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, 2016

OR

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

For the transition period from              to              

Commission file number 000-54691

PHILLIPS EDISON GROCERY CENTER REIT I, INC.  

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

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

(513) 554-1110

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (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   ¨ 

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

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

As of October 31, 2016, there were 184.3 million outstanding shares of common stock of Phillips Edison Grocery Center REIT I, Inc.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

PART I. FINANCIAL INFORMATION		2
Item 1.	Financial Statements (Unaudited)	2
	Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	2
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2016 and 2015	3
	Consolidated Statements of Equity for the Nine Months Ended September 30, 2016 and 2015	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	30
PART II. OTHER INFORMATION		31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 5.	Other Information	33
Item 6.	Exhibits	33
SIGNATURES		34

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PART I.     FINANCIAL INFORMATION

 

Item 1.        Financial Statements

PHILLIPS EDISON GROCERY CENTER REIT I, INC.

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2016 AND DECEMBER 31, 2015

(Unaudited)

(In thousands, except per share amounts)

	September 30, 2016				December 31, 2015
ASSETS
Investment in real estate:
Land and improvements	$	769,726			$	719,430
Building and improvements	1,484,875				1,397,050
Acquired in-place lease assets	206,543				194,242
Acquired above-market lease assets	41,709				39,311
Total investment in real estate assets	2,502,853				2,350,033
Accumulated depreciation and amortization	(311,954		)		(232,102		)
Total investment in real estate assets, net	2,190,899				2,117,931
Cash and cash equivalents	21,362				40,680
Restricted cash	6,439				6,833
Other assets, net	65,874				60,804
Total assets	$	2,284,574			$	2,226,248
LIABILITIES AND EQUITY
Liabilities:
Mortgages and loans payable, net	$	946,042			$	845,515
Acquired below-market lease intangibles, net of accumulated amortization of $19,122 and $14,259, respectively	41,232				39,782
Accounts payable – affiliates	4,225				5,278
Accounts payable and other liabilities	58,847				43,881
Total liabilities	1,050,346				934,456
Commitments and contingencies (Note 6)	—				—
Equity:
Preferred stock, $0.01 par value per share, 10,000 shares authorized, zero shares issued and outstanding at September 30, 2016
and December 31, 2015, respectively	—				—
Common stock, $0.01 par value per share, 1,000,000 shares authorized, 184,943 and 181,308 shares issued and
outstanding at September 30, 2016 and December 31, 2015, respectively	1,850				1,813
Additional paid-in capital	1,625,965				1,588,541
Accumulated other comprehensive (loss) income	(6,813		)		22
Accumulated deficit	(410,625		)		(323,761		)
Total stockholders’ equity	1,210,377				1,266,615
Noncontrolling interests	23,851				25,177
Total equity	1,234,228				1,291,792
Total liabilities and equity	$	2,284,574			$	2,226,248

See notes to consolidated financial statements.

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PHILLIPS EDISON GROCERY CENTER REIT I, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,								Nine Months Ended September 30,
	2016				2015				2016				2015
Revenues:
Rental income	$	48,828			$	45,859			$	143,023			$	135,898
Tenant recovery income	16,199				15,610				47,652				43,003
Other property income	243				353				730				1,062
Total revenues	65,270				61,822				191,405				179,963
Expenses:
Property operating	10,030				9,645				29,978				28,003
Real estate taxes	9,104				9,902				27,745				26,629
General and administrative	7,722				2,871				23,736				7,742
Acquisition expenses	870				836				2,392				4,058
Depreciation and amortization	26,583				25,746				78,266				75,747
Total expenses	54,309				49,000				162,117				142,179
Other:
Interest expense, net	(8,504		)		(7,818		)		(23,837		)		(22,155		)
Other income (expense), net	33				242				(125		)		117
Net income	2,490				5,246				5,326				15,746
Net income attributable to noncontrolling interests	(26		)		(63		)		(83		)		(222		)
Net income attributable to stockholders	$	2,464			$	5,183			$	5,243			$	15,524
Earnings per common share:
Net income per share attributable to stockholders - basic and diluted	$	0.01			$	0.03			$	0.03			$	0.08
Weighted-average common shares outstanding:
Basic	184,639				185,271				183,471				184,209
Diluted	187,428				188,057				186,260				186,902
Comprehensive income (loss):
Net income	$	2,490			$	5,246			$	5,326			$	15,746
Other comprehensive income (loss):
Unrealized gain (loss) on derivatives	1,950				(7,644		)		(9,597		)		(6,253		)
Reclassification of derivative loss to interest expense	888				1,188				2,762				1,981
Comprehensive income (loss)	5,328				(1,210		)		(1,509		)		11,474
Comprehensive income attributable to noncontrolling interests	(26		)		(63		)		(83		)		(222		)
Comprehensive income (loss) attributable to stockholders	$	5,302			$	(1,273	)		$	(1,592	)		$	11,252

See notes to consolidated financial statements.

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PHILLIPS EDISON GROCERY CENTER REIT I, INC.

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

(Unaudited)

(In thousands, except per share amounts)

	Common Stock							Additional Paid-In Capital				Accumulated Other Comprehensive (Loss) Income				Accumulated Deficit				Total Stockholders’ Equity				Noncontrolling Interest				Total Equity
	Shares			Amount
Balance at January 1, 2015	182,131			$	1,820			$	1,567,653			$	—			$	(213,975	)		$	1,355,498			$	22,764			$	1,378,262
Share repurchases	(3,275	)		(31		)		(30,991		)		—				—				(31,022		)		—				(31,022		)
Change in redeemable common stock	—			—				(436		)		—				—				(436		)		—				(436		)
Dividend reinvestment plan (“DRIP”)	5,033			66				48,119				—				—				48,185				—				48,185
Change in unrealized loss on interest rate swaps	—			—				—				(4,272		)		—				(4,272		)		—				(4,272		)
Common distributions declared, $0.50 per share	—			—				—				—				(92,323		)		(92,323		)		—				(92,323		)
Issuance of partnership units	—			—				—				—				—				—				4,047				4,047
Distributions to noncontrolling interests	—			—				—				—				—				—				(1,360		)		(1,360		)
Net income	—			—				—				—				15,524				15,524				222				15,746
Balance at September 30, 2015	183,889			$	1,855			$	1,584,345			$	(4,272	)		$	(290,774	)		$	1,291,154			$	25,673			$	1,316,827
Balance at January 1, 2016	181,308			$	1,813			$	1,588,541			$	22			$	(323,761	)		$	1,266,615			$	25,177			$	1,291,792
Share repurchases	(752	)		(7		)		(7,273		)		—				—				(7,280		)		—				(7,280		)
DRIP	4,387			44				44,687				—				—				44,731				—				44,731
Change in unrealized loss on interest rate swaps	—			—				—				(6,835		)		—				(6,835		)		—				(6,835		)
Common distributions declared, $0.50 per share	—			—				—				—				(92,107		)		(92,107		)		—				(92,107		)
Distributions to noncontrolling interests	—			—				—				—				—				—				(1,409		)		(1,409		)
Share-based compensation	—			—				10				—				—				10				—				10
Net income	—			—				—				—				5,243				5,243				83				5,326
Balance at September 30, 2016	184,943			$	1,850			$	1,625,965			$	(6,813	)		$	(410,625	)		$	1,210,377			$	23,851			$	1,234,228

See notes to consolidated financial statements.

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PHILLIPS EDISON GROCERY CENTER REIT I, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

(Unaudited)

(In thousands)

	2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,326			$	15,746
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	76,293				73,502
Net amortization of above- and below-market leases	(936		)		(560		)
Amortization of deferred financing expense	3,757				3,815
Straight-line rental income	(2,793		)		(3,716		)
Other	189				40
Changes in operating assets and liabilities:
Other assets	(4,339		)		(4,851		)
Accounts payable – affiliates	(1,206		)		1,209
Accounts payable and other liabilities	8,888				5,590
Net cash provided by operating activities	85,179				90,775
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(132,266		)		(87,755		)
Capital expenditures	(16,936		)		(14,944		)
Proceeds from sale of real estate	—				1,027
Change in restricted cash	394				(1,236		)
Net cash used in investing activities	(148,808		)		(102,908		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in credit facility	(23,531		)		165,300
Payments on mortgages and loans payable	(103,622		)		(64,300		)
Proceeds from mortgages and loans payable	230,000				—
Payments of deferred financing expenses	(2,461		)		(6,654		)
Distributions paid, net of DRIP	(47,535		)		(44,291		)
Distributions to noncontrolling interests	(1,260		)		(1,211		)
Repurchases of common stock	(7,280		)		(32,535		)
Other	—				(75		)
Net cash provided by financing activities	44,311				16,234
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(19,318		)		4,101
CASH AND CASH EQUIVALENTS:
Beginning of period	40,680				15,649
End of period	$	21,362			$	19,750
SUPPLEMENTAL CASH FLOW DISCLOSURE, INCLUDING NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for interest	$	22,234			$	20,116
Fair value of assumed debt	—				31,743
Accrued capital expenditures	1,834				2,361
Change in distributions payable	(159		)		(153		)
Change in distributions payable - noncontrolling interests	149				149
Change in accrued share repurchase obligation	—				(1,513		)
Distributions reinvested	44,731				48,185

See notes to consolidated financial statements.

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 Phillips Edison Grocery Center REIT I, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

1. ORGANIZATION

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

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

We invest primarily in well-occupied, grocery-anchored neighborhood and community shopping centers having a mix of creditworthy national and regional retailers selling necessity-based goods and services in strong demographic markets throughout the United States. As of September 30, 2016, we owned fee simple interests in 150 real estate properties acquired from third parties unrelated to us or PE-NTR.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Set forth below is a summary of the significant accounting estimates and policies that management believes are important to the preparation of our consolidated interim 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 management. As a result, these estimates are subject to a degree of uncertainty. There have been no changes to our significant accounting policies during the nine months ended September 30, 2016, except for the items discussed below. For a full summary of our accounting policies, refer to our 2015 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 3, 2016.

Basis of Presentation and Principles of Consolidation—The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q should refer to the audited consolidated financial statements of Phillips Edison Grocery Center REIT I, Inc. for the year ended December 31, 2015, which are included in our 2015 Annual Report on Form 10-K. In the opinion of management, all normal and recurring adjustments necessary for the fair presentation of the unaudited consolidated financial statements for the periods presented have been included in this Quarterly Report. Our results of operations for the three and nine months ended September 30, 2016, are not necessarily indicative of the operating results expected for the full year.

