cash received in the merger (see “The Merger—U.S. Federal Income Tax Considerations—Consequences of the Merger to the PECO III Stockholders as a Result of the Holders of Class I and Class T Common Stock Receiving Merger Consideration that is Higher Than the Average Received by all PECO III Stockholders” beginning on page 89).
PECO III stockholders who are U.S. holders (as defined below) should generally be treated as selling their common stock in exchange for the PECO Common Stock and cash to be received by them in the merger. As a result, PECO III stockholders who are U.S. holders will recognize gain or loss equal to the difference, if any, between the fair market value of merger consideration received and the holder's adjusted tax basis in their PECO III common stock.
PECO III stockholders who are non-U.S. holders (as defined below) should generally be treated as receiving the same merger consideration as a distribution (and not as a sale of PECO III common stock) to the extent attributable to gain from the sale of United States real property interests. In addition, unless (i) the loss recognized by the PECO III stockholder who is a non-U.S. holder upon the merger is effectively connected (or treated as effectively connected) with the non-U.S. holder’s conduct of a trade or business in the United States or (ii) PECO III fails to qualify as a “domestically controlled qualified investment entity” at the time of the merger, any loss recognized by the non-U.S. holder in the merger with respect to the portion of the merger consideration that is treated as a sale or exchange of PECO III common stock will not offset the tax recognized with respect to the portion of the merger consideration that is treated as a distribution attributable to gain from the deemed sale of United States real property interests. Accordingly, a non-U.S. holder may be subject to tax in the merger even though it may also recognize a loss in the merger with respect to the portion of the merger consideration that is treated as a sale or exchange of PECO III common stock. In general, the provisions governing the taxation of distributions by REITs can be less favorable to non-U.S. holders than the taxation of sales or exchanges of REIT stock by non-U.S. holders, and non-U.S. holders should consult their tax advisors regarding the application of these provisions.
For a more detailed discussion of the tax treatment of the Combined Company’s distributions, see “The MergerU.S. Federal Income Tax ConsiderationsMaterial U.S. Federal Income Tax Considerations of the Merger” on page 87.
The Combined Company depends on key personnel for its future success, and the loss of key personnel or inability to attract and retain personnel could harm the Combined Company’s business.
The future success of the Combined Company depends in large part on its ability to hire and retain a sufficient number of qualified personnel. The future success of the Combined Company also depends upon the service of the Combined Company’s executive officers, who have extensive market knowledge and relationships and will exercise substantial influence over the Combined Company’s operational, financing, acquisition and disposition activity. Among the reasons that they are important to the Combined Company’s success is that each has a national or regional industry reputation that is expected to attract business and investment opportunities and assist the Combined Company in negotiations with lenders, existing and potential tenants and industry personnel.
Many of the Combined Company’s other key executive personnel, particularly its senior managers, also have extensive experience and strong reputations in the industry. In particular, the extent and nature of the relationships that these individuals have developed with financial institutions and existing and prospective customers is critically important to the success of the Combined Company’s business. The loss of services of one or more members of the Combined Company’s senior management team, or the Combined Company’s inability to attract and retain highly qualified personnel, could adversely affect the Combined Company’s business, diminish the Combined Company’s investment opportunities and weaken its relationships with lenders, business partners, existing and prospective customers and industry personnel, which could materially and adversely affect the Combined Company.

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Key employees may depart either before or after the merger because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Combined Company following the merger. Accordingly, no assurance can be given that PECO or, following the merger, the Combined Company will be able to retain key employees to the same extent as in the past.
Risks Related to PECO’s Structure and an Investment in PECO
Because no public trading market for shares of PECO common stock currently exists, it is difficult for the PECO stockholders to sell their shares and, if the PECO stockholders are able to sell their shares, it may be at a discount to the public offering price.
There is no public market for shares of PECO common stock. Until shares of PECO common stock are listed, if ever, stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase standards. Under PECO’s share repurchase program, PECO repurchases shares in the event of a death, disability or incapacitation of the stockholder at the lesser of $10.00 per share or PECO’s most recent estimated net asset value per share. PECO’s standard share repurchases under the program are currently suspended. In its sole discretion, the PECO Board may amend, terminate or suspend the share repurchase program at any time upon 30 days’ notice. Therefore, it is difficult for the PECO stockholders to sell their shares promptly or at all. If a PECO stockholder is able to sell his or her shares of PECO common stock, it may be at a discount to the public offering price of such shares. It is also likely that shares of PECO common stock would not be accepted as the primary collateral for a loan. Because of the illiquid nature of shares of PECO common stock, investors should purchase shares of PECO common stock only as a long-term investment and be prepared to hold them for an indefinite period of time.
PECO uses an estimated value of shares of PECO common stock that is based on a number of assumptions that may not be accurate or complete and is also subject to a number of limitations.
To assist members of the Financial Industry Regulatory Authority (“FINRA”) and their associated persons that participated in PECO’s initial public offering, pursuant to applicable FINRA and National Association of Securities Dealers conduct rules, PECO discloses in each annual report distributed to PECO stockholders a per share estimated value of shares of PECO common stock, the method by which it was developed, and the date of the data used to develop the estimated value. For this purpose, effective May 8, 2019, the PECO Board approved an estimated value per share of PECO common stock of $11.10 based on the estimated fair value range of PECO’s real estate portfolio as indicated in a third-party valuation report plus the value of PECO’s cash and cash equivalents less the value of PECO’s mortgages and loans payable as of March 31, 2019.
PECO’s estimated value per share is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share, and this difference could be significant. The estimated value per share is not audited and does not represent a determination of the fair value of PECO’s assets or liabilities based on GAAP, nor does it represent a liquidation value of PECO’s assets and liabilities or the amount at which shares of PECO common stock would trade if they were listed on a national securities exchange. Accordingly, with respect to the estimated value per share, there can be no assurance that:
a stockholder would be able to resell his or her shares at the estimated value per share;
a stockholder would ultimately realize distributions per share equal to PECO’s estimated value per share upon liquidation of PECO’s assets and settlement of PECO’s liabilities or a sale of PECO;
shares of PECO common stock would trade at the estimated value per share on a national securities exchange;
a third party would offer the estimated value per share in an arm’s-length transaction to purchase all or substantially all shares of PECO common stock;
an independent third-party appraiser or third-party valuation firm would agree with PECO’s estimated value per share; or
the methodology used to calculate PECO’s estimated value per share would be acceptable to FINRA or for compliance with Employee Retirement Income Security Act of 1974 (‘‘ERISA’’) reporting requirements.
Furthermore, PECO has not made any adjustments to the valuation of its estimated value per share for the anticipated impact of the merger or the impact of other transactions occurring subsequent to May 8, 2019, including, but not limited to, (i) acquisitions or dispositions of assets; (ii) the issuance of common stock under PECO’s dividend reinvestment plan or upon redemptions of PECO OP units, (iii) net operating income earned and distributions declared, (iv) the repurchase of shares, or (v) changes in leases, tenancy or other business or operational changes. The value of shares of PECO common stock will fluctuate over time in response to developments related to individual real estate assets, the management of those assets and changes in the real estate and finance markets. Because of, among other factors, the high concentration of PECO’s total assets in real estate and the number of shares of PECO’s common stock outstanding, changes in the value of individual real estate assets or changes in valuation assumptions could have a very significant impact on the value of shares of PECO common stock. In addition, the estimated value per share reflects a real estate portfolio premium as opposed to the sum of the individual property values. The estimated value per share also does not take into account any disposition costs or fees for real estate properties, debt prepayment penalties that could apply upon the prepayment of certain of PECO’s debt obligations or the impact of restrictions on the assumption of debt. Accordingly, the estimated value per share of PECO’s common stock may or may not be an accurate reflection of the fair market value of the PECO stockholders’ investments and will not likely represent the amount of net proceeds that would result from an immediate sale of PECO’s assets.

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If PECO does not successfully implement a liquidity transaction, stockholders may have to hold their investment for an indefinite period.
There currently is no public trading market for shares of PECO common stock and PECO’s charter does not contain a requirement to effect a liquidity event by a specific date. In the future, the PECO Board may consider various forms of liquidity, each of which is referred to as a liquidity event, including, but not limited to: (i) the listing of shares of common stock on a national securities exchange; (ii) the sale of all or substantially all of PECO’s assets; (iii) a sale or merger that would provide stockholders with cash and/or securities of a publicly traded company; or (iv) the dissolution of the company. However, there can be no assurance that PECO will cause a liquidity event to occur. If PECO does not pursue a liquidity transaction, shares of PECO common stock may continue to be illiquid and stockholders may, for an indefinite period of time, be unable to easily convert their investment to cash and could suffer losses on their investments.
If PECO continues to pay distributions from sources other than PECO’s cash flows from operations, PECO may not be able to sustain PECO’s distribution rate, PECO may have fewer funds available for investment in properties and other assets, and the PECO stockholders’ overall returns may be reduced.
PECO’s organizational documents permit PECO to pay distributions from any source without limit (other than those limits set forth under Maryland law). To the extent PECO continues to fund distributions from borrowings, PECO will have fewer funds available for investment in real estate properties and other real estate-related assets, and the PECO stockholders’ overall returns may be reduced.
At times, PECO may need to borrow funds to pay distributions, which could increase its operating costs. Furthermore, if PECO cannot cover its distributions with cash flows from operations, PECO may be unable to sustain its distribution rate. For the six months ended June 30, 2019, PECO paid gross distributions to its common stockholders of $109.6 million, including distributions reinvested through the dividend reinvestment plan (“DRIP”) of $35.0 million. For the six months ended June 30, 2019, PECO’s net cash provided by operating activities was $100.1 million, which represents a shortfall of $9.5 million, or 8.7%, of PECO’s distributions paid, while PECO’s funds from operations (“FFO”) Attributable to Stockholders and Convertible Noncontrolling Interests were $104.1 million, which represents a shortfall of $5.5 million, or 5.0%, of the distributions paid. The shortfall was funded by proceeds from borrowings. For the six months ended June 30, 2018, PECO paid distributions of $76.8 million, including distributions reinvested through the DRIP of $24.9 million. For the six months ended June 30, 2018, PECO’s net cash provided by operating activities was $77.8 million, which represents a surplus of $1.0 million, or 1.3%, of its distributions paid, while PECO’s FFO was $79.1 million, which represents a surplus of $2.3 million, or 3.0% of its distributions paid.
PECO has agreed to nominate Jeffrey S. Edison to the PECO Board for each annual meeting through 2027 and for Mr. Edison to continue serving as Chairman of the PECO Board through 2020.
As part of the acquisition of assets from Phillips Edison Limited Partnership (the “PELP transaction”), PECO agreed to nominate Jeffrey S. Edison to the PECO Board for each annual meeting through 2027, subject to certain terminating events. As a result, it is possible that Mr. Edison may continue to be nominated as a director in circumstances when the independent directors of the PECO Board would not otherwise have nominated him.
PECO’s bylaws provide that Mr. Edison will continue to serve as Chairman of the PECO Board until October 7, 2020, subject to certain terminating events, including the listing of PECO’s common stock on a national securities exchange. As a result, Mr. Edison may continue to serve as Chairman of the PECO Board in circumstances when the independent directors would not otherwise have elected him.
The PECO OP partnership agreement grants certain rights and protections to the limited partners of PECO OP, which may prevent or delay a change of control transaction that might involve a premium price for shares of PECO common stock.
The PECO OP partnership agreement grants certain rights and protections to the limited partners of PECO OP, including granting them the right to consent to a change of control transaction. Furthermore, Mr. Edison currently has voting control over approximately 49.88% of the PECO OP units (exclusive of those owned by PECO) and therefore could have a significant influence over votes on change of control transactions.
The tax protection agreement, during its term, could limit PECO OP’s ability to sell or otherwise dispose of certain properties and may require PECO OP to maintain certain debt levels that otherwise would not be required to operate its business.
PECO and PECO OP entered into a tax protection agreement at the closing of the PELP transaction, pursuant to which if PECO OP (i) sells, exchanges, transfers, conveys or otherwise disposes of certain properties in a taxable transaction for a period of ten years commencing on the closing, or (ii) fails, prior to the expiration of such period, to maintain minimum levels of indebtedness that would be allocable to each protected partner for tax purposes or, alternatively, fails to offer such protected

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partners the opportunity to guarantee specific types of PECO OP’s indebtedness in order to enable such partners to continue to defer certain tax liabilities, PECO OP will indemnify each affected protected partner against certain resulting tax liabilities. Therefore, although it may be in the PECO stockholders’ best interest for PECO to cause PECO OP to sell, exchange, transfer, convey or otherwise dispose of one of these properties, it may be economically prohibitive for PECO to do so during the 10-year protection period because of these indemnity obligations. Moreover, these obligations may require PECO to cause PECO OP to maintain more or different indebtedness than PECO would otherwise require for PECO’s business. As a result, the tax protection agreement will, during its term, restrict PECO’s ability to take actions or make decisions that otherwise would be in PECO’s best interests.
General Risks Related to Investments in Real Estate
Economic and regulatory changes that impact the real estate market generally may decrease the value of PECO’s investments and weaken its operating results.
PECO’s properties and their performance are subject to the risks typically associated with real estate, including, but not limited to:
downturns in national, regional, and local economic conditions;
increased competition for real estate assets targeted by its investment strategies;
adverse local conditions, such as oversupply or reduction in demand for similar properties in an area and changes in real estate zoning laws that may reduce the desirability of real estate in an area;
vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;
changes in interest rates and the availability of financing, which may render the sale or refinance of a property or loan difficult or unattractive;
changes in tax, real estate, environmental, and zoning laws;
periods of high interest rates and tight money supply; and
the illiquidity of real estate investments generally.
Any of the above factors, or a combination thereof, could result in a decrease in the value of PECO’s investments, which would have an adverse effect on its operations, its ability to pay distributions to their respective stockholders and on the value of stockholders’ investments.
E-commerce can have a negative impact on PECO’s business.
The use of the internet by consumers continues to gain popularity and the migration towards e-commerce is expected to continue. This increase in internet sales could result in a downturn in the business of PECO’s current tenants in its “brick and mortar” locations and could affect the way future tenants lease space. While PECO (on behalf of itself and the advisor) devotes considerable effort and resources to analyze and respond to tenant trends, preferences and consumer spending patterns, PECO cannot predict with certainty what future tenants will want, what future retail spaces will look like and how much revenue will be generated at traditional “brick and mortar” locations. If PECO is unable to anticipate and respond promptly to trends in the market, occupancy levels and rental amounts may decline.
PECO’s revenue will be affected by the success and economic viability of its anchor tenants.
Anchor tenants (a tenant occupying 10,000 or more square feet) occupy large stores in their shopping centers, pay a significant portion of the total rent at a property and contribute to the success of other tenants by attracting shoppers to the property. PECO’s net income and cash flow may be adversely affected by the loss of revenues and additional costs in the event a significant anchor tenant (i) becomes bankrupt or insolvent, (ii) experiences a downturn in its business, (iii) materially defaults on its leases, (iv) decides not to renew its leases as they expire, (v) renews its lease at lower rental rates and/or requires tenant improvements, or (vi) renews its lease but reduces its store size, which results in down-time and additional tenant improvement costs to PECO to re-lease the space. Some anchors have the right to vacate their space and may prevent PECO from re-tenanting by continuing to comply and pay rent in accordance with their lease agreement. Vacated anchor space, including space owned by the anchor, can reduce rental revenues generated by the shopping center in other spaces because of the loss of the departed anchor's customer drawing power. If a significant tenant vacates a property, co-tenancy clauses in select lease contracts may allow other tenants to modify or terminate their rent or lease obligations. Co-tenancy clauses have several variants: they may allow a tenant to postpone a store opening if certain other tenants fail to open their stores; they may allow a tenant to close its store prior to lease expiration if another tenant closes its store prior to lease expiration; or they may allow a tenant to pay reduced levels of rent until a certain number of tenants open their stores within the same shopping center.
The leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A lease transfer to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate

