Second Quarter 2017 Highlights (vs. Second Quarter 2016)<\/b><\/p>\n Six Months Ended June\u00a030, 2017 Highlights (vs. Six Months Ended June\u00a030, 2016)<\/b><\/p>\n Management Commentary<\/b><\/p>\n \u201cIn a time of retail uncertainty, shopping centers anchored by leading grocers continue to perform well, as illustrated by the 3.2% increase in our same-center NOI for the quarter,\u201d said Jeff Edison, Chair and Chief Executive Officer of Phillips Edison Grocery Center REIT II. \u201cThese grocery-anchored centers provide a necessity-based shopping experience that has proven to be more resistant to recession and e-commerce than malls and power centers.\u201d<\/p>\n \u201cWe continue to add properties to our portfolio that fit our strict underwriting standards and own 80 assets at quarter\u2019s end. Looking forward, our focus remains on the acquisition of high quality real estate and driving NOI increases through the lease-up of properties, expanding rent spreads and maximizing the value of our real estate.\u201d<\/p>\n Three and Six Months Ended June\u00a030, 2017 Financial Results<\/b><\/p>\n Net Loss<\/i><\/p>\n For the three months ended June\u00a030, 2017, net loss totaled $1.3 million, an improvement of $3.3 million when compared to a net loss of $4.6 million during the three months ended June\u00a030, 2016. The results were driven by an $8.6 million increase in revenues due to the acquisition of 23 properties since the beginning of April 1, 2016, offset by an increase in related operating costs, real estate taxes and interest expenses.<\/p>\n For the six months ended June\u00a030, 2017, net loss totaled $1.3 million, an improvement of $1.9 million when compared to a net loss of $3.2 million during the six months ended June 30, 2016. The results were driven by a $19.1 million increase in revenues due to the acquisition of 29 properties since the beginning of 2016, offset by an increase in related operating costs, real estate taxes and interest expenses.<\/p>\n Additionally contributing to the improvement for both the three and six month periods ended June\u00a030, 2017 was the adoption of new accounting guidance. Under this guidance, certain property acquisitions are now classified as asset acquisitions, and as a result, the majority of acquisition-related expenses are capitalized and amortized over the life of the related assets.<\/p>\n FFO as Defined by the National Association of Real Estate Investment Trusts (NAREIT)<\/i><\/p>\n FFO increased 75.8% to $16.7 million for the second quarter of 2017 compared to $9.5 million during the same year-ago quarter.<\/p>\n FFO for the six months ended June\u00a030, 2017 increased 72.0% to $34.1 million compared to $19.8 million during the six months ended June\u00a030, 2016, as a result of additional properties owned.<\/p>\n MFFO<\/i><\/p>\n For the three months ended June\u00a030, 2017, MFFO increased 19.2% to $15.4 million compared to $12.9 million for the three months ended June\u00a030, 2016.<\/p>\n For the six months ended June\u00a030, 2017, MFFO increased 25.1% to $30.9 million compared to $24.7 million for the six months ended June\u00a030, 2016, as a result of additional properties owned.<\/p>\n Three and Six Months Ended June\u00a030, 2017 Portfolio Results<\/b><\/p>\n Same-Center Results<\/i><\/p>\n For the second quarter of 2017, same-center NOI increased 3.2% to $16.3 million compared to $15.8 million during the second quarter of 2016. The improvement was driven by a 2.2% increase in minimum rent per square foot, partially offset by an 8.1% increase in real estate taxes resulting from property reassessments, versus the comparable period.