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

Share-based Compensation—We account for our share-based compensation plan based on the Financial Accounting Standards Board (“FASB”) guidance which requires that compensation expense be recognized based on the fair value of the stock awards less estimated forfeitures. Our restricted stock grants vest based upon the completion of a service period (“service-based grants”). Service-based grants are valued according to the determined value per share for our common stock at the date of grant. Awards of service-based grants of stock are expensed as compensation on a straight-line basis over the vesting period.

Reclassifications—The following line item on our consolidated balance sheets as of December 31, 2015, was reclassified to conform to the current year presentation:

•	Acquired Intangible Lease Assets was separated into Acquired Above-Market Lease Assets and Acquired In-Place Lease Assets.

The following line item on our consolidated statement of cash flows for the nine months ended September 30, 2015 was reclassified to conform to the current year presentation:

•	Change in Fair Value of Derivative was reclassified to Other.

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Newly Adopted and Recently Issued Accounting Pronouncements—In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-03, Interest - Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). This update amends existing guidance to require the presentation of certain debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”). This update provides guidance regarding the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. We adopted ASU 2015-03 and ASU 2015-15 on January 1, 2016, and retrospectively applied the guidance for all periods presented. Unamortized debt issuance costs of $9.0 million and $8.6 million are included in Mortgages and Loans Payable, Net as of September 30, 2016 and December 31, 2015, respectively, which were previously included in Deferred Financing Expense, Net on our consolidated balance sheets. The remaining amounts included in Other Assets, Net on our consolidated balance sheets were related to our revolving credit facility. The adoption did not have an impact on our results of operations (see Note 5).

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis to ASC Topic 810 Consolidation (“ASU 2015-02”). ASU 2015-02 includes all reporting entities within the scope of Subtopic 810-10 Consolidation - Overall, including limited partnerships and similar legal entities, unless a scope exception applies. Overall the amendments in this update are to simplify the codification and reduce the number of consolidation models and place more emphasis on risk of loss when determining controlling financial interests. ASU 2015-02 was effective beginning in the first quarter of the year ending December 31, 2016. We have evaluated the impact of the adoption of ASU 2015-02 on our consolidated financial statements and have determined under ASU 2015-02 that the Operating Partnership is considered a variable interest entity (“VIE”). We are the primary beneficiary of the VIE and our partnership interest is considered a majority voting interest. As such, this standard did not have a material impact on our consolidated financial statements.

The following table provides a brief description of recent accounting pronouncements that could have a material effect on our financial statements:

Standard		Description		Date of Adoption		Effect on the Financial Statements or Other Significant Matters
ASU 2014-09, Revenue from Contracts with Customers		This update outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” While ASU 2014-09 specifically references contracts with customers, it may apply to certain other transactions such as the sale of real estate or equipment. In 2015, the FASB provided for a one-year deferral of the effective date for ASU 2014-09, making it effective for annual reporting periods beginning after December 15, 2017.		January 1, 2018		We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.
ASU 2016-02, Leases (Topic 842)		This update amends existing guidance by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. It is effective for annual reporting periods beginning after December 15, 2018, but early adoption is permitted.		January 1, 2019		We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

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3. FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurement (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is intended to be a market-based measurement, as opposed to a transaction-specific measurement. Fair value is defined by ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows:

Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs, only used to the extent that observable inputs are not available, reflect our assumptions about the pricing of an asset or liability. 

Considerable judgment is necessary to develop estimated fair values of financial and non-financial assets and liabilities. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we did or could actually realize upon disposition of the financial assets and liabilities previously sold or currently held.

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

Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, and Accounts Payable and Other Liabilities—We consider the carrying values of these financial instruments to approximate fair value because of the short period of time between origination of the instruments and their expected realization.

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

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the individual property may not be recoverable, or at least annually. In such an event, a comparison will be made of the projected operating cash flows of each property on an undiscounted basis to the carrying amount of such property. Such carrying amount would be adjusted, if necessary, to estimated fair values to reflect impairment in the value of the asset.

Mortgages and Loans Payable—We estimate the fair value of our debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by our lenders using Level 3 inputs.  The discount rate used approximates current lending rates for loans or groups of loans with similar maturities and credit quality, assuming the debt is outstanding through maturity and considering the debt’s collateral (if applicable). We have utilized market information, as available, or present value techniques to estimate the amounts required to be disclosed.

The following is a summary of discount rates and borrowings as of September 30, 2016 and December 31, 2015 (dollars in thousands):

		September 30, 2016				December 31, 2015
Discount rates:
Unsecured variable-rate debt		1.88% - 2.23%				1.66		%
Secured fixed-rate debt		3.05		%		2.75		%
Secured variable-rate debt		2.78		%		2.36		%
Borrowings:
Fair value		$	970,056			$	880,854
Recorded value(1)		955,029				854,079

(1)	Recorded value does not include deferred financing costs of $9.0 million and $8.6 million as of September 30, 2016 and December 31, 2015, respectively.

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Derivative Instruments—In April 2015, we entered into three interest rate swap agreements with a notional amount of $387 million that are measured at fair value on a recurring basis. These interest rate swap agreements effectively fix the LIBOR portion of the interest rate on $387 million of outstanding debt under our existing unsecured term loan facility. These swaps qualify and have been designated as cash flow hedges.

As of September 30, 2016 and December 31, 2015, we were party to an interest rate swap agreement with a notional amount of $11.1 million and $11.3 million, respectively. The interest rate swap was assumed as part of an acquisition and is measured at fair value on a recurring basis. The interest rate swap agreement, in effect, fixes the variable interest rate of one of our secured variable-rate mortgage notes at an annual interest rate of 5.22% through June 2018.

The fair values of the interest rate swap agreements as of September 30, 2016 and December 31, 2015, were based on the estimated amount we would receive or pay to terminate the contract at the reporting date and were determined using interest rate pricing models and interest rate-related observable inputs. Although we determined that the significant inputs used to value our derivatives fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our counterparties and our own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of September 30, 2016 and December 31, 2015, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative position and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

We record derivative liabilities in Accounts Payable and Other Liabilities and derivative assets in Other Assets, Net on our consolidated balance sheets. The fair value measurements of our financial liability and asset as of September 30, 2016 and December 31, 2015, are as follows (in thousands):

	September 30, 2016				December 31, 2015
Derivative liability (asset) designated as hedging instruments:
Interest rate swaps - unsecured term loan facility	$	6,813			$	(22	)
Derivative liability not designated as hedging instrument:
Interest rate swap - mortgage note	376				442

4. REAL ESTATE ACQUISITIONS

During the nine months ended September 30, 2016, we acquired three grocery-anchored shopping centers and additional real estate adjacent to previously acquired shopping centers for an aggregate purchase price of approximately $130.9 million. During the nine months ended September 30, 2015, we acquired nine grocery-anchored shopping centers and additional real estate adjacent to a previously acquired shopping center for an aggregate purchase price of approximately $119.6 million, including $30.5 million of assumed debt with a fair value of $31.7 million. The following tables present certain additional information regarding our acquisitions of properties during the nine months ended September 30, 2016 and 2015. 

For the nine months ended September 30, 2016 and 2015, we allocated the purchase price of acquisitions to the fair value of the assets acquired and liabilities assumed as follows (in thousands):

	2016				2015
Land and improvements	$	47,834			$	37,369
Building and improvements	74,709				73,778
Acquired in-place leases	12,300				11,121
Acquired above-market leases	2,398				1,241
Acquired below-market leases	(6,313		)		(3,901		)
Total assets and lease liabilities acquired	130,928				119,608
Less: Fair value of assumed debt at acquisition (1)	—				31,743
Net assets acquired	$	130,928			$	87,865

(1)	Debt assumed for the nine months ended September 30, 2015 relates to five grocery-anchored shopping centers and the additional real estate adjacent to a previously acquired grocery-anchored shopping center.

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The weighted-average amortization periods for in-place, above-market, and below-market lease intangibles acquired during the nine months ended September 30, 2016 and 2015, are as follows (in years):

	2016		2015
Acquired in-place leases	12		14
Acquired above-market leases	6		9
Acquired below-market leases	22		19

The amounts recognized for revenues, acquisition expenses, and net loss from each respective acquisition date to September 30, 2016 and 2015, related to the operating activities of our acquisitions are as follows (in thousands):

	2016				2015
Revenues	$	2,733			$	5,680
Acquisition expenses	1,942				2,078
Net loss	1,339				1,406

The following unaudited pro forma information summarizes selected financial information from our combined results of operations as if all of our acquisitions for 2016 and 2015 had been acquired on January 1, 2015. Acquisition expenses related to each respective acquisition are not expected to have a continuing impact and, therefore, have been excluded from these pro forma results. This pro forma information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred at the beginning of the period, nor does it purport to represent the results of future operations.

	Three Months Ended   September 30,								Nine Months Ended   September 30,
(in thousands)	2016				2015				2016				2015
Pro forma revenues	$	66,074			$	61,720			$	198,011			$	191,798
Pro forma net income attributable to stockholders	3,227				5,884				8,768				21,401

5. MORTGAGES AND LOANS PAYABLE

Our credit agreement provides access to an unsecured revolving credit facility and an unsecured term loan facility. The revolving credit facility has a capacity of $500 million with a current interest rate of LIBOR plus 1.3%. The revolving credit facility matures in December 2017 with additional options to extend the maturity to December 2018. The unsecured term loans include three tranches with an interest rate of LIBOR plus 1.25%. The first tranche has a principal amount of $100 million and matures in February 2019, with two 12-month options to extend the maturity to February 2021. The second tranche has a principal amount of $175 million and matures in February 2020, with an option to extend the maturity to February 2021. The third tranche has a principal amount of $125 million and matures in February 2021. A maturity date extension for the first or second tranche requires the payment of an extension fee of 0.15% of the outstanding principal amount of the corresponding tranche.

In September 2016, we entered into a new credit agreement, which provides for a new unsecured term loan facility with an interest rate of LIBOR plus 1.70%. This term loan has a principal amount of $230 million and matures in September 2023. On October 20, 2016, we amended this term loan facility to increase the aggregate lender commitments from $230 million to $255 million. On October 20, 2016, we entered into a forward starting interest rate swap agreement to fix LIBOR under this term loan beginning July 1, 2017. The swap has a notional amount of $255 million and fixes the LIBOR at 1.329% with a maturity date of September 16, 2023.

