Advisory Agreement—Pursuant to our advisory agreement, the Advisor is entitled to specified fees for certain services, including managing the 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, 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 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 1.5% of gross offering proceeds over the life of our offering. As of June 30, 2012, the Advisor, Sub-advisor and their affiliates have incurred approximately $7.2 million of organization and offering costs, and we have reimbursed $0.7 million of such costs, resulting in a net payable of $6.5 million. In addition, approximately $4.1 million of offering costs incurred by the Sub-advisor on our behalf has not been charged to us or been recorded in our condensed consolidated financial statements. Whether these costs incurred by the Sub-advisor will be billed is dependent upon the success of our offering and the discretion of the Sub-advisor. As of December 31, 2011, the Advisor, Sub-advisor or their affiliates had incurred $7.1 million of organization and offering costs.

Acquisition Fee—We pay the Advisor an acquisition fee related to services provided in connection with the selection and purchase or origination of real estate and real estate-related investments. The acquisition fee is equal to 1.0% of the cost of investments we acquire or originate, including acquisition or origination expenses and any debt attributable to such investments for the same periods. We incurred acquisition fees payable to the Advisor, Sub-advisor and their affiliates of $272,000 and $104,000, respectively, for the three months ended June 30, 2012 and 2011 in connection with our property acquisitions. We incurred acquisition fees payable to the Advisor, Sub-advisor and their affiliates of $336,000 and $104,000, respectively, for the six months ended June 30, 2012 and 2011.

Asset Management Fee—We pay the Advisor an asset management fee for the asset management services it provides pursuant to the advisory agreement. The asset management fee, payable monthly in arrears (based on assets we held during the previous month) will be equal to 0.08333% of the sum of the cost of all real estate and real estate-related investments we own and of our investments in joint ventures, including certain expenses and any debt attributable to such investments. However, the Advisor reimburses all or a portion of the asset management fee for any applicable period to the extent that as of the date of the payment, our modified funds from operations (as defined in accordance with the then-current practice guidelines issued by the Investment Program Association with an additional adjustment to add back capital contribution amounts received from the Sub-advisor or an affiliate thereof, without any corresponding issuance of equity to the Sub-advisor or its affiliate), during the quarter were not at least equal to our declared distributions during the quarter. We cannot avoid payment of an asset management fee by raising our distribution rate beyond $0.65 per share on an annualized basis. Total asset management fees incurred for the three months ended June 30, 2012 and 2011 were $298,000 and $62,000, respectively, with $160,000 and $62,000 of these fees being waived or reimbursed by the Advisor and Sub-advisor. For the three months ended June 30, 2012, the net asset management fees of $138,000 were paid by the Non-Controlling Interests. Total asset management fees incurred for the six months ended June 30, 2012 and 2011 were $515,000 and $116,000, respectively, with $278,000 and $116,000 of these fees being waived or reimbursed by the Advisor and Sub-advisor. For the six months ended June 30, 2012, the net asset management fees of $237,000 were paid by the Non-Controlling Interests.

Financing Fee—We pay the Advisor or Sub-advisor a financing fee equal to 0.75% of all amounts made available under any loan or line of credit. We incurred financing fees payable to the Advisor, Sub-advisor and their affiliates of $78,000 and $51,000 for the three and six months ended June 30, 2012 and 2011, respectively.

Disposition Fee—For substantial assistance by the Advisor, Sub-advisor or any of their affiliates in connection with the sale of properties or other investments, we will pay the Advisor or its assignee 2.0% of the contract sales price of each property or other investment sold. The conflicts committee will determine whether the Advisor, Sub-advisor or their respective affiliates have provided substantial assistance to us in connection with the sale of an asset. Substantial assistance in connection with the sale of a property includes the Advisor's or Sub-advisor's 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 the Advisor or Sub-advisor in connection with a sale. However, if we sell an asset to an affiliate, our organizational documents will prohibit us from paying the Advisor a disposition fee. There were no disposition fees incurred during the three or six months ended June 30, 2012 and 2011.