<\/p>\n For the six months ended June 30, 2017, same-center NOI increased 3.7% to $32.5 million compared to $31.3 million during the first six months of 2016. The improvement was driven by the aforementioned increase in minimum rent per square foot, partially offset by a 3.4% increase in real estate taxes resulting from property reassessments, versus the comparable period.<\/p>\n Contributing to same-center NOI were 51 properties that were owned and operational for the entire portion of both comparable reporting periods.<\/p>\n Same-center occupancy totaled 94.8%, a decrease of 0.1% from June\u00a030, 2016.<\/p>\n Portfolio Statistics<\/i><\/p>\n At quarter-end, the portfolio consisted of 80 properties, totaling approximately 9.8 million square feet located in 24 states.<\/p>\n Leased portfolio occupancy totaled 94.8%, unchanged from June\u00a030, 2016.<\/p>\n Leasing Activity<\/i><\/p>\n During the second quarter of 2017, 62 new and renewal leases were executed totaling 165,000 square feet. Comparable rent spreads during the quarter, which compare the percentage increase (or decrease) of new or renewal leases to the expiring lease of a unit that was occupied within the past 12 months, were 1.1% for new leases and 13.3% for renewal leases.<\/p>\n During the first six months of 2017, 114 new and renewal leases were executed totaling 324,000 square feet. Comparable rent spreads during the first six months of 2017, were 8.2% for new leases and 13.8% for renewal leases.<\/p>\n Acquisition Activity<\/i><\/p>\n Two grocery-anchored shopping centers were acquired for a total cost of $36.4 million during the second quarter of 2017. The properties, located in California and Georgia, total approximately 167,000 square feet.<\/p>\n During the six months ended June 30, 2017, six shopping centers were acquired for a total cost of $124.9 million.<\/p>\n During the three and six months ended June 30, 2017, Necessity Retail Partners, the company\u2019s joint venture with TPG Real Estate, acquired one and two grocery-anchored shopping centers, respectively, bringing its total property count to thirteen.<\/p>\n Balance Sheet Highlights at June\u00a030, 2017<\/b><\/p>\n The company has $166 million outstanding on its $350 million revolving credit facility and its net debt to total enterprise value was 38.7% at June 30, 2017.<\/p>\n The company defines net debt as total debt, excluding below-market debt adjustments and deferred financing costs, less cash and cash equivalents; and defines total enterprise value as equity value, calculated as total diluted shares outstanding multiplied by the per share of $22.75, plus net debt.<\/p>\n The weighted-average interest rate of outstanding debt was 3.0% with a weighted-average maturity of 2.5 years. 75.3% of the total debt was fixed-rate debt.<\/p>\n Second Quarter 2017 Distributions<\/b><\/p>\n Gross distributions of $19.1 million were paid during the second quarter of 2017, including $9.3 million reinvested through the dividend reinvestment plan, for net cash distributions of $9.9 million.