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EX-10.3 - EXHIBIT 10.3 - Phillips Edison & Company, Inc.pentr_20150630-ex103.htm
EX-31.2 - EXHIBIT 31.2 - Phillips Edison & Company, Inc.pentr_20150630-ex312.htm
EX-32.1 - EXHIBIT 32.1 - Phillips Edison & Company, Inc.pentr_20150630-ex321.htm
EX-10.1 - EXHIBIT 10.1 - Phillips Edison & Company, Inc.pentr_20150630-ex101.htm
EX-31.1 - EXHIBIT 31.1 - Phillips Edison & Company, Inc.pentr_20150630-ex311.htm
EX-32.2 - EXHIBIT 32.2 - Phillips Edison & Company, Inc.pentr_20150630-ex322.htm
EX-10.2 - EXHIBIT 10.2 - Phillips Edison & Company, Inc.pentr_20150630-ex102.htm


 
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 June 30, 2015
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 July 31, 2015, there were 185.0 million outstanding shares of common stock of Phillips Edison Grocery Center REIT I, Inc.





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1



PART I.        FINANCIAL INFORMATION
 
Item 1.          Financial Statements

PHILLIPS EDISON GROCERY CENTER REIT I, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2015 AND DECEMBER 31, 2014
(Unaudited)
(In thousands, except per share amounts)
  
June 30, 2015
 
December 31, 2014
ASSETS
  
 
  
Investment in real estate:
  
 
  
Land and improvements
$
710,314

 
$
675,289

Building and improvements
1,380,190

 
1,305,345

Acquired intangible lease assets
232,007

 
220,601

Total investment in real estate assets
2,322,511

 
2,201,235

Accumulated depreciation and amortization
(179,110
)
 
(126,965
)
Total investment in real estate assets, net
2,143,401

 
2,074,270

Cash and cash equivalents
32,819

 
15,649

Restricted cash
7,828

 
6,803

Deferred financing expense, net of accumulated amortization of $7,119 and $5,107, respectively
11,653

 
13,727

Other assets, net
46,592

 
40,320

Total assets
$
2,242,293

 
$
2,150,769

 
 
 
 
LIABILITIES AND EQUITY
  

 
  

Liabilities:
  

 
  

Mortgages and loans payable
$
763,442

 
$
650,462

Acquired below-market lease intangibles, less accumulated amortization of $10,948 and $7,619, respectively
42,908

 
42,454

Accounts payable – affiliates
2,221

 
975

Accounts payable and other liabilities
47,179

 
48,738

Total liabilities
855,750

 
742,629

Commitments and contingencies (Note 9)

 

Redeemable common stock
51,993

 
29,878

Equity:
  

 
  

Preferred stock, $0.01 par value per share, 10,000 shares authorized, zero shares issued and outstanding at June 30, 2015
  
 
  
and December 31, 2014

 

Common stock, $0.01 par value per share, 1,000,000 shares authorized, 184,849 and 182,131 shares issued and
  
 
  
outstanding at June 30, 2015 and December 31, 2014, respectively
1,845

 
1,820

Additional paid-in capital
1,569,118

 
1,567,653

Accumulated other comprehensive income
2,184

 

Accumulated deficit
(264,669
)
 
(213,975
)
Total stockholders’ equity
1,308,478

 
1,355,498

Noncontrolling interests
26,072

 
22,764

Total equity
1,334,550

 
1,378,262

Total liabilities and equity
$
2,242,293

 
$
2,150,769


See notes to consolidated financial statements.

2



PHILLIPS EDISON GROCERY CENTER REIT I, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(Unaudited)
(In thousands, except per share amounts)
  
Three Months Ended June 30,
 
Six Months Ended June 30,
  
2015
 
2014
 
2015
 
2014
Revenues:
  
 
  
 
  
 
  
Rental income
$
45,539

 
$
33,677

 
$
90,039

 
$
60,901

Tenant recovery income
13,289

 
10,038

 
27,393

 
18,344

Other property income
366

 
199

 
709

 
346

Total revenues
59,194

 
43,914

 
118,141

 
79,591

Expenses:
  

 
  

 
  

 
  

Property operating
8,372

 
6,999

 
18,358

 
13,124

Real estate taxes
8,548

 
6,450

 
16,727

 
10,732

General and administrative
2,509

 
2,497

 
4,871

 
4,268

Acquisition expenses
1,487

 
5,925

 
3,222

 
11,311

Depreciation and amortization
25,271

 
19,198

 
50,001

 
34,601

Total expenses
46,187

 
41,069

 
93,179

 
74,036

Other income (expense):
  

 
  

 
  

 
  

Interest expense, net
(7,543
)
 
(4,890
)
 
(14,337
)
 
(8,570
)
Other (expense) income, net
(3
)
 
166

 
(125
)
 
713

Net income (loss)
5,461

 
(1,879
)
 
10,500

 
(2,302
)
Net income attributable to noncontrolling interests
(91
)
 

 
(159
)
 

Net income (loss) attributable to stockholders
$
5,370

 
$
(1,879
)
 
$
10,341

 
$
(2,302
)
Earnings per common share:
  

 
  

 
  

 
  

Net income (loss) per share - basic and diluted
$
0.03

 
$
(0.01
)
 
$
0.06

 
$
(0.01
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
184,342

 
178,508

 
183,669

 
177,686

Diluted
187,127

 
178,508

 
186,316

 
177,686

 
 
 
 
 
 
 
 
Comprehensive income (loss):
  

 
  

 
  

 
  

Net income (loss)
$
5,461

 
$
(1,879
)
 
$
10,500

 
$
(2,302
)
Other comprehensive income (loss):
  

 
  

 
  

 
  

Change in unrealized gain (loss) on interest rate swaps, net
2,184

 

 
2,184

 
(690
)
Comprehensive income (loss)
7,645

 
(1,879
)
 
12,684

 
(2,992
)
Comprehensive income attributable to noncontrolling interests
(91
)
 

 
(159
)
 

Comprehensive income (loss) attributable to stockholders
$
7,554

 
$
(1,879
)
 
$
12,525

 
$
(2,992
)

See notes to consolidated financial statements.

