Prospectus Supplement No. 15   Filed pursuant to Rule 424(b)(3)
(To Prospectus dated September 29, 2023)   Registration No. 333-274329

 

 

Wheeler Real Estate Investment Trust, Inc.

 

This is Prospectus Supplement No. 15 (this “Prospectus Supplement”) to our Prospectus, dated September 29, 2023 (the “Prospectus”), relating to the issuance from time to time by Wheeler Real Estate Investment Trust, Inc. of up to 101,100,000 shares of our common stock, par value $0.01 (“Common Stock”). Terms used but not defined in this Prospectus Supplement have the meanings ascribed to them in the Prospectus.

The purposes of this Prospectus Supplement are as follows:

 

to include our Annual Report on Form 10-K for the year ended December 31, 2023; and

 

to update the “Experts” section of the Prospectus.

 

Annual Report on Form 10-K for the Year Ended December 31, 2023

 

On March 5, 2024, we filed with the Securities and Exchange Commission our Annual Report on Form 10-K for the year ended December 31, 2023, a copy of which is attached to this Prospectus Supplement as Appendix A.

 

Experts

 

The following disclosure is added to the “Experts” section of the Prospectus.

 

The historical consolidated financial statements of our Company as of December 31, 2023 and 2022 and for each of the two years in the period ended December 31, 2023 incorporated by reference in this Prospectus and in the Registration Statement have been so incorporated in reliance on the report of Cherry Bekaert LLP, an independent registered public accounting firm, incorporated herein by reference, given on the authority of such firm as experts on auditing and accounting.

 

Investing in our Common Stock involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 4 of the Prospectus, and under similar headings in any amendments or supplements to the Prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus. Any representation to the contrary is a criminal offense.

 

The date of this Prospectus Supplement is March 6, 2024.

 

 

 

 

Appendix A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

 

 

FORM 10-K

 

þ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

 

For the fiscal year ended December 31, 2023

 

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) 

 

Maryland   45-2681082
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)

 

2529 Virginia Beach Blvd.,
Virginia Beach, Virginia
  23452
(Address of Principal Executive Offices)   (Zip Code)

 

(757) 627-9088

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.01 par value per share   WHLR   Nasdaq Capital Market
Series B Convertible Preferred Stock   WHLRP   Nasdaq Capital Market
Series D Cumulative Convertible Preferred Stock   WHLRD   Nasdaq Capital Market
7.00% Subordinated Convertible Notes due 2031   WHLRL   Nasdaq Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ☐    No  þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ☐    No þ

 

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  þ    No  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ    No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.: 

 

Large accelerated file Accelerated filer
Non-accelerated filer þ þ Smaller reporting company
    Emerging growth company

 

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  þ

 

As of June 30, 2023, the last trading day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was $5,301,111, based on the closing price of the registrant’s Common Stock on such date as reported on the Nasdaq Capital Market. For the purposes of this computation, shares held by directors and executive officer of the registrant have been excluded. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant.

 

As of March 1, 2024, there were 68,023,718 shares of Common Stock, $0.01 par value per share, outstanding.

 

Documents Incorporated by Reference

 

Portions of the registrant’s Proxy Statement for its 2024 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the year covered by this Annual Report on Form 10-K, are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent described herein.

 

 

 

 

 

 

Table of Contents

 

PART I
       
Item 1.   Business 1
       
Item 1A.   Risk Factors 4
       
Item 1B.   Unresolved Staff Comments 4
       
Item 1C.   Cybersecurity 4
       
Item 2.   Properties 5
       
Item 3.   Legal Proceedings 11
       
Item 4.   Mine Safety Disclosures 11
   
PART II
       
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 9
       
Item 6.   Reserved 9
       
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 9
       
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk 23
       
Item 8.   Financial Statements and Supplementary Data 23
       
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 23
       
Item 9A.   Controls and Procedures 23
       
Item 9B.   Other Information 24
   
Item 9C.   Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 24
       
PART III
       
Item 10.   Directors, Executive Officers and Corporate Governance 25
       
Item 11.   Executive Compensation 25
       
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 25
       
Item 13.   Certain Relationships and Related Transactions, and Director Independence 25
       
Item 14.   Principal Accountant Fees and Services 25
       
PART IV
       
Item 15.   Exhibits and Financial Statement Schedules 26
       
Item 16.   Form 10-K Summary 66
       
SIGNATURES 67

 

i

 

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K (the “Form 10-K”) of Wheeler Real Estate Investment Trust, Inc. (the “Trust,” the “REIT,” the “Company,” “WHLR,” “we,” “our” or “us”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are subject to risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “may”, “will”, “should”, “estimates”, “projects”, “anticipates”, “believes”, “expects”, “intends”, “future”, and words of similar import, or the negative thereof. 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.

    

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned to not place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Form 10-K. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.

 

Factors that could cause actual results, performance or achievements to differ materially from any forward-looking statements made in this Form 10-K include, but are not limited to:

 

the use of and demand for retail space;

 

general and economic business conditions, including those affecting the ability of individuals to spend in retail shopping centers and/or the rate and other terms on which we are able to lease our properties;

 

the loss or bankruptcy of the Company’s tenants;

 

the state of the U.S. economy generally, or specifically in the Mid-Atlantic, Southeast and Northeast where our properties are geographically concentrated;

 

consumer spending and confidence trends;

 

availability, terms and deployment of capital;

 

substantial dilution of our common stock, par value $0.01 (“Common Stock”) and steep decline in its market value resulting from the exercise by the holders of our Series D Cumulative Convertible Preferred Stock (the “Series D Preferred Stock”) of their redemption rights and downward adjustment of the conversion price on our outstanding 7.00% Subordinated Convertible Notes due 2031 (the “Convertible Notes”), each of which has already occurred and is anticipated to continue;

 

the degree and nature of our competition;

 

changes in governmental regulations, accounting rules, tax rates and similar matters;

 

adverse economic or real estate developments in our markets of the Mid-Atlantic, Southeast and Northeast;

 

the ability and willingness of the Company’s tenants and other third parties to satisfy their obligations under their respective contractual arrangements with the Company;

 

the ability and willingness of the Company’s tenants to renew their leases with the Company upon expiration;

 

the Company’s ability to re-lease its properties on the same or better terms in the event of non-renewal or in the event the Company exercises its right to replace an existing tenant, and obligations the Company may incur in connection with the replacement of an existing tenant;

 

litigation risks generally;

 

the risk that shareholder litigation in connection with the Cedar Acquisition (as defined herein) may result in significant costs of defense, indemnification and liability;

 

financing risks, such as the Company’s inability to obtain new financing or refinancing on favorable terms as the result of market volatility or instability and increases in the Company’s borrowing costs as a result of changes in interest rates and other factors;

 

ii

 

 

the impact of the Company’s leverage on operating performance;

 

risks related to the market for retail space generally, including reductions in consumer spending, variability in retailer demand for leased space, adverse impact of e-commerce, ongoing consolidation in the retail sector and changes in economic conditions and consumer confidence;

 

risks endemic to real estate and the real estate industry generally;

  

the adverse effect any future pandemic, endemic or outbreak of infectious diseases, and mitigation efforts, including government-imposed lockdowns, to control their spread;

 

risks to our information systems - or those of our tenants or vendors - from service interruption, misappropriation of data, breaches of security or information technology, or other cyber-related attacks;

 

competitive risks;

 

risks related to the geographic concentration of the Company’s properties in the Mid-Atlantic, Southeast and Northeast;

 

the Company’s ability to maintain listing on Nasdaq Capital Market (“Nasdaq”);

 

the effects of the one-for-ten reverse stock split of our Common Stock (which we refer to as the “Reverse Stock Split”) on the trading market of our Common Stock;

 

damage to the Company’s properties from catastrophic weather and other natural events, and the physical effects of climate change;

 

the risk that an uninsured loss on the Company’s properties or a loss that exceeds the limits of the Company’s insurance policies could subject the Company to lost capital or revenue on those properties;

 

the risk that continued increases in the cost of necessary insurance could negatively impact the Company’s profitability;

 

the Company’s ability and willingness to maintain its qualification as a real estate investment trust (“REIT”) in light of economic, market, legal, tax and other considerations;

 

the ability of our operating partnership, Wheeler REIT, L.P., and each of our other partnerships and limited liability companies to be classified as partnerships or disregarded entities for federal income tax purposes;

 

the impact of e-commerce on our tenants’ business; and

 

the inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws.

 

Forward-looking statements in this Form 10-K should be read in light of these factors. Except for ongoing obligations to disclose material information as required by the federal securities laws, the Company undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. All of the above factors are difficult to predict, contain uncertainties that may materially affect the Company’s actual results and may be beyond the Company’s control. New factors emerge from time to time, and it is not possible for the Company’s management to predict all such factors or to assess the effects of each factor on the Company’s business. Accordingly, there can be no assurance that the Company’s current expectations will be realized.

 

iii

 

 

Part I

 

Item 1.    Business.

 

Overview

 

Wheeler Real Estate Investment Trust, Inc. is a Maryland corporation formed on June 23, 2011 in connection with the Company’s initial public offering. 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. Prior to the Cedar Acquisition (as defined below), substantially all of our assets were held by, and all of our operations were conducted through, our Operating Partnership. At December 31, 2023, the Company owned 99.13% of the Operating Partnership.

 

On August 22, 2022, the Company completed a merger transaction with Cedar Realty Trust, Inc. (“Cedar” or “CDR”). As a result of the merger, the Company acquired all of the outstanding shares of Cedar’s common stock (the “Cedar Acquisition”), which ceased to be publicly traded on the New York Stock Exchange (“NYSE”). Cedar’s outstanding 7.25% Series B Preferred Stock and 6.50% Series C Preferred Stock remain outstanding and continue to trade on the NYSE. As a result, Cedar became a subsidiary of the REIT. Cedar’s assets are held by, and its operations are conducted through, its operating partnership, Cedar Realty Trust Partnership, LP.

 

The Company has elected to be taxed as a REIT under applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT under those provisions, the Company must have a preponderant percentage of its assets invested in, and income derived from, real estate and related sources. The Company is a fully-integrated, self-managed commercial real estate investment company that owns, leases and operates income-producing retail properties with a primary focus on grocery-anchored centers.

 

For additional information on recent business developments, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K.

 

Portfolio

 

Our portfolio contains retail properties in secondary and tertiary markets, with a particular emphasis on grocery-anchored retail centers. Our properties are in communities that have stable demographics and have historically exhibited favorable trends, such as strong population and income growth. We generally lease our properties to national and regional retailers that offer consumer goods and services and generate regular consumer traffic. We believe our tenants carry goods and offer services that are less impacted by fluctuations in the broader U.S. economy and consumers’ disposable income, generating more predictable property level cash flows.

 

The Company’s portfolio of properties is dependent upon regional and local economic conditions. As of December 31, 2023, we own a portfolio consisting of seventy-nine properties, including seventy-five retail shopping centers, totaling 8,142,065 leasable square feet which is 93.7% leased (our “operating portfolio”), and four undeveloped land parcels totaling approximately 61 acres. The properties are geographically located in the Mid-Atlantic, Southeast and Northeast, which markets represented approximately 45%, 40% and 15%, respectively, of the total annualized base rent of the properties in its portfolio as of December 31, 2023.

 

No tenant represents greater than approximately 6% of the Company’s annualized base rent or 7% of gross leasable square footage. The top 10 tenants account for 23.4% or $17.7 million of annualized base rent and 26.2% or $2.1 million of gross leasable square footage at December 31, 2023.

 

Human Capital Management

 

As of December 31, 2023, we have 52 full-time employees. We seek to hire experienced leaders and team members and offer competitive wage and benefit programs. Employees are offered flexibility to meet personal and family needs, which was further expanded when the COVID-19 pandemic began. In addition to medical insurance support, the Company offers wellness programs, including free short- and long-term disability insurance, free basic life insurance policy with accidental death and dismemberment coverage, employee assistance programs that include emotional health support, gym memberships, volunteer time off and tuition assistance. Tuition assistance includes assistance to learn a new language as the Company identifies opportunities to better serve a diverse tenant base.

 

1

 

 

The Company takes steps to measure and improve upon its level of employee engagement and to create a diverse and inclusive workplace, all while creating value for our stakeholders. The Company’s employees are expected to exhibit honest, ethical and respectful conduct in the workplace. Every year, the Company requires its employees to review and certify their compliance with the Company’s various policies, including its Code of Business Conduct and Ethics.

 

Business Objectives and Investment Strategy

 

Our primary business objective is to maximize the value of our portfolio. We intend to achieve this objective utilizing the following investment strategies:

 

Focus on necessity-based retail. Own and operate retail properties that serve the essential day-to-day shopping needs of the surrounding communities. These necessity-based centers attract high levels of daily traffic resulting in cross-selling of goods and services from our tenants. The majority of our tenants provide non-cyclical consumer goods and services that are less impacted by fluctuations in the economy. We believe these centers that provide essential goods and services such as groceries result in a stable, lower-risk portfolio of retail investment properties.

 

Focus on secondary and tertiary markets with strong demographics and demand. Our properties are in markets that have strong demographics such as population density, population stability, consistent tenant sales trends and growth in household income. We seek to identify new tenants and renew leases with existing tenants in these locations that support the need for necessity-based retail and limited new supply. We aim to identify and pursue attractive investment opportunities in regions with low taxes and a pro-business environment.

 

Increase operating income through leasing strategies and expense management. We employ intensive lease management strategies to optimize occupancy. Management has extensive expertise in acquiring and managing under-performing properties and increasing operating income through more effective leasing strategies and expense management. Our leases generally require the tenant to reimburse us for a substantial portion of the expenses incurred in operating, maintaining, repairing, and managing the shopping center and the common areas, along with the associated insurance costs and real estate taxes. In many cases, the tenant is either fully or partially responsible for all maintenance of the property, thereby limiting our financial exposure towards maintaining the center and increasing our net income. We refer to this arrangement as a “triple net lease.”

