Wheeler Real Estate Investment Trust,
Inc.000152754112/31Non-accelerated
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Virginia Beach Blvd.Virginia
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
ý QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2020
OR
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from
to
Commission file number 001-35713
WHEELER REAL ESTATE INVESTMENT TRUST, INC.
(Exact Name of Registrant as Specified in Its
Charter)
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Maryland |
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45-2681082 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
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2529 Virginia Beach Blvd.
Virginia Beach. Virginia |
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23452 |
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(Address of Principal Executive Offices) |
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(Zip Code) |
(757)
627-9088
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock, $0.01 par value per share |
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WHLR |
Nasdaq Capital Market |
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Series B Convertible Preferred Stock |
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WHLRP |
Nasdaq Capital Market |
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Series D Cumulative Convertible Preferred Stock |
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WHLRD |
Nasdaq Capital Market |
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90
days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12
months (or for such shorter period that the registrant was required
to submit and post such
files). Yes ý No ¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and "emerging growth company" in Rule
12b-2 of the Exchange Act.
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Large accelerated filer |
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¨
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Accelerated filer |
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¨
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Non-accelerated filer |
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ý
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Smaller reporting company |
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ý
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Emerging growth company |
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¨
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
¨
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act).
Yes ¨ No ý
As of November 9, 2020, there were 9,702,783 common shares,
$0.01 par value per share, outstanding.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
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Page |
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PART I – FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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Item 2. |
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Item 3. |
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Item 4. |
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PART II – OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except par value and share data)
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September 30, 2020 |
|
December 31, 2019 |
|
|
(unaudited) |
|
|
|
ASSETS: |
|
|
|
|
Investment properties, net |
$ |
394,378 |
|
|
$ |
416,215 |
|
|
Cash and cash equivalents |
6,957 |
|
|
5,451 |
|
|
Restricted cash |
17,240 |
|
|
16,140 |
|
|
Rents and other tenant receivables, net |
8,365 |
|
|
6,905 |
|
|
Assets held for sale |
15,064 |
|
|
1,737 |
|
|
Above market lease intangibles, net |
3,928 |
|
|
5,241 |
|
|
Operating lease right-of-use assets |
11,508 |
|
|
11,651 |
|
|
Deferred costs and other assets, net |
16,898 |
|
|
21,025 |
|
|
Total Assets |
$ |
474,338 |
|
|
$ |
484,365 |
|
|
LIABILITIES: |
|
|
|
|
Loans payable, net |
$ |
318,230 |
|
|
$ |
340,913 |
|
|
Liabilities associated with assets held for sale |
14,912 |
|
|
2,026 |
|
|
|
|
|
|
Below market lease intangibles, net |
5,093 |
|
|
6,716 |
|
|
Operating lease liabilities |
11,917 |
|
|
11,921 |
|
|
Accounts payable, accrued expenses and other
liabilities |
12,949 |
|
|
9,557 |
|
|
Total Liabilities |
363,101 |
|
|
371,133 |
|
|
|
|
|
|
Series D Cumulative Convertible Preferred Stock (no par value,
4,000,000 shares authorized, 3,529,293 and 3,600,636 shares issued
and outstanding, respectively; $106.76 million and $101.66 million
aggregate liquidation preference, respectively) |
93,046 |
|
|
87,225 |
|
|
|
|
|
|
|
EQUITY: |
|
|
|
|
Series A Preferred Stock (no par value, 4,500 shares authorized,
562 shares issued and outstanding) |
453 |
|
|
453 |
|
|
Series B Convertible Preferred Stock (no par value, 5,000,000
authorized, 1,875,748 shares issued and outstanding; $46.90 million
aggregate liquidation preference) |
41,152 |
|
|
41,087 |
|
|
Common Stock ($0.01 par value, 18,750,000 shares authorized,
9,699,461 and 9,694,284 shares issued and outstanding,
respectively) |
97 |
|
|
97 |
|
|
Additional paid-in capital |
233,916 |
|
|
233,870 |
|
|
Accumulated deficit |
(259,479) |
|
|
(251,580) |
|
|
Total Shareholders’ Equity |
16,139 |
|
|
23,927 |
|
|
Noncontrolling interests |
2,052 |
|
|
2,080 |
|
|
Total Equity |
18,191 |
|
|
26,007 |
|
|
Total Liabilities and Equity |
$ |
474,338 |
|
|
$ |
484,365 |
|
See accompanying notes to condensed consolidated financial
statements.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
REVENUE: |
|
|
|
|
|
|
|
|
Rental revenues |
$ |
14,756 |
|
|
$ |
15,385 |
|
|
$ |
44,920 |
|
|
$ |
46,546 |
|
|
Other revenues |
208 |
|
|
180 |
|
|
787 |
|
|
546 |
|
|
Total Revenue |
14,964 |
|
|
15,565 |
|
|
45,707 |
|
|
47,092 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
Property operations |
4,820 |
|
|
4,967 |
|
|
14,116 |
|
|
14,288 |
|
|
Non-REIT management and leasing services |
— |
|
|
1 |
|
|
— |
|
|
25 |
|
|
Depreciation and amortization |
4,215 |
|
|
5,066 |
|
|
13,460 |
|
|
16,169 |
|
|
Impairment of notes receivable |
— |
|
|
— |
|
|
— |
|
|
5,000 |
|
|
Impairment of assets held for sale |
— |
|
|
400 |
|
|
600 |
|
|
1,547 |
|
|
Corporate general & administrative |
1,080 |
|
|
1,349 |
|
|
4,567 |
|
|
4,543 |
|
|
Total Operating Expenses |
10,115 |
|
|
11,783 |
|
|
32,743 |
|
|
41,572 |
|
|
(Loss) gain on disposal of properties |
— |
|
|
(81) |
|
|
(26) |
|
|
1,427 |
|
|
Operating Income |
4,849 |
|
|
3,701 |
|
|
12,938 |
|
|
6,947 |
|
|
Interest income |
— |
|
|
1 |
|
|
1 |
|
|
2 |
|
|
Interest expense |
(4,114) |
|
|
(4,654) |
|
|
(12,787) |
|
|
(14,394) |
|
|
Other expense |
(15) |
|
|
— |
|
|
(1,039) |
|
|
— |
|
|
Net Income (Loss) Before Income Taxes |
720 |
|
|
(952) |
|
|
(887) |
|
|
(7,445) |
|
|
Income tax expense |
— |
|
|
(8) |
|
|
(2) |
|
|
(23) |
|
|
Net Income (Loss) |
720 |
|
|
(960) |
|
|
(889) |
|
|
(7,468) |
|
|
Less: Net income (loss) attributable to noncontrolling
interests |
13 |
|
|
(1) |
|
|
18 |
|
|
(100) |
|
|
Net Income (Loss) Attributable to Wheeler REIT |
707 |
|
|
(959) |
|
|
(907) |
|
|
(7,368) |
|
|
Preferred Stock dividends - undeclared |
(3,608) |
|
|
(3,657) |
|
|
(10,922) |
|
|
(10,972) |
|
|
Deemed contribution related to preferred stock
redemption |
726 |
|
|
— |
|
|
726 |
|
|
— |
|
|
Net Loss Attributable to Wheeler REIT Common
Shareholders |
$ |
(2,175) |
|
|
$ |
(4,616) |
|
|
$ |
(11,103) |
|
|
$ |
(18,340) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
|
|
|
Basic and Diluted |
$ |
(0.22) |
|
|
$ |
(0.48) |
|
|
$ |
(1.14) |
|
|
$ |
(1.90) |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares: |
|
|
|
|
|
|
|
|
Basic and Diluted |
9,699,461 |
|
|
9,693,271 |
|
|
9,696,554 |
|
|
9,664,582 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Condensed Consolidated Statements of Equity
(in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
Series B |
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
|
Preferred Stock |
|
Preferred Stock |
|
Common Stock |
|
Additional
Paid-in Capital |
|
Accumulated Deficit |
|
Total
Shareholders’ Equity |
|
Interests |
|
Total |
|
|
Shares |
|
Value |
|
Shares |
|
Value |
|
Shares |
|
Value |
|
|
|
|
Units |
|
Value |
|
Equity |
|
Balance,
December 31, 2019
|
562 |
|
|
$ |
453 |
|
|
1,875,748 |
|
|
$ |
41,087 |
|
|
9,694,284 |
|
|
$ |
97 |
|
|
$ |
233,870 |
|
|
$ |
(251,580) |
|
|
$ |
23,927 |
|
|
234,019 |
|
|
$ |
2,080 |
|
|
$ |
26,007 |
|
Accretion of Series B Preferred
Stock discount |
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
22 |
|
|
Dividends and distributions |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,589) |
|
|
(2,589) |
|
|
— |
|
|
— |
|
|
(2,589) |
|
|
Net Loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,868) |
|
|
(1,868) |
|
|
— |
|
|
(9) |
|
|
(1,877) |
|
|
Balance,
March 31, 2020 (Unaudited)
|
562 |
|
|
453 |
|
|
1,875,748 |
|
|
41,109 |
|
|
9,694,284 |
|
|
97 |
|
|
233,870 |
|
|
(256,037) |
|
|
19,492 |
|
|
234,019 |
|
|
2,071 |
|
|
21,563 |
|
Accretion of Series B Preferred
Stock discount |
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
22 |
|
Conversion of operating
partnership units to Common
Stock |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,615 |
|
|
— |
|
|
2 |
|
|
— |
|
|
2 |
|
|
(1,615) |
|
|
(2) |
|
|
— |
|
Adjustments for noncontrolling
interest in operating partnership |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
12 |
|
|
— |
|
|
12 |
|
|
— |
|
|
(12) |
|
|
— |
|
|
Dividends and distributions |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,589) |
|
|
(2,589) |
|
|
— |
|
|
— |
|
|
(2,589) |
|
|
Net Income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
254 |
|
|
254 |
|
|
— |
|
|
14 |
|
|
268 |
|
|
Balance,
June 30, 2020 (Unaudited)
|
562 |
|
|
453 |
|
|
1,875,748 |
|
|
41,131 |
|
|
9,695,899 |
|
|
97 |
|
|
$ |
233,884 |
|
|
(258,372) |
|
|
$ |
17,193 |
|
|
232,404 |
|
|
2,071 |
|
|
19,264 |
|
Accretion of Series B Preferred
Stock discount |
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
— |
|
|
— |
|
|
21 |
|
Conversion of operating
partnership units to Common
Stock |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,562 |
|
|
— |
|
|
6 |
|
|
— |
|
|
6 |
|
|
(3,562) |
|
|
(6) |
|
|
— |
|
Adjustments for noncontrolling
interest in operating partnership |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
26 |
|
|
— |
|
|
26 |
|
|
— |
|
|
(26) |
|
|
— |
|
|
Dividends and distributions |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,540) |
|
|
(2,540) |
|
|
— |
|
|
— |
|
|
(2,540) |
|
|
Preferred Stock redemption discount |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
726 |
|
|
726 |
|
|
— |
|
|
— |
|
|
726 |
|
|
Net Income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
707 |
|
|
707 |
|
|
— |
|
|
13 |
|
|
720 |
|
|
Balance,
September 30, 2020 (Unaudited)
|
562 |
|
|
$ |
453 |
|
|
1,875,748 |
|
|
$ |
41,152 |
|
|
9,699,461 |
|
|
$ |
97 |
|
|
$ |
233,916 |
|
|
$ |
(259,479) |
|
|
$ |
16,139 |
|
|
228,842 |
|
|
$ |
2,052 |
|
|
$ |
18,191 |
|
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Condensed Consolidated Statements of Equity
(in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A |
|
Series B |
|
|
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
|
Preferred Stock |
|
Preferred Stock |
|
Common Stock |
|
Additional
Paid-in Capital |
|
Accumulated Deficit |
|
Total
Shareholders’ Equity |
|
Interests |
|
Total |
|
|
Shares |
|
Value |
|
Shares |
|
Value |
|
Shares |
|
Value |
|
|
|
|
Units |
|
Value |
|
Equity |
|
Balance,
December 31, 2018
|
562 |
|
|
$ |
453 |
|
|
1,875,748 |
|
|
$ |
41,000 |
|
|
9,511,464 |
|
|
$ |
95 |
|
|
$ |
233,697 |
|
|
$ |
(233,184) |
|
|
$ |
42,061 |
|
|
235,032 |
|
|
$ |
2,194 |
|
|
$ |
44,255 |
|
Accretion of Series B Preferred
Stock discount |
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
22 |
|
Issuance of Common Stock
under Share Incentive Plan |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
181,807 |
|
|
2 |
|
|
164 |
|
|
— |
|
|
166 |
|
|
— |
|
|
— |
|
|
166 |
|
|
Dividends and distributions |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,589) |
|
|
(2,589) |
|
|
— |
|
|
— |
|
|
(2,589) |
|
|
Net Income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
642 |
|
|
642 |
|
|
— |
|
|
13 |
|
|
655 |
|
|
Balance,
March 31, 2019 (Unaudited)
|
562 |
|
|
453 |
|
|
1,875,748 |
|
|
41,022 |
|
|
9,693,271 |
|
|
97 |
|
|
233,861 |
|
|
(235,131) |
|
|
40,302 |
|
|
235,032 |
|
|
2,207 |
|
|
42,509 |
|
Accretion of Series B Preferred
Stock discount |
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
22 |
|
|
Dividends and distributions |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,590) |
