American Realty Capital - Retail Centers Of America 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2013

OR

o 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: 333-169355

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

(Exact name of registrant as specified in its charter) 

Maryland	27-3279039
(State or other  jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
405 Park Ave., 15th Floor, New York, NY	10022
(Address of principal executive offices)	(Zip Code)

(212) 415-6500

(Registrant's telephone number, including area code)

Indicate by check mark whether the 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 was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o
Non-accelerated filer x	(Do not check if a smaller reporting company)	Smaller reporting company o

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

The number of outstanding shares of the registrant's common stock on October 31, 2013 was 5,626,999 shares.

AMERICAN REALTY CAPITAL — RETAIL CENTERS OF AMERICA, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012	2
Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)	3
Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the Nine Months Ended September 30, 2013 (Unaudited)	4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)	5
Notes to Consolidated Financial Statements (Unaudited)	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosure About Market Risk	40
Item 4. Controls and Procedures	40
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	41
Item 1A. Risk Factors	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults Upon Senior Securities	44
Item 4. Mine Safety Disclosures	44
Item 5. Other Information	44
Item 6. Exhibits	44
Signatures	45

1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN REALTY CAPITAL — RETAIL CENTERS OF AMERICA, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	September 30,			December 31,
	2013			2012
	(Unaudited)
ASSETS
Real estate investments, at cost:
Land	$	28,192		$	12,435
Buildings, fixtures and improvements	62,791			33,957
Acquired intangible lease assets	17,071			8,665
Total real estate investments, at cost	108,054			55,057
Less: accumulated depreciation and amortization	(4,696		)	(1,143		)
Total real estate investments, net	103,358			53,914
Cash and cash equivalents	3,202			278
Restricted cash	1,314			327
Prepaid expenses and other assets	1,343			563
Deferred costs, net	1,341			642
Land held for sale	564			—
Total assets	$	111,122		$	55,724
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Mortgage notes payable	$	69,860		$	40,725
Notes payable	3,000			7,235
Below-market lease liabilities, net	929			858
Derivatives, at fair value	337			—
Accounts payable and accrued expenses	9,903			8,033
Deferred rent and other liabilities	200			148
Distributions payable	242			47
Total liabilities	84,471			57,046
Preferred stock, $0.01 par value per share, 50,000,000 authorized, none issued or outstanding at September 30, 2013 and December 31, 2012	—			—
Common stock, $0.01 par value per share, 300,000,000 shares authorized, 4,748,083 and 834,118 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively	47			8
Additional paid-in capital	34,357			1,372
Accumulated other comprehensive loss	(337		)	—
Accumulated deficit	(7,416		)	(2,702		)
Total stockholders' equity (deficit)	26,651			(1,322		)
Total liabilities and stockholders' equity (deficit)	$	111,122		$	55,724

The accompanying notes are an integral part of these statements.

2

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenues:
Rental income	$	1,276		$	409		$	3,444		$	499
Operating expense reimbursements	418			109			1,033			131
Total revenues	1,694			518			4,477			630
Operating expenses:
Property operating	576			115			1,389			142
Acquisition and transaction related	938			16			945			387
General and administrative	177			14			347			232
Depreciation and amortization	1,067			455			3,302			633
Total operating expenses	2,758			600			5,983			1,394
Operating loss	(1,064		)	(82		)	(1,506		)	(764		)
Other expenses:
Interest expense	(446		)	(349		)	(1,977		)	(438		)
Extinguishment of debt	—			—			(130		)	—
Total other expenses	(446		)	(349		)	(2,107		)	(438		)
Net loss	$	(1,510	)	$	(431	)	$	(3,613	)	$	(1,202	)
Other comprehensive loss:
Designated derivatives, fair value adjustment	(337		)	—			(337		)	—
Comprehensive loss	$	(1,847	)	$	(431	)	$	(3,950	)	$	(1,202	)
Basic and diluted weighted-average shares outstanding	3,785,878			369,628			2,283,318			248,967
Basic and diluted net loss per share	$	(0.40	)	$	(1.17	)	$	(1.58	)	$	(4.83	)

The accompanying notes are an integral part of these statements.

3

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the Nine Months Ended September 30, 2013

(In thousands, except share data)

(Unaudited)

	Common Stock
	Number of Shares		Par Value		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity (Deficit)
Balance, December 31, 2012	834,118		$	8	$	1,372		$	—		$	(2,702	)	$	(1,322	)
Issuances of common stock	3,879,780		39		38,316			—			—			38,355
Common stock offering costs, commissions and dealer manager fees	—		—		(5,593		)	—			—			(5,593		)
Common stock issued through distribution reinvestment plan	33,859		—		322			—			—			322
Common stock repurchases	(8,674	)	—		(87		)	—			—			(87		)
Share-based compensation	9,000		—		27			—			—			27
Distributions declared	—		—		—			—			(1,101		)	(1,101		)
Net loss	—		—		—			—			(3,613		)	(3,613		)
Other comprehensive loss	—		—		—			(337		)	—			(337		)
Balance, September 30, 2013	4,748,083		$	47	$	34,357		$	(337	)	$	(7,416	)	$	26,651

The accompanying notes are an integral part of this statement.

4

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net loss	$	(3,613	)	$	(1,202	)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	1,925			375
Amortization of intangible assets	1,375			258
Amortization (including accelerated write-off) of deferred costs	404			75
Accretion of below-market lease liabilities and amortization of above-market lease assets, net	213			10
Share-based compensation	27			13
Changes in assets and liabilities:
Prepaid expenses and other assets	(802		)	(240		)
Accounts payable and accrued expenses	2,183			252
Deferred rent and other liabilities	52			42
Net cash provided by (used in) operating activities	1,764			(417		)
Cash flows from investing activities:
Investment in real estate and other assets	(12,575		)	(5,198		)
Net cash used in investing activities	(12,575		)	(5,198		)
Cash flows from financing activities:
Proceeds from mortgage notes payable	11,000			—
Payments of mortgage notes payable	(22,740		)	—
Proceeds from notes payable	—			3,000
Payments of notes payable	(4,235		)	—
Payments of deferred financing costs	(947		)	(314		)
Proceeds from issuances of common stock	38,221			4,101
Common stock repurchases	(87		)	—
Payments of offering costs and fees related to stock issuances	(4,713		)	(643		)
Distributions paid	(584		)	(46		)
(Payments to) advances from affiliate, net	(1,193		)	716
Restricted cash	(987		)	(176		)
Net cash provided by financing activities	13,735			6,638
Net change in cash and cash equivalents	2,924			1,023
Cash and cash equivalents, beginning of period	278			—
Cash and cash equivalents, end of period	$	3,202		$	1,023
Supplemental Disclosures:
Cash paid for interest (includes cash paid for penalties, interest and fees on extinguishment of debt)	$	1,636		$	273
Cash paid for taxes	6			—
Non-Cash Investing and Financing Activities:
Mortgage notes payable used to acquire investments in real estate	$	40,875		$	16,200
Common stock issued through distribution reinvestment plan	322			4

The accompanying notes are an integral part of these statements.

5

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

Note 1 — Organization

American Realty Capital — Retail Centers of America, Inc. (the "Company"), incorporated on July 29, 2010, is a Maryland corporation that qualified as a real estate investment trust ("REIT") for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2012. On March 17, 2011, the Company commenced its initial public offering (the "IPO") on a "reasonable best efforts" basis of up to 150.0 million shares of common stock, $0.01 par value per share, at a price of $10.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form S-11, as amended (File No. 333-169355) (the "Registration Statement"), filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended. The Registration Statement also covers up to 25.0 million shares available pursuant to a distribution reinvestment plan (the "DRIP") under which the Company's common stockholders may elect to have their distributions reinvested in additional shares of the Company's common stock at a price initially equal to $9.50 per share, which is 95.0% of the offering price of the IPO.

On March 9, 2012, the Company raised proceeds sufficient to break escrow in connection with its IPO. As of September 30, 2013, the Company had 4.7 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total proceeds of $46.5 million, including proceeds from shares issued pursuant to the DRIP. As of September 30, 2013, the aggregate value of all issuances and subscriptions of common stock outstanding was $47.2 million based on a per share value of $10.00 (or $9.50 for shares issued pursuant to the DRIP).

The Company was formed to primarily acquire existing anchored, stabilized core retail properties, including power centers, lifestyle centers, large formatted centers with a grocery store component (with a purchase price in excess of $20.0 million) and other need-based shopping centers which are located in the United States and at least 80.0% leased at the time of acquisition. All such properties may be acquired and operated by the Company alone or jointly with another party. The Company may also originate or acquire first mortgage loans secured by real estate. The Company purchased its first property and commenced active operations in June 2012. As of September 30, 2013, the Company owned three properties with an aggregate purchase price of $107.6 million, comprised of 0.5 million square feet which were 92.1% leased on a weighted-average basis.

Substantially all of the Company's business is conducted through American Realty Capital Retail Operating Partnership, L.P. (the "OP"), a Delaware limited partnership. American Realty Capital Retail Advisor, LLC (the "Advisor") is the Company's affiliated advisor. The Company is the sole general partner and holds substantially all the units of limited partner interests in the OP ("OP Units"). The Advisor, a limited partner in the OP, holds 202 OP Units, which represents a nominal percentage of the aggregate OP ownership. The holder of OP Units has the right to convert OP Units for the cash value of a corresponding number of shares of common stock or, at the option of the OP, a corresponding number of shares of common stock of the Company, in accordance with the limited partnership agreement of the OP. The remaining rights of the holders of the OP Units are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.

The Company has no employees. The Company has retained the Advisor to manage its affairs on a day-to-day basis. The Advisor has entered into a service agreement with an independent third party, Lincoln Retail REIT Services, LLC, a Delaware limited liability company (the "Service Provider"), pursuant to which the Service Provider has agreed to provide, subject to the Advisor's oversight, real estate-related services, including locating investments, negotiating financing, and providing property-level asset management services, property management services, leasing and construction oversight services and disposition services, as needed. Realty Capital Securities, LLC (the "Dealer Manager"), an entity under common ownership with the Company's sponsor, American Realty Capital IV, LLC (the "Sponsor"), serves as the dealer manager of the IPO. The Advisor is a wholly owned subsidiary of, and the Dealer Manager is under common ownership with, the Sponsor, as a result of which they are related parties, and each of which have received and/or may receive compensation, fees and expense reimbursements for services related to the IPO and for the investment and management of the Company's assets. The Advisor and Dealer Manager have received and may receive compensation and fees during the offering, acquisition, operational and liquidation stages. The Advisor will pay to the Service Provider a substantial portion of the fees payable to the Advisor for the performance of these real estate-related services.

6

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

Note 2 — Summary of Significant Accounting Policies

The accompanying consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to this Quarterly Report on 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. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for these interim periods. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results for the entire year or any subsequent interim period.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of, and for the year ended December 31, 2012, which are included in the Company's Annual Report on Form 10-K filed with the SEC on March 12, 2013. There have been no significant changes to Company's significant accounting policies during the nine months ended September 30, 2013, other than the updates described below.