 

Selectively utilize our capital to improve retail properties. We intend to make capital investments where the risk adjusted returns on such capital is accretive to our stockholders. We allocate capital to value-added improvements of retail properties to increase rents, extend long-term leases with anchor tenants and increase occupancy. We selectively allocate capital to revenue enhancing projects that we believe will improve the market position of a given property.

 

Recycling and sensible management of our property portfolio. We intend to sell non-income producing land parcels or non-core assets utilizing sales proceeds to deleverage the balance sheet and invest in higher yielding opportunities. Properties may be slated for disposition based upon management’s periodic review of our portfolio, and approval by our Board of Directors (the “Board of Directors”).

 

Strategy for optimizing capital structure. The Company seeks to mitigate risk and optimize its capital structure through continuous focus on maintaining prudent leverage and lengthy average debt maturities, as well as access to a diverse selection of capital sources, including the secured and unsecured debt markets, unsecured lines of credit, and other sources.

 

Strategy for integrating acquisitions. As the Company undertakes acquisitions, we seek to thoughtfully integrate the acquired properties and any software and personnel to maximize efficiencies both at the property and corporate level.

 

Governmental Regulations Affecting Our Properties

 

We and our properties are subject to a variety of federal, state and local environmental, health, safety, tax and similar laws. The application of these laws to a specific property that we own depends on a variety of property-specific circumstances, including the current and former uses of the property, the building materials used at the property and the physical layout of the property. Neither existing environmental, health, safety and similar laws nor the costs of our compliance with these laws has had a material adverse effect on our financial condition or results of operations, and management does not believe they will for the fiscal year ending December 31, 2024. In addition, we have not incurred, and do not expect to incur, any material costs or liabilities due to environmental contamination at properties we currently own or have owned in the past. However, we cannot predict the impact of new or changed laws or regulations on properties we currently own or may acquire in the future. We have no current plans for substantial capital expenditures with respect to compliance with environmental, health, safety and similar laws and we carry environmental insurance that covers a number of environmental risks for most of our properties.

 

2

 

 

Competition

 

Numerous commercial developers and real estate companies compete with us with respect to the leasing of properties. Some of these competitors may possess greater capital resources than we do, although we do not believe that any single competitor or group of competitors in any of the primary markets where our properties are located are dominant in that market. This competition may interfere with our ability to attract and retain tenants, leading to increased vacancy rates and/or reduced rents and adversely affect our ability to minimize operating expenses.

 

Retailers at our properties also face increasing competition from online retailers, outlet stores, discount shopping clubs, superstores, and other forms of sales and marketing of goods and services, such as direct mail. This competition could contribute to lease defaults and insolvency of tenants.

 

Climate

 

Some of our properties could be subject to natural or other disasters. In addition, we may acquire properties that are located in areas that are subject to natural disasters, such as earthquakes and droughts. Properties could also be affected by increases in the frequency or severity of tornadoes, hurricanes or other severe weather, whether such increases are caused by global climate changes or other factors. The occurrence of natural disasters or severe weather conditions can increase investment costs to repair or replace damaged properties, increase operating costs, increase future property insurance costs, and/or negatively impact the tenant demand for lease space. If insurance is unavailable to us, or is unavailable on acceptable terms, or if our insurance is not adequate to cover business interruption or losses from such events, our earnings, liquidity and/or capital resources could be adversely affected. While several of our properties are located in areas that have experienced hurricanes, tornados, severe rain storms, or snow during the past two years, there has been no substantial damage or change in operations related to weather events.

 

Insurance

    

The Company carries comprehensive liability, property, fire, flood, wind, extended coverage, business interruption and rental loss insurance covering all of the properties in its portfolio under an 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 losses. Increases in the occurrence of natural disasters and severe weather patterns have led to a consistent increase in overall rates, deductibles and valuations from insurance carriers, which have resulted in increased costs of necessary insurance required to protect our assets.

 

Available Information

    

We are subject to the information reporting requirements of the Exchange Act. Therefore, we file reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

 

Additionally, we make available free of charge through our website http://www.whlr.us our most recent Annual Report on Form 10-K, including our audited consolidated financial statements, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. The content of our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our website is intended to be inactive textual references only.

 

3

 

 

Investors and others should note that we currently announce material information using SEC filings and press releases. In the future, we will continue to use these channels to distribute material information about the Company, and may also utilize public conference calls, webcasts, our website and/or various social media sites to communicate important information about the Company, key personnel, trends, corporate initiatives and other matters. Information that we post on our website or on social media channels could be deemed material; therefore, investors, the media, our customers, business partners and others interested in the Company should review the information posted on our website as well as on LinkedIn at https://www.linkedin.com/company/wheeler-real-estate-investment-trust/, in addition to following the Company’s press releases and SEC filings. Any updates to the list of social media channels we may use to communicate material information will be posted on the Investor Relations page of our website at http://www.whlr.us. The information we post through these channels is not a part of this Annual Report on Form 10-K or any other document we file with the SEC, and the inclusion of our website addresses and LinkedIn account are as inactive textual references only.

 

Item 1A. Risk Factors.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

Item 1B. Unresolved Staff Comments.

 

    None.

 

Item 1C. Cybersecurity.

 

Cybersecurity Risk Management and Strategy

 

The Company depends on the proper functioning, availability and security of its information systems, including financial, data processing, communications and operating systems. Several information systems are software applications provided by third parties. Although risks from cybersecurity threats have to date not materially affected, and we do not believe they are reasonably likely to materially affect, us, our business strategy, results of operations or financial condition, like other companies in our industry, we could, from time to time, experience threats and security incidents related to our and our third-party vendors’ information systems, including attempts to gain unauthorized access to our confidential data, and other electronic security breaches. Such cybersecurity attacks can range from individual attempts to gain unauthorized access to our information technology systems to more sophisticated security threats. While we employ a number of measures to prevent, detect and mitigate these threats, there is no guarantee such efforts will be successful in preventing a cybersecurity attack. A cybersecurity attack could compromise the confidential information of our employees, tenants and vendors. A successful cybersecurity attack could disrupt and otherwise adversely affect our business operations.

 

Assessment, identification and management of cybersecurity related risks are integrated into our overall risk management process. Cybersecurity related risks are included in the risk universe we evaluate to assess top risks to the Company at least annually. To the extent our processes identify a heightened cybersecurity related risk, risk owners are assigned to develop risk mitigation plans, which are then tracked to completion.

 

Cybersecurity Governance

 

Our Board of Directors considers cybersecurity risk as part of its risk oversight function and has delegated oversight of cybersecurity risk strategy and governance and of other information technology risks to the Audit Committee of the Board of Directors (the “Audit Committee”). The Audit Committee reports to the full Board of Directors regarding its activities, including those related to cybersecurity. Senior management, including the Company’s CEO, CFO, and General Counsel, is responsible for assessing and managing cybersecurity risk, and provides briefings regarding the assessment and management of such risk to the Audit Committee, which then reports, as necessary, to the Board of Directors. Although members of our senior management do not have direct cybersecurity expertise obtained through certifications, their experience managing the Company, which includes consulting and coordinating as necessary with a third party information technology expert referred to below, enables them to effectively assess and manage material risks from cybersecurity threats.

 

The Company retained an information technology expert third party company to assist in managing relevant risks. In particular, the Company outsources its information technology function and monitoring to a third party provider whereby it benefits from a professionally managed network monitoring, management, maintenance, detection and response system and a 24/7 security operations center with both onsite and remote support services. Any cybersecurity incident would be reported to the Company promptly by our third party consultant and material and potentially material incidents would be assessed by management and the Audit Committee for remediation and future prevention and detection.

 

The Company, at least annually, updates its policies or procedures that could help mitigate cybersecurity risks. Notwithstanding the extensive approach we take to cybersecurity, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us. The Company has incorporated cybersecurity coverage in its insurance policies; however, there is no assurance that the insurance the Company maintains will cover all cybersecurity breaches or that policy limits will be sufficient to cover all related losses.

 

4

 

 

Item 2.    Properties.

 

Real Estate Portfolio

    

The following table presents an overview of our properties, based on information as of December 31, 2023.

 

Property  Location  Number of
Tenants (1)
   Total Leasable
Square
Feet
   Percentage
Leased (1)
   Percentage Occupied   Total SF
Occupied
   Annualized
Base Rent
(in 000’s)
(2)
   Annualized
Base Rent
per
Occupied
Sq. Foot
 
WHLR                                      
Alex City Marketplace  Alexander City, AL   19    151,843    100.0%   100.0%   151,843   $1,278   $8.42 
Amscot Building  Tampa, FL   1    2,500    100.0%   100.0%   2,500    83    33.00 
Beaver Ruin Village  Lilburn, GA   29    74,038    96.8%   94.8%   70,148    1,290    18.39 
Beaver Ruin Village II  Lilburn, GA   4    34,925    100.0%   100.0%   34,925    492    14.08 
Brook Run Shopping Center  Richmond, VA   19    147,738    94.2%   87.2%   128,810    1,133    8.80 
Brook Run Properties (3)  Richmond, VA           %   %            
Bryan Station  Lexington, KY   9    54,277    94.5%   94.5%   51,275    613    11.95 
Cardinal Plaza  Henderson, NC   9    50,000    100.0%   100.0%   50,000    508    10.16 
Chesapeake Square  Onley, VA   14    108,982    92.1%   92.1%   100,406    779    7.76 
Clover Plaza  Clover, SC   10    45,575    100.0%   100.0%   45,575    384    8.42 
Courtland Commons (3)  Courtland, VA           %   %            
Conyers Crossing  Conyers, GA   14    170,475    100.0%   100.0%   170,475    1,006    5.90 
Crockett Square  Morristown, TN   4    107,122    100.0%   100.0%   107,122    978    9.13 
Cypress Shopping Center  Boiling Springs, SC   18    80,435    59.9%   59.9%   48,175    622    12.90 
Darien Shopping Center  Darien, GA   1    26,001    100.0%   100.0%   26,001    140    5.38 
Devine Street  Columbia, SC   1    38,464    89.1%   89.1%   34,264    180    5.25 
Edenton Commons (3)  Edenton, NC           %   %            
Folly Road  Charleston, SC   5    47,794    100.0%   100.0%   47,794    735    15.39 
Forrest Gallery  Tullahoma, TN   26    214,451    89.5%   89.5%   191,859    1,445    7.53 
Fort Howard Shopping Center  Rincon, GA   20    113,652    100.0%   100.0%   113,652    1,283    11.29 
Freeway Junction  Stockbridge, GA   18    156,834    98.2%   98.2%   154,034    1,351    8.77 
Franklin Village  Kittanning, PA   24    151,821    93.3%   93.3%   141,573    1,359    9.60 
Franklinton Square  Franklinton, NC   15    65,366    100.0%   100.0%   65,366    599    9.17 
Georgetown  Georgetown, SC   2    29,572    100.0%   100.0%   29,572    267    9.04 
Grove Park Shopping Center  Orangeburg, SC   14    93,265    100.0%   100.0%   93,265    764    8.19 
Harbor Point (3)  Grove, OK           %   %            
Harrodsburg Marketplace  Harrodsburg, KY   8    60,048    91.0%   91.0%   54,648    465    8.51 
JANAF (4)  Norfolk, VA   118    798,086    94.3%   89.9%   717,171    8,993    12.54 
Laburnum Square  Richmond, VA   20    109,405    99.1%   99.1%   108,445    1,011    9.33 
Ladson Crossing  Ladson, SC   16    52,607    100.0%   100.0%   52,607    566    10.75 
LaGrange Marketplace  LaGrange, GA   13    76,594    91.8%   91.8%   70,300    435    6.19 
Lake Greenwood Crossing  Greenwood, SC   8    43,618    100.0%   100.0%   43,618    410    9.41 
Lake Murray  Lexington, SC   4    39,218    100.0%   15.3%   6,000    96    15.98 
Litchfield Market Village  Pawleys Island, SC   25    86,740    98.5%   98.5%   85,477    1,085    12.70 
Lumber River Village  Lumberton, NC   11    66,781    100.0%   100.0%   66,781    501    7.51 
Moncks Corner  Moncks Corner, SC   1    26,800    100.0%   100.0%   26,800    330    12.31 
Nashville Commons  Nashville, NC   12    56,100    100.0%   100.0%   56,100    665    11.86 
New Market Crossing  Mt. Airy, NC   13    117,076    100.0%   100.0%   117,076    1,045    8.93 
Parkway Plaza  Brunswick, GA   5    52,365    84.8%   84.8%   44,385    480    10.81 
Pierpont Centre  Morgantown, WV   15    111,162    98.5%   98.5%   109,437    1,063    9.71 

 

5

 

 

Property  Location  Number of
Tenants (1)
   Total Leasable
Square
Feet
   Percentage
Leased (1)
   Percentage
Occupied
   Total SF
Occupied
   Annualized
Base Rent
(in 000’s)
(2)
   Annualized
Base Rent
per Occupied
Sq. Foot
 