|
|
(2,590) |
|
|
— |
|
|
— |
|
|
(2,590) |
|
|
Net Loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(7,051) |
|
|
(7,051) |
|
|
— |
|
|
(112) |
|
|
(7,163) |
|
|
Balance,
June 30, 2019 (Unaudited)
|
562 |
|
|
453 |
|
|
1,875,748 |
|
|
41,044 |
|
|
9,693,271 |
|
|
97 |
|
|
233,861 |
|
|
(244,772) |
|
|
30,683 |
|
|
235,032 |
|
|
2,095 |
|
|
32,778 |
|
Accretion of Series B Preferred
Stock discount |
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
— |
|
|
— |
|
|
21 |
|
|
Dividends and distributions |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,588) |
|
|
(2,588) |
|
|
— |
|
|
— |
|
|
(2,588) |
|
|
Net Loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(959) |
|
|
(959) |
|
|
— |
|
|
(1) |
|
|
(960) |
|
|
Balance,
September 30, 2019 (Unaudited)
|
562 |
|
|
$ |
453 |
|
|
1,875,748 |
|
|
$ |
41,065 |
|
|
9,693,271 |
|
|
$ |
97 |
|
|
$ |
233,861 |
|
|
$ |
(248,319) |
|
|
$ |
27,157 |
|
|
235,032 |
|
|
$ |
2,094 |
|
|
$ |
29,251 |
|
See accompanying notes to condensed consolidated financial
statements.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
Ended September 30, |
|
|
2020 |
|
2019 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
Net Loss |
$ |
(889) |
|
|
$ |
(7,468) |
|
|
Adjustments to reconcile consolidated net loss to net cash provided
by operating activities: |
|
|
|
|
Depreciation |
8,589 |
|
|
8,991 |
|
|
Amortization |
4,871 |
|
|
7,178 |
|
|
Loan cost amortization |
796 |
|
|
1,336 |
|
|
Above (below) market lease amortization, net |
(443) |
|
|
(585) |
|
|
Straight-line expense |
138 |
|
|
140 |
|
|
Share-based compensation |
— |
|
|
244 |
|
|
Loss (gain) on disposal of properties |
26 |
|
|
(1,427) |
|
|
Credit losses on operating lease receivables |
1,042 |
|
|
315 |
|
|
Impairment of notes receivable |
— |
|
|
5,000 |
|
|
Impairment of assets held for sale |
600 |
|
|
1,547 |
|
|
Net changes in assets and liabilities: |
|
|
|
|
Rent and other tenant receivables, net |
(1,738) |
|
|
(520) |
|
|
Unbilled rent |
(758) |
|
|
(60) |
|
|
Deferred costs and other assets, net |
(903) |
|
|
(335) |
|
|
Accounts payable, accrued expenses and other
liabilities |
2,646 |
|
|
(1,738) |
|
|
Net operating cash flows used in discontinued
operations |
— |
|
|
(2) |
|
|
Net cash provided by operating activities |
13,977 |
|
|
12,616 |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
Investment property acquisitions, net of restricted cash
acquired |
— |
|
|
(24) |
|
|
Capital expenditures |
(1,649) |
|
|
(1,405) |
|
|
Cash received from disposal of properties |
1,665 |
|
|
3,584 |
|
|
Cash received from disposal of properties-discontinued
operations |
— |
|
|
19 |
|
|
Net cash provided by investing activities |
16 |
|
|
2,174 |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
Payments for deferred financing costs |
(340) |
|
|
(537) |
|
|
Loan proceeds |
13,350 |
|
|
24,165 |
|
|
Loan principal payments |
(23,843) |
|
|
(33,890) |
|
|
Preferred stock redemption |
(1,106) |
|
|
— |
|
|
Paycheck Protection Program proceeds |
552 |
|
|
— |
|
|
Net cash used in financing activities |
(11,387) |
|
|
(10,262) |
|
|
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
2,606 |
|
|
4,528 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of
period |
21,591 |
|
|
17,999 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of
period |
$ |
24,197 |
|
|
$ |
22,527 |
|
|
Supplemental Disclosures: |
|
|
|
|
Non-Cash Transactions: |
|
|
|
|
Conversion of common units to common stock |
$ |
8 |
|
|
$ |
— |
|
|
Accretion of preferred stock discounts |
$ |
509 |
|
|
$ |
510 |
|
|
|
|
|
|
Deemed contribution related to preferred stock discount |
$ |
726 |
|
|
$ |
— |
|
|
Other Cash Transactions: |
|
|
|
|
Cash paid for taxes |
$ |
15 |
|
|
$ |
6 |
|
|
Cash paid for interest |
$ |
11,885 |
|
|
$ |
13,218 |
|
|
|
|
|
|
|
The following table provides a reconciliation of cash, cash
equivalents and restricted cash: |
|
|
|
|
Cash and cash equivalents |
$ |
6,957 |
|
|
$ |
5,233 |
|
|
Restricted cash |
17,240 |
|
|
17,294 |
|
|
Cash, cash equivalents, and restricted cash |
$ |
24,197 |
|
|
$ |
22,527 |
|
See accompanying notes to condensed consolidated financial
statements.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation and
Consolidation
Wheeler Real Estate Investment Trust, Inc. (the "Trust", the
"REIT", or "Company") is a Maryland corporation formed on
June 23, 2011. The Trust serves as the general partner of
Wheeler REIT, L.P. (the “Operating Partnership”), which was formed
as a Virginia limited partnership on April 5, 2012. As of
September 30, 2020, the Trust, through the Operating
Partnership, owned and operated sixty centers, one office building
and six undeveloped properties in Virginia, North Carolina, South
Carolina, Georgia, Florida, Alabama, Oklahoma, Tennessee, Kentucky,
New Jersey, Pennsylvania and West Virginia. Accordingly, the use of
the word “Company” refers to the Trust and its consolidated
subsidiaries, except where the context otherwise
requires.
On October 24, 2014, the Trust, through the Operating Partnership,
acquired (i) Wheeler Interests, LLC (“WI”), an acquisition and
asset management firm, (ii) Wheeler Real Estate, LLC (“WRE”), a
real estate leasing, management and administration firm and (iii)
WHLR Management, LLC (“WM” and collectively with WI and WRE the
“Operating Companies”), a real estate business operations firm
resulting in the Company becoming an internally-managed REIT.
Accordingly, the responsibility for identifying targeted real
estate investments, the handling of the disposition of real estate
investments, administering our day-to-day business operations,
including but not limited to, leasing, property management, payroll
and accounting functions, acquisitions, asset management and
administration are now handled internally.
The Operating Companies perform property management and leasing
functions for certain non-related third parties (the “Non-REIT
Properties”), primarily through WRE. The Company converted WRE to a
Taxable REIT Subsidiary (“TRS”) to accommodate serving the Non-REIT
Properties since applicable REIT regulations consider the income
derived from these services to be “bad” income subject to taxation.
The regulations allow for costs incurred by the Company
commensurate with the services performed for the Non-REIT
Properties to be allocated to a TRS.
During January 2014, the Company acquired Wheeler Development, LLC
(“WD”) and converted it to a TRS. The Company began performing
development activities for both REIT Properties and Non-REIT
Properties during 2015.
The condensed consolidated financial statements included in this
Quarterly Report on Form 10-Q (the “Form 10-Q”) are unaudited and
the results of operations for the interim periods are not
necessarily indicative of the results of operations to be expected
for future periods or the year. However, amounts presented in the
condensed consolidated balance sheet as of December 31, 2019
are derived from the Company’s audited consolidated financial
statements as of that date, but do not include all of the
information and footnotes required by accounting principles
generally accepted in the United States of America (“GAAP”) for
complete financial statements. The Company prepared the
accompanying condensed consolidated financial statements in
accordance with GAAP for interim financial statements. The
condensed consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary to reflect a
fair statement of the results for the interim periods presented,
and all such adjustments are of a normal recurring nature. All
material balances and transactions between the consolidated
entities of the Company have been eliminated. These condensed
consolidated financial statements should be read in conjunction
with the Company's 2019 Annual Report filed on Form 10-K for the
year ended December 31, 2019 (the “2019 Form
10-K”).
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Summary of Significant Accounting Policies
Investment Properties
The Company records investment properties and related intangibles
at fair value upon acquisition. 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 asset 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
out-of-market leases, tenant relationships and in-place leases the
Company determines to exist. The Company determines fair value
based on estimated cash flow projections that utilize appropriate
discount and capitalization rates and available market information.
Estimates of future cash flows are based on a number of factors
including the historical operating results, known trends and
specific market and economic conditions that may affect the
property. Factors considered by management in the analysis of
determining the as-if-vacant property value include an estimate of
carrying costs during the expected lease-up periods considering
market conditions, and costs to execute similar leases. In
estimating carrying costs, management includes real estate taxes,
insurance and estimates of lost rentals at market rates during the
expected lease-up periods, tenant demand and other economic
conditions. Management also estimates costs to execute similar
leases including leasing commissions, tenant improvements, legal
and other related expenses. Intangibles related to out-of-market
leases, tenant relationships and in-place lease value are recorded
at fair value as acquired lease intangibles and are amortized as an
adjustment to rental revenue or amortization expense, as
appropriate, over the remaining terms of the underlying leases.
Premiums or discounts on acquired out-of-market debt are amortized
to interest expense over the remaining term of such
debt.
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 buildings 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
property’s cash flows, occupancy and fair market value. The Company
measures any impairment of investment property when the estimated
undiscounted future operating income before depreciation and
amortization, plus its residual value, is less than the carrying
value of the property. Estimated undiscounted operating income
before depreciation and amortization includes various Level 3 fair
value assumptions including renewal and renegotiations of current
leases, estimates of new leases on vacant spaces, estimates of
operating costs and fluctuating market conditions. The renewal and
renegotiations of leases in some cases must be approved by
additional third parties outside the control of the Company and the
tenant. If such renewed or renegotiated leases are approved at
amounts below current estimates, then impairment adjustments may be
necessary in the future. To the extent impairment has occurred, the
Company charges to income the excess of the 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 for vacant
spaces and local market information. These valuation assumptions
are based on the three-level valuation hierarchy for fair value
measurement and represent Level 3 inputs. Level 3 inputs are
unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies
(continued)
Assets Held For Sale and Discontinued Operations
The Company may decide to sell properties that are held for use.
The Company records these properties as held for sale when
management has committed to a plan to sell the assets, actively
seeks a buyer for the assets, and the consummation of the sale is
considered probable and is expected within one year. Properties
classified as held for sale are reported at the lower of their
carrying value or their fair value, less estimated costs to sell.
When the carrying value exceeds the fair value, less estimated
costs to sell an impairment expense is recognized. The Company
estimates fair value, less estimated closing costs based on similar
real estate sales transactions. These valuation assumptions are
based on the three-level valuation hierarchy for fair value
measurement and represent Level 2 and 3 inputs. Level 2 inputs are
quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets in markets that are
not active; and inputs other than quoted prices. Level 3 inputs are
unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities. See Note 3 for additional details on impairment of
assets held for sale for the three and nine months ended September
30, 2020 and 2019.
Assets held for sale are presented as discontinued operations in
all periods presented if the disposition represents a strategic
shift that has, or will have, a major effect on the Company's
financial position or results of operations. This includes the net
gain (or loss) upon disposal of property held for sale, the
property's operating results, depreciation and interest
expense.