3



PHILLIPS EDISON GROCERY CENTER REIT I, INC.
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(Unaudited)
(In thousands, except per share amounts)
  
Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income
 
Accumulated Deficit
 
Total Stockholders’ Equity
 
Noncontrolling Interest
 
Total Equity
  
Shares
 
Amount
 
 
 
 
 
 
Balance at January 1, 2014
175,595

 
$
1,756

 
$
1,538,185

 
$
690

 
$
(71,192
)
 
$
1,469,439

 
$
93

 
$
1,469,532

Issuance of common stock
256

 
2

 
2,532

 

 

 
2,534

 

 
2,534

Share repurchases
(87
)
 
(1
)
 
(1,380
)
 

 

 
(1,381
)
 

 
(1,381
)
Dividend reinvestment plan (DRIP)
3,265

 
33

 
30,991

 

 

 
31,024

 

 
31,024

Change in unrealized loss on interest rate swaps

 

 

 
(690
)
 

 
(690
)
 

 
(690
)
Common distributions declared, $0.34 per share

 

 

 

 
(59,053
)
 
(59,053
)
 

 
(59,053
)
Distributions to noncontrolling interests

 

 

 

 

 

 
(8
)
 
(8
)
Offering costs

 

 
(1,470
)
 

 

 
(1,470
)
 

 
(1,470
)
Net loss

 

 

 

 
(2,302
)
 
(2,302
)
 

 
(2,302
)
Balance at June 30, 2014
179,029

 
$
1,790

 
$
1,568,858

 
$

 
$
(132,547
)
 
$
1,438,101

 
$
85

 
$
1,438,186

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
182,131

 
$
1,820

 
$
1,567,653

 
$

 
$
(213,975
)
 
$
1,355,498

 
$
22,764

 
$
1,378,262

Share repurchases
(645
)
 
(9
)
 
(8,344
)
 

 

 
(8,353
)
 

 
(8,353
)
Change in redeemable common stock

 

 
(22,115
)
 

 

 
(22,115
)
 

 
(22,115
)
DRIP
3,363

 
34

 
31,924

 

 

 
31,958

 

 
31,958

Change in unrealized gain on interest rate swaps

 

 

 
2,184

 

 
2,184

 

 
2,184

Common distributions declared, $0.34 per share

 

 

 

 
(61,035
)
 
(61,035
)
 

 
(61,035
)
Issuance of partnership units

 

 

 

 

 

 
4,047

 
4,047

Distributions to noncontrolling interests

 

 

 

 

 

 
(898
)
 
(898
)
Net income

 

 

 

 
10,341

 
10,341

 
159

 
10,500

Balance at June 30, 2015
184,849

 
$
1,845

 
$
1,569,118

 
$
2,184

 
$
(264,669
)
 
$
1,308,478

 
$
26,072

 
$
1,334,550


See notes to consolidated financial statements.

4



PHILLIPS EDISON GROCERY CENTER REIT I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(Unaudited)
(In thousands)
  
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
  
 
  
Net income (loss)
$
10,500

 
$
(2,302
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
  

 
  

Depreciation and amortization
48,515

 
33,360

Net amortization of above- and below-market leases
(354
)
 
229

Amortization of deferred financing expense
2,491

 
1,764

Change in fair value of derivative
(23
)
 
(443
)
Straight-line rental income
(2,605
)
 
(1,869
)
Other
285

 
67

Changes in operating assets and liabilities:
  

 
  

Other assets
1,829

 
(3,606
)
Accounts payable and other liabilities
1,670

 
7,214

Accounts payable – affiliates
1,093

 
663

Net cash provided by operating activities
63,401


35,077

CASH FLOWS FROM INVESTING ACTIVITIES:
  

 
  

Real estate acquisitions
(88,474
)
 
(456,795
)
Capital expenditures
(9,297
)
 
(4,550
)
Change in restricted cash
(1,025
)
 
2,867

Proceeds from sale of derivative

 
520

Net cash used in investing activities
(98,796
)
 
(457,958
)
CASH FLOWS FROM FINANCING ACTIVITIES:
  

 
  

Net change in credit facility borrowings
134,800

 
32,000

Payments on mortgages and loans payable
(45,480
)
 
(18,692
)
Payments of deferred financing expenses
(557
)
 
(2,301
)
Distributions paid, net of DRIP
(29,262
)
 
(27,948
)
Distributions to noncontrolling interests
(753
)
 
(16
)
Repurchases of common stock
(6,183
)
 
(852
)
Proceeds from issuance of common stock

 
2,534

Payment of offering costs

 
(1,799
)
Net cash provided by (used in) financing activities
52,565

 
(17,074
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
17,170

 
(439,955
)
CASH AND CASH EQUIVALENTS:
  

 
  

Beginning of period
15,649

 
460,250

End of period
$
32,819

 
$
20,295

SUPPLEMENTAL CASH FLOW DISCLOSURE, INCLUDING NON-CASH INVESTING AND FINANCING ACTIVITIES:
  
 
  
Cash paid for interest
$
12,818

 
$
6,915

Fair value of debt assumed
24,982

 
141,472

Assumed interest rate swap

 
714

Accrued capital expenditures
2,012

 
2,055

Change in offering costs payable to sponsor(s)

 
(329
)
Change in distributions payable
(185
)
 
81

Change in distributions payable – noncontrolling interests
145

 
(8
)
Change in accrued share repurchase obligation
2,170

 
529

Distributions reinvested
31,958

 
31,024


See notes to consolidated financial statements.

5



 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”) and Michael Phillips and Jeffrey Edison, principals of our 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. Prior to December 3, 2014, our advisor was American Realty Capital II Advisors, LLC (“ARC”). Under the terms of the previous advisory agreement between ARC and us (the “ARC Agreement”), ARC delegated most of its duties, including the management of our day-to-day operations and our portfolio of real estate assets, to PE-NTR.

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 June 30, 2015, we owned fee simple interests in 147 real estate properties acquired from third parties unaffiliated with 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 six months ended June 30, 2015. For a full summary of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the U.S. Securities and Exchange Commission (“SEC”) on March 9, 2015.
 
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, 2014, which are included in our 2014 Annual Report on Form 10-K, as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report on Form 10-Q. In the opinion of management, all normal and recurring adjustments necessary for the fair presentation have been included in this Quarterly Report. Our results of operations for the three and six months ended June 30, 2015 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.

Redeemable Common Stock—Under our share repurchase program, the maximum amount of common stock that we may repurchase, at the shareholders’ election, during any calendar year is limited, among other things, to the lesser of 5% of the weighted-average number of shares outstanding during the prior calendar year or the proceeds from the DRIP during the preceding four fiscal quarters. The maximum amount is reduced each reporting period by the current year share repurchases to date.

We record amounts that may be repurchased under the share repurchase program as redeemable common stock outside of permanent equity in our consolidated balance sheets because repurchases are at the option of the holders and are not solely within our control. Changes in the amount of redeemable common stock from period to period are recorded as an adjustment to equity through additional paid-in capital.

6



 
We offer a share repurchase program which may allow certain stockholders to have their shares repurchased subject to approval and certain limitations and restrictions (see Note 3). We account for those financial instruments that represent our mandatory obligation to repurchase shares as liabilities to be reported at settlement value. When shares are presented for repurchase, we will reclassify such obligations from redeemable common stock to a liability based upon their respective settlement values.

Earnings Per Share—Certain limited partnership units of the Operating Partnership (designated as “Class B units”) are considered to be participating securities, as they contain non-forfeitable rights to dividends or dividend equivalents. The impact of these Class B units on basic and diluted earnings per share (“EPS”) has been calculated using the two-class method whereby earnings are allocated to the Class B units based on dividends declared and the Class B 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 June 30, 2015.