As of September 30, 2016 and December 31, 2015, the weighted-average interest rate for all of our mortgages and loans payable was 3.0% and 3.5%, respectively.

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The following is a summary of our debt obligations as of September 30, 2016 and December 31, 2015 (in thousands):

	September 30, 2016				December 31, 2015
Unsecured term loans - fixed-rate(1)	$	387,000			$	387,000
Unsecured term loans - variable-rate	243,000				13,000
Unsecured revolving credit facility - variable-rate(2)	117,469				141,000
Fixed-rate mortgages payable(3)(4)	202,813				306,435
Assumed below-market debt adjustment, net(5)	4,747				6,644
Deferred financing costs, net(6)	(8,987		)		(8,564		)
Total	$	946,042			$	845,515

(1)	As of September 30, 2016 and December 31, 2015, the interest rate on $387 million outstanding under our term loans was, effectively, fixed at various interest rates by three interest rate swap agreements with maturities ranging from February 2019 to February 2021 (see Notes 3 and 7).

(2)	The gross borrowings under our revolving credit facility were $480.8 million during the nine months ended September 30, 2016. The gross payments under our credit facility were $504.3 million during the nine months ended September 30, 2016.

(3)	Due to the non-recourse nature of our fixed-rate mortgages, the assets and liabilities of the properties securing such mortgages are neither available to pay the debts of the consolidated property-holding limited liability companies nor do they constitute obligations of such consolidated limited liability companies as of September 30, 2016 and December 31, 2015.

(4)	As of September 30, 2016 and December 31, 2015, the interest rate on one of our variable-rate mortgage notes payable was, in effect, fixed at 5.22% by an interest rate swap agreement (see Notes 3 and 7).

(5)	Net of accumulated amortization of $5.6 million and $6.5 million as of September 30, 2016 and December 31, 2015, respectively.

(6)

Net of accumulated amortization of $3.3 million and $2.8 million as of September 30, 2016 and December 31, 2015, respectively. Deferred financing costs related to the revolving credit facility were $2.8 million and $4.7 million, as of September 30, 2016 and December 31, 2015, respectively, which is net of accumulated amortization of $6.2 million and $4.8 million, respectively, and are included in Other Assets, Net.

6. COMMITMENTS AND CONTINGENCIES 

Litigation 

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

Environmental Matters 

In connection with the ownership and operation of real estate, we may be potentially liable for costs and damages related to environmental matters. We record liabilities as they arise related to environmental obligations. We have not been notified by any governmental authority of any material non-compliance, liability or other claim, nor are we aware of any other environmental condition that we believe will have a material impact on our consolidated financial statements.

7. DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in

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exchange for our making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

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 (Loss) Income (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the nine months ended September 30, 2016, such derivatives were used to hedge the variable cash flows associated with certain variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. 

As of September 30, 2016, we had three interest rate swaps with a notional amount of $387.0 million that were designated as cash flow hedges of interest rate risk. Amounts reported in AOCI related to these derivatives will be reclassified to Interest Expense, Net as interest payments are made on the variable-rate debt. During the next 12 months, we estimate that an additional $2.8 million will be reclassified from Other Comprehensive Loss as an increase to Interest Expense, Net.

Derivatives Not Designated as Hedging Instruments

Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks, but do not meet the strict hedge accounting requirements to be classified as hedging instruments. Changes in the fair value of these derivative instruments, as well as any payments, are recorded directly in Other Expense, Net and resulted in a gain of $34,000 and a loss of $112,000 for the three months ended September 30, 2016 and 2015, respectively. Changes in the fair value of these derivative instruments, as well as any payments, resulted in losses of $127,000 and $239,000 for the nine months ended September 30, 2016 and 2015, respectively.

Tabular Disclosure of the Effect of Derivative Instruments on AOCI and the Consolidated Statements of Operations and Comprehensive Income (Loss)

The table below presents the changes in AOCI and the effect of our derivative financial instruments on the consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2016 and 2015 (in thousands):

Balance in AOCI as of January 1, 2015					$	—
Amount of loss recognized in other comprehensive income on derivative	$	(6,253	)
Amount of loss reclassified from AOCI into interest expense	1,981
Current-period other comprehensive loss					(4,272		)
Balance in AOCI as of September 30, 2015					$	(4,272	)
Balance in AOCI as of January 1, 2016					$	22
Amount of loss recognized in other comprehensive income on derivative	$	(9,597	)
Amount of loss reclassified from AOCI into interest expense	2,762
Current-period other comprehensive loss					(6,835		)
Balance in AOCI as of September 30, 2016					$	(6,813	)

Credit-risk-related Contingent Features

We have agreements with our derivative counterparties that contain provisions where, if we either default or are capable of being declared in default on any of our indebtedness, we could also be declared to be in default on our derivative obligations. As of September 30, 2016 and December 31, 2015, the fair value of our derivatives excluded any adjustment for nonperformance risk related to this agreement. As of September 30, 2016 and December 31, 2015, we had not posted any collateral related to this agreement.

8. EQUITY

On April 14, 2016, our board of directors reaffirmed its estimated value per share of our common stock of $10.20 based substantially on the estimated market value of our portfolio of real estate properties as of March 31, 2016. We engaged a third party valuation firm to provide a calculation of the range in estimated value per share of our common stock as of March 31, 2016, which reflected certain balance sheet assets and liabilities as of that date.

Tender Offer—On April 25, 2016, in order to deter an unsolicited tender offer by a third party and to deter other potential future bidders that may try to exploit the illiquidity of shares of our common stock and acquire them from stockholders at prices substantially below their value, we launched a self-tender offer to purchase up to 9.3 million shares of our common

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stock. The tender offer expired on June 7, 2016, and in connection therewith, we repurchased 69,271 shares of common stock at a price of $6.00 per share, for an aggregate purchase price of approximately $416,000.

Dividend Reinvestment Plan—We have adopted a dividend reinvestment plan (the “DRIP”) that allows stockholders to invest distributions in additional shares of our common stock. For the three and nine months ended September 30, 2016, shares were issued under the DRIP at a price of $10.20 per share.

Share Repurchase Program—Our share repurchase program provides an opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and limitations. Our share repurchase program was temporarily suspended during the tender offer as required by SEC rules. No repurchases were made under the share repurchase program during the tender offer and for ten business days thereafter. Redemption requests that were submitted through the share repurchase program during the tender offer were not accepted for consideration. The share repurchase program was reinstated on June 22, 2016.

During the first three quarters of 2016, repurchase requests continued to surpass the funding limits under the share repurchase program. Due to the program’s funding limits, the funds available for repurchases during the fourth quarter of 2016 will be insufficient to meet all requests. Because we are unable to fulfill all repurchase requests in any month, we will honor requests on a pro rata basis to the extent possible. We continue to fulfill repurchases sought upon a stockholder’s death, determination of incompetence or qualifying disability in accordance with the terms of the share repurchase program.

On April 14, 2016, our board of directors amended and restated the share repurchase program. The amendment provides that the board of directors reserves the right, in its sole discretion, at any time and from time to time, to reject any request for repurchase, and clarifies that the cash available for repurchases on any particular date will generally be limited to the proceeds from the DRIP during the preceding four fiscal quarters, less amounts already used for repurchases since the beginning of that period. The amendment was effective as of May 15, 2016. As a result of this amendment, we no longer record amounts that are redeemable under the share repurchase program as redeemable common stock on our consolidated balance sheets. Since the program’s funding limits were surpassed as of the effective date of the amendment, there was no impact to redeemable stock on the consolidated balance sheets at the date of the amendment.

Class B and Operating Partnership Units—The Operating Partnership issues limited partnership units that are designated as Class B units and Operating Partnership units (“OP units”) for asset management services provided by PE-NTR. The vesting of the Class B units is contingent upon a market condition and service condition. OP units may be exchanged at the election of the holder for cash or, at the option of the Operating Partnership, for shares of our common stock, under the terms of exchange rights agreements to be prepared at a future date, provided, however, that the OP units have been outstanding for at least one year. PE-NTR has agreed under the PE-NTR Agreement not to exchange any OP units it may hold until the listing of our common stock or the liquidation of our portfolio occurs. As the form of the redemptions for the OP units is within our control, the OP units issued as of September 30, 2016 are classified as Noncontrolling Interests within permanent equity on our consolidated balance sheets. Additionally, the cumulative distributions that have been paid on these OP units are included in Distributions to Noncontrolling Interests on the consolidated statements of equity.

Below is a summary of our outstanding OP units and unvested Class B units as of September 30, 2016 and December 31, 2015 (in thousands):

		September 30, 2016			December 31, 2015
OP units		2,785			2,785
Class B units		2,473			2,083

9. EARNINGS PER SHARE

We use the two-class method of computing earnings per share (“EPS”), which is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared (whether paid or unpaid). Under the two-class method, basic EPS is computed by dividing the sum of distributed earnings to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from share equivalent activity.

Class B units and OP units held by limited partners other than us are considered to be participating securities because they contain non-forfeitable rights to dividends or dividend equivalents and they have the potential to be exchanged for shares of our common stock in accordance with the terms of the Operating Partnership’s Second Amended and Restated Agreement of Limited Partnership, as amended (the “Partnership Agreement”). The impact of these Class B units and OP units on basic and diluted EPS has been calculated using the two-class method whereby earnings are allocated to the Class B units and OP units based on dividends declared and the units’ participation rights in undistributed earnings. The effects of the two-class method on basic and diluted EPS were immaterial to the consolidated financial statements as of September 30, 2016 and 2015.

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Since the OP units are fully vested, they were included in the diluted net income per share computations for the three and nine months ended September 30, 2016 and 2015. The vesting of the Class B units is contingent upon a market condition and service condition. Since the satisfaction of both conditions was not probable as of September 30, 2016 and 2015, the Class B units remained unvested and thus were not included in the diluted net income per share computations. There were 2.5 million and 1.4 million unvested Class B units outstanding as of September 30, 2016 and 2015, respectively, which had no effect on EPS.