Port Crossing  Harrisonburg, VA   8    65,365    100.0%   100.0%   65,365   $865   $13.23 
Ridgeland  Ridgeland, SC   1    20,029    100.0%   100.0%   20,029    140    7.00 
Riverbridge Shopping Center  Carrollton, GA   10    91,188    96.9%   95.4%   86,975    721    8.29 
Rivergate Shopping Center  Macon, GA   24    193,960    87.5%   85.8%   166,362    2,338    14.05 
Sangaree Plaza  Summerville, SC   10    66,948    100.0%   100.0%   66,948    716    10.70 
Shoppes at Myrtle Park  Bluffton, SC   14    56,609    99.3%   99.3%   56,189    687    12.23 
South Lake  Lexington, SC   11    44,318    100.0%   100.0%   44,318    259    5.84 
South Park  Mullins, SC   3    60,734    84.9%   84.9%   51,543    365    7.08 
South Square  Lancaster, SC   6    44,350    81.0%   81.0%   35,900    305    8.49 
St. George Plaza  St. George, SC   9    59,174    100.0%   100.0%   59,174    466    7.87 
Sunshine Plaza  Lehigh Acres, FL   23    111,189    100.0%   100.0%   111,189    1,113    10.01 
Surrey Plaza  Hawkinsville, GA   4    42,680    100.0%   100.0%   42,680    258    6.05 
Tampa Festival  Tampa, FL   21    141,580    100.0%   74.9%   105,980    1,029    9.71 
Tri-County Plaza  Royston, GA   7    67,577    90.7%   90.7%   61,277    434    7.08 
Tuckernuck  Richmond, VA   16    93,391    96.9%   96.9%   90,462    1,057    11.69 
Twin City Commons  Batesburg-Leesville, SC   5    47,680    100.0%   100.0%   47,680    490    10.27 
Village of Martinsville  Martinsville, VA   22    288,254    100.0%   100.0%   288,254    2,441    8.47 
Waterway Plaza  Little River, SC   10    49,750    100.0%   100.0%   49,750    505    10.15 
Westland Square  West Columbia, SC   12    62,735    100.0%   100.0%   62,735    533    8.50 
Winslow Plaza  Sicklerville, NJ   18    40,695    100.0%   100.0%   40,695    663    16.30 
   WHLR TOTAL   779    5,309,936    95.9%   93.6%   4,970,984   $49,819   $10.02 
CDR                                      
Brickyard Plaza  Berlin, CT   10    227,598    97.8%   97.8%   222,598   $2,024   $9.09 
Carll’s Corner  Bridgeton, NJ   5    116,532    19.4%   19.4%   22,554    267    11.84 
Coliseum Marketplace  Hampton, VA   9    106,648    94.9%   94.9%   101,198    1,217    12.03 
Fairview Commons  New Cumberland, PA   11    50,119    87.7%   87.7%   43,969    512    11.63 
Fieldstone Marketplace  New Bedford, MA   10    193,970    75.5%   71.7%   139,139    1,655    11.90 
Gold Star Plaza  Shenandoah, PA   7    71,720    100.0%   100.0%   71,720    642    8.95 
Golden Triangle  Lancaster, PA   19    202,790    98.4%   98.4%   199,605    2,619    13.12 
Hamburg Square  Hamburg, PA   7    102,058    100.0%   100.0%   102,058    689    6.75 
Kings Plaza  New Bedford, MA   17    168,243    98.5%   98.5%   165,743    1,444    8.71 
Oakland Commons  Bristol, CT   2    90,100    100.0%   100.0%   90,100    574    6.37 
Oregon Avenue (5)  Philadelphia, PA           %   %            
Patuxent Crossing  California, MD   27    264,068    81.6%   81.6%   215,589    2,646    12.27 
Pine Grove Plaza  Brown Mills, NJ   13    79,306    77.6%   77.6%   61,526    742    12.05 
South Philadelphia  Philadelphia, PA   10    221,511    88.1%   68.3%   151,388    1,432    9.46 
Southington Center  Southington, CT   11    155,842    100.0%   100.0%   155,842    1,288    8.27 
Timpany Plaza  Gardner, MA   14    182,799    81.8%   63.3%   115,735    1,121    9.68 
Trexler Mall  Trexlertown, PA   22    342,541    99.7%   98.9%   338,788    3,710    10.95 
Washington Center Shoppes  Sewell, NJ   29    157,300    97.5%   95.9%   150,800    1,895    12.56 
Webster Commons  Webster, MA   9    98,984    100.0%   100.0%   98,984    1,278    12.91 
   CDR TOTAL   232    2,832,129    89.6%   86.4%   2,447,336   $25,755   $10.52 
                                       
   COMBINED TOTAL   1,011    8,142,065    93.7%   91.1%   7,418,320   $75,574   $10.19 

 

(1)Reflects leases executed through December 31, 2023 that commence subsequent to the end of the current reporting period.
(2)Annualized based rent per occupied square foot; assumes base rent as of the end of the current reporting period; excludes the impact of tenant concessions and rent abatements.
(3)This information is not available because the property is undeveloped.
(4)Square footage is net of the Company’s on-premise management office and net of building square footage whereby the Company only leases the land.
(5)Includes property where a redevelopment opportunity exists.

 

6

 

 

Major Tenants

    

The following table sets forth information regarding the ten largest tenants in our operating portfolio based on annualized base rent as of December 31, 2023.

 

Tenants  Category  Annualized
Base Rent
($ in 000s)
   % of Total
Annualized
Base Rent
   Total
Occupied
Square Feet
   Percent
Total
Leasable
Square Foot
   Annualized
Base Rent
Per Occupied
Square Foot
 
Food Lion  Grocery  $4,476    5.92%   549,000    6.74%  $8.15 
Dollar Tree (1)  Discount Retailer   2,214    2.93%   255,000    3.13%   8.68 
Kroger Co (2)  Grocery   2,097    2.77%   239,000    2.94%   8.77 
TJX Companies (3)  Discount Retailer   1,703    2.25%   195,000    2.39%   8.73 
Planet Fitness  Gym   1,497    1.98%   140,000    1.72%   10.69 
Piggly Wiggly  Grocery   1,363    1.80%   170,000    2.09%   8.02 
Lowes Foods (4)  Grocery   1,223    1.62%   130,000    1.60%   9.41 
Big Lots  Discount Retailer   1,100    1.46%   171,000    2.10%   6.43 
Kohl’s  Discount Retailer   1,031    1.36%   147,000    1.81%   7.01 
Winn Dixie  Grocery   984    1.30%   134,000    1.65%   7.34 
      $17,688    23.39%   2,130,000    26.17%  $8.30 

 

(1)Line item comprises 18 Dollar Tree stores and 7 Family Dollar stores.
(2)Line item comprises 4 Kroger stores, 1 Harris Teeter store and 3 fuel stations.
(3)Line item comprises 4 Marshall’s stores, 2 HomeGoods stores and 1 TJ Maxx store.
(4)Line item comprises 1 Lowes Foods store and 2 KJ’s Market stores.

 

Lease Expirations

    

The following table sets forth information with respect to the lease expirations of our properties as of December 31, 2023.

 

Lease Expiration Period  Number of Expiring Leases   Total Expiring Square Footage   % of Total Expiring Square Footage   % of Total Occupied Square Footage Expiring   Expiring Annualized Base Rent (in 000s)   % of Total Annualized Base Rent   Expiring Base Rent Per Occupied
Square Foot
 
Available       723,745    8.89%   %  $    %  $ 
Month-to-Month   16    75,333    0.93%   1.02%   620    0.82%   8.23 
2024   145    570,852    7.01%   7.70%   6,634    8.78%   11.62 
2025   159    904,927    11.11%   12.20%   9,635    12.75%   10.65 
2026   170    910,565    11.18%   12.27%   9,962    13.18%   10.94 
2027   139    691,220    8.49%   9.32%   8,711    11.53%   12.60 
2028   143    1,345,729    16.53%   18.14%   12,592    16.66%   9.36 
2029   74    745,647    9.16%   10.05%   6,970    9.22%   9.35 
2030   43    636,575    7.82%   8.58%   4,884    6.46%   7.67 
2031   32    441,000    5.42%   5.94%   4,288    5.67%   9.72 
2032   32    390,668    4.80%   5.27%   3,442    4.55%   8.81 
Thereafter   58    705,804    8.66%   9.51%   7,836    10.38%   11.10 
Total   1,011    8,142,065    100.00%   100.00%  $75,574    100.00%  $10.19 

 

7

 

 

Property Management and Leasing Strategy

 

We self-administer our property management and substantially all of our leasing activities and operating and administrative functions (including leasing, legal, acquisitions, development, data processing, finance and accounting). On-site functions such as maintenance, landscaping, sweeping, plumbing and electrical are subcontracted out at each location and, to the extent permitted by their respective leases, the cost of these functions is passed on to the tenants.

 

We believe that focused property management, leasing and customer retention are essential to maximizing the revenue per square foot, operating cash flow and value of our properties. Our primary goal in property management is to maintain an attractive shopping environment on a cost effective basis for our tenants.

 

The majority of our property management and leasing functions are supervised and administered by us. We maintain regular contact with our tenants and frequently visit each asset to ensure the proper implementation and execution of our market strategies. As part of our ongoing property management, we conduct regular physical property reviews to improve our properties, react to changing market conditions and ensure proper maintenance.

 

Our leasing representatives are experienced in the markets in which we operate; they are familiar with current tenants and potential local, regional, and national tenants that would complement our current tenant base. We study demographics, customer sales, merchandising mix and cultivate tenant relationships to optimize the sales performance of our centers and thereby increase rents. We believe this hands-on approach maximizes the value of our shopping centers.

 

Item 3.    Legal Proceedings.

    

See the discussion set forth under the heading “Commitments and Contingencies” in Note 8 to the accompanying audited consolidated financial statements.

 

Item 4.    Mine Safety Disclosures.

 

Not applicable.

 

8

 

 

Part II

 

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

    

Market Information

    

Our Common Stock is traded on Nasdaq under the symbol “WHLR.”

    

Approximate Number of Holders of Our Common Stock

    

As of March 4, 2024 there were 147 holders of record of our Common Stock. This number excludes stockholders whose stock is held in nominee or street name by brokers.

 

Dividend Policy

    

In March 2018, the Board of Directors suspended the payment of dividends on our Common Stock. The Board of Directors also suspended the quarterly dividends on shares of our Series A Preferred Stock (“Series A Preferred”), Series B Convertible Preferred Stock (“Series B Preferred”) and Series D Cumulative Convertible Preferred Stock (“Series D Preferred Stock”), beginning with the three months ended December 31, 2018.

 

As the Company has failed to pay cash dividends on the outstanding Series D Preferred Stock, the annual dividend rate on the Series D Preferred Stock has increased to 10.75%; commencing on the first day after the first missed quarterly payment, January 1, 2019 and will continue until such time as the Company has paid all accumulated and unpaid dividends on the Series D Preferred Stock in full. Commencing September 21, 2023, the Series D Preferred Stock holders are entitled to cumulative cash dividends at an annual dividend rate of 12.75% increased by 2% of the liquidation preference per annum on each subsequent anniversary thereafter, subject to a maximum annual dividend rate of 16%, including the 2% default rate. See Note 10, Equity and Mezzanine Equity, to the accompanying audited consolidated financial statements.

 

As a result of the dividend suspension on the Series D Preferred Stock, our Charter provides that no dividends may be declared or paid on the Common Stock or on our other outstanding preferred until all accumulated accrued and unpaid dividends on the Series D Preferred Stock have been paid in full. At this time, the Company does not intend to pay dividends other than those required dividend distributions, if any, that will enable us to maintain our REIT status and to eliminate or minimize our obligation to pay income and excise taxes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Future Liquidity Needs.”

 

Item 6.    Reserved

 

Item 7.    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 audited consolidated financial statements and the notes thereto included in this Form 10-K. All per share amounts, common units and shares outstanding, stock-based compensation, warrants, and conversion features of our Convertible Notes for all periods presented reflect the one-for-ten Reverse Stock Split, which took effect on August 17, 2023. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the audited consolidated financial statements included in this Form 10-K.

 

Company Overview

    

We are a Maryland corporation focused on owning, leasing and operating income producing grocery-anchored centers, neighborhood centers, community centers and free-standing retail properties. We have targeted properties located within developed areas, commonly referred to as in-fill, that are surrounded by communities that have strong demographics and dynamic, diversified economies that will continue to generate jobs and future demand for commercial real estate. Our primary target markets include the Mid-Atlantic, Southeast and Northeast.

 

9

 

 

Our portfolio is comprised of seventy-five retail shopping centers and four undeveloped land parcels. Twenty-one of these properties are located in South Carolina, twelve in Georgia, ten in Virginia, eight in Pennsylvania, six in North Carolina, four in Massachusetts, four in New Jersey, three in Florida, three in Connecticut, two in Kentucky, two in Tennessee, one in Alabama, one in Maryland, one in West Virginia, and one in Oklahoma. The Company’s portfolio had total gross rentable space of approximately 8,142,000 square feet and a leased level of approximately 93.7% at December 31, 2023.

 

In August 2022, the Company acquired Cedar, and as a result of such transaction acquired 19 shopping centers (the majority of which are grocery-anchored), which increased the Company’s presence in the Northeast.

 

The consolidated financial statements included in this Form 10-K include Cedar starting from the date of acquisition. We have determined that this acquisition is not a variable interest entity, as defined under the consolidation topic of the Financial Accounting Standards Board (the “FASB”), Accounting Standards Codification, or ASC, and we evaluated such entity under the voting model and concluded we should consolidate the entity. Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting rights and that other equity holders do not have substantive participating rights.

 

Recent Trends and Activities

 

There have been several significant events in 2023 that have impacted our Company. These events are summarized below.

 

Series D Preferred Stock - Exchange Offer and Consent Solicitation

 

On November 22, 2022, the Company commenced an exchange offer (the “Exchange Offer”), which, as subsequently amended, provided for the exchange of up to 2,112,103 outstanding shares of Series D Preferred Stock, representing 67% of the outstanding shares of Series D Preferred Stock, for (i) 6.00% Subordinated Convertible Notes due 2028, and (ii) Common Stock, in each case to have been newly issued by the Company. As of the expiration of the Exchange Offer on January 20, 2023, 864,391 shares of Series D Preferred Stock (representing 26.8% of the total outstanding Series D Preferred Stock) had been validly tendered (and not validly withdrawn) in the Exchange Offer. Accordingly, the condition that the holders of at least 66 2/3% of the outstanding shares of Series D Preferred Stock validly tender their Series D Preferred Stock into the Exchange Offer had not been satisfied and the Exchange Offer expired on January 20, 2023.

  

Series D Preferred Stock - Redemptions

 

After September 21, 2023, each holder of the Series D Preferred Stock has the right, at such holder’s option, to request that the Company redeem any or all of such holder’s shares on a monthly basis (each redemption date, a “Holder Redemption Date”), 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 Holder Redemption Date, payable in cash or in shares of Common Stock, or any combination thereof, at the Company’s option. Redemptions commenced on September 22, 2023, and the first Holder Redemption Date was October 5, 2023.