Diluted EPS reflects the potential dilution that could occur from other share equivalent activity. Therefore, vested Class B units were included in the diluted net income per share computations for the three and six months ended June 30, 2015. However, as vesting of the Class B units is contingent upon a market condition and service condition, unvested Class B units were not included in the diluted net income (loss) per share computations since the satisfaction of the market or service condition was not probable as of June 30, 2015 and 2014. There were 2.8 million vested Class B units of the Operating Partnership outstanding as of June 30, 2015. There were 0.8 million and 1.3 million unvested Class B units outstanding as of June 30, 2015 and 2014, respectively, which had no effect on EPS.
 
Reclassifications—The following line items on our consolidated statement of cash flows for the six months ended June 30, 2014 were reclassified to conform to the current year presentation:

The change in accounts receivable and the change in prepaid expenses and other were reclassified to the change in other assets;
The change in accounts payable and the change in accrued and other liabilities were reclassified to the change in
accounts payable and other liabilities; and
The loss on disposal of real estate assets and the loss on write-off of unamortized debt issuance costs and capitalized leasing commissions were reclassified to other.

Impact of Recently Issued Accounting Pronouncements—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 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis

 
This update amends the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. It may be adopted either retrospectively or on a modified retrospective basis. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted.
 
January 1, 2016
 
We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs
 
This update amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted.
 
January 1, 2016
 
We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

3. EQUITY
 
General—We have the authority to issue a total of 1 billion shares of common stock with a par value of $0.01 per share and 10 million shares of preferred stock, $0.01 par value per share. As of June 30, 2015, we had issued 185.9 million shares of common stock generating gross cash proceeds of $1.84 billion.  As of June 30, 2015, there were 184.8 million shares of our common stock outstanding, which is net of 1.1 million shares repurchased from stockholders pursuant to our share repurchase program, and we had issued no shares of preferred stock. The holders of common stock are entitled to one vote per share on all matters voted on by stockholders, including election of the board of directors. Our charter does not provide for cumulative voting in the election of directors.

7



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. We continue to offer up to a total of approximately 18.2 million shares of common stock under the DRIP. Stockholders who elect to participate in the DRIP may choose to invest all or a portion of their cash distributions in shares of our common stock at a purchase price of $9.50 per share. Once we establish an estimated value per share that is not based on the price to acquire a share in the primary offering or a follow-on public offering, shares issued pursuant to the DRIP will be priced at the estimated value per share of our common stock, as determined by PE-NTR or an independent firm chosen for that purpose.

Stockholders who elect to participate in the DRIP, and who are subject to U.S. federal income tax, may incur a tax liability on an amount equal to the fair value on the relevant distribution date of the shares of our common stock purchased with reinvested distributions, even though such stockholders have elected not to receive the distributions in cash. Distributions reinvested through the DRIP for the three months ended June 30, 2015 and 2014, were $16.2 million and $15.8 million, respectively. Distributions reinvested through the DRIP for six months ended June 30, 2015 and 2014 were $32.0 million and $31.0 million, respectively.

Share Repurchase Program—Our share repurchase program may provide a limited opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and limitations, at a price equal to or at a discount from the stockholders’ original purchase prices paid for the shares being repurchased. Once we establish an estimated value per share that is not based on the price to acquire a share in the primary offering or a follow-on public offering, the repurchase price per share for all stockholders will be equal to the estimated value per share, as determined by PE-NTR or an independent firm chosen for that purpose.
 
Repurchase of shares of common stock will be made monthly upon written notice received by us at least five days prior to the end of the applicable month. The board of directors may, in its sole discretion, amend, suspend, or terminate the share repurchase program at any time upon 30 days’ written notice. Stockholders may withdraw their repurchase request at any time up to five business days prior to the repurchase date.

The following table presents the activity of the share repurchase program for the three and six months ended June 30, 2015 and 2014 (in thousands, except per share amounts):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Shares repurchased
 
131

 
71

 
645

 
87

Cost of repurchases
 
$
1,276

 
$
695

 
$
6,184

 
$
852

Average repurchase price
 
$
9.74

 
$
9.78

 
$
9.58

 
$
9.78


We record a liability representing our obligation to repurchase shares of common stock submitted for repurchase as of period end but not yet repurchased. Below is a summary of our obligation to repurchase shares of common stock recorded as a component of accounts payable and other liabilities on our consolidated balance sheets as of June 30, 2015 and December 31, 2014 (in thousands):
 
 
June 30, 2015
 
December 31, 2014
Shares submitted for repurchase
 
411

 
177

Liability recorded
 
$
3,838

 
$
1,669


Class B Units—Under our prior advisory agreement, in connection with asset management services provided by ARC and PE-NTR, we issued 0.4 million Class B units during the six months ended June 30, 2015 for asset management services provided from October 1, 2014 through December 3, 2014, the date of the termination of our prior advisory agreement. In connection with the termination of the prior advisory agreement, we determined that the economic hurdle had been met as of that date and that the units issued to ARC and PE-NTR for asset management services provided through December 3, 2014 had vested.

Under the terms of the limited partnership agreement of the Operating Partnership, vested Class B units will convert to Operating Partnership units when the economic capital account balance attributable to those Class B units is equal to the Operating Partnership unit economic balance. Upon conversion, such Operating Partnership 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 Operating Partnership units have been

8



outstanding for at least one year. PE-NTR has agreed under the PE-NTR Agreement not to exchange any Operating Partnership 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 vested Class B units is within our control, the Class B units issued as of June 30, 2015 are classified as noncontrolling interests within permanent equity on our consolidated balance sheets. Additionally, the cumulative distributions that have been paid on these Class B units are included in noncontrolling interests as distributions to noncontrolling interests.

4. FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurements (“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.
 
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—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 annually or whenever events or changes in circumstances indicate that the carrying amount of the individual property may not be recoverable. 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.


9



The following is a summary of discount rates and borrowings as of June 30, 2015 and December 31, 2014 (dollars in thousands):
 
 
June 30, 2015
 
December 31, 2014
Discount rates:
 
 
 
 
Fixed-rate debt
 
3.35
%
 
3.40
%
Secured variable-rate debt
 
2.60
%
 
2.48
%
Unsecured variable-rate debt
 
2.07
%
 
1.93
%
Borrowings:
 
 
 
 
Fair value
 
$
772,746

 
$
665,982

Recorded value
 
763,442

 
650,462


Derivative instrumentsAs of June 30, 2015 and December 31, 2014, we were party to one interest rate swap agreement with a notional amount of $11.5 million and $11.6 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 10, 2018.

In April 2015, we entered into three interest rate swap agreements with a notional amount of $387.0 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 $387.0 million of outstanding debt under our existing credit facility. These swaps qualify and have been designated as cash flow hedges.
 