Cash and Cash Equivalents and Restricted Cash
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.
Restricted cash represents amounts held by lenders for real estate
taxes, insurance, reserves for capital improvements, leasing costs
and tenant security deposits.
The Company places its cash and cash equivalents and restricted
cash on deposit with financial institutions in the United States,
which are insured by the Federal Deposit Insurance Company (“FDIC”)
up to $250 thousand. The Company's loss in the event of failure of
these financial institutions is represented by the difference
between the FDIC limit and the total amounts on deposit. Management
monitors the financial institutions credit worthiness in
conjunction with balances on deposit to minimize risk.
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. The Company’s 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, 2020 and
December 31, 2019, the Company’s allowance for uncollectible
accounts totaled $1.47 million and $1.14 million,
respectively.
Above and Below Market Lease Intangibles, net
The Company determines the above and below market lease intangibles
upon acquiring a property. Above and below market lease intangibles
are amortized over the life of the respective leases. Amortization
of above and below market lease intangibles is recorded as a
component of rental revenues.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies
(continued)
Deferred Costs and Other Assets, net
The Company’s deferred costs and other assets consist primarily of
leasing commissions, leases in place, capitalized legal and
marketing costs, tenant relationships and ground lease sandwich
interest intangibles associated with acquisitions. The Company’s
lease origination costs consist primarily of the portion of
property acquisitions allocated to lease originations and
commissions paid to third parties in connection with lease
originations. The Company generally records amortization of lease
origination costs on a straight-line basis over the terms of the
related leases. Amortization of lease origination costs, leases in
place, legal and marketing costs, tenant relationships and ground
lease sandwich interest represents a component of depreciation and
amortization expense.
Paycheck Protection Program
The Company received proceeds of $552 thousand (the "PPP funds")
pursuant to the Paycheck Protection Program (the "PPP") under the
Coronavirus Aid, Relief and Economic Security (“CARES”)
Act.
The PPP funds were received in the form of a promissory note, dated
April 24, 2020 (the “Promissory Note”), between the Company and
KeyBank as the lender that matures on April 24, 2022 bearing
interest at a fixed rate of 1% per annum, payable monthly
commencing seven months from the date of the note. Under the terms
of the PPP, the principal may be forgiven if the proceeds are used
for qualifying expenses as described in the CARES Act, such as
payroll costs, mortgage interest, rent and utilities. No assurance
can be provided that the Company will obtain forgiveness of the
Promissory Note in whole or in part. The PPP proceeds are included
in "accounts payable, accrued expenses and other liabilities" on
the condensed consolidated balance sheets.
Operating Partnership Purchase of Stock
The Operating Partnership purchased 71,343 shares of the Series D
Preferred Stock on September 22, 2020 from an unaffiliated
investor
at $15.50 per share.
The Company considers the purchase of the REIT's equity securities
to be retired in the condensed consolidated financial statements.
See
Note 7 for additional details.
Revenue Recognition
Lease Contract Revenue
The Company has two classes of underlying assets relating to rental
revenue activity, retail and office space. The Company retains
substantially all of the risks and benefits of ownership of these
underlying assets and accounts for these leases as operating
leases. The Company combines lease and nonlease components in lease
contracts, which includes combining base rent and tenant
reimbursement revenue.
The Company accrues minimum rents on a straight-line basis over the
terms of the respective leases which results in an unbilled rent
asset or deferred rent liability being recorded on the balance
sheet. At September 30, 2020 and December 31, 2019, there were
$4.23 million and $3.41 million, respectively, in unbilled rent
which is included in "rents and other tenant receivables, net."
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 as variable lease income.
The Company’s 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
Company’s exposure to increases in costs and operating expenses
resulting from inflation or other outside factors. These
reimbursements are considered nonlease components which the Company
combines with the lease component. The Company calculates the
tenant’s 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 total square footage of all leasable
buildings at the property. The Company also receives monthly
payments for these reimbursements from substantially all its
tenants throughout the year. The Company recognizes tenant
reimbursements as variable lease income. The Company recognizes
differences between
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies
(continued)
estimated recoveries and the final billed amounts in the subsequent
year. These differences were not material for the three and nine
months ended September 30, 2020 and 2019.
Additionally, the Company has tenants who pay real estate taxes
directly to the taxing authority. The Company excludes these costs
paid directly by the tenant to third parties on the Company’s
behalf from both variable revenue payments recognized and the
associated property operating expenses. The Company does not
evaluate whether certain sales taxes and other similar taxes are
the Company’s costs or tenants costs. Instead, the Company accounts
for these costs as tenant costs.
The Company recognizes lease termination fees, which is included in
"other revenues" on the condensed consolidated statements of
operations, in the year that the lease is terminated and collection
of the fee is reasonably assured. Upon early lease termination, the
Company provides for losses related to unrecovered intangibles and
other assets.
Beginning in April 2020, the Company received certain rent relief
requests, most often in the form of rent deferral requests, as a
result of COVID-19. The Company evaluates each tenant rent relief
request on an individual basis, considering a number of factors.
Not all tenant requests ultimately result in concessions or
modification of agreements, nor is the Company forgoing its
contractual rights under its lease agreements. The Financial
Accounting Standards Board (the "FASB") issued a
question-and-answer document (the “Lease Modification Q&A”)
focused on the application of lease accounting guidance to lease
concessions provided as a result of COVID-19. The Lease
Modification Q&A clarifies that entities may elect to treat
qualifying lease concessions as if they were based on enforceable
rights and obligations, and may choose to apply or not to apply
modification accounting to those qualifying concessions. Qualifying
concessions must be in response to COVID-19 and not have a
substantial increase in the lessee’s obligation or the lessor’s
rights under the contract. The Company has elected not to apply ASC
842 modification guidance for concessions that did not increase the
lease term as generally, these concessions do not impact the
overall economics of the lease. Concessions that extend the lease
term are accounted for under ASC 842, lease modification
guidance.
The below table disaggregates the Company’s revenue by type of
service for the three and nine months ended September 30, 2020 and
2019 (in thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
Minimum rent |
$ |
11,515 |
|
|
$ |
12,035 |
|
|
$ |
35,179 |
|
|
$ |
36,462 |
|
|
Tenant reimbursements - variable lease revenue |
3,274 |
|
|
3,262 |
|
|
9,703 |
|
|
9,999 |
|
|
Percentage rent - variable lease revenue |
85 |
|
|
69 |
|
|
242 |
|
|
258 |
|
|
Straight-line rents |
339 |
|
|
134 |
|
|
838 |
|
|
142 |
|
|
Lease termination fees |
100 |
|
|
— |
|
|
174 |
|
|
49 |
|
|
Other |
108 |
|
|
180 |
|
|
613 |
|
|
497 |
|
|
Total |
15,421 |
|
|
15,680 |
|
|
46,749 |
|
|
47,407 |
|
|
Credit losses on operating lease receivables |
(457) |
|
|
(115) |
|
|
(1,042) |
|
|
(315) |
|
|
Total |
$ |
14,964 |
|
|
$ |
15,565 |
|
|
$ |
45,707 |
|
|
$ |
47,092 |
|
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies
(continued)
Income Taxes
The Company has elected 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 shareholders and meet certain
other asset and income tests, as well as other requirements. The
TRS' have accrued $9 thousand and $22 thousand, respectively, for
federal and state income taxes as of September 30, 2020 and
December 31, 2019. 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 fails to qualify. If the Company loses its REIT status, it
could not elect to be taxed as a REIT for five years unless the
Company’s 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.
Taxable REIT Subsidiary Cost Allocation
The Company’s overall philosophy regarding cost allocation centers
around the premise that the Trust exists to acquire, lease and
manage properties for the benefit of its investors. Accordingly, a
majority of the Company’s operations occur at the property level.
Each property must carry its own weight by absorbing the costs
associated with generating its revenues. Additionally, leases
generally allow the Company to pass through to the tenant most of
the costs involved in operating the property, including, but not
limited to, the direct costs associated with owning and maintaining
the property (landscaping, repairs and maintenance, taxes,
insurance, etc.), property management and certain administrative
costs.
Service vendors bill the majority of the direct costs of operating
the properties directly to the particular property and each
property pays them accordingly. The Non-REIT Properties pay WRE
property management and/or asset management fees of 3% and 2% of
collected revenues, respectively. The Non-REIT Properties also pay
WRE leasing commissions based on the total contractual revenues to
be generated under the new/renewed lease agreement (6% for new
leases and 3% for renewals).
Costs incurred to manage, lease and administer the Non-REIT
Properties are allocated to the TRS. These costs include
compensation and benefits, property management, leasing and other
corporate, general and administrative expenses associated with
generating the TRS' revenues.
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 periods.
The Company’s actual results could differ from these
estimates.
Corporate General and Administrative Expense
A detail for the "corporate general & administrative" line item
from the condensed consolidated statements of operations is
presented below (in thousands, unaudited):
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
Professional fees |
$ |
241 |
|
|
$ |
444 |
|
|
$ |
2,186 |
|
|
$ |
1,371 |
|
|
Compensation and benefits |
321 |
|
|
455 |
|
|
1,103 |
|
|
1,562 |
|
|
Corporate administration |
309 |
|
|
326 |
|
|
934 |
|
|
934 |
|
|
Advertising costs for leasing activities |
32 |
|
|
35 |
|
|
84 |
|
|
198 |
|
|
Other |
177 |
|
|
89 |
|
|
260 |
|
|
478 |
|
|
Total |
$ |
1,080 |
|
|
$ |
1,349 |
|
|
$ |
4,567 |
|
|
$ |
4,543 |
|
Other Expense
Other expense represent expenses which are non-operating in
nature. Other expenses during the three and nine months ended
September 30, 2020 were $15 thousand and $1.04 million,
respectively, in legal settlement costs and reimbursement of 2019
proxy costs, see Note 9 and Note 10 for additional
details.
Leases Commitments
The Company determines if an arrangement is a lease at inception.
Operating leases, in which the Company is the lessee, are included
in operating lease right-of-use (“ROU”) assets and operating lease
liabilities on our condensed consolidated balance
sheets.
ROU assets represent the right to use an underlying asset for the
lease term and the lease liabilities represent our obligation to
make lease payments arising from the lease. Operating lease ROU
assets and liabilities are recognized at commencement date based on
the present value of lease payments over the lease term. As most of
the Company's leases do not provide an implicit rate, the Company
uses its incremental borrowing rate based on the information
available at commencement date in determining the present value of
lease payments. The operating lease ROU assets include any lease
payments made and excludes lease incentives. The Company's lease
terms may include options to extend the lease when it is reasonably
certain that the company will exercise that option. Lease expense
for lease payments is recognized on a straight-line basis over the
lease term.
The Company elected the practical expedient to combine lease and
associated nonlease components. The lease components are the
majority of its leasing arrangements and the Company accounts for
the combined component as an operating lease. In the event the
Company modifies existing ground leases or enters into new ground
leases, such leases may be classified as finance
leases.
Noncontrolling Interests
Noncontrolling interests is the portion of equity in the Operating
Partnership not attributable to the Trust. The ownership interests
not held by the parent are considered noncontrolling interests.
Accordingly, noncontrolling interests have been reported in equity
on the condensed consolidated balance sheets but separate from the
Company’s equity. On the condensed consolidated statements of
operations, the subsidiaries are reported at the consolidated
amount, including both the amount attributable to the Company and
noncontrolling interests. Condensed consolidated statements of
equity includes beginning balances, activity for the period and
ending balances for shareholders’ equity, noncontrolling interests
and total equity.
The noncontrolling interest of the Operating Partnership common
unit holders is calculated by multiplying the noncontrolling
interest ownership percentage at the balance sheet date by the
Operating Partnership’s net assets (total assets less total
liabilities). The noncontrolling interest percentage is calculated
at any point in time by dividing the number of units not owned by
the Company by the total number of units outstanding. The
noncontrolling interest ownership percentage will change as
additional units are issued or as units are exchanged for the
Company’s common stock $0.01 par value per share (“Common Stock”).