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their leases. In the event that PECO is unable to re-lease the vacated space to a new anchor tenant in such situation, PECO may incur additional expenses in order to re-model the space to be able to re-lease the space to more than one tenant.
PECO depends on its tenants for revenue, and, accordingly, its respective revenue and ability to make distributions to stockholders is dependent upon the success and economic viability of its tenants.
PECO depends upon its tenants for revenue. Non-anchor tenants may be more vulnerable to negative economic conditions as they have more limited resources than anchor tenants. A property may incur vacancies either by the expiration of a tenant lease, the continued default of a tenant under its lease or the early termination of a lease by a tenant. If vacancies continue for a long period of time, PECO may suffer reduced revenues resulting in less cash available to distribute to stockholders. In order to maintain tenants, PECO may have to offer inducements, such as free rent and tenant improvements, to compete for attractive tenants. if PECO is unable to attract the right type or mix of non-anchor tenants into its shopping centers, its revenues and cash flow may be adversely affected. In addition, if PECO is unable to attract additional or replacement tenants, the resale value of the property could be diminished, even below its cost to acquire the property, because the market value of a particular property depends principally upon the value of the cash flow generated by the leases associated with that property. Such a reduction on the resale value of a property could also reduce the value of PECO stockholders’ investments.
If PECO enters into long-term leases with retail tenants, those leases may not result in fair value over time.
Long-term leases do not typically allow for significant changes in rental payments and do not expire in the near term. If PECO does not accurately judge the potential for increases in market rental rates when negotiating these long-term leases, significant increases in future property operating costs could result in receiving less than fair value from these leases. Such circumstances would adversely affect PECO’s revenues and funds available for distribution.
The bankruptcy or insolvency of a major tenant may adversely impact PECO’s operations and ability to pay distributions to stockholders.
The bankruptcy or insolvency of a significant tenant or a number of smaller tenants may have an adverse impact on financial condition and PECO’s ability to pay distributions to stockholders. Generally, under bankruptcy law, a debtor tenant has 120 days to exercise the option of assuming or rejecting the obligations under any unexpired lease for nonresidential real property, which period may be extended once by the bankruptcy court. If the tenant assumes its lease, the tenant must cure all defaults under the lease and may be required to provide adequate assurance of its future performance under the lease. If the tenant rejects the lease, PECO will have a claim against the tenant’s bankruptcy estate. Although rent owing for the period between filing for bankruptcy and rejection of the lease may be afforded administrative expense priority and paid in full, pre-bankruptcy arrears and amounts owing under the remaining term of the lease will be afforded general unsecured claim status (absent collateral securing the claim). Moreover, amounts owing under the remaining term of the lease will be capped. Other than equity and subordinated claims, general unsecured claims are the last claims paid in a bankruptcy, and therefore, funds may not be available to pay such claims in full. In the event that a tenant with a significant number of leases in PECO’s shopping centers files bankruptcy and rejects its leases, PECO may not be able to collect all pre-petition amounts owed by the bankrupt tenant and may experience a significant reduction in its revenues.
PECO may be restricted from re-leasing space at its retail properties.
Leases with retail tenants may contain provisions giving the particular tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center. These provisions may limit the number and types of prospective tenants interested in leasing space in a particular retail property.
PECO’s properties may be subject to impairment charges.
PECO routinely evaluates its real estate investments for impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, actual marketing or listing price of properties actively being targeted for disposition, tenant performance, and lease structure. For example, the early termination of, or default under, a lease by a tenant may lead to an impairment charge. Since the majority of PECO’s properties are grocery-anchored, the financial failure of, or other default by, a grocery anchor tenant under its lease may result in a significant impairment loss. If PECO determines that an impairment has occurred, it would be required to make a downward adjustment to the net carrying value of the property, which could have a material adverse effect on its results of operations in the period in which the impairment charge is recorded. Negative developments in the real estate market may cause PECO to reevaluate the business and macro-economic assumptions used in its impairment analysis. Changes in PECO’s assumptions based on actual results may have a material impact on PECO’s financial statements.
PECO faces risks associated with the acquisition of properties.

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PECO’s investment strategy includes investing in high-quality grocery-anchored shopping centers. The acquisition of properties and/or real estate entities entails risks that include, but are not limited to, the following, any of which may adversely affect its results of operations and cash flows: (i) properties PECO acquires may fail to achieve the occupancy or rental rates it projects, within the time frames it estimates, which may result in the properties' failure to achieve the investment returns it projects; (ii) PECO’s investigation of an entity, property or building prior to is acquisition, and any representation it may have received from such seller, may fail to reveal various liabilities including defects and necessary repairs, which may increase its costs; (iii) PECO’s estimate of the costs to improve, reposition or redevelop a property may prove to be too low, or the time it estimates to complete the improvement, repositioning or redevelopment may be too short, either of which may result in the property failing to achieve its projected return, either temporarily or permanently; (iv) PECO may not recover its costs from an unsuccessful acquisition; (v) PECO’s acquisition activities may distract or strain its management capacity; and (vi) PECO may not be able to successfully integrate an acquisition into its existing operations platform.
PECO may be unable to sell properties when desired because of market conditions.
PECO’s properties, including related tangible and intangible assets, represent the majority of its total consolidated assets and they may not be readily convertible to cash. As a result, PECO’s ability to sell one or more of its properties, including properties held in joint ventures, in response to changes in economic, industry, or other conditions may be limited. The real estate market is affected by many factors, such as general economic conditions, availability and terms of financing, interest rates and other factors, including supply and demand for space, that are beyond PECO’s control. There may be less demand for lower quality properties that PECO has identified for ultimate disposition in markets with uncertain economic or retail environments, and where buyers are more reliant on the availability of third party mortgage financing. If PECO wants to sell a property, it can provide no assurance that it will be able to dispose of it in the desired time period or at all or that the sales price of a property will be attractive at the relevant time or even exceed the carrying value of its investment. Moreover, if a property is mortgaged, PECO may not be able to obtain a release of the lien on that property without the payment of a substantial prepayment penalty, which may restrict its ability to dispose of the property, even though the sale might otherwise be desirable.
Certain properties PECO owns have a low tax basis, which may result in a taxable gain on sale. PECO intends to utilize tax-free exchanges under Section 1031 of the Code to mitigate taxable income; however, there can be no assurance that PECO will identify properties that meet its investment objectives for acquisitions. In the event that PECO does not utilize Section 1031 of the Code to avoid tax on its exchanges, it may be required to distribute the gain proceeds to stockholders or pay income tax, which may reduce cash flow available to fund PECO’s commitments and distributions to stockholders.
PECO does not have exclusive control over its joint ventures, such that PECO is unable to ensure that its objectives will be pursued.
PECO has invested capital, and may in the future invest additional capital, in joint ventures instead of owning directly. In these investments, PECO does not have exclusive control over the development, financing, leasing, management, and other aspects of these investments. As a result, the joint venture partners might have interests or goals that are inconsistent with PECO’s, take action contrary to their interests, or otherwise impede their objectives. These activities are subject to the same risks as PECO’s investments in its wholly-owned properties. In addition, these investments and other future similar investments may involve risks that would not be present were a third party not involved, including the possibility that the joint venture partners might become bankrupt, suffer a deterioration in their creditworthiness, or fail to fund their share of required capital contributions. Conflicts arising between PECO and its partners may be difficult to manage and/or resolve and it could be difficult to manage or otherwise monitor the existing business arrangements.
In addition, joint venture arrangements may decrease PECO’s ability to manage risk and implicate additional risks, such as (i) potentially inferior financial capacity, diverging business goals and strategies and the need for PECO’s venture partners’ continued cooperation; (ii) PECO’s inability to take actions with respect to the joint ventures’ activities that it believes are favorable to it if its respective joint venture partners do not agree; (iii) PECO’s inability to control the legal entities that have title to the real estate associated with the joint ventures; (iv) lenders may not be easily able to sell their respective joint venture assets and investments or may view them less favorably as collateral, which could negatively affect liquidity and capital resources; (v) the joint venture partners can take actions that PECO may not be able to anticipate or prevent, which could result in negative impacts on debt and equity; and (vi) the joint venture partners’ business decisions or other actions or omissions may result in harm to PECO’s reputation or adversely affect the value of its investments.
PECO has acquired, and may continue to acquire or finance, properties with lock-out provisions, which may prohibit PECO from selling a property, or may require PECO to maintain specified debt levels for a period of years on some properties.
A lock-out provision is a provision that prohibits the prepayment of a loan during a specified period of time. Lock-out provisions may include terms that provide strong financial disincentives for borrowers to prepay their outstanding loan balance and exist in order to protect the yield expectations of lenders. PECO currently owns 14 properties with loans that are subject to

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lock-out provisions prohibiting prepayment. PECO may acquire additional properties in the future subject to such provisions. Lock-out provisions could materially restrict PECO from selling or otherwise disposing of or refinancing properties when PECO may desire to do so. Lock-out provisions may prohibit PECO from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness prior to or at maturity, or increasing the amount of indebtedness with respect to such properties. Lock-out provisions could impair PECO’s ability to take other actions during the lock-out period that could be in the best interests of PECO stockholders and, therefore, may have an adverse impact on the value of PECO’s common stock relative to the value that would result if the lock-out provisions did not exist. In particular, lock-out provisions could preclude PECO from participating in major transactions that could result in a disposition of PECO’s assets or a change in control even though that disposition or change in control might be in the best interests of PECO’s stockholders.
If PECO sets aside insufficient capital reserves, it may be required to defer necessary capital improvements.
If PECO does not have enough reserves for capital to supply needed funds for capital improvements throughout the life of the investment in a property and there is insufficient cash available from its operations, it may be required to defer necessary improvements to a property, which may cause that property to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential tenants being attracted to the property. If this happens, PECO may not be able to maintain projected rental rates for affected properties, and its results of operations may be negatively affected.
Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce PECO’s and/or PECO III’s cash flows and the return on their respective stockholders’ investments.
PECO maintains insurance coverage with third-party carriers who provide a portion of the coverage of potential losses, including commercial general liability, fire, flood, extended coverage and rental loss insurance on all of their respective properties. PECO currently self-insures a portion of its commercial insurance deductible risk through PECO’s captive insurance company. To the extent that PECO’s captive insurance company is unable to bear that risk, PECO may be required to fund additional capital to PECO’s captive insurance company or PECO may be required to bear that loss. As a result, PECO’s operating results may be adversely affected.
There are some types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential acts of terrorism could sharply increase the premiums that PECO pays for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that commercial property owners purchase coverage against terrorism as a condition for providing mortgage loans. Such insurance policies may not be available at reasonable costs, if at all, which could inhibit PECO’s ability to finance or refinance its properties. In such instances, PECO may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. PECO may not have adequate, or any, coverage for such losses. Changes in the cost or availability of insurance could expose PECO to uninsured casualty losses. If any of PECO’s properties incur a casualty loss that is not fully insured, the value of its assets will be reduced by any such uninsured loss, which may reduce the value of stockholders’ investments. In addition, other than any working capital reserve or other reserves PECO may establish, it has no source of funding to repair or reconstruct any uninsured property. Also, to the extent PECO must pay unexpectedly large amounts for insurance, it could suffer reduced earnings that would result in lower distributions to stockholders.
As an owner and/or operator of real estate, PECO could become subject to liability for environmental violations, regardless of whether PECO caused such violations.
PECO could become subject to liability in the form of fines or damages for noncompliance with environmental laws and regulations. These laws and regulations generally govern wastewater discharges; air emissions; the operation and removal of underground and above-ground storage tanks; the use, storage, treatment, transportation and disposal of solid hazardous materials; the remediation of contaminated property associated with the disposal of solid and hazardous materials; and other health and safety-related concerns. U.S. federal, state, and local laws and regulations relating to the protection of the environment may require PECO as a current or previous owner or operator or a real property, to investigate and clean up hazardous or toxic substances or petroleum product releases at a property or at affected neighboring properties. Some of these laws and regulations may impose joint and several liability on tenants, owners or managers for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. Under various federal, state and local environmental laws, ordinances, and regulations, a current or former owner or manager of real property may be liable for the cost to remove or remediate hazardous or toxic substances, wastes, or petroleum products on, under, from, or in such property. These costs could be substantial and liability under these laws may attach whether or not the owner or manager knew of, or was responsible for, the presence of such contamination. Even if more than one person may have been responsible for the contamination, each liable party may be held entirely responsible for all of the clean-up costs incurred. PECO may be subject to

