Business Context and Reporting Period
Company: Phillips Edison – ARC Shopping Center REIT Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Status: Pre-operational / Blank Check REIT
The Company is a newly organized Maryland corporation formed on October 13, 2009, intending to qualify as a Real Estate Investment Trust (REIT). As of the reporting date, the Company had not commenced operations, had not acquired any real estate assets, and had not identified any specific properties for investment. The Company is in the process of an initial public offering (IPO) to raise capital for the acquisition of necessity-based neighborhood and community shopping centers.
Key Financial Metrics
As the Company had not commenced operations, no Statement of Operations, Cash Flows, or Equity is provided for the period. Financial data is limited to the Balance Sheet.
| Item | June 30, 2010 | December 31, 2009 |
|---|---|---|
| Cash and Cash Equivalents | $5,000 | $200,000 |
| Deferred Offering Costs | $1,757,421 | $942,618 |
| Total Assets | $1,762,421 | $1,142,618 |
| Liabilities and Accrued Expenses | $1,562,421 | $942,618 |
| Total Stockholder's Equity | $200,000 | $200,000 |
| Outstanding Common Shares | 20,000 | 20,000 |
Revenue, Profit, and Cash Flow: Not applicable. The filing explicitly states that operations had not commenced as of June 30, 2010.
Debt and Liquidity: The Company had no outstanding debt as of the reporting date. Liquidity is constrained to minimal cash on hand ($5,000) and reliance on future offering proceeds.
Material Changes and Subsequent Events
While the balance sheet reflects a pre-operational state, significant events occurred subsequent to the June 30, 2010 period end:
- Offering Commencement: The Registration Statement on Form S-11 was declared effective on August 12, 2010. The Company broke escrow on September 17, 2010.
- Fundraising Progress: As of September 17, 2010, the Company had raised $3,281,500 in gross offering proceeds and issued 364,611 shares of common stock.
- Advisory Agreements: The Company entered into amended advisory agreements in July and September 2010, modifying fee structures and reimbursement obligations.
- Incentive Plans: On August 11, 2010, the sole stockholder approved a Long-Term Incentive Plan reserving 9,000,000 shares for issuance.
Guidance, Outlook, and Risks
Investment Strategy: The Company intends to invest primarily in grocery-anchored shopping centers costing less than $20 million per property. It plans to allocate approximately 90% of its portfolio to these retail investments and 10% to other real estate-related assets (loans, securities).
Capital Structure and Fees:
- Offering Size: Targeting up to $1.785 billion ($1.5 billion primary offering at $10.00/share; $285 million dividend reinvestment plan at $9.50/share).
- Debt Policy: Expects debt financing to be approximately 50% of asset value, potentially up to 65%.
- Fees: Significant fees are payable to the Advisor and Sub-advisor, including acquisition fees (1.0%), asset management fees (0.25%), financing fees (0.75%), and disposition fees (2.0%). A subordinated incentive fee of 15% of net cash flows is also applicable.
Risks and Contingencies:
- No Operating History: The Company has no operating history, and its assets consist primarily of deferred offering costs. Investment decisions will be made after the IPO closes.
- Conflicts of Interest: Executive officers and directors hold controlling interests in the Advisor and Sub-advisor, creating potential conflicts regarding fee allocation and time management.
- Distribution Policy: The Company may fund distributions from offering proceeds or borrowings before generating operating cash flow. Distributions may represent a return of capital.
- REIT Qualification: Failure to qualify as a REIT would subject the Company to corporate income tax rates.
Investor Verification Checklist
- Offering Status: Verify the total amount raised in the IPO as of the current date, as the filing only reflects $3.3 million raised as of September 17, 2010.
- Asset Acquisition: Confirm if the Company has identified or acquired any real estate properties since the filing date, as none were held as of June 30, 2010.
- Fee Structure Impact: Review the specific impact of the 1.5% cap on reimbursable organization and offering costs and the 15% subordinated incentive fee on potential returns.
- Share Repurchase Terms: Verify the current terms of the share repurchase program, which allows redemptions at a discount (ranging from 92.5% to 100% of purchase price) based on holding period.
- Related Party Transactions: Monitor the volume of transactions with the Advisor, Sub-advisor, and Property Manager, given the high degree of related-party control.