In accordance with GAAP, any changes in the value from period to
period are charged to additional paid-in capital.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies
(continued)
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments." This update enhances the methodology of
measuring expected credit losses to include the use of
forward-looking information to better calculate credit loss
estimates. The guidance will apply to most financial assets
measured at amortized cost and certain other instruments, such as
accounts receivable and loans. The guidance will require that the
Company estimate the lifetime expected credit loss with respect to
these receivables and record allowances that, when deducted from
the balance of the receivables, represent the net amounts expected
to be collected. The Company will also be required to disclose
information about how it developed the allowances, including
changes in the factors that influenced the Company’s estimate of
expected credit losses and the reasons for those changes. The
guidance would be effective for interim and annual reporting
periods beginning after December 15, 2022, per FASB's issuance of
ASU 2019-10, "Financial Instruments-Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic 842):
Effective Dates". The Company is currently in the process of
evaluating the impact the adoption of the guidance will have on its
consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value
Measurement (Topic 820)". This update modifies the disclosure
requirements on fair value measurements in Topic 820 with several
removals, modifications and additions for disclosures, which
includes both prospective and retrospective disclosures. The
guidance adds prospective disclosures related to the range and
weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements including measurement uncertainty
disclosures to communicate the uncertainty in the measurement as of
the reporting date. The Company adopted this ASU as of January 1,
2020. The adoption did not have material impact on its consolidated
financial statements upon adoption of the guidance and there were
no retrospective disclosures necessary.
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 Company’s financial position, results of operations and cash
flows.
Reclassifications
The Company has reclassified certain prior period amounts in the
accompanying condensed consolidated financial statements in order
to be consistent with the current period presentation. These
reclassifications had no effect on net income, total assets, total
liabilities or equity. The revenue from asset management fees and
commissions were reclassified to other revenues on the condensed
consolidated statements of operations for consistency with current
period presentation.
3. Real Estate
Investment properties consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
December 31, 2019 |
|
|
(unaudited) |
|
|
|
Land and land improvements |
$ |
96,934 |
|
|
$ |
100,599 |
|
|
Buildings and improvements |
353,943 |
|
|
366,082 |
|
|
Investment properties at cost |
450,877 |
|
|
466,681 |
|
|
Less accumulated depreciation |
(56,499) |
|
|
(50,466) |
|
|
Investment properties, net |
$ |
394,378 |
|
|
$ |
416,215 |
|
The Company’s depreciation expense on investment properties was
$2.79 million and $8.59 million for the three and nine months ended
September 30, 2020, respectively. The Company’s depreciation
expense on investment properties was $2.92 million and $8.99
million for the three and nine months ended September 30,
2019, respectively.
A significant portion of the Company’s land, buildings and
improvements serve as collateral for its mortgage loans.
Accordingly, restrictions exist as to the encumbered property’s
transferability, use and other common rights typically associated
with property ownership.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
3. Real Estate (continued)
Assets Held for Sale and Dispositions
At September 30, 2020 assets held for sale included Columbia Fire
Station, Riversedge North, Berkley Shopping Center, a .75 acre land
parcel at Berkley and two outparcels at Rivergate Shopping Center,
as the Company has committed to a plan to sell each property. At
September 30, 2019 assets held for sale included St.
Matthews.
Impairment expenses on assets held for sale are a result of
reducing the carrying value for the amount that exceeded the
property's fair value less estimated selling costs. The valuation
assumptions are based on the three-level valuation hierarchy for
fair value measurement and represent Level 2 inputs. The impairment
expenses during the three and nine months ended September 30, 2020
and 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
(unaudited) |
|
Columbia Fire Station |
$ |
— |
|
|
$ |
— |
|
|
$ |
600 |
|
|
$ |
— |
|
|
St. Matthews |
— |
|
|
400 |
|
|
— |
|
|
400 |
|
|
Perimeter Square |
— |
|
|
— |
|
|
— |
|
|
1,147 |
|
|
Total |
$ |
— |
|
|
$ |
400 |
|
|
$ |
600 |
|
|
$ |
1,547 |
|
As of September 30, 2020 and December 31, 2019, assets held
for sale and associated liabilities consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
December 31, 2019 |
|
|
(unaudited) |
|
|
|
Investment properties, net |
|
$ |
14,695 |
|
|
$ |
1,651 |
|
|
Rents and other tenant receivables, net |
|
45 |
|
|
77 |
|
|
Above market leases, net |
|
152 |
|
|
— |
|
|
Deferred costs and other assets, net |
|
172 |
|
|
9 |
|
|
Total assets held for sale |
$ |
15,064 |
|
|
$ |
1,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
December 31, 2019 |
|
|
(unaudited) |
|
|
|
Loans payable |
|
$ |
14,620 |
|
|
$ |
1,974 |
|
|
Below market leases, net |
|
24 |
|
|
— |
|
|
Accounts payable, accrued expenses and other
liabilities |
|
268 |
|
|
52 |
|
|
Total liabilities associated with assets held for sale |
$ |
14,912 |
|
|
$ |
2,026 |
|
The following properties were sold during the nine months ended
September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal Date |
|
Property |
|
Contract Price |
|
Gain (loss) |
|
Net Proceeds |
|
|
|
|
|
(in thousands, unaudited) |
|
January 21, 2020 |
|
St. Matthews |
|
$ |
1,775 |
|
|
$ |
(26) |
|
|
$ |
1,665 |
|
|
July 12, 2019 |
|
Perimeter Square |
|
7,200 |
|
|
(81) |
|
|
— |
|
|
March 18, 2019 |
|
Graystone Crossing |
|
6,000 |
|
|
1,452 |
|
|
1,744 |
|
|
February 7, 2019 |
|
Harbor Pointe Land Parcel (1.28 acres) |
|
550 |
|
|
— |
|
|
19 |
|
|
January 11, 2019 |
|
Jenks Plaza |
|
2,200 |
|
|
387 |
|
|
1,840 |
|
The Harbor Pointe land parcel sale represents discontinued
operations as it was a strategic shift that had a major effect on
the Company's financial position or results of
operations.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
3. Real Estate (continued)
All other assets held for sale do not represent a strategic shift
that has a major effect on the Company's financial position or
results of operations. Accordingly, the operating results of these
properties remain classified within continuing operations for all
periods presented.
In May 2019, an approximate 10,000 square foot outparcel at the
JANAF property was demolished resulting in a $331 thousand
write-off to make way for a new approximate 20,000 square foot
building constructed by a new grocer tenant,
Aldi.
4. Deferred Costs
Deferred costs and other assets, net of amortization are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
December 31, 2019 |
|
|
(unaudited) |
|
|
|
Leases in place, net |
$ |
11,186 |
|
|
$ |
14,968 |
|
|
Ground lease sandwich interest, net |
2,009 |
|
|
2,215 |
|
|
Tenant relationships, net |
1,444 |
|
|
2,173 |
|
|
Lease origination costs, net |
1,150 |
|
|
1,038 |
|
|
Legal and marketing costs, net |
26 |
|
|
43 |
|
|
Other |
1,083 |
|
|
588 |
|
|
Total deferred costs and other assets,
net |
$ |
16,898 |
|
|
$ |
21,025 |
|
As of September 30, 2020 and December 31, 2019, the
Company’s intangible accumulated amortization totaled $59.45
million and $57.15 million, respectively. During the three and nine
months ended September 30, 2020, the Company’s intangible
amortization expense totaled $1.43 million and $4.87 million,
respectively. During the three and nine months ended
September 30, 2019, the Company’s intangible amortization
expense totaled $2.14 million and $7.18 million, respectively.
Future amortization of lease origination costs, leases in place,
legal and marketing costs, tenant relationships and ground lease
sandwich interests is as follows (in thousands,
unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases In
Place, net |
|
Ground Lease Sandwich Interest, net |
|
Tenant
Relationships, net |
|
Lease
Origination
Costs, net |
|
Legal &
Marketing
Costs, net |
|
Total |
|
For the remaining three months ending December 31, 2020 |
$ |
887 |
|
|
$ |
68 |
|
|
$ |
136 |
|
|
$ |
53 |
|
|
$ |
4 |
|
|
$ |
1,148 |
|
|
December 31, 2021 |
2,721 |
|
|
274 |
|
|
444 |
|
|
188 |
|
|
8 |
|
|
3,635 |
|
|
December 31, 2022 |
2,112 |
|
|
274 |
|
|
354 |
|
|
146 |
|
|
6 |
|
|
2,892 |
|
|
December 31, 2023 |
1,634 |
|
|
274 |
|
|
227 |
|
|
128 |
|
|
5 |
|
|
2,268 |
|
|
December 31, 2024 |
1,121 |
|
|
274 |
|
|
128 |
|
|
113 |
|
|
3 |
|
|
1,639 |
|
|
December 31, 2025 |
796 |
|
|
274 |
|
|
62 |
|
|
90 |
|
|
— |
|
|
1,222 |
|
|
Thereafter |
1,915 |
|
|
571 |
|
|
93 |
|
|
432 |
|
|
— |
|
|
3,011 |
|
|
|
$ |
11,186 |
|
|
$ |
2,009 |
|
|
$ |
1,444 |
|
|
$ |
1,150 |
|
|
$ |
26 |
|
|
$ |
15,815 |
|
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
5. Loans Payable
The Company’s loans payable consist of the following (in thousands,
except monthly payment):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property/Description |
|
Monthly Payment |
|
Interest
Rate |
|
Maturity |
|
September 30,
2020 |
|
December 31,
2019 |
|
First National Bank
(7)
|
|
$ |
24,656 |
|
|
LIBOR + 300 basis points |
|
September 2020 |
|
$ |
1,127 |
|
|
$ |
1,214 |
|
|
Lumber River |
|
$ |
10,723 |
|
|
LIBOR + 350 basis points |
|
October 2020 |
|
1,385 |
|
|
1,404 |
|
|
Rivergate |
|
$ |
102,795 |
|
|
LIBOR + 295 basis points |
|
October 2020 |
|
21,307 |
|
|
21,545 |
|
|
Tuckernuck |
|
$ |
33,880 |
|
|
3.88 |
% |
|
November 2020 |
|
5,244 |
|
|
5,344 |
|
|
Columbia Fire Station |
|
$ |
45,580 |
|
|
4.00 |
% |
|
December 2020 |
|
3,957 |
|
|
4,051 |
|
|
KeyBank Credit Agreement
(6)
|
|
$ |
350,000 |
|
|
LIBOR + 350 basis points |
|
December 2020 |
|
4,350 |
|
|
17,879 |
|
|
JANAF Bravo |
|
$ |
36,935 |
|
|
4.65 |
% |
|
April 2021 |
|
6,300 |
|
|
6,372 |
|
|
Walnut Hill Plaza |
|
Interest only |
|
5.50 |
% |
|
December 2022 |
|
3,287 |
|
|
3,759 |
|
|
Litchfield Market Village |
|
$ |
46,057 |
|
|
5.50 |
% |
|
November 2022 |
|
7,418 |
|
|
7,452 |
|
|
Twin City Commons |
|
$ |
17,827 |
|
|
4.86 |
% |
|
January 2023 |
|
2,933 |
|
|
2,983 |
|
|
New Market |
|
$ |
48,747 |
|
|
5.65 |
% |
|
June 2023 |
|
6,561 |
|
|
6,713 |
|
|
Benefit Street Note
(3)
|
|
$ |
53,185 |
|
|
5.71 |
% |
|
June 2023 |
|
7,201 |
|
|
7,361 |
|
|
Deutsche Bank Note
(2)
|
|
$ |
33,340 |
|
|
5.71 |
% |
|
July 2023 |
|
5,586 |
|
|
5,642 |
|
|
JANAF |
|
$ |
333,159 |
|
|
4.49 |
% |
|
July 2023 |
|
49,317 |
|
|
50,599 |
|
|
Tampa Festival |
|
$ |
50,797 |
|
|
5.56 |
% |
|
September 2023 |
|
7,961 |
|
|
8,077 |
|
|
Forrest Gallery |
|
$ |
50,973 |
|
|
5.40 |
% |
|
September 2023 |
|
8,266 |
|
|
8,381 |
|
|
Riversedge North |
|
$ |
11,436 |
|
|
5.77 |
% |
|
December 2023 |
|
1,756 |
|
|
1,767 |
|
|
South Carolina Food Lions Note
(5)
|
|
$ |
68,320 |
|
|
5.25 |
% |
|
January 2024 |
|
11,525 |
|
|
11,675 |
|
|
Cypress Shopping Center |
|
$ |
34,360 |
|
|
4.70 |
% |
|
July 2024 |
|
6,183 |
|
|