Recently Issued Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board ("FASB") issued guidance regarding disclosures about offsetting assets and liabilities, which requires entities to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The guidance is effective for fiscal years and interim periods beginning on or after January 1, 2013 with retrospective application for all comparative periods presented. The adoption of this guidance, which is related to disclosure only, did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In July 2012, the FASB issued revised guidance intended to simplify how an entity tests indefinite-lived intangible assets for impairment. The amendments will allow an entity first to assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. An entity will no longer be required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative test unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In February 2013, the FASB issued guidance which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The guidance is effective for annual and interim periods beginning after December 15, 2012 with early adoption permitted. The adoption of this guidance, which is related to disclosure only, did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In February 2013, the FASB issued guidance clarifying the accounting and disclosure requirements for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. The Company does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

7

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

Note 3 — Real Estate Investments

The following table presents the allocation of the assets acquired and liabilities assumed during the nine months ended September 30, 2013 and 2012:

	Nine Months Ended September 30,
(Dollar amounts in thousands)	2013				2012
Real estate investments, at cost:
Land	$	15,757			$	2,887
Buildings, fixtures and improvements	28,834			(1)	17,084
Total tangible real estate investments	44,591				19,971
Acquired intangibles:
In-place leases	5,305				1,916
Above-market lease assets	3,101				199
Below market lease liabilities	(111		)		(504		)
Total intangible real estate investments	8,295				1,611
Land held for sale	564			(2)	—
Total assets acquired, net	53,450				21,582
Mortgage notes payable used to acquire real estate investments	(40,875		)		(16,200		)
Other liabilities assumed	—				(184		)
Cash paid for acquired real estate investments and land held for sale	$	12,575			$	5,198
Number of properties purchased	1				1

_____________________

(1) Buildings, fixtures and improvements acquired during the nine months ended September 30, 2013 have been provisionally allocated pending receipt of the cost segregation analysis on such assets being prepared by a third party specialist.

(2) During the nine months ended September 30, 2013, the Company assumed a purchase and sale agreement to sell an outparcel of land acquired in connection with the Tiffany Springs acquisition and recorded the asset, less estimated cost to dispose of the land, as land held for sale on the consolidated balance sheet.

The following table reflects the number and related purchase prices of properties acquired during the year ended December 31, 2012 and the nine months ended September 30, 2013:

Portfolio	Number of Properties	Base Purchase Price (1)
		(In thousands)
Year ended December 31, 2012	2	$	54,182
Nine months ended September 30, 2013	1	53,450
Total portfolio as of September 30, 2013	3	$	107,632

_____________________

(1) Contract purchase price, excluding acquisition related costs.

8

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

The following table presents unaudited pro forma information as if the acquisition during the nine months ended September 30, 2013 had been consummated on January 1, 2012. Additionally, the unaudited pro forma net loss was adjusted to reclassify acquisition and transaction related expense $0.9 million for the nine months ended September 30, 2013 to the nine months ended September 30, 2012:

	Nine Months Ended September 30,
(In thousands)	2013			2012
Pro forma revenues	$	9,952		$	6,186
Pro forma net loss	$	(2,684	)	$	(2,117	)

The following table presents future minimum base rent cash payments due to the Company subsequent to September 30, 2013.  These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items:

(In thousands)	Future Minimum Base Rent Payments
October 1, 2013 to December 31, 2013	$	2,143
2014	8,256
2015	7,864
2016	7,488
2017	7,205
Thereafter	11,105
	$	44,061

The following table lists the tenants whose annualized rental income on a straight-line basis represented greater than 10% of total annualized rental income for all portfolio properties on a straight-line basis as of September 30, 2013 and 2012:

Tenant	September 30, 2013	September 30, 2012
Toys "R" Us - Delaware, Inc.	10.5%	*
Ross Stores, Inc.	*	18.1%
PetSmart, Inc.	*	15.6%

____________________________

* Tenant's annualized rental income on a straight-line basis was not greater than 10% of total annualized rental income on a straight-line basis for all portfolio properties as of the period specified.

The termination, delinquency or non-renewal of leases by one or more of the above tenants may have a material adverse effect on revenues. No other tenant represents more than 10% of annualized rental income on a straight-line basis as of September 30, 2013 and 2012.

The following table lists the states where the Company has concentrations of properties where annualized rental income on a straight-line basis represented greater than 10% of consolidated annualized rental income on a straight-line basis as of September 30, 2013 and 2012:

State	September 30, 2013	September 30, 2012
Missouri	47.8%	*
Texas	52.2%	100.0%

____________________________

* State's annualized rental income on a straight-line basis was not greater than 10% of total annualized rental income for all portfolio properties as of the period specified.

9

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

The Company owned properties in no other state that in total represented more than 10% of the annualized rental income on a straight-line basis as of September 30, 2013 and 2012.

Note 4 —Notes Payable

In June 2012, the Company entered into an unsecured $3.0 million note payable with an unaffiliated third party. The note payable bears interest at a fixed rate of 8.0% per annum and was set to mature in June 2013. In May 2013, the note payable was extended for one year and will mature in June 2014. The note payable contains twoone-year extension options and requires monthly interest payments only with the principal balance due at maturity. The note payable may be prepaid from time to time and at any time, in whole or in part. The Company is also required to pay an exit fee equal to 1.0% of the original loan amount upon final payment of the note payable. As of September 30, 2013 and December 31, 2012, there was $3.0 million outstanding on the note payable.

In December 2012, the Company entered into an unsecured $4.2 million bridge loan with the Sponsor. The bridge loan bore interest at a fixed rate of 6.0% per annum. The bridge loan, which was to mature in December 2013, required monthly interest payments only with the principal balance due at maturity. The bridge loan could be prepaid from time to time and at any time, in whole or in part. In May 2013, the Company prepaid $1.5 million of the principal balance on the bridge loan. In September 2013, the Company prepaid the remaining $2.7 million principal balance on the bridge loan.

The Company's sources of financing generally contain financial covenants, including restrictions on corporate guarantees, the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) as well as the maintenance of minimum net worth. As of September 30, 2013, the Company was in compliance with financial covenants under the remaining note payable agreement.

10

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

Note 5 — Mortgage Notes Payable

The Company's mortgage notes payable as of September 30, 2013 and December 31, 2012 consists of the following:

		Outstanding Loan Amount as of				Effective Interest Rate as of
Portfolio		September 30, 2013		December 31, 2012		September 30, 2013			December 31, 2012			Interest Rate		Maturity Date
		(In thousands)		(In thousands)
Liberty Crossing - Original Loan (1) (2)	—	$	—	$	16,200	—	%		5.58	%		Variable		Refinanced in June 2013
Liberty Crossing - Refinanced Loan (1) (3)	1	11,000		—		4.66	%		—	%		Fixed		Jul. 2018
San Pedro Crossing - Senior Loan (1)	1	17,985		17,985		3.79	%		3.79	%		Fixed		Jan. 2018
San Pedro Crossing - Mezzanine Loan (1) (4)	—	—		6,540		—	%		10.14	%		Fixed		Fully paid down in May 2013
Tiffany Springs (1) (5)	1	40,875		—		4.44	%		—	%		Fixed	(6)	Oct. 2018
Total	3	$	69,860	$	40,725	4.31	%	(7)	5.52	%	(7)

_________________________________

(1) Payments and obligations pursuant to these mortgage agreements were or are guaranteed by AR Capital, LLC, the entity that wholly owns the Company's Sponsor.

(2) This mortgage note payable encumbered the Liberty Crossing property and bore interest at (i) the greater of (A) 0.5%, or (B) one-month LIBOR with respect to Eurodollar rate loans, plus (ii) a margin of 5.0%. The mortgage note payable required monthly interest-only payments. The Company refinanced the Liberty Crossing property in June 2013 and replaced this mortgage note payable with the "Liberty Crossing - Refinanced Loan."

(3) The Company entered into this mortgage agreement on June 28, 2013.

(4) The mezzanine loan encumbered the San Pedro Crossing property. The mezzanine loan bore interest at a fixed rate of 10.0%. The Company fully paid down the mezzanine loan during the second quarter of 2013.

(5) The Company entered into this mortgage agreement on September 26, 2013.

(6) Fixed as a result of entering into a swap agreement.

(7) Calculated on a weighted-average basis for all mortgages outstanding as of September 30, 2013 and December 31, 2012.

In June 2013, the Company refinanced the Liberty Crossing property. The refinancing qualified as an extinguishment of debt based on the significant changes made to the terms of the loan. In June 2013, in connection with the Company's extinguishment of debt, the Company wrote off approximately $74,000 of related deferred financing costs and incurred approximately $56,000 of penalties, interest and fees related to the refinancing.

The following table summarizes the scheduled aggregate principal payments for the Company's mortgage notes payable subsequent to September 30, 2013:

(In thousands)	Future Principal Payments
October 1, 2013 to December 31, 2013	$	—
2014	2,422
2015	3,102
2016	442
2017	442
Thereafter	63,452
	$	69,860

The Company's sources of recourse financing generally require financial covenants, including restrictions on corporate guarantees, the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) as well as the maintenance of minimum net worth. As of September 30, 2013, the Company was in compliance with debt covenants under the mortgage notes payable agreements.

11

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

Note 6 — Fair Value of Financial Instruments

The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. This alternative approach also reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The guidance defines three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 — Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of September 30, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company's derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments, are incorporated into the fair values to account for the Company's potential nonperformance risk and the performance risk of the counterparties.

The following table presents information about the Company's assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of September 30, 2013, aggregated by the level in the fair value hierarchy within which those instruments fall. There were no assets or liabilities measured at fair value on a recurring basis as of December 31, 2012:

(In thousands)	Quoted Prices in Active Markets Level 1		Significant Other Observable Inputs Level 2			Significant Unobservable Inputs Level 3		Total
Interest rate swaps	$	—	$	(337	)	$	—	$	(337	)

A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2013.

12

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, other receivables, accounts payable and distributions payable approximates their carrying value on the consolidated balance sheets due to their short-term nature. The fair values of the Company's remaining financial instruments that are not reported at fair value on the consolidated balance sheets are reported below:

		Carrying Amount at		Fair Value at		Carrying Amount at		Fair Value at
(In thousands)	Level	September 30, 2013		September 30, 2013		December 31, 2012		December 31, 2012
Mortgage notes payable	3	$	69,860	$	69,585	$	40,725	$	41,007
Notes payable	3	$	3,000	$	3,045	$	7,235	$	7,265

The fair value of mortgage notes payable and notes payable are obtained by calculating the present value at current market rates.

Note 7 — Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company's operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.

Cash Flow Hedges of Interest Rate Risk

The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and collars as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract and payments of variable-rate amounts if interest rates fall below the floor strike rate on the contract.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2013, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. During the next 12 months, the Company estimates that an additional $0.5 million will be reclassified from other comprehensive income as an increase to interest expense.

13

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

As of September 30, 2013, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk. There were no derivative instruments as of December 31, 2012:

Interest Rate Derivative	Number of Instruments	Notional Amount
		(In thousands)
Interest Rate Swap	1	$	34,098

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheet as of September 30, 2013. There were no derivative instruments as of December 31, 2012:

(In thousands)	Balance Sheet Location	September 30, 2013
Derivatives designated as hedging instruments:
Interest Rate Swaps	Derivatives, at fair value	$	(337	)

The table below details the location in the consolidated financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three and nine months ended September 30, 2013. The Company had no active derivatives during the three and nine months ended September 30, 2012:

(In thousands)	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
Amount of gain (loss) recognized in accumulated other comprehensive loss from interest rate derivatives (effective portion)	$	(338	)	$	(338	)
Amount of gain (loss) reclassified from accumulated other comprehensive loss into income as interest expense (effective portion)	$	(1	)	$	(1	)

Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of September 30, 2013. There were no derivative instruments as of December 31, 2012. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the accompanying balance sheets:

									Gross Amounts Not Offset on the Balance Sheet
(In thousands)	Gross Amounts of Recognized Liabilities			Gross Amounts Offset on the Balance Sheet		Net Amounts of Liabilities presented on the Balance Sheet			Financial Instruments		Cash Collateral Received (Posted)		Net Amount
September 30, 2013	$	(337	)	$	—	$	(337	)	$	—	$	—	$	(337	)

Derivatives Not Designated as Hedges

Derivatives not designated as hedges are not speculative. These derivatives may be used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements to be classified as hedging instruments. The Company does not have any hedging instruments that do not qualify for hedge accounting.

14

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

As of September 30, 2013, fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $0.3 million. As of September 30, 2013, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $0.3 million at September 30, 2013.

