Notes to Combined Financial Statements
1.
|
Organization and Basis of Presentation and Consolidation
|
Wheeler Real Estate Investment Trust, Inc. is a Maryland corporation formed on June 23, 2011 to acquire the
entities owning various controlling and noncontrolling interests in real estate assets owned and/or managed by Jon S. Wheeler and/or his affiliates, including certain entities controlled by Plume Street Financial, LLC. In conjunction with acquiring
the various entities, the Trust filed a Registration Statement with the SEC in order to complete an initial public offering. On October 23, 2012, the Trusts Registration Statement became effective and the common stock was priced at $5.25. On
November 16, 2012, the Trust closed the offering by selling 3,016,045 shares of common stock at $5.25 per share, generating approximately $15.83 million in gross proceeds.
The Company used approximately $2.54 million to cover offering expenses, approximately $4.18 million to cash-out prior investors in the properties, $1.78 million of the net proceeds of the offering to
directly purchase The Shoppes at Eagle Harbor and approximately $322,000 to repay the outstanding indebtedness on the Amscot Building. Additionally, the Company adopted the 2012 Share Incentive Plan which established a pool for share options for the
Companys employees. This pool contains options to purchase 500,000 shares of the Companys common stock. The options will vest at a rate of 20% per year for five years and have a per share exercise price equal to the fair market
value of one of the Companys common shares on the date of grant. No options have been awarded under this plan.
Wheeler
Real Estate Investment Trust, L.P., our Operating Partnership, was formed as a Virginia limited partnership on April 5, 2012. All operations will primarily be carried out through our Operating Partnership. The Trust, as the sole general partner of
our Operating Partnership, controls our Operating Partnership. Accordingly, the Trust will consolidate the assets, liabilities and results of operations of our Operating Partnership. The Trust contributed substantially all of the net proceeds from
the offering to the Operating Partnership in exchange for Operating Partnership units therein. The Trusts interest in the Operating Partnership will generally entitle it to share in cash distributions from, and in the profits and losses of,
the Operating Partnership in proportion to the Trusts percentage ownership. As the sole general partner of the Operating Partnership, the Trust will generally have the exclusive power under the partnership agreement to manage and conduct the
Operating Partnerships business and affairs, subject to certain limited approval and voting rights of the limited partners.
Wheeler Real Estate Investment Trust, Inc. and Affiliates currently includes the Trust, the Operating Partnership and the entities owned and/or controlled by Mr. Wheeler and/or his affiliates, which in
turn own controlling interests in five properties. Accordingly, the contribution of or acquisition by merger of interests in the Controlled Entities was accounted for as a transaction between entities under common control and, therefore, the
acquisition of interests in each of the Controlled Entities was recorded at our historical cost. In conjunction with the offering and related formation transactions, the Company acquired the noncontrolling interests in entities owning three
properties that are currently controlled by Plume Street Financial, of which Mr. Wheeler is a 50% partner. The value of the consideration paid to each of the PSF Entities prior investors was based upon the terms of the applicable contribution
agreement among the Operating Partnership, on the one hand, and the PSF Entities investor or investors, on the other hand, and was determined based on a relative equity valuation analysis of the PSF Entities. In exchange for contributing their
interests in the PSF Entities, the PSF Entities investors received an aggregate of $2.98 million and 916,923 common units.
The entities and respective properties party to the transactions are as follows:
Wheeler Real
Estate Investment Trust, Inc. and Affiliates (Controlled Entities and Predecessor):
Wheeler Real Estate Investment
Trust, Inc.
DF-1 Carrollton, LLC The Shoppes at Eagle Harbor (Carrollton, VA)
Lynnhaven Parkway Associates, LLC Monarch Bank Building (Virginia Beach, VA)
North Pointe Investors, LLC North Pointe Crossing/Amscot Building (Tampa, FL)
Riversedge Office Associates, LLC Riversedge North (Virginia Beach, VA)
Walnut Hill Plaza Associates, LLC Walnut Hill Plaza (Petersburg, VA)
PSF Entities (Noncontrolled Entities):
Lumber River Associates, LLC
Lumber River Village (Lumberton, NC)
Perimeter Associates, LLC Perimeter Square (Tulsa, OK)
Tuckernuck Associates, LLC Shoppes at TJ Maxx (Richmond, VA)
The combined financial statements of the PSF Entities are included elsewhere in this Form 10-Q.
We determined that Walnut Hill Plaza Associates, LLC is the acquirer for accounting purposes as it represents the largest of the five
entities in both asset size and total revenues and the exchange of equity interests related to this entity results in the largest number of common units being received by Mr. Wheeler and its other investors. Since Mr. Wheeler does not own a
controlling interest in the PSF Entities, the acquisition of the Noncontrolled Entities listed above were accounted for as an acquisition under the purchase accounting method and recognized at the estimated fair value of acquired assets and assumed
liabilities on the date of such contribution or acquisition. The fair value of these assets and liabilities has been allocated in accordance with ASC section 805-10,
Business Combinations
. Our methodology of allocating the cost of
acquisitions to assets acquired and liabilities assumed is based on estimated fair values, replacement cost and appraised values. We estimated the fair value of acquired tangible assets (consisting of land, building and improvements), identified
intangible lease assets and liabilities (consisting of acquired above-market leases, acquired in-place lease value, and acquired below-market leases) and assumed debt.
16
Wheeler Real Estate Investment Trust, Inc. and Affiliates
Notes to Combined Financial Statements (Continued)
1.
|
Organization and Basis of Presentation and Consolidation (continued)
|
The Company prepared the accompanying combined financial statements in accordance with
accounting principles generally accepted in the United States of America, or GAAP. Accordingly, the Company relied on GAAP applicable to transactions between entities under common control when preparing the accompanying combined financial
statements. In accordance with these principles, the Company prepared the accompanying combined financial statements using historical accounting records and has included the historical financial position, results of operations and cash flows
applicable under GAAP. All material balances and transactions between the combined entities of the Company have been eliminated.
The Company was formed with the principle objective of acquiring, financing, developing, leasing, owning and managing income producing, strip centers, neighborhood, grocery-anchored, community and
free-standing retail properties. Its strategy is to acquire high quality, well-located, dominant retail properties that generate attractive risk-adjusted returns. The Company will target competitively protected properties in communities that have
stable demographics and have historically exhibited favorable trends, such as strong population and income growth. The Company considers competitively protected properties to be located in the most prominent shopping districts in their respective
markets, ideally situated at major Main and Main intersections. The Company generally leases its properties to national and regional supermarket chains and select retailers that offer necessity and value oriented items and generate
regular consumer traffic. The Companys tenants carry goods that are less impacted by fluctuations in the broader U.S. economy and consumers disposable income, which it believes generates more predictable property-level cash flows.
Upon consummation of the offering and formation transactions, the Companys portfolio was comprised of five retail
shopping centers, two free-standing retail properties, and one office building. Five of these properties are located in Virginia, one is located in Florida, one is located in North Carolina and one is located in Oklahoma. The Companys
portfolio when combined with the PSF Entities had total net rentable space of 348,490 square feet and an occupancy level of approximately 92%.
2.
|
Summary of Significant Accounting Policies
|
Investment Properties
The Company records investment properties and related intangibles at cost less accumulated depreciation and amortization. Investment properties include both acquired and constructed assets. Improvements
and major repairs and maintenance are capitalized when the repair and maintenance substantially extends the useful life, increases capacity or improves the efficiency of the asset. All other repair and maintenance costs are expensed as incurred. The
Company capitalizes interest on projects during periods of construction until the projects reach the completion point that corresponds with their intended purpose.
The Company allocates the purchase price of acquisitions to the various components of the acquisition based upon the fair value of each component which may be derived from various observable or
unobservable inputs and assumptions. Also, the Company may utilize third party valuation specialists. These components typically include buildings, land and any intangible assets related to in-place leases the Company determines to exist.
The Company records depreciation on buildings and improvements utilizing the straight-line method over the estimated useful
life of the asset, generally 5 to 40 years. The Company reviews depreciable lives of investment properties periodically and makes adjustments to reflect a shorter economic life, when necessary. Tenant allowances, tenant inducements and tenant
improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter.
Amounts allocated to building are depreciated over the estimated remaining life of the acquired building or related improvements. The Company amortizes amounts allocated to tenant improvements, in-place
lease assets and other lease-related intangibles over the remaining life of the underlying leases. The Company also estimates the value of other acquired intangible assets, if any, and amortizes them over the remaining life of the underlying related
intangibles.