 

During the year ended December 31, 2023, the Company processed 175 redemption requests, collectively redeeming 864,070 shares of Series D Preferred Stock. Accordingly, during the year ended December 31, 2023, the Company issued 52,788,687 shares of Common Stock in settlement of an aggregate redemption price of approximately $32.7 million.

 

At December 31, 2023, the Company had received requests to redeem 9,843 shares of Series D Preferred Stock with respect to the January 2024 Holder Redemption Date. As such, the redemption of these Series D Preferred Stock is considered certain at December 31, 2023 and the liquidation value associated with these shares of $0.4 million is presented as a liability.

 

10

 

 

Dispositions

 

At December 31, 2023 and 2022, there were no assets held for sale.

 

The following properties were sold during the year ended December 31, 2023 (in thousands):

 

Disposal Date  Property  Contract Price   Gain   Net Proceeds 
July 11, 2023  Carll’s Corner Outparcel - Bridgeton, New Jersey  $3,000   $2,204   $2,759 

 

Land Acquisitions

 

On February 21, 2023, the Company purchased a 2.5 acre land parcel adjacent to St. George Plaza, located in St. George, South Carolina, for $0.2 million.

 

On August 18, 2023, the Company purchased a 3.25 acre land parcel within Devine Street, located in Columbia, South Carolina, for $4.1 million (the “Devine Street Land Acquisition”). The Devine Street Land Acquisition terminated the Company’s ground lease associated with this property, a savings of $0.3 million in annual ground rent.

 

Term Loan Agreement, 12 properties

 

On May 5, 2023, the Company entered into a loan agreement (the “Term Loan Agreement, 12 properties”) for $61.1 million at a fixed rate of 6.194% and interest-only payments due monthly through June 2025. Commencing in July 2025, until the maturity date of June 1, 2033, monthly principal and interest payments will be $0.4 million. Loan proceeds were used to refinance loans on 12 properties, including $1.1 million in defeasance.

 

Term Loan Agreement, 8 properties

 

On May 18, 2023, the Company entered into a loan agreement (the “Term Loan Agreement, 8 properties”) for $53.1 million at a fixed rate of 6.24% and interest-only payments due monthly through June 2028. Commencing in July 2028, until the maturity date of June 10, 2033, monthly principal and interest payments will be $0.3 million. Loan proceeds were used to refinance loans on 8 properties, including $0.7 million in defeasance.

 

Timpany Plaza Loan Agreement

 

On September 12, 2023, the Company entered into a loan agreement (the “Timpany Plaza Loan Agreement”) for $11.6 million at a fixed rate of 7.27% with interest-only payments due monthly for the first twelve months. Commencing on September 12, 2024, until the maturity date of September 12, 2028, monthly principal and interest payments will be made based on a 30-year amortization schedule calculated based on the principal amount as of that time. On the closing date, the Company received $9.1 million of the $11.6 million, and the remaining $2.5 million will be received upon the satisfaction of certain lease-related contingencies within one year of the agreement date. The Timpany Plaza Loan Agreement is collateralized by the Timpany Plaza shopping center.

 

11

 

 

Convertible Notes

 

The Company’s Convertible Notes bear interest at a rate of 7.00% per annum. Interest on the Convertible Notes is payable semi-annually in arrears on June 30 and December 31 of each year.

 

Interest expense on the Convertible Notes consists of the following (in thousands, except for shares):

 

For the years ended December 31,  Series B Preferred
number of shares (1)
   Series D Preferred Stock
number of shares (1)
   Convertible Note interest
at 7% coupon
   Fair value
adjustment
   Interest
expense
 
2023       306,380   $2,259   $1,649   $3,908 
2022   1,511,541       $2,310   $1,429   $3,739 

 

(1)Shares issued as interest payment on Convertible Notes.

 

On June 8, 2023, the Company paid down $0.6 million of the Convertible Notes through an open market purchase of 23,784 units totaling $1.2 million. On September 11, 2023, the Company paid down $0.9 million of the Convertible Notes through an open market purchase of 35,000 units totaling $1.9 million. As a result of these transactions the Company recognized a $1.6 million loss for the year ended December 31, 2023 which represents the fair value of the purchase over principal pay down. The loss is included in “other expense” on the consolidated statements of operations.

 

As of December 5, 2023, the Conversion Price (as defined below) for the Convertible Notes was approximately $0.21 per share of the Company’s Common Stock (approximately 116.46 shares of Common Stock for each $25.00 of principal amount of the Convertible Notes being converted).

 

As of February 5, 2024, the Conversion Price for the Convertible Notes was approximately $0.12 per share of the Company’s Common Stock (approximately 209.84 shares of Common Stock for each $25.00 of principal amount of the Convertible Notes being converted).

 

Related Party Transactions

 

Management and Leasing Services for Cedar

 

The Company performs property management and leasing services for Cedar, a subsidiary of the Company. During the years ended December 31, 2023 and 2022, Cedar paid the Company $2.1 million and $1.0 million, respectively, for these services. Related party amounts due to the Company from Cedar were $8.1 million and $7.3 million as of December 31, 2023 and 2022, respectively, and have been eliminated for consolidation purposes.

 

Investment in Stilwell Activist Investments, L.P

 

On June 1, 2023, the Company subscribed for an investment in the amount of $3.0 million for limited partnership interests in Stilwell Activist Investments, L.P., a Delaware limited partnership (“SAI”). On September 1, 2023 and November 30, 2023, the Company subscribed for additional investments each in the amount of $3.5 million for limited partnership interests in SAI.

 

The Company’s SAI investment is accounted for under the equity method and measured at net asset value as a practical expedient and has not been classified within the fair value hierarchy. All gains and losses, realized and unrealized, and fees are recorded through “gains (losses) on investment securities, net” on the consolidated statements of operations. As of December 31, 2023, the fair value of the Company’s SAI investment was $10.7 million, which includes $10.0 million from subscriptions and $0.2 million in fees. Unrealized gains on investment securities, net of fees were $0.7 million for the year ended December 31, 2023. See Note 4 to the accompanying audited consolidated financial statements for additional details.

 

The Company’s initial subscription in SAI was approved by the disinterested directors of the Company, and, after the formation of the Related Person Transactions Committee, the further subscriptions in SAI were approved by that Committee.

 

12

 

 

Excepted Holder Limits

 

On December 4, 2023, the Board of Directors, under the terms of the Charter, created a Capital Stock Excepted Holder Limit of 55% and a Common Stock Excepted Holder Limit of 86% for each of SAI, Stilwell Activist Fund, L.P., Stilwell Value Partners VII, L.P., and Stilwell Associates, L.P. (collectively, the “Investors”). Joseph Stilwell, a member of our Board of Directors, is the managing member and owner of Stilwell Value LLC, which is the general partner of each of the Investors.

 

On December 5, 2023, the Company entered into an Excepted Holder Agreement with the Investors with respect to such limits. The Capital Stock Excepted Holder Limit provides that the Investors are exempted from the Charter’s aggregate stock ownership limit of not more than 9.8% in value of the aggregate of the outstanding shares of all classes of the Company’s capital stock (as calculated under the definitions of “Aggregate Stock Ownership Limit” and “Beneficial Ownership” in the Charter) and are instead subject to the percentage limit established by the Board of Directors. The Common Stock Excepted Holder Limit provides that the Investors are exempted from the Charter’s common stock ownership limit of not more than 9.8% in value of the aggregate of the outstanding shares of the Company’s Common Stock (as calculated under the definitions of “Common Stock Ownership Limit” and “Beneficial Ownership” in the Charter) and is instead subject to the percentage limit established by the Board of Directors. The Capital Stock Excepted Holder Limit and Common Stock Excepted Holder Limit will automatically terminate upon reduction of the Investors’ capital stock and Common Stock ownership below 9.8%, respectively.

 

In consideration of the grant of these Excepted Holder Limits, the Investors concurrently entered into a one-year letter agreement with the Company whereby each Investor agreed that it will not exercise its right to convert the Convertible Notes into shares of Common Stock to the extent that such conversion would result in such Investor, whether on its own or as part of a “group” within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), becoming the direct or indirect “beneficial owner”, as defined in Rule 13d-3 under the Exchange Act, of common equity of the Company representing 50% or more of the total voting power of all outstanding shares of common equity of the Company that is entitled to vote generally in the election of directors.

 

Following the transfer of Common Stock to the Investors in consideration of the February 2024 Series D Preferred Stock redemptions made by the Investors, the Investors would have beneficially owned or constructively owned an amount of capital stock in excess of the Prior Excepted Holder Limits. On February 5, 2024, the Board of Directors agreed to increase the prior Excepted Holder Limits to permit this additional ownership and, accordingly, the Company entered into an amendment to the Excepted Holder Agreement with the Investors under which the Company increased the Capital Stock Excepted Holder Limit granted to Investors under the Excepted Holder Agreement to 60% and the Common Stock Excepted Holder Limit to 90%.

 

Preferred Dividends

 

Commencing September 21, 2023, the Series D Preferred Stock holders were entitled to cumulative cash dividends at an annual dividend rate of 12.75% increased by 2% of the liquidation preference per annum on each subsequent anniversary thereafter, subject to a maximum annual dividend rate of 16%, including the 2% default rate. The total cumulative dividends in arrears for Series D Preferred Stock is $32.3 million as of December 31, 2023 (per share $12.48).

 

13

 

 

New Leases and Leasing Renewals

 

The following table presents selected lease activity statistics for our properties:  

 

   Years Ended December 31, 
   2023   2022 
Renewals(1):        
Leases renewed with rate increase (sq feet)   712,873    676,814 
Leases renewed with rate decrease (sq feet)       62,771 
Leases renewed with no rate change (sq feet)   295,173    284,461 
Total leases renewed (sq feet)   1,008,046    1,024,046 
           
Leases renewed with rate increase (count)   116    104 
Leases renewed with rate decrease (count)       11 
Leases renewed with no rate change (count)   20    28 
Total leases renewed (count)   136    143 
           
Options exercised (count)   31    18 
           
Weighted average on rate increases (per sq foot)  $0.86   $1.29 
Weighted average on rate decreases (per sq foot)  $   $(1.17)
Weighted average rate (per sq foot)  $0.61   $0.78 
           
Weighted average change over prior rates   6.54%   8.29%
           
New Leases(1) (2):          
New leases (sq feet)   435,099    374,149 
New leases (count)   70    79 
Weighted average rate (per sq foot)  $12.42   $11.27 
           

 

(1)Lease data presented is based on average rate per square foot over the renewed or new lease term.
(2)The Company does not include ground leases entered into for the purposes of new lease sq feet and weighted average rate (per sq foot) on new leases.

   

Critical Accounting Estimates

 

The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

The critical accounting estimates and policies summarized in this section are discussed in further detail in the notes to the consolidated financial statements appearing elsewhere in this Form 10-K. We believe that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition. The following accounting estimates are considered critical because they are particularly dependent on management’s judgment about matters that have a significant level of uncertainty at the time the accounting estimates are made, and changes to those estimates could have a material impact on our financial condition or operating results.

 

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Revenue Recognition

   

Principal components of our total revenues include base and percentage rents and tenant reimbursements. The Company combines lease and nonlease components in lease contracts, which includes combining base rent and tenant reimbursement revenue. We accrue minimum (base) rent 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. Certain lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent) which we recognize when the tenants achieve the specified targets as defined in their lease agreements. Although we periodically review the valuation of the asset/liability resulting from the straight-line accounting treatment of our leases in light of any changes in lease terms, financial condition or other factors concerning our tenants, they are subject to uncertainty. These assessments are inherently sensitive as they are based on the judgment of management and information available at the time of evaluation.

 

Rents and Other Tenant Receivables

 

We record a tenant receivable for amounts due from tenants such as base rents, tenant reimbursements and other charges allowed under the lease terms. We periodically review tenant receivables for collectability and determine the need for an allowance for the uncollectible portion of accrued rents and other accounts receivable based upon customer creditworthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels and current economic trends. We consider a receivable past due once it becomes delinquent per the terms of the lease; our standard lease form considers a rent charge past due after five days. A past due receivable triggers certain events such as notices, fees and other allowable and required actions per the lease.

 

Acquired Properties and Lease Intangibles

 

We allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values. Identifiable intangibles include amounts allocated to acquired out-of-market leases, tenant relationships, the value of in-place leases and ground. We determine 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. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Such amounts are based on estimates and forecasts which, by their nature, are highly subjective and may result in future changes in the event forecasts are not realized.

 

Impairment of Long-Lived Assets

 

We periodically review investment properties for impairment on a property-by-property basis or whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable, with an evaluation performed at least annually. These circumstances include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. We measure 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. To the extent impairment has occurred, we charge to income the excess of carrying value of the property over its estimated fair value. We estimate fair value using unobservable data such as operating income, estimated capitalization rates or multiples, leasing prospects 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.

 

The Company may decide to sell properties. 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.

 

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Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants and convertible notes, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statement of operations. The assumptions used in these fair value estimates 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.

 

Series D Preferred Stock

 

The Series D Preferred Stock was initially classified as mezzanine equity because the redemption provisions were conditional upon the occurrence of an event that was not certain. The Series D Preferred Stock was valued at net proceeds plus accrued and unpaid dividends. In 2023, this event became certain and in accordance with Accounting Standards Codification (“ASC”) 480, the Series D Preferred Stock was revalued at the redemption price which includes undeclared dividends, representing liquidation value. The adjustment to liquidation value was recognized in accumulated deficit as an adjustment to redemption value. Additionally, in accordance with ASC 480, as holders exercise their redemption rights the Series D Preferred Stock becomes mandatorily redeemable and the liquidation value of their exercise is classified as a liability.