Note 8 — Common Stock

As of September 30, 2013 and December 31, 2012, the Company had 4.7 million and 0.8 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, respectively, and had received total proceeds of $46.5 million and $7.9 million, including proceeds from shares issued pursuant to the DRIP, respectively.

On September 19, 2011, the Company's board of directors authorized, and the Company declared, a distribution, which is calculated based on stockholders of record each day during the applicable period at a rate of $0.0017534247 per day or $0.64 annually per share of common stock. The distributions began to accrue on June 8, 2012, the date of the Company's initial property acquisition. The distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month. The board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.

The following table summarizes the number of shares repurchased under the Company's Share Repurchase Program cumulatively through September 30, 2013:

	Number of Requests	Number of Shares	Average Price per Share
Cumulative repurchases as of December 31, 2012	—	—	$	—
Nine Months Ended September 30, 2013	1	8,674	$	9.98
Cumulative repurchase requests as of September 30, 2013	1	8,674	$	9.98

Note 9 — Commitments and Contingencies

Litigation

In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company or its properties.

Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations.

Note 10 —Related Party Transactions and Arrangements

The Sponsor and American Realty Capital Retail Special Limited Partnership, LLC, an entity wholly owned by the Sponsor, owned 242,222 shares of the Company's outstanding common stock as of September 30, 2013 and December 31, 2012. As of September 30, 2013 and December 31, 2012, the Advisor owned 202 OP Units.

15

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

Additionally, in December 2012, the Company entered into an unsecured $4.2 million bridge loan with the Sponsor. In May 2013, the Company paid down $1.5 million of the principal balance on the bridge loan. In September 2013, the Company paid the remaining $2.7 million principal balance on the bridge loan (See Note 4 —Notes Payable).

Fees Paid in Connection with the IPO

The Dealer Manager receives fees and compensation in connection with the sale of the Company's common stock in the IPO. The Dealer Manager receives a selling commission of up to 7.0% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers. In addition, the Dealer Manager receives up to 3.0% of the gross proceeds from the sale of common stock, before reallowance to participating broker-dealers, as a dealer-manager fee. The Dealer Manager may reallow its dealer-manager fee to such participating broker-dealers, based on such factors as the volume of shares sold by respective participating broker-dealers and marketing support incurred as compared to those of other participating broker-dealers. The following table details total selling commissions and dealer manager fees incurred by the Company during the three and nine months ended September 30, 2013 and 2012 and payable to the Dealer Manager as of September 30, 2013 and December 31, 2012:

	Three Months Ended September 30,				Nine Months Ended September 30,				Payable as of
(In thousands)	2013		2012		2013		2012		September 30, 2013		December 31, 2012
Total commissions and fees from the Dealer Manager	$	1,376	$	120	$	3,530	$	192	$	28	$	—

The Advisor and its affiliates have received and will receive compensation and expense reimbursements for services relating to the IPO. Effective March 1, 2013, the Company began utilizing transfer agent services provided by an affiliate of the Dealer Manager. All offering costs incurred by the Company or its affiliated entities on behalf of the Company are charged to additional paid-in capital on the accompanying consolidated balance sheets. The following table details offering costs and reimbursements incurred during the three and nine months ended September 30, 2013 and 2012 and payable to the Advisor and Dealer Manager as of September 30, 2013 and December 31, 2012:

	Three Months Ended September 30,				Nine Months Ended September 30,				Payable as of
(In thousands)	2013		2012		2013		2012		September 30, 2013		December 31, 2012
Fees and expense reimbursements from the Advisor and Dealer Manager	$	198	$	398	$	1,110	$	1,210	$	4,415	$	3,533

The Company is responsible for offering and related costs from the IPO, excluding commissions and dealer manager fees, up to a maximum of 1.5% of gross proceeds received from the IPO, measured at the end of the IPO. Offering costs in excess of the 1.5% cap as of the end of the IPO are the Advisor's responsibility. As of September 30, 2013, offering and related costs, excluding commissions and dealer manager fees, exceeded 1.5% of gross proceeds received from the IPO by $7.4 million.

The Advisor has elected to cap cumulative offering costs incurred by the Company, net of unpaid amounts, to 15.0% of gross common stock proceeds during the offering period. As of September 30, 2013, cumulative offering costs were $12.2 million. Cumulative offering costs, net of unpaid amounts, were less than the 15.0% threshold as of September 30, 2013.

Fees Paid in Connection With the Operations of the Company

The Advisor receives an acquisition fee of 1.0% of the contract purchase price of each acquired property and 1.0% of the amount advanced for any loan or other investment and is reimbursed for acquisition costs incurred in the process of acquiring properties, which is expected to be approximately 0.5% of the contract purchase price. In no event will the total of all acquisition and acquisition expenses (including any finance coordination fee) payable with respect to a particular investment exceed 4.5% of the contract purchase price.  Once the proceeds from the IPO have been fully invested, the aggregate amount of acquisition fees and financing coordination fees (as described below) shall not exceed 1.5% of the contract purchase price and the amount advanced for a loan or other investment, as applicable, for all the assets acquired.

16

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

If the Advisor provides services in connection with the origination or refinancing of any debt that the Company obtains and uses to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company will pay the Advisor a financing coordination fee equal to 1.0% of the amount available and/or outstanding under such financing, subject to certain limitations.

Until October 1, 2013, the Company paid the Advisor an annual fee of up to 0.75% of average invested assets to provide asset management services. Average invested assets is defined as the average of the aggregate book value of assets invested, directly or indirectly, in properties, mortgage loans and other debt financing investments and other real estate-related investments secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves. However, the asset management fee was reduced by any amounts payable to the Advisor as an oversight fee, such that the aggregate of the asset management fee and the oversight fee did not exceed 0.75% per annum of average invested assets. Such asset management fee was payable, at the discretion of the Company's board, in cash, common stock or restricted stock grants, or any combination thereof. The asset management fee was reduced to the extent that the Company's funds from operations, as adjusted, during the six months ending on the last calendar quarter immediately preceding the date the asset management fee was payable was less than the distributions declared with respect to such six month period.

Effective October 1, 2013, as approved by the Company's board of directors on November 8, 2013, the following were eliminated: (i) the reduction of the asset management fee to the extent, if any, that the Company’s funds from operations, as adjusted, during the six months ending on the last calendar quarter immediately preceding the date the asset management fee was payable was less than the distributions declared with respect to such six month period, and (ii) the payment of asset management fees in monthly installments in cash, shares or restricted stock grants, or any combination thereof to the Advisor. Instead the Company expects to issue (subject to periodic approval by the board of directors) to the Advisor performance-based restricted partnership units of the OP designated as "Class B Units," which are intended to be profits interests and will vest, and no longer be subject to forfeiture, at such time as: (x) the value of the OP's assets plus all distributions made equals or exceeds the total amount of capital contributed by investors plus a 7.0% cumulative, pre-tax, non-compounded annual return thereon (the "economic hurdle"); (y) any one of the following occurs: (1) the termination of the advisory agreement by an affirmative vote of a majority of the Company's independent directors without cause; (2) a listing; or (3) another liquidity event; and (z) the Advisor is still providing advisory services to the Company (the "performance condition"). Such Class B Units will be forfeited immediately if: (a) the advisory agreement is terminated other than by an affirmative vote of a majority of the Company's independent directors without cause; or (b) the advisory agreement is terminated by an affirmative vote of a majority of the Company's independent directors without cause before the economic hurdle has been met.

The calculation of the asset management fees has also been revised effective October 1, 2013, as approved by the Company's board of directors on November 8, 2013, to pay a fee equal to: (i) the excess of (A) the product of (y) the cost of assets multiplied by (z) 0.1875% over (B) any amounts payable as an oversight fee (as described below) for such calendar quarter; divided by (ii) the value of one share of common stock as of the last day of such calendar quarter. When and if approved by the board of directors, the Class B Units are expected to be issued to the Advisor quarterly in arrears pursuant to the terms of the limited partnership agreement of the OP. The value of issued Class B Units will be determined and expensed when the Company deems the achievement of the performance condition to be probable. The Advisor receives distributions on unvested Class B Units equal to the distribution rate received on the Company's common stock. Such distributions on issued Class B Units will be included in general and administrative expenses in the consolidated statement of operations and comprehensive loss until the performance condition is considered probable to occur. No Class B Units have been approved by the board of directors or issued through the date of the filing of this Form 10-Q.

In connection with property management and leasing services, unless the Company contracts with a third party, the Company will pay to an affiliate of the Advisor a property management fee of 2.0% of gross revenues from the Company's stand-alone single-tenant net leased properties and 4.0% of gross revenues from all other types of properties, respectively.  The Company will also reimburse the affiliate for property level expenses.  If the Company contracts directly with third parties for such services, the Company will pay them customary market fees and will pay the Advisor an oversight fee of up to 1.0% of the gross revenues of the property managed. In no event will the Company pay the Advisor or any affiliate both a property management fee and an oversight fee with respect to any particular property.

In connection with any construction, renovation or tenant finish-out on any property, the Company will pay the Advisor 6.0% of the hard costs of the construction, renovation and/or tenant finish-out, as applicable.

17

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

Effective March 1, 2013, the Company entered into an agreement with the Dealer Manager to provide strategic advisory services and investment banking services required in the ordinary course of the Company's business, such as performing financial analysis, evaluating publicly traded comparable companies and assisting in developing a portfolio composition strategy, a capitalization structure to optimize future liquidity options and structuring operations. Strategic advisory fees are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss.

The following table details amounts incurred and forgiven during the three and nine months ended September 30, 2013 and 2012 and amounts contractually due as of September 30, 2013 and December 31, 2012 in connection with the operations related services described above:

	Three Months Ended September 30,								Nine Months Ended September 30,								Payable as of
	2013				2012				2013				2012				September 30,		December 31,
(In thousands)	Incurred		Forgiven		Incurred		Forgiven		Incurred		Forgiven		Incurred		Forgiven		2013		2012
One-time fees and reimbursements:
Acquisition fees and related cost reimbursements	$	802	$	—	$	—	$	—	$	802	$	—	$	324	$	—	$	802	$	820
Financing coordination fees	409		—		—		—		409		—		162		—		409		407
Ongoing fees:
Asset management fees	—		—		—		37		—		18		—		45		—		—
Property management and leasing fees	—		17		—		5		—		45		—		6		—		—
Strategic advisory fees	220		—		—		—		514		—		—		—		514		—
Total related party operation fees and reimbursements	$	1,431	$	17	$	—	$	42	$	1,725	$	63	$	486	$	51	$	1,725	$	1,227

The Company will reimburse the Advisor's costs of providing administrative services, subject to the limitation that it will not reimburse the Advisor for any amount by which the Company's operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of (a) 2.0% of average invested assets, or (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt or other similar non cash reserves and excluding any gain from the sale of assets for that period. Additionally, the Company will not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees or real estate commissions. No reimbursements were incurred from the Advisor for providing administrative services during the three and nine months ended September 30, 2013 or 2012.

In order to improve operating cash flows and the ability to pay distributions from operating cash flows, the Advisor agreed to waive certain fees including asset management and property management fees. Because the Advisor may waive certain fees, cash flow from operations that would have been paid to the Advisor may be available to pay distributions to stockholders. The fees that may be forgiven are not deferrals and accordingly, will not be paid to the Advisor. In certain instances, to improve the Company's working capital, the Advisor may elect to absorb a portion of the Company's general and administrative costs and/or property operating costs. The Advisor absorbed $0.2 million and $0.7 million of general and administrative costs during the three and nine months ended September 30, 2013, respectively. The Advisor did not absorb any property operating costs during the three months ended September 30, 2013. The Advisor absorbed approximately $41,000 of property operating costs during the nine months ended September 30, 2013. The Advisor absorbed $0.1 million of general and administrative costs and approximately $44,000 of property operating costs during the three and nine months ended September 30, 2012. General and administrative expenses and property operating expenses are presented net of costs absorbed by the Advisor on the accompanying consolidated statements of operations and comprehensive loss.