The Company reviews investment properties for impairment on a property-by-property basis whenever events or
changes in circumstances indicate that the carrying value of investment properties may not be recoverable, but at least annually. These circumstances include, but are not limited to, declines in the propertys cash flows, occupancy and fair
market value. The Company measures any impairment of investment property when the estimated undiscounted operating income before depreciation and amortization, plus its residual value, is less than the carrying value of the property. To the extent
impairment has occurred, the Company charges to income the excess of carrying value of the property over its estimated fair value. The Company estimates fair value using unobservable data such as operating income, estimated capitalization rates, or
multiples, leasing prospects and local market information. The Company may decide to sell properties that are held for use and the sale prices of these properties may differ from their carrying values. The Company did not record any impairment
adjustments to its properties during the nine months ended September 30, 2012 and 2011.
Conditional Asset Retirement Obligation
A conditional asset
retirement obligation represents a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement depends on a future event that may or may not be with the Companys control. Currently, the Company does
not have any conditional asset retirement obligations. However, any such obligations identified in the future would result in the Company recording a liability if the fair value of the obligation can be reasonably estimated. Environmental studies
conducted at the time the Company acquired its properties did not reveal any material environmental liabilities, and the Company is unaware of any subsequent environmental matters that would have created a material liability. The Company believes
that its properties are currently in material compliance with applicable environmental, as well as non-environmental, statutory and regulatory requirements. The Company did not record any conditional asset retirement obligation liabilities during
the nine months ended September 30, 2012 and 2011.
17
Wheeler Real Estate Investment Trust, Inc. and Affiliates
Notes to Combined Financial Statements (Continued)
2.
|
Summary of Significant Accounting Policies (Continued)
|
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash
equivalents. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents consist primarily of bank operating accounts and money markets. Financial instruments that potentially subject the Company to concentrations of credit
risk include its cash and cash equivalents and its trade accounts receivable. The Company places its cash and cash equivalents with institutions of high credit quality.
The Company places its cash and cash equivalents on deposit with financial institutions in the United States. On November 9, 2010, the Federal Deposit Insurance Corporation (FDIC) issued
a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Beginning December 31, 2010, through
December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. The unlimited insurance coverage is available to all depositors, including consumers,
businesses, and government entities. This unlimited coverage is separate from, and in addition to, the $250,000 insurance coverage provided to a depositors other deposit accounts held at an FDIC-insured institution.
The Companys bank deposits were fully insured by the FDIC at September 30, 2012, based on specified coverage.
Tenant Receivables and Unbilled Rent
Tenant receivables include base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. The Company determines an allowance for the uncollectible portion of
accrued rents and accounts receivable based upon customer credit-worthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. The Company considers a
receivable past due once it becomes delinquent per the terms of the lease. Our standard lease form considers a rent charge past due after five days. A past due receivable triggers certain events such as notices, fees and other allowable and required
actions per the lease. As of September 30, 2012 and December 31, 2011, the Companys allowance for uncollectible accounts totaled $72,200 (unaudited) and $72,200, respectively. During the nine months ended September 30, 2012 and
2011, the Company recorded bad debt expenses in the amount of $0 and $20,000, respectively, related to tenant receivables that were specifically identified as potentially uncollectible based on the an assessment of the tenants
credit-worthiness. During the nine months ended September 30, 2012 and 2011, the Company did not realize any recoveries related to tenant receivables previously charged off.
Deferred Costs and Other Assets
The Companys deferred costs and other assets consists primarily of internal and external leasing commissions, fees incurred in order to obtain long-term financing, and various property escrow
accounts for real estate taxes, insurance and tenant improvements and replacements. The Company records amortization of financing costs using the effective interest method over the terms of the respective loans or agreements. The Companys
lease origination costs consist primarily of commissions paid in connection with lease originations. The Company records amortization of lease origination costs on a straight-line basis over the terms of the related leases. Details of these deferred
costs, net of amortization and other assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Lease origination costs, net
|
|
$
|
142,070
|
|
|
$
|
178,140
|
|
Financing costs, net
|
|
|
9,149
|
|
|
|
18,072
|
|
Deferred REIT costs
|
|
|
1,092,476
|
|
|
|
772,722
|
|
Other
|
|
|
7,078
|
|
|
|
8,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Costs and Other Assets
|
|
$
|
1,250,773
|
|
|
$
|
977,080
|
|
|
|
|
|
|
|
|
|
|
Amortization of lease origination costs and in place leases represents a component of depreciation and
amortization expense. The Company reports amortization of financing costs, amortization of premiums, and accretion of discounts as part of interest expense. The Company accounts for in place lease assets as a component of the investment
properties cost basis (See Note 4 Investment Properties). Future amortization of lease origination costs, financing costs and in place leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
|
|
|
|
|
For the Twelve Months Ending September 30, (unaudited)
|
|
Origination
Costs
|
|
|
Financing
Costs
|
|
|
In Place
Leases
|
|
|
|
|
|
2013
|
|
$
|
44,403
|
|
|
$
|
6,964
|
|
|
$
|
1,779
|
|
2014
|
|
|
35,257
|
|
|
|
2,185
|
|
|
|
1,779
|
|
2015
|
|
|
27,153
|
|
|
|
|
|
|
|
1,779
|
|
2016
|
|
|
16,316
|
|
|
|
|
|
|
|
1,779
|
|
2017
|
|
|
9,972
|
|
|
|
|
|
|
|
2,787
|
|
Thereafter
|
|
|
8,969
|
|
|
|
|
|
|
|
3,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
142,070
|
|
|
$
|
9,149
|
|
|
$
|
13,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Wheeler Real Estate Investment Trust, Inc. and Affiliates
Notes to Combined Financial Statements (Continued)
2.
|
Summary of Significant Accounting Policies (Continued)
|
Revenue Recognition
The Company retains substantially all of the risks and benefits of ownership of the investment properties and accounts for its leases as
operating leases. The Company accrues minimum rents on a straight-line basis over the terms of the respective leases. Additionally, certain of the lease agreements contain provisions that grant additional rents based on tenants sales volumes
(contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements. During the nine months ended September 30, 2012 and 2011, the Company recognized percentage
rents of $1,054 and $6,525, respectively.
The Companys leases generally require the tenant to reimburse the Company for
a substantial portion of its expenses incurred in operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common Area Maintenance or CAM expenses). This significantly reduces
the Companys exposure to increases in costs and operating expenses resulting from inflation or other outside factors. The Company accrues reimbursements from tenants for recoverable portions of all these expenses as revenue in the period the
applicable expenditures are incurred. The Company calculates the tenants share of operating costs by multiplying the total amount of the operating costs by a fraction, the numerator of which is the total number of square feet being leased by
the tenant, and the denominator of which is the average total square footage of all leasable buildings in the property. The Company also receives escrow payments for these reimbursements from substantially all its tenants throughout the year. The
Company recognizes differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material in any period presented.
The Company recognizes lease termination fees in the period that the lease is terminated and collection of the fees is reasonably assured. Upon early lease termination, the Company provides for losses
related to unrecovered intangibles and other assets. The Company did not recognize any lease termination fees during the nine months ended September 30, 2012 and 2011.
Income Taxes
The Company intends to elect to be taxed as a REIT
under Sections 856 through 860 of the Internal Revenue Code and applicable Treasury regulations relating to REIT qualification. In order to maintain this REIT status, the regulations require the Company to distribute at least 90% of its taxable
income to stockholders and meet certain other asset and income tests, as well as other requirements. As a REIT, the Company will generally not be liable for federal corporate income taxes as long as it distributes 100% of its taxable income. Thus,
the Company made no provision for federal income taxes for the REIT in the accompanying combined financial statements. If the Company fails to qualify as a REIT, it will be subject to tax at regular corporate rates for the years in which it failed
to qualify. If the Company loses its REIT status it could not elect to be taxed as a REIT for four years unless the Companys failure to qualify was due to reasonable cause and certain other conditions were satisfied.
Management has evaluated the effect of the guidance provided by GAAP on
Accounting for Uncertainty of Income Taxes
and has
determined that the Company had no uncertain income tax positions that could have a significant effect on the financial statements for the nine months ended September 30, 2012 and 2011.
The Companys income tax returns since 2008 are subject to examination by the Internal Revenue Service and state tax authorities,
generally for three years after the tax returns were filed.
Financial Instruments
The carrying amount of financial instruments included in assets and liabilities approximates fair market value due to their immediate or
short-term maturity.
Use of Estimates
The Company has made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and
revenues and expenses during the reported period. The Companys actual results could differ from these estimates.
Advertising Costs
The Company expenses advertising and promotion costs as incurred. The Company incurred advertising and promotion costs of $3,381 and $33,174 for the nine months ended September 30, 2012 and 2011,
respectively.
