AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC. - FORM 10-Q - May 12, 2016

Attached files

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EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER OF THE COMPANY - AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC.arcrca3312016ex311.htm
EX-32 - SECTION 1350 CERTIFICATIONS - AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC.arcrca3312016ex32.htm
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER OF THE COMPANY - AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC.arcrca3312016ex312.htm
EX-99.1 - AMENDED AND RESTATED SHARE REPURCHASE PROGRAM - AMERICAN REALTY CAPITAL - RETAIL CENTERS OF AMERICA, INC.arcrca3312016ex991.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 March 31, 2016

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

For the transition period from _________ to __________

Commission file number: 000-55198


AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter) 
Maryland
  
27-3279039
(State or other  jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
  
  
  
405 Park Ave., 14th Floor, New York, NY      
  
 10022
(Address of principal executive offices)
  
(Zip Code)
(212) 415-6500   
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company x

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of April 30, 2016, the registrant had 98,072,758 shares of common stock outstanding.

AMERICAN REALTY CAPITAL — RETAIL CENTERS OF AMERICA, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN REALTY CAPITAL — RETAIL CENTERS OF AMERICA, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

 
March 31,
2016
 
December 31,
2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Real estate investments, at cost:
 
 
 
Land
$
275,007

 
$
274,993

Buildings, fixtures and improvements
817,071

 
815,568

Acquired intangible lease assets
189,066

 
192,454

       Total real estate investments, at cost
1,281,144

 
1,283,015

       Less: accumulated depreciation and amortization
(81,675
)
 
(68,221
)
Total real estate investments, net
1,199,469

 
1,214,794

Cash and cash equivalents
39,897

 
40,033

Restricted cash
4,747

 
4,828

Prepaid expenses and other assets
19,068

 
17,629

Deferred costs, net
7,164

 
7,369

Land held for sale
—

 
500

Total assets
$
1,270,345

 
$
1,285,153

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 

Mortgage notes payable, net of deferred financing costs
$
127,086

 
$
127,251

Mortgage premiums, net
4,517

 
4,764

Credit facility
304,000

 
304,000

Below-market lease liabilities, net
76,387

 
78,103

Derivatives, at fair value
736

 
415

Accounts payable and accrued expenses (including $963 and $828 due to related parties as of March 31, 2016 and December 31, 2015, respectively)
15,529

 
18,216

Deferred rent and other liabilities
3,961

 
3,958

Distributions payable
5,301

 
5,296

Total liabilities
537,517

 
542,003

Preferred stock, $0.01 par value per share, 50,000,000 authorized, none issued or outstanding at March 31, 2016 and December 31, 2015
—

 
—

Common stock, $0.01 par value per share, 300,000,000 shares authorized, 97,758,740 and 96,866,152 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
978

 
969

Additional paid-in capital
867,897

 
859,421

Accumulated other comprehensive loss
(728
)
 
(410
)
Accumulated deficit
(135,319
)
 
(116,830
)
Total stockholders' equity
732,828

 
743,150

Total liabilities and stockholders' equity
$
1,270,345

 
$
1,285,153


The accompanying notes are an integral part of these unaudited consolidated financial statements.

3
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended March 31,
 
2016
 
2015
Revenues:
 
 
 
Rental income
$
25,618

 
$
16,151

Operating expense reimbursements
7,654

 
4,944

Total revenues
33,272

 
21,095

Operating expenses:
 

 
 
Asset management fees to related party
2,247

 
—

Property operating
10,357

 
6,718

Fair value adjustment to contingent purchase price consideration
1,784

 
—

Acquisition and transaction related
63

 
580

General and administrative
2,539

 
2,392

Depreciation and amortization
16,092

 
9,779

Total operating expenses
33,082

 
19,469

Operating income
190

 
1,626

Other (expense) income:
 
 
 
Interest expense
(3,171
)
 
(1,584
)
Loss on disposition of land
(4
)
 
—

Other income
6

 
4

Total other expense, net
(3,169
)
 
(1,580
)
Net (loss) income
$
(2,979
)
 
$
46

 
 
 
 
Other comprehensive loss:
 
 
 
Change in unrealized loss on derivative
(318
)
 
(276
)
Comprehensive loss
$
(3,297
)
 
$
(230
)
 
 
 
 
Basic net (loss) income per share
$
(0.03
)
 
$
0.00

Diluted net (loss) income per share
$
(0.03
)
 
$
0.00


The accompanying notes are an integral part of these unaudited consolidated financial statements.

4
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2016
(In thousands, except share data)
(Unaudited)

 
Common Stock
 
 
 
 
 
 
 
 
 
Number of Shares
 
Par Value
 
Additional
Paid-in Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total Stockholders' Equity
Balance, December 31, 2015
96,866,152

 
$
969

 
$
859,421

 
$
(410
)
 
$
(116,830
)
 
$
743,150

Common stock issued through distribution reinvestment plan
895,088

 
9

 
8,494

 
—

 
—

 
8,503

Common stock repurchases
(2,500
)
 
—

 
(25
)
 
—

 
—

 
(25
)
Share-based compensation
—

 
—

 
7

 
—

 
—

 
7

Distributions declared
—

 
—

 
—

 
—

 
(15,510
)
 
(15,510
)
Net loss
—

 
—

 
—

 
—

 
(2,979
)
 
(2,979
)
Other comprehensive loss
—

 
—

 
—

 
(318
)
 
—

 
(318
)
Balance, March 31, 2016
97,758,740

 
$
978

 
$
867,897

 
$
(728
)
 
$
(135,319
)
 
$
732,828

 
The accompanying notes are an integral part of this unaudited consolidated financial statement.

5
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Three Months Ended March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(2,979
)
 
$
46

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 

 
 

Depreciation
6,666

 
3,989

Amortization of in-place lease assets
9,364

 
5,770

Amortization of deferred costs
573

 
490

Amortization of mortgage premiums
(247
)
 
(9
)
Accretion of market lease and other intangibles, net
(759
)
 
(557
)
Bad debt expense
443

 
—

Fair value adjustment to contingent purchase price consideration
1,784

 
—

Loss on disposition of land
4

 
—

Share-based compensation
7

 
10

Ineffective portion of derivative
3

 
2

Changes in assets and liabilities:
 

 
 

Prepaid expenses and other assets
(2,459
)
 
(2,980
)
Accounts payable and accrued expenses
891

 
2,249

Deferred rent and other liabilities
3

 
988

Restricted cash
319

 
136

Net cash provided by operating activities
13,613

 
10,134

Cash flows from investing activities:
 
 
 
Investments in real estate and other assets
—

 
(26,096
)
Deposits for real estate acquisitions
—

 
(2,100
)
Proceeds from disposition of land
496

 
—

Restricted cash
(238
)
 
154

Capital expenditures
(1,702
)
 
(1,856
)
Net cash used in investing activities
(1,444
)
 
(29,898
)
Cash flows from financing activities:
 

 
 

Payments on mortgage notes payable
(277
)
 
(93
)
Payments of deferred financing costs
—

 
(15
)
Common stock repurchases
(5,026
)
 
(327
)
Payments of offering costs and fees related to stock issuances, net
—

 
(1,176
)
Distributions paid
(7,002
)
 
(6,303
)
Net cash used in financing activities
(12,305
)
 
(7,914
)
Net change in cash and cash equivalents
(136
)
 
(27,678
)
Cash and cash equivalents, beginning of period
40,033

 
170,963

Cash and cash equivalents, end of period
$
39,897

 
$
143,285

 
 
 
 
Supplemental Disclosures:
 
 
 
Cash paid for interest
$
2,950

 
$
1,105

Cash paid for income taxes
$
105

 
$
—

 
 
 
 
Non-Cash Investing and Financing Activities:
 
 
 
Common stock issued through distribution reinvestment plan
$
8,503

 
$
8,651

Change in accrued common stock repurchases
$
(5,001
)
 
$
106

Change in capital improvements in accounts payable and accrued expenses
$
(217
)
 
$
542


The accompanying notes are an integral part of these unaudited consolidated financial statements.

6
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)


Note 1 — Organization
American Realty Capital — Retail Centers of America, Inc. (the "Company") has acquired and owns anchored, stabilized core retail properties for investment purposes, including power centers and lifestyle centers, which are located in the United States and were at least 80.0% leased at the time of acquisition. The Company purchased its first property and commenced active operations in June 2012. As of March 31, 2016, the Company owned 35 properties with an aggregate purchase price of $1.2 billion, comprised of 7.5 million rentable square feet, which were 93.9% leased on a weighted-average basis.
The Company, incorporated on July 29, 2010, is a Maryland corporation that elected and qualified to be taxed as a real estate investment trust for U.S. federal income tax purposes ("REIT") beginning with the taxable year ended December 31, 2012. Substantially all of the Company's business is conducted through American Realty Capital Retail Operating Partnership, L.P. (the "OP"), a Delaware limited partnership, and its wholly-owned subsidiaries.
On March 17, 2011, the Company commenced its initial public offering (the "IPO") on a "reasonable best efforts" basis of up to 150.0 million shares of common stock, $0.01 par value per share, at a price of $10.00 per share, subject to certain volume and other discounts. The IPO closed on September 12, 2014. On September 22, 2014, the Company registered an additional 25.0 million shares of common stock to be used under the distribution reinvestment plan (the "DRIP") pursuant to a registration statement on Form S-3 (File No. 333-198864).
As of March 31, 2016, the Company had 97.8 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP and had received total proceeds from the IPO and the DRIP, net of share repurchases of $970.2 million.
On March 7, 2016, the Company's board of directors approved an estimated net asset value per share of the Company's common stock ("Estimated Per-Share NAV) as of December 31, 2015, which was published on March 11, 2016. Until March 2016, the Company offered shares pursuant to the DRIP at $9.50 per share. Beginning in April 2016, the Company has offered shares pursuant to the DRIP at the then-current Estimated Per-Share NAV. The Company intends to publish subsequent valuations of Estimated Per-Share NAV periodically at the discretion of the Company's board of directors, provided that such valuations will be made at least once annually.
The Company has no employees. The Company has retained American Realty Capital Retail Advisor, LLC (the "Advisor") to manage its affairs on a day-to-day basis. The Advisor has entered into a service agreement with an independent third party, Lincoln Retail REIT Services, LLC, a Delaware limited liability company ("Lincoln"), pursuant to which Lincoln provides, subject to the Advisor's oversight, real estate-related services, including locating investments, negotiating financing, and providing property-level asset management services, property management services, leasing and construction oversight services and disposition services, as needed. The Advisor has passed through and will continue to pass through to Lincoln a portion of the fees and/or other expense reimbursements payable to the Advisor for the performance of real estate-related services. The Advisor is under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, the "Parent of the Sponsor" or "AR Global"), the parent of the Company's sponsor, American Realty Capital IV, LLC (the "Sponsor"), as a result of which it is a related party of the Company.
Note 2 — Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for these interim periods. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results for the entire year or any subsequent interim periods.
These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of, and for the year ended December 31, 2015, which are included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 11, 2016. There have been no significant changes to the Company's significant accounting policies during the three months ended March 31, 2016, other than the updates described below.