6,268 |
|
|
Port Crossing |
|
$ |
34,788 |
|
|
4.84 |
% |
|
August 2024 |
|
5,941 |
|
|
6,032 |
|
|
Freeway Junction |
|
$ |
41,798 |
|
|
4.60 |
% |
|
September 2024 |
|
7,619 |
|
|
7,725 |
|
|
Harrodsburg Marketplace |
|
$ |
19,112 |
|
|
4.55 |
% |
|
September 2024 |
|
3,362 |
|
|
3,416 |
|
|
Bryan Station |
|
$ |
23,489 |
|
|
4.52 |
% |
|
November 2024 |
|
4,333 |
|
|
4,394 |
|
|
Crockett Square |
|
Interest only |
|
4.47 |
% |
|
December 2024 |
|
6,338 |
|
|
6,338 |
|
|
Pierpont Centre |
|
$ |
39,435 |
|
|
4.15 |
% |
|
February 2025 |
|
8,035 |
|
|
8,113 |
|
|
Shoppes at Myrtle Park |
|
$ |
33,180 |
|
|
4.45 |
% |
|
February 2025 |
|
5,925 |
|
|
— |
|
|
Folly Road |
|
$ |
41,482 |
|
|
4.65 |
% |
|
March 2025 |
|
7,262 |
|
|
5,922 |
|
|
Alex City Marketplace |
|
Interest only |
|
3.95 |
% |
|
April 2025 |
|
5,750 |
|
|
5,750 |
|
|
Butler Square |
|
Interest only |
|
3.90 |
% |
|
May 2025 |
|
5,640 |
|
|
5,640 |
|
|
Brook Run Shopping Center |
|
Interest only |
|
4.08 |
% |
|
June 2025 |
|
10,950 |
|
|
10,950 |
|
|
Beaver Ruin Village I and II |
|
Interest only |
|
4.73 |
% |
|
July 2025 |
|
9,400 |
|
|
9,400 |
|
|
Sunshine Shopping Plaza |
|
Interest only |
|
4.57 |
% |
|
August 2025 |
|
5,900 |
|
|
5,900 |
|
|
Barnett Portfolio
(4)
|
|
Interest only |
|
4.30 |
% |
|
September 2025 |
|
8,770 |
|
|
8,770 |
|
|
Fort Howard Shopping Center |
|
Interest only |
|
4.57 |
% |
|
October 2025 |
|
7,100 |
|
|
7,100 |
|
|
Conyers Crossing |
|
Interest only |
|
4.67 |
% |
|
October 2025 |
|
5,960 |
|
|
5,960 |
|
|
Grove Park Shopping Center |
|
Interest only |
|
4.52 |
% |
|
October 2025 |
|
3,800 |
|
|
3,800 |
|
|
Parkway Plaza |
|
Interest only |
|
4.57 |
% |
|
October 2025 |
|
3,500 |
|
|
3,500 |
|
|
Winslow Plaza |
|
$ |
24,295 |
|
|
4.82 |
% |
|
December 2025 |
|
4,571 |
|
|
4,620 |
|
|
JANAF BJ's |
|
$ |
29,964 |
|
|
4.95 |
% |
|
January 2026 |
|
4,873 |
|
|
4,957 |
|
|
Chesapeake Square |
|
$ |
23,857 |
|
|
4.70 |
% |
|
August 2026 |
|
4,298 |
|
|
4,354 |
|
|
Berkley/Sangaree/Tri-County |
|
Interest only |
|
4.78 |
% |
|
December 2026 |
|
9,400 |
|
|
9,400 |
|
|
Riverbridge |
|
Interest only |
|
4.48 |
% |
|
December 2026 |
|
4,000 |
|
|
4,000 |
|
|
Franklin Village |
|
$ |
45,336 |
|
|
4.93 |
% |
|
January 2027 |
|
8,436 |
|
|
8,516 |
|
|
Village of Martinsville |
|
$ |
89,664 |
|
|
4.28 |
% |
|
July 2029 |
|
16,074 |
|
|
16,351 |
|
|
Laburnum Square |
|
Interest only |
|
4.28 |
% |
|
September 2029 |
|
7,665 |
|
|
7,665 |
|
|
Total Principal Balance
(1)
|
|
|
|
|
|
|
|
336,566 |
|
|
347,059 |
|
|
Unamortized debt issuance cost
(1)
|
|
|
|
|
|
|
|
(3,716) |
|
|
(4,172) |
|
|
Total Loans Payable, including assets held for sale |
|
|
|
|
|
|
|
332,850 |
|
|
342,887 |
|
|
Less loans payable on assets held for sale, net loan amortization
costs |
|
|
|
|
14,620 |
|
|
1,974 |
|
|
Total Loans Payable, net |
|
|
|
|
|
|
|
$ |
318,230 |
|
|
$ |
340,913 |
|
(1) Includes loans payable on assets held for sale, see Note
3.
(2) Collateralized by LaGrange Marketplace, Ridgeland and
Georgetown.
(3) Collateralized by Ladson Crossing, Lake Greenwood Crossing and
South Park.
(4) Collateralized by Cardinal Plaza, Franklinton Square, and
Nashville Commons.
(5) Collateralized by Clover Plaza, South Square, St. George,
Waterway Plaza and Westland Square.
(6) Collateralized by Darien Shopping Center, Devine Street, Lake
Murray, Moncks Corner and South Lake.
(7) Collateralized by Surrey Plaza and Amscot
Building.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
5. Loans Payable (continued)
KeyBank Credit Agreement
As of September 30, 2020, the Company has borrowed $4.35 million
under the Amended and Restated Credit Agreement ("KeyBank Credit
Agreement") with KeyBank National Association ("KeyBank"), which is
collateralized by five properties. At September 30, 2020, the
outstanding borrowings are accruing interest at 3.65%.
The KeyBank Credit Agreement had the following activity during the
nine months ended September 30, 2020:
•Entered
into the Second Amendment to the KeyBank Credit Agreement (the
"Second Amendment") on January 24, 2020, effective December 21,
2019, and the Company began making monthly principal payments of
$350 thousand on November 1, 2019. The Second Amendment, among
other provisions, requires a pledge of additional collateral of
$15.00 million in residual equity interests and fully matures on
June 30, 2020.
•Entered
into a Third Amendment to the KeyBank Credit Agreement (the "Third
Amendment") on July 21, 2020. The Third Amendment, among other
provisions, reduces the pledge of additional collateral by two
properties and extends the maturity to December 31,
2020.
•The
KeyBank Credit Agreement had principal paydowns as noted
below:
◦$1.78
million paydown from St. Matthews sale proceeds on January 21,
2020;
◦$5.75
million paydown from Shoppes at Myrtle Park refinancing proceeds on
January 23, 2020; and
◦$2.50
million paydown from cash released to the Company from restricted
cash accounts on May 20, 2020.
Shoppes at Myrtle Park Refinance
On January 23, 2020, the Company refinanced the Shoppes at Myrtle
Park collateralized portion of the KeyBank Credit Agreement for
$6.00 million at a fixed interest rate of 4.45%. The loan matures
in February 2025 with monthly principal and interest payments of
$33 thousand.
Folly Road Refinance
On March 23, 2020, the Company executed a promissory note for $7.35
million for the refinancing of Folly Road at a rate of 4.65%. The
loan matures in March 2025 with monthly principal and interest
payments of $41 thousand.
Rivergate Extension
On July 10, 2020, the Company entered into an agreement to extend
the maturity date from June 2020 to October 20, 2020 with monthly
principal and interest payments of $48 thousand plus accrued
and unpaid interest.
Tuckernuck Extension
On August 1, 2020, the Company entered into an Amended Agreement to
extend the $5.28 million Tuckernuck Loan to November 1, 2020
with monthly principal and interest payments of
$34 thousand.
Columbia Fire Station Extension
Effective September 3, 2020, the Company extended the Columbia Fire
Station promissory note ("Columbia Fire Station Loan") to December
3, 2020, with principal and interest payments in the amount of
$46 thousand beginning on October 3, 2020. The Columbia Fire
Station Loan continues to bear interest at 4.00%.
Walnut Hill Plaza Paydown and Amendment
On July 15, 2020, the Company entered into the Third Amendment to
reduce the Walnut Hill Plaza loan by $443 thousand to
$3.30 million using proceeds from restricted cash reserves and
received three months of forbearance on principal
payments.
On October 16, 2020, the Company entered into the Fourth Amendment
to receive forbearance on principal payments through December 29,
2020 and extend the maturity date to March 2023.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
5. Loans Payable (continued)
Loan Modification Agreements
On September 4, 2020, the Company executed Loan Modification
Agreements on three properties whereby the Company was able to use
restricted cash to fund debt service for 90 days, representing a
total of $488 thousand to be replenished over the subsequent
twelve-month period.
Debt Maturity
The Company’s scheduled principal repayments on indebtedness as of
September 30, 2020, including assets held for sale, are as
follows (in thousands, unaudited):
|
|
|
|
|
|
|
For the remaining three months ended December 31, 2020 |
$ |
38,601 |
|
|
December 31, 2021 |
11,287 |
|
|
December 31, 2022 |
15,580 |
|
|
December 31, 2023 |
85,576 |
|
|
December 31, 2024 |
44,240 |
|
|
December 31, 2025 |
91,426 |
|
|
Thereafter |
49,856 |
|
|
Total principal repayments and debt
maturities |
$ |
336,566 |
|
The Company has considered its short-term (one year or less)
liquidity needs and the adequacy of its estimated cash flows from
operating activities and other expected financing sources to meet
these needs. In particular, the Company has considered its
scheduled debt maturities for the twelve months ending September
30, 2021 of $48.59 million. The Company plans to pay this
obligation through a combination of refinancings, dispositions and
operating cash. All loans due to mature are collateralized by
properties within the portfolio. Additionally, the Company
expects to meet the short-term liquidity requirements, through a
combination of the following:
•continued
suspension of Series A Preferred, Series B Preferred and Series D
Preferred dividends;
•available
cash and cash equivalents;
•cash
flows from operating activities;
•refinancing
of maturing debt;
•loan
forbearance;
•possible
sale of six undeveloped land parcels; and
•sale
of additional properties, if necessary.
6. Rentals under Operating Leases
Future minimum rents to be received under noncancelable tenant
operating leases, excluding rents on assets held for sale
properties, for each of the next five years and thereafter,
excluding CAM and percentage rent based on tenant sales volume, as
of September 30, 2020 are as follows (in thousands,
unaudited):
|
|
|
|
|
|
|
For the remaining three months ended December 31, 2020 |
$ |
11,047 |
|
|
December 31, 2021 |
42,612 |
|
|
December 31, 2022 |
37,996 |
|
|
December 31, 2023 |
32,274 |
|
|
December 31, 2024 |
25,344 |
|
|
December 31, 2025 |
19,575 |
|
|
Thereafter |
43,580 |
|
|
Total minimum rents |
$ |
212,428 |
|
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
7. Equity and Mezzanine Equity
Series A Preferred Stock
At September 30, 2020 and December 31, 2019, the Company had
562 shares of Series A Preferred Stock, without par value (“Series
A Preferred”) issued and outstanding and 4,500 shares authorized
with a $1,000 liquidation preference per share, or $562 thousand in
aggregate. The Series A Preferred accrues cumulative dividends at a
rate of 9% per annum, which is paid or accumulated quarterly.
The Company has the right to redeem the 562 shares of Series A
Preferred, on a pro rata basis, at any time at a price equal to
103% of the purchase price for the Series A Preferred plus any
accrued but unpaid dividends.
Series B Preferred Stock
At September 30, 2020 and December 31, 2019, the Company had
1,875,748 shares and 5,000,000 shares of Series B Convertible
Preferred Stock, without par value (“Series B Preferred”) issued
and authorized with a $25.00 liquidation preference per share, or
$46.90 million in aggregate. The Series B Preferred bears interest
at a rate of 9% per annum. The Series B Preferred has no redemption
rights. However, the Series B Preferred is subject to a mandatory
conversion once the 20-trading day volume-weighted average closing
price of our Common Stock, exceeds $58 per share; once this
weighted average closing price is met, each share of our Series B
Preferred will automatically convert into shares of our Common
Stock at a conversion price equal to $40.00 per share of Common
Stock. In addition, holders of our Series B Preferred also have the
option, at any time, to convert shares of our Series B Preferred
into shares of our Common Stock at a conversion price of $40.00 per
share of Common Stock. Upon any voluntary or involuntary
liquidation, dissolution or winding up of our company, the holders
of shares of our Series B Preferred shall be entitled to be paid
out of our assets a liquidation preference of $25.00 per share,
plus an amount equal to all accumulated, accrued and unpaid
dividends to and including the date of payment. The Series B
Preferred has no maturity date and will remain outstanding
indefinitely unless subject to a mandatory or voluntary conversion
as described above.