General and Administrative Expenses—The sponsors provided $0 and $28,000, respectively during the three months ended June 30, 2012 and 2011, for certain of our general and administrative expenses as capital contributions. The sponsors provided $0 and $88,000, respectively, during the six months ended June 30, 2012 and 2011, for certain of our general and administrative expenses as capital contributions. The sponsors have not received, and will not receive, any reimbursement for these contributions. The sponsors do not intend to make further capital contributions to continue to fund our general and administrative expenses. As of June 30, 2012, we owed the Advisor, Sub-advisor and their affiliates $1,000 for general and administrative expenses paid on our behalf. The amount payable to the Advisor, Sub-advisor and their affiliates as of December 31, 2011, for general and administrative expenses was $1,140,000. As of June 30, 2012, the Advisor, Sub-advisor and their affiliates have not allocated any portion of their employees' salaries to general and administrative expenses.

Subordinated Share of Cash Flows—After investors who have not redeemed their shares have received a return of their net capital contributions and a 7.0% per year cumulative, non-compounded return, the Advisor is entitled to receive a total of 15.0% of our net cash flows, whether from continuing operations, net sale proceeds or otherwise. This fee is payable only if our shares are not listed on a securities exchange.

Subordinated Incentive Fee—Upon the listing of our common stock on a national securities exchange, we will pay to the Advisor a fee equal to 15.0% of the amount by which the market value of the outstanding stock plus distributions paid by us prior to listing to investors who have not redeemed their shares exceeds the sum of the total amount of capital raised from investors who have not redeemed their shares and the amount of cash flow necessary to generate a 7.0% per year cumulative, non-compounded return to those investors.

Property Manager—All of our real properties are managed and leased by Phillips Edison & Company Ltd. (“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.

We pay to the Property Manager monthly property management fees equal to 4.5% of the gross cash receipts of 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 will pay the Property Manager leasing fees in an amount equal to the leasing fees charged by unaffiliated persons rendering comparable services in the same geographic location of the applicable property. We will reimburse the costs and expenses incurred by the Property Manager on our behalf, including 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 will 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.

	For the Three Months Ended				For the Six Months Ended				Unpaid Amount as of
	June 30,				June 30,				June 30,		December 31,
	2012		2011		2012		2011		2012		2011

Property management fees	$	125,000	$	29,000	$	238,000	$	59,000	$	52,000	$	21,000
Leasing commissions		43,000		0		86,000		8,000		20,000		0
Construction management fees		2,000		0		10,000		0		2,000		2,000
Other fees and reimbursements		34,000		6,000		56,000		18,000		13,000		4,000

Total	$	204,000	$	35,000	$	390,000	$	85,000	$	87,000	$	27,000

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 (FINRA) and was organized on August 29, 2007. The Dealer Manager is indirectly wholly owned by our AR Capital sponsor and provides 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 is generally 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.

Dealer manager fees incurred during the three months ended June 30, 2012 were $397,000, of which $121,000 was reallowed to participating broker-dealers. Selling commissions incurred during the three months ended June 30, 2012 were $1,139,000, all of which was reallowed to participating broker-dealers. Dealer manager fees incurred during the three months ended June 30, 2011, were $34,000, none of which was reallowed to participating broker-dealers. Selling commissions incurred during the three months ended June 30, 2011 were $90,000, all of which was reallowed to participating broker-dealers.

Dealer manager fees incurred during the six months ended June 30, 2012 were $652,000, of which $210,000 was reallowed to participating broker-dealers. Selling commissions incurred during the six months ended June 30, 2012 were $1,989,000, all of which was reallowed to participating broker-dealers. Dealer manager fees incurred during the six months ended June 30, 2011, were $38,000, none of which was reallowed to participating broker-dealers. Selling commissions incurred during the six months ended June 30, 2011 were $101,000, all of which was reallowed to participating broker-dealers.

Share Purchases by Sub-advisor—The Sub-advisor has agreed to purchase on a monthly basis sufficient shares sold in our public offering such that the total shares owned by the Sub-advisor is equal to at least 0.10% of our outstanding shares (excluding shares issued after the commencement of, and outside of, the initial public offering) at the end of each immediately preceding month. The Sub-advisor will purchase shares at a purchase price of $9.00 per share, reflecting no dealer manager fee or selling commissions being paid on such shares. The Sub-advisor may not sell any of these shares while serving as the Sub-advisor.

As of June 30, 2012, the Sub-advisor owns 22,157 shares of our common stock, or approximately 0.40% of our outstanding common stock.