The fair value of the interest rate swap agreements as of June 30, 2015 is based on the estimated amount we would receive or pay to terminate the contract at the reporting date and was 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 June 30, 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.

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 fair value measurements of our financial assets and liability as of June 30, 2015 and December 31, 2014 is as follows (in thousands):
  
June 30, 2015
 
December 31, 2014
Derivative assets designated as hedging instruments:
 
 
 
Interest rate swaps - unsecured credit facility
$
2,184

 
$

Derivative liability not designated as hedging instruments:
 
 
 
Interest rate swap - mortgage note
537

 
560

 
5. REAL ESTATE ACQUISITIONS
 
During the six months ended June 30, 2015, we acquired nine retail centers for an aggregate purchase price of approximately $109.2 million, including $24.0 million of assumed debt with a fair value of $25.0 million. During the six months ended June 30, 2014, we acquired 37 grocery-anchored retail centers and one strip center adjacent to a previously acquired grocery-anchored retail center for an aggregate purchase price of approximately $602.8 million, including $139.0 million of assumed debt with a fair value of $141.5 million. The following tables present certain additional information regarding our acquisitions of properties that were deemed individually immaterial when acquired, but are material in the aggregate. 


10



For the six months ended June 30, 2015 and 2014, we allocated the purchase price of acquisitions to the fair value of the assets acquired and liabilities assumed as follows (in thousands):
 
 
2015
 
2014
Land and improvements
 
$
33,911

 
$
194,358

Building and improvements
 
67,647

 
354,666

Acquired in-place leases
 
10,165

 
52,512

Acquired above-market leases
 
1,241

 
15,780

Acquired below-market leases
 
(3,782
)
 
(14,543
)
Total assets and lease liabilities acquired
 
109,182

 
602,773

Fair value of assumed debt at acquisition
 
24,982

 
141,471

Net assets acquired
 
$
84,200

 
$
461,302


The weighted-average amortization periods for acquired in-place lease, above-market lease, and below-market lease intangibles acquired during the six months ended June 30, 2015 and 2014 are as follows (in years):
 
 
2015
 
2014
Acquired in-place leases
 
14
 
7
Acquired above-market leases
 
9
 
11
Acquired below-market leases
 
19
 
12

The amounts recognized for revenues, acquisition expenses and net loss from each respective acquisition date to June 30, 2015 and 2014 related to the operating activities of our acquisitions are as follows (in thousands):
 
 
June 30, 2015
 
June 30, 2014
Revenues
 
$
3,043

 
$
13,056

Acquisition expenses
 
1,849

 
11,226

Net loss
 
1,493

 
10,711

  
The following unaudited pro forma information summarizes selected financial information from our combined results of operations, as if all of our acquisitions for 2014 and 2015 had been acquired on January 1, 2014. 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 June 30,
 
Six Months Ended June 30,
(in thousands)
 
2015
 
2014
 
2015
 
2014
Pro forma revenues
 
$
59,293

 
$
56,390

 
$
119,800

 
$
115,215

Pro forma net income attributable to stockholders
 
7,051

 
5,601

 
13,954

 
13,506

 

11




6. ACQUIRED INTANGIBLE ASSETS

Acquired intangible lease assets consisted of the following as of June 30, 2015 and December 31, 2014 (in thousands):
 
June 30, 2015
 
December 31, 2014
Acquired in-place leases
$
192,855

 
$
182,690

Acquired above-market leases
39,152

 
37,911

Total acquired intangible lease assets
232,007

 
220,601

Accumulated amortization
(61,869
)
 
(43,915
)
Net acquired intangible lease assets
$
170,138

 
$
176,686


Summarized below is the amortization recorded on the intangible assets for the three and six months ended June 30, 2015 and 2014 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
  
2015
 
2014
 
2015
 
2014
Acquired in-place leases(1)
$
7,517

 
$
5,977

 
$
14,979

 
$
10,699

Acquired above-market leases(2)
1,496

 
1,257

 
2,975

 
2,234

Total 
$
9,013

 
$
7,234

 
$
17,954

 
$
12,933

(1) Amortization recorded on acquired in-place leases was included in depreciation and amortization in the consolidated statements of operations.
(2) Amortization recorded on acquired above-market leases was an adjustment to rental revenue in the consolidated statements of operations.

Estimated future amortization on the respective acquired intangible lease assets as of June 30, 2015 for the remainder of 2015, each of the four succeeding calendar years, and thereafter is as follows (in thousands):
Year
In-Place Leases
 
Above-Market Leases
July 1 to December 31, 2015
$
14,888

 
$
2,844

2016
27,675

 
4,967

2017
24,725

 
4,144

2018
19,532

 
3,361

2019
14,383

 
2,605

2020 and thereafter
41,708

 
9,306

Total
$
142,911

 
$
27,227


7. MORTGAGES AND LOANS PAYABLE

As of June 30, 2015, we had access to a $700 million unsecured revolving credit facility, which may be expanded to $1 billion, with a $426.5 million outstanding principal balance. The interest rate on amounts outstanding under this credit facility is currently LIBOR plus 1.30%. The credit facility matures on December 18, 2017, with two six-month options to extend the maturity to December 18, 2018.

As of June 30, 2015 and December 31, 2014, we had approximately $329.4 million and $350.9 million, respectively, of outstanding mortgage notes payable, excluding fair value of debt adjustments. Each mortgage note payable is secured by the respective property on which the debt was placed. 

Of the amount outstanding on our mortgage notes and loans payable at June 30, 2015, $17.2 million was for a loan that matures in 2015 and was fully repaid subsequent to June 30, 2015. As of June 30, 2015 and December 31, 2014, the weighted-average interest rates for the loans were 3.85% and 3.68%, respectively.


12



The table below summarizes our loan assumptions in conjunction with property acquisitions for the six months ended June 30, 2015 and 2014 (dollars in thousands):
 
2015
 
2014
Number of properties acquired with loan assumptions
5

 
10
Carrying value of assumed debt at acquisition
$
24,000

 
$
138,991

Fair value of assumed debt at acquisition
24,982

 
141,471


The assumed below-market debt adjustments will be amortized over the remaining life of the loans, and this amortization is classified as a component of interest expense. The amortization recorded on the assumed below-market debt adjustment was $0.7 million for the three months ended June 30, 2015 and 2014. The amortization recorded on the assumed below-market debt adjustment was $1.3 million and $1.2 million for the six months ended June 30, 2015 and 2014, respectively.