18

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

Fees Paid in Connection with the Liquidation or Listing of the Company's Real Estate Assets

 The Company will pay a brokerage commission on the sale of property, not to exceed the lesser of 2.0% of the contract sale price of the property and one-half of the total brokerage commission paid, if a third party broker is also involved; provided, however, that in no event may the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed the lesser of 6.0% of the contract sales price and a reasonable, customary and competitive real estate commission, in light of the size, type and location of the property, in each case, payable to the Advisor if the Advisor or its affiliates, as determined by a majority of the independent directors, provided a substantial amount of services in connection with the sale. No such fees were incurred during the three and nine months ended September 30, 2013 or 2012.

If the Company is not simultaneously listed on an exchange, the Company will pay a subordinated participation in the net sales proceeds of the sale of real estate assets of 15.0% of remaining net sale proceeds after return of capital contributions to investors plus payment to investors of an annual 7.0% cumulative, pre-tax non-compounded return on the capital contributed by investors.  The Company cannot assure that it will provide this 7.0% annual return but the Advisor will not be entitled to the subordinated participation in net sale proceeds unless the Company's investors have received an annual 7.0% cumulative non-compounded return on their capital contributions plus the 100.0% repayment of capital committed by such investors. No such amounts were incurred during the three and nine months ended September 30, 2013 or 2012.

The Company will pay a subordinated incentive listing distribution of 15.0%, payable in the form of a non-interest bearing promissory note, of the amount by which the adjusted market value plus distributions paid prior to listing exceeds the aggregate capital contributed by investors plus an amount equal to an annual 7.0% cumulative, pre-tax non-compounded annual return to investors.  The Company cannot assure that it will provide this 7.0% return but the Advisor will not be entitled to the subordinated incentive listing distribution unless investors have received an annual 7.0% cumulative, pre-tax non-compounded return on their capital contributions plus the 100.0% repayment of capital committed by such investors. No such amounts were incurred during the three and nine months ended September 30, 2013 or 2012. Neither the Advisor nor any of its affiliates can earn both the subordination participation in the net proceeds and the subordinated listing distribution.

Upon termination or non-renewal of the advisory agreement, the Advisor will receive distributions from the OP, if any, payable in the form of a non-interest bearing promissory note. In addition, the Advisor may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs.

Note 11 — Economic Dependency

Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common ownership with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, the sale of shares of the Company's common stock available for issue, transfer agency services, as well as other administrative responsibilities for the Company including accounting services and investor relations.

As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that these companies are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.

Note 12 — Share-Based Compensation

Stock Option Plan

 The Company has a stock option plan (the "Plan") which authorizes the grant of nonqualified stock options to the Company's independent directors, officers, advisors, consultants and other personnel, subject to the absolute discretion of the board of directors and the applicable limitations of the Plan. The exercise price for all stock options granted under the Plan will be fixed at $10.00 per share until the termination of the IPO, and thereafter the exercise price for stock options granted to the independent directors will be equal to the fair market value of a share on the last business day preceding the annual meeting of stockholders. A total of 0.5 million shares have been authorized and reserved for issuance under the Plan. As of September 30, 2013 and December 31, 2012, no stock options were issued under the Plan.

19

AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

Restricted Share Plan

The Company has an employee and director incentive restricted share plan (the "RSP"), which provides for the automatic grant of 3,000 restricted shares of common stock to each of the independent directors, without any further action by the Company's board of directors or the stockholders, on the date of initial election to the board of directors and on the date of each annual stockholder's meeting. Restricted stock issued to independent directors will vest over a five-year period following the date of grant in increments of 20.0% per annum. The RSP provides the Company with the ability to grant awards of restricted shares to the Company's directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company. The fair market value of any shares of restricted stock granted under the RSP, together with the total amount of acquisition fees, acquisition expense reimbursements, asset management fees, financing coordination fees, disposition fees and subordinated distributions by the operating partnership payable to the Advisor, shall not exceed (a) 6.0% of all properties' aggregate gross contract purchase price, (b) as determined annually, the greater, in the aggregate, of 2.0% of average invested assets and 25.0% of net income other than any additions to reserves for depreciation, bad debt or other similar non-cash reserves and excluding any gain from the sale of assets for that period, (c) disposition fees, if any, of up to 3.0% of the contract sales price of all properties that the Company sells and (d) 15.0% of remaining net sales proceeds after return of capital contributions plus payment to investors of an annual 6.0% cumulative, pre-tax, non-compounded return on the capital contributed by investors. The total number of shares of common stock granted under the RSP shall not exceed 5.0% of the Company's authorized shares of common stock pursuant to the IPO and in any event will not exceed 7.5 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events).

Restricted share awards entitle the recipient to receive shares of common stock from the Company under terms that provide for vesting over a specified period of time or upon attainment of pre-established performance objectives. Such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient's employment or other relationship with the Company. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions payable in shares of common stock shall be subject to the same restrictions as the underlying restricted shares.  The following table reflects restricted share award activity for the nine months ended September 30, 2013:

	Number of Shares of Restricted Stock		Weighted-Average Issue Price Per Share
Unvested, December 31, 2012	13,800		$	9.35
Granted	9,000		9.00
Vested	(2,400	)	9.50
Unvested, September 30, 2013	20,400		$	9.18

The fair value of the shares, which is based on the IPO price, is being expensed over the vesting period of five years, adjusted for the timing of board member resignations. Compensation expense related to restricted stock was approximately $12,000 and $9,000 during the three months ended September 30, 2013 and 2012, respectively. Compensation expense related to restricted stock was approximately $27,000 and $13,000 during the nine months ended September 30, 2013 and 2012, respectively.

Other Share-Based Compensation

The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors, at the each director's election. There are no restrictions on the shares issued since these payments in lieu of cash relate to fees earned for services performed. No shares of common stock were issued to directors in lieu of cash compensation during the three and nine months ended September 30, 2013 and 2012.

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Note 13 — Net Loss Per Share

 The following is a summary of the basic and diluted net loss per share computation for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net loss (in thousands)	$	(1,510	)	$	(431	)	$	(3,613	)	$	(1,202	)
Basic and diluted weighted-average shares outstanding	3,785,878			369,628			2,283,318			248,967
Basic and diluted net loss per share	$	(0.40	)	$	(1.17	)	$	(1.58	)	$	(4.83	)

As of September 30, 2013 and 2012, the Company had 20,400 and 16,800 shares of unvested restricted stock outstanding, respectively. As of September 30, 2013 and 2012, the Company had 202 OP Units outstanding. Both the unvested restricted stock and the OP Units were excluded from the calculation of diluted net loss per share as the effect would have been antidilutive.

Note 14 — Subsequent Events

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have not been any events that have occurred that would require adjustments to, or disclosures in, the consolidated financial statements, except for the following disclosures:

Sales of Common Stock

 As of October 31, 2013, the Company had 5.6 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP. As of October 31, 2013, the aggregate value of all share issuances was $56.0 million, based on a per share value of $10.00 (or $9.50 for shares issued pursuant to the DRIP).

Total capital, including sales from common stock and proceeds from shares issued pursuant to the DRIP, net of common stock repurchases, raised to date is as follows:

Source of Capital (In thousands)	Inception to September 30, 2013		October 1, 2013 to October 31, 2013		Total
Common stock	$	46,480	$	8,590	$	55,070

Debt Principal Payment

During the fourth quarter of 2013, the Company paid down $5.7 million of the principal balance on the mortgage that encumbers the Tiffany Springs property.

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

The following discussion and analysis should be read in conjunction with the accompanying financial statements of American Realty Capital — Retail Centers of America, Inc. and the notes thereto. As used herein, the terms the "Company," "we," "our" and "us" refer to American Realty Capital — Retail Centers of America, Inc., a Maryland corporation, including, as required by context, American Realty Capital Retail Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the "OP," and its subsidiaries. The Company is externally managed by American Realty Capital Retail Advisor, LLC (our "Advisor"), a Delaware limited liability company.

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of the Company and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.

The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

• We and our Advisor have a limited operating history and our Advisor has limited experience operating a public company. This inexperience makes our future performance difficult to predict.

• All of our executive officers are also officers, managers and/or holders of a direct or indirect controlling interest in our Advisor, our dealer manager, Realty Capital Securities, LLC (the "Dealer Manager"), and other American Realty Capital affiliated entities. As a result, our executive officers, our Advisor and its affiliates face conflicts of interest, including significant conflicts created by our Advisor's compensation arrangements with us and other investors advised by American Realty Capital affiliates and conflicts in allocating time among these investors and us. These conflicts could result in unanticipated actions.

• Lincoln Retail REIT Services, LLC, a Delaware limited liability company (the "Service Provider"), and its affiliates may have conflicts of interests in determining which investment opportunities to recommend to our Advisor for presentation to us and to other programs for which they may provide these services.

• The Service Provider and its affiliates will have to allocate their time between providing services to our Advisor and other real estate programs and other activities in which they are presently involved or may be involved in the future.

• Because investment opportunities that are suitable for us may also be suitable for other American Realty Capital advised investment programs, our Advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders.

• No public market currently exists, or may ever exist, for shares of our common stock and our shares are, and may continue to be, illiquid.

• If we and our Advisor are unable to find suitable investments, then we may not be able to achieve our investment objectives or pay distributions.

• Our initial public offering of common stock (the "IPO" or "our offering"), which commenced on March 17, 2011, is a blind pool offering and you may not have the opportunity to evaluate our investments before you make your purchase of our common stock, thus making your investment more speculative. As of September 30, 2013, we owned three properties.

• If we raise substantially less than the maximum offering in our IPO, we may not be able to invest in a diversified portfolio of real estate assets and the value of an investment in us may vary more widely with the performance of specific assets.

• We may be unable to pay or maintain cash distributions or increase distributions over time.

• We are obligated to pay substantial fees to our Advisor and its affiliates.

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• We will depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants.

• Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.

• Our organizational documents permit us to pay distributions from unlimited amounts of any source. Until substantially all the proceeds from our IPO are invested, we may use proceeds from our IPO and financings to fund distributions until we have sufficient cash flow. There are no established limits on the amounts of net proceeds and borrowings that we may use to fund such distribution payments.

• Any of these distributions may reduce the amount of capital we ultimately invest in properties and other permitted investments and negatively impact the value of your investment.

• We may not generate cash flows sufficient to pay our distributions to stockholders, as such we may be forced to borrow at higher rates or depend on our Advisor to waive reimbursement of certain expenses and fees to fund our operations.

• We are subject to risks associated with the significant dislocations and liquidity disruptions that have recently occurred in the credit markets of the United States of America.

• We may fail to continue to qualify to be treated as a real estate investment trust ("REIT") for U.S. federal income tax purposes, which would result in higher taxes, may adversely affect operations and would reduce cash available for distributions.

• We may be deemed to be an investment company under the Investment Company Act of 1940, as amended, and thus subject to regulation under the Investment Company Act of 1940, as amended.

• As of September 30, 2013, we owned only three properties, which exposes us to risk due to lack of geographic diversity.

Overview

We were incorporated on July 29, 2010 as a Maryland corporation and qualified as a REIT for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2012. On March 17, 2011, we commenced our IPO on a "reasonable best efforts" basis of up to 150.0 million shares of common stock, $0.01 par value per share, at a price of $10.00 per share, subject to certain volume and other discounts, pursuant to a registration statement on Form S-11, as amended (File No. 333-169355) (the "Registration Statement"), filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended. The Registration Statement also covers up to 25.0 million shares available pursuant to a distribution reinvestment plan (the "DRIP") under which our common stockholders may elect to have their distributions reinvested in additional shares of our common stock at a price initially equal to $9.50 per share, which is 95.0% of the offering price of the IPO.

