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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
 
(Mark One)
ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
 ¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-35713
WHEELER REAL ESTATE INVESTMENT TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter) 
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)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s)Name of each exchange on which registered
 Common Stock, $0.01 par value per share WHLRNasdaq Capital Market
 Series B Convertible Preferred Stock WHLRPNasdaq Capital Market
 Series D Cumulative Convertible Preferred StockWHLRDNasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
1

Table of Contents
Large accelerated filer 
¨
  Accelerated filer
¨
Non-accelerated filer 
ý
  Smaller reporting company
ý
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).         Yes  ¨    No  ý
As of November 9, 2020, there were 9,702,783 common shares, $0.01 par value per share, outstanding.
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Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries 
  Page
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements
Item 2.
Item 3.
Item 4.
PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
3

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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except par value and share data)
September 30, 2020December 31, 2019
 (unaudited) 
ASSETS:
Investment properties, net$394,378 $416,215 
Cash and cash equivalents6,957 5,451 
Restricted cash17,240 16,140 
Rents and other tenant receivables, net8,365 6,905 
Assets held for sale15,064 1,737 
Above market lease intangibles, net3,928 5,241 
Operating lease right-of-use assets11,508 11,651 
Deferred costs and other assets, net16,898 21,025 
Total Assets$474,338 $484,365 
LIABILITIES:
Loans payable, net$318,230 $340,913 
Liabilities associated with assets held for sale14,912 2,026 
Below market lease intangibles, net5,093 6,716 
Operating lease liabilities11,917 11,921 
Accounts payable, accrued expenses and other liabilities12,949 9,557 
Total Liabilities363,101 371,133 
Series D Cumulative Convertible Preferred Stock (no par value, 4,000,000 shares authorized, 3,529,293 and 3,600,636 shares issued and outstanding, respectively; $106.76 million and $101.66 million aggregate liquidation preference, respectively)93,046 87,225 
EQUITY:
Series A Preferred Stock (no par value, 4,500 shares authorized, 562 shares issued and outstanding)453 453 
Series B Convertible Preferred Stock (no par value, 5,000,000 authorized, 1,875,748 shares issued and outstanding; $46.90 million aggregate liquidation preference)41,152 41,087 
Common Stock ($0.01 par value, 18,750,000 shares authorized, 9,699,461 and 9,694,284 shares issued and outstanding, respectively)97 97 
Additional paid-in capital233,916 233,870 
Accumulated deficit(259,479)(251,580)
Total Shareholders’ Equity16,139 23,927 
Noncontrolling interests2,052 2,080 
Total Equity18,191 26,007 
Total Liabilities and Equity$474,338 $484,365 
See accompanying notes to condensed consolidated financial statements.

4

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
REVENUE:
Rental revenues$14,756 $15,385 $44,920 $46,546 
Other revenues208 180 787 546 
Total Revenue14,964 15,565 45,707 47,092 
OPERATING EXPENSES:
Property operations4,820 4,967 14,116 14,288 
Non-REIT management and leasing services 1  25 
Depreciation and amortization4,215 5,066 13,460 16,169 
Impairment of notes receivable   5,000 
Impairment of assets held for sale 400 600 1,547 
Corporate general & administrative1,080 1,349 4,567 4,543 
Total Operating Expenses10,115 11,783 32,743 41,572 
(Loss) gain on disposal of properties (81)(26)1,427 
Operating Income4,849 3,701 12,938 6,947 
Interest income 1 1 2 
Interest expense(4,114)(4,654)(12,787)(14,394)
Other expense(15) (1,039) 
Net Income (Loss) Before Income Taxes720 (952)(887)(7,445)
Income tax expense (8)(2)(23)
Net Income (Loss)720 (960)(889)(7,468)
Less: Net income (loss) attributable to noncontrolling interests13 (1)18 (100)
Net Income (Loss) Attributable to Wheeler REIT707 (959)(907)(7,368)
Preferred Stock dividends - undeclared(3,608)(3,657)(10,922)(10,972)
Deemed contribution related to preferred stock redemption726  726  
Net Loss Attributable to Wheeler REIT Common Shareholders$(2,175)$(4,616)$(11,103)$(18,340)
Loss per share:
Basic and Diluted$(0.22)$(0.48)$(1.14)$(1.90)
Weighted-average number of shares:
Basic and Diluted9,699,461 9,693,271 9,696,554 9,664,582 
See accompanying notes to condensed consolidated financial statements.
5

