SECURITIES AND EXCHANGE COMMISSION 000-54691 CENTER REIT INC. Title of Each Class Name of Each Exchange on Which Registered stock. ITEM 5. ITEM 10. We continue to offer up to approximately 6.2 million shares of common stock under the DRP. As of December 31, 2013, we owned fee simple interests in 83 real estate properties acquired from third parties unaffiliated with us, the Advisor or the Sub-advisor. Property Name Lakeside Plaza Snow View Plaza St. Charles Plaza Southampton Village Centerpoint Burwood Village Center Cureton Town Center us, excluding those acquisition, disposition, property management, asset management, financing, and Advisor or affiliates of the Sub-advisor. If we pay distributions from sources other than our the values of our investments in revenues from our properties firms, as needed, that have special expertise in certain services or detailed knowledge regarding real properties in certain geographic regions. Maintaining such relationships will be important for us to effectively compete with other investors for properties and tenants in such regions. We may be unsuccessful in establishing and retaining such relationships. If we lose or are unable to obtain the services of highly skilled professionals or do not establish or maintain such an incident. the continuation, renewal or enforcement of our agreements with affiliates of our AR Capital sponsor, including the advisory the continuation, renewal or enforcement of our agreements with Phillips Edison and its affiliates, including the property management agreement; the continuation, renewal or enforcement of the Advisor’s agreements with the Sub-advisor and their respective affiliates, including the sub-advisory agreement; public offerings of equity by us, which will likely entitle the Advisor and the Sub-advisor to increased acquisition fees and asset-management sales of properties and other investments to third parties, which entitle the Advisor and the Sub-advisor to disposition fees and possible subordinated incentive fees; acquisitions of properties and other investments from other Phillips Edison- or AR Capital-sponsored acquisitions of properties and other investments from third parties, which entitle the Advisor and the Sub-advisor to acquisition and asset-management borrowings to acquire properties and other investments and to originate loans, which borrowings increase the acquisition fees, debt financing fees, and asset-management whether and when we seek to list our common stock on a national securities exchange, which listing could entitle the Advisor and the Sub-advisor to a subordinated incentive listing fee; and whether and when we seek to sell the company or its assets, which sale could entitle the Advisor and the Sub-advisor to a subordinated returns. are not prohibited from engaging, directly or indirectly, in any business or from possessing interests in any other business venture or ventures, including businesses and ventures involved in the acquisition, development, ownership, leasing or sale of real estate investments. consolidated financial statements. may not be accurate or complete. Accordingly, these estimates may or may not be an accurate reflection of the fair market value of our investments and will not likely represent the amount of net proceeds that would result from an immediate sale of our assets. • stagger our board of directors 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. initial public offering. These substantial fees and other payments also increase the risk that our stockholders will not be able to resell their shares at a profit, even if our shares are listed on a national securities exchange. downturns in national, regional and local economic conditions; increased competition for real estate assets targeted by our investment strategy; 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 permanent mortgage financing, which may render the sale 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. 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 our stockholders’ investments. Our joint venture partners could take actions that decrease the value of an investment to us and lower our stockholders’ overall return. that our co-venturer, co-tenant or partner in an investment could become insolvent or bankrupt; that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals; that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; the possibility that we may incur liabilities as a result of an action taken by such co-venturer, co-tenant or partner; that disputes between us and a co-venturer, co-tenant or partner may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business; the possibility that if we have a right of first refusal or buy/sell right to buy out a co-venturer, co-owner or partner, we may be unable to finance such a buy-out if it becomes exercisable, or we may be required to purchase such interest at a time when it would not otherwise be in our best interest to do so; or the possibility that we may not be able to sell our interest in the joint venture if we desire to exit the joint venture. limit our investment options as some mortgage lenders have begun to insist that specific coverage against terrorism be purchased by commercial owners as a condition of providing loans. a longer-term instrument. The value of CMBS may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities market as a whole. In addition, CMBS are subject to the credit risk associated with the performance of the underlying mortgage properties. In certain instances, third-party guarantees or other forms of credit support can reduce the credit risk. 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. for the dividends paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. received. • In order to qualify as a REIT, we must distribute annually at least 90.0% of our REIT taxable income to our stockholders (which is determined without regard to the dividends paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on the undistributed income. • We will be subject to a 4.0% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85.0% of our ordinary income, 95.0% of our capital gain net income and 100% of our undistributed income from prior years. • If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest U.S. federal corporate income tax rate. • the investment is consistent with their fiduciary obligations under ERISA and the Internal Revenue 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 Internal Revenue Code; • the investment will not impair the liquidity of the plan or IRA; • the investment will not produce an unacceptable amount of “unrelated business taxable income” for the plan or IRA; • the value of the assets of the plan can be established annually in accordance with ERISA requirements and applicable provisions of the plan or IRA; and • the investment will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code. stock, we expect to use the gross offering price of a share of common stock in our most recent offering as the per share estimated value. For purposes of this definition, we will not consider “public equity offerings” to include offerings on behalf of selling stockholders or offerings related to any dividend reinvestment plan, employee benefit plan or the redemption of interests in the Operating Partnership. Property Name Lakeside Plaza Snow View Plaza St. Charles Plaza Southampton Village Centerpoint Burwood Village Center Cureton Town Center The contract purchase price excludes closing costs and acquisition Tenant Name/Property Giant Eagle Inc./Snow View Plaza Publix Super Markets, Inc./St. Charles Plaza, Southampton Village and Centerpoint Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Thereafter We calculate annualized effective rent as monthly contractual rent as of December 31, Tenant Type Grocery anchor National/national franchise Regional & local We calculate annualized effective rent as monthly contractual rent as of December 31, Tenant Industry Grocery Restaurant Retail Stores Services We calculate annualized effective rent as monthly contractual rent as of December 31, 2013 multiplied by 12 months, less any tenant concessions. Largest Tenants Publix Giant Eagle Kroger Harris Teeter Food Lion CVS Dollar General All other Tenants appropriate. resulting in proceeds of approximately $18.7 million. For the year ended December 31, 2012, 139,293 shares were issued through the DRP, resulting in proceeds of approximately $1.3 million. sub-advisor, borrowings, and offering proceeds. DRP. • the lower of $9.25 and 92.5% of the price paid to acquire the shares for stockholders who have held their shares for at least one year; • the lower of $9.50 and 95.0% of the price paid to acquire the shares for stockholders who have held their shares for at least two years; • the lower of $9.75 and 97.5% of the price paid to acquire the shares for stockholders who have held their shares for at least three years; and • the lower of $10.00 and 100% of the price paid to acquire the shares for stockholders who have held their shares for at least four years. • there is no one-year holding requirement; and • until we establish an estimated value per share, which we expect to be upon the completion of our offering stage (described above), the repurchase price is the amount paid to acquire the shares from us. Period October 2011 November 2011 December 2011 All purchases of our equity securities by us in the three months ended December 31, We announced the commencement of the share repurchase program on August 12, 2010, and it was subsequently amended on September 29, 2011. We currently limit the dollar value and number of shares that may yet be repurchased under the share repurchase program as described above. Balance Sheet Data: Investment in real estate assets, net Acquired intangible lease assets, net Cash and cash equivalents Other assets Total assets Mortgage loans payable Notes payable—affiliates Accounts payable—affiliates Other liabilities Total liabilities Equity Total liabilities and equity Operating Data: Total revenues Property operating expenses Real estate tax expense General and administrative expense Acquisition-related expenses Depreciation and amortization Operating loss Other income Interest expense Net loss Net loss allocable to noncontrolling interests Net loss after allocation to noncontrolling interests Cash Flow Data: Cash flows provided by operating activities Cash flows used in investing activities Cash flows provided by financing activities Per Share Data: Net loss per share—basic and diluted Weighted average distributions per share declared Weighted average shares outstanding—basic and diluted December 31, 2013 Although the U.S. GDP has continued to increase, the increases have been far below the historical average annual growth rate. e-commerce, future interest rate growth, stagnant wages and the general political climate. collectively Property Name Lakeside Plaza Snow View Plaza St. Charles Plaza Southampton Village Centerpoint Burwood Village Center Cureton Town Center 2013. ownership of these 2012 (in thousands): As of December 31, borrowing base. 3, 2014. borrowings. As of December 31, 2013, our borrowings equated to 13.7% of our net assets. Principal payments—variable rate mortgage loan secured by Lakeside Plaza due December 2012 Lakeside Plaza interest payments (1) Principal payments—variable rate mortgage loan secured by Snow View Plaza due December 2012 Snow View Plaza interest payments (1) Principal payments—variable rate mortgage loan secured by St. Charles Plaza due June 2013 St. Charles Plaza interest payments (1) Principal payments—variable rate mortgage loan secured by Centerpoint due November 2013 Centerpoint interest payments (2) Principal payments—variable rate mortgage loan secured by Southampton Village due November 2013 Southampton Village interest payments (2) Principal payments—variable rate mortgage loan secured by Burwood Village Center due November 2013 Burwood Village Center interest payments (2) Principal payments—variable rate mortgage loan secured by Cureton Town Center due January 2016 Cureton Town Center interest payments (2) Total follows (in thousands): To the extent that we pay distributions from sources other than our cash provided by operating activities, we will have fewer funds available for investment in properties. The overall return to our stockholders may be reduced, and subsequent investors may experience dilution. To the extent that we have raised substantial amounts of offering proceeds and have been unable to promptly invest these proceeds on attractive terms, our cash provided by operating activities has been insufficient to fully fund our ongoing distributions. Because we do not intend to borrow money for the specific purpose of funding distribution payments, we have funded, and may continue to fund, a portion of our distributions with proceeds from our offerings. However, we may be subject to certain state and local taxes on our income, property or net worth, respectively, and to federal income and excise taxes on our undistributed income. acquisition phase of our life cycle, acquisition-related costs and other adjustments that are increases to FFO adjusted for acquisition expenses and MFFO are, and may continue to be, a significant use of cash. MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is a stated value and there is no net asset value determination during the offering stage and for a period thereafter. Additionally, FFO adjusted for acquisition expenses, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate our business plan in the manner currently contemplated. Accordingly, Net loss attributable to Company shareholders Depreciation and amortization Noncontrolling interests Funds from operations Acquisition-related expenses Amortization of above/below market leases Straight-line rental income Noncontrolling interests MFFO Distributions paid per share amounts) requires that acquisition costs be expensed as incurred and restructuring costs generally be expensed in periods subsequent to the acquisition date. we include such an option in the calculation of the fair value of such lease and the period over which the lease is amortized if we determine that the tenant has a financial incentive to exercise such option. transaction and any continuing involvement associated with the property. If the criteria for profit recognition under the full-accrual method are not met, we will defer gain recognition and account for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery methods, as appropriate, until the appropriate criteria are met. authorized. Note 10, Derivatives and Hedging Activities. did not have any off-balance sheet arrangements. As of December 31, Maturing debt Variable rate debt: Mortgages payable Total maturing debt Weighted average interest rate on debt: Variable rate debt 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. provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and/or members of the board of directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. 2013. We have adopted a Code of Ethics that applies to all of our executive officers and directors, including but not limited to, our Financial Statements 13, 2014 2013 AND 2012 ASSETS Investment in real estate: Land Building and improvements Total investment in real estate assets Accumulated depreciation and amortization Total investment in real estate assets, net Acquired intangible lease assets, net of accumulated amortization of $807 and $43, respectively Cash and cash equivalents Restricted cash Accounts receivable, net of bad debt reserve of $35 and $0, respectively Deferred financing expense, less accumulated amortization of $203 and $10, respectively Prepaid expenses and other Total assets LIABILITIES AND EQUITY Liabilities: Mortgage loans payable Notes payable – affiliates Acquired below market lease intangibles, less accumulated amortization of $161 and $10, respectively Accounts payable Accounts payable – affiliates Accrued and other liabilities Total liabilities Commitments and contingencies (Note 9) Equity: Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, 0 and zero shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively Common stock, $0.01 par value per share, 180,000,000 shares authorized, 2,658,159 and 730,570 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively Additional paid-in capital Accumulated deficit Total shareholders’ equity Noncontrolling interests Total equity Total liabilities and equity Revenues: Rental income Tenant recovery income Other property income Total revenues Expenses: Property operating Real estate taxes General and administrative Acquisition-related expenses Depreciation and amortization Total expenses Operating loss Other income (expense): Interest expense Other income Total other income (expense) Net loss Net loss attributable to noncontrolling interests Net loss attributable to Company shareholders Per common share information - basic and diluted: Loss per share - basic and diluted Weighted average common shares outstanding - basic and diluted Total Balance at December 3, 2009 (formation) Issuance of common stock at formation Balance at December 31, 2009 Issuance of common stock Contribution from sponsor Common distributions declared, $0.22 per share Offering costs Net loss Balance at December 31, 2010 Issuance of common stock Issuance of preferred stock Share repurchases Contributions from Sponsors Dividend reinvestment program (DRP) Contributions from non-controlling interests Reallocation of equity from contribution of properties to Joint Venture Common distributions declared, $0.65 per share Distributions to non-controlling interests Offering costs Offering costs - issuance of preferred stock Net loss Balance at December 31, 2011 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization Net amortization of above and below market leases Amortization of deferred financing costs Straight-line rental income Changes in operating assets and liabilities: Accounts receivable Prepaid expenses and other Accounts payable Accounts payable — affiliates Accrued and other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures and acquisitions Change in restricted cash Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock Proceeds from issuance of non-controlling stock, net Redemptions of common stock Payment of offering costs Payments on mortgage loans payable Proceeds from mortgage loans payable Proceeds from notes payable - affiliates Payments on notes payable - affiliates Distributions paid, net of DRP Contributions from non-controlling interest Payments of loan financing costs Net cash provided by financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS: Beginning of period End of period SUPPLEMENTAL CASHFLOW DISCLOSURE, INCLUDING NON-CASH FINANCING ACTIVITIES: Offering costs payable to sub-advisor Distributions payable Distributions payable - non-controlling interests Cash paid for interest Dividends reinvested Reclassification of deferred offering costs to additional paid-in capital Financing costs due (to)/from advisor and sub-advisor, net Contributions from sponsors As of December 31, 2013, we owned fee simple interests in 83 real estate properties, acquired from third parties unaffiliated with us, the Advisor, or the Sub-advisor. 2013. Prior to December 31, 2013, we owned a 54% interest in 20 of our real estate properties through the Joint Venture. Partially Owned Entities—If The estimated fair value of acquired in-place leases is the is amortized. whether the lease stipulates how and on what a tenant improvement allowance may be spent; whether the tenant or landlord retains legal title to the improvements; the uniqueness of the improvements; the expected economic life of the tenant improvements relative to the length of the lease; and who constructs or directs the construction of the improvements. $18.7 million, $1.3 million and $0.2 million, respectively. Repurchase of shares of common stock will be made monthly upon During the year ended December 31, 2013, there were 2012 and 2011. December 31, 2013. Fair value is defined by ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows: such remediation. $17.2 million. The $0.7 million and $1.8 million, respectively. The pro forma net loss per share excluding acquisition expenses would have been $0.05 and $0.14, respectively, for the years ended December 31, 2012 and 2011. Lakeside Plaza Land Building and improvements Above market leases In-place leases Below market leases Total Acquired in-place leases, net of accumulated amortization of $318 and $16 Acquired above market leases, net of accumulated amortization of $489 and $27 Total (in thousands): 2012 2013 2014 2015 2016 and thereafter Total eight years and six years, respectively. PAYABLE During the year ended December 31, ($000s) Maturing Debt 2012 2013 2014 2015 2016 Thereafter Total obligations (in thousands) and weighted-average interest rates: Acquired below market leases, net of accumulated amortization of $161 and $10 2012 (in thousands): 2012 2013 2014 2015 2016 and thereafter Total follows (in thousands): us. 2013. provides leasing services with respect to a property, any related amounts unpaid as of December 31, 2013 and 2012 (in thousands): The Dealer 2011 (in thousands): or approximately asset management, property management, and other fees payable as shown below (in thousands): Year 2012 2013 2014 2015 2016 Thereafter Total Total revenue 2011 Operating loss 2011 Net loss attributable to Company shareholders 2011 Diluted loss per share to shareholders 2011 Total revenue 2010 Operating loss 2010 Net loss attributable to shareholders 2010 Diluted loss per share to shareholders 2010 $0.00183562 per share of common stock outstanding were paid subsequent to December 31, 2013 to the stockholders of record from December 1, 2013 through February 28, 2014 as follows (in thousands): authorized distributions equal an amount of $0.00183562 per share of common stock, par value per share. We expect to pay these distributions on April 1, 2014. On February SEC. The initial accounting was incomplete due to the late closing dates of the acquisitions. real estate owned at December 31, Property Name City Date Lakeside Plaza Snow View Plaza St. Charles Plaza Centerpoint Southampton Village Burwood Village Center Cureton Town Center Totals Balance at January 1 Additions to/improvements of real estate Balance at December 31 Balance at January 1 Depreciation expense Balance at December 31 Signature Title Date xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193420112013¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934333-164313Maryland 27-1106076 (I.R.S. EmployerIdentification No.)45249 (Address of Principal Executive Offices) (Zip Code) None None þ¨Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ (Do not check if a smaller reporting company)Smaller reporting company þ AsThere is no established public market for the registrant's shares of common stock. The registrant has made an initial public offering of its shares of common stock pursuant to its Registration Statement on Form S-11 (File No. 333-164313), in which shares were sold at $10.00 per share, with discounts available for certain categories of purchasers. The registrant ceased offering shares of its common stock in its primary offering on February 7, 2014. The aggregate market value of the Registrant’sregistrant's common stock held by non-affiliates of the registrant as of June 30, 2013, the last business day of the registrant's most recently completed second fiscal quarter, no shares ofwas $540.6 million, which represents the aggregate purchase price paid for such common stock were held by non-affiliates.March 11, 2012,February 28, 2014, there were 3,380,378176,938,992 outstanding shares of common stock of the Registrant.TABLE OF CONTENTS 3ITEM 1. 3ITEM 1A.6ITEM 1B.UNRESOLVED STAFF COMMENTS35ITEM 2.PROPERTIES35ITEM 3.LEGAL PROCEEDINGS37ITEM 4.MINE SAFETY DISCLOSURES3738385354 54ITEM 9A. 54ITEM 9B.555656565656 56 57 57“the Company,the “Company,” “our” or “us”) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in those acts. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the U.S. Securities and Exchange Commission (“SEC”). We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Form 10-K, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. See Item 1A herein for a discussion of some of the risks and uncertainties, although not all risks and uncertainties, that could cause actual results to differ materially from those presented in our forward-looking statements.ITEM 1.BUSINESStreatedtaxed as a real estate investment trust (“REIT”) beginning with the year ended December 31, 2010.. Substantially all of our business is expected to be conducted through Phillips Edison—ARC Shopping Center Operating Partnership, L.P. (the “Operating Partnership”), a Delaware limited partnership formed on December 3, 2009. We are the solea limited partner of the Operating Partnership, and our wholly owned subsidiary, Phillips Edison Shopping Center OP GP LLC, is the sole general partner of the Operating Partnership.We are offering to the public pursuant to$1.785 billion inon Form S‑11 with the SEC to offer a maximum of 180 million shares of common stock (“our offering”). Our offering consistsfor sale to the public, of awhich 150 million shares were registered in our primary offering of $1.5 billion inand 30 million shares offered to investors at a price of $10.00 per share, with discounts available for certain categories of purchasers, and $285 million in shares offered to stockholders pursuant to awere registered under our dividend reinvestment plan (the “DRP”) at a price of $9.50 per share.. The SEC declared our registration statement effective on August 12, 2010. On November 19, 2013, we reallocated 26.5 million shares from the DRP to the primary offering. We have the right to reallocate theceased offering shares of common stock offered betweenin our primary offering on February 7, 2014. Subsequent to the end of our primary offering, we reallocated approximately 2.7 million unsold shares from the primary offering andto the DRP.2011,2013, we had issued 2,658,159a total of 175,689,995 shares of common stock, including 16,6472,126,348 shares issued through the DRP, generating gross cash proceeds of $25.4 million.$1.74 billion, since our inception. As of December 31, 2013, there were 175,594,613 shares of our common stock outstanding, which is net of 95,382 shares repurchased from stockholders pursuant to our share repurchase program.formedorganized in the State of Delaware on December 28, 2009 and that is indirectly wholly owned by AR Capital LLC (formerly American Realty Capital II, LLC (“ARLLC) (the “AR Capital sponsor”). Under the terms of the advisory agreement between the Advisor and us, the Advisor is responsible for the management of our day-to-day activities and the implementation of our investment strategy. The Advisor has delegated most of its duties under the advisory agreement, including the management of our day-to-day operations and our portfolio of real estate assets, to Phillips Edison NTR LLC (the “Sub-advisor”), which is directly or indirectly wholly owned by Phillips Edison Limited Partnership (“Phillips(the “Phillips Edison sponsor”)., and Michael Phillips and Jeffrey Edison. pursuant to a sub-advisory agreement between the Advisor and the Sub-advisor. Notwithstanding such delegation to the Sub-advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the advisory agreement.solidcreditworthy national and regional retailers selling necessity-based goods and services in strong demographic markets throughout the United States. In addition, we may invest in other retail properties including power and lifestyle shopping centers, multi-tenant shopping centers, free-standing single-tenant retail properties, and other real estate and real estate-related loans and securities depending on real estate market conditions and investment opportunities that we determine are in the best interests of our stockholders. We expect that retail properties primarily would underlie or secure the real estate-related loans and securities in which we may invest.“Non-Controlling Interest”“CBRE Investor”). The joint venture iswas in the form of PECO-ARC Institutional Joint Venture I., L.P., a Delaware limited partnership (the “Joint Venture”). We through an indirectly wholly owned subsidiary, hold an approximate 54% interest in the Joint Venture and serve as the general partner and manage the operations of the Joint Venture. The Non-Controlling Interests hold the remaining approximate 46% interest.The Joint Venture intendsPrior to investyear end, we indirectly held a 54% interest in grocery-anchored neighborhood and community shopping centers with acquisition costs of no more than $20 million per property. We have committed to contribute approximately $58.7 million to the Joint Venture, and the Non-Controlling Interests have committed to contribute $50CBRE Investors held the remaining 46% interest. We contributed approximately $58.7 million, in cash. Through December 31, 2011, we have contributedthe form of equity interests in six wholly owned real estate properties (which we acquired for $63.0 million) to the Joint Venture. As of December 31, 2011, the Company has contributed approximately $17.0 million inand cash, to the Joint Venture, and the Non-Controlling Interests haveCBRE Investors contributed approximately $14.4$50.0 million in cash tocash. On December 31, 2013, we acquired the 46% interest in the Joint Venture. Until March 20, 2013 (orVenture previously owned by the investmentCBRE Investors for a purchase price of all$57.0 million. As a result, we owned 100% of the capital that isJoint Venture as of December 31, 2013. Prior to be contributed to the Joint Venture), neitherDecember 31, 2013, we nor the Sub-advisor or its affiliates may acquireowned a 54% interest in 20 of our real estate properties meeting the Joint Venture’s investment strategy, except through the Joint Venture.throughinternally evaluate the Joint Venture, owned fee simple interests in seven real estateoperating performance of our portfolio of properties acquired from third parties unaffiliated with usand do not differentiate properties by geography, size or type. Each of our investment properties is considered a separate operating segment, as each property earns revenue and incurs expenses, individual operating results are reviewed and discrete financial information is available. However,Advisor as of December 31, 2011: Location Property
Type Date
Acquired Contract
Purchase
Price(1) Rentable
Square Footage Annualized
Effective
Rent(2) Annualized
Effective
Rent per
Leased
Square Foot Average
Remaining
Lease
Term in
Years % Leased Salem,
Virginia Shopping
Center 12/10/10 $ 8.75 million 82,033 $ 821,740 $ 10.13 5.4 years 98.9 % Parma,
Ohio Shopping
Center 12/15/10 $ 12.30 million 100,460 $ 1,114,368 $ 12.05 7.3 years 92.0 % Haines
City,
Florida Shopping
Center 6/10/11 $ 10.10 million 65,000 $ 903,523 $ 14.43 12.3 years 96.3 % Tyrone,
Georgia Shopping
Center 10/14/11 $ 8.35 million 77,956 $ 812,422 $ 12.05 10.0 years 86.5 % Easley,
South
Carolina Shopping
Center 10/14/11 $ 6.85 million 72,287 $ 680,007 $ 11.11 10.3 years 82.8 % Glen
Burnie,
Maryland Shopping
Center 11/9/11 $ 16.60 million 105,834 $ 1,409,602 $ 13.75 7.4 years 96.9 % Waxhaw,
North
Carolina Shopping
Center 12/29/11 $ 13.95 million 84,357 $ 1,107,532 $ 14.15 12.2 years 92.8 % (1)The contract purchase price excludes closing costs and acquisition costs.(2)We calculate annualized effective rent as monthly contractual rent as of December 31, 2011 multiplied by 12 months, less any tenant concessions.Weproperties are not aware of any material current tenants who will not be able to pay their contractual rental amountsaggregated into one reportable segment as they become due or whose inabilityhave similar economic characteristics, we provide similar services to pay would have a material adverse impact on our resultsthe tenants at each of operations, financial condition and ability to pay distributions. For additional information regarding our properties, and significant tenants, see Item 2 below.Segment DataWe currently viewwe evaluate the collective performance of our real estate asset as one reportable segment.properties. Accordingly, we did not report any other segment disclosures in 2011.a lower cost of capital and enhanced operating efficiencies. Realty Capital Securities, LLC (the “Dealer Manager”), Phillips Edison & Company, Ltd. (the “Property Manager”) and their respective affiliates for certain services that are essential to us, including the sale of our shares of common stock, asset acquisition and disposition decisions and other general and administrative responsibilities. In the event that any of the above-mentioned affiliates are unable to provide such services, we would be required to find alternative service providers.dispositionother services that are covered under separate fees charged to us. Our sponsors have not charged us for employee-related expenses other than expenses incurred in connection with our offering. The employee-related expenses organization andrelated to offering costs charged to us for the years ended December 31, 20112013 and December 31, 20102012 were $0.6$11.2 million and $1.5 million,$0, respectively. Also, $2.0 million of organization and offering costs incurred by the Sub-advisor on our behalf have not been charged to us or recorded in our consolidated financial statements for the year ended December 31, 2011. Whether these costs will be billed to us in the future is at the discretion of the Sub-advisor and will likely depend upon the success of our offering. There were no such unbilled costs for the year ended December 31, 2010.InsuranceWe believe that our properties are adequately insured.United States Securities and Exchange Commission (“SEC”).SEC. The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.D.C. 20549, on official business days during the hours of 10:00 AM to 3:00 PM. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)-SEC-0330. 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.www.phillipsedison-arc.com.www.phillipsedison-arc.com. These reports are available as soon as reasonably practicable after such material is electronically filed or furnished to the SEC.ITEM 1A.RISK FACTORS Other factors may exist that we do not consider to be significant based on information that is currently available or that we are not currently able to anticipate. The occurrence of any of the risks discussed below could have a material adverse effect on our business, financial condition, results of operations and ability to pay distributions to our stockholders. Potential investors and our stockholders may be referred to as “you” or “your” in this Item 1A, “Risk Factors,” section.price.price of such shares. It is also likely that our shares would not be accepted as the primary collateral for a loan. Because of the illiquid nature of our shares, investors should purchase our shares only as a long-term investment and be prepared to hold them for an indefinite period of time.2011,2013, we owned interests in seven83 real estate investments. Our stockholders should not assume that our performance will be similar to the past performance of other real estate investment programs sponsored by affiliates of the Advisor. will apply to us. Our executive officers and directors have limited experience managing public companies. For all of these reasons, our stockholders should be especially cautious when drawing conclusions about our future performance, and you should not assume that it will be similar to the prior performance of other Phillips Edison- or AR Capital-sponsored programs. Our lack of an extensive operating history, the Advisor’s and the Sub-advisor’s lack of prior experience operating a public company, the differences between us and the private Phillips Edison-sponsored programs and our AR Capital sponsor’s limited experience in connection with investments of the type to be made by us significantly increase the risk and uncertainty our stockholders face in making an investment in our shares.Our Dealer Manager has a limited operating history and our ability to implement our investment strategy is dependent, in part, upon the ability of our Dealer Manager to successfully conduct our offering, which makes an investment in us more speculative.We have retained Realty Capital Securities, LLC, an affiliate of the Advisor, to conduct our offering. Realty Capital Securities, LLC has a limited operating history. The success of our offering, and our ability to implement our business strategy, is dependent upon the ability of Realty Capital Securities, LLC to build and maintain a network of broker-dealers to sell our shares to their clients. These broker-dealers may also be engaged by other REITs and they may choose to emphasize the sale of those REITs’ shares over the sale of our shares. If Realty Capital Securities, LLC is not successful in establishing, operating and managing this network of broker-dealers, our ability to raise proceeds through our offering will be limited and we may not have adequate capital to implement our investment strategy. If we are unsuccessful in implementing our investment strategy, our stockholders could lose all or a part of their investment.If our Dealer Manager terminates its dealer manager relationship with us, our ability to successfully complete our offering and implement our investment strategy would be significantly impaired.Our Dealer Manager has the right to terminate its relationship with us if, among other things, any of the following occur: (1) our voluntary or involuntary bankruptcy; (2) we materially change our business; (3) we become subject to a material action, suit,proceeding or investigation; (4) we materially reduce the rate of any distribution we may pay in the future without its prior written consent; (5) we suspend or terminate our share repurchase program without its prior written consent; (6) the value of our common shares materially adversely changes; (7) a material breach of the dealer manager agreement by us (which breach has not been cured within the required timeframe); (8) our willful misconduct or a willful or grossly negligent breach of our obligations under the dealer manager agreement; (9) the issuance of a stop order suspending the effectiveness of our registration statement by the SEC and not rescinded within 10 business days of its issuance; or (10) the occurrence of any event materially adverse to us and our prospects or our ability to perform our obligations under the dealer manager agreement. If our Dealer Manager elects to terminate its relationship with us, our ability to complete our offering and implement our investment strategy would be significantly impaired and would increase the likelihood that our stockholders could lose all or a part of their investment.Our joint venture arrangement with the Non-Controlling Interests reduces our control over our assets and could give rise to disputes with our joint venture partners, which could adversely affect the value of your investment in us.Our joint venture with the Non-Controlling Interests involves risks not otherwise present when we own properties through wholly owned entities. For example:Certain major decisions with respect to the Joint Venture require the approval of a majority of the executive committee of the Joint Venture. The committee includes two members appointed by the Non-Controlling Interests. Our inability to obtain majority approval may prevent us from executing transactions that would be in our best interest.A dispute with respect to certain major decisions may give either party the right to trigger buy/sell rights. Should we instigate the buy/sell procedures, we would (at the election of the Non-Controlling Interests) have to sell our interests in the Joint Venture or buy the Non-Controlling Interests’ interest in the Joint Venture. Should the Non-Controlling Interests instigate the buy/sell procedures, we would have to choose between buying and selling our interest in the Joint Venture. If we are a seller under the buy/sell procedures, the terms of the sale may be less attractive than if we had held onto our investment; and if we are a buyer, we may be unable to finance such a buy-out or may have to incur indebtedness on unattractive terms or at levels that might not be in our best interest.Our agreement with the Non-Controlling Interests limits certain direct and indirect transfers of our interest in the Joint Venture. As a result, we may be unable to sell our interest in the Joint Venture when we would otherwise like and we may be unable to sell large equity interests in us or certain subsidiaries to a large investor that would, as a result of the sale, directly or indirectly own 20% or more of the subsidiary through which we own our interest in the Joint Venture.Our investments made through the Joint Venture will be held in a subsidiary REIT. If such subsidiary REIT were to fail to qualify as a REIT, our own REIT qualification could be threatened.fundscash flows from operations, we willmay not be able to sustain our distribution rate, we may have fewer funds available for investment in properties and other assets, and