10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

OR

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

For the transition period from              to              

Commission file number 333-190588

PHILLIPS EDISON – ARC GROCERY CENTER REIT II, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	61-1714451
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

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

(513) 554-1110

(Registrant’s Telephone Number, Including Area Code)

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

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

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

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-Accelerated Filer	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  ¨    No  x 

As of August 1, 2014, there were 11.9 million outstanding shares of common stock of Phillips Edison – ARC Grocery Center REIT II, Inc.

PHILLIPS EDISON – ARC GROCERY CENTER REIT II, INC.

FORM 10-Q

June 30, 2014

INDEX

PART I. FINANCIAL INFORMATION		2
Item 1.	Financial Statements	2
	Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 (unaudited)	2
	Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and six months ended June 30, 2014 (unaudited)	3
	Condensed Consolidated Statement of Equity for the six months ended June 30, 2014 (unaudited)	4
	Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2014 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION		32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults upon Senior Securities	33
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
SIGNATURES		36

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PART I.        FINANCIAL INFORMATION

Item 1.          Financial Statements

PHILLIPS EDISON – ARC GROCERY CENTER REIT II, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2014 AND DECEMBER 31, 2013

(Unaudited)

(In thousands, except share and per share amounts)

	June 30, 2014			December 31, 2013
ASSETS
Investment in real estate:
Land	$	7,440		$	—
Building and improvements	17,312			—
Total investment in real estate assets	24,752			—
Accumulated depreciation and amortization	(182		)	—
Total investment in real estate assets, net	24,570			—
Acquired intangible lease assets, net of accumulated amortization of $107 and $0, respectively	3,953			—
Cash and cash equivalents	178,488			100
Restricted cash	42			—
Deferred offering costs	—			1,858
Accounts receivable	87			—
Deferred financing expense, less accumulated amortization of $3 and $0, respectively	450			—
Prepaid expenses and other	287			390
Total assets	$	207,877		$	2,348
LIABILITIES AND EQUITY
Liabilities:
Mortgages and loans payable	$	12,889		$	—
Acquired below market lease intangibles	46			—
Accounts payable	4			—
Accounts payable – affiliates	4,615			1,988
Accrued and other liabilities	1,781			9
Notes payable	—			296
Total liabilities	19,335			2,293
Commitments and contingencies (Note 9)	—			—
Equity:
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, zero shares issued and outstanding at June 30, 2014
and December 31, 2013	—			—
Common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 8,917,720 and 8,888 shares issued and
outstanding at June 30, 2014 and December 31, 2013, respectively	89			—
Additional paid-in capital	192,627			200
Accumulated deficit	(4,174		)	(145		)
Total equity	188,542			55
Total liabilities and equity	$	207,877		$	2,348

See notes to condensed consolidated financial statements.

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PHILLIPS EDISON – ARC GROCERY CENTER REIT II, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE PERIOD ENDED JUNE 30, 2014

(Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended			Six Months Ended
	June 30, 2014			June 30, 2014
Revenues:
Rental income	$	433		$	474
Tenant recovery income	106			118
Other property income	—			1
Total revenues	539			593
Expenses:
Property operating	90			98
Real estate taxes	53			60
General and administrative	418			569
Acquisition expenses	384			586
Depreciation and amortization	223			256
Total expenses	1,168			1,569
Operating loss	(629		)	(976		)
Other expense:
Interest expense, net	(130		)	(132		)
Net loss	$	(759	)	$	(1,108	)
Per share information - basic and diluted:
Net loss per share - basic and diluted	$	(0.13	)	$	(0.30	)
Weighted-average common shares outstanding - basic and diluted	5,913,005			3,636,527
Comprehensive loss:
Net loss	$	(759	)	$	(1,108	)
Other comprehensive income	—			—
Comprehensive loss	$	(759	)	$	(1,108	)

See notes to condensed consolidated financial statements.

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PHILLIPS EDISON – ARC GROCERY CENTER REIT II, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

FOR THE SIX MONTHS ENDEDJUNE 30, 2014

(Unaudited)

(In thousands, except share and per share amounts)

				Additional						Total
	Common Stock			Paid-In			Accumulated			Stockholders'
	Shares	Amount		Capital			Deficit			Equity
Balance at January 1, 2014	8,888	$	—	$	200		$	(145	)	$	55
Issuance of common stock	8,870,551	89		220,505			—			220,594
Distribution reinvestment plan (DRIP)	38,281	—		909			—			909
Common distributions declared, $0.67 per share	—	—		—			(2,921		)	(2,921		)
Offering costs	—	—		(28,987		)	—			(28,987		)
Net loss	—	—		—			(1,108		)	(1,108		)
Balance at June 30, 2014	8,917,720	$	89	$	192,627		$	(4,174	)	$	188,542

See notes to condensed consolidated financial statements.

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PHILLIPS EDISON – ARC GROCERY CENTER REIT II, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDEDJUNE 30, 2014

(Unaudited)

(In thousands)

	Six Months Ended
	June 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,108	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	252
Net amortization of above- and below-market leases	34
Amortization of deferred financing costs	3
Straight-line rental income	(43		)
Changes in operating assets and liabilities:
Accounts receivable	(44		)
Prepaid expenses and other	103
Accounts payable	4
Accounts payable – affiliates	(103		)
Accrued and other liabilities	484
Net cash used in operating activities	(418		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(15,687		)
Capital expenditures	(100		)
Change in restricted cash	(42		)
Net cash used in investing activities	(15,829		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	220,594
Payment of offering costs	(24,399		)
Payments on mortgages and loans payable	(41		)
Payments on notes payable	(296		)
Distributions paid, net of DRIP	(966		)
Payments of loan financing costs	(257		)
Net cash provided by financing activities	194,635
NET INCREASE IN CASH AND CASH EQUIVALENTS	178,388
CASH AND CASH EQUIVALENTS:
Beginning of period	100
End of period	$	178,488
SUPPLEMENTAL CASHFLOW DISCLOSURE, INCLUDING NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for interest	$	69
Change in offering costs payable to advisor and sub-advisor	2,730
Change in distributions payable	1,046
Assumed debt	12,933
Accrued capital expenditures	46
Accrued loan financing costs	196
Distributions reinvested	909
Reclassification of deferred offering costs to additional paid-in capital	1,858

See notes to condensed consolidated financial statements.

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Phillips Edison—ARC Grocery Center REIT II, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. ORGANIZATION

Phillips Edison—ARC Grocery Center REIT II, Inc. (the "Company") was formed as a Maryland corporation on June 5, 2013, and intends to qualify as a real estate investment trust ("REIT") beginning with the taxable year ending December 31, 2014. Substantially all of our business is conducted through Phillips Edison—ARC Grocery Center Operating Partnership II, L.P. (the "Operating Partnership"), a Delaware limited partnership formed on June 4, 2013. We are a limited partner of the Operating Partnership, and our wholly owned subsidiary, PE-ARC Grocery Center OP GP II LLC, is the sole general partner of the Operating Partnership. As we accept subscriptions for shares in our continuous public offering, we will transfer all of the net proceeds of the offering to the Operating Partnership as a capital contribution in exchange for units of limited partnership interest; however, we are deemed to have made capital contributions in the amount of the gross offering proceeds received from investors.

We are offering to the public, pursuant to a registration statement, $2.475 billion in shares of common stock on a "reasonable best efforts" basis in our initial public offering ("our initial public offering"). Our initial public offering consists of a primary offering of $2.0 billion in shares offered to investors at a price of $25.00 per share, with discounts available for certain categories of purchasers, and $0.475 billion in shares offered to stockholders pursuant to a distribution reinvestment plan (the "DRIP") at a price of $23.75 per share. We have the right to reallocate the shares of common stock offered between the primary offering and the DRIP.

Our advisor is American Realty Capital PECO II Advisors, LLC (the "Advisor"), a newly organized limited liability company that was formed in the State of Delaware on July 9, 2013 and is under common control with AR Capital LLC (the "AR Capital sponsor"). We have entered into an advisory agreement with the Advisor which makes the Advisor ultimately responsible for the management of our day-to-day activities and the implementation of our investment strategy. The Advisor has delegated certain duties under the advisory agreement, including the management of our day-to-day operations and our portfolio of real estate assets, to Phillips Edison NTR II LLC (the "Sub-advisor"), which is directly or indirectly owned by Phillips Edison Limited Partnership (the "Phillips Edison sponsor"), and Michael Phillips and Jeffrey Edison, principals of our Phillips Edison sponsor. Notwithstanding such delegation to the Sub-advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the advisory agreement.

We plan to invest primarily in well-occupied grocery-anchored neighborhood and community shopping centers leased to a mix of national, creditworthy retailers selling necessity-based goods and services in strong demographic markets throughout the United States. In addition, we may invest in other retail properties including power and lifestyle shopping centers, multi-tenant shopping centers, free-standing single-tenant retail properties, and other real estate and real estate-related loans and securities depending on real estate market conditions and investment opportunities that we determine are in the best interests of our stockholders. We expect that retail properties primarily would underlie or secure the real estate-related loans and securities in which we may invest.

As of June 30, 2014, we owned a fee simple interest in two real estate properties, acquired from third parties unaffiliated with us, the Advisor, or the Sub-advisor.

2. SUMMARY OF SIGNIFICANT 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 condensed consolidated interim financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by management. As a result, these estimates are subject to a degree of uncertainty. There have been no changes to our significant accounting policies during the six months ended June 30, 2014, except that subsequent to the issuance of our Annual Report on Form 10-K, we have continued to adopt additional accounting policies as required by our increasing operational activity, as disclosed below. For a summary of our significant accounting policies previously adopted, refer to our Annual Report on Form 10-K for the year ended December 31, 2013.

Basis of Presentation and Principles of Consolidation—The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly

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Report on Form 10-Q should refer to the audited financial statements of Phillips Edison—ARC Grocery Center REIT II, Inc. for the year ended December 31, 2013, which are included in our 2013 Annual Report on Form 10-K, as certain footnote disclosures contained in such audited financial statements have been omitted from this Quarterly Report on Form 10-Q. In the opinion of management, all normal and recurring adjustments necessary for the fair presentation have been included in this Quarterly Report. Our results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the operating results expected for the full year.

Although we were formed on June 5, 2013, we were not capitalized until July 1, 2013, and we did not commence operations until January 9, 2014. As such, we had no financial activity or results from operations as of and for the period ended June 30, 2013, and therefore have not presented this as a comparative period within our condensed consolidated financial statements.

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

Organizational and Offering Costs—The Advisor and the Sub-advisor have paid offering expenses on our behalf. Pursuant to the terms of our advisory agreement with the Advisor, we will reimburse the Advisor and the Sub-advisor on a monthly basis for these costs and future offering costs they or any of their respective affiliates may incur on our behalf but only to the extent that the reimbursement would not exceed 2.0% of gross offering proceeds over the life of the offering or cause the selling commissions, the dealer manager fee and the other organization and offering expenses borne by us to exceed 15.0% of gross offering proceeds as of the date of the reimbursement. Organization and offering expenses include all expenses (other than selling commissions and the dealer manager fee) incurred by or on behalf of us in connection with or in preparing for the registration of and subsequently offering and distributing our shares of common stock to the public, which may include, but are not limited to, expenses for printing, engraving and mailing; compensation of employees while engaged in sales activity; charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts; third-party due diligence fees as set forth in detailed and itemized invoices; and expenses of qualification of the sale of the securities under federal and state laws, including taxes and fees, accountants’ and attorneys’ fees. Pursuant to the terms of the sub-advisory agreement between the Advisor and Sub-advisor, this organization and offering expense limitation of 2.0% is apportioned as follows: 1.5% to our Sub-advisor; and 0.5% to our Advisor. Organizational costs are expensed as incurred by us, the Advisor, Sub-advisor or their respective affiliates on behalf of us.

Investment Property and Lease Intangibles—Real estate assets we have acquired are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method. The estimated useful lives for computing depreciation are generally five to seven years for furniture, fixtures and equipment, 15 years for land improvements and 30 years for buildings and building improvements. Tenant improvements are amortized over the shorter of the respective lease term or the expected useful life of the asset. Major replacements that extend the useful lives of the assets are capitalized, and maintenance and repair costs are expensed as incurred.

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the individual property may not be recoverable. In such an event, a comparison will be made of the projected operating cash flows of each property on an undiscounted basis to the carrying amount of such property. Such carrying amount would be adjusted, if necessary, to estimated fair values to reflect impairment in the value of the asset. We recorded no impairments for the six months ended June 30, 2014.

The results of operations of acquired properties are included in our results of operations from their respective dates of acquisition. We assess the acquisition-date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis and replacement cost) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant. Acquisition-related costs are expensed as incurred.

The fair values of buildings and improvements are determined on an as-if-vacant basis.  The estimated fair value of acquired in-place leases is the cost we would have incurred to lease the properties to the occupancy level of the properties at the date of acquisition. Such estimates include leasing commissions, legal costs and other direct costs that would be incurred to lease the properties to such occupancy levels. Additionally, we evaluate the time period over which such occupancy levels would be achieved. Such evaluation includes an estimate of the net market-based rental revenues and net operating costs (primarily consisting of real estate taxes, insurance and utilities) that would be incurred during the lease-up period. Acquired in-place leases as of the date of acquisition are amortized over the remaining lease terms.  

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Acquired above- and below-market lease values are recorded based on the present value (using interest rates that reflect the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of the market lease rates for the corresponding in-place leases. The capitalized above- and below-market lease values are amortized as adjustments to rental income over the remaining terms of the respective leases.  We also consider fixed rate renewal options in our calculation of the fair value of below-market leases and the periods over which such leases are amortized.  If a tenant has a unilateral option to renew a below-market lease and we determine that the tenant has a financial incentive to exercise such option, we include such an option in the calculation of the fair value of such lease and the period over which the lease is amortized.

Management estimates the fair value of assumed mortgage notes payable based upon indications of then-current market pricing for similar types of debt with similar maturities. Assumed mortgage notes payable are initially recorded at their estimated fair value as of the assumption date, and the difference between such estimated fair value and the note’s outstanding principal balance is amortized over the life of the mortgage note payable as an adjustment to interest expense.

Revenue Recognition—We commence revenue recognition on our leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, this occurs on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. If we are the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space, and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.

If we conclude that we are not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives, which reduce revenue recognized over the term of the lease. In these circumstances, we begin revenue recognition when the lessee takes possession of the unimproved space to construct their own improvements. We consider a number of different factors in evaluating whether we or the lessee is the owner of the tenant improvements for accounting purposes. These factors include:

• whether the lease stipulates how and on what a tenant improvement allowance may be spent;

• whether the tenant or landlord retains legal title to the improvements;

• the uniqueness of the improvements;

• the expected economic life of the tenant improvements relative to the length of the lease; and

• who constructs or directs the construction of the improvements.

We recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts receivable. Due to the impact of the straight-line basis, rental income generally will be greater than the cash collected in the early years and will be less than the cash collected in the later years of a lease. Our policy for percentage rental income is to defer recognition of contingent rental income until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved. We periodically review the collectability of outstanding receivables. Allowances will be taken for those balances that we deem to be uncollectible, including any amounts relating to straight-line rent receivables.

Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period in which the applicable expenses are incurred. We make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. We do not expect the actual results to materially differ from the estimated reimbursements.

We record lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met, collectability is reasonably assured and the tenant is no longer occupying the property. Upon early lease termination, we provide for losses related to unrecovered tenant-specific intangibles and other assets.  

Income Taxes—We intend to elect to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) commencing with the taxable year ending December 31, 2014. Our qualification and taxation as a REIT depends on our ability, on a continuing basis, to meet certain organizational and operational qualification requirements imposed upon REITs by the Code. If we fail to qualify as a REIT for any reason in a taxable year, we will be subject to tax on our taxable income at regular corporate rates. We would not be able to deduct distributions paid to stockholders in any year in which we fail to qualify as a REIT. We will also be disqualified for the four taxable years following the year during which qualification was lost unless we

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are entitled to relief under specific statutory provisions. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property or net worth, respectively, and to federal income and excise taxes on our undistributed income. Additionally, GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the consolidated financial statements if it is more likely than not that the tax position will be sustained upon examination. We believe it is more likely than not that our tax positions will be sustained in any tax examinations.

Restricted Cash—Restricted cash was $42,000 as of June 30, 2014. This primarily consisted of escrowed tenant improvement funds, real estate taxes, capital improvement funds, insurance premiums, and other amounts required to be escrowed pursuant to loan agreements.

Earnings Per Share—Earnings per share are calculated based on the weighted-average number of common shares outstanding during each period. Diluted income per share considers the effect of any potentially dilutive share equivalents for the three and six months ended June 30, 2014.

There were 1,247 Class B units of the Operating Partnership outstanding and held by the Advisor and the Sub-advisor as of June 30, 2014. The vesting of the Class B units is contingent upon a market condition and service condition. The satisfaction of the market or service condition was not probable as of June 30, 2014, and, therefore, the Class B units are not included in earnings per share.

Impact of Recently Issued Accounting Pronouncements—In March 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-06, Technical Corrections and Improvements Related to Glossary Terms. The amendments in this update include technical corrections to the glossary including glossary links, glossary term deletions, glossary term name changes, and other miscellaneous technical corrections. In addition, the update includes more substantive, limited-scope improvements to reduce instances of the same term appearing multiple times in the glossary with similar, but not entirely identical, definitions. ASU 2014-06 was effective upon issuance. The adoption of this pronouncement did not have a material impact on our condensed consolidated financial statements.

In April 2014, FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update raise the threshold for a property disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard will be effective for us on January 1, 2015. In future periods, we expect that the adoption of this pronouncement may result in property disposals not qualifying for discontinued operations presentation, and thus the results of those disposals will remain in income from continuing operations.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 will eliminate the transaction- and industry-specific revenue recognition guidance currently under GAAP and will replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 does not apply to lease contracts accounted for under Accounting Standards Codification ("ASC") 840, Leases. ASU 2014-09 will be effective for us for annual and interim periods beginning after December 15, 2016, and early adoption is prohibited. We are currently assessing the impact the adoption of ASU 2014-09 will have on our condensed consolidated financial statements.

3. EQUITY

General—We have the authority to issue a total of 1,000,000,000 shares of common stock with a par value of $0.01 per share and 10,000,000 shares of preferred stock, $0.01 par value per share. As of June 30, 2014, we had issued 8,917,720 shares of common stock generating gross cash proceeds of $221.7 million. We had issued no shares of preferred stock. The holders of shares of common stock are entitled to one vote per share on all matters voted on by stockholders, including election of the board of directors. Our charter does not provide for cumulative voting in the election of directors.

Distribution Reinvestment Plan—We have adopted the DRIP that allows stockholders to invest distributions in additional shares of our common stock at a price equal to $23.75 per share. Stockholders who elect to participate in the DRIP,

and who are subject to U.S. federal income taxation laws, will incur a tax liability on an amount equal to the fair value on the relevant distribution date of the shares of our common stock purchased with reinvested distributions, even though such stockholders have elected not to receive the distributions used to purchase those shares of common stock in cash.  Distributions reinvested through the DRIP for the three and six months ended June 30, 2014 were $0.8 million and $0.9 million, respectively.

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Share Repurchase Program—Our share repurchase program may provide a limited opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and limitations, at a price equal to or at a discount from the purchase prices paid for the shares being repurchased.

Repurchase of shares of common stock will be made at least quarterly upon written notice received by us by 4:00 p.m. Eastern time on the last business day prior to a quarterly financial filing. Stockholders may withdraw their repurchase request at any time before 4:00 p.m. Eastern time on the last business day prior to a quarterly financial filing.

The board of directors may, in its sole discretion, amend, suspend, or terminate the share repurchase program at any time. If the board of directors decides to amend, suspend or terminate the share repurchase program, stockholders will be provided with no less than 30 days' written notice.

As of June 30, 2014, we had not repurchased any shares under our share repurchase program.  

4. FAIR VALUE MEASUREMENT

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

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

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

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

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

Cash and cash equivalents, restricted cash, accounts receivable, and accounts payable—We consider the carrying values of these financial instruments to approximate fair value because of the short period of time between origination of the instruments and their expected realization.

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

by management.

Mortgages and loans payable —We estimate the fair value of our debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by our lenders using Level 3 inputs.  The discount rate used approximates current lending rates for loans or groups of loans with similar maturities and credit quality, assuming the debt is outstanding through maturity and considering the debt’s collateral (if applicable).  Such discount rate was 5.75% for secured fixed-rate debt as of June 30, 2014. We did not have any mortgage loans as of December 31, 2013. We have utilized market information, as available, or present value techniques to estimate the amounts required to be disclosed.  The fair value and recorded value of our borrowings as of June 30, 2014, were $13.0 million and $12.9 million, respectively.

5. REAL ESTATE ACQUISITIONS

During the six months ended June 30, 2014, we acquired all of the interests in two grocery-anchored retail centers for a purchase price of approximately $28.7 million, including $12.6 million of assumed debt with a fair value of $12.9 million. The

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following tables present certain additional information regarding our acquisitions. We allocated the purchase price of these acquisitions to the fair value of the assets acquired as follows (in thousands):

			Building and		In-Place		Above-Market		Below-Market
Acquisition	Land		Improvements		Leases		Leases		Leases			Total
Bethany Village Shopping Center	$	4,125	$	6,182	$	844	$	—	$	—		$	11,151
Staunton Plaza	3,315		11,031		1,310		1,906		(46		)	17,516
Total	$	7,440	$	17,213	$	2,154	$	1,906	$	(46	)	$	28,667

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

Acquisition	Acquisition Date	Revenues		Acquisition Expenses		Net Loss
Bethany Village Shopping Center	3/14/2014	$	343	$	189	$	(90	)
Staunton Plaza	4/30/2014	250		360		(413		)
Total		$	593	$	549	$	(503	)

The following unaudited pro forma information summarizes selected financial information from our combined results of operations, as if the material acquisitions had been acquired on July 1, 2013 (date of capitalization).

We estimated that revenues, on a pro forma basis, for the three months ended June 30, 2014, would have been approximately $0.6 million, and our net loss attributable to our stockholders, on a pro forma basis, would have been approximately $0.4 million. The pro forma net loss per share would have been $0.07 for the three months ended June 30, 2014.

We estimated that revenues, on a pro forma basis, for the six months ended June 30, 2014, would have been approximately $1.2 million, and our net loss attributable to our stockholders, on a pro forma basis, would have been approximately $0.5 million. The pro forma net loss per share would have been $0.14 for the six months ended June 30, 2014.

This pro forma information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred at the beginning of the period, nor does it purport to represent the results of future operations.

6. ACQUIRED INTANGIBLE ASSETS

Acquired intangible lease assets consisted of the following (in thousands):

	June 30, 2014		December 31, 2013
Acquired in-place leases, net of accumulated amortization of $73 and $0, respectively	2,081		$	—
Acquired above-market leases, net of accumulated amortization of $34 and $0, respectively	1,872		—
Total	$	3,953	$	—

Amortization expense recorded on the intangible assets for the three and six months ended June 30, 2014 was $95,000 and $107,000, respectively.

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Estimated future amortization expense of the respective acquired intangible lease assets as of June 30, 2014 for the remainder of 2014 and for each of the five succeeding calendar years and thereafter is as follows (in thousands):

Year	In-Place Leases		Above-Market Leases
July 1 to December 31, 2014	$	122	$	68
2015	257		154
2016	257		154
2017	257		154
2018	257		154
2019 and thereafter	931		1,188
Total	$	2,081	$	1,872

The weighted-average amortization periods for acquired in-place lease intangibles and acquired above-market lease intangibles are 10 years and 12 years, respectively.

7. MORTGAGES AND NOTES PAYABLE

Note Payable

As of December 31, 2013, we had a note payable of $0.3 million related to financing for our annual directors and officers insurance premiums, pursuant to which we made monthly payments of principal and interest. In April 2014, we used the proceeds from our initial public offering to pay the remaining $0.2 million balance of the note payable.

Mortgage Loans Payable

As of June 30, 2014, we had one mortgage note payable in the amount of $12.9 million, inclusive of a below-market assumed debt adjustment of $0.3 million, net of accumulated amortization.  We did not have any outstanding mortgage notes payable as of December 31, 2013. The mortgage note payable is secured by Staunton Plaza, the property on which the debt was placed.  As of June 30, 2014, the interest rate for the loan was 6.0%. Due to the non-recourse nature of the mortgage, the assets and liabilities of Staunton Plaza are neither available to pay the debt of the consolidated limited liability companies nor do they constitute an obligation of the consolidated limited liability companies.

During the six months ended June 30, 2014, in conjunction with our acquisition of Staunton Plaza, we assumed debt of $12.6 million with a fair value of $12.9 million. The assumed debt market adjustment will be amortized over the remaining life of the loan, and this amortization is classified as interest expense. The amortization recorded on the assumed below-market debt adjustment was $3,000 for the three and six months ended June 30, 2014.

Included below are the yearly principal payment obligations (in thousands) and weighted-average interest rates for the Staunton Plaza mortgage loan:

	2014 (1)			2015			2016			2017			2018			Thereafter			Total
Maturing debt:(2)
Fixed-rate mortgages payable	$	156		$	277		$	294		$	312		$	331		$	11,206		$	12,576
Weighted-average interest rate on debt:
Fixed-rate mortgages payable	6.0		%	6.0		%	6.0		%	6.0		%	6.0		%	6.0		%	6.0		%

⁽¹⁾  Includes only July 1, 2014 through December 31, 2014.

⁽²⁾  The debt maturity table does not include any below-market debt adjustment, of which $0.3 million, net of accumulated amortization, was outstanding as of June 30, 2014.

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8. ACQUIRED BELOW-MARKET LEASE INTANGIBLES

Acquired below-market lease intangibles consisted of the following (in thousands):

	June 30, 2014		December 31, 2013
Acquired below-market leases, net	$	46	$	—

An immaterial amount of amortization was recorded on the intangible liabilities for the three and six months ended June 30, 2014.

Estimated future amortization income of the intangible lease liabilities as of June 30, 2014 for the remainder of 2014 and for each of the five succeeding calendar years and thereafter is as follows (in thousands):

Year	Below-Market Leases
July 1 to December 31, 2014	$	3
2015	5
2016	5
2017	5
2018	5
2019 and thereafter	23
Total	$	46

The weighted-average amortization period for below-market lease intangibles is nine years.

9. COMMITMENTS AND CONTINGENCIES

Litigation

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

Environmental Matters

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

10. RELATED PARTY TRANSACTIONS

Advisory Agreement—Pursuant to our advisory agreement, the Advisor is entitled to specified fees for certain services, including managing our day-to-day activities and implementing our investment strategy. The Advisor has entered into a sub-advisory agreement with the Sub-advisor, which manages our day-to-day affairs and our portfolio of real estate investments, on behalf of the Advisor, subject to the board’s supervision and certain major decisions requiring the consent of both the Advisor and Sub-advisor. The expenses to be reimbursed to the Advisor and Sub-advisor will be reimbursed in proportion to the amount of expenses incurred on our behalf by the Advisor and Sub-advisor, respectively.

Organization and Offering Costs—Under the terms of the advisory agreement, we are to reimburse on a monthly basis the Advisor, the Sub-advisor or their respective affiliates (the "Advisor Entities") for cumulative organization and offering costs and future organization and offering costs they may incur on our behalf but only to the extent that the reimbursement would not exceed 2.0% of gross offering proceeds over the life of our initial public offering. As of June 30, 2014, the Advisor, Sub-advisor and their affiliates have charged us approximately $7.9 million of cumulative organization and offering costs, and we have reimbursed $3.3 million of such costs, resulting in a net payable of $4.6 million. As of December 31, 2013, the Advisor, Sub-advisor and their affiliates had charged us approximately $1.9 million of cumulative organization and offering costs, and we had not yet reimbursed any such costs, resulting in a payable of $1.9 million.

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Acquisition Fee—We pay our Advisor Entities or their assignees an acquisition fee related to services provided in connection with the selection and purchase or origination of real estate and real estate-related investments. The acquisition fee is equal to 1.0% of the contract purchase price of each property we acquire, including acquisition or origination expenses and any debt attributable to such investments.

Acquisition Expenses—We reimburse the Sub-advisor for expenses actually incurred related to selecting, evaluating and acquiring assets on our behalf.  During the three and six months ended June 30, 2014, we reimbursed the Sub-advisor for personnel costs related to due diligence services for assets we acquired during the period.

Asset Management Subordinated Participation—Within 60 days after the end of each calendar quarter (subject to the approval of our board of directors), we will pay an asset management subordinated participation by issuing a number of restricted operating partnership units designated as Class B Units to our Advisor Entities equal to: (i) 0.25% multiplied by (a) prior to the NAV pricing date, the cost of assets and (b) on and after the NAV pricing date, the lower of the cost of assets and the applicable quarterly NAV divided by (ii) (a) prior to the NAV pricing date, the value of one share of common stock as of the last day of such calendar quarter, which is equal initially to $22.50 (the primary offering price minus selling commissions and dealer manager fees) and (b) on and after the NAV pricing date, the per share NAV.

Our Advisor Entities will be entitled to receive distributions on the vested and unvested Class B units they receive in connection with their asset management subordinated participation at the same rate as distributions received on our common stock; such distributions will be in addition to the incentive fees that our Advisor Entities and their affiliates may receive from us. During the three and six months ended June 30, 2014, the Operating Partnership issued 1,247 Class B units to the Advisor and the Sub-advisor under the advisory agreement for the asset management services performed by the Advisor and the Sub-advisor during the period from January 1, 2014 to March 31, 2014. These Class B units will not vest until an economic hurdle has been met and the Advisor and Sub-advisor continue to provide advisory services through the date that such economic hurdle is met. The economic hurdle will be met when the value of the Operating Partnership’s assets plus all distributions made equal or exceed the total amount of capital contributed by investors plus a 6% cumulative, pre-tax, non-compounded annual return thereon.

Financing Coordination Fee—When our Advisor Entities provide services in connection with the origination or refinancing of any debt that we obtain and use to finance properties or other permitted investments, we pay the Advisor Entities a financing fee equal to 0.75% of all amounts made available under any such loan or line of credit.

Disposition Fee—For substantial assistance in connection with the sale of properties or other investments, we will pay our Advisor Entities or their respective affiliates up to the lesser of: (i) 2.0% of the contract sales price of each property or other investment sold; or (ii) one-half of the total brokerage commissions paid if a non-affiliated broker is also involved in the sale, provided that total real estate commissions paid (to our Advisor Entities and others) in connection with the sale may not exceed the lesser of a competitive real estate commission and 6.0% of the contract sales price. The Conflicts Committee will determine whether our Advisor Entities or their affiliates have provided substantial assistance to us in connection with the sale of an asset. Substantial assistance in connection with the sale of a property includes our Advisor Entities’ preparation of an investment package for the property (including an investment analysis, rent rolls, tenant information regarding credit, a property title report, an environmental report, a structural report and exhibits) or such other substantial services performed by our Advisor Entities in connection with a sale.

General and Administrative Expenses—As of June 30, 2014 and December 31, 2013, we owed both the Advisor and the Sub-advisor and their affiliates $6,000 and $130,000, respectively, for general and administrative expenses paid on our behalf. As of June 30, 2014, neither the Advisor nor the Sub-advisor have allocated any portion of their employees’ salaries to general and administrative expenses.

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Summarized below are the fees earned by and the expenses reimbursable to the Advisor and the Sub-advisor, except for organization and offering costs and general and administrative expenses, which we disclose above, for the three and six months ended June 30, 2014 and any related amounts unpaid as of June 30, 2014 and December 31, 2013 (in thousands):

	For the Three Months Ended		For the Six Months Ended		Unpaid Amount as of
	June 30,		June 30,		June 30,		December 31,
	2014		2014		2014		2013
Acquisition fees	$	172	$	284	$	—	$	—
Acquisition expenses	27		41		—		—
Class B unit distribution(1)	—		—		—		—
Financing fees	95		95		—		—
Disposition fees	—		—		—		—
Total	$	294	$	420	$	—	$	—

⁽¹⁾  Represents the distributions paid to the Advisor and the Sub-advisor as holders of Class B units of the Operating Partnership.

Annual Subordinated Performance Fee—We will pay our Advisor Entities or their respective affiliates an annual subordinated performance fee calculated on the basis of our total return to stockholders, payable annually in arrears, such that for any year in which our total return on stockholders’ capital exceeds 6.0% per annum, our Advisor Entities will be entitled to 15.0% of the amount in excess of such 6.0% per annum, provided that the amount paid to the Advisor Entities does not exceed 10.0% of the aggregate total return for that year. No such amounts were incurred or payable as of June 30, 2014 or December 31, 2013.

Subordinated Participation in Net Sales Proceeds—The Operating Partnership will pay to PE-ARC Special Limited Partner II, LLC (the “Special Limited Partner”) a subordinated participation in the net sales proceeds of the sale of real estate assets equal to 15.0% of remaining net sales proceeds after return of capital contributions to stockholders plus payment to investors of a 6.0% cumulative, pre-tax, non-compounded return on the capital contributed by stockholders. The Advisor has a 22.5% interest and the Sub-advisor has an 77.5% interest in the Special Limited Partner. No sales of real estate assets occurred in the three and six months ended June 30, 2014.

Subordinated Incentive Listing Distribution—The Operating Partnership will pay to the Special Limited Partner a subordinated incentive listing distribution upon the listing of our common stock on a national securities exchange. Such incentive listing distribution is equal to 15.0% of the amount by which the market value of all of our issued and outstanding common stock plus distributions exceeds the aggregate capital contributed by stockholders plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to stockholders. 

Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in the net sales proceeds and the subordinated incentive listing distribution. No subordinated incentive listing distribution was earned for the three and six months ended June 30, 2014.

Subordinated Distribution Upon Termination of the Advisor Agreement—Upon termination or non-renewal of the advisory agreement, the Special Limited Partner shall be entitled to a subordinated termination distribution in the form of a non-interest bearing promissory note equal to 15.0% of the amount by which the sum of our market value plus distributions exceeds the aggregate capital contributed by stockholders plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to stockholders.  In addition, the Special Limited Partner may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs.

Property Manager—All of our real properties are managed and leased by Phillips Edison & Company Ltd. (the “Property Manager”), an affiliated property manager. The Property Manager is wholly owned by our Phillips Edison sponsor and was organized on September 15, 1999. The Property Manager also manages real properties acquired by the Phillips Edison affiliates or other third parties.

Commencing June 1, 2014, the amount we pay to the Property Manager in monthly property management fees decreased from 4.5% to 4.0% of the monthly gross cash receipts from the properties managed by the Property Manager. In the event that we contract directly with a non-affiliated third-party property manager with respect to a property, we will pay the Property Manager a monthly oversight fee equal to 1.0% of the gross revenues of the property managed. In addition to the property management fee or oversight fee, if the Property Manager provides leasing services with respect to a property, we pay the Property Manager leasing fees in an amount equal to the leasing fees charged by unaffiliated persons rendering comparable

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services based on national market rates. The Property Manager shall be paid a leasing fee in connection with a tenant’s exercise of an option to extend an existing lease, and the leasing fees payable to the Property Manager may be increased by up to 50% in the event that the Property Manager engages a co-broker to lease a particular vacancy. We reimburse the costs and expenses incurred by the Property Manager on our behalf, including employee compensation, legal, travel and other out-of-pocket expenses that are directly related to the management of specific properties, as well as fees and expenses of third-party accountants.

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

The Property Manager hires, directs and establishes policies for employees who have direct responsibility for the operations of each real property it manages, which may include, but is not limited to, on-site managers and building and maintenance personnel. Certain employees of the Property Manager may be employed on a part-time basis and may also be employed by the Sub-advisor or certain of its affiliates. The Property Manager also directs the purchase of equipment and supplies and will supervise all maintenance activity.

Summarized below are the fees earned by and the expenses reimbursable to the Property Manager for the three and six months ended June 30, 2014 and any related amounts unpaid as of June 30, 2014 and December 31, 2013 (in thousands):

	For the Three Months Ended		For the Six Months Ended		Unpaid Amount as of
	June 30,		June 30,		June 30,		December 31,
	2014		2014		2014		2013
Property management fees	$	22	$	24	$	4	$	—
Leasing commissions	7		7		7		—
Construction management fees	5		5		4		—
Other fees and reimbursements	11		17		6		—
Total	$	45	$	53	$	21	$	—

Dealer Manager—Our dealer manager is Realty Capital Securities, LLC (the “Dealer Manager”). The Dealer Manager is a member firm of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and was organized on August 29, 2007. The Dealer Manager is under common control with our AR Capital sponsor and will provide certain sales, promotional and marketing services in connection with the distribution of the shares of common stock offered under our offering. Excluding shares sold pursuant to the “friends and family” program, the Dealer Manager will generally be paid a sales commission equal to 7.0% of the gross proceeds from the sale of shares of the common stock sold in the primary offering and a dealer manager fee equal to 3.0% of the gross proceeds from the sale of shares of the common stock sold in the primary offering.

The Dealer Manager typically reallows 100% of the selling commissions and a portion of the dealer manager fee to participating broker-dealers. Alternatively, a participating broker-dealer may elect to receive a commission based upon the proceeds from the sale of shares by such participating broker-dealer, with a portion of such fee being paid at the time of such sale and the remaining amounts paid on each anniversary of the closing of such sale up to and including the fifth anniversary of the closing of such sale, in which event, a portion of the dealer manager fee will be reallowed such that the combined selling commission and dealer manager fee do not exceed 10% of the gross proceeds of our primary offering.

Starting with the commencement of our public offering, the Company utilizes transfer agent services provided by an affiliate of the Dealer Manager. Fees incurred from the transfer agent represent amounts paid to the affiliate of the Dealer Manager for such services. The following table details total selling commissions, dealer manager fees, and service fees paid to the Dealer Manager and its affiliate related to the sale of common stock for the three and six months ended June 30, 2014 and any related amounts unpaid as of June 30, 2014 and December 31, 2013 (in thousands):

	For the Three Months Ended		For the Six Months Ended		Payable as of
	June 30,		June 30,		June 30,		December 31,
	2014		2014		2014		2013
Total commissions and fees incurred from Dealer Manager	$	13,202	$	21,006	$	—	$	—
Fees incurred from the transfer agent	144		213		144		—

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Share Purchases by Sub-advisor and AR Capital sponsor—Our Sub-advisor made an initial investment in us through the purchase of 8,888 shares of our common stock. The Sub-advisor may not sell any of these shares while serving as the Sub-advisor. Our AR Capital sponsor has also purchased 17,778 shares of our common stock. The Sub-advisor and AR Capital sponsor purchased shares at a purchase price of $22.50 per share, reflecting no dealer manager fee or selling commissions paid on such shares.

11. ECONOMIC DEPENDENCY

We are dependent on the Advisor, the Sub-advisor, the Property Manager, the Dealer Manager and their respective affiliates for certain services that are essential to us, including the sale of our shares of common stock, asset acquisition and disposition decisions, asset management, operating and leasing of our properties, and other general and administrative responsibilities. In the event that the Advisor, the Sub-advisor, the Property Manager and/or the Dealer Manager are unable to provide such services, we would be required to find alternative service providers or sources of capital.

As of June 30, 2014 and December 31, 2013, we owed the Advisor, the Sub-advisor and their respective affiliates approximately $4.6 million and $2.0 million, respectively, for offering and organization expenses, general and administrative expenses and asset management, property management, and other fees payable as shown below (in thousands):

	June 30,		December 31,
	2014		2013
Offering and organization expenses payable	$	4,588	$	1,858
General and administrative expenses of the company paid by a sponsor	6		130
Asset management, property management, and other fees payable	21		—
Total due	$	4,615	$	1,988

12. OPERATING LEASES

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

Approximate future rentals to be received under non-cancelable operating leases in effect at June 30, 2014, assuming no new or renegotiated leases or option extensions on lease agreements, are as follows (in thousands):

Year	Amount
July 1 to December 31, 2014	$	1,068
2015	2,034
2016	2,013
2017	1,896
2018	1,862
2019 and thereafter	11,166
Total	$	20,039

Martin's and Publix comprised approximately 53.5% and 21.2%, respectively, of the aggregate annualized effective rent of our two owned shopping centers as of June 30, 2014.  No other tenants comprised 10% or more of our aggregate annualized effective rent as of June 30, 2014.

13. SUBSEQUENT EVENTS

Sale of Shares of Common Stock

From July 1, 2014 through July 31, 2014, we raised gross proceeds of approximately $69.5 million through the issuance of 2.8 million shares of common stock under our offering. As of August 1, 2014, approximately 68.3 million shares remained available for sale to the public under our offering, exclusive of shares available under the DRIP.

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Distributions

On July 1, 2014, we paid a distribution equal to a daily amount of $0.00445205 per share of common stock outstanding for stockholders of record for the period from June 1, 2014 through June 30, 2014. The total gross amount of the distribution was approximately $1.0 million, with $0.5 million being reinvested in the DRIP, for a net cash distribution of $0.5 million.

On August 1, 2014, we paid a distribution equal to a daily amount of $0.00445205 per share of common stock outstanding for stockholders of record for the period from July 1, 2014 through July 31, 2014. The total gross amount of the distribution was approximately $1.4 million, with $0.8 million being reinvested in the DRIP, for a net cash distribution of $0.6 million.

Acquisitions

Subsequent to June 30, 2014, we acquired a 100% ownership in two properties (dollars in thousands):

Property Name	Location	Anchor Tenant	Acquisition Date	Purchase Price		Mortgage Loan Assumed		Square Footage	Leased % of Rentable Square Feet at Acquisition
Northpark Village	Lubbock, TX	United Supermarkets	7/25/2014	$	8,200	$	—	70,479	95.2	%
Spring Cypress Village	Houston, TX	Sprouts	7/30/2014	21,400		—		97,550	79.0	%

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

Financing Completed

On July 2, 2014, we entered into a revolving loan agreement (the "Revolving Credit Facility") with KeyBank National Association, an unaffiliated entity, as administrative agent, swing line lender and letter of credit issuer ("KeyBank"), along with certain other lenders, to borrow up to $200 million. Subject to certain conditions, the Revolving Credit Facility provides us with the ability from time to time to increase the size of the Revolving Credit Facility from the initial $200 million up to a total of $700 million. The Revolving Credit Facility matures on July 2, 2018 and contains two six-month extension options that we may exercise upon payment of an extension fee equal to 0.075% of the total commitments under the Revolving Credit Facility at the time of each extension. The interest rate on the Revolving Credit Facility will be variable, based on either the prime rate, one-month LIBOR, or the federal funds rate and will be affected by other factors, such as company size and leverage.

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

Cautionary Note Regarding Forward-Looking Statements

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

Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual conditions, our ability to accurately anticipate results expressed in such forward-looking statements, including our ability to generate positive cash flow from operations, make distributions to stockholders, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A in Part II of this Form 10-Q and Item 1A in Part I of our Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause actual results to differ materially from those presented in our forward-looking statements.

Overview

Organization

The Company was formed as a Maryland corporation on June 5, 2013, and intends to qualify as a REIT beginning with the taxable year ending December 31, 2014. We are offering to the public, pursuant to a registration statement, $2.475 billion in shares of common stock on a “reasonable best efforts” basis in our initial public offering. Our initial public offering consists of a primary offering of $2.0 billion in shares offered to investors at a price of $25.00 per share, with discounts available for certain categories of purchasers, and $475 million in shares offered to stockholders pursuant to a distribution reinvestment plan (the “DRIP”) at a price of $23.75 per share. We have the right to reallocate the shares of common stock offered between the primary offering and the DRIP. On November 25, 2013, the registration statement for our offering was declared effective under the Securities Act of 1933, and on January 9, 2014, we broke the minimum offering escrow requirement of $2.0 million. Prior to January 9, 2014, our operations had not yet commenced.

Our advisor is American Realty Capital PECO II Advisors, LLC (the “Advisor”), a newly organized limited liability company that was formed in the State of Delaware on July 9, 2013 that is under common control with AR Capital LLC. We have entered into an advisory agreement with the Advisor which makes the Advisor ultimately responsible for the management of our day-to-day activities and the implementation of our investment strategy. The Advisor has delegated certain duties under the advisory agreement, including the management of our day-to-day operations and our portfolio of real estate assets, to Phillips Edison NTR II LLC (the "Sub-advisor"), which is directly or indirectly owned by Phillips Edison Limited Partnership (the “Phillips Edison sponsor”), and Michael Phillips and Jeffrey Edison, principals of our Phillips Edison sponsor. Notwithstanding such delegation to the Sub-advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the advisory agreement.

We plan to continue investing primarily in well-occupied grocery-anchored neighborhood and community shopping centers leased to a mix of national, creditworthy retailers selling necessity-based goods and services in strong demographic markets throughout the United States. In addition, we may invest in other retail properties including power and lifestyle shopping centers, multi-tenant shopping centers, free-standing single-tenant retail properties, and other real estate and real estate-related loans and securities depending on real estate market conditions and investment opportunities that we determine are in the best interests of our stockholders. We expect that retail properties primarily would underlie or secure the real estate-related loans and securities in which we may invest.

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Equity Raise Activity

As of June 30, 2014, we had issued pursuant to our initial public offering a total of 8.9 million shares of common stock including 38,000 shares issued through the DRIP, generating gross cash proceeds of $221.7 million since our inception. During the three months ended June 30, 2014, we issued 5.6 million shares of common stock including 35,000 shares issued through the DRIP, generating gross cash proceeds of $138.3 million.

Portfolio

Below are statistical highlights of our portfolio’s activities from inception to date, as of June 30, 2014:

				Property Acquisitions
	Cumulative			during the
	Portfolio through			Three Months Ended
	June 30, 2014			June 30, 2014
Number of properties	2			1
Number of states	2			1
Weighted average capitalization rate(1)	7.0		%	7.2		%
Weighted average capitalization rate with straight-line rent(2)	7.3		%	7.6		%
Total acquisition purchase price (in thousands)	$	28,351		$	17,200
Total square feet	161,939			80,265
Leased % of rentable square feet(3)	96.6		%	100.0		%
Average remaining lease term in years(3)	8.7			10.8

⁽¹⁾  The capitalization rate is calculated by dividing the annualized in-place net operating income of a property as of the date of acquisition by the contract purchase price of the property.  Annualized in-place net operating income is calculated by subtracting the estimated annual operating expenses of a property from the annualized rents to be received from tenants occupying space at the property as of the date of acquisition.

⁽²⁾  The capitalization rate with straight-line rent is calculated by dividing the annualized in-place net operating income, inclusive of straight-line rental income, of a property as of the date of acquisition by the contract purchase price of the property.  Annualized in-place net operating income is calculated by subtracting the estimated annual operating expenses of a property from the straight-line annualized rents to be received from tenants occupying space at the property as of the date of acquisition.

⁽³⁾  As of June 30, 2014.

As of June 30, 2014, we owned two real estate properties, acquired from third parties unaffiliated with us, the Advisor, or the Sub-advisor. The following table presents information regarding our properties as of June 30, 2014 (dollars in thousands):

Property Name	Location	Anchor Tenant	Date Acquired	Contract Purchase Price(1)		Rentable Square Feet	Average Remaining Lease Term in Years	% of Rentable Square Feet Leased
Bethany Village Shopping Center	Alpharetta, GA	Publix	3/14/2014	$	11,151	81,674	5.4	93.3	%
Staunton Plaza	Staunton, VA	Martin's(2)	4/30/2014	17,200		80,265	10.8	100.0	%

⁽¹⁾  The contract purchase price excludes closing costs and acquisition costs.

⁽²⁾  Martin's is an affiliate of Ahold USA.

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The following table lists, on an aggregate basis, all of the scheduled lease expirations after June 30, 2014 over each of the ten years ending December 31, 2014 and thereafter for our two shopping centers. The table shows the approximate rentable square feet and annualized effective rent represented by the applicable lease expirations (dollars in thousands):

	Number of			% of Total Portfolio
	Expiring	Annualized		Annualized	Leased Rentable	% of Leased Rentable
Year	Leases	Effective Rent(1)		Effective Rent	Square Feet Expiring	Square Feet Expiring
2014	4	$	183	8.6%	7,540	4.8%
2015	—	—		—	—	—
2016	6	214		10.0%	13,160	8.4%
2017	1	30		1.4%	1,400	0.9%
2018	1	11		0.5%	1,700	1.1%
2019	1	42		2.0%	1,600	1.0%
2020	—	—		—	—	—
2021	2	515		24.0%	57,524	36.8%
2022	—	—		—	—	—
2023	—	—		—	—	—
Thereafter	3	1,146		53.5%	73,516	47.0%

⁽¹⁾  We calculate annualized effective rent as monthly contractual rent as of June 30, 2014 multiplied by 12 months, less any tenant concessions.

Portfolio Tenancy

Prior to the acquisition of a property, we assess the suitability of the grocery-anchor tenant and other tenants in light of our investment objectives, namely, preserving capital and providing stable cash flows for distributions. Generally, we assess the strength of the tenant by consideration of company factors, such as its financial strength and market share in the geographic area of the shopping center, as well as location-specific factors, such as the store’s sales, local competition and demographics. When assessing the tenancy of the non-anchor space at the shopping center, we consider the tenant mix at each shopping center in light of our portfolio, the proportion of national and national franchise tenants, the creditworthiness of specific tenants, and the timing of lease expirations. When evaluating non-national tenancy, we attempt to obtain credit enhancements to leases, which typically come in the form of deposits and/or guarantees from one or more individuals.

The following table presents the composition of our portfolio by tenant type as of June 30, 2014 (dollars in thousands):

				Annualized		% of
	Leased	% of Leased		Effective		Annualized
Tenant Type	Square Feet	Square Feet		Rent(1)		Effective Rent
Grocery anchor	120,390	77.0	%	$	1,600	74.7	%
National and regional(2)	17,560	11.2	%	280		13.1	%
Local	18,490	11.8	%	261		12.2	%
	156,440	100.0	%	$	2,141	100.0	%

⁽¹⁾  We calculate annualized effective rent as monthly contractual rent as of June 30, 2014 multiplied by 12 months, less any tenant concessions.

⁽²⁾  We define national tenants as those that operate in at least three states.  Regional tenants are defined as those that have at least three locations.

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The following table presents the composition of our portfolio by tenant industry as of June 30, 2014 (dollars in thousands):

				Annualized		% of
	Leased	% of Leased		Effective		Annualized
Tenant Industry	Square Feet	Square Feet		Rent(1)		Effective Rent
Grocery	120,390	77.0	%	$	1,600	74.7	%
Restaurant	17,250	11.0	%	307		14.3	%
Services(2)	14,400	9.2	%	172		8.1	%
Retail Stores(2)	4,400	2.8	%	62		2.9	%
	156,440	100.0	%	$	2,141	100.0	%

⁽¹⁾ We calculate annualized effective rent as monthly contractual rent as of June 30, 2014 multiplied by 12 months, less any tenant concessions.

⁽²⁾  We define retail stores as those that primarily sell goods, while services tenants primarily sell non-goods services.

The following table presents our grocery-anchor tenants by the amount of square footage leased by each tenant as of June 30, 2014 (dollars in thousands):

Tenant	Number of Locations(1)	Leased Square Feet	% of Leased Square Feet		Annualized Effective Rent(2)		% of Annualized Effective Rent
Ahold USA(3)	1	68,716	43.9	%	$	1,146	53.5	%
Publix	1	51,674	33.0	%	455		21.2	%
	2	120,390	76.9	%	$	1,600	74.7	%

⁽¹⁾  Number of locations excludes auxiliary leases with grocery anchors such as fuel stations, pharmacies, and liquor stores, of which there was one as of June 30, 2014.