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regulatory action and may also be held liable to third parties for personal injury or property damage incurred by the parties in connection with any such laws and regulations or hazardous or toxic substances. The costs of investigation, removal or remediation of hazardous or toxic substances, and related liabilities, may be substantial and could materially and adversely affect PECO. The presence of hazardous or toxic substances, or the failure to remediate the related contamination, may also adversely affect PECO’s ability to sell, lease or redevelop a property or to borrow money using a property as collateral.
PECO’s efforts to identify environmental liabilities may not be successful.
Although PECO believes that its portfolio is in substantial compliance with U.S. federal, state and local environmental laws and regulations regarding hazardous or toxic substances, this belief is based on limited testing. Nearly all of their respective properties have been subjected to Phase I or similar environmental audits. These environmental audits have not revealed, nor is PECO aware of, any environmental liability that it believes is reasonably likely to have a material adverse effect on PECO. However, PECO cannot assure you that: (i) previous environmental studies with respect to the portfolio revealed all potential environmental liabilities; (ii) any previous owner, occupant or tenant of a property did not create any material environmental condition not known to PECO; (iii) the current environmental condition of the portfolio will not be affected by tenants and occupants, by the condition of nearby properties, or by other unrelated third parties; or (iv) future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations or the interpretation thereof) will not result in environmental liabilities.
Compliance or failure to comply with the Americans with Disabilities Act and fire, safety, and other regulations could result in substantial costs and may decrease cash available for distributions.
PECO’s properties are, or may become subject to, the Americans with Disabilities Act of 1990, as amended (the “ADA”), which generally requires that all places of public accommodation comply with federal requirements related to access and use by disabled persons. Compliance with the ADA’s requirements could require the removal of access barriers and noncompliance may result in the imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. While PECO attempts to acquire properties that are already in compliance with the ADA or place the burden of compliance on the seller or other third party, such as a tenant, PECO cannot assure stockholders that it will be able to acquire properties or allocate responsibilities in this manner. In addition, PECO is required to operate the properties in compliance with fire and safety regulations, building codes, and other land use regulations, as they may be adopted by governmental entities and become applicable to the properties. PECO may be required to make substantial capital expenditures to comply with these requirements, and these expenditures may reduce PECO’s net income and may have a material adverse effect on ability to meet its financial obligations and make distributions to its stockholders.
PECO faces risks relating to cybersecurity attacks which could adversely affect its businesses, cause loss of confidential information, and disrupt operations.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of PECO’s information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. PECO may face cyber incidents and security breaches through malware, computer viruses, attachments to e-mails, persons inside their respective organizations, or persons with access to systems inside their respective organization and other significant disruptions of their respective IT networks and related systems. The risk of a cybersecurity breach or disruption, particularly through a cyber incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. PECO’s IT networks and related systems are essential to the operation of their respective businesses and ability to perform day-to-day operations and, in some cases, may be critical to the operations of certain of their tenants. Although PECO makes efforts to maintain the security and integrity of these types of IT networks and related systems, and has implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that its security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.
While PECO maintains some of its own critical information technology systems, it also depends on third parties to provide important information technology services relating to several key business functions, such as payroll, human resources, electronic communications and certain finance functions. PECO’s measures to prevent, detect and mitigate these threats, including password protection, firewalls, backup servers, threat monitoring and periodic penetration testing, may not be successful in preventing a data breach or limiting the effects of a breach. Furthermore, the security measures employed by third-party service providers may prove to be ineffective at preventing breaches of their systems.
The primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to PECO’s relationship with its tenants, and private data exposure. PECO’s financial results may be negatively impacted by such an incident or resulting negative media attention. A cyber incident could (i) disrupt the proper functioning of PECO’s networks

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and systems and therefore its operations and/or those of certain of its tenants; (ii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, or otherwise valuable information of the company or others, which others could use to compete against PECO or for disruptive, destructive, or otherwise harmful purposes and outcomes; (iii) result in PECO’s inability to maintain the building systems relied upon by its tenants for the efficient use of its leased space; (iv) require significant management attention and resources to remedy any damages that result; (v) result in misstated financial reports, violations of loan covenants and/or missed reporting deadlines; (vi) result in PECO’s inability to properly monitor its compliance with the rules and regulations regarding its qualification as a REIT; (vii) subject it to claims for breach of contract, damages, credits, penalties, or termination of leases or other agreements; or (viii) damage its reputation among its tenants, investors and associates. Such security breaches also could result in a violation of applicable federal and state privacy and other laws, and subject PECO to private consumer, business partner, or securities litigation and governmental investigations and proceedings, any of which could result in its exposure to material civil or criminal liability, and it may not be able to recover these expenses from its service providers, responsible parties, or insurance carriers. Moreover, cyber incidents perpetrated against its tenants, including unauthorized access to customers’ credit card data and other confidential information, could diminish consumer confidence and consumer spending and negatively impact PECO’s business.
Risks Associated with Debt Financing
PECO utilizes a significant amount of indebtedness in the operation of its business. Required debt service payments and other risks related to PECO’s debt financing could adversely affect its financial condition, operating results, and cash flows, hinder its ability to pay distributions, and could decrease the value of stockholders’ investments.
PECO has obtained, and is likely to continue to obtain, lines of credit and other long-term financing that are secured by its properties and other assets. In some instances, PECO may acquire real properties by financing a portion of the price of the properties and mortgaging or pledging some or all of the properties purchased as security for that debt. PECO or PECO III may also incur mortgage debt on properties that they already own in order to obtain funds to acquire additional properties. In addition, PECO may borrow as necessary or advisable to ensure that it maintains its qualification as a REIT for U.S. federal income tax purposes, including borrowings to satisfy the REIT requirement that it distributes at least 90% of its annual REIT taxable income to its stockholders (computed without regard to the distributions-paid deduction and excluding net capital gain). PECO however, cannot give stockholders any assurance that it will be able to obtain such borrowings on satisfactory terms. High debt levels would cause PECO to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If PECO does mortgage a property and there is a shortfall between the cash flow from that property and the cash flow needed to service mortgage debt on that property, then the amount of cash available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. Additionally, PECO may give full or partial guaranties to lenders of mortgage debt on behalf of the entities that own properties. When PECO gives a guaranty on behalf of an entity that owns one of its properties, it will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. PECO may also obtain recourse debt to finance its acquisitions and meet its REIT distribution requirements. If PECO has insufficient income to service its respective recourse debt obligations, its lenders could institute proceedings against PECO to foreclose upon its assets.
PECO may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined.
LIBOR, the London Interbank Offered Rate, is the basic rate of interest used in lending transactions between banks on the London interbank market, and is widely used as a reference for setting the interest rate on loans globally. LIBOR and certain other interest “benchmarks” may be subject to regulatory guidance and/or reform that could cause interest rates under PECO’s current or future debt agreements to perform differently than in the past or cause other unanticipated consequences. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to stop encouraging or requiring banks to submit LIBOR rates after 2021, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, interest rates and financing costs on PECO’s current or future indebtedness may be adversely affected.
Increases in interest rates could increase the amount of PECO’s loan payments and adversely affect its ability to pay distributions to stockholders.
The interest PECO pays on its loan obligations reduces cash available for distributions. If PECO obtains variable rate loans, increases in interest rates would increase interest costs, which would reduce cash flows and PECO’s ability to pay distributions to stockholders. In addition, if PECO needs to repay existing loans during periods of rising interest rates, it could be required to liquidate one or more of its investments in properties at times which may not permit realization of the maximum return on such investments.

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If mortgage debt is unavailable at reasonable rates, PECO may not be able to finance the purchase of properties. If PECO places mortgage debt on properties, it runs the risk of being unable to refinance the properties when the debt becomes due or of being unable to refinance on favorable terms. If interest rates are higher when PECO refinances the properties, PECO’s income could be reduced. PECO may be unable to refinance properties. If any of these events occurs, PECO’s cash flow would be reduced. This, in turn, would reduce cash available for distribution to stockholders and may hinder the ability to raise capital by issuing more stock or borrowing more money.
PECO may not be able to access financing or refinancing sources on attractive terms, which could adversely affect its ability to execute its business plans.
PECO may finance its assets over the long-term through a variety of means, including repurchase agreements, credit facilities, issuance of commercial mortgage-backed securities, collateralized debt obligations and other structured financings. PECO’s ability to execute this strategy will depend on various conditions in the markets for financing in this manner that are beyond its control, including lack of liquidity and greater credit spreads. PECO cannot be certain that these markets will remain an efficient source of long-term financing for its assets. If its strategy is not viable, PECO will have to find alternative forms of long-term financing for its assets, as secured revolving credit facilities and repurchase facilities may not accommodate long-term financing. This could subject PECO to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of its respective cash flows, thereby reducing cash available for distribution to stockholders and funds available for operations as well as for future business opportunities.
Lenders may require PECO to enter into restrictive covenants relating to its operations, which could limit its ability to make distributions to stockholders.
When providing financing, a lender may impose restrictions on PECO that affect its distribution and operating policies and its ability to incur additional debt. Loan agreements into which PECO enters may contain covenants that limit its ability to further mortgage a property or discontinue insurance coverage. In addition, loan documents may limit PECO’s ability to replace a property’s property manager or terminate certain operating or lease agreements related to a property. These or other limitations would decrease PECO’s operating flexibility and ability to achieve its respective operating objectives, which may adversely affect its ability to make distributions to stockholders.
Risks Related to Organization and Qualification as a REIT
The PECO stockholders have limited control over changes in PECO’s policies and operations, which increases the uncertainty and risks the PECO stockholders face.
The PECO Board determines its major policies, including its policies regarding financing, growth, debt capitalization, REIT qualification and distributions. The PECO Board may amend or revise these and other policies without a vote of the stockholders. Under the MGCL and the PECO charter, the PECO stockholders have a right to vote only on limited matters. The PECO Board’s broad discretion in setting policies and PECO stockholders’ inability to exert control over those policies increases the uncertainty and risks PECO stockholders face.
Although PECO has not currently opted out of the protection of the MGCL relating to deterring or defending hostile takeovers, the PECO Board could elect to become subject to these provisions of Maryland law in the future, which may discourage others from trying to acquire control of PECO and may prevent the PECO stockholders from receiving a premium price for their stock in connection with a business combination.
Under Maryland law, ‘‘business combinations’’ between a Maryland corporation and certain interested stockholders or affiliates of interested stockholders are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. Also under Maryland law, control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by stockholders by a vote of two-thirds of the votes entitled to be cast on the matter. These restrictions may have the effect of delaying, deferring, or preventing a change in control of PECO, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of its assets) that might provide PECO stockholders a premium price for their shares of common stock.
The PECO charter limits the number of shares a person may own, which may discourage a takeover that could otherwise result in a premium price to the PECO stockholders.
The PECO charter, with certain exceptions, authorizes the PECO Board to take such actions as are necessary and desirable to preserve such company’s qualification as a REIT. To help PECO comply with the REIT ownership requirements of the Code, among other purposes, the PECO Charter prohibits a person from directly or constructively owning more than 9.8% in value of

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PECO’s aggregate outstanding stock or more than 9.8% in value or number of shares, whichever is more restrictive, of PECO’s aggregate outstanding common stock, unless exempted by the PECO Board. This restriction may have the effect of delaying, deferring or preventing a change in control of PECO, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of its assets) that might provide a premium price for holders of PECO’s common stock.
The PECO Charter permits the PECO Board to issue stock with terms that may subordinate the rights of PECO stockholders or discourage a third party from acquiring PECO in a manner that could result in a premium price to PECO stockholders.
The PECO Board may classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, and terms or conditions of redemption of any such stock. Thus, the PECO Board could authorize the issuance of preferred stock with priority as to distributions and amounts payable upon liquidation over the rights of the holders of PECO common stock. Such preferred stock could also have the effect of delaying, deferring or preventing a change in control, including an extraordinary transaction (such as a merger, tender offer, or sale of all or substantially all of PECO’s assets) that might provide a premium price to holders of PECO common stock.
Because Maryland law permits the PECO Board to adopt certain anti-takeover measures without stockholder approval, investors may be less likely to receive a ‘‘control premium’’ for their shares.
In 1999, the State of Maryland enacted legislation that enhances the power of Maryland corporations to protect themselves from unsolicited takeovers. Among other things, the legislation permits the PECO Board, without stockholder approval, to amend the PECO Charter to:
stagger the PECO Board into three classes;
require a two-thirds stockholder vote for removal of directors;
provide that only the board can fix the size of the board;
require that special stockholder meetings may only be called by holders of a majority of the voting shares entitled to be cast at the meeting; and
provide the PECO Board with the exclusive right to fill vacancies on the PECO Board, with any individual elected to fill such a vacancy to serve for the full term of the directorship.
Under Maryland law, a corporation can opt to be governed by some or all of these provisions if it has a class of equity securities registered under the Exchange Act, and has at least three independent directors. The PECO Charter does not prohibit the PECO Board from opting into any of the above provisions permitted under Maryland law. Becoming governed by any of these provisions could discourage an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of PECO’s assets) that might provide a premium price for holders of PECO’s securities.
PECO’s rights and the rights of the PECO stockholders to recover claims against PECO’s officers and directors are limited, which could reduce the PECO stockholders’ and PECO’s recovery against them if they cause PECO to incur losses.
Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. The PECO Charter, in the case of PECO’s directors and officers, requires PECO to indemnify its directors and officers to the maximum extent permitted by Maryland law. Additionally, the PECO Charter limits the liability of its directors and officers for monetary damages to the maximum extent permitted under Maryland law. As a result, PECO and the PECO stockholders may have more limited rights against PECO’s directors, officers, employees and agents, than might otherwise exist under common law, which could reduce the PECO stockholders’ and PECO’s recovery against them. In addition, PECO may be obligated to fund the defense costs incurred by PECO’s directors, officers, employees and agents in some cases which would decrease the cash otherwise available for distribution to stockholders.
If PECO OP fails to qualify as a partnership for U.S. federal income tax purposes, PECO would fail to qualify as a REIT and suffer other adverse consequences.
PECO believes that PECO OP is organized and will be operated in a manner so as to be treated as a partnership, and not an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. As a partnership, PECO OP will not be subject to U.S. federal income tax on its income. Instead, each of its partners, including PECO, will be allocated that partner’s share of PECO OP’s income. No assurance can be provided, however, that the IRS will not challenge PECO OP’s status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating PECO OP as an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, PECO would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, would cease to qualify as a REIT. Also, the failure of PECO OP to qualify as a partnership would cause it to