our stockholders’ overall returnreturns may be reduced.our offering or other sources,the issuance of securities, we will have fewer funds available for investment in real estate properties and other real estate-related assets, and our stockholders’ overall returns may be reduced. We expect to have little, if any, funds from operations available for distribution until we make substantial investments. Further, because we may receive income from interest or rents at various times during our fiscal year and because we may need funds from operations during a particular period to fund capital expenditures and other expenses, we expect that at least during the early stages of our development and from time to time during our operational stage, we will declare distributions in anticipation of funds that we expect to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. In these instances, we expect to use third-party borrowings to fund our distributions. At times, we may be forced to borrow funds to pay distributions during unfavorable market conditions or during periods when funds from operations are needed to make capital expenditures and other expenses, which could increase our operating costs. We may also fund such distributions from advances or contributions from our sponsors or from any deferral or waiver of fees by our advisor and sub-advisor. Furthermore, if we cannot cover our distributions with cash flows from operations, we may be unable to sustain our distribution rate. For the year ended December 31, 2013, we paid distributions of $38.0 million, including distributions reinvested through our dividend reinvestment plan, and our cash flows from operations under accounting principles generally accepted in the United States (“GAAP”) were $18.5 million. For the year ended December 31, 2012, we paid distributions of $3.7 million, including distributions reinvested through our dividend reinvestment plan, and our GAAP cash flows from operations were $4.0 million.Sub-advisor. To the extentSub-advisor in connection with the selection, acquisition, and management of our investments and (v) general and administrative expenses. As of December 31, 2013, our net tangible book value per share was $8.34. The offering price for shares in the DRP was not established on an independent basis and bears no relationship to the net value of our assets.exceedto our currentstockholders.accumulatedcredit markets continue to be subject to volatility and disruption. The health of the global capital markets remains a concern. The banking industry has experienced improved earnings and profits,is better capitalized, but the relatively low-growth economic environment has caused the markets to question whether financial institutions are truly appropriately capitalized. Lenders continue to work with borrowers to amend, extend and refinance existing loans; however, as more loans reach maturity, there is the potential for credit losses. The FDIC’s list of troubled financial institutions is still quite large, and the threat of more bank closings will continue to weigh on the financial markets.stockholder’s tax basisresult of the uncertainties in our stock will be reduced and, to the extent distributions exceed a stockholder’s tax basis, the stockholder will generally recognize capital gain.If we are unable to find suitable investments,credit markets, we may not be able to achieverefinance our investment objectivesexisting indebtedness or pay distributions.Our ability to achieve our investment objectives and to pay distributions depends primarily upon the performance of the Sub-advisor, acting on behalf of the Advisor, with respect to the acquisition of our investments, including the ability to source loan origination opportunities for us. Competition from competing entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets have materially impacted the cost and availability of debt to finance real estate acquisitions, which is a key component of our acquisition strategy. This lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage to other entities that have greater financial resources than we do. We are also subject to competition in seeking to acquirereal estate-related investments. The more shares we sell in our offering, the greater our challenge will be to invest all of the net offering proceeds on attractive terms. We can give no assurance that the Sub-advisor, acting on behalf of the Advisor, will be successful in obtaining suitable investments on financially attractive terms or that our objectives will be achieved. If we are unable to find suitable investments promptly, we will hold the proceeds from our offering in an interest-bearing account or invest the proceeds in short-term assets. If we would continue to be unsuccessful in locating suitable investments, we may ultimately decide to liquidate. In the event we are unable to timely locate suitable investments, we may be unable or limited in our ability to pay distributions and we may not be able to meet our investment objectives.Disruptions in the financial markets and challenging economic conditions could adversely impact the commercial mortgage market as well as the market for real estate-related debt investments generally, which could hinder our ability to implement our business strategy and generate returns to our stockholders.We intend to allocate a small percentage of our portfolio to real estate-related investments such as mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. The returns available to investors in these investments are determined by: (1) the supply and demand for such investments, (2) the performance of the assets underlying the investments and (3) the existence of a market for such investments, which includes the ability to sell or finance such investments.During periods of volatility, the number of buyers participating in the market may change at an accelerated pace. As liquidity or “demand” increases, the returns available to investors on new investments will decrease. Conversely, a lack of liquidity will cause the returns available to investors on new investments to increase.Disruptions in the financial markets and challenging economic conditions could adversely affect our ability to secure debt financing on attractive terms, our ability to service any future indebtedness that we may incur and the values of our investments.The capital and credit markets have experienced extreme volatility and disruption during 2008 and 2009. Liquidity in the global credit market has been severely contracted by these market disruptions, making it costly at times to obtain new lines of credit. We rely on debt financing to finance our properties and possibly other real estate-related investments. We may not be able to obtain additional debt financing on attractive terms. As such,If we are not able to refinance existing indebtedness on attractive terms at its maturity, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions, reducing the number of acquisitions we would otherwise make, or to dispose of some of our assets. If the current debt market environment worsens, we may modify our investment strategy in order to optimize our portfolio performance. Our options would include limiting or eliminating the use of debt and focusing on those higher-yielding investments that do not require the use of leverage to meet our portfolio goals.Disruptionschallengingslow economic conditionsgrowth could adversely affect the values of investments we acquire. Challengingour investments. Previous turmoil in the capital markets constrained equity and debt capital available for investment in commercial real estate, resulting in fewer buyers seeking to acquire commercial properties and lower property values. Furthermore, a decline in economic conditions could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values ofin our real estate properties and in the collateral securing any loan investments we may make. Theseportfolio, which could have the following negative effects on us:commercial propertiesgrocery-anchored shopping centers could decrease below the amounts we paypaid for such investments;the value of collateral securing any loan investment that we may make could decrease below the outstanding principal amounts of such loans; we acquire could decrease due to fewer tenants and/or lower rental rates, making it more difficult for us to pay distributions or meet our debt service obligations on future debt financings; andrevenues on the properties and other assets underlying any loan investments we may make could decrease, making it more difficult for the borrower to meet its payment obligations to us.We may suffer from delays in locating suitable investments, which could limit our ability to make distributions and lower the overall return on your investment.We rely upon our sponsors and the real estate professionals affiliated with our sponsors to identify suitable investments. The private Phillips Edison-sponsored programs, especially those for which the offering proceeds have not been fully invested, rely on our Phillips Edison sponsors for investment opportunities. Similarly, the AR Capital-sponsored programs rely on our AR Capital sponsor for investment opportunities. To the extent that our sponsors and the other real estate professionals employed by the Advisor and Sub-advisor face competing demands upon their time at times when we have capital ready for investment, we may face delays in locating suitable investments. Further, the more money we raise in our offering, the more difficult it will be to invest the net offering proceeds promptly and on attractive terms. Therefore, the large size of our offering and the continuing high demand for the types of properties and other investments we desire to purchase increase the risk of delays in investing our net offering proceeds. Delays we encounter in the selection and acquisition or origination of income-producing assets would likely limit our ability to pay distributions to ourstockholders and lower their overall returns. Further, if we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, we could experience delays in the payment of cash distributions attributable to those particular properties.approximatelyat least 90.0% of our portfolio to investments in well-occupied, grocery-anchored neighborhood and community shopping centers leased to a mix of national, creditworthy retailers selling necessity-based goods and services in strong demographic markets throughout the United States with a focus on well-located shopping centers that are well occupied at the time of purchase and typically cost less than $20 million per property.States. We intend to allocate approximatelyno more than 10.0% of our portfolio to other real estate properties and real estate-related loans and securities such as mortgage, mezzanine, bridge and other loans; debt and derivative securities related to real estate assets, including mortgage-backed securities; and the equity securities of other REITs and real estate companies. We do not expect our non-controllingnoncontrolling equity investments in other public companies to exceed 5.0% of the proceeds of our offering, assuming we sell the maximum offering amount. If we raise substantially less than the maximum offering amount and we acquire a real estate-related asset early in our offering stage, our investments in real estate-related loans and securities could constitute a greater percentage of our portfolio, although we do not expect those assets to represent a substantial portion of our assets at any one time.portfolio. Though this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, our current targeted investments. A change in our targeted investments or investment guidelines may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our common stock and our ability to make distributions to our stockholders.If we are unable to raise substantial funds, we will be limited in the number and type of investments we make and the value of our stockholders’ investments in us will fluctuate with the performance of the specific assets we acquire.Our offering is being made on a “best efforts” basis, meaning that the Dealer Manager is only required to use its best efforts to sell our shares and has no firm commitment or obligation to purchase any of the shares. As a result, the amount of proceeds we raise in our offering may be substantially less than the amount we would need to achieve a diversified portfolio of investments. If we are unable to raise substantial funds in our offering, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments that we make. In that case, the likelihood that any single asset’s performance would adversely affect our profitability will increase. Additionally, we are not limited in the number or size of our investments or the percentage of net proceeds we may dedicate to a single investment. Our stockholders’ investments in our shares will be subject to greater risk to the extent that we lack a diversified portfolio of investments. Further, we have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds in our offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and cash flow and limiting our ability to make distributions.consultsmust jointly approve certain major decisions with the Sub-advisor with respect to acquisitions to be recommended to our board of directors.Sub-advisor. We are also dependent on the Property Manager to manage our portfolio of real estate assets. Neither the Advisor nor the Sub-advisor hashad any previous operating history prior to serving as our Advisor and Sub-advisor, and they depend upon the fees and other compensation that they receive from us in connection with the purchase, management and sale of assets to conduct their operations. Any adverse changes in the financial condition of the Advisor, the Sub-advisor, the Property Manager or certain of their affiliates or in our relationship with them could hinder their ability to successfully manage our operations and our portfolio of investments. or the Dealer Manager could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of your investment.Messrs.Nicholas Schorsch and William Kahane at the Advisor, and Dealer Manager,Jeffrey S. Edison, our Chief Executive Officer and Messrs. Phillips and Edison,the Chairman of our Board of Directors, John B. Bessey, our President,Co-President and Chief Investment Officer, R. Mark Addy, our Co-President and Chief Operating Officer, and Richard J. Smith,Devin I. Murphy, our Chief Financial Officer, at the Sub-advisor. We do not have employment agreements with these individuals, and they may not remain associated with us. If any of these persons were to cease their association with us, our operating results could suffer. We do not intend to maintain key person life insurance on any person. We believe that our future success depends, in large part, upon the Advisor’s, the Sub-advisor’s, and their respective affiliates’ ability to hire and retain highly skilled managerial, operational and marketing professionals. Competition for such professionals is intense, and the Advisor, the Sub-advisor and their respective affiliates may be unsuccessful in attracting and retaining such skilled individuals. Further, we intend to establish strategic relationships withrightsbusiness and operations would suffer in the event of system failures.rightsexistence of a disaster recovery plan for ourstockholdersAdvisor or Sub-advisor, could negatively impact our business by causing a disruption to recover claims against our independent directors are limited,operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could reducenegatively impact our stockholders’ and our recovery against them if they negligently cause us to incur losses.Maryland law provides that a director has no liability in that capacity if he performs his duties in good faith, in a manner he reasonably believesfinancial results.inany adverse event that threatens the confidentiality, integrity, or availability of our best intereststhe care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter generally provides that no independent director shall be liableour tenants, and private data exposure. We have implemented processes, procedures and controls to us or our stockholders for monetary damages and that we will indemnify them for losses unless they are grossly negligent or engage in willful misconduct. As a result, we and our stockholders may have more limited rights against our independent directors than might otherwise exist under common law, which could reduce our stockholders’ and our recovery frompersons if they act in a negligent manner. In addition, we may be obligated to fund the defense costs incurred by our independent directors (asrisks, but these measures, as well as our increased awareness of a risk of a cyber incident, do notour other directors, officers, employees (if we ever have employees) and agents) in some cases, which would decrease the cash otherwise available for distribution to our stockholders.agreement and the dealer-manager agreement;fees;programs, which might entitle affiliates of AR Capital or Phillips Edison to disposition fees and possible subordinated incentive fees in connection with its services for the seller;feescompensation and loan originations to third parties;feescompensation payable to the Advisor and the Sub-advisor;share of cash flows.Because other real estate programs sponsored by our sponsors and offered through our Dealer Manager may conduct offerings concurrently with our offering, our sponsors and our Dealer Manager will face potential conflicts of interest arising fromcompetition among us and these other programs for investors and investment capital, and such conflicts may not be resolved in our favor.An affiliate of the Advisor is also the advisor of several other AR Capital-sponsored non-traded REITs that are raising capital in ongoing public offerings. Our Dealer Manager is also the dealer manager or is named in the registration statement as the dealer manager in multiple offerings, including some AR Capital sole-sponsored offerings, that are either effective or in registration. In addition, our sponsors may decide to sponsor future programs that would seek to raise capital through public offerings conducted concurrently with our offering. As a result, our sponsors and our Dealer Manager may face conflicts of interest arising from potential competition with these other programs for investors and investment capital. Our sponsors generally seek to avoid simultaneous public offerings by programs that have a substantially similar mix of investment attributes, including targeted investment types. Nevertheless, there may be periods during which one or more programs sponsored by our sponsors will be raising capital and might compete with us for investment capital. Such conflicts may not be resolved in our favor, and you will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved before or after making your investment.the AR Capital-sponsoredthese REITs have registration statements that are not yet effective and are in the development phase, while others have registration statements that became effective in the past six months.three years. As a result, such REITs will have concurrent and/or overlapping fundraising, acquisition, operational and disposition and liquidation phases as us, which may cause conflicts of interest to arise throughout the life of our company with respect to, among other things, finding investors, locating and acquiring properties, entering into leases and disposing of properties. Additionally, based on our AR Capital sponsor’s experience, a significantly greater time commitment is required of senior management during the development stage when the REIT is being organized, funds are initially being raised and funds are initially being invested, and less time is required as additional funds are raised and the offering matures. The conflicts of interest each of the officers of our advisorthe Advisor and Sub-advisor will face may delay our fund raising andthe investment of our offering proceeds due to the competing time demands and generally cause our operating results to suffer.We compete for investors with other programs of our AR Capital sponsor, which could adversely affect the amount of capital we have to invest.Our AR Capital sponsor is currently the sponsor of several other public offerings of non-traded REIT shares and a public offering of shares for a REIT that has applied for listing on The NASDAQ Capital Market, which offerings will be ongoing during a significant portion of our offering period. These programs all have filed registration statements for the offering of common stock and intend to elect to be taxed as REITs. The offerings will likely occur concurrently with our offering, and our AR Capital sponsor is likely to sponsor other offerings during our offering period. Our Dealer Manager is the dealer manager for these other offerings. We will compete for investors with these other programs, and the overlap of these offerings with our offering could adversely affect our ability to raise all the capital we seek in our offering, the timing of sales of our shares and the amount of proceeds we have to spend on real estate investments.return. our behalf of the Advisor. Our individual AR Capital and Phillips Edison sponsors and several of the other key real estate professionals of the Advisor and Sub-advisor are also the key real estate professionals at our entity sponsors and their other public and private programs. Many investment opportunities that are suitable for us may also be suitable for other Phillips Edison- or AR Capital-sponsored programs. Generally, until such time as we have substantially committed to the investment of the proceeds from our initial public offering, the Advisor and Sub-advisor will not pursue any opportunity to acquire any real estate properties or real estate-related loans and securities that are directly competitive with our investment strategies, unless and until the opportunity is first presented to us, subject to certain exceptions. For so long as we are externally advised, our charter provides that it shall not be a proper purpose of the corporation for us to purchase real estate or any significant asset related to real estate unless the Advisor or Sub-advisor has recommended the investment to us. Thus, the executive officers and real estate professionals of the Advisor and Sub-advisor could direct attractive investment opportunities to other entities or investors. Such events could result in us investing in properties that provide less attractive returns, which may reduce our ability to make distributions. will face conflicts of interest relating to joint ventures that we may form with affiliates ofthe incentive fee structure under our sponsors,advisory agreement, which conflicts could result in actions that are not necessarily in the long-term best interests of our stockholders.disproportionate benefitmanner intended to provide incentives to the other venture partners atAdvisor and Sub-advisor to perform in our expense.If approved by a majoritybest interests and in the best interests of our boardstockholders. However, because neither the Advisor, the Sub-advisor nor any of directors, includingtheir affiliates maintain a majoritysignificant equity interest in us and are entitled to receive certain minimum compensation regardless of our independent directors, not otherwise interested inperformance, the transaction, we may enter into joint venture agreements with other sponsor-affiliated programs or entities for the acquisition, development or improvementinterests of properties or other investments. All of our executive officers, some of our directors and the key real estate professionals assembled by the Advisor and Sub-advisor are also executive officers, directors, managers, key professionalsnot wholly aligned with those of our stockholders. In that regard, the Advisor and Sub-advisor could be motivated to recommend riskier or holdersmore speculative investments in order for us to generate the specified levels of a directindirect controlling interestsales proceeds that would entitle the Advisor and Sub-advisor to fees. In addition, the Advisor’s and Sub-advisor’s entitlement to fees upon the sale of our assets and to participate in sale proceeds could result in the Advisor and Sub-advisor recommending sales of our investments at the earliest possible time at which sales of investments would produce the level of return that would entitle the Advisor and Sub-advisor to compensation relating to such sales, even if continued ownership of those investments might be in our best long-term interest. Our advisory agreement will require us to pay a performance-based termination fee to the Dealer ManagerAdvisor and Sub-advisor or other sponsor-affiliated entities. These persons will face conflictstheir affiliates if we terminate the advisory agreement prior to the listing of interestour shares for trading on an exchange or, absent such termination, in determining which sponsor-affiliated program should enter into any particular joint venture agreement. These personsrespect of their participation in net sales proceeds. To avoid paying this fee, our independent directors may also face a conflict in structuringdecide against terminating the termsadvisory agreement prior to our listing of our shares or disposition of our investments even if, but for the termination fee, termination of the relationship betweenadvisory agreement would be in our interestsbest interest. In addition, the requirement to pay the fee to the Advisor and Sub-advisor or their affiliates at termination could cause us to make different investment or disposition decisions than we would otherwise make, in order to satisfy our obligation to pay the interestsfee to the terminated Advisor and Sub-advisor. For a more detailed discussion of the sponsor-affiliated co-venturerfees payable to the Advisor, Sub-advisor and their affiliates in managingconnection with the joint venture. Any joint venture agreement or transaction between us and a sponsor-affiliated co-venturer will not havemanagement of our company, see Note 11 to the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. The sponsor-affiliated co-venturer may have economic or business interests or goals that are or may become inconsistent with our business interests or goals. These co-venturers may thus benefit to our and your detriment.consults with the Sub-advisor with respect to proposed acquisitions, and the Advisor and the Sub-advisor jointly recommend investment opportunities to our board of directors but in the event of a disagreement, the determination of the Sub-advisor will prevail. The Advisor and Sub-advisor also work jointly to make major decisions affecting us, all under the direction of our board of directors. The Advisor and Sub-advisor rely on our sponsors and their respective affiliates to conduct our business. Messrs. Phillips andMr. Edison are principalsis a principal of Phillips Edison and the affiliates that manage the assets of the other Phillips Edison-sponsored programs. Similarly, our individual AR Capital sponsors are key executives in other AR Capital-sponsored programs. As a result of their interests in other Phillips Edison- or AR Capital-sponsored programs, their obligations to other investors and the fact that they engage in and they will continue to engage in other business activities, these individuals will continue to face conflicts of interest in allocating their time among us and other Phillips Edison- or AR Capital-sponsored programs and other business activities in which they are involved. Should the Advisor or Sub-advisor breach its fiduciary duties to us by inappropriately devoting insufficient time or resources to our business, the returns on our investments and the value of our stockholders’ investments may decline.Sub-advisor and Dealer ManagerSub-advisor face conflicts of interest related to their positions or interests in affiliates of our sponsors, which could hinder our ability to implement our business strategy and to generate returns to our stockholders.Sub-advisor and Dealer ManagerSub-advisor are also executive officers, directors, managers, key professionals or holders of a direct or indirect controlling interests in the Advisor, the Sub-advisor, our Dealer Manager or other sponsor-affiliated entities. Through our AR Capital sponsor’s affiliates, some of these persons work on behalf of AR Capital-sponsored programs that are currently raising capital publicly or are in registration to raise capital publicly. Through our Phillips Edison sponsor’s affiliates, some of these persons work on behalf of other Phillips Edison-sponsored private programs. As a result, they have loyalties to each of these entities, which loyalties could conflict with the fiduciary duties they owe to us and could result in action or inaction detrimental to our business. Conflicts with our business and interests are most likely to arise from (a) allocation of new investments and management timeDealer Manager and Property Manager. If we do not successfully implement our business strategy, we may be unable to generate the cash needed to make distributions to our stockholders and to maintain or increase the value of our assets.Although our sponsors and their affiliates have previously paid, forgiven or deferred certain fees and expenses related to us, there is no obligation by our sponsors or their affiliates to continue to do so in the future.The Advisor and the Sub-advisor will reimburse us for all or a portion of the asset management fees paid in a given quarter if, as of the date of payment, our operating performance during the prior quarter has not been commensurate with our distributions during such period. We cannot assure you that the Advisor will be willing to renew our advisory agreement on terms that require the Advisor and Sub-advisor to continue to reimburse us for certain asset management fees. In addition, our sponsors have provided $228,000 towardscertain of our general and administrative expenses as a capital contribution since inception. Our sponsors have not received, and will not receive, additional equity securities or any reimbursement for this contribution. Our sponsors do not intend to make further capital contributions to continue to fund certain of our general and administrative expenses. Also, approximately $2.0 million of organization and offering costs incurred by the Sub-Advisor on our behalf has not been charged to us. Organization and offering cost reimbursements may not exceed 1.5% of the gross proceeds raised through our offering. Whether these organization and offering costs incurred by the Sub-Advisor will be billed is dependent upon the success of our public offering and the discretion of the Sub-Advisor.Offering and Our Corporate StructureOur stockholders may be more likely to sustain a loss on their investment because our sponsors do not have as strong an economic incentive to avoid losses as do sponsors who have made significant equity investments in their companies.Our sponsors have initially invested only $428,000 in us through our Phillips Edison sponsor’s purchase of 20,000 shares of our common stock at $10.00 per share and through the contribution of $228,000 towards certain of our general and administrative expenses in 2010. Therefore, if we are successful in raising enough proceeds to reimburse our sponsors for our significant organization and offering expenses, our sponsors will have little exposure to loss in the value of our shares. Without this exposure, our investors may be at a greater risk of loss because our sponsors do not have as much to lose from a decrease in the value of our shares as do those sponsors who make more significant equity investments in their companies.The offering price of our shares was not established in reliance on a valuation of our assets and liabilities; the actual value of your investment may be substantially less than what you pay. We established the offering price of our shares on an arbitrary basis. The selling price of our shares bears no relationship to our book or asset values or to any other established criteria for valuing shares. Because the offering price is not based upon any valuation (independent or otherwise), the offering price is likely to be higher than the proceeds that you would receive upon liquidation or a resale of your shares if they were to be listed on an exchange or actively traded by broker-dealers, especially in light of the upfront fees that we pay in connection with the issuance of our shares.participateparticipated in thisour initial public offering, pursuant to FINRA Rule 2310, we disclose in each annual report distributed to stockholders a per share estimated value of our shares, the method by which it was developed, and the date of the data used to develop the estimated value. For this purpose, the Advisor estimated the value of our common shares as $10.00 per share as of December 31, 2011.2013. The basis for this valuation is the fact that the offering price of our shares of common stock in our initial public offering iswas $10.00 per share (ignoring purchase price discounts for certain categories of purchasers). The Advisor has indicated that it intends to use the most recent price paid to acquire a share in our initial public offering (ignoring purchase price discounts for certain categories of purchasers) or a follow-on public offering as its estimated per share value of our shares until we have completed our offering stage. We will consider our offering stage complete when we are no longer publicly offering equity securities – whether through our initial public offering or follow-on public offerings – and have not done so for up to 18 months. If our board of directors determines that it is in our best interest, we may conduct follow on offerings upon the termination of our initial public offering. Our charter does not restrict our ability to conduct offerings in the future. (For purposes of this definition, we do not consider a “public equity offering” to include offerings on behalf of selling stockholders or offerings related to a dividend reinvestment plan, employee benefit plan or the redemption of interests in our operating partnership.the Operating Partnership.)arewere willing to purchase shares in our initial public offering, this reported value is likely to differ from the price that a stockholder would receive in the near term upon a resale of his or her shares or upon a liquidation of the our assets because (i) there is no public trading market for the shares at this time; (ii) the $10.00 primary offering price involves the payment of underwriting compensation and other directed selling efforts, which payments and efforts are likely to produce a higher sale price than could otherwise be obtained; (iii) estimated value does not reflect, and is not derived from, the fair market value of our assets becauseand ignores the amount of proceeds available for investment from our primary public offering is netpayment of selling commissions, dealer manager fees, other organization and offering costs and acquisition and fees and expenses; (iv) the estimated value does not take into account how market fluctuations affect the value of our investments, including how the current disruptions in the financial and real estate markets may affect the values of our investments; and (v) the estimated value does not take into account how developments related to individual assets may have increased or decreased the value of our portfolio.the Advisor, or anotheran independent firm we choose for that purpose will estimate the value of our shares based upon a number of assumptions thatiswas the offering price of our shares of common stock in the primary portion of our initial public offering (ignoring purchase price discounts for certain categories of purchasers) and, as described above, the initial estimated value of our common shares disclosed to assist FINRA members and their associated persons that participate in this offering, pursuant to FINRA Rule 2310.. Although this initial estimated value represents the most recent price at which most investors arewere willing to purchase shares in our primary offering, this reported value is likely to differ from the price at which a stockholder could resell his or her shares for the reasons discussed in the risk factor above. Thus, when we repurchase shares of our common stock at $10.00 per share, the actual value of the shares that we repurchase is likely to be less, and the repurchase is likely to be dilutive to our remaining stockholders. Even at lower repurchase prices, the actual value of the shares may be substantially less than what we pay, and the repurchase may be dilutive to our remaining stockholders.of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.provide that all vacancies on the board, however created, may be filled only by the affirmative vote of a majority of the remaining directors in office; andpurchasepurchased shares in our initial public offering, our board may elect to (1) sell additional shares in this orthe DRP and future public offerings, (2) issue equity interests in private offerings, (3) issue share-based awards to our independent directors or to our officers or employees or to the officers or employees of the Advisor or Sub-advisor or any of their affiliates, (4) issue shares to the Advisor or Sub-advisor, or its successors or assigns, in payment of an outstanding fee obligation or (5) issue shares of our common stock to sellers of properties or assets we acquire in connection with an exchange of limited partnership interests of the operating partnership.Operating Partnership. To the extent we issue additional equity interests after our investors purchasehave purchased shares in our offering, their percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our real estate investments, our investors may also experience dilution in the book value and fair value of their shares.Depending primarily We may also pay significant fees during our listing/liquidation stage. Although most of the fees payable during our listing/liquidation stage are contingent on our stockholders first enjoying agreed‑upon investment returns, the number of shares we sellinvestment-return thresholds may be reduced subject to approval by our conflicts committee and the other limitations in our offering and assumingcharter.$10.00 purchase price for shares sold in the primary offering and a $9.50 purchase price for shares sold under the dividend reinvestment plan, we estimate that approximately 87.2% of the gross proceeds will be available to make investments in real estate properties and other real estate-related loans and securities. We will use the remainder of the offering proceeds to pay the costsliquidation of our offering, including selling commissions andportfolio would be less than the dealer manager fee, andprice paid by our stockholders to pay a fee to the Advisor and the Sub-advisor for their servicespurchase shares in connection with the selection, acquisition and financing of properties, and to repurchase shares of our common stock under our share repurchase program.Shares owned by the acquirer, an officer of the corporation or an employee of the corporation who is also a director of the corporation are excluded from the vote on whether to accord voting rights to the control shares. Should our board opt into these provisions of Maryland law, it may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Similarly, provisions of Title 3, Subtitle 8 of the Maryland General Corporation Law could provide similar anti-takeover protection.have resultedresult in increased pressure on real estate investors and their property managers to find new tenants and keep existing 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, we may suffer reduced revenues resulting in less cash available to distribute to stockholders. In order to maintain tenants, we may have to offer inducements, such as free rent and tenant improvements, to compete for attractive tenants. In addition, if we are unable to attract additional or replacement tenants, the resale value of the property could be diminished, even below our cost to acquire the property, because the market value of a particular property depends principally upon the value of may provide for base rent plus contractual base rent increases. A number of our retail leases may also include a percentage rent clause for additional rent above the base amount based upon a specified percentage of the sales our tenants generate. Under those leases that contain percentage rent clauses, our revenue from tenants may increase as the sales of our tenants increase.or may decide not to renew its lease.lease, or may decide to cease its operations at the retail center but continue to pay rent. Any of these events wouldcould result in a reduction or cessation in rental payments to us and wouldcould adversely affect our financial condition. A lease termination or cessation of operations by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases may permit cancellation or rent reduction if another tenant’stenant terminates its lease is terminated.or ceases its operations at that shopping center. In such event, we may be unable to re-lease the vacated space. Similarly, 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 their leases. In the event that we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to re-model the space to be able to re-lease the space to more than one tenant.The recent economic downturn in the United States has had an adverse impact on the retail industry generally. Slow or negative growth in the retail industry could result in defaults by retail tenants, which could have an adverse impact on our financial operations.The recent economic downturn in the United States has had an adverse impact on the retail industry generally. As a result, the retail industry is facing reductions in sales revenues and increased bankruptcies throughout the United States. A continuation of adverse economic conditions would result in an increase in distressed or bankrupt retail companies, which in turn would result in an increase in defaults by tenants at our commercial properties. Additionally, slow economic growth would likely hinder new entrants into the retail market, which would make it difficult for us to fully lease the real properties that we plan to acquire. Tenant defaults and decreased demand for retail space would have an adverse impact on the value of the retail properties that we plan to acquire and our results of operations.If a sale-leaseback transaction is re-characterized in a tenant’s bankruptcy proceeding, our financial condition could be adversely affected.We may enter into sale-leaseback transactions, whereby we would purchase a property and then lease the same property back to the person from whom we purchased it. In the event of the bankruptcy of a tenant, a transaction structured as a sale-leaseback may be re-characterized as either a financing or a joint venture, either of which outcomes could adversely affect our financial condition, cash flow and the amount available for distributions to our stockholders.If the sale-leaseback were re-characterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor in relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim against the tenant for the amounts owed under the lease, with the claim arguably secured by the property. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and amortization schedule of its outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and prevented from foreclosing our lien on the property. If the sale-leaseback were re-characterized as a joint venture, we and our lessee could be treated as co-venturers with regard to the property. As a result, we could be held liable, under some circumstances, for debts incurred by the lessee relating to the property.for the price, on the terms or within the time frame that we desire. These factors include general economic conditions, the availability of financing, interest rates and other factors, including supply and demand. Because real estate investments are relatively illiquid, we have a limited ability to vary our portfolio in response to changes in economic or other conditions. Further, before we can sell a property on the terms we want, it may be necessary to expend funds to correct defects or to make improvements. However, we can give no assurance that we will have the funds available to correct such defects or to make such improvements. We may be unable to sell our properties at a profit. Our inability to sell properties at the time and on the terms we want could reduce our cash flow and limit our ability to make distributions to our stockholders and could reduce the value of our stockholders’ investments. Moreover, in acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Our inability to sell a property when we desire to do so may cause us to reduce our selling price for the property. Any delay in our receipt of proceeds, or diminishment of proceeds, from the sale of a property could adversely impact our ability to pay distributions to our stockholders.expectcurrently own properties, and may acquire additional properties in the future, that many of our properties will beare subject to lock-out provisions. Lock-out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties when we may desire to do so. Lock-out provisions may prohibit us from reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties. Lock-out provisions could impair our ability to take other actions during the lock-out period that could be in the best interests of our stockholders and, therefore, may have an adverse impact on the value of our shares relative to the value that would result if the lock-out provisions did not exist. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.If we sell a property by providing financing to the purchaser, we will bear the risk of default by the purchaser, which could delay or reduce the distributions available to our stockholders.If we decide to sell any of our properties, we intend to use our best efforts to sell them for cash; however, in some instances, we may sell our properties by providing financing to purchasers. When we provide financing to a purchaser, we will bear the risk that the purchaser may default, which could reduce our cash distributions to stockholders. Even in the absence of a purchaser default, the distribution of the proceeds of the sale to our stockholders, or the reinvestment of the proceeds in other assets, will be delayed until the promissory notes or other property we may accept upon a sale are actually paid, sold, refinanced or otherwise disposed. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price, and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to pay cash distributions to our stockholders.Potential development and construction delays and resultant increased costs and risks may hinder our operating results and decrease our net income.We may from time to time acquire unimproved real property or properties that are under development or construction. Investments in such properties are subject to the uncertainties associated with the development and construction of real property, including those related to re-zoning land for development, environmental concerns of governmental entities or community groups and our builders’ ability to build in conformity with plans, specifications, budgeted costs and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completing construction could also give tenants the right to terminate preconstruction leases. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. These and other factors can result in increased costs of a project or loss of our investment.In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.If we contract with a development company for newly developed property, our earnest money deposit made to the development company may not be fully refunded.We may enter into one or more contracts, either directly or indirectly through joint ventures with affiliates or others, to acquire real property from a development company that is engaged in construction and development of commercial real properties. Properties acquired from a development company may be either existing income-producing properties, properties to be developed or properties under development. We anticipate that we will be obligated to pay a substantial earnest money deposit at the time of contracting to acquire such properties. In the case of properties to be developed by a development company, we anticipate that we will be required to close the purchase of the property upon completion of the development of the property. At the time of contracting and the payment of the earnest money deposit by us, the development company typically will not have acquired title to any real property. Typically, the development company will only have a contract to acquire land, a development agreement to develop a building on the land and an agreement with one or more tenants to lease all or part of the property upon its completion. We may enter into such a contract with the development company even if at the time we enter into the contract, we have not yet raised sufficient proceeds in our offering to enable us to close the purchase of such property. However, we may not be required to close a purchase from the development company, and may be entitled to a refund of our earnest money, in the following circumstances:the development company fails to develop the property;all or a specified portion of the pre-leased tenants fail to take possession under their leases for any reason; orwe are unable to raise sufficient proceeds from our offering to pay the purchase price at closing.The obligation of the development company to refund our earnest money will be unsecured, and we may not be able to obtain a refund of such earnest money deposit from it under these circumstances since the development company may be an entity without substantial assets or operations. have entered into a joint venture and may enter into additional joint ventures with third parties, including entities that are affiliated with the Advisor or Sub-advisor, to acquire properties and other assets. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with other methods of investment, including, for example, the following risks: “CCcannothave invested in major metropolitan areas. We may not be certain how this act will impact usable to obtain insurance against the risk of terrorism because it may not be available or what additional costmay not be available on terms that are economically feasible. The terrorism insurance that we obtain may not be sufficient to us, ifcover loss for damages to our properties as a result of terrorist attacks. Theresult.amended.amended (the "Disabilities Act"). Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We will attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party, such as a tenant, to ensure compliance with the ADA. We cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. Any of our funds used for Disabilities Act compliance will reduce our net income and the amount of cash available for distributions to our stockholders.expect to have cash and cash equivalents and restricted cash and investments deposited in certain financial institutions in excess of federally insured levels. If any of the banking institutions in which we have deposited funds ultimately fails, we may lose our deposits over $250,000. The loss of our deposits could reduce the amount of cash we have available to distribute or invest and could result in a decline in the value of our stockholders’ investments.WeIf we make such investments, we will target a public company that owns commercial real estate or real estate-related assets when we believe its stock is trading at a discount to that company’s net asset value. We may eventually seek to acquire or gain a controlling interest in the companies that we target. We do not expect our non-controllingnoncontrolling equity investments in other public companies to exceed 5.0% of the proceeds of our offering, assuming we sell the maximum offering amount, or to represent a substantial portion of our assets at any one time.portfolio. Our investments in real estate-related common equity securities will involve special risks relating to the particular issuer of the equity securities, including the financial condition and business outlook of the issuer. Issuers of real estate-related common equity securities generally invest in real estate or real estate-related assets and are subject to the inherent risks associated with real estate-related investments discussed in this report.mayhave obtained, and are likely to continue to obtain, lines of credit and have obtainedother long-term financing that are secured by our properties and other assets. Under our charter, we have a limitation on borrowing which precludes us from borrowing in excess of 300% of the value of our net assets without conflicts committee approval. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation or other non-cash reserves, less total liabilities. Generally speaking, the preceding calculation is expected to approximatelimit our total liabilities to 75.0% of the aggregate cost of our investments before non-cash reserves and depreciation. We may borrow in excess of these amounts if such excess is approved by a majority of theour independent directors and is disclosed to stockholders in our next quarterly report, along with justification for such excess. In some instances, we 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. We may also incur mortgage debt on properties that we already own in order to obtain funds to acquire additional properties. In addition, we may borrow as necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes, including borrowings to satisfy the REIT requirement that we distribute at least 90.0% of our annual REIT taxable income to our stockholders (computed without regard to the dividends-paid deduction and excluding net capital gain). We, however, can give our stockholders no assurance that we will be able to obtain such borrowings on satisfactory terms.We expect to use leverage in connection with our investments in real estate-related assets, which increases the risk of loss associated with this type of investment.We may finance the acquisition and origination of certain real estate-related investments with warehouse lines of credit and repurchase agreements. In addition, we may engage in various types of securitizations in order to finance our loan originations. The use of such leverage may substantially increase the risk of loss. There can be no assurance that leveraged financing will be available to us on favorable terms or that, among other factors, the terms of such financing will parallel the maturities of the underlying assets acquired. If alternative financing is not available, we may have to liquidate assets at unfavorable prices to pay off such financing. Our return on our investments and cash available for distribution to our stockholders may be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that we can derive from the assets we acquire.Our debt service payments will reduce our cash flow available for distributions. We may not be able to meet our debt service obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to foreclosure or sale to satisfy our debt obligations. We may utilize repurchase agreements as a component of our financing strategy. Repurchase agreements economically resemble short-term, variable-rate financing and usually require the maintenance of specific loan-to-collateral value ratios. If the market value of the assets subject to a repurchase agreement declines, we may be required to provide additional collateral or make cash payments to maintain the loan-to-collateral value ratio. If we are unable to provide such collateral or cash repayments, we may lose our economic interest in the underlying assets. Further, credit facility providers and warehouse facility providers may require us to maintain a certain amount of cash reserves or to set aside unleveraged assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on assets. In the event that we are unable to meet these collateral obligations, our financial condition could deteriorate rapidly.Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.We expect that we will incur additional debt in the future and increases in interest rates will increase the cost of that debt, which could reduce the cash we have available for distributions. Additionally, we have entered into certain variable rate debt agreements, for which increases in interest rates will increase our interest costs, which will reduce our cash flows and our ability to pay distributions to our stockholders. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times that may not permit realization of the maximum return on such investments. may use to hedge against interest rate fluctuations may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on our stockholders’ investment. may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets, but no hedging strategy can protect us completely. We cannot assure our stockholders that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses. In addition, the use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75.0% or 95.0% REIT income test.may financehave financed certain of our property acquisitions using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will beis less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans.During the early stages of our offering, our conflicts committee may approve debt in excess of this limit. High debt levels would cause us to incur higher interest charges and higher debt service payments and could also be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of your investment.If we fail to qualify as a REIT for any taxable year after electing REIT status, we will be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.receivedcauseallow us to continue to qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2010.purposes. However, the U.S. federal income tax laws governing REITs are extremely complex, and interpretations of the U.S. federal income tax laws governing qualification as a REIT are limited. Qualifying as a REIT requires us to meet various tests regarding the nature of our assets and our income, the ownership of our outstanding stock, and the amount of our distributions on an ongoing basis. While we intend to operate so that we continue to qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, including the tax treatment of certain investments we may make, and the possibility of future changes in our circumstances, no assurance can be given that we will so qualify for any particular year. If we fail to qualify as a REIT in any calendar year and we do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax on our taxable income. We might need to borrow money or sell assets to pay that tax. Our payment of U.S. federal income tax would decrease the amount of our income available for distribution to our stockholders. Furthermore, if we fail to maintain our qualification as a REIT and we do not qualify for certain statutory relief provisions, we no longer would be required to distribute substantially all of our REIT taxable income to our stockholders. Unless our failure to qualify as a REIT were excused under federal tax laws, we would be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost.Our investments in debt instruments may cause us to recognize “phantom income” for U.S. federal income tax purposes even though no cash payments have been received on the debt instruments.We may acquire debt instruments in the secondary market for less than their face amount. The amount of such discount will generally be treated as “market discount” for U.S. federal income tax purposes. Moreover, pursuant to our involvement in public-private jointventures, other similar programs recently announced by the federal government, or otherwise, we may acquire distressed debt investments that are subsequently modified by agreement with the borrower. If the amendments to the outstanding debt are “significant modifications” under the applicable regulations promulgated by the U.S. Treasury Department (the “Treasury Regulations”), the modified debt may be considered to have been reissued to us in a debt-for-debt exchange with the borrower. This deemed reissuance may prevent the modified debt from qualifying as a good REIT asset if the underlying security has declined in value.In general, we will be required to accrue original issue discount on a debt instrument as taxable income in accordance with applicable U.S. federal income tax rules even though no cash payments may be received on such debt instrument.In the event a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income. Similarly, we may be required to accrue interest income with respect to subordinate mortgage-backed securities at the stated rate regardless of when their corresponding cash payments are received.As a result of these factors, there is a significant risk that we may recognize substantial taxable income in excess of cash available for distribution. In that event, we may need to borrow funds or take other action to satisfy the REIT distribution requirements for the taxable year in which this “phantom income” is recognized.The “taxable mortgage pool” rules may increase the taxes that we or our stockholders incur and may limit the manner in which we conduct securitizations.We may be deemed to be ourselves, or we may make investments in entities that own or are themselves deemed to be, taxable mortgage pools. Similarly, certain of our securitizations or other borrowings could be considered to result in the creation of a taxable mortgage pool for U.S. federal income tax purposes. As a REIT, provided that we own 100% of the equity interests in a taxable mortgage pool, we generally would not be adversely affected by the characterization of the securitization as a taxable mortgage pool. Certain categories of stockholders, however, such as foreign stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to the taxable mortgage pool. In addition, to the extent that our stock is owned by tax-exempt “disqualified organizations,” such as certain government-related entities that are not subject to tax on unrelated business income, we will incur a corporate-level tax on a portion of our income from the taxable mortgage pool. In that case, we are authorized to reduce and intend to reduce the amount of our distributions to any disqualified organization whose stock ownership gave rise to the tax by the amount of such tax paid by us that is attributable to such stockholder’s ownership. Moreover, we would generally be precluded from selling equity interests in these securitizations to outside investors, or selling any debt securities issued in connection with these securitizations that might be considered to be equity interests for U.S. federal income tax purposes.These limitations may prevent us from using certain techniques to maximize our returns from securitization transactions or other financing arrangements.Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.If (1) all or a portion of our assets are subject to the rules relating to taxable mortgage pools, (2) we are a “pension-held REIT,” (3) a tax-exempt stockholder has incurred debt to purchase or hold our common stock or (4) the residual interests in any real estate mortgage investment conduits (“REMICs”), we acquire (if any) generate “excess inclusion income,” then a portion of the distributions to and, in the case of a stockholder described in clause (3), gains realized on the sale of common stock by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Internal Revenue Code.Characterization of any repurchase agreements we enter into to finance our investments as sales for tax purposes rather than as secured lending transactions would adversely affect our ability to qualify as a REIT.We may enter into repurchase agreements with a variety of counterparties to achieve our desired amount of leverage for the assets in which we invest. When we enter into a repurchase agreement, we generally sell assets to our counterparty to the agreement and receive cash from the counterparty. The counterparty is obligated to resell the assets back to us at the end of the term of the transaction. We believe that for U.S. federal income tax purposes we will be treated as the owner of the assets that are the subject of repurchase agreements and that the repurchase agreements will be treated as secured lending transactions notwithstanding that such agreement may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the Internal Revenue Service (the “IRS”) could successfully assert that we did not own these assets during the term of the repurchase agreements, in which case we could fail to qualify as a REIT if tax ownership of these assets was necessary for us to meet the income and/or asset tests.We may be subject to adverse legislative or regulatory tax changes.At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. 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. We and our stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.20102013 generally reduces the maximum tax rate for dividends payable to domesticcertain stockholders thatwho are domestic individuals, trusts and estates to 15.0% through 2012.20.0%. Dividends payable by REITs, however, are generally not eligible for the reduced rates. Although this legislation does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates, to perceive investments in REITs to be relatively less attractive than investments in stock of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock.operating partnershipOperating Partnership fails to maintain its status as a partnership, its income may be subject to taxation.operating partnershipOperating Partnership as a disregarded entity or partnership for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of the operating partnershipOperating Partnership as a disregarded entity or partnership, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the operating partnershipOperating Partnership could make to us. This would also result in our losing REIT status and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the yield on your investment. In addition, if any of the partnerships or limited liability companies through which the operating partnershipOperating Partnership owns its properties, in whole or in part, loses its characterization as a partnership for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the operating partnership.Operating Partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain REIT status. were considered to actually or constructively pay a “preferential dividend” to certain of our stockholders, our status as a REIT could be adversely affected.Currently, there is uncertainty as to the position of the IRS regarding whether certain arrangements that REITs have with their stockholders could give rise to the inadvertent payment of a preferential dividend (e.g., the pricing methodology for stock purchased under a dividend reinvestment plan inadvertently causing a greater than 5% discount on the price of such stock purchased). There is no de minimis exception with respect to preferential dividends; therefore, if the IRS were to take the position that we inadvertently paid preferential dividends, we may be deemed to have failed the 90% distribution test, and our status as a REIT could be terminated for the year in which such determination is made if we were unable to cure such failure. While we believe that our operations have been structured in such a manner that we will not be treated as inadvertently paying preferential dividends, we can provide no assurance to this effect.The share ownership restrictions of the Internal Revenue Code for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in our shares of stock and restrict our business combination opportunities.In order to qualify as a REIT for each taxable year ending on or after December 31, 2011, five or fewer individuals, as defined in the Internal Revenue Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of a taxable year. Attribution rules in the Internal Revenue Code determine if any individual or entity actually or constructively owns our shares of stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of stock during at least 335 days of a taxable year for each taxable year after December 31, 2011. To help insure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of our shares of stock.Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while we so qualify. Unless exempted by our board of directors, for so long as we qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Internal Revenue Code) more than 9.8% in value of the aggregate of our outstanding shares of stock and not more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 9.8% ownership limit would result in the termination of our qualification as a REIT. These restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT.These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of the stockholders.our operating partnership.ITEM 1B.UNRESOLVED STAFF COMMENTSITEM 2.PROPERTIESWe own allreal estateportfolio of properties through the Joint Venture. We hold a 54% interest in the Joint Venture and the Non-Controlling Interests hold the remaining 46% interest. as of December 31, 2013:Number of properties 83 Number of states 23 7.5 % Total acquisition purchase price (in thousands) $ 1,220,596 Total rentable square feet 8,758,138 Leased % 94.7 % Average remaining lease term in years 6.4 The capitalization rate is calculated by dividing the annualized net operating income, inclusive of straight-line rental income, of a property as of the date of acquisition by the purchase price of the property. 2011,2013, we through the Joint Venture, owned fee simple interests in seven real estate83 properties, acquired from third parties unaffiliated with us, the Advisor, or the Sub-advisor. The following is a summarytable presents information regarding each of our real estate properties as of December 31, 2011: Location Property
Type Date
Acquired Contract
Purchase
Price(1) Rentable
Square
Footage Annualized
Effective
Rent(2) Annualized
Effective
Rent per
Leased
Square Foot Average
Remaining
Lease
Term in
Years % Leased Salem,
Virginia Shopping
Center 12/10/10 $ 8.75 million 82,033 $ 821,740 $ 10.13 5.4 years 98.9 % Parma,
Ohio Shopping
Center 12/15/10 $ 12.30 million 100,460 $ 1,114,368 $ 12.05 7.3 years 92.0 % Haines
City,
Florida Shopping
Center 6/10/11 $ 10.10 million 65,000 $ 903,523 $ 14.43 12.3 years 96.3 % Tyrone,
Georgia Shopping
Center 10/14/11 $ 8.35 million 77,956 $ 812,422 $ 12.05 10.0 years 86.5 % Easley,
South
Carolina Shopping
Center 10/14/11 $ 6.85 million 72,287 $ 680,007 $ 11.11 10.3 years 82.8 % Glen
Burnie,
Maryland Shopping
Center 11/9/11 $ 16.60 million 105,834 $ 1,409,602 $ 13.75 7.4 years 96.9 % Waxhaw,
North
Carolina Shopping
Center 12/29/11 $ 13.95 million 84,357 $ 1,107,532 $ 14.15 12.2 years 92.8 % Property Name Location Anchor Date Acquired Rentable Square Footage Average Remaining Lease Term in Years % Leased Lakeside Plaza Salem, VA Kroger 12/10/2010 $ 8,750 82,798 4.3 100.0% Snow View Plaza Parma, OH Giant Eagle 12/15/2010 12,300 100,460 5.6 97.0% St. Charles Plaza Haines City, FL Publix 6/10/2011 10,100 65,000 9.8 92.6% Centerpoint Easley, SC Publix 10/14/2011 6,850 72,287 9.3 96.7% Southampton Village Tyrone, GA Publix 10/14/2011 8,350 77,956 7.6 96.2% Burwood Village Center Glen Burnie, MD Food Lion 11/9/2011 16,600 105,834 6.0 100.0% Cureton Town Center Waxhaw, NC 12/29/2011 13,950 84,357 9.3 100.0% Tramway Crossing Sanford, NC Food Lion 2/23/2012 5,500 62,382 2.5 95.9% Property Name Location Anchor Date Acquired Rentable Square Footage Average Remaining Lease Term in Years % Leased Westin Centre Fayetteville, NC Food Lion 2/23/2012 6,050 66,890 2.1 97.0% The Village at Glynn Place Brunswick, GA Publix 4/27/2012 11,350 111,924 6.5 96.2% Meadowthorpe Shopping Center Lexington, KY Kroger 5/9/2012 8,550 87,384 3.2 95.7% New Windsor Marketplace Windsor, CO 5/9/2012 5,550 95,877 6.3 93.2% Vine Street Square Kissimmee, FL 6/4/2012 13,650 120,699 5.5 97.3% Northtowne Square Gibsonia, PA Giant Eagle 6/19/2012 10,575 113,372 7.3 100.0% Brentwood Commons Bensenville, IL 7/5/2012 14,850 125,550 5.5 99.1% Sidney Towne Center Sidney, OH Kroger 8/2/2012 4,300 118,360 5.2 100.0% Broadway Plaza Tucson, AZ Sprouts 8/13/2012 12,675 83,612 4.6 96.8% Richmond Plaza Augusta, GA Kroger 8/30/2012 19,500 178,167 4.3 89.5% Publix at Northridge Sarasota, FL Publix 8/30/2012 11,500 65,320 8.5 89.9% Baker Hill Center Glen Ellyn, IL 9/6/2012 21,600 135,355 4.1 95.8% New Prague Commons New Prague, MN Coborn's 10/12/2012 10,150 59,948 7.3 100.0% Brook Park Plaza Brook Park, OH Giant Eagle 10/23/2012 10,140 157,459 5.1 94.2% Heron Creek Towne Center North Port, FL Publix 12/17/2012 8,650 64,664 5.5 92.5% Quartz Hill Towne Centre Lancaster, CA 12/26/2012 20,970 110,306 3.6 94.6% Hilfiker Square Salem, OR Trader Joe's 12/28/2012 8,000 38,558 7.3 100.0% Village One Plaza Modesto, CA Raley's 12/28/2012 26,500 105,658 13.1 90.3% Butler Creek Acworth, GA Kroger 1/15/2013 10,650 95,597 3.5 95.5% Fairview Oaks Ellenwood, GA Kroger 1/15/2013 9,300 77,052 2.8 97.6% Grassland Crossing Alpharetta, GA Kroger 1/15/2013 9,700 90,906 6.0 89.9% Hamilton Ridge Buford, GA Kroger 1/15/2013 11,800 90,996 6.6 87.4% Mableton Crossing Mableton, GA Kroger 1/15/2013 11,500 86,819 3.2 100.0% The Shops at Westridge McDonough, GA Publix 1/15/2013 7,550 66,297 9.4 74.7% Fairlawn Town Centre Fairlawn, OH Giant Eagle 1/30/2013 42,200 347,255 6.0 97.9% Macland Pointe Marietta, GA Publix 2/13/2013 9,150 79,699 2.9 92.8% Kleinwood Center Spring, TX H-E-B 3/21/2013 32,535 148,863 7.2 97.4% Murray Landing Irmo, SC Publix 3/21/2013 9,920 64,359 7.0 100.0% Vineyard Center Tallahassee, FL Publix 3/21/2013 6,760 62,821 8.1 84.7% Lutz Lake Crossing Lutz, FL Publix 4/4/2013 9,800 64,986 6.5 98.3% Publix at Seven Hills Spring Hill, FL Publix 4/4/2013 8,500 72,590 2.6 90.6% Hartville Centre Hartville, OH Giant Eagle 4/23/2013 7,300 108,412 5.8 77.7% Sunset Center Corvallis, OR Safeway 5/31/2013 24,900 164,796 5.6 95.4% Savage Town Square Savage, MN 6/19/2013 14,903 87,181 8.1 100.0% Northcross Austin, TX 6/24/2013 61,500 280,243 14.5 95.4% Glenwood Crossing Kenosha, WI Pick 'n Save 6/27/2013 12,822 87,504 13.3 97.5% Pavilions at San Mateo Albuquerque, NM 6/27/2013 28,350 149,287 4.5 95.5% Shiloh Square Kennesaw, GA Kroger 6/27/2013 14,500 139,720 3.9 80.4% Boronda Plaza Salinas, CA Food 4 Less 7/3/2013 22,700 93,071 6.3 98.0% Rivergate Macon, GA Publix 7/18/2013 32,354 207,567 5.8 84.0% Westwoods Shopping Center Arvada, CO 8/8/2013 14,918 90,855 6.0 92.8% Paradise Crossing Lithia Springs, GA Publix 8/13/2013 9,000 67,470 5.1 93.8% Contra Loma Plaza Antioch, CA Save Mart 8/19/2013 7,250 74,616 4.3 83.5% South Oaks Plaza St. Louis, MO 8/21/2013 9,500 112,300 10.7 100.0% Yorktown Centre Erie, PA Giant Eagle 8/30/2013 21,400 196,728 4.6 100.0% Stockbridge Commons Fort Mill, SC 9/3/2013 15,250 99,473 5.2 97.1% Dyer Crossing Dyer, IN Jewel-Osco 9/4/2013 18,500 95,083 7.0 93.5% East Burnside Plaza Portland, OR 9/12/2013 8,643 38,363 5.7 100.0% Red Maple Village Tracy, CA Raley's 9/18/2013 31,140 97,591 10.6 100.0% Crystal Beach Plaza Palm Harbor, FL Publix 9/25/2013 12,100 59,015 12.6 82.9% CitiCentre Plaza Carroll, IA Hy-Vee 10/2/2013 3,750 63,518 3.5 87.7% Property Name Location Anchor Date Acquired Rentable Square Footage Average Remaining Lease Term in Years % Leased Duck Creek Plaza Bettendorf, IA Schnuck's 10/8/2013 19,700 134,229 5.8 95.6% Cahill Plaza Inver Grove Heights, MN 10/9/2013 8,350 69,000 2.4 96.0% Pioneer Plaza Springfield, OR Safeway 10/18/2013 11,850 96,027 3.7 89.6% Fresh Market Normal, IL The Fresh Market 10/22/2013 11,750 76,017 5.7 100.0% Courthouse Marketplace Virginia Beach, VA 10/25/2013 16,050 106,863 8.1 87.0% Hastings Marketplace Hastings, MN 11/6/2013 15,875 97,535 7.2 100.0% Shoppes of Paradise Lakes Miami, FL Publix 11/7/2013 13,450 83,597 4.6 88.0% Coquina Plaza Davie, FL Publix 11/7/2013 23,200 91,120 3.6 100.0% Butler's Crossing Watkinsville, GA Publix 11/7/2013 8,900 75,505 3.6 85.4% Lakewood Plaza Spring Hill, FL Publix 11/7/2013 15,300 106,999 3.5 95.5% Collington Plaza Bowie, MD Giant Foods 11/21/2013 30,146 121,955 7.0 100.0% Golden Town Center Golden, CO 11/22/2013 19,015 117,882 4.2 89.1% Northstar Marketplace Ramsey, MN Coborn's 11/27/2013 14,000 96,356 5.7 96.6% Bear Creek Plaza Petoskey, MI 12/19/2013 25,451 311,894 5.9 100.0% Flag City Station Findlay, OH 12/19/2013 15,661 245,549 4.0 99.3% Southern Hills Crossing Moraine, OH 12/19/2013 2,463 10,000 2.5 100.0% Sulphur Grove Huber Heights, OH 12/19/2013 2,914 20,900 2.6 100.0% East Side Square Springfield, OH 12/19/2013 1,471 8,400 3.7 100.0% Hoke Crossing Clayton, OH 12/19/2013 1,718 8,600 3.1 100.0% Town & Country Shopping Center Noblesville, IN 12/19/2013 26,049 249,833 4.8 100.0% Sterling Pointe Center Lincoln, CA Raley's 12/20/2013 30,775 129,020 8.0 85.4% Southgate Shopping Center Des Moines, IA Hy-Vee 12/20/2013 9,725 161,792 7.1 95.0% Arcadia Plaza Phoenix, AZ Sprouts 12/30/2013 13,479 63,637 4.7 84.2% Stop & Shop Plaza Enfield, CT Stop & Shop 12/30/2013 26,200 124,218 4.2 98.6% costs.We calculate annualized effective rent as monthly contractual rent asKing Soopers, Harris Teeter and QFC are affiliates of December 31, 2011 multiplied by 12 months, less any tenant concessions.Significant Tenants and Lease ExpirationsThe following table sets forth information regarding the two tenants comprising ten percent or more of the aggregate annualized effective rent or occupying ten percent or more of the aggregate rentable square footage at our seven shopping centers as of December 31, 2011: Tenant Industry Annualized
Effective
Rent (1) % of Total
Portfolio
Annualized
Effective
Rent Rentable
Square
Footage % of Total
Portfolio
Square
Footage Lease
Expiration Retail – Grocery
Store $ 713,529 10.4 % 58,171 sq. ft. 9.9 % September
2020 (2) Retail – Grocery
Store $ 1,436,496 21.0 % 141,291 sq. ft. 24.0 % (3) (1)We calculate annualized effective rent as monthly contractual rent as of December 31, 2011 multiplied by 12 months, less any tenant concessions.(2)Giant Eagle has five options to extend the term of its lease by five years each.Publix’ leasesThe anchor tenants of Vine Street Square and Pavilions at St. CharlesSan Mateo are Walmart Neighborhood Markets. The anchor tenants of Northcross, Bear Creek Plaza, Southampton Village,Flag City Station, and Centerpoint expire in October 2027,Town & Country Shopping Center are Walmart Supercenters. The anchor tenants of Southern Hills Crossing, Sulphur Grove, East Side Square, and Hoke Crossing are Walmart Supercenters; however, we do not own the portion of each of these shopping centers that is leased to a Walmart Supercenter.Dominick's and Vons are affiliates of Safeway, Inc. Dominick's vacated both Brentwood Commons and Baker Hill Center on December 2023, and January 2023, respectively. Publix has six options29, 2013; however, Dominick's continues to extendpay rent according to the termterms of its lease at St. Charles Plaza by five years each. Publix has seven options to extend the termleases.Cub Foods and Shop 'n Save are affiliates of its lease at Southampton Village by five years each. Publix has six options to extend the term of its lease at Centerpoint by five years each.SUPERVALU Inc.Property Statistics3220112013 over each of the years ending December 31, 20122014 and thereafter for our seven83 shopping centers. The table shows the approximate leased rentable square feet and annualized effective rent represented by the applicable lease expirations: Number of
Expiring
Leases Annualized
Effective Rent (1) % of Total Portfolio
Annualized
Effective Rent Leased Square
Feet Expiring % of Rentable
Square
Feet Expiring 10 $ 272,405 4.0 % 11,644 2.1 % 15 $ 582,483 8.5 % 31,726 5.8 % 16 $ 814,672 11.9 % 55,026 10.1 % 13 $ 587,585 8.6 % 27,625 5.1 % 7 $ 224,031 3.3 % 16,653 3.0 % 4 $ 217,943 3.2 % 14,016 2.6 % 1 $ 32,844 0.5 % 2,346 0.4 % 3 $ 449,269 6.6 % 54,533 10.0 % 3 $ 829,329 12.1 % 67,371 12.4 % 3 $ 146,100 2.1 % 10,160 1.9 % 9 $ 2,692,533 39.3 % 253,152 46.6 % Year Number of Expiring Leases % of Total Portfolio Annualized Effective Rent Leased Rentable Square Feet Expiring % Rentable Square Feet Expiring 2014 198 $ 7,654 7.8% 540,307 6.5% 2015 176 7,783 7.9% 502,912 6.1% 2016 215 9,713 9.9% 870,488 10.5% 2017 163 9,976 10.2% 875,841 10.6% 2018 191 13,909 14.2% 1,151,439 13.9% 2019 96 9,439 9.6% 831,865 10.0% 2020 36 5,468 5.6% 443,592 5.3% 2021 31 3,467 3.5% 391,502 4.7% 2022 23 4,648 4.7% 472,813 5.7% 2023 42 11,270 11.5% 946,445 11.4% Thereafter 73 14,757 15.1% 1,270,055 15.3% 20112013 multiplied by 12 months, less any tenant concessions.grocery anchorgrocery-anchor tenant and other tenants in light of our investment objectives, namely, preserving capital and providing stable cash flows for distributions. Generally, we assess 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, we consider the tenant mix at each shopping center in light of our portfolio, the proportion of national and national franchise tenants, and credit worthinessthe creditworthiness of specific tenants. When evaluating non-national tenancy, we attempt to obtain credit enhancements to leases, which typically come in the form of deposits and/or guarantees from one or more individuals.type: Leased
Square
Footage % of Leased
Square
Footage Annualized
Effective
Rent(1) % of
Annualized
Effective Rent 339,720 62.4 % $ 3,428,893 50.1 % 102,253 18.8 % 1,537,026 22.4 % 102,279 18.8 % 1,883,275 27.5 % 544,252 100.0 % $ 6,849,194 100.0 % Tenant Type Leased Square Feet % of Leased Square Feet % of Annualized Effective Rent Grocery anchor 4,817,802 58.1 % $ 43,763 44.6 % 2,345,946 28.3 % 35,910 36.6 % Local (non-grocery) 1,133,511 13.6 % 18,411 18.8 % 8,297,259 100.0 % $ 98,084 100.0 % 20112013 multiplied by 12 months, less any tenant concessions.We define national tenants as those non-grocery tenants that operate in at least three states. Regional tenants are defined as those non-grocery tenants that have at least three locations. the industriestenant industry as of our tenants: Leased
Square
Footage % of Leased
Square Footage Annualized
Effective