In the third quarter of 2016, we awarded shares of restricted stock to our independent directors under our Amended and Restated 2010 Independent Director Stock Plan. Approximately 9,800 shares of restricted stock were granted and are potentially dilutive for the three and nine months ended September 30, 2016.

The following table provides a reconciliation of the numerator and denominator of the earnings per unit calculations for the three and nine months ended September 30, 2016 and 2015 (in thousands, except per share amounts):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2016				2015				2016				2015
Numerator for basic and diluted earnings per share:
Net income attributable to stockholders	$	2,464			$	5,183			$	5,243			$	15,524
Denominator:
Denominator for basic earnings per share - weighted-average shares	184,639				185,271				183,471				184,209
Effect of dilutive OP units/Class B units	2,785				2,786				2,785				2,693
Effect of restricted stock awards	4				—				4				—
Denominator for diluted earnings per share - adjusted weighted-average shares	187,428				188,057				186,260				186,902
Earnings per common share:
Net income attributable to stockholders - basic and diluted	$	0.01			$	0.03			$	0.03			$	0.08

10. RELATED PARTY TRANSACTIONS

Economic Dependency—We are dependent on PE-NTR, Phillips Edison & Company Ltd. (the “Property Manager”), and their respective affiliates for certain services that are essential to us, including asset acquisition and disposition decisions, asset management, operating and leasing of our properties, and other general and administrative responsibilities. In the event that PE-NTR, the Property Manager, and/or their respective affiliates are unable to provide such services, we would be required to find alternative service providers, which could result in higher costs and expenses.

As of September 30, 2016 and December 31, 2015, PE-NTR owned 176,509 shares of our common stock, or approximately 0.1% of our outstanding common stock issued during our initial public offering period, which closed in February 2014. PE-NTR may not sell any of these shares while serving as our advisor. 

Advisory Agreement—Pursuant to the PE-NTR Agreement effective as of December 3, 2014, PE-NTR is entitled to specified fees for certain services, including managing our day-to-day activities and implementing our investment strategy. PE-NTR manages our day-to-day affairs and our portfolio of real estate investments subject to the board’s supervision. Expenses are reimbursed to PE-NTR based on amounts incurred on our behalf.

In October 2015, we entered into amended agreements to revise certain fees that are paid to PE-NTR in consideration for the advisory services that PE-NTR provides to us. Beginning October 1, 2015, we no longer pay a 0.75% financing fee to PE-NTR. The asset management fee remains at 1% of the cost of our assets but is paid 80% in cash and 20% in Class B units of the Operating Partnership. The cash portion is paid on a monthly basis in arrears, in the amount of 0.06667% multiplied by the cost of our assets as of the last day of the preceding monthly period.

Acquisition Fee—We pay PE-NTR an acquisition fee related to services provided in connection with the selection and purchase or origination of real estate and real estate-related investments. The acquisition fee is equal to 1% of the cost of investments we acquire or originate, including any debt attributable to such investments.

Acquisition Expenses—We reimburse PE-NTR for direct expenses incurred related to selecting, evaluating, and acquiring assets on our behalf, including certain personnel costs.

Asset Management Subordinated Participation—Within 60 days after the end of each calendar quarter (subject to the approval of our board of directors), we will pay an asset management subordinated participation partially by issuing a number of restricted operating partnership units designated as Class B Units to PE-NTR and American Realty Capital II Advisors, LLC

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(“ARC”), equal to: (i) the product of (x) the cost of our assets multiplied by (y) 0.05% (0.25% prior to October 1, 2015); divided by (ii) the most recent primary offering price for a share of our common stock as of the last day of such calendar quarter less any selling commissions and dealer manager fees that would have been payable in connection with that offering.

PE-NTR and ARC are entitled to receive distributions on the Class B units (and OP units converted from previously issued and vested Class B units) at the same rate as distributions are paid to common stockholders. Such distributions are in addition to the incentive compensation that PE-NTR, ARC, and their affiliates may receive from us. 

We continue to issue Class B units to PE-NTR and ARC in connection with the asset management services provided by PE-NTR under our current advisory agreement. These Class B units will not vest until the economic hurdle is met in conjunction with (i) a termination of the PE-NTR Agreement by our independent directors without cause, (ii) a listing event, or (iii) a liquidity event; provided that PE-NTR serves as our advisor at the time of any of the foregoing events. During the nine months ended September 30, 2016 and 2015, the Operating Partnership issued 0.4 million and 1.4 million Class B units, respectively, to PE-NTR and ARC under the PE-NTR Agreement for asset management services performed by PE-NTR.

Disposition Fee—We pay PE-NTR for substantial assistance by PE-NTR or any of its affiliates in connection with the sale of properties or other investments 2% of the contract sales price of each property or other investment sold. The conflicts committee of our board of directors determines whether PE-NTR or its affiliates have provided substantial assistance to us in connection with the sale of an asset. Substantial assistance in connection with the sale of a property includes PE-NTR or its affiliates’ preparation of an investment package for the property (including an investment analysis, rent rolls, tenant information regarding credit, a property title report, an environmental report, a structural report and exhibits) or such other substantial services performed by PE-NTR or its affiliates in connection with a sale. However, if we sold an asset to an affiliate, our organizational documents would prohibit us from paying a disposition fee to PE-NTR or its affiliates. 

General and Administrative Expenses—As of September 30, 2016 and December 31, 2015, we owed PE-NTR $83,000 and $124,000, respectively, for general and administrative expenses paid on our behalf.

Summarized below are the fees earned by and the expenses reimbursable to PE-NTR and ARC, except for unpaid general and administrative expenses, which we disclose above, for the three and nine months ended September 30, 2016 and 2015, and any related amounts unpaid as of September 30, 2016 and December 31, 2015 (in thousands):

	Three Months Ended								Nine Months Ended								Unpaid Amount as of
	September 30,								September 30,								September 30,				December 31,
	2016				2015				2016				2015				2016				2015
Acquisition fees(1)	$	367			$	102			$	1,307			$	1,185			$	—			$	—
Acquisition expenses(1)	73				18				228				180				—				—
Asset management fees(2)	4,852				—				14,182				—				1,635				1,538
OP units distribution (3)	470				452				1,398				1,350				153				159
Class B units distribution(4)	408				200				1,144				311				136				119
Financing fees(5)	—				3,048				—				3,228				—				—
Disposition fees(6)	—				21				—				21				—				—
Total	$	6,170			$	3,841			$	18,259			$	6,275			$	1,924			$	1,816

(1)	The acquisition fees and expenses are presented as Acquisition Expenses on the consolidated statements of operations.

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

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

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

(5)	Financing fees are presented in Other Assets, Net or Mortgages and Loans Payable, Net, on the consolidated balance sheets and amortized over the term of the related loan. As of October 1, 2015, we are no longer required to pay financing fees.

(6)	Disposition fees are presented as Other Income (Expense), Net on the consolidated statements of operations.

Property Manager—All of our real properties are managed and leased by the Property Manager. The Property Manager is wholly owned by our Phillips Edison sponsor. The Property Manager also manages real properties acquired by Phillips Edison affiliates and other third parties.

Property Management Fee—We pay to the Property Manager a monthly property management fee of 4% of the monthly gross cash receipts from the properties it manages.

Leasing Commissions—In addition to the property management fee, if the Property Manager provides leasing services with respect to a property, we pay the Property Manager leasing fees in an amount equal to the leasing fees charged by unaffiliated persons rendering comparable services based on national market rates. The Property Manager shall be paid a leasing fee in connection with a tenant’s exercise of an option to extend an existing lease, and the leasing fees payable to the Property

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Manager may be increased by up to 50% in the event that the Property Manager engages a co-broker to lease a particular vacancy.

Construction Management Fee—If we engage the Property Manager to provide construction management services with respect to a particular property, we pay a construction management fee in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the property.

Expenses and Reimbursements—The Property Manager hires, directs, and establishes policies for employees who have direct responsibility for the operations of each real property it manages, which may include, but is not limited to, on-site managers and building and maintenance personnel. Certain employees of the Property Manager may be employed on a part-time basis and may also be employed by PE-NTR or certain of its affiliates. The Property Manager also directs the purchase of equipment and supplies and supervises all maintenance activity. We reimburse the costs and expenses incurred by the Property Manager on our behalf, including employee compensation, legal, travel, and other out-of-pocket expenses that are directly related to the management of specific properties and corporate matters, as well as fees and expenses of third-party accountants.

Summarized below are the fees earned by and the expenses reimbursable to the Property Manager for the three and nine months ended September 30, 2016 and 2015, and any related amounts unpaid as of September 30, 2016 and December 31, 2015 (in thousands):

	Three Months Ended								Nine Months Ended								Unpaid Amount as of
	September 30,								September 30,								September 30,				December 31,
	2016				2015				2016				2015				2016				2015
Property management fees(1)	$	2,457			$	2,272			$	7,456			$	6,864			$	782			$	755
Leasing commissions(2)	1,828				992				5,570				5,012				609				729
Construction management fees(2)	251				345				664				756				106				155
Other fees and reimbursements(3)	1,499				1,334				4,064				3,355				721				1,699
Total	$	6,035			$	4,943			$	17,754			$	15,987			$	2,218			$	3,338

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

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

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

11. OPERATING LEASES

The terms and expirations of our operating leases with our tenants vary. The lease agreements frequently contain options to extend the terms of leases and other terms and conditions as negotiated. We retain substantially all of the risks and benefits of ownership of the real estate assets leased to tenants.

Approximate future rentals to be received under non-cancelable operating leases in effect as of September 30, 2016, assuming no new or renegotiated leases or option extensions on lease agreements, are as follows (in thousands):

Year	Amount
October 1 to December 31, 2016	$	49,147
2017	187,310
2018	169,454
2019	145,491
2020	122,599
2021 and thereafter	428,057
Total	$	1,102,058

No single tenant comprised 10% or more of our aggregate annualized base rent as of September 30, 2016.