29



become subject to U.S. federal corporate income tax, which would reduce significantly the amount of its cash available for debt service and for distribution to its partners, including PECO.
PECO OP has a carryover tax basis on certain of its assets as a result of the PELP transaction and the merger with REIT II, and the amount that PECO has to distribute to stockholders therefore may be higher.
As a result of each of the PELP transaction and the merger with REIT II, certain of PECO OP’s properties have carryover tax bases that are lower than the fair market values of these properties at the time of the acquisition. As a result of this lower aggregate tax basis, PECO OP will recognize higher taxable gain upon the sale of these assets, and PECO OP will be entitled to lower depreciation deductions on these assets than if it had purchased these properties in taxable transactions at the time of the acquisition. Such lower depreciation deductions and increased gains on sales allocated to PECO generally will increase the amount of PECO’s required distribution under the REIT rules, and will decrease the portion of any distribution that otherwise would have been treated as a “return of capital” distribution.
The Combined Company intends to use TRSs, which may cause PECO to fail to qualify as a REIT.
To qualify as a REIT for federal income tax purposes, PECO holds, and the Combined Company plans to continue to hold, its non-qualifying REIT assets and conduct certain of the Combined Company’s non-qualifying REIT income activities in or through one or more TRSs. A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. A TRS also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non- customary services to tenants of its parent REIT. A TRS is subject to income tax as a regular C-corporation.
The net income of the Combined Company’s TRSs is not required to be distributed to the Combined Company and income that is not distributed to the Combined Company will generally not be subject to the REIT income distribution requirement. However, the Combined Company’s TRSs may pay dividends. Such dividend income should qualify under the 95%, but not the 75%, gross income test. PECO will monitor the amount of the dividend and other income from the Combined Company’s TRSs and will take actions intended to keep this income, and any other non-qualifying income, within the limitations of the REIT income tests. While the Combined Company expects these actions will prevent a violation of the REIT income tests, the Combined Company cannot guarantee that such actions will in all cases prevent such a violation.
The Combined Company’s ownership of TRSs will be subject to limitations that could prevent the Combined Company from growing the Combined Company’s management business and the Combined Company’s transactions with its TRSs could cause the Combined Company to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on an arm’s-length basis.
No more than 20% of the value of a REIT’s gross assets, may consist of interests in TRSs. Compliance with this limitation could limit the Combined Company’s ability to grow its management business. The Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. The Combined Company will monitor the value of investments in its TRSs in order to ensure compliance with TRS ownership limitations and will structure its transactions with its TRSs on terms that the Combined Company believes are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that the Combined Company will be able to comply with the TRS ownership limitation or be able to avoid application of the 100% excise tax.
REIT distribution requirements could adversely affect PECO’s ability to execute its business plans, including because PECO may be required to borrow funds to make distributions to its stockholders or otherwise depend on external sources of capital to fund such distributions.
PECO generally must distribute annually at least 90% of its REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) in order to continue to qualify as a REIT. To the extent that PECO satisfies the distribution requirement, but distributes less than 100% of its taxable income, PECO will be subject to federal corporate income tax on its undistributed taxable income. In addition, PECO may elect to retain and pay income tax on its net long-term capital gain. In that case, if PECO so elects, a stockholder would be taxed on its proportionate share of PECO’s undistributed long-term gain and would receive a credit or refund for its proportionate share of the tax paid by PECO. A stockholder, including a tax-exempt or foreign stockholder, would have to file a federal income tax return to claim that credit or refund. Furthermore, PECO will be subject to a 4% nondeductible excise tax if the actual amount distributed by PECO to its stockholders in a calendar year is less than a minimum amount specified under federal tax laws.
PECO intends to make distributions to its stockholders to comply with the REIT requirements of the Code and to avoid corporate income tax and the 4% excise tax. PECO may be required to make distributions to its stockholders at times when it

30



would be more advantageous to reinvest cash in its business or when it does not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder its ability to operate solely on the basis of maximizing profits.
If PECO does not have other funds available, PECO could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to enable PECO to distribute enough of its taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase PECO’s costs or reduce PECO’s equity.
Complying with REIT requirements may cause PECO to forgo otherwise attractive opportunities or liquidate otherwise attractive investments.
To continue to qualify as a REIT for federal income tax purposes, PECO must continually satisfy tests concerning, among other things, the sources of its income, the nature and diversification of its assets, the amounts it distributes to stockholders and the ownership of its stock. See ‘‘The Merger—U.S. Federal Income Tax Considerations—Material U.S. Federal Income Tax Considerations Applicable to Holders of PECO Common Stock’’ on page 90.
The prohibited transactions tax may limit PECO’s ability to engage in transactions, including disposition of assets, which would be treated as sales for federal income tax purposes.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of dealer property, other than foreclosure property. PECO may be subject to the prohibited transaction tax upon a disposition of real property. Although a safe-harbor exception to prohibited transaction treatment is available, PECO cannot assure you that it can comply with such safe harbor or that it will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of its trade or business. Consequently, PECO may choose not to engage in certain sales of real property or may conduct such sales through a TRS.
It may be possible to reduce the impact of the prohibited transaction tax by conducting certain activities through a TRS. However, to the extent that PECO engages in such activities through a TRS, the income associated with such activities will be subject to a corporate income tax. In addition, the IRS may attempt to ignore or otherwise recast such activities in order to impose a prohibited transaction tax on PECO and there can be no assurance that such recast will not be successful.
PECO may recognize substantial amounts of REIT taxable income, which PECO would be required to distribute to its stockholders, in a year in which it is not profitable under GAAP principles or other economic measures.
PECO may recognize substantial amounts of REIT taxable income in years in which PECO is not profitable under GAAP or other economic measures as a result of the differences between GAAP and tax accounting methods. For instance, certain of PECO’s assets will be marked-to-market for GAAP purposes but not for tax purposes, which could result in losses for GAAP purposes that are not recognized in computing its REIT taxable income. Additionally, PECO may deduct its capital losses only to the extent of its capital gains in computing its REIT taxable income for a given taxable year. Consequently, PECO could recognize substantial amounts of REIT taxable income and would be required to distribute such income to you, in a year in which PECO is not profitable under GAAP or other economic measures.
PECO’s qualification as a REIT could be jeopardized as a result of an interest in joint ventures or investment funds.
PECO may hold certain limited partner or non-managing member interests in partnerships or limited liability companies that are joint ventures or investment funds. If a partnership or limited liability company in which PECO owns an interest takes or expects to take actions that could jeopardize its qualification as a REIT or require PECO to pay tax, PECO may be forced to dispose of its interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause PECO to fail a REIT gross income or asset test, and that PECO would not become aware of such action in time to dispose of its interest in the partnership or limited liability company or take other corrective action on a timely basis. In that case, PECO could fail to continue to qualify as a REIT unless it is able to qualify for a statutory REIT “savings” provision, which may require PECO to pay a significant penalty tax to maintain its REIT qualification.
Distributions paid by REITs do not qualify for the reduced tax rates that apply to other corporate distributions.
The maximum tax rate for ‘‘qualified dividends’’ paid by corporations to non-corporate stockholders is currently 20%. Distributions paid by REITs to non-corporate stockholders generally are taxed at rates that are lower than ordinary income rates, but those rates are higher than the 20% tax rate on qualified dividend income paid by corporations. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, to the extent that the preferential rates continue to apply to regular corporate qualified dividends, the more favorable rates for corporate dividends may cause non-corporate investors to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market price of the stock of the Combined Company.

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Legislative or regulatory tax changes could adversely affect the Combined Company or its stockholders.
At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. The Combined Company cannot predict when or if any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. Any such change could result in an increase in the Combined Company’s, or its stockholders’, tax liability or require changes in the manner in which the Combined Company operates in order to minimize increases in its tax liability. A shortfall in tax revenues for states and municipalities in which the Combined Company operates may lead to an increase in the frequency and size of such changes. If such changes occur, the Combined Company may be required to pay additional taxes on its assets or income or be subject to additional restrictions. These increased tax costs could, among other things, adversely affect the Combined Company’s financial condition, the results of operations and the amount of cash available for the payment of dividends. The Combined Company and its stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation, or administrative interpretation.
On December 22, 2017, H.R. 1, known as the “Tax Cuts and Jobs Act” (the “TCJA”) was enacted into law. The TCJA makes major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their shareholders. The effect of the significant changes made by the TCJA remains uncertain, and administrative guidance, which has and will continue to be issued on an ongoing basis, is required in order to fully evaluate the effect of many provisions.
Stockholders of PECO are urged to consult with their own tax advisors with respect to the impact that the TCJA and other legislation may have on their investment and the status of legislative, regulatory or administrative developments and proposals and their potential effect on their investment in shares of PECO common stock.
If the fiduciary of an employee benefit plan subject to ERISA (such as a profit sharing, Section 401(k) or pension plan) or an owner of a retirement arrangement subject to Section 4975 of the Code (such as an individual retirement account (‘‘IRA’’)) fails to meet the fiduciary and other standards under ERISA or the Code as a result of an investment in PECO’s stock, the fiduciary could be subject to penalties and other sanctions.
There are special considerations that apply to employee benefit plans subject to ERISA (such as profit sharing, Section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Code (such as an IRA) that are investing in shares PECO’s common stock. Fiduciaries and IRA owners investing the assets of such a plan or account in PECO’s common stock should satisfy themselves that:
the investment is consistent with their fiduciary and other obligations under ERISA and the Code;
the investment is made in accordance with the documents and instruments governing the plan or IRA, including the plan’s or account’s investment policy;
the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Code;
the investment in PECO’s shares, for which, in each case, no public market currently exists, is consistent with the liquidity needs of the plan or IRA;
the investment will not produce an unacceptable amount of ‘‘unrelated business taxable income’’ for the plan or IRA;
PECO’s stockholders will be able to comply with the requirements under ERISA and the Code to value the assets of the plan or IRA annually; and
the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.
Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to claims for damages or for equitable remedies, including liability for investment losses. In addition, if an investment in PECO’s shares constitutes a prohibited transaction under ERISA or the Code, the fiduciary or IRA owner who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In addition, the investment transaction must be undone. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified as a tax-exempt account and all of the assets of the IRA may be deemed distributed and subjected to tax. ERISA plan fiduciaries and IRA owners should consult with counsel before making an investment in PECO’s common stock.
If PECO’s assets are deemed to be plan assets, PECO may be exposed to liabilities under Title I of ERISA and the Code.
In some circumstances where an ERISA plan holds an interest in an entity, the assets of the entity are deemed to be ERISA plan assets unless an exception applies. This is known as the “look-through rule.” Under those circumstances, the obligations and other responsibilities of plan sponsors, plan fiduciaries and plan administrators, and of parties in interest and disqualified

32



persons, under Title I of ERISA or Section 4975 of the Code, may be applicable, and there may be liability under these and other provisions of ERISA and the Code.
PECO believes that its assets should not be treated as plan assets because the shares of common stock of PECO should qualify as ‘‘publicly-offered securities’’ that are exempt from the look-through rules under applicable Treasury Regulations. PECO notes, however, that because certain limitations are imposed upon the transferability of PECO’s shares of common stock so that it may qualify as a REIT, and perhaps for other reasons, it is possible that this exemption may not apply. If that is the case, and if PECO is exposed to liability under ERISA or the Code, PECO’s performance and results of operations could be adversely affected.
If stockholders invested in PECO shares through an IRA or other retirement plan, they may be limited in their ability to withdraw required minimum distributions.
If stockholders established an IRA or other retirement plan through which they invested in PECO’s shares, federal law may require them to withdraw required minimum distributions (“RMDs”) from such plan in the future. The PECO share repurchase program limits the amount of repurchases (other than those repurchases as a result of a stockholder’s death or disability) that can be made in a given year. Additionally, stockholders of PECO will not be eligible to have their shares repurchased until they have held their shares for at least one year. As a result, they may not be able to have their shares repurchased at a time in which they need liquidity to satisfy the RMD requirements under their IRA or other retirement plan. Even if they are able to have their shares repurchased, the applicable share repurchase price is based on the estimated value per share of PECO common stock as determined by the PECO Board and this value is expected to fluctuate over time. As such, a repurchase may be at a price that is less than the price at which the shares were initially purchased. If stockholders fail to withdraw RMDs from their IRA or other retirement plan, they may be subject to certain tax penalties.
PECO and PECO III face other risks.
The foregoing risks are not exhaustive, and you should be aware that, following the merger, the Combined Company will face various other risks, including those discussed in reports filed by PECO and/or PECO III with the SEC. See “Where You Can Find More Information” on page 129.

33



CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus (including the Annexes), contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which PECO and PECO III operate and beliefs of, and assumptions made by, PECO management and PECO III management and involve uncertainties that could significantly affect the financial results of PECO, PECO III or the Combined Company. Words such as ‘‘may,’’ ‘‘will,’’ ‘‘would,’’ ‘‘could,’’ “should,” ‘‘expects,’’ ‘‘anticipates,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘plans,’’ ‘‘believes,’’ ‘‘seeks,’’ ‘‘estimates,’’ “continue,” “objective,” “strategy,” variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. Such forward-looking statements include, but are not limited to, statements about the anticipated benefits of the business combination transaction involving PECO and PECO III, including future financial and operating results; PECO’s investment management growth prospects; PECO’s future distribution amounts; and the Combined Company’s plans, objectives, expectations and intentions. All statements that address operating performance, events or developments that PECO and PECO III expect or anticipate will occur in the future are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict.
Although PECO and PECO III believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, PECO and PECO III can give no assurance that their expectations will be attained and therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to:
each of PECO’s and PECO III’s success, or the success of the Combined Company, in implementing its business strategy and its ability to identify, underwrite, finance, consummate and integrate acquisitions or investments;
changes in national, regional and local economic conditions;
changes in financial markets and interest rates, or to the business or financial condition of PECO, PECO III or the Combined Company or their respective businesses;
the nature and extent of future competition;
each of PECO’s and PECO III’s ability, or the ability of the Combined Company, to pay down, refinance, restructure and/or extend its indebtedness as it becomes due;
the ability and willingness of each of PECO, PECO III and the Combined Company to maintain its qualification as a REIT due to economic, market, legal, tax or other considerations;
availability to PECO, PECO III and the Combined Company of financing and capital;
each of PECO’s and PECO III’s ability, or the ability of the Combined Company, to deliver high quality properties and services, to attract and retain qualified personnel and to attract and retain customers;
the ability and willingness of the Combined Company to complete a liquidity event, such as a listing of the shares of common stock of the Combined Company;
risks associated with the companies’ ability to consummate the merger, the timing of the closing of the merger and unexpected costs or unexpected liabilities that may arise from the merger, whether or not consummated;
PECO and PECO III’s ability to continue paying distributions at their current rate; and
those additional risks and factors discussed in reports filed with the SEC, by PECO and PECO III from time to time, including those discussed under the heading ‘‘Risk Factors’’ in their respective most recently filed reports on Forms 10-K and 10-Q.
Should one or more of the risks or uncertainties described above or elsewhere in this proxy statement/prospectus occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this proxy statement/prospectus.
All forward-looking statements, expressed or implied, included in this proxy statement/prospectus are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that PECO, PECO III or persons acting on their behalf may issue.
Neither PECO nor PECO III undertakes any duty to update any forward-looking statements appearing in this proxy statement/prospectus.