The following is a summary of our debt obligations as of June 30, 2015 and December 31, 2014 (in thousands):
  
June 30, 2015
 
December 31, 2014
Unsecured credit facility - fixed-rate(1)(2)
$
387,000

 
$

Unsecured credit facility - variable-rate(2)
39,500

 
291,700

Fixed-rate mortgages payable(3)(4)
329,442

 
350,922

Assumed below-market debt adjustment
7,500

 
7,840

Total
$
763,442

 
$
650,462

(1) 
As of June 30, 2015, the interest rate on $387.0 million outstanding under our unsecured credit facility was, effectively, fixed at various interest rates by three interest rate swap agreements with maturities ranging from February 2019 to February 2021 (see Notes 4 and 10).
(2) 
The gross borrowings under our credit facility were $151.8 million during the six months ended June 30, 2015. The gross payments on our credit facility were $17.0 million during the six months ended June 30, 2015.
(3) 
Due to the non-recourse nature of certain mortgages, the assets and liabilities of certain properties are neither available to pay the debts of the consolidated property-holding limited liability companies nor constitute obligations of such consolidated limited liability companies as of June 30, 2015. The outstanding principal balance of these non-recourse mortgages as of June 30, 2015 and December 31, 2014 was $232.3 million and $252.1 million, respectively.
(4) 
As of June 30, 2015 and December 31, 2014, 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. The outstanding principal balance of that variable-rate mortgage note payable was $11.5 million and $11.6 million as of June 30, 2015 and December 31, 2014, respectively (see Notes 4 and 10).

Below is a listing of our maturity schedule with the respective principal payment obligations (in thousands) and weighted-average interest rates:
  
2015(1)
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Maturing debt:(2)
  

 
  

 
  

 
  

 
  

 
  

 
  

Unsecured credit facility - fixed-rate(3)
$

 
$

 
$
387,000

 
$

 
$

 
$

 
$
387,000

Unsecured credit facility - variable-rate

 

 
39,500

 

 

 

 
39,500

Fixed-rate mortgages payable(4)(5)
20,404

 
104,797

 
47,290

 
44,857

 
4,206

 
107,888

 
329,442

Total maturing debt
$
20,404


$
104,797


$
473,790


$
44,857


$
4,206


$
107,888


$
755,942

Weighted-average interest rate on debt:
  

 
  

 
  

 
  

 
  

 
  

 
  

Unsecured credit facility - fixed-rate(3)
%
 
%
 
2.69
%
 
%
 
%
 
%
 
2.69
%
Unsecured credit facility - variable-rate
%
 
%
 
1.49
%
 
%
 
%
 
%
 
1.49
%
Fixed-rate mortgages payable(4)(5)
5.41
%
 
5.68
%
 
5.31
%
 
5.33
%
 
5.80
%
 
5.23
%
 
5.50
%
Total
5.41
%
 
5.68
%
 
2.85
%
 
5.33
%
 
5.80
%
 
5.23
%
 
3.85
%
(1) 
Includes only July 1, 2015 through December 31, 2015.
(2) 
The debt maturity table does not include the assumed below-market debt adjustment.
(3) 
As of June 30, 2015, the interest rate on $387.0 million outstanding under our unsecured credit facility was, effectively, fixed at various interest rates by three interest rate swap agreements with maturities ranging from February 2019 to February 2021 (see Notes 4 and 10).
(4) 
As of June 30, 2015 and December 31, 2014, 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. The outstanding principal balance of that variable-rate mortgage note payable was $11.5 million and $11.6 million as of June 30, 2015 and December 31, 2014, respectively (see Notes 4 and 10).
(5) 
All but $6.3 million of the fixed-rate debt represents loans assumed as part of certain acquisitions. 


13



8. ACQUIRED BELOW-MARKET LEASE INTANGIBLES

Amortization recorded on the acquired below-market lease intangible liabilities for the three months ended June 30, 2015 and 2014 was $1.7 million and $1.1 million, respectively. Amortization recorded on the acquired below-market lease intangible liabilities for the six months ended June 30, 2015 and 2014 was $3.3 million and $2.0 million, respectively. The recorded amortization was an adjustment to rental revenue in the consolidated statements of operations.

Estimated future amortization income of the intangible lease liabilities as of June 30, 2015 for the remainder of 2015, each of the four succeeding calendar years, and thereafter is as follows (in thousands):
Year
Below-Market Leases
July 1 to December 31, 2015
$
3,305

2016
6,182

2017
5,251

2018
4,208

2019
3,473

2020 and thereafter
20,489

Total
$
42,908


9. 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.

10. 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 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 income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the six months ended June 30, 2015, such derivatives were used to hedge the

14



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 June 30, 2015, 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 accumulated other comprehensive income related to these derivatives will be reclassified to interest expense as interest payments are made on the variable-rate debt. During the next 12 months, we estimate that an additional $3.9 million will be reclassified from other comprehensive income as an increase to interest expense.

During the six months ended June 30, 2014, we terminated a designated interest rate swap and accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the hedged forecasted transactions becoming probable not to occur. The accelerated amounts resulted in a gain of $690,000 recorded in other income, net in the consolidated statements of operations and comprehensive income (loss) for the six months ended June 30, 2014. As a result of the hedged forecasted transaction becoming probable not to occur, the swap was de-designated as a cash flow hedge in February 2014, and a loss of $326,000 was recorded directly in other income, net during the six months ended June 30, 2014.

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 are recorded directly in other (expense) income, net and resulted in a loss of $6,000 and a gain of $26,000 for the three months ended June 30, 2015 and 2014, respectively. Changes in the fair value of these derivative instruments resulted in losses of $127,000 and $300,000 for the six months ended June 30, 2015 and 2014, respectively, including the loss recorded in relation to the aforementioned de-designated swap.

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations and Comprehensive Income (Loss)  
 
The table below presents the effect of our derivative financial instruments on the consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2015 and 2014, respectively (in thousands). 
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps)
 
2015
 
2014
 
2015
 
2014
Amount of gain recognized in other comprehensive income on interest rate swaps
 
$
1,391

 
$

 
$
1,391

 
$

Amount of loss reclassified from accumulated other comprehensive income into interest expense 
 
793

 

 
793

 

Amount of gain recognized in income on derivative (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing)
 

 

 

 
690


Credit-risk-related Contingent Features

We have an agreement with our derivative counterparties that contains a provision 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 June 30, 2015, the fair value of our derivative not designated as a hedge was in a liability position and the fair value of our derivatives designated as hedges were in an asset position. These derivative positions include accrued interest, but exclude any adjustment for nonperformance risk related to this agreement. As of June 30, 2015, we had not posted any collateral related to this agreement.

11. 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, and/or the Property Manager, and 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.

15



 
Advisory Agreement—Pursuant to the PE-NTR Agreement effective on 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 to be reimbursed to PE-NTR based on amounts incurred on our behalf by PE-NTR.

Pursuant to the ARC Agreement in effect through December 2, 2014, ARC was entitled to specified fees for certain services, including managing our day-to-day activities and implementing our investment strategy. ARC had entered into a sub-advisory agreement with PE-NTR, who managed our day-to-day affairs and our portfolio of real estate investments on behalf of ARC, subject to the board’s supervision and certain major decisions requiring the consent of PE-NTR and ARC. The expenses to be reimbursed to ARC and PE-NTR were reimbursed in proportion to the amount of expenses incurred on our behalf by ARC and PE-NTR, respectively.
 