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12. SUBSEQUENT EVENTS

Distributions to Stockholders

Distributions equal to a daily amount of $0.00183060 per share of common stock outstanding were paid subsequent to September 30, 2016, to the stockholders of record from September 1, 2016, through October 31, 2016, as follows (in thousands):

Distribution Period		Date Distribution Paid		Gross Amount of Distribution Paid				Distribution Reinvested through the DRIP				Net Cash Distribution
September 1, 2016, through September 30, 2016		10/1/2016		$	10,161			$	4,683			$	5,478
October 1, 2016, through October 31, 2016		11/1/2016		10,518				4,822				5,696

On November 1, 2016, our board of directors authorized distributions to the stockholders of record at the close of business each day in the period commencing December 1, 2016, through December 31, 2016 equal to a daily amount of $0.00183060 per share of common stock. The board of directors also authorized distributions to stockholders for January 1, 2017 through February 28, 2017 equal to a daily amount of $0.00183562 per share of common stock.

Acquisitions

Subsequent to September 30, 2016, we acquired the following properties (dollars in thousands):

Property Name		Location		Anchor Tenant		Acquisition Date		Purchase Price				Square Footage		Leased % of Rentable Square Feet at Acquisition
Oak Mill Plaza		Niles, IL		Jewel-Osco		10/3/2016		$	22,225			152,786		96.1	%
Southern Palms		Tempe, AZ		Sprouts		10/26/2016		36,300				257,979		85.9	%
Golden Eagle Village		Clermont, FL		Publix		10/27/2016		11,200				64,050		88.4	%

The supplemental purchase accounting disclosures required by GAAP relating to the recent acquisitions of the aforementioned properties have not been presented as the initial accounting for these acquisitions was incomplete at the time this Quarterly Report on Form 10-Q was filed with the SEC.

Share Repurchase Program

In October 2016, approximately $11.2 million was available for repurchases under our Share Repurchase Program. Investors who had submitted share repurchase requests by October 24, 2016 and that were in good order had their shares repurchased on a prorata basis. The 7.4 million shares of unfulfilled repurchase requests, as well as requests that were not in good order, will be treated as requests for repurchase during future months until satisfied or withdrawn.

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

 

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q of Phillips Edison Grocery Center REIT I, Inc. (“we,” the “Company,” “our,” or “us”) other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in those acts. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the U.S. Securities and Exchange Commission (“SEC”). We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Quarterly Report on Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual conditions, our ability to accurately anticipate results expressed in such forward-looking statements, including our ability to generate positive cash flow from operations, make distributions to stockholders, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A in Part II of this Form 10-Q and Item 1A in Part I of our 2015 Annual Report on Form 10-K, filed with the SEC on March 3, 2016, for a discussion of some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause actual results to differ materially from those presented in our forward-looking statements.

Overview

Organization

Phillips Edison Grocery Center REIT I, Inc. is a public non-traded real estate investment trust (REIT) that invests in retail real estate properties. Our primary focus is on necessity-anchored neighborhood and community shopping centers that meet the day-to-day needs of residents in the surrounding trade areas.

Portfolio

Below are statistical highlights of our portfolio’s activities from inception through September 30, 2016:

		Cumulative			Property Acquisitions During the
		Portfolio as of			Nine Months Ended
		September 30, 2016			September 30, 2016
Number of properties		150			3
Number of states		28			3
Total square feet (in thousands)		16,172			603
Leased % of rentable square feet		95.9	%		98.1	%
Average remaining lease term in years(1)		5.6			5.5

(1)	As of September 30, 2016. The average remaining lease term in years excludes future options to extend the term of the lease.

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Lease Expirations

The following table lists, on an aggregate basis, all of the scheduled lease expirations after September 30, 2016, over each of the ten years ending December 31, 2016, and thereafter for our 150 shopping centers. The table shows the approximate rentable square feet and annualized base rent (“ABR”) represented by the applicable lease expirations (dollars and square feet in thousands):

Year		Number of Expiring Leases			Leased Square Feet Expiring			% of Leased Square Feet Expiring			ABR(1)				% of ABR
October 1 to December 31, 2016(2)		106			192			1.2	%		$	3,305			1.7	%
2017		314			986			6.4	%		14,924				7.7	%
2018		350			1,685			10.9	%		21,914				11.3	%
2019		380			1,955			12.6	%		26,374				13.5	%
2020		294			1,774			11.4	%		22,372				11.6	%
2021		285			1,999			12.9	%		22,109				11.4	%
2022		97			1,259			8.1	%		11,729				6.1	%
2023		94			1,474			9.5	%		18,166				9.4	%
2024		124			1,182			7.6	%		11,842				6.1	%
2025		101			717			4.6	%		10,964				5.7	%
Thereafter		222			2,290			14.8	%		29,688				15.5	%
		2,367			15,513			100.0	%		$	193,387			100.0	%

(1)	We calculate ABR as monthly contractual rent as of September 30, 2016, multiplied by 12 months.

(2)	Subsequent to September 30, 2016, we renewed 29 of the 106 leases expiring in 2016, which accounts for total ABR of $1.4 million.

Portfolio Tenancy

The following table presents the composition of our portfolio by tenant type as of September 30, 2016 (dollars and square feet in thousands):

Tenant Type		Leased Square Feet			% of Leased Square Feet			ABR				% of ABR
Grocery anchor		8,308			53.6	%		$	79,327			41.0	%
National and regional(1)		5,032			32.4	%		74,253				38.4	%
Local		2,173			14.0	%		39,807				20.6	%
		15,513			100.0	%		$	193,387			100.0	%

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

The following table presents the composition of our portfolio by tenant industry as of September 30, 2016 (dollars and square feet in thousands):

Tenant Industry		Leased Square Feet			% of Leased Square Feet			ABR				% of ABR
Grocery		8,308			53.6	%		$	79,327			41.0	%
Retail		3,608			23.3	%		43,460				22.5	%
Services		2,305			14.8	%		43,432				22.5	%
Restaurant		1,292			8.3	%		27,168				14.0	%
		15,513			100.0	%		$	193,387			100.0	%

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The following table presents our grocery-anchor tenants by the amount of square footage leased by each tenant as of September 30, 2016 (in thousands, except number of locations):

Tenant		Number of Locations(1)			Leased Square Feet			% of Leased Square Feet			ABR				% of ABR
Kroger		37			2,076			13.4	%		$	16,278			8.4	%
Publix		31			1,458			9.4	%		14,807				7.7	%
Walmart		9			1,121			7.2	%		5,198				2.7	%
Albertsons-Safeway		13			783			5.1	%		8,177				4.2	%
Giant Eagle		7			560			3.6	%		5,396				2.8	%
Ahold Delhaize		10			553			3.6	%		8,304				4.3	%
SUPERVALU		4			273			1.8	%		2,382				1.2	%
Raley's		3			193			1.2	%		3,422				1.8	%
Winn-Dixie		3			147			0.9	%		1,545				0.8	%
Hy-Vee		2			127			0.8	%		527				0.3	%
Schnuck's		2			121			0.8	%		1,459				0.8	%
Sprouts Farmers Market		4			120			0.8	%		1,482				0.8	%
BJ’s Wholesale Club		1			115			0.7	%		1,223				0.6	%
Coborn's		2			108			0.7	%		1,388				0.7	%
H-E-B		1			81			0.5	%		1,210				0.6	%
Price Chopper		1			68			0.4	%		844				0.4	%
Big Y		1			65			0.4	%		1,091				0.6	%
Food 4 Less (PAQ)		1			59			0.4	%		1,046				0.5	%
Fresh Market		3			58			0.4	%		841				0.4	%
Trader Joe's		4			55			0.4	%		921				0.5	%
Rosauers Supermarkets, Inc.		1			51			0.3	%		537				0.3	%
Save Mart		1			50			0.3	%		399				0.2	%
Marc’s		1			36			0.3	%		400				0.2	%
Fresh Thyme Farmers Market		1			30			0.2	%		450				0.2	%
		143			8,308			53.6	%		$	79,327			41.0	%

(1)	Number of locations excludes (a) auxiliary leases with grocery anchors such as fuel stations, pharmacies, and liquor stores, (b) six locations where we do not own the portion of the shopping center that contains the grocery-anchor, and (c) two locations that have non-grocery anchors, but includes one location where two grocers operate.

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Results of Operations

Summary of Operating Activities for the Three Months Ended September 30, 2016 and 2015

										Favorable (Unfavorable) Change
(In thousands, except per share amounts)		2016				2015				$				%
Operating Data:
Total revenues		$	65,270			$	61,822			$	3,448			5.6	%
Property operating expenses		(10,030		)		(9,645		)		(385		)		(4.0	)%
Real estate tax expenses		(9,104		)		(9,902		)		798				8.1	%
General and administrative expenses		(7,722		)		(2,871		)		(4,851		)		(169.0	)%
Acquisition expenses		(870		)		(836		)		(34		)		(4.1	)%
Depreciation and amortization		(26,583		)		(25,746		)		(837		)		(3.3	)%
Interest expense, net		(8,504		)		(7,818		)		(686		)		(8.8	)%
Other income (expense), net		33				242				(209		)		(86.4	)%
Net income		2,490				5,246				(2,756		)		(52.5	)%
Net income attributable to noncontrolling interests		(26		)		(63		)		37				58.7	%
Net income attributable to stockholders		$	2,464			$	5,183			$	(2,719	)		(52.5	)%
Net income per share—basic and diluted		$	0.01			$	0.03			$	(0.02	)		(66.7	)%

Below are explanations of the fluctuations in the results of operations for the three months ended September 30, 2016 and 2015:

Total revenues—Of the $3.4 million increase in total revenues, $2.4 million was related to the acquisition of three properties since the second quarter of 2015. The remaining variance was primarily the result of a $1.2 million increase among same-center properties, which are the 133 properties that were owned and operational for the entire portion of both comparable reporting periods, except for those properties we currently classify as redevelopment. The increase in same-center revenue was due to a $1.0 million increase in rental income and a $0.2 million increase in tenant recovery income. The increase in same-center rental income was driven by a $0.25 increase in minimum rent per square foot and a 0.4% increase in occupancy since September 30, 2015. The increase in same-center tenant recovery income stemmed from an increase in recoverable expenses, as well as increases in occupancy and recovery percentages.

Real estate tax expenses—Among same-center properties, real estate taxes decreased $1.1 million as a result of the settlement of 2015 tax assessment appeals in the current year. This was partially offset by a $0.3 million increase in tax expenses related to the acquisition of twelve properties in 2016 and 2015.