 

Liquidity and Capital Resources

 

At December 31, 2023, our consolidated cash, cash equivalents and restricted cash totaled $39.8 million compared to consolidated cash, cash equivalents and restricted cash of $55.9 million at December 31, 2022. Cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2023 and 2022 are as follows (in thousands):

 

   Years Ended December 31,   Year Over Year Change 
   2023   2022   $   % 
Operating activities  $20,934   $30,758   $(9,824)   (31.9)%
Investing activities  $(31,521)  $(133,512)  $101,991    76.4%
Financing activities  $(5,471)  $118,200   $(123,671)   (104.6)%

 

Operating Activities

 

Our cash flows from operating activities were $20.9 million and $30.8 million during the years ended December 31, 2023 and 2022, respectively, representing a decrease of 31.9% or $9.8 million primarily due to (1) a $12.5 million decrease in net changes in operating assets and liabilities due to timing of receipts and payments, (2) an $11.1 increase in corporate administrative expenses, interest expense and other expenses, offset by (3) a $13.5 million increase in net operating income (“NOI”) not attributable to same properties a result of the Cedar Acquisition.

 

Investing Activities

 

Our cash flows used in investing activities were $31.5 million during the year ended December 31, 2023, compared to cash flows used in investing activities of $133.5 million during the year ended December 31, 2022, representing a decrease of 76.4% primarily due to (1) $135.5 million costs due to the Cedar Acquisition, described in Note 3 included in the accompanying audited consolidated financial statements, partially offset by (2) $11.5 million increase in capital expenditures, (3) $10.0 million subscription in SAI, (4) $4.2 million in 2023 acquisitions and (5) $7.8 million decrease in cash received from disposal of properties.

 

16

 

 

Financing Activities

 

Our cash flows used in financing activities were $5.5 million during the year ended December 31, 2023, compared to cash flows from financing activities of $118.2 million for the comparable period in 2022.

 

Financing activities during the year ended December 31, 2023 primarily consists of:

 

Cash inflows:

 

$16.4 million 2023 loan refinancing activities, net, including the Timpany Plaza Loan Agreement;

 

Cash outflows:

 

$10.8 million for distributions paid on noncontrolling interests;

 

$4.4 million payments for deferred financing costs;

 

$1.8 million defeasance payments;

 

$3.1 million repurchase of debt securities; and

 

$1.8 million scheduled loan principal payments on debt.

 

Financing activities during the year ended December 31, 2022 primarily consisted of:

 

Cash inflows:

 

$19.3 million 2022 loan refinancing activities, net; and

 

$130.0 million loan related to the Cedar Acquisition;

 

Cash outflows:

 

$12.7 million payments for deferred financing costs;

 

$4.4 million scheduled loan principal payments on debt;

 

$5.6 million loan principal payment related to the sale of Butler Square;

 

$3.1 million loan principal payment related to the sale of Walnut Hill Plaza;

 

$2.7 million for distributions paid on noncontrolling interests; and

 

$2.6 million defeasance payments.

 

The Company continues to endeavor to manage its debt prudently with the objective of achieving a conservative capital structure and minimizing leverage within the Company. Our debt balances, excluding unamortized debt issuance costs, consisted of the following (in thousands):

 

   December 31, 
   2023   2022 
Fixed-rate notes  $495,572   $482,447 
           
Total debt  $495,572   $482,447 

  

The weighted average interest rate and term of our fixed-rate debt are 5.42% and 8.2 years, respectively, at December 31, 2023. The weighted average interest rate and term of our fixed-rate debt was 4.99% and 7.4 years, respectively, at December 31, 2022. We have $7.2 million of debt maturing during the year ending December 31, 2024. While we anticipate being able to refinance all the loans at reasonable market terms upon maturity, our inability to do so may materially impact our financial position and results of operations. See Note 6 to the accompanying audited consolidated financial statements for additional mortgage indebtedness details.

 

17

 

 

Nasdaq Notices

 

On June 26, 2023, the listing qualifications staff (the “Staff”) of Nasdaq notified the Company that based on the Common Stock’s bid price closing below $1.00 per share for 30 consecutive business days, the Company no longer complied with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”) and that it had 180 calendar days to regain compliance. This rule requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days.

 

In response, the Board of Directors determined that it was advisable to amend the Company’s charter to effect a one-for-ten reverse stock split of the Company’s Common Stock, which reverse stock split was subsequently effected on August 17, 2023.

 

Primarily as a result of this reverse stock split, the closing bid price of the Company’s Common Stock was at least $1.00 per share for a minimum of ten consecutive business days, and the Company regained compliance with Nasdaq’s Bid Price Rule on September 1, 2023.

 

However, the Company’s Common Stock bid price has again come under significant downward pressure primarily as a result of the Company’s Series D Preferred Stock holders having the right, at each such holder’s option, after September 21, 2023, to require the Company to redeem on a monthly basis any or all of such holder’s shares of Series D Preferred Stock at a redemption price of $25.00 per share, plus an amount equal to all accrued but unpaid dividends, if any, to and including the Holder Redemption Date. This holder redemption price may be paid in cash or in equal value of shares of Common Stock, or in any combination thereof, at the Company’s option.

 

The Company has chosen to pay the monthly redemption price in equal value of shares of Common Stock.

 

On December 7, 2023, the Staff again notified the Company that based on the Common Stock’s bid price closing below $1.00 per share for 30 consecutive business days, the Company no longer complied with Nasdaq’s Bid Price Rule and that it had a 180-day compliance period until June 4, 2024 to regain compliance.

 

Material Cash Requirements, Contractual Obligations and Commitments

 

Our expected material cash requirements for the year ended December 31, 2024 and thereafter are comprised of (i) contractually obligated expenditures; (ii) other essential expenditures; and (iii) opportunistic expenditures.

 

The primary liquidity needs of the Company, in addition to the funding of our ongoing operations, at December 31, 2023 are $7.2 million in principal and regularly scheduled payments due in the year ended December 31, 2024 as described in Note 6 to the accompanying audited consolidated financial statements.

 

In addition, the Company has $3.1 million outstanding construction commitments at December 31, 2023.

 

In addition to liquidity required to fund debt payments and construction commitments, we may incur some level of capital expenditures during the year for our existing properties that cannot be passed on to our tenants.

 

To meet these future liquidity needs, the Company:

 

had $18.4 million in cash and cash equivalents at December 31, 2023;

 

had $21.4 million held in lender reserves for the purpose of tenant improvements, lease commissions, real estate taxes and insurance at December 31, 2023; and

 

intends to use cash generated from operations during the year ended December 31, 2024.

  

Additionally, the Company plans to undertake measures to grow its operations and increase liquidity through delivering space currently leased but not yet occupied, backfilling vacant anchor spaces, replacing tenants who are in default of their lease terms, increasing future lease revenue through tenant improvements partially funded by restricted cash, disposition of non-core assets in the ordinary course of business and refinancing properties.

 

Our success in executing on our strategy will dictate our liquidity needs going forward. If we are unable to execute in these areas, our ability to grow may be limited without additional capital.

 

18

 

 

Convertible Notes

 

The Convertible Notes could have the effect of causing, if interest is paid in the future in shares of Series D Preferred Stock, substantial dilution of the Series D Preferred Stock and reduction in the value of any Series D Preferred Stock. In addition, depending on the prices at which the ongoing monthly redemptions of Series D Preferred Stock occur, the conversion price for the Convertible Notes could be repeatedly adjusted downwards which would in turn cause significant pressure on the value of the Company’s Common Stock.

 

Series D Preferred Stock

 

As of December 31, 2023, the outstanding Series D Preferred Stock had an aggregate liquidation preference of approximately $64.8 million, with aggregate accrued and unpaid dividends in the amount of approximately $32.3 million, for a total liquidation value of $97.1 million. After September 21, 2023, each holder of Series D Preferred Stock has the right, at such holder’s option, to request that the Company redeem any or all of such holder’s shares of Series D Preferred Stock on a monthly basis.

 

As the Series D Preferred Holders’ continue to exercise their redemption rights on a monthly basis, the Company will continue to pay the aggregate redemption price in shares of our Common Stock. The Company does not believe it is in its interests to liquidate assets or incur indebtedness to fund cash redemptions of the Series D Preferred Stock and, accordingly, it has no intention of doing so. Therefore, the Company intends to continue to settle redemptions of Series D Preferred Stock in Common Stock. We believe that the issuance of Common Stock to settle redemptions in Common Stock will continue to result in a substantial dilution of the outstanding Common Stock.

 

Recent Accounting Pronouncements

   

See Note 2 to the accompanying audited consolidated financial statements beginning on page 35 of this Annual Report on Form 10-K.

 

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

 

Results of Operations

 

The following table presents a comparison of the consolidated statements of operations for the years ended December 31, 2023 and 2022, respectively (in thousands).

 

   For the Years Ended December 31,   Changes 
   2023   2022   Dollars   Percent 
                 
Revenues  $102,325   $76,645   $25,680    33.5%
                     
Property operating expense   34,870    25,731    9,139    35.5%
Property operating income   67,455    50,914    16,541      
Depreciation and amortization   (28,502)   (19,540)   (8,962)   45.9%
Impairment of assets held for sale       (760)   760    n/a 
Corporate general & administrative   (11,750)   (8,620)   (3,130)   36.3%
                     
Gain on disposal of properties   2,204    2,604    (400)   (15.4)%
                     
Interest income   484    65    419    644.6%
Gain on investment securities, net   685        685    n/a 
Interest expense   (32,314)   (30,107)   (2,207)   (7.3)%
Net changes in fair value of derivative liabilities   3,458    (2,335)   5,793    248.1%
Gain on preferred stock redemptions   9,893        9,893    n/a 
Other expense   (5,482)   (691)   (4,791)   (693.3)%
                     
Income tax expense   (48)       (48)   n/a 
Net Income (Loss)   6,083    (8,470)   14,553      
Less: Net income attributable to noncontrolling interests   10,770    3,984    6,786    170.3%
Net Loss Attributable to Wheeler REIT  $(4,687)  $(12,454)  $7,767      

 

Revenues were higher primarily as a result of (1) an increase in rental revenues of $25.1 million, which is primarily due to a $21.1 million increase in property revenues from the Cedar Acquisition, partially offset by 2022 property sales, (2) an increase of $2.8 million in market lease amortization and (3) an increase of $1.1 million in same-property revenues. See Same-Property Net Operating Income for further details about the changes within operating revenue.

 

19

 

 

Property Operating expenses were higher primarily as a result of (1) an increase of $7.6 million in property operating expenses from the Cedar Acquisition, partially offset by 2022 property sales and (2) an increase of $1.5 million in same-property expenses.

 

Impairment was lower primarily as a result of the Harbor Point Land Parcel (defined below) held for sale in 2022.

 

Depreciation and amortization were higher primarily as a result of the Cedar Acquisition.

 

Corporate general and administrative expenses were higher primarily as a result of (1) an increase of $1.2 million in professional fees primarily a result of the Cedar Acquisition, (2) an increase of $1.1 million in compensation and benefits primarily driven by hiring more employees due to the Cedar Acquisition and payroll related costs, and (3) an increase of $0.7 million in corporate administration costs primarily a result of the Cedar Acquisition.

   

Interest expense was higher primarily as a result of a full year of the Cedar Acquisition. Below is a comparison of the components which make up interest expense (in thousands):

 

   December 31,   Changes 
   2023   2022   Dollars   % Change 
Property debt interest - excluding Cedar debt  $16,153   $14,717   $1,436    9.8%
Convertible Notes interest (1)   3,908    3,739    169    4.5%
Defeasance paid   1,758    2,614    (856)   (32.7)%
Amortization of deferred financing costs   2,860    6,098    (3,238)   (53.1)%
Property debt interest - Cedar   7,635    2,939    4,696    159.8%
   Total Interest Expense  $32,314   $30,107   $2,207    7.3%

 

(1)Includes the fair value adjustment for the paid-in-kind interest.

 

Net changes in the fair value of derivative liabilities increased, which represents a non-cash adjustment from a change in the fair value that includes adjustments in valuation assumptions. See Note 7 to the accompanying audited consolidated financial statements for additional details.

 

Gain on preferred stock redemptions is a result of the redemptions of Series D Preferred Stock. The value of the Common Stock issued to holders redeeming their Series D Preferred Stock is the volume weighted average price per share of our Common Stock for the ten consecutive trading days immediately preceding, but not including, the Holder Redemption Date as reported on Nasdaq (the “VWAP”). During the year ended December 31, 2023, the Company has realized a gain of $9.9 million in the aggregate due to the closing price of the Common Stock on the last VWAP date differing from the VWAP used to calculate the shares issued in each redemption round.

 

Other expense represents expenses which are non-operating in nature. Other expenses were $5.5 million for the year ended December 31, 2023, which consists of capital structure transaction costs. Other expenses were $0.7 million for the year ended December 31, 2022, which consisted of legal settlement costs.

 

Same-Property Net Operating Income

   

NOI is a widely-used non-GAAP financial measure for REITs. The Company believes that NOI is a useful measure of the Company’s property operating performance. The Company defines NOI as property revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes). Because NOI excludes general and administrative expenses, depreciation and amortization, interest expense, interest income, provision for income taxes, gain or loss on sale or capital expenditures and leasing costs and impairment charges, it provides a performance measure, that when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing perspective not immediately apparent from net income. The Company uses NOI to evaluate its operating performance since NOI allows the Company to evaluate the impact of factors, such as occupancy levels, lease structure, lease rates and tenant base, have on the Company’s results, margins and returns. NOI should not be viewed as a measure of the Company’s overall financial performance since it does not reflect general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes, straight-line rents, market lease amortization, gain or loss on sale or disposition of assets, and the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company’s properties. Other REITs may use different methodologies for calculating NOI, and accordingly, the Company’s NOI may not be comparable to that of other REITs.

 

20

 

 

 

The following table is a reconciliation of same-property NOI from operating income (the most directly comparable GAAP financial measure). Same-property NOI consists only of those properties owned during the entirety of all periods presented.