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THE COMPANIES
Phillips Edison & Company, Inc. and Phillips Edison Grocery Center Operating Partnership I, L.P.
11501 Northlake Drive Cincinnati, OH 45249
PECO is an internally-managed, public non-traded REIT that was formed as a Maryland corporation in October 2009 and elected to be taxed as a REIT for U.S. federal income tax purposes for the year ended December 31, 2010.
PECO primarily owns and manages well-occupied, grocery-anchored neighborhood and community shopping centers having a mix of national, regional, and local retailers providing necessity-based goods and services in strong demographic markets throughout the United States. As of June 30, 2019, PECO managed a diversified portfolio of 336 shopping centers, including 298 centers owned directly by PECO comprising approximately 33.5 million square feet located in 32 states.
PECO was incorporated in the state of Maryland on October 13, 2009. PECO owns its interests in all of its properties and conducts substantially all of its business through PECO OP, a Delaware limited partnership formed in December 2009. PECO’s principal executive offices are located at 11501 Northlake Drive, Cincinnati, Ohio 45249. PECO’s telephone number at that location is (513) 554-1110. PECO’s website is located at www.phillipsedison.com. The information found on, or otherwise accessible through, PECO’s website is not incorporated into, and does not form a part of, this proxy statement/prospectus or any other report or document PECO files with or furnishes to the SEC.
Business Objectives and Strategies of PECO
Owned Real Estate
PECO’s business objective is to own and operate well-occupied, grocery-anchored shopping centers that generate cash flows to support distributions to PECO’s stockholders with the potential for capital appreciation.
PECO typically invests in neighborhood shopping centers (with an average footprint of 110,000 leasable square feet) located in attractive demographic markets throughout the United States where PECO’s management believes PECO’s fully integrated operating platform can add value through the following strategies:
Acquisitions—PECO’s acquisitions team takes a disciplined, targeted approach to acquisitions as it reviews thousands of properties each year. After a thorough financial review, comprehensive underwriting analysis, and exhaustive due diligence process, only the most financially attractive grocery-anchored properties are ultimately added to PECO’s portfolio.
Leasing—PECO’s national footprint of experienced leasing professionals is dedicated to increasing rental income by capitalizing on PECO’s portfolio’s below-market leases and increasing the occupancy at PECO’s centers through the lease-up of property vacancies by leveraging national and regional tenant relationships.
Portfolio Management—PECO’s portfolio management team seeks to add value by overseeing all aspects of operations at PECO’s properties, as well as optimizing the centers’ merchandising mix, and identifying opportunities for redevelopment or repositioning.
Property Management—PECO’s national footprint of property managers strives to develop and maintain a pleasant, clean, and safe environment where retailers can be successful and customers can enjoy their shopping experience. Property management is committed to effectively managing operating costs at the property level in order to maximize cash flows and improve profitability.
Capital Markets—PECO’s capital markets team is dedicated to maintaining a conservative balance sheet with an appropriately staggered debt maturity profile that is well positioned for long-term growth.
Legal, Finance, Accounting, Tax, Marketing, Risk Management, IT, Human Resources, etc.—PECO’s other in-house teams add value by utilizing technology and broad processes to create efficiencies through scale, creating a better experience for PECO’s tenants while reducing costs. PECO’s associates are dedicated to PECO’s long-term commitment of being the leading owner and operator of grocery-anchored shopping centers.
Third-Party Investment Management Business
In addition to managing PECO’s shopping centers, PECO’s third-party investment management business provides comprehensive real estate and asset management services to: (i) a non-traded, publicly registered REIT; (ii) three institutional joint ventures; and (iii) a private fund, with total assets under management of approximately $725 million as of June 30, 2019.
For each of these programs, PECO raises equity capital through either public or private offerings, invests those funds, and manages their assets in return for fee revenue as specified in PECO’s advisory agreements with them.

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Strategic Alternatives
PECO is continuously evaluating strategic alternatives to create liquidity for PECO’s investors. In conjunction with the PELP transaction, PECO brought on an experienced management team that allows PECO to fully consider all alternatives. PECO is focused on maximizing the value for PECO’s stockholders while seeking to provide liquidity for PECO’s stockholders. In connection with the merger with REIT II, PECO increased in size to a total enterprise value of approximately $6.0 billion.
Segment Data
Following the merger with REIT II, PECO determined as of December 31, 2018, it has one reportable segment. As of December 31, 2017, following the PELP transaction, PECO operated through two business segments: Owned Real Estate and Investment Management. Prior to the completion of the PELP transaction in October 2017, PECO was externally-managed and PECO’s only reportable segment was the aggregated operating results of PECO’s owned real estate. Therefore, PECO did not report any segment disclosures for the year ended December 31, 2016.
Real Estate Investments
As of June 30, 2019, PECO directly and indirectly owned 328 properties throughout the United States. The following table presents information regarding the geographical location of PECO’s properties, and the prorated portion of those owned through PECO’s joint ventures, by annualized base rent (“ABR”) as of June 30, 2019 (dollars and square feet in thousands). For additional portfolio information, refer to PECO’s “Schedule III - Real Estate Assets and Accumulated Depreciation” in this proxy statement/prospectus beginning on page F-38.
State
 
ABR(1)
 
% ABR
 
ABR/Leased Square Foot
 
GLA(2)
 
% GLA
 
% Leased
 
Number of Properties
Florida
 
$
49,789

 
12.5
%
 
$
12.30

 
4,333

 
12.7
%
 
93.4
%
 
56

California
 
39,507

 
10.0
%
 
17.61

 
2,379

 
7.0
%
 
94.3
%
 
25

Texas
 
35,757

 
9.0
%
 
15.31

 
2,436

 
7.2
%
 
95.9
%
 
19

Georgia
 
31,657

 
8.0
%
 
11.72

 
2,810

 
8.2
%
 
96.1
%
 
30

Ohio
 
29,487

 
7.4
%
 
9.73

 
3,145

 
9.2
%
 
96.4
%
 
28

Illinois
 
21,608

 
5.5
%
 
14.54

 
1,633

 
4.8
%
 
91.0
%
 
14

Colorado
 
16,733

 
4.2
%
 
14.56

 
1,187

 
3.5
%
 
96.8
%
 
11

Virginia
 
15,173

 
3.8
%
 
12.53

 
1,355

 
4.0
%
 
89.4
%
 
13

Massachusetts
 
14,526

 
3.7
%
 
13.76

 
1,080

 
3.2
%
 
97.7
%
 
9

South Carolina
 
11,838

 
3.0
%
 
8.88

 
1,468

 
4.3
%
 
90.8
%
 
13

Pennsylvania
 
11,482

 
2.9
%
 
11.62

 
1,066

 
3.1
%
 
92.7
%
 
7

Arizona
 
10,835

 
2.7
%
 
11.56

 
1,001

 
2.9
%
 
93.6
%
 
9

Minnesota
 
10,355

 
2.6
%
 
11.91

 
901

 
2.6
%
 
96.5
%
 
9

Wisconsin
 
9,071

 
2.3
%
 
9.92

 
944

 
2.8
%
 
96.8
%
 
8

North Carolina
 
9,599

 
2.4
%
 
10.39

 
967

 
2.8
%
 
95.5
%
 
14

Maryland
 
8,497

 
2.1
%
 
19.34

 
464

 
1.4
%
 
94.7
%
 
4

Tennessee
 
8,053

 
2.0
%
 
7.91

 
1,038

 
3.1
%
 
98.1
%
 
7

Indiana
 
7,246

 
1.8
%
 
8.31

 
899

 
2.6
%
 
97.0
%
 
6

Michigan
 
6,709

 
1.7
%
 
9.24

 
744

 
2.2
%
 
97.5
%
 
6

New Mexico
 
6,634

 
1.7
%
 
12.65

 
596

 
1.7
%
 
88.0
%
 
6

Oregon
 
6,321

 
1.6
%
 
13.96

 
470

 
1.4
%
 
96.4
%
 
6

Connecticut
 
5,494

 
1.4
%
 
13.79

 
419

 
1.2
%
 
95.1
%
 
4

Kentucky
 
5,233

 
1.3
%
 
8.56

 
649

 
1.9
%
 
94.2
%
 
4

Nevada
 
5,048

 
1.3
%
 
18.31

 
279

 
0.8
%
 
98.7
%
 
4

Kansas
 
4,573

 
1.2
%
 
10.60

 
452

 
1.3
%
 
95.4
%
 
4

New Jersey
 
4,493

 
1.1
%
 
16.76

 
272

 
0.8
%
 
98.7
%
 
2

Iowa
 
2,980

 
0.8
%
 
8.58

 
360

 
1.1
%
 
96.6
%
 
3

Washington
 
2,532

 
0.6
%
 
15.22

 
170

 
0.5
%
 
97.6
%
 
2

Missouri
 
2,295

 
0.6
%
 
10.69

 
222

 
0.7
%
 
96.9
%
 
2

New York
 
1,461

 
0.4
%
 
11.12

 
165

 
0.5
%
 
79.6
%
 
1

Alabama
 
1,012

 
0.3
%
 
7.37

 
172

 
0.5
%
 
79.9
%
 
1

Utah
 
451

 
0.1
%
 
30.97

 
15

 
%
 
100.0
%
 
1

Total
 
$
396,449

 
100.0
%
 
$
12.29

 
34,091

 
100.0
%
 
94.6
%
 
328

(1) 
We calculate ABR as monthly contractual rent as of June 30, 2019, multiplied by 12 months. 
(2) 
Gross leasable area (“GLA”) is defined as the portion of the total square feet of a building that is available for tenant leasing. 

36



Additionally, the following table details information for our joint ventures, the prorated information for which is included in the preceding and subsequent tables (dollars and square feet in thousands):
Joint Venture
 
Ownership Percentage
 
Number of Properties
 
Prorated ABR
 
Prorated GLA
Necessity Retail Partners
 
20%
 
13
 
$3,677
 
278
Grocery Retail Partners I
 
15%
 
17
 
3,681
 
286
Lease Expirations
The following chart shows, on an aggregate basis, all of the scheduled lease expirations after June 30, 2019, for each of the next ten years and thereafter for our 298 properties and the prorated portion of those owned through our joint ventures. The chart shows the leased square feet and ABR represented by the applicable lease expiration year:
399469425_chart-e81e0cd804805e07a0fa01.jpg
Additionally, subsequent to June 30, 2019, we renewed approximately 0.6 million total square feet and $4.1 million of total ABR of the expiring leases, inclusive of our pro rata share related to our joint ventures.
Based on current market base rental rates, we continue to believe we will achieve an overall positive increase in our average ABR for expiring leases. However, changes in base rental income associated with individual signed leases on comparable spaces may be positive or negative, and we can provide no assurance that the base rents on new leases will continue to increase from current levels.
During the six months ended June 30, 2019, rent per square foot for renewed leases increased to $14.34 per square foot as compared to $13.12 rent per square foot prior to renewal. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Leasing Activity’’ attached to this proxy statement/prospectus as Annex C, for further discussion of leasing activity.
Based on current market base rental rates, PECO believes PECO will achieve an overall positive increase in its average ABR for expiring leases. However, changes in base rental income associated with individual signed leases on comparable spaces may

37



be positive or negative, and PECO can provide no assurance that the base rents on new leases will continue to increase from current levels.
Portfolio Tenancy
Prior to the acquisition of a property, PECO assesses the suitability of the grocery-anchor tenant and other tenants in light of PECO’s investment objectives, namely, preserving capital and providing stable cash flows for distributions. Generally, PECO assesses the strength of the tenant by consideration of many factors, such as its financial strength and market share in the geographic area of the shopping center, as well as location-specific factors, such as the store’s sales, local competition, and demographics. When assessing the tenancy of the non-anchor space at the shopping center, PECO considers the tenant mix at each shopping center in light of PECO’s portfolio, the proportion of national and national-franchise tenants, the creditworthiness of specific tenants, and the timing of lease expirations. When evaluating non-national tenancy, PECO attempts to obtain credit enhancements to leases, which typically come in the form of deposits and/or guarantees from one or more individuals.
PECO defines national tenants as those tenants that operate in at least three states. Regional tenants are defined as those tenants that have at least three locations. The following charts present the composition of PECO’s portfolio, including PECO’s wholly-owned properties and the prorated portion of those owned through our joint ventures, by tenant type as of June 30, 2019:
399469425_chart-e27c49cf78fae460581a01.jpg399469425_chart-118dbdc7ac3b6087338a01.jpg

The following charts present the composition of our portfolio by tenant industry as of June 30, 2019:
399469425_chart-55d40749d8b64c44cdea01.jpg399469425_chart-6711d291d62c7779a99.jpg

38



The following table presents PECO’s top ten tenants, including our wholly-owned properties and the prorated portion of those owned through our joint ventures, grouped according to parent company, by ABR, as of June 30, 2019 (dollars and square feet in thousands):
Tenant  
 
