UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xþQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2018

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-54691

PHILLIPS EDISON ~~GROCERY CENTER REIT I, INC~~. & COMPANY, INC.

(Exact Name of Registrant as Specified in Its Charter)

~~(Exact Name of Registrant as Specified in Its Charter)~~



Maryland	27-1106076
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)



11501 Northlake Drive Cincinnati, Ohio	45249
(Address of Principal Executive Offices)	(Zip Code)

(513) 554-1110

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the ~~registrant:~~Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the ~~registrant~~Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the ~~registrant~~Registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the ~~registrant~~Registrant was required to submit ~~and post~~ such files). Yes þ No ¨

Indicate by check mark whether the ~~registrant~~Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange ~~Act.~~Act of 1934, as amended (the “Exchange Act”). (Check one):



Large Accelerated Filer	¨	Accelerated Filer	¨

Non-Accelerated Filer	þ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨

Emerging growth company	¨

If an emerging growth company, indicate by check mark if the ~~registrant~~Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o¨

Indicate by check mark whether the ~~registrant~~Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of October 31, ~~2017,~~2018, there were ~~184.5~~184.0 million outstanding shares of common stock of ~~Phillips Edison Grocery Center REIT I, Inc.~~the Registrant.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PART I. FINANCIAL INFORMATION		2

Item 1.	Financial Statements (Unaudited)	2

	Consolidated Balance Sheets as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017	2

	Consolidated Statements of Operations and Comprehensive ~~(Loss) Income~~Loss for the Three and Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017	3

	Consolidated Statements of Equity for the Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017	5

	Notes to Consolidated Financial Statements	67

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1923

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3138

Item 4.	Controls and Procedures	3238

PART II. OTHER INFORMATION		3238

Item 1.	Legal Proceedings	3238

Item 1A.	Risk Factors	3238

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

~~Item 3.~~	~~Defaults Upon Senior Securities~~	37

~~Item 4.~~	~~Mine Safety Disclosures~~	3738

Item 5.	Other Information	3739

Item 6.	Exhibits	3839

SIGNATURES		3940

~~PART I. FINANCIAL INFORMATION~~

wPART I FINANCIAL INFORMATION

~~Item~~ITEM 1. ~~Financial Statements~~

FINANCIAL STATEMENTS

PHILLIPS EDISON ~~GROCERY CENTER REIT I,~~& COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, ~~2017~~2018 AND DECEMBER 31, ~~2016~~2017

(Unaudited)

(In thousands, except per share amounts)


	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
ASSETS
Investment in real estate:
Land and improvements	$	838,078		$	796,192		$	1,115,232		$	1,121,590
Building and improvements	1,640,052			1,532,888			2,253,804			2,263,381
Acquired in-place lease assets	226,033			212,916			308,575			313,432
Acquired above-market lease assets	43,021			42,009			53,161			53,524
Total investment in real estate assets	2,747,184			2,584,005			3,730,772			3,751,927
Accumulated depreciation and amortization	(418,544		)	(334,348		)	(576,976		)	(462,025		)
Total investment in real estate assets, net	2,328,640			2,249,657			3,153,796			3,289,902
Cash and cash equivalents	7,189			8,224			6,111			5,716
Restricted cash	6,025			41,722			27,828			21,729
Accounts receivable – affiliates							6,365			6,102
Corporate intangible assets, net							46,400			55,100
Goodwill							29,066			29,085
Other assets, net	102,541			80,585			148,443			118,448
Real estate investment and other assets held for sale	4,863			—
Total assets	$	2,449,258		$	2,380,188		$	3,418,009		$	3,526,082

LIABILITIES AND EQUITY
Liabilities:
Mortgages and loans payable, net	$	1,224,779		$	1,056,156
Acquired below-market lease liabilities, net of accumulated amortization of $24,790 and $20,255, respectively	42,080			43,032
Debt obligations, net							$	1,842,947		$	1,806,998
Acquired below-market lease liabilities, net of accumulated amortization of $33,976 and
$27,388, respectively							82,235			90,624
Accounts payable – affiliates	4,567			4,571			1,014			1,359
Accounts payable and other liabilities	69,007			51,642			152,464			148,419
Liabilities of real estate investment held for sale	233			—
Total liabilities	1,340,666			1,155,401			2,078,660			2,047,400
Commitments and contingencies (Note 7)	—			—
Commitments and contingencies (Note 9)							—			—
Equity:
Preferred stock, $0.01 par value per share, 10,000 shares authorized, zero shares issued and outstanding at
September 30, 2017 and December 31, 2016, respectively	—			—
Common stock, $0.01 par value per share, 1,000,000 shares authorized, 184,140 and 185,062 shares issued
and outstanding at September 30, 2017 and December 31, 2016, respectively	1,841			1,851
Preferred stock, $0.01 par value per share, 10,000 shares authorized, zero shares issued
and outstanding at September 30, 2018 and December 31, 2017, respectively							—			—
Common stock, $0.01 par value per share, 1,000,000 shares authorized, 183,694 and 185,233
shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively							1,837			1,852
Additional paid-in capital	1,617,717			1,627,098			1,613,375			1,629,130
Accumulated other comprehensive income	11,175			10,587
Accumulated other comprehensive income (“AOCI”)							33,602			16,496
Accumulated deficit	(539,840		)	(438,155		)	(721,017		)	(601,238		)
Total stockholders’ equity	1,090,893			1,201,381			927,797			1,046,240
Noncontrolling interests	17,699			23,406			411,552			432,442
Total equity	1,108,592			1,224,787			1,339,349			1,478,682
Total liabilities and equity	$	2,449,258		$	2,380,188		$	3,418,009		$	3,526,082

See notes to consolidated financial statements.

PHILLIPS EDISON ~~GROCERY CENTER REIT I,~~& COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~(LOSS) INCOME~~LOSS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2018 AND ~~2016~~2017

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues:
Rental income	$	53,165		$	48,828		$	157,425		$	143,023		$	71,770		$	53,165		$	216,072		$	157,425
Tenant recovery income	17,052			16,199			50,442			47,652			23,884			17,052			67,878			50,442
Fees and management income													8,974			—			26,823			—
Other property income	407			243			911			730			271			407			1,498			911
Total revenues	70,624			65,270			208,778			191,405			104,899			70,624			312,271			208,778
Expenses:
Property operating	10,882			10,030			32,611			29,978			19,276			10,882			54,292			32,611
Real estate taxes	10,723			9,104			31,136			27,745			12,873			10,723			39,346			31,136
General and administrative	8,712			7,722			25,438			23,736			13,579			8,914			37,490			25,904
Termination of affiliate arrangements	5,454			—			5,454			—			—			5,454			—			5,454
Acquisition expenses	202			870			466			2,392
Depreciation and amortization	28,650			26,583			84,481			78,266			45,692			28,650			138,504			84,481
Impairment of real estate assets													16,757			—			27,696			—
Total expenses	64,623			54,309			179,586			162,117			108,177			64,623			297,328			179,586
Other:
Interest expense, net	(10,646		)	(8,504		)	(28,537		)	(23,837		)	(17,336		)	(10,646		)	(51,166		)	(28,537		)
Transaction expenses	(3,737		)	—			(9,760		)	—			—			(3,737		)	—			(9,760		)
Other income (expense), net	6			33			642			(125		)
Net (loss) income	(8,376		)	2,490			(8,463		)	5,326
Net loss (income) attributable to noncontrolling interests	144			(26		)	144			(83		)
Net (loss) income attributable to stockholders	$	(8,232	)	$	2,464		$	(8,319	)	$	5,243
Gain on sale of property, net													4,571			—			5,556			—
Other (expense) income, net													(224		)	6			(1,513		)	642
Net loss													(16,267		)	(8,376		)	(32,180		)	(8,463		)
Net loss attributable to noncontrolling interests													3,039			144			6,001			144
Net loss attributable to stockholders													$	(13,228	)	$	(8,232	)	$	(26,179	)	$	(8,319	)
Earnings per common share:
Net (loss) income per share attributable to stockholders - basic and diluted	$	(0.04	)	$	0.01		$	(0.05	)	$	0.03
Net loss per share - basic and diluted													$	(0.07	)	$	(0.04	)	$	(0.14	)	$	(0.05	)
Weighted-average common shares outstanding:
Basic	183,843			184,639			183,402			183,471			183,699			183,843			184,676			183,402
Diluted	183,843			187,428			183,402			186,260			228,152			186,492			229,129			186,141

Comprehensive (loss) income:
Net (loss) income	$	(8,376	)	$	2,490		$	(8,463	)	$	5,326
Other comprehensive (loss) income:
Unrealized (loss) gain on derivatives	(179		)	1,950			(1,944		)	(9,597		)
Reclassification of derivative loss to interest expense	228			888			1,203			2,762
Comprehensive (loss) income	(8,327		)	5,328			(9,204		)	(1,509		)
Comprehensive loss (income) attributable to noncontrolling interests	144			(26		)	144			(83		)
Comprehensive (loss) income attributable to stockholders	$	(8,183	)	$	5,302		$	(9,060	)	$	(1,592	)
Comprehensive loss:
Net loss													$	(16,267	)	$	(8,376	)	$	(32,180	)	$	(8,463	)
Other comprehensive loss:
Change in unrealized gain (loss) on interest rate swaps													2,869			49			21,212			(741		)
Comprehensive loss													(13,398		)	(8,327		)	(10,968		)	(9,204		)
Net loss attributable to noncontrolling interests													3,039			144			6,001			144
Other comprehensive loss attributable to noncontrolling interests													(517		)	—			(1,101		)	—
Comprehensive loss attributable to stockholders													$	(10,876	)	$	(8,183	)	$	(6,068	)	$	(9,060	)

See notes to consolidated financial statements.

PHILLIPS EDISON ~~GROCERY CENTER REIT I,~~& COMPANY, INC.

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE NINE MONTHS ENDEDSEPTEMBER 30, ~~2017~~2018 AND ~~2016~~2017

(Unaudited)

(In thousands, except per share amounts)


	Common Stock					Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit			Total Stockholders’ Equity				Noncontrolling Interest				Total Equity			Common Stock					Additional Paid-In Capital			AOCI			Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interest			Total Equity
	Shares		Amount										Shares				Total Stockholders’ Equity			Amount													Additional Paid-In Capital			AOCI			Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interest			Total Equity
Balance at January 1, 2016	181,308		$	1,813		Additional Paid-In Capital			$	Accumulated Other Comprehensive Income (Loss)	1,588,541			Accumulated Deficit	$	22		$	(323,761	)	Noncontrolling Interest			$	Total Equity			1,266,615		$	25,177		$	1,291,792
Balance at January 1, 2017																												185,062		$	1,851		$	1,627,098		$	11,916		$	(439,484	)	$	1,201,381		$	23,406		$	1,224,787
Share repurchases	(752	)	(7		)	(7,273		)		—				—			(7,280		)		—				(7,280		)	(4,471	)	(45		)	(45,557		)	—			—			(45,602		)	—			(45,602		)
Dividend reinvestment plan (“DRIP”)	4,387		44			44,687				—				—			44,731				—				44,731			3,546		35			36,136			—			—			36,171			—			36,171
Change in unrealized loss on interest rate swaps																												—		—			—			(741		)	—			(741		)	—			(741		)
Common distributions declared, $0.50 per share	—		—			—				—				(92,107		)	(92,107		)		—				(92,107		)	—		—			—			—			(92,037		)	(92,037		)	—			(92,037		)
Distributions to noncontrolling interests																												—		—			—			—			—			—			(1,384		)	(1,384		)
Share-based compensation	—		—			10				—				—			10				—				10			3		—			40			—			—			40			—			40
Change in unrealized loss on interest rate swaps	—		—			—				(6,835		)		—			(6,835		)		—				(6,835		)
Distributions to noncontrolling interests	—		—			—				—				—			—				(1,409		)		(1,409		)
Net income	—		—			—				—				5,243			5,243				83				5,326
Balance at September 30, 2016	184,943		$	1,850		$	1,625,965			$	(6,813	)		$	(410,625	)	$	1,210,377			$	23,851			$	1,234,228

Balance at December 31, 2016, as reported	185,062		$	1,851		$	1,627,098			$	10,587			$	(438,155	)	$	1,201,381			$	23,406			$	1,224,787
Adoption of new accounting pronouncement (see Note 8)	—		—			—				1,329				(1,329		)	—				—				—
Balance at January 1, 2017, as adjusted	185,062		1,851			1,627,098				11,916				(439,484		)	1,201,381				23,406				1,224,787
Share repurchases	(4,471	)	(45		)	(45,557		)		—				—			(45,602		)		—				(45,602		)
DRIP	3,546		35			36,136				—				—			36,171				—				36,171
Common distributions declared, $0.50 per share	—		—			—				—				(92,037		)	(92,037		)		—				(92,037		)
Share-based compensation	3		—			40				—				—			40				—				40
Change in unrealized loss on interest rate swaps	—		—			—				(741		)		—			(741		)		—				(741		)
Distributions to noncontrolling interests	—		—			—				—				—			—				(1,384		)		(1,384		)
Redemption of noncontrolling interest	—		—			—				—				—			—				(4,179		)		(4,179		)	—		—			—			—			—			—			(4,179		)	(4,179		)
Net loss	—		—			—				—				(8,319		)	(8,319		)		(144		)		(8,463		)	—		—			—			—			(8,319		)	(8,319		)	(144		)	(8,463		)
Balance at September 30, 2017	184,140		$	1,841		$	1,617,717			$	11,175			$	(539,840	)	$	1,090,893			$	17,699			$	1,108,592		184,140		$	1,841		$	1,617,717		$	11,175		$	(539,840	)	$	1,090,893		$	17,699		$	1,108,592

Balance at January 1, 2018																												185,233		$	1,852		$	1,629,130		$	16,496		$	(601,238	)	$	1,046,240		$	432,442		$	1,478,682
Share repurchases																												(4,511	)	(45		)	(49,589		)	—			—			(49,634		)	—			(49,634		)
DRIP																												2,967		30			32,661			—			—			32,691			—			32,691
Change in unrealized gain on interest rate swaps																												—		—			—			17,106			—			17,106			4,106			21,212
Common distributions declared, $0.50 per share																												—		—			—			—			(93,600		)	(93,600		)	—			(93,600		)
Distributions to noncontrolling interests																												—		—			—			—			—			—			(21,379		)	(21,379		)
Share-based compensation																												5		—			1,329			—			—			1,329			2,384			3,713
Other																												—		—			(156		)	—			—			(156		)	—			(156		)
Net loss																												—		—			—			—			(26,179		)	(26,179		)	(6,001		)	(32,180		)
Balance at September 30, 2018																												183,694		$	1,837		$	1,613,375		$	33,602		$	(721,017	)	$	927,797		$	411,552		$	1,339,349

See notes to consolidated financial statements.

PHILLIPS EDISON ~~GROCERY CENTER REIT I,~~& COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDEDSEPTEMBER 30, ~~2017~~2018 AND ~~2016~~2017

(Unaudited)

(In thousands)


	2017			2016			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(8,463	)	$	5,326
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net loss							$	(32,180	)	$	(8,463	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	83,200			76,293			125,990			83,200
Impairment of real estate assets							27,696			—
Depreciation and amortization of corporate assets							11,137			—
Amortization of deferred financing expense							3,615			3,572
Net amortization of above- and below-market leases	(972		)	(936		)	(2,967		)	(972		)
Amortization of deferred financing expense	3,572			3,757
Net (gain) loss on write-off of unamortized capitalized leasing commissions, market debt adjustments,
and deferred financing expense	(372		)	59
Straight-line rental income	(2,913		)	(2,793		)
Gain on sale of property, net							(5,556		)	—
Change in fair value of contingent liability							1,500			—
Straight-line rent							(3,544		)	(2,913		)
Share-based compensation							3,713			—
Other	(555		)	130			846			(927		)
Changes in operating assets and liabilities:
Other assets	(12,193		)	(4,339		)	(10,468		)	(12,193		)
Accounts payable – affiliates	1			(1,206		)
Accounts receivable and payable – affiliates							(608		)	1
Accounts payable and other liabilities	6,217			8,888			2,862			6,217
Net cash provided by operating activities	67,522			85,179			122,036			67,522
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(111,740		)	(132,266		)	(31,252		)	(111,740		)
Capital expenditures	(22,505		)	(16,936		)	(29,341		)	(22,505		)
Proceeds from sale of real estate	37,037			—			44,338			1,137
Change in restricted cash	(203		)	394
Net cash used in investing activities	(97,411		)	(148,808		)	(16,255		)	(133,108		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in credit facility	202,000			(23,531		)	(6,000		)	202,000
Proceeds from mortgages and loans payable	—			230,000			65,000			—
Payments on mortgages and loans payable	(64,287		)	(103,622		)	(24,751		)	(64,287		)
Payments of deferred financing expenses	(2,510		)	(2,461		)	(782		)	(2,510		)
Distributions paid, net of DRIP	(56,226		)	(47,535		)	(61,125		)	(56,226		)
Distributions to noncontrolling interests	(1,262		)	(1,260		)	(21,377		)	(1,262		)
Repurchases of common stock	(44,682		)	(7,280		)	(50,252		)	(44,682		)
Redemption of noncontrolling interests	(4,179		)	—			—			(4,179		)
Net cash provided by financing activities	28,854			44,311
NET DECREASE IN CASH AND CASH EQUIVALENTS	(1,035		)	(19,318		)
CASH AND CASH EQUIVALENTS:
Net cash (used in) provided by financing activities							(99,287		)	28,854
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH							6,494			(36,732		)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Beginning of period	8,224			40,680			27,445			49,946
End of period	$	7,189		$	21,362		$	33,939		$	13,214

SUPPLEMENTAL CASH FLOW DISCLOSURE, INCLUDING NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for interest	$	26,461		$	22,234
Fair value of assumed debt	30,832			—
Accrued capital expenditures	3,560			1,834
Change in distributions payable	(360		)	(159		)
Change in distributions payable - noncontrolling interests	122			149
Change in accrued share repurchase obligation	920			—
Distributions reinvested	36,171			44,731
Like-kind exchange of real estate:
Utilization of restricted cash held for acquisitions	(35,900		)	—
RECONCILIATION TO CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents							$	6,111		$	7,189
Restricted cash							27,828			6,025
Cash, cash equivalents, and restricted cash at end of period							$	33,939		$	13,214



	2018			2017
SUPPLEMENTAL CASH FLOW DISCLOSURE, INCLUDING NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for interest	$	49,157		$	26,461
Fair value of assumed debt	—			30,832
Capital leases	739			—
Accrued capital expenditures	2,881			3,560
Change in distributions payable	(216		)	(360		)
Change in accrued share repurchase obligation	(618		)	920
Distributions reinvested	32,691			36,171

See notes to consolidated financial statements.

Phillips Edison ~~Grocery Center REIT I,~~& Company, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

~~1. ORGANIZATION~~

1. ORGANIZATION

Phillips Edison ~~Grocery Center REIT I,~~& Company, Inc. (“we,” the “Company,” “our,” or “us”) was formed as a Maryland corporation in October 2009. Substantially all of our business is conducted through Phillips Edison Grocery Center Operating Partnership I, L.P., (the “Operating Partnership”), a Delaware limited partnership formed in December 2009. We are a limited partner of the Operating Partnership, and our wholly owned subsidiary, Phillips Edison Grocery Center OP GP I LLC, is the sole general partner of the Operating Partnership.

We invest primarily in well-occupied, grocery-anchored, neighborhood and community shopping centers that have a mix of creditworthy national and regional retailers that sell necessity-based goods and services in strong demographic markets throughout the United States. In addition to managing our own shopping centers, our third-party investment management business provides comprehensive real estate and asset management services to certain non-traded, publicly registered real estate investment trusts (“REITs”) and private funds (“Managed Funds”). The Managed Funds include Phillips Edison Grocery Center REIT II, Inc. (“REIT II”), Phillips Edison Grocery Center REIT III, Inc. (“PECO III”), Phillips Edison Limited Partnership (“PELP”), and Necessity Retail Partners (“NRP”).

As of September 30, 2017, our advisor was Phillips Edison NTR LLC (“PE-NTR”), which was directly or indirectly owned by Phillips Edison Limited Partnership (“Phillips Edison sponsor” or “PELP”). Under the terms of the advisory agreement between PE-NTR and us, PE-NTR was responsible for the management of our day-to-day activities and the implementation of our investment strategy.

~~As of September 30, 2017,~~2018, we owned fee simple interests in ~~159~~233 real estate ~~properties acquired from third parties unaffiliated~~properties.

In July 2018 we entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which, subject to the satisfaction or waiver of certain conditions, we will merge with ~~us or PE-NTR.~~

~~On October 4, 2017,~~REIT II, and we ~~completed a transaction to acquire certain real estate assets,~~will continue as the ~~captive insurance company, and~~surviving corporation (“Merger”). To complete the ~~third-party asset management business~~proposed Merger, we will issue 2.04 shares of our ~~Phillips Edison sponsor~~common stock in aexchange for each issued and outstanding share of REIT II common stock, ~~and cash transaction (“PELP transaction”). Upon completion of the PELP transaction, our relationship with PE-NTR was terminated.~~subject to closing adjustments. For a more detailed discussion, see ~~Notes 3 and 11.~~Note 3.

~~2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by management. For example, significant estimates and assumptions have been made with respect to the useful lives of ~~assets;~~assets, recoverable amounts of ~~receivables;~~receivables, and other fair value measurement assessments required for the preparation of the consolidated financial statements. As a result, these estimates are subject to a degree of uncertainty.

Other than those noted below, there have been no changes to our significant accounting policies during the nine months ended September 30, ~~2017.~~2018. For a full summary of our accounting policies, refer to our ~~2016~~2017 Annual Report on Form 10-K filed with the SEC on March ~~9, 2017.~~30, 2018.

Basis of Presentation and Principles of Consolidation—The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q should refer to ~~the~~our audited consolidated financial statements ~~of Phillips Edison Grocery Center REIT I, Inc.~~ for the year ended December 31, ~~2016,~~2017, which are included in our ~~2016~~2017 Annual Report on Form 10-K. In the opinion of management, all normal and recurring adjustments necessary for the fair presentation of the unaudited consolidated financial statements for the periods presented have been included in this Quarterly Report. Our results of operations for the three and nine months ended September 30, ~~2017,~~2018, are not necessarily indicative of the operating results expected for the full year.

The accompanying consolidated financial statements include our accounts and those of our majority-owned subsidiaries. All intercompany balances and transactions are eliminated upon consolidation.

~~Held for Sale Entities~~Income Taxes—~~We consider assets~~Our consolidated financial statements include the operations of one wholly owned subsidiary that has jointly elected to be ~~held~~treated as a Taxable REIT Subsidiary (“TRS”) and is subject to U.S. federal, state, and local income taxes at regular corporate tax rates. As of September 30, 2018 and December 31, 2017, a full valuation allowance was recorded for ~~sale when management believes that~~the entire amount of the net deferred tax asset. During the three and nine months ended September 30, 2018, no income tax expense or benefit was reported as we recorded a sale is probable within a year. This generally occurs when a sales contract is executed with no substantive contingencies and the prospective buyer has significant funds at risk. Assets that are classified as heldfull valuation allowance for ~~sale are recorded at the lower of their carrying amount or fair value less cost to sell.~~our net deferred tax asset.

Newly Adopted and Recently Issued Accounting Pronouncements

—The following table provides a brief description of ~~recently issued~~newly adopted accounting pronouncements ~~that could have a material~~and their effect on our consolidated financial statements:



Standard	Description	Date of Adoption	Effect on the Financial Statements or Other Significant Matters
ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting ~~Standards Update “ASU”~~	This update clarifies guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting.	January 1, 2018	The adoption of this standard did not have a material impact on our consolidated financial statements. We will apply the guidance to any future modifications of share-based compensation awards.
ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)	This update amends existing guidance in order to provide consistency in accounting for the derecognition of a ~~business or nonprofit activity.~~nonfinancial asset.	January 1, 2018	We did not record any cumulative adjustment in connection with the adoption of the new pronouncement. We determined that these changes did not have any impact on our consolidated financial statements.
ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 350)	This update amends existing guidance in order to simplify impairment testing for goodwill. It is effective for annual reporting periods beginning after ~~December 15, 2017,~~January 1, 2021, but early adoption is permitted.	January 1, 2018	We ~~will~~elected to adopt this standard ~~concurrently with ASU 2014-09, listed below. We expect the~~as of January 1, 2018. The adoption ~~will~~of this standard did not have any impact on our ~~transactions that are subject to the amendments, which, although expected to be infrequent, would include a partial sale of real estate or contribution of a nonfinancial asset to form a joint venture.~~consolidated financial statements.
ASU 2016-15, Statement of Cash Flows (Topic 230); ASU 2016-18, Statement of Cash Flows (Topic 230)	This update amends existing guidance in order to clarify the classification and presentation of restricted cash on the statement of cash flows. It is effective for annual reporting periods beginning after December 15, 2017, but early adoption is permitted.	~~January 1, 2018~~	Upon adoption, we will include amounts generally described as restricted cash within the beginning-of-period and end-of-period total amounts on the statement of cash flows rather than within an activity on the statement of cash flows.
~~ASU 2016-15, Statement of Cash Flows (Topic 230)~~	~~This update addresses~~These updates address the presentation of eight specific cash receipts and cash payments on the statement of cash flows, as well as clarify the classification and presentation of restricted cash on the statement of cash flows. ~~It is effective for annual reporting periods beginning after December 15, 2017, but early adoption is permitted.~~	January 1, 2018	We ~~are currently evaluating the impact the adoption~~adopted these ASUs by applying a retrospective transition method which requires a restatement of this standard will have on our consolidated financial statements. Of the eight specific cash receipts and cash payments listed within this guidance, we believe only two would be applicable to our business as it stands currently: debt prepayment or debt extinguishment costs and proceeds from settlement of insurance claims. We will continue to evaluate the impact that adoption of the standard will have on our presentation of these and any other applicable cash receipts and cash payments.
~~ASU 2016-02, Leases (Topic 842)~~	This update amends existing guidance by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for annual reporting periods beginning after December 15, 2018, but early adoption is permitted.	~~January 1, 2019~~	We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements. We have identified areas within our accounting policies we believe could be impacted by the new standard. We expect to have a change in presentation on our consolidated statement of ~~operations with regards to Tenant Recovery Income, which includes reimbursement amounts we receive from tenants~~cash flows for operating expenses such as real estate taxes, insurance, and other common area maintenance. Additionally, this standard impacts the lessor’s ability to capitalize certain costs related to the leasing of vacant space, which will result in a reduction in the amount of execution costs currently being capitalized in connection with leasing activities.all periods presented.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)	This update outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it also applies to certain other transactions such as the sale of real estate or equipment. Expanded quantitative and qualitative disclosures are also required for contracts subject to ASU 2014-09. In 2015, the Financial Accounting Standard Board (“FASB”) provided for a one-year deferral of the effective date for ASU 2014-09, making it effective for annual reporting periods beginning after December 15, 2017.	January 1, 2018	Our revenue-producing contracts are primarily leases that are not within the scope of this standard. As a result, ~~we do not expect~~ the adoption of this standard todid not have a material impact on our rental or reimbursement revenue. However, the standard does apply to a majority of our fees and management income. We ~~currently plan to adopt~~have evaluated the impact of this standard on our fees and management income; it did not have a material impact on our revenue recognition, but we have provided additional disclosures around fees and management revenue. We adopted this guidance on a modified retrospective basis.