 

   Year Ended December 31, 
   2023   2022 
   (in thousands) 
Operating Income  $29,407   $24,598 
Adjustments:          
Gain on disposal of properties   (2,204)   (2,604)
Corporate general & administrative   11,750    8,620 
Impairment of assets held for sale       760 
Depreciation and amortization   28,502    19,540 
Straight-line rents   (1,370)   (800)
Above (below) market lease amortization, net   (4,849)   (2,079)
Other non-property revenue   (135)   (23)
NOI related to properties not defined as same-property   (20,061)   (6,607)
Same-Property Net Operating Income  $41,040   $41,405 

 

Total same-property NOI was $41.0 million and $41.4 million for the years ended December 31, 2023 and 2022, respectively, representing a decrease of 0.9%. Same-property NOI was impacted by (1) $1.3 million increase in rental revenue driven by strong leasing activity, (2) $0.3 million increase in other revenues due to termination fees and enterprise zone credits; (3) $0.2 million savings in rent expense due to the purchase of the Devine Street Land Acquisition, which terminated the Company’s ground lease associated with this property, offset by a (4) $1.4 million increase in property operating expenses necessary as part of financing requirements, (5) $0.3 million demolition of an outparcel building that was placed out of service and (6) an increase in credit losses from tenants of $0.5 million.

 

NOI related to properties not defined as same-properties for the year ended December 31, 2023 and 2022 is attributable to the Cedar Acquisition and the 2022 property sales. The Cedar Acquisition had property revenues of $33.2 million and $11.0 million, respectively, and property expenses of $13.1 million and $5.0 million, respectively, for the years ended December 31, 2023 and 2022.

 

Funds from Operations

 

We use funds from operations (“FFO”), a non-GAAP measure, as an alternative measure of our operating performance, specifically as it relates to results of operations and liquidity. We compute FFO in accordance with standards established by the Board of Governors of Nareit in its March 1995 White Paper (as amended in November 1999, April 2002 and December 2018). As defined by Nareit, FFO represents net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate-related depreciation and amortization (excluding amortization of loan origination costs), plus impairment of real estate related long-lived assets and after adjustments for unconsolidated partnerships and joint ventures. Most industry analysts and equity REITs, including us, consider FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses on dispositions and excluding depreciation, FFO is a helpful tool that can assist in the comparison of the operating performance of a company’s real estate between periods, or as compared to different companies. Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, while historically real estate values have risen or fallen with market conditions. Accordingly, we believe FFO provides a valuable alternative measurement tool to GAAP when presenting our operating results.

 

21

 

 

We believe the computation of FFO in accordance with Nareit’s definition includes certain items that are not indicative of the results provided by our operating portfolio and affect the comparability of our period-over-period performance. These items include, but are not limited to, legal settlements, non-cash share-based compensation expense, non-cash amortization on loans and acquisition costs. Therefore, in addition to FFO, management uses Adjusted FFO (“AFFO”), which we define to exclude such items. Management believes that these adjustments are appropriate in determining AFFO as they are not indicative of the operating performance of our assets. In addition, we believe that AFFO is a useful supplemental measure for the investing community to use in comparing us to other REITs as many REITs provide some form of adjusted or modified FFO. However, there can be no assurance that AFFO presented by us is comparable to the adjusted or modified FFO of other REITs.

 

A reconciliation of net income (loss) to FFO available for common shareholders and AFFO (in thousands):

 

   Years Ended December 31, 
   2023   2022 
Net income (loss)  $6,083   $(8,470)
Depreciation and amortization of real estate assets   28,502    19,540 
Impairment of assets held for sale       760 
Gain on disposal of properties   (2,204)   (2,604)
FFO   32,381    9,226 
Preferred stock dividends - undeclared   (9,262)   (9,056)
Dividends on noncontrolling interests preferred stock   (10,752)   (3,913)
Preferred stock accretion adjustments   460    584 
FFO available to common stockholders and common unitholders   12,827    (3,159)
           
Other non-recurring and non-cash expenses   2,051    3,092 
Gain on investment securities, net   (685)    
Net changes in fair value of derivative liabilities   (3,458)   2,335 
Gain on preferred stock redemptions   (9,893)    
Straight-line rental revenue, net straight-line expense   (1,380)   (768)
Deferred financing cost amortization   2,860    6,098 
Paid-in-kind interest   3,908    3,739 
Above (below) market lease amortization, net   (4,849)   (2,079)
Recurring capital expenditures tenant improvement reserves   (1,628)   (1,354)
AFFO  $(247)  $7,904 

 

Other non-recurring and non-cash expenses are costs of the Company that we believe will not be incurred on a go-forward basis. Other non-recurring expenses of $2.1 million for the year ended December 31, 2023, were primarily a result of $1.8 million in loan defeasance payments and $0.3 million costs to demolish decommissioned space not included in the Company’s gross leasable area. For the year ended December 31, 2022, other non-recurring expenses totaled $3.1 million, primarily including $2.6 million in loan defeasance payments a result of the 2022 loan refinancing activities and $0.7 million legal settlement costs and severance, partially offset with $0.4 million nonrecurring revenue related to Cedar’s recognition of easement revenue.

 

Inflation, Deflation and Economic Condition Considerations

 

The U.S. is experiencing elevated levels of inflation, which could continue or worsen. Substantially all of the Company’s tenant leases contain provisions designed to partially mitigate the negative impact of inflation in the near term. Such lease provisions include clauses that require tenants to reimburse the Company for inflation-sensitive costs such as real estate taxes, insurance and many of the operating expenses it incurs. In addition, many of our leases are for terms of less than ten years, which permits us to seek increased rents upon re-rental at market rates. However, significant inflation rate increases over a prolonged period of time may have a material adverse impact on the Company’s business. Conversely, deflation could lead to downward pressure on rents and other sources of income.

 

22

 

 

Interest rate increases could result in higher incremental borrowing costs for the Company and our tenants. The duration of the Company’s indebtedness and our relatively low exposure to floating rate debt have mitigated the direct impact of inflation and interest rate increases. The degree and pace of these changes have had and may continue to have impacts on our business.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

Item 8. Financial Statements and Supplementary Data.

 

The information required by this Item 8 is incorporated by reference to our Financial Statements beginning on page 30 of this Annual Report on Form 10-K.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of December 31, 2023, such disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our CEO and CFO and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:

 

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board of Directors; and

 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

 

23

 

 

Our internal control over financial reporting is evaluated on a regular basis by personnel in our organization. The overall goals of these various evaluation activities are to monitor our internal control over financial reporting and to make modifications as necessary, as disclosure and internal controls are intended to be dynamic systems that change (including improvements and corrections) as conditions warrant.

 

Management conducted an assessment of the effectiveness of our company’s internal control over financial reporting as of December 31, 2023, utilizing the framework established in “INTERNAL CONTROL-INTEGRATED FRAMEWORK” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on this assessment, management has determined that our internal controls over financial reporting as of December 31, 2023 were effective.

 

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

This Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm in accordance with SEC rules.

 

Item 9B. Other Information.

 

During the three months ended December 31, 2023, none of our officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K.

 

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

 

Not applicable.

 

24

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Except as set forth below, the information required by this Item 10 of Part III will be contained in the Company’s definitive proxy statement for the 2023 Annual Meeting (our “Proxy Statement”) and is incorporated herein by reference.

 

The Company has adopted a Code of Business Conduct and Ethics applicable to the directors, officers and employees. A copy of that code is available on the Company’s corporate website, which does not form a part of this Annual Report on Form 10-K. We intend to post any amendments to such code, or any waivers of its requirements, on our website. The Code of Business Conduct and Ethics is available at ir.whlr.us under “Governance - Governance Documents”.

 

Item 11. Executive Compensation.

 

The information required by this Item 11 of Part III will be contained in our Proxy Statement and is incorporated herein by reference.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Except as set forth below, the information required by this Item 12 of Part III will be contained in the Company’s Proxy Statement and is incorporated herein by reference.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The following table sets forth information as of December 31, 2023 regarding our equity compensation plans and the Common Stock we may issue under the plans.

 

Equity Compensation Plan Information Table 
Plan Category  Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants
and rights
   Weighted-
average
exercise
price of
outstanding
options,
warrants and
rights
   Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
 
Equity compensation plans approved by stockholders (1)   1,500(2)        —   15,381 
Equity compensation plans not approved by stockholders            
Total   1,500        15,381 

  

(1)Includes our 2015 and 2016 Long-Term Incentive Plans, which authorized a maximum of 12,500 and 62,500 shares, respectively, of our Common Stock for issue. Awards are granted by the Compensation Committee.

 

(2)Includes 1,500 performance awards assuming maximum payout (as a result, this aggregate reported number may overstate actual dilution). Performance awards are not taken into account in the weighted-average exercise price as such awards have no exercise price.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

The information required by this Item 13 of Part III will be contained in the Company’s Proxy Statement and incorporated herein by reference

 

Item 14. Principal Accounting Fees and Services.

 

The information by this Item 14 of Part III will be contained in the Company’s Proxy Statement and is incorporated herein by reference.

 

25

 

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules.

 

(a)(1). Financial Statements.

 

The financial statements filed as a part of this Annual Report on Form 10-K are as follows:

 

  Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 677) 27
Consolidated Balance Sheets 29
Consolidated Statements of Operations 30
Consolidated Statements of Equity 31
Consolidated Statements of Cash Flows 32
Notes to Consolidated Financial Statements 33

 

(a)(2). Financial Statement Schedules.

 

Schedule II- Valuation and Qualifying Accounts

 

Schedule III- Real Estate and Accumulated Depreciation

 

All other financial statement schedules have been omitted because the required information of such schedules is not present, is not present in amounts sufficient to require a schedule or is included in the consolidated financial statements.

 

(a)(3). Exhibits.

 

See the Exhibit Index at the end of this Annual Report on Form 10-K, which is incorporated by reference.

 

26

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Virginia Beach, Virginia

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Wheeler Real Estate Investment Trust, Inc. and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes and schedules (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended, December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Evaluation of Real Estate for Impairment

 

Description of Matter

 

At December 31, 2023, the Company’s net real estate totaled $565.1 million. As more fully described in Note 2 to the consolidated financial statements, the Company evaluates its real estate investments for impairment whenever events or changes in circumstances indicate that the carrying value of a real estate investment may not be recoverable. Management evaluates various qualitative factors in determining whether or not events or changes in circumstances indicate that the carrying amount of a real estate investment may not be recoverable.

 

Auditing the Company’s impairment assessment involved subjectivity due to the estimation required to assess significant assumptions utilized in the recoverability of the real estate based on undiscounted operating income and residual values, such as assumptions related to renewal and renegotiations of current leases, estimates of new leases on vacant spaces, and estimates of operating costs.

 

27

 

 

How We Addressed the Matter in Our Audit

 

To test the Company’s evaluation of net real estate for impairment, we performed audit procedures that included, among others, assessing the methodologies applied, evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used in the analysis. We compared the recoverability calculated to the remaining net book value of the assets to ensure recoverability for the properties’ remaining useful lives. We compared the significant assumptions used by management to relevant market information and other applicable sources. As part of our evaluation, we performed sensitivity analyses of significant assumptions to evaluate the changes in the undiscounted cash flows of the related property that would result from changes in the assumptions.

 

Derivative Liabilities

 

Description of Matter

 

At December 31, 2023, the Company had convertible notes with an outstanding principal balance of $31.5 million and 106,171 common stock warrants. Calculations and accounting for the notes payable and embedded conversion features as well as the warrants require management’s judgments related to initial and subsequent recognition, use of a valuation model, and determination of the appropriate inputs used in the selected valuation model. As more fully described in Note 7 to the consolidated financial statements, the Company utilizes a multinomial lattice model valuation technique in measuring the fair value of the notes’ conversion features and the Black-Scholes valuation method in measuring the fair value of the warrants.

 

Auditing management’s valuations of the derivative liabilities was challenging due to the complexity of valuation model and the inputs that are highly sensitive to changes such as the common stock market price, volatility, risk free rates, and yields.

 

How We Addressed the Matter in Our Audit

 

To test the accounting for the derivative liabilities resulting from the issuance of warrants and convertible notes, our audit procedures included, among others, inspection of the contracts, and testing completeness and accuracy of the data used as well as management’s application of the relevant accounting guidance. We also involved our valuation specialists to evaluate the Company’s determination of the fair value of the derivative liabilities, including testing the appropriateness of the methodology used and assessing the reasonableness of the underlying inputs.

 

/s/ Cherry Bekaert LLP

 

We have served as the Company’s auditor since 2012.

 

Virginia Beach, Virginia

March 5, 2024

 

28

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except par value and share data)

 

   December 31, 
   2023   2022 
ASSETS:        
Real estate:        
Land and land improvements  $149,908   $144,537 
Buildings and improvements   510,812    494,668 
    660,720    639,205 
Less accumulated depreciation   (95,598)   (78,225)
Real estate, net   565,122    560,980 
           
Cash and cash equivalents   18,404    28,491 
Restricted cash   21,403    27,374 
Receivables, net   13,126    13,544 
Investment securities - related party   10,685     
Above market lease intangibles, net   2,114    3,134 
Operating lease right-of-use assets   9,450    15,133 
Deferred costs and other assets, net   28,028    35,880 
Total Assets  $668,332   $684,536 
LIABILITIES:          
Loans payable, net  $477,574   $466,029 
Below market lease intangible, net   17,814    23,968 
Derivative liabilities   3,653    7,111 
Operating lease liabilities   10,329    16,478 
Series D Preferred Stock redemptions   369     
Accounts payable, accrued expenses and other liabilities   17,065    18,398 
Total Liabilities   526,804    531,984 
           
Commitments and contingencies (Note 8)          
Series D Cumulative Convertible Preferred Stock   96,705    101,518 
EQUITY:          
Series A Preferred Stock (no par value, 4,500 shares authorized, 562 shares issued and outstanding; $0.6 million in aggregate liquidation value)   453    453 
Series B Convertible Preferred Stock (no par value, 5,000,000 authorized, 3,379,142 shares issued and outstanding; $84.5 million aggregate liquidation preference)   44,998    44,911 
Common Stock ($0.01 par value, 200,000,000 shares authorized, 53,769,787 and 979,396 shares issued and outstanding, respectively)   538    10 
Additional paid-in capital   257,572    235,081 
Accumulated deficit   (324,854)   (295,617)
Total Stockholders’ Deficit   (21,293)   (15,162)
Noncontrolling interests   66,116    66,196 
Total Equity   44,823    51,034 
Total Liabilities and Equity  $668,332   $684,536 

 

See accompanying notes to audited consolidated financial statements.