On March 9, 2012, we raised proceeds sufficient to break escrow in connection with our IPO. As of September 30, 2013, we had 4.7 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP, and had received total proceeds of $46.5 million, including proceeds from shares issued pursuant to the DRIP. As of September 30, 2013, the aggregate value of all issuances and subscriptions of common stock outstanding was $47.2 million based on a per share value of $10.00 (or $9.50 for shares issued pursuant to the DRIP).

We were formed to primarily acquire existing anchored, stabilized core retail properties, including power centers, lifestyle centers, large formatted centers with a grocery store component (with a purchase price in excess of $20.0 million) and other need-based shopping centers which are located in the United States and at least 80.0% leased at the time of acquisition. All such properties may be acquired and operated by us alone or jointly with another party. We may also originate or acquire first mortgage loans secured by real estate. We purchased our first property and commenced active operations in June 2012. As of September 30, 2013, we owned three properties with an aggregate purchase price of $107.6 million, comprised of 0.5 million square feet which were 92.1% leased on a weighted-average basis.

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Substantially all of our business is conducted through the OP. We have no employees. We have retained our Advisor to manage our affairs on a day-to-day basis. The Advisor has entered into a service agreement with the Service Provider, pursuant to which the Service Provider has agreed to provide, subject to the Advisor's oversight, real estate-related services, including locating investments, negotiating financing, and providing property-level asset management services, property management services, leasing and construction oversight services and disposition services, as needed. The Dealer Manager, an entity under common ownership with our sponsor, American Realty Capital IV, LLC (the "Sponsor"), serves as the dealer manager of our IPO. The Advisor is a wholly owned subsidiary of, and the Dealer Manager is under common ownership with, the Sponsor, as a result of which they are related parties, and each of which have received and/or may receive compensation, fees and expense reimbursements for services related to the IPO and for the investment and management of our assets. The Advisor and Dealer Manager will receive fees during the offering, acquisition, operational and liquidation stages. The Advisor will pay to the Service Provider a substantial portion of the fees payable to the Advisor for the performance of these real estate-related services.

Significant Accounting Estimates and Critical Accounting Policies

 Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements. 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 our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:

Offering and Related Costs

Offering and related costs include all expenses incurred in connection with our IPO. Offering costs (other than selling commissions and the dealer manager fees) include costs that may be paid by the Advisor, the Dealer Manager or their affiliates on our behalf. These costs include but are not limited to (i) legal, accounting, printing, mailing, and filing fees; (ii) escrow service related fees; (iii) reimbursement of the Dealer Manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; and (iv) reimbursement to the Advisor for a portion of the costs of its employees and other costs in connection with preparing supplemental sales materials and related offering activities. We are obligated to reimburse the Advisor or its affiliates, as applicable, for organization and offering costs paid by them on our behalf, provided that the Advisor is obligated to reimburse us to the extent organization and offering costs (excluding selling commissions and the dealer manager fee) incurred by us in our IPO exceed 1.5% of gross offering proceeds. As a result, these costs are only our liability to the extent aggregate selling commissions, the dealer manager fee and other organization and offering costs do not exceed 11.5% of the gross proceeds determined at the end of our IPO.

Revenue Recognition

Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Since many leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record a receivable, and include in revenues, unbilled rent receivables that we only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. We defer the revenue related to lease payments received from tenants in advance of their due dates.

We continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located, as applicable. In the event that the collectability of a receivable is in doubt, we record an increase in the allowance for uncollectible accounts or record a direct write-off of the receivable in the consolidated statements of operations.

Cost recoveries from tenants are included in operating expense reimbursements in the period the related costs are incurred, as applicable.

Investments in Real Estate

Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.

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We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis. We are required to present the operations related to properties that have been sold or properties that are intended to be sold as discontinued operations in the statement of operations at fair value for all periods presented. Properties that are intended to be sold are to be designated as "held for sale" on the balance sheet.

Long-lived assets are carried at cost and evaluated for impairment when events or changes in circumstances indicate such an evaluation is warranted or when they are designated as held for sale. Valuation of real estate is considered a "critical accounting estimate" because the evaluation of impairment and the determination of fair values involve a number of management assumptions relating to future economic events that could materially affect the determination of the ultimate value, and therefore, the carrying amounts of our real estate. Additionally, decisions regarding when a property should be classified as held for sale are also highly subjective and require significant management judgment.

Events or changes in circumstances that could cause an evaluation for impairment include the following:

• a significant decrease in the market price of a long-lived asset;

• a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;

• a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;

• an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset; and

• a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset.

We review our portfolio on an ongoing basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability. In general, our review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value expected, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate. These assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income.

Purchase Price Allocation

We allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. We utilize various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studies performed by independent third-parties or on our analysis of comparable properties in our portfolio. Identifiable intangible assets and liabilities, as applicable, include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable.

The aggregate value of intangible assets and liabilities, as applicable, related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by us in our analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which typically ranges from six to 12 months. We also estimate costs to execute similar leases including leasing commissions, legal and other related expenses.

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Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease. The capitalized below-market lease values are amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, we initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.

The aggregate value of intangible assets related to customer relationships, as applicable, is measured based on our evaluation of the specific characteristics of each tenant's lease and our overall relationship with the tenant. Characteristics considered by us in determining these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals, among other factors.

The value of in-place leases is amortized to expense over the initial term of the respective leases, which is approximately one to 11 years. The value of customer relationship intangibles, as applicable, is amortized to expense over the initial term and any renewal periods in the respective lease, but in no event will the amortization period for intangible assets exceed the remaining depreciable life of a building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.

In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of its pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.

Derivative Instruments

We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such agreements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions.

We will record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply or we elect not to apply hedge accounting.

Recently Issued Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board ("FASB") issued guidance regarding disclosures about offsetting assets and liabilities, which requires entities to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The guidance is effective for fiscal years and interim periods beginning on or after January 1, 2013 with retrospective application for all comparative periods presented. The adoption of this guidance, which is related to disclosure only, did not have a material impact on our consolidated financial position, results of operations or cash flows.

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In July 2012, the FASB issued revised guidance intended to simplify how an entity tests indefinite-lived intangible assets for impairment. The amendments will allow an entity first to assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. An entity will no longer be required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative test unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations or cash flows.

In February 2013, the FASB issued guidance which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The guidance is effective for annual and interim periods beginning after December 15, 2012 with early adoption permitted. The adoption of this guidance, which is related to disclosure only, did not have a material impact on our consolidated financial position, results of operations or cash flows.

In February 2013, the FASB issued guidance clarifying the accounting and disclosure requirements for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. We do not expect the adoption of this guidance to have a material impact on our consolidated financial position, results of operations or cash flows.

Properties

We acquire and operate retail properties. All such properties may be acquired and operated by the Company alone or jointly with another party. Our portfolio of real estate properties is comprised of the following properties as of September 30, 2013:

Portfolio	Acquisition Date	Property Type	Number of Properties	Square Feet	Occupancy	Remaining Lease Term (1)	Base Purchase Price (2)
							(In thousands)
Liberty Crossing	Jun. 2012	Power Center	1	105,970	85.9%	4.6 years	$	21,582
San Pedro Crossing	Dec. 2012	Power Center	1	201,965	100.0%	5.1 years	32,600
2012 Acquisitions			2	307,935	93.5%	5.0 years	54,182
Tiffany Springs	Sep. 2013	Power Center	1	238,382	88.2%	5.3 years	53,450
2013 Acquisitions			1	238,382	88.2%	5.3 years	53,450
Portfolio, September 30, 2013			3	546,317	92.1%	5.0 years	$	107,632

_____________________

(1) Remaining lease term in years as of September 30, 2013, calculated on a weighted-average basis. Total remaining lease term is an average of the remaining lease term of the total portfolio.

(2) Contract purchase price, excluding acquisition related costs.

Results of Operations

 We purchased our first property and commenced active operations in June 2012. As of September 30, 2013, we owned three properties with an aggregate base purchase price of $107.6 million, comprised of 0.5 million rentable square feet which were 92.1% leased on a weighted-average basis. We purchased our first property and commenced active operations in June 2012. As of July 1, 2012, we owned one property, Liberty Crossing (our "Same Store"), with a base purchase price of $21.6 million, comprised of 0.1 million rentable square feet. Accordingly, our results of operations for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012 reflect significant increases in most categories.

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Comparison of the Three Months EndedSeptember 30, 2013 to Three Months EndedSeptember 30, 2012

Rental Income

Rental income increased $0.9 million to $1.3 million for the three months ended September 30, 2013, compared to $0.4 million for the three months ended September 30, 2012. This increase in rental income was primarily driven by our operation of the San Pedro Crossing property, which was acquired in December 2012 for a base purchase price of $32.6 million, comprised of 0.2 million square feet, which were 100% leased on a weighted-average basis as of September 30, 2013. This increase in rental income was also driven by our operation of the Tiffany Springs property, which was acquired on September 26, 2013 for a base purchase price of $53.5 million, comprised of 0.2 million square feet, which were 88.2% leased on a weighted-average basis, for the last five days of the quarter. Same Store rental income remained consistent at $0.4 million for the three months ended September 30, 2013 and 2012.

Operating Expense Reimbursements

Operating expense reimbursements increased $0.3 million to $0.4 million for the three months ended September 30, 2013, compared to $0.1 million for the three months ended September 30, 2012. Pursuant to many of our lease agreements, tenants are required to pay their pro rata share of property operating expenses, in addition to base rent. This increase in operating expense reimbursement revenue was primarily driven by our operation of the San Pedro Crossing property we acquired in December 2012. Same Store operating expense reimbursements remained consistent at $0.1 million for the three months ended September 30, 2013 and 2012.

Property Operating Expense

Property operating expense increased $0.5 million to $0.6 million for the three months ended September 30, 2013, compared to $0.1 million for the three months ended September 30, 2012. These costs primarily relate to the costs associated with maintaining our properties including property management fees incurred from our Service Provider, real estate taxes, utilities, repairs and maintenance. This increase in property operating expenses was primarily driven by our operation of the San Pedro Crossing property we acquired in December 2012. No property operating expenses were absorbed by the Advisor during the three months ended September 30, 2013. Approximately $44,000 of property operating expenses were absorbed by the Advisor during the three months ended September 30, 2012. Same Store property operating expense remained consistent at $0.2 million for the three months ended September 30, 2013 and 2012.

Operating Fees to Affiliates

Our affiliated Advisor is entitled to an asset management fee and an oversight fee for properties managed by our Service Provider. Our Advisor elected to waive these fees for the three months ended September 30, 2013 and 2012. For the three months ended September 30, 2013 and 2012, we would have incurred aggregate asset management and oversight fees of approximately $17,000 and $42,000, respectively, had these fees not been waived.

Acquisition and Transaction Related Expense

Acquisition and transaction related expense increased $0.9 million to $0.9 million for the three months ended September 30, 2013, compared to approximately $16,000 for the three months ended September 30, 2012. This increase in acquisition and transaction related expenses was driven by the costs related to our acquisition of the Tiffany Springs property in September 2013. The approximately $16,000 of acquisition and transaction related expense during the three months ended September 30, 2012 related to professional fees incurred from our acquisition of the Liberty Crossing property in June 2012.

General and Administrative Expenses

General and administrative expenses increased $0.2 million to $0.2 million for the three months ended September 30, 2013, compared to approximately $14,000 for the three months ended September 30, 2012. There was an increase in costs such as board member compensation, directors and officers insurance and professional fees during the three months ended September 30, 2013 compared to the three months ended September 30, 2012. This increase in general and administrative expense includes the absorption of $0.2 million of general and administrative costs by the Advisor during the three months ended September 30, 2013. $0.1 million of general and administrative expense was absorbed by the Advisor during the three months ended September 30, 2012.