Rent (1) % of Annualized
Effective Rent 339,720 62.4 % 3,428,893 50.1 % 67,947 12.5 % 1,169,208 17.1 % 57,455 10.6 % 664,675 9.6 % 79,130 14.5 % 1,586,418 23.2 % 544,252 100.0 % 6,849,194 100.0 % Tenant Industry Leased Square Feet % of Leased Square Feet % of Annualized Effective Rent Grocery 4,817,802 58.1 % $ 43,763 44.6 % 1,566,802 18.9 % 21,722 22.1 % 1,261,335 15.2 % 20,160 20.6 % Restaurant 651,320 7.8 % 12,439 12.7 % 8,297,259 100.0 % $ 98,084 100.0 % We define retail stores as those that primarily sell goods, while services tenants primarily sell non-goods services. Tenant Leased Square Feet % of Leased Square Feet % of Annualized Effective Rent 17 977,946 11.8 % $ 7,087 7.2 % Publix 19 908,315 10.9 % 9,198 9.4 % 6 767,302 9.2 % 3,784 3.9 % Giant Eagle 6 475,760 5.7 % 4,355 4.4 % 5 292,929 3.5 % 3,212 3.3 % 4 273,067 3.3 % 2,332 2.4 % Raley's 3 192,998 2.3 % 3,418 3.5 % Hy-Vee 2 124,001 1.5 % 479 0.5 % Coborn's 2 107,683 1.3 % 1,350 1.4 % Food Lion 3 95,665 1.2 % 881 0.9 % H-E-B 1 80,925 1.0 % 1,210 1.2 % Stop & Shop 1 72,940 0.9 % 880 0.9 % Giant Foods 1 64,885 0.8 % 922 0.9 % Jewel-Osco 1 64,283 0.8 % 808 0.8 % Schnuck's 1 63,706 0.8 % 682 0.7 % Sprouts Farmers Market 2 60,951 0.7 % 652 0.7 % Food 4 Less 1 58,687 0.7 % 1,046 1.1 % Pick n' Save 1 55,000 0.7 % 635 0.6 % Save Mart 1 50,233 0.6 % 399 0.4 % The Fresh Market 1 17,020 0.2 % 230 0.2 % Trader Joe's 1 13,506 0.2 % 203 0.2 % 79 4,817,802 58.1 % 43,763 44.6 % Number of locations excludes auxiliary leases with grocery anchors such as fuel stations and liquor stores, of which there were 13 as of December 31, 2013. 20112013 multiplied by 12 months, less any tenant concessions.The following table presents our largest tenants by the amount of square footage leased by each tenant: Number of
locations Tenant
Industry Leased
Square
Footage % of
Leased
Square
Footage Annualized
Effective
Rent (1) % of
Annualized
Effective Rent 3 Grocery 142,791 26.2 % $ 1,484,391 21.7 % 1 Grocery 58,171 10.7 % 713,529 10.4 % 1 Grocery 52,337 9.6 % 416,658 6.1 % 1 Grocery 48,756 9.0 % 400,000 5.8 % 1 Grocery 37,665 6.9 % 414,315 6.0 % 2 Retail Stores 20,950 3.8 % 191,632 2.8 % 1 Retail Stores 12,000 2.2 % 126,000 1.8 % 74 Various 171,582 31.5 % 3,102,668 45.3 % 544,252 100 % $ 6,849,194 100 % (1)We calculate annualized effective rent as monthly contractual rent asKing Soopers, Harris Teeter, and QFC are affiliates of December 31, 2011 multiplied by 12 months, less any tenant concessions.The anchor tenants of Vine Street Square and Pavilions at San Mateo are Walmart Neighborhood Markets. The anchor tenants of Northcross, Bear Creek Plaza, Flag City Station, and Town & Country Shopping Center are Walmart Supercenters. Dominick's and Vons are affiliates of Safeway, Inc. Dominick's vacated both Brentwood Commons and Baker Hill Center on December 29, 2013; however, Dominick's continues to pay rent according to the terms of its leases. Cub Foods and Shop 'n Save are affiliates of SUPERVALU. ITEM 3.LEGAL PROCEEDINGSadverse effectimpact on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.ITEM 4.MINE SAFETY DISCLOSURESITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESMarch 11, 2012,February 28, 2014, we had 82641,535 stockholders of record.We are currently offeringMarch 11, 2012,February 28, 2014, we had approximately 3.4176.9 million shares of common stock outstanding, held by a total of 82641,535 stockholders of record. The number of stockholders is based on the records of DST Systems, Inc., who serves as our registrar and transfer agent.are sellingsold shares of our common stock to the public in our primary offering at a price of $10.00 per shareshare. We also sold and continue to sell shares at a price of $9.50 per share pursuant to the DRP. Additionally, we provideprovided discounts in our offering for certain categories of purchasers, including volume discounts. Pursuant to the terms of our charter, certain restrictions are imposed on the ownership and transfer of shares.2011.2013. This estimated value may be higher than the price at which you could resell your shares because (1) our offering involvesinvolved the payment of underwriting compensation and other directed selling efforts, which payments and efforts arewere likely to produce a higher sales price than could otherwise behave been obtained, and (2) there is no public market for our shares. Moreover, this estimated value may be higher than the amount you would receive per share if we were to liquidate at this time because of the up-front fees that we paypaid in connection with the issuance of our shares as well as the recent reduction in the demand for real estate as a result of the recent credit market disruptions and economic slowdown.shares. Beginning up to 18 months after the last offering of shares, the value of the properties and other assets will be based on valuations of either our properties or usour company as a whole, whichever valuation method our board of directors determines to be appropriate, which may include independent valuations of our properties or of our enterprise as a whole.duringper share. Upon our primary offering period. Until we establishestablishment of an estimated value per share that is not based on the price to acquire a share in the primary offering or a follow-on public offering, shares issued pursuant to the DRP will be priced at the estimated value per share of our common stock, as determined by the Advisor or anotheran independent firm chosen for that purpose. We expect to establish an estimated value per share not based on the price to acquire a share in the primary offering or a follow-on public offering upon the completion of our offering stage. We will consider our offering stage complete when we are no longer offering equity securities—whether through the primary portion of our currentinitial public offering or follow-on public offerings—and have not done so for up to 18 months. Participants in the DRP may purchase fractional shares so that 100% of the dividends may be used to acquire additional shares of our common stock. For the year ended December 31, 2011, approximately 17,0002013, 1,970,408 shares or $158,000, were reinvestedissued through the DRP. There was no DRP, activity during 2010.TheDuring the year ended December 31, 2012, our board of directors authorized distributions that we have paid arebased on daily record dates for each day during the period from January 1, 2012 through December 31, 2012. During the year ended December 31, 2013, our board of directors authorized distributions based on daily record dates for each day during the period from January 1, 2013 through December 31, 2013. All authorized distributions for each month in 2012 and for January 2013 were equal to a daily amount of $0.001780802$0.00178082 per share of common stock, which ifstock. If this rate were paid each day for a 365-day period, it would equal a 6.5% annualized rate based on a purchase price of $10.00 per share. The authorized distributions for February through December 2013 were equal to a daily amount of2010,2012, we made no distributions.paid monthly distributions to stockholders that totaled $3.7 million. During the year ended December 31, 2011,2013, we paid monthly distributions to stockholders that totaled $873,000.$38.0 million. On January 3, 2012,2, 2014, we paid distributions to stockholders of record for the period from December 1, 20112013 to December 31, 20112013 in the amount of $142,000.$9.8 million. On February 1, 2012,3, 2014, we paid distributions to stockholders of record for the period from January 1, 20122014 to January 31, 20122014 in the amount of $153,000.$10.0 million. On March 1, 2012,3, 2014, we paid distributions to stockholders of record for the period from February 1, 20122014 to February 29, 201228, 2014 in the amount of $160,000.$9.1 million. All distributions paid to date have been funded by a combination of cash generated through operations, and advances from our sub-advisor. 2013 2012 Ordinary Income 30.95 % — % Return of Capital 69.05 % 100.00 % Total 100.00 % 100.00 % registration statementRegistration Statement on Form S-11 (File No. 333-164313), covering aour initial public offering of up to 180,000,000 shares of common stock, was declared effective under the Securities Act of 1933.1933, as amended. We commenced our initial public offering on September 17,August 12, 2010 upon retaining Realty Capital Securities, LLC as the Dealer Managerdealer manager of our offering. We are offeringoffered 150,000,000 shares of common stock in our primary offering at an aggregate offering price of up to $1.5 billion, or $10.00 per share with discounts available to certain categories of purchasers.purchasers, on a “best efforts” basis. The 30,000,000 shares offered under the DRP are initially beingour dividend reinvestment plan were offered at an aggregate offering price of $285.0 million, or $9.50 per share. On November 19, 2013, we reallocated 26,500,000 shares from the DRP to the primary offering. We expect to sell theceased offering shares registeredof common stock in our primary offering over a two-year period. Under rules promulgated byon February 7, 2014. Subsequent to the SEC, in some instancesend of our primary offering, we may extendreallocated approximately 2.7 million unsold shares from the primary offering beyond that date.to the DRP. We may sellcontinue to offer up to approximately 6.2 million shares of common stock under the DRP beyond the termination of the primary offering until we have sold all the shares under the plan.2011,2013, we havehad issued 2,658,159175,689,995 shares of common stock, including 16,6472,126,348 shares sold through the DRP, generating gross cash proceeds of $25.4 million.$1.74 billion and we had repurchased 95,382 shares from stockholders pursuant to our share repurchase program . As of December 31, 2011,2013, we had incurred $1.0$109.0 million in selling commissions, and $0.4all of which was reallowed to participating broker-dealers, $49.9 million in dealer manager fees, for 2011. As of December 31, 2011, the Advisor, Sub-advisor and their affiliates have paid approximately $7.1$18.0 million of organizationwhich was reallowed to participating broker-dealers, and $26.2 million of offering costs.2011,2013, the net offering proceeds to us, after deducting the total expenses incurred as described above, were approximately $16.9 million.$1.55 billion. As of December 31, 2011,2013, we have used the net proceeds from our offering,offerings, combined with debt financing, to purchase $76.9 million$1.22 billion in real estate all of which is now owned through the Joint Venture. This amount includes $1.6and to pay $25.0 million of acquisition and origination fees and expenses.2011,2013, we did not issue any securities that were not registered under the Securities Act.wouldwill be equal to the estimated fair value per share, as determined by the Advisor or another firm chosen for that purpose.There were no shares tendered for repurchase in the year ended December 31, 2010. 2011,2013, we repurchased 5,63086,003 shares under the share repurchase program for a total of $56,000$849,000 or $9.99$9.87 per share. For the year ended December 31, 2011,2012, we repurchased 3,749 shares under the share repurchase program for a total of $35,089, or $9.36 per share. As of December 31, 2013, we recorded a liability of $76,000 representing our obligation to repurchase 8,072 shares of common stock submitted for repurchase during the year ended December 31, 2013 but not yet repurchased. As of December 31, 2012, there were no additional shares eligible for repurchase that were tendered for repurchase. repurchase and had not yet been repurchased.20112013 are provided below: Total Number of
Shares Redeemed (1) Average Price Paid
per Share Total Number of Shares
Purchased as Part of a
Publicly Announced
Plan or Program (2) Approximate Dollar
Value of Shares Available
That May Yet Be
Redeemed Under the
Program (3) — $ — — (3 ) 5,630 $ 9.99 5,630 (3 ) — $ — — (3 ) Period Average Price Paid per Share October 2013 17,500 $ 9.96 17,500 (3) November 2013 — — — (3) December 2013 9,739 9.51 9,739 (3) 20112013 were made pursuant to the share repurchase program.Securities Authorized for Issuance under Equity Compensation Plans40The following table provides information regarding our 2010 Long-Term Incentive Plan and our Amended and Restated 2010 Independent Director Stock Plan as of December 31, 2011:*To date, no awards have been granted under the 2010 Long-Term Incentive Plan or the Amended and Restated 2010 Independent Director Stock Plan.ITEM 6.SELECTED FINANCIAL DATAPHILLIPS EDISON-ARC SHOPPING CENTER REIT INC.For the years ended December 31, 2011 and 2010 and the period from December 3, 2009(formation) to December 31, 2009(In thousands, except per share amounts) 2011 2010 2009 $ 69,492 $ 19,061 $ — 6,799 2,341 — 6,969 707 200 1,932 604 943 $ 85,192 $ 22,713 $ 1,143 $ 46,788 $ 14,695 $ — — 600 — 8,395 5,542 943 2,824 719 — $ 58,007 $ 21,556 $ 943 27,185 1,157 200 $ 85,192 $ 22,713 $ 1,143 $ 3,529 $ 98 $ — (631 ) (14 ) — (507 ) (18 ) (845 ) (228 ) — (1,751 ) (467 ) — (1,500 ) (81 ) — (1,705 ) (710 ) — — 1 — (811 ) (38 ) — (2,516 ) (747 ) — 152 — — $ (2,364 ) $ (747 ) $ — $ 593 $ 201 $ — $ (56,149 ) $ (21,249 ) $ — $ 61,818 $ 21,555 $ 200 $ (1.57 ) $ (4.44 ) N/A $ 0.65 $ 0.22 $ — 1,503,477 168,419 20,000 PHILLIPS EDISON-ARC SHOPPING CENTER REIT INC. As of and for the years ended December 31, 2013, 2012, 2011 and 2010 and the period from December 3, 2009 (formation) to December 31, 2009 (In thousands, except share and per share amounts) 2013 2012 2011 2010 2009 Balance Sheet Data: Investment in real estate assets, net $ 1,106,536 $ 283,858 $ 69,492 $ 19,061 $ — Acquired intangible lease assets, net 107,730 20,957 6,799 2,341 — Cash and cash equivalents 460,250 7,654 6,969 707 200 Other assets 47,011 12,941 1,932 604 943 Total assets $ 1,721,527 $ 325,410 $ 85,192 $ 22,713 $ 1,143 Mortgages and loans payable $ 200,872 $ 159,007 $ 46,788 $ 14,695 $ — Notes payable—affiliates — — — 600 — Accounts payable—affiliates 1,132 3,634 8,395 5,542 943 Other liabilities 49,991 10,498 2,824 719 — Total liabilities $ 251,995 $ 173,139 $ 58,007 $ 21,556 $ 943 Equity 1,469,532 152,271 27,185 1,157 200 Total liabilities and equity $ 1,721,527 $ 325,410 $ 85,192 $ 22,713 $ 1,143 Operating Data: Total revenues $ 73,165 $ 17,550 $ 3,529 $ 98 $ — Property operating expenses (11,896 ) (2,957 ) (631 ) (14 ) — Real estate tax expenses (9,658 ) (2,055 ) (507 ) (18 ) — General and administrative expenses (4,346 ) (1,717 ) (845 ) (228 ) — Acquisition expenses (18,772 ) (3,981 ) (1,751 ) (467 ) — Depreciation and amortization (30,512 ) (8,094 ) (1,500 ) (81 ) — Operating loss (2,019 ) (1,254 ) (1,705 ) (710 ) — Interest expense (10,511 ) (3,020 ) (811 ) (38 ) — Other income, net 180 1 — 1 — Net loss (12,350 ) (4,273 ) (2,516 ) (747 ) — Net (income) loss attributable to noncontrolling interests (54 ) 927 152 — — Net loss attributable to Company stockholders $ (12,404 ) $ (3,346 ) $ (2,364 ) $ (747 ) $ — Cash Flow Data: Cash flows provided by operating activities $ 18,540 $ 4,033 $ 593 $ 201 $ — Cash flows used in investing activities $ (776,219 ) $ (198,478 ) $ (56,149 ) $ (21,249 ) $ — Cash flows provided by financing activities $ 1,210,275 $ 195,130 $ 61,818 $ 21,555 $ 200 Per Share Data: Net loss per share—basic and diluted $ (0.18 ) $ (0.51 ) $ (1.57 ) $ (4.44 ) N/A Weighted-average distributions per share declared $ 0.67 $ 0.65 $ 0.65 $ 0.22 $ — Weighted-average shares outstanding—basic and diluted 70,227,368 6,509,470 1,503,477 168,419 20,000 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSWe werehavehas elected to be treatedtaxed as a real estate investment trust (“REIT”). Substantially all of our business is expected to be conducted through Phillips Edison—ARC Shopping Center Operating Partnership, L.P. (the “Operating Partnership”), a Delaware limited partnership formed on commencing with the taxable year ended December 3, 2009. We are the sole limited partner of the Operating Partnership, and our wholly owned subsidiary, Phillips Edison Shopping Center OP GP LLC, is the sole general partner of the Operating Partnership.We are offering to the public pursuant to31, 2010. On January 13, 2010, we filed a registration statement $1.785 billion inon Form S‑11 with the SEC to offer a maximum of 180 million shares of common stock (“our offering”). Our offering consistsfor sale to the public, of awhich 150 million shares were registered in our primary offering of $1.5 billion inand 30 million shares offeredwere registered under the DRP. The SEC declared our registration statement effective on August 12, 2010. On November 19, 2013, we reallocated 26.5 million shares from the DRP to investors at a price of $10.00 per share, with discounts available for certain categories of purchasers, and $285 million in shares offered to stockholders pursuant to a dividend reinvestment plan (the “DRP”) at a price of $9.50 per share.the primary offering. We have the right to reallocate theceased offering shares of common stock offered betweenin our primary offering on February 7, 2014. Subsequent to the end of our primary offering, we reallocated approximately 2.7 million unsold shares from the primary offering andto the DRP. We continue to offer up to approximately 6.2 million shares of common stock under the DRP.2011,2013, we had raised $25.4 million in gross offering proceeds from the issuance of 2,658,159issued 175,689,995 shares of common stock.Our advisorstock, including 2,126,348 shares issued through the DRP, generating gross cash proceeds of $1.74 billion since the commencement of our initial public offering. Cumulative Portfolio through Property Acquisitions during the Year Ended December 31, 2013 December 31, 2013 Number of properties 83 57 Number of states 23 21 7.5 % 7.3 % Total acquisition purchase price (in thousands) $ 1,220,596 $ 913,636 Total square feet 8,758,138 6,267,961 94.7 % 94.3 % 6.4 6.5 American Realty Capital II Advisors, LLC (the “Advisor”),calculated by dividing the annualized net operating income, inclusive of straight-line rental income, of a limited liability company that was formed in the State of Delaware on December 28, 2009 and that is indirectly wholly owned by American Realty Capital II, LLC (“AR Capital sponsor”). Under the termsproperty as of the advisory agreement betweendate of acquisition by the Advisor and us,purchase price of the Advisor will ultimately be responsible for the managementproperty.our day-to-day activities and the implementation of our investment strategy. The Advisor has delegated most of its duties under the advisory agreement, including the management of our day-to-day operations and our portfolio of real estate assets, to Phillips Edison NTR LLC (the “Sub-advisor”), which is indirectly wholly owned by Phillips Edison Limited Partnership (“Phillips Edison sponsor”). Notwithstanding such delegation to the Sub-advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the advisory agreement.Asat an annual rate of 2.8%1.9% in the fourth quarter of 2011,2013 as compared to 2012, according to preliminary estimates. For the full year of 2011,2012, real GDP increased 1.7%2.8% compared with an increase of 3.0% for 2010.to 2011. According to the Commerce Department, the real GDP deceleration in year-to-year growth2013 primarily reflected downturnsa decrease in private inventory growthnonresidential investment and further reductions in federal government spending partly offset by decelerations in both imports and the reductions in state and local government spending. The increase in real GDP in 20112013 reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, residential fixed investment, and exports, partiallyprivate inventory investment that were partly offset by decreased state and localnegative contributions from federal government spending.mixed signspositive fundamentals in the continuance of its rebounding effort during 2011, as2013, with vacancy rates dropped again but so too didcontinuing to drop and increasing average leasing rates per square foot leasing rates. Vacancy rates dropped to 7.0% at December 31, 2011, as compared to 7.3% atfoot.end of 2010 even as inventory increased slightly. Although the vacancy rate declined in 2011, it is still considerably higher than the 6.0% vacancy rate seen at the end of 2007. The market had a positive net absorption of 51 million feet in 2011. It appears the positive absorption and decreased vacancy rate is coming at the expense of rents. Average rents, on a per square foot basis, continued the three-year trend of decreasing to $15.13 from $15.46 at the end of 2010.The dollar sales total ofimproving retail real estate transactions increased by almost 20% in 2011, as compared to 2010. As the volume of transactions increased, sales prices increased and price per square foot of transactions increased by almost 12%. There was also a significant decrease in capitalization rates from 8.19% in 2010 to 7.72% in 2011.Retail real estate displayed improving fundamentals in 2011. The improving fundamentals along with the improving unemploymentjob creation and personal consumption expenditure data suggest an increasinglythat 2014 should be another year of economic recovery in the U.S. that results in a positive market situationsituation. However, several factors create long-term uncertainty for the sector, including the growth in 2012.“Non-Controlling Interest”“CBRE Investor”). We, through an indirectly wholly owned subsidiary, serveserved as the general partner of and will ownowned a 54% interest in the Joint Venture. Each Non-Controlling Interest isCBRE Investor was a limited partner and they willownowned a 46% interest in the Joint Venture. Below is a summary ofOn December 31, 2013, we acquired the major terms of the Joint Venture. We have contributed all of our assets to date to the Joint Venture.Investment Strategy. The Joint Venture intends to invest in necessity-based neighborhood and community shopping centers with acquisition costs of no more than $20 million per property. Each acquired property is to have an occupancy rate of at least 80%, with no vacant primary anchor tenant at the time of acquisition. The aggregate level of debt financing is generally not to exceed 50% of the gross asset value of the properties owned by the Joint Venture once all capital contributions have been fully funded, but may go up to 60% during the investment period.Capital Contributions. We have committed to contribute approximately $59 million to the Joint Venture and the Non-Controlling Interests have committed to contribute $50 million in cash. We funded our capital commitment through the contribution of six properties (with a purchase price of approximately $63.0 million to acquire those properties) and cash. Partners are not obligated to contribute capital after March 20, 2013.Management. As general partner, we control the management of the Joint Venture. We have engaged the Advisor to advise the Joint Venture. The Advisor has delegated its duties with respect to the Joint Venture to the Sub-advisor. We have also engaged the Property Manager to provide property management services to the Joint Venture. The agreements generally mirror the similar agreements in place among and between us and the Advisor, the Sub-advisor and the Property Manager.Certain major decisions will require the approval of an executive committee, which consists of four members: two appointed by us and two appointed by the Non-Controlling Interests. The major decisions that require executive committee approval include, but are not limited to:certain related-party transactions;acquisitions not consistent with the Joint Venture’s investment strategy;the incurrence of debt or guarantees not consistent with the Joint Venture’s investment strategy;litigation with a primary anchor tenant;the decision to rebuild a property that has suffered a casualty (except as required by any lease or loan document);disposing of substantially all of the assets of the Joint Venture before August 13, 2013;the dissolution or liquidation of the Joint Venture or any subsidiary; andany amendment to the limited partnership agreement of the Joint Venture.Distributions. The Joint Venture will make periodic distributions of net cash flow to us and the Non-Controlling Interests pro rata based on our respective percentage interests. The portion allocated to the Non-Controlling Interests will first be distributed to the Non-Controlling Interests until it has received an inflation-adjusted real rate of return of 5%. The remaining net cash flow allocated to the Non-Controlling Interests will then be distributed 85% to the Non-Controlling Interests and 15% to the Sub-advisor, which is also a limited partner for purposes of earning the promote but which is not investing any capital in the Joint Venture. No carried interest is paid to the Sub-advisor with respect to the distributions allocated to us because we pay an incentive fee to the Advisor and Sub-advisor pursuant to our existing advisory agreement.Outside Activities. Until March 20, 2013 (or the investment of all of the capital that is to be contributed to the Joint Venture), neither we nor the Sub-advisor may acquire properties meeting the Joint Venture’s investment strategy except through the Joint Venture. This restriction applies to our affiliates and the Sub-advisor’s affiliates as well.Transfer Restrictions. The limited partnership agreement contains restrictions on each partner’s ability to transfer their interests in the Joint Venture, including certain indirect transfers. Notwithstanding those restrictions, none of the following transfers would constitute a breach of the limited partnership agreement:transfers of a Non-Controlling Interest’s46% interest in the Joint Venture provided thatpreviously owned by the CBRE Investors for a purchase price of $57.0 million. As a result, we are first given an opportunity to purchase the interest at the proposed transfer price;transfers of our interest in the Joint Venture to a “qualified property manager” for cash after the expiration of the “lock-out period,” which is defined as the earlier of (i) August 31, 2013 or (ii) the first date on which we have raised aggregate equity of $1.5 billion, subject to the Non-Controlling Interests’ tag-along rights described below;indirect transfers of our interests, such as through changes in the ownership of us or our operating partnership, if no single person would directly or indirectly own 20% of our subsidiary that acts as the general partner to the Joint Venture;any transfer of our shares issued in our current public offering or other public offerings; andcertain transfers to affiliates.Tag-Along Rights. If we sell our interests to a qualified property manager, we must use commercially reasonable efforts to cause the purchaser to also purchase all of the interests of those individual Non-Controlling Interests who desire to sell. If the purchaser does not agree to purchase all of these interests, then each Non-Controlling Interest who desires to sell will sell a proportionate part of the interest it desires to sell and we will sell a proportionate part of our interest.If we conduct a registered offering of shares listed on a national securities exchange, each Non-Controlling Interest has the right to convert its interest in the Joint Venture into privately issued shares in our company. The number of shares to be received will be based on the appraised value of the assetsowned 100% of the Joint Venture divided by the price paid in the offering.Go-Along Obligation. After the expiration of the lock-out period, if we enter into an agreement to sell all of our interests in the Joint Venture for a cash purchase price, the Non-Controlling Interests must also sell all of their interests to the purchaser on the same terms.Buy/Sell Procedures. We or the Non-Controlling Interests (acting as a group) may initiate buy/sell procedures with respect to our respective ownership interests in the event that a majority of the executive committee members are not able to reach an agreement on certain major decisions. Under the buy/sell procedures, one partner must deliver to the other partner notice of its intention to exercise the buy/sell option. Such notice shall state the value of the real and tangible personal property owned by the Joint Venture. The partner receiving such notice must either (i) sell its interests based on the value provided in the notice, or (ii) buy the other partner’s interests based upon that value. The buy/sell rights are not applicable at any time in which our interest in the Joint Venture is worth more than half of our total assets.Real Estate Investment SummaryThe following is a summary of our real estate properties as of December 31, 2011: Location Property
Type Date
Acquired Contract
Purchase
Price (1) Rentable
Square
Footage Annualized
Effective
Rent(2) Annualized
Effective
Rent per
Leased
Square Foot Average
Remaining
Lease
Term in
Years % Leased Salem,
Virginia Shopping
Center 12/10/10 $ 8.75 million 82,033 $ 821,740 $ 10.13 5.4 years 98.9 % Parma, Ohio Shopping
Center 12/15/10 $ 12.30 million 100,460 $ 1,114,368 $ 12.05 7.3 years 92.0 % Haines City,
Florida Shopping
Center 6/10/11 $ 10.10 million 65,000 $ 903,523 $ 14.43 12.3 years 96.3 % Tyrone,
Georgia Shopping
Center 10/14/11 $ 8.35 million 77,956 $ 812,422 $ 12.05 10.0 years 86.5 % Easley, South
Carolina Shopping
Center 10/14/11 $ 6.85 million 72,287 $ 680,007 $ 11.11 10.3 years 82.8 % Glen Burnie,
Maryland Shopping
Center 11/9/11 $ 16.60 million 105,834 $ 1,409,602 $ 13.75 7.4 years 96.9 % Waxhaw,
North
Carolina Shopping
Center 12/29/11 $ 13.95 million 84,357 $ 1,107,532 $ 14.15 12.2 years 92.8 % (1)The contract purchase price excludes closing costs and acquisition costs.(2)We calculate annualized effective rent as the annual contractual rent less any tenant concessions.We are not aware of any material current tenants who will not be able to pay their contractual rental amounts as they become due or whose inability to pay would have a material adverse impact on our results of operations, financial condition and ability to pay distributions.OverviewPrior to September 17, 2010, our operations had not yet commenced. As a result, there are no comparisons for periods prior to September 17, 2010 in the accompanying sections. The accompanying discussionSummary of the results of operationsOperating Activities for the periodYears Ended December 31, 2013 and 2012(In thousands, except per share amounts) 2013 2012 $ Change % Change Operating Data: Total revenues $ 73,165 $ 17,550 $ 55,615 316.9 % Property operating expenses (11,896 ) (2,957 ) (8,939 ) 302.3 % Real estate tax expenses (9,658 ) (2,055 ) (7,603 ) 370.0 % General and administrative expenses (4,346 ) (1,717 ) (2,629 ) 153.1 % Acquisition expenses (18,772 ) (3,981 ) (14,791 ) 371.5 % Depreciation and amortization (30,512 ) (8,094 ) (22,418 ) 277.0 % Operating loss (2,019 ) (1,254 ) (765 ) 61.0 % Interest expense, net (10,511 ) (3,020 ) (7,491 ) 248.0 % Other income, net 180 1 179 17,900.0 % Net loss (12,350 ) (4,273 ) (8,077 ) 189.0 % Net (income) loss attributable to noncontrolling interests (54 ) 927 (981 ) (105.8 )% Net loss attributable to Company stockholders $ (12,404 ) $ (3,346 ) $ (9,058 ) 270.7 % Net loss per share—basic and diluted $ (0.18 ) $ (0.51 ) $ 0.33 (64.7 )% 2010, pertain only2013 and 2012, are almost entirely attributable to the period that our operations commenced, September 17, 2010,number of properties owned and the property-level information covers onlylength of ownership of these properties.brief period beginning withyear ended December 31, 2013, we entered into 70 new leases comprising a total of 122,403 square feet. These leases will generate first-year base rental revenues of $1.8 million, representing average rent per square foot of $14.55. In addition, we executed renewals on 108 leases comprising a total of 267,288 square feet. These leases will generate first-year base rental revenues of $4.1 million, representing average rent per square foot of $15.21. Prior to the renewals, the average annual rent was $14.75 per square foot. The cost of executing the leases and renewals, including leasing commissions, tenant improvement costs, and tenant concessions, was $7.48 per square foot. firstsecured credit facility.Lakeside Plaza,of additional properties. Although we expect our general and administrative expenses to increase, we expect such expenses to decrease as a percentage of our revenues. We currently have substantial uninvested proceeds raised from our initial public offering, which we are seeking to invest promptly on attractive terms. If we are unable to invest the proceeds promptly and on attractive terms, we may have difficulty continuing to pay distributions at a 6.7% annualized rate.10, 2010. Furthermore, as31, 2012 and 2011(In thousands, except share and per share amounts) 2012 2011 $ Change % Change Operating Data: Total revenues $ 17,550 $ 3,529 $ 14,021 397.3 % Property operating expenses (2,957 ) (631 ) (2,326 ) 368.6 % Real estate tax expenses (2,055 ) (507 ) (1,548 ) 305.3 % General and administrative expenses (1,717 ) (845 ) (872 ) 103.2 % Acquisition expenses (3,981 ) (1,751 ) (2,230 ) 127.4 % Depreciation and amortization (8,094 ) (1,500 ) (6,594 ) 439.6 % Operating loss (1,254 ) (1,705 ) 451 (26.5 )% Interest expense, net (3,020 ) (811 ) (2,209 ) 272.4 % Other income, net 1 — 1 Net loss (4,273 ) (2,516 ) (1,757 ) 69.8 % Net loss attributable to noncontrolling interests 927 152 775 509.9 % Net loss attributable to Company stockholders $ (3,346 ) $ (2,364 ) $ (982 ) 41.5 % Net loss per share—basic and diluted $ (0.51 ) $ (1.57 ) $ 1.06 (67.5 )% during 2011, bringing the total properties owned as of December 31, 2011 to seven,seven. During 2012 we acquired 19 properties, bringing total properties owned as of December 31, 2012 to 26. As such, year-to-year comparative differences for the years ended December 31, 20102012 and 2011 are largelyalmost entirely attributable to the number of properties owned, the length ofproperties, and abbreviated period of operations during 2010. As a result,properties. following discussion of our results of operation is not necessarily indicative of those expected in future periods.Summary of operating activities for years ended December 31, 2011 and December 31, 2010Total revenues for year ended December 31, 2011 were $3.5 million, with rental income of $2.8 million. Other revenue, largely comprised of tenant reimbursements, was $767,000.Total revenues for year ended December 31, 2010 were $98,000, with rental income of $85,000. Other revenue, largely comprised of tenant reimbursements, was $13,000.During year ended December 31, 2011,2012, we entered into four18 new leases comprising a total of 5,95032,584 square feet. These leases will generate first yeargenerated first-year base rental revenues of $98,000. There$358,000, representing average rent per square foot of $10.99. In addition, we executed renewals on 38 leases comprising a total of 82,724 square feet. These leases generated first-year base rental revenues of $1,338,000, representing average rent per square foot of $16.18. The cost of executing the leases and renewals, including leasing commissions, tenant improvement costs, and tenant concessions, was no leasing activity during year ended December 31, 2010 as we did not acquire our first property until December 2010.Property operating$4.32 per square foot. for year ended December 31, 2011 were $631,000. The main items attributable to this total were: common area maintenance expense of $305,000, propertyis a $0.6 million increase in asset management fees relatedpaid by the CBRE Investors.services provided by affiliatesour investors about our financial and operating performance because it provides a performance measure of the Sub-advisorrevenues and expenses directly involved in owning and operating real estate assets and provides a perspective not immediately apparent from net income. Because Same-Center NOI excludes the change$157,000,it highlights operating trends such as occupancy levels, rental rates and insuranceoperating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Same-Center NOI, and accordingly, our Same-Center NOI may not be comparable to other REITs.$64,000.Propertycapital expenditures and leasing costs necessary to maintain the operating expenses for year ended December 31, 2010 were approximately $14,000. The items comprising this expense included common area maintenance expense and insurance.Real estate tax expense was $507,000 and $18,000, respectively,performance of our properties that could materially impact our results from operations.20112013 and December 31, 2010.General and administrative expenses for the years ended December 31, 2011 and December 31, 2010, were $845,000 and $228,000, respectively. These amounts were comprised largely of asset management fees paid to the Advisor and Sub-advisor, audit and tax fees, legal, board-related expenses and transfer agent fees. Our sponsors provided $88,000 for year ended December 31, 2011 and $140,000 for year ended December 31, 2010 for certain of our general and administrative expenses as capital contributions. Our sponsors have not received, and will not receive, any reimbursement for this contribution. There is no assurance that our sponsors will continue to contribute monies to fund future expenses.On March 28, 2011, we amended our advisory agreement to reflect a waiver of all or a portion of the asset management fee for any applicable period to the extent that as of the date of the payment, our modified funds from operations, (as defined in accordance with the then-current practice guidelines issued by the Investment Program Association with an additional adjustment to add back capital contribution amounts received from the Sub-advisor or an affiliate thereof (without any corresponding issuance of equity to the Sub-advisor or affiliate), during the quarter were not at least equal to our declared distributions during the quarter, provided that the distribution rate during such quarter was no more than $0.65 per share on an annualized basis.Asset management fees were $347,000 for year ended December 31, 2011, but $284,000 of these total fees has been waived by the Advisor and Sub-advisor pursuant to the amended advisory agreement detailed in the previous paragraph.Asset management fees were $18,000 for year ended December 31, 2010, but were waived by the advisor and sub-advisor.During year ended December 31, 2011, acquisition-related expenses in the amount of $1.8 million were incurred. Included in these acquisition-related expenses were acquisition fees due to the Advisor and Sub-advisor of $356,000 for the five acquisitions that closed during 2011, $288,000 for the completion of the Joint Venture agreement and $68,000 of expense was incurred for prospective acquisitions that did not close or have not yet closed. The remainder of the expense largely related to various professional services provided in connection with the acquisitions, including accounting, legal, environmental and due diligence.For year ended December 31, 2010, acquisition-related expenses in the amount of $467,000 were incurred. Included in these acquisition-related expenses were acquisition fees due to the Advisor and Sub-advisor of $215,000 and $34,000 of expense that was incurred for prospective acquisitions that did not close.Depreciation and amortization expense for the years ended December 31, 2011 and December 31, 2010, were $1.5 million and $81,000, respectively.Interest expense related to the variable-rate mortgages secured by our real estate assets was $811,000 for year ended December 31, 2011.Interest expense was $38,000 for year ended December 31, 2010. Of this expense, approximately $2,000 was related to a loan provided to us by the Sub-advisor.As a result of the contribution of properties and cash to the Joint Venture beginning in November 2011, 46% of all net income or net loss recorded by the Joint Venture is allocable to the Non-Controlling Interests. For year ended December 31, 2011, $152 of the netloss of the Joint Venture was allocated to the Non-Controlling Interests. As the operations of the Joint Venture did not begin until November 2011, there was no corresponding allocation of the net loss for year ended December 31, 2010 to the interests.The net loss attributable to the Company’s shareholders was $2.4 million and $747,000, respectively, for years ended December 31, 2011 and 2010. 