<\/p>\n Share Repurchase Program (SRP)<\/b><\/p>\n During the three months ended June\u00a030, 2017, the company repurchased approximately 344,000 shares. The cash available for repurchases on any particular date under the SRP is generally limited to the proceeds from the dividend reinvestment plan during the preceding four fiscal quarters, less amounts already used for repurchases during the same time period.<\/p>\n Stockholder Update Call<\/b><\/p>\n Company management will host a stockholder update webinar on Wednesday, August 9, 2017 at 11:30 a.m. Eastern time to provide a portfolio update and to discuss these results. Interested parties can listen to the presentation by clicking the link available in the Events & Presentations section of the Investor Relations website at\u00a0http:\/\/investors.grocerycenterreit2.com\/event<\/span><\/a>.<\/p>\n Below is a reconciliation of net (loss) income to NOI and same-center NOI for the three and six months ended June\u00a030, 2017 and 2016 (in thousands):<\/p>\n Funds from Operations and Modified Funds from Operations<\/i><\/p>\n FFO is a non-GAAP performance financial measure that is widely recognized as a measure of REIT operating performance. FFO is used as defined by the National Association of Real Estate Investment Trusts (\u201cNAREIT\u201d) to be net income (loss), computed in accordance with GAAP and gains (or losses) from sales of depreciable real estate 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 noncontrolling interests. FFO is believed to be helpful to investors and management as a measure of operating performance because, when compared year to year, it 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.<\/p>\n 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, the company uses MFFO, which excludes from FFO the following items:<\/p>\n MFFO is believed to be helpful in assisting management and investors with the assessment of the sustainability of operating performance in future periods and, in particular, after the acquisition stage is complete, because MFFO excludes acquisition expenses that affect operations only in the period in which the property is acquired. Thus, MFFO provides helpful information relevant to evaluating operating performance in periods in which there is no acquisition activity.<\/p>\n Many of the adjustments in arriving at MFFO are not applicable to the company. Nevertheless, as explained below, management\u2019s evaluation of operating performance may also exclude items considered in the calculation of MFFO based on the following economic considerations.<\/p>\n Neither FFO nor MFFO should be considered as an alternative to net income (loss) or income (loss) from continuing operations under GAAP, nor as an indication of liquidity, nor is either of these measures indicative of funds available to fund cash needs, including ability to fund distributions. MFFO may not be a useful measure of the impact of long-term operating performance on value if business plan is not continued to be operated in the manner currently contemplated.<\/p>\n Accordingly, FFO and MFFO should be reviewed in connection with other GAAP measurements. FFO and MFFO should not be viewed as more prominent measures of performance than net income or cash flows from operations prepared in accordance with GAAP. FFO and MFFO as presented may not be comparable to amounts calculated by other REITs.<\/p>\n The following section presents calculation of FFO and MFFO and provides additional information related to operations (in thousands). As a result of the timing of the commencement of active real estate operations, FFO and MFFO are not relevant to a discussion comparing operations for the periods presented. Revenues and expenses are expected to increase in future periods as additional investments are acquired.<\/p>\n\n