General and administrative expenses—General and administrative expenses include cash asset management fees, legal and professional fees, insurance for directors and officers, transfer agent fees, taxes and other corporate-level expenses. General and administrative expenses increased $4.9 million, which was related to an increase in cash asset management fees as a result of the change to our advisory fee structure in October 2015. Previously, the asset management fee had been deferred via the issuance of Class B units of our operating partnership, which did not result in the recognition of expense in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The asset management fee remains at 1% of the cost of our assets; however, 80% is now paid in cash and therefore recognized on a current basis as expense under GAAP, with the remaining 20% paid in Class B units.

Interest expense, net—Interest expense increased $0.7 million primarily due to an increase in debt principal outstanding, offset by a decrease in average interest rates.

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Summary of Operating Activities for the Nine Months Ended September 30, 2016 and 2015

										Favorable (Unfavorable) Change
(In thousands, except per share amounts)		2016				2015				$				%
Operating Data:
Total revenues		$	191,405			$	179,963			$	11,442			6.4	%
Property operating expenses		(29,978		)		(28,003		)		(1,975		)		(7.1	)%
Real estate tax expenses		(27,745		)		(26,629		)		(1,116		)		(4.2	)%
General and administrative expenses		(23,736		)		(7,742		)		(15,994		)		(206.6	)%
Acquisition expenses		(2,392		)		(4,058		)		1,666				41.1	%
Depreciation and amortization		(78,266		)		(75,747		)		(2,519		)		(3.3	)%
Interest expense, net		(23,837		)		(22,155		)		(1,682		)		(7.6	)%
Other (expense) income, net		(125		)		117				(242		)		(206.8	)%
Net income		5,326				15,746				(10,420		)		(66.2	)%
Net income attributable to noncontrolling interests		(83		)		(222		)		139				62.6	%
Net income attributable to stockholders		$	5,243			$	15,524			$	(10,281	)		(66.2	)%
Net income per share—basic and diluted		$	0.03			$	0.08			$	(0.05	)		(62.5	)%

Below are explanations of the fluctuations in the results of operations for the nine months ended September 30, 2016 and 2015:

Total revenues—Of the $11.4 million increase in total revenues, $5.6 million was related to the acquisition of twelve properties since the beginning of 2015. Of the remaining $5.8 million increase, $6.2 million was related to same-center properties, which was offset by a $0.4 million decrease in total revenue from the properties classified as redevelopment. The increase in same-center revenue was due to a $2.9 million increase in rental income and a $3.6 million increase in tenant recovery income, offset by a $0.3 million decrease in other property income. The increase in same-center rental income was driven by a $0.25 increase in minimum rent per square foot and a 0.4% increase in occupancy since September 30, 2015. The increase in same-center tenant recovery income stemmed from an increase in overall recoverable expenses, as well as increases in occupancy and recovery percentages.

Property operating expenses—Of the $2.0 million increase in property operating expenses, $1.0 million was related to the acquisition of twelve properties since the beginning of 2015. The remaining variance was primarily a result of a $0.5 million increase in property maintenance expenses due to an increase in additional maintenance projects during the year, and a $0.4 million increase in management fees due to increasing cash receipts from the increase in revenues.

Real estate tax expenses—Of the $1.1 million increase in real estate tax expenses, $0.8 million was related to the acquisition of twelve properties since the beginning of 2015. The remaining $0.3 million was primarily the result of changes in assessed property values and increased property tax rates at certain properties following acquisition, in addition to general tax increases on properties owned for multiple years. The increases were partially offset by a decrease as a result of settlements of 2015 tax assessment appeals in the current year.

General and administrative expenses—General and administrative expenses increased $16.0 million, which was primarily related to a $14.2 million increase due to the change in the payment of asset management fees as a result of amending our advisory fee structure in October 2015 as discussed above. The remaining $1.8 million increase was primarily due to a $0.8 million increase in distributions paid on unvested Class B units as a result of an increase in outstanding Class B units, and a $0.8 million increase in professional fees expenses, which was due in part to higher costs for investor relations custodial fees.

Acquisition expenses—Acquisition expenses decreased $1.7 million as three properties were acquired during the nine months ended September 30, 2016, compared to nine property acquisitions during the nine months ended September 30, 2015.

Interest expense, net—Interest expense increased $1.7 million primarily due to an increase in debt outstanding, offset by a decrease in average interest rates.

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Leasing Activity

Below is a summary of leasing activity for the three months ended September 30, 2016 and 2015:

		Total Deals								Inline Deals(1)
		2016				2015				2016				2015
New leases:
Number of leases		36				36				33				35
Square footage (in thousands)		121				73				67				60
First-year base rental revenue (in thousands)		$	1,582			$	1,026			$	1,108			$	935
Average rent per square foot (“PSF”)		$	13.12			$	14.10			$	16.58			$	15.65
Average cost PSF of executing new leases(2)		$	25.04			$	26.19			$	32.54			$	28.11
Weighted average lease term (in years)		8.4				6.5				7.2				5.8
Renewals and options:
Number of leases		93				60				86				59
Square footage (in thousands)		555				185				168				137
First-year base rental revenue (in thousands)		$	5,806			$	3,048			$	3,367			$	2,658
Average rent PSF		$	10.46			$	16.49			$	20.06			$	19.42
Average rent PSF prior to renewals		$	9.65			$	14.42			$	17.81			$	16.61
Percentage increase in average rent PSF		8.4		%		14.4		%		12.6		%		16.9		%
Average cost PSF of executing renewals and options(2)		$	1.68			$	3.05			$	3.51			$	3.69
Weighted average lease term (in years)		4.9				4.7				4.9				4.6
Portfolio retention rate(3)		89.2		%		71.6		%		81.0		%		78.5		%

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

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

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

Below is a summary of leasing activity for the nine months ended September 30, 2016 and 2015:

		Total Deals								Inline Deals(1)
		2016				2015				2016				2015
New leases:
Number of leases		125				143				119				138
Square footage (in thousands)		358				340				269				251
First-year base rental revenue (in thousands)		$	5,408			$	4,940			$	4,486			$	4,286
Average rent PSF		$	15.10			$	14.55			$	16.70			$	17.06
Average cost PSF of executing new leases(2)		$	32.05			$	25.24			$	34.49			$	31.39
Weighted average lease term (in years)		8.0				7.1				7.3				6.8
Renewals and options:
Number of leases		238				205				222				195
Square footage (in thousands)		1,313				1,007				435				434
First-year base rental revenue (in thousands)		$	14,224			$	13,010			$	9,057			$	8,837
Average rent PSF		$	10.84			$	12.92			$	20.82			$	20.35
Average rent PSF prior to renewals		$	9.87			$	11.66			$	18.34			$	17.68
Percentage increase in average rent PSF		9.8		%		10.8		%		13.5		%		15.1		%
Average cost PSF of executing renewals and options(2)		$	2.30			$	2.76			$	4.30			$	4.17
Weighted average lease term (in years)		5.3				5.9				5.3				5.0
Portfolio retention rate(3)		89.9		%		86.2		%		81.9		%		82.2		%

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

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

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

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

Non-GAAP Measures

Same-Center Net Operating Income

We present Same-Center Net Operating Income (“Same-Center NOI”) as a supplemental measure of our performance. We define Net Operating Income (“NOI”) as total operating revenues less property operating expenses, real estate taxes, and non-cash revenue items. Same-Center NOI represents the NOI for the 133 properties that were owned and operational for the entire portion of both comparable reporting periods, except for those properties we currently classify as redevelopment. A property is removed from the same-center pool and classified as redevelopment when it is being repositioned in the market and such repositioning is expected to have a significant impact on property operating income. While there is judgment surrounding changes in designations, once a redevelopment property has stabilized, it is typically moved to the same-center pool the following year. Currently, we have identified five properties that we classify as redevelopment properties.

We believe that NOI and Same-Center NOI provide useful information to our investors about our financial and operating performance because each provides a performance measure of the revenues and expenses directly involved in owning and operating real estate assets and provides a perspective not immediately apparent from net income. Because Same-Center NOI excludes the change in NOI from properties acquired after December 31, 2014, and those considered redevelopment properties, it highlights operating trends such as occupancy levels, rental rates, and operating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Same-Center NOI, and accordingly, our Same-Center NOI may not be comparable to other REITs.

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

The table below is a comparison of the Same-Center NOI for the three and nine months ended September 30, 2016, to the three and nine months ended September 30, 2015 (in thousands):

		Three Months Ended September 30,															Nine Months Ended September 30,
		2016				2015				$ Change				% Change			2016				2015				$ Change				% Change
Revenues:
Rental income(1)		$	41,902			$	40,695			$	1,207						$	125,776			$	121,837			$	3,939
Tenant recovery income		14,720				14,485				235							43,470				39,843				3,627
Other property income		194				267				(73		)					569				882				(313		)
Total revenues		56,816				55,447				1,369				2.5	%		169,815				162,562				7,253				4.5	%
Operating expenses:
Property operating expenses		8,990				8,859				131							27,017				26,114				903
Real estate taxes		7,925				9,069				(1,144		)					24,651				24,385				266
Total operating expenses		16,915				17,928				(1,013		)		(5.7	)%		51,668				50,499				1,169				2.3	%
Total Same-Center NOI		$	39,901			$	37,519			$	2,382			6.3	%		$	118,147			$	112,063			$	6,084			5.4	%

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

Same-Center NOI increased $6.1 million, or 5.4%, for the nine months ended September 30, 2016, as compared to the same period in 2015. This positive growth was primarily due to a $0.25 increase in minimum rent per square foot, an improvement in occupancy of 0.4%, and an increase in tenant recovery income. The $3.6 million increase in tenant recovery income is a result of a combination of an improvement in our tenant recovery percentage and higher recoverable expenses.