Organization and Offering Costs—Under the terms of the ARC Agreement, we were to reimburse, on a monthly basis, PE-NTR, ARC or their respective affiliates for cumulative organization and offering costs and future organization and offering costs they might incur on our behalf, but only to the extent that the reimbursement would not exceed 1.5% of gross offering proceeds over the life of our primary initial public offering and our DRIP offering.

Summarized below are the cumulative organization and offering costs charged by and the cumulative costs reimbursed to PE-NTR, ARC and their affiliates as of June 30, 2015 and December 31, 2014, and any related amounts unpaid as of June 30, 2015 and December 31, 2014 (in thousands):
 
June 30, 2015
 
December 31, 2014
Total Organization and Offering costs charged
$
27,104

 
$
27,104

Total Organization and Offering costs reimbursed
27,029

 
27,029

Total unpaid Organization and Offering costs(1)
$
75

 
$
75

(1) 
Certain of these cumulative organization and offering costs were charged to us by ARC. The net payable of $75 was due to ARC as of June 30, 2015 and December 31, 2014.

Acquisition Fee—We pay PE-NTR under the PE-NTR Agreement and we paid ARC under the ARC Agreement an acquisition fee related to services provided in connection with the selection and purchase or origination of real estate and real estate-related investments. The acquisition fee is equal to 1.0% of the cost of investments we acquire or originate, including any debt attributable to such investments.

Acquisition Expenses—We reimburse PE-NTR for expenses actually incurred related to selecting, evaluating, and acquiring assets on our behalf. During the six months ended June 30, 2015 and 2014, we reimbursed PE-NTR for personnel costs related to due diligence services for assets we acquired during the period.
 
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 by issuing a number of restricted operating partnership units designated as Class B Units to PE-NTR and ARC equal to: (i) the product of (x) the cost of our assets multiplied by (y) 0.25%; divided by (ii) the value of one share of common stock as of the last day of such calendar quarter net of the selling commissions and dealer manager fees payable on shares of our common stock in our initial public offering.

PE-NTR and ARC are entitled to receive distributions on the unvested and vested Class B units they receive in connection with their asset management subordinated participation at the same rate as distributions are paid to common stockholders. Such distributions are in addition to the incentive fees that PE-NTR, ARC and their affiliates may receive from us. 

On December 3, 2014, we terminated the ARC Agreement. As a result, 2.8 million Class B units issued in connection with asset management services provided as of that date vested upon our determination that the requisite economic hurdle had been met on the same date. Such economic hurdle required that the value of the Operating Partnership’s assets plus all distributions made equaled or exceeded the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon.

We continue to issue Class B units to PE-NTR and ARC in connection with the asset management services provided by PE-NTR under the PE-NTR Agreement. Such 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;

16



provided that PE-NTR serves as our advisor at the time of any of the foregoing events. During the six months ended June 30, 2015, the Operating Partnership issued 0.4 million Class B units to PE-NTR and ARC under the ARC Agreement for the asset management services performed by PE-NTR and ARC during the period from October 1, 2014 to December 3, 2014, and 0.8 million Class B units to PE-NTR and ARC under the PE-NTR Agreement for the asset management services performed by PE-NTR during the period from December 3, 2014 through March 31, 2015.
 
Financing Fee—We pay PE-NTR under the PE-NTR Agreement and we paid ARC under the ARC Agreement a financing fee equal to 0.75% of all amounts made available under any loan or line of credit.
 
Disposition Fee—We pay PE-NTR under the PE-NTR Agreement and we paid ARC under the ARC Agreement for substantial assistance by PE-NTR, ARC or any of their affiliates in connection with the sale of properties or other investments, 2.0% of the contract sales price of each property or other investment sold. The conflicts committee of our board of directors determines whether PE-NTR, ARC or their respective 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, ARC or their respective 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, ARC or their respective 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, ARC or their respective affiliates.
 
General and Administrative Expenses—As of June 30, 2015 and December 31, 2014, we owed PE-NTR $17,000 and $26,000, respectively, for general and administrative expenses paid on our behalf. As of June 30, 2015, PE-NTR has not allocated any portion of their employees’ salaries to general and administrative expenses.

Summarized below are the fees earned by and the expenses reimbursable to PE-NTR and ARC, except for organization and offering costs and general and administrative expenses, which we disclose above, for the three and six months ended June 30, 2015 and 2014 and any related amounts unpaid as of June 30, 2015 and December 31, 2014 (in thousands):
  
Three Months Ended
 
Six Months Ended
 
Unpaid Amount as of
  
June 30,
 
June 30,
 
June 30,
 
December 31,
  
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Acquisition fees
$
228

 
$
3,161

 
1,083

 
6,003

 
$

 
$

Acquisition expenses
23

 
403

 
162

 
668

 

 

Class B unit distribution - vested(1)
470

 

 
898

 

 
153

 

Class B unit distribution - unvested(2)
99

 
199

 
111

 
317

 
45

 
135

Financing fees

 
409

 
180

 
1,042

 

 

Total
$
820

 
$
4,172

 
$
2,434

 
$
8,030

 
$
198

 
$
135

(1) 
The distributions paid to holders of vested Class B units are presented as distributions to noncontrolling interests on the consolidated statements of equity.
(2) 
The distributions paid to holders of unvested Class B units are presented as general and administrative expense on the consolidated statements of operations.
 
Subordinated Participation in Net Sales Proceeds—The Operating Partnership may pay to Phillips Edison Special Limited Partner LLC (the “Special Limited Partner”) a subordinated participation in the net sales proceeds of the sale of real estate assets equal to 15.0% of remaining net sales proceeds after return of capital contributions to stockholders plus payment to stockholders of a 7.0% cumulative, pre-tax, non-compounded return on the capital contributed by stockholders. ARC has a 15.0% interest and PE-NTR has an 85.0% interest in the Special Limited Partner. No subordinated participation in net sales proceeds has been paid to date.
 
Subordinated Incentive Listing Distribution—The Operating Partnership may pay to the Special Limited Partner a subordinated incentive listing distribution upon the listing of our common stock on a national securities exchange. Such incentive listing distribution is equal to 15.0% of the amount by which the market value of all of our issued and outstanding common stock plus distributions exceeds the aggregate capital contributed by stockholders plus an amount equal to a 7.0% cumulative, pre-tax non-compounded annual return to stockholders. 
 
Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in net sales proceeds and the subordinated incentive listing distribution. No subordinated incentive listing distribution has been earned to date.
 