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
(in thousands, except share data)
 (Unaudited)
Series ASeries BNoncontrolling
 Preferred StockPreferred StockCommon StockAdditional
Paid-in Capital
Accumulated Deficit Total
Shareholders’ Equity
InterestsTotal
 SharesValueSharesValueSharesValueUnitsValueEquity
Balance,
December 31, 2019
562 $453 1,875,748 $41,087 9,694,284 $97 $233,870 $(251,580)$23,927 234,019 $2,080 $26,007 
Accretion of Series B Preferred
Stock discount
— — — 22 — — — — 22 — — 22 
Dividends and distributions— — — — — — — (2,589)(2,589)— — (2,589)
Net Loss— — — — — — — (1,868)(1,868)— (9)(1,877)
Balance,
March 31, 2020 (Unaudited)
562 453 1,875,748 41,109 9,694,284 97 233,870 (256,037)19,492 234,019 2,071 21,563 
Accretion of Series B Preferred
Stock discount
— — — 22 — — — — 22 — — 22 
Conversion of operating
partnership units to Common
Stock
— — — — 1,615  2 — 2 (1,615)(2)— 
Adjustments for noncontrolling
interest in operating partnership
— — — — — — 12 — 12 — (12)— 
Dividends and distributions— — — — — — — (2,589)(2,589)— — (2,589)
Net Income— — — — — — — 254 254 — 14 268 
Balance,
June 30, 2020 (Unaudited)
562 453 1,875,748 41,131 9,695,899 97 $233,884 (258,372)$17,193 232,404 2,071 19,264 
Accretion of Series B Preferred
Stock discount
— — — 21 — — — — 21 — — 21 
Conversion of operating
partnership units to Common
Stock
— — — — 3,562  6 — 6 (3,562)(6)— 
Adjustments for noncontrolling
interest in operating partnership
— — — — — — 26 — 26 — (26)— 
Dividends and distributions— — — — — — — (2,540)(2,540)— — (2,540)
Preferred Stock redemption discount— — — — — — — 726 726 — — 726 
Net Income— — — — — — — 707 707 — 13 720 
Balance,
September 30, 2020 (Unaudited)
562 $453 1,875,748 $41,152 9,699,461 $97 $233,916 $(259,479)$16,139 228,842 $2,052 $18,191 

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Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
(in thousands, except share data)
 (Unaudited)
Series ASeries BNoncontrolling
 Preferred StockPreferred StockCommon StockAdditional
Paid-in Capital
Accumulated Deficit Total
Shareholders’ Equity
InterestsTotal
 SharesValueSharesValueSharesValueUnitsValueEquity
Balance,
December 31, 2018
562 $453 1,875,748 $41,000 9,511,464 $95 $233,697 $(233,184)$42,061 235,032 $2,194 $44,255 
Accretion of Series B Preferred
Stock discount
— — — 22 — — — — 22 — — 22 
Issuance of Common Stock
under Share Incentive Plan
— — — — 181,807 2 164 — 166 — — 166 
Dividends and distributions— — — — — — — (2,589)(2,589)— — (2,589)
Net Income— — — — — — — 642 642 — 13 655 
Balance,
March 31, 2019 (Unaudited)
562 453 1,875,748 41,022 9,693,271 97 233,861 (235,131)40,302 235,032 2,207 42,509 
Accretion of Series B Preferred
Stock discount
— — — 22 — — — — 22 — — 22 
Dividends and distributions— — — — — — — (2,590)(2,590)— — (2,590)
Net Loss— — — — — — — (7,051)(7,051)— (112)(7,163)
Balance,
June 30, 2019 (Unaudited)
562 453 1,875,748 41,044 9,693,271 97 233,861 (244,772)30,683 235,032 2,095 32,778 
Accretion of Series B Preferred
Stock discount
— — — 21 — — — — 21 — — 21 
Dividends and distributions— — — — — — — (2,588)(2,588)— — (2,588)
Net Loss— — — — — — — (959)(959)— (1)(960)
Balance,
September 30, 2019 (Unaudited)
562 $453 1,875,748 $41,065 9,693,271 $97 $233,861 $(248,319)$27,157 235,032 $2,094 $29,251 