Recent Accounting
Pronouncements
The FASB and the IASB have initiated a joint project to develop a new approach to lease accounting that
would ensure that assets and liabilities arising under leases are recognized in the statement of financial position. This proposed amendment to Topic 840 of the FASB Accounting Standards Codification would require a lessor to apply either a
performance obligation approach or a derecognition approach to account for the assets and liabilities arising from a lease, depending on whether the lessor retains exposure to significant risks or benefits associated with the underlying asset during
or after the expected term of the lease. We have not yet determined the effect of this proposed accounting proposal to the balance sheet.
19
Wheeler Real Estate Investment Trust, Inc. and Affiliates
Notes to Combined Financial Statements (Continued)
2.
|
Summary of Significant Accounting Policies (Continued)
|
In October 2011, the FASB issued a proposed accounting standards update to Real Estate
Investment Property Entities (Topic 973). The amendments of this proposed update would provide accounting guidance for entities that meet the criteria to be an investment property entity. The amendment would also introduce
additional presentation and disclosure requirements. Investment properties acquired by an investment property entity would initially be measured at transaction price, including related transaction costs, and subsequently measured at fair value with
all changes in fair value recognized in net income. In connection with this, a lessor of an investment property would not be required to apply the above mentioned proposed lessor accounting requirements for leases if the lessor measures its
investment properties at fair value but would account for lease rental income on a straight line basis over the lease term unless another systematic basis is more representative of the time pattern in which benefit derived from the leased asset is
diminished. We have not yet determined the impact of this proposed standard to the balance sheet.
In January 2012, the FASB
issued a proposed ASC update to Topic 350,
Intangibles Goodwill and Other; Testing Goodwill for Impairment.
This amendment would give us the option to first assess qualitative factors to determine whether the existence of
an event or circumstance indicates that it is more likely than not that indefinite-lived intangible assets are impaired before having to determine the fair value using the current quantitative approach. This ASC is effective for annual and interim
goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We will adopt this ASC during fiscal 2012. We evaluate goodwill for impairment annually in conjunction with our year end closing procedures unless factors
arise that would create the need to perform an evaluation during interim periods. For the nine months ended September 30, 2012 there were no factors that indicated any impairment. Accordingly, we will apply the concepts of this ASC during our
next evaluation of goodwill.
Other accounting standards that have been issued or proposed by the FASB or other
standard-setting bodies are not currently applicable to the Company or are not expected to have a significant impact on the Companys financial position, results of operations and cash flows.
20
Wheeler Real Estate Investment Trust, Inc. and Affiliates
Notes to Combined Financial Statements (Continued)
Investment properties consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Land
|
|
$
|
2,925,277
|
|
|
$
|
2,925,277
|
|
Buildings and improvements
|
|
|
12,874,585
|
|
|
|
12,849,561
|
|
In place leases
|
|
|
13,370
|
|
|
|
14,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties at cost
|
|
|
15,813,232
|
|
|
|
15,789,542
|
|
Less accumulated depreciation and amortization
|
|
|
(3,129,182
|
)
|
|
|
(2,618,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties at cost, net
|
|
$
|
12,684,050
|
|
|
$
|
13,171,218
|
|
|
|
|
|
|
|
|
|
|
The Companys depreciation and amortization expense was $184,933 and $185,100 for the three months
ended September 30, 2012 and 2011, respectively. The Companys depreciation and amortization expense was $556,452 and $555,299 for the nine months ended September 30, 2012 and 2011, respectively.
All of the Companys land, buildings and improvements serve as collateral for its mortgage loans payable portfolio. Accordingly,
restrictions exist as to each propertys transferability, use and other common rights typically associated with property ownership.
21
Wheeler Real Estate Investment Trust, Inc. and Affiliates
Notes to Combined Financial Statements (Continued)
4.
|
Mortgage Loans Payable
|
The Companys mortgage loans payable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Mortgage term loan (The Shoppes at Eagle Harbor); payable in monthly principal and interest installments of $30,863; interest
rate fixed at 6.20%; secured by real estate; matured April 2012 and was extended to December 30, 2012 to accommodate the renewal process.
|
|
$
|
3,935,688
|
|
|
$
|
4,024,629
|
|
|
|
|
Mortgage term loan (Monarch Bank Building); interest only payable monthly at a fixed rate of 7.00%; secured by real estate;
matures December 2012.
|
|
|
2,044,462
|
|
|
|
2,044,462
|
|
|
|
|
Mortgage term loan (Amscot Building); payable in monthly principal and interest installments of $4,634; interest rate fixed at
6.50%; secured by real estate; matures April 2014.
|
|
|
323,193
|
|
|
|
348,171
|
|
|
|
|
Mortgage term loan (Riversedge North); payable in monthly principal and interest installments of $13,556; interest rate fixed at
6.00%; secured by real estate; matures April 2013.
|
|
|
2,106,890
|
|
|
|
2,131,678
|
|
|
|
|
Mortgage term loan (Walnut Hill Plaza); payable in monthly principal and interest installments of $25,269; interest rate fixed at
6.75%; secured by real estate; matures April 2014.
|
|
|
3,543,663
|
|
|
|
3,587,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage Loans Payable
|
|
$
|
11,953,896
|
|
|
$
|
12,136,083
|
|
|
|
|
|
|
|
|
|
|
Debt Maturity
The Companys scheduled principal repayments on indebtedness as of September 30, 2012 are as follows:
|
|
|
|
|
|
|
Twelve Months Ending
September 30, (unaudited)
|
|
|
|
2013
|
|
$
|
8,185,056
|
|
2014
|
|
|
3,768,840
|
|
2015
|
|
|
|
|
2016
|
|
|
|
|
2017
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
Total principal maturities
|
|
$
|
11,953,896
|
|
|
|
|
|
|
5.
|
Rentals under Operating Leases
|
Future minimum rentals to be received under noncancelable tenant operating leases for each of the next five years and
thereafter, excluding CAM and percentage rent based on tenant sales volume, as of September 30, 2012 are as follows:
|
|
|
|
|
|
|
Twelve Months Ending
September 30, (unaudited)
|
|
|
|
2013
|
|
$
|
1,587,456
|
|
2014
|
|
|
1,401,399
|
|
2015
|
|
|
1,257,354
|
|
2016
|
|
|
1,078,687
|
|
2017
|
|
|
900,759
|
|
Thereafter
|
|
|
511,602
|
|
|
|
|
|
|
|
|
|
|
$
|
6,737,257
|
|
|
|
|
|
|
22
Wheeler Real Estate Investment Trust, Inc. and Affiliates
Notes to Combined Financial Statements (Continued)
Equity currently consists of partnership interests in the Companys five properties (see Note 1). The Company has
authority to issue 15,500,000 of stock, consisting of 15,000,000 shares of $0.01 par value Common Stock and 500,000 shares of Series A Convertible Preferred Stock. The Board of Directors (once formed), with the approval of a majority of the entire
Board and without an action by the stockholders of the Company, may amend the charter to increase or decrease the aggregate number of common shares available. Additionally, the Companys Board may authorize the issuance of shares of its stock
of any class or securities convertible into shares of its stock of any class. During the nine months ended September 30, 2012, the Company issued 123,500 shares of Series A Convertible Preferred Stock at $4.00 per share generating $494,000 in
proceeds to cover anticipated offering expenses to be incurred prior to closing. All outstanding preferred stock shares were converted into shares of common stock upon completion of the offering at a conversion rate of $4.00 divided by 66.66% of the
offering price.
Contemporaneously with executing the offering and formation transactions, the prior investors received cash
or common units in exchange for their interests in the ownership entities. The value of the consideration paid to each of the prior investors in the formation transactions was based upon the terms of the applicable contribution agreement among the
Operating Partnership and the prior investor(s), and was determined based on a relative equity valuation analysis of all of the properties included in the Companys portfolio and the property management business. The common units issued in
exchange for each propertys ownership interest will be convertible into common stock 180 days after the offering prospectus became effective.
7.
|
Commitments and Contingencies
|
Lease Commitments
As of September 30, 2012, the Amscot property is subject to a ground lease which terminates in 2045. The ground lease requires the Company to make a fixed annual rental payment and includes
escalation clauses and renewal options. The Company incurred ground lease expense included in other expense of $5,900 and $8,800 during the nine months ended September 30, 2012 and 2011, respectively.