The following table provides a brief description of ~~newly adopted~~recent accounting pronouncements ~~and their~~that could have a material effect on our consolidated financial statements:



Standard	Description	Date of Adoption	Effect on the Financial Statements or Other Significant Matters
ASU 2018-13, Fair Value Measurement (Topic 820)	This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project. Early adoption is permitted.	January 1, 2020	We are currently evaluating the impact the adoption of these standards will have on our consolidated financial statements.
ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting	The amendments in this update expand the scope of Topic 718: Compensation—Stock Compensation to include share-based payment transactions for acquiring goods and services from non-employees, except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). This update is effective for public business entities for fiscal years beginning after December 15, 2018. Early adoption is permitted.	January 1, 2019	We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update is effective for public entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted after December 15, 2018.	January 1, 2020	We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.



Standard	Description	Date of Adoption	Effect on the Financial Statements or Other Significant Matters
ASU ~~2017-12, Derivatives~~2016-02, Leases (Topic 842); ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; and ~~Hedging~~ ASU 2018-11, Leases (Topic ~~815)~~842): Targeted Improvements	~~This update amended~~These updates amend existing guidance ~~in order to better align a company’s financial reporting for hedging activities with~~by recognizing lease assets and lease liabilities on the ~~economic objectives of those activities.~~	~~September 2017~~	~~Upon~~balance sheet and disclosing key information about leasing arrangements. Early adoption we included a disclosure related to the effect of our hedging activities on our consolidated statements of operations. This disclosure also eliminated the periodic measurement and recognition of hedging ineffectiveness. We adopted this guidance on a modified retrospective basis and applied an adjustment to Accumulated Other Comprehensive Income with a corresponding adjustment to the opening balance of Accumulated Deficitis permitted as of the ~~beginning of 2017. For a more detailed discussion of this adoption, see Note 8.~~
~~ASU 2017-01, Business Combinations~~ ~~(Topic 805)~~	~~This update amended existing guidance in order to clarify when an integrated set of assets and activities is considered a business.~~original effective date.	January 1, ~~2017~~2019	~~For~~ We are currently evaluating the impact the adoption of these standards will have on our consolidated financial statements. We have identified areas within our accounting policies we believe could be impacted by the new standard. This standard impacts the lessor’s ability to capitalize certain costs related to leasing, which will result in a ~~more detailed discussion~~reduction in the amount of execution costs currently being capitalized in connection with leasing activities and an increase to our Property Operating expenses. The standard will also require new disclosures within the accompanying notes to the consolidated financial statements. We expect to adopt the practical expedients available for implementation under the standard. By adopting these practical expedients, we will not be required to reassess (i) whether an expired or existing contract meets the definition of a lease; (ii) the lease classification at the adoption date for existing leases; and (iii) whether the costs previously capitalized as initial direct costs would continue to be amortized. This allows us to continue to account for our leases where we are the lessee as operating leases, however, any new or renewed leases may be classified as financing leases. We currently have fewer than 50 leases of this type. We also expect to recognize right of use assets and lease liability on our consolidated balance sheets related to certain leases where we are the lessee. In July 2018, the FASB issued ASU 2018-11. The update allows lessors to use a practical expedient to account for non-lease components and related lease components as a single lease component instead of accounting for them separately, if certain conditions are met. We expect to utilize this practical expedient. We will continue to evaluate the effect the adoption of ~~this adoption~~these ASUs will have on our consolidated financial ~~statements, see Note 4.~~statements. However, we currently believe that the adoption will not have a material impact for operating leases where we are a lessor and will continue to record revenues from rental properties for our operating leases on a straight-line basis. We are still evaluating the impact for leases where we are the lessee.

Reclassifications—The following line ~~item~~items on our consolidated ~~statement~~statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2017, were reclassified:

Unrealized (Loss) Gain on Derivatives and Reclassification of Derivative Loss to Interest Expense were combined to Change in Unrealized Gain (Loss) on Interest Rate Swaps.

Acquisition Expenses were combined to General and Administrative.

The following line items on our consolidated statements of cash flows for the nine months ended September 30, ~~2016, was~~2017 were reclassified:

Net Loss (Gain) ~~Loss~~ on Write-off of Unamortized Capitalized Leasing Commissions, Market Debt Adjustments, and Deferred Financing Expense was ~~separately disclosed due~~combined to ~~significance in the current period. In the previous period these amounts were included in~~ Other.

3. PROPOSED MERGER WITH REIT II

In July 2018, we entered into the Merger Agreement, pursuant to which we will merge with REIT II in a 100% stock transaction valued at approximately $1.9 billion. This proposed Merger will create a portfolio of approximately 320 grocery-anchored shopping centers encompassing more than 36 million square feet in established trade areas across 33 states.

To complete the proposed Merger, we will issue 2.04 shares of our common stock in exchange for each issued and outstanding share of REIT II common stock, which is equivalent to $22.54 based on our most recent estimated net asset value per share (“EVPS”) of $11.05. The exchange ratio is based on a thorough review of the relative valuation of each entity, including factoring in our growing investment management business as well as each company’s transaction costs. REIT II’s outstanding debt of approximately $800 million is expected to be refinanced or assumed by us at closing under the terms of the Merger Agreement.

The Merger Agreement provides certain termination rights for REIT II and us. In connection with the termination of the Merger Agreement, under certain specified circumstances, REIT II may be required to pay us a termination fee of $31.7 million and we may be required to pay REIT II a termination fee of $75.6 million. The Merger Agreement provided REIT II with a 30-day go-shop period pursuant to which they could solicit, receive, evaluate, and enter into negotiations with respect to alternative proposals from third-parties. The go-shop period ended during the third quarter.

On a pro forma basis, upon completion of the Merger, we estimate that our continuing stockholders will own approximately 71% of the issued and outstanding shares of the combined company on a fully diluted basis (determined as if each Operating Partnership unit (“OP unit”) were exchanged for one share of our common stock), and former REIT II stockholders will own approximately 29% of the issued and outstanding shares of the combined company on a fully diluted basis (determined as if each OP unit were exchanged for one share of our common stock).

~~3. PELP ACQUISITION~~After consideration of all applicable factors pursuant to the business combination accounting rules under ASC 805, Business Combinations, including the application of a screen test to evaluate if substantially all the fair value of the acquired properties is concentrated in a single asset or group of similar assets, we have concluded that the Merger will be treated as an asset acquisition under GAAP. As of September 30, 2018, we have deferred for capitalization $2.8 million in costs related to the merger.

4. PELP ACQUISITION

On October 4, 2017, we completed a transaction to acquire certain real estate assets, the third-party investment management business, and the captive insurance company of PELP ~~transaction.~~in a stock and cash transaction (“PELP transaction”). Under the terms of this transaction, the following consideration was given in exchange for the contribution of PELP’s ownership interests in 76 shopping centers, its third-party investment management business, and its captive insurance company ~~and its third-party asset management business~~ (in thousands):


	Amount		Amount
Value of Operating Partnership units (“OP units”) issued⁽¹⁾	$	404,317
Debt assumed⁽²⁾:
Fair value of OP units issued			$	401,630
Debt assumed:
Corporate debt	432,091		432,091
Mortgages and notes payable	70,837		72,649
Cash payments	25,000		30,420
Total estimated consideration	$	932,245
Fair value of earn-out			38,000
Total consideration			974,790
PELP debt repaid by the Company on the transaction date			(432,091		)
Net consideration			$	542,699

⁽¹⁾

We issued 39.4 million OP units with an estimated fair value per unit of $10.20 at the time of the transaction. Certain of our executive officers who received OP units as part of the PELP transaction entered into an agreement which provides that they will not transfer their OP units for either two or three years following the closing. The remaining holders of the OP units are subject to the terms of exchange for shares of common stock outlined in the Operating Partnership’s Third Amended and Restated Agreement of Limited Partnership (“Partnership Agreement”) (see Note 10). The terms of the PELP transaction included an earn-out structure with an opportunity for up to an additional 12.5 million OP units to be issued. For more detail regarding this earn-out, see Note 14.

~~We issued 39.6 million OP units, excluding 5.1 million OP units and Class B units outstanding prior to the acquisition date, with an estimated value per unit of $10.20 at the time of the transaction.~~


⁽²⁾	~~The amounts related to debt assumed are shown at face value, but the final amounts will be recorded at fair value.~~

Immediately following the closing of the PELP transaction, our ~~shareholders~~stockholders owned approximately 80.6% and former PELP ~~shareholders~~stockholders owned approximately 19.4% of the combined company.

The terms of the transaction also include an earn-out structure with an opportunity for an additional 12.5 million OP units to be issued if certain milestones are achieved related to a liquidity event for our shareholders

Assets Acquired and ~~reaching certain fundraising targets in Phillips Edison Grocery Center REIT III, Inc., of which PELP was a co-sponsor.~~

Liabilities Assumed—The PELP transaction was ~~approved~~accounted for using the acquisition method of accounting under ASC 805, Business Combinations, which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. The preliminary fair market value of the assets acquired and liabilities assumed was based on a valuation report prepared by a third-party valuation specialist that was subject to management’s review and approval. The following table summarizes the ~~independent special committee~~purchase price allocation based on that report (in thousands):



	Amount
Assets:
Land and improvements	$	269,140
Building and improvements	574,173
Intangible lease assets	93,506
Cash	5,930
Accounts receivable and other assets	42,426
Management contracts	58,000
Goodwill	29,066
Total assets acquired	1,072,241
Liabilities:
Accounts payable and other liabilities	48,342
Acquired below-market leases	49,109
Total liabilities acquired	97,451
Net assets acquired	$	974,790

The allocation of the purchase price was based on management’s assessment, which may change in the future as more information becomes available and could have an impact on the unaudited pro forma financial information presented below. Subsequent adjustments made to the purchase price allocation upon the completion of our ~~board~~fair value assessment process will not exceed one year from the acquisition date. The allocation of ~~directors (“Board”), which had retained independent financial~~the purchase price above required a significant amount of judgment and ~~legal advisors. It was also approved by our shareholders,~~represented management’s best estimate of the fair value as ~~well~~of the acquisition date.

Intangible Assets and Liabilities—The fair value and weighted-average amortization periods for the intangible assets and liabilities acquired in the PELP transaction as ~~PELP’s partners. For additional information, please see~~of the ~~Current Report on Form 8-K filed~~transaction date were as follows (dollars in thousands, useful life in years):



	Fair Value			Weighted-Average Useful Life
Management contracts	$	58,000		5
Acquired in-place leases	83,305			9
Acquired above-market leases	10,201			7
Acquired below-market leases	(49,109		)	13

Goodwill—In connection with the ~~SEC on October 11,~~PELP transaction, we recorded goodwill of $29.1 million as a result of the consideration exceeding the fair value of the net assets acquired. Goodwill represents the estimated future benefits arising from other assets acquired that could not be individually identified and separately recognized. We do not expect that the goodwill will be deductible for tax purposes. The goodwill recorded represents our management structure and its ability to generate additional opportunities for revenue and raise additional funds, and therefore the full amount of goodwill was allocated to the Investment Management segment, which comprises one reporting unit. For more information about each of our reporting segments, see Note 15.

Results of Operations—The consolidated net assets and results of operations of PELP’s contributions were included in the consolidated financial statements from the transaction date going forward and resulted in the following impact to Revenue and Net Loss for the three and nine months ended September 30, 2018 (in thousands):



	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Revenue	$	20,943		$	63,894
Net loss	(16,464		)	(24,999		)

Acquisition Costs—We incurred approximately $17.0 million of costs related to the PELP transaction, $9.8 million of which was incurred during the nine months ended September 30, 2017, and was recorded as Transaction Expenses on the ~~Definitive Proxy Statement filed with the SEC on July 6, 2017.~~

~~The supplemental purchase accounting disclosures required by GAAP relating~~consolidated statements of operations. No costs related to the ~~acquisition of~~ PELP ~~have not been presented as the initial accounting for this acquisition was incomplete at the time this Quarterly Report on Form 10-Q was filed with the SEC.~~transaction were recorded in 2018.

~~4. REAL ESTATE ACQUISITIONS AND DISPOSITIONS~~Pro Forma Results (Unaudited)

~~In January 2017,~~—The following unaudited pro forma information summarizes selected financial information from our combined results of operations, as if the ~~FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business. This update amended existing guidance in order to clarify when an integrated set of assets and activities is considered a business. We adopted ASU 2017-01~~PELP transaction had occurred on January 1, ~~2017,~~2016. These results contain certain nonrecurring adjustments, such as the elimination of transaction expenses incurred related to the PELP transaction and ~~applied it prospectively. Under this new guidance, most~~the elimination of ~~our real estate acquisition~~intercompany activity related to creating an internalized management structure. This pro forma information is ~~no longer considered a business combination~~presented for informational purposes only, and ~~is instead classified as an asset acquisition. As a result, most acquisition-related costs that~~may not be indicative of what actual results of operations would have been ~~recorded on our consolidated statements of operations are capitalized and will be amortized over~~had the ~~life~~PELP transaction occurred at the beginning of the ~~related assets. Costs incurred related~~period, nor does it purport to ~~properties that were not ultimately acquired were recorded as Acquisition Expenses on our consolidated statements~~represent the results of future operations. ~~As of~~



(in thousands)	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Pro forma revenues	$	98,679	$	300,133
Pro forma net income attributable to stockholders	799		2,063

5. REAL ESTATE ACTIVITY

Acquisitions—During the nine months ended September 30, ~~2017, none of our real estate acquisitions in 2017 met~~2018, we acquired two grocery-anchored shopping centers. The first quarter acquisition closed out the ~~definition of~~Internal Revenue Code (“IRC”) Section 1031 like-kind exchange outstanding at December 31, 2017. We also acquired one land parcel adjacent to a ~~business; therefore,~~property we ~~accounted~~currently own for ~~all as asset acquisitions.~~

$0.7 million. During the nine months ended September 30, 2017, we acquired six grocery-anchored shopping centers. ~~Our first quarter acquisition closed out~~All of the ~~Internal Revenue Service Code (“IRC”) reverse Section 1031 like-kind exchange outstanding~~2017 and 2018 acquisitions were classified as ~~of December 31, 2016. During~~asset acquisitions. As such, most acquisition-related costs were capitalized and are included in the ~~nine months ended September 30, 2016, we acquired three grocery-anchored shopping centers and additional~~total purchase prices shown below. Our real estate ~~adjacent to previously acquired shopping centers.~~

~~For the nine months ended September 30, 2017 and 2016, we allocated the purchase price of our acquisitions, including acquisition costs for 2017, to the fair value of the~~ assets ~~acquired and liabilities assumed as follows (in thousands):~~

2017 2016
Land and improvements $ 36,100
$ 47,834
Building and improvements 95,507
74,709
Acquired in-place leases 13,646
12,300
Acquired above-market leases 1,012
2,398
Acquired below-market leases (3,703 ) (6,313 )
Total assets and lease liabilities acquired 142,562
130,928
Less: Fair value of assumed debt at acquisition 30,832
—
Net assets acquired $ 111,730
$ 130,928

~~The weighted-average amortization periods for in-place, above-market, and below-market lease intangibles~~ acquired during the nine months ended September 30, ~~2017 and 2016, are~~2018, were as follows ~~(in years):~~

2017 2016
Acquired in-place leases 13 12
Acquired above-market leases 7 6
Acquired below-market leases 19 22

~~Property Held for Sale~~—As of September 30, 2017, one property was classified as held for sale as it was under contract to sell, with no substantive contingencies, and the prospective buyer had significant funds at risk. On October 26, 2017, we sold this property for $6.5 million and intend on deferring the gain through an IRC Section 1031 like-kind exchange by purchasing another property. A summary of assets and liabilities for the property held for sale as of September 30, 2017, is below (in thousands):

September 30, 2017
ASSETS
Total investment in real estate assets, net $ 4,459
Accounts receivable, net 300
Other assets, net 104
Total assets $ 4,863

LIABILITIES
Liabilities:
Acquired below-market lease liabilities, net of accumulated amortization of $38 $ 82
Accounts payable – affiliates 5
Accounts payable and other liabilities 146
Total liabilities $ 233

~~5. FAIR VALUE MEASUREMENTS~~

~~The following describes the methods we use to estimate the fair value of our financial and nonfinancial assets and liabilities:~~

~~Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, and Accounts Payable—We 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.~~

~~Real Estate Investments~~—The purchase prices of the investment properties, including related lease intangible assets and liabilities, were allocated at estimated fair value based on Level 3 inputs, such as discount rates, capitalization rates, comparable sales, replacement costs, income and expense growth rates, and current market rents and allowances as determined by management.

~~Mortgages and Loans Payable~~—We estimate the 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). We have utilized market information, as available, or present value techniques to estimate the amounts required to be disclosed.

~~The following is a summary of borrowings as of September 30, 2017 and December 31, 2016~~ (dollars in thousands):

September 30, 2017 December 31, 2016
Fair value $ 1,226,748
$ 1,056,990
Recorded value⁽¹⁾
1,232,190
1,065,180

Property Name

Location

Anchor Tenant

Acquisition Date

Purchase Price

Leased % of Rentable Square Feet at Acquisition

Shoppes of Lake Village

Leesburg, FL

Publix

2/26/2018

8,423

71.3

Sierra Vista Plaza

Murrieta, CA

Stater Brothers⁽¹⁾

9/28/2018

22,151

81.0


⁽¹⁾	~~Recorded value does~~Stater Brothers is in a portion of the shopping center that we do not ~~include deferred financing costs of $7.4 million and $9.0 million as of September 30, 2017 and December 31, 2016, respectively.~~own.

~~Derivative Instruments~~—~~As of~~During the nine months ended September 30, 2017, we acquired the following real estate assets (dollars in thousands):

Property Name

Location

Anchor Tenant

Acquisition Date

Purchase Price

Leased % of Rentable Square Feet at Acquisition

Atwater Marketplace

Atwater, CA

Save Mart

2/10/2017

15,041

94.6

Rocky Ridge Station

Roseville, CA

Sprouts

4/18/2017

37,271

⁽¹⁾

96.3

Greentree Station

Racine, WI

Pick ‘n Save

5/5/2017

12,309

90.3

Titusville Station

Titusville, FL

Publix

6/15/2017

13,817

71.7

Sierra Station

Corona, CA

Ralph’s

6/20/2017

29,137

⁽¹⁾

94.0

Hoffman Village Station

Hoffman Estates, IL

Mariano’s

9/5/2017

34,910

93.1


⁽¹⁾	The purchase price includes the fair value of debt assumed as part of the acquisition.

The fair value at acquisition and ~~December 31, 2016, we had interest rate swaps that fixed LIBOR on portions~~weighted-average useful life for in-place, above-market, and below-market lease intangibles acquired as part of ~~our unsecured term loan facilities (“Term Loans”). For a more detailed discussion of these cash flow hedges, see Note 8. As of~~the above transactions during the nine months ended September 30, 2018 and 2017, ~~and December 31, 2016,~~are as follows (dollars in thousands, weighted-average useful life in years):



	2018				2017
	Fair Value			Weighted-Average Useful Life	Fair Value			Weighted-Average Useful Life
Acquired in-place leases	$	2,319		6	$	13,647		13
Acquired above-market leases	200			5	1,012			7
Acquired below-market leases	(1,299		)	14	(3,703		)	19

Dispositions—During the nine months ended September 30, 2018, we ~~were also party to an interest rate swap that fixed~~sold five grocery-anchored shopping centers for $45.6 million resulting in a gain of $5.6 million. We had no dispositions during the ~~variable interest rate on $10.8 million and $11.0 million, respectively,~~nine months ended September 30, 2017.

Impairment of ~~one of our mortgage notes. The change in fair value of this instrument is recorded in Other Income (Expense), Net on the consolidated statements of operations and was not material for~~Real Estate Assets—During the three and nine months ended September 30, ~~2017~~2018, we recognized impairment charges totaling $16.8 million and ~~2016.~~

~~All interest rate swap agreements are measured at~~$27.7 million, respectively. The impairments were associated with certain anticipated property dispositions where the net book value exceeded the estimated fair value, ~~on a recurring basis. The valuation~~as well as certain properties that we determined to be impaired following the identification of ~~these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on~~potential operational impairment indicators. Our estimated fair value was based upon the ~~expected cash flows of each derivative. This analysis reflects~~contracted price to sell, the ~~contractual terms~~marketed price for disposition, or comparable market assets when neither of the ~~derivatives, including~~first two inputs were available. We have applied reasonable estimates and judgments in determining the ~~period to maturity, and uses~~level of impairments recognized. We did not recognize any impairments in 2017.

~~observable market-based inputs, including interest rate curves and implied volatilities.~~

6. OTHER ASSETS, NET

The ~~fair values~~following is a summary of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

To comply with the provisions of ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although we determined that the significant inputs used to value our derivatives fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparties. However,Other Assets, Net outstanding as of September 30, ~~2017~~2018 and December 31, 2016, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

We record derivative assets in Other Assets, Net and derivative liabilities in Accounts Payable and Other Liabilities on our consolidated balance sheets. The fair value measurements of our derivative assets and liabilities as of September 30, 2017 ~~and December 31, 2016, were as follows~~ (in thousands):

September 30, 2017 December 31, 2016
Derivative asset:
Interest rate swaps designated as hedging instruments - Term Loans $ 11,175
$ 11,916
Derivative liability:
Interest rate swap not designated as hedging instrument - mortgage note 108
262



	September 30, 2018			December 31, 2017
Other assets, net:
Deferred leasing commissions and costs	$	33,491		$	29,055
Deferred financing costs	13,971			13,971
Office equipment, including capital lease assets, and other	13,117			10,308
Total depreciable and amortizable assets	60,579			53,334
Accumulated depreciation and amortization	(23,678		)	(17,121		)
Net depreciable and amortizable assets	36,901			36,213
Accounts receivable, net	37,025			41,211
Deferred rent receivable, net	21,594			18,201
Derivative asset	37,708			16,496
Prepaid expenses	8,015			4,232
Investment in affiliates	903			902
Other	6,297			1,193
Total other assets, net	$	148,443		$	118,448

~~6. MORTGAGES AND LOANS PAYABLE~~

7. DEBT OBLIGATIONS

The following is a summary of the outstanding principal balances and interest rates, which include the effect of derivative financial instruments, on our debt obligations as of September 30, ~~2017~~2018 and December 31, ~~2016 (in~~2017 (dollars in thousands):

Interest Rate⁽¹⁾
September 30, 2017 December 31, 2016
Revolving credit facility⁽²⁾⁽³⁾
2.54% $ 378,969
$ 176,969
Term loan due 2019⁽³⁾
2.46% 100,000
100,000
Term loan due 2020⁽³⁾
2.65% 175,000
175,000
Term loan due 2021 2.49%-2.80% 125,000
125,000
Term loan due 2023 3.03% 255,000
255,000
Mortgages payable⁽⁴⁾
3.73%-7.91% 194,480
228,721
Assumed market debt adjustments, net⁽⁵⁾
3,741
4,490
Deferred financing costs, net⁽⁶⁾
(7,411 ) (9,024 )
Total $ 1,224,779
$ 1,056,156



	Interest Rate	September 30, 2018			December 31, 2017
Revolving credit facility⁽¹⁾	LIBOR + 1.40%	$	55,568		$	61,569
Term loans⁽²⁾	2.51% - 3.93%	1,205,000			1,140,000
Secured loan facility due 2026	3.55%	175,000			175,000
Secured loan facility due 2027	3.52%	195,000			195,000
Mortgages and other⁽³⁾	3.75% - 7.91%	222,205			246,217
Assumed market debt adjustments, net⁽⁴⁾		4,211			5,254
Deferred financing costs⁽⁵⁾		(14,037		)	(16,042		)
Total		$	1,842,947		$	1,806,998


⁽¹⁾	~~Includes the effects of derivative financial instruments (see Notes 5 and 8) as of September 30, 2017.~~


⁽²⁾	The gross borrowings and payments under our revolving credit facility were ~~$295~~$219.0 million and ~~$93~~$225.0 million, respectively, during the nine months endedSeptember 30, ~~2017.~~2018. The revolving credit facility ~~had~~has a capacity of ~~$500~~$500 million ~~as of September 30, 2017~~ and ~~December 31, 2016.~~

⁽³⁾

~~In October 2017, the maturity date of the revolving credit facility was extended to~~matures in October 2021, with additional options to extend the maturity to October 2022. The term loans have options to extend their maturities to 2021. A maturity date extension for the term loans requires the payment of an extension fee of 0.15% of the outstanding principal amount of the corresponding tranche.