17



Subordinated Distribution Upon Termination of the Advisor Agreement—Upon termination or non-renewal of the PE-NTR Agreement, the Special Limited Partner shall be entitled to a subordinated termination distribution in the form of a non-interest bearing promissory note equal to 15.0% of the amount by which the cost of our assets plus distributions exceeds the aggregate capital contributed by stockholders plus an amount equal to a 7.0% cumulative, pre-tax non-compounded annual return to stockholders. In addition, the Special Limited Partner may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or a liquidity event occurs. No such termination has occurred to date.
 
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 the Phillips Edison affiliates or other third parties.
 
Property Management Fee—Commencing June 1, 2014, the amount we pay to the Property Manager in monthly property management fees decreased from 4.5% to 4.0% of the monthly gross cash receipts from the properties managed by the Property Manager. In the event that we contract directly with a non-affiliated third-party property manager with respect to a property, we will pay the Property Manager a monthly oversight fee equal to 1.0% of the gross revenues of the property managed.

Leasing Commissions—In addition to the property management fee or oversight 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 Manager may be increased by up to 50% in the event that the Property Manager engages a co-broker to lease a particular vacancy. 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, as well as fees and expenses of third-party accountants.

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.
 
Other Fees 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 will supervise all maintenance activity.
 
Summarized below are the fees earned by and the expenses reimbursable to the Property Manager for the three and six months ended June 30, 2015 and 2014 and any related amounts unpaid as of June 30, 2015 and December 31, 2014 (in thousands):
  
Three Months Ended
 
Six Months Ended
 
Unpaid Amount as of
  
June 30,
 
June 30,
 
June 30,
 
December 31,
  
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Property management fees
$
2,407

 
$
1,725

 
$
4,592

 
$
3,307

 
$
918

 
$
474

Leasing commissions
1,992

 
1,139

 
4,020

 
1,708

 
509

 
191

Construction management fees
246

 
210

 
411

 
250

 
85

 
73

Other fees and reimbursements
1,018

 
445

 
2,021

 
738

 
419

 

Total
$
5,663

 
$
3,519

 
$
11,044

 
$
6,003

 
$
1,931

 
$
738


Share Purchases by PE-NTR—PE-NTR agreed to purchase on a monthly basis sufficient shares sold in our public offering such that the total shares owned by PE-NTR was equal to at least 0.10% of our outstanding shares (excluding shares issued after the commencement of, and outside of, the initial public offering) at the end of each immediately preceding month. PE-NTR purchased shares at a purchase price of $9.00 per share, reflecting no dealer manager fee or selling commissions paid on such shares.
 
As of June 30, 2015, PE-NTR owned 176,509 shares of our common stock, or approximately 0.10% of our common stock issued during our initial public offering period, which closed on February 7, 2014. PE-NTR may not sell any of these shares while serving as our advisor.

18



12. 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 at June 30, 2015, assuming no new or renegotiated leases or option extensions on lease agreements, are as follows (in thousands):
Year
Amount
July 1 to December 31, 2015
$
88,743

2016
168,562

2017
153,154

2018
134,885

2019
112,224

2020 and thereafter
475,320

Total
$
1,132,888

 
No single tenant comprised 10% or more of our aggregate annualized effective rent as of June 30, 2015.
 
13. SUBSEQUENT EVENTS

Distributions to Stockholders

Distributions equal to a daily amount of $0.00183562 per share of common stock outstanding were paid subsequent to June 30, 2015 to the stockholders of record from June 1, 2015 through July 31, 2015 as follows (in thousands):
Distribution Period
 
Date Distribution Paid
 
Gross Amount of Distribution Paid
 
Distribution Reinvested through the DRIP
 
Net Cash Distribution
June 1, 2015 through June 30, 2015
 
7/1/2015
 
$
10,179

 
$
5,294

 
$
4,885

July 1, 2015 through July 31, 2015
 
8/3/2015
 
10,530

 
5,470

 
5,060


On July 8, 2015, our board of directors authorized distributions to the stockholders of record at the close of business each day in the period commencing August 1, 2015 through and including October 31, 2015. The authorized distributions equal a daily amount of $0.00183562 per share of common stock, par value $0.01 per share.

Acquisition

Subsequent to June 30, 2015, we acquired the following property (dollars in thousands):
Property Name
 
Location
 
Anchor Tenant
 
Acquisition Date
 
Purchase Price
 
Square Footage
 
Leased % of Rentable Square Feet at Acquisition
Westcreek Plaza Shopping Center
 
Coconut Creek, FL
 
n/a(1)
 
7/10/2015
 
$
10,132

 
37,616
 
93.3
%
 (1) Westcreek Plaza Shopping Center is an outlet adjacent to a previously acquired Publix-anchored center, West Creek Commons.

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

19



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 Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 9, 2015, 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. was formed as a Maryland corporation in October 2009 and elected to be taxed as a real estate investment trust (“REIT”) commencing with the taxable year ended December 31, 2010. Our advisor is Phillips Edison NTR LLC (“PE-NTR”), which is directly or indirectly owned by Phillips Edison Limited Partnership (the “Phillips Edison sponsor”) and Michael Phillips and Jeffrey Edison, principals of our Phillips Edison sponsor. Under the terms of the advisory agreement between PE-NTR and us, 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.

20



Portfolio
 
Below are statistical highlights of our portfolio’s activities from inception to date and for the properties acquired during the six months ended June 30, 2015:
  
  
 
Property Acquisitions
  
Cumulative
 
During the  
  
Portfolio Through
 
Six Months Ended
  
June 30, 2015
 
June 30, 2015
Number of properties
147

 
9

Number of states
28

 
7

Weighted-average capitalization rate(1)
7.1
%
 
6.4
%
Weighted-average capitalization rate with straight-line rent(2)
7.3
%
 
6.5
%
Total acquisition purchase price (in millions)(3)
$
2,223

 
$
108

Total square feet (in thousands)
15,499

 
779

Leased % of rentable square feet(4)
95.4
%
 
93.5
%
Average remaining lease term in years(5)
6.1

 
7.2

Annualized effective rent per square feet(6)
$
12.07

 
$
10.17

(1) 
The capitalization rate is calculated by dividing the annualized in-place net operating income of a property as of the date of acquisition by the contract purchase price of the property. Annualized in-place net operating income is calculated by subtracting the estimated annual operating expenses of a property from the annualized rents to be received from tenants occupying space at the property as of the date of acquisition.
(2) 
The capitalization rate with straight-line rent is calculated by dividing the annualized in-place net operating income, inclusive of straight-line rental income, of a property as of the date of acquisition by the contract purchase price of the property.  This annualized in-place net operating income is calculated by subtracting the estimated annual operating expenses of a property from the straight-line annualized rents to be received from tenants occupying space at the property as of the date of acquisition.
(3) 
Excludes the assumed below-market debt adjustment (see Notes 5 and 7 to the consolidated financial statements).
(4) 
As of June 30, 2015.
(5) 
As of June 30, 2015. The average remaining lease term in years excludes future options to extend the term of the lease.
(6) 
We calculate annualized effective rent per square foot as monthly contractual rent as of June 30, 2015 multiplied by 12 months, less any tenant concessions, divided by leased square feet.