Series D Preferred Stock - Redeemable Preferred Stock
At September 30, 2020 and December 31, 2019, the Company had
3,529,293 and 3,600,636 issued, respectively, and 4,000,000
authorized shares of Series D Cumulative Convertible Preferred
Stock, without par value ("Series D Preferred") with a $25.00
liquidation preference per share, or $106.76 million and $101.66
million in aggregate, respectively. Until September 21, 2023, the
holders of the Series D Preferred are entitled to receive
cumulative cash dividends at a rate of 8.75% per annum of the
$25.00 liquidation preference per share (equivalent to the fixed
annual amount of $2.1875 per share) (the “Initial Rate”).
Commencing September 21, 2023, the holders will be entitled to
cumulative cash dividends at an annual dividend rate of the Initial
Rate increased by 2% of the liquidation preference per annum on
each subsequent anniversary thereafter, subject to a maximum annual
dividend rate of 14%. Dividends are payable quarterly in arrears on
or before January 15th, April 15th, July 15th and October 15th of
each year. On or after September 21, 2021, the Company may, at its
option, redeem the Series D Preferred, for cash at a redemption
price of $25.00 per share, plus an amount equal to all accrued and
unpaid dividends, if any, to and including the redemption date. The
holder of the Series D Preferred may convert such shares at any
time into shares of the Company’s Common Stock at an initial
conversion rate of $16.96 per share of Common Stock. On September
21, 2023, the holders of the Series D Preferred may, at their
option, elect to cause the Company to redeem any or all of their
shares at a redemption price of $25.00 per share, plus an amount
equal to all accrued and unpaid dividends, if any, to and including
the redemption date, payable in cash or in shares of Common Stock,
or any combination thereof, at the holder’s option.
Dividends on the Series D Preferred cumulate from the end of the
most recent dividend period for which dividends have been paid.
Dividends on the Series D Preferred cumulate whether or not
(i) we have earnings, (ii) there are funds legally
available for the payment of such dividends and (iii) such
dividends are authorized by our Board of Directors or declared by
us. Dividends on the Series D Preferred Stock do not bear interest.
If the Company fails to pay any dividend within three
(3) business days after the payment date for such dividend,
the then-current dividend rate increases following the payment date
by an additional 2.0% of the $25.00 stated liquidation preference
per share, or $0.50 per annum, until we pay the dividend, subject
to our ability to cure the failure. On December 20, 2018, the
Company suspended the Series D Preferred dividend. As such, the
Series D Preferred shares began accumulating dividends at 10.75%
beginning January 1, 2019 and will continue to accumulate dividends
at this rate until all accumulated dividends have been
paid.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
7. Equity and Mezzanine Equity (continued)
Holders of shares of the Series D Preferred have no voting rights.
Pursuant to the Company’s Articles Supplementary, if dividends on
the Series D Preferred are in arrears for six or more consecutive
quarterly periods (a “Preferred Dividend Default”), the number of
directors on our Board of Directors will automatically be increased
by two, and holders of shares of the Series D Preferred and the
holders of Series A Preferred and Series B Preferred (the Series A
Preferred and Series B Preferred together, being the “Parity
Preferred Stock”), shall be entitled to vote for the election of
two additional directors (the “Series D Preferred Directors”). A
Preferred Dividend Default occurred on April 15, 2020. The election
of such directors will take place upon the written request of the
holders of record of at least 20% of the Series D Preferred Stock
and Parity Preferred Stock. The Board of Directors is not permitted
to fill the vacancies on the Board of Directors as a result of the
failure of the holders of 20% of the Series D Preferred Stock and
Parity Preferred Stock to deliver such written request for the
election of the Series D Preferred Directors. The Series D
Preferred Directors may serve on our Board of Directors, until all
unpaid dividends on such Series D Preferred and Parity Preferred
Stock, if any, have been paid or declared and a sum sufficient for
the payment thereof set apart for payment.
On September 22, 2020, the Operating Partnership purchased 71,343
shares of Series D Preferred at $15.50 per share. These shares are
deemed to be retired on the condensed consolidated financial
statements.
The book value of the shares purchased included both accreted and
unaccreted issuance costs and dividends in arrears totaling
$1.83 million.
The changes in the carrying value of the Series D Preferred for the
three and nine months ended September 30, 2020 and 2019 are as
follows (in thousands, unaudited):
|
|
|
|
|
|
|
Series D Preferred |
|
|
(unaudited) |
|
Balance December 31, 2019 |
$ |
87,225 |
|
|
Accretion of Preferred Stock discount |
148 |
|
|
Undeclared dividends |
2,419 |
|
|
Balance March 31, 2020 |
89,792 |
|
|
Accretion of Preferred Stock discount |
149 |
|
|
Undeclared dividends |
2,419 |
|
|
Balance June 30, 2020 |
92,360 |
|
|
Accretion of Preferred Stock discount |
147 |
|
|
Undeclared dividends |
2,372 |
|
|
Redemption of Preferred Stock |
(1,833) |
|
|
Balance September 30, 2020 |
$ |
93,046 |
|
|
|
|
|
|
|
|
Series D Preferred |
|
|
(unaudited) |
|
Balance December 31, 2018 |
$ |
76,955 |
|
|
Accretion of Preferred Stock discount |
148 |
|
|
Undeclared dividends |
2,419 |
|
|
Balance March 31, 2019 |
79,522 |
|
|
Accretion of Preferred Stock discount |
149 |
|
|
Undeclared dividends |
2,419 |
|
|
Balance June 30, 2019 |
82,090 |
|
|
Accretion of Preferred Stock discount |
148 |
|
|
Undeclared dividends |
2,419 |
|
|
Balance September 30, 2019 |
$ |
84,657 |
|
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
7. Equity and Mezzanine Equity (continued)
Earnings per share
Basic earnings per share for the Company’s common shareholders is
calculated by dividing income (loss) from continuing operations,
excluding amounts attributable to preferred shareholders and the
net income (loss) attributable to noncontrolling interests, by the
Company’s weighted-average shares of Common Stock outstanding
during the period. Diluted earnings per share is computed by
dividing the net income (loss) attributable to common shareholders,
excluding amounts attributable to preferred shareholders and the
net income (loss) attributable to noncontrolling interests, by the
weighted-average number of common shares including any dilutive
shares.
As of September 30, 2020, the below shares are able to be
converted to Common Stock. The common units, convertible preferred
stock and cumulative convertible preferred stock have been excluded
from the Company’s diluted earnings per share calculation because
their inclusion would be antidilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
|
Outstanding shares |
|
Potential Dilutive Shares |
|
|
(unaudited) |
|
Common units |
|
228,842 |
|
|
228,842 |
|
|
Series B Preferred Stock |
|
1,875,748 |
|
|
1,172,343 |
|
|
Series D Preferred Stock |
|
3,529,293 |
|
|
5,202,378 |
|
Dividends
The following table summarizes the preferred stock dividends
(unaudited, in thousands except for per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred |
|
Series B Preferred |
|
Series D Preferred |
|
Record Date/Arrears Date |
|
Arrears |
Per Share |
|
Arrears |
Per Share |
|
Arrears |
Per Share |
|
For the three months ended September 30, 2020 |
|
$ |
13 |
|
22.50 |
|
|
$ |
1,056 |
|
0.56 |
|
|
$ |
2,372 |
|
0.67 |
|
|
For the nine months ended September 30, 2020 |
|
$ |
39 |
|
67.50 |
|
|
$ |
3,166 |
|
1.69 |
|
|
$ |
7,210 |
|
2.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2019 |
|
$ |
13 |
|
22.50 |
|
|
$ |
1,056 |
|
0.56 |
|
|
$ |
2,419 |
|
0.67 |
|
|
For the nine months ended September 30, 2019 |
|
$ |
39 |
|
67.50 |
|
|
$ |
3,166 |
|
1.69 |
|
|
$ |
7,257 |
|
2.01 |
|
The total cumulative dividends in arrears for Series A Preferred
(per share $180.00), Series B Preferred (per share $4.50) and
Series D Preferred (per share $5.25) as of September 30, 2020 is
$27.07 million.
2015 Long-Term Incentive Plan
On June 4, 2015, the Company's shareholders approved the 2015
Long-Term Incentive Plan (the "2015 Incentive Plan"). The 2015
Incentive Plan allows for issuance of up to 125,000 shares of the
Company's Common Stock to employees, directors, officers and
consultants for services rendered to the Company. The 2015
Incentive Plan replaced the 2012 Stock Incentive Plan.
As of September 30, 2020, there are 41,104 shares available for
issuance under the Company’s 2015 Incentive Plan. There were no
shares issued during the three and nine months ended September 30,
2020 and 2019.
2016 Long-Term Incentive Plan
On June 15, 2016, the Company's shareholders approved the 2016
Long-Term Incentive Plan (the "2016 Incentive Plan"). The 2016
Incentive Plan allows for issuance of up to 625,000 shares of the
Company's Common Stock to employees, directors, officers and
consultants for services rendered to the Company.
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
7. Equity and Mezzanine Equity (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, |
|
Shares Issued |
|
Market Value |
|
|
|
(in thousands except for share amounts, unaudited) |
|
2019 |
|
181,807 |
|
166 |
As of September 30, 2020, there are 132,707 shares available for
issuance under the Company’s 2016 Incentive Plan. There were no
shares issued during the three and nine months ended September 30,
2020.
Stock Appreciation Rights Agreement
On August 4, 2020, the Company’s Board of Directors granted a Stock
Appreciation Rights Agreement (the “SARs”) which will not be
effective until approved by the shareholders at the 2021 Annual
Meeting of Stockholders. The SARs allows for issuance of 5,000,000
shares of the Company's Common Stock at a strike price of $1.85 per
share to Daniel Khoshaba, Chief Executive Officer of the Company,
upon meeting certain market price thresholds. The SARs expires in
the year 2030.
8. Leases Commitments
The Company has ground leases that are accounted for as operating
leases. The Charleston, SC lease ended August 31, 2019 and was
accounted for as an operating lease. Most leases include one or
more options to renew, with renewal terms that can extend the lease
term from 5 to 50 years. As of September 30, 2020 and 2019, the
weighted average remaining lease term of our leases is 34 and 35
years, respectively. The following properties are subject to leases
which require the Company to make fixed annual rental payments and
variable lease payments, which are immaterial and include
escalation clauses and renewal options as follows (unaudited, in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Expiration Year |
|
Amscot |
$ |
6 |
|
|
$ |
7 |
|
|
$ |
19 |
|
|
$ |
19 |
|
2045 |
|
Beaver Ruin Village |
14 |
|
|
14 |
|
|
41 |
|
|
41 |
|
2054 |
|
Beaver Ruin Village II |
6 |
|
|
6 |
|
|
17 |
|
|
17 |
|
2056 |
|
Leased office space Charleston, SC |
— |
|
|
17 |
|
|
— |
|
|
67 |
|
2019 |
|
Moncks Corner |
30 |
|
|
30 |
|
|
91 |
|
|
91 |
|
2040 |
|
Devine Street
(1)
|
99 |
|
|
99 |
|
|
297 |
|
|
297 |
|
2051 |
|
JANAF
(2)
|
71 |
|
|
65 |
|
|
214 |
|
|
200 |
|
2069 |
|
Total ground leases |
$ |
226 |
|
|
$ |
238 |
|
|
$ |
679 |
|
|
$ |
732 |
|
|
(1) Lease options are exercised through 2035 with options which are
reasonably certain to be exercised through 2051.
(2) Includes $34 thousand and $103 thousand in variable percentage
rent, during the three and nine months ended September 30, 2020,
respectively. Includes $29 thousand and $90 thousand in variable
percentage rent, during the three and nine months ended September
30, 2019, respectively.