7
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Consolidation
The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All inter-company accounts and transactions are eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity ("VIE") for which the Company is the primary beneficiary. The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company's assets and liabilities are held by the OP.
Reclassifications
The Company changed its prior presentation of cash flows associated with its restricted cash from financing activities to operating activities or investing activities in the consolidated statements of cash flows based on the restrictions that permit the cash to be used to pay specific operating expenses such as real estate taxes and insurance or for capital expenditures and improvements. The restrictions arise from certain borrowing agreements.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers 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. The revised guidance was to become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was not permitted under GAAP. In July 2015, the FASB deferred the effective date of the revised guidance by one year to annual reporting periods beginning after December 15, 2017, although entities will be allowed to early adopt the guidance as of the original effective date. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. The Company has not yet selected a transition method and is currently evaluating the impact of the new guidance.
In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are VIEs or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted, including adoption in an interim period. The Company elected to adopt this guidance effective January 1, 2016. The Company has evaluated the impact of the adoption of the new guidance on its consolidated financial statements and has determined the Company’s OP is considered a VIE. However, the Company meets the disclosure exemption criteria as the Company is the primary beneficiary of the VIE and the Company’s partnership interest is considered a majority voting interest in a business and the assets of the OP can be used for purposes other than settling its obligations, such as paying distributions. As such, the new guidance did not have a material impact on the Company’s consolidated financial statements.
In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB added that, for line of credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line, regardless of whether or not there are any outstanding borrowings. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted for financial statements that have not previously been issued. The Company elected to adopt this guidance effective January 1, 2016. As a result, the Company reclassified $1.6 million and $1.7 million of deferred debt issuance costs related to the Company's mortgage notes payable from deferred costs, net to mortgage notes payable in the Company's consolidated balance sheets as of March 31, 2016 and December 31, 2015, respectively. As permitted under the revised guidance, the Company elected to not reclassify the deferred debt issuance costs associated with its Credit Facility (as defined in Note 4 — Credit Facility). The deferred debt issuance costs associated with the Credit Facility, net of accumulated amortization, and deferred leasing costs, net of accumulated amortization, are included in deferred costs, net on the Company's accompanying consolidated balance sheets as of March 31, 2016 and December 31, 2015.

8
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

In January 2016, the FASB issued an update that amends the recognition and measurement of financial instruments. The new guidance revises an entity’s accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update. The Company is currently evaluating the impact of the new guidance.
In February 2016, the FASB issued an update which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The revised guidance supersedes previous leasing standards and is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting the new guidance.
In March 2016, the FASB issued an update on the accounting for derivative contracts. Under the new guidance, the novation of a derivative contract in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship. The hedge accounting relationship could continue uninterrupted if all of the other hedge accounting criteria are met, including the expectation that the hedge will be highly effective when the creditworthiness of the new counterparty to the derivative contract is considered. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods therein. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new guidance.
In March 2016, the FASB issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
In March 2016, the FASB issued an update that changes the accounting for certain aspects of share-based compensation. Among other things, the revised guidance allows companies to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company has adopted the provisions of this guidance beginning January 1, 2016, electing to account for forfeitures when they occur, and determined that there is no impact to the Company’s consolidated financial position, results of operations and cash flows.

9
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Note 3 — Real Estate Investments
The Company owned 35 properties, which were acquired for investment purposes, as of March 31, 2016. The following table presents the allocation of real estate assets acquired and liabilities assumed during the three months ended March 31, 2015. There were no real estate assets acquired or liabilities assumed during the three months ended March 31, 2016:
(Dollar amounts in thousands)
 
Three Months Ended March 31, 2015
Real estate investments, at cost:
 
 
Land
 
$
7,866

Buildings, fixtures and improvements
 
15,218

Total tangible assets
 
23,084

Acquired intangibles:
 
 
In-place leases
 
2,067

Above-market lease assets
 
2,328

Below-market lease liabilities
 
(1,383
)
Total intangible real estate investments, net
 
3,012

Cash paid for acquired real estate investments
 
$
26,096

Number of properties purchased
 
1

Total acquired intangible lease assets and liabilities consist of the following as of March 31, 2016 and December 31, 2015:
 
 
March 31, 2016
 
December 31, 2015
(In thousands)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
In-place leases
 
$
165,110

 
$
40,468

 
$
124,642

 
$
168,293

 
$
34,298

 
$
133,995

Above-market leases
 
22,378

 
5,357

 
17,021

 
22,583

 
4,547

 
18,036

Below-market ground lease
 
1,578

 
49

 
1,529

 
1,578

 
39

 
1,539

Total acquired intangible lease assets
 
$
189,066

 
$
45,874

 
$
143,192

 
$
192,454

 
$
38,884

 
$
153,570

Intangible liabilities:
 
 

 
 

 
 
 
 
 
 
 
 
Below-market lease liabilities
 
$
84,113

 
$
7,726

 
$
76,387

 
$
84,837

 
$
6,734

 
$
78,103

The following table provides the projected amortization expense and adjustments to revenue and property operating expense for intangible assets and liabilities for the next five years:
(in thousands)
 
April 1, 2016 to
December 31,
2016
 
2017
 
2018
 
2019
 
2020
In-place leases
 
$
22,650

 
$
27,418

 
$
20,403

 
$
14,008

 
$
9,524

Total to be added to depreciation and amortization
 
$
22,650

 
$
27,418

 
$
20,403

 
$
14,008

 
$
9,524

 
 
 
 
 
 
 
 
 
 
 
Above-market lease assets
 
$
(2,596
)
 
$
(3,424
)
 
$
(2,564
)
 
$
(1,743
)
 
$
(1,134
)
Below-market lease liabilities
 
4,836

 
6,349

 
5,756

 
5,223

 
4,726

Total to be added to rental income
 
$
2,240

 
$
2,925

 
$
3,192

 
$
3,480

 
$
3,592

 
 
 
 
 
 
 
 
 
 
 
Below-market ground lease asset
 
$
29

 
$
39

 
$
39

 
$
39

 
$
39

Total to be added to property operating expense
 
$
29

 
$
39

 
$
39

 
$
39

 
$
39


10
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

For the three months ended March 31, 2016 and 2015, amortization of in-place leases of $9.4 million and $5.8 million, respectively, is included in depreciation and amortization on the consolidated statements of operations and comprehensive loss. For the three months ended March 31, 2016 and 2015, net accretion above- and below-market lease intangibles of $0.8 million and $0.6 million, respectively, is included in rental income on the consolidated statements of operations and comprehensive loss. For the three months ended March 31, 2016 and 2015, amortization of the below-market ground lease asset of approximately $10,000 was recognized in property operating expense on the consolidated statements of operations and comprehensive loss.
The following table presents future minimum base rent payments on a cash basis due to the Company over the next five years and thereafter. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items:
(In thousands)
 
Future Minimum
Base Rent Payments
April 1, 2016 to December 31, 2016
 
$
70,596

2017
 
89,432

2018
 
76,318

2019
 
59,961

2020
 
48,476

Thereafter
 
184,920

 
 
$
529,703

No tenant represented 10.0% or greater of consolidated annualized rental income on a straight-line basis for all properties as of March 31, 2016 and 2015.
The following table lists the states where the Company has concentrations of properties where annualized rental income on a straight-line basis represented 10.0% or greater of consolidated annualized rental income on a straight-line basis as of March 31, 2016 and 2015:
 
 
March 31,
State
 
2016
 
2015
Texas
 
12.5%
 
13.5%
North Carolina
 
11.8%
 
11.8%
Minnesota
 
*
 
16.3%
Florida
 
*
 
12.9%
Oklahoma
 
*
 
11.1%
____________________________
*
State's annualized rental income on a straight-line basis was not greater than or equal to 10.0% of consolidated annualized rental income for all properties as of the date specified.
The Company did not own properties in any other state that in total represented 10.0% or greater of consolidated annualized rental income on a straight-line basis as of March 31, 2016 and 2015.
Note 4 — Credit Facility
The Company has entered into a credit facility, that provides for aggregate revolving loan borrowings of up to $325.0 million (subject to unencumbered asset pool availability), with a $25.0 million swingline subfacility and a $20.0 million letter of credit subfacility, subject to certain conditions, as amended (the "Credit Facility"). Through an uncommitted “accordion feature,” the OP, subject to certain conditions, may increase commitments under the Credit Facility to up to $575.0 million. Borrowings under the Credit Facility, along with cash on hand from the Company’s IPO, have been used to finance acquisitions and for general corporate purposes. As of March 31, 2016, the Company's unused borrowing capacity was $20.9 million, based on the asset pool availability governed by the Credit Facility. As of March 31, 2016 and December 31, 2015, the Company had $304.0 million outstanding under the Credit Facility.

11
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Borrowings under the Credit Facility bear interest, at the OP's election, at either (i) the base rate (which is defined in the Credit Facility as the greatest of (a) the prime rate in effect on such day, (b) the federal funds effective rate in effect on such day plus 0.50%, and (c) LIBOR for a one month interest period plus 1.0%) plus an applicable spread ranging from 0.35% to 1.00%, depending on the Company's consolidated leverage ratio, or (ii) LIBOR for the applicable interest period plus an applicable spread ranging from 1.35% to 2.00%, depending on the Company's consolidated leverage ratio. As of March 31, 2016, the weighted average interest rate on the Credit Facility was 1.79%. The Credit Facility requires the Company to pay an unused fee per annum of 0.25% and 0.15%, if the unused balance exceeds, or is equal to or less than, 50.0% of the available facility, respectively.
The Credit Facility provides for quarterly interest payments for each base rate loan and periodic interest payments for each LIBOR loan, based upon the applicable interest period (though no longer than three months) with respect to such LIBOR loan, with all principal outstanding being due on the maturity date. The Credit Facility will mature on December 2, 2018, provided that the OP, subject to certain conditions, may elect to extend the maturity date one year to December 2, 2019. The Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty. In the event of a default, the lenders have the right to terminate their obligations under the Credit Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans. The Company, certain of its wholly-owned subsidiaries and certain wholly-owned subsidiaries of the OP guarantee the obligations under the Credit Facility.
The Credit Facility requires the Company to meet certain financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) as well as the maintenance of a minimum net worth. As of March 31, 2016, the Company was in compliance with the financial covenants under the Credit Facility.
Note 5 — Mortgage Notes Payable
The Company's mortgage notes payable as of March 31, 2016 and December 31, 2015 consist of the following:
 
 
 
 
Outstanding Loan Amount as of
 
Effective Interest Rate as of
 
 
 
 
Portfolio
 
Encumbered Properties
 
March 31,
2016
 
December 31,
2015
 
March 31,
2016
 
December 31,
2015
 
Interest Rate
 
Maturity Date
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
 
 
Liberty Crossing
 
1
 
$
11,000

 
$
11,000

 
4.66
%
 
4.66
%
 
Fixed
 
Jul. 2018
San Pedro Crossing
 
1
 
17,985

 
17,985

 
3.79
%
 
3.79
%
 
Fixed
 
Jan. 2018
Tiffany Springs MarketCenter
 
1
 
33,802

 
33,802

 
3.92
%
 
3.92
%
 
Fixed
(1) 
Oct. 2018
Shops at Shelby Crossing
 
1
 
23,687

 
23,781

 
4.97
%
 
4.97
%
 
Fixed
 
Mar. 2024
Patton Creek
 
1
 
42,194

 
42,377

 
5.76
%
 
5.76
%
 
Fixed
 
Dec. 2020
Gross mortgage notes payable
 
5
 
128,668

 
128,945

 
4.76
%
(2) 
4.76
%
(2) 
 
 
 
Deferred financing costs, net of accumulated amortization
 
 
 
(1,582
)
 
(1,694
)
 
 
 
 
 
 
 
 
Mortgage notes payable, net of deferred financing costs
 
 
 
$
127,086

 
$
127,251

 
 
 
 
 
 
 
 
_________________________________
(1)
Fixed as a result of entering into a swap agreement.
(2)
Calculated on a weighted-average basis for all mortgages outstanding as of the dates indicated.

12
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

As of March 31, 2016 and December 31, 2015, the Company had pledged $219.0 million and $219.5 million, respectively, in real estate investments as collateral for these mortgage notes payable. This collateral is not available to satisfy other debts and obligations until the mortgage notes payable obligations have been satisfied.
The following table summarizes the scheduled aggregate principal payments for the Company's aggregate long-term debt obligations for the five years subsequent to March 31, 2016:
(In thousands)
 
Future Principal
Payments on
Mortgage Notes Payable
 
Future Principal
Payments on
Credit Facility
 
Total Future Principal
Payments on
Long-Term Debt
Obligations
April 1, 2016 to December 31, 2016
 
$
835

 
$
—

 
$
835

2017
 
1,185

 
—

 
1,185

2018
 
64,039

 
304,000

 
368,039

2019
 
1,322

 
—

 
1,322

2020
 
1,306

 
—

 
1,306

Thereafter
 
59,981

 
—

 
59,981

 
 
$
128,668

 
$
304,000

 
$
432,668

The Company's mortgage notes payable agreements require compliance with certain property-level financial covenants including debt service coverage ratios. As of March 31, 2016, the Company was in compliance with financial covenants under its mortgage notes payable agreements.
Note 6 — Fair Value of Financial Instruments
The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. This alternative approach also reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The guidance defines three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 — Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
Although the Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with this derivative utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparty. However, as of March 31, 2016 and December 31, 2015, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative position and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company's derivative. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.
The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company's potential nonperformance risk and the performance risk of the counterparties.