 

29

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands, except share and per share data)

 

   Years Ended December 31, 
   2023   2022 
REVENUE:        
Rental revenues  $100,332   $75,195 
Other revenues   1,993    1,450 
Total Revenue   102,325    76,645 
OPERATING EXPENSES:          
Property operations   34,870    25,731 
Depreciation and amortization   28,502    19,540 
Impairment of assets held for sale       760 
Corporate general & administrative   11,750    8,620 
Total Operating Expenses   75,122    54,651 
Gain on disposal of properties   2,204    2,604 
Operating Income   29,407    24,598 
Interest income   484    65 
Gain on investment securities, net   685     
Interest expense   (32,314)   (30,107)
Net changes in fair value of derivative liabilities   3,458    (2,335)
Gain on preferred stock redemptions   9,893     
Other expense   (5,482)   (691)
Net Income (Loss) Before Income Taxes   6,131    (8,470)
Income tax expense   (48)    
Net Income (Loss)   6,083    (8,470)
Less: Net income attributable to noncontrolling interests   10,770    3,984 
Net Loss Attributable to Wheeler REIT   (4,687)   (12,454)
Preferred Stock dividends - undeclared   (9,262)   (9,056)
Deemed distribution related to preferred stock redemptions   (15,288)    
Net Loss Attributable to Wheeler REIT Common Stockholders  $(29,237)  $(21,510)
           
Loss per share:          
Basic and Diluted  $(4.57)  $(22.04)
Weighted-average number of shares:          
Basic and Diluted   6,400,490    976,070 

 

See accompanying notes to audited consolidated financial statements.

 

30

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Equity

(in thousands, except share data)

 

   Series A
Preferred Stock
   Series B
Preferred Stock
   Common Stock   Additional
Paid-in
   Accumulated  
Total
Stockholders’
(Deficit)
   Operating   Consolidated       Total 
   Shares   Value   Shares   Value   Shares   Value   Capital   Deficit   Equity   Partnership   Subsidiary   Total   Equity 
Balance, December 31, 2021  562   $453   1,872,448   $41,189   972,053   $10   $234,316   $(274,107)  $1,861   $1,941   $   $1,941   $3,802 
Accretion of Series B Preferred Stock discount               87                    87                87 
Conversion of Series B Preferred Stock to Common Stock           (4,847)   (104)   303        104                         
Conversion of Operating Partnership units to Common Stock                   7,040        161        161    (161)       (161)    
Adjustment for noncontrolling interest in operating partnership                           500        500    (500)       (500)    
Paid-in-kind interest, Issuance of Series B Preferred Stock           1,511,541    3,739                    3,739                3,739 
Noncontrolling interests assumed from the acquisition (1)                                           64,845    64,845    64,845 
Dividends and distributions                               (9,056)   (9,056)       (3,913)   (3,913)   (12,969)
Net (Loss) Income                               (12,454)   (12,454)   71    3,913    3,984    (8,470)
Balance, December 31, 2022   562    453    3,379,142    44,911    979,396    10    235,081    (295,617)   (15,162)   1,351    64,845    66,196    51,034 
Accretion of Series B Preferred Stock discount               87                    87                87 
Conversion of Series D Preferred Stock to Common Stock                   625        140        140                140 
Conversion of Operating Partnership units to Common Stock                   1,141        57        57    (57)       (57)    
Adjustment for noncontrolling interest in operating partnership                           41        41    (41)       (41)    
Redemption of Series D Preferred Stock to Common Stock                   52,788,687    528    22,253        22,781                22,781 
Adjustment of Series D Preferred Stock to redemption value                               (15,288)   (15,288)               (15,288)
Redemption of fractional units as a result of reverse stock split                   (62)                                
Dividends and distributions                               (9,262)   (9,262)       (10,752)   (10,752)   (20,014)
Net (Loss) Income                               (4,687)   (4,687)   18    10,752    10,770    6,083 
Balance, December 31, 2023   562   $453    3,379,142   $44,998    53,769,787   $538   $257,572   $(324,854)  $(21,293)  $1,271   $64,845   $66,116   $44,823 

  

(1)See Notes 1, 2 and 3 of the Notes to the audited consolidated financial statements for further details.

 

See accompanying notes to audited consolidated financial statements.

 

31

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

 

   For the Years Ended
December 31,
 
   2023   2022 
OPERATING ACTIVITIES:          
Net income (loss)  $6,083   $(8,470)
Adjustments to reconcile consolidated net income (loss) to net cash from operating activities          
Depreciation and amortization   28,502    19,540 
Deferred financing cost amortization   2,860    6,098 
Changes in fair value of derivative liabilities   (3,458)   2,335 
Above (below) market lease amortization, net   (4,849)   (2,079)
Paid-in-kind interest   3,908    3,739 
Loss on repurchase of debt securities   1,647     
Gain on preferred stock redemptions   (9,893)    
Unrealized gain on investment securities, net   (685)    
Straight-line expense   (10)   32 
Gain on disposal of properties   (2,204)   (2,604)
Credit losses on operating lease receivables   522    361 
Impairment of assets held for sale       760 
Net changes in assets and liabilities          
Receivables, net   (103)   (1,961)
Deferred costs and other assets, net   (2,745)   4,381 
Accounts payable, accrued expenses and other liabilities   1,359    8,626 
Net cash provided by operating activities   20,934    30,758 
INVESTING ACTIVITIES:          
Investment property acquisitions   (4,259)   (135,510)
Expenditures for real estate improvements   (20,021)   (8,511)
Purchase of investment securities   (10,000)    
Cash received from disposal of properties   2,759    10,509 
Net cash used in investing activities   (31,521)   (133,512)
FINANCING ACTIVITIES:          
Payments for deferred financing costs   (4,440)   (12,683)
Dividends and distributions paid on noncontrolling interests   (10,752)   (2,688)
Loan proceeds   123,230    400,000 
Loan principal payments   (108,635)   (263,815)
Repurchase of debt securities   (3,116)    
Loan payment penalty   (1,758)   (2,614)
Net cash (used in) provided by financing activities   (5,471)   118,200 
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH   (16,058)   15,446 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period   55,865    40,419 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, end of period  $39,807   $55,865 
           
Supplemental Disclosure:          
The following table provides a reconciliation of cash, cash equivalents and restricted cash:          
Cash and cash equivalents  $18,404   $28,491 
Restricted cash   21,403    27,374 
Cash, cash equivalents, and restricted cash  $39,807   $55,865 

 

See accompanying notes to audited consolidated financial statements.

 

32

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

1. Organization and Basis of Presentation and Consolidation

 

Wheeler Real Estate Investment Trust, Inc. is a Maryland corporation formed on June 23, 2011. The Trust serves as the general partner of the Operating Partnership, which was formed as a Virginia limited partnership on April 5, 2012. At December 31, 2023, the Company owned 99.13% of the Operating Partnership. As of December 31, 2023, the Trust, through the Operating Partnership, owned and operated seventy-five centers and four undeveloped properties. Twenty-one of these properties are located in South Carolina, twelve in Georgia, ten in Virginia, eight in Pennsylvania, six in North Carolina, four in Massachusetts, four in New Jersey, three in Florida, three in Connecticut, two in Kentucky, two in Tennessee, one in Alabama, one in Maryland, one in West Virginia, and one in Oklahoma. Accordingly, the use of the word “Company”, “we,” “our” or “us” refers to the Trust and its consolidated subsidiaries, except where the context otherwise requires. The Company includes the Trust, the Operating Partnership, the entities included in the REIT formation and the entities acquired since November 2012. The Company prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP. All material balances and transactions between the consolidated entities of the Company have been eliminated.

 

The Company owns, leases and operates income producing grocery-anchored centers, neighborhood centers, community centers and free-standing retail properties with a strategy to acquire high quality retail properties that generate attractive risk-adjusted returns. The Company targets properties in communities that have stable demographics. The Company considers properties that are generally located in the most prominent shopping districts in their respective markets, ideally situated at major “Main and Main” intersections. The Company generally leases its properties to national and regional supermarket chains and selects retailers that offer necessity and value-oriented services and items, and generate regular consumer traffic. The Company’s tenants carry goods and offer services that are less impacted by fluctuations in the broader U.S. economy and consumers’ disposable income, which it believes generates more predictable property-level cash flows.

 

The Trust through the Operating Partnership owns Wheeler Interests, LLC (“WI”) and Wheeler Real Estate, LLC (“WRE”) (WRE and, together with WI, the “Operating Companies”). The Operating Companies are Taxable REIT Subsidiaries (“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.

 

Acquisition of Cedar Realty Trust

 

On March 2, 2022, the Company entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Cedar, Cedar Realty Trust Partnership, L.P., (“Cedar OP”), WHLR Merger Sub Inc., a wholly owned subsidiary of the Company, and WHLR OP Merger Sub LLC, a wholly owned subsidiary of Merger Sub I (“Merger Sub II”), pursuant to which the Company agreed to acquire Cedar, including 19 of its shopping center assets, in an all-cash merger transaction consisting, in accordance with the terms of the Merger Agreement, of a payment to Cedar common shareholders of merger consideration of $9.48 per common share.

 

On August 22, 2022, the Company completed the merger transaction with Cedar. As a result of the merger, the Company acquired all of the outstanding shares of the Cedar’s common stock, which ceased to be publicly traded on the NYSE. Cedar’s outstanding 7.25% Series B Preferred Stock and 6.50% Series C Preferred Stock remain outstanding and continue to trade on the NYSE. Each outstanding share of common stock of Cedar and outstanding common unit of the Cedar OP held by persons other than Cedar immediately prior to the merger were cancelled and converted into the right to receive a cash payment of $9.48 per share or unit. As a result Cedar became a subsidiary of the REIT.

 

During the year ended December 31, 2022 the Company incurred acquisition related costs of $5.51 million for the merger. These costs were capitalized as part of the acquisition and are primarily comprised of professional fees and legal fees, see Note 3 for further details.

 

The consolidated financial statements included in this Form 10-K include Cedar starting from the date of acquisition. We have determined that this acquisition is not a variable interest entity, as defined under the consolidation topic of the FASB, Accounting Standards Codification (“ASC”), and we evaluated such entity under the voting model and concluded we should consolidate the entity. Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting rights and that other equity holders do not have substantive participating rights.

 

33

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

2. Summary of Significant Accounting Policies

 

Real Estate Investments

 

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 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.

 

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 or whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable. 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 include 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.

 

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 years ended December 31, 2023 and 2022.

 

34

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

2. Summary of Significant Accounting Policies (continued)

 

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.

 

Conditional Asset Retirement Obligation

 

A conditional asset retirement obligation represents a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement depends on a future event that may or may not be within the Company’s control. Currently, the Company does not have any conditional asset retirement obligations. However, any such obligations identified in the future would result in the Company recording a liability if the fair value of the obligation can be reasonably estimated. Environmental studies conducted at the time the Company acquired its properties did not reveal any material environmental liabilities, and the Company is unaware of any subsequent environmental matters that would have created a material liability. The Company believes that its properties are currently in material compliance with applicable environmental, as well as non-environmental, statutory and regulatory requirements. The Company did not record any conditional asset retirement obligation liabilities as of December 31, 2023 and 2022.

 

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

 

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.

 

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.

 

35

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

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 deferred costs and other assets represents a component of depreciation and amortization expense.

 

Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants and convertible notes, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The assumptions used in these fair value estimates 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.

 

Debt Issuance Costs

 

The Company may incur debt issuance costs in connection with raising funds through debt. These costs may be paid in the form of cash, or equity (such as warrants and convertible notes). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed. Debt issuance costs are presented as a direct deduction from the carrying value of the associated debt liability in the consolidated balance sheets.

 

Series D Preferred Stock

 

The Series D Preferred Stock was initially classified as mezzanine equity because the redemption provisions were conditional upon the occurrence of an event that was not certain. The Series D Preferred Stock was valued at net proceeds plus accrued and unpaid dividends. In 2023, this event became certain and in accordance with ASC 480, the Series D Preferred Stock was revalued at the redemption price which includes undeclared dividends, representing liquidation value. The adjustment to liquidation value was recognized in accumulated deficit as an adjustment to redemption value. Additionally, in accordance with ASC 480, as holders exercise their redemption rights the Series D Preferred Stock becomes mandatorily redeemable and the liquidation value of their exercise is classified as a liability.

 

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 consolidated financial statements.

 

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. Additionally, certain 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.

 

36

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

2. Summary of Significant Accounting Policies (continued)

 

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 the tenant’s pro-rata percentage of square footage to total square footage of the property. The Company also receives payments for these reimbursements from substantially all its tenants throughout the year. The Company recognizes tenant reimbursements as variable lease income.

 

Additionally, the Company has tenants who pay real estate taxes directly to the taxing authority. The Company excludes these Company 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 are included in “other revenues” on the 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 records losses related to unrecovered intangibles and other assets.

 

Segment Information

 

The Company’s primary business is the ownership and operation of grocery-anchored shopping centers. The Company reviews operating and financial information for each property on an individual basis and, accordingly, each property represents an individual operating segment. The Company evaluates financial performance using property operating income, which consists of rental income and other property income, less operating expenses and real estate taxes. The Company has no operations outside of the United States of America. Therefore, the Company has aggregated its properties into one reportable segment as the properties share similar long-term economic characteristics and have other similarities including the fact that they are operated using consistent business strategies, are typically located in similar markets, and have similar tenant mixes.

 

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 stockholders and meet certain other asset and income tests, as well as other requirements. 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 generally accepted accounting principles on Accounting for Uncertainty of Income Taxes and has determined that the Company had no uncertain income tax positions.

 

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.

 

37

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

2. Summary of Significant Accounting Policies (continued)

 

Other Expense

 

Other expense represents expenses which are non-operating in nature. Other expenses were $5.5 million for the year ended December 31, 2023, which consists of capital structure transaction costs. Other expenses were $0.7 million for the year ended December 31, 2022, which consisted of legal settlement costs.