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Depreciation and Amortization Expense

Depreciation and amortization expense increased $0.6 million to $1.1 million for the three months ended September 30, 2013, compared to $0.5 million for the three months ended September 30, 2012. This increase in depreciation and amortization was driven by our ownership of the San Pedro Crossing property we acquired in December 2012. The base purchase price of acquired properties is allocated to tangible and identifiable intangible assets and depreciated or amortized over their estimated useful lives.

Interest Expense

Interest expense increased $0.1 million to $0.4 million for the three months ended September 30, 2013, compared to $0.3 million for the three months ended September 30, 2012. Interest expense for the three months ended September 30, 2013 related to our mortgage notes payable of $69.9 million with a weighted-average effective interest rate of 4.31% as of September 30, 2013, which was used to fund a portion of the aggregate base purchase price of our three properties, interest related to our unsecured note payable of $3.0 million with an effective interest rate of 8.11% as of September 30, 2013 and amortization of deferred financing costs. Interest expense for the three months ended September 30, 2012 related to the interest and amortization of deferred financing costs pertaining to one $16.2 million mortgage note payable with a an effective interest rate of 5.58% as of September 30, 2012 on the Liberty Crossing property and interest related to our unsecured note payable of $3.0 million with an effective interest rate of 8.11% as of September 30, 2012.

Comparison of the Nine Months EndedSeptember 30, 2013 to Nine Months EndedSeptember 30, 2012

Rental Income

Rental income increased $2.9 million to $3.4 million for the nine months ended September 30, 2013, compared to $0.5 million for the nine months ended September 30, 2012. This increase in rental income was partially driven by our operation of the San Pedro Crossing property, which was acquired in December 2012 for a base purchase price of $32.6 million, comprised of 0.2 million square feet, which were 100% leased on a weighted-average basis as of September 30, 2013. This increase in rental income was also driven by our operation of the Liberty Crossing property for the full nine months ended September 30, 2013, as opposed to the period from June 8, 2012 (date of Liberty Crossing acquisition) to September 30, 2012 and by our operation of the Tiffany Springs property, which was acquired on September 26, 2013 for a base purchase price of $53.5 million, comprised of 0.2 million square feet, which were 88.2% leased on a weighted-average basis, for the last five days of the quarter.

Operating Expense Reimbursements

Operating expense reimbursements increased $0.9 million to $1.0 million for the nine months ended September 30, 2013, compared to $0.1 million for the nine months ended September 30, 2012. Pursuant to many of our lease agreements, tenants are required to pay their pro rata share of property operating expenses, in addition to base rent. This increase in operating expense reimbursement revenue was driven by our operation of the San Pedro Crossing property we acquired in December 2012 and by our operation of the Liberty Crossing property for the full nine months ended September 30, 2013, as opposed to the period from June 8, 2012 (date of Liberty Crossing acquisition) to September 30, 2012.

Property Operating Expense

Property operating expense increased $1.3 million to $1.4 million for the nine months ended September 30, 2013, compared to $0.1 million for the nine months ended September 30, 2012. These costs primarily relate to the costs associated with maintaining our properties including property management fees incurred from our Service Provider, real estate taxes, utilities, repairs and maintenance. This increase in property operating expenses was driven by our operation of the San Pedro Crossing property we acquired in December 2012 and by our operation of the Liberty Crossing property for the full nine months ended September 30, 2013, as opposed to the period from June 8, 2012 (date of Liberty Crossing acquisition) to September 30, 2012. This increase in property operating expenses includes the absorption of approximately $41,000 of property operating expenses by the Advisor during the nine months ended September 30, 2013. Approximately $44,000 of property operating expense was absorbed by the Advisor during the nine months ended September 30, 2012.

Operating Fees to Affiliates

Our affiliated Advisor is entitled to an asset management fee and an oversight fee for properties managed by our Service Provider. Our Advisor elected to waive these fees for the nine months ended September 30, 2013 and 2012. For the nine months ended September 30, 2013 and 2012, we would have incurred aggregate asset management and oversight fees of $0.1 million and $0.1 million, respectively, had these fees not been waived.

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Acquisition and Transaction Related Expense

Acquisition and transaction related costs increased $0.5 million to $0.9 million for the nine months ended September 30, 2013, compared to $0.4 million for the nine months ended September 30, 2012. The acquisition and transaction related expense for the nine months ended September 30, 2013 primarily related to our acquisition of the Tiffany Springs property in September 2013 for a base purchase price of $53.5 million. The $0.4 million of acquisition and transaction related expense for the nine months ended September 30, 2012 related to our acquisition of the Liberty Crossing property in June 2012 for a base purchase price of $21.6 million.

General and Administrative Expenses

General and administrative expenses increased $0.1 million to $0.3 million for the nine months ended September 30, 2013, compared to $0.2 million for the nine months ended September 30, 2012. There was an increase in costs such as board member compensation, directors and officers insurance and professional fees during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. This increase in general and administrative expense includes the absorption of $0.7 million of general and administrative costs by the Advisor during the nine months ended September 30, 2013. $0.1 million of general and administrative expense was absorbed by the Advisor during the nine months ended September 30, 2012.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $2.7 million to $3.3 million for the nine months ended September 30, 2013, compared to $0.6 million for the nine months ended September 30, 2012. This increase in depreciation and amortization was driven by our ownership of the San Pedro Crossing property we acquired in December 2012 and by our ownership of the Liberty Crossing property for the full nine months ended September 30, 2013, as opposed to the period from June 8, 2012 (date of Liberty Crossing acquisition) to September 30, 2012. The base purchase price of acquired properties is allocated to tangible and identifiable intangible assets and depreciated or amortized over their estimated useful lives.

Interest Expense

Interest expense increased $1.6 million to $2.0 million for the nine months ended September 30, 2013, compared to $0.4 million for the nine months ended September 30, 2012. Interest expense for the nine months ended September 30, 2013 related to our mortgage notes payable of $69.9 million with a weighted-average effective interest rate of 4.31% as of September 30, 2013, which was used to fund a portion of the aggregate base purchase price of our three properties, interest related to our unsecured notes payable of $3.0 million with a weighted-average effective interest rate of 8.11% as of September 30, 2013 and amortization of deferred financing costs. Interest expense for the nine months ended September 30, 2012 related to the interest and amortization of deferred financing costs pertaining to one $16.2 million mortgage note payable with a an effective interest rate of 5.58% as of September 30, 2012 on the Liberty Crossing property and interest related to our unsecured note payable of $3.0 million with an effective interest rate of 8.11% as of September 30, 2012.

Extinguishment of Debt

We incurred $0.1 million for our extinguishment of debt during the nine months ended September 30, 2013 in connection with our refinancing of the Liberty Crossing property in June 2013. In connection with the refinancing, which qualified as an extinguishment of debt based on the significance of changes to the terms of the loan, we wrote off approximately $74,000 of related deferred financing costs and incurred approximately $56,000 of penalties, interest and fees related to the refinancing during the nine months ended September 30, 2013. We did not incur any extinguishment of debt during the nine months ended September 30, 2012.

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Cash Flows for the Nine Months EndedSeptember 30, 2013

During the nine months ended September 30, 2013, net cash provided by operating activities was $1.8 million. The level of cash flows used in or provided by operating activities is affected by the volume of acquisition activity, timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments. Cash flows provided by operating activities during the nine months ended September 30, 2013 included $0.9 million of acquisition and transaction costs. Cash inflows included net loss adjusted for non-cash items of $0.3 million (net loss of $3.6 million adjusted for depreciation and amortization of tangible and intangible real estate assets, amortization (including accelerated write-off) of deferred costs and share-based compensation totaling $3.9 million) as well as an increase of $2.2 million in accounts payable and accrued expenses that primarily related to an increase in accrued property operating expenses. These cash inflows were partially offset by an increase in prepaid expenses and other assets of $0.8 million and an increase in deferred rent and other liabilities of $0.1 million due to the timing of the receipt of rental payments.

Net cash used in investing activities during the nine months ended September 30, 2013 of $12.6 million primarily related to our acquisition of the Tiffany Springs property for a base purchase price of $53.5 million, which was financed at acquisition with a $40.9 million mortgage note payable.

Net cash provided by financing activities during the nine months ended September 30, 2013 of $13.7 million related to proceeds from the issuance of common stock of $38.2 million and proceeds from mortgage notes payable of $11.0 million. These inflows were partially offset by payments of mortgage notes payable of $22.7 million, payments related to offering costs of $4.7 million, payments of notes payable of $4.2 million, payments to affiliates, net of $1.2 million, an increase in restricted cash of $1.0 million, payments of deferred financing costs of $0.9 million, distribution payments of $0.6 million and common stock repurchases of $0.1 million.

Cash Flows for the Nine Months EndedSeptember 30, 2012

During the nine months ended September 30, 2012, net cash used in operating activities was $0.4 million. The level of cash flows used in or provided by operating activities is affected by the volume of acquisition activity, timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments. Cash flows used in operating activities during the nine months ended September 30, 2012 included $0.4 million of acquisition and transaction costs. Cash outflows included a net loss adjusted for non-cash items of $0.5 million (net loss of $1.2 million adjusted for depreciation and amortization of tangible and intangible real estate assets, amortization of deferred financing costs and share based compensation of $0.7 million) as well as an increase in prepaid expenses and other assets of $0.2 million primarily due to prepaid property and directors and officers insurance, rent receivables and unbilled rent receivables recorded in accordance with straight-line basis accounting. These cash outflows were partially offset by an increase of $0.3 million in accounts payable and accrued expenses mainly due to interest payable related to mortgage and notes payable and accrued property operating expenses, as well as an increase in deferred rent and other liabilities of approximately $42,000 due to the timing of the receipt of rental payments.

Net cash used in investing activities of $5.2 million during nine months ended September 30, 2012 primarily related to the acquisition of one property with a purchase price of $21.6 million, which was financed at acquisition with a $16.2 million mortgage notes payable. We assumed $0.2 million of other liabilities in connection with this acquisition related to tenant deposits and improvements.

Net cash provided by financing activities of $6.6 million during the nine months ended September 30, 2012, related to proceeds from the issuance of common stock of $4.1 million, proceeds from notes payable of $3.0 million and $0.7 million in funding from affiliates, net. These inflows were partially offset by payments related to offering costs of $0.6 million, payments for financing costs of $0.3 million, an increase in restricted cash of $0.2 million and distribution payments of approximately $46,000.

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Liquidity and Capital Resources

In March 2012, we raised proceeds sufficient to break escrow in connection with our IPO.  We received and accepted aggregate subscriptions in excess of the $2.0 million minimum and issued shares of common stock to our initial investors who were simultaneously admitted as stockholders.  We purchased our first property and commenced active operations in June 2012. As of September 30, 2013, we owned three properties with an aggregate base purchase price of $107.6 million.

Our principal demands for funds will continue to be for property acquisitions, either directly or through investment interests, for the payment of operating expenses, distributions to our stockholders, and for the payment of principal and interest on our outstanding indebtedness. Generally, capital needs for property acquisitions will be met through net proceeds received from the sale of common stock through our ongoing IPO, as well as proceeds from secured financings. We may also from time to time enter into other agreements with third parties whereby third parties will make equity investments in specific properties or groups of properties that we acquire. Expenditures other than property acquisitions are expected to be met from a combination of the proceeds from the sale of common stock and cash flows from operations.

We expect to meet our future short-term operating liquidity requirements through a combination of net cash provided by our current property operations, the operations of properties to be acquired in the future and proceeds from the sale of common stock.  Management expects that in the future, as our portfolio matures, our properties will generate sufficient cash flows to cover operating expenses and the payment of our monthly distribution. Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from public and private offerings and undistributed funds from operations.