ABR
 
% of ABR
 
Leased Square Feet
 
% of Leased Square Feet
 
Number of Locations(1)
Kroger
 
$
27,227

 
6.9
%
 
3,549

 
11.0
%
 
69

Publix
 
21,986

 
5.5
%
 
2,231

 
6.9
%
 
58

Albertsons-Safeway
 
17,018

 
4.3
%
 
1,680

 
5.2
%
 
32

Ahold Delhaize
 
16,798

 
4.2
%
 
1,262

 
3.9
%
 
25

Walmart
 
10,451

 
2.6
%
 
1,956

 
6.1
%
 
16

Giant Eagle
 
9,163

 
2.3
%
 
900

 
2.8
%
 
13

Sprouts Farmers Market
 
4,343

 
1.1
%
 
304

 
0.9
%
 
10

Dollar Tree
 
4,189

 
1.1
%
 
469

 
1.5
%
 
47

Raley's
 
3,897

 
1.0
%
 
262

 
0.8
%
 
5

Subway
 
3,142

 
0.8
%
 
133

 
0.4
%
 
99

Total
 
$
118,214

 
29.8
%
 
12,746

 
39.5
%
 
374

(1) 
Number of locations excludes auxiliary leases with grocery anchors such as fuel stations, pharmacies, and liquor stores. 
Legal Proceedings
From time to time, PECO is party to legal proceedings, which arise in the ordinary course of PECO’s business. PECO is not currently involved in any legal proceedings for which PECO is not covered by its liability insurance or the outcome is reasonably likely to have a material impact on PECO’s results of operations or financial condition, nor is PECO aware of any such legal proceedings contemplated by governmental authorities.
Tax Status
PECO elected to be taxed as a REIT for U.S. federal income tax purposes for the year ended December 31, 2010. As a result of the PELP transaction, PECO holds, and plans to continue to hold, PECO’s non-qualifying REIT assets and conduct certain of PECO’s non-qualifying REIT income activities in or through a TRS. A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. A TRS also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. A TRS is subject to income tax as a C-corporation.
Competition
PECO is subject to significant competition in seeking real estate investments and tenants. PECO competes with many third parties engaged in real estate investment activities including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies, and other entities. Some of these competitors, including larger REITs, have substantially greater financial resources than PECO does and generally enjoy significant competitive advantages that result from, among other things, increased access to capital, lower cost of capital, and enhanced operating efficiencies. In addition to these entities, PECO also faces competition from smaller landlords and companies at the local level in seeking tenants to occupy its shopping centers. In these local markets, PECO seeks to attract potential tenants and retain existing tenants from the same tenant base as do local landlords and entities of varying sizes. This further increases the number of competitors PECO has and the type of competition that PECO faces in seeking to execute on its business objectives and strategies.
Employees
As of June 30, 2019, PECO had approximately 300 employees. Prior to the completion of the PELP transaction, PECO did not have any employees. However, PELP’s employees and executive officers were compensated, in part, for their services rendered to PECO.
Environmental Matters
As an owner and operator of real estate, PECO is subject to various environmental laws of federal, state, and local governments. Compliance with federal, state, and local environmental laws has not had a material, adverse effect on PECO’s business, assets, results of operations, financial condition, and ability to pay distributions, and PECO does not believe that PECO’s existing portfolio will require PECO to incur material expenditures to comply with these laws and regulations.

39



Quantitative and Qualitative Disclosures about Market Risk
PECO utilizes interest rate swaps in order to hedge a portion of its exposure to interest rate fluctuations. PECO does not intend to enter into derivative or interest rate transactions for speculative purposes. PECO’s hedging decisions are determined based upon the facts and circumstances existing at the time of the hedge and may differ from PECO’s currently anticipated hedging strategy. Because PECO uses derivative financial instruments to hedge against interest rate fluctuations, PECO may be exposed to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe PECO, which creates credit risk for PECO. If the fair value of a derivative contract is negative, PECO will owe the counterparty and, therefore, not have credit risk.
PECO seeks to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
As of June 30, 2019, PECO had eleven interest rate swaps that fixed the LIBOR on $1.6 billion of PECO’s unsecured term loan facilities.
As of June 30, 2019, PECO had not fixed the interest rate on $331.4 million of its unsecured debt through derivative financial instruments, and as a result, PECO is subject to the potential impact of rising interest rates, which could negatively impact PECO’s profitability and cash flows. The impact on PECO’s results of operations of a one-percentage point increase in interest rates on the outstanding balance of PECO’s variable-rate debt at June 30, 2019, would result in approximately $3.3 million of additional interest expense annually. The additional interest expense was determined based on the impact of hypothetical interest rates on PECO’s borrowing cost and assumes no changes in PECO’s capital structure (including the consummation of the transactions contemplated by the merger agreement).
The information presented above does not consider all exposures or positions that could arise in the future. Hence, the information represented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the hedging strategies at the time, and the related interest rates.
PECO does not have any foreign operations, and thus PECO is not exposed to foreign currency fluctuations.
Access to Company Information
PECO electronically files its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy and Information statements, and all amendments to those reports with the SEC. The SEC maintains an Internet site at www.sec.gov that contains the reports, proxy and information statements, and other information regarding issuers, including PECO, that are filed electronically. The contents of PECO’s website are not incorporated by reference.
PECO makes available, free of charge, by responding to requests addressed to PECO’s investor relations group, the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports on its website, www.phillipsedison.com. These reports are available as soon as reasonably practicable after such material is electronically filed or furnished to the SEC.
Phillips Edison Grocery Center REIT III, Inc.
11501 Northlake Drive, Cincinnati, OH 45249
PECO III is a public, non-traded REIT that was formed as a Maryland corporation in April 2016 and elected to be taxed as a REIT for U.S. federal income tax purposes for the year ended December 31, 2017. PECO III is co-sponsored by PECO and Griffin and is externally managed by the advisor, an entity jointly owned by affiliates of PECO and Griffin.
Historically, PECO III has been externally advised and paid fees to the advisor under the advisory agreement. In connection with the merger, the advisory agreement will be terminated immediately prior to the closing of the merger.
As of June 30, 2019, PECO III owned fee simple interests in three real estate properties, comprising 251,000 square feet. In addition, PECO III owns a 10% equity interest in a joint venture that owned three properties as of June 30, 2019.
PECO III’s principal executive offices are located at 11501 Northlake Drive, Cincinnati, Ohio 45249, and its telephone number is (513) 554-1110. PECO III’s website is located at www.grocerycenterreit3.com. The information found on, or otherwise accessible through, PECO III’s website is not incorporated into, and does not form a part of, this proxy statement/prospectus or any other report or document PECO III files with or furnishes to the SEC.
Business Objectives and Strategies of PECO III
PECO III invests primarily in well-occupied, grocery-anchored neighborhood and community shopping centers having a mix of

40



creditworthy national and regional retailers selling necessity-based goods and services in strong demographic markets throughout the United States. PECO III owns its interests in all of its properties and conducts substantially all of its business through Phillips Edison Grocery Center Operating Partnership III, L.P., a Delaware limited partnership formed in October 2016.
Segment Data
PECO III currently views its company as one reportable segment. Accordingly, PECO III did not report any other segment disclosures in 2018.
Real Estate Investments
As of June 30, 2019, PECO III wholly-owned three properties throughout the United States, acquired from third parties unaffiliated with PECO III or PECO. PECO III also owned three properties through a joint venture in which PECO III owns a 10% equity interest. The following table presents information regarding the geographical location of PECO III’s properties, and the prorated portion of those owned through PECO III’s joint venture, by ABR, as of June 30, 2019 (dollars and square feet in thousands). For additional portfolio information, refer to PECO III’s “Schedule III - Real Estate Assets and Accumulated Depreciation” beginning on page F-93.
State
 
ABR(1)
 
% ABR
 
ABR/Leased Square Foot
 
GLA(2)
 
% GLA
 
% Leased
 
Number of Properties
Virginia
 
$
2,437

 
49.8
%
 
$
26.96

 
92

 
32.6
%
 
98.3
%
 
1
Massachusetts
 
1,370

 
28.0
%
 
15.60

 
90

 
31.9
%
 
97.6
%
 
1
Florida
 
818

 
16.7
%
 
11.38

 
77

 
27.3
%
 
93.7
%
 
2
Illinois
 
154

 
3.2
%
 
12.09

 
13

 
4.7
%
 
95.2
%
 
1
Minnesota
 
113

 
2.3
%
 
12.73

 
10

 
3.5
%
 
89.6
%
 
1
Total
 
$
4,892

 
100.0
%
 
$
18.00

 
282

 
100.0
%
 
96.4
%
 
6
(1) 
PECO III calculates ABR as monthly contractual rent as of June 30, 2019, multiplied by 12 months. 
(2) 
GLA is defined as the portion of the total square feet of a building that is available for tenant leasing. 
Additionally, the following table details information for PECO III joint venture, the prorated information for which is included in the preceding and subsequent tables (dollars and square feet in thousands):
Joint Venture
 
Ownership Percentage
 
Number of Properties
 
Prorated ABR
 
Prorated GLA
Grocery Retail Partners II
 
10%
 
3
 
$
377

 
31


41



Lease Expirations
The following chart shows, on an aggregate basis, all of the scheduled lease expirations after June 30, 2019, for each of the next ten years and thereafter for PECO III’s three shopping centers, as well as the pro rata share of the three properties owned by GRP II. The chart shows the ABR and leased square feet represented by the applicable lease expirations (dollars and square feet in thousands):
399469425_chart-8536b0959deb2150deda01.jpg
During the six months ended June 30, 2019, rent per square foot for renewed leases increased to $9.70 per square foot as compared to $9.51 rent per square foot prior to renewal. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Leasing Activity’’ attached to this proxy statement/prospectus as Annex D for further discussion of leasing activity.
Based on current market base rental rates, PECO III believes it will achieve an overall positive increase in its average base rental income for leases expiring in 2019. However, changes in base rental income associated with individual signed leases on comparable spaces may be positive or negative, and PECO III can provide no assurance that the base rents on new leases will continue to increase from current levels.
Portfolio Tenancy
Prior to the acquisition of a property, PECO III assesses the suitability of the anchor tenant and other tenants in light of PECO III’s principal investment objectives, namely, preserving capital and providing stable cash flows for distributions, realizing growth in value of its assets upon sale of such assets, and providing its investors with the potential for future liquidity. Generally, PECO III assesses the strength of the tenant by consideration of company factors, such as its financial strength and market share in the geographic area of the shopping center, as well as location-specific factors, such as the store’s sales, local competition, and demographics. When assessing the tenancy of the non-anchor space at the shopping center, PECO III considers the tenant mix at each shopping center in light of PECO III’s portfolio, the proportion of national and national franchise tenants, the creditworthiness of specific tenants, and the timing of lease expirations. When evaluating non-national tenancy, PECO III attempts to obtain credit enhancements to leases, which typically come in the form of deposits and/or guarantees from one or more individuals.

42



PECO III defines national tenants as those tenants that operate in at least three states. Regional tenants are defined as those tenants that have at least three locations. The following charts present the composition of PECO III’s portfolio, including the pro rata portion of the joint venture, by tenant type as of June 30, 2019:
399469425_chart-333dc2649636fd29974a01.jpg399469425_chart-e22e41c0c31c114e291a01.jpg
The following charts present the composition of our portfolio, including the pro rata share of the three properties held by GRP II, by tenant industry, as of June 30, 2019:
399469425_chart-1a603a19a44a498b9daa01.jpg399469425_chart-26abf973fdead2ac609a01.jpg
Legal Proceedings
From time to time, PECO III is party to legal proceedings, which arise in the ordinary course of PECO III’s business. PECO III is not currently involved in any legal proceedings for which the outcome is reasonably likely to have a material impact on PECO III’s results of operations or financial condition, nor is PECO III aware of any such legal proceedings contemplated by any governmental authorities.
Competition
PECO III is subject to significant competition in seeking real estate investments and tenants, as well as in seeking to raise capital. PECO III competes with many third parties engaged in real estate investment activities including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies, and other entities. Some of these competitors, including larger REITs, have substantially greater financial resources than PECO III does and generally enjoy significant competitive advantages that result from, among other things, increased access to capital, lower cost of capital, and enhanced operating efficiencies.
Employees
PECO III does not have any employees. In addition, all of PECO III’s executive officers are also officers of PECO or one or more of its affiliates and are compensated by those entities, in part, for their service rendered to PECO III. PECO III does not separately compensate its executive officers for their service as officers.

43



Environmental Matters
As an owner of real estate, PECO III is subject to various environmental laws of federal, state and local governments. Compliance with federal, state and local environmental laws has not had a material, adverse effect on PECO III’s business, assets, results of operations, financial condition and ability to pay distributions, and PECO III does not believe that its existing portfolio will require PECO III to incur material expenditures to comply with these laws and regulations.
Quantitative and Qualitative Disclosures about Market Risks
Quantitative and qualitative disclosures about market risk have been omitted as permitted under rules applicable to smaller reporting companies.
Access to Company Information
PECO III electronically files its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports with the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically. The contents of PECO III’s website are not incorporated by reference.
REIT Merger Sub, LLC
11501 Northlake Drive, Cincinnati, OH 45249
REIT Merger Sub, LLC is a limited liability company formed in Maryland on August 16, 2019. Pursuant to the terms of the merger agreement, Merger Sub will survive the merger as a wholly-owned subsidiary of PECO OP. Merger Sub’s principal executive office will be located at 11501 Northlake Drive, Cincinnati, Ohio 45249, and its telephone number is (513) 554-1110.