⁽⁴⁾⁽²⁾

We have six term loans with maturities ranging from 2019 to 2024. The $100 million term loan due in 2019 has options to extend the maturity to 2021. We will consider options for refinancing the loan or exercising the option upon maturity. As of September 30, 2018, the availability on our revolving credit facility exceeded the balance on the loan. The $175 million term loan due in 2020 has options to extend its maturity to 2021. We executed a $65 million delayed draw in January 2018 on one of our term loans that originated in October 2017.


⁽³⁾	Due to the non-recourse nature of our fixed-rate mortgages, the assets and liabilities of the properties securing such mortgages are neither available to pay the debts of the consolidated property-holding limited liability companies, nor do they constitute obligations of such consolidated limited liability companies as of September 30, ~~2017~~2018 and December 31, ~~2016.~~2017.


⁽⁴⁾	Net of accumulated amortization of $4.0 million and $3.7 million as of September 30, 2018 and December 31, 2017, respectively.


⁽⁵⁾	Net of accumulated amortization of ~~$3.8~~$7.9 million and ~~$6.1~~$5.4 million as of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

⁽⁶⁾

Deferred financing costs shown are related to our Term Loans and mortgages payable and are net of accumulated amortization of $4.8 million and $3.9 million as of September 30, 2017 and December 31, 2016, respectively. Deferred financing costs related to the revolving credit facility, which are included in Other Assets, Net, were $0.4 million and $2.2 million as of September 30, 2017 and December 31, 2016, respectively, and are net of accumulated amortization of $8.5 million and $6.7 million, respectively.

As of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the weighted-average interest rate, including the effect of derivative financial instruments, for all of our ~~mortgages~~debt obligations was 3.5% and ~~loans payable was 3.1% and 3.0%~~3.4%, respectively.

The allocation of total debt between ~~fixed~~fixed- and variable-rate ~~and~~as well as between secured and unsecured, excluding market debt adjustments and deferred financing costs, as of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, is summarized below (in thousands):


	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
As to interest rate:⁽¹⁾
Fixed-rate debt	$	836,480	$	615,721	$	1,584,205	$	1,608,217
Variable-rate debt	391,969		444,969		268,568		209,569
Total	$	1,228,449	$	1,060,690	$	1,852,773	$	1,817,786
As to collateralization:
Unsecured debt	$	1,033,969	$	831,969	$	1,261,180	$	1,202,476
Secured debt	194,480		228,721		591,593		615,310
Total	$	1,228,449	$	1,060,690	$	1,852,773	$	1,817,786


⁽¹⁾	Includes the effects of derivative financial instruments (see Notes 58 and 8)14).

Upon completion of the PELP transaction, in order to increase the availability on our revolving credit facility and refinance the corporate debt assumed from the PELP transaction, we entered into the following new credit agreements (in thousands):

Interest Rate Principal Balance
Term loan due April 2022^(1)(2)(3)
LIBOR + 1.30% $ 310,000
Term loan due October 2024⁽¹⁾⁽³⁾
LIBOR + 1.75% 175,000
Loan facility due November 2026⁽⁴⁾
3.55% 175,000
Loan facility due November 2027⁽⁴⁾
3.52% 195,000


⁽¹⁾	~~The term loan interest rate spreads may vary based on our leverage ratio. The spreads presented were those in effect when we executed the loan agreements.~~


⁽²⁾	~~The term loan maturing in 2022 has a delayed draw feature for a total capacity of $375 million.~~


⁽³⁾	On October 27, 2017, we entered into two interest rate swap agreements with a total notional amount of $350 million on the term loans maturing in 2022 and 2024. These interest rate swaps were effective November 1, 2017.


⁽⁴⁾	~~The loan facility maturing in 2026 is secured by 16 properties. The loan facility maturing in 2027 is secured by separate mortgages on 14 properties.~~

~~As of September 30, 2017, approximately $12.6 million in deferred financing costs, which are included in Other Assets, Net on our consolidated balance sheet, were related to these refinancings.~~

7. ~~COMMITMENTS AND CONTINGENCIES~~

8. DERIVATIVES AND HEDGING ACTIVITIES

~~Litigation~~

We are involved in various claims and litigation matters arising in the ordinary course of business, some of which involve claims for damages. Many of these matters are covered by insurance, although they may nevertheless be subject to deductibles or retentions. Although the ultimate liability for these matters cannot be determined, based upon information currently available, we believe the resolution of such claims and litigation will not have a material adverse effect on our consolidated financial statements.

~~Environmental Matters~~

In connection with the ownership and operation of real estate, we may potentially be liable for costs and damages related to environmental matters. In addition, we may own or acquire certain properties that are subject to environmental remediation. Generally, the seller of the property, the tenant of the property, and/or another third party is responsible for environmental

remediation costs related to a property. Additionally, in connection with the purchase of certain properties, the respective sellers and/or tenants may agree to indemnify us against future remediation costs. We also carry environmental liability insurance on our properties that provides limited coverage for any remediation liability and/or pollution liability for third-party bodily injury and/or property damage claims for which we may be liable. We are not aware of any environmental matters which we believe are reasonably likely to have a material effect on our consolidated financial statements.

~~8. DERIVATIVES AND HEDGING ACTIVITIES~~

~~In September 2017, we adopted ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~. This update amended existing guidance in order to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. It requires us to disclose the effect of our hedging activities on our consolidated statements of operations and eliminated the periodic measurement and recognition of hedging ineffectiveness.

In accordance with the modified retrospective transition method required by ASU 2017-12, the Company recognized the cumulative effect of the change, representing the reversal of the $1.3 million cumulative ineffectiveness gain as of December 31, 2016, in the opening balance of Accumulated Other Comprehensive Income (“AOCI”) with a corresponding adjustment to the opening balance of Accumulated Deficit as of the beginning of 2017.

Risk Management Objective of Using Derivatives

—We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposure to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into interest rate swaps to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our investments and borrowings.

Cash Flow Hedges of Interest Rate Risk

—Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The ~~changes~~change in the fair value of derivatives designated, and that qualify, as cash flow hedges is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, such derivatives were used to hedge the variable cash flows associated with certain variable-rate debt. The ineffectiveness previously reported in earnings for the ~~quarters~~period ended ~~March 31, 2017 and June~~September 30, 2017, was adjusted to reflect application of the provisions of ASU 2017-12, Derivatives and Hedging (Topic 815), as of the beginning of ~~2017 (as discussed above).~~2017. This adjustment was not material.

Amounts reported in AOCI related to these derivatives will be reclassified to Interest Expense, Net as interest payments are made on the variable-rate debt. During the next twelve months, we estimate that an additional ~~$0.6~~$8.8 million will be reclassified from Other Comprehensive ~~(Loss)~~ Income (“OCI”) as a decrease to Interest Expense, Net.

The following is a summary of our interest rate swaps that were designated as cash flow hedges of interest rate risk as of September 30, ~~2017~~2018 and December 31, ~~2016, which includes an interest rate swap with a notional amount of $255 million that we entered into in October 2016 and became effective in July~~ 2017 (notional amount in thousands):


Count	Notional Amount	Fixed LIBOR	Maturity Date	Fixed LIBOR	Maturity Date	Notional Amount
4	$642,000	1.2% - 1.5%	2019-2023
6				1.2% - 2.2%	2019-2024	$	992,000

The table below details the location of the gain or loss recognized on interest rate derivatives designated as cash flow hedges in the consolidated statements of operations and comprehensive income (loss) ~~income~~ for the three and nine months ended September 30, ~~2017~~2018 and ~~2016~~2017 (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Amount of gain (loss) recognized in OCI on derivative⁽¹⁾	$	4,061		$	(179	)	$	23,107		$	(1,944	)
Amount of (gain) loss reclassified from AOCI into interest expense⁽¹⁾	(1,192		)	228			(1,895		)	1,203


⁽¹⁾	Increases in gains are solely driven from changes in LIBOR and LIBOR futures.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Amount of (loss) gain recognized in OCI on derivative $ (179 ) $ 1,306
$ (1,944 ) $ (9,584 )
Amount of loss reclassified from AOCI into interest expense (228 ) (888 ) (1,203 ) (2,762 )

9. COMMITMENTS AND CONTINGENCIES

~~Credit-risk-related Contingent Features~~

Litigation—We are involved in various claims and litigation matters arising in the ordinary course of business, some of which involve claims for damages. Many of these matters are covered by insurance, although they may nevertheless be subject to deductibles or retentions. Although the ultimate liability for these matters cannot be determined, based upon information currently available, we believe the resolution of such claims and litigation will not have agreements with our derivative counterparties that contain provisions where, if we either default or are capable of being declared in default on any of our indebtedness, we could also be declared to be in defaulta material adverse effect on our ~~derivative obligations. As~~consolidated financial statements.

Environmental Matters—In connection with the ownership and operation of ~~September 30, 2017, the fair value of our derivatives in a net liability position, which included accrued interest but excluded any adjustment~~real estate, we may potentially be liable for ~~nonperformance risk~~costs and damages related to ~~these agreements, was approximately $0.1 million. As~~environmental matters. In addition, we may own or acquire certain properties that are subject to environmental remediation. Generally, the seller of ~~September 30, 2017, we had not posted any collateral~~the property, the tenant of the property, and/or another third party is responsible for environmental remediation costs related to ~~these agreements and were~~a property. Additionally, in connection with the purchase of certain properties, the respective sellers and/or tenants may agree to indemnify us against future remediation costs. We also carry environmental liability insurance on our properties that provides limited coverage for any remediation liability and/or pollution liability for third-party bodily injury and/or property damage claims for which we may be liable. We are not ~~in breach~~aware of any ~~agreement provisions. If~~environmental matters which we ~~had breached any of these provisions, we could~~believe are reasonably likely to have ~~been required to settle~~a material effect on our ~~obligations under the agreements at their termination value of $0.1 million.~~consolidated financial statements.

~~9. EQUITY~~

10. EQUITY

On ~~November 8, 2017,~~May 9, 2018, our ~~Board~~board of directors (“Board”) increased the ~~estimated value per share~~EVPS of our common stock to ~~$11.00~~$11.05 based substantially on the estimated market value of our portfolio of real estate properties and our ~~recently acquired~~ third-party ~~asset~~investment management business as of March 31, 2018. We engaged a third-party valuation firm to provide a calculation of the range in EVPS of our common stock as of March 31, 2018, which reflected certain balance sheet assets and liabilities as of that date. Previously, on November 8, 2017, our Board increased the EVPS of our common stock to $11.00 from $10.20 based substantially on the estimated market value of our portfolio of real estate properties and our third-party investment management business as of October 5, 2017, the first full business day after the closing of the PELP transaction. ~~We engaged a third-party valuation firm to provide a calculation of the range in estimated value per share~~

Shares of our common stock are issued under the Dividend Reinvestment Plan (the “DRIP”) and redeemed under the Share Repurchase Program (“SRP”), as discussed below, at the same price as the EVPS in effect at the time of October 5, 2017, which reflected certain pro forma balance sheet assets and liabilities as of that date. For a description of the methodology and assumptions used to determine the estimated value per share, see the Current Report on Form 8-K filed with the SEC on November 9, 2017. Prior to November 8, 2017, the estimated value per share was $10.20 based substantially on the estimated market value of our portfolio of real estate properties as of March 31, 2017.issuance or redemption.

Dividend Reinvestment Plan—~~We have adopted a~~The DRIP ~~that~~ allows stockholders to invest distributions in additional shares of our common stock. ~~For the nine months ended September 30, 2017 and 2016, shares were issued under~~Stockholders who elect to participate in the DRIP, atand who are subject to U.S. federal income taxation laws, will incur a ~~price~~tax liability on an amount equal to the fair value on the relevant distribution date of ~~$10.20 per share.~~the shares of our common stock purchased with reinvested distributions, even though such stockholders have elected not to receive the distributions in cash. In connection with the ~~May announcement of the PELP transaction~~proposed Merger (see Note 3), the DRIP was temporarily suspended ~~during May 2017;~~for the month of July 2018; therefore, all DRIP participants received their ~~May~~July 2018 distribution ~~which was payable in June,~~ in cash rather than in stock. The DRIP plan resumed in ~~June 2017,~~August 2018, with ~~distributions payable~~the distribution paid in ~~July 2017.~~September 2018.

Share Repurchase Program—Our ~~share repurchase program (“SRP”)~~SRP provides an opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and limitations. The Board reserves the right, in its sole discretion, at any time and from time to time, to reject any request for repurchase. Further, the cash available for repurchases on any particular date will generally be limited to the proceeds from the DRIP during the preceding four fiscal quarters, less amounts already used for repurchases since the beginning of that period. ~~The Board reserves the right, in its sole discretion, at any time and from time to time, to reject any request for repurchase.~~ In connection with the ~~May announcement of the PELP transaction,~~Merger, the SRP was also temporarily suspended ~~during May 2017~~for the month of July 2018 and resumed in ~~June 2017.~~August 2018.

During the nine months ended September 30, ~~2017,~~2018, repurchase requests surpassed the funding limits under the SRP. Approximately 4.5 million shares of our common stock were repurchased under the SRP during the nine months ended September 30, 2018. Repurchase requests in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence” were completed in full. The remaining repurchase requests that were in good order were fulfilled on a pro rata basis. Due to the ~~program’s~~program's funding limits, no funds will be available for the remainder of ~~2017. When~~2018. However, we ~~are unable to fulfill all repurchase requests in any month, we~~ will honor requests on a pro rata basis to the extent possible. As of September 30, 2017, we had 9.8 million shares of unfulfilled repurchase requests, which will be treated as requests for repurchase during future months until satisfied or withdrawn. We continue to fulfill repurchases sought upon a ~~stockholder’s~~stockholder's death, “qualifying disability,” or “determination of incompetence” in accordance with the terms of the SRP.

In connection with the proposed Merger, the combined company will be required to reset its share repurchase queue. As a result, all SRP requests currently on file will be canceled on the date the Merger closes. All stockholders wishing to participate in the SRP after the Merger must submit a new SRP form to the transfer agent, DST, after the Merger to be included in the next standard repurchase of the combined company. All standard repurchase requests must be on file and in good order to be included for next standard repurchase of the combined company, which is expected to be in July 2019. At that time, should the demand for standard redemptions exceed the funding available for repurchases, the combined company is expected to make pro-rata redemptions. Following that standard repurchase, standard repurchase requests that are on file with the combined company and in good order that have not been fully executed (due to pro-rata redemptions), will remain on file for future redemptions.

~~Class B and~~Convertible Noncontrolling Interests—As part of the PELP transaction, we issued 39.4 million OP units that are classified as Noncontrolling Interests. Prior to the PELP transaction, the Operating Partnership ~~Units—The Operating Partnership~~also issued limited partnership units that were designated as Class B units for asset management services provided by ~~PE-NTR. In connection with the PELP transaction, Class B units~~

~~were no longer issued for asset management services subsequent to September 19, 2017.~~our former advisor. Upon closing of the PELP transaction, all outstanding Class B units ~~were~~ vested and ~~will be~~were converted to OP units.

~~OP units may be exchanged at~~Under the ~~election~~terms of the ~~holder for cash or, at~~Partnership Agreement, OP unit holders may elect to exchange OP units. The Operating Partnership controls the ~~option~~form of the ~~Operating Partnership,~~redemption, and may elect to exchange OP units for shares of our common stock, ~~under the terms of the Third Amended and Restated Agreement of Limited Partnership,~~ provided ~~however,~~ that the

OP units have been outstanding for at least one year. As the form of ~~the redemptions~~redemption for ~~the~~ OP units is within our control, the OP units outstanding as of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, are classified as Noncontrolling Interests within permanent equity on our consolidated balance sheets. ~~Additionally, the~~The cumulative distributions that have been paid on ~~these~~ OP units are included in Distributions to Noncontrolling Interests on the consolidated statements of equity.

In September 2017, we entered into an agreement with American Realty Capital II Advisors, LLC (“ARC”) to terminate all remaining contractual and economic relationships between us and ARC. In exchange for a payment of $9.6 There were 44.5 million ~~ARC sold their~~ OP units unvested Class B Units, and their special limited partnership interests back to us, terminating all fee-sharing arrangements between ARC and PE-NTR. The 417,801 OP unit repurchase was recorded at a value of $4.2 million on the consolidated statement of equity. The $5.4 million value of the unvested Class B units, special limited partnership interests, and value of fee-sharing arrangements is recorded on the consolidated statement of operations.

~~Below is a summary of our number of~~ outstanding ~~OP units and unvested Class B units~~ as of September 30, ~~2017~~2018 and December 31, ~~2016 (in thousands):~~

2017.

September 30, 2017 December 31, 2016
OP units 2,367
2,785
Class B units⁽¹⁾
2,710
2,610


⁽¹⁾Nonconvertible Noncontrolling Interests—In addition to partnership units of the Operating Partnership, Noncontrolling Interests also includes a 25% ownership share of one of our subsidiaries who provides advisory services, which was not significant to our results.	~~Upon closing of the PELP transaction, all outstanding Class B units were converted to OP units.~~

~~10.~~

11. EARNINGS PER SHARE

We use the two-class method of computing earnings per share (“EPS”), which is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared (whether paid or unpaid). Under the two-class method, basic EPS is computed by dividing ~~the income available~~Net Loss Attributable to ~~common stockholders~~Stockholders by the weighted-average

number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution that could occur from share equivalent activity.

~~Class B units and~~

OP units held by limited partners other than us are considered to be participating securities because they contain non-forfeitable rights to dividends or dividend equivalents, and ~~they~~ have the potential to be exchanged for an equal number of shares of our common stock in accordance with the terms of the Partnership Agreement.

The impact of ~~these Class B units and~~ OP units on basic and diluted EPS has been calculated using the two-class method whereby earnings are allocated to the ~~Class B units and~~ OP units based on dividends declared and the units’ participation rights in undistributed earnings. The effects of the two-class method on basic and diluted EPS were immaterial to the consolidated financial statements ~~for the three and nine months ended September 30, 2017 and 2016.~~

Since the OP units are fully vested, they were treated as potentially dilutive in the diluted earnings per share computations for the three and nine months ended September 30, 2017 and 2016. There were 2.7 million and 2.5 million Class B units outstanding as of September 30, ~~2017~~2018 and 2016, respectively, that remained unvested and, therefore, were not included in the diluted earnings per share computations. Upon closing of the PELP transaction, all outstanding Class B units were converted to OP units.

2017.

The following table provides a reconciliation of the numerator and denominator of the earnings per ~~unit~~share calculations for the three and nine months ended September 30, ~~2017~~2018 and ~~2016~~2017 (in thousands, except per share amounts):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Numerator for basic and diluted earnings per share:
Net (loss) income attributable to stockholders $ (8,232 ) $ 2,464
$ (8,319 ) $ 5,243
Denominator:
Denominator for basic earnings per share - weighted-average shares 183,843
184,639
183,402
183,471
Effect of dilutive OP units —

2,785
—
2,785
Effect of restricted stock awards —
4
—
4
Denominator for diluted earnings per share - adjusted weighted-average shares 183,843
187,428
183,402
186,260
Earnings per common share:
Net (loss) income attributable to stockholders - basic and diluted $ (0.04 ) $ 0.01
$ (0.05 ) $ 0.03



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Numerator:
Net loss attributable to stockholders - basic	$	(13,228	)	$	(8,232	)	$	(26,179	)	$	(8,319	)
Net loss attributable to convertible OP units⁽¹⁾	(3,180		)	(144		)	(6,270		)	(144		)
Net loss attributable to stockholders and convertible noncontrolling interests - diluted	$	(16,408	)	$	(8,376	)	$	(32,449	)	$	(8,463	)
Denominator:
Weighted-average shares - basic	183,699			183,843			184,676			183,402
OP units⁽¹⁾	44,453			2,649			44,453			2,739
Adjusted weighted-average shares - diluted	228,152			186,492			229,129			186,141
Earnings per common share:
Net loss attributable to stockholders - basic and diluted	$	(0.07	)	$	(0.04	)	$	(0.14	)	$	(0.05	)

⁽¹⁾ OP units include units previously issued for asset management services provided under our former advisory agreement (see Note 13), as well as units issued as part of the PELP transaction (Note 4), all of which are convertible into common stock. The Operating Partnership loss attributable to these OP units, which is included as a component of Net Income Attributable to Noncontrolling Interests on the consolidated statements of operations, has been added back in the numerator as these OP units were included in the denominator for all years presented.

As of September 30, ~~2017,~~2018, approximately ~~2.4~~1.0 million ~~OP units and 17,200~~unvested restricted stock awards granted to employees and directors were outstanding. ~~For the three and nine months ended September 30, 2017, these~~These securities were anti-dilutive and, as a result, were excluded from the ~~weighted average~~weighted-average common shares used to calculate diluted EPS. The unvested restricted stock awards outstanding at September 30, 2017, were immaterial. There were 2.7 million unvested Class B units outstanding as of September 30, 2017. As these units were unvested, they were not included in the diluted earnings per share calculation. We had no unvested Class B units outstanding as of September 30, 2018.

12. REVENUE RECOGNITION AND RELATED PARTY REVENUE

11Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective approach. The majority of our revenue is lease revenue derived from our Owned Real Estate segment (see Note 15). We record these amounts as Rental Income and Tenant Recovery Income on the consolidated statements of operations. These revenue amounts are excluded from the scope of ASU 2014-09, as they are accounted for under Topic 840, Leases.~~RELATED PARTY TRANSACTIONS~~

Fee revenues from our Investment Management segment are earned by providing services to the Managed Funds. These fees are within the scope of ASU 2014-09 and are recorded as Fees and Management Income on the consolidated statements of operations. Additional immaterial revenue is recorded as Other Property Income on the consolidated statements of operations. The adoption of ASU 2014-09 did not result in any retrospective adjustments to prior periods as our previous revenue recognition policies aligned with the updated guidance.

The Investment Management segment provides services to Managed Funds that are considered related parties. These services primarily include asset acquisition and disposition services, asset management, operating and leasing of properties, construction management, and other general and administrative responsibilities. These services are currently provided under two types of contracts: advisory agreements and property management agreements. Advisory agreements have a duration of one year and are renewed annually at the discretion of the respective boards, but can be terminated upon notice by either party. Property management agreements include both property management agreements and master services agreements, which we have determined should be evaluated as a single agreement for revenue recognition under GAAP. Property management agreements have no defined term, but can be canceled by either party upon 30 days’ notice.

~~Economic Dependency—During~~Summarized below is all fee and management revenue for the Investment Management segment. The revenue includes the fees and reimbursements earned by us from the Managed Funds for the three and nine months ended September 30, 2018, and other revenues that are not in the scope of ASC 606, Revenue from Contracts with Customers, but are included in this table for the purpose of disclosing all related party revenues (in thousands):



	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
	REIT II		Other Parties		Total		REIT II		Other Parties		Total
Advisory revenue:
Acquisition fees	$	—	$	379	$	379	$	162	$	635	$	797
Asset management fees	3,084		342		3,426		9,212		917		10,129
Other advisory fees and reimbursements	143		146		289		796		305		1,101
Total advisory revenue	3,227		867		4,094		10,170		1,857		12,027

Property Management and Services revenue:
Property management fees	1,977		345		2,322		6,181		1,061		7,242
Leasing commissions	1,192		245		1,437		3,703		659		4,362
Construction management fees	308		42		350		511		175		686
Other property management fees and reimbursements	155		88		243		577		331		908
Total property management and services revenue	3,632		720		4,352		10,972		2,226		13,198

Other revenue:
Insurance premiums⁽¹⁾	90		437		527		277		1,320		1,597
Non-operating property revenue	—		138		138		—		408		408
Total fees and management income	$	6,949	$	2,162	$	9,111	$	21,419	$	5,811	$	27,230


⁽¹⁾	Insurance premium income from other parties was from third parties not affiliated with us.

Because the PELP transaction occurred in October 2017, no fee and ~~2016,~~management income was earned during the nine months ended September 30, 2017.

Advisory Agreements—Under our advisory agreements, we earn revenue for managing day-to-day activities and implementing the investment strategy for the Managed Funds. The wide variety of duties as the advisor within these contracts makes determining the performance obligations within the contracts a matter of judgment. We have concluded that each of the separately disclosed fee types in the below table represents a separate performance obligation within the contract.

Due to the nature of the services being provided under the Advisory Agreements, each performance obligation within the contract has a variable component. Therefore when we determine the transaction price for the contract we are required to constrain our estimate to an amount that is not probable of significant revenue reversal. For the acquisition and disposition services, compensation only occurs if the transaction takes place, and the amount of compensation is dependent upon the contract price for the transaction. Property acquisition and disposition fees are recognized when we satisfy a performance obligation by acquiring a property or transferring control of a property. These fees are billed subsequent to the acquisition or sale of the property and payment is due thereafter.