⁽²⁾  We calculate annualized effective rent as monthly contractual rent as of June 30, 2014 multiplied by 12 months, less any tenant concessions.

⁽³⁾  Martin's is an affiliate of Ahold USA.

Results of Operations

Prior to January 9, 2014, our operations had not yet commenced. As a result, the discussions of the results of operations are only for the three and six months ended June 30, 2014, with no prior period comparisons provided in the accompanying sections.

Summary of Operating Activities for the Three Months Ended June 30, 2014

Total revenues were approximately $539,000, with rental income of approximately $433,000 and tenant reimbursements of approximately $106,000.

Property operating costs were $90,000 for the three months ended June 30, 2014. The significant items comprising this expense were common area maintenance of $57,000 and property management fees paid to an affiliate of the Sub-advisor of $22,000.

Real estate taxes were $53,000 for the three months ended June 30, 2014.

General and administrative expenses were approximately $418,000. This amount was comprised largely of audit and consulting fees, directors and officers insurance premiums, and board-related expenses.

Under the terms of our advisory agreement, within 60 days after the end of each calendar quarter (subject to the approval of our board of directors), we will issue a number of restricted operating partnership units designated as Class B units to our Advisor Entities in respect of its asset management subordinated participation. Our Advisor Entities will be entitled to receive distributions on the vested and unvested Class B units they receive in connection with their asset management subordinated participation at the same rate as distributions received on our common stock; such distributions will be in addition to the incentive fees that our Advisor Entities and their affiliates may receive from us.

Acquisition expenses, in the amount of approximately $384,000, were expensed as incurred. Included in these acquisition expenses were acquisition fees and expenses reimbursable to the Advisor and Sub-advisor of $203,000 as well as $164,000 in

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other acquisition expenses owed to third-parties, related to the purchase of Staunton Plaza. We incurred $17,000 in expense related to acquisitions that had not closed as of June 30, 2014.

Depreciation and amortization expense for the three months ended June 30, 2014 was $223,000.

Interest expense was $130,000 for the three months ended June 30, 2014.

The net loss attributable to our stockholders was $759,000 for the three months ended June 30, 2014.

Summary of Operating Activities for the Six Months Ended June 30, 2014

Total revenues were approximately $593,000, with rental income of approximately $474,000. Other revenue, largely comprised of tenant reimbursements, was approximately $119,000.

Property operating costs were $98,000 for the six months ended June 30, 2014. The significant items comprising this expense were common area maintenance of $62,000 and property management fees paid to an affiliate of the Sub-advisor of $24,000.

Real estate taxes were $60,000 for the six months ended June 30, 2014.

General and administrative expenses were approximately $569,000. This amount was comprised largely of audit and consulting fees, directors and officers insurance premiums, and board-related expenses.

Distributions for outstanding unvested Class B units incurred during the six months ended June 30, 2014 were immaterial.

Acquisition expenses, in the amount of approximately $586,000, were expensed as incurred. Included in these acquisition expenses were acquisition fees and expenses reimbursable to the Advisor and Sub-advisor of $331,000, as well as $218,000 in other acquisition expenses owed to third-parties, related to the purchase of Bethany Village Shopping Center and Staunton Plaza. We incurred $37,000 in expense related to acquisitions that had not closed as of June 30, 2014.

Depreciation and amortization expense for the six months ended June 30, 2014 was $256,000.

Interest expense was $132,000 for the six months ended June 30, 2014.

The net loss attributable to our stockholders was $1,108,000 for the six months ended June 30, 2014.

We generally expect our revenues and expenses to increase in future years as a result of owning the properties acquired in 2014 for a full year and the acquisition of additional properties. Although we expect our general and administrative expenses to increase, we expect such expenses to decrease as a percentage of our revenues. We currently have substantial uninvested proceeds raised from our initial public offering, which we are seeking to invest promptly on attractive terms. If we are unable to invest the proceeds promptly and on attractive terms, we may have difficulty continuing to pay distributions at a 6.5% annualized rate.

Liquidity and Capital Resources

General

Our principal demands for funds are for real estate and real estate-related investments and the payment of acquisition expenses, operating expenses, and distributions to stockholders. Generally, we expect cash needed for items other than acquisitions and acquisition expenses to be generated from operations. The sources of our operating cash flows are primarily driven by the rental income received from leased properties. We expect to continue to raise capital through our initial public offering and to utilize such funds and proceeds from secured or unsecured financing to complete future property acquisitions. As of June 30, 2014, we had raised approximately $221.7 million in gross proceeds from our initial public offering, including $0.9 million through the DRIP.

As of June 30, 2014, we had cash and cash equivalents of $178.5 million. During the six months ended June 30, 2014, we had a net cash increase of $178.4 million.

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This cash increase was the result of:

• $0.4 millionused in operating activities, largely the result of net loss from operations before depreciation and amortization charges, which was partially offset by an increase in accrued and other liabilities of $0.5 million. Also included in this total was $0.6 million of real estate acquisition expenses incurred during the period and expensed in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”);

• $15.8 millionused in investing activities, which was primarily the result of the acquisitions of Bethany Village Shopping Center and Staunton Plaza; and

• $194.6 millionprovided by financing activities with $196.2 million from the net proceeds of the issuance of common stock.  Partially offsetting this amount were payments on notes payable of $0.3 million, payments on loan financing costs of $0.3 million, as well as distributions paid to our stockholders of $1.0 million, net of DRIP proceeds.

Short-term Liquidity and Capital Resources

We expect to meet our short-term liquidity requirements through existing cash on hand, net cash provided by property operations, proceeds from our offering, and proceeds from secured and unsecured debt financings. Operating cash flows are expected to increase as additional properties are added to our portfolio. Other than the commissions and dealer manager fees paid to Realty Capital Securities, LLC (the "Dealer Manager"), the organization and offering costs associated with our offering are initially paid by our sponsors.  Our sponsors will be reimbursed for such costs up to 2.0% of the gross capital raised in our offering. As of June 30, 2014, we owe the Advisor, Sub-advisor and their affiliates a total of $4.6 million of offering costs incurred on our behalf and fees charged to us for asset management, property management, and other services.

We have $12.6 million of contractual debt obligations, representing mortgage loans secured by our real estate assets, excluding below-market debt adjustments of $0.3 million, net of accumulated amortization, as ofJune 30, 2014.  As they mature, we intend to refinance our debt obligations, if possible, or pay off the balances at maturity using the remaining net proceeds of our primary offering or other proceeds from corporate-level debt. 

On July 2, 2014, we entered into a revolving loan agreement (the "Revolving Credit Facility") with KeyBank National Association, an unaffiliated entity, as administrative agent, swing line lender and letter of credit issuer ("KeyBank"), along with certain other lenders, to borrow up to $200 million. Subject to certain conditions, the Revolving Credit Facility provides us with the ability from time to time to increase the size of the Revolving Credit Facility from the initial $200 million up to a total of $700 million. We do not currently have any borrowings outstanding under the terms of this facility.

For the six months ended June 30, 2014, gross distributions of approximately $1.9 million were paid to stockholders, including $0.9 million of distributions reinvested through the DRIP, for net cash distributions of $1.0 million. On July 1, 2014, gross distributions of approximately $1.0 million were paid, including $0.5 million of distributions reinvested through the DRIP, for net cash distributions of $0.5 million. Distributions were funded by proceeds from our primary offering.

On May 7, 2014, our board of directors authorized distributions to the stockholders of record at the close of business each day in the period commencing July 1, 2014 through and including July 31, 2014. The authorized distributions equal an amount of $0.00445205 per share of common stock, par value $0.01 per share. A portion of each distribution is expected to constitute a return of capital for tax purposes. 

Long-term Liquidity and Capital Resources

On a long-term basis, our principal demands for funds will be for real estate and real estate-related investments and the payment of acquisition expenses, operating expenses, distributions and redemptions to stockholders, interest and principal on indebtedness, and payments on amounts due to our sponsors for organization and offering costs incurred on our behalf.  Generally, we expect to meet cash needs for items other than organization and offering costs as well as acquisitions and acquisition expenses from our cash flow from operations, and we expect to meet cash needs for acquisitions and acquisition expenses from the net proceeds of our initial public offering and from debt financings, including the Revolving Credit Facility. As they mature, we intend to refinance our long-term debt obligations if possible, or pay off the balances at maturity using the remaining net proceeds of our primary offering or proceeds from other corporate-level debt. We expect that substantially all net cash generated from operations will be used to pay distributions to our stockholders after certain capital expenditures, including tenant improvements and leasing commissions, are funded; however, we have and may continue to use other sources to fund distributions as necessary, including proceeds from our initial public offering, contributions or advances made to us by the Advisor, Sub-advisor and their respective affiliates, and borrowings under future debt agreements.

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Our board of directors has adopted corporate governance guidelines that limit our borrowings to 300% of our net assets (as defined in our corporate governance guidelines); however, we may exceed that limit if a majority of our independent directors approves each borrowing in excess of our charter limitation and if we disclose such borrowing to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. In all events, we expect that our secured and unsecured borrowings will be reasonable in relation to the net value of our assets and will be reviewed by our board of directors at least quarterly. As of June 30, 2014, our borrowings were 6.8% of our net assets.

We believe that careful use of debt will help us to achieve our diversification goals because we will have more funds available for investment. However, high levels of debt could cause us to incur higher interest charges and higher debt service payments, which would decrease the amount of cash available for distribution to our investors.

As of June 30, 2014 and December 31, 2013, our leverage ratio (calculated as total debt, less cash and cash equivalents, as a percentage of total real estate investments, including acquired intangible lease assets and liabilities, at cost) could not be calculated, as our cash balances exceeded our debt outstanding.

The table below summarizes our consolidated indebtedness at June 30, 2014 (dollars in thousands).

	Principal Amount at		Weighted- Average Interest Rate		Weighted- Average Years to Maturity
Debt(1)	June 30, 2014
Fixed-rate mortgages payable(2)	$	12,577	6.0	%	22.3

⁽¹⁾  The debt maturity table does not include any below-market debt adjustment, of which $0.3 million, net of accumulated amortization, was outstanding as of June 30, 2014.

⁽²⁾  Currently all of our fixed-rate debt represents loans assumed as part of certain acquisitions.  These loans typically have higher interest rates than interest rates associated with new debt.

Contractual Commitments and Contingencies

Our contractual obligations as of June 30, 2014, were as follows (in thousands):

	Payments due by period
	Total		2014		2015		2016		2017		2018		Thereafter
Long-term debt obligations - principal payments	$	12,577	$	156	$	277	$	294	$	312	$	331	$	11,207
Long-term debt obligations - interest payments	10,705		439		736		719		701		682		7,428
Total	$	23,282	$	595	$	1,013	$	1,013	$	1,013	$	1,013	$	18,635

Funds from Operations, Funds from Operations Adjusted for Acquisition Expenses, and Modified Funds from Operations

Funds from operations, or FFO, is a non-GAAP performance financial measure that is widely recognized as a measure of REIT operating performance. We use FFO as defined by NAREIT to be net income (loss), computed in accordance with GAAP excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property (including deemed sales and settlements of pre-existing relationships), plus depreciation and amortization on real estate assets and impairment charges, and after related adjustments for unconsolidated partnerships, joint ventures and subsidiaries and noncontrolling interests. We believe that FFO is helpful to our investors and our management as a measure of operating performance because it excludes real estate-related depreciation and amortization, gains and losses from property dispositions, impairment charges, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which are not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate and intangibles diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or are requested or required by lessees for operational purposes in order to maintain the value disclosed. Since real estate values have historically risen or fallen with market conditions, including inflation, changes in interest rates, the business cycle, unemployment and consumer spending, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, is helpful for our investors in understanding our performance. In particular, because GAAP impairment charges are not allowed to be reversed if the underlying fair values improve or because the timing of impairment charges may lag the onset of certain operating consequences, we believe FFO provides useful supplemental information related to current consequences, benefits and sustainability related to rental rate, occupancy and other core

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operating fundamentals. Additionally, we believe it is appropriate to exclude impairment charges from FFO, as these are fair value adjustments that are largely based on market fluctuations and assessments regarding general market conditions which can change over time. Factors that impact FFO include start-up costs, fixed costs, delay in buying assets, lower yields on cash held in accounts, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses. In addition, FFO will be affected by the types of investments in our targeted portfolio which will consist of, but is not limited to, necessity-based neighborhood and community shopping centers, first- and second-priority mortgage loans, mezzanine loans, bridge and other loans, mortgage-backed securities, collateralized debt obligations, and debt securities of real estate companies.

An asset will only be evaluated for impairment if certain impairment indicators exist and if the carrying or book value exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, as impairments are based on estimated future undiscounted cash flows, investors are cautioned that we may not recover any impairment charges. FFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO.

Since the definition of FFO was promulgated by NAREIT, GAAP has expanded to include several new accounting pronouncements, such that management and many investors and analysts have considered the presentation of FFO alone to be insufficient. Accordingly, in addition to FFO, we use both FFO adjusted for acquisition expenses and modified funds from operations, or MFFO, as defined by the Investment Program Association, or IPA. FFO adjusted for acquisition expenses excludes acquisition fees and expenses from FFO. In addition to excluding acquisition fees and expenses, MFFO also excludes from FFO the following items:

(1) straight-line rent amounts, both income and expense;

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

(3) amortization of discounts and premiums on debt investments;

(4) gains or losses from the early extinguishment of debt;

(5) gains or losses on the extinguishment or sales of hedges, foreign exchange, securities and other derivatives holdings except where the trading of such instruments is a fundamental attribute of our operations;

(6) gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting, including interest rate and foreign exchange derivatives;

(7) gains or losses related to consolidation from, or deconsolidation to, equity accounting;

(8) gains or losses related to contingent purchase price adjustments; and

(9) adjustments related to the above items for unconsolidated entities in the application of equity accounting.

We believe that both FFO adjusted for acquisition expenses and MFFO are helpful in assisting management and investors with the assessment of the sustainability of operating performance in future periods and, in particular, after our offering and acquisition stages are complete, because both FFO adjusted for acquisition expenses and MFFO exclude acquisition expenses that affect property operations only in the period in which the property is acquired. Thus, FFO adjusted for acquisition expenses and MFFO provide helpful information relevant to evaluating our operating performance in periods in which there is no acquisition activity.

In evaluating investments in real estate, including both business combinations and investments accounted for under the equity method of accounting, management’s investment models and analyses differentiate costs to acquire the investment from the operations derived from the investment. Prior to 2009, acquisition costs for both of these types of investments were capitalized under GAAP; however, beginning in 2009, acquisition costs related to business combinations are expensed. We intend to fund both of these acquisition-related costs from the offering proceeds and generally not from operations. However, if offering proceeds are not available to fund these acquisition-related costs, operational cash flows may be used to fund future acquisition-related costs. We believe by excluding expensed acquisition costs, FFO adjusted for acquisition expenses and MFFO provide useful supplemental information that is comparable for each type of real estate investment and is consistent

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with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include those paid to the Advisor, the Sub-advisor or third parties.

As explained below, management’s evaluation of our operating performance excludes the additional items considered in the calculation of MFFO based on the following economic considerations. Many of the adjustments in arriving at MFFO are not applicable to us. Nevertheless, we explain below the reasons for each of the adjustments made in arriving at our MFFO definition.

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

• Adjustments for amortization of above- or below-market intangible lease assets. Similar to depreciation and amortization of other real estate related assets that are excluded from FFO, GAAP implicitly assumes that the value of intangibles diminishes ratably over time and that these charges be recognized currently in revenue. Since real estate values and market lease rates in the aggregate have historically risen or fallen with market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the performance of the real estate.

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

• Adjustment for gains or losses related to early extinguishment of hedges, debt, consolidation or deconsolidation and contingent purchase price. Similar to extraordinary items excluded from FFO, these adjustments are not related to continuing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods and to other real estate operators.

By providing FFO adjusted for acquisition expenses and MFFO, we believe we are presenting useful information that also assists investors and analysts to better assess the sustainability (that is, the capacity to continue to be maintained) of our operating performance after our offering and acquisition stages are completed. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. However, under GAAP, acquisition costs are characterized as operating expenses in determining operating net income (loss). These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. FFO adjusted for acquisition expenses and MFFO are useful in comparing the sustainability of our operating performance after our offering and acquisition stages are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. However, investors are cautioned that FFO adjusted for acquisition expenses and MFFO should only be used to assess the sustainability of our operating performance after our offering and acquisition stages are completed, as both measures exclude acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired. All paid and accrued acquisition costs negatively impact our operating performance during the period in which properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase prices of the properties we acquire. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. MFFO that excludes such costs and expenses would only be comparable to that of non-listed REITs that have completed their acquisition activities and have similar operating characteristics as us. The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. In the event that we are unable to raise any additional proceeds from the sale of shares in our initial offering, we may still be obligated to pay acquisition fees and reimburse acquisition expenses to our Advisor and Sub-Advisor and the Advisor and Sub-Advisor will be under no obligation to reimburse these payments back to us. As a result, such fees and expenses may

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need to be paid from other sources, including additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows. Acquisition costs also adversely affect our book value and equity.

The additional items that may be excluded from FFO to determine MFFO are cash flow adjustments made to net income in calculating the cash flows provided by operating activities. Each of these items is considered an important overall operational factor that affects our long-term operational profitability. These items and any other mark-to-market or fair value adjustments may be based on many factors, including current operational or individual property issues or general market or overall industry conditions. While we are responsible for managing interest rate, hedge and foreign exchange risk, we intend to retain an outside consultant to review any hedging agreements that we may enter into in the future. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such gains and losses in calculating MFFO, as such gains and losses are not reflective of ongoing operations.

Each of FFO, FFO adjusted for acquisition expenses, and MFFO should not be considered as an alternative to net income (loss) or income (loss) from continuing operations under GAAP, or as an indication of our liquidity, nor is any of these measures indicative of funds available to fund our cash needs, including our ability to fund distributions. In particular, as we are currently in the acquisition phase of our life cycle, acquisition-related costs and other adjustments that are increases to FFO adjusted for acquisition expenses and MFFO are, and may continue to be, a significant use of cash. MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is a stated value and there is no current net asset value determination. Additionally, FFO adjusted for acquisition expenses, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate our business plan in the manner currently contemplated. Accordingly, FFO, FFO adjusted for acquisition expenses, and MFFO should be reviewed in connection with other GAAP measurements. FFO, FFO adjusted for acquisition expenses, and MFFO should not be viewed as more prominent measures of performance than our net income or cash flows from operations prepared in accordance with GAAP. Our FFO, FFO adjusted for acquisition expenses, and MFFO as presented may not be comparable to amounts calculated by other REITs.

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

The following section presents our calculation of FFO, FFO adjusted for acquisition expenses, and MFFO and provides additional information related to our operations. As a result of the timing of the commencement of our initial public offering and our active real estate operations, FFO, FFO adjusted for acquisition expenses, and MFFO are not relevant to a discussion comparing operations for the period presented. We expect revenues and expenses to increase in future periods as we raise additional offering proceeds and use them to acquire additional investments.

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FUNDS FROM OPERATIONS, FUNDS FROM OPERATIONS ADJUSTED FOR ACQUISITION EXPENSES, AND MODIFIED FUNDS FROM OPERATIONS

FOR THE PERIOD ENDED JUNE 30, 2014

(Unaudited)

(Amounts in thousands, except share and per share amounts)

	Three Months Ended			Six Months Ended
	June 30, 2014			June 30, 2014
Calculation of Funds from Operations
Net loss	$	(759	)	$	(1,108	)
Add:
Depreciation and amortization of real estate assets	223			256
Funds from operations (FFO)	$	(536	)	$	(852	)
Calculation of FFO Adjusted for Acquisition Expenses
Funds from operations	$	(536	)	$	(852	)
Add:
Acquisition expenses	384			586
FFO adjusted for acquisition expenses	$	(152	)	$	(266	)
Calculation of Modified Funds from Operations
FFO adjusted for acquisition expenses	$	(152	)	$	(266	)
Add:
Net amortization of above- and below-market leases	34			34
Less:
Straight-line rental income	(40		)	(43		)
Amortization of market debt adjustment	(3		)	(3		)
Modified funds from operations (MFFO)	$	(161	)	$	(278	)
Weighted-average common shares outstanding - basic and diluted	5,913,005			3,636,527
Net loss per share - basic and diluted	$	(0.13	)	$	(0.30	)
FFO per share - basic and diluted	$	(0.09	)	$	(0.23	)
FFO adjusted for acquisition expenses per share - basic and diluted	$	(0.03	)	$	(0.07	)
MFFO per share - basic and diluted	$	(0.03	)	$	(0.08	)

Distributions

Distributions for the six months ended June 30, 2014 accrued at an average daily rate of $0.00445205 per share of common stock. During the six months ended June 30, 2014, gross distributions paid were $1.9 million, with $0.9 million being reinvested through the DRIP for net cash distributions of $1.0 million. There were gross distributions of $1.0 million accrued and payable as of June 30, 2014. We funded our distributions with proceeds from our primary offering.

Activity related to distributions to our stockholders for the three and six months ended June 30, 2014 is as follows (in thousands):

	Three Months Ended		Six Months Ended
	June 30, 2014		June 30, 2014
Gross distributions paid	$	1,727	$	1,875
Distributions reinvested through DRIP	839		909
Net cash distributions	888		966
Net loss attributable to stockholders	759		1,108
Net cash used in operating activities	267		418

We expect to pay distributions monthly and continue paying distributions monthly unless our results of operations, our general financial condition, general economic conditions or other factors make it imprudent to do so. The timing and amount of

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distributions will be determined by our board and will be influenced in part by our intention to comply with REIT requirements of the Internal Revenue Code.

We may receive income from interest or rents at various times during our fiscal year and, because we may need funds from operations during a particular period to fund capital expenditures and other expenses, we expect that at least during the early stages of our development and from time to time during our operational stage, we will declare distributions in anticipation of funds that we expect to receive during a later period.  We will pay these distributions in advance of our actual receipt of these funds. In these instances, we expect to look to borrowings or proceeds from our initial public offering to fund our distributions. We may also fund such distributions from advances from our sponsors or from any deferral or waiver of fees by the Advisor or Sub-advisor. To the extent that we pay distributions from sources other than our cash provided by operating activities, we will have fewer funds available for investment in properties. The overall return to our stockholders may be reduced, and subsequent investors may experience dilution.

Our general distribution policy is not to use the proceeds of our offering to pay distributions.  However, our board has the authority under our organizational documents, to the extent permitted by Maryland law, to pay distributions from any source without limit, including proceeds from our offering or the proceeds from the issuance of securities in the future, and, therefore, proceeds of our offering may fund distributions. As we have raised substantial amounts of offering proceeds and are continuing to seek additional opportunities to invest these proceeds on attractive terms, our cash provided by operating activities has not yet been sufficient to fully fund our ongoing distributions. Because we do not intend to borrow money for the specific purpose of funding distribution payments, we have funded, and may continue to fund, a portion of our distributions with proceeds from our offerings.

To maintain our qualification as a REIT, we must make aggregate annual distributions to our stockholders of at least 90.0% of our REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). If we meet the REIT qualification requirements, we generally will not be subject to U.S. federal income tax on the income that we distribute to our stockholders each year. However, we may be subject to certain state and local taxes on our income, property or net worth, respectively, and to federal income and excise taxes on our undistributed income.

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

Critical Accounting Policies

There have been no changes to our critical accounting policies during the six months ended June 30, 2014, except that subsequent to the issuance of our Annual Report on Form 10-K, we have continued to adopt additional accounting policies as required by our increasing operational activity. For a summary of our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2013. The additional accounting policies that we have adopted since the issuance of our Annual Report on Form 10-K have been included within Note 2 to the condensed consolidated interim financial statements presented herein.

Impact of Recently Issued Accounting Pronouncements—In March 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-06, Technical Corrections and Improvements Related to Glossary Terms. The amendments in this update include technical corrections to the glossary including glossary links, glossary term deletions, glossary term name changes, and other miscellaneous technical corrections. In addition, the update includes more substantive, limited-scope improvements to reduce instances of the same term appearing multiple times in the glossary with similar, but not entirely identical, definitions. ASU 2014-06 was effective upon issuance. The adoption of this pronouncement did not have a material impact on our condensed consolidated financial statements.

In April 2014, FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update raise the threshold for a property disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard will be effective for us on January 1, 2015. In future periods, we expect that the adoption of this pronouncement will result in most individual property disposals not qualifying for discontinued operations presentation, and thus the results of those disposals will remain in income from continuing operations.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 will eliminate the transaction- and industry-specific revenue recognition guidance currently under GAAP and will replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 does not apply to lease contracts accounted for under

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Accounting Standards Codification ("ASC") 840, Leases. ASU 2014-09 will be effective for us for annual and interim periods beginning after December 15, 2016, and early adoption is prohibited. We are currently assessing the impact the adoption of ASU 2014-09 will have on our condensed consolidated financial statements.

Off-Balance Sheet Arrangements

As of June 30, 2014, we did not have any off-balance sheet arrangements.

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

We may hedge a portion of our exposure to interest rate fluctuations through the utilization of an interest rate swap in order to mitigate the risk of this exposure. We do not intend to enter into derivative or interest rate transactions for speculative purposes.  Our hedging decisions will be determined based upon the facts and circumstances existing at the time of the hedge and may differ from our currently anticipated hedging strategy.  Because we may use derivative financial instruments to hedge against interest rate fluctuations, we may be exposed to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.  Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. As of June 30, 2014, we were not party to any interest rate swap agreements.

There would be no impact on our annual results of operations of a one percentage point change in interest rates because we had no outstanding variable-rate debt at June 30, 2014.

As the information presented above includes only those exposures that exist as of June 30, 2014, it does not consider those exposures or positions that could arise after that date. Hence, the information represented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the hedging strategies at the time, and the related interest rates.

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

Item 4.         Controls and Procedures

Management’s Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report in providing a reasonable level of assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods in SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.     OTHER INFORMATION

Item 1.         Legal Proceedings

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

Item 1A.        Risk Factors

The following risk factors supplement the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2013.

Risks Related to an Investment in Us

To date, we have not generated sufficient cash flow from operations to pay distributions, and, therefore, we have paid, and may continue to pay, distributions from the net proceeds of our ‘‘best efforts’’ offering, which reduces the amount of cash we ultimately have to invest in assets, negatively impacting the value of our stockholders’ investment and is dilutive to our stockholders.

We have not yet generated positive cash flow from operations to cover distribution payments and may not do so unless our asset base grows significantly. Our organizational documents permit us to pay distributions from sources other than cash flow from operations. Specifically, some or all of our distributions may be paid from retained cash flow, from borrowings and from cash flow from investing activities, including the net proceeds from the sale of our assets, or from the net proceeds of our ‘‘reasonable best efforts’’ offering. Accordingly, until such time as we are generating cash flow from operations sufficient to cover distributions, during the pendency of our ‘‘reasonable best efforts’’ offering, we have and will likely continue to pay distributions from the net proceeds of the offering. We have not established any limit on the extent to which we may use alternate sources, including borrowings or proceeds of the offering, to pay distributions. We began declaring distributions to stockholders of record during February 2014. One hundred percent (100%) of the distributions paid to stockholders to date have been paid from the net proceeds of our ‘‘reasonable best efforts’’ offering, which reduces the proceeds available for other purposes. For the six months ended June 30, 2014, we paid distributions of $1.9 million, including distributions reinvested through our distribution reinvestment plan, and our GAAP cash uses from operations were $0.4 million. To the extent we pay cash distributions, or a portion thereof, from sources other than cash flow from operations, we will have less capital available to invest in properties and other real estate-related assets, the book value per share may decline, and there will be no assurance that we will be able to sustain distributions at that level. In addition, by using the net proceeds of our ‘‘reasonable best efforts’’ offering to fund distributions, earlier investors may benefit from the investments made with funds raised later in our ‘‘reasonable best efforts’’ offering, while later investors may not benefit from all of the net offering proceeds raised from earlier investors.

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and invest in real estate assets.

The Federal Insurance Deposit Corporation, or “FDIC,” generally only insures limited amounts per depositor per insured bank. Through 2014, the FDIC is insuring up to $250,000 per depositor per insured bank account. At June 30, 2014, we had cash and cash equivalents exceeding these federally insured levels. If the banking institutions in which we have deposited funds ultimately fail, we may lose our deposits over the federally insured levels. The loss of our deposits could reduce the amount of cash we have available to distribute or invest.

Two of our tenants generated a significant portion of our revenue, and a rental payment default by these significant tenants could adversely affect our results of operations.

For the six months ended June 30, 2014, approximately 53.5% and 21.2%, respectively, of our consolidated base rental revenue was generated from leases with an affiliate of Ahold USA and with Publix Super Markets. As a result of the concentration of revenue generated from these tenants, if Ahold USA or Publix Super Markets were to cease paying rent or fulfilling their other monetary obligations we could have significantly reduced rental revenues or higher expenses until the default was cured or the space was leased to a new tenant or tenants. In addition, there is no assurance that the space could be re-leased on similar or better terms, if at all.

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

a) We did not sell any equity securities that were not registered under the Securities Act of 1933, as amended, during the six months ended June 30, 2014.

b) On November 25, 2013, our registration statement on Form S-11 (File No. 333-190588), covering a public offering of up to 100,000,000 shares of common stock, was declared effective under the Securities Act of 1933, and we commenced our initial public offering. We are offering 80,000,000 shares of common stock in our primary offering at an aggregate offering price of up to $2.0 billion, or $25.00 per share with discounts available to certain categories of purchasers. The 20,000,000 shares offered under the DRIP are initially being offered at an aggregate offering price of $475 million, or $23.75 per share. We are selling the shares registered in our primary offering over a two-year period, which ends November 25, 2015. Under rules promulgated by the SEC, in some instances we may extend the primary offering beyond that date. We may sell shares under the DRIP beyond the termination of the primary offering until we have sold all the shares under the plan.

c) As of June 30, 2014, we had issued a total of 8,917,720 shares of common stock including 38,281 shares issued through the DRIP, generating gross cash proceeds of $221.7 million, since our inception.

The following table reflects the offering costs associated with the issuance of common stock for the six months ended June 30, 2014 (in thousands):

	Six Months Ended June 30, 2014
Selling commissions and dealer manager fees	$	21,006
Other offering costs	7,981
Total	$	28,987

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

	Six Months Ended June 30, 2014
Total commissions incurred from the Dealer Manager	$	21,006
Less:
Commissions to participating broker-dealers	(14,454		)
Reallowance to participating broker-dealers	(2,502		)
Net to the Dealer Manager	$	4,050

As of June 30, 2014, we have incurred $29.0 million of cumulative offering costs in connection with the issuance and distribution of common stock. Offering proceeds of $221.7 million exceeded cumulative offering costs by $192.7 million at June 30, 2014.

To the extent that we are able to identify suitable investments, we have used, and expect to continue to use, substantially all of the net proceeds from our ongoing initial public offering to invest primarily in grocery-anchored neighborhood and community shopping centers throughout the United States. We may use the net proceeds from the sale of shares under our distribution reinvestment plan for general corporate purposes, including, but not limited to, the repurchase of shares under our share repurchase program, capital expenditures, tenant improvement costs, and other funding obligations. As of June 30, 2014, we have used the net proceeds from our ongoing primary public offering to purchase $28.4 million in real estate and to pay $0.6 million of acquisition fees and expenses.

d) We did not repurchase any of our securities during the six months ended June 30, 2014, and no shares eligible for redemption were the subject of any redemption requests during this period.

Item 3.        Defaults upon Senior Securities

Not Applicable

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Item 4.        Mine Safety Disclosures

Not Applicable

Item 5.        Other Information

(a) During the second quarter of 2014, there was no information that was required to be disclosed in a report on Form 8-K that was not disclosed in a report on Form 8-K.

(b) There are no material changes to the procedures by which stockholders may recommend nominees to our board of directors.

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Item 6.          Exhibits

Ex.	Description
10.1	Purchase and Sale Agreement - Staunton Plaza
10.2	Assignment and Assumption of Rights Under Shopping Center Purchase Agreement - Staunton Plaza (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K filed March 6, 2014)
10.3	Amendment # 1 - Staunton Plaza Purchase and Sale Agreement
10.4	Staunton Plaza Promissory Note
10.5	Staunton Plaza Loan Assumption Agreement
10.6	Amended and Restated Property Management, Leasing and Construction Management Agreement by and among the Company, Phillips Edison - ARC Grocery Center Operating Partnership II L.P., and Phillips Edison & Company, Ltd., dated June 1, 2014
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
101.1	The following information from the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statement of Operations and Comprehensive Loss; (iii) Condensed Consolidated Statement of Equity; and (iv) Condensed Consolidated Statement of Cash Flows

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SIGNATURES

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

	PHILLIPS EDISON – ARC GROCERY CENTER REIT II, INC.
Date: August 7, 2014	By:	/s/ Jeffrey S. Edison
		Jeffrey S. Edison
		Chairman of the Board and Chief Executive Officer
		(Principal Executive Officer)
Date: August 7, 2014	By:	/s/ Devin I. Murphy
		Devin I. Murphy
		Chief Financial Officer, Secretary and Treasurer
		(Principal Financial Officer)

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EX-10.1

SHOPPING CENTERS PURCHASE AGREEMENT

THIS SHOPPING CENTERS PURCHASE AGREEMENT (“Agreement”) is made as of the Effective Date (as defined below) by and between STAUNTON PLAZA, LLC, a Virginia limited liability company (“Staunton Seller”), and WAYNESBORO PLAZA, LLC, a Virginia limited liability company (“Waynesboro Seller;” the Staunton Seller and the Waynesboro Seller are collectively, referred to herein as “Sellers” and individually as a “Seller”), and THE PHILLIPS EDISON GROUP LLC, an Ohio limited liability company (“Purchaser”).

R E C I T A L S:

A.Staunton Seller owns certain real estate described on Exhibit A-1 attached hereto and the shopping center thereon known as Staunton Plaza Shopping Center and the other improvements thereon located in Staunton, Virginia (such real estate, shopping center and improvements are herein referred to collectively as the “Staunton Real Property”), which together with all appurtenant hereditaments, tenements, easements, rights, leases, rents, profits and issues is referred to collectively herein as the “Staunton Property.”

B.Waynesboro Seller owns certain real estate described on Exhibit A-2 attached hereto and the shopping center thereon known as Waynesboro Plaza Shopping Center and the other improvements thereon located in Staunton, Virginia (such real estate, shopping center and improvements are herein referred to collectively as the “Waynesboro Real Property;” the Staunton Real Property and the Waynesboro Real Property are herein referred to collectively as the “Real Properties” and individually as the “Real Property”), which together with all appurtenant hereditaments, tenements, easements, rights, leases, rents, profits and issues is referred to collectively herein as the “Waynesboro Property.” The Staunton Property and the Waynesboro Property are herein referred to collectively as the “Properties” or individually as a “Property,” as the context requires.

C.Sellers have agreed to sell and Purchaser has agreed to purchase the Properties in accordance with and subject to the terms and conditions of this Agreement.

NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which is acknowledged, the parties agree as follows:

1. Basic Provisions

The following words and phrases are defined for subsequent use in this Agreement:

1.Intentionally omitted.

2.Closing.The consummation of the transaction contemplated by this Agreement which shall occur, if at all, on a mutually agreeable date (the “Closing Date”) within 15 days after the Loan Assumption Condition (defined below) has been satisfied, provided that all other Conditions (defined below) have likewise been satisfied or waived in writing by Purchaser.

3.Commitments.Commitments for ALTA 2006 owner’s policies of title insurance with respect to the Staunton Real Property and with respect to the Waynesboro Real Property, respectively, in the aggregate amount of the Purchase Price allocated between the two Real Properties as indicated on Exhibit 1.3 attached hereto and incorporated herein by reference, committing the Title Company to insure Purchaser as the fee simple owner of the Real Properties, without standard exceptions and subject only to the Permitted Exceptions (defined below).

4.Conditions.The conditions precedent to Purchaser’s obligation to purchase the Properties, which conditions are as follows:

(i)Physical/Financial Review Condition.Purchaser’s satisfaction in its sole and absolute discretion, with all physical aspects of the Real Properties, including, but not limited to, their environmental condition, structural condition, the condition of the roofs and the HVAC systems and the condition of all parking, drive, walkway and landscaped areas and off-site improvements, if any, appurtenant thereto and Purchaser’s satisfaction, in its sole and absolute discretion, with the revenue generated or to be generated from the Properties and the expenses incurred and to be incurred in the operation and maintenance of the Real Properties.

(ii)Loan Assumption Condition. (A) Approval by the Servicer (as defined below) (and/or such other entity or entities which is or are required to approve ) of (1) the sale of the Properties to Purchaser subject to the First Mortgage Loans, (2) such changes and modifications to the documents evidencing and securing the First Mortgage Loans as Purchaser shall reasonably require, which changes and modifications shall be consistent with such changes and modifications that Purchaser's affiliate obtained from the Servicer in connection with its assumption of a loan on Collington Plaza in Bowie, Maryland and (3) a substitute guarantor affiliated with Purchaser to guaranty the so-called non-recourse carveouts with respect to each such First Mortgage Loan, such approval to be on the terms and conditions set forth in the documents evidencing and securing the First Mortgage Loans, and (B) agreement by the Servicer (and/or such other entity or entities which is or are required to approve) and Purchaser on the form and content of such documents, instruments and agreements as are required in order to document the foregoing approvals and which will be executed and delivered at Closing.

(iii)Intentionally Deleted.

(iv)Estoppel Condition.(A) Sellers providing to Purchaser estoppel letters from the Major Tenant of each of the Real Properties and from tenants of 70% of the balance of the leased area of each of the Real Properties (collectively, the “Required Tenant Estoppels”), same to be on the form attached hereto as Exhibit 1.4(iv) (which is the form previously delivered by the Major Tenant and accepted by Lender for the Staunton Property) and incorporated herein by reference (or on such form as provided by the Major Tenant or the forms otherwise required under the applicable tenant Lease (defined below)); and (B) Sellers providing Purchaser estoppel letters (acceptable to Purchaser in its reasonable discretion) from each party to any reciprocal easement agreement or declaration of covenants or the like binding on each of the Real Properties and property adjacent thereto, same to be in the forms called for under any such easement agreement or declaration or, if no form is called for therein, in a form reasonably satisfactory to Purchaser. Estoppel letters that (1) are dated not more than forty-five (45) days prior to the Closing Date, (2) have all blanks completed or marked not applicable, as appropriate, (3) have all exhibits completed and attached, as applicable, and (4) do not indicate (x) any material discrepancy from the applicable Rent Roll (as defined below) or (y) any adverse claim or landlord default shall deemed acceptable to Purchaser.

(v)Absence of a Material Adverse Change.The absence as of Closing of a Material Adverse Change (defined below).

(vi)Truth of the Representations.That the Representations (defined below) are true, accurate and complete in all material respects as of Closing.

5.Contracts.All of those contracts between each Seller and/or its manager, on the one hand, and service and/or materials providers, on the other hand, which contracts relate to the operation and maintenance of their respective Real Properties and all of which are identified on Exhibit 1.5 attached hereto and incorporated herein by reference.

6.Deposit.$500,000.00 initially; to be increased by the deposit of an additional $500,000.00 if Purchaser gives notice of satisfaction with the Physical/Financial Review Condition, as provided below.

7.Effective Date.The date on which Purchaser receives from Sellers one fully executed copy of this Agreement, as such date is indicated below.

8.First Mortgage Loans.A certain first mortgage loan encumbering the Staunton Property originated by Wells Fargo Bank, National Association (“Lender”) and a first mortgage loan encumbering the Waynesboro Property originated by Lender.

9.Lease or Leases.As the context dictates, individually or collectively, a lease, license, or other written permission to occupy the either of the Real Properties.

10.Major Tenant.Giant Food Stores, LLC c/b/a Martin’s Foods, as to both Real Properties.

11.Material Adverse Change.The announcement by the Major Tenant that it shall be closing its store from either of the Real Properties, that it intends to close its store from either of the Real Properties and/or that it has or intends to file for bankruptcy protection from its creditors.

12.Permitted Exceptions.The encumbrances or exceptions to title shown in each of the Commitments to which Purchaser does not timely object pursuant to the terms hereof or which are otherwise allowed pursuant to this Agreement, or which with Purchaser’s consent are waived and accepted or deemed waived or accepted pursuant to the terms hereof, or which are insured over, and expressly excluding (i) the “standard” exceptions that may be removed by the Title Company based on a standard title affidavit from Sellers, (ii) any exceptions evidencing or securing liquidated amounts arising through Seller, such as, but not limited to, mortgage financing (except the First Mortgage Loans) and/or construction, mechanics’ or other liens, and (iii) taxes and assessments with respect to Sellers and/or the Real Properties which are past due as of Closing, none of which shall be deemed Permitted Exceptions hereunder. Permitted Exceptions shall include the first mortgages, deeds of trust or deeds to secure debt, as applicable, encumbering the Real Properties securing the First Mortgage Loans, the same to be subject to the loan assumptions contemplated herein.

13.Personal Property.Those items, if any, listed on Exhibit 1.13 attached hereto and incorporated herein by reference, located upon the Real Properties and/or used in connection therewith and owned by Sellers.

14.Purchase Price.$34,000,000.00.

15.Rent Rolls.The rent rolls as to each of the Properties attached hereto as Exhibit 1.15 and incorporated herein by reference.

16.Representations.The representations and warranties of Sellers set forth in Section 6 below.

17.Seller Debts.The debts, liabilities, taxes, obligations and claims for which the Sellers alone are liable and shall include (i) all payments and benefits to past and/or present employees of the Sellers in connection with the business being conducted on or from the Real Properties as may have accrued through Closing, (including, but not limited to, salaries, wages, commissions, bonuses, vacation pay, health and welfare contributions, pensions, profit sharing, severance or termination pay, or any other form of compensation or fringe benefit), (ii) obligations of the Sellers under any Leases or occupancy agreements accruing prior to Closing, unless specifically assumed by Purchaser, and (iii) obligations of the Sellers under the Contracts; provided, however, the same shall not include the obligations and liabilities under the First Mortgage Loans to accrue from and after Closing.

18.Sellers’ Due Diligence Documents.All of the documents and other instruments listed as delivered in the schedule attached hereto as Exhibit 1.18 and incorporated herein by reference.

19.Intentionally Deleted.

20.Servicer.Wells Fargo .

21.Time Periods for Inspection and Loan Assumption.

(i)Inspection Period.The period commencing on the Effective Date, and concluding at 11:59 p.m. eastern time thirty (30) days thereafter, subject to extension as provided in Section 3 below. Notwithstanding the foregoing, to the extent the Inspection Period would otherwise commence on a Friday, the same shall, for purposes of calculation of the expiration of the Inspection Period, be deemed to have commenced on the next succeeding business day.

(ii)Assumption Period.The period commencing on the date one day after the conclusion of the Inspection Period provided that Purchaser shall have notified Sellers of its satisfaction or waiver with the Physical/Financial Review Condition, and concluding at 11:59 p.m. eastern time one hundred twenty (120) days thereafter, provided, however, Purchaser shall have the right, upon notice thereof to Sellers on or before conclusion of the original Assumption Period, to extend the same for two additional periods of thirty (30) days each, provided that the Loan Assumption Condition has not then been satisfied.

22.Title Company.Fidelity National Title Group, Attn: Linda Hart.

2. Purchase And Sale; Deposit

Subject to the terms and conditions herein, Sellers agree to sell and Purchaser agrees to purchase the Properties for the Purchase Price. Within five business days after the Effective Date, Purchaser shall deposit the initial $500,000.00 portion of the Deposit in escrow with the Title Company. In the event Purchaser shall timely notify Sellers of its satisfaction with the Physical/Financial Review Condition, as provided in Section 3 below, then, the Deposit shall be non-refundable, except as otherwise expressly set forth herein, and within one (1) business day thereafter, Purchaser shall deposit an additional $500,000.00 (the “Additional Deposit”) in escrow with the Title Company, the same to be deemed a portion of the Deposit. Upon delivery to the Title Company, the Additional Deposit shall also be non-refundable, except as otherwise set forth herein. If Purchaser fails to timely deposit the Additional Deposit with the Title Company, this Agreement shall automatically terminate, the Title Company shall return the Deposit to Purchaser and the parties hereto shall have no further rights or obligations hereunder except for those that expressly survive termination of this Agreement. In the event of Closing, the Deposit shall be delivered to Sellers and shall be applied as a credit against the Purchase Price. At Purchaser’s option, the Deposit shall be held in an interest bearing account with a federally insured financial institution reasonably acceptable to Purchaser and all interest earned thereon shall be deemed to be a portion of the Deposit. If this Agreement is terminated, the Deposit shall be refunded to Purchaser or delivered to Sellers as provided for below. Notwithstanding any provision herein to the contrary calling for the return of the Deposit to Purchaser upon the termination of this Agreement, the parties have agreed that (i) the sum of $100.00 out of the Deposit is independent of any other consideration provided hereunder, shall be deemed fully earned by Sellers upon the Effective Date, and is not refundable to Purchaser under any circumstances, and (ii) if this Agreement is terminated for any reason by either party, such independent consideration shall be paid to Sellers.

3. Inspection of Properties; Conditions

1.Conditions.Purchaser’s obligation to purchase the Properties is expressly conditioned upon Purchaser’s satisfaction with or waiver in writing of each of the Conditions on or before the dates specified herein with respect to satisfaction of each condition. Purchaser shall pay all costs associated with the Physical/Financial Review Condition. Purchaser shall pay the premiums for the owner’s policies of title insurance to be issued pursuant to the Commitments. Seller shall pay the costs, if any, incurred by Sellers in satisfying the Estoppel Condition. Purchaser shall pay all application and other costs associated with the assumption of the First Mortgage Loans including, but not limited to, loan assumption and application fees, Servicer’s legal fees and costs and title insurance endorsement costs and surveying costs associated therewith.

2.Sellers’ Documents.Purchaser acknowledges that, prior to the Effective Date, Sellers have delivered to Purchaser Sellers’ Due Diligence Documents. During the term of this Agreement, within two (2) business days after receipt of written request from Purchaser, Sellers shall make available to Purchaser for Purchaser’s review and copying at Sellers office, all other non-proprietary information, documents, books and records related to the Properties in the possession of Sellers. Sellers hereby disclaim any warranty as to the accuracy of any information, reports or documents related to the Properties, which were generated by third parties. Purchaser acknowledges that any information relating to Sellers or the Properties, including, without limitation, Sellers’ Due Diligence Documents, that is disclosed to Purchaser by Sellers is confidential and will be delivered to Purchaser solely to assist Purchaser in determining the feasibility of purchasing the Properties. Purchaser shall not use Sellers’ Due Diligence Documents for any purpose other than in determining the feasibility of purchasing the Properties. Purchaser shall not disclose any such information to any person other than to those persons who are responsible for determining the feasibility of Purchaser’s acquisition of the Properties, Purchaser’s investors, partners, members, managers, employees, and Lender, and who have been advised to preserve the confidentiality of such information as required hereby (collectively, “Permitted Outside Parties”), or as required by applicable legal requirements. Purchaser shall not divulge the contents of the information received or obtained by Purchaser in connection with this Agreement except in strict accordance with the confidentiality standards set forth in this Section 3.2, and Purchaser shall disclose to Sellers the findings of any environmental reports obtained by Purchaser and relating to the Properties only upon written request from Sellers. In permitting Purchaser to review any information pursuant to this Agreement, Sellers have not waived any privilege or claim of confidentiality with respect thereto, and no third party benefits or relationships of any kind, either express or implied, have been offered, intended or created. The confidentiality provisions of this Section 3.2 shall survive the termination of this Agreement.

3.Investigations.During the Inspection Period Purchaser may make such investigations as it shall deem relevant in order to satisfy the Conditions. Such investigations may be conducted by Purchaser or its designees, including lawyers, engineers, accountants, architects, agents or employees. Purchaser’s rights to enter upon the Properties during the Inspection Period shall be subject to the following terms and conditions: (i) Purchaser must give Sellers not less than twenty-four (24) hours' prior notice of any entry onto the Properties, following which, Sellers and Purchaser shall mutually agree upon a time for such entry and Sellers shall have the right to have a representative present during any such entry; (ii) Purchaser shall not conduct any intrusive inspection or test without Sellers’ prior written consent (which consent may be given, withheld or conditioned in Sellers’ sole discretion); and (iii) all such tests shall be conducted by Purchaser in compliance with Purchaser's responsibilities set forth in this Section 3.3. Purchaser shall bear the cost of all such inspections or tests and shall be responsible for and act as the generator with respect to any wastes generated by those tests. Subject to the provisions of this Section 3.3, Purchaser or Purchaser’s representatives may meet with tenants of the Properties; provided, however, Purchaser must contact Sellers at least twenty-four (24) hours in advance to schedule any meeting with a tenant, and Sellers shall have the opportunity to attend any such meeting if Sellers desire. Subject to the provisions of this Section 3.3, Purchaser or Purchaser’s representatives may meet with any governmental authority for any good faith, reasonable purpose in connection with the transaction contemplated by this Agreement; provided, however, Purchaser must contact Sellers at least twenty-four (24) hours in advance to inform Sellers of Purchaser’s intended meeting and to allow Sellers the opportunity to attend such meeting if Sellers desire. Prior to entering the Properties, Purchaser must deliver a certificate of insurance to Sellers evidencing that Purchaser and its contractors, agents and representatives have in place commercial general liability insurance from an insurer authorized to do business in the Commonwealth of Virginia, which is reasonably acceptable to Seller and protecting Seller from claims for property damage, bodily injury or death in single limit amount of not less than $1,000,000 and workers compensation insurance in statutorily required amounts. Purchaser’s policy of commercial general liability insurance shall name Sellers as additional insureds and shall provide that at least fifteen (15) days’ notice of termination, cancellation, modification or lapse of coverage shall be given to Sellers. In conducting any inspections, investigations or tests of the Property and/or Property information

supplied to Purchaser by Sellers, including, without limitation, Sellers’ Due Diligence Documents, Purchaser and its agents and representatives shall: (i) not disturb the tenants of the Properties or unreasonably interfere with their use of the Properties pursuant to their respective Leases; (ii) not unreasonably interfere with the operation and maintenance of the Properties; (iii) not damage any part of the Properties or any personal property owned or held by any tenant of the Properties or any third party; (iv) not injure or otherwise cause bodily harm to Sellers or their agents, guests, invitees, contractors and employees or any tenants of the Properties or their guests or invitees; (v) comply with all applicable laws; (vi) promptly pay when due the costs of all tests, investigations, and examinations done with regard to the Properties; (vii) not permit any liens to attach to the Properties by reason of the exercise of its rights hereunder; (viii) repair any damage to the Properties resulting from any such inspection or tests; and (ix) not reveal or disclose prior to Closing any information obtained during the Inspection Period concerning the Properties, including, without limitation, the Sellers’ Due Diligence Documents, to anyone other than the Permitted Outside Parties, in accordance with the confidentiality standards set forth in Section 3.2 above, or except as may be otherwise required by law. Purchaser shall indemnify and hold harmless Sellers against any claim, action, damage, loss, liability, or expense resulting from Purchaser’s entry upon the Real Properties and/or the performance by Purchaser of its due diligence activities. The foregoing indemnity shall survive the termination of this Agreement and the Closing, as applicable. Purchaser shall restore any damage caused to the Real Properties by Purchaser’s entry to substantially the condition existing immediately prior to such entry. The provisions of the foregoing sentence shall survive the termination of this Agreement.