Future minimum lease payments due under the ground lease, including applicable automatic extension options, are as follows (unaudited):
|
|
|
|
|
|
|
Twelve Months Ending
September 30,
|
|
|
|
2013
|
|
$
|
12,000
|
|
2014
|
|
|
12,000
|
|
2015
|
|
|
14,307
|
|
2016
|
|
|
17,382
|
|
2017
|
|
|
20,600
|
|
Thereafter
|
|
|
656,905
|
|
|
|
|
|
|
|
|
|
|
$
|
733,194
|
|
|
|
|
|
|
Insurance
The Company carries comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all of the properties in its portfolio under a blanket insurance policy, in
addition to other coverages, such as trademark and pollution coverage, that may be appropriate for certain of its properties. The Company believes the policy specifications and insured limits are appropriate and adequate for its properties given the
relative risk of loss, the cost of the coverage and industry practice; however, its insurance coverage may not be sufficient to fully cover its losses.
Concentration of Credit Risk
The Company is subject to risks
incidental to the ownership and operation of commercial real estate. These risks include, among others, the risks normally associated with changes in the general economic climate, trends in the retail industry, creditworthiness of tenants,
competition for tenants and customers, changes in tax laws, interest rates, the availability of financing and potential liability under environmental and other laws.
23
Wheeler Real Estate Investment Trust, Inc. and Affiliates
Notes to Combined Financial Statements (Continued)
7.
|
Commitments and Contingencies (continued)
|
The Companys portfolio of properties is dependent upon regional and local economic
conditions and is geographically concentrated in the Mid-Atlantic and Southeast, which markets represented approximately 94% and 6%, respectively, of the total annualized base rent of the properties in its portfolio as of September 30, 2012.
The Companys geographic concentration may cause it to be more susceptible to adverse developments in those markets than if it owned a more geographically diverse portfolio. Additionally, the Companys retail shopping center properties
depend on anchor stores or major tenants to attract shoppers and could be adversely affected by the loss of, or a store closure by, one or more of these tenants.
The Company does not have any tenants that individually represent 10% or more of its combined total assets or 10% or more or its combined gross revenues. The following represent the Companys
properties that are components of its portfolio and which each individually represents 10% or more of the related propertys total assets or gross revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Property/Tenant
|
|
Location
|
|
Net
Rentable
Square
Feet
|
|
|
Square Footage Leased
|
|
|
Annual
Lease
Payments
|
|
|
Expiration
Date
|
|
|
Option
Periods
Remaining
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
Walnut Hill Plaza
|
|
Petersburg, VA
|
|
|
89,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant 1
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
16.68
|
%
|
|
$
|
73,800
|
|
|
|
2/28/2013
|
|
|
|
|
|
Tenant 2
|
|
|
|
|
|
|
|
|
14,812
|
|
|
|
16.47
|
%
|
|
$
|
97,759
|
|
|
|
2/29/2016
|
|
|
|
2
|
|
Tenant 3
|
|
|
|
|
|
|
|
|
11,780
|
|
|
|
13.10
|
%
|
|
$
|
106,020
|
|
|
|
3/31/2018
|
|
|
|
1
|
|
Tenant 4
|
|
|
|
|
|
|
|
|
9,875
|
|
|
|
10.98
|
%
|
|
$
|
45,425
|
|
|
|
7/30/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Shoppes at Eagle Harbor
|
|
Carrollton, VA
|
|
|
23,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant 1
|
|
|
|
|
|
|
|
|
7,012
|
|
|
|
30.09
|
%
|
|
$
|
146,970
|
|
|
|
9/30/2015
|
|
|
|
4
|
|
Tenant 2
|
|
|
|
|
|
|
|
|
5,337
|
|
|
|
22.90
|
%
|
|
$
|
112,077
|
|
|
|
10/31/2016
|
|
|
|
1
|
|
Tenant 3
|
|
|
|
|
|
|
|
|
4,084
|
|
|
|
17.53
|
%
|
|
$
|
81,680
|
|
|
|
1/31/2014
|
|
|
|
2
|
|
Tenant 4
|
|
|
|
|
|
|
|
|
2,812
|
|
|
|
12.07
|
%
|
|
$
|
61,864
|
|
|
|
7/31/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Riversedge North
|
|
Virginia Beach, VA
|
|
|
10,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant 1
|
|
|
|
|
|
|
|
|
10,550
|
|
|
|
100.00
|
%
|
|
$
|
288,290
|
|
|
|
11/14/2017
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Monarch Bank Building
|
|
Virginia Beach, VA
|
|
|
3,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant 1
|
|
|
|
|
|
|
|
|
3,620
|
|
|
|
100.00
|
%
|
|
$
|
224,910
|
|
|
|
12/31/2012
|
(1)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Amscot Building
|
|
Tampa, FL
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant 1
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
100.00
|
%
|
|
$
|
100,738
|
|
|
|
3/31/2020
|
|
|
|
3
|
|
(1)
|
The tenant has exercised one of its remaining five year options to extend the lease through December 31, 2017.
|
The Net Rentable Square Feet and square footage lease data in the above table has not been audited, but has been included in the above
table because management believes that it is useful information.
Regulatory and Environmental
As the owner of the buildings on our properties, the Company could face liability for the presence of hazardous materials (e.g., asbestos
or lead) or other adverse conditions (e.g., poor indoor air quality) in its buildings. Environmental laws govern the presence, maintenance, and removal of hazardous materials in buildings, and if the Company does not comply with such laws, it could
face fines for such noncompliance. Also, the Company could be liable to third parties (e.g., occupants of the buildings) for damages related to exposure to hazardous materials or adverse conditions in its buildings, and the Company could incur
material expenses with respect to abatement or remediation of hazardous materials or other adverse conditions in its buildings. In addition, some of the Companys tenants routinely handle and use hazardous or regulated substances and wastes as
part of their operations at our properties, which are subject to regulation. Such environmental and health and safety laws and regulations could subject the Company or its tenants to liability resulting from these activities. Environmental
liabilities could affect a tenants ability to make rental payments to the Company, and changes in laws could increase the potential liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise
materially and adversely affect the Companys operations. The Company is not aware of any material contingent liabilities, regulatory matters or environmental matters that may exist.
24
Wheeler Real Estate Investment Trust, Inc. and Affiliates
Notes to Combined Financial Statements (Continued)
8.
|
Related Party Transactions
|
Jon S. Wheeler (Mr. Wheeler), the Companys Chairman and President, when combined with his affiliates
and after the execution of the contemplated transactions, will represent the Companys second largest stockholder. Wheeler Interests, LLC and its affiliates (Wheeler Interests), controlled by Mr. Wheeler, provide administrative services to
the Company, including management, administrative, accounting, marketing, development and design services. Pursuant to the terms of the Companys administrative services agreement, Wheeler Interests responsibilities include administering
the Companys day-to-day business operations, identifying and acquiring targeted real estate investments, overseeing the management of the investments, and handling the disposition of the real estate investments. The Company also benefits from
Wheeler Interests affiliates that specialize in retail real estate investment and management, including (i) Wheeler Development, LLC, a full service real estate development firm, (ii) Wheeler Capital, LLC, a capital investment firm
specializing in venture capital, financing, and small business loans, (iii) Wheeler Real Estate, LLC, a real estate management and administration firm, (iv) Site Applications, LLC, a full service facility company, equipped to handle all
levels of building maintenance, and (v) TESR, LLC, a tenant relations company, serving as a liaison between property management, lease administration and leasing and working to provide information on the health and fiscal viability of each
tenant.
Wheeler Interests leases the Companys Riversedge property under a 10 year operating lease expiring in November
2017, with four five year renewal options available. The lease currently requires monthly base rent payments of $24,000 and provides for annual increases throughout the term of the lease and subsequent option periods. Additionally, Wheeler Interests
reimburses the Company for a portion of the propertys operating expenses and real estate taxes.