The following table summarizes the fee structure for our advisory agreements:



Fee Type	Performance Obligation Satisfied	Timing of Payment	Revenue Recognition
Acquisition Fee	Point in time (upon close of transaction)	In cash upon close of transaction	Revenue is recognized based on a percentage of the contract purchase price, including acquisition expenses and any debt.
Disposition Fee	Point in time (upon close of transaction)	In cash upon completion	Revenue is recognized based on a percentage of the contract sales price.
Asset Management Fee and Subordinated Participation	Over time	Monthly, in cash and/or ownership units	Because each increment of service is distinct, although substantially the same, revenue is recognized at the end of each reporting period based on a percentage of the cost of assets under management or the applicable NAV.

In addition to the fees listed above, our management company contracts include the potential for additional revenues if certain market conditions are in place or certain events take place. We have not recognized revenue related to these fees, nor will we until it is no longer highly probable that there would be a material reversal of revenue.

Property Management Agreements—Under our property management agreements, we earn revenue for managing day-to-day activities at the properties of the Managed Funds, for which we receive a distinct fee based on a set percentage of gross cash receipts each month. Under the property management agreements, we also serve as a leasing agent to the Managed Funds. For each new lease, lease renewal, and expansion we receive a distinct fee in the form of a leasing commission.

Leasing commissions are recognized at lease execution and are dependent on the terms of the lease. Additionally, we assist in overseeing the construction of various improvements for Managed Funds, for which we receive a distinct fee based on a set percentage of total project cost calculated upon completion of construction. Because both parties in these contracts can cancel upon 30 days’ notice without penalties, their term is considered month-to-month.

The wide variety of duties as the property manager within these contracts makes determining the performance obligations within the contracts a matter of judgment. We have concluded that each of the separately disclosed fee types in the contracts, property management, leasing, and construction management, represents a separate performance obligation within the contract.

Due to the nature of the services being provided under the property management agreements, each performance obligation within the contract has a variable consideration component. However, due to the month-to-month term of these contracts, any uncertainty regarding the amounts to be earned over the contract term is resolved by the end of that month. As a result, we can reliably calculate the amount of the consideration to be recognized with regards to each performance obligation each month.

All property management agreements have terms as follows:



Fee	Performance Obligation Satisfied	Timing of Payment	Revenue Recognition
Property Management	Over time	In cash, monthly	Revenue is recognized based on a percentage of monthly cash receipts at each property.
Leasing Commissions	Point in time	In cash upon completion	Revenue is recognized based on a percentage of the contractual payments to be received per the terms of the lease and occurs when the lease is executed.
Construction Management	Point in time	In cash upon completion	Revenue is recognized based on a percentage of the cost of the construction project. Revenue recognition occurs upon completion of the contract (in the case of a normal capital improvement) or upon the tenant taking possession (in the case of a tenant improvement).

Both the advisory agreements and property management agreements have an original duration of one year or less, and we utilize the practical expedient applicable to such contracts and have not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period nor when we expect to recognize this revenue. Due to the duration of the contracts, we have also utilized the practical expedient and made no adjustment to contract consideration for the effects of financing components.

Related Party Receivables—Summarized below is the detail of our outstanding receivable balance from related parties as of September 30, 2018 and December 31, 2017, respectively (in thousands):



	September 30, 2018				December 31, 2017
	REIT II		Other Parties		REIT II		Other Parties
Contract receivables:
Advisory	$	109	$	171	$	256	$	51
Property management and services	1,178		188		1,264		128
Total contract receivables	1,287		359		1,520		179
Other	119		4,473		72		4,331
Total	$	1,406	$	4,832	$	1,592	$	4,510

Organizational and Offering Costs—Under the terms of the advisory agreement, we have incurred organizational and offering costs related to PECO III, all of which currently are recorded in Accounts Receivable - Affiliates on the consolidated balance sheets. We have charged PECO III organizational and offering costs related to both its private placement and public offering, which were approximately $4.2 million and $2.0 million as of September 30, 2018 and December 31, 2017, respectively.

During the public offering period for PECO III we will receive a contingent advisor payment of 2.15% of the contract purchase price of each property or other real estate investment it acquires. This reimbursement is intended to allow us to recoup a portion of the dealer manager fees and organizational and offering expenses advanced by PECO III’s advisor, in which we have a 75% interest. Therefore, this reimbursement shall not exceed the amount of organizational and offering expenses and dealer manager fees outstanding at the time of closing for the acquired property.

The initial $4.5 million we may incur to fund organizational and offering expenses related to the PECO III public offering, shall be retained by PECO III until the termination of its public offering, at which time such amount shall be paid.

13. RELATED PARTY EXPENSE

Economic Dependency—Prior to the completion of the PELP transaction, we were dependent on ~~PE-NTR,~~Phillips Edison NTR LLC (“PE-NTR”), Phillips Edison & Company Ltd. (the “Property Manager”), and their respective affiliates for certain services that were essential to us, including asset acquisition and disposition decisions, asset management, operating and leasing of our properties, and other general and administrative responsibilities.

As of September 30, 2017 and December 31, 2016, PE-NTR owned 176,509 shares of our common stock, or approximately 0.1% of our outstanding common stock issued during our initial public offering period. PE-NTR was not able to sell any of those shares while serving as our advisor.

Upon closing of the ~~PELP~~ transaction onin October 4, 2017, our management structure became internalized and our relationship with PE-NTR and the Property Manager was ~~terminated.~~acquired. As a result, we ~~now have an internalized management structure.~~no longer pay the fees listed below and had no outstanding unpaid amounts related to those fees as of September 30, 2018 or December 31, 2017.

Advisory Agreement—~~On September 1, 2017, in connection with the termination of ARC’s~~PE-NTR and ~~PE-NTR’s fee-sharing arrangements (see Note 9), we entered into an amended and restated advisory agreement (the “PE-NTR Agreement”). Under the PE-NTR Agreement, all fees payable to PE-NTR~~a previous advisor were ~~decreased by 15%. Other than the foregoing, there were no material changes in the PE-NTR Agreement. Subsequent to September 30, 2017, upon closing of the PELP transaction, the PE-NTR~~

~~Agreement was terminated. As a result of purchasing PELP’s third-party asset management business, we will no longer incur the fees listed below.~~

~~Pursuant to the PE-NTR Agreement, PE-NTR was~~ entitled to specified fees and expenditure reimbursements for certain services, including managing our day-to-day activities and implementing our investment ~~strategy. PE-NTR managed our day-to-day affairs~~strategy under advisory agreements, as follows:

Asset management and ~~our portfolio of real estate investments subject to the Board’s supervision. Expenditures were reimbursed to PE-NTR~~subordinated participation fee paid out monthly in cash and/or Class B units;

Acquisition fee based on ~~amounts incurred on our behalf.~~

~~Acquisition Fee~~—During the three and nine months ended September 30, 2017 and 2016, we paid PE-NTR under the PE-NTR Agreement 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 was equal to 0.85%, or 1.0% prior to September 1, 2017, of the cost of investments ~~we acquired or originated, including any debt attributable to such investments.~~acquired/originated;

~~Due Diligence Fee—During the three and nine months ended September 30, 2017 and 2016, we~~Acquisition expenses reimbursed ~~PE-NTR for expenses incurred~~ related to selecting, evaluating, and acquiring ~~assets on our behalf, including certain personnel costs.~~assets; and

~~Asset Management Fee and Subordinated Participation~~—During the three and nine months ended September 30, 2017 and 2016, the asset management compensation was equal to 0.85%, or 1.0% prior to September 1, 2017, of the cost of our assets. Prior to September 20, 2017, the asset management compensation wasDisposition fee paid ~~80% in cash and 20% in Class B units of the Operating Partnership. The cash portion was paid on a monthly basis in arrears at the rate of 0.05667% multiplied by the cost of~~

~~our assets as of the last day of the preceding monthly period. All asset management fees incurred between September 20, 2017 and the closing of the PELP transaction were paid 100% in cash.~~

We paid an asset management subordinated participation by issuing a number of restricted operating partnership units designated as Class B units to PE-NTR, equal to: (i) the product of (x) the cost of our assets multiplied by (y) 0.0425%, or 0.05% prior to September 1, 2017, divided by (ii) the most recent primary offering price for a share of our common stock as of the last day of such calendar quarter less any selling commissions and dealer manager fees that would have been payable in connection with that offering.

PE-NTR was entitled to receive distributions on the Class B units (and OP units converted from previously issued and vested Class B units) at the same rate as distributions were paid to common stockholders. Subsequent to September 30, 2017, upon closing of the PELP transaction, all outstanding Class B units were converted to OP units. During the nine months ended September 30, 2017 and 2016, the Operating Partnership issued 0.6 million and 0.4 million Class B units, respectively, to PE-NTR and ARC under the PE-NTR Agreement for asset management services performed by PE-NTR.

~~Disposition Fee—During the three and nine months ended September 30, 2017 and 2016, we paid PE-NTR~~ for substantial assistance by PE-NTR, or its affiliates, 1.7%, or 2.0% prior to September 1, 2017, of the contract sales price of each property or other investment sold. The conflicts committee of our Board determined whether PE-NTR or its affiliates had provided substantial assistance to us in connection with the sale of an asset. Substantial assistance in connection with the sale of a property included 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 PE-NTR or its affiliates in connection with a sale. However, if we sold an asset to an affiliate, our organizational documents prohibited us from paying a disposition fee to PE-NTR or its affiliates.

Prior to September 1, 2017, ARC also received the acquisition fee, asset management subordinated participation, and disposition fee, as well as distributions on Class B and OP units. For a more detailed discussion of the termination of our relationship with ARC, see Note 9.

~~General and Administrative Expenses—As of September 30, 2017 and December 31, 2016, we owed PE-NTR and their affiliates approximately $117,000 and $43,000, respectively, for general and administrative expenses paid on our behalf.~~property.

Summarized below are the fees earned by and the expenses reimbursable ~~to PE-NTR and ARC~~ for the three and nine months ended September 30, 2017 and 2016. As of September 1, 2017, pursuant to the termination of our relationship with ARC, they were no longer entitled to these fees and reimbursements. This table includes any related amounts unpaid as of September 30, 2017 and December 31, 2016, except for unpaid general and administrative expenses, which we disclose above (in thousands):


	Three Months Ended				Nine Months Ended				Unpaid Amount as of
	September 30,				September 30,				September 30,		December 31,
	2017		2016		2017		2016		2017		2016		Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Acquisition fees⁽¹⁾	$	294	$	367	$	1,344	$	1,307	$	—	$	—	$	294	$	1,344
Due diligence fees⁽¹⁾	370		73		583		228		1		29		370		583
Asset management fees⁽²⁾	5,071		4,852		15,388		14,182		1,529		1,687		5,071		15,388
OP units distribution⁽³⁾	448		470		1,373		1,398		145		158
Class B units distribution⁽⁴⁾	482		408		1,393		1,144		130		148
OP unit distributions⁽³⁾													448		1,373
Class B unit distributions⁽⁴⁾													482		1,393
Disposition fees	—		—		19		—		—		—		—		19
Total	$	6,665	$	6,170	$	20,100	$	18,259	$	1,805	$	2,022	$	6,665	$	20,100

⁽¹⁾

~~Prior to January 1, 2017,~~The majority of acquisition and due diligence fees ~~were recorded on our consolidated statements of operations. The majority of these costs~~ are ~~now~~ capitalized and allocated to the related investment in real estate assets on the consolidated balance ~~sheet~~sheets based on the acquisition-date fair values of the respective assets and ~~liability~~liabilities acquired.


⁽²⁾	Asset management fees are presented in General and Administrative on the consolidated statements of operations.


⁽³⁾	~~The distributions paid to holders of OP units~~Distributions are presented as Distributions to Noncontrolling Interests on the consolidated statements of equity.


⁽⁴⁾	The distributions paid to holders of unvested Class B units are presented in General and Administrative on the consolidated statements of operations.

Property ~~Manager~~Management Agreement—~~During~~Prior to the ~~three and nine months ended September 30,~~completion of the PELP transaction in October 2017, ~~and 2016,~~ all of our real properties were managed and leased by the Property Manager, which was ~~wholly owned~~wholly-owned by ~~our Phillips Edison sponsor.~~PELP. The Property Manager ~~also manages real properties owned by Phillips Edison affiliates and other third parties.~~

~~Effective October 4, 2017, our agreement with the Property Manager~~ was ~~terminated. As a result, we will no longer incur the fees listed below.~~

~~Property Management Fee—We paid~~entitled to the following specified fees and expenditure reimbursements:

Property ~~Manager a monthly property~~ management fee ~~of 4% of the~~based on monthly gross cash receipts from the properties ~~it managed.~~managed;

Leasing ~~Commissions—In addition to the property management fee, if the Property Manager provided~~commissions paid for leasing services with respect to a property, we paid the Property Manager leasing fees in an amount equal to the leasing fees charged by unaffiliated persons rendering comparable services based on national market rates. The Property Manager was paid a leasing fee in connection with a tenant’s exercise of an option to extend an existing lease, and the leasing fees payable to the Property Manager could have been increased by up to 50% if the Property Manager engaged a co-broker to lease a particular vacancy.

~~Construction Management Fee—If we engaged the Property Manager to provide construction management services~~rendered with respect to a particular ~~property, we~~property;

Construction management costs paid afor construction management ~~fee in an amount that was usual and customary for comparable~~ services rendered with respect to ~~similar projects in the geographic market of the property.~~a particular property; and

~~Expenses~~Other expenses and ~~Reimbursements~~—The Property Manager hired, directed, and established policies for employees who had direct responsibility for the operations of each real property it managed, which could have included, but was not limited to, on-site managers and building and maintenance personnel. Certain employees of the Property Manager may have been employed on a part-time basis and may have also been employed by PE-NTR or certain of its affiliates. The Property Manager also directed the purchase of equipment and supplies and supervised all maintenance activity. We reimbursed the costs and expensesreimbursement incurred by the Property Manager on our behalf, including employee compensation, legal, travel, and other out-of-pocket expenses that were directly related to the management of specific properties and corporate matters, as well as fees and expenses of third-party accountants.behalf.

Summarized below are the fees earned by and the expenses reimbursable to the Property Manager for the three and nine months ended September 30, 2017 ~~and 2016, and any related amounts unpaid as of September 30, 2017 and December 31, 2016~~ (in thousands):


	Three Months Ended				Nine Months Ended				Unpaid Amount as of
	September 30,				September 30,				September 30,		December 31,
	2017		2016		2017		2016		2017		2016		Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Property management fees⁽¹⁾	$	2,717	$	2,457	$	7,986	$	7,456	$	888	$	840	$	2,717	$	7,986
Leasing commissions⁽²⁾	1,677		1,828		6,077		5,570		314		705		1,677		6,077
Construction management fees⁽²⁾	683		251		1,367		664		327		165		683		1,367
Other fees and reimbursements⁽³⁾	2,409		1,499		6,030		4,064		1,116		796		2,409		6,030
Total	$	7,486	$	6,035	$	21,460	$	17,754	$	2,645	$	2,506	$	7,486	$	21,460


⁽¹⁾	The property management fees are included in Property Operating on the consolidated statements of operations.


⁽²⁾	Leasing commissions paid for leases with terms less than one year ~~are~~were expensed immediately and included in Depreciation and Amortization on the consolidated statements of operations. Leasing commissions paid for leases with terms greater than one year, and construction management fees, ~~are~~were capitalized and amortized over the life of the related leases or assets.


⁽³⁾	Other fees and reimbursements are included in Property Operating and General and Administrative ~~and Transaction Expenses~~ on the consolidated statements of operations based on the nature of the expense.

12Other Related Party Matters. ~~OPERATING LEASES~~

~~The terms and expirations of our operating leases with our tenants vary. The lease agreements frequently contain options to extend~~—Under the terms of ~~leases~~the advisory agreement, we have incurred organizational and offering costs related to PECO III. A portion of those costs were incurred by Griffin Capital Corporation (“Griffin sponsor”), a co-sponsor of PECO III. The Griffin sponsor owns a 25% interest and we own a 75% interest in PECO III’s advisor. As such, $1.0 million of the receivable we have from PECO III is reimbursable to the Griffin sponsor and is recorded in Accounts Payable - Affiliates on the consolidated balance sheets.

Upon completion of the PELP transaction, we assumed PELP’s obligation as the limited guarantor for up to $200 million, capped at $50 million in most instances, of NRP’s debt. Our guarantee is limited to being the non-recourse carveout guarantor and the environmental indemnitor.

14. FAIR VALUE MEASUREMENTS

The following describes the methods we use to estimate the fair value of our financial and nonfinancial assets and liabilities:

Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, and Accounts Payable—We 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.

Real Estate Investments—The purchase prices of the investment properties, including related lease intangible assets and liabilities, were allocated at estimated fair value based on Level 3 inputs, such as discount rates, capitalization rates, comparable sales, replacement costs, income and expense growth rates, and current market rents and allowances as determined by management.

Debt Obligations—We estimate the 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). We have utilized market information, as available, or present value techniques to estimate the amounts required to be disclosed.

The following is a summary of borrowings as of September 30, 2018 and December 31, 2017 (in thousands):



	September 30, 2018		December 31, 2017
Fair value	$	1,812,086	$	1,765,151
Recorded value⁽¹⁾	1,856,984		1,823,040


⁽¹⁾	Recorded value does not include deferred financing costs of $14.0 million and $16.0 million as of September 30, 2018 and December 31, 2017, respectively.

Recurring Fair Value Measurements—Our earn-out liability and interest rate swaps are measured and recognized at fair value on a recurring basis. The fair value measurements of those assets and liabilities as of September 30, 2018 and December 31, 2017, were as follows (in thousands):



	September 30, 2018							December 31, 2017
	Level 1		Level 2		Level 3			Level 1		Level 2			Level 3
Interest rate swaps-term loans⁽¹⁾	$	—	$	37,708	$	—		$	—	$	16,496		$	—
Interest rate swap-mortgage note⁽¹⁾	—		—		—			—		(61		)	—
Earn-out liability⁽²⁾	—		—		(39,500		)	—		—			(38,000		)


⁽¹⁾	We record derivative assets in Other Assets, Net and derivative liabilities in Accounts Payable and Other Liabilities on our consolidated balance sheets.


⁽²⁾	The estimated fair value of the earn-out is presented in Accounts Payable and Other Liabilities on the consolidated balance sheets. We will continue to estimate the fair value of this earn-out liability at each reporting date during the contingency period and record any changes on our consolidated statements of operations.

Earn-out—The terms of the PELP transaction include an earn-out structure with an opportunity for up to an additional 12.5 million OP units to be issued to PELP as additional consideration if certain milestones are achieved. The milestones are related to a liquidity event for our stockholders and fundraising targets in PECO III, of which PELP was a co-sponsor.

We estimate the fair value of this liability using weighted-average probabilities of likely outcomes. These estimates require us to make various assumptions about future share prices, timing of liquidity events, equity raise projections, and other ~~terms~~items that are unobservable and ~~conditions~~are considered Level 3 inputs in the fair value hierarchy. In calculating the fair value of this liability, we have determined that the most likely range of potential outcomes includes a possibility of no additional OP units issued as ~~negotiated. We retain substantially all~~well as up to 6 million out of the ~~risks~~maximum 12.5 million units being issued.

Derivative Instruments—As of September 30, 2018 and ~~benefits~~December 31, 2017, we had interest rate swaps that fixed LIBOR on portions of ~~ownership~~our unsecured term loan facilities. For a more detailed discussion of these cash flow hedges, see Note 8.

All interest rate swap agreements are measured at fair value on a recurring basis. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the ~~real estate assets leased~~derivatives, including the period to ~~tenants.~~maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments)

~~Approximate~~and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future ~~rental income~~interest rates (forward curves) derived from observable market interest rate curves.

To comply with the provisions of ASC 820, Fair Value Measurement, we incorporate credit valuation adjustments to ~~be received under non-cancelable operating leases~~appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although we determined that the significant inputs used to value our derivatives fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparties. However, as of September 30, 2018 and December 31, 2017, ~~assuming no new~~we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Nonrecurring Fair Value Measurements—Our real estate assets are measured and recognized at fair value on a nonrecurring basis dependent upon when we determine an impairment has occurred. In 2018 we impaired real estate assets that were under contract, being actively marketed for sale, or ~~renegotiated leases or option extensions~~had other impairment indicators. We determined that these valuations fall under Level 2 of the fair value hierarchy. One real estate asset impaired during the second quarter of 2018 was sold in the third quarter. The fair value measurement was based on ~~lease agreements,~~the contractual sales price, which was determined to be $5.3 million. We did not have any impaired real estate assets as of December 31, 2017.

The fair value measurement of our impaired real estate assets recorded as of September 30, 2018, was as follows (in thousands):

Year Amount
Remaining 2017 $ 53,743
2018 205,462
2019 182,579
2020 160,034
2021 134,587
2022 and thereafter 453,701
Total $ 1,190,106

No single tenant comprised 10% or more of our aggregate annualized base rent as of September 30, 2017. As of September 30, 2017, our real estate investments in Florida represented 12.8% of our ABR. As a result, the geographic concentration of our portfolio makes it particularly susceptible to adverse economic developments in the Florida real estate market.



	September 30, 2018
	Level 1		Level 2		Level 3
Impaired real estate assets	$	—	$	37,575	$	—

~~13. SUBSEQUENT EVENTS~~

~~Distributions~~

15. SEGMENT INFORMATION

As of September 30, 2018, we operated through two business segments: Owned Real Estate and Investment Management. Prior to ~~Stockholders~~the completion of the PELP transaction in October 2017, we only operated through the Owned Real Estate segment. As a result, we did not report any segment disclosures for the three and nine months ended September 30, 2017. We generate revenues and Segment Profit as follows:

Owned Real Estate: Our business objective is to own and operate well-occupied grocery-anchored shopping centers that generate cash flows to support distributions to our shareholders with the potential for capital appreciation. We typically invest in neighborhood shopping centers (generally containing less than 125,000 leasable square feet) located in attractive demographic markets throughout the United States where our management believes our fully integrated operating platform can add value. Through this segment, we own a diversified portfolio of shopping centers subject to long-term net leases with creditworthy tenants in the grocery, retail, restaurant, and service industries. As of September 30, 2018, we owned 233 properties.

Investment Management: Through this segment, we are responsible for managing the day-to-day affairs of the Managed Funds, identifying and making acquisitions and investments on their behalf, maintaining and operating their real properties, and recommending an approach for providing investors of the Managed Funds with liquidity. We generate revenues by providing asset management and property management services, such as revenues from leasing, acquisition, construction, and disposition services (see Note 12).

Our chief operating decision makers rely primarily on Segment Profit and similar measures to make decisions regarding allocating resources and assessing segment performance. We allocate certain operating expenses, such as employee-related costs and benefits, to our segments. Items not directly attributable to our Owned Real Estate or Investment Management segments are allocated to corporate general and administrative expenses, which is a reconciling item. The table below compares Segment Profit for each of our operating segments and reconciles total Segment Profit to Net Loss for the three and nine months ended September 30, 2018 (in thousands):



	Three Months Ended September 30, 2018									Nine Months Ended September 30, 2018
	Owned Real Estate			Investment Management			Total			Owned Real Estate			Investment Management			Total
Total revenues	$	95,788		$	9,111		$	104,899		$	285,041		$	27,230		$	312,271
Property operating expenses	(15,940		)	(3,336		)	(19,276		)	(45,442		)	(8,850		)	(54,292		)
Real estate tax expenses	(12,698		)	(175		)	(12,873		)	(38,737		)	(609		)	(39,346		)
General and administrative expenses	(588		)	(3,540		)	(4,128		)	(1,817		)	(9,599		)	(11,416		)
Segment profit	$	66,562		$	2,060		68,622			$	199,045		$	8,172		207,217
Corporate general and administrative expenses							(9,451		)							(26,074		)
Depreciation and amortization							(45,692		)							(138,504		)
Impairment of real estate assets							(16,757		)							(27,696		)
Interest expense, net							(17,336		)							(51,166		)
Gain on sale of property, net							4,571									5,556
Other loss, net							(224		)							(1,513		)
Net loss							(16,267		)							(32,180		)

16. SUBSEQUENT EVENTS

Distributions ~~equal~~—Distributions paid to ~~a daily amount of $0.00183562 per share of common stock or OP unit outstanding were paid subsequent to September 30, 2017, to the~~ stockholders and OP unit holders of record ~~from~~subsequent to September ~~1, 2017, through October 31, 2017,~~30, 2018, were as follows (in ~~thousands)~~thousands, except distribution rate):

Distribution Period Date Distribution Paid Gross Amount of Distribution Paid Distribution Reinvested through the DRIP Net Cash Distribution
September 1, 2017, through September 30, 2017 10/2/2017 $ 10,145
$ 4,301
$ 5,844
October 1, 2017, through October 31, 2017 11/1/2017 12,541
4,415
8,126



Month	Date of Record	Distribution Rate	Date Distribution Paid	Gross Amount of Distribution Paid		Distribution Reinvested through the DRIP		Net Cash Distribution
September	9/17/2018	$0.05583344	10/1/2018	$	12,691	$	3,817	$	8,874
October	10/15/2018	$0.05583344	11/1/2018	12,701		3,787		8,914

In November ~~2017~~2018, our ~~Board~~board of directors authorized distributions for December 2018, as well as January and February 2019 to the stockholders and OP unit holders of record at the close of business each day in the period commencing December 1, 2017 through December 31, 2017, equal to a daily amount of $0.00183562 per share of common stock or OP unit. They also authorized distributions for January 2018 and February 2018 to the stockholders and OP unit holders of record at the close of business on December 17, 2018, January ~~16, 2018~~15, 2019, and February 15, ~~2018,~~2019, respectively, equal to a monthly amount of ~~$0.05583344~~$0.05583344 per share of common ~~stock or~~stock. OP ~~unit. The monthly distribution rate~~unit holders will ~~result in~~receive distributions at the same ~~annual distribution amount~~rate as ~~the current, daily distribution rate.~~common stockholders.