44



THE PECO III SPECIAL MEETING
This proxy statement/prospectus is being furnished in connection with the solicitation of proxies from PECO III stockholders for use at the PECO III Special Meeting. This proxy statement/prospectus and accompanying form of proxy are first being mailed to PECO III stockholders on or about [●], 2019.
Date, Time, Place and Purpose of the PECO III Special Meeting
The special meeting of the PECO III stockholders will be held at [●] Eastern Time on [●], 2019 via live webcast at www.virtualshareholdermeeting.com/PER2019SM for the following purposes:
1.
to consider and vote on a proposal to approve the merger and the other transactions contemplated by the merger agreement;
2.
to consider and vote on a proposal to approve the PECO III charter amendment in connection with the merger;
3.
to consider and vote on a proposal to approve one or more adjournments of the PECO III Special Meeting to another date, time or place, if necessary or appropriate, as determined by the Chair of the PECO III Special Meeting, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement or the proposal to approve the charter amendment; and
4.
to attend to such other business as may properly come before the meeting and any adjournment or postponement thereof.
Recommendation of the PECO III Board of Directors
The PECO III Board (with the unanimous vote of the independent directors), based on the unanimous recommendation of the PECO III Special Committee, recommends that the PECO III stockholders vote (i) FOR the proposal to approve the merger and the other transactions contemplated by the merger agreement, (ii) FOR the proposal to approve the PECO III charter amendment in connection with the merger, and (iii) FOR the proposal to approve one or more adjournments of the PECO III Special Meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement or the proposal to approve the charter amendment. For the reasons for this recommendation, see ‘‘The Merger—Recommendation of the PECO III Board of Directors and Its Reasons for the Merger’’ beginning on page 55.
PECO III Record Date; Who Can Vote at the PECO III Special Meeting
Only holders of record of shares of PECO III common stock at the close of business on [●], 2019, the record date, are entitled to notice of, and to vote at, the PECO III Special Meeting and any adjournment or postponement of the special meeting. As of the record date, there were [●] shares of PECO III common stock outstanding and entitled to vote at the PECO III Special Meeting, held by approximately [●] holders of record.
Each share of PECO III common stock owned on the record date is entitled to one vote on each proposal at the PECO III Special Meeting.
Required Vote; Quorum
Approval of the proposal to approve the merger and the other transactions contemplated by the merger agreement requires the affirmative vote of a majority of all of the votes entitled to be cast on such proposal.
Approval of the proposal to approve the PECO III charter amendment in connection with the merger requires the affirmative vote of a majority of all of the votes entitled to be cast on such proposal.
Approval of the proposal to approve one or more adjournments of the PECO III Special Meeting to another date, time or place, if necessary or appropriate, as determined by the Chair of the PECO III Special Meeting, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement or the proposal to approve the charter amendment requires the affirmative vote of a majority of all of the votes cast on such proposal.
REGARDLESS OF THE NUMBER OF SHARES OF PECO III COMMON STOCK YOU OWN, YOUR VOTE IS VERY IMPORTANT! PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD TODAY OR VOTE BY TELEPHONE OR INTERNET.
PECO III’s bylaws provide that the presence, in person or by proxy, of stockholders entitled to cast at least 50% of all of the votes entitled to be cast at such meeting will constitute a quorum. Shares that are voted and shares abstaining from voting are treated as being present at the PECO III Special Meeting for purposes of determining whether a quorum is present.
No business may be conducted at the PECO III Special Meeting if a quorum is not present at the PECO III Special Meeting other than the proposal to adjourn the PECO III Special Meeting to solicit additional proxies. Pursuant to PECO III’s bylaws,

45



the chair of the meeting may adjourn the PECO III Special Meeting to a later date, time and place announced at the meeting, whether or not a quorum is present and without a vote of stockholders.
Abstentions and Broker Non-Votes
Abstentions and broker non-votes will be counted in determining the presence of a quorum. Abstentions and broker non-votes, if any, will have the same effect as votes AGAINST (i) the proposal to approve the merger and the other transactions contemplated by the merger agreement and (ii) the proposal to approve the PECO III charter amendment in connection with the merger. Abstentions and broker non-votes will have no effect on the remaining proposal (or any other matters presented at the PECO III Special Meeting for approval of the PECO III stockholders), assuming a quorum is present.
Manner of Submitting Proxy
PECO III stockholders may vote for or against the proposals submitted at the PECO III Special Meeting in person or by proxy. PECO III stockholders can authorize a proxy in the following ways:
Internet. PECO III stockholders may submit a proxy over the Internet by going to www.proxyvote.com/PERIII with use of the control number on their proxy card. Once at the website, they should follow the instructions to submit a proxy.
Telephone. PECO III stockholders may submit a proxy using the toll-free number at 1-800-690-6903 and follow the recorded instructions. PECO III stockholders will be asked to provide the control number from the enclosed proxy card.
Mail. PECO III stockholders may submit a proxy by completing, signing, dating and returning their proxy card or voting instruction card in the preaddressed postage-paid envelope provided.
PECO III stockholders that participate in the PECO III Special Meeting via live webcast can vote online during the meeting prior to the closing of the polls, and any previous votes that such stockholder submitted by internet, telephone, or mail will be superseded.
PECO III stockholders should refer to their proxy cards or the information forwarded by their broker or other nominee to see which options are available to them.
The Internet and telephone proxy submission procedures are designed to authenticate stockholders and to allow them to confirm that their instructions have been properly recorded. If you submit a proxy over the Internet or by telephone, then you need not return a written proxy card or voting instruction card by mail. The Internet and telephone facilities available to record holders will close at 11:59 P.M. Eastern Time on [●], 2019.
The method by which PECO III stockholders submit a proxy will in no way limit their right to vote at the PECO III Special Meeting if they later decide to participate in the meeting via live webcast and vote online during the meeting.
All shares of PECO III common stock entitled to vote and represented by properly completed proxies received prior to the PECO III Special Meeting, and not revoked, will be voted at the PECO III Special Meeting as instructed on the proxies. If PECO III stockholders of record return properly executed proxies but do not indicate how their shares of PECO III common stock should be voted on a proposal, the shares of PECO III common stock represented by their properly executed proxy will be voted as the PECO III Board recommends and therefore, (i) FOR the proposal to approve the merger and the other transactions contemplated by the merger agreement, (ii) FOR the proposal to approve the PECO III charter amendment in connection with the merger, and (iii) FOR the proposal to approve one or more adjournments of the PECO III Special Meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement or the proposal to approve the charter amendment. If you do not provide voting instructions to your broker or other nominee, your shares of PECO III common stock will NOT be voted and will be considered broker non-votes.
Revocation of Proxies or Voting Instructions
PECO III stockholders of record may change their vote or revoke their proxy at any time before it is exercised at the PECO III Special Meeting by:
submitting notice in writing to PECO III’s Secretary at Phillips Edison Grocery Center REIT III, Inc., 11501 Northlake Drive, Cincinnati, Ohio 45249, Attn: Secretary;
executing and delivering a later-dated proxy card or submitting a later-dated proxy by telephone or on the Internet; or
voting in person at the PECO III Special Meeting.
Participating in the PECO III Special Meeting via live webcast without voting will not revoke your proxy.

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PECO III stockholders who hold shares of PECO III common stock in an account of a broker or other nominee may revoke their voting instructions by following the instructions provided by their broker or other nominee.
Solicitation of Proxies; Payment of Solicitation Expenses
The solicitation of proxies from PECO III stockholders is made on behalf of the PECO III Board. PECO III will pay the cost of soliciting proxies from PECO III stockholders. PECO III has contracted with BFS to assist PECO III in the distribution of proxy materials and the solicitation of proxies. PECO, on behalf of PECO III, expects to pay BFS fees of approximately $58,000 to solicit proxies plus other fees and expenses for other services related to this proxy solicitation, including the review of proxy materials, dissemination of brokers’ search cards, distribution of proxy materials, operating online and telephone voting systems and receipt of executed proxies. In accordance with the regulations of the SEC, PECO III also will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses incurred in forwarding proxy and solicitation materials to beneficial owners of shares of PECO III common stock.

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PROPOSALS SUBMITTED TO PECO III STOCKHOLDERS
Merger Proposal
(Proposal 1 on the Proxy Card)
PECO III stockholders are asked to approve the merger and the other transactions contemplated by the merger agreement. For a summary and detailed information regarding this proposal, see the information about the merger and the merger agreement throughout this proxy statement/prospectus, including the information set forth in sections entitled “The Merger” beginning on page 50 and “The Merger Agreement” beginning on page 107. A copy of the merger agreement is attached as Annex A to this proxy statement/prospectus.
Pursuant to the merger agreement, approval of this proposal is a condition to the consummation of the merger. If this proposal is not approved, the merger will not be completed.
PECO III is requesting that PECO III stockholders approve the merger and the other transactions contemplated by the merger agreement. Approval of this proposal requires the affirmative vote of a majority of the votes entitled to be cast on such proposal.
Recommendation of the PECO III Board
The PECO III Board recommends that PECO III stockholders vote FOR the proposal to approve the merger and the other transactions contemplated by the merger agreement.
Charter Proposal
(Proposal 2 on the Proxy Card)
PECO III stockholders are asked to consider and vote on a proposal to approve the PECO III charter amendment in connection with, and subject to, approval of the merger.
If adopted, the PECO III charter amendment would delete Section 9.14 related to roll-up transactions (and the associated definitions) from the PECO III charter. This section imposes substantive and procedural requirements relating to roll-up transactions, all of which will not be applicable if the PECO III charter amendment is approved. Pursuant to the merger agreement, approval of this proposal is a condition to completing the merger and if the PECO III charter amendment is not approved, the merger will not be completed even if the merger is approved. Likewise, the effectiveness of the PECO III charter amendment is conditioned on approval of the merger and the closing of the merger. If PECO III stockholders do not approve the merger and the merger does not close, the approval of the PECO III charter amendment will not become effective.
The PECO III charter defines a roll-up transaction as a transaction involving the acquisition, merger, conversion or consolidation, directly or indirectly, of PECO III and the issuance of securities of a roll-up entity that is created or would survive after the successful completion of the roll-up transaction. This definition does not include (1) a transaction involving securities of PECO III that have been listed on a national securities exchange for at least 12 months or (2) a transaction involving PECO III’s conversion to corporate, trust or association form if, as a consequence of the transaction, there will be no significant adverse change in stockholder voting rights, the term of PECO III’s existence, compensation to the advisor, its sponsor or PECO III’s investment objectives. The merger and the issuance of securities of PECO III may be considered a roll-up transaction.
In connection with any roll-up transaction involving the issuance of securities of a roll-up entity, the PECO III charter requires PECO III to obtain an appraisal of its assets from a competent independent appraiser. In addition, in connection with a proposed roll-up transaction, the PECO III charter requires the person sponsoring the roll-up transaction to offer to PECO III stockholders who vote against the proposed roll-up transaction the choice of: (i) accepting the securities of the roll-up entity offered in the proposed roll-up transaction or (ii) one of the following: (a) remaining as holders of PECO III common stock and preserving their interests therein on the same terms and conditions as existed previously or (b) receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of PECO III’s net assets. Under the PECO III charter, PECO III is prohibited from participating in any roll-up transaction: (1) that would result in the common stockholders having voting rights in a roll-up entity that are less than those provided in the PECO III charter; (2) that includes provisions that would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the roll-up entity, except to the minimum extent necessary to preserve the tax status of the roll-up entity, or which would limit the ability of an investor to exercise the voting rights of its securities of the roll-up entity on the basis of the number of shares held by that investor; (3) in which investor’s rights to access of records of the roll-up entity will be less than those provided in the PECO III charter; or (4) in which any of the costs of the roll-up transaction would be borne by PECO III if the roll-up transaction is rejected by the PECO III stockholders.

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PECO III believes that it would not be practical to complete the merger if it were required to comply with these provisions and the merger is specifically conditioned on the PECO III charter amendment.
The PECO III Board declared the PECO III charter amendment to be advisable on September 3, 2019. The full text of the PECO III charter amendment is set forth in the form of Articles of Amendment attached as Annex B.
PECO III is requesting that PECO III stockholders approve the proposal to approve the PECO III charter amendment in connection with the merger. Approval of this proposal requires the affirmative vote of a majority of the votes entitled to be cast on such proposal. If the merger is not completed, the PECO III charter amendment will not be effected either.
Recommendation of the PECO III Board
The PECO III Board recommends that PECO III stockholders vote FOR the proposal to approve the PECO III charter amendment in connection with the merger.
PECO III Adjournment Proposal
(Proposal 3 on the Proxy Card)
The PECO III stockholders are being asked to approve a proposal that will give the Chair of the PECO III Special Meeting the authority to adjourn the PECO III Special Meeting one or more times to another date, time or place, if necessary or appropriate, as determined by the Chair of the PECO III Special Meeting, to permit, among other things, further solicitation of proxies, if necessary or appropriate, in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement and the proposal to approve the charter amendment if there are not sufficient votes at the time of the PECO III Special Meeting to approve either of such proposals.
If, at the PECO III Special Meeting, the number of shares of PECO III common stock present or represented by proxy and voting for the approval of the proposal to approve the merger and the other transactions contemplated by the merger agreement or the proposal to approve the charter amendment is insufficient to approve either such proposal, PECO III intends to move to adjourn the PECO III Special Meeting to another place, date or time in order to enable the PECO III Board to solicit additional proxies for approval of the proposal.
PECO III is asking PECO III stockholders to approve one or more adjournments of the special meeting to another date, time or place, if necessary or appropriate, as determined by the Chair of the PECO III Special Meeting, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement and the proposal to approve the charter amendment. Approval of this proposal requires the affirmative vote of at least a majority of all votes cast on such proposal.
Recommendation of the PECO III Board
The PECO III Board recommends that PECO III stockholders vote FOR the proposal to approve one or more adjournments of the PECO III Special Meeting to another date, time or place, if necessary or appropriate, as determined by the Chair of the PECO III Special Meeting, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement or the proposal to approve the charter amendment.


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THE MERGER
The following is a description of the material aspects of the merger. While PECO and PECO III believe that the following description covers the material terms of the merger, the description may not contain all of the information that is important to PECO stockholders and PECO III stockholders. PECO and PECO III encourage PECO stockholders and PECO III stockholders to carefully read this entire proxy statement/prospectus, including the merger agreement and the other documents attached to this proxy statement/prospectus, for a more complete understanding of the merger.