See accompanying notes to condensed consolidated financial statements.
7

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 For the Nine Months
Ended September 30,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss$(889)$(7,468)
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:
Depreciation8,589 8,991 
Amortization4,871 7,178 
Loan cost amortization796 1,336 
Above (below) market lease amortization, net(443)(585)
Straight-line expense138 140 
Share-based compensation 244 
Loss (gain) on disposal of properties26 (1,427)
Credit losses on operating lease receivables1,042 315 
Impairment of notes receivable 5,000 
Impairment of assets held for sale600 1,547 
Net changes in assets and liabilities:
Rent and other tenant receivables, net(1,738)(520)
Unbilled rent(758)(60)
Deferred costs and other assets, net(903)(335)
Accounts payable, accrued expenses and other liabilities2,646 (1,738)
Net operating cash flows used in discontinued operations (2)
Net cash provided by operating activities13,977 12,616 
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment property acquisitions, net of restricted cash acquired (24)
Capital expenditures(1,649)(1,405)
Cash received from disposal of properties1,665 3,584 
Cash received from disposal of properties-discontinued operations 19 
Net cash provided by investing activities16 2,174 
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for deferred financing costs(340)(537)
Loan proceeds13,350 24,165 
Loan principal payments(23,843)(33,890)
Preferred stock redemption(1,106) 
Paycheck Protection Program proceeds552  
Net cash used in financing activities(11,387)(10,262)
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH2,606 4,528 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period21,591 17,999 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period$24,197 $22,527 
Supplemental Disclosures:
Non-Cash Transactions:
Conversion of common units to common stock$8 $ 
Accretion of preferred stock discounts$509 $510 
Deemed contribution related to preferred stock discount$726 $ 
Other Cash Transactions:
Cash paid for taxes$15 $6 
Cash paid for interest$11,885 $13,218 
The following table provides a reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$6,957 $5,233 
Restricted cash17,240 17,294 
Cash, cash equivalents, and restricted cash$24,197 $22,527 
See accompanying notes to condensed consolidated financial statements.
8

Table of Contents

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Organization and Basis of Presentation and Consolidation

Wheeler Real Estate Investment Trust, Inc. (the "Trust", the "REIT", or "Company") is a Maryland corporation formed on June 23, 2011. The Trust serves as the general partner of Wheeler REIT, L.P. (the “Operating Partnership”), which was formed as a Virginia limited partnership on April 5, 2012. As of September 30, 2020, the Trust, through the Operating Partnership, owned and operated sixty centers, one office building and six undeveloped properties in Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Oklahoma, Tennessee, Kentucky, New Jersey, Pennsylvania and West Virginia. Accordingly, the use of the word “Company” refers to the Trust and its consolidated subsidiaries, except where the context otherwise requires.

On October 24, 2014, the Trust, through the Operating Partnership, acquired (i) Wheeler Interests, LLC (“WI”), an acquisition and asset management firm, (ii) Wheeler Real Estate, LLC (“WRE”), a real estate leasing, management and administration firm and (iii) WHLR Management, LLC (“WM” and collectively with WI and WRE the “Operating Companies”), a real estate business operations firm resulting in the Company becoming an internally-managed REIT. Accordingly, the responsibility for identifying targeted real estate investments, the handling of the disposition of real estate investments, administering our day-to-day business operations, including but not limited to, leasing, property management, payroll and accounting functions, acquisitions, asset management and administration are now handled internally.

The Operating Companies perform property management and leasing functions for certain non-related third parties (the “Non-REIT Properties”), primarily through WRE. The Company converted WRE to a Taxable REIT Subsidiary (“TRS”) to accommodate serving the Non-REIT Properties since applicable REIT regulations consider the income derived from these services to be “bad” income subject to taxation. The regulations allow for costs incurred by the Company commensurate with the services performed for the Non-REIT Properties to be allocated to a TRS.

During January 2014, the Company acquired Wheeler Development, LLC (“WD”) and converted it to a TRS. The Company began performing development activities for both REIT Properties and Non-REIT Properties during 2015.

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the “Form 10-Q”) are unaudited and the results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for future periods or the year. However, amounts presented in the condensed consolidated balance sheet as of December 31, 2019 are derived from the Company’s audited consolidated financial statements as of that date, but do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The Company prepared the accompanying condensed consolidated financial statements in accordance with GAAP for interim financial statements. The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature. All material balances and transactions between the consolidated entities of the Company have been eliminated. These condensed consolidated financial statements should be read in conjunction with the Company's 2019 Annual Report filed on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).

9


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Summary of Significant Accounting Policies

Investment Properties
    
The Company records investment properties and related intangibles at fair value upon acquisition. Investment properties include both acquired and constructed assets. Improvements and major repairs and maintenance are capitalized when the repair and maintenance substantially extends the useful life, increases capacity or improves the efficiency of the asset. All other repair and maintenance costs are expensed as incurred. The Company capitalizes interest on projects during periods of construction until the projects reach the completion point that corresponds with their intended purpose.
    
The Company allocates the purchase price of acquisitions to the various components of the asset based upon the fair value of each component which may be derived from various observable or unobservable inputs and assumptions. Also, the Company may utilize third party valuation specialists. These components typically include buildings, land and any intangible assets related to out-of-market leases, tenant relationships and in-place leases the Company determines to exist. The Company determines fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in the analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases, tenant relationships and in-place lease value are recorded at fair value as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.
    
The Company records depreciation on buildings and improvements utilizing the straight-line method over the estimated useful life of the asset, generally 5 to 40 years. The Company reviews depreciable lives of investment properties periodically and makes adjustments to reflect a shorter economic life, when necessary. Tenant allowances, tenant inducements and tenant improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter.
 