Acquisitions

—Subsequent to September 30, ~~2017,~~2018, we acquired the following ~~properties~~property (dollars in thousands):

Property Name Location Anchor Tenant Acquisition Date Contractual Purchase Price Square Footage Leased % of Rentable Square Feet at Acquisition
Winter Springs Town Center Winter Springs, FL Publix 10/20/2017 $24,870 118,735 91.9%
Flynn Crossing Center Alpharetta, GA Publix 10/26/2017 $23,691 95,002 96.0%

Property Name

Location

Anchor Tenant

Acquisition Date

Contractual Purchase Price

Square Footage

Leased % of Rentable Square Feet at Acquisition

Wheat Ridge Marketplace

Wheat Ridge, CO

Safeway

10/3/2018

$ 18,750⁽¹⁾

103,438

90.5


⁽¹⁾	The purchase price includes debt assumed as part of the acquisition.

Joint Ventures with Northwestern Mutual—On November 2, 2018, PECO (through our direct and indirect subsidiaries) and The Northwestern Mutual Life Insurance Company (“Northwestern Mutual”) entered into a definitive agreement pursuant to which we will contribute or sell our ownership interests in 17 grocery-anchored shopping centers, valued at approximately $368 million, to a new joint venture. Northwestern Mutual will acquire an 85% interest in the joint venture and we will retain a 15% interest and will continue to provide asset and property management services to the joint venture. We expect to use the proceeds received from this transaction to pay down outstanding debt, fund redevelopment projects, and further expand our portfolio of grocery-anchored shopping centers. As a part of this transaction, the joint venture will also assume our $175 million loan facility due in 2026.

On November 2, 2018, PECO III and Northwestern Mutual entered into a similar definitive agreement to a new joint venture. We will continue to provide asset and property management services to this PECO III joint venture.

We expect to close both joint venture transactions during the fourth quarter of 2018.

~~Item~~ITEM 2. ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q of Phillips Edison ~~Grocery Center REIT I,~~& Company, Inc. (“we,” 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. These risks include, without limitation, (i) changes in national, regional, or local economic climates; (ii) local market conditions, including an oversupply of space in, or a reduction in demand for, properties similar to those in our portfolio; (iii) vacancies, changes in market rental rates, and the need to periodically repair, renovate, and re-let space; (iv) changes in interest rates and the availability of permanent mortgage financing; (v) competition from other available properties and the attractiveness of properties in our portfolio to our tenants; (vi) the financial stability of tenants, including the ability of tenants to pay rent; (vii) changes in tax, real estate, environmental, and zoning laws; (viii) the concentration of our portfolio in a limited number of industries, geographies, or investments; (ix) risks associated with our ability to consummate the Merger and the timing and closing of the Merger; and (x) any of the other risks included in this Quarterly Report on Form 10-Q. 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 SEC. We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Quarterly Report on Form 10-Q, 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.

Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual conditions, our ability to accurately anticipate results expressed in such forward-looking statements, including our ability to generate positive cash ~~flow~~flows from operations, make distributions to stockholders, and maintain the value of our real estate properties, may be significantly hindered.

See Part II, Item 1A. Risk Factors ~~in Part II~~ of this Form 10-Q and Part I, Item 1A. Risk Factors ~~in Part I~~ of our ~~2016~~2017 Annual Report on Form 10-K, filed with the SEC on March ~~9, 2017,~~30, 2018, for a discussion of some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause actual results to differ materially from those presented in our forward-looking statements. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this Form 10-Q. Important factors that could cause actual results to differ materially from the forward-looking statements are disclosed in Part II, Item 1A. Risk Factors inand Part ~~II and~~I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q.

All references to “Notes” throughout this document refer to the footnotes to the consolidated financial statements in Part I, Item 1. Financial Statements.

Overview

~~Organization~~

~~Phillips Edison Grocery Center~~We were formed as a Maryland corporation in 2009, and elected to be taxed as a REIT ~~I, Inc. is a public non-traded~~for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2010. We are one of the nation’s largest owners and operators of market-leading, grocery-anchored shopping centers. The majority of our revenues are lease revenues derived from our owned real estate investments. Additionally, we operate a third-party investment ~~trust (“REIT”)~~management business that ~~invests in retail~~provides comprehensive real estate ~~properties. Our primary focus~~and asset management services to the Managed Funds.

Proposed REIT II Merger—In July 2018, we entered into a Merger Agreement, pursuant to which we will merge with REIT II, and we will continue as the surviving corporation, in a 100% stock transaction valued at approximately $1.9 billion. To complete the proposed Merger, we will issue 2.04 shares of our common stock in exchange for each issued and outstanding share of REIT II common stock, which is equivalent to $22.54 per share based on ~~grocery-anchored neighborhood~~our most recent EVPS of $11.05. The exchange ratio is based on a thorough review of the relative valuation of each entity, including factoring in our growing investment management business as well as each company’s transaction costs. REIT II’s outstanding debt of approximately $800.0 million is expected to be refinanced or assumed by us at closing under the terms of the Merger Agreement.

We expect the Merger to create meaningful operational and ~~community~~financial benefits, including:

Materially Improve Portfolio while Maintaining Exclusive Grocery Focus -The Merger will result in a portfolio comprising approximately 320 grocery-anchored shopping centers ~~that meet~~with more than 36 million square feet located in 33 states with an emphasis on necessity-based retailers, which have proven to be internet resistant and recession resilient. This institutional-quality portfolio has higher occupancy rates, higher annualized base rent (“ABR”) per square foot, and improved demographics on a pro forma basis.

Increase Size, Scale, and Market Prominence -Given our enhanced size, scale, and portfolio demographics, the ~~day-to-day needs~~combined company will have improved access to the capital markets, which can be used to support strategic investments to drive future growth opportunities.

Actively Position Us for Liquidity -This Merger is an important step towards a full cycle liquidity event for shareholders.

Improve Earnings Quality and Maintain Distribution Coverage - We expect the Merger to increase the percentage of ~~residents~~earnings from real estate. Real estate earnings are more highly valued in the ~~surrounding trade areas.~~public equity markets than management fee income, given the long-term, recurring nature of owning and operating real estate. We estimate that pro forma Funds from Operations (“FFO”) for the combined company will exceed pro forma distributions.

~~On October 4, 2017, we completed the PELP transaction. For~~

Maintain Healthy Leverage Ratio and Strong Balance Sheet - The combined company’s leverage ratio is expected to improve on a ~~more detailed discussion~~net debt/total enterprise value basis. Our fixed-rate percentage of ~~this transaction, see Note 3~~debt remains stable on a pro forma basis compared to prior to the ~~consolidated financial statements.~~Merger.

~~Portfolio~~

Accelerate Strategy to Simplify Business Model - We expect to realize the synergies of operating a combined enterprise that remains focused on driving shareholder value and expect a seamless integration process as our management company has overseen REIT II since inception.

Portfolio and Leasing Statistics—Below are statistical highlights of our portfolio:


	Total Portfolio as of		Properties Acquired in PELP Transaction		Pro Forma Portfolio
	September 30, 2017		October 4, 2017		October 4, 2017		Total Portfolio as of September 30, 2018		Property Acquisitions During the Nine Months Ended September 30, 2018
Number of properties	159		76		235		233		2
Number of states	28		25		32		32		2
Total square feet (in thousands)	17,415		8,721		26,136		25,881		216
Leased % of rentable square feet	96.4	%	90.3	%	94.4	%	93.9	%	74.9	%
Average remaining lease term (in years)⁽¹⁾	5.3		4.4		5.0		4.4		3.7


⁽¹⁾	~~As of September 30, 2017.~~ The average remaining lease term in years excludes future options to extend the term of the lease.

Lease Expirations

—The following ~~table lists,~~chart shows, on an aggregate basis, all of the scheduled lease expirations after September 30, ~~2017,~~2018, for each of the next ten years and thereafter for our ~~159~~233 shopping centers. The ~~table~~chart shows the leased square feet and ~~annualized base rent (“ABR”)~~ABR represented by the applicable lease ~~expirations (dollars and~~expiration year:

Subsequent to September 30, 2018, we renewed approximately 154,000 total square feet ~~in thousands):~~

and $2.2 million of total ABR of the leases expiring.

Year Number of Leases Expiring Leased Square Feet Expiring % of Leased Square Feet Expiring
ABR⁽¹⁾
% of Total Portfolio ABR
Remaining 2017⁽²⁾
104
274
1.6 % $ 3,577
1.7 %
2018 332
1,227
7.3 % 17,857
8.4 %
2019 415
2,031
12.1 % 26,936
12.7 %
2020 349
1,827
10.9 % 23,828
11.3 %
2021 349
2,073
12.4 % 24,691
11.7 %
2022 306
2,123
12.7 % 23,560
11.1 %
2023 138
1,924
11.5 % 22,892
10.8 %
2024 149
1,271
7.6 % 13,709
6.5 %
2025 114
700
4.2 % 11,200
5.3 %
2026 119
974
5.8 % 14,295
6.8 %
Thereafter 218
2,356
13.9 % 29,098
13.7 %
2,593
16,780
100.0 % $ 211,643
100.0 %


⁽¹⁾	~~We calculate ABR as monthly contractual rent as of September 30, 2017, multiplied by 12 months.~~


⁽²⁾	~~Subsequent to September 30, 2017, of the 2,593 leases expiring we renewed 24 leases, which accounts for 164,196 total square feet and total ABR of $2.2 million.~~

Portfolio Tenancy

—We define national tenants as those tenants that operate in at least three states. Regional tenants are defined as those tenants that have at least three locations. The following ~~table presents~~charts present the composition of our portfolio by tenant type as of September 30, ~~2017 (dollars and square feet in thousands):~~2018:

Tenant Type ABR % of ABR Leased Square Feet % of Leased Square Feet
Grocery anchor $ 84,879
40.1 % 8,829
52.6 %
National and regional⁽¹⁾
80,255
37.9 % 5,448
32.5 %
Local 46,509
22.0 % 2,503
14.9 %
$ 211,643
100.0 % 16,780
100.0 %


⁽¹⁾	~~We define national tenants as those that operate in at least three states. Regional tenants are defined as those that have at least three locations.~~

The following ~~table presents~~charts present the composition of our portfolio by tenant industry as of September 30, ~~2017~~2018:

The following table presents our top ten tenants, grouped according to parent company, by ABR as of September 30, 2018 (dollars and square feet in thousands):

Tenant Industry ABR % of ABR Leased Square Feet % of Leased Square Feet
Grocery $ 84,879
40.1 % 8,829
52.6 %
Service 48,933
23.1 % 2,549
15.2 %
Retail 47,059
22.2 % 3,962
23.6 %
Restaurants 30,772
14.6 % 1,440
8.6 %
$ 211,643
100.0 % 16,780
100.0 %



Tenant	ABR		% of ABR		Leased Square Feet	% of Leased Square Feet		Number of Locations⁽¹⁾
Kroger	$	25,834	9.1	%	3,138	12.9	%	55
Publix Super Markets	17,258		6.1	%	1,714	7.1	%	37
Ahold Delhaize	10,233		3.6	%	854	3.5	%	19
Albertsons Companies	9,461		3.3	%	924	3.8	%	17
Giant Eagle	6,764		2.4	%	700	2.9	%	9
Walmart	5,337		1.9	%	1,181	4.9	%	10
Raley's	3,547		1.3	%	193	0.8	%	3
Dollar Tree	3,434		1.2	%	398	1.6	%	40
SUPERVALU	2,884		1.0	%	371	1.5	%	9
Southeastern Grocers ⁽²⁾	2,674		0.9	%	311	1.3	%	8
	$	87,426	30.8	%	9,784	40.3	%	207

~~The following table presents our grocery anchor tenants, grouped according to parent company, by leased square feet as of September 30, 2017 (dollars and square feet in thousands):~~

Tenant ABR % of ABR Leased Square Feet % of Leased Square Feet
Number of Locations⁽¹⁾
Kroger $ 19,567
9.2 % 2,377
14.1 % 41
Publix Super Markets 15,514
7.3 % 1,503
9.0 % 32
Ahold Delhaize 8,383
4.0 % 555
3.3 % 10
Albertsons Companies 7,744
3.7 % 756
4.5 % 13
Giant Eagle 5,435
2.6 % 560
3.3 % 7
Walmart 5,197
2.5 % 1,121
6.7 % 9
Raley's Supermarkets 3,422
1.6 % 193
1.2 % 3
SuperValu 2,382
1.1 % 273
1.6 % 4
Sprouts Farmers Market 2,281
1.1 % 195
1.1 % 6
Southeastern Grocers 1,545
0.7 % 147
0.9 % 3
Schnuck Markets 1,459
0.7 % 121
0.7 % 2
Coborn's 1,388
0.7 % 108
0.6 % 2
BJ’s Wholesale Club 1,223
0.6 % 115
0.7 % 1
H.E. Butt Grocery Company 1,210
0.6 % 81
0.5 % 1
Big Y Foods 1,091
0.4 % 65
0.4 % 1
PAQ 1,046
0.5 % 59
0.4 % 1
Trader Joe's 934
0.4 % 55
0.3 % 4
McKeever Enterprises 844
0.4 % 68
0.4 % 1
Save Mart Supermarkets 843
0.4 % 102
0.6 % 2
The Fresh Market 841
0.4 % 59
0.4 % 3
Pete's Fresh Market 579
0.3 % 72
0.4 % 1
U R M Stores 574
0.3 % 51
0.3 % 1
Hy-Vee Food Stores 527
0.2 % 127
0.8 % 2
Fresh Thyme Farmers Market 450
0.2 % 30
0.2 % 1
Marc’s 400
0.2 % 36
0.2 % 1
$ 84,879
40.1 % 8,829
52.6 % 152


⁽¹⁾	Number of locations excludes ~~(a)~~ auxiliary leases with grocery anchors such as fuel stations, pharmacies, and liquor ~~stores, (b) four locations where we do not own~~stores.

⁽²⁾

In March 2018, Southeastern Grocers, the ~~portion~~parent company of Winn Dixie and Bi-Lo, filed a petition for relief under Chapter 11 of the ~~shopping center~~United States Bankruptcy Code. Since that ~~contains the grocery anchor,~~time, Southeastern Grocers has emerged from bankruptcy and ~~(c) four locations that~~all of our leases with them have ~~non-grocery anchors. Number of locations also includes one shopping center that has two grocery anchors.~~been assumed and remain in full force and effect.

Results of Operations

~~In conjunction with the closing~~

Segment information—As part of the PELP transaction onwe acquired PELP’s third-party investment management business. Prior to the completion of the transaction, we were externally-managed, and our only reportable segment was related to the aggregated operating results of our owned real estate. Therefore, there is no data available prior to October 4, 2017, ~~we expect~~for the Investment Management segment for comparative purposes. For more detail regarding our ~~operations~~segments, see Note 15.

Segment Profit, which is a non-GAAP financial measure, represents revenues less property operating, real estate tax, and general and administrative expenses that are attributable to ~~change significantly. As~~our reportable segments. We use Segment Profit to evaluate the results of our segments and believe that this measure provides a ~~result~~useful comparison of ~~acquiring~~our revenues based on the ~~third-party asset management business~~source of ~~PELP, we will earn fee~~those revenues and ~~management income for certain services provided to Phillips Edison Grocery Center REIT II, Inc. and other funds, and incur~~the expenses that are directly related to ~~managing their day-to-day activities and implementing their investment strategy. Furthermore, following the termination of the PE-NTR Agreement, we will no longer pay fees~~them. However, Segment Profit should not be viewed as an alternative to an advisor, including asset management fees. The acquisition of 76 real estate assets from PELP through this transaction substantially increased the size of our portfolio. Consequently, we expect our operating revenues to increase over the short- and long-term.results prepared in accordance with GAAP.

Summary of Operating Activities for the Three Months Ended September 30, ~~2017~~2018 and ~~2016~~2017

Reconciliation of Segment Profit to Net Loss Attributable to Stockholders

Favorable (Unfavorable) Change
(In thousands, except per share amounts) 2017 2016 $ %
Operating Data:
Total revenues $ 70,624
$ 65,270
$ 5,354
8.2 %
Property operating expenses (10,882 ) (10,030 ) (852 ) (8.5 )%
Real estate tax expenses (10,723 ) (9,104 ) (1,619 ) (17.8 )%
General and administrative expenses (8,712 ) (7,722 ) (990 ) (12.8 )%
Termination of affiliate arrangements (5,454 ) —
(5,454 ) NM
Acquisition expenses (202 ) (870 ) 668
76.8 %
Depreciation and amortization (28,650 ) (26,583 ) (2,067 ) (7.8 )%
Interest expense, net (10,646 ) (8,504 ) (2,142 ) (25.2 )%
Transaction expenses (3,737 ) —
(3,737 ) NM
Other income, net 6
33
(27 ) 81.8 %
Net (loss) income (8,376 ) 2,490
(10,866 ) NM
Net loss (income) attributable to noncontrolling interests 144
(26 ) 170
NM
Net (loss) income attributable to stockholders $ (8,232 ) $ 2,464
$ (10,696 ) NM

Net (loss) income per share—basic and diluted $ (0.04 ) $ 0.01
$ (0.05 )



	Three Months Ended September 30,						Favorable (Unfavorable) Change
(dollars in thousands)	2018			2017			$			%
Segment Profit:
Owned Real Estate	$	66,562		$	47,965		$	18,597		38.8	%
Investment Management	2,060			—			2,060			NM
Total segment profit	68,622			47,965			20,657			43.1	%
Corporate general and administrative expenses	(9,451		)	(7,860		)	(1,591		)	(20.2	)%
Termination of affiliate arrangements	—			(5,454		)	5,454			NM
Depreciation and amortization	(45,692		)	(28,650		)	(17,042		)	(59.5	)%
Impairment of real estate assets	(16,757		)	—			(16,757		)	NM
Interest expense, net	(17,336		)	(10,646		)	(6,690		)	(62.8	)%
Transaction expenses	—			(3,737		)	3,737			NM
Gain on sale of property, net	4,571			—			4,571			NM
Other (expense) income, net	(224		)	6			(230		)	NM
Net loss	(16,267		)	(8,376		)	(7,891		)	(94.2	)%
Net loss attributable to noncontrolling interests	3,039			144			2,895			NM
Net loss attributable to stockholders	$	(13,228	)	$	(8,232	)	$	(4,996	)	(60.7	)%

~~Below are explanations~~

Owned Real Estate - Segment Profit



	Three Months Ended September 30,						Favorable (Unfavorable) Change
(dollars in thousands)	2018			2017			$			%
Total revenues	$	95,788		$	70,624		$	25,164		35.6	%
Property operating expenses⁽¹⁾	(15,940		)	(10,882		)	(5,058		)	(46.5	)%
Real estate tax expenses	(12,698		)	(10,723		)	(1,975		)	(18.4	)%
General and administrative expenses⁽²⁾	(588		)	(1,054		)	466			44.2	%
Segment profit	$	66,562		$	47,965		$	18,597		38.8	%

⁽¹⁾

Property operating expenses include (i) operating and maintenance expense, consisting of property-related costs such as repairs, general maintenance, landscaping, snow removal, utilities, property insurance, security, and various other property-related expenses; (ii) bad debt expense; and (iii) allocated property management costs subsequent to the PELP transaction and property management costs prior to the transaction.


⁽²⁾	General and administrative expenses were primarily attributed to the costs of managing the administration of the properties, including support for leasing activities and legal costs.

Of our $25.2 million increase in revenues, $23.2 million was related to the acquisition of properties from PELP, as well as other asset acquisitions since January 1, 2017. The remaining $2.0 million increase from revenues on properties acquired before January 1, 2017, exclusive of the ~~significant fluctuations~~PELP transaction, was driven by a $0.27 increase in minimum rent per square foot.

Significant changes in Owned Real Estate expenses between the three months ended September 30, 2018 and 2017, were as follows:



	Change related to the 76 properties and management company acquired from PELP			Change related to our properties acquired before January 1, 2017

	Change related to properties acquired after December 31, 2016, exclusive of the PELP transaction, net of properties disposed

Investment Management - Segment Profit



(dollars in thousands)	Three Months Ended September 30, 2018
Total revenues	$	9,111
Operating expenses	(3,336		)
Corporate real estate tax expenses	(175		)
General and administrative expenses	(3,540		)
Segment profit	$	2,060

Total revenues were primarily compromised of the following:


–	$4.1 million was attributed to advisory agreements, including acquisition, disposition, and asset management fees, between us and the Managed Funds.


–	$4.4 million was attributed to property management agreements, including property management fees, leasing commissions, and construction management fees, between us and the Managed Funds.


–	For additional detail regarding our fees and management income, see Note 12.

The $3.3 million in operating expenses was primarily related to employee compensation costs to manage the daily property operations of the Managed Funds, as well as insurance costs related to our captive insurance company.

General and administrative expenses were primarily attributed to operational costs, as well as employee compensation costs for managing the day-to-day affairs of the Managed Funds, identifying and making acquisitions and investments on their behalf, communicating with the respective boards of directors and investors of the Managed Funds, and costs focused on raising institutional equity to further grow our business.

The following explanations are in reference to the unallocated corporate expenses included in the ~~results~~preceding Reconciliation of ~~operations~~Segment Profit to Net Loss Attributable to Stockholders for the three months ended September 30, ~~2017~~2018.

Corporate General and ~~2016:~~Administrative Expenses

~~Total revenues~~The ~~—Of the $5.4~~$1.6 million increase in total revenues, $5.2 million was attributed to non-same-center properties, which are the properties acquired or disposed of after December 31, 2015, and those considered redevelopment properties. Of the $5.2 million increase, $6.7 million was related to acquisitions, offset by a decrease of $1.5 million related to redevelopment and disposed properties. There are nine properties being repositioned in the market and such repositioning is expected to have a significant impact on property operating income. As such, these properties have been classified as redevelopment and have been excluded from our same-center pool. The remaining increase in revenues was the result of a $0.2 million increase among same-center properties, which are the 137 properties that were owned and operational for the entire portion of both comparable reporting periods. The increase in same-center revenue was primarily driven by a $0.17 increase in minimum rent per square foot and a 0.7% increase in occupancy since September 30, 2016.

~~Property operating expenses~~—These expenses include (i) operating and maintenance expense, which consists of property-related costs including repairs and maintenance costs, landscaping, snow removal, utilities, property insurance costs, security, and various other property-related expenses; (ii) bad debt expense; and (iii) property management fees and expenses. The $0.9 million increase in property operating expenses primarily resulted from owning more properties for the entire three months ended September 30, 2017, than the comparable 2016 period.

~~Real estate tax expenses~~—The $1.6 million increase in real estate tax expenses was primarily due to having more properties in our portfolio for the entire three months ended September 30, 2017, than the comparable 2016 period.

~~General and administrative expenses—The $1.0 million increase in~~corporate general and administrative expenses ~~included a $0.6 million increase in third-party legal~~was related to personnel costs and ~~consulting fees, as well as costs associated with distributing~~expenses related to our ~~Proxy. It also included a $0.3 million increase in~~corporate headquarters following the PELP transaction, offset by the elimination of the asset management ~~fees~~fee.

Termination of Affiliate Arrangements

The $5.5 million decrease in termination of affiliate arrangements was related to ~~owning more properties for~~ the ~~entire three months ended September 30, 2017, than the comparable 2016 period.~~

~~Termination of affiliate arrangements—The $5.5 million expense was primarily related to the~~prior year redemption of unvested Class B units, at the ~~estimated value per share~~EVPS on the date of termination, that had been earned by our former advisor for historical asset management ~~services (see Note 9 to the consolidated financial statements).~~services.

~~Acquisition expenses~~—The $0.7 million decrease in acquisition expenses was attributed to the implementation of ASU 2017-01 on January 1, 2017, which caused us to capitalize most acquisition-related costs. For a more detailed discussion of this adoption, see Note 4 to the consolidated financial statements.

Depreciation and ~~amortization~~Amortization

The ~~—The $2.1~~$17.0 million increase in depreciation and amortization was related to the 76 properties, corporate headquarters, management contracts, and corporate assets acquired in the PELP transaction.

The increase also included a ~~$2.8~~$0.9 million increase related to ~~owning more~~ properties ~~for~~acquired after December 31, 2016, excluding properties acquired in the ~~entire three months ended September 30, 2017, than the comparable 2016 period. This~~PELP transaction.

The increase in depreciation and amortization was offset by a ~~$0.4~~$0.9 million decrease ~~due to the disposition of a property in December 2016, as well as a $0.4 million decrease among same-center properties that was~~ primarily attributed to certain intangible lease assets becoming fully amortized.

Impairment of Real Estate Assets

During the three months ended September 30, 2018, we recognized impairment charges totaling $16.8 million associated with certain anticipated property dispositions where the net book value exceeded the estimated fair value, as well as certain properties that we determined to be impaired following the identification of potential operational impairment indicators. See Notes 5 and 14 for more details.