4.Notice of Satisfaction.Purchaser shall have the right, at any time prior to the end of the Inspection Period, in its sole discretion, to notify Sellers: (i) that Purchaser is satisfied with or waives satisfaction of the Physical/Financial Review Condition, and, in the event of such notice, the parties shall proceed to Closing, subject to satisfaction or waiver of the balance of the Conditions; or (ii) of Purchaser’s termination of this Agreement, in which event this Agreement shall be of no further force or effect, the Deposit shall be returned to Purchaser, and neither party shall have any further liability or obligation hereunder, except for those that expressly survive termination of this Agreement. If Purchaser fails to give either of such notices prior to the expiration of the Inspection Period, this Agreement shall be deemed to have terminated automatically and, in such event this Agreement shall be of no further force or effect, the Deposit shall be returned to Purchaser, and neither party shall have any further liability or obligation hereunder, except for those that expressly survive termination of this Agreement.

5.Estoppel Condition.Sellers shall use commercially reasonable efforts to satisfy the Estoppel Condition. Drafts of all estoppel letters shall be prepared by the Sellers and, before delivery to the tenants, furnished to Purchaser, for its review and approval, on or before the date forty-five (45) days prior to the anticipated date of Closing, such approval not to be unreasonably withheld and to be granted or denied within three (3) business days after receipt thereof, failing of which the same shall be deemed approved by Purchaser for delivery to the tenants. If Purchaser does not approve the draft estoppel letters, Purchaser shall notify Seller in writing the corrections or changes required for any estoppel letter to be approved by Purchaser within three (3) business days of Seller’s submission of such draft estoppel letters. Notwithstanding the foregoing, Purchaser shall have the right but not the obligation to seek to satisfy the Estoppel Condition for and on behalf of Sellers and Sellers shall cooperate with Purchaser in connection therewith. In the event that the Estoppel Condition has not been satisfied on or before the date that is two (2) business days before the date set for Closing, then Purchaser shall have the right to terminate this Agreement, upon notice to Sellers. If Purchaser terminates the Agreement pursuant to this Section, the Deposit shall be returned to Purchaser, and neither party shall have any further liability or obligation hereunder, except for those that expressly survive termination of this Agreement.

6.Survey and Title.Purchaser, at its sole cost and expense, shall obtain the Commitments and surveys of the Real Properties. Purchaser shall have the right, prior to the end of the Inspection Period, to notify Sellers of any objections to the state of title to the Real Properties and/or objections to items shown on the surveys (collectively, “Title and Survey Objections”). Within five (5) days after receipt of written

notice of any Title and Survey Objections, Sellers shall deliver written notice to Purchaser specifying whether Sellers are willing to remedy any of the Title and Survey Objections. If Sellers fail to deliver such notice within five (5) days after receipt of written notice of Purchaser’s Title and Survey Objections, Sellers shall be deemed to have elected not to remedy Purchaser’s Title and Survey Objections. Within 5 days after receipt of Sellers’ response to Purchaser’s Title and Survey Objections, or if Sellers fail to respond timely to Purchaser’s Title and Survey Objections, within five (5) days after the end of Sellers’ five (5) day period to respond to Purchaser’s Title and Survey Objections, Purchaser shall elect whether to (i) terminate this Agreement or (ii) waive any Title and Survey Objections that Sellers have not expressly agreed to remedy, without reduction in the Purchase Price, and proceed to Closing in accordance with the terms of this Agreement. If Purchaser does not timely make such election, Purchaser shall be deemed to have elected (ii) above. Any Title and Survey Objections that Purchaser waives or is deemed to have waived shall be deemed to Permitted Exceptions. Additionally, if Purchaser does not timely object to any matters appearing in the Commitments or on the surveys, such matters shall be deemed Permitted Exceptions. If Purchaser elects to terminate this Agreement pursuant to (i) above, the Deposit shall be returned to Purchaser and neither party shall have any further rights or obligations hereunder, except for those that expressly survive termination of this Agreement. If there are any liens or encumbrances against the Real Properties securing liquidated amounts (other than the First Mortgage Loans) and which arose through Sellers, Sellers shall pay and discharge the same at or before Closing. Purchaser shall have the right to update the Commitments and/or the surveys at any time after the end of the Inspection Period, and Purchaser shall have the right to object to any matters that appear in the Commitments or on the surveys that did not previously appear in the Commitments or on the surveys. Any such new objections shall be deemed Title and Survey Objections and shall be treated in the same manner as Purchaser’s original Title and Survey Objections.

7.Intentionally Deleted.

8.Loan Assumption Process.Sellers shall obtain for Purchaser all necessary applications and materials from the Servicer for Purchaser to make application to the Servicer for the assumption of the First Mortgage Loans. Provided that the same are timely delivered to Purchaser, on or before the commencement of the Assumption Period, Purchaser shall, to the extent it has not theretofore terminated this Agreement, complete and submit the same to the Servicer. In the event that Purchaser shall have timely notified Sellers of its satisfaction or waiver with the Physical/Financial Review Condition, then, during the Assumption Period, Purchaser will use good faith efforts, in cooperation with Sellers who shall likewise use good faith efforts, to obtain the written approval of the Servicer necessary to satisfy the Loan Assumption Condition. To the extent that the Servicer shall only agree to issue its approval to such assumption on the condition that various terms and conditions in the documents evidencing and securing the First Mortgage Loans be modified, then, Purchaser shall have the right to accept or reject such approval in its reasonable discretion. In the event such approval is not obtained on or prior to the conclusion of the Assumption Period, as the same may be extended as provided above, then, thereafter, until such approval is so obtained, either party shall have the right, on notice to the other, to terminate this Agreement, in which event the Deposit shall be returned to Purchaser and neither party shall thereafter have any further liability or obligation hereunder, except for those that expressly survive termination of this Agreement. In the event that in connection with the approval by the Servicer of the assumption of the First Mortgage Loans by Purchaser, the Servicer requires Purchaser to assume all obligations of the loan and security documents evidencing and securing the First Mortgage Loan from its inception, as distinguished from such obligations accruing from and after Closing, then, Sellers and their affiliate __________________________ [INSERT NAME OF COLLECTIBLE ENTITY OR PERSON AFFILIATED WITH SELLER] shall, at Closing, in an indemnity agreement reasonably acceptable to Purchaser, indemnify, defend and hold harmless Purchaser and its affiliate that shall guaranty any non-recourse carve outs of and from any such obligations under such loan and security documents accruing prior to Closing.

4. Current Operations; covenants

1.Leasing.From the Effective Date until the end of the Inspection Period, Sellers may enter into, amend, modify and/or terminate any Lease, provided that Sellers promptly deliver a copy of any new Lease, amendment to or modification of any Lease or any termination of a Lease to Purchaser, provided that if Sellers deliver a new Lease, amendment to or modification of any Lease or termination of a Lease to Purchaser within three (3) business days before the end of the Inspection Period, then the Inspection Period shall be extended for three (3) business days to permit Purchaser sufficient time to evaluate such new Lease, amendment to or modification of any Lease or termination of a Lease. From the end of the Inspection Period until the Closing or earlier termination of this Agreement Sellers shall not (i) enter into, modify, or terminate any lease, agreement and/or contract affecting the Properties, or (ii) permit any Lease to terminate or be terminated, without Purchaser’s consent, which consent shall not be unreasonably withheld or delayed. No rents or deposits with respect to the Properties on the Closing date will be held by Sellers, except security deposits and prepaid rents for the current month. Sellers represent and warrant that, as of the Closing Date, except for commissions that may be due in connection with renewals of the Leases after the Closing Date, no commissions or other fees will be payable to any person or entity on the rentals collected or to be collected under the Leases.

2.Operations.Subject to Sellers’ rights in Section 4.1 above, from the Effective Date until the Closing or earlier termination of this Agreement, Sellers shall conduct the business of the Properties in the ordinary course, and will not: (i) transfer or convey the Properties or any interest in Sellers, or enter into any agreement to do so; (ii) create or agree to any easements, liens, mortgages, encumbrances or other interests that would affect the Properties after the Closing or Sellers’ ability to comply with this Agreement; (iii) enter into any contracts or commitments regarding the Properties that would survive the Closing; (iv) fail to maintain and repair the Properties in at least the manner that Sellers have done previously; (v) change Sellers’ existing policies of public liability and hazard and extended coverage insurance insuring the Properties; and/or (vi) terminate any tax appeals, condemnation awards proceedings, insurance settlement negotiations or proceedings, zoning changes, public roadway and/or traffic realignment negotiations with public authorities or the like, and/or storm water management agreements, and the like benefiting the Properties.

3.Current Communications.Sellers shall promptly deliver to Purchaser copies of any written communications (including e-mails, letters, invoices and the like) sent by Sellers to, or received by Sellers from, any tenants of the Properties or service or materials providers to the Properties sent or received from and after the Effective Date up through the Closing.

4.First Mortgage Loans.Sellers will notify Purchaser, within one business day after receipt, of any notice of default received by Sellers under any of the documents evidencing and securing the First Mortgage Loan or of any act or omission of which it becomes aware that would be a default with the receipt of notice or the passage of time under such documents. During the pendency of this Agreement, Sellers shall timely comply with and perform each and every one of its obligations under the documents evidencing and securing the First Mortgage Loan.

5. Closing

1.Condition to Closing. The Closing shall occur on the date set for Closing in Section 1.2 above. The Closing shall occur through the offices of the Title Company in its capacity as escrow agent. Notwithstanding anything herein contained to the contrary, in the event that there has been any Material Adverse Change during the period between the date Purchaser notified Sellers of its satisfaction with the Physical/Financial Review Condition and the date of Closing, and/or in the event that any of the other Conditions shall not have been satisfied or deemed satisfied on or before the earlier to occur of (i) the date upon which any such Conditions are required to have been satisfied pursuant to the terms of this Agreement or (ii) the Closing, Purchaser shall have the right, upon notice thereof to Sellers on or prior to Closing, to terminate this Agreement and thereupon to receive an immediate refund of the Deposit and neither party shall thereafter have any further liability or obligation hereunder except for such liabilities and obligations that are expressly stated herein to survive termination of this Agreement.

2.Purchaser’s Deliveries. At the Closing, Purchaser shall:

(i)Cause to be delivered to Sellers, via federal wire transfer of funds the Purchase Price, as adjusted by the adjustments set forth below.

(ii)Execute and deliver to Sellers the assignments of leases and other occupancy agreements in the form of Exhibit 5.3(ii) attached hereto and incorporated herein by reference.

(iii)Execute and deliver to Servicer the loan assumption documentation to evidence Purchaser’s assumption of the First Mortgage Loans on and subject to the terms and conditions hereof.

(iv)Execute and deliver to Sellers a so-called “bring down” certificate advancing the effective date of the representations made by Purchaser herein.

3.    Sellers’ Deliveries. At the Closing (or as otherwise indicated below), Sellers shall execute and/or deliver to Purchaser, the Title Company and Servicer, as applicable, the following:

(i)Deeds to the Real Properties in the form of Exhibit 5.3(i) attached hereto and incorporated herein by reference, each being subject only to the Permitted Exceptions applicable to the respective Real Property, and any required real estate transfer tax/documentary/deed tax affidavits and applications and the like, conveying title to the Real Properties to Purchaser based on the legal descriptions attached hereto as Exhibits A-1 and A-2.

(ii)    Quitclaim deeds, if requested by Purchaser and in the event that the surveyed legal descriptions of the respective Real Properties differ from the legal descriptions that vested title to the Real Properties in Sellers, quitclaiming title to the Real Properties to Purchaser based on the respective surveyed legal descriptions of the Real Properties;

(iii)    Assignments of leases and other occupancy agreements as to both of the Real Properties in the form of the same set forth on Exhibit 5.3(ii) attached hereto and incorporated herein by reference.

(iv)    Bills of sale and assignment, in for the form Exhibit 5.3(iii) hereto.

(v)In the event that Sellers shall have been unable to satisfy the Estoppel Condition on account of a failure to deliver the Required Tenant Estoppels, but Purchaser nevertheless has elected to close the transaction contemplated hereby and waive such failure, then, at Closing, Sellers shall deliver a so-called “Seller Estoppel” as to each of the Leases for which no such estoppel letter has been obtained as of the Closing, until Seller has delivered a combination of tenant estoppel letters and Seller Estoppels equal to the percentage of Required Tenant Estoppels. Each such “Seller Estoppel” shall be executed by Sellers and be in the same form as the estoppel letter form to be delivered by Purchaser to Sellers hereunder with the applicable lease information completed therein, subject to any changes necessary to make any Seller Estoppel factually accurate. Each such “Seller Estoppel” shall survive Closing until Purchaser receives an actual estoppel letter from the applicable tenant.

(vi)Certified Rent Rolls as of the Closing Date.

(vii)So-called “bring down” certificates advancing the effective date of the Representations to be as of the Closing Date, same to be in the form of Exhibit 5.3(vi) attached hereto, subject to such changes in facts and circumstances as necessary to cause the Representations to be true and correct as of the Closing Date.

(viii)Non-foreign person affidavits in the form of Exhibit 5.3(vii) attached hereto.

(ix)Evidence that all Contracts have been terminated as of the Closing.

(x)Exclusive possession of the Properties to Purchaser, subject only to the Permitted Exceptions applicable to each and to possessory interest of the tenants under the Leases.

(xi)On or before one (1) business day after Closing, Sellers shall deliver to Purchaser’s offices at 11501 Northlake Drive, Cincinnati, Ohio 45249, Attention Director of Lease Administration, all original Leases, lease files, correspondence files and other books and records, keys to all leased premises, security codes, if any, and maintenance agreements (e.g., HVAC maintenance agreement) relating solely to the Properties in Sellers’ and/or their property and/or asset manager’s possession.

(xii)All existing plans and specifications in Sellers’ possession or control relating to the improvements located upon the Real Properties; all licenses and certificates of occupancy or such other comparable certificates or documents issued by the appropriate governmental authorities with respect to the Real Properties or any part thereof.

(xiii)Notices to all tenants of the Real Properties of the change of ownership of the Properties and directing that rental and all other payments to be made by such tenants under their Leases shall thereafter be paid to Purchaser at an address to be designated by Purchaser in such notices, the same to be in form of Exhibit 5.3(xii) hereto.

(xiv)The loan assumption documentation evidencing the sale of the Properties subject to the First Mortgage Loans, such documentation to be on and subject to the terms and conditions hereof.

4.    Closing Statement.At and upon Closing, Sellers and Purchaser shall execute and deliver to each other a closing statement showing the amounts by which the Purchase Price shall have been adjusted, such adjustments to be made as of the date of Closing, as follows:

(i)    Purchaser shall receive a credit against the Purchase Price in the amount of the First Mortgage Loans balances as of Closing (including all principal and all interest then accrued and due and owing). All escrows and reserves being held by the Servicer or any other party on behalf of the Lender under the loan documents evidencing the First Mortgage Loans shall either be assigned by Sellers to Purchaser at Closing in which case the same shall be a credit to Sellers or the same shall be disbursed to Sellers and Purchaser shall separately fund such reserves as required under the loan assumption documentation to evidence Purchaser’s assumption of the First Mortgage Loans.

(ii)    Taxes and assessments, special and otherwise, which are liens against the Real Properties and which are due and payable as of the date of Closing shall be paid (or caused to be paid) by Sellers at or prior to Closing. All other monetary liens which encumber the Real Properties through Sellers as of Closing shall be the sole responsibility of Sellers; provided, that, Purchaser may, at its option, pay any such liens and receive full credit against the Purchase Price.

(iii)    Current real estate taxes and assessments not reimbursable by tenants under the Leases shall be prorated between the parties based on local custom used for prorating real estate taxes and assessments in commercial transactions in the state in which the Real Properties are located.

Reimbursements received following tax appeals by Sellers or Purchaser of amounts paid for current real estate taxes shall be prorated between the parties based on local custom used for prorating real estate taxes in commercial transactions in the state in which the Real Properties are located.

(iv)    Purchaser shall pay the grantor’s deed transfer or recording tax and the grantee’s deed transfer or recording tax. Purchaser shall pay the premium for the owner’s policies of title insurance to be issued to Purchaser as called for hereunder, other than endorsements required to cure any Title and Survey Objection which Sellers have expressly agreed to remedy and for which Sellers shall pay such premium. Escrow and closing costs, if any, charged by the Title Company shall be split equally between Purchaser and Sellers.

(v)    Sellers shall deliver to Purchaser (or Purchaser shall receive a credit against the Purchase Price in the amount of) all unapplied security deposits provided for under the Leases (including all interest earned thereon if required by applicable laws).

(vi)    Sellers shall pay all water, sewer, and utility charges, common area maintenance charges, and other operating expenditures through Closing, and receive a credit for such charges applicable to periods after the Closing. If final readings have not been taken, estimated charges based on the most recent statements received shall be prorated between the parties, and post‑closing adjustments shall be made when the actual billings are received or an escrow shall be established to provide for payment of utility and other maintenance payables.

(vii)    Tenant rentals received by Sellers prior to Closing shall be prorated between the parties with rentals from and after the date of Closing allocated to Purchaser. If and when Purchaser receives any past due rents or other charges owing with respect to periods before the Closing Date, Purchaser shall be entitled to apply such sums to current rent and other charges (but not for periods more than thirty [30] days in advance), and shall promptly remit any excess sums allocable to periods prior to the date of Closing to Sellers. Purchaser shall have no obligation to pursue collection of any delinquent amounts owing as of Closing to Sellers from any of the tenants of the Real Properties, provided that for a period of 90 days after the Closing Date, Purchaser shall send delinquency notices to any tenants who owe rent for periods before the Closing Date. Sellers shall not disturb any tenant’s tenancy interest in the Real Properties in the event Sellers elect to pursue subsequent to Closing collection of any such delinquent amounts owed to Sellers from one or more tenants.

(viii)    Percentage rents, if any, required to be paid by tenants under the Leases shall be separately apportioned based on the percentage rents actually collected by Sellers. Such apportionment shall be made separately for each tenant who is obligated to pay percentage rent on the basis of the fiscal year set forth in the tenant’s Lease for the determination and payment of percentage rent. Any percentage rent received from a tenant after the Closing shall be applied as follows: (a) Purchaser shall be entitled to a prorata portion of such percentage rent payment based on the number of days within the applicable percentage rent fiscal year period that Purchaser owned the Properties and (b) Sellers shall be entitled to a prorata portion of such percentage rent payment based on the number of days within the applicable percentage rent period that Sellers owned the Properties.

(ix)    If any tenants under the Leases are required to pay and/or reimburse the landlord for a portion of operating and maintenance costs (including insurance and utilities) applicable to the Properties and taxes applicable to the Real Properties (collectively, “Charges”), with an adjustment at the end of each fiscal year applicable to Charges, they shall be prorated in accordance with this

Section 5.4(ix). Until the adjustment described in this Section is made, all amounts received by Sellers as interim payments of Charges before the Closing Date shall be retained by Sellers, except that all interim payments received by either party for the month in which the Closing Date occurs shall be prorated as between Sellers and Purchaser based upon the number of days in that month and the party receiving the interim payment shall remit to (if received on or after the Closing Date) or credit (if received before the Closing Date) the other party its proportionate share. All amounts received by Purchaser as interim payments of Charges on or after the Closing Date shall be retained by Purchaser until year-end adjustment and determination of Sellers’ allocable share thereof except to the extent provided otherwise in this Section. No later than April 30, 2015 (the “Final Adjustment Date”), Sellers’ allocable share of actual Charges for Leases in effect as of the Closing Date shall be determined by multiplying the total payments due from each tenant for such fiscal year (the sum of estimated payments plus or minus year-end adjustments) by a fraction, the numerator of which is Sellers’ actual cost of providing common area maintenance services and taxes (as the case may be) prior to the Closing Date (within that portion of the fiscal year prior to the Closing Date in which the applicable Lease is in effect), and the denominator of which is the cost of providing such services and paying such taxes for the entire fiscal year (or that portion of the fiscal year in which the applicable Lease is in effect). If, on the basis of amounts actually incurred and the estimated payments received by Sellers, Sellers have retained amounts in excess of their allocable share, they shall remit, within thirty (30) days after notice from Purchaser of the excess owed Purchaser, such excess to Purchaser. If, on the basis of the foregoing amounts, Sellers have retained less than their allocable share (the “Sellers’ Shortfall”), Purchaser shall use reasonable efforts for a period of ninety (90) days after the Final Adjustment Date to collect the Sellers’ Shortfall from the tenants of the Properties and, to the extent collected by Purchaser, Purchaser shall promptly remit the Sellers’ Shortfall, net of reasonable costs of collection, including without limitation, reasonable attorneys’ fees, to Sellers. Purchaser shall not be obligated to expend any funds or commence legal proceedings to collect any Sellers’ Shortfall. In no event shall Sellers commence any legal proceedings against any tenant after the Closing with respect to any Sellers’ Shortfall. In the event there is a dispute with any tenant relating to Charges billed by Sellers relating to the period prior to the Closing Date, Sellers shall be responsible for resolving such dispute with such tenant and, if it is determined that credits are due to such tenant with respect to such charges, Sellers shall remit such amount either to Purchaser or directly to the tenant within thirty (30) days after determination thereof (unless a shorter period is required under the applicable Lease). In the event there is a dispute with any tenant relating to Charges billed by Purchaser relating to the period after the Closing Date, Purchaser shall be responsible for resolving such dispute with such tenant and, if it is determined that credits are due to such tenant with respect to such charges, Purchaser shall remit such amount to the tenant within thirty (30) days after determination thereof. Notwithstanding anything to the contrary provided in this Section, Sellers shall be entitled to receive and retain all reconciliation payments made by tenants with respect to Charges for the calendar years preceding the calendar year of Closing, and shall be responsible for any amounts owed to tenants in connection with the final reconciliation of Charges for such prior calendar years. If any such reconciliation payment with respect to Charges for a calendar year preceding the year in which the Closing occurs is received by Purchaser after the Closing, Purchaser shall remit such payment to Sellers promptly upon receipt. If any tenant which is owed a refund with respect to Charges for a calendar year preceding the calendar year of Closing deducts or sets off such amount against rents or other charges owed by such tenant after the Closing, Sellers shall remit such amount to Purchaser within thirty (30) days following the occurrence of such set off or deduction.

(x)    No later than the Final Adjustment Date, Sellers and Purchaser shall make a final adjustment in accordance with the provisions of this Section 5.4 of percentage rent and Charges for which final adjustments or prorations could not be determined at the Closing, if any, because of the

lack of actual statements, bills or invoices for the current period, the year-end adjustment of Charges, the unavailability of final sales figures or amounts for percentage rent or any other reason. Except to the extent otherwise provided in Section 5.4(ix), any net adjustment in favor of Purchaser or Sellers is to be paid in cash by the other no later than thirty (30) days after such final adjustment has been made.

(xi)    A per diem amount for adjusting the Purchase Price shall appear on the Closing Statement to compensate Sellers (to the extent such amount is greater than zero) in the event of the failure of the closing proceeds to be forwarded to Sellers prior to the conclusion of Closing through no fault of Purchaser. Such per diem amount shall be the difference between the gross rental income from the Properties for the day of Closing and the aggregate non-tenant reimbursed Charges for the day of Closing. To the extent such per diem amount is greater than zero, the product of the same and the number of days after the day scheduled for Closing which shall have elapsed between such day scheduled for Closing and the day of the disbursement of the closing proceeds to Sellers shall be paid to Sellers in addition to such other sums due hereunder.

6. Representations and Warranties

Sellers represent and warrant to Purchaser as follows as of the Effective Date:

6.1Financial Statements. The operating budget, operating statements, general ledgers, capital budgets, reconciliation statements and all other financial statements delivered or to be delivered or made available for review and copying by Sellers to Purchaser which were prepared by Sellers as distinguished from any of the same prepared by third parties, are true, accurate and complete in all material respects. All of such budgets, statements, ledgers and reconciliations prepared by third parties, to Sellers’ knowledge (i) are true, accurate and complete in all material respects and (ii) have been prepared on a tax adjusted basis.

6.2Contracts. The Contracts are the only agreements, contracts, and/or understandings relating to the operation and maintenance of the Real Properties and Sellers have not contracted for any services or employment which will bind Purchaser as a successor in interest with respect to the Real Properties and all of the Contracts are terminable by Sellers prior to Closing.

6.3Rent Roll. The Rent Rolls are materially true and correct.

6.4Concessions and Commissions. No tenants of the Real Properties are entitled to any concessions, rebates, allowances, or free rent for any period after the Closing and none of the Leases or other instruments that will be assigned to Purchaser at Closing provide for commissions payable by the owner of the Properties that have not yet been paid by Sellers, except with respect to any renewals of the Leases.

6.5Leases. The Leases delivered to Purchaser by Sellers with Sellers’ Due Diligence Documents (or prior thereto) are all of the lease documents and/or occupancy agreements with respect to the Real Properties and are true, accurate and complete copies of the Leases and there are no oral understandings or side agreements with any tenant of the Real Properties that has not been reduced to a writing and which is not set forth among the Leases.

6.6Violation Notices. Sellers have not received any written notice of (i) any violation by Sellers of any laws, zoning ordinances or building rules or regulations affecting the Properties, or (ii) any existing or threatened condemnation or other legal action of any kind involving the Real Properties.

6.7Current Licenses. To Sellers’ knowledge, Sellers presently have, and on the Closing Date, will have all current licenses (including final certificates of occupancy) to operate the Properties as shopping centers required by all governmental authorities asserting jurisdiction over the Properties.

6.8Intentionally Deleted.

6.9Environmental Matters. To Sellers’ knowledge, except as set forth in the environmental reports for the Properties delivered to Purchaser prior to the Effective Date, there are no petroleum, petroleum derived products and/or hazardous waste or hazardous substance and/or toxic waste or toxic substance, as such terms are defined in the Resource Conservation and Recovery Act of 1976, 42 USC 6901 et seq., as amended, the Comprehensive Environmental Response Compensation and Liability Act of 1980, 42 USC 9601 et seq., or the Superfund Amendments and Reauthorization Act, Public Law 99‑499, as amended, or any other applicable federal, state or local environmental law, regulation, code or ordinance (collectively, “Environmental Laws”) present on the Properties in violation of Environmental Laws.

6.10Employees. Sellers have no employees at the Real Properties and are not parties to any collective bargaining agreement, and neither Sellers nor any of their affiliates (as described in Section 414(b), (c) and (m) of the Internal Revenue Code) has incurred any liability which could subject Purchaser or any asset to be acquired by Purchaser pursuant to this Agreement to any lien or material liability under Sections 302(f), 4062, 4063, 4064, 4201 or 4301(b) of the Employee Retirement Income Security Act of 1974, as amended, or Section 401(a) (29) or 412 of the Internal Revenue Code.

6.11Authority. Subject to all matters of record, Sellers are the sole owners of the Properties and, subject to satisfaction of the Loan Assumption Condition, Sellers have the right to execute this Agreement and to sell the Properties without obtaining the consent, approval, release, or signature of any other party. The signatories hereto on behalf of Sellers have been duly authorized to execute and deliver this Agreement and to bind Sellers hereto. Sellers have full power to consummate the transaction described in this Agreement, the execution and delivery of this Agreement by Sellers and the consummation by Sellers of the transaction described herein has been duly and validly authorized by all necessary action and the observance of all required formalities on the part of Sellers such that this Agreement constitutes a valid and legally binding obligation of Sellers, enforceable against Sellers in accordance with its terms. Neither the execution and delivery of this Agreement nor the consummation by Sellers of the transaction contemplated hereby will (i) subject to satisfaction of the Loan Assumption Condition, conflict with or result in a breach of or default under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which Sellers are parties or by which they or the Properties are bound, or (ii) violate any order, injunction, decree, statute, rule or regulation applicable to Sellers or the Properties.

6.11Occupancy.Sellers have no knowledge that any Major Tenant intends to cease operations from the Real Properties or that it intends to file for bankruptcy protection from its creditors. To the extent Sellers obtain such knowledge during the term of this Agreement prior to Closing, Sellers shall promptly inform Purchaser of the same, failing of which, the same shall be deemed a breach of the representations and warranties contained in this Section 6.11 and a default under this Agreement.

6.12Patriot Act.Neither Sellers nor any person, group, entity or nation for which Sellers are acting, directly or indirectly, is named by any Executive Order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism) or the United States Treasury Department as a terrorist, “Specially Designated National and Blocked Person,” or is otherwise a banned or blocked person, group, entity, or nation pursuant to any Law that is enforced or administered by the Office of Foreign Assets Control, and Sellers are not engaging in the transaction contemplated hereby, directly or indirectly, on behalf of, or instigating or facilitating the

same, directly or indirectly, on behalf of, any such person, group, entity or nation. Sellers are not engaging in such transaction, directly or indirectly, in violation of any Laws relating to drug trafficking, money laundering or predicate crimes to money laundering. The investment of direct or indirect equity owners in Sellers is not prohibited by applicable law and neither the transaction contemplated hereby nor this Agreement is or will be in violation of applicable law. Sellers have and will continue to implement procedures, and have consistently and will continue consistently apply those procedures, to ensure the representations and warranties contained in this Section 6.12 remain true and correct at all times prior to Closing.

6.13    First Mortgage Loans.The First Mortgage Loans are in full force and effect. Sellers have not previously and are not now in default under any of the documents evidencing and securing the First Mortgage Loans. Sellers have not received any notice of default from the Servicer or any other party charged with administering the First Mortgage Loans on behalf of the Lender. There has been no act or omission on the part of Sellers or any affiliate which is a party to any of such documents evidencing and securing the First Mortgage Loans which, with the giving of notice or the passage of time or both, would constitute a default by Sellers or any such affiliate thereunder.

For the purposes of this Section 6 and other provisions of this Agreement, the phrase “to Sellers’ knowledge” and similar phrases shall mean the current actual knowledge of Stephen Swartz and Roland Guyot, without any duty to investigate. There shall be no personal liability on the part of the individuals named above arising out of any representations or warranties made herein or otherwise.

Purchaser represents and warrants to Sellers as follows as of the Effective Date and as of Closing:

6.14     Authority. Purchaser has the right to execute this Agreement and, subject to satisfaction of the Loan Assumption Condition, to acquire the Properties without obtaining the consent, approval, release, or signature of any other party. The signatories hereto on behalf of Purchaser have been duly authorized to execute and deliver this Agreement and to bind Purchaser hereto. Purchaser has full power to consummate the transaction described in this Agreement, the execution and delivery of this Agreement by Purchaser and the consummation by Purchaser of the transaction described herein has been duly and validly authorized by all necessary action and the observance of all required formalities on the part of Purchaser such that this Agreement constitutes a valid and legally binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms. Neither the execution and delivery of this Agreement nor the consummation by Purchaser of the transaction contemplated hereby will (i) conflict with or result in a breach of or default under any of the terms, conditions or provisions of any agreement or other instrument or obligation to which Purchaser is a party or by which Purchaser is bound, or (ii) violate any order, injunction, decree, statute, rule or regulation applicable to Purchaser.

6.15    Patriot Act. Neither Purchaser nor to Purchaser’s knowledge, any person, group, entity or nation for which Purchaser is acting, directly or indirectly, is named by any Executive Order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism) or the United States Treasury Department as a terrorist, “Specially Designated National and Blocked Person,” or is otherwise a banned or blocked person, group, entity, or nation pursuant to any Law that is enforced or administered by the Office of Foreign Assets Control, and Purchaser is not engaging in the transaction contemplated hereby, directly or indirectly, on behalf of, or instigating or facilitating the same, directly or indirectly, on behalf of, any such person, group, entity or nation. Purchaser is not engaging in such transaction, directly or indirectly, in violation of any Laws relating to drug trafficking, money laundering or predicate crimes to money laundering. The investment of direct or indirect equity owners in Purchaser is not prohibited by applicable law and neither the transaction contemplated hereby nor this Agreement is or will be in violation of applicable law. Purchaser has and will

continue to implement procedures, and have consistently and will continue consistently apply those procedures, to ensure the representations and warranties contained in this Section 6.16 remain true and correct at all times prior to Closing. Purchaser’s knowledge as it relates to its investors is based on information provided by its U.S. broker dealer network in connection with the normal and customary investor screening practices used by its U.S. broker dealer network. Purchaser has and will continue to rely exclusively on its U.S. broker dealer network to implement the normal and customary investor screening practices mandated by applicable law and Financial Industry Regulatory Authority, Inc.

6.16    Litigation. Purchaser has received no written notice that any action or proceeding is pending or threatened, which questions the validity of this Agreement or any action taken or to be taken pursuant hereto.

6.17    No Bankruptcy. Purchaser has not made a general assignment for the benefit of creditors, filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by Purchaser’s creditors, suffered the appointment of a receiver to take possession of any of Purchaser’s assets, suffered the attachment or other judicial seizure of any of Purchaser’s assets, admitted in writing its inability to pay its debts as they come due or made an offer of settlement, extension or composition to its creditors generally.

The representations and warranties made by Purchaser in this Section 6 shall be continuing and shall be deemed remade by Purchaser as of the Closing Date, with the same force and effect as if made on, and as of the Closing Date, subject to changes in facts or circumstances beyond Purchaser’s control that cause the representation and warranty contained in Section 6.16 above to be untrue. In the event that any representation or warranty made by Purchaser herein is untrue as of the Closing Date, Sellers shall have the right to terminate this Agreement by delivering written notice to Purchaser. If any representation or warranty made by Purchaser in this Section 6 is untrue as of the Closing Date, Purchaser shall be deemed in default of this Agreement, except with respect to a change in facts or circumstances beyond Purchaser’s control that causes the representation and warranty contained in Section 6.16 above to be untrue. Purchaser’s representations and warranties in this Section 6 shall survive the Closing.

7. “As Is” Purchase

Except as expressly provided herein, in the event of Closing, Purchaser shall accept the Properties in their then “as-is, where-is” physical condition with “all faults” and Purchaser shall be deemed to have released, discharged and acquitted Sellers from any and all claims or causes of action relating to the Properties, including such physical condition, whenever discovered. Except as otherwise expressly provided in this Agreement or in any documents to be executed and delivered by Sellers at the Closing, Sellers have not made, and Purchaser has not relied on, any information, promise, representation or warranty, express or implied, regarding the Properties, whether made by Sellers, on behalf of Sellers, or otherwise, including, without limitation, the physical condition of the Properties, the financial condition of the tenants under the Leases, title to or the boundaries of the Properties, pest control matters, soil conditions, the presence, existence or absence of hazardous wastes, toxic substances or other environmental matters, compliance with building, health, safety, land use and zoning laws, regulations and orders, structural and other engineering characteristics, traffic patterns, market data, economic conditions or projections, past or future economic performance of the tenants or the Properties, and any other information pertaining to the Properties or the market and physical environments in which the Properties are located. Purchaser acknowledges (i) that Purchaser has entered into this Agreement with the intention of making and relying upon its own investigation or that of Purchaser’s own consultants and representatives with respect to the physical, environmental, economic and legal condition of the Properties and (ii) that Purchaser is not relying upon any statements, representations or warranties of any kind, other than those specifically set forth in this Agreement or in any document to be executed and delivered by Sellers to Purchaser at the Closing, made (or purported to be made)

by Sellers or anyone acting or claiming to act on behalf of Sellers. The provisions of this Section7shall survive the Closing.

8. No Assumption of Liabilities

The parties acknowledge that the purchase and sale of the Properties involves only the purchase and sale of the Properties and that Sellers are not selling a business nor do the parties intend that Purchaser be deemed a successor of Sellers with respect to any liabilities of Sellers to any third parties other than the tenants under the Leases. Accordingly, Purchaser shall neither assume nor be liable for the Seller Debts or any of the debts, liabilities, taxes or obligations of, or claims against any other person or entity, of any kind or nature, whether existing now, upon Closing or at any time thereafter, which shall be solely those of Sellers, and Sellers hereby agree to indemnify, defend and hold harmless Purchaser against any loss, cost, liability, damage or expense with respect thereto.

9. Default

1.Purchaser Default.If Purchaser defaults in the performance of any of its obligations and/or covenants hereunder for in excess of ten (10) days (such cure period shall not apply to Purchaser’s obligation to close the transaction contemplated in this Agreement on the Closing Date) after written notice thereof to Purchaser, provided that Sellers are not then in default hereunder, Sellers’ sole and exclusive remedy shall be to terminate this Agreement on notice thereof to Purchaser, in which event the Deposit shall be delivered to Sellers as liquidated damages. However, Sellers may not enforce such remedy against Purchaser (i) if either of the Sellers is in default under this Agreement, or (ii) unless Purchaser fails to cure such default within ten (10) days after receipt of written notice from Sellers specifying that Purchaser is in default. THE AMOUNT PAID TO AND RETAINED BY SELLERS AS LIQUIDATED DAMAGES PURSUANT TO THE FOREGOING PROVISIONS SHALL BE SELLERS’ SOLE AND EXCLUSIVE REMEDY IF PURCHASER FAILS TO CLOSE THE PURCHASE OF THE PROPERTY. THE PARTIES HERETO EXPRESSLY AGREE AND ACKNOWLEDGE THAT SELLERS’ ACTUAL DAMAGES IN THE EVENT OF A DEFAULT BY PURCHASER WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO ASCERTAIN AND THAT THE AMOUNT OF THE DEPOSIT PLUS ANY INTEREST ACCRUED THEREON REPRESENTS THE PARTIES’ REASONABLE ESTIMATE OF SUCH DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION 9.1, SELLERs AND PURCHASER AGREE THAT THIS LIQUIDATED DAMAGES PROVISION IS NOT INTENDED AND SHOULD NOT BE DEEMED OR CONSTRUED TO LIMIT IN ANY WAY PURCHASER’S INDEMNITY OBLIGATIONS UNDER THIS AGREEMENT.

2.Sellers’ Default.If either of the Sellers default in the performance of any of its obligations and/or covenants hereunder prior to Closing for in excess of ten (10) days after written notice thereof to Sellers, provided that Purchaser is not then in default hereunder, Purchaser’s remedy on account thereof shall be either (i) the termination of this Agreement upon written notice thereof to Sellers, in which case the Deposit shall be promptly refunded to Purchaser and neither party shall thereafter have any further liability or obligation hereunder, except for those that expressly survive termination of this Agreement, and Sellers shall reimburse Purchaser for Purchaser’s actual, documented out-of-pocket expenses incurred in connection with this Agreement, up to $50,000.00, or (ii) Purchaser may seek the specific performance of Sellers’ obligations under this Agreement from a court of competent jurisdiction. To the extent any such default involves a default of such a nature that Purchaser shall be precluded from obtaining specific performance (e.g., Sellers convey the Properties to a bona fide third party who takes without knowledge of this Agreement), then, in the event of termination of this Agreement by Purchaser, in addition to the return of the Deposit to Purchaser, Purchaser may pursue an action for damages against Sellers, provided that Sellers’ maximum liability in any such action shall be $250,000.00.

3.Breach of Representations.Sellers shall indemnify, defend and hold harmless Purchaser of and from any and all losses, costs, liabilities, damages and expenses, including attorneys’ fees and costs,

incurred by Purchaser on account of the breach by Sellers of any one or more of the Representations, provided that (i) the breach thereof was not due to a change in facts or circumstances beyond the control of Sellers, (ii) the breach thereof is first discovered subsequent to Closing, (iii) the claim thereon is asserted by Purchaser to Sellers on or before the date one hundred eighty (180) days after Closing, (iv) the amount of any such loss, cost, liability, damage and expense suffered by Purchaser shall exceed the sum of $10,000.00, and (iv) in no event shall the amount of any such loss, cost, liability, damage and expense for which Sellers shall be liable under this indemnification exceed the sum of $400,000.00 in the aggregate. Sellers further represent and warrant that they have informed their members of the provision of this Section 9.3. This Section 9.3 shall survive Closing.

10. Casualty

If any improvements on the Real Properties are damaged or destroyed by fire, storm or other casualty on or before Closing and/or there has been a Material Adverse Change on or prior to Closing to such an extent that one or more tenants shall have the right to terminate their Leases, then, anything herein contained to the contrary, Purchaser may terminate this Agreement within fifteen (15) days after receiving notice of such casualty or Material Adverse Change upon notice to Sellers, in which event (i) this Agreement shall be of no further force or effect, (ii) the Deposit shall be returned to Purchaser, and (iii) neither party shall have any further liability or obligation hereunder, except for those that expressly survive termination of this Agreement. If any improvements on the Real Properties are damaged but such damage does not, pursuant to this Section, give Purchaser the right to terminate this Agreement, or if Purchaser has the right to terminate but elects not to do so, then, at Closing, Purchaser shall be entitled to receive an absolute assignment from Sellers of Sellers’ interest in the proceeds of any insurance on the Real Properties (including any rent loss insurance allocable to the period from and after Closing) and Sellers shall pay or credit to Purchaser the amount of any deductible.

11. Condemnation

If notice of any action, suit or proceeding shall be given prior to Closing for the purpose of condemning any part of the Real Properties, and as a result thereof any of the tenants of the Real Properties have the right to terminate their Leases, and/or any action, suit or proceeding shall be given prior to Closing for the purpose of condemning any portion of the parking areas of the Real Properties, and/or in the event that any of the vehicular access points into the Real Properties shall be impeded in any material way either through the condemnation (or the tendering of a deed in lieu thereof) of any such access points or through the closure or material reduction in the utility of any of the roadways adjoining the Real Properties or in proximity to the Real Properties (e.g., the reduction of the number of lanes within a roadway servicing the Real Properties or the actual closure of any such roadway), then Purchaser may terminate this Agreement within fifteen (15) days after receiving notice of such casualty upon notice to Sellers, in which event (i) this Agreement shall be of no further force or effect, (ii) the Deposit shall be returned to Purchaser, and (iii) neither party shall have any further liability or obligation hereunder, except for those that expressly survive termination of this Agreement; but if Purchaser does not elect to terminate this Agreement, then in the event of Closing, the proceeds of such condemnation shall be assigned to and shall belong to Purchaser.

12. Broker

Each party represents and warrants to the other that they have not dealt with a real estate broker or finder in connection with the purchase and sale of the Properties. Purchaser shall indemnify Sellers against any liability for brokerage commissions, finders’ fees or the like (collectively, “Commissions”) arising from the purchase of the Properties that may be claimed by any party alleging to have been retained or utilized by Purchaser. Sellers shall indemnify Purchaser against any liability for Commissions arising in connection with the sale of the Properties which may be claimed by any party alleging to have been retained or utilized by Sellers. The terms of this Section 12 shall survive the Closing.

13. Notices

Notices shall be deemed given hereunder upon personal delivery, upon depositing any such notice with postage prepaid in a United States mailbox if sent via certified mail, return receipt requested, upon depositing any such notice in the custody of a nationally recognized overnight delivery service or upon telecopy or electronic mail if a copy thereof is simultaneously sent via one of the other methods of delivery (provided that, for purposes of the notices called for hereunder with respect to entry upon the Real Properties and/or inspection of Sellers’ books and records referred to in Section 3 above, no such additional copy need be provided by one of such other methods of delivery). Notices may be given by and/or to counsel for the parties. Notices shall be deemed properly addressed if sent to the following addresses:

If to Sellers:	Staunton Plaza, LLC/Waynesboro Plaza, LLC c/o ACL Realty Corporation 3060 Peachtree Road, NW Suite 1545 Atlanta, Georgia 30305 Attn: Stephen Swartz & Roland Guyot Fax: (404) 233-8039 email: sswartz@aclrealty.com rguyot@aclrealty.com
With a copy to (sent simultaneously via the same method of delivery):	Matthew J. Sours, Esq. Morris, Manning & Martin, LLP 1600 Atlanta Financial Center 3343 Peachtree Road NE Atlanta, Georgia 30326 Fax: (404) 365-9532 email: msours@mmmlaw.com
If to Purchaser:	Mr. Joel Staffilino The Phillips Edison Group LLC 11501 Northlake Drive Cincinnati, Ohio 45249 Fax: (513) 956-5660 email: jstaffilino@phillipsedison.com
and	Mr. Hal Scudder The Phillips Edison Group LLC 222 South Main Street, Suite 1730 Salt Lake City, Utah 84101 Fax: (801) 521-6952 email: hscudder@phillipsedison.com

With a copy to (sent simultaneously via the same method of delivery): J. Adam Rothstein, Esq. Honigman Miller Schwartz and Cohn LLP 39400 Woodward Avenue, Suite 101 Bloomfield Hills, Michigan 48304-5151 Fax: (248) 566-8479 email: jrothstein@honigman.com

14. 1031 Exchange

In the event that either party shall be using the transaction contemplated hereby as part of an exchange of like kind property pursuant to Section 1031 of the Internal Revenue Code, the other party shall cooperate in connection therewith by executing and delivering such documents and instruments as may be reasonably required in order to accomplish any such like kind exchange, provided that, the party so cooperating shall not be required to bear any costs or expenses or take on any liability in connection therewith and the party effecting such exchange shall pay the costs and expenses, including legal fees and costs, of the cooperating party incurred in connection with such cooperation same not to exceed $500.00 in any event.

15. Miscellaneous

15.1Amendment. This Agreement cannot be modified except by a written instrument signed by the parties.

15.2Beneficiaries. This Agreement shall be binding upon and shall inure to the benefit of Sellers and Purchaser and their respective heirs, personal representatives, successors, assigns and transferees. Purchaser shall have the express right to assign its interest in this Agreement to two separate entities, one as to each of the Properties, owned or controlled, in whole or in part, directly or indirectly, by Phillips Edison - ARC Shopping Center REIT, Inc. and/or its affiliates. Purchaser shall supply Sellers with reasonable advance notice of any such assignments and, notwithstanding any such assignments, Purchaser shall remain obligated to fulfill, or to cause to be fulfilled, all of its liabilities and obligations hereunder. This Agreement confers no rights or remedies on any third party.

15.3Consents and Approvals. If an action by any party requires the consent or approval of another party, that consent or approval shall be given, if at all, in writing, and any consent or approval given in one instance shall not be deemed a consent or approval in any other instance.

15.4Construction. Any list of examples set forth in this Agreement shall be deemed to be illustrative, not exhaustive, unless explicitly specified otherwise. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa. The use of the neuter singular pronoun to refer to any party shall be a proper reference even though that party may be an individual, a business entity, or a group of two or more individuals or business entities. All attachments referenced within the Agreement shall be deemed incorporated in the Agreement by such reference.

15.5Counterparts. This Agreement may be signed in one or more counterparts, which together shall constitute one and the same instrument. Signatures shall be binding on the signer when delivered, regardless of whether delivery is in hard copy or by electronic means.

15.6Entire Agreement. This Agreement and the exhibits attached hereto sets forth fully and completely the agreement between the parties in connection with this transaction, there are no written or oral agreements between the parties relating to this transaction that are not expressly set forth herein and this Agreement supersedes all prior oral or written agreements relating to this transaction.

15.7Equal Participation. Sellers and Purchaser have participated equally in the preparation of this Agreement, and, therefore, this Agreement shall not be construed in favor of or against any party to this Agreement.

15.8Extension for Non-Business Days. To the extent a time period set forth in this Agreement expires on a Saturday, Sunday or State or Federal holiday, then such time period shall expire on the next day

which is not a Saturday, Sunday or State or Federal holiday (such days which are not a Saturday, Sunday or State or Federal holiday are referred to herein as a “business day” or collectively as “business days”).

15.9Governing Law. This Agreement shall be governed and construed in accordance with the substantive and procedural laws of the State in which the Properties are located without regard to conflict of law principles.

15.10Headings. The titles and headings in this Agreement are provided as a matter of convenience only and shall not be understood to define, limit, construe, or describe the scope or intent of any provision of this Agreement.

15.11Intentionally Deleted.

15.12Severability. If any provisions of this Agreement shall be determined to be illegal or unenforceable, such determination shall not affect any other provisions of this Agreement, and all other provisions shall remain in full force and effect.

15.13Waivers. A waiver by any party of a performance obligation or default under any provision of this Agreement shall not be deemed (i) a waiver of a further obligation or default under the same provision or (ii) a waiver of an obligation or default under any other provision.

15.14Books and Records.Purchaser has advised Sellers that Purchaser may be required to file, in compliance with certain laws and regulations (including, without limitation, Regulation S-X of the Securities and Exchange Commission [“SEC”]), audited financial statements, pro forma financial statements and other financial information related to the Properties for up to three (3) fiscal years prior to Closing and any interim period during the fiscal year in which the Closing occurs (the “Financial Information”). Following the Closing and for a period of one (1) year thereafter, Sellers agree to use their commercially reasonably efforts to cooperate with Purchaser and its representatives and agents in the preparation of the Financial Information; provided, however, Sellers shall not be required to incur any out of pocket expenses or costs unless Purchaser reimburses Sellers for the same. For a period of one (1) year after the Closing, Sellers shall maintain and allow access to, during normal business hours, such books and records of Sellers and Sellers’ manager of the Properties reasonably related to the Properties. Further, so long as the persons in charge of management of the Properties at the time of Closing remain in the employ of Sellers or an affiliate of Sellers, Sellers will make such persons available for interview.  Notwithstanding the foregoing, Sellers shall not be required to provide any information concerning (a) Sellers’ capital structure or debt, (b) Sellers’ financial analyses or projections, investment analyses, account summaries or other documents prepared solely for Sellers’ internal purposes and not directly related to the operation of the Properties, (c) Sellers’ tax returns or (d) financial statements of Sellers or any affiliate of Sellers (other than Property-level financial statements).  Purchaser acknowledges Purchaser may not use the results of its review under this Section to pursue any claim against Sellers under the terms of this Agreement.

15.15Further Covenant.Sellers shall advise Purchaser of any knowledge Sellers have or come into with respect to a Material Adverse Change prior to Closing, including, but not limited to, one or more tenants ceasing operations from the Properties or occupants of any neighboring property ceasing operations and/or terminating their Leases, failing of which, the same shall be deemed a breach of a warranty and representation without the ability in Sellers to cure the same and thereafter, Purchaser shall have the right, upon notice thereof to Sellers on or prior to Closing, to terminate this Agreement and thereupon to receive an immediate refund of the Deposit and neither party shall thereafter have any further liability or obligation hereunder.

15.16Time of Essence. Time is of the essence with respect to all of the terms and conditions set forth in this Agreement.

15.17No Recordation. Purchaser shall not record this Agreement or any memorandum thereof, and any such recording shall constitute a default by Purchaser hereunder; provided, however, that Purchaser may file this Agreement with the SEC if required by applicable laws.

Balance of Page intentionally left blank.

Signatures

IN WITNESS WHEREOF, the parties hereto have executed this Shopping Center Purchase Agreement.