13
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The following table presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015, aggregated by the level in the fair value hierarchy within which those instruments fall:
(In thousands)
 
Quoted Prices
in Active
Markets
Level 1
 
Significant Other
Observable
Inputs
Level 2
 
Significant
Unobservable
Inputs
Level 3
 
Total
March 31, 2016
 
 
 
 
 
 
 
 
Interest rate swap
 
$
—

 
$
(736
)
 
$
—

 
$
(736
)
December 31, 2015
 
 
 
 
 
 
 
 
Interest rate swap
 
$
—

 
$
(415
)
 
$
—

 
$
(415
)
A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets and liabilities. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2016. There were no transfers into or out of Level 3 of the fair value hierarchy during the three months ended March 31, 2016.
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, prepaid expenses and other assets, accounts payable and accrued expenses and distributions payable approximates their carrying value on the accompanying consolidated balance sheets due to their short-term nature. The fair values of the Company's remaining financial instruments that are not reported at fair value on the accompanying consolidated balance sheets are reported in the following table:
 
 
 
 
Carrying Amount at
 
Fair Value at
 
Carrying Amount at
 
Fair Value at
(In thousands)
 
Level
 
March 31, 2016
 
March 31, 2016
 
December 31, 2015
 
December 31, 2015
Gross mortgage notes payable and mortgage premiums, net
 
3
 
$
133,185

 
$
135,495

 
$
133,709

 
$
134,707

Credit Facility
 
3
 
$
304,000

 
$
304,000

 
$
304,000

 
$
304,000

The fair value of mortgage notes payable is estimated by an independent third party using a discounted cash flow analysis, based on management's estimates of market interest rates. Advances under the Credit Facility are considered to be reported at fair value, because its interest rate varies with changes in LIBOR.
Note 7 — Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and costs associated with the Company's operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its related parties may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.
Cash Flow Hedges of Interest Rate Risk
The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and collars as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of variable-rate amounts if interest rates rise above the cap strike rate on the contract and payments of variable-rate amounts if interest rates fall below the floor strike rate on the contract.

14
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

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 and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2016, such derivatives have been used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.
Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. During the next 12 months, the Company estimates that an additional $0.4 million will be reclassified from other comprehensive loss as an increase to interest expense.
As of March 31, 2016 and December 31, 2015, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
 
 
March 31, 2016
 
December 31, 2015
Interest Rate Derivative
 
Number of
Instruments
 
Notional Amount
 
Number of
Instruments
 
Notional Amount
 
 
 
 
(In thousands)
 
 
 
(In thousands)
Interest Rate Swap
 
1
 
$
34,098

 
1
 
$
34,098

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the accompanying consolidated balance sheets as of March 31, 2016 and December 31, 2015:
(In thousands)
 
Balance Sheet Location
 
March 31, 2016
 
December 31, 2015
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Interest Rate Swap
 
Derivatives, at fair value
 
$
(736
)
 
$
(415
)
The table below details the location in the accompanying consolidated financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three months ended March 31, 2016 and 2015.
 
 
Three Months Ended March 31,
(In thousands)
 
2016
 
2015
Amount of (loss) gain recognized in accumulated other comprehensive loss from interest rate derivatives (effective portion)
 
$
(421
)
 
$
(399
)
Amount of loss reclassified from accumulated other comprehensive loss into income as interest expense (effective portion)
 
$
(103
)
 
$
(123
)
Amount of (loss) gain recognized in income on derivative (ineffective portion, reclassifications of missed forecasted transactions and amounts excluded from effectiveness testing) *
 
$
(3
)
 
$
(2
)
_________________________________
* The Company reclassified approximately $3,000 and $2,000 of other comprehensive loss, net to interest expense during the three months ended March 31, 2016 and March 31, 2015, respectively, which represented the ineffective portion of the change in fair value of the derivative.

15
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Offsetting Derivatives
The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of March 31, 2016 and December 31, 2015. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the accompanying consolidated balance sheets:
 
 
 
 
 
 
 
 
Gross Amounts Not Offset on the Balance Sheet
 
 
(In thousands)
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset on the Balance Sheet
 
Net Amounts of Liabilities presented on the Balance Sheet
 
Financial Instruments
 
Cash Collateral Received (Posted)
 
Net Amount
March 31, 2016
 
$
(736
)
 
$
—

 
$
(736
)
 
$
—

 
$
—

 
$
(736
)
December 31, 2015
 
$
(415
)
 
$
—

 
$
(415
)
 
$
—

 
$
—

 
$
(415
)
Derivatives Not Designated as Hedges
Derivatives not designated as hedges are not speculative. These derivatives may be used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements to be classified as hedging instruments. As of March 31, 2016 and December 31, 2015, the Company does not have any hedging instruments that do not qualify for hedge accounting.
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
As of March 31, 2016, the fair value of derivatives in a net liability position including accrued interest, but excluding any adjustment for nonperformance risk related to these agreements, was $0.8 million. As of March 31, 2016, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $0.8 million at March 31, 2016.
Note 8 — Common Stock
As of March 31, 2016 and December 31, 2015, the Company had 97.8 million and 96.9 million shares of common stock outstanding, respectively, including unvested restricted shares and shares issued pursuant to the DRIP.
In September 2011, the Company's board of directors authorized, and the Company declared, a distribution payable on a monthly basis to stockholders of record on each day at a rate equal to $0.0017534247 per day, which is equivalent to $0.64 per annum, per share of common stock. Distributions began to accrue on June 8, 2012, the date of the Company's initial property acquisition. In March 2016, the Company’s board of directors ratified the existing distribution amount equivalent to $0.64 per annum, and, for calendar year 2016, affirmed a change to the daily distribution amount to $0.0017486339 per day per share of common stock, effective January 1, 2016, to accurately reflect that 2016 is a leap year. The distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.
Share Repurchase Program
The Company's board of directors has adopted a share repurchase program (as amended and restated, the "SRP"), which enables stockholders to sell their shares back to the Company after they have held them for at least one year, subject to certain conditions and limitations. The Company may repurchase shares on a semiannual basis, at each six-month period ending June 30 and December 31.

16
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Prior to March 11, 2016, the date the Company first published its Estimated Per-Share NAV, the purchase price per share for requests other than for death or disability under the SRP was as follows:
•
after one year from the purchase date — the lower of $9.25 or 92.5% of the amount actually paid for each share;
•
after two years from the purchase date —the lower of $9.50 or 95.0% of the amount actually paid for each share;
•
after three years from the purchase date — the lower of $9.75 or 97.5% of the amount actually paid for each share; and
•
after four years from the purchase date — the lower of $10.00 or 100.0% of the amount actually paid for each share.
In the case of requests for death or disability prior to March 11, 2016, the repurchase price per share was equal to the price paid to acquire the shares from the Company.
Beginning with March 11, 2016 and with respect to all repurchase requests received during the semiannual period, the repurchase price per share for requests other than for death or disability are as follows:
•
after one year from the purchase date — 92.5% of the then-current Estimated Per-Share NAV;
•
after two years from the purchase date — 95.0% of the then-current Estimated Per-Share NAV;
•
after three years from the purchase date — 97.5% of the then-current Estimated Per-Share NAV; and
•
after four years from the purchase date — 100.0% of the then-current Estimated Per-Share NAV.
Beginning with March 11, 2016 and with respect to all repurchase requests received during the semiannual period, in the case of requests for death or disability, the repurchase price per share is equal to the then-current Estimated Per-Share NAV at the time of repurchase. If the establishment of an Estimated Per-Share NAV occurs during any semiannual period, any repurchase requests received during such semiannual period will be paid at a price based on Estimated Per-Share NAV applicable on the last day of the semiannual period, as described above.
Under the SRP, repurchases at each semiannual period are limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding during the previous fiscal year. Funding for repurchases pursuant to the SRP for any given semiannual period will be limited to proceeds received during that same semiannual period through the issuance of common stock pursuant to the DRIP.
The Company's board of directors reserves the right, in its sole discretion, at any time and from time to time, to reject any request for repurchase, change the purchase price for repurchases or otherwise amend the terms of, suspend or terminate the SRP pursuant to any applicable notice requirements under the SRP. Due to these limitations, the Company cannot guarantee that it will be able to accommodate all repurchase requests.
When a stockholder requests repurchases and the repurchases are approved by the Company's board of directors, it will reclassify such obligation from equity to a liability based on the settlement value of the obligation. The following table summarizes the share repurchases cumulatively through March 31, 2016:
 
 
Number of Shares Repurchased
 
Weighted-Average Price per Share
Cumulative repurchases as of December 31, 2015
 
1,355,162

 
$
9.48

Three Months Ended March 31, 2016
 
2,500

 
10.00

Cumulative repurchases as of March 31, 2016 (1)
 
1,357,662

 
$
9.48

_____________________
(1)
Includes accrued repurchases consisting of 2,500 shares for approximately $25,000 at an average repurchase price per share of $10.00, which were completed in April 2016. The accrual for these repurchases is reflected in the accounts payable and accrued expenses line of the accompanying consolidated balance sheet as of March 31, 2016. The additional shares will be deducted from the applicable limits of the SRP when processing share repurchases for the first semiannual period of 2016. There were no other shares requested to be repurchased as of March 31, 2016.

17
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Distribution Reinvestment Plan
Pursuant to the DRIP, stockholders may elect to reinvest distributions by purchasing shares of common stock in lieu of receiving cash. No dealer manager fees or selling commissions are paid with respect to shares purchased pursuant to the DRIP.  Participants purchasing shares pursuant to the DRIP have the same rights and are treated in the same manner as if such shares were issued pursuant to the IPO. The board of directors may designate that certain cash or other distributions be excluded from the DRIP.  The Company has the right to amend any aspect of the DRIP or terminate the DRIP with ten days' notice to participants. Shares issued under the DRIP are recorded to equity in the accompanying consolidated balance sheet in the period distributions are declared.  During the three months ended March 31, 2016, the Company issued 0.9 million shares of common stock with a value of $8.5 million pursuant to the DRIP.
Note 9 — Commitments and Contingencies
Future Minimum Ground Lease Payments
The Company entered into a ground lease agreement related to a certain acquisition with a leasehold interest arrangement. The following table reflects the minimum base cash rental payments due from the Company over the next five years and thereafter:
(In thousands)
 
Future Minimum Base Rent Payments
April 1, 2016 to December 31, 2016
 
$
379

2017
 
514

2018
 
524

2019
 
535

2020
 
546

Thereafter
 
9,376

 
 
$
11,874

Total ground rent expense was $0.1 million and $0.2 million during the three months ended March 31, 2016 and 2015.
Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory proceedings pending or known to be contemplated against the Company.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on its financial position or results of operations.
Note 10 — Related Party Transactions and Arrangements
The Sponsor and American Realty Capital Retail Special Limited Partnership, LLC, an entity controlled by the Sponsor, owned 242,222 shares of the Company's outstanding common stock as of March 31, 2016 and December 31, 2015. The Company is the sole general partner and holds substantially all the units of limited partner interest in the OP ("OP Units"). The Advisor, a limited partner in the OP, holds 202 OP Units as of March 31, 2016 and December 31, 2015 , which represents a nominal percentage of the aggregate OP ownership. After holding the OP Units for a period of one year, or upon liquidation of the OP or sale of substantially all of the assets of the OP, holders of OP Units have the right to convert OP Units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the OP, a corresponding number of shares of the Company's common stock, in accordance with the limited partnership agreement of the OP. The remaining rights of the limited partner interests are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.