Interest Expense, Net

•Interest expense, net was comprised of the following for the three months ended —September 30, 2018 and 2017 (dollars in thousands):



	Three Months Ended September 30,
	2018			2017
Interest on revolving credit facility	$	733		$	2,109
Interest on term loans, net	9,732			4,591
Interest on mortgages	6,060			3,073
Capitalized interest	(105		)	—
Amortization of deferred financing costs and assumed market debt adjustments	916			873
Interest expense, net	$	17,336		$	10,646

Weighted-average interest rate as of end of period	3.5		%	3.1		%
Weighted-average term (in years) as of end of period	4.7			3.0

Transaction Expenses

The ~~$2.1~~$3.7 million ~~increase~~ decrease in ~~interest expense~~transaction expenses was ~~primarily~~ due to ~~additional borrowings since September 2016, offset by a decrease in amortization of loan closing~~ costs ~~due to refinancing certain mortgages in September 2016.~~

~~Transaction expenses—The $3.7 million of transaction expenses resulted from costs incurred in connection~~associated with the PELP transaction in 2017.

Gain on Sale of Property, net

The $4.6 million increase in gain on sale of property, net was primarily related to the sale of three properties during the three months ended September 30, 2018(see Note 3 to the consolidated financial statements), primarily third-party professional fees, such as accounting, legal, tax, financial advisor, and consulting fees, and fees associated with obtaining debt consents necessary to complete the transaction.5).

Summary of Operating Activities for the Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017

Reconciliation of Segment Profit to Net Loss Attributable to Stockholders

Favorable (Unfavorable) Change
(In thousands, except per share amounts) 2017 2016 $ %
Operating Data:
Total revenues $ 208,778
$ 191,405
$ 17,373
9.1 %
Property operating expenses (32,611 ) (29,978 ) (2,633 ) (8.8 )%
Real estate tax expenses (31,136 ) (27,745 ) (3,391 ) (12.2 )%
General and administrative expenses (25,438 ) (23,736 ) (1,702 ) (7.2 )%
Termination of affiliate arrangements (5,454 ) —
(5,454 ) NM
Acquisition expenses (466 ) (2,392 ) 1,926
80.5 %
Depreciation and amortization (84,481 ) (78,266 ) (6,215 ) (7.9 )%
Interest expense, net (28,537 ) (23,837 ) (4,700 ) (19.7 )%
Transaction expenses (9,760 ) —
(9,760 ) NM
Other income (expense), net 642
(125 ) 767
NM
Net (loss) income (8,463 ) 5,326
(13,789 ) NM
Net loss (income) attributable to noncontrolling interests 144
(83 ) 227
NM
Net (loss) income attributable to stockholders $ (8,319 ) $ 5,243
$ (13,562 ) NM

Net (loss) income per share—basic and diluted $ (0.05 ) $ 0.03
$ (0.08 )



	Nine Months Ended September 30,						Favorable (Unfavorable) Change
(dollars in thousands)	2018			2017			$			%
Segment Profit:
Owned Real Estate	$	199,045		$	142,379		$	56,666		39.8	%
Investment Management	8,172			—			8,172			NM
Total segment profit	207,217			142,379			64,838			45.5	%
Corporate general and administrative expenses	(26,074		)	(23,252		)	(2,822		)	(12.1	)%
Termination of affiliate arrangements	—			(5,454		)	5,454			NM
Depreciation and amortization	(138,504		)	(84,481		)	(54,023		)	(63.9	)%
Impairment of real estate assets	(27,696		)	—			(27,696		)	NM
Interest expense, net	(51,166		)	(28,537		)	(22,629		)	(79.3	)%
Transaction expenses	—			(9,760		)	9,760			NM
Gain on sale of property, net	5,556			—			5,556			NM
Other (expense) income, net	(1,513		)	642			(2,155		)	NM
Net loss	(32,180		)	(8,463		)	(23,717		)	NM
Net loss attributable to noncontrolling interests	6,001			144			5,857			NM
Net loss attributable to stockholders	$	(26,179	)	$	(8,319	)	$	(17,860	)	NM

~~Below are explanations~~

Owned Real Estate - Segment Profit



	Nine Months Ended September 30,						Favorable (Unfavorable) Change
(dollars in thousands)	2018			2017			$			%
Total revenues	$	285,041		$	208,778		$	76,263		36.5	%
Property operating expenses⁽¹⁾	(45,442		)	(32,611		)	(12,831		)	(39.3	)%
Real estate tax expenses	(38,737		)	(31,136		)	(7,601		)	(24.4	)%
General and administrative expenses⁽²⁾	(1,817		)	(2,652		)	835			31.5	%
Segment profit	$	199,045		$	142,379		$	56,666		39.8	%

⁽¹⁾


⁽²⁾	General and administrative expenses were primarily attributed to the costs of managing the administration of the properties, including support for leasing activities and legal costs.

Of our $76.3 million increase in revenues, $73.2 million was related to the acquisition of properties from PELP, as well as other asset acquisitions since January 1, 2017. The remaining $3.1 million increase is from revenues on properties acquired before January 1, 2017, exclusive of the ~~significant fluctuations~~PELP transaction, and was driven by a $0.27 increase in minimum rent per square foot.

Significant changes in Owned Real Estate expenses between the nine months ended September 30, 2018 and 2017, were as follows:



	Change related to the 76 properties and management company acquired from PELP			Change related to our properties acquired before January 1, 2017

	Change related to properties acquired after December 31, 2016, exclusive of the PELP transaction, net of properties disposed of

Investment Management - Segment Profit



(dollars in thousands)	Nine Months Ended September 30, 2018
Total revenues	$	27,230
Operating expenses	(8,850		)
Corporate real estate tax expenses	(609		)
General and administrative expenses	(9,599		)
Segment profit	$	8,172

Total revenues were primarily compromised of the following:


–	$12.0 million was attributed to advisory agreements, including acquisition, disposition, and asset management fees, between us and the Managed Funds.


–	$13.2 million was attributed to property management agreements, including property management fees, leasing commissions, and construction management fees, between us and the Managed Funds.

The $8.9 million of operating expenses was primarily related to employee compensation costs to manage the daily property operations of the Managed Funds, as well as insurance costs related to our captive insurance company.

Corporate General and ~~2016:~~Administrative Expenses

~~Total revenues~~The ~~—Of the $17.4~~$2.8 million increase in total revenues, $16.4 million was related to non-same-center properties. Of the $16.4 million increase, $19.3 million was related to acquisitions, offset by a decrease of $2.9 million related to redevelopment and disposed properties. The remaining $1.0 million increase was attributed to same-center properties, which was primarily driven by a $0.17 increase in minimum rent per square foot and a 0.7% increase in occupancy since September 30, 2016.

~~Property operating expenses—The $2.6 million increase in property operating expenses was primarily related to owning more properties for the nine months ended September 30, 2017, than the comparable 2016 period.~~

~~Real estate tax expenses—The $3.4 million increase in real estate tax expenses was due to having more properties in our portfolio for the nine months ended September 30, 2017, than the comparable 2016 period.~~

~~General and administrative expenses—The $1.7 million increase in~~corporate general and administrative expenses was ~~primarily attributed~~related to ~~an increase in~~personnel costs and expenses related to our corporate headquarters following the PELP transaction, offset by the elimination of the asset management ~~fees~~fee.

Termination of Affiliate Arrangements

The $5.5 million decrease in termination of affiliate arrangements was related to ~~owning more properties for~~ the ~~nine months ended September 30, 2017, than the comparable 2016 period.~~

~~Termination of affiliate arrangements—The $5.5 million expense was primarily related to the~~prior year redemption of unvested Class B units at the ~~estimated value per share~~EVPS on the date of termination, that had been earned by our former advisor for historical asset management ~~services (see Note 9 to the consolidated financial statements).~~services.

~~Acquisition expenses~~—The $1.9 million decrease in acquisition expenses was attributed to the implementation of ASU 2017-01 on January 1, 2017, which caused us to capitalize most acquisition-related costs. For a more detailed discussion of this adoption, see Note 4 to the consolidated financial statements.

Depreciation and ~~amortization~~Amortization

The ~~—The $6.2~~$54.0 million increase in depreciation and amortization included ~~an $8.3~~a $51.7 million increase related to ~~owning more~~the 76 properties, ~~for~~management contracts, and corporate assets acquired in the ~~nine months ended September 30, 2017, than~~PELP transaction.

The increase also included a $4.3 million increase related to properties acquired after December 31, 2016, excluding properties acquired in the ~~comparable 2016 period. This~~PELP transaction.

The increase in depreciation and amortization was offset by a ~~$1.2~~$1.9 million decrease ~~due to the disposition of a property in December 2016, as well as a $1.1 million decrease that was~~ primarily attributed to certain intangible lease assets becoming fully amortized.

Impairment of Real Estate Assets

During the nine months ended September 30, 2018, we recognized impairment charges totaling $27.7 million associated with certain anticipated property dispositions where the net book value exceeded the estimated fair value, as well as certain properties that we determined to be impaired following the identification of potential operational impairment indicators. See Notes 5 and 14 for more details.

Interest Expense, Net

•Interest expense, net was comprised of the following for the —nine months endedSeptember 30, 2018 and 2017 (dollars in thousands):



	Nine Months Ended September 30,
	2018			2017
Interest on revolving credit facility	$	1,815		$	5,072
Interest on term loans, net	28,605			13,238
Interest on mortgages	18,397			8,060
Capitalized interest	(376		)	—
Amortization and write-off of deferred financing costs and assumed market debt adjustments	2,725			2,167
Interest expense, net	$	51,166		$	28,537

Weighted-average interest rate as of end of period	3.5		%	3.1		%
Weighted-average term (in years) as of end of period	4.7			3.0

Transaction Expenses

The ~~$4.7~~$9.8 million decrease in transaction expenses was due to costs associated with the PELP transaction in 2017.

Gain on Sale of Property, Net

The $5.6 million increase in ~~interest expense~~gain on sale of property, net was primarily due to ~~additional borrowings since September 2016, offset by a~~the sale of five properties (see note 5).

Other (Expense) Income, Net

The $2.2 million decrease ~~from refinancing certain mortgages and improving the associated interest rate.~~

~~Transaction expenses—The $9.8 million of transaction expenses resulted from costs incurred~~ in connection with the PELP transaction (see Note 3 to the consolidated financial statements), primarily third-party professional fees, such as accounting, legal, tax, financial advisor, and consulting fees, and fees associated with obtaining debt consents necessary to complete the transaction.

~~Other~~other income ~~(expense), net—Other income increased $0.8 million~~was primarily due to ~~gains from~~$1.5 million expense to increase the ~~sale of land at two~~fair value of our ~~properties.~~earn-out liability in 2018 (see Note 14), as well as outparcel sales in 2017.

Leasing Activity

—The average rent per square foot and cost of executing leases fluctuates based on the tenant mix, size of the space, and lease term. Leases with national and regional tenants generally require a higher cost per square foot than those with local tenants. However, such tenants will also ~~execute leases~~pay for a longer term. As we continue to attract more of these national and regional tenants, our costs to lease may increase.

Below is a summary of leasing activity for the three months ended September 30, ~~2017~~2018 and ~~2016:~~2017:


	Total Deals						Inline Deals⁽¹⁾						Total Deals						Inline Deals⁽¹⁾
	2017			2016			2017			2016			2018			2017⁽²⁾			2018			2017⁽²⁾
New leases:
Number of leases	35			35			34			32			50			35			48			34
Square footage (in thousands)	91			184			70			77			144			91			108			70
First-year base rental revenue (in thousands)	$	1,380		$	2,325		$	1,186		$	1,219		$	2,346		$	1,380		$	1,931		$	1,186
Average rent per square foot (“PSF”)	$	15.24		$	12.62		$	16.92		$	15.87		$	16.28		$	15.24		$	17.95		$	16.92
Average cost PSF of executing new leases⁽²⁾⁽³⁾	$	21.31		$	19.83		$	19.01		$	29.78
Average cost PSF of executing new leases⁽³⁾													$	31.49		$	21.31		$	25.20		$	19.01
Number of comparable leases⁽⁴⁾													18			12			18			12
Comparable rent spread⁽⁵⁾													13.5		%	6.8		%	13.5		%	6.8		%
Weighted average lease term (in years)	6.9			8.5			5.9			7.3			8.0			6.9			7.4			5.9
Renewals and options:
Number of leases	84			93			79			86			115			84			100			79
Square footage (in thousands)	482			555			138			168			743			482			241			138
First-year base rental revenue (in thousands)	$	5,285		$	5,806		$	2,959		$	3,367		$	8,282		$	5,285		$	4,522		$	2,959
Average rent PSF	$	10.96		$	10.46		$	21.42		$	20.06		$	11.15		$	10.96		$	18.78		$	21.42
Average rent PSF prior to renewals	$	10.24		$	9.65		$	19.24		$	17.78		$	10.50		$	10.24		$	17.41		$	19.24
Percentage increase in average rent PSF	7.0		%	8.4		%	11.3		%	12.9		%	6.1		%	7.0		%	7.6		%	11.3		%
Average cost PSF of executing renewals and options⁽²⁾⁽³⁾	$	2.11		$	1.68		$	4.66		$	3.51
Average cost PSF of executing renewals and options⁽³⁾													$	3.04		$	2.11		$	5.05		$	4.66
Number of comparable leases⁽⁴⁾													80			58			75			57
Comparable rent spread⁽⁵⁾													6.4		%	12.4		%	6.7		%	12.6		%
Weighted average lease term (in years)	5.3			4.9			5.4			4.9			4.7			5.3			5.1			5.4
Portfolio retention rate⁽⁴⁾	91.9		%	89.2		%	87.2		%	81.0		%
Portfolio retention rate⁽⁶⁾													89.5		%	91.9		%	77.4		%	87.2		%


⁽¹⁾	We consider an inline deal to be a lease for less than 10,000 square feet of gross leasable area (“GLA”).


⁽²⁾	Leasing activity in 2017 does not reflect activity for the PELP properties acquired on October 4, 2017.


⁽³⁾	The cost of executing new leases, renewals, and options includes leasing commissions, tenant improvement costs, and tenant concessions.


⁽³⁾	The costs associated with landlord improvements are excluded for repositioning and redevelopment ~~projects.~~projects, if any.


⁽⁴⁾	A comparable lease is a lease that is executed for the exact same space (location and square feet) in which a tenant was previously located. For a lease to be considered comparable, it must have been executed within 365 days from the earlier of legal possession or the day the prior tenant physically vacated the space.


⁽⁵⁾	The comparable rent spread compares the first year ABR of a new lease over the last year ABR of the prior lease of a unit that was occupied within the past twelve months.


⁽⁶⁾	The portfolio retention rate is calculated by dividing (a) total square feet of retained tenants with current period lease expirations by (b) the square feet of leases expiring during the period.

Below is a summary of leasing activity for the nine months ended September 30, ~~2017~~2018 and ~~2016:~~2017⁽¹⁾:


	Total Deals						Inline Deals						Total Deals						Inline Deals
	2017			2016			2017			2016			2018			2017			2018			2017
New leases:
Number of leases	127			124			123			118			168			127			161			123
Square footage (in thousands)	328			512			265			296			508			329			371			267
First-year base rental revenue (in thousands)	$	5,563		$	6,756		$	5,040		$	4,808		$	7,487		$	5,563		$	6,372		$	5,040
Average rent PSF	$	16.97		$	13.20		$	18.99		$	16.22		$	14.75		$	16.90		$	17.16		$	18.90
Average cost PSF of executing new leases	$	29.00		$	24.10		$	30.43		$	32.16		$	26.47		$	28.90		$	24.87		$	30.29
Number of comparable leases													51			44			49			43
Comparable rent spread													16.7		%	20.3		%	11.3		%	17.2		%
Weighted average lease term (in years)	7.8			8.0			7.2			7.3			7.2			7.8			6.9			7.2
Renewals and options:
Number of leases	254			238			236			222			366			254			329			236
Square footage (in thousands)	1,288			1,313			465			435			1,967			1,288			730			465
First-year base rental revenue (in thousands)	$	17,751		$	14,224		$	10,621		$	9,057		$	24,111		$	17,751		$	13,546		$	10,621
Average rent PSF	$	13.78		$	10.84		$	22.86		$	20.82		$	12.26		$	13.78		$	18.55		$	22.86
Average rent PSF prior to renewals	$	12.73		$	9.87		$	20.44		$	18.33		$	11.40		$	12.73		$	16.90		$	20.44
Percentage increase in average rent PSF	8.2		%	9.8		%	11.8		%	13.6		%	7.4		%	8.2		%	9.6		%	11.8		%
Average cost PSF of executing renewals and options	$	2.68		$	2.30		$	5.03		$	4.30		$	2.87		$	2.68		$	4.36		$	5.03
Number of comparable leases													265			186			252			182
Comparable rent spread													8.4		%	13.6		%	9.9		%	14.3		%
Weighted average lease term (in years)	5.1			5.3			5.3			5.2			4.8			5.1			4.9			5.3
Portfolio retention rate	92.9		%	89.9		%	88.1		%	81.9		%	90.1		%	92.9		%	78.9		%	88.1		%


⁽¹⁾	See the footnotes to the summary of leasing activity table for the three months ended September 30, 2018, for more detail regarding certain items throughout this table.

Non-GAAP Measures

Pro Forma Same-Center Net Operating Income

We present Same-Center Net Operating Income (“Same-Center NOI”) as a supplemental measure of our performance. We define Net Operating Income (“NOI”) as total operating revenues, adjusted to exclude lease buy-out income and non-cash revenue items, less property operating expenses and real estate taxes. —Same-Center NOI represents the NOI for the ~~137~~ properties that were owned and operational for the entire portion of both comparable reporting ~~periods, except for~~periods. For purposes of evaluating Same-Center NOI on a comparative basis, and in light of the ~~nine~~PELP transaction, we are presenting Pro Forma Same-Center NOI, which is Same-Center NOI on a pro forma basis as if the transaction had occurred on January 1, 2017. This perspective allows us to evaluate Same-Center NOI growth over a comparable period. As of September 30, 2018, we had 221 same-center properties, ~~we currently classify as redevelopment. While there~~including 72 same-center properties acquired in the PELP transaction. Pro Forma Same-Center NOI is ~~judgment surrounding changes in designations, once a redevelopment property has stabilized, it is typically moved to the same-center pool the following year.~~

~~We believe that~~not necessarily indicative of what actual Same-Center NOI and growth would have been if the PELP transaction had occurred on January 1, 2017, nor does it purport to represent Same-Center NOI ~~provide useful information to our investors about our financial~~ and operating performance because each provides a performance measure of the revenues and expenses directly involved in owning and operating real estate assets and provides a perspective not immediately apparent from net income (loss). Becausegrowth for future periods.

Pro Forma Same-Center NOI ~~excludes the change in NOI from properties acquired after December 31, 2015, and those considered redevelopment properties, it~~ highlights operating trends such as occupancy ~~levels,~~rates, rental rates, and operating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Same-Center NOI, and accordingly, our Pro Forma Same-Center NOI may not be comparable to other REITs.

Pro Forma Same-Center NOI should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition expenses, depreciation and amortization, interest expense, other income, or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties that could materially impact our results from operations.

The table below ~~is a comparison of~~compares Pro Forma Same-Center NOI for the three and nine months ended September 30, 2018 and 2017 ~~to the three and nine months ended September 30, 2016 (in~~(dollars in thousands):


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended September 30,				Favorable (Unfavorable)					Nine Months Ended September 30,				Favorable (Unfavorable)
	2017		2016		$ Change			% Change		2017		2016		$ Change			% Change		2018		2017		$ Change			% Change		2018		2017		$ Change			% Change
Revenues:
Rental income⁽¹⁾	$	42,621	$	41,797	$	824				$	127,588	$	124,664	$	2,924				$	65,154	$	64,151	$	1,003				$	195,007	$	191,703	$	3,304
Tenant recovery income	13,620		14,020		(400		)			41,337		42,583		(1,246		)			21,930		20,510		1,420					63,157		61,555		1,602
Other property income	274		195		79					615		562		53					265		572		(307		)			1,420		1,432		(12		)
Total revenues	56,515		56,012		503			0.9	%	169,540		167,809		1,731			1.0	%	87,349		85,233		2,116			2.5	%	259,584		254,690		4,894			1.9	%
Operating expenses:
Property operating expenses	8,831		8,813		18					26,563		26,673		(110		)			12,916		13,671		755					38,487		41,463		2,976
Real estate taxes	8,179		7,909		270					24,731		24,774		(43		)			12,028		12,720		692					36,723		37,851		1,128
Total operating expenses	17,010		16,722		288			1.7	%	51,294		51,447		(153		)	(0.3	)%	24,944		26,391		1,447			5.5	%	75,210		79,314		4,104			5.2	%
Total Same-Center NOI	$	39,505	$	39,290	$	215		0.5	%	$	118,246	$	116,362	$	1,884		1.6	%
Total Pro Forma Same-Center NOI																			$	62,405	$	58,842	$	3,563		6.1	%	$	184,374	$	175,376	$	8,998		5.1	%


⁽¹⁾	Excludes straight-line rental income, net amortization of above- and below-market leases, and lease buyout income.

Below is a reconciliation of Net ~~(loss) income~~Loss to Owned Real Estate NOI and Pro Forma Same-Center NOI for the three and nine months ended September 30, ~~2017~~2018 and ~~2016~~2017 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,							Nine Months Ended September 30,
	2017			2016⁽¹⁾			2017			2016⁽¹⁾			2018			2017				2018			2017
Net (loss) income	$	(8,376	)	$	2,490		$	(8,463	)	$	5,326
Net loss													$	(16,267	)	$	(8,376	)		$	(32,180	)	$	(8,463	)
Adjusted to exclude:
Fees and management income													(8,974		)	—				(26,823		)	—
Straight-line rental income	(970		)	(1,067		)	(2,913		)	(2,793		)	(1,090		)	(970		)		(3,579		)	(2,913		)
Net amortization of above- and below-market leases	(286		)	(355		)	(972		)	(936		)	(977		)	(286		)		(2,967		)	(972		)
Lease buyout income	(9		)	—			(1,120		)	(534		)	(49		)	(9		)		(115		)	(1,120		)
General and administrative expenses	8,712			7,722			25,438			23,736			13,579			8,914				37,490			25,904
Termination of affiliate arrangements	5,454			—			5,454			—			—			5,454				—			5,454
Acquisition expenses	202			870			466			2,392
Depreciation and amortization	28,650			26,583			84,481			78,266			45,692			28,650				138,504			84,481
Impairment of real estate assets													16,757			—				27,696			—
Interest expense, net	10,646			8,504			28,537			23,837			17,336			10,646				51,166			28,537
Transaction expenses	3,737			—			9,760			—			—			3,737			—	—			9,760
Gain on sale of property, net													(4,571		)	—				(5,556		)	—
Other	(6		)	(33		)	(642		)	125			139			(6		)		1,238			(642		)
NOI	47,754			44,714			140,026			129,419
Property management allocations to third-party assets under management⁽¹⁾													5,432			—				13,223			—
Owned Real Estate NOI⁽²⁾													67,007			47,754				198,097			140,026
Less: NOI from centers excluded from same-center	(8,249		)	(5,424		)	(21,780		)	(13,057		)	(4,602		)	(2,397		)		(13,723		)	(4,673		)
Total Same-Center NOI	$	39,505		$	39,290		$	118,246		$	116,362
NOI prior to October 4, 2017, from same-center properties acquired in the PELP transaction⁽³⁾													—			13,485				—			40,023
Total Pro Forma Same-Center NOI													$	62,405		$	58,842			$	184,374		$	175,376


⁽¹⁾	~~Certain prior period amounts have been restated~~This represents property management expenses allocated to ~~conform with current year presentation.~~third-party owned properties based on the property management fee that is provided for in the individual management agreements under which our investment management business provides services.


⁽²⁾	Segment Profit, presented in Results of Operations, differs from NOI primarily because of revenue exclusions made when calculating NOI, including straight-line rental income, net amortization of above- and below market leases, and lease buyout income.


⁽³⁾	See calculation on the following page.

NOI from the PELP properties acquired prior to the PELP transaction was obtained from the accounting records of PELP without adjustment. The accounting records were subject to internal review by us. The table below provides Same-Center NOI detail for the non-ownership period of PELP, which was the three and nine months ended September 30, 2017 (in thousands):



	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Revenues:
Rental income⁽¹⁾	$	4,176	$	12,697
Tenant recovery income	577		1,215
Other property income	14,565		43,669
Total revenues	19,318		57,581
Operating expenses:
Property operating expenses	5,616		16,850
Real estate taxes	217		708
Total operating expenses	5,833		17,558
Total Same-Center NOI	$	13,485	$	40,023


⁽¹⁾	Excludes straight-line rental income, net amortization of above- and below-market leases, and lease buyout income.

Funds from Operations (“FFO”) and Modified Funds from Operations

~~Funds from operations~~ (“~~FFO”~~MFFO”)—FFO is a non-GAAP performance financial measure that is widely recognized as a measure of REIT operating performance. ~~We use FFO as defined by the~~The National Association of Real Estate Investment Trusts (“NAREIT”) ~~to be~~defines FFO as net income (loss), attributable to common stockholders computed in accordance with GAAP, ~~adjusted for~~excluding gains (or losses) from sales of ~~depreciable real estate~~ property, ~~(including deemed sales and settlements of pre-existing relationships),~~ plus depreciation and amortization, and after adjustments for impairment losses on depreciable real estate ~~assets~~ and ~~impairment charges,~~impairments of in-substance real estate investments in investees that are driven by measurable decreases in the fair value of the depreciable real estate held by the unconsolidated partnerships and ~~after related adjustments~~joint ventures. Adjustments for unconsolidated partnerships and joint ventures ~~and noncontrolling interests. We believe that FFO is helpful~~are calculated to our investors and our management as a measure of operating performance because, when compared year over year, it reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which are not immediately apparent from net income (loss).