	THE PHILLIPS EDISON GROUP LLC, an Ohio limited liability company By:PHILLIPS EDISON LIMITED PARTNERSHIP, a Delaware limited partnership, Managing Member By:PHILLIPS EDISON & COMPANY, INC., a Maryland corporation, General Partner By: /s/ Robert F. Myers Name: Robert F. Myers Its: President “Purchaser”
	STAUNTON PLAZA, LLC, a Virginia limited liability company
	By: /s/ Roland R. Guyot Name: Roland R. Guyot Its: Managing Member By: /s/ Stephen B. Swartz Name: Stephen B. Swartz Its: Managing Member
WAYNESBORO PLAZA, LLC, a Virginia limited liability company
By: /s/ Roland R. Guyot Name: Roland R. Guyot Its: Managing Member By: /s/ Stephen B. Swartz Name: Stephen B. Swartz Its: Managing Member

“Sellers”

Exhibit List:

A-1- Legal Description of Staunton Real Estate

A-2-Legal Description of Waynesboro Real Estate

1.3-Purchase Price Allocation

1.4(iv)-Estoppel Form

1.5-Contracts

1.13‑Personal Property

1.15‑Rent Roll

1.18 ‑ Seller’s Due Diligence Documents

1.19 - Deleted

5.3(i)-Deed

5.3(ii)-Assignment of Leases

5.3(iii)-Bill of Sale

5.3(vi)-Bring Down Certificate

5.3(vii)-Non-Foreign Person Certification

5.3(xii)-Notice to Tenant

RECEIPT

The undersigned received one fully executed copy of this Shopping Centers Purchase Agreement as of December 18, 2013.

THE PHILLIPS EDISON GROUP LLC,

an Ohio limited liability company

By:PHILLIPS EDISON LIMITED PARTNERSHIP,

a Delaware limited partnership,

Managing Member

By:PHILLIPS EDISON & COMPANY, INC.,

a Maryland corporation,

General Partner

By: /s/ Robert F. Myers

Name: Robert F. Myers

Its: President

DEPOSIT ACKNOWLEDGMENT

The undersigned hereby acknowledges receipt of the Deposit and agrees to hold the same pursuant to terms of the Agreement. The liability of the undersigned is limited by the terms and conditions expressly set forth herein and by the laws of the state in which the Properties are located and in no event shall the liability of the undersigned exceed the amount of the Deposit. The undersigned shall have no liability whatsoever on account of or occasioned by any failure or negligence on the part of any bank, savings and loan or other savings institution wherein the Deposit are deposited, provided, however, that such institution is, at the time of deposit of the Deposit, federally insured. In the event of litigation affecting the duties of the undersigned as escrow agent relating to this Agreement and the Deposit, Sellers and Purchaser, jointly, and not jointly and severally, shall reimburse the undersigned for all expenses incurred by the undersigned, including reasonable attorneys’ fees, unless such litigation results from or is caused by the gross negligence or misfeasance of the undersigned. In the event of any dispute between Sellers and Purchaser pertaining to the Deposit, the undersigned may commence an interpleader action and deposit the Deposit with a court of competent jurisdiction and in such event, the undersigned shall be relieved of all further obligation and liability.

FIDELITY NATIONAL TITLE GROUP

By:

Linda Hart, Escrow Officer

Address:

5565 Glenridge Connector, Suite 300

Atlanta, GA 30342

(770) 325-2714 Direct Dial

(770) 265-4678 Cell

E-mail:Linda.hart@fntg.com

Dated: December 19, 2013

EXHIBIT A-1

LEGAL DESCRIPTION OF STAUNTON REAL PROPERTY

ALL THAT certain lot or parcel of land, with all improvements thereon and appurtenances thereunto belonging, situate in the City of Staunton, Virginia, and being 11.123 Acres as shown on Sheet 3 of 3 on that certain plat entitled, ‘LOT LINE DELETION PLAT STAUNTON PLAZA, LLC PROPERTY STAUNTON, VIRGINIA,” dated July 20, 2005, Rev. 9-19-05, made by Tom Shumate Surveyor, Inc., which plat is attached to and a part of that certain Deed of Vacation and Relocation of Lot Lines and Easements dated September 27, 2005, recorded in the Clerk’s Office of the Circuit Court of the City of Staunton, Virginia as Document Number 050004370.

EXHIBIT A-2

LEGAL DESCRIPTION OF WAYNESBORO REAL PROPERTY

All that certain lot, piece or parcel of land with the buildings and improvements thereon and appurtenances thereunto belonging, lying and being in the City of Waynesboro, Virginia and designated as 13.227 ACRES, PORTION OF DB 339-67, CO. AND DB 251-824, TM41-3-112, 1417 ROSSER AVE. as shown on the plat entitled “CITY OF WAYNESBORO SIMPLE SUBDIVISION SOUTHEAST 13.227 ACRES OF CARFLO FARM, LC LAND, WAYNESBORO, VIRGINIA”, which plat is duly recorded in the Clerk’s Office of the Circuit Court of the City of Waynesboro, Virginia, in Plat Book 7, at pages 89 and 90.

EXHIBIT 1.3

PURCHASE PRICE ALLOCATION

Staunton Property:$17,200,000.00

Waynesboro Property:$16,800,000.00

EXHIBIT 1.4(iv)

ESTOPPEL LETTER

GIANT FORM ESTOPPEL

TO: The Phillips Edison Group, its successors and assigns (“Purchaser”)

Wells Fargo ___________ and its successors and assigns (“Lender”)

Reference is made herein to a certain Lease Agreement dated June 9, 2005, entered into by and between Staunton Plaza, LLC, a Virginia limited liability company, as “Landlord,” and Giant Food Stores, LLC, a Delaware limited liability company, as “Tenant,” (the “Lease”), regarding the leasing of the Premises located in the Shopping Center.

Whereas, Landlord, as borrower, has obtained a loan (the “Loan”) from Wells Fargo Bank, National Association (“Lender”), which is secured by, among other things, a deed of trust to secure debt encumbering the Shopping Center (the “Deed of Trust”).

Whereas, as a condition to making the Loan, Lender has requested that Tenant furnish certain information to Lender, as set forth below.

Therefore, Tenant advises you as follows (capitalized terms in this letter shall have the meaning ascribed to them in the Lease):

1. The Rent Commencement Date of the Lease was ____________. The Initial Term of the Lease will end twenty (20) Lease Years after the Rent Commencement Date. Tenant has options to extend the term of the Lease for eight (8) successive periods of five (5) years each. If the term of the Lease expires during the last six (6) months of a calendar year, Tenant may elect to extend the Initial Term to January 31 of the next calendar year.

2.Tenant is currently in possession of the Premises (containing approximately 68,715 square feet of leasable area) in accordance with its rights under the Lease.

3.Fixed Minimum Rent is payable annually in the amount of $____________ (in monthly installments of $__________), subject to change as provided in Paragraph 5.01 of the Lease.

4.Except for certain licensees and concessionaires that may occupy space in the Premises in the ordinary course of business, the Premises have not been sublet, nor has the Lease been assigned, modified, supplemented or amended, except as set forth above.

5.As of the date of this Estoppel Certificate, to the actual knowledge of Tenant, Landlord is not currently in default under the Lease, and Tenant has no current set-offs against Landlord.

6.As of the date of this Estoppel Certificate, Tenant has not received any notice from Landlord that Tenant is currently in default under the Lease.

7.Tenant has a right of first refusal to purchase the Shopping Center as provided in the Lease.

8.There are no rent concessions, tenant allowances or other benefits due Tenant which are not expressed in the Lease.

9.Tenant confirms there is no security deposit required under the Lease.

ATTEST: By: ______________________________        Name:        Title: Sincerely, GIANT FOOD STORES, LLC By: ______________________________        Name:        Title:

EXHIBIT 1.5

CONTRACTS

Staunton

HC Eavers - snow removal

Custom Maintenance - landscaping and lot sweeping

Waste Management - trash removal

Waynesboro

HC Eavers - snow removal

Custom Maintenance - landscaping and lot sweeping

Waste Management - trash removal

EXHIBIT 1.13

PERSONAL PROPERTY

All of Sellers’ rights and interest in, and to the extent assignable, intangible property rights, guaranties, warranties (including, but not limited to, roof warranties), licenses and permits associated with such real property, including, without limitation, all zoning approvals, ordinances and/or resolutions, subdivision bonds, building permits, site plans, governmental consents, authorizations, variances, waivers, licenses, signage rights, development rights and approvals, vested rights, permits and approvals, environmental permits, environmental indemnities, utility agreements, development agreements, subdivision covenants, pertaining to such real property, and all other contract rights whatsoever in any way affecting or pertaining to the use, development or operation of, or construction on, such real property.

And

NONE

EXHIBIT 1.15

RENT ROLLS

[SEE ATTACHED]

EXHIBIT 1.18

SELLER’S DUE DILIGENCE DOCUMENTS

[SEE ATTACHED]

EXHIBIT 1.19

INTENTIONALLY DELETED

EXHIBIT 5.3(i)

DEED

Prepared by and after

recording return to:

GPIN#:

SPECIAL WARRANTY DEED

THIS DEED is made as of ___________________, 201_ by and between PLAZA, LLC, a limited liability company (“Grantor” for recording purposes), and _____________________________, a ______________________________, as Grantee.

WITNESSETH:

That for $10.00 and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Grantor does hereby grant and convey, with Special Warranty of Title, unto the Grantee, that certain real property described on Exhibit A attached hereto and made a part hereof by this reference and located in the City of Staunton, Virginia (the “Property”).

This conveyance is made subject to the matters set forth on Exhibit B attached hereto and made a part hereof by this reference.

TO HAVE AND TO HOLD the Property, with all and singular the rights, privileges and appurtenances thereof, to the same being, belonging, or in anywise appertaining, to the use and benefit of the said Grantee in FEE SIMPLE forever.

[SIGNATURES ON FOLLOWING PAGES]

WITNESS the following signatures and seals:

GRANTOR:

[INSERT SIGNATURE BLOCK FOR GRANTOR]

STATE OF )

) ss.

COUNTY OF )

On ____________________________, before me a Notary Public in and for said County and State, personally appeared , a limited liability company, personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and executed this instrument by his signature on behalf of said limited liability company.

WITNESS my hand and official seal.

, Notary Public

My Commission Expires:

Notarial Registration No.: _________________

Exhibit A to Special Warranty Deed

Legal Description

Exhibit B to Special Warranty Deed

[INSERT PERMITTED EXCEPTIONS LISTING AFTER SAME DETERMINED PER TITLE REVIEW AND OBJECTION PROCESS IN PURCHASE AGREEMENT.]

EXHIBIT 5.3(ii)

ASSIGNMENT OF LEASES

KNOW ALL MEN that , a ("Assignor"), in consideration of Ten ($10.00) Dollars and other good and valuable consideration, received from , a ("Assignee"), does hereby assign, transfer and deliver unto Assignee, all of its right, title and interest in and to the leases, together with all security deposits presently held by Assignor in connection therewith (collectively, the "Leases") affecting the premises known as SHOPPING CENTER more particularly described on Schedule A annexed hereto.

TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns, forever, from and after the date hereof, subject to the terms, covenants, conditions and provisions hereof and of said Leases.

AND Assignee does hereby acknowledge receipt of said Leases (including the security deposits) so delivered, and does hereby (a) accept the within assignment, (b) assume the performance of all of the terms, covenants and conditions of the said Leases on the part of the lessor/Assignor thereunder which are to be performed or arise from and after the date hereof, and (c) indemnify, defend and hold Assignor free and harmless from and against any and all costs, expenses, claims, losses or damages, liabilities and judgments which Assignor may suffer in respect of any claim arising out of or relating to any default on the part of Assignee to perform said terms, covenants and conditions of the Leases or in any way relating to the security deposits occurring after the date hereof.

AND Assignor does hereby indemnify, defend and hold Assignee free and harmless from and against any and all costs, expenses, claims, losses or damages, liabilities and judgments which Assignee may suffer in respect of any claim arising out of or relating to any default on the part of Assignor to perform said terms, covenants and conditions of the Leases or in any way relating to the security deposits thereunder occurring on or prior to the date hereof.

This Assignment of Rents and Leases shall inure to the benefit of Assignee and Assignor and their respective successors and assigns and shall be governed by the laws of the Commonwealth of Virginia. This Assignment of Rents and Leases may not be modified, altered or amended, or its terms waived, except by an instrument in writing signed by the parties hereto.

None of the provisions of this instrument are intended to be, nor shall they be construed to be, for the benefit of any third party.

[Signatures appear on following page]

Signature Page to

Assignment of Leases

IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment of Leases effective as of the _____ day of .

,

a

By:

Name:

Its:

"Assignor"

,

a

By:

Name:

Its:

"Assignee"

Schedule A to assignment of leases

Leases

SCHEDULE B TO ASSIGNMENT OF LEASES

Legal Description

EXHIBIT 5.3(iii)

BILL OF SALE

FOR $1.00 RECEIVED as of ____________________, 2014 and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, ______________________, a _____________________________ ("Assignor"), does hereby assign, transfer, convey and deliver to _________________________________, a __________________________, without warranty, the undivided right, title and interest in and to the personal property situated on and/or used in connection with the operation of that certain real property more particularly described on Schedule A attached hereto and incorporated herein by reference, to the extent of Assignor's right, title and interest, if any, therein or thereto, and to the extent assignable, in and to all trade names used in connection such real property, including, without limitation, the name "_____________________," and all other intangible property rights, guaranties, warranties (including, but not limited to, roof warranties), licenses and permits associated with such real property, including, without limitation, all zoning approvals, ordinances and/or resolutions, subdivision bonds, building permits, site plans, governmental consents, authorizations, variances, waivers, licenses, signage rights, development rights and approvals, vested rights, permits and approvals, environmental permits, environmental indemnities, utility agreements, development agreements, subdivision covenants, pertaining to such real property, and all other contract rights whatsoever in any way affecting or pertaining to the use, development or operation of, or construction on, such real property (all of the same being referred to herein as the “Intangible Rights”).

IN WITNESS WHEREOF, Assignor has executed this Bill of Sale.

________________________________,

a _____________________

By:

Name:

Its:

"Assignor"

SCHEDULE A TO BILL OF SALE

Legal Description

EXHIBIT 5.3(vi)

BRING DOWN CERTIFICATE

I, __________________, hereby certify that I am the duly elected, qualified and acting ________________________ of __________________________, a ______________________ (“Seller”), that:

The representations and warranties of the Seller contained in the Shopping Center Purchase Agreement dated ____________, 2013 (“Purchase Agreement”) between Seller (and an affiliate), as a Seller, and The Phillips Edison Group LLC, an Ohio limited liability company, as Purchaser, the Purchaser’s interest in which was assigned to _______________________ STATION LLC, a Delaware limited liability company, are true and correct in all respects, subject to the following : [INSERT ANY CHANGES IN REPRESENTATIONS OR WARRANTIES TO MAKE THEM TRUE AND CORRECT].

Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement.

IN WITNESS WHEREOF, the undersigned has executed this Bring Down Certificate as of _______________________, 2014.

Name:

EXHIBIT 5.3(vii)

NON-FOREIGN PERSON CERTIFICATION

Section 1445 of the Internal Revenue Code provides that a transferee of a United States real property interest must withhold tax if the transferor is a foreign person. To inform the transferee, , LLC, a Virginia limited liability company, that withholding of taxes is not required upon the undersigned's disposition of a United States real property interest, the undersigned hereby certifies the following:

1.The undersigned is not a non-resident alien for purposes of United States income taxation;

2.The undersigned’s taxpayer identification number is ______________.

3.The undersigned’s address is: .

It is understood that this Certification may be disclosed to the Internal Revenue Service by the transferee and that any false statement made here could be punished by fine, imprisonment or both.

Under penalties of perjury, the undersigned declares that it has examined this Certification and to the best of its knowledge and belief it is true, correct, and complete.

Dated:______________, 2014

,

a

By:

Name:

Its:

EXHIBIT 5.3(xii)

NOTICE TO TENANTS

, 2014

Attention:

Re:

Dear Sir/Madam:

Please be advised that today, conveyed the and assigned your lease to . Your security deposit, if any, transferred to the new owner.

All amounts due prior to the conveyance remain payable to . Beginning with your next payment, your rent should be sent to at . For further information contact at .

Sincerely

By:

Name:

Its:

EX-10.3

FIRST AMENDMENT

TO

SHOPPING CENTER PURCHASE AGREEMENT

TIIIS FIRST AMENDMENT TO SHOPPING CENTERS PURCHASE AGREEMENT

("Amendment'') is made as of January 22, 2014, by and between WAYNESBORO PLAZA, LLC, a Virginia limited liability company, and STAUNTON PLAZA, LLC, a Virginia limited liability company (each individually, and together collectively, "Seller"), and THE PHILLIPS EDISON GROUP LLC, an Ohio limited liability company (''Purchaser").

RECITALS :

A.    Seller, as Seller, and Purchaser, as Purchaser, are parties to that certain Shopping Centers Purchase Agreement dated December 18, 2013 ("Agreement' with respect to the Waynesboro Plaza Shopping Center and the Staunton Plaza Shopping Center, located in Staunton, Virginia as more particularly described in the Agreement.

B.    Seller and Purchaser desire to amend the Agreement as more particularly set forth below.

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is acknowledged, the parties agree as follows:

1. Capitalized terms used in this Amendment not otherwise defined herein shall have the meanings when used herein ascribed to such terms in the Agreement.

2. This Amendment shall constitute Purchaser's notice to Seller pursuant to Section 3.4 of the Agreement that Purchaser is satisfied with or hereby waives satisfaction of the Physical/Financial Review Condition as of the date of this Amendment, and the parties shall proceed to Closing, subject to satisfaction or waiver of the Loan Assumption Condition, the Estoppel Condition, Purchaser's satisfaction with Survey and Title pursuant to Section 3.6 of the Agreement, and the other applicable provisions of the Agreement.

3. Seller and Purchaser acknowledge that the inspection Period expires on January 23, 2014, however, Purchaser shall have until February 3, 2014 to deliver Title and Survey Objections to Seller in accordance with Section 3.6 of the Agreement, and Section 3.6 shall be deemed modified accordingly.

4. Seller and Purchaser agree that an escrow shall be established at Closing in the amount of Two Hundred Thousand Dollars ($200,000.00) (the "Five Guys Escrow"), which may be drawn monthly by Purchaser after Closing (i) in the amount of $8,000 for each month following the expiration of the Five Guys lease at Staunton Plaza or the earlier failure of Five Guys to pay rent or other charges thereunder, for payment of full minimum rental and all so-called "triple net'' charges ("Recoveries") for the Five Guys leased space, until the date that a replacement tenant acceptable to Purchaser in its sole discretion (a "Replacement Tenant') has commenced paying rent and Recoveries or until the Five Guys Escrow is exhausted, whichever first occurs, and (ii) to pay all leasing commissions and all tenant improvement costs, lease buyouts, moving and other tenant allowances and any other tenant inducements (collectively, "Tenant Inducements")required under a lease with a Replacement Tenant for the Five Guys leased space, as and when the same shall be due. Any funds remaining in the Five Guys Escrow at the time a Replacement Tenant has commenced paying rent and Recoveries, shall be paid to Seller. Notwithstanding anything contained above to the contrary, in the event a Replacement Tenant enters into

a lease requiring payment of a minimum rental charge that is less than the minimum

rental due under the Five Guys lease (a "Replacement Tenant Shortfall"), within ten (10) business days after the Replacement Tenant commences payment of rent and Recoveries, Seller and Purchaser shall "true-up" the Five Guys Escrow, the Replacement Tenant Shortfall shall be released to Purchaser in an amount equal to the monthly Replacement Tenant Shortfall amount multiplied by the number of months remaining in the five (5) year period measured from the Closing Date, and the balance of the Five Guys Escrow shall be paid to Seller. The provisions of this Section 4 shall survive the Closing and shall be evidenced by a separate Escrow Agreement to be entered into by Purchaser and Seller at Closing. The maximum liability of Seller with respect to rent. leasing commissions and Tenant Inducements for the premises currently leased by Five Guys shall be limited to the amount of the Five Guys Escrow.

5.    Except to the extent modified by this Amendment. the Agreement is hereby Agreement is hereby reinstated, restated and republished in its entirety and shall be deemed to be in full force and effect. This Amendment may be executed in multiple counterparts, each of which, when taken together, shall be deemed one and the same original. Executed copies of this Amendment may be delivered between the parties via electronic mail. This Amendment and the exhibits attached hereto sets forth fully and completely the agreement between the parties in connection with the subject matter of the Amcmdmen1; there are no written or oral agreements between the parties relating to this Amendment that are not expressly set forth herein and this Amendment supersedes all prior oral or written agreements relating to this Amendment In the event that any of the terms, conditions and provisions of this Amendment shall conflict with any of the terms, conditions or provisions of the Agreement, the provisions of this Amendment shall be controlling. This Amendment and the terms, conditions and provisions hereof shall be binding and inure to the benefit of the parties hereto and their respective successors and assigns.

[Signatures on following pages]

IN WITNESS WHEREOF, Purchaser has executed this Amendment as of the day and year first above written.

PURCHASER:

THE PHILLIPS EDISON GROUP LLC,

an Ohio limited liability company

By: PHILLIPS EDISON LIMITED PARTNERSHIP,

a Delaware limited partnership,

Managing Member

By: PHILLIPS EDISON & COMPANY, INC.,

a Maryland corporation,

General Partner

By: /s/ Robert F. Myers

Name: Robert F. Myers

Its: President

IN WITNESS WHEREOF, Seller has executed this Amendment as of the day and year first

above written.

SELLER:

WAYNESBORO PLAZA, LLC,

a Virginia limited liability company

By: /s/ Roland R. Guyot

Name: Roland R. Guyot

Title: Member

By: /s/ Stephen B. Swartz

Name: Stephen B. Swartz

Title: Member

STAUNTON PLAZA, LLC,

a Virginia limited liability company

By: /s/ Roland R. Guyot

Name: Roland R. Guyot

Title: Member

By: /s/ Stephen B. Swartz

Name: Stephen B. Swartz

Title: Member

EX-10.4

PROMISSORY NOTE SECURED BY DEED OF TRUST

Loan No. 61-0903985

San Francisco, California

September 22, 2006

$14,100,000.00

MERS MIN # 800010100000025956

1.    PROMISE TO PAY. For value received, the undersigned STAUNTON PLAZA, LLC, a Virginia limited liability company ("Borrower"), promise(s) to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender"), 1320 Willow Pass Road, Suite 205, Concord, California 94520, or at such other place as may be designated in writing by Lender, the principal sum of FOURTEEN MILLION ONE HUNDRED THOUSAND AND NO/l00THS DOLLARS ($14,l00,000.00) ("Loan"), with interest thereon as specified herein. All sums owing hereunder are payable in lawful money of the United States of America, in immediately available funds, without offset, deduction or counterclaim of any kind.

2.    SECURED BY DEED OF TRUST. This Note is secured by, among other things, that Deed of Trust and Absolute Assignment of Rents and Leases and Security Agreement (and Fixture Filing) ("Security Instrument") of even date herewith given by Borrower for the benefit of Mortgage Electronic Registration Systems, Inc. a Delaware corporation, identifying this Note as an obligation secured thereby and encumbering certain real property described therein ("Property").

3.    DEFINITIONS.For the purposes of this Note, the following terms shall have the following meanings:

"30/360 Basis"means on the basis of a 360-day year consisting of 12 months of 30 days each.

"Actual/360 Basis" means on the basis of a 360-day year and charged on the basis of actual days elapsed for any whole or partial month in which interest is being calculated.

"Adjusted Note Rate" means the interest rate of this Note from and after the Anticipated Repayment Date, which shall be equal to the greater of (i) Initial Note Rate plus five (5) percent per annum; or (ii) the Treasury Rate for the week ending prior to the Anticipated Repayment Date plus five (5) percent per annum.

"Amortization Period" means 30 years.

"Anchor Tenant" means Giant Food Stores, LLC and its successors and assigns.

"Anchor Tenant Lease" means that certain Lease between Anchor Tenant and Borrower dated January 13, 2005, and all amendments and modifications thereto.

"Anticipated Repayment Date" means October l. 2016.

"Business Day" means any day other than a Saturday, Sunday, legal holiday or other day on which commercial banks in California are authorized or required by law to close. All references in this Note to a

"day" or a "date" shall be to a calendar day unless specifically referenced as a Business Day.

"Code" means the Internal Revenue Code of 1986, as amended to date and as further amended from time to time, or any successor statutes thereto, together with applicable regulations issued pursuant thereto in temporary or final form. "Collateral" shall have the meaning stated in the Security Instrument.

"Credit Rating Event" means that Standard and Poor's Rating Services has issued a senior unsecured corporate credit rating for Lease Guarantor that is below "B+", or an equivalent rating has been issued by Moody's Investors Service, Inc., or by another credit rating agency acceptable to Lender in the event such credit rating agencies cease to exist or cease to provide credit rating services.

"Default" shall have the meaning stated in the Security Instrument.

"Default Rate" means the lesser of (a) a fixed annual rate equal to 5% plus the Note Rate and (b) the maximum rate of interest permitted by applicable law.

"Defeasance" means the Borrower's substitution of Defeasance Collateral and Lender's release of the lien of the Security Instrument upon satisfaction of all of the terms and conditions of Section 12.

"Defeasance Collateral"means obligations or securities, not subject to prepayment, call or early redemption, each of which qualifies as a "Government security" as defined in Section 2(a)(l6) of the Investment Company Act of 1940, as amended (15 U.S.C. §80a-l et seq.), together with all revenues and proceeds of such obligations or securities.

"Defeasance Date" means the date upon which the Defeasance is completed. "Defeasance Option End Date" means August 3l, 2016.

"Defeasance Option Period" means the period from and including the Defeasance Option Start Date to and including the Defeasance Option End Date.

"Defeasance Option Start Date" means the later of (a) the twenty-fifth Due Date following the Startup Day of any REMIC which holds this Note on the Defeasance Date and (b) October 1, 2009.

"Defeasance Security Agreements" means a pledge and security agreement and an account control agreement, each in form and substance customary in commercial mortgage defeasance transactions.

"Disbursement Date" means the date upon which the Loan proceeds are funded by Lender into escrow in connection with the closing of the Loan.

"Due Date" means the first day of each calendar month during the period commencing on the First Due Date and ending on September l, 2036.

"Effective Date" means the earlier of (a) the date the Security Instrument is recorded in the Office of the County Recorder of the county where the Property is located and (b) the date Lender authorizes the Loan proceeds to be released to Borrower.

"Excess Cash Flow" means all funds generated from the Property on a monthly basis, less each of the following: (i) Monthly P&I Payment Amount, (ii) payment of all Impounds due under Section 3 of Exhibit A of this Note; and (iii) funds sufficient to pay the Monthly Operating Expense Amount for the calendar month in which such Monthly P&I Payment Amount Becomes due.

"First Due Date" means October 1, 2006.

"First P&I Due Date" means November 1, 2006.

"Hyperamortization Commencement Date" means the Due Date immediately preceding the Anticipated Repayment Date.

"Initial Note Rate" means a fixed annual rate of 5.99%.

"Lease Guarantor" means KONINKLIJKE AHOLD N.V., a corporation organized under the laws of the

Netherlands.

"Leased Premises" means the premises demised by Anchor Tenant under the Anchor Tenant Lease. "Loan Documents" means the documents identified as such in Exhibit B.

"Maturity Date" means October 1, 2036.

"Monthly Operating Expense" means the monthly amount payable for operating expenses as set forth in the approved Annual Budget (defined in Exhibit A hereto) not otherwise paid or reserved for in the accounts for Impounds (described at Section 3 of Exhibit A hereto), together with other amounts incurred by Borrower (and approved by Lender) in connection with the operation and maintenance of the Property.

"New Lease" means a lease acceptable to Lender that (i) demises the Leased Premises or any portion thereof, (ii) is executed by a New Tenant, and (iii) contains (A) a term that extends no less than 5 years beyond the Anticipated Repayment Date at a minimum rent of $16.00 per square foot, or (B) other terms acceptable to Lender in its sole discretion.

"New Tenant" means a new tenant (or a renewal tenant) at the Property acceptable to Lender that executes a New Lease.

"Note Rate" means the Initial Note Rate or the Adjusted Note Rate, as applicable.

"Open Period Start Date" means September 1, 2016.

"P&I Payment Amount" means $84,446.00, based on the Note Rate and the Amortization Period.

"Prepayment Lockout End Date" means August 31, 2016.

"Prepayment Lockout Period" means the period from and including the Effective Date to and including the Prepayment Lockout End Date.

"Rating Agencies" means Fitch, Inc., Moody's Investors Service, Inc., Standard & Poor's Rating Services and any other nationally-recognized statistical rating organization that, in connection with the securitization of the Loan by a REMIC maintains a rating, on the Defeasance Date, of the securities issued by the REMIC.

"REMIC" means a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code.

"Startup Day" means the "startup day" within the meaning of Section 860G(a)(9) of the Code.

"Successor Borrower" means an entity designated by Lender whose sole purpose is to own the Defeasance Collateral delivered by Borrower under Section 12 and assume Borrower's obligations with respect to the Loan either alone, or together with the Defeasance Collateral for other, previously defeased loans or portions of loans assumed by Successor Borrower which are also held by the REMIC that holds this Note. Successor Borrower shall, in either case, be restricted from taking actions that could result in its bankruptcy or dissolution.

"Suspension Event" means the first Due Date immediately following the occurrence of one of the following, provided that no Default has occurred and no event has occurred that with the passage of time or giving of notice would be deemed a Default:

(i) following a Termination Event (as hereinafter defined), each of the following has occurred:

(A) a New Lease has been executed by one or more New Tenants demising the Leased Premises;

(B) all of the Leased Premises are occupied;

(C) each New Tenant is paying rent in accordance with the terms and conditions of its New Lease and is open for business;

(D) no New Tenant is in default under the terms and conditions of its New Lease, and there is no

event which, with the passage of time or giving of notice, or both, would constitute a default under such lease, and

(E) Borrower has delivered to Lender an estoppel certificate acceptable to Lender from each New Tenant, or

(ii) following a Credit Rating Event, Standard & Poors Rating Services has issued a senior unsecured corporate credit rating for Lease Guarantor that is "BB" or above or an equivalent rating has been issued by Moody's Investors Service, Inc. (or by another credit rating agency acceptable to Lender in the event such credit rating agencies cease to exist or cease to provide credit rating services), and such credit rating has been maintained by Lease Guarantor for a period of at least six consecutive months.

"Termination Event" means that either (i) Anchor Tenant has (A) terminated its Anchor Tenant Lease or delivered notice terminating its Anchor Lease, (B) vacated the Leased Premises, (C) subleased the Leased Premises to a tenant that is not wholly owned by Anchor Tenant, or (D) ceased doing business at the Leased Premises, or (ii) Lease Guarantor has terminated or withdrawn its guaranty of the Anchor Tenant Lease.

"Treasury Rate" means the yield calculated by the linear interpolation of the yields, as reported in Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading U.S. Government Securities/Treasury Constant Maturities for the week ending prior to the Anticipated Repayment Date, of U.S. Treasury constant maturities with maturity dates (one longer and one shorter) most nearly approximating the Anticipated Repayment Date. (If Release H.15 is no longer published, Lender shall select a comparable publication to determine the Treasury Rate).

"Trigger Event" means the occurrence of a Termination Event or Credit Rating Event.

4.    INTEREST; PAYMENTS.

4.1 Interest Accrual. Interest on the outstanding principal balance of this Note shall accrue from the Disbursement Date at the Note Rate calculated on an Actual/360 Basis.

4.2 Payments.Monthly payments, each in the P&I Payment Amount, shall commence on the First P&I Due Date and continue on each Due Date thereafter. In addition, if the Disbursement Date is not the first day of a calendar month, an interest-only payment shall be due on the First Due Date. Borrower acknowledges that the P&I Payment Amount was determined using a 30/360 Basis despite the fact that interest on this Note accrues on an Actual /360 Basis. All interest shall be paid in arrears. Except as otherwise specifically provided in this Note or the other Loan Documents, all payments and deposits due under this Note or the other Loan Documents shall be made to Lender not later than 12:00 noon, California time, on the day on which such payment or deposit is due. Any funds received by Lender after such time shall, for all purposes, be deemed to have been received on the next succeeding Business Day.

If all unpaid principal and accrued but unpaid interest is not fully repaid on the Anticipated Repayment Date, (i) the Note Rate shall increase from the Initial Note Rate to the Adjusted Note Rate, and (ii) the cash management procedures set forth in Section 13 below shall immediately become applicable. Interest accrued at the Adjusted Note Rate and not paid pursuant to the cash management provisions set forth in Section 13 shall be deferred and added to the principal balance of this Note (together with all accrued interest thereon) and shall earn interest at the Adjusted Note Rate to the extent permitted by applicable law (such accrued interest, together with any interest accrued thereon is hereinafter defined as "Accrued Interest"). All of the outstanding principal balance, including any Accrued Interest, shall be due and payable on the Maturity Date.

4.3 Acknowledgments. Borrower acknowledges that interest calculated on an Actual/360 Basis exceeds

interest calculated on a 30/360 Basis and, therefore: (a) a greater portion of each monthly installment of principal and interest will be applied to interest using the Actual/360 Basis than would be the case if interest accrued on a 30/360 Basis; and (b) the unpaid principal balance of this Note on the Maturity Date will be greater using the Actual/360 Basis than would be the case if interest accrued on a 30/360 Basis.

4.4 Application of Payments. In the absence of a specific determination by Lender to the contrary, all payments paid by Borrower to Lender in connection with the obligations of Borrower under this Note and under the other Loan Documents shall be applied in the following order of priority: (a) to amounts, other than principal and interest, due to Lender pursuant to this Note or the other Loan Documents; (b) to accrued but unpaid interest on this Note; and (c) to the unpaid principal balance of this Note. Borrower irrevocably waives the right to direct the application of any payments at any time received by Lender from or on behalf of Borrower, and Borrower agrees that Lender shall have the continuing exclusive right to apply any such payments to the then due and owing obligations of Borrower in such order of priority as Lender may deem advisable.

5.    LATE CHA RGE; DEFAULT RATE.

5.1 Late Charge. If all or any portion of any payment (including, without limitation, any payment of any interest, P&I Payment Amount, impound or other deposit) required hereunder (other than the payment due on the Maturity Date) is not paid or deposited on or before the seventh day following the day on which the payment is due Borrower shall pay a late or collection charge, as liquidated damages, equal to 5% of the amount of such unpaid payment. If all or any portion of the payment due on the Maturity Date is paid after the Maturity Date and on a date which is not the first day of a month, Borrower shall pay a late or collection charge, as liquidated damages, equal to the interest which would have accrued on such amount during the period commencing on the date payment of such amount is actually made and ending on the last day of the calendar month in which payment of such amount is actually made. Borrower acknowledges that Lender will incur additional expenses as a result of any late payments or deposits hereunder, which expenses would be impracticable to quantify, and that Borrower's payments under this Section 5.1 are a reasonable estimate of such expenses.

5.2 Default Rate. Commencing upon a Default and continuing until such Default shall have been cured by Borrower, all sums owing on this Note shall bear interest until paid in full at the Default Rate.

6.    MAXIMUM RATE PERMITTED BY LAW. Neither this Note nor any of the other Loan Documents shall require the payment or permit the collection of any interest or any late payment charge in excess of the maximum rate permitted by law. If any such excess interest or late payment charge is provided for under this Note or any of the other Loan Documents or if this Note or any of the other Loan Documents shall be adjudicated to provide for such excess, neither Borrower nor Borrower's successors or assigns shall be obligated to pay such excess, and the right to demand the payment of any such excess shall be and hereby is waived, and this provision shall control any other provision of this Note or any of the other Loan Documents. If Lender shall collect amounts which are deemed to constitute interest and which would increase the effective interest rate to a rate in excess of the maximum rate permitted by law, all such amounts deemed to constitute interest in excess of the maximum legal rate shall, upon such determination, at the option of Lender, be returned to Borrower or credited against the outstanding principal balance of this Note.

7.    ACCELERATION. If (a) Borrower shall fail to pay when due any sums payable under this Note, (b) any other Default shall occur; or (c) any other event or condition shall occur which, under the terms of the Security Instrument or any other Loan Document, gives rise to a right of acceleration of sums owing

under this Note, then Lender, at its sole option, shall have the right to declare all sums owing under this Note immediately due and payable; provided, however, that if the Security Instrument or any other Loan Document provides for the automatic acceleration of payment of sums owing under this Note, all sums owing under this Note shall be automatically due and payable in accordance with the terms of the Security Instrument or such other Loan Document.

8.    BORROWER'S LIABILITY.

8.1 Limitation. Except as otherwise provided in this Section 8, Lender's recovery against Borrower under this Note and the other Loan Documents shall be limited solely to the Property and the Collateral.

8.2 Exceptions. Nothing contained in Section 8.1 or elsewhere in this Note or the other Loan Documents, however, shall limit in any way the personal liability of Borrower owed to Lender (a) for any losses or damages incurred by Lender (including, without limitation, any impairment of Lender's security for the Loan) with respect to any of the following matters: (i) fraud or willful misrepresentation, (ii) material physical waste of the Property or the Collateral, (iii) failure to pay property or other taxes, assessments or charges (other than amounts paid to Lender for taxes, assessments or charges pursuant to Impounds as defined in Exhibit A and where Lender elects not to apply such funds toward payment of the taxes, assessments or charges owed) which may create liens senior to the lien of the Security Instrument on all or any portion of the Property; (iv) failure to deliver any insurance or condemnation proceeds or awards or any security deposits received by Borrower to Lender or to otherwise apply such sums as required under the terms of the Loan Documents or any other instrument now or hereafter securing this Note, (v) failure to apply any rents, royalties, accounts, revenues, income, issues, profits and other benefits from the Property which are collected or received by Borrower during the period of any Default or after acceleration of the indebtedness and other sums owing under the Loan Documents to the payment of either (A) such indebtedness or other sums or (B) the normal and necessary operating expenses of the Property, or (vi) any breach by Borrower of any covenant in this Note or in any other Loan Document regarding Hazardous Materials (as defined in the Security Instrument) or any representation or warranty of Borrower regarding Hazardous Materials proving to have been untrue when made, (b) in the event the Property or the Collateral shall become an asset in (i) a voluntary bankruptcy or insolvency proceeding or

(ii) an involuntary bankruptcy or insolvency proceeding (other than one filed by Lender) which is not dismissed within 90 days of filing; (c) in the event of a Default resulting from a Prohibited Property Transfer (as defined in the Security Instrument) or a Prohibited Equity Transfer (as defined in the Security Instrument); (d) in the event of a Default resulting from Borrower's breach of any covenant contained in Section 3.3 of Exhibit A hereto; or (e) if any representation or warranty contained in Section 5.2 of the Security Instrument related to the conduct, action or inaction of Borrower prior to the date hereof is false, incorrect or misleading in any material respect.

8.3 No Release or Impairment. Nothing contained in Section 8.1 shall be deemed to release, affect or impair the indebtedness evidenced by this Note or the obligations of Borrower under, or the liens and security interests created by the Loan Documents, or Lender's rights to enforce its remedies under this Note and the other Loan Documents, including, without limitation, the right to pursue any remedy for injunctive or other equitable relief, or any suit or action in connection with the preservation, enforcement or foreclosure of the liens, mortgages, assignments and security interests which are now or at any time hereafter security for the payment and performance of all obligations under this Note or the other Loan Documents.

8.4 Prevail and Control. The provisions of this Section 8 shall prevail and control over any contrary provisions elsewhere in this Note or the other Loan Documents.

9.     NON-GRANTOR BORROWER. If any Borrower is not also a Grantor (as defined in the Security Instrument), such Borrower hereby makes all representations and warranties contained in Article 5 of the Security Instrument, all covenants contained in Section 6.15 of the Security Instrument, and all indemnities contained in Section 6.19 of the Security lnstrument, jointly and severally with the Grantor, to and for the benefit of Beneficiary and Beneficiary Group (both as defined in the Security Instrument).

10.     MISCELLANEOUS.

10.1 Joint and Several Liability. If this Note is executed by more than one person or entity as Borrower, the obligations of each such person or entity shall be joint and several. No person or entity shall be a mere accommodation maker, but each shall be primarily and directly liable hereunder.

10.2 Waiver of Presentment. Except as otherwise provided in any other Loan Document, Borrower hereby waives presentment, demand, notice of dishonor, notice of default or delinquency, notice of intent to accelerate, notice of acceleration, notice of nonpayment, notice of costs, expenses or losses and interest thereon, and notice of interest on interest and late charges.

10.3 Delay In Enforcement. No previous waiver or failure or delay by Lender in acting with respect to the terms of this Note or the Security Instrument shall constitute a waiver of any breach, default or failure of condition under this Note, the Security Instrument or the obligations secured thereby. A waiver of any term of this Note, the Security Instrument or of any of the obligations secured thereby must be made in writing signed by Lender, shall be limited to the express terms of such waiver, and shall not constitute a waiver of any subsequent obligation of Borrower. The acceptance at any time by Lender of any past-due amount shall not be deemed to be a waiver of the right to require prompt payment when due of any other amounts then or thereafter due and payable.

10.4 Time of the Essence. Time is of the essence with respect to every provision hereof.

10.5 Governing Law. This Note shall be governed and construed generally according to the laws of the jurisdiction in which the real property collateral for this Note is located without regard to the conflicts of law provisions thereof ("Governing State").

10.6 Consent to Jurisdiction. BORROWER HEREBY CONSENTS TO PERSONAL JURISDICTION IN THE GOVERNING STATE. VENUE OF ANY ACTION BROUGHT TO ENFORCE THIS NOTE OR ANY OTHER LOAN DOCUMENT OR ANY ACTION RELATING TO THE LOAN OR THE OBLIGATIONS SECURED THEREUNDER OR THE RELATIONSHIPS CREATED BY OR UNDER THE LOAN DOCUMENTS ("ACTION") SHALL, AT THE ELECTION OF LENDER, BE IN (AND IF ANY ACTION IS ORIGINALLY BROUGHT IN ANOTHER VENUE, THE ACTION SHALL AT THE ELECTION OFLENDER BE TRANSFERRED TO) A STATE OR FEDERAL COURT OF APPROPRIATE JURISDICTION LOCATED IN THE GOVERNING STATE. BORROWER HEREBY CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF THE STATE COURTS OF THE GOVERNING STATE AND OF FEDERAL COURTS LOCATED IN THE GOVERNING STATE IN CONNECTION WITH ANY ACTION AND HEREBY WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAWS OF ANY OTHER STATE TO OBJECT TO JURISDICTION WITHIN SUCH STATE FOR PURPOSES OF ANY ACTION. Borrower hereby waives and agrees not to assert, as a defense to any Action or a motion to transfer venue of any Action, (i) any claim that it is not subject to such jurisdiction, (ii) any claim that any Action may not be brought against it or is not maintainable in those courts or that this Note or any of the other Loan Documents may not be enforced in or by those courts, or that it is exempt or immune from execution, (iii) that the Action is brought in an inconvenient forum, or (iv) that the venue for the Action is in any way improper.

10.7 Counterparts. This Note may be executed in any number of counterparts, each of which when executed and delivered shall be deemed an original and all of which taken together shall be deemed to be

one and the same Note.

10.8 Heirs, Successors and Assigns. All of the terms, covenants, conditions and indemnities contained in this Note and the other Loan Documents shall be binding upon the heirs, successors and assigns of Borrower and shall inure to the benefit of the successors and assigns of Lender. The foregoing sentence shall not be construed to permit Borrower to assign the Loan except as otherwise permitted in this Note or the other Loan Documents.

10.9 Severability. If any term of this Note, or the application thereof to any person or circumstances, shall, to any extent, be invalid or unenforceable, the remainder of this Note, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Note shall be valid and enforceable to the fullest extent permitted by law.

10.10 Consents and Approvals. Wherever Lender's consent, approval, acceptance or satisfaction is required under any provision of this Note or any of the other Loan Documents, such consent, approval, acceptance or satisfaction shall not be unreasonably withheld, conditioned or delayed by Lender unless such provision expressly so provides.

10.11 Notices. All notices and other communications that are required or permitted to be given to a party under this Note shall be in writing and shall be sent to such party, either by personal delivery, by overnight delivery service, by certified first class mail, return receipt requested, or by facsimile transmission to the address or facsimile number below. All such notices and communications shall be effective upon receipt of such delivery or facsimile transmission. The addresses and facsimile numbers of the parties shall be:

Borrower:

Staunton Plaza, LLC

3060 Peachtree Road, Suite 1850

Atlanta, Georgia 30305

FAX No.' (404) 233-8039

Lender:

Wells Fargo Bank, National Association

1320 Willow Pass Road, Suite 205

Concord, CA 94520

Loan No. 61-0903985

FAX No.: (925) 691-5249

10. 12 Exhibits. Exhibits A and B attached hereto are incorporated herein by this reference.

11.    PREPAYMENT-DEFEASANCE ONLY. Borrower acknowledges that any prepayment of this Note will cause Lender to lose its interest rate yield on this Note and will possibly require that Lender reinvest any such prepayment amount in loans of a lesser interest rate yield (including, without limitation, in debt obligations other than first mortgage loans on commercial properties). As a consequence, Borrower agrees as follows, as an integral part of the consideration for Lender's making the Loan:

11.1 Voluntary Prepayment. Any voluntary prepayment of this Note (a) is prohibited during the Prepayment Lockout Period and (b) is permitted in full only, and not in part.

11.2Prepayment Charge.

a. Basic Charge. Except as provided below, if this Note is prepaid prior to the Open Period Start Date, whether such prepayment is involuntary or upon acceleration of the principal amount of this Note by Lender following a Default, Borrower shall pay to Lender on the prepayment date (in addition to all other sums then due and owing to Lender under the Loan Documents) a prepayment charge equal to the greater of the following two amounts: (i) an amount equal to 1% of the amount prepaid; or (ii) an amount equal to (A) the amount, if any, by which the sum of the present values as of the prepayment date of all unpaid principal and interest payments required under this Note, calculated by discounting such payments from their respective Due Dates (or, with respect to the payment required on the Maturity Date, from the Anticipated Repayment Date) back to the prepayment date at a discount rate equal to the Periodic Treasury Yield (defined below) exceeds the outstanding principal balance of the Loan as of the prepayment date, multiplied by (B) a fraction whose numerator is the amount prepaid and whose denominator is the outstanding principal balance of the Loan as of the prepayment date. For purposes of the foregoing, "Periodic Treasury Yield" means (iii) the annual yield to maturity of the actively traded non-callable United States Treasury fixed interest rate security (other than any such security which can be surrendered at the option of the holder at face value in payment of federal estate tax or which was issued at a substantial discount) that has a maturity closest to (whether before, on or after) the Anticipated Repayment Date (or if two or more such securities have maturity dates equally close to the Anticipated Repayment Date, the average annual yield to maturity of all such securities), as reported in The Wall Street Journal or other authoritative publication or news retrieval service on the fifth Business Day preceding the prepayment date, divided by (iv) 12, if the scheduled Due Dates are monthly, or 4, if the Due Dates are quarterly.

b. Additional Charge. If this Note is prepaid on any day other than a Due Date, whether such prepayment is voluntary, involuntary or upon Full acceleration of the principal amount of this Note by Lender following a Default, Borrower shall pay to Lender on the prepayment date (in addition to the basic prepayment charge described in Section 11.2.a above and all other sums then due and owing to Lender under this Note and the other Loan Documents) an additional prepayment charge equal to the interest which would otherwise have accrued on the amount prepaid (had such prepayment not occurred) during the period from and including the prepayment date to and including the last day of the month in which the prepayment occurred.

c. Exclusion. Notwithstanding the foregoing, no prepayment charge of any kind shall apply in respect to any prepayment resulting from Lender's application of any insurance proceeds or condemnation awards to the outstanding principal balance of the Loan.

11.3 Effect of Prepayment. No partial prepayment of this Note shall change any Due Date or the P&I Payment Amount, unless Lender otherwise agrees in writing.

11.4 Waiver. Borrower waives any right to prepay this Note except under the terms and conditions set forth in this Section 11 and agrees that if this Note is prepaid, Borrower shall pay the prepayment charge set forth above. Borrower hereby acknowledges that (a) the inclusion of this waiver of prepayment rights and agreement to pay the prepayment charge for the right to prepay this Note was separately negotiated with Lender; (b) the economic value of the various elements of this waiver and agreement was discussed; and (c) the consideration given by Borrower for the Loan was adjusted to reflect the specific waiver and agreement negotiated between Borrower and Lender and contained herein.

Borrower's Initials:

12.     DEFEASANCE-FULL.

12.1 Borrower Right to Defease. At any time during the Defeasance Option Period, Borrower may elect to effect Defeasance in accordance with the provisions of this Section 12, at Borrower's sole cost and expense.