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Below is a reconciliation of net income to Same-Center NOI for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2016				2015				2016				2015
Net income	$	2,490			$	5,246			$	5,326			$	15,746
Adjusted to exclude:
Interest expense, net	8,504				7,818				23,837				22,155
Other (income) expense, net	(33		)		(242		)		125				(117		)
General and administrative expenses	7,722				2,871				23,736				7,742
Acquisition expenses	870				836				2,392				4,058
Depreciation and amortization	26,583				25,746				78,266				75,747
Net amortization of above- and below-market leases	(354		)		(206		)		(936		)		(560		)
Straight-line rental income	(1,068		)		(1,111		)		(2,793		)		(3,716		)
NOI	44,714				40,958				129,953				121,055
Less: NOI from centers excluded from Same-Center	(4,813		)		(3,439		)		(11,806		)		(8,992		)
Total Same-Center NOI	$	39,901			$	37,519			$	118,147			$	112,063

Funds from Operations and Modified Funds from Operations

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

Since the definition of FFO was promulgated by NAREIT, GAAP has expanded to include several new accounting pronouncements, such that management and many investors and analysts have considered the presentation of FFO alone to be insufficient. Accordingly, in addition to FFO, we use modified funds from operations (“MFFO”), which excludes from FFO the following items:

•	acquisition fees and expenses;

•	straight-line rent amounts, both income and expense;

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

•	amortization of discounts and premiums on debt investments;

•	gains or losses from the early extinguishment of debt;

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

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

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

We believe that MFFO is helpful in assisting management and investors with the assessment of the sustainability of operating performance in future periods and, in particular, after our acquisition stage is complete, because MFFO excludes acquisition expenses that affect operations only in the period in which the property is acquired. Thus, MFFO provides helpful information relevant to evaluating our operating performance in periods in which there is no acquisition activity.

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

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•

Adjustments for straight-line rents and amortization of discounts and premiums on debt investments—GAAP requires rental receipts and discounts and premiums on debt investments to be recognized using various systematic methodologies. This may result in income recognition that could be significantly different than underlying contract terms. By adjusting for these items, MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments and aligns results with management’s analysis of operating performance. The adjustment to MFFO for straight-line rents, in particular, is made to reflect rent and lease payments from a GAAP accrual basis to a cash basis.

•

Adjustments for amortization of above- or below-market intangible lease assets—Similar to depreciation and amortization of other real estate-related assets that are excluded from FFO, GAAP implicitly assumes that the value of intangibles diminishes ratably over the lease term and should be recognized in revenue. Since real estate values and market lease rates in the aggregate have historically risen or fallen with market conditions, and the intangible value is not adjusted to reflect these changes, management believes that by excluding these charges, MFFO provides useful supplemental information on the performance of the real estate.

•

Gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting—This item relates to a fair value adjustment, which is based on the impact of current market fluctuations and underlying assessments of general market conditions and specific performance of the holding, which may not be directly attributable to current operating performance. As these gains or losses relate to underlying long-term assets and liabilities, management believes MFFO provides useful supplemental information by focusing on the changes in core operating fundamentals rather than changes that may reflect anticipated, but unknown, gains or losses.

•

Adjustment for gains or losses related to early extinguishment of derivatives and debt instruments—These adjustments are not related to continuing operations. By excluding gains or losses related to early extinguishment of derivatives and debt instruments and write-offs of unamortized deferred financing fees, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods and to other real estate operators.

Neither FFO nor MFFO should be considered as an alternative to net income or income from continuing operations under GAAP, nor as an indication of our liquidity, nor is either of these measures indicative of funds available to fund our cash needs, including our ability to fund distributions. MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate our business plan in the manner currently contemplated.

Accordingly, FFO and MFFO should be reviewed in connection with other GAAP measurements. FFO and MFFO should not be viewed as more prominent measures of performance than our net income or cash flows from operations prepared in accordance with GAAP. Our FFO and MFFO as presented may not be comparable to amounts calculated by other REITs.

The following section presents our calculation of FFO and MFFO and provides additional information related to our operations.

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FFO AND MFFO

FOR THE PERIODS ENDED SEPTEMBER 30, 2016 AND 2015

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,								Nine Months Ended September 30,
	2016				2015				2016				2015
Calculation of FFO
Net income attributable to stockholders	$	2,464			$	5,183			$	5,243			$	15,524
Adjustments:
Depreciation and amortization of real estate assets	26,583				25,746				78,266				75,747
Noncontrolling interest	(397		)		(381		)		(1,171		)		(1,091		)
FFO attributable to common stockholders	$	28,650			$	30,548			$	82,338			$	90,180
Calculation of MFFO
FFO	$	28,650			$	30,548			$	82,338			$	90,180
Adjustments:
Acquisition expenses	870				836				2,392				4,058
Net amortization of above- and below-market leases	(354		)		(206		)		(936		)		(560		)
(Gain) loss on extinguishment of debt, net	(184		)		15				(79		)		155
Straight-line rental income	(1,068		)		(1,111		)		(2,793		)		(3,716		)
Amortization of market debt adjustment	(285		)		(690		)		(1,631		)		(2,012		)
Change in fair value of derivative	(98		)		39				(66		)		16
Noncontrolling interest	4				(30		)		47				31
MFFO attributable to common stockholders	$	27,535			$	29,401			$	79,272			$	88,152
Earnings per common share:
Weighted-average common shares outstanding - basic	184,639				185,271				183,471				184,209
Weighted-average common shares outstanding - diluted	187,428				188,057				186,260				186,902
Net income per share - basic and diluted	$	0.01			$	0.03			$	0.03			$	0.08
FFO per share - basic	$	0.16			$	0.16			$	0.45			$	0.49
FFO per share - diluted	$	0.15			$	0.16			$	0.44			$	0.48
MFFO per share - basic	$	0.15			$	0.16			$	0.43			$	0.48
MFFO per share - diluted	$	0.15			$	0.16			$	0.43			$	0.47

Liquidity and Capital Resources 

General

Our principal demands for funds are operating expenses, capital expenditures including redevelopment projects, distributions to stockholders, repurchases of common stock, and the principal and interest on indebtedness. We intend to use our cash on hand, operating cash flows, proceeds from our dividend reinvestment program (the “DRIP”), and proceeds from debt financings, including borrowings under our unsecured credit facility, as our primary sources of immediate and long-term liquidity. We expect that substantially all of the net cash generated from operations will be used to pay distributions to our stockholders after certain capital expenditures, including tenant improvements and leasing commissions, are funded; however, we have and may continue to use other sources to fund distributions as necessary, including borrowings.

As of September 30, 2016, we had cash and cash equivalents of $21.4 million. During the nine months ended September 30, 2016, we had a net cash decrease of $19.3 million, primarily as a result of the use of additional cash on hand at December 31, 2015 to retire debt immediately following year-end.

Operating Activities

Our net cash provided by operating activities consists primarily of cash inflows from tenant rental and recovery payments and cash outflows for property operating expenses, real estate taxes, general and administrative expenses, and interest payments.

Our cash flows from operating activities were $85.2 million for the nine months ended September 30, 2016 compared to $90.8 million from the same period in 2015. The decrease was due to the portion of asset management fees paid in cash during 2016,

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in the amount of $14.2 million, as a result of the change in advisory fee structure, offset by favorable changes due to managing a larger portfolio.

Investing Activities

Net cash used in investing activities is impacted by the nature, timing, and extent of improvements, and acquisitions of real estate and real estate-related assets.

During the nine months ended September 30, 2016, we acquired three shopping centers and additional real estate adjacent to previously acquired shopping centers for a total cash outlay of $132.3 million. During the same period in 2015, we acquired nine shopping centers and additional real estate adjacent to a previously acquired grocery-anchored shopping center for a total cash outlay of $87.8 million, resulting in an increase in our cash paid for investing activities. We continue to evaluate the market for available properties and may acquire properties when we believe strategic opportunities exist.

Financing Activities

Our net cash provided by financing activities is impacted by payments of distributions, borrowings during the period, and principal and other payments associated with our outstanding debt. As our debt obligations mature, we intend to refinance the remaining balance, if possible, or pay off the balances at maturity using proceeds from operations and/or corporate-level debt.

As of September 30, 2016, our debt to total enterprise value was 32.7%. Debt to total enterprise value is calculated as net debt (total debt, excluding below-market debt adjustments and deferred financing costs, less cash and cash equivalents) as a percentage of enterprise value (equity value, calculated as total common shares and OP units outstanding multiplied by the estimated value per share of $10.20, plus net debt).

We have access to a revolving credit facility with a capacity of $500 million and a current interest rate of LIBOR plus 1.3%. As of September 30, 2016, $382.5 million was available for borrowing under the revolving credit facility. The revolving credit facility matures in December 2017 with additional options to extend the maturity to December 2018.

We offer a share repurchase program that provides a limited opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and limitations. The cash available for repurchases on any particular date is generally limited to the proceeds from the DRIP during the preceding four fiscal quarters, less amounts already used for repurchases since the beginning of the same period. During the nine months ended September 30, 2016, we paid cash for repurchases of common stock in the amount of $7.3 million, all of which was repurchased in connection with our tender offer, a stockholder’s death, “qualifying disability,” or determination of incompetence. In October 2016, approximately $11.2 million was available for repurchases under our Share Repurchase Program. Investors who had submitted share repurchase requests by October 24, 2016 and that were in good order had their shares repurchased on a prorata basis. The 7.4 million shares of unfulfilled repurchase requests, as well as requests that were not in good order, will be treated as requests for repurchase during future months until satisfied or withdrawn.

Activity related to distributions to our common stockholders for the nine months ended September 30, 2016 and 2015, is as follows (in thousands):

	Nine Months Ended September 30,
	2016				2015
Gross distributions paid	$	92,266			$	92,476
Distributions reinvested through DRIP	44,731				48,185
Net cash distributions	47,535				44,291
Net income attributable to stockholders	5,243				15,524
Net cash provided by operating activities	85,179				90,775
FFO(1)	82,338				90,180

⁽¹⁾ See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Measures - Funds from Operations and Modified Funds from Operations” for the definition of FFO, information regarding why we present FFO, as well as for a reconciliation of this non-GAAP financial measure to net income on the consolidated statements of operations.

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

To maintain our qualification as a REIT, we must make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain, and which does not necessarily equal net income as calculated in accordance with GAAP). If we meet the REIT qualification

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requirements, we generally will not be subject to U.S. federal income tax on the income that we distribute to our stockholders each year. However, we may be subject to certain state and local taxes on our income, property or net worth, respectively, and to federal income and excise taxes on our undistributed income.

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

Contractual Commitments and Contingencies

Our contractual obligations as of September 30, 2016 were as follows (in thousands):

	Payments due by period
	Total				2016				2017				2018				2019				2020				Thereafter
Long-term debt obligations - principal payments	$	950,282			$	1,099			$	164,709			$	44,790			$	104,145			$	179,113			$	456,426
Long-term debt obligations - interest payments(1)	113,013				7,215				26,154				21,745				18,944				14,302				24,653
Operating lease obligations	579				16				49				30				30				30				424
Total	$	1,063,874			$	8,330			$	190,912			$	66,565			$	123,119			$	193,445			$	481,503

(1)	Future variable-rate interest payments are based on interest rates as of September 30, 2016.