We expect to continue to raise capital through the sale of our common stock and to utilize the net proceeds from the sale of our common stock and proceeds from secured financings to complete future property acquisitions. As of September 30, 2013, we had 4.7 million shares of common stock outstanding, including unvested restricted stock and shares issues pursuant to the DRIP, and had received total proceeds of $46.5 million, including proceeds from shares issued pursuant to the DRIP. Proceeds from our IPO will be applied to the investment in properties and the payment or reimbursement of selling commissions and other fees and expenses related to our IPO. We will experience a relative increase in liquidity as we receive additional subscriptions for shares and a relative decrease in liquidity as we spend net offering proceeds in connection with the acquisition and operation of our properties or the payment of distributions.

We expect to use debt financing as a source of capital. Under our charter, the maximum amount of our total indebtedness shall not exceed 300% of our total "net assets" (as defined by the North American Securities Administrators Association ("NASAA") Statement of Policy Regarding Real Estate Investment Trusts ("NASAA REIT Guidelines")), as of the date of any borrowing, which is generally expected to be approximately 75% of the cost of our investments; however, we may exceed that limit if approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for exceeding such limit. Upon the acquisition of Liberty Crossing on June 8, 2012, we exceeded the 300% limit. The majority of independent directors authorized and affirmed a waiver of any excess in our aggregate borrowing limit due to the temporary nature of the excess in that we intend to repay the short-term debt incurred in connection with the acquisition on or before the debt matures in December 2013. This charter limitation, however, does not apply to individual real estate assets or investments. In addition, it is currently our intention to limit our aggregate borrowings to approximately 50% of the aggregate fair market value of our assets (calculated after the close of our IPO and once we have invested substantially all the proceeds of our IPO), unless borrowing a greater amount is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for borrowing such a greater amount. This limitation, however, will not apply to individual real estate assets or investments. At the date of acquisition of each asset, we anticipate that the cost of investment for such asset will be substantially similar to its fair market value, which will enable us to satisfy our requirements under the NASAA REIT Guidelines. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits. As of September 30, 2013, our net secured debt leverage ratio (secured mortgage notes payable less cash and cash equivalents divided by the base purchase price of acquired real estate investments) approximated 61.9%. During the fourth quarter of 2013, we paid down $5.7 million of the principal balance on the mortgage that encumbers the Tiffany Springs property. As of November 12, 2013, our secured debt leverage ratio (secured mortgage notes payable divided by the base purchase price of acquired real estate investments) approximated 59.6%.

Our board of directors has adopted a Share Repurchase Program ("SRP") that enables our stockholders to sell their shares to us under limited circumstances. At the time a stockholder requests a repurchase, we may, subject to certain conditions, redeem the shares presented for repurchase for cash to the extent we have sufficient funds available to fund such purchase.

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The following table summarizes the number of shares repurchased under the SRP cumulatively through September 30, 2013:

	Number of Requests	Number of Shares	Average Price per Share
Cumulative repurchases as of December 31, 2012	—	—	$	—
Nine Months Ended September 30, 2013	1	8,674	$	9.98
Cumulative repurchase requests as of September 30, 2013	1	8,674	$	9.98

As of September 30, 2013, we had cash and cash equivalents of $3.2 million. We expect cash flows from operations and the sale of common stock, as well as proceeds from secured financings, to be used primarily to invest in additional real estate, pay debt service, pay operating expenses and pay stockholder distributions.

Acquisitions

Our Advisor, with the assistance of its Service Provider, evaluates potential acquisitions of real estate and real estate related assets and engages in negotiations with sellers and borrowers on our behalf.  Investors should be aware that after a purchase contract is executed that contains specific terms the property will not be purchased until the successful completion of due diligence and negotiation of final binding agreements. During this period, we may decide to temporarily invest any unused proceeds from common stock offerings in certain investments that could yield lower returns than the properties. These lower returns may affect our ability to make distributions.

Funds from Operations and Modified Funds from Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has promulgated a measure known as funds from operations ("FFO"), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under accounting principles generally accepted in the United States of America ("GAAP").

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT's policy described above.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Additionally, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated undiscounted future cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges.

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Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization and impairments, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and modified funds from operations ("MFFO"), as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT's definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities also may experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. As disclosed in the prospectus for our IPO (the "Prospectus"), we will use the proceeds raised in our IPO to acquire properties, and intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale or another similar transaction) within three to six years of the completion of our IPO. Thus, we will not continuously purchase assets and will have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association ("IPA"), an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our IPO has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our IPO and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our IPO has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired.

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We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline"), issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate, hedge and foreign exchange risk, we do retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such gains and losses in calculating MFFO, as such gains and losses are not reflective of ongoing operations.

Our MFFO calculation complies with the IPA's Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued acquisition fees and expenses negatively impact our operating performance during the period in which properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. MFFO that excludes such costs and expenses would only be comparable to that of non-listed REITs that have completed their acquisition activities and have similar operating characteristics as us. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives as items which are unrealized and may not ultimately be realized. We view both gains and losses from dispositions of assets and fair value adjustments of derivatives as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. As disclosed elsewhere in the Prospectus, the purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. Acquisition fees and expenses will not be reimbursed by our Advisor if there are no further proceeds from the sale of shares in our IPO, and therefore such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are funded from the proceeds of our IPO and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management's analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

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Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with GAAP measurements as an indication of our performance. MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is a stated value and there is no net asset value determination during our offering stage and for a period thereafter. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after our offering and acquisition stages are complete and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO or MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

The below table reflects the items deducted or added to net loss in our calculation of FFO and MFFO for the periods presented:

	Three Months Ended									Nine Months Ended
(In thousands)	March 31, 2013			June 30, 2013			September 30, 2013			September 30, 2013
Net loss (in accordance with GAAP)	$	(1,052	)	$	(1,051	)	$	(1,510	)	$	(3,613	)
Depreciation and amortization	1,145			1,090			1,067			3,302
FFO	93			39			(443		)	(311		)
Acquisition fees and expenses (1)	7			—			938			945
Non-recurring debt extinguishment expenses	—			130			—			130
Amortization of above or below market leases (2)	72			71			70			213
Straight-line rent (3)	(16		)	(12		)	(43		)	(71		)
MFFO	$	156		$	228		$	522		$	906

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(1) In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management's analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our Advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property.

(2) Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.

(3) Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management's analysis of operating performance.

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Distributions

On September 19, 2011, our board of directors authorized, and we declared, a distribution rate, which is calculated based on stockholders of record each day during the applicable period at a rate of $0.0017534247 per day. The distributions began to accrue on June 8, 2012, the date of our initial property acquisition. The distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month.

The amount of distributions payable to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for distribution, financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to qualify and maintain our status as a REIT under the Internal Revenue Code (the "Code"). Our board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured. Our Advisor may also defer, suspend and/or waive fees and expense reimbursements if we have not generated sufficient cash flow from our operations and other sources to fund distributions. Additionally, our organizational documents permit us to pay distributions from unlimited amounts of any source, and we may use sources other than operating cash flows to fund distributions, including proceeds from our IPO, which may reduce the amount of capital we ultimately invest in properties or other permitted investments, and negatively impact the value of your investment.

During the nine months ended September 30, 2013, distributions paid to common stockholders totaled $0.9 million, inclusive of $0.3 million of distributions issued pursuant to the DRIP.  Distribution payments are dependent on the availability of funds. Our board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.

The following table shows the sources for the payment of distributions to common stockholders:

	Three Months Ended															Nine Months Ended
	March 31, 2013					June 30, 2013					September 30, 2013					September 30, 2013
(In thousands)				Percentage of Distributions					Percentage of Distributions					Percentage of Distributions					Percentage of Distributions
Distributions:
Distributions paid in cash	$	103				$	166				$	315				$	584
Distributions reinvested	30					88					203					321
Total distributions	$	133				$	254				$	518				$	905
Source of distribution coverage:
Cash flows provided by operations (1)	$	103		77.4	%	$	166		65.4	%	$	133		25.7	%	$	402		44.4	%
Proceeds from issuance of common stock	—			—	%	—			—	%	182			35.1	%	182			20.1	%
Common stock issued pursuant to the DRIP / offering proceeds	30			22.6	%	88			34.6	%	203			39.2	%	321			35.5	%
Proceeds from financings	—			—	%	—			—	%	—			—	%	—			—	%
Total source of distribution coverage	$	133		100.0	%	$	254		100.0	%	$	518		100.0	%	$	905		100.0	%
Cash flows provided by (used in) operations (GAAP basis)	$	521				$	1,110				$	133				$	1,764
Net loss (in accordance with GAAP)	$	(1,052	)			$	(1,051	)			$	(1,510	)			$	(3,613	)

_____________________

(1) Cash flows provided by operations for the three months ended March 31, 2013 and September 30, 2013 and the nine months ended September 30, 2013 include acquisition and transaction related expenses of approximately $7,000, $0.9 million and $0.9 million, respectively. No transaction costs were incurred for the three months ended June 30, 2013.

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The following table compares cumulative distributions paid to cumulative net loss (in accordance with GAAP) for the period from July 29, 2010 (date of inception) through September 30, 2013:

	For the Period from July 29, 2010 (date of inception) to
(In thousands)	September 30, 2013
Distributions paid:
Common stockholders in cash	$	705
Common stockholders pursuant to DRIP/offering proceeds	340
Total distributions paid	$	1,045
Reconciliation of net loss:
Revenues	$	5,743
Acquisition and transaction-related	(1,932		)
Depreciation and amortization	(4,410		)
Other operating expenses	(2,589		)
Other non-operating expenses	(2,940		)
Net loss (in accordance with GAAP) (1)	$	(6,128	)

_____________________

(1) Net loss as defined by GAAP includes the non-cash impact of depreciation and amortization expense as well as costs incurred relating to acquisitions and related transactions.

Loan Obligations

The payment terms of our loan obligations require interest amounts payable monthly with all unpaid principal and interest due at maturity. Our loan agreements stipulate that we comply with specific reporting covenants. As of September 30, 2013, we were in compliance with the financial covenants under our loan agreements.

Our Advisor may, with approval from our independent board of directors, seek to borrow short-term capital that, combined with secured mortgage financing, exceeds our targeted leverage ratio. Such short-term borrowings may be obtained from third-parties on a case-by-case basis as acquisition opportunities present themselves simultaneous with our capital raising efforts. We view the use of short-term borrowings as an efficient and accretive means of acquiring real estate in advance of raising equity capital. Accordingly, we can take advantage of buying opportunities as we expand our fund raising activities. As additional equity capital is obtained, these short-term borrowings will be repaid.

Contractual Obligations

The following is a summary of our contractual obligations as of September 30, 2013:

			October 1, 2013 to December 31, 2013		Years Ended December 31,
(In thousands)	Total				2014-2015		2016-2017		Thereafter
Principal Payments Due:
Mortgage notes payable	$	69,860	$	—	$	5,524	$	884	$	63,452
Notes payable	3,000		—		3,000		—		—
	$	72,860	$	—	$	8,524	$	884	$	63,452
Interest Payments Due:
Mortgage notes payable	$	13,571	$	602	$	5,808	$	5,817	$	1,344
Notes payable	165		61		104		—		—
	$	13,736	$	663	$	5,912	$	5,817	$	1,344

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Election as a REIT

We elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year ended December 31, 2012. We believe that, commencing with such taxable year, we are organized and operate in such a manner as to qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax to the extent we distribute our REIT taxable income to our stockholders, and so long as we distribute at least 90% of our REIT taxable income. REITs are subject to a number of other organizational and operational requirements. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.

Inflation

Some of our leases contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). We may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions. In addition, our net leases require the tenant to pay its allocable share of operating expenses, which may include common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in costs and operating expenses resulting from inflation.