18
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Realty Capital Securities, LLC (the "Former Dealer Manager") served as the dealer manager of the IPO. American National Stock Transfer, LLC ("ANST"), a subsidiary of the parent company of the Former Dealer Manager, provided other general professional services through January 2016. RCS Capital Corporation, the parent company of the Former Dealer Manager and certain of its affiliates that provided services to the Company, filed for Chapter 11 bankruptcy protection in January 2016, prior to which it was under common control with the Parent of the Sponsor.
Fees and Participations Paid in Connection With the Operations of the Company
The Advisor is paid an acquisition fee equal to 1.0% of the contract purchase price of each acquired property and 1.0% of the amount advanced for any loan or other investment. The Advisor is also paid for services provided for which it incurs investment-related expenses, or insourced expenses. Such insourced expenses will be fixed initially at, and may not exceed, 0.5% of the contract purchase price and 0.5% of the amount advanced for a loan or other investment. Additionally, the Company pays third party acquisition expenses. Once the proceeds from the IPO have been fully invested, the aggregate amount of acquisition fees and financing coordination fees (as described below) will not exceed 1.5% of the contract purchase price and the amount advanced for a loan or other investment, as applicable, for all the assets acquired. In no event will the total of all acquisition fees and acquisition expenses (including any financing coordination fees) payable with respect to the Company's portfolio of investments or reinvestments exceed 4.5% of the contract purchase price to be measured at the close of the acquisition phase or 4.5% of the amount advanced for all loans or other investments.
If the Advisor provides services in connection with the origination or refinancing of any debt that the Company obtains and uses to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company will pay the Advisor a financing coordination fee equal to 1.0% of the amount available or outstanding under such financing, subject to certain limitations.
For periods prior to April 1, 2015, in connection with the asset management services provided by the Advisor, the Company issued to the Advisor an asset management subordinated participation by causing the OP to issue (subject to periodic approval by the board of directors) to the Advisor performance-based restricted, forfeitable partnership units of the OP designated as "Class B Units." Class B Units are intended to be profit interests which will vest, and no longer be subject to forfeiture, at such time as: (x) the value of the OP's assets plus all distributions made equals or exceeds the total amount of capital contributed by investors plus a 7.0% cumulative, pre-tax, non-compounded annual return thereon (the "economic hurdle"); (y) any one of the following occurs: (1) the termination of the advisory agreement by an affirmative vote of a majority of the Company's independent directors without cause; (2) a listing of the Company's common stock on a national securities exchange; or (3) another liquidity event; and (z) the Advisor is still providing advisory services to the Company (the "performance condition"). Unvested Class B Units will be forfeited immediately if: (a) the advisory agreement is terminated other than by an affirmative vote of a majority of the Company's independent directors without cause; or (b) the advisory agreement is terminated by an affirmative vote of a majority of the Company's independent directors without cause before the economic hurdle has been met.

19
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

When approved by the board of directors, the Class B Units were issued to the Advisor quarterly in arrears pursuant to the terms of the limited partnership agreement of the OP. The number of Class B Units issued in any quarter was equal to the cost of the Company's assets multiplied by 0.1875%, divided by the value of one share of common stock as of the last day of such calendar quarter, which was equal initially to $9.00 (the initial offering price in the IPO minus selling commissions and dealer manager fees). As of March 31, 2016, the Company could not determine the probability of achieving the performance condition. The value of issued Class B Units will be determined and expensed when the Company deems the achievement of the performance condition to be probable. The Advisor receives distributions on the vested and unvested Class B Units it received in connection with its asset management subordinated participation at the same rate as distributions received on the Company's common stock. Such distributions on issued Class B Units are included in general and administrative expenses in the accompanying consolidated statements of operations and comprehensive loss until the performance condition is considered probable to occur. As of March 31, 2016, the Company's board of directors has approved the issuance of and the OP has issued 479,802 Class B Units to the Advisor in connection with this arrangement on a cumulative basis.
Effective April 1, 2015:
i.
for any period commencing on or after April 1, 2015, the Company pays the Advisor or its assignees as compensation for services rendered in connection with the management of the Company’s assets an Asset Management Fee (as defined in the advisory agreement) equal to 0.0625% per month of the Cost of Assets (as defined in the advisory agreement) or, once the Company begins disclosing Estimated Per-Share NAV in periodic or current reports filed with the SEC, 0.0625% of the lower of the Cost of Assets and the fair market value of the Company's assets as reported in the applicable periodic or current report filed with the SEC disclosing Estimated Per-Share NAV;
ii.
such Asset Management Fee is payable monthly in arrears in cash, in shares of common stock, or a combination of both, the form of payment to be determined in the sole discretion of the Advisor; and
iii.
the Company shall not cause the OP to issue any Class B Units in respect of periods subsequent to March 31, 2015.
In connection with property management and leasing services, unless the Company contracts with a third party, the Company will pay to an affiliate of the Advisor a property management fee of 2.0% of gross revenues from the Company's stand-alone single-tenant net leased properties which are not part of a shopping center and 4.0% of gross revenues from all other types of properties. The Company will also reimburse the affiliate for property level expenses. If the Company contracts directly with third parties for such services, the Company will pay them customary market fees. In connection with any construction, renovation or tenant finish-out on any property, the Company will pay the Advisor 6.0% of the hard costs of the construction, renovation and/or tenant finish-out, as applicable.
The Company reimburses the Advisor's costs of providing administrative services, subject to the limitation that it will not reimburse the Advisor for any amount by which the Company's operating expenses (including the asset management fee, as applicable) at the end of the four preceding fiscal quarters exceeds the greater of (a) 2.0% of average invested assets, or (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt or other similar non-cash expenses and excluding any gain from the sale of assets for that period, unless the Company's independent directors determine that such excess was justified based on unusual and nonrecurring factors which they deem sufficient, in which case the excess amount may be reimbursed to the Advisor in subsequent periods. Additionally, the Company reimburses the Advisor for personnel costs in connection with operational and administrative services; however, the Company will not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees, acquisition expenses or real estate commissions. The Company will not reimburse the Advisor for salaries and benefits paid to the Company's executive officers. During the three months ended March 31, 2016, the Company incurred $0.6 million of reimbursements from the Advisor for providing operational and administrative services. These reimbursements are included in general and administrative expense on the consolidated statements of operations and comprehensive loss. No reimbursements were made to the Advisor for providing administrative services during the three months ended March 31, 2015.
In order to improve operating cash flows and the ability to pay distributions from operating cash flows, the Advisor may elect to waive certain fees. Because the Advisor may waive certain fees, cash flows from operations that would have been paid to the Advisor may be available to pay distributions. The fees that may be forgiven are not deferrals and accordingly, will not be paid to the Advisor. In certain instances, to improve the Company's working capital, the Advisor may elect to absorb a portion of the Company's general and administrative costs and/or property operating costs. No general and administrative costs or property operating costs of the Company were absorbed by the Advisor during the three months ended March 31, 2016 and 2015.

20
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The following table details amounts incurred and forgiven during the three months ended March 31, 2016 and 2015 and amounts contractually due as of March 31, 2016 and December 31, 2015 in connection with the operations related services described above. Amounts below are inclusive of fees and other expense reimbursements incurred from and due to the Advisor that are passed through and ultimately paid to Lincoln as a result of the Advisor's exclusive service agreement with Lincoln:
 
 
Three Months Ended March 31,
 
Payable as of
 
 
2016
 
2015
 
March 31, 2016
 
December 31,
2015
(In thousands)
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
 
One-time fees and reimbursements:
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees and related cost reimbursements
 
$
—

 
$
—

 
$
394

 
$
—

 
$
—

 
$
—

Ongoing fees:
 
 
 
 
 
 
 
 
 
 
 
 
Asset management fees
 
2,247

 
—

 
—

 
—

 
—

 
—

Property management and leasing fees
 
1,547

 
—

 
935

 
—

 
442

 
452

Professional fees and other reimbursements
 
740

 
—

 
854

 
—

 
521

 
376

Distributions on Class B Units
 
73

 
—

 
27

 
—

 
—

 
—

Total related party operation fees and reimbursements
 
$
4,607

 
$
—

 
$
2,210

 
$
—

 
$
963

 
$
828

The predecessor to the Parent of the Sponsor was a party to a services agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer Manager (“RCS Advisory”), pursuant to which RCS Advisory and its affiliates provided the Company and certain other companies sponsored by AR Global with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. The predecessor to AR Global instructed RCS Advisory to stop providing such services in November 2015, and no services have since been provided by RCS Advisory.
The Company was also party to a transfer agency agreement with ANST, pursuant to which ANST provided the Company with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by performed by DST Systems, Inc., a third-party transfer agent ("DST"). The Parent of the Sponsor received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. On February 26, 2016, the Company entered into a definitive agreement with DST to  provide the Company directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services).
Fees and Participations Paid in Connection with Liquidation or Listing
 The Company will pay a brokerage commission to the Advisor or its affiliates on the sale of property, not to exceed the lesser of 2.0% of the contract sale price of the property and one-half of the total brokerage commission paid, if a third party broker is also involved; provided, however, that in no event may the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed the lesser of 6.0% of the contract sales price and a reasonable, customary and competitive real estate commission, in light of the size, type and location of the property, in each case, payable to the Advisor if the Advisor or its affiliates, as determined by a majority of the independent directors, provided a substantial amount of services in connection with the sale. No such amounts were incurred during the three months ended March 31, 2016 and 2015.
The Company will pay the Advisor a subordinated participation in the net sales proceeds of the sale of real estate assets of 15.0% of remaining net sale proceeds after return of capital contributions to investors plus payment to investors of a 7.0% cumulative, pre-tax non-compounded annual return on the capital contributed by investors.  The Company cannot assure that it will provide this 7.0% annual return and the Advisor will not be entitled to the subordinated participation in net sale proceeds unless the Company's investors have received a 7.0% cumulative non-compounded annual return on their capital contributions plus the 100.0% repayment of capital committed by such investors. No such amounts were incurred during the three months ended March 31, 2016 and 2015.

21
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

If the Company's shares of common stock are listed on a national securities exchange, the Advisor will receive a subordinated incentive listing distribution from the OP of 15.0% of the amount by which the Company's market value plus distributions paid prior to listing exceeds the aggregate capital contributed by investors plus an amount equal to a 7.0% cumulative, pre-tax non-compounded annual return to investors.  The Company cannot assure that it will provide this 7.0% annual return and the Advisor will not be entitled to the subordinated incentive listing distribution unless investors have received a 7.0% cumulative, pre-tax non-compounded annual return on their capital contributions plus the 100.0% repayment of capital committed by such investors. No such distribution was incurred during the three months ended March 31, 2016 and 2015. Neither the Advisor nor any of its affiliates can earn both the subordinated participation in the net sales proceeds and the subordinated listing distribution.
Upon termination or non-renewal of the advisory agreement, the Advisor will receive distributions from the OP equal to 15.0% of the amount by which the sum of the Company's market value plus distributions exceeds the sum of the aggregate capital contributed by investors plus an amount equal to an annual 7.0% cumulative, pre-tax non-compounded return to investors. The Advisor may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs.
Note 11 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common control with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting and legal services, human resources and information technology.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that these companies are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note 12 — Share-Based Compensation
Stock Option Plan
The Company has a stock option plan (the "Plan") which authorizes the grant of nonqualified stock options to the Company's independent directors, officers, advisors, consultants and other personnel, subject to the absolute discretion of the board of directors and the applicable limitations of the Plan. The exercise price for stock options granted to the independent directors under the Plan will be equal to the fair market value, as defined in the Plan, of a share on the last business day preceding the annual meeting of stockholders. A total of 0.5 million shares have been authorized and reserved for issuance under the Plan. As of March 31, 2016 and December 31, 2015, no stock options were issued under the Plan.
Restricted Share Plan
The Company has an employee and director incentive restricted share plan (the "RSP"), which provides for the automatic grant of 3,000 restricted shares of common stock to each of the independent directors, without any further approval by the Company's board of directors or the stockholders, on the date of initial election to the board of directors and on the date of each annual stockholders' meeting. Restricted stock issued to independent directors will vest over a five-year period following the date of grant in increments of 20.0% per annum. The RSP provides the Company with the ability to grant awards of restricted shares to the Company's directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company. The total number of shares of common stock granted under the RSP may not exceed 5.0% of the Company's outstanding shares of common stock on a fully diluted basis at any time and in any event will not exceed 7.5 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events).