The following
summarizes related party activity as of and for the nine months ended September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
Amounts paid to Wheeler Interests and its affiliates:
|
|
|
|
|
|
|
|
|
Wheeler Interests
|
|
$
|
510,835
|
|
|
$
|
246,311
|
|
Wheeler Development
|
|
|
|
|
|
|
11,672
|
|
Wheeler Real Estate
|
|
|
43,085
|
|
|
|
67,457
|
|
Site Applications
|
|
|
45,081
|
|
|
|
58,839
|
|
Creative Retail Works
|
|
|
|
|
|
|
5,621
|
|
TESR
|
|
|
18,062
|
|
|
|
13,934
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
617,063
|
|
|
$
|
403,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to Wheeler Interests and its affiliates:
|
|
|
|
|
|
|
|
|
Wheeler Interests
|
|
$
|
(2,699
|
)
|
|
$
|
1,257
|
|
Wheeler Development
|
|
|
(46,410
|
)
|
|
|
38
|
|
Wheeler Real Estate
|
|
|
(23,285
|
)
|
|
|
9,118
|
|
Site Applications
|
|
|
2,895
|
|
|
|
2,503
|
|
TESR
|
|
|
(1,805
|
)
|
|
|
8,491
|
|
Jon Wheeler and affiliates
|
|
|
1,140,016
|
|
|
|
1,217,540
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,068,712
|
|
|
$
|
1,238,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and reimbursement income received from Wheeler Interests
|
|
$
|
307,300
|
|
|
$
|
296,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent and other tenant receivables due from Wheeler Interests
|
|
$
|
221,489
|
|
|
$
|
134,529
|
|
|
|
|
|
|
|
|
|
|
The amounts outstanding to Mr. Wheeler and Wheeler Interests at September 30, 2012 and 2011
primarily consisted of a payable due from The Shoppes at Eagle Harbor property to its owner, a company in which Mr. Wheeler holds a substantial investment and management position. This amount primarily consists of advances to the property for
construction costs incurred to build the center in excess of what was financed through the lender, and for a subsequent $250,000 principal curtailment required by the lender in conjunction with converting the construction loan to permanent
financing; the lender required this payment due to cap rate changes and other factors occurring subsequent to their original underwriting of the construction loan as a result of the economic downturn beginning in 2008. In conjunction with the
formation transactions and offering, the REIT used approximately $1.78 million of the net proceeds to purchase The Shoppes at Eagle Harbor property from DF-1 Carrollton, LLC. Per the DF-1 Carrollton, LLC operating agreement, this transaction
constituted a capital event, resulting in a distribution to DF-1 Carrollton, LLC, a portion of which went towards satisfying the outstanding amounts due from the property.
Upon completion of the offering and related formation
transactions, properties that are owned by the Company through the Operating Partnership are currently owned directly or indirectly by partnerships, limited liability companies or corporations in which Mr. Wheeler and his affiliates, certain of
the Companys other directors and executive officers and their affiliates own a direct or indirect interest. Additionally, Mr. Wheeler will effectively control the Company in his role as President and Chairman of its board of directors.
See additional disclosure regarding the offering and formation transactions in Note 1 of the combined financial statements.
25
Lumber River Associates, LLC, Tuckernuck Associates, LLC and
Perimeter Associates, LLC
Combined Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Investment properties, at cost
|
|
$
|
17,740,914
|
|
|
$
|
17,740,914
|
|
Less accumulated depreciation and amortization
|
|
|
5,575,407
|
|
|
|
5,227,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,165,507
|
|
|
|
12,513,469
|
|
|
|
|
Cash and cash equivalents
|
|
|
44,528
|
|
|
|
88,888
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Rents and other tenant receivables, net
|
|
|
61,484
|
|
|
|
50,560
|
|
Unbilled rent
|
|
|
349,212
|
|
|
|
341,082
|
|
Due from related parties
|
|
|
|
|
|
|
|
|
Deferred costs and other assets
|
|
|
948,053
|
|
|
|
737,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
13,568,784
|
|
|
$
|
13,731,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Mortgages and other indebtedness
|
|
$
|
13,287,370
|
|
|
$
|
13,457,247
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
211,915
|
|
|
|
193,319
|
|
Due to related parties
|
|
|
95,474
|
|
|
|
130,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
13,594,759
|
|
|
|
13,780,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
4,066,504
|
|
|
|
4,066,504
|
|
Accumulated deficit
|
|
|
(4,092,479
|
)
|
|
|
(4,115,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity (Deficit)
|
|
|
(25,975
|
)
|
|
|
(49,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
13,568,784
|
|
|
$
|
13,731,503
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
26
Lumber River Associates, LLC, Tuckernuck Associates, LLC and
Perimeter Associates, LLC
Combined Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
REVENUE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rent
|
|
$
|
512,567
|
|
|
$
|
551,595
|
|
|
$
|
1,571,849
|
|
|
$
|
1,503,314
|
|
Percentage of sales rent
|
|
|
16,612
|
|
|
|
5,826
|
|
|
|
16,612
|
|
|
|
17,476
|
|
Tenant reimbursements
|
|
|
102,143
|
|
|
|
130,625
|
|
|
|
392,067
|
|
|
|
381,206
|
|
Other income
|
|
|
15,870
|
|
|
|
9,525
|
|
|
|
89,902
|
|
|
|
22,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
647,192
|
|
|
|
697,571
|
|
|
|
2,070,430
|
|
|
|
1,924,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating
|
|
|
71,690
|
|
|
|
170,536
|
|
|
|
323,297
|
|
|
|
355,587
|
|
Depreciation and amortization
|
|
|
132,748
|
|
|
|
149,864
|
|
|
|
393,004
|
|
|
|
449,591
|
|
Real estate taxes
|
|
|
46,579
|
|
|
|
46,310
|
|
|
|
139,736
|
|
|
|
139,889
|
|
Repairs and maintenance
|
|
|
16,613
|
|
|
|
23,258
|
|
|
|
45,186
|
|
|
|
74,253
|
|
Advertising and promotion
|
|
|
1,325
|
|
|
|
6,111
|
|
|
|
3,644
|
|
|
|
24,870
|
|
Provision for credit losses
|
|
|
45,805
|
|
|
|
26,259
|
|
|
|
45,805
|
|
|
|
26,259
|
|
Corporate general & administrative
|
|
|
187,296
|
|
|
|
|
|
|
|
194,361
|
|
|
|
|
|
Other
|
|
|
14,564
|
|
|
|
19,142
|
|
|
|
45,741
|
|
|
|
47,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
516,620
|
|
|
|
441,480
|
|
|
|
1,190,774
|
|
|
|
1,118,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
130,572
|
|
|
|
256,091
|
|
|
|
879,656
|
|
|
|
806,335
|
|
|
|
|
|
|
Interest expense
|
|
|
(214,351
|
)
|
|
|
(217,952
|
)
|
|
|
(641,076
|
)
|
|
|
(649,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(83,779
|
)
|
|
$
|
38,139
|
|
|
$
|
238,580
|
|
|
$
|
157,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
27
Lumber River Associates, LLC, Tuckernuck Associates, LLC and
Perimeter Associates, LLC
Combined Statements of Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Contributions
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
|
|
|
|
Balance, December 31, 2011
|
|
$
|
4,066,504
|
|
|
$
|
(4,115,776
|
)
|
|
$
|
(49,272
|
)
|
|
|
|
|
Equity distributions
|
|
|
|
|
|
|
(215,283
|
)
|
|
|
(215,283
|
)
|
|
|
|
|
Net income
|
|
|
|
|
|
|
238,580
|
|
|
|
238,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2012 (unaudited)
|
|
$
|
4,066,504
|
|
|
$
|
(4,092,479
|
)
|
|
$
|
(25,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
28
Lumber River Associates, LLC, Tuckernuck Associates, LLC and
Perimeter Associates, LLC
Combined Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
238,580
|
|
|
$
|
157,030
|
|
Adjustments to reconcile combined net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
393,004
|
|
|
|
449,591
|
|
Provision for doubtful accounts
|
|
|
45,805
|
|
|
|
26,259
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
Tenant receivables and accrued revenue, net
|
|
|
(56,729
|
)
|
|
|
(45,148
|
)
|
Unbilled rent
|
|
|
(8,130
|
)
|
|
|
61,866
|
|
Other assets
|
|
|
(101,601
|
)
|
|
|
(93,522
|
)
|
Accounts payable, accrued expenses and other liabilities
|
|
|
18,597
|
|
|
|
142,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
529,526
|
|
|
|
698,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(73,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
|
|
|
|
(73,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Distributions to members
|
|
|
(215,283
|
)
|
|
|
(324,045
|
)
|
Deferred offering costs
|
|
|
(153,990
|
)
|
|
|
|
|
Net proceeds from related parties
|
|
|
(34,736
|
)
|
|
|
113,398
|
|
Mortgage indebtedness principal payments
|
|
|
(169,877
|
)
|
|
|
(161,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
(573,886
|
)
|
|
|
(372,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(44,360
|
)
|
|
|
253,468
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
88,888
|
|
|
|
91,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
44,528
|
|
|
$
|
345,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
Other Cash Transactions:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
644,025
|
|
|
$
|
651,451
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
29
Lumber River Associates, LLC, Tuckernuck Associates, LLC and
Perimeter Associates, LLC
Notes to Combined Financial Statements
1.
|
Organization and Basis of Presentation and Consolidation
|
The accompanying combined financial statements include the accounts and operations of the following entities and their
respective properties on a combined basis:
|
|
|
Lumber River Associates, LLC Lumber River Village (Lumberton, NC)
|
|
|
|
Perimeter Associates, LLC Perimeter Square (Tulsa, OK)
|
|
|
|
Tuckernuck Associates, LLC Shoppes at TJ Maxx (Richmond, VA)
|
The above entities are controlled by Plume Street Financial, LLC, an entity in which Jon S. Wheeler and Harrison J. Perrine each maintain
a 50% ownership. The accompanying combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. All material balances and transactions between the combined entities
of the PSF Entities have been eliminated.