Supplemental information related to leases is as follows (in
thousands, unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2020 |
|
Nine Months Ended
September 30, 2020 |
|
Cash paid for amounts included in the measurement of operating
lease liabilities |
$ |
146 |
|
|
$ |
437 |
|
|
Leased assets obtained in exchange for new operating lease
liabilities |
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2019 |
|
Nine Months Ended
September 30, 2019 |
|
Cash paid for amounts included in the measurement of operating
lease liabilities |
$ |
161 |
|
|
$ |
500 |
|
|
Leased assets obtained in exchange for new operating lease
liabilities |
$ |
— |
|
|
$ |
11,904 |
|
|
|
|
|
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
8. Leases Commitments (continued)
Undiscounted cash flows of our scheduled obligations for future
minimum lease payments due under the operating leases, including
applicable automatic extension options and options reasonably
certain of being exercised, as of September 30, 2020 and a
reconciliation of those cash flows to the operating lease
liabilities at September 30, 2020 are as follows (in thousands,
unaudited):
|
|
|
|
|
|
|
For the remaining three months ended December 31, 2020 |
$ |
146 |
|
|
December 31, 2021 |
637 |
|
|
December 31, 2022 |
640 |
|
|
December 31, 2023 |
642 |
|
|
December 31, 2024 |
644 |
|
|
December 31, 2025 |
648 |
|
|
Thereafter |
22,460 |
|
|
Total minimum lease payments
(1)
|
25,817 |
|
|
Discount |
(13,900) |
|
|
Operating lease liabilities |
$ |
11,917 |
|
(1) Operating lease payments include $7.54 million related to
options to extend lease terms that are reasonably certain of being
exercised.
9. Commitments and Contingencies
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. Additionally, the Company carries a directors’,
officers’, entity and employment practices liability insurance
policy that covers such claims made against the Company and its
directors and officers. 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.
The Company’s portfolio of properties is dependent upon regional
and local economic conditions and is geographically concentrated in
the Northeast, Mid-Atlantic and Southeast, which markets
represented approximately 4%, 34% and 62% respectively, of the
total annualized base rent of the properties in its portfolio as of
September 30, 2020. The Company’s 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 Company’s 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.
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 Company’s tenants routinely handle and use
hazardous or regulated substances and wastes as
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
9. Commitments and Contingencies (continued)
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 tenant’s 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
Company’s operations. The Company is not aware of any material
contingent liabilities, regulatory matters or environmental matters
that may exist.
Litigation
The Company is involved in various legal proceedings arising in the
ordinary course of its business, including, but not limited to
commercial disputes. The Company believes that such litigation,
claims and administrative proceedings will not have a material
adverse impact on its financial position or its results of
operations. The Company records a liability when it considers the
loss probable and the amount can be reasonably estimated. In
addition, the below are in process.
Jon Wheeler v. Wheeler Real Estate Investment Trust, Inc.,
Circuit Court for the City of Virginia Beach, Virginia. Former CEO,
Jon Wheeler, alleged that his employment was improperly terminated
and that he was owed severance and bonus payments pursuant to his
Employment Agreement. The Company filed a counterclaim against Mr.
Wheeler for reimbursement of personal expenses the Company paid,
but that Mr. Wheeler should have borne. The Court found in favor of
Jon Wheeler on his claim that his employment was terminated without
cause. The Court denied Mr. Wheeler’s claims for a bonus and that
his termination of employment was wrongful as a violation of public
policy. The Court awarded the Company $5 thousand on its
counterclaim. At a hearing on September 4, 2020 on Jon Wheeler’s
motion for the award of attorneys’ fees, costs, and pre-judgment
interest, the Court awarded Mr. Wheeler the requested costs, but
awarded no attorneys’ fees and no pre-judgment interest. In total,
Mr. Wheeler was awarded $520 thousand. Subsequent to September
30, 2020, the Company settled with Mr. Wheeler for
$500 thousand which is included on the Company's condensed
consolidated statements of operations under the line "other
expenses." Mr. Wheeler preserved his right to appeal the Court’s
denial of an award of attorneys’ fees and pre-judgment interest.
Mr. Wheeler has filed a Notice of Appeal, and he is required to
file a Petition for Appeal in early December 2020.
BOKF, NA v. WD-I Associates, LLC, Wheeler Real Estate, LLC and Jon
S. Wheeler,
Court of Common Pleas, Beaufort County, South Carolina. BOKF (“Bank
of Arkansas”), filed an action on April 9, 2019 in Beaufort County,
South Carolina, for foreclosure of the mortgage it held on the real
property and improvements comprising Sea Turtle Marketplace
Shopping Center (“Sea Turtle”) which was owned by WD-I Associates,
LLC (“WD-I”), and Jon S. Wheeler had guaranteed the debt. Bank of
Arkansas sought the appointment of a receiver to take possession
and control of Sea Turtle pending the completion of the foreclosure
action. In response, WD-I filed for relief under Chapter 11 of the
United States Bankruptcy Code on May 7, 2019. The bankruptcy filing
stayed the foreclosure action in State Court. On May 1, 2020, the
Bankruptcy Court granted the dismissal of the WD-I bankruptcy case
upon the provisions for payment of the $200 thousand to creditors.
The Company received an aggregate payment of $196 thousand in May
2020 and recorded the receipt on the Company's condensed
consolidated statements of operations under the line "other
revenues".
David Kelly v. Wheeler Real Estate Investment Trust, Inc., Joseph
Stilwell, and Daniel Khoshaba,
Circuit Court for the City of Virginia Beach, Virginia. Former CEO
David Kelly filed suit on May 28, 2020, alleging that his
employment was improperly terminated and that he is owed severance
pay and related benefits pursuant to his employment agreement. He
claims breach of his employment contract against the company;
against the individual defendants, he claims tortious interference
with contract and common law and statutory conspiracy for their
alleged actions related to his employment termination. He seeks
damages of $3.15 million, plus unpaid bonuses and benefits, pre-
and post-judgment interest, attorneys’ fees, and costs. The Company
is defending the action on the grounds that Mr. Kelly’s employment
was properly terminated for cause and that the claims against
Messrs. Stilwell and Khoshaba are not cognizable. The Company and
Messrs. Stilwell and Khoshaba have filed an answer and demurrer,
which is pending. No trial date has been set in the case. At this
juncture, the outcome of the matter cannot be
predicted.
Harbor Pointe Tax Increment Financing
On September 1, 2011, the Grove Economic Development Authority
issued the Grove Economic Development Authority Tax Increment
Revenue Note, Taxable Series 2011 in the amount of $2.42 million,
bearing a variable interest rate of 2.29%, not to exceed 14% and
payable in 50 semi-annual installments. The proceeds of the
bonds were to provide funding for the construction of public
infrastructure and other site improvements and to be repaid by
incremental additional property taxes
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
9. Commitments and Contingencies (continued)
generated by development. Harbor Pointe Associates, LLC, then owned
by an affiliate of former CEO, Jon Wheeler, entered into an
Economic Development Agreement with the Grove Economic Development
Authority for this infrastructure development and in the event the
ad valorem taxes were insufficient to cover annual debt service,
Harbor Pointe Associates, LLC would reimburse the Grove Economic
Development Authority (the “Harbor Pointe Agreement”). In
2014, Harbor Pointe Associates, LLC was acquired by the
Company.
The total debt service shortfall over the life of the bond is
uncertain as it is based on ad valorem taxes, assessed property
values, property tax rates, LIBOR and future potential development
ranging until 2036. The Company’s future total principal obligation
under the Harbor Pointe Agreement will be no more than $2.21
million, the principal amount of the bonds, as of September 30,
2020. In addition, the Company may have an interest obligation on
the note based on the principal balance and LIBOR rates in effect
at future payment dates. During the three and nine months ended
September 30, 2020, the Company did not fund any debt service
shortfalls. During the three and nine months ended September 30,
2019, the Company funded $0 and $44 thousand, respectively, in debt
service shortfalls. No amounts have been accrued for this as of
September 30, 2020 as a reasonable estimate of future debt service
shortfalls cannot be determined based on variables noted
above.
10. Related Party Transactions
The following summarizes related party activity for the nine months
ended September 30, 2020 and 2019. The amounts disclosed below
reflect the activity between the Company and its affiliates (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2020 |
|
2019 |
|
(unaudited) |
|
Amounts paid to affiliates |
$ |
75 |
|
|
$ |
— |
|
|
Amounts received from affiliates |
$ |
— |
|
|
$ |
16 |
|
Reimbursement of Proxy Solicitation Expenses
On October 29, 2019, Stilwell Value Partners VII, L.P., Stilwell
Activist Fund, L.P., Stilwell Activist Investments, L.P., Stilwell
Value LLC and Joseph Stilwell (collectively, the “Stilwell Group”),
filed a proxy statement with the SEC in connection with the
Company’s 2019 annual meeting (the “Stilwell Solicitation”).
Current director Joseph Stilwell is the owner and managing member
of Stilwell Value LLC, which is the general partner of Stilwell
Activist Investments, L.P. At the 2019 annual meeting, our
shareholders elected three nominees designated by the Stilwell
Group to the Board of Directors. The Stilwell Group disclosed in
the Stilwell Solicitation that it intended to seek reimbursement of
the expenses it incurred in connection with such solicitation. The
Company has agreed to reimburse the Stilwell Group for the
approximate $439 thousand of expenses it incurred in connection
with the Stilwell Solicitation. This reimbursement was recorded on
the condensed consolidated statements of operations as “other
expense.”
Wheeler Real Estate Investment Trust, Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Continued)
(Unaudited)
11. Subsequent Events
First National Bank Extension
On October 14, 2020, the Company entered into the Second Amendment
to extend the $1.13 million First National Bank Loan to March
15, 2021 with monthly principal and interest payments of
$25 thousand. The First National Bank Loan will bear interest
at LIBOR plus 350 basis points with a minimum interest rate set at
4.25%.
Lumber River Extension
On October 14, 2020, the Company entered into the Third Amendment
to extend the $1.39 million Lumber River Loan to April 10,
2021 with monthly principal and interest payments of
$11 thousand. The Lumber River Loan will bear interest at
LIBOR plus 350 basis points with a minimum interest rate set at
4.25%.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
You should read the following discussion of our financial condition
and results of operations in conjunction with our unaudited
condensed consolidated financial statements and the notes thereto
included in this Form 10-Q, along with the consolidated financial
statements and the notes thereto and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included
in our 2019 Form 10-K for the year ended December 31, 2019.
For more detailed information regarding the basis of presentation
for the following information, you should read the notes to the
unaudited condensed consolidated financial statements included in
this Form 10-Q.
When used in this discussion and elsewhere in this Form 10-Q, the
words “believes,” “should,” “estimates,” “expects,” and similar
expressions are intended to identify forward-looking statements
within the meaning of that term in Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and in Section 21F
of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). These forward-looking statements are not historical facts
but are the intent, belief or current expectations of our
management based on its knowledge and understanding of our business
and industry. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other
factors, some of which are beyond our control, are difficult to
predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking
statements.
Important factors that we think could cause our actual results to
differ materially from those expressed or forecasted in the
forward-looking statement are summarized below. One of the most
significant factors, however, is the ongoing impact of the current
outbreak of the novel coronavirus (COVID-19), on the U.S., regional
and global economies, the U.S. retail market and the broader
financial markets.
New factors emerge from time to time, and it is not possible for us
to predict which factors will arise. In addition, we cannot assess
the impact of each factor on our business or the extent to which
any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements. In particular, it is difficult to fully assess the
impact of COVID-19 at this time due to, among other factors,
uncertainty regarding the severity and duration of the outbreak
domestically and internationally, uncertainty regarding the
effectiveness of federal, state and local governments’ efforts to
contain the spread of COVID-19 and respond to its direct and
indirect impact on the U.S. economy and economic
activity.
Important factors, among others, that may affect our actual results
include:
•negative
impacts from continued spread of COVID-19, including on the U.S. or
global economy or on our business, financial position or results of
operations;
•tenant
bankruptcies;
•the
level of rental revenue we achieve from our assets;
•the
market value of our assets and the supply of, and demand for,
retail real estate in which we invest;
•the
state of the U.S. economy generally, or in specific geographic
regions;
•the
impact of economic conditions on our business;
•the
conditions in the local markets in which we operate and our
concentration in those markets, as well as changes in national
economic and market conditions;
•consumer
spending and confidence trends;
•our
ability to enter into new leases or to renew leases with existing
tenants at the properties we own;
•our
ability to anticipate changes in consumer buying practices and the
space needs of tenants;
•the
competitive landscape impacting the properties we own and their
tenants;
•our
relationships with our tenants and their financial condition and
liquidity;
•our
ability to continue to qualify as a real estate investment trust
for U.S. federal income tax (a “REIT”);
•our
use of debt as part of our financing strategy and our ability to
make payments or to comply with our loan covenants;
•the
level of our operating expenses;
•changes
in interest rates that could impact the market price of our common
stock and the cost of our borrowings; and
•legislative
and regulatory changes (including changes to laws governing the
taxation of REITs).