 

Lease 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 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 elects 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 and noncontrolling interest attributable to the acquisition of Cedar. The ownership interests not held by the parent are considered noncontrolling interests. Accordingly, noncontrolling interests have been reported in equity on the consolidated balance sheets but separate from the Company’s equity. On the consolidated statements of operations, the subsidiaries are reported at the consolidated amount, including both the amount attributable to the Company and noncontrolling interests. Consolidated statements of equity include beginning balances, activity for the period and ending balances for stockholders’ 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 $0.01 par value per share common stock (“Common Stock”). In accordance with GAAP, any changes in the value from period to period are charged to additional paid-in capital.

 

The noncontrolling interest attributable to the acquisition of Cedar represents the fair value of Cedar’s outstanding 7.25% Series B Preferred Stock (“Cedar Series B Preferred”) and 6.50% Series C Preferred Stock (“Cedar Series C Preferred”) as of August 22, 2022, the date of acquisition. The valuation assumption was based on the three-level valuation hierarchy for fair value measurements and represents Level 1 inputs. Level 1 inputs represent observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. The total cumulative dividends for the Cedar Series B Preferred and Cedar Series C Preferred were $10.8 million and $3.9 million as of December 31, 2023 and 2022, respectively, and are included as an increase to net loss attributable to Wheeler REIT Common Stockholders on the consolidated statements of operations.

 

Reclassifications

 

The Company has reclassified certain prior period amounts in the accompanying consolidated financial statements in order to be consistent with the current period presentation. These reclassifications had no effect on net loss. All per share amounts, common units and shares outstanding, warrants, and conversion features of the Convertible Notes for all periods presented reflect our one-for-ten Reverse Stock Split, which was effective August 17, 2023.

 

38

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

2. Summary of Significant Accounting Policies (continued)

 

Supplemental Consolidated Statements of Cash Flows Information

 

   For the Years Ended
December 31,
 
   2023   2022 
   (in thousands) 
Non-Cash Transactions:        
Conversion of common units to Common Stock  $57   $160 
Conversion of Series B Preferred Stock to Common Stock  $   $104 
Conversion of Series D Preferred Stock to Common Stock  $140   $ 
Accretion of Preferred Stock discounts  $460   $584 
Accretion of Preferred stock to liquidation preference  $15,288   $ 
Redemption of Series D Preferred Stock to Common Stock  $(33,044)  $ 
Buildings and improvements included in accounts payable, accrued expenses and other liabilities  $1,047   $238 
Other Cash Transactions:          
Cash paid for taxes  $48   $ 
Cash paid for amounts included in the measurement of operating lease liabilities  $1,001   $956 
Cash paid for interest  $25,216   $19,957 

 

Recently Issued Accounting Pronouncements

 

In November 2023, the FASB issued guidance which requires disclosure of incremental segment information on both an annual and interim basis. The guidance will require that the Company continue to disclose existing segment information required by FASB Accounting Standards Codification Topic 280, as well as significant segment expenses and other segment items that are regularly provided to the chief operating decision maker (“CODM”). The Company will also be required to disclose the title and position of the CODM and how the CODM uses reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The guidance will be effective for the Company’s fiscal year beginning on January 1, 2024 and interim periods within the Company’s fiscal year beginning on January 1, 2025. The Company is currently in the process of evaluating the guidance, but does not believe it will have a material effect on the Company’s consolidated financial statements.

 

Other accounting standards that have been recently 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.

 

39

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

3. Real Estate

 

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.

 

The Company’s depreciation expense on investment properties was $18.1 million and $13.5 million for the years

ended December 31, 2023 and 2022, respectively.

 

St. George Plaza Land Acquisition

 

On February 21, 2023, the Company purchased a 2.5 acre land parcel adjacent to St. George Plaza, located in St.

George, South Carolina, for $0.2 million.

 

Devine Street Land Acquisition

 

On August 18, 2023, the Company purchased a 3.25 acre land parcel within Devine Street, located in Columbia, South Carolina, for $4.1 million. The Devine Street Land Acquisition terminated the Company’s ground lease associated with this property.

Assets Held for Sale, Impairment and Dispositions

 

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. No impairment expense was recorded for the year ended December 31, 2023. Impairment expense was $0.8 million for the year ended December 31, 2022 resulting from reducing the carrying value of an approximately 5 acre land parcel held by Harbor Point Associates, LLC, a wholly-owned subsidiary of the Company (the “Harbor Point Land Parcel”). The Harbor Point Land Parcel did not meet the requirements to be classified as held for sale at December 31, 2023 or 2022.

 

The following properties were sold during the years ended December 31, 2023 and 2022 (in thousands):

 

Disposal  Property  Contract Price   Gain (Loss)   Net Proceeds 
July 11, 2023  Carll’s Corner Outparcel  $3,000   $2,204   $2,759 
December 9, 2022  Butler Square   9,250    2,619    8,723 
January 11, 2022  Walnut Hill Plaza   1,986    (15)   1,786 

 

Cedar Acquisition

 

On August 22, 2022, the Company acquired Cedar, a 2.9 million square foot shopping center portfolio consisting of 19 properties located primarily in the Northeast from Virginia to Massachusetts (the “Cedar Portfolio”). The Cedar Portfolio was acquired through the purchase of the issued and outstanding shares of Cedar’s common stock, par value $0.06 per share (the “Cedar Common Stock”), and the issued and outstanding common units of Cedar OP held by persons other than Cedar for an aggregate of $135.5 million of cash merger consideration and acquisition costs.

 

40

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

3. Real Estate (continued)

 

The following summarizes the consideration paid and the purchase allocation of assets acquired and liabilities assumed in conjunction with the acquisition described above in accordance with Accounting Standards Update (“ASU”) 2017-01, along with a description of the methods used to determine the purchase price allocation (in thousands, unaudited). In determining the purchase price allocation, the Company considered many factors including, but not limited to, cash flows, market capitalization rates, location, occupancy rates, appraisals, other acquisitions and management’s knowledge of the current acquisition market for similar properties. The following table summarizes the purchase price allocation based on the Company’s initial valuation, including estimates and assumptions of the acquisition date fair value of the tangible and intangible assets acquired and liabilities assumed (in thousands):

 

Building and building improvements (a)  $137,120 
Land and land improvements (a)   47,899 
Lease intangibles (b)   28,215 
Above market lease (c)   1,718 
Right of use asset adjustment, ground lease (d)   2,913 
Cash, accounts receivable and other assets   14,242 
Total assets acquired   232,107 
      
Below market lease (c)   (23,622)
Lease Liabilities, ground lease (d)   (3,552)
Accounts payable and other liabilities   (4,578)
Total liabilities acquired   (31,752)
      
Noncontrolling interest (e)   (64,845)
      
Purchase price allocation of net assets acquired, excluding noncontrolling interests  $135,510 
      
Purchase consideration: (f)     
Cash merger consideration  $130,000 
Capitalized acquisition costs   5,510 
   $135,510 

 

a.Represents the purchase price allocation of the net investment properties acquired, which includes land, buildings, site improvements and tenant improvements. The purchase price allocation was determined using following approaches:

 

i.the market approach valuation methodology for land by considering similar transactions in the markets;

 

ii.a combination of the cost approach and income approach valuation methodologies for buildings, including replacement cost evaluations, “go dark” analyses and residual calculations incorporating the land values; and

 

iii.the cost approach valuation methodology for site and tenant improvements, including replacement costs and prevailing quoted market rates.

 

b.Represents the purchase price allocation of lease intangibles and other assets. Lease intangibles include in place leases. The income approach was used to determine the allocation of these intangible assets which included estimated market rates and expenses.

 

c.Represents the purchase price allocation of above and below market leases. The income approach was used to determine the allocation of above/below market leases using market rental rates for similar properties.

 

d.Represents the purchase price allocation of the lease liability and corresponding right of use asset associated with a ground lease expiring in 2071. The Company used an incremental borrowing rate of 5.25% for the purpose of calculating the lease liability.

 

e.Represents the fair market value of Cedar’s outstanding 7.25% Series B Preferred Stock and 6.50% Series C Preferred Stock.

 

f.Represents merger consideration and capitalized transaction costs.

 

41

 

  

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

4. Investments Securities - Related Party

 

On June 1, 2023, the Company subscribed for an investment in the amount of $3.0 million for limited partnership interests in Stilwell Activist Investments, L.P., a Delaware limited partnership (“SAI”). On September 1, 2023, and November 30, 2023, the Company subscribed for additional investments each in the amount of $3.5 million for limited partnership interests in SAI. The investment objective of SAI is to seek long-term capital appreciation through investing primarily in publicly-traded undervalued financial institutions or businesses with a strong financial component, or the securities of any of them, and pursuing an activist shareholder agenda with respect to those institutions.

 

Stilwell Value LLC (“Value”) is the general partner of SAI. Joseph Stilwell, a member of the Company’s Board of Directors, is the managing member of Value and a limited partner in funds advised by Value. Additionally, E.J. Borrack, a member of the Board of Directors, serves as the General Counsel to Value and its affiliated entities, including SAI and related funds, and is a limited partner in one of the funds advised by Value. Megan Parisi, a member of the Company’s Board of Directors, serves as the Director of Communications to Value and its affiliated entities, including SAI and related funds, is a non-managing member of Value and is a limited partner in one of the funds advised by Value.

 

The Company’s initial subscription in SAI was approved by the disinterested directors of the Company, and, after the formation of the Related Person Transactions Committee, the further subscriptions in SAI were approved by that Committee.

 

A portion of SAI’s underlying investments are in the Company’s own equity and debt securities.

 

SAI records investment transactions based on trade date. Realized gains and losses from investment transactions are determined on a specific identification basis. Dividend income, net of withholding taxes, and dividend expense are recognized on the ex-dividend date, and interest income and expense are recognized on an accrual basis. Discounts and premiums to the face amount of debt securities are accreted and amortized using the effective interest rate method over the lives of the respective debt securities.

 

The Company may not withdraw its capital from SAI for a period of one year measured from the date of the Company’s initial investment, subject to certain exceptions.

 

In consideration for management, administrative and operational services, limited partners of SAI pay a management fee to an affiliate of Value each calendar quarter, in advance, equal to 0.25% (an annualized rate of 1%) of each limited partner’s capital account balance on the first day of such calendar quarter. In addition, as of the last day of each specified performance period, an incentive allocation of 20% of the amount by which the “positive performance change,” if any, that has been credited to the capital account of a limited partner during such period exceeds any positive balance in such limited partner’s “carryforward account,” is debited from the limited partner’s capital account and is simultaneously credited to the capital account of Value.

 

The Company’s SAI investment is accounted for under the equity method and measured at net asset value as a practical expedient and has not been classified within the fair value hierarchy. All gains and losses, realized and unrealized, and fees are recorded through “gain on investment securities, net” on the consolidated statements of operations. As of December 31, 2023, the fair value of the Company’s SAI investment was $10.7 million, which includes $10.0 million from subscriptions and $0.2 million in fees. Unrealized gains on investment securities, net of fees were $0.7 million for the year ended December 31, 2023.

 

42

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

5. Deferred Costs and Other Assets, net

 

Deferred costs and other assets, net of accumulated amortization are as follows (in thousands):

 

   December 31, 
   2023   2022 
Leases in place, net  $16,663   $24,956 
Lease origination costs, net   7,461    7,165 
Ground lease sandwich interest, net   1,119    1,393 
Tenant relationships, net   280    500 
Legal and marketing costs, net   278    389 
Prepaid expenses   2,224    1,456 
Other   3    21 
Total deferred costs and other assets, net  $28,028   $35,880 

 

As of December 31, 2023 and 2022, the Company’s intangible accumulated amortization totaled $69.9 million and $62.4 million, respectively. During the years ended December 31, 2023 and 2022, the Company’s intangible amortization expense totaled $10.4 million and $6.1 million, respectively. Future amortization of leases in place, lease origination costs, ground lease sandwich interest, tenant relationships, and legal and marketing costs is as follows (in thousands):

 

For the Years Ended December 31,  Leases in
place, net
   Lease
origination
costs, net
   Ground lease
sandwich
interest, net
   Tenant
relationships,
net
   Legal &
marketing
costs, net
   Total 
2024  $5,045   $1,293   $274   $124   $82   $6,818 
2025   3,522    1,161    274    62    60    5,079 
2026   2,214    1,017    274    11    45    3,561 
2027   1,782    908    274    11    31    3,006 
2028   1,192    732    23    11    20    1,978 
Thereafter   2,908    2,350        61    40    5,359 
   $16,663   $7,461   $1,119   $280   $278   $25,801 

 

43

 

 

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

 

6. Loans Payable, net

 

The Company’s loans payable consist of the following (in thousands, except monthly payment):

 

Property/Description  Monthly
Payment
   Interest Rate   Maturity  December 31,
2023
   December 31,
2022
 
Cypress Shopping Center  $34,360    4.70%  July 2024  $5,769   $5,903 
Conyers Crossing   Interest only    4.67%  October 2025   5,960    5,960 
Winslow Plaza  $24,295    4.82%  December 2025   4,331    4,409 
Tuckernuck  $32,202    5.00%  March 2026   4,771    4,915 
Chesapeake Square  $23,857    4.70%  August 2026   4,014    4,106 
Sangaree/Tri-County  $32,329    4.78%  December 2026   5,990    6,086 
Timpany Plaza   Interest only    7.27%  September 2028   9,060     
Village of Martinsville  $89,664    4.28%  July 2029   14,755    15,181 
Laburnum Square   Interest only    4.28%  September 2029   7,665    7,665 
Rivergate (1)  $100,222    4.25%  September 2031   17,557    18,003 
Convertible Notes   Interest only    7.00%  December 2031   31,530    33,000 
Term loan, 22 properties   Interest only    4.25%  July 2032   75,000    75,000 
JANAF (2)   Interest only    5.31%  July 2032   60,000    60,000 
Cedar term loan, 10 properties   Interest only    5.25%  November 2032   110,000    110,000 
Patuxent Crossing/Coliseum Marketplace   Interest only    6.35%  January 2033