On November 16, 2012, the PSF Entities were acquired by Wheeler Real Estate
Investment Trust, Inc. as contemplated in the Trusts Registration Statement filed with the SEC. The operations of the PSF Entities will be carried on through Wheeler Real Estate Investment Trust, L.P. The Trust is the sole general partner and
has control of the Operating Partnership. Accordingly, the assets, liabilities and results of operations of the PSF Entities will be consolidated with the Operating Partnership. Mr. Wheeler and his affiliates will continue to manage the
properties and maintain significant influence over the operations and strategic direction of the PSF Entities. See Note 7 Related Party Transactions for further information regarding the relationships and transactions between the PSF
Entities and its related parties.
The value of the consideration paid to each of the PSF Entities prior investors in
the formation transactions, in each case, was based upon the terms of the applicable contribution agreement among the Operating Partnership, on the one hand, and the prior investor or investors, on the other hand, and was determined based on a
relative equity valuation analysis of the PSF Entities. The prior investors received cash or common units in exchange for their interests in the PSF Entities.
2.
|
Summary of Significant Accounting Policies
|
Investment Properties
The PSF Entities record investment properties and related intangibles at cost less accumulated depreciation and amortization. Investment properties include both acquired and constructed assets.
Improvements and major repairs and maintenance are capitalized when the repair and maintenance substantially extends the useful life, increases capacity or improves the efficiency of the asset. All other repair and maintenance costs are expensed as
incurred. The PSF Entities capitalize interest on projects during periods of construction until the projects reach the completion point that corresponds with their intended purpose.
The PSF Entities allocate the purchase price of acquisitions to the various components of the acquisition based upon the fair value of
each component which may be derived from various observable or unobservable inputs and assumptions. Also, the PSF Entities may utilize third party valuation specialists. These components typically include buildings, land and any intangible assets
related to in-place leases the PSF Entities determine to exist.
The PSF Entities record depreciation on buildings and
improvements utilizing the straight-line method over the estimated useful life of the asset, generally 5 to 40 years. The PSF Entities review depreciable lives of investment properties periodically and makes adjustments to reflect a shorter
economic life, when necessary. Tenant allowances, tenant inducements and tenant improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter.
Amounts allocated to building are depreciated over the estimated remaining life of the acquired building or related improvements. The PSF
Entities amortize amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles over the remaining life of the underlying leases. The PSF Entities also estimate the value of other acquired intangible assets, if
any, and amortizes them over the remaining life of the underlying related intangibles.
30
Lumber River Associates, LLC, Tuckernuck Associates, LLC and Perimeter Associates,
LLC
Notes to Combined Financial Statements (Continued)
2.
|
Summary of Significant Accounting Policies (Continued)
|
The PSF Entities review investment properties for impairment on a property-by-property
basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable, but at least annually. These circumstances include, but are not limited to, declines in the propertys cash
flows, occupancy and fair market value. The PSF Entities measure any impairment of investment property when the estimated undiscounted operating income before depreciation and amortization, plus its residual value, is less than the carrying value of
the property. To the extent impairment has occurred, the PSF Entities charge to income the excess of carrying value of the property over its estimated fair value. The PSF Entities estimate fair value using unobservable data such as operating income,
estimated capitalization rates, or multiples, leasing prospects and local market information. The PSF Entities may decide to sell properties that are held for use and the sale prices of these properties may differ from their carrying values. The PSF
Entities did not record any impairment adjustments to its properties during the nine months ended September 30, 2012 and 2011.
Conditional Asset Retirement Obligation
A conditional asset
retirement obligation represents a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement depends on a future event that may or may not be with the PSF Entities control. Currently, the PSF
Entities do not have any conditional asset retirement obligations. However, any such obligations identified in the future would result in the PSF Entities recording a liability if the fair value of the obligation can be reasonably estimated.
Environmental studies conducted at the time the PSF Entities acquired its properties did not reveal any material environmental liabilities, and the PSF Entities are unaware of any subsequent environmental matters that would have created a material
liability. The PSF Entities believe that its properties are currently in material compliance with applicable environmental, as well as non-environmental, statutory and regulatory requirements. The PSF Entities did not record any conditional asset
retirement obligation liabilities during the nine months ended September 30, 2012 and 2011.
Cash and Cash
Equivalents
The PSF Entities consider all highly liquid investments purchased with an original maturity of
90 days or less to be cash and cash equivalents. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents consist primarily of bank operating accounts and money markets. Financial instruments that potentially
subject the PSF Entities to concentrations of credit risk include its cash and cash equivalents and its trade accounts receivable. The PSF Entities place its cash and cash equivalents with institutions of high credit quality.
The PSF Entities place its cash and cash equivalents on deposit with financial institutions in the United States. On November 9,
2010, the Federal Deposit Insurance Corporation (FDIC) issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing
transaction accounts. Beginning December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. The unlimited
insurance coverage is available to all depositors, including consumers, businesses, and government entities. This unlimited coverage is separate from, and in addition to, the $250,000 insurance coverage provided to a depositors other deposit
accounts held at an FDIC-insured institution.
The PSF Entities bank deposits were fully insured by the FDIC at
September 30, 2012, based on specified coverage.
Tenant Receivables and Unbilled Rent
Tenant receivables include base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. The
PSF Entities determine an allowance for the uncollectible portion of accrued rents and accounts receivable based upon customer credit-worthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt
levels, and current economic trends. The PSF Entities consider a receivable past due once it becomes delinquent per the terms of the lease. Our standard lease form considers a rent charge past due after five days. A past due receivable triggers
certain events such as notices, fees and other allowable and required actions per the lease. As of September 30, 2012 and December 31, 2011, the PSF Entities allowance for uncollectible accounts totaled $63,000 and $17,195,
respectively. During the nine months ended September 30, 2012 and 2011, the PSF Entities recorded bad debt expense of $45,805 and $26,259, respectively, related to tenant receivables that were specifically identified as potentially
uncollectible based on the an assessment of the tenants credit-worthiness. During the nine months ended September 30, 2012, the PSF Entities did not realize any recoveries related to tenant receivables previously charged off.
31
Lumber River Associates, LLC, Tuckernuck Associates, LLC and Perimeter Associates,
LLC
Notes to Combined Financial Statements (Continued)
2.
|
Summary of Significant Accounting Policies (Continued)
|
Deferred Costs and Other Assets
The PSF Entities deferred costs and other assets consists primarily of internal and external leasing commissions, deferred REIT
costs allocated to the PSF Entities and various property escrow accounts for real estate taxes, insurance and tenant improvements and replacements. The PSF Entities lease origination costs consist primarily of commissions paid in connection
with lease originations. The PSF Entities record amortization of lease origination costs on a straight-line basis over the terms of the related leases. Details of these deferred costs, net of amortization and other assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Lease origination costs, net
|
|
$
|
275,457
|
|
|
$
|
296,123
|
|
Property escrows
|
|
|
301,751
|
|
|
|
274,061
|
|
Deferred REIT costs
|
|
|
290,000
|
|
|
|
136,010
|
|
Other
|
|
|
80,845
|
|
|
|
31,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Costs and Other Assets
|
|
$
|
948,053
|
|
|
$
|
737,504
|
|
|
|
|
|
|
|
|
|
|
Amortization of lease origination costs and in place leases represents a component of depreciation and
amortization expense. The PSF Entities report amortization of financing costs, amortization of premiums, and accretion of discounts as part of interest expense. The PSF Entities account for in place lease assets as a component of the investment
properties cost basis (See Note 3 Investment Properties). Future amortization of lease origination costs is as follows:
|
|
|
|
|
For the Twelve Months Ending September 30, (unaudited)
|
|
Lease
Origination
Costs
|
|
|
|
2013
|
|
$
|
71,004
|
|
2014
|
|
|
58,090
|
|
2015
|
|
|
46,084
|
|
2016
|
|
|
35,741
|
|
2017
|
|
|
31,586
|
|
Thereafter
|
|
|
32,952
|
|
|
|
|
|
|
|
|
$
|
275,457
|
|
|
|
|
|
|
Revenue Recognition
The PSF Entities retain substantially all of the risks and benefits of ownership of the investment properties and accounts for its leases
as operating leases. The PSF Entities accrue minimum rents on a straight-line basis over the terms of the respective leases. Additionally, certain of the lease agreements contain provisions that grant additional rents based on tenants sales
volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements. During the nine months ended September 30, 2012 and 2011, the PSF Entities recognized
percentage rents of $16,612 and $11,650, respectively.