12.2 Conditions. Borrower shall only have the right to cause a Defeasance if all of the following conditions have been satisfied:

a. Notice. Borrower shall give at least 60 days but not more than 90 days written notice to Lender specifying the Borrower's intended Defeasance Date. Simultaneously with the delivery of such notice, Borrower shall deposit with Lender an amount estimated by Lender to be sufficient to reimburse Lender's anticipated expenses in connection with the Defeasance, for which Borrower shall be solely responsible whether or not the Defeasance shall be completed. If any such notice shall have been given by Borrower, Borrower shall be obligated to complete the Defeasance on the Defeasance Date, unless such notice is revoked in writing by Borrower prior to the Defeasance Date. Upon completion of the Defeasance or revocation by Borrower as specified above, Lender shall return any surplus deposit to Borrower,

b. No Default. No Default shall exist or would exist with notice or passage of time, or both, either on the

date of receipt of Borrower's notice under Section l2.2.a above or on the Defeasance Date,

c. Payments. Borrower shall pay in full, on or before the Defeasance Date (i) all unpaid interest accruing under this Note to and including the Defeasance Date (or otherwise cause Successor Borrower to assume liability for such interest), (ii) all other sums due under this Note and the other Loan Documents on or before the Defeasance Date, (iii) all escrow, closing, recording, legal, appraisal, Rating Agency and other fees, costs and expenses paid or incurred by Lender or its agents in connection with the Defeasance, the release of the lien of the Security Instrument on the Property, the review of the proposed Defeasance Collateral and the preparation of the Defeasance Security Agreements and related documentation, (iv) a defeasance fee to Lender of l% of the outstanding principal balance of the Loan as of the Defeasance Date, and (v) any revenue, documentary stamp, intangible or other taxes, charges or fees due in connection with the transfer or assumption of this Note or the Defeasance;

d. Deliveries. Borrower shall, at Borrower's sole cost and expense, deliver the following items to Lender

on or before the Defeasance Date:

(i) The Defeasance Collateral, as substitute collateral for the Loan; provided however, that the principal and interest payments under the Defeasance Collateral (without regard to earnings from reinvestment of proceeds) must be, in timing and amounts, sufficient to provide for payment prior, but as close as possible, to (A) all Due Dates occurring after the Defeasance Date, with each such payment being equal to or greater than the amount of the corresponding P&I Payment Amount, and (B) the Anticipated Repayment Date (with such payment being equal to or greater than the amount of the principal and interest payment that would otherwise be due on the Maturity Date); and provided further, however, that Borrower shall take such actions, enter such agreements and issue such orders or directions (including those specified below), as are necessary or appropriate and in accordance with customary commercial standards to effectuate book-entry transfers and pledges through the book-entry facilities of the institution holding the Defeasance Collateral or otherwise to create and perfect a valid, enforceable, first priority security interest in the Defeasance Collateral in favor of Lender;

(ii) The Defeasance Security Agreements creating, attaching and perfecting a first priority security interest in favor of Lender in the Defeasance Collateral under the law of the jurisdiction selected by Lender, which agreements shall provide, among other things, that all payments generated by the Defeasance Collateral shall be paid directly to Lender and applied by Lender to amounts then due and payable under this Note;

(iii) A certificate of Borrower certifying that all of the requirements of this Section 12 have been satisfied;

(iv) Opinions of counsel for Borrower, addressed to Lender and all Rating Agencies and delivered by counsel satisfactory to Lender, subject only to customary assumptions, qualifications and exceptions, stating, among other things, that (A) Lender has a perfected first priority security interest in the Defeasance Collateral, (B) the Defeasance Security Agreements are enforceable against Borrower in accordance with their terms and (C) any REMIC that holds this Note immediately prior to the Defeasance Date will not, as a result of the Defeasance, fail to maintain its status as a REMIC;

(v) A certificate, addressed to Lender and all Rating Agencies, from a firm of independent certified public accountants acceptable to Lender, subject only to customary assumptions, qualifications and exceptions, certifying that the Defeasance Collateral satisfies the requirements of Section 12.2.d. (i) above and certifying that in no fiscal year of Successor Borrower will the interest earned on the Defeasance Collateral exceed the interest payable for the same period on the Loan under this Note,

(vi) If this Note is held by a REMIC, written evidence from all of the Rating Agencies that the Defeasance will not result in a downgrading, withdrawal or qualification of the respective ratings in effect immediately prior to the Defeasance for any securities representing interests in such REMIC which are then outstanding; and

(vii) Such other certificates, opinions, documents or instruments as are customary in commercial

mortgage defeasance transactions to effect the Defeasance.

e. Release of Lien. Upon satisfaction of all conditions specified in this Section 12, the Property and the Collateral shall be released from the lien of the Security Instrument and the other Loan Documents, and the Defeasance Collateral and the proceeds thereof shall constitute the only collateral securing the obligations of Borrower under this Note and the other Loan Documents. Lender shall, at Borrower's expense, prepare, execute and deliver any instruments reasonably necessary to release the lien of the Security Instrument from the Property and the Collateral.

f. Assignment and Assumption. In connection with the Defeasance, Borrower shall, at the request of Lender, assign all of its right, title and interest in and to the pledged Defeasance Collateral and all its obligations and rights under this Note and the Defeasance Security Agreements to Successor Borrower. Successor Borrower shall execute an assumption agreement in form and substance customary in commercial mortgage defeasance transactions, pursuant to which it shall assume Borrower's obligations under this Note and the Defeasancc Security Agreements. As conditions to such assignment and assumption, Borrower shall (i) deliver to Lender opinions of counsel addressed to Lender and all Rating Agencies, in form and substance customary in commercial Defeasance transactions and delivered by counsel satisfactory to Lender, and subject only to customary assumptions, qualifications and exceptions, stating, among other things, that such assumption agreement is enforceable against Borrower and Successor Borrower in accordance with its terms and that this Note and the Defeasance Security Agreements, as so assumed, are enforceable against Successor Borrower in accordance with their respective terms, and that the bankruptcy of any affiliate of Successor Borrower will not affect the assets of Successor Borrower; and (ii) pay all costs and expenses incurred by Lender or its agents in connection with such assignment and assumption (including, without limitation, the formation or review of Successor Borrower and the preparation of the assumption agreement and related documentation). Upon such assumption by Successor Borrower, Borrower shall be relieved of its obligations under this Note, the Defeasance Security Agreements and the other Loan Documents other than (iii) representations and warranties made in connection with the Defeasance, (iv) the obligation to effect the Defeasance in accordance with this Section 12, and to provide further assurances as necessary to do so, (v) liability for losses to Lender resulting from an avoidance, rescission or set-aside of the Defeasance as a result of actions taken or suffered by Borrower, and (vi) those obligations which are specifically intended to survive the repayment of the Loan or other termination, satisfaction or assignment of this Note, the Defeasance Security Agreements or the other Loan Documents or Lender's exercise of its rights and

remedies under any of such documents and instruments.

13.     HYPERAMORTIZATION. (a) Contemporaneously herewith, Borrower has executed a Cash Management Agreement (Springing Hard) ("Cash Management Agreement") pursuant to which upon the occurrence of the Hyperamortization Commencement Date or the Trigger Event, all rents and all other income, proceeds and other revenues generated or otherwise derived from or attributable to the Property shall be deposited in a deposit account with a financial institution named by Lender ("Cash Management Account"). If the Trigger Event occurs prior to the Anticipated Repayment Date, following deposit into the Cash Management Account, all Excess Cashflow shall be deposited into an Impound held by Lender as additional collateral for the Loan (the "Excess Cashflow Impound") until the first to occur of the Suspension Event or the Anticipated Repayment Date. From and after the Anticipated Repayment Date, (notwithstanding the occurrence of any Trigger Event), provided no Default has occurred and no event has occurred which, with the passage of time, notice or both, would constitute a Default, the funds deposited into the Cash Management Account shall be disbursed in accordance with this Section 13 in the following specified order of payment:

(i) First, payments to be made to the Tax Impound and Insurance Impound in accordance with the terms of this Note and the Security Instrument;

(ii) Second, payment of the P&I Payment Amount (plus, if applicable, interest at the Default Rate and any other charges then due to Lender under the Loan Documents) to be applied first to the payment of interest computed at the Initial Note Rate with the remainder applied to the reduction of the principal balance of this Note,

(iii) Third, payments required to be made to any other Impounds (other than the Excess Cash Flow Impound, as defined in Exhibit A) established pursuant to this Note or any of the other Loan Documents,

(iv) Fourth, payments of the monthly operating expenses incurred for the Property ("Monthly Operating Expenses"), pursuant to the terms of the approved Annual Budget (as hereinafter defined), but excluding any Affiliate Expenses (as hereinafter defined);

(v) Fifth, payment of Extraordinary Expenses (as hereinafter defined) approved in writing by Lender, in any;

(vi) Sixth, payment of any other amounts due under any of the Loan Documents, including, without limitation, any advances made by Lender thereunder for the protection of the Property or Lender's liens and security interests;

(vii) Seventh, payment to Lender to be applied against the principal balance of this Note (but not including any Accrued Interest) until such principal amount (not including any Accrued Interest) is paid in full;

(viii) Eighth, payment of Accrued Interest;

(ix) Ninth, payment of Affiliate Expenses; and

(x) Tenth, payment to Borrower of any remaining funds (unless the Trigger Event shall have occurred, upon which such funds shall be deposited with Lender into the Excess Cash Flow Impound (as defined in Exhibit A) until the occurrence of the Suspension Event).

(b) Nothing provided above shall limit, reduce or otherwise affect Borrower's obligations under the Loan Documents including, without limitation, me obligations of Borrower to: (i) operate and maintain (and to pay currently all expenses to operate and maintain) the Property; (ii) pay the P&I Payment Amount on each Due Date; (iii) fund all Impounds established or required under the Loan Documents; and (iv) pay all other amounts due at any time under this Note, the Security Instrument, and the other Loan Documents,

even though the sums available in the Accounts (as defined in the Cash Management Agreement) under the Cash Management Agreement may be insufficient at any time to make such payments.

14.     WAIVER OF JURY TRIAL. TO THE EXTENT NOW OR HEREAFTER PERMITTED BY APPLICABLE LAW LENDER AND BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF LENDER OR BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN TO BORROWER.

15. FINAL EXPRESSION/NO ORAL AGREEMENTS. READ THIS DOCUMENT CAREFULLY. THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

16.     LOCAL LAW PROVISIONS. In the event of any inconsistencies between the terms and conditions of this Section and any other terms and conditions of this Note, the terms and conditions of this Section shall be binding.

a. None

/ [REMAINDER OF PAGE INTENTIQNALLY LEFT BLANK]

Intending to be fully bound, Borrower has executed this Note effective as of the day and year first above written.

"BORROWER"

STAUNTON PLAZA, LLC,

a Virginia limited liability company

By: /s/ Roland Guyot

Roland Guyot, Managing Member

By: /s/ Stephen B. Swartz

Stephen B. Swartz, Managing Member

Loan No. 61-0903985

EXHIBIT A TO PROMISSORY NOTE

Additional Terms And Conditions

This Exhibit A is attached to and forms a part of that Promissory Note ("Note") executed by STAUNTON PLAZA, LLC, a Virginia limited liability company ("Borrower") in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender").

1.     DISBURSEMENT OF LOAN PROCEEDS: LIMITATION OF LIABILITY. Borrower hereby authorizes Lender to disburse the proceeds of the Loan, after deducting any and all fees owed by Borrower to Lender in connection with the Loan, to Pioneer Title, Virginia Beach as agent for First American Title Insurance Company. With respect to such disbursement, Borrower understands and agrees that Lender does not accept responsibility for errors, acts or omissions of others, including, without limitation, the escrow company, other banks, communications carriers or clearinghouses through which the transfer of Loan proceeds may be made or through which Lender receives or transmits information, and no such entity shall be deemed Lender's agent. As a consequence, Lender shall not be liable to Borrower for any actual (whether direct or indirect), consequential or punitive damages which may arise with respect to the disbursement of Loan proceeds, whether or not (a) any claim for such damages is based on ton or contract, or (b) either Lender or Borrower knew or should have known of the likelihood of such damages in any situation.

2.     FINANCIAL STATEMENTS.

2.1 Statements Required. During the term of the Loan and while any liabilities of Borrower to Lender under any of the Loan Documents remain outstanding and unless Lender otherwise consents in writing, Borrower shall provide to Lender the following:

a. Operating Statement. Not later than 10 days after and as of the end of each calendar month during the period prior to any sale of the Loan, and thereafter not later than 30 days after and as of the end of each calendar quarter, an operating statement, signed and dated by Borrower, showing all revenues and expenses during such month or quarter and year-to-date, relating to the Property, including, without limitation, all information requested under any of the Loan Documents;

b. Rent Roll. Not later than 10 days after and as of the end of each calendar month during the period prior to any sale of the Loan, and thereafter not later than 30 days after and as of the end of each calendar quarter, a rent roll signed and dated by Borrower, showing the following lease information with regard to each tenant: the name of the tenant, monthly or other periodic: rental amount, dates of commencement and expiration of the lease, and payment status;

c. Balance Sheet. If requested by Lender, not later than 90 days after and as of the end of each fiscal year, a balance sheet, signed and dated by Borrower, showing all assets and liabilities of Borrower; and

d. Other Information. From time to time, upon Lender's delivery to Borrower of at least 10 days' prior written notice, such other information with regard to Borrower, principals of Borrower, guarantors or the Property as Lender may reasonably request in writing.

e. Annual Budget. For each fiscal year commencing January 1, Borrower shall submit to Lender for Lender's written approval an operating budget for the next succeeding fiscal year, on a month by month basis, including cash flow projections and all proposed capital replacements and improvements and other expenses of the Property (the "Annual Budget") not later than sixty (60) days prior to the commencement of such fiscal year, in form and substance satisfactory to Lender. Lender shall have the right to approve

such Annual Budget and in the event that Lender objects to the proposed Annual Budget submitted by Borrower, Lender shall advise Borrower of such objections and Borrower shall within five (5) days after receipt of notice of any such objections, revise such Annual Budget and resubmit the same to Lender. This procedure shall be repeated until Lender approves an Annual Budget. Until such time as Lender approves a proposed Annual Budget, the most recently approved Annual Budget shall apply; provided that such approved Annual Budget shall be adjusted to reflect actual increases in real estate taxes, insurance premiums, and utility expenses and to defer any management fees, leasing commissions, or other payments to, or any personal expenses of, Borrower or any person or entity which is directly or indirectly controlling, controlled by, or under common control with, Borrower or any guarantor or indemnitor with respect to the Loan ("Affiliate Expenses"). In the event that Borrower proposes to incur an extraordinary operating expense or capital expense not set forth in the approved Annual Budget then in effect (an "Extraordinary Expense"), then Borrower shall promptly deliver to Lender a reasonably detailed explanation of such proposed Extraordinary Expense for Lender's written approval. Borrower covenants and agrees to incur costs only in accordance with the approved Annual Budget.

2.2 Form: Warranty. Borrower agrees that all financial statements to be delivered to Lender pursuant to Section 2.1 shall: (a) be complete and correct; (b) present fairly the financial condition of the party; (c) disclose all liabilities that are required to be reflected or reserved against; and (d) be prepared in accordance with the same accounting standard used by Borrower to prepare the financial statements delivered to and approved by Lender in connection with the making of the Loan or other accounting standards acceptable to Lender. Borrower shall be deemed to warrant and represent that, as of the date of delivery of any such financial statement, there has been no material adverse change in financial condition, nor have any assets or properties been sold, transferred, assigned, mortgaged, pledged or encumbered since the date of such financial statement except as disclosed by Borrower in a writing delivered to Lender. Borrower agrees that all rent rolls and other information to be delivered to Lender pursuant to Section 2.1 shall not contain any misrepresentation or omission of a material fact.

2.3 Late Charge. If any financial statement, leasing schedule or other item required to be delivered to Lender pursuant to Section 2.1 is not timely delivered, Borrower shall promptly pay to Lender, as a late charge, the sum of $500 per item. In addition, Borrower shall promptly pay to Lender an additional late charge of $500 per item for each full month during which such item remains undelivered following written notice from Lender, Borrower acknowledges that Lender will incur additional expenses as a result of any such late deliveries, which expenses would be impracticable to quantify, and that Borrower's payments under this Section 2.3 are a reasonable estimate of such expenses.

3. IMPOUNDS.

3.1 Tax Impound. Borrower shall deposit with Lender the following amount(s) (collectively, "Tax lmpound"): (a) $l8.595.00 on the Disbursement Date and (b) on the First P&I Due Date and on each Due Date thereafter, an amount estimated from time to time by Lender in its sole discretion to be sufficient to pay the taxes, assessments and other liabilities payable by Borrower under Section 6.9 of the Security Instrument ("Taxes") at least 45 days prior to each date on which Taxes become delinquent ("Delinquency Date"). The initial estimated monthly amount to be deposited by Borrower for Taxes on each Due Date is $3,719.00. If Lender determines at any time that the Tax Impound will not be sufficient to pay any Taxes at least 45 days prior to the Delinquency Date, Lender shall notify Borrower of such determination and Borrower shall deposit with Lender the amount of such deficiency not more than 10 days after Borrower's receipt of such notice, provided, however, if Borrower receives notice of any such deficiency less than 45 days prior to the Delinquency Date, Borrower shall deposit the amount of such deficiency with Lender not more than 3 Business Days after Borrower's receipt of such notice but in no event later than the Business Day immediately preceding the Delinquency Date. So long as no Default exists, Lender shall apply the Tax Impound to the payment of the Taxes.

3.2 Insurance Impound. Borrower shall deposit with Lender the following amounts(s) (collectively, "Insurance Impound"): (a) $1,996.00 on the Disbursement Date and (b) on the First P&I Due Date and on each Due Date thereafter, an amount estimated from time to time by Lender in its sole discretion to be sufficient to pay the premiums for insurance required to be maintained by Borrower under Section 6.10 of the Security Instrument ("Insurance Premiums") at least 45 days prior to the date on which the current such insurance policies expire ("Insurance Expiration Date"). The initial estimated monthly amount to be deposited by Borrower for Insurance Premiums on each Due Date is $998.00. If Lender determines at any time that the Insurance Impound will not be sufficient to pay the Insurance Premiums at least 45 days prior to the Insurance Expiration Date, Lender shall notify Borrower of such determination and Borrower shall deposit with Lender the amount of such deficiency not more that 10 days after Borrower's receipt of such notice; provided, however, if Borrower receives notice of any such deficiency less than 45 days prior to the Insurance Expiration Date, Borrower shall deposit the amount of such deficiency with Lender not more than 3 Business Days after Borrower's receipt of such notice but in no event later than the day immediately preceding the Insurance Expiration Date. So long as no Default exists, Lender shall apply the Insurance Impound to the payment of the Insurance Premiums.

3.3 Excess Cash Flow Impound: Cash Management.

(a) Commencing upon the occurrence of the Trigger Event and continuing until the Suspension Event, the Excess Cash Flow shall be deposited into an account maintained by Lender or its servicing agent, which may be segregated or commingled with other accounts (the "Excess Cash Flow Impound"). The Excess Cash Flow Impound shall be held by Lender as additional collateral for the Loan and may be applied by Lender during the term of the Loan as Lender deems appropriate in Lender's sole discretion. Notwithstanding the immediately preceding sentence to the contrary, all funds then remaining in the Excess Cash Flow Impound shall be disbursed to Borrower in one disbursement (rather than multiple partial disbursements) upon the occurrence of each of the following: (i) a Suspension Event, (ii) Borrower's written request to Lender for disbursement, and (iii) if the Trigger Event occurred due to a Lease Termination, satisfaction of the Disbursement Criteria (as defined below). For purposes herein, the "Disbursement Criteria" shall mean the satisfaction of each of the following, as determined by Lender in its sole discretion:

(i) Borrower has delivered to Lender each fully executed New Lease,

(i) Borrower has delivered to Lender (A) a written certification that all tenant improvements have been paid for and completed in a lien-free and workmanlike manner in accordance with each New Lease, and (B) paid invoices, mechanic's lien waivers and other evidence Lender may require indicating such lien-free completion; and

(ii) Borrower has delivered to Lender an estoppel certificate executed by each New Tenant, including such tenant's acknowledgment that all tenant improvements have been satisfactorily completed.

(b) If upon the occurrence of a Suspension Event, (i) the Anticipated Repayment Date has not yet occurred, the obligations under the Cash Management Agreement shall be suspended until the first to occur of another Trigger Event or the Hyperamortization Commencement Date, and (ii) the Anticipated Repayment Date has occurred, the obligations under the Cash Management Agreement shall continue in accordance with its terms.

3.4 Capital Expenditures Impound. Borrower shall deposit with Lender the following amount(s) (collectively, "Capital Expenditures Impound"): $975.00 on the First P&I Due Date and on each Due Date thereafter for payment or reimbursement of the Capital Expenditures (defined below) until the amount of $11,700.00 ("Cap Ex Threshold") is achieved. So long as no Default exists, Lender shall disburse funds from the Capital Expenditures Impound to Borrower no more frequently than monthly, in increments of no less than $5,000.00 per disbursement, to pay or reimburse Borrower for the Capital Expenditures,

provided, however, that Lender shall have received and approved each of the following:

(a) Borrower's written request for such disbursement, including a reasonably detailed description and cost breakdown of the Capital Expenditures covered by the request and Borrower's certification that all such Capital Expenditures have been paid or incurred by Borrower for work completed lien-free and in a workmanlike manner;

(b) copies of invoices supporting the request for such disbursement;

(c) (if required by Lender, an inspection report signed by an inspector selected by Lender; and

(d) such other evidence as Lender shall require in support of Borrower's certification.

Borrower shall complete the lien-free performance or installation of the Capital Expenditures from time to time as necessary, in a workmanlike manner and in accordance with all applicable laws, ordinances, rules and regulations.

Once the Cap Ex Threshold has been achieved at any time and funds are subsequently disbursed in accordance with provisions above so that the balance available for disbursement from the Capital Expenditures Impound is less than the Cap Ex Threshold, Borrower shall be required to pay the amount of $975.00 to Lender commencing on the next following Due Date and continuing on each Due Date thereafter until the Cap Ex Threshold has again been achieved.

"Capital Expenditures" shall mean major repairs and replacements to maintain or improve the Property, including, without limitation, structural repairs, roof replacements, HVAC repairs and replacements, mechanical and plumbing repairs and replacements and boiler repair and replacements.

3.5 Deferred Maintenance Impound. Lender has agreed to waive the requirement of an Impound for Deferred Maintenance Work (defined below). Notwithstanding such waiver, within 6 months after the Effective Date, Borrower shall complete the lien-free performance of the Deferred Maintenance Work, and shall furnish to Lender satisfactory evidence of such completion. Borrower shall perform the Deferred Maintenance Work in a workmanlike manner and in accordance with all applicable laws, ordinances, rules and regulations.

"Deferred Maintenance Work" shall mean those items set forth on Exhibit C attached hereto and as more fully described in the Property Condition Report dated August 31, 2006, prepared by Land America Assessment Corporation.

3.6 Disbursement. Lender shall disburse any Impounds to Borrower through a funds transfer of such Impounds initiated by Lender to the following account or such other account as Borrower specifies in a notice to Lender:

Bank Name:

ABA Routing No.:

Account Name:

Reference:

Advise:

Lender shall determine the funds transfer system and other means to be used in making each such disbursement. Borrower agrees that each such funds transfer initiated by Lender shall be deemed to be a funds transfer properly authorized by Borrower, even if the transfer is not actually properly authorized by Borrower. Borrower acknowledges that Lender shall rely on the account number and ABA routing number set forth above or specified in a notice from Borrower to Lender, even if such account number identifies an account with a name different from the name so specified, or the routing number identifies a bank different from the bank so specified. If Borrower learns of any error in the transfer of any Impounds or of

any transfer which was not properly authorized, Borrower shall notify Lender as soon as possible in writing but in no ease more than 14 days after Lender's first confirmation to Borrower of such transfer.

3.7 General. All deposits required to be made by Borrower under this Section 3 constitute Impounds (as defined in the Security Instrument) and reference is made to the Security Instrument for other provisions regarding Impounds, including, without limitation, a description of the account(s) into which Impounds shall be deposited. Lender shall have the right to enter upon the Property at all reasonable times to inspect any work for which Impounds are now or hereafter required but Lender shall not be obligated to supervise or inspect any such work or to inform Borrower or any third party regarding any aspect of any such work. Borrower shall pay to Lender all reasonable fees, costs and expenses charged, paid or incurred by Lender from time to time in connection with any request of Borrower for a disbursement of funds from the Impounds (other than the Tax Impound and the Insurance Impound). Borrower authorizes Lender to disburse directly to Lender, from the Impounds or from funds to be disbursed to Borrower from the Impounds, such sums as may be necessary, at any time and from time to time, to pay all such fees, costs and expenses.

4.     TWO-TIME RIGHT OF TRANSFER OF PROPERTY.Notwithstanding anything to the contrary contained in Section 6.15 of the Security Instrument, Lender shall, two times only, consent to the voluntary sale or exchange of all of the Property by Grantor (as defined in the Security Instrument) so long as no Default has occurred and is continuing and all of the following conditions precedent have been satisfied:

4.1 Notice. Lender's receipt of not less than 60 days' prior written notice of the proposed sale or exchange,

4.2 Credit Review and Underwriting. Lender's reasonable determination that the proposed purchaser, the proposed guarantor(s), if any, and the Property all satisfy Lender's then applicable credit review and underwriting standards, taking into consideration, among other things, (a) any decrease in the Property's cash flow which would result from any increase in read property taxes due to any anticipated reassessment of the Property for tax purposes and (b) Any requirement of Lender that the purposed purchaser satisfy Lender's then applicable criteria for a single purpose bankruptcy remote entity;

4.3 Experience. Lender's reasonable determination that the proposed purchaser possesses satisfactory recent experience in the ownership and operation of properties similar to the Property,

4.4 Impounds. Lender's receipt of such new or increased Impounds as Lender may require, including, without limitation, new or increased Impounds for taxes, insurance, tenant improvements and leasing commissions, capital improvements, capital expenditures and deferred maintenance, and the amendment of the Loan Documents to require the purchaser to make monthly deposits of such new or increased Impounds for such purposes thereafter;

4.5 Documents and Instruments. Lender 's receipt of such fully executed documents and instruments as Lender shall reasonably require, in form and content reasonably satisfactory to Lender, including, without limitation,

(a) an assumption agreement under which the purchaser assumes all obligations and liabilities of Borrower under this Note and the other Loan Documents and agrees to such amendments to the Loan Documents as Lender may reasonably require in order to reflect the change in the borrowing entity and principals and any new or increased Impounds and (b) a consent to the sale or exchange by each existing guarantors and a reaffirmation of each guarantor's obligations and liabilities under each guaranty or the execution of new guaranties by new guarantors reasonably satisfactory to Lender;

4.6 Title Insurance. If required by Lender, delivery to Lender of evidence of title insurance reasonably satisfactory to Lender insuring Lender that the lien of the Security Instrument and the priority thereof will

not be impaired or affected by reason of such sale or exchange of the Property;

4.7 Assumption Fee. Payment to Lender of an assumption fee equal to 1% of the then outstanding principal balance of this Note, but not less than $15,000;

4.8 Costs and Expenses. Reimbursement to Lender of any and all costs and expenses paid or incurred by Lender in connection with such sale or exchange and Lender's consent thereto, including, without limitation, all in- house or outside counsel attorneys' fees, title insurance fees, appraisal fees, inspection fees, environmental consultant's fees and any fees or charges of the applicable Rating Agencies,

4.9 No Downgrade. If required by Lender, delivery to Lender of written evidence from the Rating Agencies that such sale or exchange will not result in a downgrading, withdrawal or qualification of the respective ratings in effect immediately prior to the sale or exchange for any securities issued in connection with the securitization of the Loan which are then outstanding; and

4.10 No Adverse REMIC Event. If required by Lender, delivery to Lender of an opinion of tax counsel, in form and content and issued by tax counsel satisfactory to Lender's counsel, that such sale or exchange shall not (a) constitute a "significant modification" of the Loan within the meaning of Treasury Regulation Section l.860G-2(b) or (b) cause the Loan to fail to be a "qualified mortgage" within the meaning of Section 860G(&)(3)(A) of the Code.

Lender shall fully release Borrower and each existing guarantor from any further obligation or liability to Lender under this Note and the other Loan Documents upon the assumption by the purchaser and each new guarantor of all such obligations and liabilities and the satisfaction of all other conditions precedent to a sale or exchange in accordance with the provisions of this Section.

5.     PREPAYMENT.

5.1 The Note contains provisions which permit: Full Defeasance Only.

Loan No. 61-0903985

EXHIBIT B TO PROMISSORY NOTE

Loan Documents and Other Related Documents

This Exhibit B is attached to and forms a part of that Promissory Note ("Note") executed by STAUNTON PLAZA, LLC, a Virginia limited liability company ("Borrower") in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender").

1. LOAN DOCUMENTS. The documents numbered 1.1 through 1.14 below of even date herewith (unless otherwise specified) and any amendments, modifications and supplements thereto which have received the prior written approval of Lender and any documents executed in the future that are approved by Lender and that recite that they are "Loan Documents" for purposes of this Note are collectively referred to as the "Loan Documents."

1.1 This Note;

1.2 Security Instrument,

1.3 State of Virginia Uniform Commercial Code - Financing Statements - Form UCC-1,

1.4 Limited Liability Company Borrowing Certificate;

1.5 Estoppels, Non-Disturbance and Attornment Agreements of various date(s);

1.6 Subordination Agreements, and Estoppels, Non-Disturbance and Attornment Agreements of various

date(s);

1.7 Assignment of Management Contracts,

1.8 Payment Method Agreement/Autodebit Authorization;

1.9 Agreement Regarding Required Insurance,

1.10 Hazardous Materials Indemnity Agreement;

1.1 1 Springing Hard Cash Management Agreement,

1.12 Agreement for Disbursement Prior to Recording and Amendment to Note,

1.13 Limited Guaranty (Guyot); and 4

1.14 Limited Guaranty (Swartz);

EXHIBIT C TO PROMISSORY NOTE

DEFERRED MAINTENANCE

Table 1

IMMEDIATE REPAIR ANDFERRED MAINTENANCE EXPENDITURES

EX-10.5

ASSUMPTION AGREEMENT

This Assumption Agreement ("Assumption Agreement") is made this 30^th of April, 2014, by MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a Delaware corporation ("MERS"), as nominee for U.S. BANK NATIONAL ASSOCIATION, as Trustee, successor-in-interest to Bank of America, N.A., as Trustee, successor by merger to LaSalle Bank National Association, as Trustee for Bear Stearns Commercial Mortgage Securities, Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-PWR14 (together with its successors and assigns, "Noteholder"), STAUNTON PLAZA, LLC, a Virginia limited liability company ("Borrower"), ROLAND GUYOT, an individual ("Guyot") and STEPHEN B. SWARTZ, an individual ("Swartz"; and together with Guyot, jointly and severally, "Original Guarantor"), STAUNTON STATION LLC, a Delaware limited liability company ("Assumptor") and PHILLIPS EDISON - ARC GROCERY CENTER OPERATING PARTNERSHIP II L.P., a Delaware limited partnership ("Operating Partnership") and PHILLIPS EDISON-ARC GROCERY CENTER REIT H, INC., a Maryland corporation ("REIT"; and together with Operating Partnership, jointly and severally, "New Guarantor"). Borrower, Original Guarantor, Assumptor and New Guarantor are collectively referred to herein as the "Borrower Parties." The Borrower Parties and Noteholder are collectively referred to herein as the "Parties."

RECITALS

A.Noteholder's predecessor in interest, Wells Fargo Bank, National Association ("Original

Lender"), made a loan to Borrower in the original principal amount of Fourteen Million One Hundred Thousand and no/100 Dollars ($14,100,000.00) ("Loan"), under the terms and provisions set forth in the following loan documents, all of which are dated as of September 22, 2006, unless otherwise noted:

1. Promissory Note Secured By Deed Of Trust (together with all renewals, modifications, increases and extensions thereof, the "Note") in the original principal amount of the Loan, made by Borrower and payable to Original Lender, as thereafter endorsed to Lender;

2. Deed of Trust and Absolute Assignment of Rents and Leases and Security Agreement (and Fixture Filing) executed by Borrower to David F. Belkowitz and Paul Davenport, each of Hirschler Fleischer, a Professional Corporation ("Trustee") for the benefit of MERS, as beneficiary and Original Lender's nominee, which secures the Note and other obligations of Borrower (as the same may be amended, restated, extended, or otherwise modified from time to time, the "Security Instrument"), and which Security Instrument was recorded in the Clerk's Office of the Circuit Court of the City of Staunton, Virginia (the "Official Records") on September 25, 2006, as Instrument No. 060003835. The land, improvements and other real property which are subject to the Security Instrument are hereinafter referred to as the "Property" and the equipment, machinery and other personal property which are subject to the Security Instrument are hereinafter referred to as the "Collateral";

3. UCC-1 Financing Statement naming Borrower as Debtor and MERS as Secured Party, recorded in the Office of the Clerk of the State Corporation Commission for the State of Virginia (the "State Filing Office") on September 28, 2006, under File Number 06-09-28-7360-7 ("State UCC");

4. Limited Guaranty executed by Guyot ("Guyot Guaranty") and Limited Guaranty executed by Swartz ("Swartz Guaranty"; and together with the Guyot Guaranty, the "Guaranty");

5. Assignment of Management Contracts ("Assignment"), executed by Borrower;

6. Consent and Agreement of Manager ("Consent"), executed by ACL Realty Corp., a Georgia corporation ("Original Property Manager");

7. Cash Management Agreement (Springing Hard) by and between Borrower, Original Manager and Original Lender ("Cash Management Agreement");

8. Hazardous Materials Indemnity Agreement by Borrower and Original Guarantor in favor of Original Lender ("Environmental Indemnity");

9. Agreement Regarding Required Insurance executed by Borrower and Original Lender;

10. Subordination, Non-Disturbance and Attornment Agreement between Borrower, Original Lender and Giant Food Stores, LLC (the "SNDA").

The documents described in the foregoing paragraphs 1 through 10 are hereinafter collectively defined as the "Original Loan Documents". The Original Loan Documents (excluding documents 4, 5, 6 and 8 above), and all other documents evidencing or securing the Loan, together with and as modified by this Assumption Agreement, are hereinafter collectively defined as the "Assumed Loan Documents". All defined terms not otherwise defined herein shall have the meanings given them in the Note, or if not defined therein, the Security Instrument.

B.As of April 28, 2014:

1. The principal balance outstanding under the Note was $12,617,620.67;

2. Accrued interest on the Note has been paid through March 31, 2014;

3. The balance of the Tax Impound held by Noteholder was $83,237.67;

4. The balance of the Insurance Impound held by Noteholder was $10,670.42;

5. The balance of the Excess Cash Flow Impound held by Noteholder was $0.00;

6. The balance of the Capital Expenditures Impound held by Noteholder was $16,575.00;

7. The balance of the Deferred Maintenance Impound held by Noteholder was $0.00; and

8. The balance of the Designated TI Impound held by Noteholder was $0.00.

C.    Borrower is about to sell and convey the Property and the Collateral to Assumptor, and both parties desire to obtain from Noteholder its consent to the sale and conveyance and a waiver of any right Noteholder may have under the Loan Documents to accelerate the Maturity Date of the Note by virtue of such conveyance of the Property and Collateral to Assumptor.

D.    Subject to the terms and conditions hereof, Noteholder is willing to consent to the sale and conveyance of the Property and the Collateral, and to waive any right of acceleration of the Maturity Date of the Note upon assumption by Assumptor of all obligations of Borrower under the Assumed Loan Documents.

NOW THEREFORE, FOR VALUABLE CONSIDERATION, including, without limitation, the mutual covenants and promises contained herein, the Parties agree as follows:

1. Incorporation. The foregoing recitals are incorporated herein by this reference.

2. Assumption Fee.As consideration for Noteholder's execution of this Assumption Agreement and in addition to any other sums due hereunder, Assumptor agrees to pay Noteholder or Noteholder's servicer(s) (all as set forth in the escrow instructions to be executed in connection with the closing of this assumption) an assumption fee of $126,176.21 (1.00% of the loan balance), due on execution of this Assumption Agreement by Noteholder (the "Assumption Fee").

3. Conditions Precedent. The following are conditions precedent to Noteholder's obligations under this Assumption Agreement, all of which Noteholder hereby agrees are satisfied:

(a) The irrevocable commitment of Chicago Title Insurance Company ("Title Company") to issue a new lender's title policy (or deliver endorsements to Noteholder's existing lender's title policy issued by Chicago Title Insurance Company) in form and substance acceptable to Noteholder and without deletions or exceptions other than as expressly approved by Noteholder in writing, insuring Noteholder that the priority and validity of the Security Instrument has not been and will not be impaired by this Assumption Agreement, the conveyance of the Property, or the transaction contemplated hereby;

(b) Receipt and approval by Noteholder of: (i) an original of this Assumption Agreement executed by the Borrower Parties; (ii) an original Memorandum of Assumption Agreement in the form attached hereto as EXHIBIT A, executed by the Borrower Parties with signatures notarized, and otherwise in form and substance acceptable to Noteholder ("Memorandum of Assumption Agreement"); and (iii) any other documents and agreements which are required pursuant to this Assumption Agreement, in form and content acceptable to Noteholder;

(c) Execution and delivery by Assumptor and New Guarantor of such other documents and agreements, if any, required pursuant to this Assumption Agreement or which Noteholder has requested to be recorded or filed;

(d) Assumptor's delivery to Noteholder of UCC-1 Financing Statements and UCC-3 Financing Statement Amendments in proper form for filing in the appropriate jurisdictions as determined by Noteholder, which Assumptor expressly authorizes Noteholder to file;

(e) Execution and delivery to Noteholder by New Guarantor of a Limited Guaranty ("New Guaranty") in favor of Noteholder and in form and substance acceptable to Noteholder, pursuant to which New Guarantor irrevocably guarantees payment for certain matters under the Loan as more specifically set forth in the New Guaranty, along with delivery to Noteholder of such resolutions or certificates of New Guarantor as Noteholder may require, in form and content acceptable to Noteholder;

(f) Execution and delivery to Noteholder by Assumptor and New Guarantor of a Hazardous Materials Indemnity Agreement ("New Environmental Indemnity") in favor of Noteholder and in form and substance acceptable to Noteholder;

(g) Receipt by Noteholder of a copy of the new property management agreement for the Property in form and substance, and with a manager, acceptable to Noteholder ("New Manager"), along with an executed consent and subordination of management agreement acceptable to Noteholder ("New Management Agreement Subordination");

(h) Execution and delivery to Noteholder by Assumptor and New Manager of a First Amendment to Cash Management Agreement (the "Cash Management Agreement Amendment"), amending the Cash Management Agreement as more specifically set forth in the First Amendment to Cash Management Agreement, in form and content acceptable to Noteholder;

(i) Receipt by Noteholder of a Certificate of Authority executed by Assumptor, with notary acknowledgements ("Certificate of Authority"), indicating which persons are authorized to act on behalf of Assumptor for all purposes including, but not limited to, obtaining any and all information pertaining to the Loan, requesting any action specified in the

(j) Loan Documents, and requesting disbursement of any escrow or reserve funds;

Delivery to Noteholder of the organizational documents and evidence of good standing of Assumptor, its constituent parties, and of New Guarantor, together with such resolutions or certificates as Noteholder may require, in form and content acceptable to Noteholder, authorizing the assumption of the Loan and executed by the appropriate persons and/or entities on behalf of Assumptor and New Guarantor;

(k) The representations and warranties contained herein are true and correct in all material respects;

(l) Receipt by Noteholder of evidence of Assumptor's casualty insurance

policy and comprehensive liability insurance policy with respect to the Property (or insurance certificates specifying the terms of such policies), each in form and amount required under the Loan Documents, with the annual premium for same to be paid at closing;

(m) Receipt by Noteholder of a copy of the deed by which title to the Property will be conveyed to Assumptor, and the purchase and sale agreement documenting the sale of the Property to Assumptor (as amended, the "Contract");

(n) Receipt by Noteholder of an executed Form W-9 for Assumptor;

(o) Noteholder shall have received an opinion of counsel to Noteholder with respect to the compliance of this Assumption Agreement, the transfer to Assumptor, and the transactions referenced herein with the provisions of the Internal Revenue Code as the same pertain to real estate mortgage investment conduits and such other opinion letters as Noteholder's counsel shall require;

(p) Payment of the Assumption Fee provided for in Section 2;

(q) All items on the closing checklist of Noteholder's counsel shall be satisfied or waived by Noteholder or its counsel; and

(r) Borrower's or Assumptor's reimbursement to Noteholder of Noteholder's costs and expenses actually and reasonably incurred in connection with this Assumption Agreement and the transactions contemplated hereby, including, without limitation, title insurance costs, escrow and recording fees, attorneys' fees, appraisal, engineers' and inspection fees and documentation costs and charges, whether such services are furnished by Noteholder's employees, agents or independent contractors.

4.    Effective Date. The effective date of this Assumption Agreement ("Effective Date") shall be the earlier of (i) the date the Memorandum of Assumption Agreement is recorded in the Official Records, or (ii) in the event the transaction contemplated by this Assumption Agreement is closed by way of a "gap" closing, the date that the escrow company engaged in connection with the transaction deems the transaction "closed".

5.    Assignment. Borrower hereby grants, transfers, sets over and assigns to Assumptor, all of Borrower's right, title and interest in and to the Assumed Loan Documents.

6.    Assumption. Assumptor hereby assumes and agrees to pay when due all sums due or to become due or owing under the Note, the Security Instrument and the other Assumed Loan Documents and shall hereafter faithfully perform all of Borrower's obligations under and be bound by all of the provisions of the Assumed Loan Documents and assumes all liabilities of Borrower under the Assumed Loan Documents as if Assumptor were an original signatory thereto. The execution of this Assumption Agreement by Assumptor shall be deemed its execution of the Note, the Security Instrument, the Assignment of Leases and the other Assumed Loan Documents. Assumptor shall henceforth be deemed to be the "Mortgagor," "Assignor," "Trustor," "Grantor," "Indenmitor" and/or "Borrower", as the case may be, under each of the Assumed Loan Documents. Without limiting the generality of the foregoing, Assumptor's assumption includes the assumption of all obligations, liabilities, and waivers of Borrower set forth in the Note, including, without limitation, the liabilities of Borrower under Section 8.2 thereof. The foregoing assumption by Assumptor is absolute and

unconditional.Notwithstanding the foregoing, Noteholder agrees and

acknowledges that any breach by Borrower or Original Guarantor of any of the representations, warranties or covenants of the Original Loan Documents or this Assumption Agreement that are personal to Borrower or Original Guarantor (such as maintaining existence and bankruptcy) shall not in and of itself constitute a default by Assumptor under the Assumed Loan Documents.

7.    Partial Release of Borrower. Noteholder hereby releases (on the Effective Date) Borrower from any and all liability under the Original Loan Documents as to acts, events or omissions occurring or obligations arising after the Effective Date; provided however, that the Parties hereby acknowledge and agree that Borrower is expressly not released from and nothing contained herein is intended to limit, impair, terminate or revoke, any of Borrower's obligations with respect to the matters set forth in Section 8.2 of the Note, to the extent the same arise out of or in connection with any acts, events or omissions occurring or obligations arising on or before the Effective Date (the "Retained Obligations"), and that such obligations shall continue in full force and effect in accordance with the terms and provisions thereof and hereof. Borrower's obligations under the Original Loan Documents with respect to the Retained Obligations shall not be discharged or reduced by any extension, amendment, renewal or modification to the Note, the Security Instrument or any other Loan Documents, including, without limitation, changes to the terms of repayment thereof, modifications, extensions or renewals of repayment dates, releases or subordinations of security

in whole or in part, changes in the interest rate or advances of additional funds by Noteholder in its discretion for purposes related to those set forth in the Loan Documents.

8.    Confirmation of Guaranty and Environmental Indemnity; Partial Release of Original Guarantor. Effective upon the Effective Date, Original Guarantor shall be released from any and all liability under the Guaranty and the Environmental Indemnity as to acts, events or omissions occurring or obligations arising after the Effective Date; provided, however, such release shall not apply to any acts, events or omissions which occurred prior to the Effective Date, whether or not the effects of or damages from such acts, events or omissions are apparent or ascertainable as of the Effective Date. Nothing contained herein is intended to limit, impair, terminate or revoke Original Guarantor's obligations under the Guaranty to the extent the same arise out of or in connection with any acts, events or omissions occurring or obligations arising on or before the Effective Date.

9.    Release of Noteholder Parties and Covenant Not to Sue. Each Borrower Party, on behalf of itself and its heirs, successors and assigns, hereby releases and forever discharges Noteholder, any trustee with regard to the Loan, any servicer of the Loan, each of their respective predecessors-in-interest and successors and

assigns, together with the officers, directors, partners, employees, investors, certificate holders and agents of each of the foregoing (collectively, the "Noteholder Parties"), from all debts, accountings, bonds, warranties, representations, covenants, promises, contracts, controversies, agreements, claims, damages, judgments, executions, actions, inactions, liabilities, demands or causes of action of any nature, at law or in equity, known or unknown, which any Borrower Party now has by reason of any cause, matter, or thing through and including the date hereof, arising out of or relating to: (a) the Loan, including, without limitation, its funding, administration and servicing, (b) the Loan Documents, (c), the Property or Collateral, (d) any reserve and/or escrow balances held by Noteholder or any servicers of the Loan, or (e) the sale, conveyance, assignment and transfer of the Property and Collateral. The foregoing, however, shall not release any of the terms and provisions of this Agreement. Each Borrower Party, on behalf of itself and its heirs, successors and assigns, covenants and agrees never to institute or cause to be instituted or continue prosecution of any suit or other form of action or proceeding of any kind or nature whatsoever against any of the Noteholder Parties by reason of or in connection with any of the foregoing matters, claims or causes of action.

THE RELEASE CONTAINED IN THIS SECTION 9 INCLUDES CLAIMS OF WHICH BORROWER PARTIES (INDIVIDUALLY AND COLLECTIVELY) ARE PRESENTLY UNAWARE OR WHICH BORROWER PARTIES (INDIVIDUALLY AND COLLECTIVELY) DO NOT PRESENTLY SUSPECT TO EXIST WHICH, IF KNOWN BY A BORROWER PARTY WOULD MATERIALLY AFFECT ITS RELEASE OF THE NOTEHOLDER PARTIES.

BY EXECUTING THIS AGREEMENT, EACH BORROWER PARTY ACKNOWLEDGES THAT (i) THIS SECTION 9 HAS BEEN READ AND FULLY UNDERSTOOD, (ii) EACH BORROWER PARTY HAS EACH HAD THE CHANCE TO ASK QUESTIONS OF ITS COUNSEL ABOUT ITS MEANING AND SIGNIFICANCE AND (iii) EACH BORROWER PARTY HAS ACCEPTED AND AGREED TO THE TERMS SET FORTH IN THIS SECTION 9.

10.Loan Document Modifications. The following modifications are hereby made

to the Assumed Loan Documents:

(a) From and after the date hereof, all references to the defined term "Loan Documents" in any of the Assumed Loan Documents (and any documents executed concurrently with this Agreement) shall be deemed to mean, collectively, (i) this Assumption Agreement, (ii) the Assumed Loan Documents, (iii) the New Guaranty, (iv) the New Environmental Indemnity, (v) the New Management Agreement Subordination, and (vi) any new UCC-1 financing statements filed or recorded in connection herewith.

(b) From and after the date hereof, all references to the defined terms "Note," and "Security Instrument" in any of the Assumed Loan Documents shall be deemed to mean such document as modified hereby.

(c) From and after the date hereof, the Note shall be modified as follows:

(i) Clause (a)(iii) of Section 8.2 of the Note shall be amended and restated as follows:

"(iii) failure to pay property or other taxes, assessments or charges (other than (A) amounts paid to Lender for taxes, assessments or charges pursuant to Impounds as defined in Exhibit A and where Lender elects not to apply such funds toward payment of the taxes, assessments or charges owed, and (B) where cash flow from the Property is insufficient to pay such amounts) which may create liens senior to the lien of the Security Instrument on all or any portion of the Property;"

(ii) Clause (a)(vii) of Section 8.2 of the Note shall be amended and restated as follows:

"or (vii) other than as provided in clause (e) below, if any representation or warranty contained in Section 5.2 of the Security Instrument related to the conduct, action or inaction of Borrower prior to the date hereof is false, incorrect or misleading in any material respect;"

(iii) Clause (b)(ii) of Section 8.2 of the Note shall be amended and restated as follows:

"(ii) an involuntary bankruptcy or insolvency proceeding (other than one filed by Lender) which is not contested by Borrower within 30 days of filing (and which contest is thereafter pursued with commercially reasonable diligence) and dismissed within 180 days of filing."

(iv)     Clause (e) of Section 8.2 of the Note shall be amended and restated as follows:

"(e) if any representation or warranty contained in Section 5.2 of the Security Instrument related to the conduct, action or inaction of Borrower prior to the date hereof is false, incorrect or misleading in any material respect

and a court orders the assets and liabilities of Borrower to be substantively consolidated with the assets and liabilities of any other person or entity based partially or wholly upon the conduct giving rise to the breach of such representation or warranty in Section 5.2."

(v)    Section 2.1.a and Section 2.1.b of Exhibit A to the Note shall be amended and restated as follows:

"a.Operating Statement. Not later than 30 days after the end of

each calendar quarter, an operating statement, signed and dated by Borrower, showing all revenues and expenses during such quarter and year-to-date, relating to the Property, including, without limitation, all information requested under any of the Loan Documents;

b.Rent Roll. Not later than 30 days after the end of each calendar

quarter, a rent roll signed and dated by Borrower, showing the following lease information with regard to each tenant: the name of the tenant, monthly or other periodic rental amount, dates of commencement and expiration of the lease, and payment status;"

(d)From and after the date hereof, the Security Instrument shall be modified

as follows:

(i)In the preamble, the notice addresses for Borrower and Lender

shall be restated as follows:

Lender:U.S. Bank National Association, as Trustee for

Bear Steams Commercial Mortgage Securities, Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-PWR14 c/o Wells Fargo Commercial Mortgage Servicing 1901 Harrison St., 7^th Floor

Oakland, CA 94612

MAC A0227-020

Attn: Asset Manager

Borrower:Staunton Station LLC

do Phillips Edison & Company Ltd.

11501 Northlake Drive

Cincinnati, OH 45249

Attn: Chief Financial Officer

(ii)The following subsections of Section 5.2 of the Security

Instrument shall be amended and restated as follows (and the other subsections shall remain unmodified):

"h.such entity has maintained and will maintain its accounts,

books and records separate from any other person or entity; except that such entity's financial position, assets, results of operations and cash flows may be included in the consolidated financial statements of an Affiliate in accordance with generally accepted accounting principles so long as Borrower's separateness is noted in any such consolidated financial statement;"

"m.     such entity has prepared and will prepare separate tax returns and financial statements to the extent that such entity is: (i) not part of a consolidated group filing a consolidated return (so long as such entity is shown as a separate member of such group); or (ii) not treated as a division solely for tax purposes of another taxpayer."

"n.    such entity has paid and will pay its own liabilities and expenses out of its own funds and assets, provided the foregoing shall not require any member of Borrower to make additional capital contributions to Borrower."

"z.such entity has maintained and, to the extent that the

Property is generating sufficient cash flow, will maintain adequate capital in light of its contemplated business operations, provided the foregoing shall not require any member of Borrower to make additional capital contributions to Borrower."

(iii)Section 6.15.c(ii) of the Security Instrument shall be amended and

restated as follows:

"(ii) Permitted Equity Transfers. Notwithstanding anything to the contrary contained in this Deed of Trust or any other Loan Document to the contrary, for so long as one or both of PHILLIPS EDISON - ARC GROCERY CENTER OPERATING PARTNERSHIP II L.P., a Delaware limited partnership (the "Grocery Center OP"), or PHILLIPS EDISON-ARC GROCERY CENTER REIT II, INC., a Maryland corporation (the "Grocery Center REIT"), is the New Guarantor (as defined in that certain Assumption Agreement dated April 30, 2014 (the "Assumption Agreement")) and STAUNTON STATION LLC, a Delaware limited liability company, is the Assumptor (as defined in the Assumption Agreement), the following transfers shall constitute permitted transfers (subject only to any conditions set forth below) and shall not require Lender's consent or the payment of a transfer fee in connection therewith (each, a "Permitted PECO Transfer"):

(a)the listing of common stock in the Grocery Center REIT on the New York Stock Exchange ("NYSE") or such other nationally recognized stock exchange (the "REIT Listing") provided (i) the Grocery Center REIT satisfies all of the listing requirements of the U.S. Securities and Exchange Commission at the time of and as a condition of the REIT Listing, including, but not limited to, the net worth requirements and (ii) the REIT Listing does not result in or cause a Change of Control (as defined below);

(b)the issuance, sale, pledge, conveyance, transfer or other disposition (each, a "REIT Share Transfer") of any shares of common stock in the Grocery Center REIT (the "REIT Shares") so long as (i) at the time of the REIT Share Transfer, the REIT Shares are listed on the NYSE or any other nationally recognized stock exchange and (ii) the REIT Share Transfer does not result in or cause a Change of Control;

(c)the issuance, sale, pledge, conveyance, transfer or other disposition (each an "OP Transfer"), of any limited partnership interests (the "OP Interests") in the Grocery Center OP so long as the OP Transfer does not result in or cause a Change of Control;

(d)any issuance, sale, pledge, conveyance, transfer or other disposition of REIT Shares during the period prior to the REIT Listing (i.e., while the Grocery Center REIT is a publicly traded but non-listed entity), provided that such activities, singularly or taken as a whole, do not result in or cause a Change of Control; and

(e)any merger or consolidation of the Grocery Center REIT or the Grocery Center OP with Phillips Edison - ARC Shopping Center Operating Partnership, L.P., a Delaware limited partnership, Phillips Edison - ARC Shopping Center REIT, Inc., a Maryland corporation, Phillips Edison Limited Partnership ("PELP") or any of PELP's subsidiaries so long as (i) the Grocery Center REIT or the Grocery Center OP, as applicable, is the surviving entity, (ii) such transaction does not result in or cause a Change of Control, (iii) Lender is given at least thirty (30) days prior written notice of such merger or consolidation, along with a transaction summary and other documentation reasonably requested by Lender, and a review fee of $10,000, and (iv) upon request of Lender, the Grocery Center REIT and/or the Grocery Center OP shall execute and deliver to Lender a ratification agreement, in form and content reasonably satisfactory to Lender, ratifying its existing obligations under the Loan

Documents, and shall pay the reasonable fees of Lender's counsel in preparing the ratification.