Related-Party Transactions and Agreements

We have entered into agreements with affiliates of our Sponsor, whereby we have paid or may in the future pay certain fees or reimbursements to our Advisor, its affiliates and entities under common ownership with our Advisor in connection with acquisition and financing activities, sales of common stock under our IPO, transfer agency services, asset and property management services, strategic advisory services and reimbursement of operating and offering related costs. See Note 10 —Related Party Transactions and Arrangements to our financial statements included in this Quarterly Report on Form 10-Q for a discussion of the various related party transactions, agreements and fees.

In addition, the limited partnership agreement of the OP was amended as of December 28, 2012, to allow the special allocation, solely for tax purposes, of excess depreciation deductions of up to $10.0 million to our Advisor, a limited partner of the OP.  In connection with this special allocation, our Advisor has agreed to restore a deficit balance in its capital account in the event of a liquidation of the OP and has agreed to provide a guaranty or indemnity of indebtedness of the OP. Our Advisor is directly or indirectly controlled by certain officers and directors.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our long-term debt, which consists of a secured financing and unsecured note payable, bears interest at variable and fixed rates. Our interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars, and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

As of September 30, 2013, our debt included fixed-rate secured mortgage financings, including debt fixed through the use of interest rate derivative instruments, and fixed-rate unsecured financings with an aggregate carrying value of $72.9 million and an aggregate fair value of $72.6 million. Changes in market interest rates on our fixed-rate debt impacts the fair value, but it has no impact on interest incurred or cash flow. For instance, if interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our obligation to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed–rate debt assumes an immediate 100 basis point move in interest rates from their September 30, 2013 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt by $2.6 million. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt by $2.7 million. These amounts were determined by considering the impact of hypothetical interest rates changes on our borrowing costs, and, assuming no other changes in our capital structure.

As the information presented above includes only those exposures that existed as of September 30, 2013, it does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.

Item 4. Controls and Procedures

In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that the disclosure controls and procedures are effective.

No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

As of the end of the period covered by this Quarterly Report on Form 10-Q, we are not a party to, and none of our properties are subject to, any material pending legal proceedings.

Item 1A. Risk Factors

Our potential risks and uncertainties are presented in the section entitled "Risk Factors," contained in the prospectus as supplemented and included in our Registration Statement on Form S-11 (File No. 333-169355), as amended (the "Registration Statement"). There have been no material changes from the risk factors set forth in our Registration Statement on Form S-11, except for the items described below:

Distributions paid from sources other than our cash flows from operations, particularly from proceeds of our offering, will result in us having fewer funds available for the acquisition of properties and other real estate-related investments and may dilute your interests in us, which may adversely affect our ability to fund future distributions with cash flows from operations and may adversely affect your overall return.

Our cash flows provided by operations of approximately $0.1 million for the three months ended September 30, 2013 was a shortfall of $0.4 million, or 74.3%, to our distributions paid of $0.5 million (inclusive of $0.2 million of common stock issued pursuant to the DRIP) during such period. Additionally, we may in the future pay distributions from sources other than from our cash flows from operations.

Until we acquire additional properties or other real estate-related investments, we may not generate sufficient cash flows from operations to pay distributions. If we are unable to acquire additional properties or other real estate-related investments may result in a lower return on your investment than you expect. If we have not generated sufficient cash flows from our operations and other sources, such as from borrowings, the sale of additional securities, advances from our Advisor, and/or our Advisor's deferral, suspension and/or waiver of its fees and expense reimbursements, in order to fund distributions, we may use the proceeds from our offering. Moreover, our board of directors may change our distribution policy, in its sole discretion, at any time. Distributions made from offering proceeds are a return of capital to stockholders, from which we will have already paid offering expenses in connection with our offering. We have not established any limit on the amount of proceeds from our offering that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (1) cause us to be unable to pay our debts as they become due in the usual course of business; (2) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences, if any; or (3) jeopardize our ability to qualify as a REIT.

If we fund distributions from the proceeds of our offering, we will have less funds available for acquiring properties or other real estate-related investments. As a result, the return you realize on your investment may be reduced. Funding distributions from borrowings could restrict the amount we can borrow for investments, which may affect our profitability. Funding distributions with the sale of assets or the proceeds of our offering may affect our ability to generate cash flows. Funding distributions from the sale of additional securities could dilute your interest in us if we sell shares of our common stock or securities convertible or exercisable into shares of our common stock to third party investors. Payment of distributions from the mentioned sources could restrict our ability to generate sufficient cash flows from operations, affect our profitability and/or affect the distributions payable to you upon a liquidity event, any or all of which may have an adverse effect on your investment.

We rely significantly on seven major tenants (including, for this purpose, all affiliates of such tenants) and therefore, are subject to tenant credit concentrations that make us more susceptible to adverse events with respect to those tenants.

As of September 30, 2013, the following six major tenants had annualized rental income on a straight-line basis, which represented 5% or more of our total annualized rental income on a straight-line basis including for this purpose, all affiliates of such tenants):

• Toys "R" Us - Delaware, Inc. represented 10.5% of total annualized rental income on a straight-line basis;

• Best Buy Co., Inc. represented 9.2% of total annualized rental income on a straight-line basis;

• The Sports Authority, Inc. represented 7.5% of total annualized rental income on a straight-line basis;

• The Container Store, Inc. represented 6.4% of total annualized rental income on a straight-line basis;

• PetSmart, Inc. represented 6.1% of total annualized rental income on a straight-line basis; and

• Barnes and Noble Booksellers, Inc. represented 5.2% of total annualized rental income on a straight-line basis.

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Therefore, the financial failure of the tenant is likely to have a material adverse effect on our results of operations and our financial condition. In addition, the value of our investment is driven by the credit quality of the underlying tenant, and an adverse change in either tenant's financial condition or a decline in the credit rating of such tenant may result in a decline in the value of our investments and have a material adverse effect on our results from operations.

We are subject to tenant geographic concentrations that make us more susceptible to adverse events with respect to certain geographic areas.

We are subject to geographic concentration. As of September 30, 2013, $4.6 million, or 52.2% of our annualized rental income on a straight-line basis, came from our properties located in Texas and $4.2 million, or 47.8% of our annualized rental income on a straight-line basis, came from our property located in Missouri. Any downturn in Texas or Missouri, or in any other state in which we may have a significant credit concentration in the future, could result in a material reduction of our cash flows or material losses to the Company. Factors that may negatively affect economic conditions in Texas or Missouri include:

• business layoffs or downsizing;

• industry slowdowns;

• relocations of businesses;

• changing demographics;

• increased telecommuting and use of alternative work places;

• infrastructure quality;

• any oversupply of, or reduced demand for, real estate;

• concessions or reduced rental rates under new leases for properties where tenants defaulted; and

• increased insurance premiums.

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

We did not sell any equity securities that were not registered under the Securities Act of 1933, as amended, during the nine months ended September 30, 2013.

On March 17, 2011, we commenced our IPO on a "reasonable best efforts" basis of up to 150.0 million shares of common stock, $0.01 par value per share, at a price of $10.00 per share, subject to certain volume and other discounts, pursuant to the Registration Statement filed with the SEC under the Securities Act of 1933, as amended. The Registration Statement also covers up to 25.0 million shares available pursuant to a DRIP under which our common stockholders may elect to have their distributions reinvested in additional shares of our common stock. As of September 30, 2013, we have issued 4.7 million shares of our common stock, including unvested restricted shares and shares issued pursuant to the DRIP. As of September 30, 2013, we had received $46.5 million of offering proceeds, including proceeds from shares issued pursuant to the DRIP.

The following table reflects the offering costs associated with the issuance of common stock:

	Nine Months Ended
(In thousands)	September 30, 2013
Selling commissions and dealer manager fees	$	3,530
Other offering costs	2,063
Total offering costs	$	5,593

The Dealer Manager reallowed the selling commissions and a portion of the dealer manager fees to participating broker-dealers. The following table details the selling commissions incurred and reallowed related to the sale of shares of common stock:

	Nine Months Ended
(In thousands)	September 30, 2013
Total commissions paid to the Dealer Manager	$	3,530
Less:
Commissions to participating brokers	(2,291		)
Reallowance to participating broker dealers	(271		)
Net to the Dealer Manager	$	968

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Cumulative offering costs, excluding commissions and dealer manager fees, included $4.6 million from our Advisor and Dealer Manager. We are responsible for offering and related costs from the IPO, excluding commissions and dealer manager fees, up to a maximum of 1.5% of gross proceeds received from the IPO, measured at the end of the IPO. Offering costs in excess of the 1.5% cap as of the end of the IPO are our Advisor's responsibility. As of September 30, 2013, offering and related costs exceeded 1.5% of gross proceeds received from the IPO by $7.4 million.

Our Advisor has elected to cap cumulative offering costs incurred by us, net of unpaid amounts, to 15.0% of gross common stock proceeds during the offering period. As of September 30, 2013, cumulative offering costs were $12.2 million. Cumulative offering costs, net of unpaid amounts, were less than the 15.0% threshold as of September 30, 2013. Offering proceeds, including proceeds from shares issued pursuant to the DRIP, of $46.5 million exceeded cumulative offering costs by $34.3 million as of September 30, 2013.

We expect to use substantially all of the net proceeds from our IPO to primarily acquire existing anchored, stabilized core retail properties, including power centers, lifestyle centers, large formatted centers with a grocery store component (with a purchase price in excess of $20.0 million) and other need-based shopping centers which are located in the United States and at least 80% leased at the time of acquisition. All such properties may be acquired and operated by us alone or jointly with another party. We may also originate or acquire first mortgage loans secured by real estate. As of September 30, 2013, we had used the net proceeds from our IPO to purchase three properties with an aggregate purchase price of $107.6 million.

Share Repurchase Program

Our board of directors adopted the SRP that enables our stockholders to sell their shares to us under limited circumstances. At the time a stockholder requests a repurchase, we may, subject to certain conditions, redeem the shares presented for repurchase for cash to the extent we have sufficient funds available to fund such purchase.

The following table summarizes the number of shares repurchased under the SRP cumulatively through September 30, 2013:

	Number of Requests	Number of Shares	Average Price per Share
Cumulative repurchases as of December 31, 2012	—	—	$	—
Nine Months Ended September 30, 2013	1	8,674	$	9.98
Cumulative repurchase requests as of September 30, 2013	1	8,674	$	9.98

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Item 3. Defaults Upon Senior Securities

 None.

Item 4. Mine Safety Disclosures

Not applicable.

Item5. Other Information

None.

Item6. Exhibits

The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.

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SIGNATURES

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

AMERICAN REALTY CAPITAL — RETAIL CENTERS OF AMERICA, INC.
By:	/s/ Nicholas S. Schorsch
	Nicholas S. Schorsch
	Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)
By:	/s/ Brian S. Block
	Brian S. Block
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Dated: November 12, 2013

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EXHIBITS INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 (and are numbered in accordance with Item 601 of Regulation S-K).

Exhibit No.	Description
10.20 (1)	Amendment to Purchase and Sale Agreement, dated as of July 29, 2013, by and among Cousins Tiffany Springs Marketcenter LLC, CP-Tiffany Springs Investments LLC, and American Realty Capital IV, LLC
10.21 (1)	Second Amendment to Purchase and Sale Agreement, dated as of August 1, 2013, by and among Cousins Tiffany Springs Marketcenter LLC, CP-Tiffany Springs Investments LLC, and American Realty Capital IV, LLC
10.22 *	Term Loan Agreement, dated as of September 26, 2013, between ARC TSKCYMO001, LLC and Bank of America, N.A.
31.1 *	Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 *	Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 *	Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 *	XBRL (eXtensible Business Reporting Language). The following materials from American Realty Capital — Retail Centers of America, Inc.'s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2013, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statement of Changes in Stockholders' Equity (Deficit), (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements. As provided in Rule 406T of Regulation S-T, this information in furnished and not filed for purpose of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934

_____________________________

*    Filed herewith.

(1) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed with the SEC on August 14, 2013.

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