The PSF Entities leases generally require the tenant to
reimburse the PSF Entities for a substantial portion of its expenses incurred in operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common Area Maintenance or CAM
expenses). This significantly reduces the PSF Entities exposure to increases in costs and operating expenses resulting from inflation or other outside factors. The PSF Entities accrue reimbursements from tenants for recoverable portions of all
these expenses as revenue in the period the applicable expenditures are incurred. The PSF Entities calculate the tenants share of operating costs by multiplying the total amount of the operating costs by a fraction, the numerator of which is
the total number of square feet being leased by the tenant, and the denominator of which is the average total square footage of all leasable buildings in the property. The PSF Entities also receive escrow payments for these reimbursements from
substantially all its tenants throughout the year. The PSF Entities recognize differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material in any period presented.
The PSF Entities recognize lease termination fees in the period that the lease is terminated and collection of the fees is reasonably
assured. Upon early lease termination, the PSF Entities provide for losses related to unrecovered intangibles and other assets. The PSF Entities did not recognize any lease termination fees during the nine months ended September 30, 2012 and
2011.
Income Taxes
Management has evaluated the effect of the guidance provided by GAAP on
Accounting for Uncertainty of Income Taxes
and has determined that the PSF Entities had no uncertain income tax positions
that could have a significant effect on the financial statements for the nine months ended September 30, 2012 and 2011.
32
Lumber River Associates, LLC, Tuckernuck Associates, LLC and Perimeter Associates,
LLC
Notes to Combined Financial Statements (Continued)
2.
|
Summary of Significant Accounting Policies (Continued)
|
The PSF Entities income tax returns since 2008 are subject to examination by the
Internal Revenue Service and state tax authorities, generally for three years after the tax returns were filed.
Financial Instruments
The carrying amount of financial instruments included in assets and liabilities approximates fair market value due to their immediate or short-term maturity.
Use of Estimates
The PSF Entities have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements,
and revenues and expenses during the reported period. The PSF Entities actual results could differ from these estimates.
Advertising Costs
The PSF Entities expense advertising and promotion costs as incurred. The PSF Entities incurred advertising and promotion costs of $3,644 and $24,870 for the nine months ended September 30, 2012 and
2011, respectively.
Recent Accounting Pronouncements
The FASB and the IASB have initiated a joint project to develop a new approach to lease accounting that would ensure that assets and
liabilities arising under leases are recognized in the statement of financial position. This proposed amendment to Topic 840 of the FASB Accounting Standards Codification would require a lessor to apply either a performance obligation approach or a
derecognition approach to account for the assets and liabilities arising from a lease, depending on whether the lessor retains exposure to significant risks or benefits associated with the underlying asset during or after the expected term of the
lease. We have not yet determined the effect of this proposed accounting proposal to the balance sheet.
In October 2011, the
FASB issued a proposed accounting standards update to Real Estate Investment Property Entities (Topic 973). The amendments of this proposed update would provide accounting guidance for entities that meet the criteria to be an investment
property entity. The amendment would also introduce additional presentation and disclosure requirements. Investment properties acquired by an investment property entity would initially be measured at transaction price, including related
transaction costs, and subsequently measured at fair value with all changes in fair value recognized in net income. In connection with this, a lessor of an investment property would not be required to apply the above mentioned proposed lessor
accounting requirements for leases if the lessor measures its investment properties at fair value but would account for lease rental income on a straight line basis over the lease term unless another systematic basis is more representative of the
time pattern in which benefit derived from the leased asset is diminished. We have not yet determined the impact of this proposed standard to the balance sheet.
In January 2012, the FASB issued a proposed ASC update to Topic 350,
Intangibles Goodwill and Other; Testing Goodwill for Impairment.
This amendment would give us the option to
first assess qualitative factors to determine whether the existence of an event or circumstance indicates that it is more likely than not that indefinite-lived intangible assets are impaired before having to determine the fair value using the
current quantitative approach. This ASC is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We will adopt this ASC during fiscal 2012. We evaluate goodwill for impairment
annually in conjunction with our year end closing procedures unless factors arise that would create the need to perform an evaluation during interim periods. For the nine months ended September 30, 2012 there were no factors that indicated any
impairment. Accordingly, we will apply the concepts of this ASC during our next evaluation of goodwill.
Other accounting
standards that have been issued or proposed by the FASB or other standard-setting bodies are not currently applicable to the PSF Entities or are not expected to have a significant impact on the PSF Entities financial position, results of
operations and cash flows.
Investment properties consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Land
|
|
$
|
4,773,236
|
|
|
$
|
4,773,236
|
|
Buildings and improvements
|
|
|
12,967,678
|
|
|
|
12,967,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties at cost
|
|
|
17,740,914
|
|
|
|
17,740,914
|
|
Less accumulated depreciation and amortization
|
|
|
(5,575,407
|
)
|
|
|
(5,227,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment properties at cost, net
|
|
$
|
12,165,507
|
|
|
$
|
12,513,469
|
|
|
|
|
|
|
|
|
|
|
33
Lumber River Associates, LLC, Tuckernuck Associates, LLC and Perimeter Associates,
LLC
Notes to Combined Financial Statements (Continued)
3.
|
Investment Properties (continued)
|
The PSF Entities depreciation and amortization expense was $102,143 and $130,625
for the three months ended September 30, 2012 and 2011, respectively. The PSF Entities depreciation and amortization expense was $393,004 and $449,591 for the nine months ended September 30, 2012 and 2011, respectively.
All of the PSF Entities land, buildings and improvements serve as collateral for its mortgage loans payable portfolio. Accordingly,
restrictions exist as to each propertys transferability, use and other common rights typically associated with property ownership.
4.
|
Mortgage Loans Payable
|
The PSF Entities mortgage loans payable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Mortgage term loan (Lumber River Plaza); payable in monthly principal and interest installments of $18,414; interest rate fixed
at 5.65%; secured by real estate; matures May 2015.
|
|
$
|
3,003,739
|
|
|
$
|
3,038,979
|
|
|
|
|
Mortgage term loan (Perimeter Square); payable in monthly principal and interest installments of $28,089; interest rate fixed at
6.38%; secured by real estate; matures June 2016.
|
|
|
4,335,627
|
|
|
|
4,376,033
|
|
|
|
|
Mortgage term loan (Shoppes at TJ Maxx); payable in monthly principal and interest installments of $43,931; interest rate fixed
at 6.57%; secured by real estate; matures September 2012.
|
|
|
5,948,004
|
|
|
|
6,042,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage Loans Payable
|
|
$
|
13,287,370
|
|
|
$
|
13,457,247
|
|
|
|
|
|
|
|
|
|
|
The mortgage term loan for the Shoppes at TJ Maxx matured in September of 2012. This term loan was
refinanced on October 19, 2012 for a principal amount of $6,400,000 (inclusive of net loan fees of $380,000), at 6.0% interest rate (15.8% effective interest rate resulting from amortization of the loans fees above) maturing April 19,
2013. Interest only is payable monthly in the amount of $32,000 with outstanding principal and accrued unpaid interest due at maturity.
Debt Maturity
The PSF Entities scheduled principal repayments
on indebtedness as of September 30, 2012 are as follows:
|
|
|
|
|
|
|
Twelve Months Ending
September
30, (unaudited)
|
|
|
|
2013
|
|
$
|
6,056,571
|
|
2014
|
|
|
115,409
|
|
2015
|
|
|
2,966,734
|
|
2016
|
|
|
4,148,656
|
|
2017
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,287,370
|
|
|
|
|
|
|
34
Lumber River Associates, LLC, Tuckernuck Associates, LLC and Perimeter Associates,
LLC
Notes to Combined Financial Statements (Continued)
5.
|
Rentals under Operating Leases
|
Future minimum rentals to be received under noncancelable tenant operating leases for each of the next five years and
thereafter, excluding CAM and percentage rent based on tenant sales volume, as of September 30, 2012 are as follows:
|
|
|
|
|
|
|
Twelve Months Ending
September
30, (unaudited)
|
|
|
|
2013
|
|
$
|
1,988,730
|
|
2014
|
|
|
1,839,927
|
|
2015
|
|
|
1,628,514
|
|
2016
|
|
|
1,404,618
|
|
2017
|
|
|
1,234,969
|
|
Thereafter
|
|
|
1,395,917
|
|
|
|
|
|
|
|
|
|
|
$
|
9,492,675
|
|
|
|
|
|
|
6.
|
Commitments and Contingencies
|
Litigation
The PSF Entities are involved in various legal proceedings arising in the ordinary course of its business, including, but not limited to commercial disputes. The PSF Entities believe that such litigation,
claims and administrative proceedings will not have a material adverse impact on its financial position or its results of operations. The PSF Entities record a liability when it considers the loss probable and the amount can be reasonably estimated.