22
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Restricted share awards entitle the recipient to receive shares of common stock from the Company under terms that provide for vesting over a specified period of time. For restricted share awards granted prior to 2015, such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient's employment or other relationship with the Company. Restricted share awards granted during or after 2015 provide for accelerated vesting of the portion of the unvested shares scheduled to vest in the year of the recipient's voluntary termination or the failure to be re-elected to the board. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions payable in shares of common stock will be subject to the same restrictions as the underlying restricted shares.
No restricted shares were granted, vested, or forfeited during the three months ended March 31, 2016. As of March 31, 2016 and December 31, 2015, there were 11,400 unvested restricted shares outstanding with a weighted-average issue price of $9.00. As of March 31, 2016, the Company had $0.1 million of unrecognized compensation cost related to unvested restricted share awards granted under the Company's RSP. That cost is expected to be recognized over a weighted-average period of 2.9 years.
The fair value of the restricted shares is being expensed in accordance with the service period required. Compensation expense related to restricted stock was approximately $7,000 and $10,000 during the three months ended March 31, 2016 and 2015, respectively. Compensation expense related to restricted stock is included in general and administrative expense on the accompanying consolidated statements of operations and comprehensive loss.
Other Share-Based Compensation
The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors, at each director's election. There are no restrictions on the shares issued since these payments in lieu of cash relate to fees earned for services performed. There were no shares of common stock issued to directors in lieu of cash compensation during the three months ended March 31, 2016 and 2015.
Note 13 — Net (Loss) Income Per Share
 The following is a summary of the basic and diluted net (loss) income per share computation for the three months ended March 31, 2016 and 2015:
 
 
Three Months Ended March 31,
(In thousands, except share and per share amounts)
 
2016
 
2015
Net (loss) income
 
$
(2,979
)
 
$
46

Basic weighted-average shares outstanding
 
97,448,826

 
95,040,086

Basic net (loss) income per share
 
$
(0.03
)
 
$
0.00

Diluted weighted-average shares outstanding
 
97,448,826

 
95,040,288

Diluted net (loss) income per share
 
$
(0.03
)
 
$
0.00

Diluted net loss per share assumes the conversion of all common stock equivalents into an equivalent number of common shares, unless the effect is antidilutive. The Company considers unvested restricted stock, OP Units and Class B Units to be common share equivalents, and thus were included in the calculation of diluted net income per share for the three months ended March 31, 2015 to the extent their effect was dilutive. The Company had the following common share equivalents on a weighted-average basis that were excluded from the calculation of diluted net loss per share as their effect would have been antidilutive for the three months ended March 31, 2016:
 
 
Three Months Ended March 31, 2016
Unvested restricted stock
 
11,400

OP Units
 
202

Class B Units
 
479,802

Total common stock equivalents
 
491,404


23
AMERICAN REALTY CAPITAL – RETAIL CENTERS OF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Note 14 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have not been any events that have occurred that would require adjustments to, or disclosures in, the consolidated financial statements.

24

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of American Realty Capital — Retail Centers of America, Inc. and the notes thereto. As used herein, the terms the "Company," "we," "our" and "us" refer to American Realty Capital — Retail Centers of America, Inc., a Maryland corporation, including, as required by context, American Realty Capital Retail Operating Partnership, L.P., a Delaware limited partnership, which we refer to as the "OP," and its wholly-owned subsidiaries. The Company is externally managed by American Realty Capital Retail Advisor, LLC (our "Advisor"), a Delaware limited liability company. Capitalized terms used herein but not otherwise defined have the meanings ascribed to those terms in "Part I — Financial Information" within the notes to the accompanying consolidated financial statements.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of American Realty Capital — Retail Centers of America, Inc. (the "Company," "we," "our" or "us") and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
•
All of our executive officers are also officers, managers or holders of a direct or indirect controlling interest in American Realty Capital Retail Advisor, LLC, (our "Advisor"), or other entities affiliated with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global" or the "Parent of our Sponsor"), the parent of our sponsor, American Realty Capital IV, LLC (our "Sponsor"). As a result, our executive officers, our Advisor and its affiliates face conflicts of interest, including conflicts created by our Advisor's and its affiliates' compensation arrangements with us and other investment programs advised by affiliates of the Parent of our Sponsor and conflicts in allocating time among these investment programs and us, which could negatively impact our operating results.
•
Lincoln Retail REIT Services, LLC, a Delaware limited liability company ("Lincoln") and its affiliates have to allocate time between providing real estate-related services to our Advisor and other programs and activities in which they are presently involved or may be involved in the future.
•
We depend on tenants for revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants.
•
Our tenants may not achieve the rental rate incentives in their lease agreements with us, which may impact our results of operations.
•
Increases in interest rates could increase the amount of our interest payments associated with our credit facility, as amended, (our "Credit Facility") and limit our ability to pay distributions.
•
We are permitted to pay distributions of unlimited amounts from any source. There are no established limits on the amount of borrowings that we may use to fund distribution payments.
•
We have not generated, and in the future may not generate, operating cash flows sufficient to cover 100% of our distributions, and, as such, to maintain the level of distributions, we may need to fund some portion of distributions from borrowings, which may be at unfavorable rates, or depend on our Advisor to waive reimbursement of certain expenses or fees. There is no assurance that our Advisor will waive reimbursement of expenses or fees.
•
We may be unable to maintain cash distributions at the current rate or increase distributions over time.
•
We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates.
•
No public market currently exists, or may ever exist, for shares of our common stock and our shares are, and may continue to be, illiquid.
•
We are subject to risks associated with any dislocation or liquidity disruptions that may exist or occur in the credit markets of the United States of America.
•
We may fail to continue to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes ("REIT"), which would result in higher taxes, may adversely affect our operations and would reduce the value of an investment in our common stock and the cash available for distributions.

25

•
We may be deemed to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and thus be subject to regulation under the Investment Company Act.
Overview
We have acquired and own anchored, stabilized core retail properties for investment purposes, including power centers and lifestyle centers, which are located in the United States and were at least 80.0% leased at the time of acquisition. We purchased our first property and commenced active operations in June 2012. As of March 31, 2016, we owned 35 properties with an aggregate purchase price of $1.2 billion, comprised of 7.5 million rentable square feet, which were 93.9% leased on a weighted-average basis.
Incorporated on July 29, 2010, we are a Maryland corporation that elected and qualified to be taxed as a REIT beginning with the taxable year ended December 31, 2012. Substantially all of our business is conducted through the OP and its wholly-owned subsidiaries.
On March 17, 2011, we commenced our initial public offering (the "IPO") on a "reasonable best efforts" basis of up to 150.0 million shares of common stock, $0.01 par value per share, at a price of $10.00 per share, subject to certain volume and other discounts. The IPO closed on September 12, 2014. On September 22, 2014, we registered an additional 25.0 million shares of common stock to be used under the distribution reinvestment plan (the "DRIP") pursuant to a registration statement on Form S-3 (File No. 333-198864).
As of March 31, 2016, we had 97.8 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the DRIP and had received total proceeds from the IPO and the DRIP, net of share repurchases of $970.2 million.
On March 7, 2016, our board of directors approved an estimated net asset value per share of our common stock ("Estimated Per-Share NAV) equal to $9.00 as of December 31, 2015, which was published on March 11, 2016. Until March 2016, we offered shares pursuant to the DRIP at $9.50 per share. Beginning in April 2016, we have offered shares pursuant to the DRIP at the then-current Estimated Per-Share NAV. We intend to publish subsequent valuations of Estimated Per-Share NAV periodically at the discretion of our board of directors, provided that such valuations will be made at least once annually.
We have no employees. We have retained the Advisor to manage our affairs on a day-to-day basis. The Advisor has entered into a service agreement with an independent third party, Lincoln, pursuant to which Lincoln provides, subject to the Advisor's oversight, real estate-related services, including locating investments, negotiating financing, and providing property-level asset management services, property management services, leasing and construction oversight services and disposition services, as needed. The Advisor has passed through and will continue to pass through to Lincoln a portion of the fees and/or other expense reimbursements payable to the Advisor for the performance of real estate-related services. The Advisor is under common control with the Parent of our Sponsor, as a result of which it is a related party of ours.
Significant Accounting Estimates and Critical Accounting Policies
 Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:
Revenue Recognition
Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Since many of our leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record a receivable, and include in revenues, unbilled rents receivable that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When we acquire a property, acquisition date is considered to be the commencement date for purposes of this calculation. We defer the revenue related to lease payments received from tenants in advance of their due dates.
We own certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant's sales upon the achievement of certain sales thresholds or other targets which may be monthly, quarterly or annual targets. As the lessor to the aforementioned leases, we defer the recognition of contingent rental income until the specified target that triggers the contingent rental income is achieved, or until such sales upon which percentage rent is based are known. Contingent rental income is included in rental income on the consolidated statements of operations and comprehensive loss.

26

We continually review receivables related to rent and unbilled rents receivable and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. If a receivable is deemed uncollectible, we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations and comprehensive loss.
Cost recoveries from tenants are included in operating expense reimbursements in our consolidated statements of operations and comprehensive loss in the period the related costs are incurred, as applicable.
Real Estate Investments
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred.
We evaluate the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive loss. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets.
In business combinations, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets may include the value of in-place leases and above- and below- market leases. In addition, any assumed mortgages receivable or payable and any assumed or issued noncontrolling interests are recorded at their estimated fair values.
The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases. The fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining term of the lease, including any below-market fixed rate renewal options for below-market leases.
In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above or below-market interest rates.
In allocating non-controlling interests, amounts are recorded based on the fair value of units issued at the date of acquisition, as determined by the terms of the applicable agreement.
In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including real estate valuations prepared by independent valuation firms. We also consider information and other factors including: market conditions, the industry that the tenant operates in, characteristics of the real estate, i.e.: location, size, demographics, value and comparative rental rates, tenant credit profile, store profitability and the importance of the location of the real estate to the operations of the tenant’s business.
Real estate investments that are intended to be sold are designated as "held for sale" on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale. Real estate investments are no longer depreciated when they are classified as held for sale. If the disposal, or intended disposal, of certain real estate investments represents a strategic shift that has had or will have a major effect on our operations and financial results, the operations of such real estate investments would be presented as discontinued operations in the consolidated statements of operations and comprehensive loss for all applicable periods. As of March 31, 2015, we had $0.5 million of land held for sale. There were no assets held for sale as of March 31, 2016.
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
Capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.
Capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods.

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The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases.
Assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
Impairment of Long-Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, we review the property for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers 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. The revised guidance was to become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. In July 2015, the FASB deferred the effective date of the revised guidance by one year to annual reporting periods beginning after December 15, 2017, although entities will be allowed to early adopt the guidance as of the original effective date. We have not yet selected a transition method and are currently evaluating the impact of the new guidance.
In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are VIEs or voting interest entities, eliminate the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted, including adoption in an interim period. We elected to adopt this guidance effective January 1, 2016. We have evaluated the impact of the adoption of the new guidance on our consolidated financial statements and have determined the OP is considered a VIE. However, we meet the disclosure exemption criteria as we are the primary beneficiary of the VIE and our partnership interest is considered a majority voting interest in a business and the assets of the OP can be used for purposes other than settling its obligations, such as paying distributions. As such, the new guidance did not have a material impact on our consolidated financial statements.
In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB added that, for line of credit arrangements, the Securities and Exchange Commission ("SEC") staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line, regardless of whether or not there are any outstanding borrowings. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We elected to adopt this guidance effective January 1, 2016. As a result, we reclassified $1.6 million and $1.7 million of deferred issuance costs related to our mortgage notes payable from deferred costs, net to mortgage notes payable in our consolidated balance sheets as of March 31, 2016 and December 31, 2015, respectively. As permitted under the revised guidance, we elected to not reclassify the deferred debt issuance costs associated with our Credit Facility. The deferred debt issuance costs associated with the Credit Facility, net of accumulated amortization, and deferred leasing costs, net of accumulated amortization, are included in deferred costs, net on our accompanying consolidated balance sheets as of March 31, 2016 and December 31, 2015.
In January 2016, the FASB issued an update that amends the recognition and measurement of financial instruments. The new guidance revises an entity’s accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update. We are currently evaluating the impact of the new guidance.