We caution that the foregoing list of factors is not all-inclusive.
Moreover, we operate in a very competitive and rapidly changing
environment. New factors emerge from time to time and it is not
possible for management to predict all such factors, nor can it
assess the impact of all such factors on our business or the extent
to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements. Given these risks and uncertainties,
investors should not place undue reliance on forward-looking
statements as a prediction of actual results. All subsequent
written and oral forward-looking statements concerning us or any
person acting on our behalf are expressly qualified in their
entirety by the cautionary statements above. We caution not to
place undue reliance upon any forward-looking statements, which
speak only as of the date made. We do not undertake or accept any
obligation or undertaking to release publicly any updates or
revisions to any forward-looking statement to reflect any change in
our expectations or any change in events, conditions or
circumstances on which any such statement is based.
Company Overview
As of September 30, 2020, the Trust, through the Operating
Partnership, owned and operated sixty retail shopping centers, one
office building and six undeveloped properties in Virginia, North
Carolina, South Carolina, Georgia, Florida, Alabama, Oklahoma,
Tennessee, Kentucky, New Jersey, Pennsylvania and West Virginia.
Accordingly, the use of the word “Company” refers to the Trust and
its consolidated subsidiaries, except where the context otherwise
requires.
Recent Trends and Activities
There have been several significant events in 2020 that have
impacted our company. These events are summarized
below.
Impact of COVID-19
The following discussion is intended to provide shareholders with
certain information regarding the impacts of the COVID-19 pandemic
on the Company’s business and management’s efforts to respond.
Unless otherwise specified, the statistical and other information
regarding the Company’s portfolio and tenants are estimates based
on information available to the Company. As a result of the rapid
development, fluidity and uncertainty surrounding this situation,
the Company expects that such statistical and other information
will change, potentially significantly, going forward and may not
be indicative of the actual impact of the COVID-19 pandemic on the
Company’s business, operations, cash flows and financial condition
for the fourth quarter of 2020 and future periods.
The United States of America has been subject to significant
economic disruption caused by the onset of COVID-19. Nearly every
industry has been impacted directly or indirectly, and the U.S.
retail market has come under severe pressure due to numerous
factors, including preventative measures taken by local, state and
federal authorities to alleviate the public health crisis such as
mandatory business closures, quarantines, restrictions on travel
and “shelter-in-place” or “stay-at-home” orders at the state and
local levels. These containment measures, which generally do not
apply to businesses designated as “essential”, are affecting the
operations of different categories of the Company’s base to varying
degrees with, for example, grocery stores and pharmacies generally
permitted to remain open and operational, restaurants generally
limited to take-out and delivery services only and capacity
restrictions while open, and non-essential businesses generally
forced to close. There is uncertainty as to the time, date and
extent to which these restrictions will be relaxed or lifted,
businesses of tenants that have closed, either voluntarily or by
mandate, will reopen or partially reopen.
As of September 30, 2020 our portfolio was approximately 88.3%
leased. The properties are geographically located in the Southeast,
Mid-Atlantic and Northeast, which markets represented approximately
62%, 34% and 4%, respectively, of the total annualized base rent of
the properties in our portfolio as of September 30, 2020. Our
operating portfolio contains retail shopping centers with a
particular emphasis on grocery-anchored retail centers; grocers
represent approximately 27% of total annualized base rent as of
September 30, 2020. We generally lease our properties to national
and regional retailers.
The Company’s portfolio and tenants have
been impacted as follows:
•The
Company’s sixty retail shopping centers are open and operating. As
of September 30, 2020, all of the Company’s shopping centers
feature necessity-based tenants, with forty-five of the sixty
properties anchored by grocery and/or drug stores.
•The
Company agreed to lease modifications with five tenants who
declared bankruptcy, resulting in a weighted average rate increase
of 2.69% and 2.3 year weighted average extension term. Seven
tenants vacated due to bankruptcy and two of the vacated tenants
have been backfilled.
•Beginning
in April 2020, the Company received certain rent relief requests,
most often in the form of rent deferral requests, as a result of
COVID-19. The Company evaluates each tenant rent relief request on
an individual basis, considering a number of factors. Not all
tenant requests ultimately result in concessions or modification of
agreements, nor is the Company forgoing its contractual rights
under its lease agreements. As a result, the Company granted 145
concessions as of October 30, 2020 and modified 68 leases as of
September 30, 2020, with a weighted average rate increase of 3.72%
and 3.1 year weighted average extension term. During the three
months ended September 30, 2020 the Company modified 22 leases,
with a weighted average rate increase of 1.47% and 1.9 year
weighted average extension term.
•The
Company has received payment of 95% of contractual base rent and
tenant reimbursements billed for the three months ended September
30, 2020. Collections of second quarter billings increased from
83%, as previously reported, to 95% collected as of November 5,
2020.
•As
of September 30, 2020, $389 thousand of accounts receivable relate
to short term deferral of rents, an increase of $34 thousand
compared to the June 30, 2020 balance.
The Company has taken a number of proactive measures to maintain
the strength of its business and manage the impact of COVID-19 on
the Company’s operations and liquidity, including the
following:
•Along
with the Company’s tenants and the communities they and the Company
together serve, the health and safety of the Company’s employees
and their families is a top priority. The Company has adapted its
operations to protect employees, including implementing a work from
home policy and the Company’s IT systems have enabled its team to
work seamlessly.
•The
Company is in constant communication with its tenants and sharing
resources on how to identify local, state and federal resources
that may be available to support their businesses and employees
during the pandemic, including stimulus funds that may be available
under the Coronavirus Aid, Relief and Economic Security Act of
2020.
•The
Company currently has approximately $6.96 million in cash and cash
equivalents and an additional $17.24 million in restricted
cash.
•Given
the uncertainty of the COVID-19 pandemic’s near and potential
long-term impact on the Company’s business, and in order to
preserve its liquidity position, the Company has continued its
suspension of any dividend distributions.
The Company derives revenues primarily from rents received from
tenants under leases at the Company’s properties. The Company’s
operating results therefore depend materially on the ability of its
tenants to make required rental payments. The extent to which the
COVID-19 pandemic impacts the businesses of the Company’s tenants,
and the Company’s operations and financial condition, will depend
on future developments which are highly uncertain and cannot be
predicted with confidence, including the scope, severity and
duration of the pandemic, the actions taken to contain the pandemic
or mitigate its impact, and the direct and indirect economic
effects of the pandemic and such containment measures, among
others. While the extent of the outbreak and its impact on the
Company, its tenants and the U.S. retail market is uncertain, a
prolonged crisis could result in continued disruptions in the
credit and financial markets, continued high unemployment rates,
low consumer confidence and consumer spending levels and overall
poor global and U.S. economic conditions. The factors described
above, as well as additional factors that the Company may not
currently be aware of, could materially negatively impact the
Company’s ability to collect rent and could lead to termination of
leases by tenants, tenant bankruptcies, decreases in demand for
retail space at the Company’s properties, difficulties in accessing
capital, impairment of the Company’s long-lived assets and other
impacts that could materially and adversely affect the Company’s
business, results of operations, financial condition and ability to
pay distributions to shareholders.
The comparability of the Company’s results of operations for the
nine months ended September 30, 2020 to future periods may be
significantly impacted by the effects of the outbreak of the
COVID-19 pandemic.
Paycheck Protection Program
The Company received proceeds of $552 thousand (the "PPP
funds") pursuant to
the Paycheck Protection Program (the “PPP”)
under the Coronavirus Aid, Relief and Economic Security (“CARES”)
Act.
The PPP funds were received in the form of a promissory note, dated
April 24, 2020 (the “Promissory Note”), between the Company and
KeyBank as the lender that matures on April 24, 2022 bearing
interest at a fixed rate of 1% per annum, payable monthly
commencing seven months from the date of the note. Under the terms
of the PPP, the principal may be forgiven if the proceeds are used
for qualifying expenses as described in the CARES Act, such as
payroll costs, mortgage interest, rent and utilities. No assurance
can be provided that the Company will obtain forgiveness of the
Promissory Note in whole or in part.
Dispositions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal Date |
|
Property |
|
Contract Price |
|
Gain (loss) |
|
Net Proceeds |
|
|
|
|
|
(in thousands, unaudited) |
|
January 21, 2020 |
|
St. Matthews, St. Matthews, SC |
|
$ |
1,775 |
|
|
$ |
(26) |
|
|
$ |
1,665 |
|
Assets Held for Sale
At September 30, 2020 assets held for sale included Columbia Fire
Station, Riversedge North, Berkley Shopping Center, a .75 acre land
parcel at Berkley and two outparcels at Rivergate Shopping Center,
as the Company has committed to a plan to sell each property.
Additionally, in 2019 assets held for sale included St. Matthews.
The Company recorded a $0 and $600 thousand impairment expense for
Columbia Fire Station for the three and nine months ended September
30, 2020, respectively, reducing the carrying value for the amounts
that exceeded the property's fair value less estimated selling
costs.
KeyBank Credit Agreement
On January 24, 2020, the Company and KeyBank entered into a Second
Amendment to the KeyBank Credit Agreement (the "Second Amendment"),
effective December 21, 2019. Pursuant to the Second Amendment, the
Company began making monthly principal payments of $350 thousand on
November 1, 2019. The Second Amendment, among other provisions,
requires a pledge of additional collateral of $15.00 million in
residual equity interests.
On July 21, 2020, the Company and KeyBank entered into a Third
Amendment to the KeyBank Credit Agreement (the "Third Amendment").
The Third Amendment, among other provisions, reduces the pledge of
additional collateral by two properties and extends the maturity to
December 31, 2020.
In addition to the $3.50 million in monthly principal payments made
during the nine months ended September 30, 2020, the below paydowns
were made:
•$1.78
million paydown from St. Matthews sale proceeds on January 21,
2020;
•$5.75
million paydown from Shoppes at Myrtle Park refinancing proceeds on
January 23, 2020; and
•$2.50
million paydown from cash released to the Company from restricted
cash accounts on May 20, 2020.
As of September 30, 2020, the balance on the KeyBank Credit
Agreement was $4.35 million.
Operating Partnership Purchase of Stock
On September 22, 2020, the Operating Partnership purchased 71,343
shares of Series D Preferred from an unaffiliated investor at
$15.50 per share. These shares are deemed to be retired on the
condensed consolidated financial statements.
New Leases, Leasing Renewals and Expirations
The following table presents selected lease activity statistics for
our properties.
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2020
(3)
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2019 |
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2020
(3)
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2019 |
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Renewals(1):
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Leases renewed with rate increase (sq feet) |
135,063 |
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193,609 |
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528,042 |
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374,580 |
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Leases renewed with rate decrease (sq feet) |
53,398 |
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|
1,040 |
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89,133 |
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31,196 |
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Leases renewed with no rate change (sq feet) |
182,039 |
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141,650 |
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246,245 |
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150,233 |
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Total leases renewed (sq feet) |
370,500 |
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336,299 |
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863,420 |
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556,009 |
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Leases renewed with rate increase (count) |
28 |
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39 |
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|
111 |
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|
88 |
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Leases renewed with rate decrease (count) |
6 |
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1 |
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17 |
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9 |
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Leases renewed with no rate change (count) |
20 |
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6 |
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38 |
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11 |
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Total leases renewed (count) |
54 |
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|
46 |
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|
166 |
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|
108 |
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Option exercised (count) |
8 |
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15 |
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17 |
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28 |
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Weighted average on rate increases (per sq foot) |
$ |
1.29 |
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$ |
0.73 |
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$ |
1.11 |
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$ |
0.77 |
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Weighted average on rate decreases (per sq foot) |
$ |
(0.72) |
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$ |
(2.46) |
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$ |
(1.14) |
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$ |
(3.02) |
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Weighted average rate on all renewals (per sq foot) |
$ |
0.37 |
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$ |
0.41 |
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$ |
0.56 |
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$ |
0.35 |
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