Insurance
The PSF Entities carry comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all of the properties in its portfolio under a blanket insurance policy,
in addition to other coverages, such as trademark and pollution coverage, that may be appropriate for certain of its properties. The PSF Entities believe the policy specifications and insured limits are appropriate and adequate for its properties
given the relative risk of loss, the cost of the coverage and industry practice; however, its insurance coverage may not be sufficient to fully cover its losses.
Concentration of Credit Risk
The PSF Entities are
subject to risks incidental to the ownership and operation of commercial real estate. These risks include, among others, the risks normally associated with changes in the general economic climate, trends in the retail industry, creditworthiness of
tenants, competition for tenants and customers, changes in tax laws, interest rates, the availability of financing and potential liability under environmental and other laws.
The PSF Entities properties are dependent upon regional and local economic conditions and are geographically concentrated in the Mid-Atlantic and Southwest, which markets represented approximately
68% and 32%, respectively, of the total annualized base rent of the properties in its portfolio as of September 30, 2012. The PSF Entities geographic concentration may cause it to be more susceptible to adverse developments in those
markets than if it owned a more geographically diverse portfolio. Additionally, the PSF Entities retail shopping center properties depend on anchor stores or major tenants to attract shoppers and could be adversely affected by the loss of, or
a store closure by, one or more of these tenants.
35
Lumber River Associates, LLC, Tuckernuck Associates, LLC and Perimeter Associates,
LLC
Notes to Combined Financial Statements (Continued)
6.
|
Commitments and Contingencies (continued)
|
The PSF Entities do not have any tenants that individually represent 10% or more of its
combined total assets or 10% or more or its combined gross revenues. The following represent the PSF Entities properties that are components of its portfolio and which each individually represents 10% or more of the related propertys
total assets or gross revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Rentable
Square
|
|
|
Square Footage Leased
|
|
|
Annual
Lease
|
|
|
Expiration
Date
|
|
|
Option
Periods
Remaining
|
|
Property/Tenant
|
|
Location
|
|
Feet
|
|
|
Amount
|
|
|
Percentage
|
|
|
Payments
|
|
|
|
|
|
|
|
|
|
|
|
Shoppes at TJ Maxx
|
|
Richmond, VA
|
|
|
93,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant 1
|
|
|
|
|
|
|
|
|
32,400
|
|
|
|
34.63
|
%
|
|
$
|
294,192
|
|
|
|
4/30/2014
|
(1)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Lumber River Plaza
|
|
Lumberton, NC
|
|
|
66,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant 1
|
|
|
|
|
|
|
|
|
30,280
|
|
|
|
45.34
|
%
|
|
$
|
155,250
|
|
|
|
6/30/2013
|
(2)
|
|
|
5
|
|
Tenant 2
|
|
|
|
|
|
|
|
|
9,100
|
|
|
|
13.63
|
%
|
|
$
|
63,700
|
|
|
|
9/30/2015
|
|
|
|
1
|
|
Tenant 3
|
|
|
|
|
|
|
|
|
8,001
|
|
|
|
11.98
|
%
|
|
$
|
44,520
|
|
|
|
12/31/2012
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Perimeter Square
|
|
Tulsa, OK
|
|
|
58,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant 1
|
|
|
|
|
|
|
|
|
26,813
|
|
|
|
46.01
|
%
|
|
$
|
339,162
|
|
|
|
6/30/2018
|
|
|
|
|
|
Tenant 2
|
|
|
|
|
|
|
|
|
10,754
|
|
|
|
18.45
|
%
|
|
$
|
95,173
|
|
|
|
7/31/2015
|
|
|
|
|
|
(1)
|
Subsequent to September 30, 2012, the tenant exercised its remaining five year option to extend the lease through April 30, 2019 and we granted them an
additional five year option.
|
(2)
|
Subsequent to September 30, 2012, the tenant exercised one of its remaining five year options to extend the lease through June 30, 2018.
|
The Net Rentable Square Feet and square footage lease data in the above table has not been audited, but has
been included in the above table because management believes that it is useful information.
Regulatory and
Environmental
As the owner of the buildings on our properties, the PSF Entities could face liability for the presence
of hazardous materials (e.g., asbestos or lead) or other adverse conditions (e.g., poor indoor air quality) in its buildings. Environmental laws govern the presence, maintenance, and removal of hazardous materials in buildings, and if the PSF
Entities do not comply with such laws, it could face fines for such noncompliance. Also, the PSF Entities could be liable to third parties (e.g., occupants of the buildings) for damages related to exposure to hazardous materials or adverse
conditions in its buildings, and the PSF Entities could incur material expenses with respect to abatement or remediation of hazardous materials or other adverse conditions in its buildings. In addition, some of the PSF Entities tenants
routinely handle and use hazardous or regulated substances and wastes as part of their operations at our properties, which are subject to regulation. Such environmental and health and safety laws and regulations could subject the PSF Entities or its
tenants to liability resulting from these activities. Environmental liabilities could affect a tenants ability to make rental payments to the PSF Entities, and changes in laws could increase the potential liability for noncompliance. This may
result in significant unanticipated expenditures or may otherwise materially and adversely affect the PSF Entities operations. The PSF Entities are not aware of any material contingent liabilities, regulatory matters or environmental matters
that may exist.
7.
|
Related Party Transactions
|
Wheeler Interests, LLC and its affiliates (Wheeler Interests), controlled by Jon S. Wheeler (Mr. Wheeler),
provide administrative services to the PSF Entities, including management, administrative, accounting, marketing, development and design services. Pursuant to the terms of the PSF Entities administrative services agreement, Wheeler
Interests responsibilities include administering the PSF Entities day-to-day business operations, identifying and acquiring targeted real estate investments, overseeing the management of the investments, and handling the disposition of
the real estate investments. The PSF Entities also benefits from Wheeler Interests affiliates that specialize in retail real estate investment and management, including (i) Wheeler Development, LLC, a full service real estate development
firm, (ii) Wheeler Capital, LLC, a capital investment firm specializing in venture capital, financing, and small business loans, (iii) Wheeler Real Estate, LLC, a real estate management and administration firm, (iv) Site Applications,
LLC, a full service facility company, equipped to handle all levels of building maintenance, and (v) TESR, LLC, a tenant relations company, serving as a liaison between property management, lease administration and leasing and working to
provide information on the health and fiscal viability of each tenant.
36
Lumber River Associates, LLC, Tuckernuck Associates, LLC and Perimeter Associates,
LLC
Notes to Combined Financial Statements (Continued)
7.
|
Related Party Transactions (continued)
|
The following summarizes related party activity between the PSF Entities and Wheeler
Interests as of and for the nine months ended September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(unaudited)
|
|
|
|
|
Amounts paid to Wheeler Interests and its affiliates:
|
|
|
|
|
|
|
|
|
Wheeler Interests
|
|
$
|
43,607
|
|
|
$
|
52,277
|
|
Wheeler Development
|
|
|
|
|
|
|
3,510
|
|
Wheeler Real Estate
|
|
|
82,866
|
|
|
|
96,284
|
|
Site Applications
|
|
|
39,433
|
|
|
|
51,765
|
|
Creative Retail Works
|
|
|
21,701
|
|
|
|
4,100
|
|
TESR
|
|
|
24,138
|
|
|
|
54,257
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
211,745
|
|
|
$
|
262,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to (from) Wheeler Interests and its affiliates:
|
|
|
|
|
|
|
|
|
Wheeler Interests
|
|
$
|
1,064
|
|
|
$
|
146
|
|
Wheeler Development
|
|
|
|
|
|
|
183
|
|
Wheeler Real Estate
|
|
|
1,857
|
|
|
|
3,566
|
|
Site Applications
|
|
|
(630
|
)
|
|
|
1,391
|
|
Creative Retail Works
|
|
|
|
|
|
|
27,250
|
|
TESR
|
|
|
444
|
|
|
|
|
|
Jon Wheeler and affiliates
|
|
|
92,739
|
|
|
|
23,307
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
95,474
|
|
|
$
|
55,843
|
|
|
|
|
|
|
|
|
|
|
37