General
The PECO III Special Committee and the PECO III Board have declared advisable, and each has approved, the merger agreement, the merger and the other transactions contemplated by the merger agreement (including the PECO III charter amendment) based on, among other factors, the reasons described below in the sections “—Recommendation of the PECO III Board of Directors and Its Reasons for the Merger.” In the merger, PECO III will merge with and into Merger Sub, with Merger Sub continuing as the Surviving Entity. PECO III stockholders will receive the merger consideration described below under “The Merger Agreement—Merger Consideration; Effects of the Merger.”
Background of the Merger
PECO III is a public, non-traded REIT that was formed as a Maryland corporation in April 2016 and elected to be taxed as a REIT for U.S. federal income tax purposes for the year ended December 31, 2017 and each year thereafter. PECO III commenced its initial public offering in May 2018. PECO III is externally advised and pays fees to its advisor under an advisory agreement. The advisor is jointly owned by affiliates of PECO and Griffin, and an affiliate of PECO serves as managing member of the advisor. In the ordinary course and from time to time, the PECO III Board has evaluated and considered a variety of financial and strategic opportunities as part of its long-term strategy to enhance value for PECO III stockholders, including potential acquisitions, divestitures, business combinations and other transactions.
On June 12, 2019, PECO, in its capacity as indirect managing member of the advisor to PECO III, met with the PECO III Board to discuss the status of the public offering of PECO III, noting the substantial headwinds in the public equity markets generally and specifically those facing public offerings by non-traded REITs. The PECO III Board, which had been steadily monitoring its fund-raising efforts since inception, decided that given the continuing challenges of raising capital, it was in the best interest of the company and its stockholders to suspend PECO III’s public offering, the dividend reinvestment plan offering and the share repurchase program, and to commence a review of potential strategic alternatives. The PECO III Board also considered having independent financial and legal advisors advise them in connection with evaluating and executing potential strategic alternatives. During the remainder of June 2019 and early July 2019, the PECO III Board and management then proceeded to review, evaluate and consider a variety of financial and strategic alternatives, including potential divestitures, liquidation, business combinations and other transactions.
As of July 2019, PECO III had not yet conducted its first post-IPO net asset value estimate. Therefore, on July 5, 2019, the independent directors of PECO III decided to accelerate the timing of its initial valuation update and engaged Duff & Phelps, an independent valuation expert which has expertise in appraising commercial real estate assets, to perform a valuation and determine a range of estimated values per share of PECO III common stock, in order to assist with the review of strategic alternatives.
On July 11, 2019, the management of PECO met with Leslie T. Chao, lead independent director of the PECO Board, to discuss the possibility of pursuing a strategic business combination with PECO III. Following this meeting, PECO sent to the independent directors of the PECO III Board a letter expressing interest in a possible strategic business combination between the two companies (the “July 11 Letter”). The July 11 Letter invited the independent directors of the PECO III Board to engage in discussions with PECO with respect to a potential business combination but did not include any specific transaction terms or conditions.
On July 19, 2019, the PECO III Board held a telephonic meeting to continue its review, evaluation and consideration of several potential strategic alternatives, including and the July 11 Letter. At the meeting, PECO III management presented to the PECO III Board and discussed with the board its view of the challenges of continuing to operate the company on a stand-alone basis, including the relationship of operating cash flows to the current dividend rate. Management also reviewed the impact on the aggregate gross proceeds raised by PECO III in its offerings of selling commissions and other offering costs, payment of dividends in excess of operating cash flow, financing costs and capital expenditures since the company’s inception. Management also provided an analysis of the relative advantages and disadvantages of liquidating, remaining as a stand-alone company, or pursuing a strategic transaction, such as the proposed business combination with PECO. Following this presentation and a discussion, the PECO III Board formed the PECO III Special Committee comprised solely of Ms. Huynh and Messrs. McDade and Smith, representing all of the independent directors of PECO III, to investigate and analyze potential strategic alternatives, including a potential combination with PECO; to negotiate the terms and conditions of any transaction;

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and to make a recommendation to the full PECO III Board with respect to any such transaction. The PECO III Board authorized the PECO III Special Committee to utilize and retain, at PECO III’s expense, such financial and other advisors as the PECO III Special Committee deemed necessary or advisable. The PECO III Special Committee also discussed the amounts of consideration special committee members would typically receive for their service in connection with similar transactions but decided not to request such compensation in order to maximize returns for PECO III stockholders.
Also on July 19, 2019, following this meeting of the PECO III Board, the newly formed PECO III Special Committee held a telephonic meeting. At this meeting, the PECO III Special Committee agreed that the criteria for selecting advisors included knowledge and experience with REITs, shopping centers and mergers and the absence of any material relationships with PECO or its affiliates. After considering credentials and the lack of any material relationship with PECO or its affiliates, the PECO III Special Committee approved the appointment of Hogan Lovells LLP (“Hogan Lovells”) to serve as independent legal counsel to the PECO III Special Committee.
At the same meeting, Hogan Lovells then reviewed for the directors on the PECO III Special Committee their duties under Maryland law in connection with consideration of strategic alternatives and outlined key next steps for evaluating and considering the July 11 Letter, as well as other potential strategic alternatives. The PECO III Special Committee engaged in an extensive discussion regarding the strategic alternatives presented by management at the preceding full-board meeting, including a transaction with PECO, and also discussed the relative merits, advantages, disadvantages and challenges of pursuing a business combination with a different party. The PECO III Special Committee also discussed the timing of the Duff & Phelps valuation report and the benefits and costs of engaging a financial advisor to advise with respect to any strategic alternative that the PECO III Special Committee may elect to pursue, including opining on the fairness of any such transaction. Following this discussion, the PECO III Special Committee determined it would continue to consider all strategic alternatives while awaiting the Duff & Phelps valuation report and directed Hogan Lovells to solicit proposals from certain financial advisors with respect to providing a fairness opinion in the event the PECO III Special Committee decided to pursue a strategic transaction. The PECO III Special Committee also agreed to invite PECO to provide a formal written offer.
Accordingly, on July 19, 2019 following this meeting of the PECO III Special Committee, the PECO III Special Committee sent a letter to PECO acknowledging receipt of the July 11 Letter and inviting PECO to provide an offer with respect to a proposed business combination of PECO III and PECO as part of PECO III’s consideration of all strategic alternatives.
On July 22, 2019, Mr. Edison confirmed to Mr. McDade via telephone that PECO was preparing a formal offer.
On July 24, 2019, Duff & Phelps provided the PECO III Special Committee a preliminary draft valuation report providing a range of estimated per share values based substantially on its estimate of the “as is” market values of the PECO III property portfolio. Duff & Phelps made adjustments to the aggregate estimated value of the portfolio to reflect estimated balance sheet assets and liabilities provided by PECO III management as of June 30, 2019, before calculating a range of estimated values based on the number of outstanding shares of PECO III common stock as of June 30, 2019. These preliminary calculations produced an estimated PECO III NAV per share in the range of $6.22 to $6.88, with a mid-point of $6.54, as of June 30, 2019.
On July 26, 2019, the PECO Board held a telephonic meeting at which members discussed the potential for a strategic transaction between PECO and PECO III. Representatives of Goodwin Procter LLP (“Goodwin Procter”), outside counsel to PECO, also participated in the meeting. After discussion, the PECO Board authorized PECO management to proceed with submitting a merger proposal to PECO III and to seek to negotiate a potential transaction with PECO III on customary terms. PECO management was further instructed to report back to the PECO Board from time to time with updates, and to liaise as needed or helpful with Mr. Chao.
On July 29, 2019, Mr. Edison sent a letter to the independent directors of PECO III on behalf of PECO formally proposing a strategic business combination of PECO and PECO III (the “July 29 Letter”). The July 29 Letter described PECO’s view of the merits and potential benefits of a transaction with PECO, including increased size, scale and diversification of a combined company; a premium valuation to PECO III stockholders; enhanced distribution coverage to PECO III stockholders; maintaining the grocery-anchored investment strategy; simplified governance and removal of external advisor fees; the benefits of an established and experienced management team; and an efficient path to closing, with strong certainty of execution. Based upon PECO’s internal valuation and assessment of PECO III’s common stock, the July 29 Letter proposed, on a preliminary, non-binding basis, an all-stock merger between PECO III and a subsidiary of PECO pursuant to which the PECO III stockholders would receive an average of 0.6306 shares of PECO common stock for each share of PECO III common stock with Class I and Class T stockholders receiving a slightly higher exchange ratio to account for the higher cost per share and shorter holding period applicable to those classes, PECO would assume or pay off PECO III’s outstanding indebtedness of approximately $20.5 million, and each party would be responsible for their own transaction costs and expenses. The July 29 Letter also proposed that, upon consummation of the proposed merger, PECO would waive the requirement of PECO III to pay PECO, in its capacity as PECO III’s advisor pursuant to the terms of the advisory agreement, a disposition fee equal to 2% of PECO III’s enterprise value. The July 29 Letter stated that PECO’s proposal assumed a price of $11.10 per share for PECO’s common stock, which was the net asset value per share declared by PECO’s Board on May 8, 2019, and a price of $7.00 per

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share for PECO III’s common stock. After sending the letter, Mr. Edison called Mr. McDade to discuss the July 29 Letter and advised that if PECO III’s indebtedness increased prior to closing as a result of PECO III continuing to pay distributions at the current rate through the closing of the transaction, the offer price would be reduced accordingly.
On August 1, 2019, the PECO III Special Committee met telephonically and, with representatives of Hogan Lovells in attendance, discussed the Duff & Phelps draft valuation report and the proposals received from potential financial advisors with respect to advising the PECO III Special Committee. Hogan Lovells presented the PECO III Special Committee an overview and analysis of the July 29 Letter, including the financial and non-financial terms and the proposal to pay differing consideration to the different classes of PECO III common stock. Following this presentation, the PECO III Special Committee engaged in an extensive discussion regarding the relative advantages and disadvantages of the proposed PECO transaction as compared to a liquidation of the company, an alternative merger or sale transaction with a third party or pursuing the current strategy of operating as an independent, externally managed REIT. The PECO III Special Committee noted that the terms of the July 29 Letter already represented a meaningful premium to PECO III’s estimated mid-point NAV per share, as reflected in the Duff & Phelps preliminary draft valuation report, and the transaction proposed likely would involve lower execution risk and transaction costs than other strategic alternatives. The PECO III Special Committee also noted PECO’s more favorable dividend coverage, prospects for a listing, strong asset, geographic and tenant diversification, internal management structure, and exclusive focus on grocery-anchored shopping centers. The PECO III Special Committee also reviewed the considerable difficulties of continuing as a stand-alone company given its small scale, inability to pay dividends at historical rates based on current and projected operating cash flows, lack of asset, geographic and tenant diversification, low prospects for a successful liquidity event, and the barriers to growth given the challenges of raising capital. Following this discussion, the PECO III Special Committee determined to move forward in negotiating a potential transaction with PECO and asked Hogan Lovells to organize a business and legal due diligence call with executives of PECO. The call was scheduled for August 7, 2019.
Also at the August 1, 2019 meeting, the PECO III Special Committee considered, among other things, the qualifications, knowledge and experience of the financial advisors considered and their current and prior relationships with PECO III, PECO and their respective affiliates. After considering this, as well as the proposals provided by these financial advisors, the PECO III Special Committee agreed, subject to negotiation of an acceptable engagement letter, to engage Duff & Phelps to serve as independent financial advisor to the PECO III Special Committee and in such capacity provide a financial analysis of any proposed terms of a PECO transaction and, if applicable, provide a fairness opinion related to any such transaction. The PECO III Special Committee selected Duff & Phelps for a variety of reasons, including its experience with retail REITs, non-traded REITs and mergers and acquisitions, and its experience in representing independent directors and special committees in connection with related party transactions. The PECO III Special Committee and Duff & Phelps agreed that the ongoing valuation work for which Duff & Phelps had previously been engaged would be subsumed by the broader financial analysis it would do in acting as financial advisor to provide the fairness opinion. The PECO III Special Committee proceeded to negotiate an engagement letter with Duff & Phelps, which was executed on August 14, 2019. The PECO III Special Committee decided to defer further consideration of the July 29 Letter until after the PECO III Special Committee had received and considered the Duff & Phelps financial analysis.
On August 7, 2019, in advance of the previously scheduled business and legal due diligence call, Mr. Edison and Mr. McDade discussed the topics the PECO III Special Committee would like Mr. Edison and PECO to cover on the call.
Later that day, the PECO III Special Committee held a telephonic meeting with Messrs. Edison, Murphy, and Caulfield and Ms. Brady, in their capacity as executive officers of PECO, for the purpose of conducting business and legal due diligence on PECO. The PECO executives provided an overview of PECO’s financial and operating results as of June 30, 2019 and discussed PECO’s current strategic initiatives and outlook and responded to numerous business and legal questions from members of the PECO III Special Committee and representatives of Hogan Lovells. The parties agreed to commence conducting legal diligence and continuing financial due diligence pending continuing negotiations on financial terms of the proposed transaction. Following the discussion, PECO’s management team left the meeting and the PECO III Special Committee met with representatives of Hogan Lovells and discussed the outcome of the call, including the current strategic outlook and initiatives of PECO as presented by the PECO executives, as well as the status of the financial analysis being performed by Duff & Phelps. Representatives of Hogan Lovells also advised the PECO III Special Committee that if PECO III agreed to enter into a business combination with PECO, the roll-up provisions in PECO III’s charter, if not effectively waived by stockholders, could make the execution of the transaction impracticable. After extensive discussion, the PECO III Special Committee agreed that in the event PECO III and PECO pursued a business combination, the PECO III stockholders would be asked to approve both the business combination and an amendment to the PECO III charter to effectively waive the application of the roll-up provisions of the charter in connection with the PECO business combination.
On August 8, 2019, representatives of Goodwin Procter sent to representatives of Hogan Lovells a draft of a proposed merger agreement based on the terms of the July 29 Letter.
On August 9, 2019, representatives of Hogan Lovells provided PECO with a due diligence request list and were subsequently granted access to an electronic data room containing detailed property-level and corporate due diligence materials for PECO.

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On August 11, 2019, Mr. Caulfield sent the PECO III Special Committee supporting written materials related to the August 7, 2019 due diligence call.
On August 14, 2019, the PECO III Special Committee and Duff & Phelps executed the engagement letter relating to Duff & Phelps’ service as financial advisor to provide an opinion to the PECO III Special Committee as to the fairness, from a financial point of view, to PECO III’s stockholders of the merger consideration to be received in the merger transaction with PECO.
On August 16, 2019, the PECO III Special Committee held a telephonic meeting, with representatives of Duff & Phelps and Hogan Lovells in attendance, at which Duff & Phelps provided its preliminary financial analysis, including with respect to the terms of the July 29 Letter. The PECO III Special Committee and its advisors deliberated on the terms of a possible counter-proposal to the July 29 Letter and again discussed the relative merits of other strategic alternatives or continuing to pursue the current strategy of operating as an independent, externally-advised REIT. This discussion included consideration of the challenges of selling PECO III at or close to its estimated NAV given the headwinds facing the retail real estate sector, the current discounts to NAV at which comparable listed REITs were trading and potential transaction costs, the challenge of liquidating PECO III’s assets for at or close to its estimated NAV