2013 2012 Change % Change Net loss $ (12,350 ) $ (4,273 ) Interest expense 10,511 3,020 Other income (180 ) (1 ) Operating loss (2,019 ) (1,254 ) Adjusted to exclude: General and administrative 4,346 1,717 Acquisition expenses 18,772 3,981 Depreciation and amortization 30,512 8,094 Net amortization of above- and below-market leases 536 395 Straight-line rental income (1,995 ) (440 ) Property net operating income 50,152 12,493 Less: non-Same-Center NOI (43,727 ) (6,088 ) Total Same-Center NOI $ 6,425 $ 6,405 $ 20 0.3 % acquisition-relatedacquisition expenses, operating expenses, distributions to stockholders and principal and interest on our outstanding indebtedness. Generally, we expect cash needs for items other than acquisitions and acquisition-related expenses will be generated from operations and our current investments. The sources of our operating cash flows are primarily driven by the rental income received from leased properties. We expect to continue to raise capital through our ongoing offering of common stock and to utilize such funds and proceeds from secured or unsecured financing to complete future property acquisitions. As of December 31, 2011,2013, we had raisedsold approximately $25.4173.6 million shares of common stock in the primary portion of our initial public offering for gross offering proceeds fromof approximately $1.72 billion. We ceased offering shares in the primary portion of our initial public offering including $0.2 million throughon February 7, 2014. We continue to offer shares of common stock under the DRP.2011,2013, we had sold 2,126,348 shares of common stock under the DRP for gross offering proceeds of $20.2 million. As of December 31, 2013, we have invested a significant amount of the proceeds from our initial public offering in real estate properties, and we anticipate making a significant number of investments in the future. We intend to use our cash on hand, proceeds from debt financing, cash flow generated by our real estate operations, and proceeds from our DRP as our primary sources of immediate and long-term liquidity.approximately $7.0$460.3 million. During 2011,the year ended December 31, 2013, we generatedhad a net cash increase of approximately $6.3$452.6 million.flowincrease was the result of;of:$0.6• $18.5 million provided by operating activities, largely through cash provided by the Advisorresult of income generated from operations before depreciation and Sub-advisor, offsettingamortization charges. Also included in this total was $18.8 million of real estate acquisition expenses incurred during the net loss,$56.1• $776.2 million used in investing activities, $55.8which was primarily the result of the 57 property acquisitions along with capital expenditures of $6.4 million, was usedan increase in acquiring the five shopping centers acquired during the yearinvestments of $5.0 million, comprised of certificates of deposit, and $0.1 million was used for capital improvements to our properties,an increase in restricted cash and$61.8 million• $1.2 billion provided by financing activities with approximately $17.3 million$1.42 billion from the net proceeds of the issuance of common stock and $257.0 million from the net proceeds from mortgage loans. Partially offsetting these amounts was $382.1proceeds obtained in conjunction with the acquisitions of $32.1 million and $14.4 million provided by the Non-Controlling Interests as a result of our entry into the Joint Venture. These amounts were slightly offset bypayable, distributions paid to our stockholders of $0.7$19.3 million, net of DRP proceeds, distributions paid to the CBRE Investors of $5.2 million, and $57.0 million used in the payoffacquisition of a note payable to an affiliate of $0.6 million.the CBRE Investors' interests in the Joint Venture. from our offering, and proceeds from secured and unsecured debt financings, along with any deferral or waiver of fees by the Advisor or Sub-advisor.financings. Operating cash flows are expected to increase as additional properties are added to our portfolio. TheOther than the commissions paid to Realty Capital Securities, LLC, the dealer manager for our initial public offering, the organization and offering costs associated with our offering arewere initially paid by our sponsors. Our sponsors which will bewere reimbursed for such costs up to 1.5% of the gross capital raised in our initial public offering. As of December 31, 2011,2013, we owed the Advisor, Sub-advisor and their affiliates have paid approximately $7.1a total of $1.1 million, of organization and offering costs and $1.3 million of general and administrative expenses. Our sponsors provided $88,000 during the year ended December 31, 2011 and $140,000 for the year ended December 31, 2010 for certain of our general and administrative expenses as capital contributions. Our sponsors have not received, and will not receive, any reimbursement or additional equity for these contributions. Our sponsors do not intend to make further capital contributions to continue to fund certain of our general and administrative expenses. Under the terms of the advisory agreement, we are to reimburse on a monthly basis the Advisor, the Sub-advisor or their respective affiliates for cumulative organization and offering costs and future organization and offering costs they may incur on our behalf, but only to the extent that the reimbursement would not exceed 1.5% of gross offering proceeds over the life of the offering. In addition, approximately $2.0 millionconsisting of organization and offering costs incurred by the Sub-advisor on our behalf has not beenand fees charged to us or been recorded in our consolidated financial statements. Whether these costs will be billed to us in the future is at the discretionfor asset management, property management, and other services. our Sub-advisor and will likely depend on the success of our public offering. There is no assurance that our sponsors will continue to contribute monies to fund future expenses. The Company has $8.5 million ofcontractual debt obligations, representing mortgage loans for Lakeside Plazasecured by our real estate assets and Snow View Plaza, maturing inexcluding below-market debt adjustments of $4.8 million, net of accumulated amortization, as of December 2012. The Company can extend these31, 2013 . As they mature, we intend to refinance our debt obligations, until December 2013, by paying a fee equal to 0.25%if possible, or pay off the balances at maturity using the net proceeds of our offering or other proceeds from corporate-level debt. Of the amount outstanding balance at the time of the maturity dates in December 2012.Cash provided by operating activities was approximately $593,000 for the year ended December 31, 2011. Included2013, $22.9 million is for loans which mature in this total was approximately $1.82014. We also have access to a $350 million unsecured revolving credit facility, which may be expanded to $600 million, with no current outstanding principal balance as of real estate acquisition-related expenses incurred during the period and expensed in accordance with ASC 805,Business Combinations.December 31, 2013, from which we may draw funds to pay certain long-term debt obligations as they mature. As of December 31, 2011, we owe2013, the Advisor, Sub-advisor and their respective affiliates approximately $8.4borrowing capacity of the unsecured revolving credit facility was $226.7 million for organization and offering expenses and general and administrative expenses. Until we have sufficientcash flow, as calculated using properties eligible to cover our expenses, we will continue to rely uponbe included in the Advisor, Sub-advisor and their respective affiliates for financial support.2011,2013, gross distributions of approximately $873,000$38.0 million were paid to stockholders, including $158,000$18.7 million of distributions reinvested through the DRP, for net cash distributions of $715,000. These distributions were funded from advances from the Sub-advisor and$19.3 million. Our cash generated from operations. Foroperating activities for the year ended December 31, 2010, no distributions were paid. In2013 was $18.5 million. On January 2012,2, 2014, gross distributions of approximately $142,000$9.8 million were paid, including $37,000$5.1 million of distributions reinvested through the DRP, for net cash distributions of $105,000.$4.6 million. These distributions were funded from advances from the Sub-advisor andby cash generated from operations. operating activities, borrowings, and proceeds from our primary offering.9, 2011,8, 2013, our board of directors declaredauthorized distributions to the stockholders of record at the close of business each day in the period commencing January 1, 20122014 through and including MarchJanuary 31, 2012.2014. The declaredauthorized distributions will equal an amount of $0.001780802$0.00183562 per share of common stock, par value $0.01 per share. This equates to a 6.50%6.70% annualized yield when calculated on a $10.00 per share purchase price. A portion of each distribution is expected to constitute a return of capital for tax purposes. Distributions for the month of January were paid on February 1, 2012 and distributions for the month of February were paid on March 1, 2012. Distributions for the month of March will be paid on such day of April 2012 as our President may determine. All of the distributions paid in 2012 were funded from operations, as our policy is not to fund distributions with proceeds from our initial public offering.Our leverage ratio was 51.7% (calculated as secured mortgage notes payable, less cash and cash equivalents, as a percentage of total real estate investments, at cost) as of December 31, 2011.related expenses, operating expenses, distributions and redemptions to stockholders, and interest and principal on indebtedness, as well as payments on amounts due to our sponsors.indebtedness. Generally, we expect to meet cash needs for items other than acquisitions and acquisition-relatedacquisition expenses from our cash flow from operations, and we expect to meet cash needs for acquisitions and acquisition-relatedacquisition expenses from the net proceeds of our offeringofferings and from debt financings. As they mature, we intend to refinance our long-term debt obligations, if possible, or pay off the balances at maturity using the net proceeds of our offering or proceeds from other corporate-level debt. We expect that substantially all net cash generated from operations will be used to pay distributions to our stockholders after certain capital expenditures, including tenant improvements and leasing commissions, are paid at the properties;funded; however, we may use other sources to fund distributions as necessary, including contributions or advances made to us by the Advisor, Sub-advisor and their respective affiliates and borrowings under future debt agreements.such that our total liabilities do not exceed 75.0% of the cost (before deducting depreciation or other non-cash reserves)to 300% of our tangible assets;net assets (as defined in our charter); however, we may exceed that limit if a majority of our conflicts committee approves each borrowing in excess of our charter limitation and if we disclose such borrowing to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. In all events, we expect that our secured and unsecured borrowings will be reasonable in relation to the net value of our assets and will be reviewed by our board of directors at least quarterly. Principal Amount at Weighted- Average Interest Rate Weighted- Average Years to Maturity December 31, 2013 $ 196,052 5.6 % 3.6 The debt maturity table does not include any below-market debt adjustment, of which $4.8 million, net of accumulated amortization, was outstanding as of December 31, 2013. A portion of the fixed rate debt represents loans assumed as part of certain acquisitions. These loans typically have higher interest rates than interest rates associated with new debt. 2011,2013, were as follows: Payments due by period ($000s) Total 2012 2013 2014 2015 2016 $ 6,125 $ 6,125 $ — 172 172 — — — — 2,340 2,340 — 70 70 — — — — 6,750 6,750 294 212 82 4,854 4,854 248 135 113 — — — 5,920 5,920 302 165 137 — — — 11,924 11,924 609 333 276 — — — 8,875 70 168 168 8,469 977 248 247 243 238 1 $ 49,460 $ 9,800 $ 30,373 $ 411 $ 406 $ 8,470 (1)Interest rate at December 31, 2011 was 3.13%(2)Interest rate at December 31, 2011 was 2.78% Payments due by period Total 2014 2015 2016 2017 2018 Thereafter Long-term debt obligations - principal payments $ 196,052 $ 25,655 $ 34,890 $ 49,629 $ 44,240 $ 1,694 $ 39,944 Long-term debt obligations - interest payments 35,661 10,409 8,343 5,965 2,325 2,109 6,510 Operating lease obligations 77 20 20 20 17 — — Total $ 231,790 $ 36,084 $ 43,253 $ 55,614 $ 46,582 $ 3,803 $ 46,454 For2011,2013, gross distributions of approximately $873,000paid were paid, including $158,000 of distributions$38.0 million with $18.7 million being reinvested through the DRP for net cash distributions of $715,000. These distributions were funded from$19.3 million. Our cash generatedprovided by operations of $593,000 and by advances from the Sub-advisor of $122,000 . Foroperating activities for the year ended December 31, 2010, no distributions were paid. In January2013 was $18.5 million. During the year ended December 31, 2012, gross distributions of approximately $142,000paid were paid, including $37,000 of distributions$3.7 million with $1.3 million being reinvested through the DRP for net cash distributions of $105,000. These$2.4 million. Our cash generated by operating cash generated from operations. On November 9, 2011, our board of directors declared distributions to the stockholders of record at the close of business each day in the period commencing January 1, 2012 through and including March 31, 2012. The declared distributions will equal an amount of $0.001780802 per share of common stock, par value $0.01 per share. This equates to a 6.50% annualized yield when calculated on a $10.00 per share purchase price. A portion of each distribution is expected to constitute a return of capital for tax purposes. Distributions for the month of January were paid on February 1, 2012 and distributions for the month of February were paid on March 1, 2012. Distributions for the month of March will be paid on such day of April 2012 as our Presidentmay determine. Distributions were funded from operations as well as debt proceeds and sponsor contributions, as our policy is not to fund distributions with proceeds from our initial publicprimary offering.itsour intention to comply with REIT requirements of the Internal Revenue Code.We at least during the early stages of our development and from time to time during our operational stage, we will declare distributions in anticipation of funds that we expect to receive during a later period and weperiod. We will pay these distributions in advance of our actual receipt of these funds. In these instances, we expect to look to borrowings or proceeds from our offerings to fund our distributions. We may also fund such distributions from advances from our sponsors or from any deferral or waiver of fees by the Advisor or Sub-advisor.offeringofferings to pay distributions. However, our board has the authority under our organizational documents, to the extent permitted by Maryland law, to pay distributions from any source without limit, including proceeds from our offeringofferings or the proceeds from the issuance of securities in the future.non-controllingnoncontrolling interests. We believe that FFO is helpful to our investors and our management as a measure of operating performance because it excludes real estate-related depreciation and amortization, gains and losses from property dispositions, impairment charges, and extraordinary items, and as a result, when compared year to year, reflects thetime.time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or are requested or required by lessees for operational purposes in order to maintain the value disclosed. Since real estate values have historically risen or fallen with market conditions, including inflation, changes in interest rates, the business cycle, unemployment and consumer spending, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, is helpful for our investors in understanding our performance. In particular, because GAAP impairment charges are not allowed to be reversed if the underlying fair values improve or because the timing of impairment charges may lag the onset of certain operating consequences, we believe FFO provides useful supplemental information related to current consequences, benefits and sustainability related to rental rate, occupancy and other core operating fundamentals. Additionally, we believe it is appropriate to exclude impairment charges from FFO, as these are fair value adjustments that are largely based on market fluctuations and assessments regarding general market conditions, which can change over time. Factors that impact FFO include start-up costs, fixed costs, delay in buying assets, lower yields on cash held in accounts, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses. In addition, FFO will be affected by the types of investments in our targeted portfolio, which will consist primarily of, but is not limited to, necessity-based neighborhood and community shopping centers, first-centers.second-priority mortgage loans, mezzanine loans, bridgeif the carrying or book value exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other loans, mortgage-backed securities, collateralized debt obligations, and debt securities of real estate companies.ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. WhileAlthough impairment charges are excluded from the calculation of FFO as described above, as impairments are based on estimated future undiscounted cash flows, investors are cautioned that we may not recover any impairment charges. FFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO.(1)acquisition fees and expenses;(2)straight-line rent amounts, both income and expense;(3)amortization of above- or below-market intangible lease assets and liabilities;(4)amortization of discounts and premiums on debt investments;(5)gains or losses from the early extinguishment of debt;(6)gains or losses on the extinguishment or sales of hedges, foreign exchange, securities and other derivatives holdings except where the trading of such instruments is a fundamental attribute of our operations;(7)gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting, including interest rate and foreign exchange derivatives;(8)gains or losses related to consolidation from, or deconsolidation to, equity accounting;(9)gains or losses related to contingent purchase price adjustments; and(10)adjustments related to the above items for unconsolidated entities in the application of equity accounting.isare helpful in assisting management and investors assesswith the assessment of the sustainability of operating performance in future periods and, in particular, after our offering and acquisition stages are complete, primarily because it excludesboth FFO adjusted for acquisition expenses and MFFO exclude acquisition expenses that affect property operations only in the period in which the property is acquired. Thus, FFO adjusted for acquisition expenses and MFFO providesprovide helpful information relevant to evaluating our operating performance in periods in which there is no acquisition activity.•Acquisition fees and expenses. In evaluating investments in real estate, including both business combinations and investments accounted for under the equity method of accounting, management’s investment models and analyses differentiate costs to acquire the investment from the operations derived from the investment. Prior to 2009, acquisition costs for both of these types of investments were capitalized under GAAP; however, beginning in 2009, acquisition costs related to business combinations are expensed. Both of these acquisition-related costs have been and will continue to be funded from the proceeds of our offering and generally not from operations. We believe by excluding expensed acquisition costs, MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include those paid to the Advisor, the Sub-advisor or third parties.•Adjustments for straight-line rents and amortization of discounts and premiums on debt investments. In the proper application of GAAP, rental receipts and discounts and premiums on debt investments are allocated to periods using various systematic methodologies. This application may result in income recognition that could be significantly different than underlying contract terms. By adjusting for these items, MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments and aligns results with management’s analysis of operating performance.•Adjustments for amortization of above or below market intangible lease assets. Similar to depreciation and amortization of other real estate related assets that are excluded from FFO, GAAP implicitly assumes that the value of intangibles diminishes ratably over time and that these charges be recognized currently in revenue. Since real estate values and market lease rates in the aggregate have historically risen or fallen with market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the performance of the real estate.•Gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting and gains or losses related to contingent purchase price adjustments. Each of these items relates to a fair value adjustment, which is based on the impact of current market fluctuations and underlying assessments of general market conditions and specific performance of the holding, which may not be directly attributable to current operating performance. As these gains or losses relate to underlying long-term assets and liabilities, management believes MFFO provides useful supplemental information by focusing on the changes in core operating fundamentals rather than changes that may reflect anticipated gains or losses.•Adjustment for gains or losses related to early extinguishment of hedges, debt, consolidation or deconsolidation and contingent purchase price. Similar to extraordinary items excluded from FFO, these adjustments are not related to continuing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods and to other real estate operators.isare useful in comparing the sustainability of our operating performance after our offering and acquisition stages are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. However, investors are cautioned that FFO adjusted for acquisition expenses and MFFO should only be used to assess the sustainability of our operating performance after our offering and acquisition stages are completed, as it excludesboth measures exclude acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired. All paid and accrued acquisition costs negatively impact our operating performance during the period in which properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase prices of the properties we acquire. Therefore, MFFO may not be an accurate indicator of our operating performance,, nor or income (loss) from continuing operations under GAAP, or as an indication of our liquidity, nor is eitherare any of these measures indicative of funds available to fund our cash needs, including our ability to fund distributions. In particular, as we are currently in theboth FFO, FFO adjusted for acquisition expenses, and MFFO should be reviewed in connection with other GAAP measurements. FFO, FFO adjusted for acquisition expenses, and MFFO should not be viewed as more prominent measures of performance than our net income or cash flows from operations prepared in accordance with GAAP. Our FFO, FFO adjusted for acquisition expenses, and MFFO as presented may not be comparable to amounts calculated by other REITs.operations (in thousands, except per share amounts).operations. As a result of the timing of the commencement of our initial public offering and our active real estate operations, FFO, FFO adjusted for acquisition expenses, and MFFO are not relevant to a discussion comparing operations for the two periods presented. We expect revenuesexpenses to increase in future periods as we raise additional offering proceeds and use them to acquire additional investments.NET LOSS TO FFO RECONCILIATION($000’s) Three months ended
December 31,
2011 Year ended
December 31,
2011 Year ended
December 31,
2010 Cumulative since
Inception(1) $ (1,071 ) $ (2,364 ) $ (747 ) $ (3,111 ) 647 1,500 81 1,581 (117 ) (117 ) — (117 ) $ (541 ) $ (981 ) $ (666 ) $ (1,647 ) 1,011 1,751 467 2,218 98 312 17 329 (45 ) (79 ) — (79 ) (124 ) (124 ) — (124 ) $ 399 $ 879 $ (182 ) $ 697 $ 330 $ 873 $ — $ 873 (1)Inception was September 17, 2010 Three Months Ended December 31, Year Ended December 31, Cumulative Since Inception 2013 2012 2013 2012 Calculation of Funds from Operations Net loss attributable to Company stockholders $ (6,155 ) $ (1,247 ) $ (12,404 ) $ (3,346 ) $ (18,861 ) Add: Depreciation and amortization of real estate assets 10,633 3,015 30,512 8,094 40,187 Less: Noncontrolling interest (1,347 ) (1,242 ) (5,312 ) (3,539 ) (8,968 ) Funds from operations (FFO) $ 3,131 $ 526 $ 12,796 $ 1,209 $ 12,358 Calculation of FFO Adjusted for Acquisition Expenses Funds from operations 3,131 526 12,796 1,209 12,358 Add: Acquisition expenses 9,139 1,565 18,772 3,981 24,971 Less: Noncontrolling interest (13 ) (50 ) (13 ) (682 ) (807 ) FFO adjusted for acquisition expenses $ 12,257 $ 2,041 $ 31,555 $ 4,508 $ 36,522 Calculation of Modified Funds from Operations FFO adjusted for acquisition expenses $ 12,257 $ 2,041 $ 31,555 $ 4,508 $ 36,522 Add: Net amortization of above- and below-market leases 71 58 536 395 1,260 Less: Straight-line rental income (860 ) (154 ) (1,995 ) (440 ) (2,514 ) Amortization of market debt adjustment (405 ) (153 ) (1,235 ) (235 ) (1,470 ) Change in fair value of derivative (73 ) — (128 ) — (128 ) Noncontrolling interest 55 68 249 67 304 Modified funds from operations (MFFO) $ 11,045 $ 1,860 $ 28,982 $ 4,295 $ 33,974 Weighted-average common shares outstanding - basic and diluted 144,470,948 11,200,440 70,227,368 6,509,470 19,199,511 Net loss per share - basic and diluted $ (0.04 ) $ (0.11 ) $ (0.18 ) $ (0.51 ) $ (0.98 ) FFO per share - basic and diluted $ 0.02 $ 0.05 $ 0.18 $ 0.19 $ 0.64 FFO adjusted for acquisition expenses per share - basic and diluted $ 0.08 $ 0.18 $ 0.45 $ 0.69 $ 1.90 MFFO per share - basic and diluted $ 0.08 $ 0.17 $ 0.41 $ 0.66 $ 1.77 acquisitionsacquisition costs are expensed as incurred. Repair and maintenance costs are charged to expense as incurred, and significant replacements and betterments will beare capitalized. Repair and maintenance costsCosts directly associated with the development of land and those incurred during construction will be capitalized as part of the investment basis. We anticipate the estimated useful lives of our assets by class to be generally as follows:Buildings 30 years Building improvements 30 years Land improvements 15 years Tenant improvements Shorter of lease term or expected useful life Tenant origination and absorption costs Remaining term of related lease Furniture, fixtures and equipment 5 – 7 years Statement of ASC 805,Business Combinations (“ASC 805”), we record real estate, consisting of land, buildings and improvements, at fair value. We allocate the cost of an acquisition to the acquired tangible assets, identifiable intangibles and assumed liabilities based on their estimated acquisition-date fair values. In addition, ASC 805Intangible assets include the value of in-place leases, which represents the estimated value of the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. Acquired in-place lease value is amortized to expense over the average remaining non-cancelable terms of the respective in-place leases.analysis)analysis and replacement cost) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant.not including renewals. will estimate the value of tenant origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease-up periods, considering current market conditions. In estimating carrying costs, management will includeincludes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods.We will amortize the value of in-place leases to depreciation and amortization expense over the remaining average non-cancelable term of the respective leases.will require us to estimate market lease rates, property-operatingproperty operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate estimates would result in an incorrect valuation of our acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of our net income. will monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets may be impaired. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may be greater than fair value, we will assess the recoverability, considering recent operating results, expected net operating cash flow, and plans for future operations. If, based on this analysis of undiscounted cash flows, we do not believe that we will be able to recover the carrying value of the real estate and related intangible assets, we would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets as defined by ASC 360,Accounting for the Impairment or Disposal of Long-Lived AssetsProperty, Plant, and Equipment. Particular examples of events and changes in circumstances that could indicate potential impairments are: significant decreases in occupancy, rental income, operating income and market values. will recognize minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a straight-line basis over the termterms of the related leaseleases, and we will include amounts expected to be received in later years in deferred rents.rents receivable. Our policy for percentage rental income is to defer recognition of contingent rental income until the specified target (i.e., breakpoint) that triggers the contingent rental income is achieved. We will record property operating expense reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs in the period the related expenses are incurred. We will make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. We do not expect the actual results to differ from the estimated reimbursement. will make estimates of the collectability of our tenant receivables related to base rents, expense reimbursements and other revenue or income. We will specifically analyze accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, we will make estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. These estimates have a direct impact on our net income because a higher bad debt reserve results in less net income.Interest income from loans receivablebased onunless the contractual termsmarket condition or service condition becomes probable. debt instrument utilizingaforementioned events that represent a Liquidity Event must be approved unanimously by our independent directors. As a result, we have concluded that the effective interest method. Underservice condition is not probable because of each party's ability to terminate the effective interest method, interest expense is recognizedA&R Advisory Agreement at a constant yield basedany time without cause.the increasing or decreasing carrying valueour conclusion of the loans. The total interestmarket condition and service condition not being probable, the Class B Units will be treated as unissued for accounting purposes until the market condition, service condition and Liquidity Event have been achieved. However, as the Class B Units are deemed to be participating securities, the distributions paid to the Advisor and Sub-advisor will be treated as compensation expense. This expense for each period iswill be calculated as the carrying valueproduct of the loansnumber of unvested units issued to date and the stated distribution rate at the start of the period multiplied by the effective interest rate. The amount of amortization of the loan discount or premiumtime such distribution is the difference between the effective interest expense for the period and the accrued stated interest. As the carrying amount changes each period by the amount of amortized discount or premium, interest expense either increases (for discounts) or decreases (for premiums) over the life of the loans. Fees related to any buydown of the interest rate will be deferred as prepaid interest income and amortized over the term of the loan as an adjustment to interest income. Closing costs related to the purchase of a loan receivable will be amortized over the term of the loan and accreted as an adjustment against interest income.Effective—In October 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2012-04, Technical Corrections and Improvements. The amendments in this update cover a wide range of topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. ASU 2012-04 was effective for us as of January 1, 2011, companies are required to separately disclose purchases, sales, issuances and settlements on a gross basis in the reconciliation of recurring Level 3 fair value measurements.2013. The adoption of this pronouncement did not have a material impact on us.Effective January 1, 2011, public companies that enter into a business combination areour consolidated financial statements.disclose pro forma revenue and earningspresent significant amounts reclassified out of the combinedaccumulated other comprehensive income by respective line items of net income if it is required to be reclassified to net income in its entirety. For other reclassified amounts, an entity as though the business combinationis required to cross-reference to other disclosures that occurred during the current year had occurred asprovide additional detail about those amounts. The provisions of the beginning of the comparable prior annual reporting period only. In addition, the supplemental pro forma disclosures are expanded. If we enter into a business combination, we will comply with the disclosure requirements of this guidance.In May 2011, the Financial Accounting Standard Board (“FASB”) issued ASU 2011-04,Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and International Financial Reporting Standards (“IFRS”), and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will beNo. 2013-02 were effective for us for the annual period beginning after December 15, 2011. We do not expecton January 1, 2013, and were applied prospectively. As a result of the adoption of ASU 2011-04 to have a material effect on its operating results or financial position.Effective January 1, 2012, public companies will bethis pronouncement, we addressed the required to report components of comprehensive incomedisclosures in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. This guidance does not change the items that must be reported in other comprehensive income. We do not expect the adoption will have any effect on our financial statements.Property AcquisitionsOn February 23, 2012, we, through—Certain events, such as the Joint Venture, purchased two shopping centers with an aggregatedeclaration of 129,272 rentable square feet, Tramway Crossingdistributions, the acquisition of additional properties, and Westin Centre, for an aggregate purchase price of $11.5 million. Both properties are anchored by Food Lion. Tramway crossing is located in Sanford, North Carolina and is approximately 95.5% leased with a current aggregate annual effective rent of approximately $546,000. Westin Centre is located in Fayetteville, North Carolina and is 100% leased with a current aggregate annual effective rent of approximately $635,000.Sale of Shares of Common StockFrom January 1, 2012 through March 11, 2012, we raised approximately $7.2 million through the issuance of approximately 0.7 million sharessale of our common stock under our offering. As of March 11, 2012, approximately 146.6 million shares remained available for sale to the public under our offering, exclusive of shares available under the DRP.DistributionsOn January 3, 2012, we paid a distribution equal to a daily amount of $.001780802 per share of common stock outstanding for stockholders of record for the period for December 1, 2011derivative instrument, occurred subsequent to December 31, 2011. The total gross amount2013 through the filing of the distribution wasapproximately $142,000, with $37,000 being reinvestedthis annual report. Refer to Note 15 to our consolidated financial statements in the DRP,this annual report for a net cash distributionfurther explanation.$105,000. The January distribution was funded from cash generated from operations and advances by the Sub-advisor.On February 1, 2012,December 31, 2013, we paid a distribution equal to a daily amount of $.001780802 per share of common stock outstanding for stockholders of record for the period for January 1, 2012 to January 31, 2012. The total gross amount of the distribution was approximately $153,000, with $41,000 being reinvested in the DRP, for a net cash distribution of $112,000. The February distribution was funded from cash generated from operations and advances by the Sub-advisor.On March 1, 2012, we paid a distribution equal to a daily amount of $.001780802 per share of common stock outstanding for stockholders of record for the period for February 1, 2012 to February 29, 2012. The total gross amount of the distribution was approximately $160,000, with $46,000 being reinvested in the DRP, for a net cash distribution of $114,000. The March distribution was funded from cash generated from operations and advances by the Sub-advisor.Declaration of Distributions55On February 20, 2012, our board of directors declared distributions to be paid for daily stockholders of record for the month of April 2012. On March 21, 2012, our board of directors declared distributions to be paid for daily stockholders of record for the months of May and June 2012. These distributions will be in a daily amount equal to $.001780802 per share of common stock outstanding.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKAs December 31, 2011, we had approximately $46.8 million of variable rate debt outstanding. In the future, we may choose to hedge our exposure to interest rate fluctuations through the utilization of derivative financial instruments, such asan interest rate swaps,swap in order to mitigate the risk of this exposure. We do not intend to enter into derivative or interest rate transactions for speculative purposes. Our hedging decisions will beare determined based upon the facts and circumstances existing at the time of the hedge and may differ from our currently anticipated hedging strategy. IfBecause we use derivative financial instruments to hedge against interest rate fluctuations, we will beare 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 us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek 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.2011,have not electedwere party to an interest rate swap agreement that would effectually fix the variable interest rates for this debt through the utilizationrate on up to $50.0 million of derivative financial instruments and as a result, we are subject to the potential impact of rising interest rates which could negatively impact our profitability and cash flows.The table below shows our debt maturities and the interest rates associated with those maturities asunsecured credit facility at 2.10%. As of December 31, 2011.($000s) 2012 2013 2014 2015 2016 Thereafter Total $ 8,465 $ 29,518 $ 168 $ 168 $ 8,469 $ — $ 46,788 $ 8,465 $ 29,518 $ 168 $ 168 $ 8,469 $ — $ 46,788 3.17 % 2.87 % 2.78 % 2.78 % 2.78 % 0.00 % 2.91 % The analysis below presents the sensitivity of the fair value of our financial instruments to selected changes in market interest rates.The2013, we had no variable rate debt outstanding.one percentage-pointone-percentage-point change in interest rate on therates because we had no outstanding balance of variable-rate debt at December 31, 2011 would be approximately $0.5 million of additional interest expense.2013. We had no other outstanding debtinterest rate contracts as of December 31, 2011 nor did we have any outstanding interest rate contracts.The above amounts were determined based on the impact of hypothetical interest rates on our borrowing cost, and assume no changes in our capital structure. 2013.2011,2013, it does not consider those exposures or positions whichthat could arise after that date. Hence, the information represented herein has limitedITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREThere were no changes in or disagreements with our independent registered public accountants during the years ended December 31, 2011 and 2010.ITEM 9A.CONTROLS AND PROCEDURES2011.2013. To make this assessment, we used the criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management believes that our system of internal control over financial reporting met those criteria, and therefore our management has concluded that we maintained effective internal control over financial reporting as of December 31, 2011.Internal Control Over Financial Reporting20112013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.ITEM 9B.OTHER INFORMATION2011,2013, all items required to be disclosed under Form 8-K were reported under Form 8-K.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCEExecutive Officers and DirectorsCode of Ethicsprincipal executive officerPrincipal Executive Officer and principal financial officer.Principal Financial Officer. Our Code of Ethics may be found at http://www.phillipsedison-arc.com.20122014 Proxy Statement.ITEM 11.EXECUTIVE COMPENSATION20122014 Proxy Statement.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS20122014 Proxy Statement.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE20122014 Proxy Statement.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES20122014 Proxy Statement.ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)Financial Statement Schedules(b)Exhibits Ex. Description 3.1Ex.Description 3.1 Third Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed September 17, 2010) 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed July 2, 2010) 4.1 Form of Subscription Agreement (incorporated by reference to Appendix B to the prospectus dated November 22, 2011October 26, 2012 included in Post-Effective Amendment No. 715 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012)July 16, 2013)4.2 Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed March 1, 2010) 4.3 Amended and Restated Dividend Reinvestment Plan (incorporated by reference to Appendix CA to the prospectus dated November 22, 2011February 28, 2014 included in Post-Effective Amendment No. 717 to the Company’s Registration Statement on Form S-11S-3 (No. 333-164313) filed February 1, 2012)28, 2014)4.4 Amended Share Repurchase Program (incorporated by reference to Exhibit 9.1 to the Company’s Current Report on Form 8-K filed October 5, 2011) 4.5Subscription Escrowand Restated Agreement by and between the Company and Wells Fargo Bank, N.A.of Limited Partnership of Phillips Edison – ARC Shopping Center Operating Partnership, L.P. dated July 28, 2010 (incorporated by reference to Exhibit 4.5 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed September 17, 2010) 4.6First Amendment to Subscription Escrow Agreement by and between the Company and Wells Fargo Bank, N.A. dated September 17, 2010February 4, 2013 (incorporated by reference to Exhibit 4.6 to the Company’s QuarterlyCompany's Annual Report on Form 10-Q10-K filed September 24, 2010)March 7, 2013)10.1 Second Amended and Restated Exclusive Dealer Manager Agreement by and between the Company and Realty Capital Securities, LLC dated September 17, 2010 (incorporated by reference to Exhibit 1.1 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed September 17, 2010) 10.2Advisory Agreement by and between the Company and American Realty Capital II Advisors, LLC dated July 1, 2011 (incorporated by reference to Exhibit 10.1 to Post-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed July 29, 2011) 10.2 First Amendment to Advisory Agreement by and between the Company and American Realty Capital II Advisors, LLC dated September 20, 2011 (incorporated by reference to Exhibit 10.21 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed October 31, 2011) 10.3 Second Amendment to Advisory Agreement by and between the Company and American Realty Capital II Advisors, LLC dated October 27, 2011 (incorporated by reference to Exhibit 10.22 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed October 31, 2011) 10.4 10.5 Second Amended and Restated Advisory Agreement by and between the Company, Phillips Edison - ARC Shopping Center Operating Partnership, L.P. and American Realty Capital II Advisors, LLC dated June 19, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-11 (No. 333-189548) filed June 24, 2013) 10.6 Master Property Management, Leasing and Construction Management Agreement by and among the Company, Phillips Edison - ARC Shopping Center Operating Partnership, L.P. and Phillips Edison & Company Ltd. dated July 27, 2010 (incorporated by reference to Exhibit 10.2 to Pre-Effective Amendment No. 4 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed July 28, 2010) 10.410.7 Amended and Restated 2010 Independent Director Stock Plan (incorporated by reference to Exhibit 10.3 to Pre-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed August 11, 2010) Ex. Description 10.510.8 Second Amended and Restated Sub-Advisory Agreement by and between American Realty Capital II Advisors, LLC and Phillips Edison NTR LLC dated September 17, 2010 (incorporated by reference to Exhibit 10.4 to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed September 17, 2010) 10.9 10.610.10 2010 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to Pre-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed August 11, 2010) 10.11 10.7PurchaseSecond Amended and Restated Exclusive Dealer Manager Agreement by and between Odyssey (III) DP XVII, LLCthe Company and Phillips Edison GroupRealty Capital Securities, LLC dated May 16, 2011September 17, 2010 (incorporated by reference to Exhibit 10.171.1 to Post-Effective Amendment No. 51 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed July 29, 2011)September 17, 2010)10.12 10.8Addendum to Purchase Agreement by and between Odyssey (III) DP XVII, LLC and Phillips Edison Group LLC dated June 9, 2011 (incorporated by reference to Exhibit 10.18 to Post-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed July 29, 2011) 10.9Revolving Loan Agreement by and between St. Charles Station LLC and Wells Fargo Bank, National Association dated June 10, 2011 (incorporated by reference to Exhibit 10.19 to Post-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed July 29, 2011) 10.10Promissory Note by St. Charles Station LLC in favor of Wells Fargo Bank, National Association dated June 10, 2011 (incorporated by reference to Exhibit 10.20 to Post-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed July 29, 2011) 10.11First Amendment to Advisory Agreement by and between the Company and American Realty Capital II Advisors, LLC dated September 20, 2011 (incorporated by reference to Exhibit 10.21 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed October 31, 2011) 10.12Second Amendment to Advisory Agreement by and between the Company and American Realty Capital II Advisors, LLC dated October 27, 2011 (incorporated by reference to Exhibit 10.22 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed October 31, 2011) 10.13Shopping Center Purchase Agreement by and between Phillips Edison Group, LLC, DDRM Southampton Village LLC, DDRM Centerpoint Plaza I LLC, and DDRM Centerpoint Plaza II LLC dated September 23, 2011 (incorporated by reference to Exhibit 10.23 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed October 31, 2011) 10.14Assignment and Assumption of Rights under Purchase Agreement by and between Phillips Edison Group, LLC, Southampton Station LLC, and Centerpoint Station LLC dated October 14, 2011 (incorporated by reference to Exhibit 10.24 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed October 31, 2011) 10.15Loan Agreement by and between Southampton Station LLC and PNC Bank, N.A. dated October 14, 2011 (incorporated by reference to Exhibit 10.25 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed October 31, 2011) 10.16Promissory Note by Southampton Station LLC in favor of PNC Bank, N.A. dated October 14, 2011 (incorporated by reference to Exhibit 10.26 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed October 31, 2011) 10.17Loan Agreement by and between Centerpoint Station LLC and PNC Bank, N.A. dated October 14, 2011 (incorporated by reference to Exhibit 10.27 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed October 31, 2011) 10.18Promissory Note by Centerpoint Station LLC in favor of PNC Bank, N.A. dated October 14, 2011 (incorporated by reference to Exhibit 10.28 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed October 31, 2011) Ex. Description 10.19Limited Partnership Agreement of PECO-ARC Institutional Joint Venture I, L.P. dated September 20, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2011) 10.20Amended and Restated Limited Partnership Agreement of PECO-ARC Institutional Joint Venture I, L.P. dated November 11, 2011 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2011) 10.21Shopping Center Purchase Agreement by and between Burwood Village MZL LLC and Phillips Edison Group LLC dated August 11, 2011 (incorporated by reference to Exhibit 10.31 to Post-Effective Amendment No. 7 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012) 10.22Fourth Amendment to Shopping Center Purchase and Sale Agreement by and between Burwood Village MZL LLC and Phillips Edison Group LLC dated October 6, 2011 (incorporated by reference to Exhibit 10.32 to Post-Effective Amendment No. 7 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012) 10.23Assignment and Assumption of Rights Under Shopping Center Purchase Agreement by and between Phillips Edison Group LLC and Burwood Station LLC dated November 9, 2011 (incorporated by reference to Exhibit 10.33 to Post-Effective Amendment No. 7 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012) 10.24Loan Agreement by and between Burwood Station LLC and PNC Bank, N.A. dated November 9, 2011 (incorporated by reference to Exhibit 10.34 to Post-Effective Amendment No. 7 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012) 10.25Promissory Note by Burwood Station LLC in favor of PNC Bank, N.A. dated November 9, 2011 (incorporated by reference to Exhibit 10.35 to Post-Effective Amendment No. 7 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012) 10.26Limited Guaranty Agreement by PECO-ARC Institutional REIT LLC in favor of PNC Bank, N.A. dated November 21, 2011 (incorporated by reference to Exhibit 10.36 to Post-Effective Amendment No. 7 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012) 10.27Contribution Agreement by and among PAI GP LLC, PECO-ARC Institutional Joint Venture I, L.P., and Phillips Edison – ARC Shopping Center Operating Partnership, L.P., KeyBank National Association, and KeyBank Capital Markets dated November 23, 2011December 24, 2012 (incorporated by reference to Exhibit 10.37 to Post-Effective Amendment No. 710.23 to the Company’s Registration StatementAnnual Report on Form S-11 (No. 333-164313)10-K filed February 1, 2012)March 7, 2013)10.13 Guaranty of Payment and Performance by Phillips Edison Shopping Center OP GP LLC and Heron Creek Station LLC in favor of KeyBank National Association dated December 21, 2012 (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K filed March 7, 2013) 10.2810.14ContributionFirst Amendment to Revolving Loan Agreement and Other Loan Documents by and among PAI GP LLC, PECO-ARC Institutional Joint Venture I, L.P., and Phillips Edison – ARC Shopping Center Operating Partnership, L.P., Phillips Edison – ARC Shopping Center REIT Inc., Phillips Edison Shopping Center OP GP LLC, and KeyBank National Association dated December 21, 2011January 15, 2013 (incorporated by reference to Exhibit 10.38 to Post-Effective Amendment No. 710.25 to the Company’s Registration StatementAnnual Report on Form S-11 (No. 333-164313)10-K filed February 1, 2012)March 7, 2013)10.15 10.29Shopping Centers Purchase Contractand Sale Agreement by and between Wells Fargo Bank, National Associationamong Equity One, Inc., Equity One (Southeast Portfolio) Inc., Equity One (Florida Portfolio), Inc. and Phillips Edison Group LLC dated November 28, 201130, 2012 (incorporated by reference to Exhibit 10.39 to Post-Effective Amendment No. 710.26 to the Company’s Registration StatementAnnual Report on Form S-11 (No. 333-164313)10-K filed February 1, 2012)March 7, 2013)10.16 Reinstatement and First Amendment to Shopping Centers Purchase and Sale Agreement by and among Equity One, Inc., Equity One (Southeast Portfolio) Inc., Equity One (Florida Portfolio), Inc. and Phillips Edison Group LLC dated December 27, 2012 (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K filed March 7, 2013) 10.3010.17Second Amendment to Shopping Centers Purchase and Sale Agreement by and among Equity One, Inc., Equity One (Southeast Portfolio) Inc., Equity One (Florida Portfolio), Inc. and Phillips Edison Group LLC dated January 11, 2013 (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed March 7, 2013) 10.18 Reinstatement and Third Amendment to Shopping Centers Purchase and Sale Agreement by and among Equity One, Inc., Equity One (Southeast Portfolio) Inc., Equity One (Florida Portfolio), Inc. and Phillips Edison Group LLC dated February 13, 2013 (incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K filed March 7, 2013) 10.19 Assignment and Assumption of Rights under Shopping Center Purchase Agreement by and between Phillips Edison Group LLC and CuretonButler Creek Station LLC dated December 29, 2011January 15, 2013 with schedule disclosing other substantially identical Assignment and Assumption of Rights under Shopping Center Purchase Agreements omitted (incorporated by reference to Exhibit 10.4010.30 to the Company’s Annual Report on Form 10-K filed March 7, 2013)10.20 Sale-Purchase Agreement between AG/WP Fairlawn Owner, LLC and Phillips Edison Group LLC dated December 13, 2012 (incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K filed March 7, 2013) 10.21 Reinstatement and Second Amendment to Sale-Purchase Agreement between AG/WP Fairlawn Owner, LLC and Phillips Edison Group LLC dated December 21, 2012 (incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K filed March 7, 2013) 10.22 Assignment and Assumption of Rights under Shopping Center Purchase Agreement by and between Phillips Edison Group LLC and Fairlawn Station LLC dated January 30, 2013 (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed March 7, 2013) 10.23 Third Amendment to Revolving Loan Agreement among Phillips Edison - ARC Shopping Center Operating Partnership, L.P., Phillips Edison - ARC Shopping Center REIT Inc., Phillips Edison Shopping Center OP GP LLC, and KeyBank National Association dated March 20, 2013 (incorporated by reference to Exhibit 10.66 to Post-Effective Amendment No. 714 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012)April 16, 2013)10.24 10.31LoanReal Estate Sale Agreement by and between Cureton StationPhillips Edison Group LLC and PNC Bank, N.A.MCW-RC Murray Landing, LLC, MCW-RC III Kleinwood Center, L.P., and MCW-RC III Vineyard Shopping Center, LLC dated December 29, 2011October 4, 2012 (incorporated by reference to Exhibit 10.4110.67 to Post-Effective Amendment No. 714 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012)April 16, 2013)10.25 10.32Promissory NoteFirst Amendment to Real Estate Sale Agreement by Cureton Stationand between Phillips Edison Group LLC in favor of PNC Bank, N.A.and MCW-RC Murray Landing, LLC, MCW-RC III Kleinwood Center, L.P., MCW-RC III Vineyard Shopping Center, LLC, and Regency Realty Group, Inc. dated December 29, 2011October 12, 2012 (incorporated by reference to Exhibit 10.4210.68 to Post-Effective Amendment No. 714 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012)April 16, 2013) 10.3310.26Limited GuarantySecond Amendment to Real Estate Sale Agreement by PECO-ARC Institutional REITand between Phillips Edison Group LLC in favor of PNC Bank, N.A.and MCW-RC Murray Landing, LLC, MCW-RC III Kleinwood Center, L.P., MCW-RC III Vineyard Shopping Center, LLC, Regency Realty Group, Inc., and Regency Centers, L.P. dated December 29, 2011November, 2012 (incorporated by reference to Exhibit 10.4310.69 to Post-Effective Amendment No. 714 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed February 1, 2012)April 16, 2013) Ex. Description10.28 Ninth Amendment to Real Estate Sale Agreement by and between Phillips Edison Group LLC and MCW-RC Murray Landing, LLC, MCW-RC III Kleinwood Center, L.P., MCW-RC III Vineyard Shopping Center, LLC, Regency Realty Group, Inc., and Regency Centers, L.P. dated February, 2013 (incorporated by reference to Exhibit 10.71 to Post-Effective Amendment No. 14 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed April 16, 2013) 21.110.29Tenth Amendment and Reinstatement to Real Estate Sale Agreement by and between Phillips Edison Group LLC and MCW-RC Murray Landing, LLC, MCW-RC III Kleinwood Center, L.P., MCW-RC III Vineyard Shopping Center, LLC, Regency Realty Group, Inc., and Regency Centers, L.P. dated March 1, 2013 (incorporated by reference to Exhibit 10.72 to Post-Effective Amendment No. 14 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed April 16, 2013) 10.30 Assignment and Assumption of Rights under Real Estate Sale Agreement by and between Phillips Edison Group LLC and Kleinwood Station LLC dated January 15, 2013 with schedule disclosing other substantially identical Assignment and Assumption of Rights under Real Estate Sale Agreement omitted (incorporated by reference to Exhibit 10.73 to Post-Effective Amendment No. 14 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed April 16, 2013) 10.31 Letter Agreement confirming the terms and conditions of the Interest Rate Swap transaction between Phillips Edison - ARC Shopping Center Operating Partnership, L.P. and PNC Bank, National Association dated March 27, 2013 (incorporated by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q filed May 9, 2013) 10.32 Purchase and Sale Agreement between Northcross Property, LLC and Phillips Edison Group LLC dated May 6, 2013 (incorporated by reference to Exhibit 10.75 to Post-Effective Amendment No. 15 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed July 16, 2013) 10.33 Assignment and Assumption of Rights under Shopping Center Purchase Agreement by and between Phillips Edison Group LLC and Northcross Station LLC dated June 24, 2013 (incorporated by reference to Exhibit 10.76 to Post-Effective Amendment No. 15 to the Company’s Registration Statement on Form S-11 (No. 333-164313) filed July 16, 2013) 10.34 Credit Agreement among Phillips Edison - ARC Shopping Center Operating Partnership, L.P., Phillips Edison - ARC Shopping Center REIT Inc., Bank of America, N.A., KeyBank National Association and CitiBank, N.A. dated December 18, 2013 21.1 Subsidiaries of the Company 23.1 Consent of Deloitte & Touche LLP 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 99.1 Amended Share Repurchase Program (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed October 5, 2011) 101.1 The following information from the Company’s annual report on Form 10-K for the year ended December 31, 2011,2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations;Operations and Comprehensive Loss; (iii) Consolidated Statements of Equity; and (iv) Consolidated Statements of Cash Flows Page F-2 F-3 F-4 F-5 F-6 F-7 F-23* All schedules other than the one listed in the index have been omitted as the required information is either not applicable or the information is already presented in the consolidated financial statements or the related notes. 20112013 and 2010,2012, and the related consolidated statements of operations and comprehensive loss, equity, and cash flows for each of the three years in the period ended December 31, 2011 and 2010 and the period from December 3, 2009 (formation) to December 31, 2009.2013. Our audits for the years ended December 31, 2011 and 2010, also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.20112013 and 2010,2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 and 2010 and the period from December 3, 2009 (formation) to December 31, 2009,2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, as of and for the years ended December 31, 2011 and 2010, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.23, 2012 December 31, 2013 December 31, 2012 ASSETS Investment in real estate: Land $ 302,182 $ 82,127 Building and improvements 833,892 209,048 Total investment in real estate assets 1,136,074 291,175 Accumulated depreciation and amortization (29,538 ) (7,317 ) Total investment in real estate assets, net 1,106,536 283,858 Acquired intangible lease assets, net of accumulated amortization of $14,330 and $3,844, respectively 107,730 20,957 Cash and cash equivalents 460,250 7,654 Restricted cash and investments 9,859 1,053 Accounts receivable, net of bad debt reserve of $151 and $69, respectively 12,982 2,707 Deferred financing costs, net of accumulated amortization of $1,715 and $596, respectively 10,091 2,827 Derivative asset 818 — Prepaid expenses and other 13,261 6,354 Total assets $ 1,721,527 $ 325,410 LIABILITIES AND EQUITY Liabilities: Mortgages and loans payable $ 200,872 $ 159,007 Acquired below market lease intangibles, net of accumulated amortization of $2,708 and $811, respectively 20,387 4,892 Accounts payable 1,657 533 Accounts payable – affiliates 1,132 3,634 Accrued and other liabilities 27,947 5,073 Total liabilities 251,995 173,139 Commitments and contingencies (Note 9) — — Equity: Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, zero shares issued and outstanding at December 31, 2013 and 2012 $ — $ — Common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 175,594,613 and 13,801,251 shares issued and outstanding at December 31, 2013 and 2012, respectively 1,756 138 Additional paid-in capital 1,538,185 118,238 Accumulated other comprehensive income 690 — Accumulated deficit (71,192 ) (11,720 ) Total stockholders’ equity 1,469,439 106,656 Noncontrolling interests 93 45,615 Total equity 1,469,532 152,271 Total liabilities and equity $ 1,721,527 $ 325,410 2013 2012 2011 Revenues: Rental income $ 56,898 $ 13,828 $ 2,762 Tenant recovery income 16,048 3,635 750 Other property income 219 87 17 Total revenues 73,165 17,550 3,529 Expenses: Property operating 11,896 2,957 631 Real estate taxes 9,658 2,055 507 General and administrative 4,346 1,717 845 Acquisition expenses 18,772 3,981 1,751 Depreciation and amortization 30,512 8,094 1,500 Total expenses 75,184 18,804 5,234 Operating loss (2,019 ) (1,254 ) (1,705 ) Other income (expense): Interest expense, net (10,511 ) (3,020 ) (811 ) Other income, net 180 1 — Net loss (12,350 ) (4,273 ) (2,516 ) Net (income) loss attributable to noncontrolling interests (54 ) 927 152 Net loss attributable to Company stockholders $ (12,404 ) $ (3,346 ) $ (2,364 ) Per share information - basic and diluted: Net loss per share - basic and diluted $ (0.18 ) $ (0.51 ) $ (1.57 ) Weighted-average common shares outstanding - basic and diluted 70,227,368 6,509,470 1,503,477 Comprehensive loss: Net loss (12,350 ) (4,273 ) (2,516 ) Other comprehensive income: Change in unrealized gain on interest rate swaps, net 690 — — Comprehensive loss (11,660 ) (4,273 ) (2,516 ) Comprehensive (income) loss attributable to noncontrolling interests (54 ) 927 152 Comprehensive loss attributable to Company stockholders $ (11,714 ) $ (3,346 ) $ (2,364 ) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity Noncontrolling Interest Total Shares Amount Balance at January 1, 2011 730,570 $ 7 $ 1,934 — $ (784 ) $ 1,157 $ — $ 1,157 Issuance of common stock 1,916,572 20 18,596 — — 18,616 — 18,616 Issuance of preferred stock — — — — — — 125 125 Share repurchases (5,630 ) — (56 ) — — (56 ) — (56 ) Contributions from Sponsors — — 88 — — 88 — 88 Dividend reinvestment plan (DRP) 16,647 — 158 — — 158 — 158 Contributions from noncontrolling interests — — — — — — 14,441 14,441 Reallocation of equity from contribution of properties to Joint Venture — — 1,003 — — 1,003 (1,003 ) — Common distributions declared, $0.65 per share — — — — (978 ) (978 ) — (978 ) Distributions to noncontrolling interests — — — — — — (92 ) (92 ) Offering costs — — (3,726 ) — — (3,726 ) — (3,726 ) Offering costs - issuance of stock for noncontrolling interest — — (17 ) — — (17 ) (15 ) (32 ) Net loss — — — — (2,364 ) (2,364 ) (152 ) (2,516 ) Balance at December 31, 2011 2,658,159 $ 27 $ 17,980 $ — $ (4,126 ) $ 13,881 $ 13,304 $ 27,185 Issuance of common stock 11,007,548 110 109,372 — — 109,482 — 109,482 Share repurchases (3,749 ) — (35 ) — — (35 ) — (35 ) Dividend reinvestment plan (DRP) 139,293 1 1,323 — — 1,324 — 1,324 Contributions from noncontrolling interests — — — — — — 35,560 35,560 Common distributions declared, $0.65 per share — — — — (4,248 ) (4,248 ) — (4,248 ) Distributions to noncontrolling interests — — — — — — (2,322 ) (2,322 ) Offering costs — — (10,402 ) — — (10,402 ) — (10,402 ) Net loss — — — — (3,346 ) (3,346 ) (927 ) (4,273 ) Balance at December 31, 2012 13,801,251 $ 138 $ 118,238 $ — $ (11,720 ) $ 106,656 $ 45,615 $ 152,271 Issuance of common stock 159,908,957 1,599 1,584,990 — — 1,586,589 — 1,586,589 Share repurchases (86,003 ) (1 ) (924 ) — — (925 ) — (925 ) Dividend reinvestment plan (DRP) 1,970,408 20 18,686 — — 18,706 — 18,706 Change in unrealized gain on interest rate swaps — — — 690 — 690 — 690 Common distributions declared, $0.67 per share — — — — (47,068 ) (47,068 ) — (47,068 ) Distributions to noncontrolling interests — — — — — — (5,231 ) (5,231 ) Acquisition of noncontrolling interest in consolidated joint venture — — (16,655 ) — — (16,655 ) (40,345 ) (57,000 ) Offering costs — — (166,150 ) — — (166,150 ) — (166,150 ) Net (loss) income — — — — (12,404 ) (12,404 ) 54 (12,350 ) Balance at December 31, 2013 175,594,613 $ 1,756 $ 1,538,185 $ 690 $ (71,192 ) $ 1,469,439 $ 93 $ 1,469,532 December 31,
2011 December 31,
2010 $ 21,338 $ 6,000 49,415 13,126 70,753 19,126 (1,261 ) (65 ) 69,492 19,061 6,799 2,341 6,969 707 214 11 786 189 599 231 333 173 $ 85,192 $ 22,713 $ 46,788 $ 14,695 — 600 1,203 451 47 113 8,395 5,542 1,574 155 58,007 21,556 $ — $ — 27 7 17,980 1,934 (4,126 ) (784 ) 13,881 1,157 13,304 — 27,185 1,157 $ 85,192 $ 22,713 2013 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (12,350 ) $ (4,273 ) $ (2,516 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 29,242 7,850 1,500 Net amortization of above- and below-market leases 536 395 312 Amortization of deferred financing costs 1,932 648 193 Loss on write-off of unamortized debt issuance costs and capitalized leasing commissions 1,177 — — Change in fair value of derivative asset (128 ) — — Straight-line rental income (1,995 ) (440 ) (79 ) Changes in operating assets and liabilities: Accounts receivable (8,280 ) (1,481 ) (518 ) Prepaid expenses and other (4,715 ) (1,258 ) (163 ) Accounts payable 905 355 (66 ) Accounts payable – affiliates 106 (539 ) 708 Accrued and other liabilities 12,110 2,776 1,222 Net cash provided by operating activities 18,540 4,033 593 CASH FLOWS FROM INVESTING ACTIVITIES: Real estate acquisitions (761,000 ) (196,934 ) (55,851 ) Capital expenditures (6,413 ) (705 ) (95 ) Change in restricted cash and investments (8,806 ) (839 ) (203 ) Net cash used in investing activities (776,219 ) (198,478 ) (56,149 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 1,586,589 109,482 18,616 Proceeds from issuance of noncontrolling stock, net — — 93 Redemptions of common stock (849 ) (35 ) (56 ) Payment of offering costs (168,758 ) (14,643 ) (1,364 ) Payments on mortgages and loans payable (382,129 ) (140,150 ) (25,430 ) Proceeds from mortgages and loans payable 267,331 212,503 57,523 Payments for notes payable – affiliates — — (600 ) Distributions paid, net of DRP (19,301 ) (2,349 ) (715 ) Acquisition of noncontrolling interest in consolidated joint venture (57,000 ) — — Contributions from noncontrolling interests — 35,560 14,441 Distributions to noncontrolling interests (5,231 ) (2,406 ) — Payments of loan financing costs (10,377 ) (2,832 ) (690 ) Net cash provided by financing activities 1,210,275 195,130 61,818 NET INCREASE IN CASH AND CASH EQUIVALENTS 452,596 685 6,262 CASH AND CASH EQUIVALENTS: Beginning of period 7,654 6,969 707 End of period $ 460,250 $ 7,654 $ 6,969 SUPPLEMENTAL CASHFLOW DISCLOSURE, INCLUDING NON-CASH INVESTING AND FINANCING ACTIVITIES: Cash paid for interest $ 7,915 $ 2,346 $ 557 Change in offering costs payable to sub-advisor (2,608 ) (4,241 ) 2,362 Change in distributions payable 9,061 575 142 Change in distributions payable – noncontrolling interests — (84 ) 92 Change in accrued share repurchases 76 — — Assumed debt 157,898 40,101 — Accrued capital expenditures and deferred financing costs 2,209 363 — Distributions reinvested 18,706 1,324 158 Financing costs payable to advisor and sub-advisor, net — 19 (19 ) Contributions from sponsors — — 88 PHILLIPS EDISON – ARC SHOPPING CENTER REIT INC.CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 AND THE PERIOD FROMDECEMBER 3, 2009 (FORMATION) TO DECEMBER 31, 2009(In thousands, except share and per share amounts) 2011 2010 2009 $ 2,762 $ 85 $ — 750 13 — 17 — — 3,529 98 — 631 14 — 507 18 — 845 228 — 1,751 467 — 1,500 81 — 5,234 808 — (1,705 ) (710 ) — (811 ) (38 ) — — 1 — (811 ) (37 ) — (2,516 ) (747 ) — 152 — — $ (2,364 ) $ (747 ) $ — $ (1.57 ) $ (4.44 ) $ — 1,503,477 168,419 20,000 See notes to consolidated financial statements.PHILLIPS EDISON-ARC SHOPPING CENTER REIT INC.CONSOLIDATED STATEMENTS OF EQUITY(In thousands, except share and per share amounts) Common Stock Additional Accumulated Total
Shareholders’ Non-
controlling Shares Amount Paid-In Capital Deficit Equity Interests Equity — $ — $ — $ — $ — $ — $ — 20,000 — 200 — 200 — 200 20,000 $ — $ 200 $ — $ 200 $ — $ 200 710,570 7 6,384 — 6,391 — 6,391 140 — 140 — 140 — (37 ) (37 ) — (37 ) — — (4,790 ) — (4,790 ) — (4,790 ) — — — (747 ) (747 ) — (747 ) 730,570 $ 7 $ 1,934 $ (784 ) $ 1,157 $ — $ 1,157 1,916,572 20 18,596 — 18,616 — 18,616 — — — — — 125 125 (5,630 ) — (56 ) — (56 ) — (56 ) — — 88 — 88 — 88 16,647 — 158 — 158 — 158 — — — — — 14,441 14,441 — — 1,003 — 1,003 (1,003 ) — — — — (978 ) (978 ) — (978 ) — — — — — (92 ) (92 ) — — (3,726 ) — (3,726 ) — (3,726 ) — — (17 ) — (17 ) (15 ) (32 ) — — — (2,364 ) (2,364 ) (152 ) (2,516 ) 2,658,159 $ 27 $ 17,980 $ (4,126 ) $ 13,881 $ 13,304 $ 27,185 See notes to consolidated financial statements.PHILLIPS EDISON-ARC SHOPPING CENTER REIT INC.CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 AND THE PERIOD FROMDECEMBER 3, 2009 (FORMATION) TO DECEMBER 31, 2009(In thousands) 2011 2010 2009 $ (2,516 ) $ (747 ) $ — 1,500 81 — 312 17 — 193 10 — (79 ) — — (518 ) — — (163 ) (173 ) — (66 ) 113 — 708 782 — 1,222 118 — 593 201 — (55,946 ) (21,238 ) — (203 ) (11 ) — (56,149 ) (21,249 ) — 18,616 6,391 200 93 — — (56 ) — — (1,364 ) — — (25,430 ) — — 57,523 14,695 — — 1,500 — (600 ) (900 ) — (715 ) — — 14,441 — — (690 ) (131 ) — 61,818 21,555 200 6,262 507 200 707 200 — $ 6,969 $ 707 $ 200 $ 2,362 $ 3,847 $ 943 142 37 — 92 — — 557 140 — 158 — — — 4,790 — 19 (110 ) — 88 140 — See notes to consolidated financial statements. (the “Company”) was formed as a Maryland corporation on October 13, 2009 and has elected to be treated as a real estate investment trust (“REIT”).2009. Substantially all of the Company’sour business is expected to be conducted through Phillips Edison—ARC Shopping Center Operating Partnership, L.P. (the “Operating Partnership”), a Delaware limited partnership formed on December 3, 2009. The Company is the soleWe are a limited partner of the Operating Partnership, and the Company’sour wholly owned subsidiary, Phillips Edison Shopping Center OP GP LLC, is the sole general partner of the Operating Partnership.The Company is offeringpursuant to a registration statement $1.785 billionof which 150 million shares were registered in shares of common stock. The offering consists of aour primary offering of $1.5 billion inand 30 million shares offered to investors at a price of $10.00 per share, with discounts available for certain categories of purchasers, and $285 million in shares offered to stockholders pursuant to awere registered under our dividend reinvestment plan (the “DRP”). The SEC declared our registration statement effective on August 12, 2010. On November 19, 2013, we reallocated 26.5 million shares from the DRP to the primary offering. We ceased offering shares of common stock in our primary offering on February 7, 2014. Subsequent to the end of our primary offering, we reallocated approximately 2.7 million unsold shares from the primary offering to the DRP. We continue to offer up to approximately 6.2 million shares of common stock under the DRP. Stockholders who elect to participate in the DRP may choose to invest all or a portion of their cash distributions in shares of our common stock at a purchase price of $9.50 per share. The Company has the right to reallocate theoffered betweensince inception, including 2,126,348 shares issued through the primary offering and the DRP.DRP, generating gross cash proceeds of $1.74 billion. As of December 31, 2011, the Company had raised $25.4 million in gross offering proceeds from the issuance of 2,658,1592013, there were 175,594,613 shares of our common stock.On August 12, 2010, the Company’s registration statement on Form S-11 (File No. 333-164313) was declared effective under the Securities Actstock outstanding, which is net of 1933, and on September 17, 2010, the Company broke the minimum offering escrow amount of $2.5 million. Prior95,382 shares repurchased from stockholders pursuant to September 17, 2010, the Company’s operations had not yet commenced.The Company’sour share repurchase program.formedorganized in the State of Delaware on December 28, 2009 and that is indirectly wholly owned by AR Capital, LLC (formerly American Realty Capital II, LLC (“ARLLC) (the “AR Capital sponsor”). Under the terms of the advisory agreement between the Advisor and the Company,us, the Advisor will ultimately beis responsible for the management of the Company’sour day-to-day activities and the implementation of itsour investment strategy. The Advisor has delegated most of its duties under the advisory agreement, including the management of the Company’sour day-to-day operations and itsour portfolio of real estate assets, to Phillips Edison NTR LLC (the “Sub-advisor”), which is directly or indirectly wholly owned by Phillips Edison Limited Partnership (“Phillips(the “Phillips Edison sponsor”). and Michael Phillips and Jeffrey Edison, pursuant to a sub-advisory agreement between the Advisor and the Sub-advisor. Notwithstanding such delegation to the Sub-advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the advisory agreement.solidcreditworthy national and regional retailers selling necessity-based goods and services in strong demographic markets throughout the United States. In addition, the Companywe may invest in other retail properties including power and lifestyle shopping centers, multi-tenant shopping centers, free-standing single-tenant retail properties, and other real estate and real estate-related loans and securities depending on real estate market conditions and investment opportunities that the Company determineswe determine are in the best interests of itsour stockholders. The Company expectsWe expect that retail properties primarily would underlie or secure the real estate-related loans and securities in which itwe may invest.the Companywe entered into a joint venture with a group of institutional international investors advised by CBRE Investors Global Multi Manager (each a “Non-Controlling Interest”“CBRE Investor”). The joint venture iswas in the form of PECO-ARC Institutional Joint Venture I., L.P., a Delaware limited partnership (the “Joint Venture”). The Company, through an indirectly wholly owned subsidiary, holds an approximate 54% interest in the Joint Venture, servesWe serve as the general partner and managesmanage the operations of the Joint Venture. The Non-Controlling Interests holdPrior to year end, we indirectly held a 54% interest in the Joint Venture, and the CBRE Investors held the remaining approximate 46% interest. The Joint Venture intends to investWe contributed approximately $58.7 million, in grocery-anchored neighborhoodthe form of equity interests in six wholly owned real estate properties and community shopping centers with acquisition costs of no more than $20 million per property. The Company has committed to contribute approximately $59 millioncash, to the Joint Venture, and the Non-Controlling Interests have committed to contribute $50CBRE Investors contributed $50.0 million in cash. During the November andOn December 2011, we contributed six properties (which31, 2013, we acquired for $63.0 million) to the Joint Venture. Until March 20, 2013 (or the investment of all of the capital that is to be contributed to the Joint Venture), neither the Company nor the Sub-advisor or affiliates of the Sub-advisor may acquire properties meeting the Joint Venture’s investment strategy, except through the Joint Venture.The Company, through46% interest in the Joint Venture previously owned fee simple interests in seven real estate properties acquired from third parties unaffiliated withby the Company or the Advisor. The following isCBRE Investors for a summarypurchase price of $57.0 million. As a result, we owned 100% of the Company’s real estate propertiesJoint Venture as of December 31, 2011:Property NameLocationProperty TypeDateAcquiredContractPurchase Price (1)Lakeside PlazaSalem, VirginiaShopping Center12/10/10$8.75 millionSnow View PlazaParma, OhioShopping Center12/15/10$12.30 millionSt. Charles PlazaHaines City, FloridaShopping Center6/10/11$10.10 millionSouthampton VillageTyrone, GeorgiaShopping Center10/14/11$8.35 millionCenterpointEasley, South CarolinaShopping Center10/14/11$6.85 millionBurwood Village CenterGlen Burnie, MarylandShopping Center11/9/11$16.60 millionCureton Town CenterWaxhaw, North CarolinaShopping Center12/29/11$13.95 million(1)The contract purchase price excludes closing costs and acquisition costs.