Our portfolio debt instruments and the unsecured revolving credit facility contain certain covenants and restrictions. The following is a list of certain restrictive covenants specific to the unsecured revolving credit facility that were deemed significant:

•	limits the ratio of debt to total asset value, as defined, to 60% or less with a surge to 65% following a material acquisition, as defined within the applicable debt agreement;

•	limits the ratio of unsecured debt to unencumbered asset value, as defined, to 60% or less with a surge to 65% following a material acquisition;

•	limits the ratio of secured debt to total asset value, as defined, to 40% or less with a surge to 45% following a material acquisition;

•	requires the fixed-charge ratio, as defined, to be at least 1.5 to 1.0 or 1.4 to 1.0 following a material acquisition;

•	requires maintenance of certain minimum tangible net worth balances;

•	requires the unencumbered NOI to interest expense on unsecured indebtedness ratio, as defined, to be 1.75 to 1.0 or greater or 1.7 to 1.0 following a material acquisition; and

•	limits the ratio of cash dividend payments to a specified percentage of FFO, that varies among the related debt agreements.

As of September 30, 2016, we were in compliance with the restrictive covenants of our outstanding debt obligations. We expect to continue to meet the requirements of our debt covenants over the short and long term.

Critical Accounting Policies

There have been no changes to our critical accounting policies during the nine months ended September 30, 2016. For a summary of our critical accounting policies, refer to our 2015 Annual Report on Form 10-K filed with the SEC on March 3, 2016.

Newly Adopted and Recently Issued Accounting Pronouncements—Refer to Note 2 of our consolidated financial statements in this report for discussion of the impact of newly adopted and recently issued accounting pronouncements.

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

We hedge a portion of our exposure to interest rate fluctuations through the utilization of interest rate swaps in order to mitigate the risk of this exposure. We do not intend to enter into derivative or interest rate transactions for speculative purposes. Our hedging decisions are determined based upon the facts and circumstances existing at the time of the hedge and may differ from our currently anticipated hedging strategy. Because we use derivative financial instruments to hedge against interest rate

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fluctuations, we may be exposed to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. 

As of September 30, 2016, we were party to three interest rate swap agreements that fix the LIBOR portion of the interest rate on $387.0 million of outstanding debt under our existing unsecured credit facility, and we were party to an interest rate swap agreement that, in effect, fixed the variable interest rate on $11.1 million of one of our secured variable-rate mortgage notes at 5.22%.

As of September 30, 2016, we had not fixed the interest rate for $360.5 million of our unsecured variable-rate debt through derivative financial instruments, and as a result, we are subject to the potential impact of rising interest rates, which could negatively impact our profitability and cash flows. The impact on our annual results of operations of a one-percentage point increase in interest rates on the outstanding balance of our variable-rate debt at September 30, 2016, would result in approximately $3.6 million of additional interest expense. We had no other outstanding interest rate contracts as of September 30, 2016.

These amounts were determined based on the impact of hypothetical interest rates on our borrowing cost and assume no changes in our capital structure. As the information presented above includes only those exposures that exist as of September 30, 2016, it does not consider those exposures or positions that could arise after that date. Hence, the information represented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the hedging strategies at the time, and the related interest rates.

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

 

Item 4.        Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2016. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of September 30, 2016.

Internal Control Changes

During the quarter ended September 30, 2016, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 PART II.     OTHER INFORMATION

 

Item 1.        Legal Proceedings

From time to time, we are party to legal proceedings, which arise in the ordinary course of our business. We are not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material impact on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.

 

Item 1A. Risk Factors

The following risk factors supplement the risk factors set forth in our 2015 Annual Report on Form 10-K.

If we pay distributions from sources other than our cash flows from operations, we may not be able to sustain our distribution rate, we may have fewer funds available for investment in properties and other assets, and our stockholders’ overall returns may be reduced.

If we pay distributions from sources other than our cash flows from operations, we may not be able to sustain our distribution rate, we may have fewer funds available for investment in properties and other assets, and our stockholders’ overall returns may be reduced. At times, we may be forced to borrow funds to pay distributions during unfavorable market conditions or during periods when funds from operations are needed to make capital expenditures and pay other expenses, which could increase our operating costs. Furthermore, if we cannot cover our distributions with cash flows from operations, we may be unable to sustain our distribution rate. For the nine months ended September 30, 2016, we paid gross distributions to our common stockholders of $92.3 million, including distributions reinvested through the DRIP of $44.7 million. For the nine months ended September 30, 2016, our net cash provided by operating activities was $85.2 million, which represents a shortfall of $7.1 million, or 7.7%, of our distributions paid, while our FFO was $82.3 million, which represents a shortfall of $10.0 million, or 10.8%, of the distributions paid. For the nine months ended September 30, 2015, we paid distributions of $92.5 million, including distributions reinvested through the DRIP of $48.2 million. For the nine months ended September 30, 2015, our net cash provided by operating activities was $90.8 million, which represents a shortfall of $1.7 million, or 1.8%, of our distributions paid, while our FFO was $90.2 million, which represents a shortfall of $2.3 million, or 2.5% of our distributions paid. Any shortfalls were funded by proceeds from borrowings.

Because the offering price in the DRIP exceeds our net tangible book value per share, investors in the DRIP will experience immediate dilution in the net tangible book value of their shares.

Initially, we offered shares in the DRIP at $9.50 per share. Effective as of August 24, 2015, we offer shares in the DRIP at $10.20 per share, which is the estimated value per share of our common stock. Our estimated value per share was calculated as of a specific date and is expected to fluctuate over time in response to future events such as developments related to individual assets and changes in the real estate and financial markets. However, we anticipate only determining an estimated value per share annually. As such, the actual value of an investment through the DRIP may be less than the DRIP offering price. Our net tangible book value is a rough approximation of value calculated simply as gross book value of real estate assets plus cash and cash equivalents minus total liabilities, divided by the total number of shares of common stock outstanding. Our net tangible book value reflects dilution in the value of our common stock from the issue price as a result of (1) operating losses, excluding accumulated depreciation and amortization of real estate investments, (2) cumulative distributions in excess of our earnings, (3) fees paid in connection with our initial public offering, including selling commissions and marketing fees re-allowed by our dealer manager to participating broker dealers, (4) the fees and expenses paid to PE-NTR and ARC in connection with the selection, acquisition, and management of our investments, and (5) general and administrative expenses. As of September 30, 2016, our net tangible book value per share was $7.87.

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

a)	We did not sell any equity securities that were not registered under the Securities Act during the nine months ended September 30, 2016.

b)	Not applicable.

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c)	During the quarter ended September 30, 2016, we repurchased shares as follows (shares in thousands):

Period		Total Number of Shares Repurchased(1)			Average Price Paid per Share(1)(3)				Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program(1)(2)			Approximate Dollar Value of Shares Available That May Yet Be Repurchased Under the Program
July 2016		199			$	10.20			199			(2)
August 2016		81			10.20				81			(2)
September 2016		64			10.20				64			(2)

(1)	Share repurchases made during the three months ended September 30, 2016, were made in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence," which are not subject to the funding limitations of the share repurchase program.

(2)	We currently limit the dollar value and number of shares that may yet be repurchased under the share repurchase program as described below. During the three months ended September 30, 2016, we repurchased $3.5 million of common stock. See below regarding funding limitations during the fourth quarter of 2016 and beyond.

(3)	The repurchase price per share for all stockholders under our share repurchase plan is equal to the estimated value per share of $10.20.

As of September 30, 2016, we had no liability recorded for an obligation to repurchase shares of common stock, as there were no outstanding repurchase requests that we had accepted, but not yet fulfilled.

There are several limitations on our ability to repurchase shares under the program:

•	Unless the shares are being repurchased in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence,” we may not repurchase shares unless the stockholder has held the shares for one year.

•	During any calendar year, we may repurchase no more than 5.0% of the weighted-average number of shares outstanding during the prior calendar year.

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

•

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

•

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

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

Beginning in October 2015, repurchase requests surpassed the funding limits under the share repurchase program, and there were no funds available for repurchases during the third quarter of 2016. As of September 30, 2016, there were outstanding requests to repurchase 9.1 million shares that had not been repurchased due to the program’s funding limits. Funds available for repurchases during the fourth quarter of 2016 will be insufficient to meet all requests. If we are unable to fulfill all repurchase requests in any month, we will attempt to honor requests on a pro rata basis. We continue to fulfill all repurchases sought upon a stockholder’s death, “qualifying disability,” or “determination of incompetence” in accordance with the terms of the share repurchase program.

Our board of directors may amend, suspend or terminate the program upon 30 days’ notice. We may provide notice by including such information (a) in a current report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or (b) in a separate mailing to the stockholders.

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Item 3.        Defaults Upon Senior Securities

None.

Item 4.        Mine Safety Disclosures

Not applicable.

Item 5.        Other Information

Renewal of Advisory Agreement

On November 1, 2016, the conflicts committee of our board of directors approved the renewal of our advisory agreement with Phillips Edison NTR LLC for an additional one year period through December 3, 2017. There were no other changes to the terms of the advisory agreement in connection with its renewal.

Item 6.        Exhibits

Ex.	Description
10.1	Credit Agreement among Phillips Edison Grocery Center Operating Partnership I, L.P., the Company, the Lenders party thereto, PNC Bank, National Association as Administrative Agent, and Capital One National Association, Fifth Third Bank, and Regions Bank as Co-Syndication Agents dated September 16, 2016*
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002*
101.1	The following information from the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive (Loss) Income; (iii) Consolidated Statements of Equity; and (iv) Consolidated Statements of Cash Flows*

*Filed herewith.

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SIGNATURES

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

 

	PHILLIPS EDISON GROCERY CENTER REIT I, INC.
Date: November 3, 2016	By:	/s/ Jeffrey S. Edison
		Jeffrey S. Edison
		Chairman of the Board and Chief Executive Officer
		(Principal Executive Officer)
Date: November 3, 2016	By:	/s/ Devin I. Murphy
		Devin I. Murphy
		Chief Financial Officer
		(Principal Financial Officer)

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