Since the definition of FFO was promulgated by NAREIT, GAAP has expanded to include several new accounting pronouncements, such that management and many investors and analysts have considered the presentation of FFO alone to be

~~insufficient. Accordingly, in addition to FFO, we use modified~~reflect funds from operations ~~(“MFFO”), which, as defined~~on the same basis. We calculate FFO Attributable to Stockholders and Convertible Noncontrolling Interests in a manner consistent with the NAREIT definition, with an additional adjustment made for noncontrolling interests that are not convertible into common stock.

MFFO is an additional performance financial measure used by us as FFO includes certain non-comparable items that affect our performance over time. MFFO excludes ~~from FFO~~ the following items:

acquisition and transaction expenses;

straight-line rent amounts, both income and expense;

amortization of above- or below-market intangible lease assets and liabilities;

amortization of discounts and premiums on debt investments;

gains or losses from the early extinguishment of debt;

gains or losses on the extinguishment of derivatives, except where the trading of such instruments is a fundamental attribute of our operations;

gains or losses related to fair value adjustments for derivatives not qualifying for hedge accounting;

gains or losses related to fair value adjustments for our earn-out liability;

certain other one-time costs; and

adjustments related to the above items for joint ventures and noncontrolling interests and unconsolidated entities in the application of equity ~~accounting; and~~

~~termination of affiliate arrangements.~~accounting.

We believe that MFFO is helpful in assisting management and investors with the assessment of the sustainability of operating performance in future ~~periods because MFFO excludes acquisition expenses that affect operations only in the period in which the property~~periods. We believe it is ~~acquired. Thus, MFFO provides helpful information relevant to evaluating~~more reflective of our core operating performance inand provides an additional measure to compare our performance across reporting periods ~~in which there is no acquisition activity.~~

Many of the adjustments in arriving at MFFO are not applicable to us. Nevertheless, as explained below, management’s evaluation of our operating performance may also exclude items considered in the calculation of MFFO based on ~~the following economic considerations:~~

~~Adjustments for straight-line rents and amortization of discounts and premiums on debt investments~~—GAAP requires rental receipts and discounts and premiums on debt investments to be recognized using various systematic methodologies. This 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. The adjustment to MFFO for straight-line rents, in particular, is made to reflect rent and lease payments from a ~~GAAP accrual~~consistent basis ~~to a cash basis.~~

~~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 the lease term and should be recognized in revenue. Since real estate values and market lease rates in the aggregate have historically risen or fallen with market conditions, and the intangible value is not adjusted to reflect these changes, management believes that by excluding ~~these charges,~~items that may cause short-term fluctuations in net income (loss) but have no impact on cash flows.

FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and 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~~—This item 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 mayshould 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, but unknown, gains or losses.

~~Adjustment for gains or losses related to early extinguishment of derivatives and debt instruments~~—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.

~~Adjustment for the termination of affiliate arrangements~~—This adjustment is related to our redemption of Class B units at the estimated value per share on the date of termination, that had been earned by our former advisor for historical asset management services, and is not related to continuing operations. By excluding this item, 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.

~~Neither FFO nor MFFO should be~~ considered ~~as an alternative~~alternatives to net income (loss) or income (loss) from continuing operations under GAAP, ~~nor~~ as an indication of our liquidity, nor ~~is either of these measures indicative~~as an indication of funds available to ~~fund~~cover our cash

needs, including our ability to fund distributions. 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, FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and MFFO should be reviewed in connection with other GAAP ~~measurements. FFO~~measurements, and ~~MFFO~~ should not be viewed as more prominent measures of performance than ~~our~~ net income (loss) or cash flows from operations prepared in accordance with GAAP. Our FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and MFFO, as presented, may not be comparable to amounts calculated by other REITs.

The following ~~section~~table presents our calculation of FFO, FFO Attributable to Stockholders and Convertible Noncontrolling Interests, and MFFO and provides additional information related to our operations for the three and nine months ended September 30, 2018 and 2017 ~~and 2016~~ (in ~~thousands, except per share amounts)~~thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017
2016
2017
2016
Calculation of FFO



Net (loss) income attributable to stockholders $ (8,232 ) $ 2,464

$ (8,319 ) $ 5,243
Adjustments:

Depreciation and amortization of real estate assets 28,650
26,583

84,481
78,266
Noncontrolling interests (410 ) (397 )
(1,244 )
(1,171 )
FFO attributable to common stockholders $ 20,008
$ 28,650

$ 74,918

$ 82,338
Calculation of MFFO






FFO $ 20,008
$ 28,650

$ 74,918

$ 82,338
Adjustments:






Acquisition expenses 202
870
466
2,392
Net amortization of above- and below-market leases (286 ) (354 ) (972 ) (936 )
Gain on extinguishment of debt (43 ) (184 ) (567 ) (79 )
Straight-line rental income (970 ) (1,068 ) (2,913 ) (2,793 )
Amortization of market debt adjustment (267 ) (285 ) (838 ) (1,631 )
Change in fair value of derivatives (30 ) (98 ) (153 ) (66 )
Transaction expenses 3,737
—
9,760
—
Termination of affiliate arrangements 5,454
—
5,454
—
Noncontrolling interests (53 ) 4
(90 ) 47
MFFO attributable to common stockholders $ 27,752

$ 27,535

$ 85,065

$ 79,272

FFO/MFFO per share:
Weighted-average common shares outstanding - basic 183,843
184,639
183,402
183,471
Weighted-average common shares outstanding - diluted⁽¹⁾
186,502
187,428
186,150
186,260
FFO per share - basic $ 0.11
$ 0.16

$ 0.41

$ 0.45
FFO per share - diluted $ 0.11
$ 0.15
$ 0.40
$ 0.44
MFFO per share - basic and diluted $ 0.15
$ 0.15

$ 0.46

$ 0.43



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017⁽¹⁾
Calculation of FFO Attributable to Stockholders and Convertible Noncontrolling Interests
Net loss	$	(16,267	)	$	(8,376	)	$	(32,180	)	$	(8,463	)
Adjustments:
Depreciation and amortization of real estate assets	42,227			28,650			127,367			84,481
Impairment of real estate assets	16,757			—			27,696			—
Gain on sale of property, net	(4,571		)	—			(5,556		)	—
FFO attributable to the Company	38,146			20,274			117,327			76,018
Adjustments attributable to noncontrolling interests not convertible into common stock	(141		)	—			(269		)	—
FFO attributable to stockholders and convertible noncontrolling interests	$	38,005		$	20,274		$	117,058		$	76,018
Calculation of MFFO
FFO attributable to stockholders and convertible noncontrolling interests	$	38,005		$	20,274		$	117,058		$	76,018
Adjustments:
Net amortization of above- and below-market leases	(977		)	(286		)	(2,967		)	(972		)
Depreciation and amortization of corporate assets	3,465			—			11,137			—
(Gain) loss on extinguishment of debt, net	(43		)	(43		)	103			(567		)
Straight-line rent	(1,073		)	(970		)	(3,544		)	(2,913		)
Amortization of market debt adjustment	(255		)	(267		)	(992		)	(838		)
Change in fair value of earn-out liability	—			—			1,500			—
Transaction expenses	—			3,737			—			9,760
Termination of affiliate arrangements	—			5,454			—			5,454
Other	298			172			258			313
MFFO	$	39,420		$	28,071		$	122,553		$	86,255

FFO Attributable to Stockholders and Convertible Noncontrolling Interests/MFFO per share
Weighted-average common shares outstanding - diluted⁽²⁾	228,356			186,502			229,266			186,150
FFO attributable to stockholders and convertible noncontrolling interests per share - diluted⁽²⁾	$	0.17		$	0.11		$	0.51		$	0.41
MFFO per share - diluted ⁽²⁾	$	0.17		$	0.15		$	0.53		$	0.46


⁽¹⁾	~~OP units and restricted~~Certain prior period amounts have been restated to conform with current year presentation.

⁽²⁾

Restricted stock awards were dilutive to ~~FFO/~~FFO Attributable to Stockholders and Convertible Noncontrolling Interests and MFFO for the three and nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, and, accordingly, were included in the ~~weighted average~~weighted-average common shares used to calculate diluted ~~FFO/~~FFO Attributable to Stockholders and Convertible Noncontrolling Interests and MFFO per share.

Liquidity and Capital Resources

General

~~Our principal cash demands, aside~~—Aside from standard operating expenses, ~~are for~~ we expect our principal cash demands to be for:

investments in real estate, including the anticipated Merger with REIT II;

capital expenditures and leasing costs;

repurchases of common ~~stock,~~stock;

cash distributions to ~~stockholders,~~stockholders; and

principal and interest payments on our outstanding indebtedness.

We ~~intend~~expect our primary sources of liquidity to ~~use our cash on hand,~~ be:

operating cash ~~flows,~~flows;

available, unrestricted cash and cash equivalents;

reinvested distributions, which are used for share repurchases;

proceeds from debt financings, including borrowings under our unsecured credit ~~facility, as~~facility; and

proceeds from real estate dispositions.

We believe our ~~primary~~ sources of ~~immediate~~cash will provide adequate liquidity to fund our obligations.

The following table summarizes information about our debt as of September 30, 2018 and ~~long-term liquidity. On October 4,~~December 31, 2017 ~~we completed the PELP transaction. Under the terms of the agreement, we issued 39.6 million OP units, assumed $501 million of debt, and paid approximately $25 million~~(dollars in ~~cash (see Note 3 to the consolidated financial statements).~~thousands):



	September 30, 2018			December 31, 2017
Total debt obligations, gross	$	1,852,773		$	1,817,786
Weighted average interest rate	3.5		%	3.4		%
Weighted average maturity	4.7			5.5

Revolving credit facility capacity	$	500,000		$	500,000
Revolving credit facility availability⁽¹⁾	443,973			437,972
Revolving credit facility maturity⁽²⁾	October 2021			October 2021


⁽¹⁾	Net of outstanding letters of credit.


⁽²⁾	The revolving credit facility has additional options to extend the maturity to October 2022.

As of September 30, ~~2017,~~2018, we had cash, ~~and~~ cash equivalents, and restricted cash of ~~$7.2~~$33.9 million, a net ~~cash decrease~~increase of ~~$1.0~~$6.5 million during the nine months ended September 30, ~~2017.~~2018.

Below is a summary of our cash flow activity for the nine months ended September 30, 2018 and 2017 (dollars in thousands):



	2018			2017			$ Change			% Change
Net cash provided by operating activities	$	122,036		$	67,522		$	54,514		80.7	%
Net cash used in investing activities	(16,255		)	(133,108		)	116,853			87.8	%
Net cash (used in) provided by financing activities	(99,287		)	28,854			(128,141		)	NM

Operating Activities

—Our net cash provided by operating activities ~~consists~~was primarily impacted by the following:

Property operations—Most of our operating cash ~~inflows~~comes from ~~tenant~~ rental and tenant recovery ~~payments~~income and ~~cash outflows for~~is offset by property operating expenses, real estate taxes, and property-specific general and administrative ~~expenses, and interest payments.~~

costs. Our change in cash flows from property operations primarily results from owning a larger portfolio year-over-year, as well as a 5.1% increase in Pro Forma Same-Center NOI.

Fee and management income—Following the completion of the PELP transaction, we also generate operating ~~activities were $67.5~~cash from our third-party investment management business, offset by the operational costs of the business. Our fee and management income increased by $26.8 million for the nine months ended September 30, ~~2017, compared to $85.2~~2018.

Cash paid for interest—During the nine months endedSeptember 30, 2018, we paid $49.2 million for interest, an increase of $22.7 million over the same period in ~~2016. The~~2017.

Working capital—During the nine months endedSeptember 30, 2018, aside from timing differences, the decrease ~~primarily resulted from having a net loss, which was due~~in cash flows related to ~~increased expenses~~2017 prepaid PELP acquisition costs, not incurred in 2018, partially offset by deferred costs anticipated to be capitalized related to the redemption of unvested Class B units at the estimated value per share on the date of termination, that had been earned by our former advisor for historical asset management services (see Note 9 to the consolidated financial statements), and expenses related to the PELP transaction.Merger in 2018.

Investing Activities

Net cash flows from investing activities are affected by the nature, timing, and extent of improvements to, as well as acquisitions and dispositions of, real estate and real estate-related assets, as we continue to evaluate the market for available properties and may acquire properties when we believe strategic opportunities exist.

—Our net cash used in investing activities was ~~$97.4 million for~~primarily impacted by the following:

Real estate acquisitions and dispositions—During the nine months endedSeptember 30, 2017, compared to $148.8 million for the same period in 2016. The decrease in cash used primarily resulted from the release of $35.9 million from restricted cash due to the completion of a reverse Section 1031 like-kind exchange, which originated from the sale of a property in December 2016.

~~During the nine months ended September 30, 2017,~~2018, we acquired ~~six~~two shopping centers for a total cash outlay of ~~$111.7 million.~~$31.3 million. During the same period in ~~2016,~~2017, we acquired ~~three shopping centers and additional real estate adjacent to previously acquired~~six shopping centers for a total cash outlay of ~~$132.3 million.~~$111.7 million. During the nine months endedSeptember 30, 2018, we disposed of five properties for a total cash inflow of $44.3 million. We did not have any property dispositions during the same period in 2017.

Capital expenditures—We invest capital into leasing our properties and maintaining or improving the condition of our properties. During the nine months endedSeptember 30, 2018, cash used for capital expenditures increased by $6.8 million over the same period in 2017 as a result of our larger portfolio.

Financing Activities

—Net cash ~~flows~~(used in) provided by financing activities were primarily impacted by the following:

Debt borrowings and payments—Cash from financing activities ~~are~~is primarily affected by inflows from borrowings and outflows from payments ~~of distributions, share repurchases, principal and other payments associated with our outstanding debt, and borrowings during the period.~~on debt. As our debt obligations mature, we intend to refinance the remaining balance, if possible, or pay off the balances at maturity using proceeds from operations and/or corporate-level debt. ~~Our net cash provided by financing activities was $28.9~~In January 2018, we executed a $65 million for the nine months ended September 30, 2017, compared to net cash flow provided by financing activities of $44.3 million for the same period in 2016. The decrease in cash provided by financing activities primarily resulted from increased share repurchases in January 2017, as well as increased cash distributions as a result of fewer investors participating in the DRIP. The decrease was also due to the redemption of OP units that had been earned by our former advisor for historical asset management services. These cash flow decreases were partially offset by an increase in net borrowings.

As of September 30, 2017, our debt to total enterprise value was 39.1%. Debt to total enterprise value is calculated as net debt (total debt, excluding below-market debt adjustments and deferred financing costs, less cash and cash equivalents) as a percentage of enterprise value (equity value, calculated as diluted shares outstanding multiplied by the estimated value per share of $10.20 as of September 30, 2017, plus net debt).

~~Our debt is subject to certain covenants, as disclosed in our 2016 Annual Report~~delayed draw on ~~Form 10-K filed with the SEC on March 9, 2017. As of September 30, 2017, we were in compliance with the restrictive covenants~~one of our outstanding debt obligations. We expect to continue to meet the requirements of our debt covenants over the short- and long-term. Our debt to total enterprise value and debt covenant compliance as of September 30, 2017, allow us access to future borrowings as needed.

We have access to a revolving credit facility with a capacity of $500 million and a current interest rate of LIBOR plus 1.3%. As of September 30, 2017, $121.0 million was available for borrowing under the revolving credit facility. Interm loans that originated in October 2017 and used the ~~maturity date of the revolving credit facility was extended~~proceeds to ~~October 2021, with additional options to extend the maturity to October 2022.~~

To increase ~~the~~ availability on our revolving credit ~~facility~~facility. During the nine months endedSeptember 30, 2018, our net borrowings decreased by $103.5 million as a result of higher cash flows from operations and ~~refinance~~fewer acquisitions than the ~~corporate debt assumed from~~same period in 2017.

Distributions to stockholders and OP unit holders—There was a large increase in distributions paid to OP unit holders in 2018 as a result of issuing 39.4 million OP units in the PELP ~~transaction, we entered into two new term loan agreements that have principal balances of $310 million, with a delayed draw feature~~transaction. Cash used for a total capacity of $375 million, and $175 million that mature in April 2022 and October 2024, respectively. We also entered into two new secured loan facilities with principal balances of $175 million and $195 million that mature in November 2026 and November 2027, respectively. For more information regarding these loans, see Note 6distributions to common stockholders additionally increased due to the ~~consolidated financial statements.~~temporary suspension of the DRIP for the month of July 2018 in connection with the proposed Merger; therefore all DRIP participants received their July 2018 distribution in cash rather than stock. The DRIP resumed in August 2018.

~~We offer~~

Share repurchases—Our SRP provides an ~~SRP that provides a limited~~ opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and ~~limitations. For a more detailed discussion of our SRP, see~~limitations (see Note ~~9 to the consolidated financial statements.~~10). Cash outflows for share repurchases increased by $5.6 million.

Distributions—Activity related to distributions to our common stockholders and OP unit holders for the nine months ended September 30, 2018 and 2017, ~~and 2016, is~~was as follows (in thousands):

2017 2016
Gross distributions paid $ 92,397
$ 92,266
Distributions reinvested through the DRIP 36,171
44,731
Net cash distributions $ 56,226
$ 47,535
Net (loss) income attributable to stockholders $ (8,319 ) $ 5,243
Net cash provided by operating activities $ 67,522
$ 85,179
FFO⁽¹⁾
$ 74,918
$ 82,338



	Cash distributions to OP unit holders			Net cash provided by operating activities

	Cash distributions to common stockholders			FFO attributable to stockholders and nonconvertible noncontrolling interests ⁽¹⁾See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures - Funds from Operations and Modified Funds from Operations, for the definition of FFO, information regarding why we present FFO, as well as for a reconciliation of this non-GAAP financial measure to Net (Loss) Income on the consolidated statements of operations.

	Distributions reinvested through the DRIP


⁽¹⁾	See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures - Funds from Operations and Modified Funds from Operations for the definition of FFO, for information regarding why we present FFO, as well as for a reconciliation of this non-GAAP financial measure to Net Loss.

We paid distributions monthly and expect to continue paying distributions monthly unless our results of operations, our general financial condition, general economic conditions, or other factors, as determined by our Board, make it imprudent to do so. The timing and amount of distributions is determined by our Board and is influenced in part by our intention to comply with REIT requirements of the Internal Revenue Code.

To maintain our qualification as a REIT, we must make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain, and which does not necessarily equal net income (loss) as calculated in accordance with GAAP). We generally will not be subject to U.S. federal income tax on the income that we distribute to our stockholders each year due to meeting the REIT qualification requirements. However, we may be subject to certain state and local taxes on our income, property, or net worth and to federal income and excise taxes on our undistributed income.

We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.

~~Critical Accounting Policies~~

~~Real Estate Acquisition Accounting~~Debt—~~In January 2017,~~Our debt is subject to certain covenants and, as of September 30, 2018, we were in compliance with the ~~FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~. This update amends existing guidance in order to clarify when an integrated set of assets and activities is considered a business. We adopted ASU 2017-01 on January 1, 2017, and applied it prospectively. Under this new guidance, mostrestrictive covenants of our real estate acquisition activity will no longer be considered a business combination and will instead be classified as an asset acquisition. As a result, most acquisition-related costs that would have been recorded onoutstanding debt obligations. We expect to continue to meet the requirements of our ~~consolidated statements of operations have been capitalized and will be amortized~~debt covenants over the ~~life~~short- and long-term. Our debt to total enterprise value and debt covenant compliance as of September 30, 2018, allow us access to future borrowings as needed.

The following table presents our calculation of net debt to total enterprise value as of September 30, 2018 and December 31, 2017 (dollars in thousands):



	2018			2017
Net debt:
Total debt, excluding below-market adjustments and deferred financing costs	$	1,852,773		$	1,817,786
Less: Cash and cash equivalents	6,111			5,716
Total net debt	$	1,846,662		$	1,812,070
Enterprise Value:
Total net debt	$	1,846,662		$	1,812,070
Total equity value⁽¹⁾	2,523,290			2,526,557
Total enterprise value	$	4,369,952		$	4,338,627

Net debt to total enterprise value	42.3		%	41.8		%

⁽¹⁾Total equity value is calculated as the product of the ~~related assets.~~

~~For a summary~~number of ~~all of our critical accounting policies, refer to our 2016 Annual Report on Form 10-K filed with~~diluted shares outstanding and the ~~SEC on March 9, 2017.~~

~~Recently Issued Accounting Pronouncements—Refer to Note 2 of our consolidated financial statements in this report for discussion~~estimated net asset value per share at the end of the ~~impact~~period. There were 228.1 million and 229.7 million diluted shares outstanding as of ~~recently issued accounting pronouncements.~~September 30, 2018 and December 31, 2017, respectively.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes from the quantitative and qualitative disclosures about market risk disclosed in Part II, Item ~~3. Quantitative and Qualitative Disclosures About Market Risk~~

~~We hedge a portion~~7A of our ~~exposure to interest rate fluctuations through~~2017 Annual Report on Form 10-K filed with the utilization of interest rate swaps 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 are determined based upon the facts and circumstances existing at the time of the hedge and may differ from our currently anticipated hedging strategy. Because we use derivative financial instruments to hedge against interest rate fluctuations, we may be exposed to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe 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 seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. Market risk is the adverse effectSEC 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.March 30, 2018.

As of September 30, 2017, we had four interest rate swaps that fixed the LIBOR on $642 million of our unsecured term loan facilities, and we were party to an interest rate swap that fixed the variable interest rate on $10.8 million of one of our secured mortgage notes. We had no other outstanding interest rate swap agreements as of September 30, 2017.

As of September 30, 2017, we had not fixed the interest rate on $392.0 million of our unsecured debt through 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 impact on our results of operations of a one-percentage point increase in interest rates on the outstanding balance of our variable-rate debt at September 30, 2017, would result in approximately $3.9 million of additional interest expense annually. The additional interest expense was determined based on the impact of hypothetical interest rates on our borrowing cost and assumes no changes in our capital structure.

Upon completion of the PELP transaction, we entered into two new variable-rate term loans with principal balances of $310 million and $175 million that mature in April 2022 and October 2024, respectively. On October 27, 2017, we entered into an interest rate swap agreement with a notional amount of $175 million that fixed the interest rate on the term loan maturing in 2022 at 3.29%. Also on October 27, 2017, we entered into an interest rate swap with a notional amount of $175 million that fixed the interest rate on the term loan maturing in 2024 at 3.93%. These interest rate swaps were effective November 1, 2017.

The information presented above does not consider all exposures or positions that could arise in the future. Hence, the information represented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the hedging strategies at the time, and the related interest rates.

~~We do not have any foreign operations, and thus we are not exposed to foreign currency fluctuations.~~

~~Item~~ITEM 4. ~~Controls and Procedures~~CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, ~~2017.~~2018. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of September 30, ~~2017.~~2018.

Internal Control Changes

During the quarter ended September 30, ~~2017,~~2018, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~PART II. OTHER INFORMATION~~

wPART II OTHER INFORMATION

~~Item~~ITEM 1. ~~Legal Proceedings~~LEGAL PROCEEDINGS

WeFrom time to time, we are ~~involved in various claims and litigation matters arising~~party to legal proceedings, which arise in the ordinary course of ~~business, some of~~our business. We are not currently involved in any legal proceedings for which ~~involve claims for damages. Many of these matters~~we are not covered by our liability insurance ~~although they may nevertheless be subject~~or the outcome is reasonably likely to deductibles or retentions. Although the ultimate liability for these matters cannot be determined, based upon information currently available, we believe the ultimate resolution of such claims and litigation will not have a material ~~adverse effect~~impact on our ~~consolidated~~results of operations or financial ~~statements,~~condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.

~~Item~~ITEM 1A. ~~Risk Factors~~RISK FACTORS

For a listing of risk factors associated with investing in us, please see Item 1A. Risk Factors in Part I of our ~~2016~~2017 Annual Report on Form 10-K filed with the SEC on March ~~9, 2017,~~30, 2018, and ~~the risk factors listed below:~~

~~We recently transitioned to a self-managed real estate investment trust and have limited operating experience being self-managed.~~

Effective October 4, 2017, we transitioned to a self-managed real estate investment trust following the closing of a transaction to acquire certain real estate assets and the third-party asset management business of Phillips Edison Limited Partnership (“PELP”) in ~~a stock and cash transaction (“PELP transaction”). While we no longer bear the costs of the various fees and~~

~~expense reimbursements previously paid to our former external advisor and its affiliates, our expenses now include the compensation and benefits~~Item 1A. Risk Factors in Part II of our officers, employees and consultants, as well as overhead previously paid by our former external advisor or their affiliates. Our employees now provide us services historically provided by our former external advisor and its affiliates. We are also now subject to potential liabilities that are commonly faced by employers, such as workers' disability and compensation claims, potential labor disputes, and other employee-related liabilities and grievances, and we bearQuarterly Report on Form 10-Q for the costs of the establishment and maintenance of any employee compensation plans. In addition, we have limited experience operating as a self-managed real estate investment trust (“REIT”) and we may encounter unforeseen costs, expenses, and difficulties associated with providing those services on a self-advised basis. If we incur unexpected expenses as a result of our self-management, our results of operations could be lower than they otherwise would have been. Furthermore, our results of operations following our transition to self-management may not be comparable to our results prior to the transition.