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\n <\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n<\/tr>\n \n <\/td>\n <\/td>\n Three Months Ended June 30,<\/b><\/td>\n <\/td>\n Six Months Ended June 30,<\/b><\/td>\n<\/tr>\n \n <\/td>\n <\/td>\n 2017<\/b><\/td>\n <\/td>\n 2016<\/b><\/td>\n <\/td>\n $ Change<\/b><\/td>\n <\/td>\n % Change<\/b><\/td>\n <\/td>\n 2017<\/b><\/td>\n <\/td>\n 2016<\/b><\/td>\n <\/td>\n $ Change<\/b><\/td>\n <\/td>\n % Change<\/b><\/td>\n<\/tr>\n \n Revenues:<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n <\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n <\/td>\n<\/tr>\n \n Rental income(1)<\/sup><\/td>\n <\/td>\n $<\/td>\n 17,764<\/td>\n <\/td>\n <\/td>\n $<\/td>\n 17,223<\/td>\n <\/td>\n <\/td>\n $<\/td>\n 541<\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n $<\/td>\n 35,344<\/td>\n <\/td>\n <\/td>\n $<\/td>\n 34,411<\/td>\n <\/td>\n <\/td>\n $<\/td>\n 933<\/td>\n <\/td>\n <\/td>\n <\/td>\n<\/tr>\n \n Tenant recovery income<\/td>\n <\/td>\n 6,805<\/td>\n <\/td>\n <\/td>\n 6,408<\/td>\n <\/td>\n <\/td>\n 397<\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n 13,684<\/td>\n <\/td>\n <\/td>\n 13,005<\/td>\n <\/td>\n <\/td>\n 679<\/td>\n <\/td>\n <\/td>\n <\/td>\n<\/tr>\n \n Other property income<\/td>\n <\/td>\n 143<\/td>\n \u00a0<\/td>\n <\/td>\n 142<\/td>\n \u00a0<\/td>\n <\/td>\n 1<\/td>\n \u00a0<\/td>\n <\/td>\n <\/td>\n <\/td>\n 218<\/td>\n \u00a0<\/td>\n <\/td>\n 228<\/td>\n \u00a0<\/td>\n <\/td>\n (10<\/td>\n )<\/td>\n <\/td>\n <\/td>\n<\/tr>\n \n Total revenues<\/td>\n <\/td>\n 24,712<\/td>\n <\/td>\n <\/td>\n 23,773<\/td>\n <\/td>\n <\/td>\n 939<\/td>\n <\/td>\n <\/td>\n 3.9%<\/td>\n <\/td>\n 49,246<\/td>\n <\/td>\n <\/td>\n 47,644<\/td>\n <\/td>\n <\/td>\n 1,602<\/td>\n <\/td>\n <\/td>\n 3.4%<\/td>\n<\/tr>\n \n Operating expenses:<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n <\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n <\/td>\n<\/tr>\n \n Property operating expenses<\/td>\n <\/td>\n 4,028<\/td>\n <\/td>\n <\/td>\n 3,930<\/td>\n <\/td>\n <\/td>\n 98<\/td>\n <\/td>\n <\/td>\n <\/td>\n <\/td>\n 8,458<\/td>\n <\/td>\n <\/td>\n 8,294<\/td>\n <\/td>\n <\/td>\n 164<\/td>\n <\/td>\n <\/td>\n <\/td>\n<\/tr>\n \n Real estate taxes<\/td>\n <\/td>\n 4,370<\/td>\n \u00a0<\/td>\n <\/td>\n 4,041<\/td>\n \u00a0<\/td>\n <\/td>\n 329<\/td>\n \u00a0<\/td>\n <\/td>\n <\/td>\n <\/td>\n 8,327<\/td>\n \u00a0<\/td>\n <\/td>\n 8,052<\/td>\n \u00a0<\/td>\n <\/td>\n 275<\/td>\n \u00a0<\/td>\n <\/td>\n <\/td>\n<\/tr>\n \n Total operating expenses<\/td>\n <\/td>\n 8,398<\/td>\n \u00a0<\/td>\n <\/td>\n 7,971<\/td>\n \u00a0<\/td>\n <\/td>\n 427<\/td>\n \u00a0<\/td>\n <\/td>\n 5.4%<\/td>\n <\/td>\n 16,785<\/td>\n \u00a0<\/td>\n <\/td>\n 16,346<\/td>\n \u00a0<\/td>\n <\/td>\n 439<\/td>\n \u00a0<\/td>\n <\/td>\n 2.7%<\/td>\n<\/tr>\n \n Total Same-Center NOI<\/td>\n <\/td>\n $<\/td>\n 16,314<\/td>\n \u00a0<\/td>\n <\/td>\n $<\/td>\n 15,802<\/td>\n \u00a0<\/td>\n <\/td>\n $<\/td>\n 512<\/td>\n \u00a0<\/td>\n <\/td>\n 3.2%<\/td>\n <\/td>\n $<\/td>\n 32,461<\/td>\n \u00a0<\/td>\n <\/td>\n $<\/td>\n 31,298<\/td>\n \u00a0<\/td>\n <\/td>\n $<\/td>\n 1,163<\/td>\n \u00a0<\/td>\n <\/td>\n 3.7%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \n\n