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In February 2016, the FASB issued an update which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new guidance requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The revised guidance supersedes previous leasing standards and is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the impact of adopting the new guidance.
In March 2016, the FASB issued an update on the accounting for derivative contracts. Under the new guidance, the novation of a derivative contract in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship. The hedge accounting relationship could continue uninterrupted if all of the other hedge accounting criteria are met, including the expectation that the hedge will be highly effective when the creditworthiness of the new counterparty to the derivative contract is considered. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods therein. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact of this new guidance.
In March 2016, the FASB issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.
In March 2016, the FASB issued an update that changes the accounting for certain aspects of share-based compensation. Among other things, the revised guidance allows companies to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. We have adopted the provisions of this guidance beginning January 1, 2016, electing to account for forfeitures when they occur, and determined that there is no impact to our consolidated financial position, results of operations and cash flows.
Properties
As of March 31, 2016, we owned 35 properties, comprised of 7.5 million rentable square feet that were 93.9% leased on a weighted-average basis with a weighted-average remaining lease term of 5.4 years.

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Our portfolio is comprised of the following real estate properties as of March 31, 2016:
Property
 
Acquisition Date
 
Property Type
 
Rentable
Square
Feet
 
Percentage Leased
 
Remaining Lease
Term (1)
 
 
 
 
 
 
 
 
 
 
 
Liberty Crossing
 
Jun. 2012
 
Power Center
 
105,970

 
93.8%
 
3.3
San Pedro Crossing
 
Dec. 2012
 
Power Center
 
201,965

 
100.0%
 
4.3
Tiffany Springs MarketCenter
 
Sep. 2013
 
Power Center
 
246,419

 
91.2%
 
4.5
The Streets of West Chester
 
Apr. 2014
 
Lifestyle Center
 
236,842

 
90.4%
 
5.6
Prairie Towne Center
 
Jun. 2014
 
Power Center
 
289,277

 
95.3%
 
8.1
Southway Shopping Center
 
Jun. 2014
 
Power Center
 
181,809

 
95.1%
 
3.6
Stirling Slidell Centre
 
Aug. 2014
 
Power Center
 
134,276

 
77.2%
 
4.3
Northwoods Marketplace
 
Aug. 2014
 
Power Center
 
236,078

 
97.1%
 
4.0
Centennial Plaza
 
Aug. 2014
 
Power Center
 
233,797

 
100.0%
 
3.1
Northlake Commons
 
Sep. 2014
 
Lifestyle Center
 
109,112

 
96.2%
 
4.7
Shops at Shelby Crossing
 
Sep. 2014
 
Power Center
 
236,081

 
97.9%
 
3.0
Shoppes of West Melbourne
 
Sep. 2014
 
Power Center
 
144,484

 
95.8%
 
4.9
The Centrum
 
Sep. 2014
 
Power Center
 
270,747

 
93.5%
 
3.6
Shoppes at Wyomissing
 
Oct. 2014
 
Lifestyle Center
 
103,064

 
100.0%
 
3.3
Southroads Shopping Center
 
Oct. 2014
 
Power Center
 
436,936

 
71.7%
 
5.1
Parkside Shopping Center
 
Nov. 2014 & Dec. 2015 (2)
 
Power Center
 
181,612

 
93.1%
 
6.7
West Lake Crossing
 
Nov. 2014
 
Power Center
 
75,928

 
100.0%
 
4.7
Colonial Landing
 
Dec. 2014
 
Power Center
 
263,559

 
98.5%
 
4.4
The Shops at West End
 
Dec. 2014
 
Lifestyle Center
 
381,831

 
76.5%
 
8.8
Township Marketplace
 
Dec. 2014
 
Power Center
 
298,630

 
96.2%
 
3.2
Cross Pointe Centre
 
Mar. 2015
 
Power Center
 
226,089

 
100.0%
 
9.4
Towne Center Plaza
 
Apr. 2015
 
Power Center
 
94,096

 
100.0%
 
6.8
Harlingen Corners
 
May 2015
 
Power Center
 
217,772

 
94.8%
 
5.3
Bison Hollow
 
Jun. 2015
 
Power Center
 
134,798

 
100.0%
 
6.6
Pine Ridge Plaza
 
Jun. 2015
 
Power Center
 
239,492

 
95.2%
 
3.5
Village at Quail Springs
 
Jun. 2015
 
Power Center
 
100,404

 
100.0%
 
3.0
Jefferson Commons
 
Jun. 2015
 
Power Center
 
205,918

 
96.9%
 
9.4
Northpark Center
 
Jun. 2015
 
Power Center
 
318,327

 
99.2%
 
4.3
Anderson Station
 
Jul. 2015
 
Power Center
 
243,550

 
97.2%
 
2.5
Patton Creek
 
Aug. 2015
 
Power Center
 
491,294

 
95.1%
 
5.2
North Lakeland Plaza
 
Sep. 2015
 
Power Center
 
171,397

 
100.0%
 
4.5
Riverbend Marketplace
 
Sep. 2015
 
Power Center
 
142,617

 
97.2%
 
6.8
Montecito Crossing
 
Sep. 2015
 
Power Center
 
179,721

 
96.6%
 
5.6
Best on the Boulevard
 
Sep. 2015
 
Power Center
 
204,568

 
100.0%
 
5.1
Shops at RiverGate South
 
Sep. 2015
 
Power Center
 
140,703

 
97.8%
 
9.5
Portfolio, March 31, 2016
 
 
 
 
 
7,479,163

 
93.9%
 
5.4
_____________________
(1)
Remaining lease term in years as of March 31, 2016, calculated on a weighted-average basis.
(2)
Parkside Shopping Center was purchased in November 2014 with two additional parcels purchased in December 2015.
Results of Operations
 We purchased our first property and commenced active operations in June 2012. As of March 31, 2016, we owned 35 properties, which were acquired for investment purposes, with an aggregate base purchase price of $1.2 billion, comprised of 7.5 million rentable square feet that were 93.9% leased on a weighted-average basis.

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Comparison of the Three Months Ended March 31, 2016 to Three Months Ended March 31, 2015
As of January 1, 2015, we owned 20 properties (our "Three Month Same Store") with an aggregate base purchase price of $716.3 million, comprised of 4.3 million rentable square feet that were 94.5% leased on a weighted-average basis. We have acquired 15 properties since January 1, 2015 for an aggregate base purchase price of $485.1 million, comprised of 3.1 million rentable square feet that were 97.5% leased on a weighted-average basis as of March 31, 2016 (our "Three Month Acquisitions"). Accordingly, our results of operations for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015 reflect significant increases in most categories.
During the three months ended March 31, 2016, we entered into five new leases comprising a total of approximately 11,000 rentable square feet. These leases will generate annualized rental income on a straight-line basis of $0.2 million, representing average rent per square foot of $17.41. In addition, we executed renewals on 14 leases comprising a total of approximately 78,000 rentable square feet. These leases will generate annualized rental income on a straight-line basis of $1.2 million, representing average rent per square foot of $15.03. Prior to the renewals, the average annualized rental income on a straight-line basis was $13.71 per square foot. The one-time cost of executing the new leases and renewals, including leasing commissions, tenant improvement costs and tenant concessions, was $2.60 per square foot.
Rental Income
Rental income increased $9.4 million to $25.6 million for the three months ended March 31, 2016, compared to $16.2 million for the three months ended March 31, 2015. This increase in rental income was primarily due to our Three Month Acquisitions, which resulted in an increase in rental income of $9.8 million for the three months ended March 31, 2016. This increase in rental income was partially offset by a decrease in our Three Month Same Store rental income of $0.4 million, primarily due to certain lease terminations at the Shops at West End during the three months ended June 30, 2015. The percentage of rentable square feet leased at the Shops at West End decreased from 92.6% as of March 31, 2015 compared to 76.5% as of March 31, 2016.
Operating Expense Reimbursements
Operating expense reimbursements from tenants increased $2.8 million to $7.7 million for the three months ended March 31, 2016, compared to $4.9 million for the three months ended March 31, 2015. This increase in operating expense reimbursements was primarily due to our Three Month Acquisitions, which resulted in a $2.5 million increase for the three months ended March 31, 2016. In addition, Three Month Same Store operating expense reimbursements increased $0.3 million for the three months ended March 31, 2016 as a result of an increase in Three Month Same Store property operating expenses. Pursuant to many of our lease agreements, tenants are required to pay their pro rata share of property operating expenses, in addition to base rent.
Asset Management Fees to Related Party
Asset management fees to related party for the three months ended March 31, 2016 of $2.2 million were related to services that we received from our Advisor in connection with the management of our assets. See Note 10 — Related Party Transactions and Arrangements for more information on fees payable to our Advisor pursuant to the advisory agreement. There were no asset management fees to related party incurred during the three months ended March 31, 2015 as we caused the OP to issue to the Advisor performance-based restricted partnership units of the OP ("Class B Units") in lieu of asset management fees prior to April 1, 2015.
Property Operating Expenses
Property operating expenses increased $3.7 million to $10.4 million for the three months ended March 31, 2016, compared to $6.7 million for the three months ended March 31, 2015. This increase in property operating expenses was primarily due to our Three Month Acquisitions, which resulted in a $3.1 million increase for the three months ended March 31, 2016. In addition, Three Month Same Store property operating expenses increased by $0.6 million, which primarily related to an increase in real estate taxes and bad debt expense associated with certain tenant bankruptcies. Property operating expenses primarily relate to the costs associated with maintaining our properties including property management fees incurred from Lincoln, real estate taxes, utilities, and repairs and maintenance.
Fair Value Adjustment to Contingent Purchase Price Consideration
During the three months ended March 31, 2016, we recorded a $1.8 million fair value adjustment related to previously unrecognized contingent purchase price consideration in connection with the acquisition of Harlingen Corners. There were no fair value adjustments to contingent purchase price consideration during the three months ended March 31, 2015.
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses decreased $0.5 million to $0.1 million for the three months ended March 31, 2016, compared to $0.6 million for the three months ended March 31, 2015. The $0.6 million in acquisition and transaction related expenses for the three months ended March 31, 2015 primarily related to our acquisition of Cross Pointe Centre in March 2015, which had a base purchase price of $26.1 million. There were no property acquisitions during the three months ended March 31, 2016.