~~Mr. Edison, or his designee, will be nominated to the board of directors (“Board”) for each of the next ten succeeding annual meetings, subject to certain terminating events.~~

As part of the PELP transaction, Mr. Edison, or his designee, will be nominated to the Board for each of the ten succeeding annual meetings, subject to certain terminating events, including the sale or transfer of more than 35% of the partnership units (“OP Units”) of Phillips Edison Grocery Center Operating Partnership I, L. P. (“PECO I OP”) that he beneficially owns. As a result, it is possible that Mr. Edison may continue to be nominated as a director in circumstances when the independent directors would not otherwise have done so.

~~Mr. Edison shall continue to serve as Chairman of the Board until the third anniversary of the closing of the PELP transaction, subject to certain terminating events.~~

Our bylaws provide that Mr. Edison will continue to serve as Chairman of the Board until the third anniversary of the closing of the PELP transaction, subject to certain terminating events, including the listing of our common stock on a national securities exchange. As a result, Mr. Edison may continue to serve as Chairman of the Board in circumstances when the independent directors would not otherwise have selected him.

Upon closing of the PELP transaction, the PECO I OP partnership agreement was amended to, among other things, grant certain rights and protections to the limited partners, which may prevent or delay a change of control transaction that might involve a premium price for our shares of common stock.

The amended and restated PECO I OP partnership agreement, which, among other things, grants certain rights and protections to the limited partners, including granting limited partners the right to consent to a change of control transaction. Furthermore, Mr. Edison currently has voting control over approximately 9.6% of the OP Units (inclusive of those owned by us) and therefore could have a significant influence over votes on change of control transactions. As part of the PELP transaction, we entered into certain provisions that should reduce the possibility that Mr. Edison or other protected partners (“Tax Protection Agreement”) would have an economic incentive to oppose a change of control transaction that would otherwise be in our best interest, we cannot be certain however that such limited partners would view a change of control transaction as favorably as our stockholders. The Tax Protection Agreement expires after ten years from the closing of the PELP transaction.

~~We have and will incur substantial expenses related to the PELP transaction and its integration.~~

We have incurred and will incur substantial expenses in connection with completing the PELP transaction. While we expected to incur a certain level of transaction and integration expenses, factors beyond our control could affect the total amount or the timing of its integration expenses. As a result, the transaction and integration expenses associated with the PELP transaction could, particularly in the near term, exceed the savings that we expect to achieve from the acquisition of the companies contributed under the PELP transaction (“Contributed Companies”) following the closing. If the expenses we incur as a result of the PELP transaction are higher than anticipated, our net income per common share and funds from operations per common share would be adversely affected.

~~Our future results will suffer if we do not effectively manage our expanded portfolio and operations.~~

There can be no assurance, however, regarding when or to what extent we will be able to realize the benefits of the PELP transaction, which may be difficult, unpredictable and subject to delays. We will be required to devote significant management attention and resources to integrating our business practices and operations with the Contributed Companies. It is possible that the integration process could result in the distraction of our management, the disruption of our ongoing business or inconsistencies in our operations, services, standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with operators, vendors and employees or to fully achieve the anticipated benefits of the PELP transaction. There may also be potential unknown or unforeseen liabilities, increased expenses, or delays associated with integrating the Contributed Companies into us.

With the closing of the PELP transaction, we have an expanded portfolio and operations, and likely will continue to expand our operations through additional acquisitions and other strategic transactions, some of which may involve complex challenges.

Our future success will depend, in part, upon our ability to manage expansion opportunities, integrate new operations into our existing business in an efficient and timely manner, successfully monitor our operations, costs, regulatory compliance and service quality and maintain other necessary internal controls. There can be no assurance that our expansion or acquisition opportunities will be successful, or that it will realize our expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.

~~We may be unable to retain key employees.~~

Our success after the PELP transaction closing depends in part upon its ability to retain key employees. Key employees of the Contributed Companies and subsidiaries thereof may depart because of issues relating to the uncertainty and difficulty of integration. Accordingly, no assurance can be given that we will be able to retain key employees.

~~We may be exposed to risks to which we have not historically been exposed to.~~

We historically have not had employees. We now have employees following the consummation of the PELP transaction, and as their employer, we will be subject to those potential liabilities that are commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances. Further, we will bear the costs of the establishment and maintenance of health, retirement and similar benefit plans for our employees.

Following the closing of the PELP transaction, we agreed to honor and fulfill the rights to certain indemnification claims for acts or omissions occurring at or prior to the closing in favor of managers, directors, officers, trustees, agents or fiduciaries of any Contributed Company or subsidiary thereof.

We have agreed to honor and fulfill, following the closing, the rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the closing now existing in favor of a manager, director, officer, trustee, agent or fiduciary of any Contributed Company or subsidiary contained in (i) the organizational documents of the Contributed Companies and their subsidiaries and (ii) all existing indemnification agreements of the Contributed Companies and their subsidiaries. For six years after the closing, we may not amend, modify or repeal the organizational documents of the Contributed Companies and their subsidiaries in any way that would adversely affect such rights. We may incur substantial costs to address such claims and are limited in our ability to modify such indemnification obligations.

~~The estimated net asset value per common share may decline now or in the future as a result of the PELP transaction.~~

The estimated net asset value per common share may decline as a result of the PELP transaction for a number of reasons, including if we do not achieve the perceived benefits of the PELP transaction as rapidly or to the extent that is anticipated.

~~We cannot assure stockholders that we will be able to continue paying distributions at the rate currently paid.~~

We expect to continue our current distribution practices following the closing of the PELP transaction. Stockholders however, may not receive distributions following the closing of the PELP transaction equivalent to those previously paid by us for various reasons, including the following:

as a result of the PELP transaction and the issuance of OP Units in connection with the PELP transaction, the total amount of cash required for us to pay distributions at our current rate has increased;

we may not have enough cash to pay such distributions due to changes in our cash requirements, indebtedness, capital spending plans, cash flows or financial position or as a result of unknown or unforeseen liabilities incurred in connection with the PELP transaction;

decisions on whether, when and in what amounts to make any future distributions will remain at all times entirely at the discretion of the Board, which reserves the right to change our distribution practices at any time and for any reason; and

~~we may desire to retain cash to maintain or improve our credit ratings and financial position.~~

~~Existing and future stockholders have no contractual or other legal right to distributions that have not been declared.~~

~~We may have failed to uncover all liabilities of the Contributed Companies through the due diligence process prior to the PELP transaction, exposing us to potentially large, unanticipated costs.~~

Prior to completing the PELP transaction, we performed certain due diligence reviews of the business of PELP. Our due diligence review may not have adequately uncovered all of the contingent or undisclosed liabilities we may incur as a consequence of the PELP transaction. Any such liabilities could cause us to experience potentially significant losses, which could materially adversely affect our business, results of operations and financial condition.

The Tax Protection Agreement, during its term, could limit PECO I OP’s ability to sell or otherwise dispose of certain properties and may require PECO I OP to maintain certain debt levels that otherwise would not be required to operate its business.

We and PECO I OP entered into a Tax Protection Agreement at closing, pursuant to which if PECO I OP (i) sells, exchanges, transfers, conveys or otherwise disposes of a Protected Property (as defined in the Tax Protection Agreement) in a taxable transaction for a period of ten years commencing on the closing (the “Tax Protection Period”) or (ii) fails, prior to the expiration of the Tax Protection Period, to maintain minimum levels of indebtedness that would be allocable to each Protected Partner (as defined in the Tax Protection Agreement) for tax purposes or, alternatively, fails to offer such Protected Partner the opportunity to guarantee specific types of PECO I OP’s indebtedness in order to enable such Protected Partner to continue to defer certain tax liabilities, PECO I OP will indemnify each affected Protected Partner against certain resulting tax liabilities. Therefore, although it may be in the stockholders’ best interest for us to cause PECO I OP to sell, exchange, transfer, convey or otherwise dispose of one of these properties, it may be economically prohibitive for us to do so during the Tax Protection Period because of these indemnity obligations. Moreover, these obligations may require us to cause PECO I OP to maintain more or different indebtedness than we would otherwise require for our business. As a result, the Tax Protection Agreement will, during its term, restrict our ability to take actions or make decisions that otherwise would be in our best interests.

~~If PECO I OP fails to qualify as a partnership for U.S. federal income tax purposes, we would fail to qualify as a REIT and suffer other adverse consequences.~~

We believe that PECO I OP is organized and will be operated in a manner so as to be treated as a partnership, and not an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. As a partnership, PECO I OP will not be subject to U.S. federal income tax on its income. Instead, each of its partners, including us, will be allocated that partner’s share of PECO I OP’s income. No assurance can be provided, however, that the Internal Revenue Service will not challenge PECO I OP’s status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the Internal Revenue Service were successful in treating PECO I OP as an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, would cease to qualify as a REIT. Also, the failure of PECO I OP to qualify as a partnership would cause it to become subject to U.S. federal corporate income tax, which would reduce significantly the amount of its cash available for debt service and for distribution to its partners, including us.

~~PECO I OP has a carryover tax basis on certain of its assets as a result of the PELP transaction, and the amount that we have to distribute to Stockholders therefore may be higher.~~

As a result of the PELP transaction, certain of PECO I OP’s properties have carryover tax bases that are lower than the fair market values of these properties at the time of the acquisition. As a result of this lower aggregate tax basis, PECO I OP will recognize higher taxable gain upon the sale of these assets, and PECO I OP will be entitled to lower depreciation deductions on these assets than if it had purchased these properties in taxable transactions at the time of the acquisition. Such lower depreciation deductions and increased gains on sales allocated to us generally will increase the amount of our required distribution under the REIT rules, and will decrease the portion of any distribution that otherwise would have been treated as a “return of capital” distribution.

~~We intend to use taxable REIT subsidiaries (“TRSs”), which may cause us to fail to qualify as a REIT.~~

To qualify as a REIT for federal income tax purposes, we hold, and plan to continue to hold, our non-qualifying REIT assets and conduct our non-qualifying REIT income activities in or through one or more TRSs. A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. A TRS also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to income tax as a regular C corporation.

The net income of our TRSs is not required to be distributed to us and income that is not distributed to us will generally not be subject to the REIT income distribution requirement. However, our TRS may pay dividends. Such dividend income should qualify under the 95%, but not the 75%, gross income test. We will monitor the amount of the dividend and other income from our TRS and will take actions intended to keep this income, and any other non-qualifying income, within the limitations of the REIT income tests. While we expect these actions will prevent a violation of the REIT income tests, we cannot guarantee that such actions will in all cases prevent such a violation.

Our ownership of TRSs will be subject to limitations that could prevent us from growing our management business and our transactions with our TRSs could cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on an arm’s-length basis.

Overall, (i) for taxable years beginning prior to January 1, 2018, no more than 25% of the value of a REIT’s gross assets, and (ii) for taxable years beginning after December 31, 2017, no more than 20% of the value of a REIT’s gross assets, may consist of interests in TRSs; compliance with this limitation could limit our ability to grow our management business. In addition, the Internal Revenue Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The Internal Revenue Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We will monitor the value of investments in our TRSs in order to ensure compliance with TRS ownership limitations and will structure our transactions with our TRSs on terms that we believe are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the TRS ownership limitation or be able to avoid application of the 100% excise tax.quarter ended June 30, 2018.

~~Item~~ITEM 2. ~~Unregistered Sales of Equity Securities and Use of Proceeds~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


a)	~~None.~~


b)	~~Not applicable.~~


c)	~~During the quarter ended September 30, 2017, we repurchased shares as follows (shares in thousands):~~

During the three months ended September 30, 2018, we repurchased shares as follows (shares in thousands):

Period Total Number of Shares Repurchased
Average Price Paid per Share⁽¹⁾

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 Repurchased Under the Program
July 2017 75
$ 10.20
75

⁽³⁾
August 2017 46
10.20
46

⁽³⁾
September 2017 104
10.20
104

⁽³⁾



Period	Total Number of Shares Redeemed	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program⁽¹⁾	Approximate Dollar Value of Shares Available That May Yet Be Repurchased Under the Program
July 2018⁽²⁾	—	$	—	—	⁽³⁾
August 2018	172	11.05		172	⁽³⁾
September 2018	143	11.05		143	⁽³⁾

⁽¹⁾

On November 8, 2017, our Board increased the estimated value per share of our common stock to $11.00 based substantially on the estimated market value of our portfolio of real estate properties our recently acquired third-party asset management business as of October 5, 2017, the first full business day after the closing of the PELP transaction. Prior to November 8, 2017, the estimated value per share was $10.20 (see Note 9 to the consolidated financial statements). The repurchase price per share for all stockholders is equal to the estimated value per share on the date of the repurchase.


⁽²⁾	We announced the commencement of the ~~share repurchase program~~Share Repurchase Program (“SRP”) on August 12, 2010, and it was subsequently amended on September 29, 2011, and on April 14, 2016. All of the shares we purchased in the three months ended September 30, 2018 were pursuant to the SRP.


⁽²⁾	In connection with the Merger Agreement, the SRP was temporarily suspended for the month of July 2018 and resumed in August 2018. Please see Notes 3 and 10 to the consolidated financial statements for more detail.


⁽³⁾	We currently limit the dollar value and number of shares that may yet be repurchased under the SRP, as described below.

Our SRP may provide a limited opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and limitations that are discussed below:

During any calendar year, we may repurchase no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.

We have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

The cash available for repurchases on any particular date will generally be limited to the proceeds from the DRIP during the preceding four fiscal quarters, less any cash already used for repurchases since the beginning of the same period; however, subject to the limitations described above, we may use other sources of cash at the discretion of the Board. The limitations described above do not apply to shares repurchased due to a stockholder’s death, “qualifying disability,” or “determination of incompetence.”

Only those stockholders who purchased their shares from us or received their shares from us (directly or indirectly) through one or more non-cash transactions may be able to participate in the SRP. In other words, once our shares are transferred for value by a stockholder, the transferee and all subsequent holders of the shares are not eligible to participate in the SRP.

The Board reserves the right, in its sole discretion, at any time and from time to time, to reject any request for repurchase.

The repurchase price per share under the SRP for all stockholders is equal to the estimated value per share on the date of the repurchase. Repurchases of shares of common stock will be made monthly upon written notice received by us at least five days prior to the end of the applicable month, assuming no limitations, as noted above, exist. Stockholders may withdraw their repurchase request at any time up to five business days prior to the repurchase date. Unfulfilled repurchase requests are treated as requests for repurchase during future months until satisfied or withdrawn.

Our Board may amend, suspend, or terminate the program upon 30 days’ notice. We may provide notice by including such information (a) in a ~~Current Report~~current report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or (b) in a separate mailing to the stockholders. ~~In connection with the May announcement of the PELP transaction (see Note 3 to the consolidated financial statements), the SRP was suspended during the month of May and resumed in June.~~

During the ~~three and~~ nine months ended September 30, ~~2017,~~2018, repurchase requests surpassed the funding limits under the SRP. Approximately 4.5 million shares of our common stock were repurchased under the SRP during the nine months ended September 30, 2018. Repurchase requests in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence” were completed in full. The remaining repurchase requests that were in good order were fulfilled on a pro rata basis. Due to the ~~program’s~~program's funding limits, no funds will be available for the remainder of ~~2017. When~~2018. However, we ~~are unable to fulfill all repurchase requests in any month, we~~ will honor requests on a pro rata basis to the extent possible. As of September 30, 2017, we had 9.8 million shares of unfulfilled repurchase requests, which will be treated as requests for repurchase during future months until satisfied or withdrawn. We continue to fulfill repurchases sought upon a ~~stockholder’s~~stockholder's death, “qualifying disability,” or “determination of incompetence” in accordance with the terms of the SRP.

~~Item 3. Defaults Upon Senior Securities~~

~~None.~~

~~Item 4. Mine Safety Disclosures~~

~~Not applicable.~~

~~Item~~ITEM 5. ~~Other Information~~OTHER INFORMATION

~~On November~~2019 Annual Meeting of Stockholders; Date for Submission of Stockholder Proposals

We anticipate that we will hold our 2019 annual meeting of stockholders on or about Wednesday, May 8, ~~2017, the independent directors~~2019 (the “2019 Annual Meeting”). The exact time and location of the 2019 Annual Meeting will be specified in our proxy statement for the 2019 Annual Meeting. Because the expected date of the 2019 Annual Meeting represents a change of more than 30 calendar days from the date of the anniversary of our 2018 annual meeting of stockholders, we are affirming the deadline for receipt of stockholder proposals submitted pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Rule 14a-8”), for inclusion in our proxy materials for the 2019 Annual Meeting.

Any stockholder proposal pursuant to Rule 14a-8, to be considered for inclusion in our proxy materials for the 2019 Annual Meeting, must be received at our principal executive offices, Attn: Corporate Secretary, 11501 Northlake Drive, Cincinnati, Ohio 45249, no later than 5:00 p.m. Eastern Time on January 8, 2019. In addition, any stockholder who wishes to propose a nominee to the Company’s Board ~~unanimously approved Les Chao as their lead independent director.~~or propose any other business to be considered by the stockholders (other than a stockholder proposal included in our proxy materials pursuant to Rule 14a-8) must comply with the advance notice provisions and other requirements of Section 2.12 of our Bylaws. These notice provisions require, among other things, that nominations of individuals for election to the Company’s Board and the proposal of business to be considered by the stockholders for the 2019 Annual Meeting must be received no earlier than December 9, 2018 and no later than 5:00 p.m. Eastern Time on January 8, 2019. All proposals should be submitted to the attention of the our corporate secretary at our principal executive offices at the address above. All proposals must be in writing and otherwise in compliance with applicable SEC requirements and our bylaws.

~~Item~~ITEM 6. ~~Exhibits~~EXHIBITS



Ex.	Description

2.1	~~Contribution~~ Agreement and Plan of Merger, dated as of ~~May~~July 18, ~~2017, between~~2018, by and among Phillips Edison ~~Grocery Center REIT I,~~& Company, Inc., Phillips Edison Grocery Center Operating Partnership I, L.P., REIT Merger Sub, LLC, OP Merger Sub, LLC, OP Merger Sub 2, LLC, Phillips Edison Grocery Center REIT II, Inc., and ~~the Contributors Listed Therein~~Phillips Edison Grocery Center Operating Partnership II, L.P. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed ~~May 23, 2017)~~July 18, 2018)
3.1	~~Third~~Fourth Amended and Restated Bylaws of Phillips Edison ~~Grocery Center REIT I,~~& Company, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed ~~October 11, 2017)~~
~~10.2~~	Letter Agreement with Phillips Edison NTR LLC dated September 20, 2017*
~~10.3~~	Third Amended and Restated Agreement of Limited Partnership of Phillips Edison Grocery Center Operating Partnership I, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed October 11, 2017)
~~10.4~~	Tax Protection Agreement dated as of October 4, 2017 by and among Phillips Edison Grocery Center REIT I, Inc., Phillips Edison Grocery Center Operating Partnership I, L.P. and each Protected Partner identified as a signatory on Schedule I, as amended from time to time (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed October 11, 2017)
~~10.5~~	Equityholder Agreement dated October 4, 2017 by and among Phillips Edison Grocery Center REIT I, Inc., Phillips Edison Grocery Center Operating Partnership I, L.P. and each of the individuals signatory thereto (incorporated by reference to Exhibit 10.3.1 to the Company’s Current Report on Form 8-K filed October 11, 2017)
~~10.6~~	Fifth Amendment dated October 4, 2017 to the $900.0 million Credit Agreement*
~~10.6.1~~	Exhibit A to Fifth Amendment dated October 4, 2017 to the $900.0 million Credit Agreement*
~~10.7~~	Term Loan Credit Agreement dated October 4, 2017 for $175.0 million*
~~10.8~~	Term Loan Credit Agreement dated October 4, 2017 for $375.0 million*
~~10.9~~	First Amendment dated October 4, 2017 to the $255.0 million Term Loan*
~~10.10~~	Secured Loan Facility dated October 4, 2017 for $175.0 million*
~~10.11~~	Form of Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated October 23, 2017 Used for $195.0 million Secured Borrowings of 14 Properties Owned by a Subsidiaries of Phillips Edison Grocery Center Operating Partnership I, L.P.*
~~10.12~~	RMU Cancellation and Exchange Agreement dated October 4, 2017**
~~10.13~~	Executive Severance and Change in Control Plan dated October 4, 2017**
~~10.14~~	Amended and Restated 2010 Long-Term Incentive Plan**
~~10.15~~	Equity Vesting Agreement with Devin I. Murphy dated October 2, 2017**
~~10.16~~	PELP Participation Agreement for Jeffrey Edison dated October 4, 2017**
~~10.17~~	PELP Participation Agreement for Devin Murphy dated October 4, 2017**
~~10.18~~	PELP Participation Agreement for Robert Myers dated October 4, 2017**
~~10.19~~	PELP Participation Agreement for R. Mark Addy dated October 4, 2017**July 18, 2018)
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Principal 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 Principal Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002*
101.1	The following information from the Company’s ~~quarterly report~~Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017,~~2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive (Loss) Income; (iii) Consolidated Statements of Equity; and (iv) Consolidated Statements of Cash Flows*

*Filed herewith.

**Compensation Plan or Benefit filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~registrant~~Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	PHILLIPS EDISON ~~GROCERY CENTER REIT I,~~& COMPANY, INC.

Date: November ~~9, 2017~~5, 2018	By:	/s/ Jeffrey S. Edison
		Jeffrey S. Edison
		Chairman of the Board and Chief Executive Officer
		(Principal Executive Officer)

Date: November ~~9, 2017~~5, 2018	By:	/s/ Devin I. Murphy
		Devin I. Murphy
		Chief Financial Officer
		(Principal Financial Officer)

3940



	September 30, 2017		December 31, 2016
Derivative asset:
Interest rate swaps designated as hedging instruments - Term Loans	$	11,175	$	11,916
Derivative liability:
Interest rate swap not designated as hedging instrument - mortgage note	108		262



	Interest Rate⁽¹⁾	September 30, 2017			December 31, 2016
Revolving credit facility⁽²⁾⁽³⁾	2.54%	$	378,969		$	176,969
Term loan due 2019⁽³⁾	2.46%	100,000			100,000
Term loan due 2020⁽³⁾	2.65%	175,000			175,000
Term loan due 2021	2.49%-2.80%	125,000			125,000
Term loan due 2023	3.03%	255,000			255,000
Mortgages payable⁽⁴⁾	3.73%-7.91%	194,480			228,721
Assumed market debt adjustments, net⁽⁵⁾		3,741			4,490
Deferred financing costs, net⁽⁶⁾		(7,411		)	(9,024		)
Total		$	1,224,779		$	1,056,156



	Interest Rate	Principal Balance
Term loan due April 2022^(1)(2)(3)	LIBOR + 1.30%	$	310,000
Term loan due October 2024⁽¹⁾⁽³⁾	LIBOR + 1.75%	175,000
Loan facility due November 2026⁽⁴⁾	3.55%	175,000
Loan facility due November 2027⁽⁴⁾	3.52%	195,000



Year	Amount
Remaining 2017	$	53,743
2018	205,462
2019	182,579
2020	160,034
2021	134,587
2022 and thereafter	453,701
Total	$	1,190,106



Distribution Period	Date Distribution Paid	Gross Amount of Distribution Paid		Distribution Reinvested through the DRIP		Net Cash Distribution
September 1, 2017, through September 30, 2017	10/2/2017	$	10,145	$	4,301	$	5,844
October 1, 2017, through October 31, 2017	11/1/2017	12,541		4,415		8,126



Year	Number of Leases Expiring	Leased Square Feet Expiring	% of Leased Square Feet Expiring		ABR⁽¹⁾		% of Total Portfolio ABR
Remaining 2017⁽²⁾	104	274	1.6	%	$	3,577	1.7	%
2018	332	1,227	7.3	%	17,857		8.4	%
2019	415	2,031	12.1	%	26,936		12.7	%
2020	349	1,827	10.9	%	23,828		11.3	%
2021	349	2,073	12.4	%	24,691		11.7	%
2022	306	2,123	12.7	%	23,560		11.1	%
2023	138	1,924	11.5	%	22,892		10.8	%
2024	149	1,271	7.6	%	13,709		6.5	%
2025	114	700	4.2	%	11,200		5.3	%
2026	119	974	5.8	%	14,295		6.8	%
Thereafter	218	2,356	13.9	%	29,098		13.7	%
	2,593	16,780	100.0	%	$	211,643	100.0	%



Tenant Type	ABR		% of ABR		Leased Square Feet	% of Leased Square Feet
Grocery anchor	$	84,879	40.1	%	8,829	52.6	%
National and regional⁽¹⁾	80,255		37.9	%	5,448	32.5	%
Local	46,509		22.0	%	2,503	14.9	%
	$	211,643	100.0	%	16,780	100.0	%



Tenant Industry	ABR		% of ABR		Leased Square Feet	% of Leased Square Feet
Grocery	$	84,879	40.1	%	8,829	52.6	%
Service	48,933		23.1	%	2,549	15.2	%
Retail	47,059		22.2	%	3,962	23.6	%
Restaurants	30,772		14.6	%	1,440	8.6	%
	$	211,643	100.0	%	16,780	100.0	%



	2017			2016
Gross distributions paid	$	92,397		$	92,266
Distributions reinvested through the DRIP	36,171			44,731
Net cash distributions	$	56,226		$	47,535
Net (loss) income attributable to stockholders	$	(8,319	)	$	5,243
Net cash provided by operating activities	$	67,522		$	85,179
FFO⁽¹⁾	$	74,918		$	82,338



Period	Total Number of Shares Repurchased	Average Price Paid per Share⁽¹⁾		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 Repurchased Under the Program
July 2017	75	$	10.20	75	⁽³⁾
August 2017	46	10.20		46	⁽³⁾
September 2017	104	10.20		104	⁽³⁾

September 30, 2017

December 31, 2016

Class B units⁽¹⁾