\n (1)<\/sup><\/td>\n <\/td>\n Excludes straight-line rental income, net amortization of above- and below-market leases, and lease buyout income.<\/td>\n<\/tr>\n \n <\/td>\n <\/td>\n <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \n\n
\n <\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n<\/tr>\n \n <\/td>\n <\/td>\n Three Months Ended June 30,<\/b><\/td>\n <\/td>\n Six Months Ended June 30,<\/b><\/td>\n<\/tr>\n \n <\/td>\n <\/td>\n 2017<\/b><\/td>\n <\/td>\n 2016<\/b>(1)<\/b><\/sup><\/td>\n <\/td>\n 2017<\/b><\/td>\n <\/td>\n 2016<\/b>(1)<\/b><\/sup><\/td>\n<\/tr>\n \n Net (loss) income<\/td>\n <\/td>\n $<\/td>\n (1,252<\/td>\n )<\/td>\n <\/td>\n $<\/td>\n (4,552<\/td>\n )<\/td>\n <\/td>\n $<\/td>\n (1,339<\/td>\n )<\/td>\n <\/td>\n $<\/td>\n (3,201<\/td>\n )<\/td>\n<\/tr>\n \n Adjusted to exclude:<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n <\/td>\n \u00a0<\/td>\n<\/tr>\n \n Straight-line rental income<\/td>\n <\/td>\n (656<\/td>\n )<\/td>\n <\/td>\n (938<\/td>\n )<\/td>\n <\/td>\n (1,492<\/td>\n )<\/td>\n <\/td>\n (1,747<\/td>\n )<\/td>\n<\/tr>\n \n Net amortization of above- and below-market leases<\/td>\n <\/td>\n (606<\/td>\n )<\/td>\n <\/td>\n (546<\/td>\n )<\/td>\n <\/td>\n (1,213<\/td>\n )<\/td>\n <\/td>\n (958<\/td>\n )<\/td>\n<\/tr>\n \n Lease buyout income<\/td>\n <\/td>\n \u2014<\/td>\n <\/td>\n <\/td>\n (149<\/td>\n )<\/td>\n <\/td>\n (125<\/td>\n )<\/td>\n <\/td>\n (149<\/td>\n )<\/td>\n<\/tr>\n \n General and administrative expenses<\/td>\n <\/td>\n 5,167<\/td>\n <\/td>\n <\/td>\n 4,812<\/td>\n <\/td>\n <\/td>\n 9,821<\/td>\n <\/td>\n <\/td>\n 8,852<\/td>\n <\/td>\n<\/tr>\n \n Acquisition expenses<\/td>\n <\/td>\n 300<\/td>\n <\/td>\n <\/td>\n 5,219<\/td>\n <\/td>\n <\/td>\n 259<\/td>\n <\/td>\n <\/td>\n 7,991<\/td>\n <\/td>\n<\/tr>\n \n Depreciation and amortization<\/td>\n <\/td>\n 17,514<\/td>\n <\/td>\n <\/td>\n 13,823<\/td>\n <\/td>\n <\/td>\n 34,536<\/td>\n <\/td>\n <\/td>\n 26,112<\/td>\n <\/td>\n<\/tr>\n \n Interest expense, net<\/td>\n <\/td>\n 5,452<\/td>\n <\/td>\n <\/td>\n 2,250<\/td>\n <\/td>\n <\/td>\n 9,926<\/td>\n <\/td>\n <\/td>\n 3,703<\/td>\n <\/td>\n<\/tr>\n \n Other<\/td>\n <\/td>\n 96<\/td>\n <\/td>\n <\/td>\n 122<\/td>\n <\/td>\n <\/td>\n 151<\/td>\n <\/td>\n <\/td>\n 242<\/td>\n <\/td>\n<\/tr>\n \n Gain on contribution of properties to unconsolidated joint venture<\/td>\n <\/td>\n \u2014<\/td>\n \u00a0<\/td>\n <\/td>\n \u2014<\/td>\n \u00a0<\/td>\n <\/td>\n \u2014<\/td>\n \u00a0<\/td>\n <\/td>\n (3,341<\/td>\n )<\/td>\n<\/tr>\n \n NOI<\/td>\n <\/td>\n 26,015<\/td>\n <\/td>\n <\/td>\n 20,041<\/td>\n <\/td>\n <\/td>\n 50,524<\/td>\n <\/td>\n <\/td>\n 37,504<\/td>\n <\/td>\n<\/tr>\n \n Less: NOI from centers excluded from Same-Center<\/td>\n <\/td>\n (9,701<\/td>\n )<\/td>\n <\/td>\n (4,239<\/td>\n )<\/td>\n <\/td>\n (18,063<\/td>\n )<\/td>\n <\/td>\n (6,206<\/td>\n )<\/td>\n<\/tr>\n \n Total Same-Center NOI<\/td>\n <\/td>\n $<\/td>\n 16,314<\/td>\n \u00a0<\/td>\n <\/td>\n $<\/td>\n 15,802<\/td>\n \u00a0<\/td>\n <\/td>\n $<\/td>\n 32,461<\/td>\n \u00a0<\/td>\n <\/td>\n $<\/td>\n 31,298<\/td>\n \u00a0<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \n\n
\n (1)<\/sup><\/td>\n <\/td>\n Certain prior period amounts have been restated to conform with current year presentation.<\/td>\n<\/tr>\n \n <\/td>\n <\/td>\n <\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \n
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