For purposes of this Section 6.15,c(ii), a "Change of Control" shall occur when: (a) the Grocery Center OP is no longer the sole member of Borrower, (b) PE-ARC GROCERY CENTER OP GP II LLC, a Delaware limited liability company ("GP") is no longer the sole general partner of the Grocery Center OP,

(c) the Grocery Center REIT is no longer the sole member of GP, and/or the Grocery Center REIT's direct interest in the Grocery Center OP and/or its indirect interest in the Borrower falls below 51%, (d) any transfer of interests or series of transfers of interests in the Grocery Center REIT, which results in more than 49% of the ownership interests of the Grocery Center REIT being held by any single person or entity or related group of people or entities, or (e) the individuals comprising the Board of Directors of the Grocery Center REIT, as the same exists for the twelve (12) month period immediately prior to the Permitted PECO Transfer, fail to represent a majority of the Board of Directors of the Grocery Center REIT as of the date of completion of the

Permitted PECO Transfer, subject to the terms of the following sentence. For purposes of determining the occurrence of the preceding subclause (e), the following shall be expressly excluded: any change in directors resulting from (x) the death or incapacity of any director, and/or (y) the resignation or removal of any director for reasons unrelated to a Permitted PECO Transfer, provided any replacement director has been approved by a vote of at least a majority (or such higher percentage as may be required by the governing documents of the Grocery Center REIT) of the board of directors of the Grocery Center REIT then in office."

(iv)Section 7.1(a)(vi) of the Security Instrument (which identified the

prior Guarantors as Key Persons) shall be deleted.

11.Representations and Warranties.

(a)Assignment. Borrower and Assumptor each hereby represents and

warrants to Noteholder that Borrower has irrevocably and unconditionally transferred and assigned to Assumptor all of Borrower's right, title and interest in and to:

(i) The Property and the Collateral;

(ii) The Assumed Loan Documents;

(iii) All leases related to the Property or the Collateral;

(iv) All rights as named insured under all casualty and liability insurance policies (and all endorsements in connection therewith) relating to the Property or the Collateral (unless, but only to the extent that, Assumptor is obtaining its own such insurance policies);

(v) All reciprocal easement agreements, operating agreements, and declarations of conditions, covenants and restrictions related to the Property;

(vi) All prepaid rents and security deposits, if any, held by Borrower in connection with leases of any part of the Property or the Collateral; and

(vii) All funds, if any, deposited in impound accounts held by or for the benefit of Noteholder pursuant to the terms of the Loan Documents.

Borrower and Assumptor each hereby further represents and warrants to Noteholder, as to itself only (and not jointly), that no consent to the transfer of the Property and the Collateral to Assumptor is required under any agreement to which Borrower or Assumptor is a party, including, without limitation, under any lease, operating agreement, mortgage or security instrument (other than the Loan Documents), or if such consent is required, that it has been obtained and is in full force and effect.

(b)    No Defaults. Borrower hereby represents and warrants, to the best of its knowledge, that (i) no default, event of default, breach or failure of condition has occurred, or would exist with notice or the lapse of time or both, under any of the Original Loan Documents, and (ii) all representations and warranties herein and in the other Original Loan Documents are true and correct (except (A) to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date, and (B) for such representations and warranties which are qualified by their terms by references to "materiality," which such representations and warranties as so qualified shall be true and correct in all respects). Assumptor hereby represents and warrants, to the best of its knowledge, that no default, event of default, breach or failure of condition has occurred, or would exist with notice or the lapse of time or both, under any of the Assumed Loan Documents, as modified by this Assumption Agreement, and all representations and warranties herein and in the other Assumed Loan Documents are true and correct (except (A) to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date, and (B) for such representations and warranties which are qualified by their terms by references to "materiality," which such representations and warranties as so qualified shall be true and correct in all respects).

(c)    Loan Documents. Assumptor represents and warrants to Noteholder that Assumptor has actual knowledge of all terms and conditions of the

Assumed Loan Documents, and agrees that Noteholder has no obligation or duty to provide any information to Assumptor regarding the terms and conditions of the Assumed Loan Documents. After giving effect to the transfer consented to under this Agreement, Assumptor further agrees that all representations, agreements and warranties in

the Assumed Loan Documents (as modified by this Assumption Agreement), regarding Borrower, its status, authority, financial condition and business shall apply to Assumptor as well as to Borrower, as though Assumptor were the borrower originally named in the Assumed Loan Documents. Assumptor further understands and acknowledges that, except as expressly provided in a writing executed by Noteholder, Noteholder has not waived any right of Noteholder or obligation of Borrower or Assumptor under the Assumed Loan Documents and except as expressly provided herein, Noteholder has not agreed to any modification of any provision of any Assumed Loan Document or to any extension of the Loan.

(d)    Financial Statements. Assumptor represents and warrants to Noteholder that the financial statements of Assumptor and New Guarantor, if any, previously delivered by Borrower, Assumptor or any of such parties to Noteholder: (i) are materially complete and correct; (ii) as of the date of such statement, present fairly the financial condition of each of such parties; and (iii) have been prepared in accordance with generally accepted accounting principles consistently applied or other accounting standards approved by Noteholder.

(e)    Reports. Assumptor represents and warrants to Noteholder that all reports, documents, instruments and information delivered to Noteholder in connection with Assumptor's assumption of the Loan: (i) are, in all material respects, correct and sufficiently complete to give Noteholder accurate knowledge of their subject matter; and (ii) do not contain any misrepresentation of a material fact or omission of a material fact which omission makes the provided information misleading.

(f)    Assumptor Location. Assumptor represents and warrants that its chief executive office is located at the following address: do Phillips Edison & Company Ltd., 11501 Northlake Drive, Cincinnati, OH 45249. Assumptor represents and warrants that its state of formation is Delaware. All organizational documents of Assumptor delivered to Noteholder are complete and accurate in every material respect. Assumptor's legal name is exactly as shown on page one of this Assumption Agreement.

(g)    No Adverse Change. Assumptor represents and warrants to Noteholder that, since the date of the financial statements delivered to Noteholder, there has been no material adverse change in the financial condition of any of such parties which could be reasonably expected to materially

impair the ability of such parties to perform their respective obligations hereunder.

(h)    No Pledge of Equity Interests. Assumptor and New Guarantor represent and warrant to Noteholder that no direct equity interest in Assumptor or New Guarantor has been pledged, hypothecated or otherwise encumbered as security for any obligation, and that no portion of the capital contributed to Assumptor, directly or indirectly, in connection with Assumptor's acquisition of the Property consists of borrowed funds.

(i)    Embargoed Person. Assumptor and New Guarantor represent and warrant that none of the funds or other assets of Assumptor or New Guarantor constitute property of, or are beneficially owned, directly or indirectly, by any person, entity or government subject to trade restrictions under U.S. law, including but not limited to, the USA PATRIOT Act (including the anti-terrorism provisions thereof), the International Economic Powers Act, 50 U.S.C. §§ 1701, et. seq., the Trading with the Enemy Act, 50 U.S.C. App. 1 et. seq., and any Executive Orders or regulations promulgated thereunder, including those related to Specially Designated Nationals and Specially Designated Global Terrorists ("Embargoed Person") and further warrant and represent that, to the best of Assumptor's and New Guarantor's knowledge, no Embargoed Person has any interest of any nature whatsoever in Assumptor or New Guarantor with the result that the investment in Assumptor (whether directly or indirectly) is prohibited by law.

(j)    Authority and Enforceability. In addition to all representations and warranties in the Loan Documents, each of the Borrower Parties represents and warrants as to itself that (i) it has full power, authority, legal right and capacity to execute, deliver and perform its respective obligations under this Assumption Agreement and the other Loan Documents to which it is a party and enter into the Contract as contemplated by this Agreement; (ii) the Loan Documents to which it is a party, including, without limitation, this Assumption Agreement, constitute valid, enforceable and binding obligations of such party, subject to the effect of federal bankruptcy, state insolvency, or similar creditors' rights laws; and (iii) as of the Effective Date, there are no counterclaims, defenses or offsets of any nature whatsoever to any of its respective obligations under the Loan Documents to which it is a party.

(k)    Organizational Status. Borrower and Assumptor each represent and warrant as to itself (and not jointly) that it is (i) duly organized, validly existing and in good standing under the laws of its State of organization; and (ii) duly qualified to transact business and in good standing in the State where the Property is located.

Additional Representations and Warranties of Borrower. Borrower represents, warrants and confirms to Lender that the Fashion Bug Claims (as defined in the Note) have been paid or otherwise satisfied and Fashion Bug has no outstanding claims against Borrower or which relate to the Property.

12.    Waiver of Acceleration. Effective upon the satisfaction of, and subject to, all the terms and conditions set forth in this Assumption Agreement, Noteholder hereby consents to the sale and conveyance of the Property and Collateral and agrees that it shall not exercise its right to cause all sums secured by the Security Instrument to become immediately due and payable because of the conveyance of the Property and the Collateral from Borrower to Assumptor; provided, however, Noteholder reserves its right under the terms of the Security Instrument or any other Loan Document to accelerate all principal and interest in the event of any subsequent sale, transfer, encumbrance or other conveyance of the Property, the Collateral or any interest in Assumptor, except as permitted by the Loan Documents.

13.    Hazardous Substances. Without in any way limiting any other provision of this Assumption Agreement, Borrower expressly reaffirms to Lender only as of the date hereof: (a) each and every representation and warranty in the Original Loan Documents respecting "Hazardous Materials"; and (b) each and every covenant and indemnity in the Original Loan Documents respecting "Hazardous Materials" but only with respect to matters first arising or accruing prior to the Effective Date. Without in any way limiting any other provision of this Assumption Agreement, Assumptor expressly affirms to Lender only: (a) each and every representation and warranty in the Assumed Loan Documents respecting "Hazardous Materials"; and (b) each and every covenant and indemnity in the Assumed Loan Documents respecting "Hazardous Materials".

14.    Multiple Parties. If more than one person or entity has signed this Assumption Agreement as Assumptor or Borrower, then all references in this Assumption Agreement to Assumptor or Borrower shall mean each and all of the persons so signing, as applicable. The liability of all persons and entities signing shall be joint and several with all others similarly liable.

15.    Confirmation of Security Interest; Ratification. Nothing contained herein shall affect or be construed to affect any lien, charge or encumbrance created by any Loan Document or the priority of that lien, charge or encumbrance. All assignments and transfers by Borrower to Assumptor are subject to any security interest(s) held by Noteholder. Assumptor hereby ratifies and reaffirms (i) each grant, pledge, assignment and conveyance to Noteholder of, and Assumptor grants pledges, assigns and conveys to Noteholder a lien on, pledge of, and security interest in, the Property and the Collateral pursuant to the terms of the Security Instrument (as amended hereby), including all rights, interests and property hereafter acquired, and all products and proceeds thereof and additions and accessions thereto, and (ii) that as of the Effective Date, all of the terms,

representations, warranties, covenants and provisions of the Assumed Loan Documents remain in full force and effect, without modification, except as necessary to implement the terms and provisions of this Assumption Agreement. Borrower ratifies and reaffirms to Lender that as of the Effective Date, all of the terms, representations, warranties, covenants and provisions of the Original Loan Documents remain in full force and effect, and are true and correct with respect to Borrower, without modification, except as necessary to implement the terms and provisions of this Assumption Agreement (provided however Borrower's ratification and reaffirmation is subject to the qualifications and limitations set forth in Section 11(b) above).

16.    Notices. All notices to be given to Assumptor pursuant to the Loan Documents shall be addressed as follows:

Staunton Station LLC

c/o Phillips Edison & Company Ltd.

11501 Northlake Drive

Cincinnati, OH 45249

Attn: Chief Financial Officer

With a copy to:

Honigman Miller Schwartz and Cohn LLP 39400 Woodward Avenue, Suite 101 Bloomfield Hills, MI 48304

Attn: J. Adam Rothstein

17.    Integration; Interpretation. The Loan Documents, including this Assumption Agreement, contain or expressly incorporate by reference the entire agreement of the Parties with respect to the matters contemplated herein and supersede all prior negotiations. The Loan Documents shall not be further modified except by written instrument executed by Noteholder and Assumptor (and any other party thereto). Any reference in any of the Loan Documents to the Property or the Collateral shall include all or any parts of the Property or the Collateral.

18.    Successors and Assigns. This Assumption Agreement is binding upon and shall inure to the benefit of the heirs, successors and assigns of the Parties but subject to all prohibitions of transfers contained in any of the Loan Documents.

19.    Attorneys' Fees; Enforcement. If any attorney is engaged by Noteholder to enforce, construe or defend any provision of this Assumption Agreement, or as a consequence of any default under or breach of this Assumption Agreement, with or without the filing of any legal action or proceeding, Assumptor shall pay to Noteholder, upon demand, the amount of all attorneys' fees and costs reasonably incurred by Noteholder in connection therewith, together with interest thereon from the date of such demand at the rate of interest applicable to the principal balance of the Note as specified therein.

20.    Right of Transfer of Property. The Parties acknowledge that Section 4 of Exhibit A to the Note provides that Noteholder shall consent to a sale or exchange of the Property two (2) times, all subject, however, to the terms and conditions set forth therein and in the Loan Documents. The Parties agree that this Assumption Agreement and the actions to be taken as contemplated herein shall constitute the first such sale or exchange.

21.    Deferred Maintenance. Assumptor covenants and agrees that it will repair or cause to have repaired, in a good and workmanlike manner, all of the Conditions Requiring Repair listed on Schedule A attached hereto (the "Deferred Maintenance") in accordance with the requirements of Section 6.1 of the Security Instrument. Assumptor further covenants and agrees that should such items of Deferred Maintenance not be repaired to Noteholder's reasonable satisfaction within one hundred twenty (120) days after the date of this Agreement, that an immediate Event of Default shall have occurred, and that Noteholder shall have all remedies available to it under the terms of the Loan Documents, including but not limited to the immediate right to accrue interest on the Loan at the Default Interest Rate. Notwithstanding the foregoing, as to item 3 on Schedule A (which requires access to a tenant's premises in order to complete the required repairs), Assumptor shall use good faith, commercially reasonable efforts to cause such repairs to be completed.

22.    Further Documents, Etc. The Borrower Parties each hereby agree (as to themselves only and not jointly) to execute and deliver to Noteholder, and authorize the filing and/or recording by Noteholder of, any and all further documents and instruments required by Noteholder to effectuate the transaction contemplated by this Assumption Agreement, to create, perfect and/or modify the liens and security interests granted to Noteholder under the Loan Documents and/or to give effect to the terms and provisions of this Assumption Agreement, including, without limitation, appropriate UCC financing statements or amendments. Notwithstanding the foregoing, no such further documents or instruments should (a) materially impair any right of any of the Borrower Parties in connection with the Loan Documents; or (b) materially amend or increase any obligation of any of the Borrower Parties in connection with the Loan Documents.

23.    Miscellaneous.

(a)This Assumption Agreement shall be governed and interpreted in

accordance with the laws of the jurisdiction(s) specified in the Security Instrument. In any action brought or arising out of this Assumption Agreement, Borrower and Assumptor, and general partners, members and joint venturers of them, hereby consent to the jurisdiction of any state or federal court having proper venue as specified in the other Loan Documents and also consent to the service of process by any means authorized by the law of such jurisdiction(s). Except as expressly provided otherwise herein, all terms used herein shall have the meaning

given to them in the Loan Documents. Time is of the essence of each term of the Loan Documents, including this Assumption Agreement. If any provision of this Assumption Agreement or any of the other Loan Documents shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed therefrom and the remaining parts shall remain in full force as though the invalid, illegal, or unenforceable portion had not been a part thereof. This Assumption Agreement, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of any party, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

(b)    Notwithstanding anything to the contrary herein, this Assumption Agreement is subject to the provisions of Section 8.2 of the Note as if such provisions were set forth at length herein.

(c)    Assumptor acknowledges that in connection with the transactions contemplated by this Assumption Agreement it has not relied on any representations by Noteholder or any loan servicer regarding the Property, the title thereto or any other matter.

24.Counterparts. This Assumption Agreement may be executed in any number of

counterparts, each of which when executed and delivered will be deemed an original and all of which taken together will be deemed to be one and the same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the Parties have caused this Assumption Agreement to be duly executed as of the date first above written.

IVIERS:

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a Delaware corporation

By: /s/ Larry C. Cowling

Name: Larry C. Cowling

Title: Assistant Secretary

NOTEHOLDER:

U.S. BANK NATIONAL ASSOCIATION, as Trustee, successor-in-interest to Bank of America, N.A., as Trustee, successor by merger to LaSalle Bank National Association, as Trustee for Bear Stearns Commercial Mortgage Securities, Inc., Commercial Mortgage Pass-Through Certificates, Series 2006-PWRI4

By:Wells Fargo Bank, N.A., solely in its capacity as

Master Servicer

By: /s/ Larry C. Cowling

Name: Larry C. Cowling

Title: Assistant Vice President

CALIFORNIA NOTARY

ACKNOWLEDGEMENT

State of California

)ss

County of Alameda

On April 28, 2014, before me, Wayne Ventus, Jr., Notary Public, personally appeared Larry C. Cowling, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

/s/ Wayne Ventus Jr.

CALIFORNIA NOTARY

ACKNOWLEDGEMENT

State of California

)ss

County of Alameda

On April 28, 2014, before me, Wayne Ventus, Jr., Notary Public, personally appeared Larry C. Cowling, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

IN WITNESS WHEREOF, the Parties have caused this Assumption Agreement to be duly executed as of the date first above written.

WITNESS my hand and official seal.

/s/ Wayne Ventus Jr.

IN WITNESS WHEREOF, the Parties have caused this Assumption Agreement to be duly executed as of the date first above written.

BORROWER:

STAUNTON PLAZA, LLC, a Virginia limited liability company

By: /s/ Roland Guyot

Name: Roland Guyot

Title: Managing Member

By: /s/ Stephen B. Swartz

Name: Stephen B. Swartz

Title: Managing Member

ORIGINAL GUARANTOR:

/s/ Roland Guyot

ROLAND GUYOT, an individual

/s/ Stephen B. Swartz

STEPHEN B. SWARTZ, an individual

ACKNOWLEDGMENT OF BORROWER

STATE OF     GEORGIA    )

) ss

COUNTY OF     FULTON     )

On this the 28 day of April, 2014, before me, the undersigned Notary Public, personally appeared Roland Guyot, as Managing Member of STAUNTON PLAZA, LLC, a Virginia limited liability company, proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person or the entity upon behalf of which the person acted, executed the instrument.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ Melita J. Ellington

Notary Public

My Commission Expires: MARCH 12, 2017

ACKNOWLEDGMENT OF BORROWER

STATE OF     GEORGIA    )

) ss

COUNTY OF     FULTON     )

On this the 28 day of April, 2014, before me, the undersigned Notary Public, personally appeared Stephen B. Swartz, as Managing Member of STAUNTON PLAZA, LLC, a Virginia limited liability company, proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person or the entity upon behalf of which the person acted, executed the instrument.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ Melita J. Ellington

Notary Public

My Commission Expires: MARCH 12, 2017

ACKNOWLEDGMENT OF ORIGINAL GUARANTOR

STATE OF     GEORGIA    )

) ss

COUNTY OF     FULTON     )

On this the 28 day of April, 2014, before me, the undersigned Notary Public, personally appeared ROLAND GUYOT, an individual, proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his individual capacity.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ Melita J. Ellington

Notary Public

My Commission Expires: MARCH 12, 2017

ACKNOWLEDGMENT OF ORIGINAL GUARANTOR

STATE OF     GEORGIA    )

) ss

COUNTY OF     FULTON     )

On this the 28 day of April, 2014, before me, the undersigned Notary Public, personally appeared STEPHEN B. SWARTZ, an individual, proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his individual capacity.

IN WITNESS WHEREOF, i hereunto set my hand and official seal.

/s/ Melita J. Ellington

Notary Public

My Commission Expires: MARCH 12, 2017

IN WITNESS WHEREOF, the Parties have caused this Assumption Agreement to be duly executed as of the date first above written.

ASSUMPTOR:

STAUNTON STATION LLC, a Delaware limited liability company

By: /s/ Joe Schlosser

Name: Joe Schlosser

Title: Vice President

NEW GUARANTOR:

PHILLIPS EDISON - ARC GROCERY CENTER OPERATING PARTNERSHIP II L.P., a Delaware limited partnership

By: PE-ARC GROCERY CENTER OP GP II LLC, a Delaware limited liability company, its general partner

By: /s/ D.J. Belock

Name: D.J. Belock

Title: Vice President

PHILLIPS EDISON-ARC GROCERY CENTER REIT II, INC., a Maryland corporation

By: /s/ D.J. Belock

Name: D.J. Belock

Title: Vice President

ACKNOWLEDGMENT OF ASSUMPTOR

State of OHIO )

) ss

County of HAMILTON )

On this the 28 day of April, 2014, before me, the undersigned Notary Public, personally appeared Joe Schlosser, Vice President of Staunton Station LLC, a Delaware limited liability company, proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person or the entity upon behalf of which the person acted, executed the instrument.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ Valerie Woodham

Notary Public

My Commission Expires:

August 14, 2014

ACKNOWLEDGMENT OF NEW GUARANTOR

STATE OF OHIO

COUNTY OF HAMILTON

On this the 28 day of April, 2014, before me, the undersigned Notary Public, personally appeared D.J. Belock, Vice President of PE-ARC GROCERY CENTER OP GP II LLC, a Delaware limited liability company, as general partner of PHILLIPS EDISON - ARC GROCERY CENTER OPERATING PARTNERSHIP II L.P., a Delaware limited partnership, proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person or the entity upon behalf of which the person acted, executed the instrument.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ Valerie Woodham

Notary Public

My Commission Expires:

August 14, 2014

ACKNOWLEDGMENT OF NEW GUARANTOR

STATE OF OHIO

COUNTY OF HAMILTON

On this the 28 day of April, 2014, before me, the undersigned Notary Public, personally appeared D.J. Belock, Vice President of PHILLIPS EDISON-ARC GROCERY CENTER REIT II, INC., a Maryland corporation, proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person or the entity upon behalf of which the person acted, executed the instrument.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

/s/ Valerie Woodham

Notary Public

My Commission Expires:

August 14, 2014

EXHIBIT A

TO ASSUMPTION AGREEMENT

NOTE TO CLERK: THIS IS AN AMENDMENT OF AN INSTRUMENT ON WHICH RECORDATION TAX HAS BEEN PAID ON THE PRINCIPAL AMOUNT OF $14,100,000.00. THE PRIOR INSTRUMENT IS RECORDED IN THE CLERK'S OFFICE OF THE CIRCUIT COURT OF THE CITY OF STAUNTON, VIRGINIA IN DEED BOOK PAGE 0073 / INSTRUMENT NO. 060003835. THE PRINCIPAL AMOUNT SECURED BY THE DEED OF TRUST HAS NOT BEEN INCREASED. ACCORDINGLY, PURSUANT TO § 58.1-809 OF THE CODE OF VIRGINIA (1950), NO RECORDATION TAX IS DUE.

Prepared by Harold A. Hagen, Esq. outside of the Commonwealth of Virginia

After recording, return to:

Harold A. Hagen, Esq.

Bryan Cave LLP

560 Mission Street, 25^fli Floor San Francisco, CA 94105

GP1N/Map No. 444-10550

(Space Above For Recorder's Use Only)

MEMORANDUM OF ASSUMPTION AGREEMENT

THIS MEMORANDUM OF ASSUMPTION AGREEMENT ("Memorandum"),

made thisday of April 2014, by and among MORTGAGE ELECTRONIC

REGISTRATION SYSTEMS, INC., a Delaware corporation ("MERS"), as nominee for U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, SUCCESSOR-IN-INTEREST TO BANK OF AMERICA, N.A., AS TRUSTEE, SUCCESSOR BY MERGER TO LASALLE BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR BEAR STEARNS COMMERCIAL MORTGAGE SECURITIES, INC., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-PWR14, with a mailing address do Wells Fargo Bank, N.A., Commercial Mortgage Servicing, 1901 Harrison Street, 7^th Floor, Oakland, CA 94612, Attn: Asset Manager (together with its successors and assigns, "Noteholder"), STAUNTON PLAZA, LLC, a Virginia limited liability company, with a mailing address at 3060 Peachtree Road NW, Suite 1545, Atlanta, GA 30305 ("Borrower"), ROLAND GUYOT, an individual, with a mailing address of do Staunton Plaza, LLC, 3060 Peachtree Road NW, Suite 1545, Atlanta, GA 30305 ("Guyot") and STEPHEN B. SWARTZ, an individual, with a mailing address of c/o Staunton Plaza, LLC, 3060 Peachtree Road NW,

Suite 1545, Atlanta, GA 30305 ("Swartz" and, together with Guyot, jointly and severally, "Original Guarantor"), STAUNTON STATION LLC, a Delaware limited liability company, with a mailing address at c/o Phillips Edison & Company Ltd., 11501 Northlake Drive, Cincinnati, OH 45249 ("Assumptor") and PHILLIPS EDISON - ARC GROCERY CENTER OPERATING PARTNERSHIP II L.P., a Delaware limited partnership ("Operating Partnership") and PHILLIPS EDISON - ARC GROCERY CENTER REIT II, INC., a Maryland corporation ("REIT"; and together with Operating Partnership, jointly and severally, "New Guarantor"), each having a mailing address at c/o Phillips Edison & Company Ltd., 11501 Northlake Drive, Cincinnati, OH 45249, as parties to that certain ASSUMPTION AGREEMENT dated of even date herewith ("Assumption Agreement"). The undersigned parties agree that all obligations of Borrower under that certain Promissory Note Secured By Deed Of Trust (together with all renewals, modifications, increases and extensions thereof, the "Note") dated September 22, 2006, in the original principal amount of Fourteen Million One Hundred Thousand and no/100 Dollars ($14,100,000.00), and secured by that certain Deed of Trust and Absolute Assignment of Rents and Leases and

Security Agreement (and Fixture Filing) (as the same may be amended, restated, extended, or otherwise modified from time to time, the "Security Instrument") executed by Borrower to DAVID F. BELKOWITZ and PAUL DAVENPORT, each of Hirschler Fleischer, a Professional Corporation, with a mailing address at 2100 East Cary Street, Richmond, Virginia, 23223 ("Trustee") for the benefit of MERS, as beneficiary and nominee of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Original Lender") and which Security Instrument was recorded in the Clerk's Office of Staunton, Virginia, on September 25, 2006, as Instrument No. 060003835; securing the real property described on EXHIBIT A (the "Property"), together with the obligations of Borrower under the Security Instrument and certain other Loan Documents (as such terms are defined in the Assumption Agreement), have been assumed by Assumptor as of the Effective Date, subject to the terms and conditions set forth in the Assumption Agreement. The Assumption Agreement is by this reference incorporated herein and made a part hereof. This Memorandum of Assumption Agreement may be executed in any number of counterparts, each of which when executed and delivered will be deemed an original and all of which taken together will be deemed to be one and the same instrument. This Memorandum of Assumption Agreement is executed and recorded in the Official Records to evidence the Assumption Agreement and shall not be construed to limit, amend or modify the provisions of the Assumption Agreement in any way.

(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

[To include signature blocks, notary pages and Exhibit A property description]

SCHEDULE A

Conditions Requiring Repair

1.    The masonry block wall is cracked on the southeast end of the subject.

2.    Paint is peeling off the metal stairways at two rear service entrances.

3.    Floor tile is cracked near the seafood department in Martins Food Store.

4.    Sidewalk has on large crack outside the Country Cookin entrance.

5.    Gas pipes are rusted on the southeast end of the Five Guys restaurant.

EX-10.6

AMENDED AND RESTATED MASTER PROPERTY MANAGEMENT,

LEASING AND CONSTRUCTION MANAGEMENT AGREEMENT

THIS AMENDED AND RESTATED MASTER PROPERTY, LEASING AND CONSTRUCTION MANAGEMENT AGREEMENT (“Agreement”) is made and entered into as of June 1, 2014, by and among PHILLIPS EDISON - ARC GROCERY CENTER REIT II, INC., a Maryland corporation (“REIT”), PHILLIPS EDISON - ARC GROCERY CENTER OPERATING PARTNERSHIP II L.P., a Delaware limited partnership (“OP”), and PHILLIPS EDISON & COMPANY LTD., an Ohio limited liability company (“PECO”).

RECITALS:

A.OP is a limited partnership whose limited partner is REIT, and was formed to acquire, own, operate, lease, finance and manage shopping center properties throughout the continental United States. For purposes of this Agreement, OP and REIT, as well as any of their direct and indirect subsidiaries and any joint ventures into which any of the foregoing may enter and which are controlled by the OP or REIT, are individually or collectively referred to herein as “Owner.”

B.PECO operates, manages, leases and manages construction with respect to shopping center properties located throughout the continental Unites States.

C.Owner and PECO entered into that certain Master Property, Leasing and Construction Management Agreement dated as of November 25, 2013 (the “Original Agreement”).

D.Owner and PECO desire to amend and restate the Original Agreement.

E.Owner desires to engage PECO, and PECO desires to accept such engagement, to manage the shopping center properties owned or hereafter acquired by Owner under the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.Definitions. Except as otherwise specified or as the context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Agreement, and the definitions of such terms are equally applicable both to the singular and plural forms thereof:

(a)“Improvements” means buildings, structures, and equipment from time to time located on the Properties and all parking and common areas located on the Properties.

(b)“Major Lease” means a lease of premises containing 5,000 square feet of leasable area or more.

(c)“Management Fees” means the fees and expenses payable to PECO pursuant to Section 6, “Compensation” hereof.

(d)“On-Site Personnel” means persons hired or retained as employees of PECO to perform services at the Properties, which services include, but are not limited to, property management, property-level accounting and book-keeping services; provided, however, that the following persons shall not be considered On-Site Personnel: (i) any manager whose primary responsibility is to manage On-Site Personnel

and who is not directly responsible for providing services to a specific Property or group of Properties, and (ii) any person who also serves as an executive officer of PECO and/or as an executive officer of Owner.

(e)“Owner” has the meaning set forth in Recital A.

(f)“PECO” has the meaning set forth in the introductory paragraph above.

(g)“Property” means an individual real estate asset owned by Owner and all tracts acquired by Owner related to that asset subject to this Agreement as more fully described in a Property Addendum (as defined below).

(h)“Properties” means all of the real estate assets of Owner covered by this Agreement, collectively.

(i)“Property Addendum” means an addendum (as the same may be modified, amended or supplemented in writing, from time to time) which shall be attached to this Agreement and incorporated herein by reference as each Property is purchased and made subject to this Agreement describing the Property, including its real estate and the improvements thereon. If any Property is sold by Owner, the Property Addendum with respect to such Property may, at Owner’s election, be deemed of no further force or effect from and after the closing of any such sales, except to the extent of post-closing management and accounting functions thereafter to be performed.

2.Appointment of PECO.

(a)Owner hereby engages and retains PECO as the sole and exclusive manager of each Property for which a Property Addendum is executed with respect to the property management function to perform such functions as are specified herein and/or on the Property Addendum related to each such Property. PECO hereby accepts such appointment.

(b)Owner hereby engages and retains PECO as the sole and exclusive leasing agent for the leasing of all space in each Property for which a Property Addendum is executed with respect to the leasing agent function as well as for obtaining ground leases on any outparcels. PECO shall perform such functions as are specified herein and/or on the Property Addendum related to each such Property. PECO hereby accepts such appointment.

(c)Owner hereby engages and retains PECO as the sole and exclusive construction manager of each Property for which a Property Addendum is executed with respect to the construction management function to perform such functions as are specified herein and/or on the Property Addendum related to such Property. PECO hereby accepts such appointment.

(d)PECO shall act under this Agreement as an independent contractor and not as the Owner’s agent or employee. PECO shall not have the right, power or authority to enter into agreements or incur liability on behalf of the Owner except as expressly set forth herein or in a Property Addendum. Any action taken by PECO which is not expressly permitted by this Agreement shall not bind the Owner.

3.Standards.PECO shall in good faith, with due diligence and in accordance with generally accepted management and construction management standards in the shopping center industry within the geographical areas of the Properties, perform its management, leasing and construction management duties and obligations described herein. In all events, such standards of performance shall be consistent with the standards of management, leasing and construction management to which PECO performs with respect to its own portfolio of properties. PECO shall devote its commercially reasonable efforts to performing its

duties hereunder to manage, operate, maintain and lease the Properties in a diligent, careful and professional manner to maximize all potential revenues to the Owner and to minimize expenses and losses to the Owner. The services of PECO are to be of a scope and quality not less than those generally performed by first class, professional managers of properties similar in type and quality to the Properties and located in the same market area as the Properties. PECO will make available to the Owner the full benefit of the judgment, experience and advice of the members of PECO’s organization. PECO will at all times act in good faith, in a commercially reasonable manner and in a fiduciary capacity with respect to the proper protection of and accounting for the Owner’s assets.

4.Term.This Agreement shall commence upon full execution of this Agreement and shall continue until terminated in accordance with Section 10.

5.Duties of PECO.

(a)PECO’s duties as property manager for the Properties include the following for each of the Properties (as may be supplemented with additional duties as detailed in the applicable Property Addendum for each Property) and for Owner, as applicable:

(i)For Accounting:

(A)Calculate, bill and collect rental payments and other charges due to the Owner from tenants in the Properties under the respective tenant leases or otherwise with regard to the Properties. To the extent tenant leases affecting any Property so require, PECO shall timely make or verify any calculations that are required to determine the amount of rent due from tenants, including without limitation calculating percentage rent, operating expense “pass-throughs” and consumer price index adjustments and, where required, shall give timely notice thereof to tenants.

(B)Cash Management.

(1)PECO will establish on behalf of the OP a concentration account (a “Concentration Account”) at a bank to be specified in writing by Owner, which such Concentration Account will be tied into each Operating Account (as defined below) via a daily automated two-way sweep. This automated two-way sweep shall work in the following manner: all checks or wires presented on behalf of each Property’s Operating Account will be funded by having the cash automatically pulled down from the Concentration Account to fund the check or wire, and all cash deposited into each Property’s Operating Account or lockbox accounts will be automatically swept up to the Concentration Account on a daily basis.

(2)Notwithstanding the preceding, if (a) an Owner is not a wholly owned subsidiary of the REIT or OP and its governing documents so require, or (b) the payments in respect of a Property are required by a lender to be made into a lockbox account, or (c) if the payments in respect of a Property are required to be handled otherwise by a contractual restriction agreed to by Owner, then such requirements shall be followed by PECO following written notice thereof by Owner. Funds released from any such lockbox account or other arrangement to the custody of the Owner shall otherwise follow the above procedures.

(3)PECO will establish on behalf of the Owner for each Property an operating account (an “Operating Account”) at a bank to be agreed upon in writing by Owner upon receipt of a fully-executed Property Addendum and a W9 completed by the Owner. The signature card for the Operating Account shall indicate that PECO is dealing with the Operating Account as a fiduciary of the Owner. The Operating Account and all funds therein shall at all times be the property of the Owner. The Owner shall have electronic banking

system access to the Operating Account which shall permit it to obtain account information and make withdrawals from the Operating Account.

(4)Notwithstanding anything to the contrary contained herein, the Owner may direct payments or deposits received by PECO or payments or transfers from the Operating Account for a Property to deviate from the above procedures by a written request to PECO. In such event, PECO shall provide the Owner with all information necessary to effect such deposits, transfers or payments.

(5)If required by state law, PECO will deposit security deposits and/or advance rentals in separate accounts in the name of the Owner at the financial institution designated by Owner with respect to the applicable Property.

(6)PECO agrees to pay all invoices directly from the Operating Account unless directed otherwise by the Owner.

(7)On or before the 25th day of each month, PECO shall prepare and submit an invoice to the Owner accompanied by a computation of the fees and expense reimbursements due to PECO in accordance with this Agreement. The Owner shall have the right to review such invoice and obtain any supporting documentation with respect thereto from PECO. To the extent that the Owner believes the computation provided by PECO is inconsistent with the computation permitted hereunder, the Owner and PECO shall work together in good faith to reach a computation of such fees which is reasonably agreeable to both parties.

(8)Without in any way limiting the foregoing, (i) PECO shall not commingle its funds or property or the funds or property of any other entities for which it provides services with any other funds or property of Owner, and (ii) PECO shall deposit amounts relating to a Property in the respective Property’s Operating Account within one (1) business day of receipt. PECO shall have no proprietary interest in the Clearing Account or any Operating Account, or in any other account authorized hereby, and all sums collected by PECO relating to the Properties and all sums placed in such account or accounts will be the property of the Owner and to the extent not yet deposited shall be held in trust by PECO for the Owner.

(C)Subject to the terms of this Agreement relating to allocation of expenses, pay fees, charges, expenses and commissions of independent contractors, architects, engineers, subcontractors, suppliers which contract with PECO and PECO utilized in the management, operation, maintenance or repair of the Properties, subject to PECO’s review of same to confirm accuracy and agreement with same.

(D)Owner expressly authorizes PECO to promptly and diligently enforce the Owner’s rights under any tenant leases affecting any Property, including without limitation taking the following actions where appropriate: (i) with the Owner’s prior written consent: (a) terminating tenancies, (b) instituting and prosecuting actions, and evicting tenants, (c) settling, compromising and releasing such actions or suits or re-instituting such tenancies, and (d) recovering rents and other sums due by legal proceedings in a court of general jurisdiction; and (ii) without the Owner’s prior written consent: (a) in a magistrates court or other court of special jurisdiction as applicable, signing and serving such notices as are deemed necessary by PECO, and (b) recovering rents and other sums due by legal proceedings in a magistrates court or similar jurisdiction, in each case PECO shall promptly notify the Owner of such action in writing. If authorized by the Owner, PECO shall consult an attorney for the purpose of enforcing the Owner’s rights or taking any such actions and the Owner shall have the right to designate counsel for any matter and to control all litigation affecting or arising out of the operation of any Property. PECO shall keep the Owner informed of any dissatisfaction with the law firm or such services or the reasonableness of the cost thereof.

(E)Prepare and maintain routine and customary financial and business books and records for Owner and the Properties and to employ and supervise outside accountants for preparation of income and other tax returns and specialty accounting services for Owner and the Properties. The preparation of income and other tax returns and the performance of such specialty accounting services shall be supervised by PECO but will be completed at Owner’s expense. PECO will use the accrual method of accounting in accordance with GAAP, with such policies as are to be determined by management subject to Owner’s determination (including without limitation, capitalization policies, depreciation and amortization policies, and such other accounting policies as Owner may direct from time to time).

(F)Maintain fixed asset accounting detail and related depreciation.

(G) PECO shall prepare and submit to Owner a proposed operating and capital budget, including an itemized statement of the estimated receipts and disbursements in reasonable detail, which shall include, without limitation, reasonable detail as to employee expenses to be reimbursed to PECO for the operation, repair and maintenance of the Properties (the “Budget”) and a marketing and leasing plan on the Properties (a “Plan”) (assuming PECO is retained as leasing agent), in each case for the calendar year immediately following such submission. Each Budget and Plan will be in the form approved by the Owner prior to the date thereof. A draft Budget and, as applicable, Plan for each Property shall be submitted to Owner on or prior to October 31 of the year preceding the January 1 of the year to which such budget shall apply. Owner shall have 21 days after receipt thereof within which to approve or reject in writing such Budget and, as applicable, Plan, any such rejection to be accompanied by a reasonably detailed explanation of such rejection. PECO shall then submit a revised draft Budget and, as applicable, Plan to Owner within 10 days thereafter. Owner shall have 10 days after receipt thereof to approve or reject the same in writing, any such rejection to be accompanied by a reasonably detailed explanation of such rejection. The foregoing process shall then repeat with 10 days between receipt and revision, on PECO’s end, and receipt and acceptance or rejection on Owner’s end, until each Budget and, as applicable, Plan has been approved. If the parties cannot come to agreement on a Budget and, as applicable, Plan for a Property, PECO shall operate the applicable Property on the Budget and, as applicable, Plan most recently approved by Owner. To the extent any expenditure to be made by PECO shall exceed the applicable line item in such prior year’s Budget by 5% or more, the same shall require Owner’s prior written consent, provided that, excluded from the foregoing expenditures requiring such consent shall be expenditures related to snow and ice removal, electricity, insurance premiums and emergency items outside of the control of PECO. PECO shall provide supporting information reasonably requested by the Owner in connection with their review of any Budget or Plan submitted by PECO for their review.

PECO shall implement the Budget and Plan and use its commercially reasonable efforts to ensure that the actual cost of operating the Properties shall not exceed the Budget. The Budget shall constitute an authorization for PECO to expend necessary monies to manage and operate the Properties in accordance with the Budget and subject to the provisions of this Agreement until a subsequent Budget is approved. The approval of non-recurring costs and capital improvements in the Budget and Plan shall constitute an authorization for PECO to collect bids for the expenditure and present a final recommendation to the Owner for expenditure of monies to implement such items called for in the Budget and Plan.

Without affecting any other limitation imposed by this Agreement and except as may be expressly provided to the contrary elsewhere in this Agreement, PECO shall secure the prior written approval of Owner prior to incurring any liability or obligation for any item in excess of $10,000 not reflected on the Budget or the Plan approved in writing by Owner except with respect to emergency items as described in this subsection (G) or unless another threshold with respect to any matter is specified elsewhere in this Agreement or in a

written directive or authorization of Owner, in which case the threshold for such matter shall be as so set forth.

(H)Pay wages, salaries, commissions and employee benefits of all On-Site Personnel including, without limitation, workers’ compensation insurance, social security taxes, unemployment insurances, other taxes or levies now in force or hereafter imposed, any claims that may arise under the employee health or worker’s compensation programs maintained by PECO, employee-related overhead expenses and associated administrative charges with respect to any such On-Site Personnel (collectively, “Employee Benefits”), all of which shall be deemed an operating expense of the Properties and shall be in accordance with approved Budgets. The number and classification of employees serving each Property shall be as determined by PECO to be appropriate for the proper operation of each Property.

(I)Deliver to Owner, within 15 business days after the end of each month during the term hereof, the monthly reporting package detailed on Exhibit A attached hereto which shall relate to the Properties and the immediately preceding calendar month or any portion thereof. Such reporting package shall be made on an accrual basis and shall include all such transactions, whether or not reimbursable pursuant to the provisions hereof.

(J)Deliver to Owner, within 45 days after the end of each calendar quarter during the term hereof, the quarterly reporting package detailed on Exhibit B attached hereto which shall relate to the Properties and the immediately preceding calendar quarter or any portion thereof. Such reporting package shall be made on an accrual basis and shall include all such transactions, whether or not reimbursable pursuant to the provisions hereof.

(K)Deliver to Owner, within 75 days after the end of each calendar year during the term hereof, the annual reporting package detailed on Exhibit C attached hereto which shall relate to the Properties and the immediately preceding calendar year or any portion thereof. Such reporting package shall be made on an accrual basis and shall include all such transactions, whether or not reimbursable pursuant to the provisions hereof.

(L)File real, personal and ad valorem (real or personal) property tax returns required to be filed by Owner with respect to the Properties and pay all such ad valorem taxes and assessments out of the operating accountants of each of the Properties. PECO shall also utilize, on Owner’s behalf, the services of independent tax consultants and attorneys to appeal or challenge any real, personal and ad valorem (real or personal) property taxes and PECO shall manage such process on Owner’s behalf by supplying needed information and making required payments out of the operating funds for each Property or the separate funds of Owner.

(ii)For Operations: PECO shall use commercially reasonable efforts to operate in accordance with the Budget and Plan unless otherwise specifically approved in writing by Owner and except in the case of emergencies:

(A)PECO will investigate, hire, train, pay, supervise and discharge the On-Site Personnel necessary to maintain and operate the Properties including, without limitation, property managers who shall have experience and education satisfactory to the Owner. Such personnel shall in every instance be agents or employees of PECO and not of the Owner, but Owner shall have the right to approve via the annual budget process, the compensation of PECO’s personnel for which PECO has the right to be reimbursed hereunder. The Owner shall have no right to supervise or direct such agents or employees.

PECO, at PECO’s sole cost and expense, shall maintain during the term of this Agreement a bond or applicable insurance covering PECO and all persons who handle, have access to or are responsible

for the Owner’s monies, in an amount and form reasonably acceptable to the Owner. PECO shall provide the Owner with a certificate or other satisfactory documentation evidencing the existence and terms of such bond(s) upon execution of this Agreement.

PECO, shall supervise and at Owner’s cost and expense, shall retain, to the extent such services are not sufficiently provided by On-Site Personnel, but in accordance with the Budget, independent contractors, subcontractors, and suppliers to provide for the management, maintenance, repair and operation of the Properties as well as security functions.

(B)If commercially reasonable within the geographic area in which a Property is located, to obtain not less than three (3) competing bids for, contract with and supervise onsite management of, contractors.

(C)Assist in coordinating the opening and closing of the businesses of tenants, including but not limited to obtaining of insurance and signage approval.

(D)In accordance with the operating budget, purchase necessary supplies and equipment required for the proper operation, maintenance, repair and restoration of the Properties.

(E)Make or cause to be made repairs, replacements, renovations and capital improvements on the Properties.

(F)Contract and pay charges for utilities used in the operation of the Properties, including without limitation water, electricity, gas, telephone and sewerage services unless carried or covered under the respective tenant’s name.

(G)Contract for and maintain such policies of commercial general liability and bodily injury and property damage insurance with respect to the Properties as are acceptable to Owner.

(H)Advertise the Properties by such means and media and at such costs as are in accordance with the Budget and Plan and as PECO shall deem appropriate (and at PECO’s expense, except as set forth in the last sentence of this subsection (H)) to implement an effective leasing program for the Properties on a local and national basis, with no less effort and professionalism than that used for the advertising programs employed by PECO with respect to its own portfolio of properties. This advertising shall include attendance and facilities for ICSC and related leasing events. Notwithstanding the foregoing, to the extent Owner shall request specific advertising that differs from or is in addition to PECO’s planned approach, the incremental cost of such specific advertising shall be borne by Owner.

(I)Assist in securing leases with temporary tenants or licensees for use of the Properties.

(J)Actively promote and market the Properties to potential tenants, current tenants and the general community.

(K)Conduct complete inspections of the Properties as is prudent to determine that the same are in good order and repair, but no less frequently than once per calendar quarter during the term of this Agreement.

(L)Forward to Owner promptly upon receipt all notices of violation or other notices from any governmental authority, and board of fire underwriters or any insurance company, and shall make such recommendations regarding compliance with such notice as shall be appropriate.

(M)Maintain business-like relations with the tenants of the Properties and respond promptly to tenant complaints in a prudent, businesslike manner. PECO shall maintain a record of all written tenant complaints for no less than one year and PECO’s response to such complaints which record shall be available for review by Owner.

(N)Analyze all bills received for services, work and supplies in connection with the maintaining and operating the Properties, issue payment from the Property Owner for all such bills and any other amount payable in respect to the Properties. PECO shall use reasonable commercial efforts to pay all bills within the time required to obtain discounts, if any. Owner may from time to time request that PECO forward certain bills to Owner promptly after receipt, and PECO shall comply with any such request. PECO will ensure timely 1099 reporting to the IRS, with 1099’s filed under the appropriate Property Owner’s name and taxpayer identification number (TIN), listing such Owner as the “payer.” PECO will provide annually a signed declaration indicating compliance with 1099 reporting; PECO will provide this declaration to Owner with the February Reporting Package. Penalties for misfilings as a result of PECO’s negligence are not to be charged to the property, but are payable by PECO.

(iii)Other:

(A)In accordance with the Budget or as otherwise approved in writing by Owner, employ, in-house or outside attorneys, at Owner’s expense, to handle any legal matters involving the Properties. It is understood that PECO employs an in-house legal department which will perform some or all of the legal services described herein. To the extent any employee of such legal department performs any of such services, the cost of such legal department employee, based upon approved Budgets and Plans and consistent with the hourly rates charged internally by PECO to the other property funds for which it performs management and leasing services, shall be deemed an operating expense of the Properties and shall be reimbursable by Owner.

(B)Perform leasing analysis and credit underwriting with respect to prospective tenants (and subtenants and assignees); prepare leases and other tenant related documents; and engage in a competitive construction bidding process for lease-related construction projects expected to exceed $25,000 not otherwise within the duties of a construction manager (as, for example, pursuant to Section 5(c) below).

(C)Take such other action and perform such other functions as PECO reasonably deems advisable or necessary for the efficient and economic management, operation and maintenance of the Properties.

(b)PECO’s duties as leasing agent for any of the Properties indicated on a Property Addendum as being subject to the leasing agent services as provided herein and subject to the Budget and Plan include the following:

(i)Leasing Functions.PECO will coordinate and negotiate the leasing of the Properties using reasonable commercial efforts to secure executed leases (both new and renewal) from qualified tenants for available space in the Properties. Such leases must be consistent with form and terms approved by Owner unless a tenant requires use of its own lease form. PECO shall be responsible for the hiring of all leasing agents as necessary for the leasing of the Properties, to work with outside brokers and leasing agents, and otherwise to oversee and manage the leasing process on behalf of Owner. PECO’s duties in this regard shall include, without limitation, (1) the preparation and distribution of listings to potential tenants and/or their representatives and to reputable and active real estate agents; (2) the supplying of sufficient information to cooperating brokers and agents to enable them to promote the rental of the Properties, (3) to market and promote the Properties, (4) at all times to maintain and update a merchandising and leasing plan for each Property, and (5) to provide an updated leasing budget and leasing reforecast for the following twelve (12) month period. Additionally, in connection with the budgeting process referred to above, PECO shall

submit a yearly leasing budget for approval in accordance (and simultaneously) with the procedure set forth above for the approval of each Property’s budget by Owner.

(ii)Advertising.Owner authorizes PECO to advertise and to place signage on the Properties regarding the leasing, provided that such signage complies with all applicable governmental laws, regulations and requirements. PECO will provide a marketing package, aerial photographs, demographic reports, site plans, signage and a two-sided flyer for each Property at PECO’s expense consistent with Section 5(a)(ii)(H). Any additional advertising and promotion requested by Owner will be done at Owner’s expense pursuant to a program and budget agreed upon by Owner and PECO.

(iii)Other Actions.PECO will take such other action and perform such other functions as PECO or Owner deems reasonably advisable or necessary for the efficient and economic leasing of the Properties.

(c)PECO’s duties as construction manager for the Properties shall be in accordance with a capital budget established by Owner and PECO prior to the commencement of construction activities and shall include the following:

(i)General.PECO shall secure or assist in securing licenses, registrations, or permits required by law and shall comply with ordinances, laws, orders, codes, rules, and regulations pertaining to building improvements and/or the services described herein. PECO shall secure lien waivers and affidavits and properly file, to the extent required, terminations of notices of commencement prior to payment to contractors.

(ii)Bidding.For all projects estimated to cost more than $250,000.00, PECO shall obtain bids from at least three outside contractors, unless the selected contractor is otherwise approved by Owner. PECO shall select the low bid unless it has supplied Owner with a reasonable justification in writing for the selection of a bidder other than the low bidder (e.g., PECO determines in its reasonable discretion that the bidder to be selected is more likely to complete the job on time, with commercially reasonable workmanship and in the most efficient manner). PECO shall manage the bidding process consistent with the manner in which it manages bidding for projects within its own portfolio of properties.