(2)The Company annualized effective rent as monthly contractual rent as of December 31, 2011 multiplied by 12 months, less any tenant concessionsof the Company include our accounts and the accounts of the Company and the Operating Partnership and its wholly-owned subsidiaries (over which the Company exerciseswe exercise financialthe Company.our accounting policies. All significant intercompany balances and transactions are eliminated upon consolidation.Basis of Presentation—During June 2011, the Company completed its analysis of the fair value allocation for the acquisition of Lakeside Plaza based on obtaining additional appraisal information. As a result of the change in allocation for this acquisition, there was no material impact to the statement of operations. The revised allocations of the fair value of this center have been retrospectively reflected in the consolidated balance sheet as of December 31, 2010, in accordance with accounting principles generally accepted in the United States (“GAAP”).the Company determineswe determine that it iswe are an owner in a variable-interest entity (“VIE”), and it holdswe hold a controlling financial interest, then itwe will consolidate the entity as the primary beneficiary. For a partially-owned entitiesentity determined not to be a VIE, the Company analyzeswe analyze rights held by each partner to determine which would be the consolidating party. The CompanyWe will generally consolidate entities (in the absence of other factors when determining control) when it haswe have over a 50% ownership interest in the entity. The CompanyWe will assess itsour interests in VIEs on an ongoing basis to determine whether or not it iswe are the primary beneficiary. However, the Companywe will also evaluate who controls the entity even in circumstances in which it haswe have greater than a 50% ownership interest. If the Company doeswe do not control the entity due to the lack of decision-making abilities, itwe will not consolidate the entity.The Company performed an analysisUpon formation of the assets held through the Joint Venture, in accordance withASC 810 – Consolidations. Based upon this analysis the Company haswe determined the Joint Venture should be consolidated into the Company’sour consolidated financial statements. As a result of the contribution of the assets to the Joint Venture during the year ended December 31, 2011, there was a difference of $1.0$1.0 million in between the net book value of the contributed assets and the agreed upon contributionfair value of the contributed assets. In accordance with GAAPaccounting principles generally accepted in the United States of America (“GAAP”), the difference arising from the contribution to the Joint Venture was not recognized as a gain on sale in the Consolidated Statementsconsolidated statements of Operations,operations, rather it was treated as a reallocation of equity to the Company’s shareholdersour stockholders from the Non-Controlling Interests.CBRE Investors. On December 31, 2013, we acquired the 46% interest in the Joint Venture previously owned by the CBRE Investors. As a result, we owned 100% of the Joint Venture as of December 31, 2013.and initial valuations of tangible and intangible assets and liabilities and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions.acquisitions; and the valuation and nature of derivatives and their effectiveness as hedges. Actual results could differ from those estimates.The Company considersWe consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Short termShort-term investments are stated at cost, which approximates fair value and may consist of investments in money market accounts. The cash and cash equivalent balances at one or more of our financial institutions exceeds the Federal Depository Insurance Corporation (FDIC) insurance coverage.the Company’sour behalf. The Company willWe reimburse on a monthly basis the Sub-advisor for these costs and future offering costs it, the Advisor, or any of their respective affiliates may incur on the Company’sour behalf but only to the extent that the reimbursement would not exceed 1.5% of gross offering proceeds over the life of the offering or cause the selling commissions, the dealer manager fee and the other organization and offering expenses borne by the Companyus to exceed 15.0% of gross offering proceeds as of the date of the reimbursement. These offering expenses include all expenses (other than selling commissions and the dealer manager fee) to be paid by the Companyus in connection with the offering, including legal, accounting, printing, mailing and filing fees, charges of the escrow holder and transfer agent, reimbursement to the Advisor and Sub-advisor for the Company’sour portion of the salaries and related employment costs of the Advisor’s and Sub-advisor’s employees who provide services to the Companyus (excluding costs related to employees who provide services for which the Advisor or Sub-advisor, as applicable, receive acquisition or disposition fees), reimbursement to Realty Capital Securities, LLC, the dealer manager (“the Dealer Manager”), for amounts it may pay to reimburse the bona fide due diligence expenses of broker-dealers, costs in connection with preparing supplemental sales materials, the Company’sour costs of conducting bona fide training and education meetings (primarily the travel, meal and lodging costs of theour non-registered officers of the Company and the non-registered officers of the Advisor and Sub-advisor to attend such meetings,meetings), and cost reimbursement for non-registered employees of the company’sour affiliates to attend retail seminars conducted by broker-dealers. These offering costs include travel services provided to the Advisor or Sub-advisor by a related party of one or more of the sponsors. Costs associated with the offering are charged against the gross proceeds of the offering. As of December 31, 2011, the Advisor, Sub-advisor and their affiliates have paid approximately $7.1 million of offering costs. Under the terms of the advisory agreement, the Company is to reimburse on a monthly basis the Advisor, the Sub-advisor or their respective affiliates for cumulative offeringOrganizational costs and future offering costs they may incur on the Company’s behalf, but only to the extent that the reimbursement would not exceed 1.5% of gross offering proceeds over the life of the Company’s offering. The Company owes the Advisor, Sub-advisor and their affiliates approximately $7.1 million for organization and offering costsare expensed as of December 31, 2011. In addition, $2.0 million of offering costs incurred by the Sub-advisor on the Company’s behalf has not been charged to the Company or been recorded in the Company’s consolidated financial statements. Whether these costs will be billed to the Company in the future is at the discretion of the Sub-advisor and will likely depend on the success of the Company’s offering.incurred.As of December 31, 2010, the Company owed the Advisor, Sub-advisor and their affiliates approximately $4.8 million for organization and offering costs. by the Company are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method. The estimated useful lives for computing depreciation are generally 5-75-7 years for furniture, fixtures and equipment, 15 years for land improvements and 30 years for buildings and building improvements. Tenant improvements are amortized over the shorter of the respective lease term or the expected useful life of the asset. Major replacements that extend the useful lifelives of the assets are capitalized, and maintenance and repair costs are expensed as incurred.The CompanyWe recorded no impairments for the years ended December 31, 20112013, 2012, and 2010.Acquisitions of properties are accounted for utilizing the acquisition method and, accordingly, the2011.the Company’sour results of operations from their respective dates of acquisition. EstimatesWe assess the acquisition-date fair values of future cash flowsall tangible assets, identifiable intangibles and other valuation techniques that the Company believes areassumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis and replacement cost) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are used to allocatebased on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the purchase pricevalue of each identifiable asset acquired and liabilities assumed suchthe property as land, buildings and improvements, equipment and identifiable intangible assets and liabilities, such as amounts related to in-place leases, acquired above- and below-market leases, tenant relationships, asset retirement obligations, mortgage notes payable and any goodwill or gain on purchase. Acquisition relatedif it was vacant. Acquisition-related costs are expensed as incurred. Valuesas if vacantas-if-vacant basis.costs the Companycost we would have incurred to lease the properties to the occupancy level of the properties at the date of acquisition. Such estimates include leasing commissions, legal costs and other direct costs that would be incurred to lease the properties to such occupancy levels. Additionally, the Company evaluateswe evaluate the time period over which such occupancy levels would be achieved. Such evaluation includes an estimate of the net market-based rental revenues and net operating costs (primarily consisting of real estate taxes, insurance and utilities) that would be incurred during the lease-up period. Acquired in-place leases as of the date of acquisition are amortized over the remaining lease terms.an interest raterates that reflectsreflect the risks associated with the leaseleases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of the market lease rates for the corresponding in-place leases. The capitalized above- and below-market lease values are amortized as adjustments to rental revenueincome over the remaining terms of the respective leases. Should a tenant terminate its lease, the unamortized portion of the in-place lease value is charged to amortization expense and the unamortized portion of above- and below-market lease value is charged to rental revenue.Acquired above- and below-market ground lease values are recorded based on the difference between the present values (using an interestWe also consider fixed rate that reflects the risks associated with the lease acquired) of the contractual amounts to be paid pursuant to the ground leases and management’s estimaterenewal options in our calculation of the fair value of land underbelow-market leases and the ground leases. The capitalized above- andperiods over which such leases are amortized. If a tenant has a unilateral option to renew a below-market lease values will be amortized as adjustmentsand we determine that the tenant has a financial incentive to groundexercise such option, we include such an option in the calculation of the fair value of such lease expenseand the period over which the lease term.will estimateestimates the fair value of assumed mortgage notes payable based upon indications of then-current market pricing for similar types of debt with similar maturities. Assumed mortgage notes payable will beare initially recorded at their estimated fair value as of the assumption date, and the difference between such estimated fair value and the note’s outstanding principal balance will beis amortized over the life of the mortgage note payable as an adjustment to interest expense.20112013, 2012, and 2010,2011, respectively, were approximately $561,000$10.4 million, $2.9 million, and $241,000. Of this amount, for the years ended December 31, 2011 and 2010, respectively, $180,000 and $110,000 was incurred as a result of the financing fee due to the Advisor, Sub-advisor and their affiliates.$0.6 million. Amortization of deferred financing costs for the years ended December 31, 20112013, 2012, and 2010,2011, respectively, was $193,000$1.9 million, $0.6 million, and $10,000$0.2 million and was recorded in interest expense in the consolidated statements of operations.operations and comprehensive loss.The Company commencesWe commence revenue recognition on itsour leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, this occurs on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. If the Company iswe are the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space, and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.the Company concludeswe conclude that it iswe are not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives, which reducesreduce revenue recognized over the term of the lease. In these circumstances, the Company beginswe begin revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements. The Company considersWe consider a number of different factors to evaluatein evaluating whether itwe or the lessee is the owner of the tenant improvements for accounting purposes. These factors include:The Company recognizesdecreaseswill be less than the cash collected in the later years of a lease. The Company’sOur policy for percentage rental income is to defer recognition of contingent rental income until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved. The CompanyWe periodically reviewsreview the collectability of outstanding receivables. Allowances will be taken for those balances that the Company deemswe deem to be uncollectible, including any amounts relating to straight-line rent receivables.The Company makesWe make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. The Company doesWe do not expect the actual results to materially differ from the estimated reimbursement.The Company recordsreimbursements. letter agreement, all of the conditions of the agreement have been met, collectability is reasonably assured and the tenant is no longer occupying the property. Upon early lease termination, the Company provideswe provide for losses related to unrecovered tenant-specific intangibles and other assets.For the years ended December 31, 2011 and 2010, the Company recognized straight-line rental income of $79,000 and $0, respectively.The Company hasWe have elected to be taxed as a REITreal estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with the taxable year ended December 31, 2010. The Company’s. Our qualification and taxation as a REIT depends on itsour ability, on a continuing basis, to meet certain organizational and operational qualification requirements imposed upon REITs by the Code. If the Company failswe fail to qualify as a REIT for any reason in a taxable year, itwe will be subject to tax on itsour taxable income at regular corporate rates. The CompanyWe would not be able to deduct distributions paid to stockholders in any year in which it failswe fail to qualify as a REIT. The CompanyWe will also be disqualified for the four taxable years following the year during which qualification was lost unless the Company iswe are entitled to relief under specific statutory provisions. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property or net worth, respectively, and to federal income and excise taxes on our undistributed income. Additionally, GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the consolidated financial statements if it is more likely than not that the tax position will be sustained upon examination. We believe it is more likely than not that our tax positions will be sustained in any tax examinations.The Company offersWe offer a share repurchase program which may allow certain stockholders to have their shares repurchased subject to approval and certain limitations and restrictions (see Note 3). The Company accountsWe account for those financial instruments that represent aour mandatory obligation of the Company to repurchase shares as liabilities to be reported at settlement value. At such time, the CompanyWhen shares are presented for repurchase, we will reclassify such obligations from equity to a liability based upon their respective2011 and2013, we recorded a liability of $76,000 representing our obligation to repurchase 8,072 shares of common stock submitted for repurchase, but not yet repurchased as of such date. As of December 31, 2010,2012, no such obligationsobligation existed.insurance premiums,tenant improvement funds, real estate taxes, capital improvement funds, insurance premiums, and investor proceeds for which sharesother amounts required to be escrowed pursuant to loan agreements of common stock had not been issued of $214,000$4.9 million and $11,000$1.1 million as of December 31, 20112013 and 2012, respectively.2010, respectively.2013, the Company had an investment of $5.0 million in various 26-week certificates of deposit ("CDs"). The CDs are classified as held to maturity and included in restricted cash and investments in the accompanying consolidated balance sheets at cost.weighted averageweighted-average number of common shares outstanding during each period. Diluted income per share considers the effect of any potentially dilutive share equivalents of which the Company had none for the years ended December 31, 2013, 2012, and 2011.and 2010.respectively, that were excluded from diluted net loss per share computations as their effect would have been antidilutive.The Company assessesWe assess and measuresmeasure operating results of itsour properties based on net property operations. The CompanyWe internally evaluatesevaluate the operating performance of itsour portfolio of properties and doesdo not differentiate properties by geography, size or type. Each of the Company’sour investment properties is considered a separate operating segment, and as each property earns revenue and incurs expenses, individual operating results are reviewed and discrete financial information is available. However, the Company’s properties are aggregated into one reportable segment as they have similar economic characteristics, we provide similar services to the Company evaluatestenants at each of our properties, and we evaluate the aggregatecollective performance of theour properties. Accordingly, we did not report any other segment disclosures in Non-controlling2013.representsrepresent the economic equity interestinterests of the Joint Venture and a subsidiary of the Joint Venture that arewere not owned by the Company.us. Noncontrolling interests in the consolidated statements of equity represent contributions, distributions and allocated earnings to the CBRE Investors and unaffiliated holders of interests in a subsidiary of the group of international investors advised by CBRE Investors Global Multi Manager.Joint Venture. Noncontrolling interests in earnings of the Joint Venture in the consolidated statements of operations represents earningand comprehensive loss represent losses allocated to noncontrolling interests based on the economic ownership percentage of the consolidated Joint Venture held by these investors.Interest—Interest is charged to expense as it accrues. No interest costs were capitalized during the years ended On December 31, 2011 and 2010. However,2013, we acquired the 46% interest in the future some interest incurred may be capitalized to related development projects.Joint Venture previously owned by the CBRE Investors for a purchase price of $57.0 million. As a result, we own 100% of the Joint Venture as of December 31, 2013. EffectiveIn October 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-4, Technical Corrections and Improvements. The amendments in this update cover a wide range of topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. ASU 2012-4 was effective for us as of January 1, 2011, companies are required to separately disclose purchases, sales, issuances and settlements on a gross basis in the reconciliation of recurring Level 3 fair value measurements.2013. The adoption of this pronouncement did not have a material impact on our consolidated financial statements.Company.Effectiveamounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present significant amounts reclassified out of accumulated other comprehensive income by respective line items of net income if it is required to be reclassified to net income in its entirety. For other reclassified amounts, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. The provisions of ASU No. 2013-02 were effective for us on January 1, 2011, public companies that enter into2013, and are to be applied prospectively. As a business combination are required to disclose pro forma revenue and earningsresult of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. In addition, the supplemental pro forma disclosures are expanded. The Company is in compliance with the disclosure requirements of this guidance.In May 2011, the Financial Accounting Standard Board (“FASB”) issued ASU 2011-04,Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and International Financial Reporting Standards (“IFRS”), and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company for the annual period beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial position.this pronouncement, we addressed the required disclosures in Note 10, Derivatives and Hedging Activities.General—The Company hasWe have the authority to issue a total of 180,000,0001,000,000,000 shares of common stock with a par value of $0.01$0.01 per share and 10,000,000 shares of preferred stock, $0.01$0.01 par value per share. As of December 31, 2011, the Company has2013, we had issued 2,658,159175,689,995 shares of common stock including 16,647 shares issued through the DRP, generating gross cash proceeds of $25.4 million. $1.74 billion. As of December 31, 2013, there were 175,594,613 shares of our common stock outstanding which is net of 95,382 shares repurchased from stockholders pursuant to our share repurchase program, and we had issued no shares of preferred stock. The holders of shares of the common stock are entitled to one vote per share on all matters voted on by stockholders, including election of the board of directors. The Company’s Our charter does not provide for cumulative voting in the election of directors.The Company hasWe have adopted the DRP whichthat allows stockholders to have dividends and other distributions invested in additional shares of itsour common stock at a price equal to $9.50$9.50 per share. Stockholders who elect to participate in the DRP, and who are subject to U.S. federal income taxation laws, will incur a tax liability on an amount equal to the fair value on the relevant distribution date of the shares of the Company’sour common stock purchased with reinvested distributions, even though such stockholders have elected not to receive the distributions used to purchase those shares of common stock in cash.During Distributions reinvested through the yearDRP for the years ended December 31, 2013, 2012 and 2011, there were 16,647 shares, or $158,000, issued through the DRP. There were no shares reinvested during the year ended December 31, 2010.The Company’sOur share repurchase program (“SRP”) may provide a limited opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and limitations, at a price equal to or at a discount from the purchase price paid for the shares being repurchased.The discount will vary based upon the length of time that the shares of the Company’s common stock subject to repurchase have been held. Unless the shares are being repurchased in connection with a stockholder’s death or “qualifying disability”, the prices at which the Company will repurchase shares are as follows:The lower of $9.25 and 92.5% of the price paid to acquire the shares for stockholders who have held their shares for at least one year;The lower of $9.50 and 95.0% of the price paid to acquire the shares for stockholders who have held their shares for at least two years;The lower of $9.75 and 97.5% of the price paid to acquire the shares for stockholders who have held their shares for at least three years; andThe lower of $10.00 and 100% of the price paid to acquire the shares for stockholders who have held their shares for at least four years.Notwithstanding the above, once the Company establishes an estimated value per share of its common stock that is not based on the price to acquire a share in the primary offering or a follow-on public or private offering, the repurchase price per share for all stockholders would be equal to the estimated value per share, as determined by the Advisor or another firm chosen for that purpose.the Companyus at least five days prior to the end of the applicable month. Stockholders may withdraw their repurchase request at any time up to five business days prior to the repurchase date.SRPshare repurchase program at any time. If the board of directors decides to amend, suspend or terminate the SRP,share repurchase program, stockholders will be provided with no less than 30 days’days' written notice.$56,300$56,244 under the SRP.share repurchase program for an average repurchase price of $9.99 per share. There were no additional shares repurchased duringeligible for repurchase that were tendered for repurchase for the yearyears ended December 31, 2010.Securities Authorized for Issuance under Equity Compensation Plans—The following table provides information regarding the Company’s2010 Long-Term Incentive Plan—We have adopted a 2010 Long-Term Incentive Plan which may be used to attract and the Company’sretain officers, advisors, and consultants. We have not issued any shares under this plan as of December 31, 2013.as of December 31, 2011:Plan CategoryNumber of securities to beissued upon exercise ofoutstanding options,warrants and rightsWeighted-averageexercise price ofoutstanding options,warrants and rightsNumber of securitiesremaining available forfuture issuanceunder equitycompensation plans (*)Equity compensation plans approved by security holders— — 9,200,000Equity compensation plans not approved by security holders— — — Total— — 9,200,000*To date, no awards have been granted under the 2010 Long-Term Incentive Plan or the Amended and Restated 2010 Independent Director Stock Plan.2010 Independent Director Stock Plan—The Company has adopted a long-term incentive plan that willwhich may be used to attract and retain qualified directors. The Company’s 2010 Independent Director Stock Plan (the “Independent Director Plan”) will offer these individualsindependent directors an opportunity to participate in the Company’sour growth through awards of shares of restricted common stock subject to time-based vesting. NoWe have not issued any shares were issued under this plan in 2011 or 2010.The Company’s conflicts committee will administer the Independent Director Plan, with sole authority to determine all of the terms and conditions of the awards. No awards will be granted under the Independent Director Plan if the grant or vesting of the awards would jeopardize the Company’s status as a REIT under the Internal Revenue Code or otherwise violate the ownership and transfer restrictions imposed under the Company’s charter.The Company’s board of directors may in its sole discretion at any time determine that all or a part of a director’s time-based vesting restrictions on all or a portion of a director’s outstanding shares of restricted stock will lapse, as of such date as the committee may, in its sole discretion, declare. The Company’s board of directors may discriminate among participants or among awards in exercising such discretion.The Independent Director Plan will automatically expire on the tenth anniversary of the date on which it was approved by the Company’s board of directors and stockholders, unless extended or earlier terminated by the board of directors. The board of directors may terminate the Independent Director Plan at any time.Measurements and Disclosures(“Measurement (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is intended to be a market-based measurement, as opposed to a transaction-specific measurement.the Company haswe have the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.the Company’sour assumptions about the pricing of an asset or liability.the Company useswe use to estimate the fair value of the Company’sour financial and non-financial assets and liabilities:andprepaid expenses, accounts payable, and accrued expenses—The Company considersWe consider the carrying values of these financial instruments to approximate fair value because of the short period of time between origination of the instruments and their expected realization.marketsmarket rents and allowances from managementas determined by management.third party appraisal.Mortgages loans payable and Notes payable—affiliates— Management believesWe estimate the carrying amounts approximate fair value of our debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by our lenders using Level 3 inputs. The discount rates used approximate current lending rates for loans or groups of loans with similar maturities and credit quality, assuming the debt is outstanding through maturity and considering the debt's collateral (if applicable). Such discount rate was 4.50% for secured fixed rate debt as of December 31, 2013. Such discount rates were 2.70% for variable rate debt and 4.25% for fixed rate debt as of December 31, 2012. We have utilized market information as available or present value techniques tomarket interest rates available,estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of December 31, 20112013, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative position and 2010.have determined that the credit valuation adjustments are not significant to the overall valuation of our derivative. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.the Companywe could realize on disposition of the financial assets and liabilities. December 31, 2013 December 31, 2012 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Interest rate swap $ — $ 818 $ — $ 818 $ — $ — $ — $ — During2011, the Company2013, we acquired a 100% interest in four57 grocery-anchored retail centers for an aggregatea combined purchase price of approximately $41.9 million. Subsequent to these$917.8 million, including $153.8 million of assumed debt with a fair value of $157.9 million. The following tables present certain additional information regarding our material acquisitions in the Company contributed theseAtlanta Portfolio, the March 21st Portfolio, Northcross, Fairlawn Town Centre, the BVT Portfolio, the RG Portfolio, and the remaining properties towhich were deemed individually immaterial when acquired, but are material in the Joint Venture, in which the Company holds an approximate 54% interest. The Company also acquired a 54% interest in an additional property through the Joint Venture for a purchase price of approximately $14.0 million. The Company financed the acquisitions with net proceeds from the offering and through the issuance of approximately $38.4 million in mortgage notes. The Companyaggregate. We allocated the purchase price of these propertiesacquisitions to the fair value of the assets acquired and lease liabilities assumed. assumed as follows (in thousands):Acquisition Land Building and Improvements In-Place Leases Above-Market Leases Below-Market Leases Total $ 17,516 $ 48,401 $ 3,195 $ 1,376 $ (838 ) $ 69,650 Fairlawn Town Centre 7,179 32,223 2,479 929 (610 ) 42,200 12,138 35,058 3,227 1,731 (154 ) 52,000 Northcross 27,885 28,467 7,443 324 (2,619 ) 61,500 16,934 38,667 5,486 222 (723 ) 60,586 13,137 55,948 7,048 437 (842 ) 75,728 125,266 379,064 55,351 8,012 (11,607 ) 556,086 $ 220,055 $ 617,828 $ 84,229 $ 13,031 $ (17,393 ) $ 917,750 Company allocatedAtlanta portfolio consists of the aggregate purchase priceacquisitions of approximately $15.3 millionseven properties in the Atlanta, Georgia region (The Shops at Westridge, Mableton Crossing, Hamilton Ridge, Grassland Crossing, Fairview Oaks, Butler Creek, and Macland Point) in two related transactions in January and February of 2013.land, approximately $36.3 million to building and improvements, approximately $2.6 million to acquired in-place leases, approximately $0.9 million to acquired below-market leases, and approximately $2.6 million to acquired above-market leases. The Company expensed approximately $1.2 million of acquisition costsDecember 31, 2013 related to the acquisitions. operating activities of our material acquisitions are as follows (in thousands):Acquisition Acquisition Date Revenues Acquisition Expenses Net Income (Loss) 1/15/2013 and 2/13/2013 $ 6,716 $ 1,116 $ 558 Fairlawn Town Centre 1/30/2013 4,730 588 670 3/21/2013 3,977 769 (827 ) Northcross 6/24/2013 3,017 739 598 11/7/2013 921 908 (903 ) 12/19/2013 272 1,909 (1,710 ) 18,051 11,237 (7,563 ) Total $ 37,683 $ 17,266 $ (9,177 ) Company is finalizingAtlanta portfolio consists of the reviewacquisitions of seven properties in the Atlanta, Georgia region (The Shops at Westridge, Mableton Crossing, Hamilton Ridge, Grassland Crossing, Fairview Oaks, Butler Creek, and Macland Point) in two related transactions in January and February of 2013.price allocation and is obtaining additional information with respectof Kleinwood Center to land and building appraisals forcover the Burwood and Cureton acquisition. Although we do not anticipate any further changes in the fair value measurements, the measurements may be subject to change within 12 monthscosts of the acquisition date if new facts or circumstances are brought to our attention that were previously unknown but existed as of the acquisition date.presentssummarizes selected pro forma financial information from our combined results of the Company giving effect to theoperations, as if all of our acquisitions as though theyfor 2012 and 2013 had occurredbeen acquired on January 1, 2010.The Company2012.2011, would have been approximately $8.2 million (unaudited) and the Company’s net loss attributable to shareholders,2013, on a pro forma basis, would have been approximately $1,865,000 (unaudited).Companypro forma net income per share would have been $0.16 for the year ended December 31, 2013. Our net loss attributable to our stockholders for the year ended December 31, 2012, on a pro forma basis, would have been approximately $4.3 million. The pro forma net loss per share would have been $0.05 for the year ended December 31, 2012.yearyears ended December 31, 2010,2012 and 2011, would have been approximately $7.8approximately$36.3 million (unaudited) and the Company’s$35.0 million, respectively, and our net loss attributable to our stockholders, on a pro forma basis excluding acquisition expenses, would have been approximately $1,568,000 (unaudited).During June 2011, the Company completed its analysis of the fair value allocation for the acquisition of Lakeside Plaza based on obtaining additional appraisal information. As a results of the change in allocation for this acquisition, there was no material impact to the statement of operations. Below are the initial and revised allocations of the fair value of this center which have been retrospectively reflected in the consolidated balance sheet as of December 31, 2010, in accordance with GAAP:($000s) Initial
Estimate of
Fair Value Purchase
Price
Adjustment Revised
Estimate of
Fair Value $ 4,306 $ (1,692 ) $ 2,614 4,290 1,688 5,978 151 4 155 325 9 334 (322 ) (9 ) (331 ) $ 8,750 $ — $ 8,750 As the acquisition of Lakeside Plaza occurred in December 2010, the impact to the consolidated statement of operations would have been immaterial as a result of the revised fair value allocation, thus no adjustment was recorded.as of December 31:($000s) 2011 2010 $ 3,169 $ 836 3,630 1,492 $ 6,799 $ 2,328 2013 2012 Acquired in-place leases, net of accumulated amortization of $10,363 and $2,310, respectively $ 91,829 $ 15,655 Acquired above market leases, net of accumulated amortization of $3,967 and $1,534, respectively 15,901 5,302 Total $ 107,730 $ 20,957 duringfor the years ended December 31, 2013, 2012, and 2011 was $10.5 million, $3.0 million, and 2010, was $764,000 and $43,000,$0.8 million, respectively.20112013 for each of the five succeeding calendar years and thereafter is as follows (in thousands):Year In-Place Leases Above Market
Leases $ 739 $ 870 739 870 695 849 606 725 390 316 $ 3,169 $ 3,630 Year In-Place Leases Above-Market Leases 2014 $ 16,743 $ 3,525 2015 15,841 3,272 2016 14,575 2,649 2017 12,775 2,124 2018 9,377 1,542 2019 and thereafter 22,518 2,789 Total $ 91,829 $ 15,901 weighted averageweighted-average amortization periods for acquired in-place lease and above marketabove-market lease intangibles are five years.The aggregate cost of real estate owned at December 31, 2011 for federal income tax purposes was approximately $78.5 million (unaudited).MORTGAGEMORTGAGES AND LOANS AND NOTES PAYABLE—AFFILIATES2011, the Company, through the Joint Venture,2013, we had approximately $46.8$200.9 million of mortgage loans payable. Each of theoutstanding mortgage notes payable, inclusive of a below-market assumed debt adjustment of $4.8 million. As of December 31, 2012, we had $159.0 million of outstanding mortgage notes payable, inclusive of a below-market assumed debt adjustment of $1.9 million. Each mortgage note payable is secured by the respective propertiesproperty on which the debt was placed. A wholly owned subsidiaryAs of December 31, 2013 and 2012, the Joint Venture has guaranteed 25% of these mortgageweighted-average interest rate for the loans payable. The aggregatewas 5.61% and 3.58%, respectively. of gross real estate assets, net of gross intangible lease liabilities securing the mortgage notes payable, was approximately $77.0 million as of December 31, 2011. The mortgage notes2013, from which we may generally be prepaid subjectdraw funds to meetingpay certain requirements and payment of a prepayment premiumlong-term debt obligations as specified in the respective loan agreements. All of the Company’s current mortgage notes have a revolving credit feature and asthey mature. As of December 31, 2011,2013, the maximum aggregate amount that couldcurrent borrowing capacity of the unsecured revolving credit facility was $226.7 million, as calculated using properties eligible to be drawnincluded in the calculation of the borrowing base as defined in the agreement. The interest rate on these notesamounts outstanding under this credit facility is currently LIBOR plus 1.30%. The credit facility matures on December 18, 2017.$53.4scheduled to mature on December 21, 2015, but was closed upon our execution of the unsecured revolving credit facility in December 2013.the Company’s outstandingour debt obligations as of December 31, 2011:2013 and 2012 (in thousands):December 31, 2013 December 31, 2012 Outstanding Principal Balance Maximum Loan Capacity Outstanding Principal Balance Maximum Loan Capacity $ 196,052 $ 196,052 $ 43,934 $ 43,934 — — 76,424 89,475 Secured credit facility — 36,709 40,000 — 50,000 — — Unsecured credit facility - variable rate — 176,745 — 10,000 4,820 N/A 1,940 N/A $ 200,872 $ 422,797 $ 159,007 $ 183,409 Property(1)Due to the non-recourse nature of certain mortgages, the assets and Related LoanOutstandingPrincipalBalanceInterest RateLoan TypePaymentsMaturityDateliabilities of the following properties are neither available to pay the debts of the consolidated limited liability companies nor constitute obligations of the consolidated limited liability companies: Baker Hill Center, Broadway Plaza, Publix at Northridge, Kleinwood Center, Murray Landing, Vineyard Center, Sunset Center, Westwoods Shopping Center, Stockbridge Commons, East Burnside Plaza, Fresh Market, Collington Plaza, Stop & Shop Plaza, and Arcadia Plaza. The outstanding principal balance of these non-recourse mortgages as of December 31, 2013 and 2012 was $157.8 million and $28.9 million, respectively.Lakeside Credit Facility (1)$6.1 millionOne-month LIBOR plus 2.40% to 2.85%, depending upon amount outstanding and debt yieldFirst mortgage loanMonthly interest only payments through July 1, 2012, followed by continued monthly interest payments and possible monthly payments of principal(2)December 10,2012 (3)Snow View Credit Facility (1)$2.3 millionOne-month LIBOR plus 2.40% to 2.85%, depending upon amount outstanding and debt yieldFirst mortgage loanMonthly interest only payments through July 1, 2012 followed by continued monthly interest payments and possible monthly payments of principal(4)December 15,2012 (5)St. Charles Credit Facility (1)$6.8 millionOne-month LIBOR plus 2.40% to 2.85%, depending upon amount outstanding and debt yieldFirst mortgage loanMonthly interest only payments through January 1, 2013 followed by continued monthly interest payments and possible monthly payments of principal (6)June 10,2013 (7)Southampton Credit Facility$5.9 millionDaily LIBOR plus 2.25% to 2.50%, depending upon amount outstanding and debt yieldRevolving creditfacilityMonthly interest only payments through April 30, 2013 followed by continued monthly interest payments and possible monthly payments of principal (8)November 1, 2013 (9)Centerpoint Credit Facility$4.9 millionDaily LIBOR plus 2.25% to 2.50%, depending upon amount outstanding and debt yieldRevolving creditfacilityMonthly interest only payments through April 30, 2013 followed by continued monthly interest payments and possible monthly payments of principal (10)November 1, 2013 (11)Burwood Credit Facility$11.9 millionDaily LIBOR plus 2.25% to 2.50%, depending upon amount outstanding and debt yieldRevolving creditfacilityMonthly interest only payments through April 30, 2013 followed by continued monthly interest payments and possible monthly payments of principal (12)November 1, 2013 (13)Cureton Credit Facility$8.9 millionDaily LIBOR plus 2.25% to 2.50%, depending upon amount outstanding and debt yieldRevolving creditfacilityMonthly interest only payments through July 31, 2013 followed by continued monthly interest payments and possible monthly payments of principal (14)January 1, 2016(1)The Lakeside Credit Facility, the Snow View Credit Facility, and the St. Charles Credit Facility subject Lakeside Plaza, Snow View Plaza, and St. Charles Plaza to cross-collateral and cross-default provisions under separate and corresponding provisions of each loan. A wholly owned subsidiary of the Joint Venture has guaranteed 25% of the Joint Venture’s obligations under the Lakeside Credit Facility, the Snow View Credit Facility, and the St. Charles Credit Facility.On or before July 1, 2012, total availability underAs of December 31, 2013, the loan will be reduced by $675,000, and beginninginterest rate on July 1, 2012 and continuing through the maturity date, availability will be reduced by $20,415 per month, which may require the Company to make monthly principal payments (depending on the then-outstanding borrowings under the loan), in addition to continued monthly interest payments. The Company has the option to prepay any outstanding amounts under the Lakeside Credit Facility at any time in whole or in part without premium or penalty.(3)The Company may extend the maturity date of the Lakeside Credit Facility to December 10, 2013 upon payment of an extension fee equal to 0.25%$50.0 million of the amount outstanding on December 10, 2012.(4)On or before July 1, 2012, total availabilityavailable under the loan will be reduced by $940,000, and beginning on July 1, 2012 and continuing through the maturity date, availability will be reduced by $28,500 per month, which may require the Company to make monthly principal payments (depending on the then-outstanding borrowings under the loan), in addition to continued monthly interest payments. The Company has the option to prepay any outstanding amounts under the Snow View Credit Facility at any time in whole or in part without premium or penalty.(5)The Company may extend the maturity date of the Snow View Credit Facility to December 15, 2013 upon payment of an extension fee equal to 0.25% of the amount outstanding on December 15, 2012.(6)On or before January 1, 2013, total availability under the loan will be reduced by $742,500, and beginning on January 1, 2013 and continuing through the maturity date, availability will be reduced by $22,500 per month, which may require the Company to make monthly principal payments (depending on the then-outstanding borrowings under the loan), in addition to continued monthly interest payments. The Company has the option to prepay any outstanding amounts under the St. Charles Credit Facility at any time in whole or in part without premium or penalty.(7)The Company may extend the maturity date of the St. Charles Credit Facility to June 10, 2014 upon payment of an extension fee equal to 0.25% of the amount outstanding on June 10, 2013.(8)Beginning on May 1, 2013 and continuing through the maturity date, the Southampton Credit Facility will be reduced by $9,750 per month, which may require the Company to make monthly principal payments (depending on the then-outstanding borrowings under the credit facility), in addition to continued monthly interest payments. The Company has the option to prepay any outstanding amounts under the Southampton Credit Facility at any time in whole or in part without premium or penalty. A wholly owned subsidiary of the Joint Venture has guaranteed 25% of the Joint Venture’s obligations under the Southampton Credit Facility.(9)The Company may extend the maturity date of the Southampton Credit Facility to October 10, 2014 upon payment of an extension fee equal to 0.25% of the amount outstanding under theour unsecured credit facility on November 1, 2013.(10)Beginning on May 1, 2013 and continuing through the maturity date, the Centerpoint Credit Facility will be reduced by $8,000 per month, which may require the Company to make monthly principal payments (depending on the then-outstanding borrowings under the credit facility), in addition to continued monthly interest payments. The Company has the option to prepay any outstanding amounts under the Centerpoint Credit Facility at any time in whole or in part without premium or penalty. A wholly owned subsidiary of the Joint Venture has guaranteed 25% of the Joint Venture’s obligations under the Centerpoint Credit Facility.(11)The Company may extend the maturity date of the Centerpoint Credit Facility to November 1, 2014 upon payment of an extension fee equal to 0.25% of the amount outstanding on November 1, 2013.(12)Beginning on May 1, 2013 and continuing through the maturity date, the Burwood Credit Facility will be reduced by $19,660 per month, which may require the Company to make monthly principal payments (depending on the then-outstanding borrowings under the credit facility), in addition to continued monthly interest payments. The Company has the option to prepay any outstanding amounts under the Burwood Credit Facility at any time in whole or in part without premium or penalty. A wholly owned subsidiary of the Joint Venture has guaranteed 25% of the Joint Venture’s obligations under the Burwood Credit Facility.(13)The Company may extend the maturity date of the Burwood Credit Facility to November 1, 2014 upon payment of an extension fee equal to 0.25% of the amount outstanding on November 1, 2013.(14)Beginning on August 1, 2013 and continuing through the maturity date, the Cureton Credit Facility will be reduced by $14,000 per month, which may require the Company to make monthly principal payments (depending on the then-outstanding borrowings under the credit facility), in addition to continued monthly interest payments. The Company has the option to prepay any outstanding amounts under the Cureton Credit Facility at any time in whole or in part without premium or penalty. A wholly owned subsidiary of the Joint Venture has guaranteed 25% of the Joint Venture’s obligations under the Cureton Credit Facility.and the notes payable to affiliates with their respective principal payment obligations. Year Variable Rate