21



Lease Expirations

The following table lists, on an aggregate basis, all of the scheduled lease expirations after June 30, 2015 over each of the ten years ending December 31, 2015 and thereafter for our 147 shopping centers. The table shows the approximate rentable square feet and annualized effective rent represented by the applicable lease expirations (in thousands, except number of expiring leases):
  
 
Number of
 
  
 
% of Total Portfolio
 
Leased Rentable
 
  
  
 
Expiring
 
Annualized
 
Annualized
 
Square Feet
 
% of Leased Rentable
Year
 
Leases
 
Effective Rent(1)
 
Effective Rent
 
Expiring
 
Square Feet Expiring
July 1 to December 31, 2015(2)
 
121
 
$
5,128

 
2.9
%
 
374

 
2.5
%
2016
 
333
 
15,105

 
8.5
%
 
1,195

 
8.1
%
2017
 
314
 
17,874

 
10.0
%
 
1,487

 
10.1
%
2018
 
313
 
20,346

 
11.4
%
 
1,610

 
10.9
%
2019
 
338
 
25,218

 
14.1
%
 
1,911

 
12.9
%
2020
 
225
 
18,101

 
10.1
%
 
1,523

 
10.3
%
2021
 
75
 
9,616

 
5.4
%
 
946

 
6.4
%
2022
 
55
 
9,042

 
5.1
%
 
879

 
5.9
%
2023
 
69
 
15,079

 
8.4
%
 
1,275

 
8.6
%
2024
 
98
 
10,734

 
6.0
%
 
1,117

 
7.6
%
Thereafter
 
161
 
32,339

 
18.1
%
 
2,474

 
16.7
%
 
 
2,102
 
$
178,582

 
100.0
%
 
14,791

 
100.0
%
(1) 
We calculate annualized effective rent as monthly contractual rent as of June 30, 2015 multiplied by 12 months, less any tenant concessions.
(2) 
Subsequent to June 30, 2015, we renewed 10 of the 121 leases expiring in 2015, which accounts for 24,172 total square feet and total annualized effective rent of $0.5 million.
 
Portfolio Tenancy
 
Prior to the acquisition of a property, we assess the suitability of the grocery-anchor tenant and other tenants in light of our investment objectives, namely, preserving capital and providing stable cash flows for distributions. Generally, we assess the strength of the tenant by consideration of company factors, such as its financial strength and market share in the geographic area of the shopping center, as well as location-specific factors, such as the store’s sales, local competition and demographics. When assessing the tenancy of the non-anchor space at the shopping center, we consider the tenant mix at each shopping center in light of our portfolio, the proportion of national and national franchise tenants, the creditworthiness of specific tenants, and the timing of lease expirations. When evaluating non-national tenancy, we attempt to obtain credit enhancements to leases, which typically come in the form of deposits and/or guarantees from one or more individuals.

The following table presents the composition of our portfolio by tenant type as of June 30, 2015 (in thousands):
  
 
  
 
  
 
Annualized
 
% of
  
 
Leased
 
% of Leased
 
Effective
 
Annualized
Tenant Type
 
Square Feet
 
Square Feet
 
Rent(1)
 
Effective Rent
Grocery anchor
 
8,092

 
54.7
%
 
$
76,682

 
42.9
%
National and regional(2)
 
4,717

 
31.9
%
 
66,706

 
37.4
%
Local
 
1,982

 
13.4
%
 
35,194

 
19.7
%
  
 
14,791

 
100.0
%
 
$
178,582

 
100.0
%
(1) 
We calculate annualized effective rent as monthly contractual rent as of June 30, 2015 multiplied by 12 months, less any tenant concessions.
(2) 
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.


22



The following table presents the composition of our portfolio by tenant industry as of June 30, 2015 (in thousands):
 
 
  
 
  
 
Annualized
 
% of
  
 
Leased
 
% of Leased
 
Effective
 
Annualized
Tenant Industry
 
Square Feet
 
Square Feet
 
Rent(1)
 
Effective Rent
Grocery
 
8,092

 
54.7
%
 
$
76,682

 
42.9
%
Retail Stores(2)
 
3,445

 
23.3
%
 
40,505

 
22.7
%
Services(2)
 
2,076

 
14.0
%
 
37,419

 
21.0
%
Restaurant
 
1,179

 
8.0
%
 
23,976

 
13.4
%
  
 
14,791

 
100.0
%
 
$
178,582

 
100.0
%
(1) 
We calculate annualized effective rent as monthly contractual rent as of June 30, 2015 multiplied by 12 months, less any tenant concessions.
(2) 
We define retail stores as those that primarily sell goods, while services tenants primarily sell non-goods services.

The following table presents our grocery-anchor tenants by the amount of square footage leased by each tenant as of June 30, 2015 (in thousands, except number of locations):
Tenant  
 
Number of Locations(1)
 
Leased Square Feet
 
% of Leased Square Feet
 
Annualized Effective Rent(2)
 
% of Annualized Effective Rent
Kroger(3)(9)
 
35

 
1,949

 
13.2
%
 
$
14,943

 
8.4
%
Publix
 
31

 
1,458

 
9.9
%
 
14,805

 
8.2
%
Walmart(4)
 
9

 
1,121

 
7.6
%
 
5,198

 
2.9
%
Albertsons-Safeway(5)
 
13

 
783

 
5.3
%
 
8,219

 
4.6
%
Giant Eagle
 
7

 
559

 
3.8
%
 
5,362

 
3.0
%
Ahold USA(6)
 
6

 
411

 
2.8
%
 
6,377

 
3.6
%
SUPERVALU(7)
 
4

 
273

 
1.8
%
 
2,372

 
1.3
%
Raley’s
 
3

 
193

 
1.3
%
 
3,422

 
1.9
%
Winn-Dixie
 
3

 
147

 
1.0
%
 
1,545

 
0.9
%
Delhaize America(8)
 
4

 
142

 
1.0
%
 
1,844

 
1.0
%
Hy-Vee
 
2

 
127

 
0.9
%
 
527

 
0.3
%
Schnuck’s
 
2

 
121

 
0.8
%
 
1,459

 
0.8
%
Pick ‘n Save
 
2

 
109

 
0.7
%
 
1,061

 
0.6
%
Coborn’s
 
2

 
108

 
0.7
%
 
1,350

 
0.8
%
Sprouts Farmers Market
 
3

 
94

 
0.6
%
 
1,146

 
0.6
%
H-E-B
 
1

 
81

 
0.5
%
 
1,210

 
0.7
%
Price Chopper
 
1

 
68

 
0.5
%
 
844

 
0.5
%
Big Y
 
1

 
65

 
0.4
%
 
1,048

 
0.6
%
PAQ, Inc.(9)
 
1

 
59

 
0.4
%
 
1,046

 
0.6
%
Trader Joe’s
 
4