(iii)New Construction, Tenant Improvements, and Redevelopments. PECO will perform the following duties for construction of Improvements on undeveloped land (“New Construction”) and for construction of Improvements that are to be made at the direction of, or in conformity with lease obligations to, tenants (“Tenant Improvements”) or for the improvement to Improvements that change the size or nature of such Improvements or for the redevelopment of Improvements (collectively, “Redevelopments”):

(A)Provide updated and detailed project budgets to Owner.

(B)Arrange for, coordinate, supervise and advise Owner with respect to the selection of architects, contractors, design firms and consultants, and the execution of design, construction and consulting contracts.

(C)Review design documents, and drafts thereof, submitted by the architect or other consultants, and notify Owner in writing of any mistakes, errors or omissions that PECO observes in the documents and any recommendations it may have with respect to such mistakes, errors or omissions, provided PECO shall not in any manner be responsible for the accuracy, adequacy or completeness of such documents.

(D)Evaluate and make recommendations to Owner concerning cost estimates prepared by others.

(E)Review and evaluate proposed schedules for construction.

(F)Procure subcontractors through a minimum of three quotes for any jobs estimated to involve in excess of $250,000 unless the selected contractor is otherwise approved by Owner.

(G)Coordinate the work of subcontractors.

(H)Monitor the progress of construction.

(I)Endeavor to work with the general contractor to identify any deficiencies in the work performed by subcontractors.

(J)Provide Owner with monthly written status reports.

(K)Advise Owner with respect to alterations and modifications in any design documents submitted by the architect or other consultants that may be in Owner’s interest, including obtaining advantages in terms of cost savings, scheduling, leasing, operation and maintenance issues and other matters affecting the overall benefit of the project.

(L)Review and advise Owner on change order proposals and requests for additional services submitted to Owner.

(M)Schedule, coordinate, and attend necessary or appropriate project meetings.

(N)Monitor and coordinate punch list preparation and resolution by the subcontractors.

(O)Make recommendations to Owner concerning, and monitor, the use of the site by subcontractors, particularly as it relates to staging and storage, ingress and egress, temporary signage, fencing, barricades, restrictions on hours of operation, safety considerations and similar considerations.

(P)Coordinate, monitor, supervise and advise Owner with respect to preparation, execution, completion and filing of project-related documents, including, but not limited to, contracts, permit applications, licenses, certifications, zoning requirements, land use restrictions, governmental filings applicable to the project and any other similar documents.

(Q)Review and advise Owner with respect to draw requests submitted on the project.

(R)Upon completion of New Construction, Tenant Improvements, or Redevelopments review same to ensure that such Improvements have been completed in accordance with the specifications. PECO shall cause the subcontractors to repair or replace any items that are determined deficient.

(S)As instructed by Owner, perform additional related project management functions.

(T)Collect warranties and operation manuals, certificates, guarantees, as-builts and any similar documentation for the benefit of Owner.

(iv)New Construction and Redevelopments. In addition, PECO will perform the following duties with respect to New Construction and Redevelopments:

(A)Provide Owner with a budget for each Improvement to be built prior to beginning construction of the respective Improvement.

(B)Meet on a regular basis with Owner’s leasing agents and representatives of prospective tenants.

(C)Arrange for, coordinate, supervise and advise Owner with respect to various development services prior to design and construction of the Project, including due diligence, site investigations, land use and zoning matters, and similar development services.

(v)Tenant Improvements. In addition, PECO will perform the following duties related to Tenant Improvements:

(A)Arrange for and supervise the performance of all installations and improvements in space leased to any tenant which are either expressly required under the terms of a Lease of such space or which are customarily provided to tenants.

(B)Meet with tenants and prospective tenants and their architects, engineers, consultants and contractors to facilitate design and construction of leasehold improvements.

(C)Maintain separate files as to each tenant, and thereby document the entire design and construction process for each tenant.

(D)Compile and disseminate such data regarding each tenant as Owner may reasonably require.

(vi)Duties with Respect to Tenant Directed Improvements.PECO will supervise and facilitate tenant installations performed by the tenant and/or tenant’s contractors, including as such is required under the tenant’s lease:

(A)Review and evaluate lease exhibit language that identifies the scope and nature of tenant construction of the improvements.

(B)Review tenant construction documents for compliance with landlord criteria and requirements applicable to the improvements.

(C)Review and evaluate proposed schedules for tenant construction.

(D)Coordinate delivery of shell space to tenants as required by the tenant’s lease.

(E)Monitor the progress of tenant construction including but not limited to compliance with scheduling requirements, compliance with rules and regulations of the Property, verify that tenant has obtained proper permits, etc., coordinating requests for tenant improvement allowance draws.

(F)Maintain appropriate files and records as to each project documenting the design and construction process for each tenant in a manner consistent with PECO’s record retention guidelines.

(vii)Duties with Respect to All Improvements.PECO will supervise all Improvement projects, such supervision to include, but not be limited to, preparation of budgets, plans, bidding, subcontractor selection, material selection, job supervision, collection of lien waivers, sworn statements, affidavits and the like. PECO shall require such lien waivers, sworn statements, affidavits and similar documentation as a condition to disbursement.

(d)Other.PECO shall in all events comply with the reasonable requests of Owner related to property management of, leasing of, and construction management of the Improvements to be made to, the Properties. Owner shall maintain sufficient funds in an account or accounts so that PECO will have funds

available to pay all obligations contemplated hereunder when due. Under no circumstances shall PECO have any obligations or duty to advance funds to or for the account of Owner.

(e)Ownership Agreements. Owner agrees to obtain and review copies of all (1) agreements of limited partnership, joint venture partnership agreements and operating agreements of Owner and its affiliates as well as the articles of incorporation, bylaws, and registration statement on Form S-11 (no. 333-164313) of REIT, including all prospectus supplements and post-effective amendments thereto (collectively, the “Ownership Agreements”) and (2) mortgages on all Properties and inform PECO of any restrictions relating to property use arising therefrom. PECO will use reasonable care to avoid any act or omission which, in the performance of its duties hereunder, in any way conflicts with the terms of the Ownership Agreements or the mortgages in the absence of the express direction of the REIT’s board of directors, and PECO shall promptly notify Owner if any such conflict arises.

(f)Periodic Meetings. As reasonably required by Owner, PECO its personnel or contractors engaged or involved in the management, operation, leasing or construction management of the Properties shall meet to discuss the historical results of operations, to consider deviations from any budget, and to discuss any other matters so requested by the Owner upon reasonable notice from Owner.

6.Compensation and Expense Reimbursement.

(a)For each Property for which PECO provides property management services, Owner shall pay PECO a monthly management fee equal to four percent (4.0%) of the Gross Receipts (as defined below) for that given month, payable from that month’s receipts. “Gross Receipts” means (i) all fixed and minimum rent, percentage rent and license fees paid by tenants and other occupants of each Property, (ii) the profit of Owner derived from the sale of electricity (i.e., the spread between the wholesale and retail prices of electricity that is re-sold to tenants of the Properties), utilities and heating, ventilation and air conditioning to tenants and other occupants of each Property, (iii) all amounts paid by tenants and other occupants of each Property for common area maintenance, real estate taxes, insurance, interest and any other payments of any nature (including attorneys’ fees and late fees) made by any such tenants or other occupants, and (iv) proceeds of rent insurance

(b)For each Property for which PECO provides leasing services, Owner shall pay PECO leasing fees at market rates as specified on the Property Addendum for such Property.

(c)For each Property for which PECO provides construction management services, PECO shall be entitled to fees for tenant and tenant directed improvements, capital improvements and construction management services, all at market rates for the geographic area in which the applicable Property is located, as may be more fully set forth on the applicable Property Addendum or another writing executed by PECO and Owner.

(d)PECO will pay such other reimbursable expenses and costs as Owner has approved and deems advisable or necessary for the efficient and economic management and leasing of the Properties through its annual budgets or as otherwise provided for in this Agreement (e.g., for marketing or leasing programs that exceed in scope that which PECO would normally utilize for its own properties, as provided for in Sections 5(a)(ii)(H) and 5(b)(ii)). Owner shall reimburse PECO for such expenses, which shall include, to the extent included in the applicable Property budgets or a general property management and leasing budget to be agreed upon, costs of (i) On-Site Personnel, including wages, salaries, commissions and Employee Benefits of such On-Site Personnel, (ii) roving maintenance personnel to the extent needed at the Properties from time to time, (iii) travel and entertainment, (iv) printing and stationery, (v) advertising, (vi) marketing, (vii) signage, (viii) long distance phone calls and (ix) other direct expenses. The costs of On-

Site Personnel shall be allocated to each Property by dividing the rentable square feet at each Property by the aggregate rentable square feet of all of the Properties for which each employee provides services and then multiplying the resulting quotient by the individual cost of each employee, unless Owner and PECO agree in writing to another basis for such allocation. The costs of roving maintenance personnel shall be charged to each Property at a reasonable hourly or monthly rate pre-approved by Owner for the actual and reasonably necessary services provided by such roving maintenance personnel at each Property. Owner shall reimburse PECO for Employee Benefits of On-Site Personnel in an amount equal to 20% of the total compensation payable to each employee. Such Employee Benefits reimbursed to Owner shall not be reconciled to the actual amounts incurred by Owner for the Employee Benefits of each employee such that Owner will not be required to reimburse PECO any additional amounts to the extent that the amounts reimbursed to PECO for Employee Benefits of an employee is less than the actual amount of Employee Benefits paid by PECO to such employee, and PECO will not be required to reimburse Owner to the extent the Employee Benefits paid by PECO to an employee are less than the amount of Employee Benefits reimbursed by Owner to PECO for such employee.

7.Insurance.PECO shall obtain and keep in full force and effect at Owner’s expense insurance (1) on the Properties, and (2) on activities at the Properties against such hazards as Owner and PECO shall deem appropriate and as may be required under any mortgage or other loan documents binding upon Owner. In any event, PECO shall procure, for the Properties for which PECO is property manager, insurance sufficient to comply with the leases and the Ownership Agreements. All liability policies shall provide sufficient insurance satisfactory to both Owner and PECO and shall contain waivers of subrogation for the benefit of PECO and the applicable Owner.

(a)PECO shall obtain and keep in full force and effect, in accordance with the laws of the state in which each Property is located, worker’s compensation insurance covering all employees of PECO at the Properties and all persons engaged in the performance of any work required hereunder. PECO shall also obtain and keep in full force and effect, in accordance with the laws of the state in which each Property is located, employer’s liability, employee theft, commercial general liability, and umbrella insurance, and PECO shall furnish Owner certificates of insurers naming Owner as co-insureds and evidencing that such insurance is in effect and that insurer will provide directly to Owner no less than 30 days’ notice of any cancellation or non-renewal. If any work under this Agreement is subcontracted as permitted herein, PECO shall include in each subcontract a provision that the subcontractor shall also furnish Owner, as appropriate, with such a certificate evidencing coverage (and any other coverage PECO deems appropriate in the circumstances) and the naming of Owner as co-insured and evidencing that such insurance is in effect and that insurer will provide directly to Owner no less than 30 days’ notice of any cancellation or non-renewal, as well as indemnification as is customary. The cost of such insurance procured by PECO shall be reimbursable to the same extent as provided in this Agreement.

(b)PECO shall cooperate with and provide reasonable access to the Properties to representatives of insurance companies and insurance brokers with respect to insurance which is in effect or for which application has been made. PECO shall use its good faith efforts in a commercially reasonable manner to comply with all requirements of insurers.

(c)PECO shall promptly investigate and shall report in detail to the applicable insurance carriers all accidents, claims for damage relating to the ownership, operation or maintenance of the Properties, and any damage or destruction to the Properties and the estimated costs of repair thereof, and shall prepare for approval by Owner all reports required by the applicable insurance company in connection with any such accident, claim, damage, or destruction. Owner shall reimburse PECO’s third party costs in connection therewith. PECO shall provide a report summarizing all claims to Owner on a monthly basis. PECO is authorized to settle any claim against an insurance company arising out of any policy and, in connection with

such claim, to execute proofs of loss and adjustments of loss and to collect and provide receipts for loss proceeds using commercially reasonable good faith efforts.

8.Liability of PECO.PECO shall not be liable for any errors in judgment or for mistakes of fact or of law or for anything which it may in good faith do or refrain from doing, except in the case of gross negligence, fraud or willful misconduct.

9.Indemnity.Owner shall indemnify PECO and its managers, employees and officers against and agrees to defend, protect, hold and save them free and harmless from any liability or expenses (including reasonable attorney’s fees and court costs) arising out of injuries or damages to persons or property by reason of any cause relating to the Properties, except to the extent caused by the gross negligence, fraud or willful misconduct and which is not otherwise covered by insurance held by Owner. Owner shall name PECO as an “additional insured” or “co-insured” on any and all liability insurance policies for the Properties. PECO shall indemnify Owner and its employees and officers against and agrees to defend, protect, hold and save them free and harmless from any liability or expenses (including reasonable attorney’s fees and court costs) arising out of injuries or damages to persons or property by reason of any cause relating to the Properties caused by the gross negligence, fraud or willful misconduct, which is not otherwise covered by insurance held by Owner.

10.Termination.This Agreement may be terminated by either party upon thirty (30) days’ written notice, in toto or only with respect to any Property, provided such termination shall not affect any rights or obligations accrued to either party prior to termination (subject to any offsetting claims for damages), including, but not limited to payment of property management fees, leasing fees and construction management fees earned to the date of termination (provided that, if termination occurs before a construction project is completed, the construction management fee to be earned shall be prorated based upon the reasonably estimated portion of the applicable project that had been completed up to the date of termination). If this Agreement is terminated, only commissions and management fees with respect to any Properties that are subject to such termination and that have accrued prior to the termination date shall be due to PECO. Notwithstanding anything to the contrary contained in this Agreement, if either Owner or PECO defaults in performing any of its obligations under this Agreement, the other party may terminate this Agreement effective upon delivery of notice of such default. The indemnification obligations of the parties hereunder shall survive the expiration or termination of this Agreement. PECO’s obligations under this Agreement for physical property management, leasing and construction management may, at Owner’s election, terminate as to any particular Property upon its sale, provided that PECO’s obligations for the performance of accounting and other so-called “back office functions” shall terminate only at such time as a final tax return with respect to the applicable Property has been prepared and filed and such customary and ordinary information related to the Property or Properties has been provided to Owner. PECO shall cooperate subsequent to any termination of this Agreement as to a particular Property to provide final property reconciliations and other reports as reasonably requested by Owner.

11.PECO’S Obligations After Termination.Upon the termination of this Agreement, PECO shall have the following duties:

(a)PECO shall deliver to Owner, or its designee, all books and records (including data files in magnetic or other similar storage media but specifically excluding any licensed software) with respect to the Properties.

(b)PECO shall transfer and assign to Owner, or its designee, or terminate upon Owner’s direction, all service contracts (designated by Owner for transfer and assignment) and personal property relating to or used in the operation and maintenance of the Properties, except personal property paid for and

owned by PECO. PECO shall also, for a period of sixty (60) days immediately following the date of such termination (with respect to this entire Agreement or any Property terminated as being subject to this Agreement), make itself available to consult with and advise Owner, or its designee, regarding the operation, maintenance and leasing of the Properties at no additional cost to Owner.

(c)PECO shall render to Owner an accounting of all funds of Owner in its possession and shall deliver to Owner a statement of Management Fees claimed to be due PECO and shall cause funds of Owner held by PECO relating to the Properties to be paid to Owner or their designees and shall assist in the transferring of approved signatories on all Accounts.

12.No Obligation to Third Parties.None of the obligations and duties of PECO under the Agreement shall in any way or in any manner be deemed to create any obligations of PECO to any third party with the exception of Owner.

13.Additional Services.The services contemplated hereunder are normal and customary property management, leasing and general and construction management services. If PECO is required or requested to perform additional services beyond the scope of this Agreement, then Owner shall pay PECO fees for these additional services at market rates as mutually agreed upon in advance by the parties.

14.PECO'S Action on Tenant’s Default.If the reasonably expected costs are less than a threshold to be agreed upon by PECO and Owner with respect to each Property (or with respect to leases or contracts less than certain thresholds with respect to each Property), PECO shall have the right, in its own name or in the name of Owner, to take any and all actions, including distraint, which PECO deems advisable and which Owner shall have the right to take, in the event of any tenant's breach of any covenant, provision or condition binding upon such tenant under its lease with Owner. Nothing in this paragraph shall be deemed to require PECO to institute legal action against any tenant. If the reasonably expected costs exceed the agreed upon thresholds, then Owner shall only be responsible for such costs if it pre-approves such actions. In addition, if Owner desires to commence legal action notwithstanding PECO’s recommendation to the contrary, it shall pay for all costs and reasonable attorneys' fees in connection therewith.

15.Binding Effect.This Agreement and all the provisions hereof shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.

16.Entire Agreement.This Agreement supersedes all agreements previously made between the parties relating to its subject matter. There are no other understandings or agreements between them.

17.Assignment.PECO may delegate partially or in full its duties and rights under this Agreement but only with the prior written consent of Owner. Except as provided in the immediately preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns.

18.Amendments.This Agreement may be amended only by an instrument in writing signed by the party against whom enforcement of the amendment is sought.

19.Other Business.Nothing herein contained shall prevent PECO from engaging in other activities or business ventures, whether or not such other activities or ventures are in competition with Owner or the business of Owner, including, without limitation, property management activities for other parties (including other REITs) and the provision of services to other programs advised, sponsored or organized by PECO or its affiliates or third parties; nor shall this Agreement limit or restrict the right of any director, officer, employee, or stockholder of PECO or its affiliates to engage in any other business or to render services

of any kind to any other partnership, corporation, firm, individual, trust or association. PECO may, with respect to any investment in which the Owner is a participant, also render advice and service to each and every other participant therein. PECO shall report to the board of directors of REIT the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, which creates or could create a conflict of interest between PECO’s obligations to Owner and its obligations to or its interest in any other partnership, corporation, firm, individual, trust or association.

20.Notices.All notices under this Agreement shall be in writing and delivered personally or mailed by certified mail, postage prepaid, addressed to the parties at their last known addresses. All notices, approvals, consents and other communications hereunder shall be in writing, and, except when receipt is required to start the running of a period of time, shall be deemed given when delivered in person or on the fifth day after its mailing by either party by registered or certified United States mail, postage prepaid and return receipt requested, to the other party, at the addresses set forth after their respect name below or at such different addresses as either party shall have theretofore advised the other party in writing in accordance with this Section.

OP: REIT: With a copy to:	PHILLIPS EDISON - ARC Grocery Center Operating Partnership II L.P., 11501 Northlake Drive Cincinnati, OH 45249 Attention: Co-President Phillips Edison - ARC Grocery Center REIT II, Inc. 11501 Northlake Drive Cincinnati, OH 45249 Attention: Co-President DLA Piper LLP (US) 4141 Parklake Drive, Suite 300 Raleigh, NC 27612 Attention: Robert Bergdolt, Esq.
PECO: With a copy to:	Phillips Edison & Company Ltd. 11501 Northlake Drive Cincinnati, OH 45249 Attention: Chief Operating Officer Phillips Edison & Company Ltd. 222 South Main Street, Suite 1730 Salt Lake City, Utah 84101 Attention: General Counsel

21.Non-Waiver.No delay or failure by either party to exercise any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that or any other right, unless otherwise expressly provided herein.

22.Headings.Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions.

23.Severability.If any term, covenant or condition of this Agreement or the application thereof to any Person or circumstance shall, to any extent, be held to be invalid or unenforceable, then the remainder of this Agreement, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held to be invalid or unenforceable, shall not be affected thereby, and each term,

covenants or condition of this Agreement shall be valid and shall be enforced to the fullest extent permitted by law.

24.Governing Law.This Agreement shall be construed in accordance with and governed by the laws of the State of Ohio. Any action to enforce this Agreement or an action for a breach of this Agreement shall be maintained in a binding arbitration proceeding before the American Arbitration Association in Cincinnati, Ohio.

25.Counterpart.This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

26.Audit Right. PECO shall cooperate with the REIT’s independent auditors with respect to the annual audit of the REIT for the purpose of expressing an opinion on the financial statements of the REIT (the “Annual REIT Audit”). In addition, the REIT shall have the right to conduct an audit of PECO’s books and records solely with respect to the fees and expense reimbursements relating to the services provided pursuant to this Agreement (the “Fee Audit”). The REIT may conduct the Fee Audit by using its own internal auditors or by employing independent auditors no more than once per year. Costs associated with conducting such Fee Audits by internal or independent auditors, and costs of the Annual REIT Audit, shall be borne by REIT. If any Fee Audit conducted by or on behalf of REIT reveals a discrepancy in excess of ten percent (10%), and greater than $10,000, for the aggregate fees and expense reimbursements payable during the period under audit pursuant to the Fee Audit, PECO shall be responsible for the reasonable expenses of such audit.

Signatures on next page.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

On behalf of “OWNER”:

OP:

PHILLIPS EDISON - ARC GROCERY CENTER OPERATING PARTNERSHIP II L.P.,

a Delaware limited partnership

By:PE- ARC GROCERY CENTER OP GP II LLC,

a Delaware limited liability company

General Partner

By:/s/ R. Mark Addy            

R. Mark Addy, Co-President

REIT:

PHILLIPS EDISON - ARC GROCERY CENTER REIT II, INC.

a Maryland corporation

By:/s/ R. Mark Addy            

R. Mark Addy, Co-President

PECO:

PHILLIPS EDISON & COMPANY LTD.,

an Ohio limited liability company

By:/s/ Robert F. Myers                

Robert F. Myers, Chief Operating Officer

EXHIBIT A

MONTHLY REPORTING PACKAGE

For the current month and year to date, statements presenting, on a comparative basis, actual to budget (and/or forecast or other projections), including variance explanations for material variances:

• Executive Summary (operations, leasing, capital, tenant/market issues, other)

• Balance Sheet

• Income Statement

• Aged Receivables and Delinquencies Report

• Rent Rolls (as requested in writing by Owner)

• Month to date and year to date variance report with explanations (budget to actual and actual to previous year actual)

• List of any material accrual adjustment that may have been missed on the last business day of each month

• Leasing Update

• Consolidated Financial Statements

• Reforecast operating projections and cash flow

• Any additional reports that Owner shall reasonably request

EXHIBIT B

QUARTERLY REPORTING PACKAGE

• All items in the monthly reporting package.

• Quarter to date variance reports with explanations compared to budget and same period prior year.

• Copy of cash receipts ledger entries for such period, if requested.

• The originals (or copies, as Owner may request) of all contracts entered into by PECO on behalf of Owner during such period, if requested.

• Consolidated financial statements.

• Such other reports as may be required by Owner.

EXHIBIT C

ANNUAL REPORTING PACKAGE

•All items in the quarterly reporting package which shall include annual operating statements and a list of variances and explanations of material variances (budget to actual and actual to previous year actual).

•All information required for tax filings, as determined by Owner.

•Certifications of assessment, testing and compliance with internal controls.

Any other reports reasonably requested by Owner.

A-3

Form of Property Addendum

PROPERTY DESCRIPTION:

Property Name:

Street Address:

City, State, Zip Code:

County:

Owner Name:

Owner Tax ID#:

Tax Parcel ID #:

SERVICES TO BE PROVIDED:

□ Property Management Services as specified in this Agreement with:

_____No changes

_____Changes as follows: ________________________________________________

_________________________________________________________________

_________________________________________________________________

Threshold pursuant to Section 14: _________________________________________________

_________________________________________________________________

_________________________________________________________________

Property Management Fees:

□ Property Management Fee: 4.0% of Gross Receipts, as specified in Section 6(a).

□ Property Management Fee (other calculation): __________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

□ Leasing Agreement duties as specified in Section 5(b) of the Agreement except as specified below:

_____No changes

_____Changes as follows: ________________________________________________

_________________________________________________________________

_________________________________________________________________

□ Leasing Agreement Fees:

□ New Lease Commission Percentage: ______ percent (____%) of the gross amount of all base rent under the first _______ (__) years of the primary term of said leases, plus ______ percent (____%) of the gross amount of all base rent under the next _______ (__) years of the primary term, payable [e.g., one-half] upon the full execution of the lease and [one-half] upon tenant opening for business.

□ Notwithstanding the foregoing, for any new lease for over _________ square feet, the leasing commission shall be at a fixed rate of _______ Dollars ($______) per square foot of leasable area.

□ Renewals: For any renewal or extension of a lease (including the exercise of an existing lease option), PECO shall be paid: _______________________________

__________________________________________________________________

__________________________________________________________________

□ Expansions:For each lease amendment or modification in which the tenant expands its premises, Owner will pay PECO a leasing commission of ______ percent (____%) of the gross amount of the base rent represented by such additional space under the balance of the

then current term of the lease, plus ______ percent (____%) of the gross amount of all base rent represented by such additional space under any additional years of the primary term, payable [one-half] upon execution of the amendment or modification document and [one-half] upon the tenant opening for business from the expansion space.

□ Co-Brokers:As leasing agent for the Properties, PECO may cooperate with independent real estate brokers or agents. If PECO hires a co-broker in order to assist PECO in securing a tenant or if an opportunity is brought to PECO by an independent broker, the applicable leasing commission payable to PECO by Owner shall be increased by the lesser of (i) the amount of the fee owed to the co-broker or (ii) an amount equal to 50% of the applicable leasing commission payable to PECO by Owner as set forth above. PECO shall be responsible for payment of the co-broker fee from the applicable leasing commission paid to PECO by Owner.

□ Payment terms (if other than specified above): ____________________

□ Construction Management Services as specified in Section 5(c) of the Agreement except as specified below. In particular, the construction management will include the following (add attachments as necessary):

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

□ Construction management Fees:

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Examples:

¬ The Owner agrees to pay PECO a management fee in the amount of $ within fifteen (15) days of acceptance of the Improvement by the Owner.

¬ As payment for the services to be performed by the PECO hereunder, Owner shall pay the PECO a fee of ($), to be paid on the first day of each month of the term of the project in equal monthly installments of  ($), plus reimbursable expenses referenced in this Agreement.

¬ PECO agrees to collect and provide the Owner with invoices for the work completed on the Improvement on a monthly basis unless the Owner and PECO agree to a more frequent basis. Upon delivery of such invoices, the Owner will be solely responsible for promptly paying the company or companies performing the work. The contract form used by the Owner shall specify that PECO has no responsibility for payment. Reimbursable expenses as described in this Agreement shall be reimbursed to the PECO at cost plus ten percent (10%) and shall be billed on a monthly basis.

EX-31.1

Exhibit 31.1

Certification pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey S. Edison, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Phillips Edison - ARC Grocery Center REIT II, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2014

/s/ Jeffrey S. Edison

Jeffrey S. Edison

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Devin I. Murphy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Phillips Edison - ARC Grocery Center REIT II, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2014

/s/ Devin I. Murphy

Devin I. Murphy

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification pursuant to 18 U.S.C. Section 1350,

as Adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Phillips Edison - ARC Grocery Center REIT II, Inc. (the “Registrant”) for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jeffrey S. Edison, Chief Executive Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: August 7, 2014

/s/ Jeffrey S. Edison

Jeffrey S. Edison

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

Certification pursuant to 18 U.S.C. Section 1350,

as Adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Phillips Edison - ARC Grocery Center REIT II, Inc. (the “Registrant”) for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Devin I. Murphy, the Chief Financial Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: August 7, 2014

/s/ Devin I. Murphy

Devin I. Murphy

Chief Financial Officer

(Principal Financial Officer)

XML

Acquired Intangible Assets (Details) - Amortization Expense (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Finite Lived Intangible Assets Disclosure [Abstract]
Acquired Intangible Assets, Amortization Expense	$ 95	$ 107

XML

Future Minimum Rents (Details) - Approximate Future Rentals (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Operating Leases, Future Minimum Payments Receivable [Abstract]
July 1 to December 31, 2014	$ 1,068
2015	2,034
2016	2,013
2017	1,896
2018	1,862
2019 and thereafter	11,166
Operating Leases, Future Minimum Payments Receivable, Total	$ 20,039

XML

Related Party Transactions (Details) - Other (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	Dec. 31, 2013
Related Party Transactions [Abstract]
Dealer Manager Selling Commission Percentage	7.00%	7.00%
Dealer Manager Fee Percentage	3.00%	3.00%
Percentage of Dealer Manager Selling Commissions Typically Reallowed		100.00%
Selling Commission & DealerManager Fee, Percent of Offering, Max		10.00%
Dealer Manager Selling Commissions Incurred	$ 13,202,000	$ 21,006,000
Fees and Commissions Payable to the Dealer Manager	0	0	0
Fees and Commissions, Transfer Agent	144,000	213,000
Fees and Commissions Payable to the Transfer Agent	$ 144,000	$ 144,000	$ 0
Shares Owned by Sub-Advisor	8,888	8,888
Shares Owned by AR Capital Sponsor	17,778	17,778
Advisor and Sub-Advisor Share Purchase Price		$ 22.50

XML

Fair Value Measurements (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs Discount Rate Fixed Rate Debt	5.75%
Loans Payable, Fair Value Disclosure	$ 13.0
Secured Debt	$ 12.9

XML

Acquired Below-Market Lease Intangibles (Tables)

6 Months Ended

Jun. 30, 2014

Acquired Below Market Lease Intangibles [Abstract]

Acquired Below-Market Lease Intangibles [Table Text Block]

Acquired below-market lease intangibles consisted of the following (in thousands):

	June 30, 2014		December 31, 2013
Acquired below-market leases, net	$	46	$	—

Schedule of Acquired Below-Market Lease Intangibles, Future Amortization Expense [Table Text Block]

Estimated future amortization income of the intangible lease liabilities as of June 30, 2014 for the remainder of 2014 and for each of the five succeeding calendar years and thereafter is as follows (in thousands):

Year	Below-Market Leases
July 1 to December 31, 2014	$	3
2015	5
2016	5
2017	5
2018	5
2019 and thereafter	23
Total	$	46

XML

Subsequent Events (Details) (USD $)	6 Months Ended	0 Months Ended		1 Months Ended					1 Months Ended	0 Months Ended		0 Months Ended
	Jun. 30, 2014	Aug. 01, 2014 Subsequent Event [Member]	Jul. 01, 2014 Subsequent Event [Member]	Jul. 31, 2014 Subsequent Event [Member]	Aug. 01, 2014 Subsequent Event [Member]	Jul. 02, 2014 Subsequent Event [Member]	Aug. 01, 2014 Dividend Paid [Member]	Jul. 01, 2014 Dividend Paid [Member]	Aug. 07, 2014 Acquisitions in 2014 [Member] Properties	Jul. 25, 2014 Northpark Village [Member] Subsequent Event [Member]	Jul. 25, 2014 Northpark Village [Member] Subsequent Event [Member] sqft	Jul. 30, 2014 Spring Cypress Village [Member] Subsequent Event [Member]	Jul. 30, 2014 Spring Cypress Village [Member] Subsequent Event [Member] sqft
Subsequent Event [Line Items]
Document Period End Date	Jun. 30, 2014
Issuance of common stock, value	$ 220,594,000			$ 69,500,000
Issuance of common stock, shares				2,800,000
Common stock, Shares Available for Sale					68,300,000
Common Stock, Distributions Per Share Daily Rate							$ 0.00445205	$ 0.00445205
Dividends, Common Stock, Cash	2,921,000	1,400,000	1,000,000
Distribution reinvestment plan (DRIP), value	909,000	800,000	500,000
Distributions Paid, Net of DRIP	966,000	600,000	500,000
Number of Businesses Acquired									2
Payments to Acquire Businesses, Gross										8,200,000		21,400,000
Business Acquisition, Cost of Acquired Entity, Fair Value of Debt Assumed										0		0
Rentable Square Feet											70,479		97,550
Leased Percentage											95.20%		79.00%
Line of Credit Facility, Maximum Borrowing Capacity						200,000,000
Unsecured Line of Credit Facility, Maximum Potential Borrowing Capacity						$ 700,000,000
Debt instrument, number of extension options						2
Revolving Credit Facility Extension Fee, Percent						0.075%

XML

Acquired Below-Market Lease Intangibles Period Ending (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Acquired Below Market Lease Intangibles [Abstract]
Acquired below market lease intangibles	$ 46	$ 0

XML

Real Estate Acquisitions (Details) - Pro Forma (Acquisitions in 2014 [Member], USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Acquisitions in 2014 [Member]
Business Acquisition [Line Items]
Business Acquisition, Pro Forma Revenue	$ 0.6	$ 1.2
Business Acquisition, Pro Forma Net Income (Loss)	$ (0.4)	$ (0.5)
Business Acquisition, Pro Forma Earnings Per Share, Diluted	$ (0.07)	$ (0.14)

XML

Economic Dependency (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Economic Dependency [Abstract]
Accounts payable - affiliates	$ 4,615,000	$ 1,988,000
Organization and Offering Costs Payable to Advisor and Sub-Advisor	4,588,000	1,858,000
General and Administrative Expenses of the Company Paid by Sponsor	6,000	130,000
Asset Management, Property Management, and Other Fees Payable	$ 21,000	$ 0

XML

Summary Of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

SUMMARY OF SIGNIFICANT 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 condensed consolidated interim financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by management. As a result, these estimates are subject to a degree of uncertainty. There have been no changes to our significant accounting policies during the six months ended June 30, 2014, except that subsequent to the issuance of our Annual Report on Form 10-K, we have continued to adopt additional accounting policies as required by our increasing operational activity, as disclosed below. For a summary of our significant accounting policies previously adopted, refer to our Annual Report on Form 10-K for the year ended December 31, 2013.

Basis of Presentation and Principles of Consolidation—The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q should refer to the audited financial statements of Phillips Edison—ARC Grocery Center REIT II, Inc. for the year ended December 31, 2013, which are included in our 2013 Annual Report on Form 10-K, as certain footnote disclosures contained in such audited financial statements have been omitted from this Quarterly Report on Form 10-Q. In the opinion of management, all normal and recurring adjustments necessary for the fair presentation have been included in this Quarterly Report. Our results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the operating results expected for the full year.

Although we were formed on June 5, 2013, we were not capitalized until July 1, 2013, and we did not commence operations until January 9, 2014. As such, we had no financial activity or results from operations as of and for the period ended June 30, 2013, and therefore have not presented this as a comparative period within our condensed consolidated financial statements.

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

Organizational and Offering Costs—The Advisor and the Sub-advisor have paid offering expenses on our behalf. Pursuant to the terms of our advisory agreement with the Advisor, we will reimburse the Advisor and the Sub-advisor on a monthly basis for these costs and future offering costs they or any of their respective affiliates may incur on our behalf but only to the extent that the reimbursement would not exceed 2.0% of gross offering proceeds over the life of the offering or cause the selling commissions, the dealer manager fee and the other organization and offering expenses borne by us to exceed 15.0% of gross offering proceeds as of the date of the reimbursement. Organization and offering expenses include all expenses (other than selling commissions and the dealer manager fee) incurred by or on behalf of us in connection with or in preparing for the registration of and subsequently offering and distributing our shares of common stock to the public, which may include, but are not limited to, expenses for printing, engraving and mailing; compensation of employees while engaged in sales activity; charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts; third-party due diligence fees as set forth in detailed and itemized invoices; and expenses of qualification of the sale of the securities under federal and state laws, including taxes and fees, accountants’ and attorneys’ fees. Pursuant to the terms of the sub-advisory agreement between the Advisor and Sub-advisor, this organization and offering expense limitation of 2.0% is apportioned as follows: 1.5% to our Sub-advisor; and 0.5% to our Advisor. Organizational costs are expensed as incurred by us, the Advisor, Sub-advisor or their respective affiliates on behalf of us.

Investment Property and Lease Intangibles—Real estate assets we have acquired are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method. The estimated useful lives for computing depreciation are generally five to seven years for furniture, fixtures and equipment, 15 years for land improvements and 30 years for buildings and building improvements. Tenant improvements are amortized over the shorter of the respective lease term or the expected useful life of the asset. Major replacements that extend the useful lives of the assets are capitalized, and maintenance and repair costs are expensed as incurred.

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the individual property may not be recoverable. In such an event, a comparison will be made of the projected operating cash flows of each property on an undiscounted basis to the carrying amount of such property. Such carrying amount would be adjusted, if necessary, to estimated fair values to reflect impairment in the value of the asset. We recorded no impairments for the six months ended June 30, 2014.

The results of operations of acquired properties are included in our results of operations from their respective dates of acquisition. We assess the acquisition-date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis and replacement cost) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant. Acquisition-related costs are expensed as incurred.

The fair values of buildings and improvements are determined on an as-if-vacant basis.  The estimated fair value of acquired in-place leases is the cost we would have incurred to lease the properties to the occupancy level of the properties at the date of acquisition. Such estimates include leasing commissions, legal costs and other direct costs that would be incurred to lease the properties to such occupancy levels. Additionally, we evaluate the time period over which such occupancy levels would be achieved. Such evaluation includes an estimate of the net market-based rental revenues and net operating costs (primarily consisting of real estate taxes, insurance and utilities) that would be incurred during the lease-up period. Acquired in-place leases as of the date of acquisition are amortized over the remaining lease terms.  

Acquired above- and below-market lease values are recorded based on the present value (using interest rates that reflect the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of the market lease rates for the corresponding in-place leases. The capitalized above- and below-market lease values are amortized as adjustments to rental income over the remaining terms of the respective leases.  We also consider fixed rate renewal options in our calculation of the fair value of below-market leases and the periods over which such leases are amortized.  If a tenant has a unilateral option to renew a below-market lease and we determine that the tenant has a financial incentive to exercise such option, we include such an option in the calculation of the fair value of such lease and the period over which the lease is amortized.

Management estimates the fair value of assumed mortgage notes payable based upon indications of then-current market pricing for similar types of debt with similar maturities. Assumed mortgage notes payable are initially recorded at their estimated fair value as of the assumption date, and the difference between such estimated fair value and the note’s outstanding principal balance is amortized over the life of the mortgage note payable as an adjustment to interest expense.

Revenue Recognition—We commence revenue recognition on our leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, this occurs on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. If we are the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space, and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.

If we conclude that we are not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives, which reduce revenue recognized over the term of the lease. In these circumstances, we begin revenue recognition when the lessee takes possession of the unimproved space to construct their own improvements. We consider a number of different factors in evaluating whether we or the lessee is the owner of the tenant improvements for accounting purposes. These factors include:

• whether the lease stipulates how and on what a tenant improvement allowance may be spent;

• whether the tenant or landlord retains legal title to the improvements;

• the uniqueness of the improvements;

• the expected economic life of the tenant improvements relative to the length of the lease; and

• who constructs or directs the construction of the improvements.

We recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts receivable. Due to the impact of the straight-line basis, rental income generally will be greater than the cash collected in the early years and will be less than the cash collected in the later years of a lease. Our policy for percentage rental income is to defer recognition of contingent rental income until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved. We periodically review the collectability of outstanding receivables. Allowances will be taken for those balances that we deem to be uncollectible, including any amounts relating to straight-line rent receivables.

Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period in which the applicable expenses are incurred. We make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. We do not expect the actual results to materially differ from the estimated reimbursements.

We record lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met, collectability is reasonably assured and the tenant is no longer occupying the property. Upon early lease termination, we provide for losses related to unrecovered tenant-specific intangibles and other assets.  

Income Taxes—We intend to elect to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) commencing with the taxable year ending December 31, 2014. Our qualification and taxation as a REIT depends on our ability, on a continuing basis, to meet certain organizational and operational qualification requirements imposed upon REITs by the Code. If we fail to qualify as a REIT for any reason in a taxable year, we will be subject to tax on our taxable income at regular corporate rates. We would not be able to deduct distributions paid to stockholders in any year in which we fail to qualify as a REIT. We will also be disqualified for the four taxable years following the year during which qualification was lost unless we are entitled to relief under specific statutory provisions. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property or net worth, respectively, and to federal income and excise taxes on our undistributed income. Additionally, GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the consolidated financial statements if it is more likely than not that the tax position will be sustained upon examination. We believe it is more likely than not that our tax positions will be sustained in any tax examinations.

Restricted Cash—Restricted cash was $42,000 as of June 30, 2014. This primarily consisted of escrowed tenant improvement funds, real estate taxes, capital improvement funds, insurance premiums, and other amounts required to be escrowed pursuant to loan agreements.

Earnings Per Share—Earnings per share are calculated based on the weighted-average number of common shares outstanding during each period. Diluted income per share considers the effect of any potentially dilutive share equivalents for the three and six months ended June 30, 2014.

There were 1,247 Class B units of the Operating Partnership outstanding and held by the Advisor and the Sub-advisor as of June 30, 2014. The vesting of the Class B units is contingent upon a market condition and service condition. The satisfaction of the market or service condition was not probable as of June 30, 2014, and, therefore, the Class B units are not included in earnings per share.

Impact of Recently Issued Accounting Pronouncements—In March 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-06, Technical Corrections and Improvements Related to Glossary Terms. The amendments in this update include technical corrections to the glossary including glossary links, glossary term deletions, glossary term name changes, and other miscellaneous technical corrections. In addition, the update includes more substantive, limited-scope improvements to reduce instances of the same term appearing multiple times in the glossary with similar, but not entirely identical, definitions. ASU 2014-06 was effective upon issuance. The adoption of this pronouncement did not have a material impact on our condensed consolidated financial statements.

In April 2014, FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update raise the threshold for a property disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard will be effective for us on January 1, 2015. In future periods, we expect that the adoption of this pronouncement may result in property disposals not qualifying for discontinued operations presentation, and thus the results of those disposals will remain in income from continuing operations.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 will eliminate the transaction- and industry-specific revenue recognition guidance currently under GAAP and will replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 does not apply to lease contracts accounted for under Accounting Standards Codification ("ASC") 840, Leases. ASU 2014-09 will be effective for us for annual and interim periods beginning after December 15, 2016, and early adoption is prohibited. We are currently assessing the impact the adoption of ASU 2014-09 will have on our condensed consolidated financial statements.

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Acquired Below-Market Lease Intangibles Five Succeeding Calendar Years (Details) (Acquired Below-Market Leases [Member], USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Acquired Below-Market Leases [Member]
Acquired Below-Market Lease Intangibles [Line Items]
Future Amortization Income, Remainder of Fiscal Year	$ 3
Future Amortization Income, Year Two	5
Future Amortization Income, Year Three	5
Future Amortization Income, Year Four	5
Future Amortization Income, Year Five	5
Future Amortization Income, After Year Five	23
Acquired Below Market Lease Intangibles Future Amortization Income	$ 46
Acquired Below Market Lease Intangibles, Weighted Average Amortization Period	9 years

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Subsequent Events (Tables)

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

Subsequent to June 30, 2014, we acquired a 100% ownership in two properties (dollars in thousands):

Property Name	Location	Anchor Tenant	Acquisition Date	Purchase Price		Mortgage Loan Assumed		Square Footage	Leased % of Rentable Square Feet at Acquisition
Northpark Village	Lubbock, TX	United Supermarkets	7/25/2014	$	8,200	$	—	70,479	95.2	%
Spring Cypress Village	Houston, TX	Sprouts	7/30/2014	21,400		—		97,550	79.0	%

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Future Minimum Rents (Tables)

6 Months Ended

Jun. 30, 2014

Operating Leases, Future Minimum Payments Receivable [Abstract]

Future Minimum Rents [Table Text Block]

Approximate future rentals to be received under non-cancelable operating leases in effect at June 30, 2014, assuming no new or renegotiated leases or option extensions on lease agreements, are as follows (in thousands):

Year	Amount
July 1 to December 31, 2014	$	1,068
2015	2,034
2016	2,013
2017	1,896
2018	1,862
2019 and thereafter	11,166
Total	$	20,039

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Related Party Transactions (Details) - Advisor (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	Dec. 31, 2013
Related Party Transactions [Abstract]
Max % of Offering Proceeds Payable to Advisor & Sub-Advisor for O&O		2.00%
Organization and Offering Costs Charged by Advisor and Sub-Advisor	$ 7,900,000	$ 7,900,000	$ 1,900,000
Organization and Offering Costs Reimbursed to Advisor and Sub-Advisor	3,300,000	3,300,000	0
Organization and Offering Costs Payable to Advisor and Sub-Advisor	4,588,000	4,588,000	1,858,000
Acquisition Fee Percentage	1.00%	1.00%
Class B Issuance Percentage		0.25%
Class B Issue Price		$ 22.50
Class B Units Issued		1,247
Class B Units Outstanding	1,247	1,247
Operating Partnership Return for Class B to Vest	6.00%	6.00%
Financing Fee Percentage	0.75%	0.75%
Disposition Fee Percentage	2.00%	2.00%
Real estate commission, percent of sales price, max		6.00%
General and Administrative Expenses of the Company Paid by Sponsor	6,000	6,000	130,000
Acquisition Fees Incurred	172,000	284,000
Acquisition Fees Payable	0	0	0
Related Party Transaction, Acquisition Expense Incurred	27,000	41,000
Related Party Transaction, Acquisition Expense Payable	0	0	0
Class B Distributions	0	0
Class B Distributions Payable	0	0	0
Financing Fees Incurred	95,000	95,000
Financing Fees Payable	0	0	0
Disposition Fees Incurred	0	0
Disposition Fees Payable	0	0	0
Fees and Expenses Incurred from Advisor and Sub-Advisor	294,000	420,000
Fees and Expenses Owed to Advisor and Sub-Advisor	0	0	0
Investor Return Before Subordinated Performance Participation	6.00%	6.00%
Subordinated Performance Fee Percentage	15.00%	15.00%
Limit on Performance Fee, Percent of Total Return, Max		10.00%
Subordinated Performance Fee Payable	0	0	0
Subordinated Participation in Net Sales Proceeds Percentage	15.00%	15.00%
Investor Return Before Subordinated Participation in Net Sales Proceeds	6.00%	6.00%
Sales of Real Estate Assets		0
Advisor Interest in Special Limited Partner	22.50%	22.50%
Sub-Advisor Interest in Special Limited Partner	77.50%	77.50%
Subordinated Incentive Listing Fee Percentage	15.00%	15.00%
Investor Return Before Subordinated Listing Incentive Fee	6.00%	6.00%
Subordinated Incentive Listing Distribution Payable	$ 0	$ 0	$ 0
Subordinated Distribution Upon Termination of Advisor Agreement Percentage	15.00%	15.00%
Investor Return Before Subordinated Distribution Upon Termination of Advisor Agreement	6.00%	6.00%

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Organization (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	Jun. 30, 2014
Organization [Line Items]
Offering total shares value	$ 2,475
Number of Real Estate Properties	2
IPO [Member]
Organization [Line Items]
Offering total shares value	2,000
Sale of Stock, Price Per Share	$ 25.00
Initial Public Offering Distribution Reinvestment Plan [Member]
Organization [Line Items]
Offering total shares value	$ 475
Sale of Stock, Price Per Share	$ 23.75

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Summary Of Significant Accounting Policies (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Accounting Policies [Abstract]
Max % of Offering Proceeds Payable to Advisor & Sub-Advisor for O&O	2.00%
Selling Commissions, Dealer Manager Fee, O&O - Total Max % of Gross Proceeds	15.00%
Maximum % of offering proceeds payable to Sub-advisor	1.50%
Maximum % of offering proceeds payable to Advisor	0.50%
Restricted cash	$ 42,000	$ 0
Class B Units Outstanding	1,247
Property, Plant and Equipment [Line Items]
Impairment of Real Estate	$ 0
Furniture and Fixtures [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	5 years
Furniture and Fixtures [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	7 years
Land Improvements [Member] | Weighted Average [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	15 years
Building and Building Improvements [Member] | Weighted Average [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	30 years

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Organization

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

ORGANIZATION

Phillips Edison—ARC Grocery Center REIT II, Inc. (the "Company") was formed as a Maryland corporation on June 5, 2013, and intends to qualify as a real estate investment trust ("REIT") beginning with the taxable year ending December 31, 2014. Substantially all of our business is conducted through Phillips Edison—ARC Grocery Center Operating Partnership II, L.P. (the "Operating Partnership"), a Delaware limited partnership formed on June 4, 2013. We are a limited partner of the Operating Partnership, and our wholly owned subsidiary, PE-ARC Grocery Center OP GP II LLC, is the sole general partner of the Operating Partnership. As we accept subscriptions for shares in our continuous public offering, we will transfer all of the net proceeds of the offering to the Operating Partnership as a capital contribution in exchange for units of limited partnership interest; however, we are deemed to have made capital contributions in the amount of the gross offering proceeds received from investors.

We are offering to the public, pursuant to a registration statement, $2.475 billion in shares of common stock on a "reasonable best efforts" basis in our initial public offering ("our initial public offering"). Our initial public offering consists of a primary offering of $2.0 billion in shares offered to investors at a price of $25.00 per share, with discounts available for certain categories of purchasers, and $0.475 billion in shares offered to stockholders pursuant to a distribution reinvestment plan (the "DRIP") at a price of $23.75 per share. We have the right to reallocate the shares of common stock offered between the primary offering and the DRIP.

Our advisor is American Realty Capital PECO II Advisors, LLC (the "Advisor"), a newly organized limited liability company that was formed in the State of Delaware on July 9, 2013 and is under common control with AR Capital LLC (the "AR Capital sponsor"). We have entered into an advisory agreement with the Advisor which makes the Advisor ultimately responsible for the management of our day-to-day activities and the implementation of our investment strategy. The Advisor has delegated certain duties under the advisory agreement, including the management of our day-to-day operations and our portfolio of real estate assets, to Phillips Edison NTR II LLC (the "Sub-advisor"), which is directly or indirectly owned by Phillips Edison Limited Partnership (the "Phillips Edison sponsor"), and Michael Phillips and Jeffrey Edison, principals of our Phillips Edison sponsor. Notwithstanding such delegation to the Sub-advisor, the Advisor retains ultimate responsibility for the performance of all the matters entrusted to it under the advisory agreement.

We plan to invest primarily in well-occupied grocery-anchored neighborhood and community shopping centers leased to a mix of national, creditworthy retailers selling necessity-based goods and services in strong demographic markets throughout the United States. In addition, we may invest in other retail properties including power and lifestyle shopping centers, multi-tenant shopping centers, free-standing single-tenant retail properties, and other real estate and real estate-related loans and securities depending on real estate market conditions and investment opportunities that we determine are in the best interests of our stockholders. We expect that retail properties primarily would underlie or secure the real estate-related loans and securities in which we may invest.

As of June 30, 2014, we owned a fee simple interest in two real estate properties, acquired from third parties unaffiliated with us, the Advisor, or the Sub-advisor.