Debt Weighted Average
Interest Rate $ 8,465 3.17 % 29,518 2.87 % 168 2.78 % 168 2.78 % 8,469 2.78 % — 0.00 % $ 46,788 2.91 % As of December 31, 2011, the Company was in compliance with all debt covenants.2014 2015 2016 2017 2018 Thereafter Total Fixed rate mortgages payable $ 25,655 $ 34,890 $ 49,629 $ 44,240 $ 1,694 $ 39,944 $ 196,052 Weighted-average interest rate on debt: 6.8 % 5.5 % 5.7 % 5.3 % 6.2 % 5.2 % 5.6 % All but $6.4 million of the fixed rate debt represents loans assumed as part of certain acquisitions. The assumed loans typically have higher interest rates than interest rates associated with new debt. BELOW MARKETBELOW-MARKET LEASE INTANGIBLESbelow marketbelow-market lease intangibles consisted of the following as of December 31, 20112013 and 2010 were:($000s) 2011 2010 $ 1,203 $ 442 2013 2012 Acquired below-market leases, net of accumulated amortization of $2,708 and $811, respectively $ 20,387 $ 4,892 lease liabilities for the years ended December 31, 2013, 2012, and 2011 was $1.9 million, $0.7 million, and 2010, was $151,000 and $10,000,$0.2 million, respectively.liabilityliabilities as of December 31, 20112013 for each of the five succeeding calendar years and thereafter is as follows:($000s)Year Below Market
Leases $ 269 269 226 171 268 $ 1,203 Year Below-Market Leases 2014 $ 3,270 2015 2,993 2016 2,614 2017 2,224 2018 1,844 2019 and thereafter 7,442 Total $ 20,387 weighted averageweighted-average amortization period for below market lease intangibles is five10 years.the Companywe may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company.the Companywe may be potentially liable for costs and damages related to environmental matters. The Company hasWe have not been notified by any governmental authority of any non-compliance, liability or other claim, and the Company iswe are not aware of any other environmental condition that it believeswe believe will have a material adverse effectimpact on itsour consolidated financial statements.10.The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2013, such derivatives were used to hedge the variable cash flows associated with certain variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in other income, net, on the consolidated statements of operations and comprehensive loss. During the year ended December 31, 2013, we recorded a loss of $48,000 of hedge ineffectiveness in earnings attributable to a notional mismatch between the debt and derivative. Year Ended Derivatives in Cash Flow Hedging Relationships (Interest Rate Swap) December 31, 2013 Amount of gain (loss) recognized in other comprehensive income on derivative $ 633 Amount of gain (loss) reclassified from accumulated other comprehensive income into interest expense (57 ) Amount of loss recognized in income on derivative (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing) (48 ) the Company’sour advisory agreement, the Advisor is entitled to specified fees for certain services, including managing theour day-to-day activities and implementing the Company’sour investment strategy. The Advisor has entered into a sub-advisory agreement with the Sub-advisor, which manages the Company’sour day-to-day affairs and the Company’sour portfolio of real estate investments on behalf of the Advisor, subject to the board’s supervision and certain major decisions requiring the consent of both the Advisor and Sub-advisor. The expenses to be reimbursed to the Advisor and Sub-advisor will be reimbursed in proportion to the amount of expenses incurred on the Company’sour behalf by the Advisor and Sub-advisor, respectively.the Company iswe are to reimburse on a monthly basis the Advisor, the Sub-advisor or their respective affiliates for cumulative organization and offering costs and future organization and offering costs they may incur on the Company’sour behalf, but only to the extent that the reimbursement would not exceed 1.5% of gross offering proceeds over the life of the offering. The Company anticipates that these costs will not exceed the limitation upon completion of theour initial public offering. As of December 31, 2011,2013, the Advisor, Sub-advisor and their affiliates have paidcharged us approximately $7.1$26.3 million of organization and offering costs. Under the termscosts, and we have reimbursed $25.9 million of the advisory agreement, the Company is to reimburse onsuch costs, resulting in a monthly basisnet payable of $0.4 million. As of December 31, 2012, the Advisor, the Sub-advisor orand their respective affiliates for cumulativehad charged us approximately $7.2 million of organization and offering costs, and future organization and offering costs they may incur on the Company’s behalf, but only to the extent that the reimbursement would not exceed 1.5% of gross offering proceeds over the life of the offering. In addition, approximately $2.0we had reimbursed $4.2 million of offeringsuch costs, incurred by the Sub-advisor on the Company’s behalf has not been charged to the Company or been recordedresulting in its consolidated financial statements. Whether these costs will be billed to the Company in the future is at the discretiona net payable of the Sub-advisor and will likely depend on the success of the Company’s offering. As of December 31, 2010, the Advisor, Sub-advisor or their affiliates had paid $4.8 million of organization and offering costs.$3.0 million.The Company paysWe pay the Advisor an acquisition fee related to services provided in connection with the selection and purchase or origination of real estate and real estate-related investments. The acquisition fee is equal to 1.0% of the cost of investments acquiredwe acquire or originated by the Company,originate, including acquisition or origination expenses and any debt attributable to such investments. The Company incurred acquisition fees payableand their affiliateson a quarterly basis, performance-based Class B units of $356,000 and $210,000, respectively, for the yearsOperating Partnership. During the year ended December 31, 20112013, the Operating Partnership issued 532,381 Class B units2010 in connection with the property acquisitions. The amount of these acquisition fees outstanding and receivable/(payable)Sub-advisor under the advisory agreement for the asset management services performed by the CompanyAdvisor and the Sub-advisor during the period from October 1, 2012 through September 30, 2013. These Class B units will not vest until the conditions discussed in Note 2 have been met. Because we do not deem the vesting conditions to be probable, the units will not be recorded as of December 31, 2011 and 2010, respectively, were$44,000 and ($210,000). The receivable at December 31, 2011 was dueequity or an obligation until the Class B units vest.an overpayment of acquisition fees related to the Cureton Town Center acquisition.Asset Management Fee—The Company paysOctober 1, 2012, we paid the Advisor an asset management fee for the asset management services it providesprovided pursuant to the advisory agreement. The asset management fee, payable monthly in arrears (based on assets we held by the Company during the previous month) will bewas equal to 0.08333% of the sum of the cost of all real estate and real estate-related investments the Company ownswe owned and of itsour investments in joint ventures, including certain expenses and any debt attributable to such investments. However, the Advisor reimbursesreimbursed all or a portion of the asset management fee for any applicable period to the extent that as of the date of the payment, the Company’sour modified funds from operations (as defined in accordance with the then-current practice guidelines issued by the Investment Program Association with an additional adjustment to add back capital contribution amounts received from the Sub-advisor or an affiliate thereof, (withoutwithout any corresponding issuance of equity to the Sub-advisor or its affiliate), during the quarter were not at least equal to itsour declared distributions during the quarter, provided that the distribution rate during such quarter was no more than $0.65 per share on an annualized basis. However, the Company cannotquarter. We could not avoid payment of an asset management fee by raising itsour distribution rate beyond $0.65 per share on an annualized basis. Totalincurred forin cash pursuant to the year endedadvisory agreement between the Joint Venture and the Advisor through December 31, 2011, were $347,000, with $284,000 of these fees being waived or reimbursed2013. On December 31, 2013, we acquired the 46% interest in the Joint Venture previously owned by the Advisor and Sub-advisor. Asset management fees forCBRE Investors. As a result, we own 100% of the year endedJoint Venture as of December 31, 2010 were $18,000, but were waived by the Advisor and Sub-advisor.The Company pays itsWe pay the Advisor or Sub-advisor a financing fee equal to a total of 0.75% of all amounts made available under any loan or line of credit. The Company incurred financing fees payable to the Advisor, Sub-advisor and their affiliates of $180,000 and $110,000, respectively, for the years ended December 31, 2011 and 2010, in connection with the mortgage loans used for property acquisitions. The amount of these financing fees outstanding and receivable (payable) by the Company as of December 31, 2011 and 2010, respectively, were $19,000 and ($110,000). The receivable at December 31, 2011 was due to an overpayment of financing fees related to the Cureton Town Center acquisition.the Companywe will pay the Advisor or its assignee 2.0% of the contract sales price of each property or other investment sold. The conflicts committee of our board of directors will determine whether the Advisor, Sub-advisor or their respective affiliates have provided substantial assistance to the Companyus in connection with the sale of an asset. Substantial assistance in connection with the sale of a property includes the Advisor’s or Sub-advisor’s preparation of an investment package for the property (including an investment analysis, rent rolls, tenant information regarding credit, a property title report, an environmental report, a structural report and exhibits) or such other substantial services performed by the Advisor or Sub-advisor in connection with a sale. However, if the Company sellswe sell an asset to an affiliate, the Company’sour organizational documents will prohibit itus from paying the Advisor, the Sub-advisor or their respective affiliates a disposition fee. There wereAs of December 31, 2013, we have not disposed of any properties or other investments, and no disposition fees incurred in 2011have been earned by or 2010.paid to the Advisor or Sub-advisor.and $140,000, respectively during the yearsyear ended December 31, 2011, and 2010, for certain of our general and administrative expenses of the Company as capital contributions. The sponsors have not received, and will not receive, any reimbursement for these contributions. The sponsors do not intend to make further capital contributions to continue to fund certain of the Company’s general and administrative expenses. As of December 31, 2011,2013, the Advisor, Sub-advisor and their affiliates have paid $1.1 millionnot allocated any portion of their employees’ salaries to general and administrative expenses. Theseremain due fromunpaid as of December 31, 2013 and 2012 (in thousands): For the Year Ended Unpaid Amount as of December 31, December 31, 2013 2012 2011 2013 2012 Acquisition fees $ 10,095 $ 1,705 $ 356 $ — $ 191 154 — — 30 — Asset management fees 999 1,243 347 — 248 Asset management fees waived — 546 284 999 697 63 — 248 Financing fees 5,581 816 180 — — Disposition fees — — — — — Represents the distributions paid to the Advisor and Sub-advisor as holders of Class B units of the Operating Partnership. Asset management fees are net of fees waived. The only amounts not waived since inception are those fees paid by the CBRE Investors. Company.Subordinated Sharenet sales proceeds of Cash Flows—After investors who have not redeemed their shares have received athe sale of real estate assets equal to 15.0% of remaining net sales proceeds after return of their net capital contributions to stockholders plus payment to stockholders of a 7.0% cumulative, pre-tax, non-compounded return on the capital contributed by stockholders. The Advisor has a 15.0% interest and a 7.0% per year cumulative, noncompounded return, the Advisor is entitled to receive a totalSub-advisor has an 85.0% interest in the Special Limited Partner. No sales of 15.0% ofreal estate assets occurred in the Company’s net cash flows, whether from continuing operations, net sale proceeds or otherwise. This fee is payable only if the Company is not listed on an exchange.years ended December 31, 2013, 2012, and 2011.FeeListing Distribution—UponThe Operating Partnership will pay to the Special Limited Partner a subordinated incentive listing distribution upon the listing of the Company’sour common stock on a national securities exchange, the Company will pay to the Advisor a feeexchange. Such incentive listing distribution is equal to15.0% of the amount by which (i) the market value of theall of our issued and outstanding common stock plus distributions paidexceeds the aggregate capital contributed by stockholders plus an amount equal to a 7.0% cumulative, pre-tax non-compounded annual return to stockholders. Company prior toSpecial Limited Partner nor any of its affiliates can earn both the subordinated participation in the net sales proceeds and the subordinated incentive listing to investors who have not redeemed their shares exceeds (ii)distribution. No subordinated incentive listing distribution was earned for the sumyears ended December 31, 2013, 2012, and 2011.total amountAdvisor Agreement—Upon termination or non-renewal of capital raised from investors who have not redeemed their shares andthe advisory agreement, the Special Limited Partner shall be entitled to a subordinated termination distribution in the form of a non-interest bearing promissory note equal to 15.0% of the amount by which the cost of cash flow necessaryour assets plus distributions exceeds the aggregate capital contributed by stockholders plus an amount equal to generate a 7.0% per year cumulative, noncompoundedpre-tax non-compounded annual return to those investors.stockholders. In addition, the Special Limited Partner may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs.the Company’sour real properties are managed and leased by Phillips Edison & Company Ltd. (“Property(the “Property Manager”), an affiliated property manager. The Property Manager is wholly owned by the Company’sour Phillips Edison sponsor and was organized on September 15, 1999. The Property Manager also manages real properties acquired by the Phillips Edison affiliates or other third parties.The Company pays annualized gross cash receipts of the properties managed by the Property Manager. In the event that the Company contractswe contract directly with a non-affiliated third-party property manager inwith respect ofto a property, itwe will pay the Property Manager a monthly oversight fee equal to 1.0% of the annualized gross revenues of the property managed. In addition to the property management fee or oversight fee, if the Property Managerthe Company willwe pay the Property Manager leasing fees in an amount equal to the leasing fees charged by unaffiliated persons rendering comparable services in the same geographic location of the applicable property. The Company willWe reimburse the costs and expenses incurred by the Property Manager on itsour behalf, including legal, travel and other out-of-pocketthe Company engageswe engage the Property Manager to provide construction management services with respect to a particular property, the Company willwe pay a construction management fee in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the property.The Company incurred property managementdueearned by and the expenses reimbursable to the Property Manager of $157,000 and $0, respectively, for the years ended December 31, 2013, 2012 and 2011, and 2010. Unpaid Amount as of For the Year Ended December 31, December 31, December 31, 2013 2012 2011 2013 2012 Property management fees $ 3,011 $ 756 $ 157 $ 418 $ 112 Leasing commissions 1,239 302 34 80 96 Construction management fees 293 41 3 50 18 Other fees and reimbursements 684 191 46 89 (20 ) Total $ 5,227 $ 1,290 $ 240 $ 637 $ 206 The Company’s currentOur dealer manager is Realty Capital Securities, LLC (the “Dealer Manager”). The Dealer Manager is a member firm of the Financial Industry Regulatory Authority, (FINRA)Inc. (“FINRA”) and was organized on August 29, 2007. The Dealer managerManager is indirectly wholly owned by the Company’sa subsidiary of an entity which is under common ownership with our AR Capital sponsor and will provideprovided certain sales, promotional and marketing services in connection with the distribution of the shares of common stock offered.offered under our initial public offering. Excluding shares sold pursuant to the “friends and family” program, the dealer manager willDealer Manager was generally be paid a sales commission equal to 7.0% of the gross proceeds from the sale of shares of the common stock sold in the primary offering and a dealer manager fee equal to 3.0% of the gross proceeds from the sale of shares of the common stock sold in the primary offering.manager fees incurred duringManager typically reallowed 100% of the year ended December 31, 2011 were $350,000, of which $76,000 were reallowed to participating broker-dealers. In addition to the reallowanceselling commissions and a portion of the dealer manager fees, the dealer manager paid commissions of $1,014,000fee to participating broker-dealers in 2011.There were no dealer managerbroker-dealers.incurred or paid inearned by the Dealer Manager for the yearyears ended December 31, 2010, as all shares were sold in conjunction with the Company’s “friends2013, 2012 and family” program for which no fees or commissions are paid. For the Year Ended December 31, 2013 2012 2011 Selling commissions $ 100,148 $ 7,880 $ 1,014 Selling commissions reallowed 100,148 7,880 1,014 Dealer manager fees 46,981 2,552 350 Dealer manager fees reallowed 17,116 767 76 has agreed to purchase on a monthly basis sufficient shares sold in the Company’sour public offering such that the total shares owned by the Sub-advisor iswas equal to at least 0.10% of the Company’sour outstanding shares (ignoring(excluding shares issued after the commencement of, and outside of, the initial public offering) at the end of each immediately preceding month. The Sub-advisor will purchasepurchased shares at a purchase price of $9.00$9.00 per share, reflecting no dealer manager fee or selling commissions being paid on such shares. The Sub-advisor may not sell any of these shares while serving as the Sub-advisor.2011,2013, the Sub-advisor owns 21,412owned 176,509 shares of the Company’sour common stock, or approximately 0.81%0.10% of itsour outstanding common stock. As of December 31, 2012, the Sub-advisor owned 23,061 shares of our common stock, that has been issued.11.0.17% of our outstanding common stock.The Company isthe Company,us, including the sale of the Company’s shares of common stock, asset acquisition and disposition decisions, advances or contributions for distributions, bridge financing,asset management, operating and leasing of our properties, and other general and administrative responsibilities. In the event that the Advisor, the Sub-advisor, and/or the Property Manager are unable to provide such services, the Companywe would be required to find alternative service providers or sources of capital.2011,2013 and 2012, we owed the Company owesAdvisor, the Advisor, Sub-advisor and their respective affiliates approximately $8.4$1.1 million and $3.6 million, respectively, for organizationoffering and offeringorganization expenses, general and administrative expenses and various fees.Organization and offering expenses payable$7.1 millionGeneral and administrative expenses payable1.2 millionAcquisition, financing, asset management and property management fees payable0.1 millionTotal due as of December 31, 2011$8.4 million 2013 2012 Offering and organization expenses payable $ 379 $ 2,987 General and administrative expenses of the company paid by a sponsor 85 2 Asset management, property management, and other fees payable 668 645 Total due $ 1,132 $ 3,634 $2.0the sponsors have provided $0.2 million since inception for certain of offering costs incurred by the Sub-advisor on the Company’s behalf has not been charged to the Company or been recorded in its consolidated financial statements. Whether these costs will be billed to the Company in the future is at the discretion of the Sub-advisor and will likely depend on the success of the Company’s offering.As of December 31, 2010, the Company owed the Advisor, Sub-advisor and their respective affiliates $5.5 million for organization and offering expenses,our general and administrative expenses and acquisition and financing fees.Organization and offering expenses payable$4.8 millionGeneral and administrative expenses payable0.4 millionAcquisition, financing, asset management and property management fees payable0.3 millionTotal due as of December 31, 2010$5.5 millionThe sponsors provided $88,000 and $140,000, respectively, duringas capital contributions. There were no sponsor contributions for the years ended December 31, 2011,2013 and 20102012. There was $88,000 in sponsor contributions for certain general and administrative expenses of the Company as a capital contribution.year ended December 31, 2011. The sponsors have not received, and will not receive, any reimbursement for this contribution. There is no assurance that thethese contributions. Our sponsors willdo not intend to make further capital contributions to continue to contribute monies to fund futurecertain of our general and administrative expenses.12. FUTURE MINIMUM RENTS Company’s operating leases’ terms and expirations of our operating leases with our tenants vary. The leases frequently have provisions to extend the lease agreementagreements and other terms and conditions as negotiated. The Company retainsWe retain substantially all of the risks and benefits of ownership of the real estate assets leased to tenants.The following table lists, on an aggregate basis, all of the scheduled lease expirations after2011 over each2013, assuming no new or renegotiated leases or option extensions on lease agreements, are as follows (in thousands):Year Amount 2014 $ 96,252 2015 89,399 2016 80,990 2017 71,596 2018 59,287 2019 and thereafter 262,666 Total $ 660,190 the years ending December 31, 2012 and thereafter for the Company’s seven shopping centers. The table shows theour aggregate annualized effective rent represented by the applicable lease expirations as of December 31, 2011: Amount $ 6,816 6,564 5,772 5,006 4,800 29,465 $ 58,423 13.2013.RESULTSFINANCIAL DATA (UNAUDITED)Although the Company’s operations commenced on September 17, 2010 and the Company acquired two operating properties during the fourth quarter of 2010, the20112013 and 2010. The Company believes2012. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with GAAP, the selected quarterly information.($000s) First
Quarter Second
Quarter Third
Quarter Fourth
Quarter $ 603 $ 620 $ 839 $ 1,467 (99 ) (467 ) (241 ) (898 ) (248 ) (605 ) (440 ) (1,071 ) $ (0.28 ) $ (0.49 ) $ (0.29 ) $ (0.46 ) $ — $ — $ — $ 98 — — (80 ) (630 ) — — (80 ) (667 ) $ — $ — $ (1.05 ) $ (3.39 ) 14. 2013 First Second Third Fourth (in thousands, except per share amounts) Quarter Quarter Quarter Quarter Total revenue $ 11,237 $ 15,164 $ 20,144 $ 26,620 Operating income (loss) (811 ) 646 910 (2,764 ) Net loss attributable to Company stockholders (2,848 ) (1,993 ) (1,408 ) (6,155 ) Loss per share - basic and diluted (0.16 ) (0.05 ) (0.02 ) (0.05 ) 2012 First Second Third Fourth (in thousands, except per share amounts) Quarter Quarter Quarter Quarter Total revenue $ 2,215 $ 3,105 $ 5,148 $ 7,082 Operating loss (52 ) (725 ) (424 ) (53 ) Net loss attributable to Company stockholders (258 ) (805 ) (1,036 ) (1,247 ) Loss per share - basic and diluted (0.08 ) (0.17 ) (0.15 ) (0.11 ) Distribution Period Date Distribution Paid Gross Amount of Distribution Paid Distribution Reinvested through the DRP Net Cash Distribution December 1, 2013 through December 31, 2013 1/2/2014 $ 9,779 $ 5,139 $ 4,640 January 1, 2014 through January 31, 2014 2/3/2014 10,034 5,284 4,750 February 1, 2014 through February 28, 2014 3/3/2014 9,094 4,788 4,306 Company has evaluated subsequent events through the date the financial statements were issued.Property Acquisitions$0.0123, 2012,13, 2014, our board of directors authorized distributions to the Company,stockholders of record at the close of business each day in the period commencing April 1, 2014 through and including April 30, 2014. The authorized distributions equal an amount of $0.00183562 per share of common stock, par value $0.01 per share. We expect to pay these distributions on May 1, 2014. This equates to an approximate 6.70% annualized yield when calculated on a $10.00 per share purchase price. A portion of each distribution is expected to constitute a return of capital for tax purposes.Joint Venture, purchased two shopping centers from the same seller with an aggregate of 129,272 rentable square feet, Tramway Crossing and Westin Centre, for an aggregate purchase price of $11.5 million. Bothfollowing properties are anchored by Food Lion. Tramway Crossing is located(dollars in Sanford, North Carolina and is approximately 95.5% leased with a current aggregate annual effective rent of approximately $546,000. Westin Centre is located in Fayetteville, North Carolina and is 100% leased with a current aggregate annual effective rent of approximately $635,000. thousands):Property Name Location Anchor Acquisition Date Purchase Price Square Footage Leased % at Acquisition Fair Acres Oshkosh, WI Pick 'n Save 1/21/2014 $ 9,800 85,523 95.4 % Savoy Plaza Savoy, IL Schnucks 1/31/2014 17,200 146,624 83.9 % The Shops of Uptown Park Ridge, IL Trader Joe's 2/25/2014 26,961 70,402 96.5 % Chapel Hill North Chapel Hill, NC Harris Teeter 2/28/2014 16,100 96,290 95.2 % JBG Portfolio: Winchester Gateway Winchester, VA Martin's 3/5/2014 38,350 157,377 95.8 % Stonewall Plaza Winchester, VA Martin's 3/5/2014 29,500 119,159 88.7 % Coppell Market Center Coppell, TX Market Street 3/5/2014 19,075 90,225 100.0 % Harrison Pointe Cary, NC Harris Teeter 3/11/2014 22,700 130,758 95.8 % Hurstbourne Town Fair Louisville, KY Walmart 3/12/2014 24,250 234,364 97.4 % pro forma revenue and earningspurchase accounting disclosures required by GAAP relating to the recent acquisitions of Tramway Crossing and Westin Centrethe aforementioned properties have not been presented as the initial accounting for these acquisitions was incomplete at the time this Annual Report on Form 10-K was filed with the consolidated financial statements were issued.SharesDerivativeCommon Stock$520,000.SCHEDULE III—REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION As of December 31, 2013 (in thousands) Gross amount carried at end of period Property Name City State Encumbrances Land Buildings and Improvements Date Constructed/ Renovated Date Acquired Lakeside Plaza Salem VA $ — $ 2,614 $ 5,977 $ 159 $ 2,614 $ 6,112 $ 8,726 $ 1,130 1988 12/10/2010 Snow View Plaza Parma OH — 3,386 7,150 1,764 3,386 7,480 10,866 1,461 1981/2008 12/15/2010 St. Charles Plaza Haines City FL — 2,780 5,709 1,611 2,780 5,755 8,535 922 2007 6/10/2011 Centerpoint Easley SC — 2,132 4,633 85 2,132 4,925 7,057 552 2002 10/14/2011 Southampton Village Tyrone GA — 2,133 5,713 504 2,133 5,964 8,097 708 2003 10/14/2011 Burwood Village Center Glen Burnie MD — 3,828 11,786 986 3,828 11,842 15,670 1,357 1971 11/9/2011 Cureton Town Center Waxhaw NC — 4,653 8,113 1,184 4,653 8,344 12,997 934 2006 12/29/2011 Tramway Crossing Sanford NC — 1,230 3,856 414 1,230 3,927 5,157 540 1996/2000 2/23/2012 Westin Centre Fayetteville NC — 1,463 4,226 361 1,463 4,276 5,739 662 1996/1999 2/23/2012 The Village at Glynn Place Brunswick GA — 3,671 7,626 53 3,671 7,777 11,448 921 1996 4/27/2012 Meadowthorpe Shopping Center Lexington KY 4,668 3,193 5,085 441 3,193 5,179 8,372 685 1989/2008 5/9/2012 New Windsor Marketplace Windsor CO — 3,044 2,152 354 3,044 2,246 5,290 234 2003 5/9/2012 Vine Street Square Kissimmee FL — 5,438 7,229 983 5,438 7,320 12,758 785 1996/2011 6/4/2012 Northtowne Square Gibsonia PA 6,370 1,305 8,749 521 1,305 8,839 10,144 915 1993 6/19/2012 Brentwood Commons Bensenville IL — 5,141 8,990 719 5,141 9,104 14,245 913 1981/2001 7/5/2012 Sidney Towne Center Sidney OH — 850 4,382 (932 ) 850 4,573 5,423 425 1981/2007 8/2/2012 Broadway Plaza Tucson AZ 6,834 3,704 8,444 926 3,704 8,678 12,382 659 1982-1995 8/13/2012 Richmond Plaza Augusta GA — 4,647 13,754 1,099 4,647 14,055 18,702 965 1980/2009 8/30/2012 Publix at Northridge Sarasota FL 9,802 4,155 7,148 569 4,155 7,240 11,395 438 2003 8/30/2012 Baker Hill Center Glen Ellyn IL 11,775 5,585 15,220 1,524 5,585 15,255 20,840 947 1998 9/6/2012 New Prague Commons New Prague MN — 2,027 7,826 297 2,027 7,872 9,899 437 2008 10/12/2012 Brook Park Plaza Brook Park OH 3,270 1,702 8,437 506 1,702 8,528 10,230 459 2001 10/23/2012 Heron Creek Towne Center North Port FL — 2,848 5,296 506 2,848 5,351 8,199 271 2001 12/17/2012 Quartz Hill Towne Centre Lancaster CA — 4,977 14,904 1,089 4,977 14,924 19,901 718 1991/2012 12/26/2012 Hilfiker Square Salem OR — 2,063 5,142 795 2,063 5,159 7,222 217 1984/2011 12/28/2012 Village One Plaza Modesto CA — 3,558 20,360 2,582 3,558 20,419 23,977 765 2007 12/28/2012 Butler Creek Acworth GA — 2,855 7,199 596 2,855 7,470 10,325 354 1989 1/15/2013 Fairview Oaks Ellenwood GA — 2,483 6,346 471 2,483 6,412 8,895 302 1996 1/15/2013 Grassland Crossing Alpharetta GA — 2,693 6,778 229 2,693 7,040 9,733 314 1996 1/15/2013 Hamilton Ridge Buford GA — 2,616 8,606 578 2,616 8,640 11,256 385 2002 1/15/2013 Mableton Crossing Mableton GA — 3,020 7,819 661 3,020 7,899 10,919 379 1997 1/15/2013 The Shops at Westridge McDonough GA — 1,792 4,897 861 1,792 4,907 6,699 219 2006 1/15/2013 Fairlawn Town Centre Fairlawn OH — 7,179 32,223 2,798 7,179 33,120 40,299 1,466 1962/1996 1/30/2013 Macland Pointe Marietta GA — 2,057 6,757 336 2,057 7,083 9,140 309 1992 2/13/2013 From January 1, 2012 through March 11, 2012,(in thousands) Gross amount carried at end of period Property Name City State Encumbrances Land Buildings and Improvements Date Constructed/ Renovated Date Acquired Murray Landing Irmo SC $ 6,330 $ 1,793 $ 7,990 $ 619 $ 1,793 $ 8,017 $ 9,810 $ 264 2003 3/21/2013 Vineyard Center Tallahassee FL 6,600 1,878 5,104 281 1,878 5,168 7,046 173 2002 3/21/2013 Kleinwood Center Spring TX 23,640 8,467 21,964 3,904 8,467 22,170 30,637 718 2003 3/21/2013 Lutz Lake Crossing Lutz FL — 2,066 7,171 563 2,066 7,339 9,405 222 2002 4/4/2013 Publix at Seven Hills Spring Hill FL — 1,542 6,271 687 1,542 6,299 7,841 207 1991/2006 4/4/2013 Hartville Centre Hartville OH — 1,344 4,417 1,539 1,344 5,107 6,451 149 1988/2008 4/23/2013 Sunset Center Corvallis OR 17,685 5,982 16,890 2,028 5,982 16,930 22,912 416 1998/2000 5/31/2013 Savage Town Square Savage MN — 2,625 10,890 1,388 2,625 10,890 13,515 233 2003 6/19/2013 Northcross Austin TX — 27,885 28,467 5,148 27,885 28,623 56,508 605 1975/2006/2010 6/24/2013 Glenwood Crossing Kenosha WI — 972 10,814 1,036 972 10,859 11,831 205 1992 6/27/2013 Pavilions at San Mateo Albuquerque NM — 4,987 20,209 3,154 4,987 20,402 25,389 419 1997 6/27/2013 Shiloh Square Kennesaw GA — 3,997 9,416 1,087 3,997 9,638 13,635 208 1996/2003 6/27/2013 Boronda Plaza Salinas CA — 7,468 13,429 1,803 7,468 13,497 20,965 266 2003/2006 7/3/2013 Rivergate Macon GA — 5,279 24,335 2,740 5,279 24,819 30,098 392 1990/2005 7/18/2013 Westwoods Shopping Center Arvada CO 8,800 2,526 12,295 521 2,526 12,359 14,885 208 2003 8/8/2013 Paradise Crossing Lithia Springs GA — 1,442 6,826 732 1,442 6,921 8,363 121 2000 8/13/2013 Contra Loma Plaza Antioch CA — 2,466 4,306 478 2,466 4,355 6,821 56 1989 8/19/2013 South Oaks Plaza St. Louis MO — 1,251 7,321 928 1,251 7,402 8,653 101 1969/1987 8/21/2013 Yorktown Centre Erie PA — 2,155 16,976 2,269 2,155 16,976 19,131 277 1989/2013 8/30/2013 Stockbridge Commons Fort Mill SC 10,023 3,733 10,366 1,199 3,733 10,468 14,201 148 2003/2012 9/3/2013 Dyer Crossing Dyer IN 10,652 4,508 11,723 2,518 4,508 11,757 16,265 163 2004/2005 9/4/2013 East Burnside Plaza Portland OR 6,295 2,371 5,535 835 2,371 5,545 7,916 67 1955/1999 9/12/2013 Red Maple Village Tracy CA — 8,227 20,489 2,424 8,227 20,489 28,716 186 2009 9/18/2013 Crystal Beach Plaza Palm Harbor FL — 1,495 8,758 1,847 1,495 8,764 10,259 87 2010 9/25/2013 CitiCentre Plaza Carroll IA — 536 2,764 450 536 2,789 3,325 34 1991/1995 10/2/2013 Duck Creek Plaza Bettendorf IA — 3,641 13,977 2,082 3,641 14,003 17,644 140 2005/2006 10/8/2013 Cahill Plaza Inver Grove Heights MN — 1,963 5,737 650 1,963 5,738 7,701 62 1995 10/9/2013 Pioneer Plaza Springfield OR — 4,528 6,100 1,222 4,528 6,107 10,635 45 1989/2008 10/18/2013 Fresh Market Normal IL 5,954 1,655 9,478 617 1,655 9,478 11,133 62 2002 10/22/2013 Courthouse Marketplace Virginia Beach VA — 5,568 8,624 1,858 5,568 8,645 14,213 61 2005 10/25/2013 Hastings Marketplace Hastings MN — 2,973 11,051 1,851 2,973 11,051 14,024 78 2002 11/6/2013 Shoppes of Paradise Lakes Miami FL 5,983 5,043 6,787 1,446 5,043 6,789 11,832 52 1999 11/7/2013 Coquina Plaza Davie FL 7,327 8,388 12,840 1,882 8,388 12,840 21,228 89 1998 11/7/2013 Butler's Crossing Watkinsville GA — 695 7,325 880 695 7,336 8,031 53 1997 11/7/2013 Lakewood Plaza Spring Hill FL — 2,808 11,715 777 2,808 11,716 14,524 89 1993/1997 11/7/2013 Collington Plaza Bowie MD 24,219 10,788 16,561 3,258 10,788 16,561 27,349 55 1996 11/21/2013 Golden Town Center Golden CO — 5,895 11,337 1,783 5,895 11,338 17,233 43 1993/2003 11/22/2013 Northstar Marketplace Ramsey MN — 2,148 9,866 1,986 2,148 9,866 12,014 36 2004 11/27/2013 Bear Creek Plaza Petoskey MI — 3,583 19,705 2,163 3,583 19,705 23,288 — 1998/2009 12/19/2013 Flag City Station Findlay OH — 2,984 11,331 1,346 2,984 11,331 14,315 — 1992 12/19/2013 (in thousands) Gross amount carried at end of period Property Name City State Encumbrances Land Buildings and Improvements Date Constructed/ Renovated Date Acquired Southern Hills Crossing Moraine OH $ — $ 326 $ 1,933 $ 204 $ 326 $ 1,933 $ 2,259 $ — 2002 12/19/2013 Sulphur Grove Huber Heights OH — 380 2,315 219 380 2,315 2,695 — 2004 12/19/2013 East Side Square Springfield OH — 239 1,118 114 239 1,118 1,357 — 2007 12/19/2013 Hoke Crossing Clayton OH — 328 1,212 178 328 1,212 1,540 — 2006 12/19/2013 Town & Country Shopping Center Noblesville IN — 5,296 18,333 2,420 5,296 18,333 23,629 — 1998 12/19/2013 Sterling Pointe Center Lincoln CA — 5,719 21,158 3,898 5,719 21,158 26,877 — 2004 12/20/2013 Southgate Shopping Center Des Moines IA — 1,432 9,359 (1,066 ) 1,432 9,359 10,791 — 1972/2013 12/20/2013 Arcadia Plaza Phoenix AZ 6,455 5,106 7,572 972 5,106 7,572 12,678 — 1980 12/30/2013 Stop & Shop Plaza Enfield CT 13,370 6,879 17,041 2,419 6,879 17,090 23,969 — 1988 12/30/2013 Totals $ 196,052 $ 302,182 $ 825,733 $ 98,967 $ 302,182 $ 833,892 $ 1,136,074 $ 29,538 Company raised $7.2 million throughoriginal purchase price of the issuanceproperty, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired.0.7 million sharesacquisition. Such amounts are not included in ourits common stock under its ongoing public offering. As of March 11, 2012, approximately 146.6 million shares remained available for sale to the public under the Company’s public offering, exclusive of shares available under the DRP.DistributionsOn January 3, 2012, the Company paid a distribution equal to a daily amount of $.001780802 per share of common stock outstanding for stockholders of record for the period for December 1, 2011 to December 31, 2011. The total gross amount carried at the end of the distribution was approximately $142,000, with $37,000 being reinvested in the DRP, for a net cash distributionperiod.$105,000.On February 1, 2012, the Company paid a distribution equal to a daily amount of $.001780802 per share of common stock outstanding for stockholders of record for the period for January 1, 2012 to January 31, 2012. The total gross amount of the distribution was approximately $153,000, with $41,000 being reinvested in the DRP, for a net cash distribution of $112,000.On March 1, 2012, the Company paid a distribution equal to a daily amount of $.001780802 per share of common stock outstanding for stockholders of record for the period for February 1, 2012 to February 29, 2012. The total gross amount of the distribution was approximately $160,000, with $46,000 being reinvested in the DRP, for a net cash distribution of $114,000.Declaration of DistributionsOn February 20, 2012, the Company’s board of directors declared distributions to be paid for daily stockholders of record for the month of April 2012. On March 21, 2012, the Company’s board of directors declared distributions to be paid for the daily stockholders of record for the months of May and June 2012. These distributions will be in a daily amount equal to $.001780802 per share of common stock outstanding.SCHEDULE III—REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION20112013.($000’s) Initial Cost (A) Gross amount carried at end of
period State Mortgage Land Buildings and
Improvements Adjustments
to Basis (B) Land (C) Buildings and
Improvements
(C) Total
(D) Accumulated
Depreciation
(E)
Constructed /
Renovated Date
Acquired Salem VA $ 6,125 $ 2,614 $ 5,977 $ 159 $ 2,614 $ 6,047 $ 8,661 $ 369 1988 / 2001 12/10/10 Parma OH 2,340 3,386 7,150 1,764 3,386 7,154 10,540 481 1981 / 2008 12/15/10 Haines City FL 6,750 2,780 5,709 1,611 2,780 5,710 8,490 169 2007 6/10/11 Easley SC 4,854 2,132 4,633 85 2,132 4,644 6,776 60 2005 10/14/11 Tyrone GA 5,920 2,133 5,713 504 2,133 5,713 7,846 77 2003 10/14/11 Glen Burnie MD 11,924 3,640 12,024 937 3,640 12,034 15,674 105 1975 / 2004 11/9/11 Waxhaw NC 8,875 4,653 8,113 1,185 4,653 8,113 12,766 — 2007 12/29/11 $ 46,788 $ 21,338 $ 49,319 $ 6,245 $ 21,338 $ 49,415 $ 70,753 $ 1,261 (A)The initial cost to the Company represents the original purchase price of the property, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired.(B)Adjustments to basis include additional tangible costs associated with the investment properties.(C)The aggregate cost of real estate owned at December 31, 2011.(D)Reconciliation of real estate owned: 2011 2010 $ 19,126 $ — 51,627 19,126 $ 70,753 $ 19,126 (E)Reconciliation of accumulated depreciation 2011 2010 $ 65 $ — 1,196 65 $ 1,261 $ 65 2013 2012 Balance at January 1 $ 291,175 $ 70,753 Real estate acquisitions 837,881 219,377 Additions to/improvements of real estate 7,018 1,045 Balance at December 31 $ 1,136,074 $ 291,175 2013 2012 Balance at January 1 $ 7,317 $ 1,261 Depreciation expense 22,221 6,056 Balance at December 31 $ 29,538 $ 7,317 23rd13th day of March 2012.2014.By: Jeffrey S. Edison Co-ChairmanChairman of the Board and Chief Executive Officer /s/ MICHAEL C. PHILLIPS Michael C. Phillips Co-Chairman of the Board of Directors March 23, 2012JEFFREYJEFFREY S. EDISON Jeffrey S. Edison Co-ChairmanChairman of the Board and Chief Executive Officer (Principal Executive Officer) March 23, 201213, 2014/s/ RICHARD J. SMITH Richard J. Smith Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) March 23, 201213, 2014/s/ WILLIAM M. KAHANE William M. Kahane /s/ WILLIAM M. KAHANE Director March 23, 201213, 2014/s/ LESLIE T. CHAO Leslie T. Chao /s/ LESLIE T. CHAO Director March 23, 201213, 2014/s/ ETHAN HERSHMAN Ethan Hershman /s/ PAUL J. MASSEY, JR. Director March 23, 201213, 2014/s/ RONALD K. KIRK Ronald K. Kirk /s/ STEPHEN R. QUAZZO Director March 23, 201213, 2014/s/ PAUL MASSEY Paul Massey Director March 23, 2012