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General and Administrative Expenses
General and administrative expenses increased $0.1 million to $2.5 million for the three months ended March 31, 2016, compared to $2.4 million for the three months ended March 31, 2015. This increase primarily related to reimbursements of general and administrative expenses to our Advisor of $0.6 million during the three months ended March 31, 2016, which the Advisor began requesting beginning in the third quarter of 2015, as well as an increase of $0.1 million in state and local income taxes as a result of our increased portfolio. These increases were partially offset by a decrease in audit fees of $0.6 million.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased $6.3 million to $16.1 million for the three months ended March 31, 2016, compared to $9.8 million for the three months ended March 31, 2015. This increase was primarily attributable to our Three Month Acquisitions, which resulted in an increase in depreciation and amortization expenses of $5.9 million for the three months ended March 31, 2016. Additionally, our Three Month Same Store depreciation and amortization expense increased $0.4 million, primarily due to the accelerated amortization of in-place lease assets associated with tenant turnover. The base purchase price of acquired properties is allocated to tangible and identifiable intangible assets and depreciated or amortized over their estimated useful lives.
Interest Expense
Interest expense increased $1.6 million to $3.2 million for the three months ended March 31, 2016, compared to $1.6 million for the three months ended March 31, 2015. Interest expense for the three months ended March 31, 2016 resulted from our mortgage notes payable, which had a weighted-average balance of $128.8 million and a weighted-average effective interest rate of 4.76%, our Credit Facility, which had weighted-average borrowings of $304.0 million and a weighted-average effective interest rate of 1.78%, as well as unused fees on our Credit Facility and amortization of deferred financing costs. Interest expense for the three months ended March 31, 2015 resulted from our mortgage notes payable, which had a weighted-average balance of $86.9 million and a weighted-average effective interest rate of 4.28%, as well as unused fees on our Credit Facility and amortization of deferred financing costs.
Cash Flows for the Three Months Ended March 31, 2016
During the three months ended March 31, 2016, net cash provided by operating activities was $13.6 million. The level of cash flows provided by or used in operating activities is affected by the volume of acquisition activity, timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments. Cash flows from operating activities during the three months ended March 31, 2016 included $0.1 million of acquisition and transaction related costs. Operating cash inflows primarily related to net loss adjusted for non-cash items of $14.9 million (net loss of $3.0 million adjusted for depreciation and amortization of tangible and intangible real estate assets, fair value adjustment to contingent purchase price consideration, amortization of deferred costs, share-based compensation, the ineffective portion of derivative, loss on disposition of land and bad debt expense, partially offset by amortization of mortgage premium and accretion of market lease and other intangibles, totaling $17.9 million), an increase in accounts payable and accrued expenses of $0.9 million and a decrease in restricted cash of $0.3 million. Operating cash inflows were partially offset by an increase in prepaid expenses and other assets of $2.5 million resulting from rent receivables and unbilled rent receivables recorded in accordance with straight-line basis accounting, prepaid insurance and accrued income for real estate tax reimbursements.
Net cash used in investing activities during the three months ended March 31, 2016 of $1.4 million included $1.7 million related to capital expenditures and $0.2 million related to cash restricted for capital expenditures. Investing cash outflows were partially offset by proceeds from the disposition of land of $0.5 million.
Net cash used in financing activities during the three months ended March 31, 2016 of $12.3 million primarily related to cash distributions of $7.0 million, common stock repurchases based on requests made during 2015 and completed during the first quarter of 2016 of $5.0 million and principal payments on our mortgage notes of $0.3 million.
Cash Flows for the Three Months Ended March 31, 2015
During the three months ended March 31, 2015, net cash provided by operating activities was $10.1 million. The level of cash flows provided by or used in operating activities is affected by the volume of acquisition activity, timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments. Cash flows from operating activities during the three months ended March 31, 2015 included $0.6 million of acquisition and transaction related costs. Cash inflows primarily related to net income adjusted for non-cash items of $9.8 million (net income of approximately $46,000 adjusted for depreciation and amortization of tangible and intangible real estate assets, amortization of deferred costs, share-based compensation and loss on derivative instrument, partially offset by amortization of mortgage premium totaling $9.7 million), an increase in accounts payable and accrued expenses of $2.2 million, an increase in deferred rent and other liabilities of $1.0 million due to the timing of the receipt of rental payments and payment of our expenses and a decrease in restricted cash of $0.1 million. Cash inflows were partially offset by an increase in prepaid expenses and other assets of $3.0 million resulting from rent receivables and unbilled rent receivables recorded in accordance with straight-line basis accounting, prepaid insurance and accrued income for real estate tax reimbursements.

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Net cash used in investing activities during the three months ended March 31, 2015 of $29.9 million included $26.1 million related to our acquisition of Cross Pointe Centre, $2.1 million related to deposits for future real estate acquisitions and $1.9 million related to capital expenditures, partially offset by a decrease in restricted cash of $0.2 million.
Net cash provided by financing activities during the three months ended March 31, 2015 of $7.9 million primarily related to cash distributions of $6.3 million, payments related to offering costs of $1.2 million, common stock repurchases of $0.3 million and payments on mortgage notes of $0.1 million.
Liquidity and Capital Resources
As of March 31, 2016, we had cash and cash equivalents of $39.9 million. Our principal demands for funds will continue to be for capital expenditures, the payment of operating expenses, distributions to our stockholders, the payment of principal and interest on our outstanding indebtedness and repurchases of our common stock pursuant to the share repurchase program (as amended and restated, the "SRP").
We expect to meet our future short-term operating liquidity requirements through a combination of cash on hand, net cash provided by our current property operations, proceeds received from common stock issued under the DRIP and proceeds from our Credit Facility. Management expects that in the future, as we continue to optimize our portfolio and leasing activity at our properties, cash flows from our properties will be sufficient to fund operating expenses and the payment of our monthly distribution. Other potential future sources of capital include proceeds from public and private offerings and proceeds from the sale of properties. Generally, capital needs for property acquisitions have been funded with the net proceeds received from our IPO, proceeds from secured financings and proceeds from our Credit Facility.
Our Credit Facility provides for aggregate revolving loan borrowings of up to $325.0 million (subject to unencumbered asset pool availability), with a $25.0 million swingline subfacility and a $20.0 million letter of credit subfacility, subject to certain conditions. Availability of borrowings under our Credit Facility for any period is based on the lower of (i) 60% of the asset value pool of eligible unencumbered real estate assets that comprises our borrowing base, (ii) the amount that would cause the debt service coverage ratio of the borrowing base for the last four fiscal quarters to exceed 1.5 times, and (iii) the aggregate commitments under the Credit Facility, which allow for up to $325.0 million in borrowings with a $25.0 million swingline subfacility and a $20.0 million letter of credit subfacility, subject to certain conditions. Through an uncommitted “accordion feature,” the OP may increase commitments under the Credit Facility to up to $575.0 million under certain circumstances and to the extent agreed to by our lenders. As of March 31, 2016, our unused borrowing capacity was $20.9 million, based on the aggregate commitments under the Credit Facility. As of March 31, 2016 and December 31, 2015, we had $304.0 million outstanding under the Credit Facility.
The Credit Facility provides for quarterly interest payments for each base rate loan and periodic interest payments for each LIBOR loan, based upon the applicable interest period (though no longer than three months) with respect to such LIBOR loan, with all principal outstanding being due on the maturity date. The Credit Facility will mature on December 2, 2018, provided that the OP, subject to certain conditions, may elect to extend the maturity date one year to December 2, 2019. The Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty. In the event of a default, the lenders have the right to terminate their obligations under the Credit Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans. We, certain of our wholly-owned subsidiaries and certain wholly-owned subsidiaries of the OP guarantee the obligations under the Credit Facility.
We also expect to use proceeds from secured and unsecured financings from banks or other lenders as a source of capital. Under our charter, the maximum amount of our total indebtedness may not exceed 300% of our total "net assets" (as defined by our charter) as of the date of any borrowing, which is equal to 75% of the cost of our investments. We may exceed that limit if approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for exceeding such limit. This charter limitation, however, does not apply to individual real estate assets or investments.
Our borrowings are also restricted by covenants in our existing indebtedness. In addition, it is currently our intention to limit our aggregate borrowings to approximately 50% of the aggregate fair market value of our assets, unless borrowing a greater amount is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for borrowing such a greater amount. This limitation does not apply to individual real estate assets or investments. At the date of acquisition of each asset, we anticipate that the cost of investment for such asset will be substantially similar to its fair market value, which will enable us to satisfy our requirements under our charter. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits.
As of March 31, 2016, our leverage ratio (total debt divided by total assets) approximated 34.4%.
Our board of directors has adopted the SRP, which enables stockholders to sell their shares back to us after they have held them for at least one year, subject to certain conditions and limitations. We may repurchase shares on a semiannual basis, at each six-month period ending June 30 and December 31.

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Prior to March 11, 2016, the date we first published our Estimated Per-Share NAV, the purchase price per share for requests other than for death or disability under the SRP was as follows:
•
after one year from the purchase date — the lower of $9.25 or 92.5% of the amount actually paid for each share;
•
after two years from the purchase date —the lower of $9.50 or 95.0% of the amount actually paid for each share;
•
after three years from the purchase date — the lower of $9.75 or 97.5% of the amount actually paid for each share; and
•
after four years from the purchase date — the lower of $10.00 or 100.0% of the amount actually paid for each share.
In the case of requests for death or disability prior to March 11, 2016, the repurchase price per share was equal to the price paid to acquire the shares from the Company.
Beginning with March 11, 2016 and with respect to all repurchase requests received during the semiannual period, the repurchase price per share for requests other than for death or disability are as follows:
•
after one year from the purchase date — 92.5% of the then-current Estimated Per-Share NAV;
•
after two years from the purchase date — 95.0% of the then-current Estimated Per-Share NAV;
•
after three years from the purchase date — 97.5% of the then-current Estimated Per-Share NAV; and
•
after four years from the purchase date — 100.0% of the then-current Estimated Per-Share NAV.
Beginning with March 11, 2016 and with respect to all repurchase requests received during the semiannual period, in the case of requests for death or disability, the repurchase price per share is equal to the then-current Estimated Per-Share NAV at the time of repurchase.
Under the SRP, repurchases at each semiannual period are limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding during the previous fiscal year. Funding for repurchases pursuant to the SRP for any given semiannual period will be limited to proceeds received during that same semiannual period through the issuance of common stock pursuant to the DRIP. If the establishment of an Estimated Per-Share NAV occurs during any semiannual period, any repurchase requests received during such semiannual period will be paid at a price based on Estimated Per-Share NAV applicable on the last day of the semiannual period, as described above.
Our board of directors reserves the right, in its sole discretion, at any time and from time to time, to reject any request for repurchase, change the purchase price for repurchases or otherwise amend the terms of, suspend or terminate the SRP pursuant to any applicable notice requirements under the SRP. Due to these limitations, we cannot guarantee that it will be able to accommodate all repurchase requests.
When a stockholder requests repurchases and the repurchases are approved by our board of directors, we will reclassify such obligation from equity to a liability based on the settlement value of the obligation. The following table summarizes the share repurchases cumulatively through March 31, 2016:
 
 
Number of Shares Repurchased
 
Weighted-Average Price per Share
Cumulative repurchase requests as of December 31, 2015
 
1,355,162

 
$
9.48

Three months ended March 31, 2016
 
2,500

 
10.00

Cumulative repurchase requests as of March 31, 2016 (1)
 
1,357,662

 
$
9.48

_____________________
(1)
Includes accrued repurchases consisting of 2,500 shares for approximately $25,000 at an average repurchase price per share of $10.00, which were completed in April 2016. The accrual for these repurchases is reflected in the accounts payable and accrued expenses line of the accompanying consolidated balance sheet as of March 31, 2016. The additional shares will be deducted from the applicable limits of the SRP when processing share repurchases for the first semiannual period of 2016. There were no other shares requested to be repurchased as of March 31, 2016.
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.

34

Because of these factors, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has published a standardized measure of performance known as funds from operations (“FFO”), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT’s operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards set forth in the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, but excluding gains or losses from sales of property and real estate related impairments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and, when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and amortize acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, has published a standardized measure of performance known as modified funds from operations (“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year over year, both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisitions fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses, amounts relating to deferred rent receivables and accretion of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), contingent purchase price consideration, accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income, gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.
We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.