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Equity (Details) (USD $)	6 Months Ended		6 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2014 Common Stock [Member]	Jun. 30, 2014 Preferred Stock [Member]	Jun. 30, 2014 Dividend Reinvestment Plan [Member]	Jun. 30, 2014 Dividend Reinvestment Plan [Member]
Class of Stock [Line Items]
Common stock, shares authorized	1,000,000,000
Common stock, par value	$ 0.01
Preferred stock, shares authorized	10,000,000			10,000,000
Preferred stock, par value	$ 0.01			$ 0.01
Preferred stock, shares outstanding	0	0
Common Stock, Shares, Outstanding	8,917,720	8,888
Common Stock, Including Additional Paid in Capital	$ 221,700,000
Common Stock, Voting Rights			The holders of shares of common stock are entitled to one vote per share on all matters voted on by stockholders, including election of the board of directors. Our charter does not provide for cumulative voting in the election of directors.
Common stock, price per share					$ 23.75	$ 23.75
Distributions reinvested	$ 909,000				$ 800,000	$ 900,000
Common stock, share repurchase plan termination notice days	30 days
Common stock, shares repurchased			0

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Acquired Intangible Assets (Details) - Five Succeeding Calendar Years (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Acquired Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Net, Total	$ 3,953	$ 0
Leases, Acquired-in-Place [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
July 1 to December 31, 2014	122
2015	257
2016	257
2017	257
2018	257
2019 and thereafter	931
Finite-Lived Intangible Assets, Net, Total	2,081	0
Finite-Lived Intangible Asset, Useful Life	10 years
Leases, Acquired-in-Place, Market Adjustment [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
July 1 to December 31, 2014	68
2015	154
2016	154
2017	154
2018	154
2019 and thereafter	1,188
Finite-Lived Intangible Assets, Net, Total	$ 1,872	$ 0
Finite-Lived Intangible Asset, Useful Life	12 years

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Condensed Consolidated Balance Sheets (USD $)	Jun. 30, 2014	Dec. 31, 2013
ASSETS [Abstract]
Land	$ 7,440,000	$ 0
Building and improvements	17,312,000	0
Total investment in real estate assets	24,752,000	0
Accumulated depreciation and amortization	(182,000)	0
Total investment in real estate assets, net	24,570,000	0
Acquired intangible lease assets, net of accumulated amortization of $107 and $0, respectively	3,953,000	0
Cash and cash equivalents	178,488,000	100,000
Restricted cash	42,000	0
Deferred offering costs	0	1,858,000
Accounts receivable	87,000	0
Deferred financing expense, less accumulated amortization of $3 and $0, respectively	450,000	0
Prepaid expenses and other	287,000	390,000
Total assets	207,877,000	2,348,000
Liabilities:
Mortgages and loans payable	12,889,000	0
Acquired below market lease intangibles	46,000	0
Accounts payable	4,000	0
Accounts payable - affiliates	4,615,000	1,988,000
Accrued and other liabilities	1,781,000	9,000
Notes payable	0	296,000
Total liabilities	19,335,000	2,293,000
Commitments and contingencies (Note 9)	0	0
Equity:
Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, zero shares issued and outstanding at June 30, 2014 and December 31, 2013	0	0
Common stock, $0.01 par value per share, 1,000,000,000 shares authorized, 8,917,720 and 8,888 shares issued and outstanding at June 30, 2014 and December 31, 2013	89,000	0
Additional paid-in capital	192,627,000	200,000
Accumulated deficit	(4,174,000)	(145,000)
Total equity	188,542,000	55,000
Total liabilities and equity	$ 207,877,000	$ 2,348,000

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Related Party Transactions (Details) - Property Manager Transactions (USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended	5 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	May 31, 2014	Jun. 30, 2014	Dec. 31, 2013
Related Party Transactions [Abstract]
Property Management Fee, Percent Fee	4.00%		4.50%
Property Management Oversight Fee, Percent Fee				1.00%
Property Management Fees Incurred		$ 22		$ 24
Property Management Fees Payable	4	4		4	0
Leasing Commissions Incurred		7		7
Leasing Commissions Payable	7	7		7	0
Construction Management Fees Incurred		5		5
Construction Management Fees Payable	4	4		4	0
Other Property Manager Fees and Reimbursements Incurred		11		17
Other Fees and Reimbursements Payable to Property Manager	6	6		6	0
Property Manager Fees and Reimbursements Incurred, Total		45		53
Property Manager Fees and Reimbursements Payable, Total	$ 21	$ 21		$ 21	$ 0

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Condensed Consolidated Statements Of Equity (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2014
Statement of Stockholders' Equity [Abstract]
Common distributions declared, per share	$ 0.67

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Real Estate Acquisitions (Details) - Allocation (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Bethany Village [Member]
Business Acquisition [Line Items]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Land	$ 4,125
Business Acquisition, Purchase Price Allocation, Building and Improvements	6,182
Business Acquisition, Purchase Price Allocation, In-Place Leases	844
Business Acquisition, Purchase Price Allocation, Above-Market Leases	0
Business Acquisition, Purchase Price Allocation, Below-Market Leases	0
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net	11,151
Staunton Plaza [Member]
Business Acquisition [Line Items]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Land	3,315
Business Acquisition, Purchase Price Allocation, Building and Improvements	11,031
Business Acquisition, Purchase Price Allocation, In-Place Leases	1,310
Business Acquisition, Purchase Price Allocation, Above-Market Leases	1,906
Business Acquisition, Purchase Price Allocation, Below-Market Leases	(46)
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net	17,516
Acquisitions in 2014 [Member]
Business Acquisition [Line Items]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Land	7,440
Business Acquisition, Purchase Price Allocation, Building and Improvements	17,213
Business Acquisition, Purchase Price Allocation, In-Place Leases	2,154
Business Acquisition, Purchase Price Allocation, Above-Market Leases	1,906
Business Acquisition, Purchase Price Allocation, Below-Market Leases	(46)
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net	$ 28,667

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Real Estate Acquisitions (Tables)

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Schedule of Purchase Price Allocation [Table Text Block]

We allocated the purchase price of these acquisitions to the fair value of the assets acquired as follows (in thousands):

			Building and		In-Place		Above-Market		Below-Market
Acquisition	Land		Improvements		Leases		Leases		Leases			Total
Bethany Village Shopping Center	$	4,125	$	6,182	$	844	$	—	$	—		$	11,151
Staunton Plaza	3,315		11,031		1,310		1,906		(46		)	17,516
Total	$	7,440	$	17,213	$	2,154	$	1,906	$	(46	)	$	28,667

Real Estate Acquisitions [Table Text Block]

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

Acquisition	Acquisition Date	Revenues		Acquisition Expenses		Net Loss
Bethany Village Shopping Center	3/14/2014	$	343	$	189	$	(90	)
Staunton Plaza	4/30/2014	250		360		(413		)
Total		$	593	$	549	$	(503	)

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Real Estate Acquisitions (Details) - Operations (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Business Acquisition [Line Items]
Revenues	$ 539	$ 593
Acquisition expenses	384	586
Net loss	(759)	(1,108)
Bethany Village [Member]
Business Acquisition [Line Items]
Revenues		343
Acquisition expenses		189
Net loss		(90)
Staunton Plaza [Member]
Business Acquisition [Line Items]
Revenues		250
Acquisition expenses		360
Net loss		(413)
Acquisitions in 2014 [Member]
Business Acquisition [Line Items]
Revenues		593
Acquisition expenses		549
Net loss		$ (503)

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Mortgages and Notes Payable (Tables)

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Schedule of Maturities of Long-term Debt [Table Text Block]

Included below are the yearly principal payment obligations (in thousands) and weighted-average interest rates for the Staunton Plaza mortgage loan:

	2014 (1)			2015			2016			2017			2018			Thereafter			Total
Maturing debt:(2)
Fixed-rate mortgages payable	$	156		$	277		$	294		$	312		$	331		$	11,206		$	12,576
Weighted-average interest rate on debt:
Fixed-rate mortgages payable	6.0		%	6.0		%	6.0		%	6.0		%	6.0		%	6.0		%	6.0		%

⁽¹⁾  Includes only July 1, 2014 through December 31, 2014.

⁽²⁾  The debt maturity table does not include any below-market debt adjustment, of which $0.3 million, net of accumulated amortization, was outstanding as of June 30, 2014.

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Condensed Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (1,108)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	252
Net amortization of above- and below- market leases	34
Amortization of deferred financing costs	3
Straight-line rental income	(43)
Changes in operating assets and liabilities:
Accounts receivable	(44)
Prepaid expenses and other	103
Accounts payable	4
Accounts payable - affiliates	(103)
Accrued and other liabilities	484
Net cash used in operating activities	(418)
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions	(15,687)
Capital expenditures	(100)
Change in restricted cash	(42)
Net cash used in investing activities	(15,829)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	220,594
Payment of offering costs	(24,399)
Payments on mortgages and loans payable	(41)
Payments on notes payable	(296)
Distributions paid, net of DRIP	(966)
Payments of loan financing costs	(257)
Net cash provided by financing activities	194,635
NET INCREASE IN CASH AND CASH EQUIVALENTS	178,388
CASH AND CASH EQUIVALENTS:
Beginning of period	100
End of period	178,488
SUPPLEMENTAL CASHFLOW DISCLOSURE, INCLUDING NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for interest	69
Change in offering costs payable to advisor and sub-advisor	2,730
Change in distributions payable	1,046
Assumed debt	12,933
Accrued capital expenditures	46
Accrued loan financing costs	196
Distributions reinvested	$ 909

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Acquired intangible lease assets, accumulated amortization	$ 107,000	$ 0
Accumulated Amortization, Deferred Finance Costs	$ 3,000	$ 0
Preferred stock, par value	$ 0.01
Preferred stock, shares authorized	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01
Common stock, shares authorized	1,000,000,000
Common stock, shares issued and outstanding	8,917,720	8,888

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Related Party Transactions

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

Advisory Agreement—Pursuant to our advisory agreement, the Advisor is entitled to specified fees for certain services, including managing our day-to-day activities and implementing our investment strategy. The Advisor has entered into a sub-advisory agreement with the Sub-advisor, which manages our day-to-day affairs and our portfolio of real estate investments, on behalf of the Advisor, subject to the board’s supervision and certain major decisions requiring the consent of both the Advisor and Sub-advisor. The expenses to be reimbursed to the Advisor and Sub-advisor will be reimbursed in proportion to the amount of expenses incurred on our behalf by the Advisor and Sub-advisor, respectively.

Organization and Offering Costs—Under the terms of the advisory agreement, we are to reimburse on a monthly basis the Advisor, the Sub-advisor or their respective affiliates (the "Advisor Entities") for cumulative organization and offering costs and future organization and offering costs they may incur on our behalf but only to the extent that the reimbursement would not exceed 2.0% of gross offering proceeds over the life of our initial public offering. As of June 30, 2014, the Advisor, Sub-advisor and their affiliates have charged us approximately $7.9 million of cumulative organization and offering costs, and we have reimbursed $3.3 million of such costs, resulting in a net payable of $4.6 million. As of December 31, 2013, the Advisor, Sub-advisor and their affiliates had charged us approximately $1.9 million of cumulative organization and offering costs, and we had not yet reimbursed any such costs, resulting in a payable of $1.9 million.

Acquisition Fee—We pay our Advisor Entities or their assignees an acquisition fee related to services provided in connection with the selection and purchase or origination of real estate and real estate-related investments. The acquisition fee is equal to 1.0% of the contract purchase price of each property we acquire, including acquisition or origination expenses and any debt attributable to such investments.

Acquisition Expenses—We reimburse the Sub-advisor for expenses actually incurred related to selecting, evaluating and acquiring assets on our behalf.  During the three and six months ended June 30, 2014, we reimbursed the Sub-advisor for personnel costs related to due diligence services for assets we acquired during the period.

Asset Management Subordinated Participation—Within 60 days after the end of each calendar quarter (subject to the approval of our board of directors), we will pay an asset management subordinated participation by issuing a number of restricted operating partnership units designated as Class B Units to our Advisor Entities equal to: (i) 0.25% multiplied by (a) prior to the NAV pricing date, the cost of assets and (b) on and after the NAV pricing date, the lower of the cost of assets and the applicable quarterly NAV divided by (ii) (a) prior to the NAV pricing date, the value of one share of common stock as of the last day of such calendar quarter, which is equal initially to $22.50 (the primary offering price minus selling commissions and dealer manager fees) and (b) on and after the NAV pricing date, the per share NAV.

Our Advisor Entities will be entitled to receive distributions on the vested and unvested Class B units they receive in connection with their asset management subordinated participation at the same rate as distributions received on our common stock; such distributions will be in addition to the incentive fees that our Advisor Entities and their affiliates may receive from us. During the three and six months ended June 30, 2014, the Operating Partnership issued 1,247 Class B units to the Advisor and the Sub-advisor under the advisory agreement for the asset management services performed by the Advisor and the Sub-advisor during the period from January 1, 2014 to March 31, 2014. These Class B units will not vest until an economic hurdle has been met and the Advisor and Sub-advisor continue to provide advisory services through the date that such economic hurdle is met. The economic hurdle will be met when the value of the Operating Partnership’s assets plus all distributions made equal or exceed the total amount of capital contributed by investors plus a 6% cumulative, pre-tax, non-compounded annual return thereon.

Financing Coordination Fee—When our Advisor Entities provide services in connection with the origination or refinancing of any debt that we obtain and use to finance properties or other permitted investments, we pay the Advisor Entities a financing fee equal to 0.75% of all amounts made available under any such loan or line of credit.

Disposition Fee—For substantial assistance in connection with the sale of properties or other investments, we will pay our Advisor Entities or their respective affiliates up to the lesser of: (i) 2.0% of the contract sales price of each property or other investment sold; or (ii) one-half of the total brokerage commissions paid if a non-affiliated broker is also involved in the sale, provided that total real estate commissions paid (to our Advisor Entities and others) in connection with the sale may not exceed the lesser of a competitive real estate commission and 6.0% of the contract sales price. The Conflicts Committee will determine whether our Advisor Entities or their affiliates have provided substantial assistance to us in connection with the sale of an asset. Substantial assistance in connection with the sale of a property includes our Advisor Entities’ preparation of an investment package for the property (including an investment analysis, rent rolls, tenant information regarding credit, a property title report, an environmental report, a structural report and exhibits) or such other substantial services performed by our Advisor Entities in connection with a sale.

General and Administrative Expenses—As of June 30, 2014 and December 31, 2013, we owed both the Advisor and the Sub-advisor and their affiliates $6,000 and $130,000, respectively, for general and administrative expenses paid on our behalf. As of June 30, 2014, neither the Advisor nor the Sub-advisor have allocated any portion of their employees’ salaries to general and administrative expenses.

Summarized below are the fees earned by and the expenses reimbursable to the Advisor and the Sub-advisor, except for organization and offering costs and general and administrative expenses, which we disclose above, for the three and six months ended June 30, 2014 and any related amounts unpaid as of June 30, 2014 and December 31, 2013 (in thousands):

	For the Three Months Ended		For the Six Months Ended		Unpaid Amount as of
	June 30,		June 30,		June 30,		December 31,
	2014		2014		2014		2013
Acquisition fees	$	172	$	284	$	—	$	—
Acquisition expenses	27		41		—		—
Class B unit distribution(1)	—		—		—		—
Financing fees	95		95		—		—
Disposition fees	—		—		—		—
Total	$	294	$	420	$	—	$	—

⁽¹⁾  Represents the distributions paid to the Advisor and the Sub-advisor as holders of Class B units of the Operating Partnership.

Annual Subordinated Performance Fee—We will pay our Advisor Entities or their respective affiliates an annual subordinated performance fee calculated on the basis of our total return to stockholders, payable annually in arrears, such that for any year in which our total return on stockholders’ capital exceeds 6.0% per annum, our Advisor Entities will be entitled to 15.0% of the amount in excess of such 6.0% per annum, provided that the amount paid to the Advisor Entities does not exceed 10.0% of the aggregate total return for that year. No such amounts were incurred or payable as of June 30, 2014 or December 31, 2013.

Subordinated Participation in Net Sales Proceeds—The Operating Partnership will pay to PE-ARC Special Limited Partner II, LLC (the “Special Limited Partner”) a subordinated participation in the net sales proceeds of the sale of real estate assets equal to 15.0% of remaining net sales proceeds after return of capital contributions to stockholders plus payment to investors of a 6.0% cumulative, pre-tax, non-compounded return on the capital contributed by stockholders. The Advisor has a 22.5% interest and the Sub-advisor has an 77.5% interest in the Special Limited Partner. No sales of real estate assets occurred in the three and six months ended June 30, 2014.

Subordinated Incentive Listing Distribution—The Operating Partnership will pay to the Special Limited Partner a subordinated incentive listing distribution upon the listing of our common stock on a national securities exchange. Such incentive listing distribution is equal to 15.0% of the amount by which the market value of all of our issued and outstanding common stock plus distributions exceeds the aggregate capital contributed by stockholders plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to stockholders. 

Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in the net sales proceeds and the subordinated incentive listing distribution. No subordinated incentive listing distribution was earned for the three and six months ended June 30, 2014.

Subordinated Distribution Upon Termination of the Advisor Agreement—Upon termination or non-renewal of the advisory agreement, the Special Limited Partner shall be entitled to a subordinated termination distribution in the form of a non-interest bearing promissory note equal to 15.0% of the amount by which the sum of our market value plus distributions exceeds the aggregate capital contributed by stockholders plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to stockholders.  In addition, the Special Limited Partner may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs.

Property Manager—All of our real properties are managed and leased by Phillips Edison & Company Ltd. (the “Property Manager”), an affiliated property manager. The Property Manager is wholly owned by our Phillips Edison sponsor and was organized on September 15, 1999. The Property Manager also manages real properties acquired by the Phillips Edison affiliates or other third parties.

Commencing June 1, 2014, the amount we pay to the Property Manager in monthly property management fees decreased from 4.5% to 4.0% of the monthly gross cash receipts from the properties managed by the Property Manager. In the event that we contract directly with a non-affiliated third-party property manager with respect to a property, we will pay the Property Manager a monthly oversight fee equal to 1.0% of the gross revenues of the property managed. In addition to the property management fee or oversight fee, if the Property Manager provides leasing services with respect to a property, we pay the Property Manager leasing fees in an amount equal to the leasing fees charged by unaffiliated persons rendering comparable services based on national market rates. The Property Manager shall be paid a leasing fee in connection with a tenant’s exercise of an option to extend an existing lease, and the leasing fees payable to the Property Manager may be increased by up to 50% in the event that the Property Manager engages a co-broker to lease a particular vacancy. We reimburse the costs and expenses incurred by the Property Manager on our behalf, including employee compensation, legal, travel and other out-of-pocket expenses that are directly related to the management of specific properties, as well as fees and expenses of third-party accountants.

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

The Property Manager hires, directs and establishes policies for employees who have direct responsibility for the operations of each real property it manages, which may include, but is not limited to, on-site managers and building and maintenance personnel. Certain employees of the Property Manager may be employed on a part-time basis and may also be employed by the Sub-advisor or certain of its affiliates. The Property Manager also directs the purchase of equipment and supplies and will supervise all maintenance activity.

Summarized below are the fees earned by and the expenses reimbursable to the Property Manager for the three and six months ended June 30, 2014 and any related amounts unpaid as of June 30, 2014 and December 31, 2013 (in thousands):

	For the Three Months Ended		For the Six Months Ended		Unpaid Amount as of
	June 30,		June 30,		June 30,		December 31,
	2014		2014		2014		2013
Property management fees	$	22	$	24	$	4	$	—
Leasing commissions	7		7		7		—
Construction management fees	5		5		4		—
Other fees and reimbursements	11		17		6		—
Total	$	45	$	53	$	21	$	—

Dealer Manager—Our dealer manager is Realty Capital Securities, LLC (the “Dealer Manager”). The Dealer Manager is a member firm of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and was organized on August 29, 2007. The Dealer Manager is under common control with our AR Capital sponsor and will provide certain sales, promotional and marketing services in connection with the distribution of the shares of common stock offered under our offering. Excluding shares sold pursuant to the “friends and family” program, the Dealer Manager will generally be paid a sales commission equal to 7.0% of the gross proceeds from the sale of shares of the common stock sold in the primary offering and a dealer manager fee equal to 3.0% of the gross proceeds from the sale of shares of the common stock sold in the primary offering.

The Dealer Manager typically reallows 100% of the selling commissions and a portion of the dealer manager fee to participating broker-dealers. Alternatively, a participating broker-dealer may elect to receive a commission based upon the proceeds from the sale of shares by such participating broker-dealer, with a portion of such fee being paid at the time of such sale and the remaining amounts paid on each anniversary of the closing of such sale up to and including the fifth anniversary of the closing of such sale, in which event, a portion of the dealer manager fee will be reallowed such that the combined selling commission and dealer manager fee do not exceed 10% of the gross proceeds of our primary offering.

Starting with the commencement of our public offering, the Company utilizes transfer agent services provided by an affiliate of the Dealer Manager. Fees incurred from the transfer agent represent amounts paid to the affiliate of the Dealer Manager for such services. The following table details total selling commissions, dealer manager fees, and service fees paid to the Dealer Manager and its affiliate related to the sale of common stock for the three and six months ended June 30, 2014 and any related amounts unpaid as of June 30, 2014 and December 31, 2013 (in thousands):

	For the Three Months Ended		For the Six Months Ended		Payable as of
	June 30,		June 30,		June 30,		December 31,
	2014		2014		2014		2013
Total commissions and fees incurred from Dealer Manager	$	13,202	$	21,006	$	—	$	—
Fees incurred from the transfer agent	144		213		144		—

Share Purchases by Sub-advisor and AR Capital sponsor—Our Sub-advisor made an initial investment in us through the purchase of 8,888 shares of our common stock. The Sub-advisor may not sell any of these shares while serving as the Sub-advisor. Our AR Capital sponsor has also purchased 17,778 shares of our common stock. The Sub-advisor and AR Capital sponsor purchased shares at a purchase price of $22.50 per share, reflecting no dealer manager fee or selling commissions paid on such shares.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 01, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2014
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014
Entity Registrant Name	Phillips Edison - ARC Grocery Center REIT II, Inc.
Entity Central Index Key	0001581405
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		11,893,340

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Economic Dependency

6 Months Ended

Jun. 30, 2014

Economic Dependency [Abstract]

Economic Dependency

ECONOMIC DEPENDENCY

We are dependent on the Advisor, the Sub-advisor, the Property Manager, the Dealer Manager and their respective affiliates for certain services that are essential to us, including the sale of our shares of common stock, asset acquisition and disposition decisions, asset management, operating and leasing of our properties, and other general and administrative responsibilities. In the event that the Advisor, the Sub-advisor, the Property Manager and/or the Dealer Manager are unable to provide such services, we would be required to find alternative service providers or sources of capital.

As of June 30, 2014 and December 31, 2013, we owed the Advisor, the Sub-advisor and their respective affiliates approximately $4.6 million and $2.0 million, respectively, for offering and organization expenses, general and administrative expenses and asset management, property management, and other fees payable as shown below (in thousands):

	June 30,		December 31,
	2014		2013
Offering and organization expenses payable	$	4,588	$	1,858
General and administrative expenses of the company paid by a sponsor	6		130
Asset management, property management, and other fees payable	21		—
Total due	$	4,615	$	1,988

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Condensed Consolidated Statements Of Operations and Comprehensive Loss (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Revenues:
Rental income	$ 433,000	$ 474,000
Tenant recovery income	106,000	118,000
Other property income	0	1,000
Total revenues	539,000	593,000
Expenses:
Property operating	90,000	98,000
Real estate taxes	53,000	60,000
General and administrative	418,000	569,000
Acquisition expenses	384,000	586,000
Depreciation and amortization	223,000	256,000
Total expenses	1,168,000	1,569,000
Operating loss	(629,000)	(976,000)
Other expense:
Interest expense, net	(130,000)	(132,000)
Net loss	(759,000)	(1,108,000)
Per share information - basic and diluted:
Net loss per share - basic and diluted	$ (0.13)	$ (0.30)
Weighted-average common shares outstanding - basic and diluted	5,913,005	3,636,527
Comprehensive loss:
Net loss	(759,000)	(1,108,000)
Other comprehensive income	0	0
Comprehensive loss	$ (759,000)	$ (1,108,000)

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Real Estate Acquisitions

6 Months Ended

Jun. 30, 2014

Business Combinations [Abstract]

Real Estate Acquisitions

REAL ESTATE ACQUISITIONS

During the six months ended June 30, 2014, we acquired all of the interests in two grocery-anchored retail centers for a purchase price of approximately $28.7 million, including $12.6 million of assumed debt with a fair value of $12.9 million. The following tables present certain additional information regarding our acquisitions. We allocated the purchase price of these acquisitions to the fair value of the assets acquired as follows (in thousands):

			Building and		In-Place		Above-Market		Below-Market
Acquisition	Land		Improvements		Leases		Leases		Leases			Total
Bethany Village Shopping Center	$	4,125	$	6,182	$	844	$	—	$	—		$	11,151
Staunton Plaza	3,315		11,031		1,310		1,906		(46		)	17,516
Total	$	7,440	$	17,213	$	2,154	$	1,906	$	(46	)	$	28,667

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

Acquisition	Acquisition Date	Revenues		Acquisition Expenses		Net Loss
Bethany Village Shopping Center	3/14/2014	$	343	$	189	$	(90	)
Staunton Plaza	4/30/2014	250		360		(413		)
Total		$	593	$	549	$	(503	)

The following unaudited pro forma information summarizes selected financial information from our combined results of operations, as if the material acquisitions had been acquired on July 1, 2013 (date of capitalization).

We estimated that revenues, on a pro forma basis, for the three months ended June 30, 2014, would have been approximately $0.6 million, and our net loss attributable to our stockholders, on a pro forma basis, would have been approximately $0.4 million. The pro forma net loss per share would have been $0.07 for the three months ended June 30, 2014.

We estimated that revenues, on a pro forma basis, for the six months ended June 30, 2014, would have been approximately $1.2 million, and our net loss attributable to our stockholders, on a pro forma basis, would have been approximately $0.5 million. The pro forma net loss per share would have been $0.14 for the six months ended June 30, 2014.

This pro forma information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred at the beginning of the period, nor does it purport to represent the results of future operations.

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Fair Value Measurements (Notes)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENT

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

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

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

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

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

Cash and cash equivalents, restricted cash, accounts receivable, and accounts payable—We consider the carrying values of these financial instruments to approximate fair value because of the short period of time between origination of the instruments and their expected realization.

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

by management.

Mortgages and loans payable —We estimate the fair value of our debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by our lenders using Level 3 inputs.  The discount rate used approximates current lending rates for loans or groups of loans with similar maturities and credit quality, assuming the debt is outstanding through maturity and considering the debt’s collateral (if applicable).  Such discount rate was 5.75% for secured fixed-rate debt as of June 30, 2014. We did not have any mortgage loans as of December 31, 2013. We have utilized market information, as available, or present value techniques to estimate the amounts required to be disclosed.  The fair value and recorded value of our borrowings as of June 30, 2014, were $13.0 million and $12.9 million, respectively.

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Acquired Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2014

Finite Lived Intangible Assets Disclosure [Abstract]

Acquired Intangible Assets [Table Text Block]

Acquired intangible lease assets consisted of the following (in thousands):

	June 30, 2014		December 31, 2013
Acquired in-place leases, net of accumulated amortization of $73 and $0, respectively	2,081		$	—
Acquired above-market leases, net of accumulated amortization of $34 and $0, respectively	1,872		—
Total	$	3,953	$	—

Schedule of Acquired Intangible Assets, Future Amortization Expense [Table Text Block]

Estimated future amortization expense of the respective acquired intangible lease assets as of June 30, 2014 for the remainder of 2014 and for each of the five succeeding calendar years and thereafter is as follows (in thousands):

Year	In-Place Leases		Above-Market Leases
July 1 to December 31, 2014	$	122	$	68
2015	257		154
2016	257		154
2017	257		154
2018	257		154
2019 and thereafter	931		1,188
Total	$	2,081	$	1,872

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Future Minimum Rents

6 Months Ended

Jun. 30, 2014

Operating Leases, Future Minimum Payments Receivable [Abstract]

Future Minimum Rents [Text Block]

OPERATING LEASES

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

Approximate future rentals to be received under non-cancelable operating leases in effect at June 30, 2014, assuming no new or renegotiated leases or option extensions on lease agreements, are as follows (in thousands):

Year	Amount
July 1 to December 31, 2014	$	1,068
2015	2,034
2016	2,013
2017	1,896
2018	1,862
2019 and thereafter	11,166
Total	$	20,039

Martin's and Publix comprised approximately 53.5% and 21.2%, respectively, of the aggregate annualized effective rent of our two owned shopping centers as of June 30, 2014.  No other tenants comprised 10% or more of our aggregate annualized effective rent as of June 30, 2014.

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Acquired Below-Market Lease Intangibles (Notes)

6 Months Ended

Jun. 30, 2014

Acquired Below Market Lease Intangibles [Abstract]

Acquired Below-Market Lease Intangibles [Text Block]

ACQUIRED BELOW-MARKET LEASE INTANGIBLES

Acquired below-market lease intangibles consisted of the following (in thousands):

	June 30, 2014		December 31, 2013
Acquired below-market leases, net	$	46	$	—

An immaterial amount of amortization was recorded on the intangible liabilities for the three and six months ended June 30, 2014.

Estimated future amortization income of the intangible lease liabilities as of June 30, 2014 for the remainder of 2014 and for each of the five succeeding calendar years and thereafter is as follows (in thousands):

Year	Below-Market Leases
July 1 to December 31, 2014	$	3
2015	5
2016	5
2017	5
2018	5
2019 and thereafter	23
Total	$	46

The weighted-average amortization period for below-market lease intangibles is nine years.

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Acquired Intangible Assets

6 Months Ended

Jun. 30, 2014

Finite Lived Intangible Assets Disclosure [Abstract]

Acquired Intangible Assets [Text Block]

ACQUIRED INTANGIBLE ASSETS

Acquired intangible lease assets consisted of the following (in thousands):

	June 30, 2014		December 31, 2013
Acquired in-place leases, net of accumulated amortization of $73 and $0, respectively	2,081		$	—
Acquired above-market leases, net of accumulated amortization of $34 and $0, respectively	1,872		—
Total	$	3,953	$	—

Amortization expense recorded on the intangible assets for the three and six months ended June 30, 2014 was $95,000 and $107,000, respectively.

Estimated future amortization expense of the respective acquired intangible lease assets as of June 30, 2014 for the remainder of 2014 and for each of the five succeeding calendar years and thereafter is as follows (in thousands):

Year	In-Place Leases		Above-Market Leases
July 1 to December 31, 2014	$	122	$	68
2015	257		154
2016	257		154
2017	257		154
2018	257		154
2019 and thereafter	931		1,188
Total	$	2,081	$	1,872

The weighted-average amortization periods for acquired in-place lease intangibles and acquired above-market lease intangibles are 10 years and 12 years, respectively.

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Mortgages and Notes Payable (Notes)

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

MORTGAGES AND NOTES PAYABLE

Note Payable

As of December 31, 2013, we had a note payable of $0.3 million related to financing for our annual directors and officers insurance premiums, pursuant to which we made monthly payments of principal and interest. In April 2014, we used the proceeds from our initial public offering to pay the remaining $0.2 million balance of the note payable.

Mortgage Loans Payable

As of June 30, 2014, we had one mortgage note payable in the amount of $12.9 million, inclusive of a below-market assumed debt adjustment of $0.3 million, net of accumulated amortization.  We did not have any outstanding mortgage notes payable as of December 31, 2013. The mortgage note payable is secured by Staunton Plaza, the property on which the debt was placed.  As of June 30, 2014, the interest rate for the loan was 6.0%. Due to the non-recourse nature of the mortgage, the assets and liabilities of Staunton Plaza are neither available to pay the debt of the consolidated limited liability companies nor do they constitute an obligation of the consolidated limited liability companies.

During the six months ended June 30, 2014, in conjunction with our acquisition of Staunton Plaza, we assumed debt of $12.6 million with a fair value of $12.9 million. The assumed debt market adjustment will be amortized over the remaining life of the loan, and this amortization is classified as interest expense. The amortization recorded on the assumed below-market debt adjustment was $3,000 for the three and six months ended June 30, 2014.

Included below are the yearly principal payment obligations (in thousands) and weighted-average interest rates for the Staunton Plaza mortgage loan:

	2014 (1)			2015			2016			2017			2018			Thereafter			Total
Maturing debt:(2)
Fixed-rate mortgages payable	$	156		$	277		$	294		$	312		$	331		$	11,206		$	12,576
Weighted-average interest rate on debt:
Fixed-rate mortgages payable	6.0		%	6.0		%	6.0		%	6.0		%	6.0		%	6.0		%	6.0		%

⁽¹⁾  Includes only July 1, 2014 through December 31, 2014.

⁽²⁾  The debt maturity table does not include any below-market debt adjustment, of which $0.3 million, net of accumulated amortization, was outstanding as of June 30, 2014.

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Commitments And Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments And Contingencies

COMMITMENTS AND CONTINGENCIES

Litigation

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

Environmental Matters

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

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Real Estate Acquisitions (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Business Acquisition [Line Items]
Number of Property Acquisitions	2
Business Acquisition, Cost of Acquired Entity, Purchase Price	$ 28.7
Business Combination, Consideration Transferred, Liabilities Incurred	12.6
Business Acquisition, Cost of Acquired Entities, Fair Value of Debt Assumed	$ 12.9

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Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Basis of Presentation and Principles of Consolidation, Policy [Policy Text Block]

Basis of Presentation and Principles of Consolidation—The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q should refer to the audited financial statements of Phillips Edison—ARC Grocery Center REIT II, Inc. for the year ended December 31, 2013, which are included in our 2013 Annual Report on Form 10-K, as certain footnote disclosures contained in such audited financial statements have been omitted from this Quarterly Report on Form 10-Q. In the opinion of management, all normal and recurring adjustments necessary for the fair presentation have been included in this Quarterly Report. Our results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the operating results expected for the full year.

Although we were formed on June 5, 2013, we were not capitalized until July 1, 2013, and we did not commence operations until January 9, 2014. As such, we had no financial activity or results from operations as of and for the period ended June 30, 2013, and therefore have not presented this as a comparative period within our condensed consolidated financial statements.

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

Organizational and Offering Costs [Policy Text Block]

Organizational and Offering Costs—The Advisor and the Sub-advisor have paid offering expenses on our behalf. Pursuant to the terms of our advisory agreement with the Advisor, we will reimburse the Advisor and the Sub-advisor on a monthly basis for these costs and future offering costs they or any of their respective affiliates may incur on our behalf but only to the extent that the reimbursement would not exceed 2.0% of gross offering proceeds over the life of the offering or cause the selling commissions, the dealer manager fee and the other organization and offering expenses borne by us to exceed 15.0% of gross offering proceeds as of the date of the reimbursement. Organization and offering expenses include all expenses (other than selling commissions and the dealer manager fee) incurred by or on behalf of us in connection with or in preparing for the registration of and subsequently offering and distributing our shares of common stock to the public, which may include, but are not limited to, expenses for printing, engraving and mailing; compensation of employees while engaged in sales activity; charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts; third-party due diligence fees as set forth in detailed and itemized invoices; and expenses of qualification of the sale of the securities under federal and state laws, including taxes and fees, accountants’ and attorneys’ fees. Pursuant to the terms of the sub-advisory agreement between the Advisor and Sub-advisor, this organization and offering expense limitation of 2.0% is apportioned as follows: 1.5% to our Sub-advisor; and 0.5% to our Advisor. Organizational costs are expensed as incurred by us, the Advisor, Sub-advisor or their respective affiliates on behalf of us.

Investment Property and Lease Intangibles, Policy [Text Block]

Investment Property and Lease Intangibles—Real estate assets we have acquired are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method. The estimated useful lives for computing depreciation are generally five to seven years for furniture, fixtures and equipment, 15 years for land improvements and 30 years for buildings and building improvements. Tenant improvements are amortized over the shorter of the respective lease term or the expected useful life of the asset. Major replacements that extend the useful lives of the assets are capitalized, and maintenance and repair costs are expensed as incurred.

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the individual property may not be recoverable. In such an event, a comparison will be made of the projected operating cash flows of each property on an undiscounted basis to the carrying amount of such property. Such carrying amount would be adjusted, if necessary, to estimated fair values to reflect impairment in the value of the asset. We recorded no impairments for the six months ended June 30, 2014.

The results of operations of acquired properties are included in our results of operations from their respective dates of acquisition. We assess the acquisition-date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis and replacement cost) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it was vacant. Acquisition-related costs are expensed as incurred.

The fair values of buildings and improvements are determined on an as-if-vacant basis.  The estimated fair value of acquired in-place leases is the cost we would have incurred to lease the properties to the occupancy level of the properties at the date of acquisition. Such estimates include leasing commissions, legal costs and other direct costs that would be incurred to lease the properties to such occupancy levels. Additionally, we evaluate the time period over which such occupancy levels would be achieved. Such evaluation includes an estimate of the net market-based rental revenues and net operating costs (primarily consisting of real estate taxes, insurance and utilities) that would be incurred during the lease-up period. Acquired in-place leases as of the date of acquisition are amortized over the remaining lease terms.  

Acquired above- and below-market lease values are recorded based on the present value (using interest rates that reflect the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of the market lease rates for the corresponding in-place leases. The capitalized above- and below-market lease values are amortized as adjustments to rental income over the remaining terms of the respective leases.  We also consider fixed rate renewal options in our calculation of the fair value of below-market leases and the periods over which such leases are amortized.  If a tenant has a unilateral option to renew a below-market lease and we determine that the tenant has a financial incentive to exercise such option, we include such an option in the calculation of the fair value of such lease and the period over which the lease is amortized.

Management estimates the fair value of assumed mortgage notes payable based upon indications of then-current market pricing for similar types of debt with similar maturities. Assumed mortgage notes payable are initially recorded at their estimated fair value as of the assumption date, and the difference between such estimated fair value and the note’s outstanding principal balance is amortized over the life of the mortgage note payable as an adjustment to interest expense.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition—We commence revenue recognition on our leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, this occurs on the lease commencement date. The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins. If we are the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space, and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.

If we conclude that we are not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives, which reduce revenue recognized over the term of the lease. In these circumstances, we begin revenue recognition when the lessee takes possession of the unimproved space to construct their own improvements. We consider a number of different factors in evaluating whether we or the lessee is the owner of the tenant improvements for accounting purposes. These factors include:

• whether the lease stipulates how and on what a tenant improvement allowance may be spent;

• whether the tenant or landlord retains legal title to the improvements;

• the uniqueness of the improvements;

• the expected economic life of the tenant improvements relative to the length of the lease; and

• who constructs or directs the construction of the improvements.

We recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts receivable. Due to the impact of the straight-line basis, rental income generally will be greater than the cash collected in the early years and will be less than the cash collected in the later years of a lease. Our policy for percentage rental income is to defer recognition of contingent rental income until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved. We periodically review the collectability of outstanding receivables. Allowances will be taken for those balances that we deem to be uncollectible, including any amounts relating to straight-line rent receivables.

Reimbursements from tenants for recoverable real estate tax and operating expenses are accrued as revenue in the period in which the applicable expenses are incurred. We make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. We do not expect the actual results to materially differ from the estimated reimbursements.

We record lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met, collectability is reasonably assured and the tenant is no longer occupying the property. Upon early lease termination, we provide for losses related to unrecovered tenant-specific intangibles and other assets.

Income Taxes, Policy [Policy Text Block]

Income Taxes—We intend to elect to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) commencing with the taxable year ending December 31, 2014. Our qualification and taxation as a REIT depends on our ability, on a continuing basis, to meet certain organizational and operational qualification requirements imposed upon REITs by the Code. If we fail to qualify as a REIT for any reason in a taxable year, we will be subject to tax on our taxable income at regular corporate rates. We would not be able to deduct distributions paid to stockholders in any year in which we fail to qualify as a REIT. We will also be disqualified for the four taxable years following the year during which qualification was lost unless we are entitled to relief under specific statutory provisions. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property or net worth, respectively, and to federal income and excise taxes on our undistributed income. Additionally, GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the consolidated financial statements if it is more likely than not that the tax position will be sustained upon examination. We believe it is more likely than not that our tax positions will be sustained in any tax examinations.

Restricted Cash, Policy [Policy Text Block]

Restricted Cash—Restricted cash was $42,000 as of June 30, 2014. This primarily consisted of escrowed tenant improvement funds, real estate taxes, capital improvement funds, insurance premiums, and other amounts required to be escrowed pursuant to loan agreements.

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Share—Earnings per share are calculated based on the weighted-average number of common shares outstanding during each period. Diluted income per share considers the effect of any potentially dilutive share equivalents for the three and six months ended June 30, 2014.

Impact of Recently Issued Accounting Pronouncements, Policy [Text Block]

Impact of Recently Issued Accounting Pronouncements—In March 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-06, Technical Corrections and Improvements Related to Glossary Terms. The amendments in this update include technical corrections to the glossary including glossary links, glossary term deletions, glossary term name changes, and other miscellaneous technical corrections. In addition, the update includes more substantive, limited-scope improvements to reduce instances of the same term appearing multiple times in the glossary with similar, but not entirely identical, definitions. ASU 2014-06 was effective upon issuance. The adoption of this pronouncement did not have a material impact on our condensed consolidated financial statements.

In April 2014, FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update raise the threshold for a property disposal to qualify as a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard will be effective for us on January 1, 2015. In future periods, we expect that the adoption of this pronouncement may result in property disposals not qualifying for discontinued operations presentation, and thus the results of those disposals will remain in income from continuing operations.

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 will eliminate the transaction- and industry-specific revenue recognition guidance currently under GAAP and will replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 does not apply to lease contracts accounted for under Accounting Standards Codification ("ASC") 840, Leases. ASU 2014-09 will be effective for us for annual and interim periods beginning after December 15, 2016, and early adoption is prohibited. We are currently assessing the impact the adoption of ASU 2014-09 will have on our condensed consolidated financial statements.

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Related Party Transactions (Tables)

6 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Advisor Transactions [Table Text Block]

	For the Three Months Ended		For the Six Months Ended		Unpaid Amount as of
	June 30,		June 30,		June 30,		December 31,
	2014		2014		2014		2013
Acquisition fees	$	172	$	284	$	—	$	—
Acquisition expenses	27		41		—		—
Class B unit distribution(1)	—		—		—		—
Financing fees	95		95		—		—
Disposition fees	—		—		—		—
Total	$	294	$	420	$	—	$	—

Property Manager Transactions [Table Text Block]

Summarized below are the fees earned by and the expenses reimbursable to the Property Manager for the three and six months ended June 30, 2014 and any related amounts unpaid as of June 30, 2014 and December 31, 2013 (in thousands):

	For the Three Months Ended		For the Six Months Ended		Unpaid Amount as of
	June 30,		June 30,		June 30,		December 31,
	2014		2014		2014		2013
Property management fees	$	22	$	24	$	4	$	—
Leasing commissions	7		7		7		—
Construction management fees	5		5		4		—
Other fees and reimbursements	11		17		6		—
Total	$	45	$	53	$	21	$	—

Dealer Manager Transactions [Table Text Block]

The following table details total selling commissions, dealer manager fees, and service fees paid to the Dealer Manager and its affiliate related to the sale of common stock for the three and six months ended June 30, 2014 and any related amounts unpaid as of June 30, 2014 and December 31, 2013 (in thousands):

	For the Three Months Ended		For the Six Months Ended		Payable as of
	June 30,		June 30,		June 30,		December 31,
	2014		2014		2014		2013
Total commissions and fees incurred from Dealer Manager	$	13,202	$	21,006	$	—	$	—
Fees incurred from the transfer agent	144		213		144		—

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Future Minimum Rents (Details) - Ten Percent Tenants	6 Months Ended
	Jun. 30, 2014
Martin's [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	53.50%
Publix [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	21.20%
Other Tenants Maximum [Member]
Concentration Risk [Line Items]
Concentration Risk, Percentage	10.00%

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Mortgages and Notes Payable (Details) (USD $)	0 Months Ended	6 Months Ended
	Apr. 24, 2014	Jun. 30, 2014	Dec. 31, 2013
Debt Instrument [Line Items]
Notes payable		$ 0	$ 296,000
Payoff of Notes Payable	200,000
Long-term Debt, Gross		12,900,000
Long-term Debt, Weighted Average Interest Rate		6.00%
Business Combination, Consideration Transferred, Liabilities Incurred		12,600,000
Business Acquisition During Period, Cost of Acquired Entity, Fair Value of Debt Assumed		12,900,000
Amortization of Debt Discount (Premium)		(3,000)
Fixed Rate Mortgages Payable [Member]
Debt Instrument [Line Items]
Long-term Debt, Gross		12,576,000
Long-term Debt, Weighted Average Interest Rate		6.00%
Long-term Debt, Maturities, Repayments of Principal, Remainder of Fiscal Year		156,000
Long-term Debt, Maturities, Repayments of Principal in Year Two		277,000
Long-term Debt, Maturities, Repayments of Principal in Year Three		294,000
Long-term Debt, Maturities, Repayments of Principal in Year Four		312,000
Long-term Debt, Maturities, Repayments of Principal in Year Five		331,000
Long-term Debt, Maturities, Repayments of Principal after Year Five		11,206,000
Weighted Average Interest Rate for Maturities, Remainder of Fiscal Year		6.00%
Weighted Average Interest Rate for Maturities in Year Two		6.00%
Weighted Average Interest Rate for Maturities in Year Three		6.00%
Weighted Average Interest Rate for Maturities in Year Four		6.00%
Weighted Average Interest Rate for Maturities in Year Five		6.00%
Weighted Average Interest Rate for Maturities After Year Five		6.00%
Assumed Below-Market Debt Adjustment [Member]
Debt Instrument [Line Items]
Debt Instrument, Unamortized Discount (Premium), Net		$ (300,000)

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Condensed Consolidated Statements Of Equity (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock [Member]	Additional Paid In Capital [Member]	Accumulated Deficit [Member]
Balance, values at Dec. 31, 2013	$ 55	$ 0	$ 200	$ (145)
Balance, shares at Dec. 31, 2013		8,888
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock, value	220,594	89	220,505
Issuance of common stock, shares		8,870,551
Distribution reinvestment plan (DRIP), value	909	0	909
Distribution reinvestment plan (DRIP), shares		38,281
Common distributions declared, $0.67 per share	(2,921)			(2,921)
Offering costs	(28,987)		(28,987)
Net loss	(1,108)			(1,108)
Balance, values at Jun. 30, 2014	$ 188,542	$ 89	$ 192,627	$ (4,174)
Balance, shares at Jun. 30, 2014		8,917,720

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Equity

6 Months Ended

Jun. 30, 2014

Stockholders' Equity Note [Abstract]

Equity

EQUITY

General—We have the authority to issue a total of 1,000,000,000 shares of common stock with a par value of $0.01 per share and 10,000,000 shares of preferred stock, $0.01 par value per share. As of June 30, 2014, we had issued 8,917,720 shares of common stock generating gross cash proceeds of $221.7 million. We had issued no shares of preferred stock. The holders of shares of common stock are entitled to one vote per share on all matters voted on by stockholders, including election of the board of directors. Our charter does not provide for cumulative voting in the election of directors.

Distribution Reinvestment Plan—We have adopted the DRIP that allows stockholders to invest distributions in additional shares of our common stock at a price equal to $23.75 per share. Stockholders who elect to participate in the DRIP,

and who are subject to U.S. federal income taxation laws, will incur a tax liability on an amount equal to the fair value on the relevant distribution date of the shares of our common stock purchased with reinvested distributions, even though such stockholders have elected not to receive the distributions used to purchase those shares of common stock in cash.  Distributions reinvested through the DRIP for the three and six months ended June 30, 2014 were $0.8 million and $0.9 million, respectively.

Share Repurchase Program—Our share repurchase program may provide a limited opportunity for stockholders to have shares of common stock repurchased, subject to certain restrictions and limitations, at a price equal to or at a discount from the purchase prices paid for the shares being repurchased.

Repurchase of shares of common stock will be made at least quarterly upon written notice received by us by 4:00 p.m. Eastern time on the last business day prior to a quarterly financial filing. Stockholders may withdraw their repurchase request at any time before 4:00 p.m. Eastern time on the last business day prior to a quarterly financial filing.

The board of directors may, in its sole discretion, amend, suspend, or terminate the share repurchase program at any time. If the board of directors decides to amend, suspend or terminate the share repurchase program, stockholders will be provided with no less than 30 days' written notice.

As of June 30, 2014, we had not repurchased any shares under our share repurchase program.

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Economic Dependency (Tables)

6 Months Ended

Jun. 30, 2014

Economic Dependency [Abstract]

Schedule of Amounts Payable to Sponsors [Table Text Block]

As of June 30, 2014 and December 31, 2013, we owed the Advisor, the Sub-advisor and their respective affiliates approximately $4.6 million and $2.0 million, respectively, for offering and organization expenses, general and administrative expenses and asset management, property management, and other fees payable as shown below (in thousands):

	June 30,		December 31,
	2014		2013
Offering and organization expenses payable	$	4,588	$	1,858
General and administrative expenses of the company paid by a sponsor	6		130
Asset management, property management, and other fees payable	21		—
Total due	$	4,615	$	1,988

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Acquired Intangible Assets (Details) - Period Ending (USD $)	Jun. 30, 2014	Dec. 31, 2013
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired Intangible Assets, Net	$ 3,953,000	$ 0
Acquired Intangible Assets, Accumulated Amortization	107,000	0
Leases, Acquired-in-Place [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired Intangible Assets, Net	2,081,000	0
Acquired Intangible Assets, Accumulated Amortization	73,000
Leases, Acquired-in-Place, Market Adjustment [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Acquired Intangible Assets, Net	1,872,000	0
Acquired Intangible Assets, Accumulated Amortization	$ 34,000

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Subsequent Events

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Subsequent Events [Text Block]

SUBSEQUENT EVENTS

Sale of Shares of Common Stock

From July 1, 2014 through July 31, 2014, we raised gross proceeds of approximately $69.5 million through the issuance of 2.8 million shares of common stock under our offering. As of August 1, 2014, approximately 68.3 million shares remained available for sale to the public under our offering, exclusive of shares available under the DRIP.

Distributions

On July 1, 2014, we paid a distribution equal to a daily amount of $0.00445205 per share of common stock outstanding for stockholders of record for the period from June 1, 2014 through June 30, 2014. The total gross amount of the distribution was approximately $1.0 million, with $0.5 million being reinvested in the DRIP, for a net cash distribution of $0.5 million.

On August 1, 2014, we paid a distribution equal to a daily amount of $0.00445205 per share of common stock outstanding for stockholders of record for the period from July 1, 2014 through July 31, 2014. The total gross amount of the distribution was approximately $1.4 million, with $0.8 million being reinvested in the DRIP, for a net cash distribution of $0.6 million.

Acquisitions

Subsequent to June 30, 2014, we acquired a 100% ownership in two properties (dollars in thousands):

Property Name	Location	Anchor Tenant	Acquisition Date	Purchase Price		Mortgage Loan Assumed		Square Footage	Leased % of Rentable Square Feet at Acquisition
Northpark Village	Lubbock, TX	United Supermarkets	7/25/2014	$	8,200	$	—	70,479	95.2	%
Spring Cypress Village	Houston, TX	Sprouts	7/30/2014	21,400		—		97,550	79.0	%

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

Financing Completed

On July 2, 2014, we entered into a revolving loan agreement (the "Revolving Credit Facility") with KeyBank National Association, an unaffiliated entity, as administrative agent, swing line lender and letter of credit issuer ("KeyBank"), along with certain other lenders, to borrow up to $200 million. Subject to certain conditions, the Revolving Credit Facility provides us with the ability from time to time to increase the size of the Revolving Credit Facility from the initial $200 million up to a total of $700 million. The Revolving Credit Facility matures on July 2, 2018 and contains two six-month extension options that we may exercise upon payment of an extension fee equal to 0.075% of the total commitments under the Revolving Credit Facility at the time of each extension. The interest rate on the Revolving Credit Facility will be variable, based on either the prime rate, one-month LIBOR, or the federal funds rate and will be affected by other factors, such as company size and leverage.