35

Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations, as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guideline or the SEC or another regulatory body could standardize the allowable adjustments across the a publicly registered, non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
The below table reflects the items deducted or added to net loss in our calculation of FFO and MFFO for the period presented:
 
 
Three Months Ended
(In thousands)
 
March 31, 2016
Net loss (in accordance with GAAP)
 
$
(2,979
)
Loss on disposition of land
 
4

Depreciation and amortization
 
16,092

FFO
 
13,117

Acquisition fees and expenses
 
63

Amortization of mortgage premiums
 
(247
)
Accretion of market lease and other intangibles, net
 
(759
)
Mark-to-market adjustments
 
3

Straight-line rent
 
(603
)
Fair value adjustment to contingent purchase price consideration
 
1,784

MFFO
 
$
13,358

Distributions
In September 2011, our board of directors authorized, and we declared, a distribution payable on a monthly basis to stockholders of record on each day at a rate equal to $0.0017534247 per day, which is equivalent to $0.64 per annum, per share of common stock. Distributions began to accrue on June 8, 2012, the date of our initial property acquisition. In March 2016, our board of directors ratified the existing distribution amount equivalent to $0.64 per annum, and, for calendar year 2016, affirmed a change to the daily distribution amount to $0.0017486339 per day per share of common stock, effective January 1, 2016, to accurately reflect that 2016 is a leap year.
The amount of distributions payable to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for distribution, our financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). Our board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.
During the three months ended March 31, 2016, distributions paid to common stockholders totaled $15.5 million, inclusive of $8.5 million of distributions that were reinvested in additional shares of our common stock through our DRIP. During the three months ended March 31, 2016, cash used to pay distributions was generated from cash flows from operations and proceeds received from common stock issued under the DRIP.

36

The following table shows the sources for the payment of distributions to common stockholders, including distributions on unvested restricted stock, for the period indicated:
 
 
Three Months Ended
 
 
March 31, 2016
(In thousands)
 
 
 
Percentage of Distributions
Distributions
 
$
15,505

 
 
 
 
 
 
 
Source of distribution coverage:
 
 
 
 
Cash flows provided by operations
 
$
12,028

 
77.6
%
Proceeds from common stock issued through the DRIP
 
3,477

 
22.4
%
Total source of distribution coverage
 
$
15,505

 
100.0
%
 
 
 
 
 
Cash flows provided by operations (GAAP basis) (1)
 
$
13,613

 
 
Net loss (in accordance with GAAP)
 
$
(2,979
)
 
 
_____________________
(1)
Cash flows provided by operations for the three months ended March 31, 2016 were impacted by acquisition and transaction related expenses of $0.1 million.
For the three months ended March 31, 2016, cash flows provided by operations were $13.6 million. As shown in the table above, we funded distributions with cash flows provided by operations and proceeds received from common stock issued under the DRIP.
We may not generate sufficient cash flow from operations in 2016 to pay distributions at our current level and we may not generate sufficient cash flows from operations to pay future distributions. The amount of cash available for distributions is affected by many factors, such as rental income from acquired properties and our operating expense levels, as well as many other variables. Actual cash available for distributions may vary substantially from estimates. We cannot give any assurance that future acquisitions of real properties, if any, will increase our cash available for distributions to stockholders. Our actual results may differ significantly from the assumptions used by our board of directors in establishing a distribution rate to stockholders.
If we do not generate sufficient cash flows from our operations, we expect to use a portion of our cash on hand and the proceeds from our DRIP to pay distributions. A decrease in the level of stockholder participation in our DRIP could have an adverse impact on our ability to meet these expectations. If these sources are insufficient, we may use other sources, such as from borrowings, advances from our Advisor, and our Advisor's deferral, suspension or waiver of its fees and expense reimbursements, as to which it has no obligation, to fund distributions.
To the extent we pay distributions in excess of cash flows provided by operations, our stockholders' investment may be adversely impacted. Since inception, our cumulative distributions have exceeded our cumulative FFO and our cash flows from operations.

37

The following table compares cumulative distributions paid, including distributions related to unvested restricted shares, to cumulative net loss and cumulative cash flows provided by operations (in accordance with GAAP) and cumulative FFO for the period from July 29, 2010 (date of inception) through March 31, 2016:
(In thousands)
 
Period from
July 29, 2010
(date of inception) to
March 31, 2016
Total distributions paid
 
$
105,795

 
 
 
Reconciliation of net loss:
 
 
Revenues
 
$
174,986

Acquisition and transaction related
 
(23,702
)
Depreciation and amortization
 
(86,237
)
Other operating expenses
 
(71,191
)
Other non-operating expenses
 
(18,079
)
Net loss (in accordance with GAAP) (1)
 
$
(24,223
)
 
 
 
Cash flows provided by operations
 
$
45,575

 
 
 
FFO
 
$
65,635

_____________________
(1)
Net loss as defined by GAAP includes the non-cash impact of depreciation and amortization expense as well as costs incurred relating to acquisitions and related transactions.
Loan Obligations
The payment terms of certain of our mortgage loan obligations require principal and interest payments monthly, with all unpaid principal and interest due at maturity. Our loan agreements require us to comply with specific reporting covenants. As of March 31, 2016, we were in compliance with the financial covenants under our loan agreements.
Our Advisor may, with approval from our independent board of directors, seek to borrow short-term capital that, combined with secured mortgage financing, exceeds our targeted leverage ratio. Such short-term borrowings may be obtained from third parties on a case-by-case basis as acquisition opportunities present themselves. We view the use of short-term borrowings as an efficient and accretive means of acquiring real estate. As of March 31, 2016, our leverage ratio (total debt divided by total assets) approximated 34.4%.
Contractual Obligations
The following table reflects contractual debt obligations under our mortgage notes payable and Credit Facility as well as minimum base rental cash payments due for leasehold interests over the next five years and thereafter as of March 31, 2016:
 
 
 
 
April 1 to December 31,
 
Years Ended December 31,
 
 
(In thousands)
 
Total
 
2016
 
2017-2018
 
2019-2020
 
Thereafter
Principal on gross mortgage notes payable
 
$
128,668

 
$
835

 
$
65,224

 
$
2,628

 
$
59,981

Interest on mortgage notes payable
 
25,664

 
4,602

 
10,972

 
6,721

 
3,369

Credit Facility
 
304,000

 
—

 
304,000

 
—

 
—

Interest on Credit Facility
 
14,825

 
4,177

 
10,648

 
—

 
—

Ground lease rental payments due
 
11,874

 
379

 
1,038

 
1,081

 
9,376

 
 
$
485,031

 
$
9,993

 
$
391,882

 
$
10,430

 
$
72,726


38

Election as a REIT 
We elected to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year ended December 31, 2012. Commencing with such taxable year, we have been organized and have operated in a manner so that we qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to remain qualified as a REIT. In order to continue to qualify for taxation as a REIT, we must, among other things, distribute annually at least 90% of our REIT taxable income to our stockholders (which does not equal net income as calculated in accordance with GAAP) determined without regard for the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on that portion of our REIT taxable income that we distribute to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties, as well as federal income and excise taxes on our undistributed income. Further, we have taxable REIT subsidiaries, which are set up to conduct activities that cannot otherwise be conducted by a REIT, and are subject to corporate income tax.
Inflation
Some of our leases with our tenants contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the term of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). We may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions. However, our net leases require the tenant to pay its allocable share of operating expenses, which may include common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in costs and operating expenses resulting from inflation.
Related-Party Transactions and Agreements
We have entered into agreements with affiliates of our Sponsor, whereby we have paid and/or may in the future pay certain fees or reimbursements to our Advisor, its affiliates and entities under common ownership with our Advisor in connection with items such as acquisition and financing activities, sales and maintenance of common stock under our suspended IPO, asset and property management services and reimbursement of operating and offering related costs. Realty Capital Securities, LLC (the "Former Dealer Manager") served as the dealer manager of the IPO. American National Stock Transfer, LLC ("ANST"), a subsidiary of the parent company of the Former Dealer Manager, provided other general professional services through January 2016. RCS Capital Corporation, the parent company of the Former Dealer Manager and certain of its affiliates that provided services to us, filed for Chapter 11 bankruptcy protection in January 2016, prior to which it was under common control with the Parent of the Sponsor.
The predecessor to the Parent of our Sponsor was a party to a services agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer Manager (“RCS Advisory”), pursuant to which RCS Advisory and its affiliates provided us and certain other companies sponsored by the Parent of our Sponsor with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. The predecessor to the Parent of our Sponsor instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided by RCS Advisory. We were also party to a transfer agency agreement with ANST, pursuant to which ANST provided us with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by a third-party transfer agent. The Parent of our Sponsor received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. On February 26, 2016, we entered into a definitive agreement with DST Systems, Inc., its previous provider of sub-transfer agency services, to  provide us directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services). See Note 10 — Related Party Transactions and Arrangements to our consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of the various related party transactions, agreements and fees.
In addition, the limited partnership agreement of the OP provides for a special allocation, solely for tax purposes, of excess depreciation deductions of up to $10.0 million to our Advisor, a limited partner of the OP.  In connection with this special allocation, our Advisor has agreed to restore a deficit balance in its capital account in the event of a liquidation of the OP and has agreed to provide a guaranty or indemnity of indebtedness of the OP. Our Advisor is directly or indirectly controlled by certain of our officers and directors.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

39

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our long-term debt, which consists of secured financings and our Credit Facility, bears interest at fixed and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars, and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.
As of March 31, 2016, our fixed-rate debt consisted of secured mortgage financings with a carrying value of $133.2 million and a fair value of $135.5 million. Changes in market interest rates on our fixed-rate debt impacts its fair value, but it has no impact on interest incurred or cash flow. For instance, if interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our obligation to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed–rate debt assumes an immediate 100 basis point move in interest rates from their March 31, 2016 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt by $3.9 million. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt by $3.9 million.
As of March 31, 2016, our variable-rate debt consisted of our Credit Facility, which had a carrying and fair value of $304.0 million. Interest rate volatility associated with this variable-rate Credit Facility affects interest expense incurred and cash flow. The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in interest rates from their March 31, 2016 levels with all other variables held constant. A 100 basis point increase or decrease in variable rates on our variable-rate Credit Facility would increase or decrease our interest expense by $3.0 million.
These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs, and assuming no other changes in our capital structure. The information presented above includes only those exposures that existed as of March 31, 2016 and does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that the disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
No change occurred in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





40

PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to, and none of our properties are subject to, any material pending legal proceedings.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Registered Securities.
Recent Sale of Unregistered Securities
There were no recent sales of unregistered securities.
Issuer Purchases of Equity Securities
Our board of directors adopted the SRP that enables our stockholders to sell their shares to us under limited circumstances. At the time a stockholder requests a repurchase, we may, subject to certain conditions, repurchase the shares presented for repurchase for cash to the extent we have sufficient funds available.
The following table summarizes the repurchases of shares under the SRP cumulatively through March 31, 2016:
 
 
Number of Shares Repurchased
 
Weighted-Average Price per Share
Cumulative repurchase requests as of December 31, 2015
 
1,355,162

 
$
9.48

Three months ended March 31, 2016
 
2,500

 
10.00

Cumulative repurchase requests as of March 31, 2016 (1)
 
1,357,662

 
$
9.48

_____________________
(1)
Includes accrued repurchases consisting of 2,500 shares for approximately $25,000 at an average repurchase price per share of $10.00, which were completed in April 2016. The accrual for these repurchases is reflected in the accounts payable and accrued expenses line of the accompanying consolidated balance sheet as of March 31, 2016. The additional shares will be deducted from the applicable limits of the SRP when processing share repurchases for the first semiannual period of 2016. There were no other shares requested to be repurchased as of March 31, 2016.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.

41

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
AMERICAN REALTY CAPITAL — RETAIL CENTERS OF AMERICA, INC.
 
By:
/s/ Edward M. Weil, Jr.
 
 
Edward M. Weil, Jr.
 
 
Chief Executive Officer, President and Chairman of the Board of Directors
(Principal Executive Officer)
 
 
 
 
By:
/s/ Katie P. Kurtz
 
 
Katie P. Kurtz
 
 
Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)

Dated: May 12, 2016

42
EXHIBITS INDEX


The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (and are numbered in accordance with Item 601 of Regulation S-K).

Exhibit
No.
  
Description
31.1 *
 
Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 *
 
Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 *
 
Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1 *
 
Amended and Restated Share Repurchase Program effective as of February 28, 2016
101 *
 
XBRL (eXtensible Business Reporting Language). The following materials from American Realty Capital — Retail Centers of America, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statement of Changes in Stockholders' Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.
_____________________________
*
Filed herewith.

43

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