Amounts allocated to buildings are depreciated over the estimated remaining life of the acquired building or related improvements. The Company amortizes amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles over the remaining life of the underlying leases. The Company also estimates the value of other acquired intangible assets, if any, and amortizes them over the remaining life of the underlying related intangibles.
    
The Company reviews investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable, but at least annually. These circumstances include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. The Company measures any impairment of investment property when the estimated undiscounted future operating income before depreciation and amortization, plus its residual value, is less than the carrying value of the property. Estimated undiscounted operating income before depreciation and amortization includes various Level 3 fair value assumptions including renewal and renegotiations of current leases, estimates of new leases on vacant spaces, estimates of operating costs and fluctuating market conditions. The renewal and renegotiations of leases in some cases must be approved by additional third parties outside the control of the Company and the tenant. If such renewed or renegotiated leases are approved at amounts below current estimates, then impairment adjustments may be necessary in the future. To the extent impairment has occurred, the Company charges to income the excess of the carrying value of the property over its estimated fair value. The Company estimates fair value using unobservable data such as operating income, estimated capitalization rates, or multiples, leasing prospects for vacant spaces and local market information. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.



10

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Assets Held For Sale and Discontinued Operations
    
The Company may decide to sell properties that are held for use. The Company records these properties as held for sale when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered probable and is expected within one year. Properties classified as held for sale are reported at the lower of their carrying value or their fair value, less estimated costs to sell. When the carrying value exceeds the fair value, less estimated costs to sell an impairment expense is recognized. The Company estimates fair value, less estimated closing costs based on similar real estate sales transactions. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 2 and 3 inputs. Level 2 inputs are quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. See Note 3 for additional details on impairment of assets held for sale for the three and nine months ended September 30, 2020 and 2019.

Assets held for sale are presented as discontinued operations in all periods presented if the disposition represents a strategic shift that has, or will have, a major effect on the Company's financial position or results of operations. This includes the net gain (or loss) upon disposal of property held for sale, the property's operating results, depreciation and interest expense.

Cash and Cash Equivalents and Restricted Cash
    
The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash equivalents. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents consist primarily of bank operating accounts and money markets. Financial instruments that potentially subject the Company to concentrations of credit risk include its cash and cash equivalents and its trade accounts receivable. The Company places its cash and cash equivalents with institutions of high credit quality.

Restricted cash represents amounts held by lenders for real estate taxes, insurance, reserves for capital improvements, leasing costs and tenant security deposits.
    
The Company places its cash and cash equivalents and restricted cash on deposit with financial institutions in the United States, which are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250 thousand. The Company's loss in the event of failure of these financial institutions is represented by the difference between the FDIC limit and the total amounts on deposit. Management monitors the financial institutions credit worthiness in conjunction with balances on deposit to minimize risk.

Tenant Receivables and Unbilled Rent

Tenant receivables include base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. The Company determines an allowance for the uncollectible portion of accrued rents and accounts receivable based upon customer credit-worthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. The Company considers a receivable past due once it becomes delinquent per the terms of the lease. The Company’s standard lease form considers a rent charge past due after five days. A past due receivable triggers certain events such as notices, fees and other allowable and required actions per the lease. As of September 30, 2020 and December 31, 2019, the Company’s allowance for uncollectible accounts totaled $1.47 million and $1.14 million, respectively.

Above and Below Market Lease Intangibles, net

The Company determines the above and below market lease intangibles upon acquiring a property. Above and below market lease intangibles are amortized over the life of the respective leases. Amortization of above and below market lease intangibles is recorded as a component of rental revenues.




11

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Deferred Costs and Other Assets, net
    
The Company’s deferred costs and other assets consist primarily of leasing commissions, leases in place, capitalized legal and marketing costs, tenant relationships and ground lease sandwich interest intangibles associated with acquisitions. The Company’s lease origination costs consist primarily of the portion of property acquisitions allocated to lease originations and commissions paid to third parties in connection with lease originations. The Company generally records amortization of lease origination costs on a straight-line basis over the terms of the related leases. Amortization of lease origination costs, leases in place, legal and marketing costs, tenant relationships and ground lease sandwich interest represents a component of depreciation and amortization expense.

Paycheck Protection Program

The Company received proceeds of $552 thousand (the "PPP funds") pursuant to the Paycheck Protection Program (the "PPP") under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

The PPP funds were received in the form of a promissory note, dated April 24, 2020 (the “Promissory Note”), between the Company and KeyBank as the lender that matures on April 24, 2022 bearing interest at a fixed rate of 1% per annum, payable monthly commencing seven months from the date of the note. Under the terms of the PPP, the principal may be forgiven if the proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, mortgage interest, rent and utilities. No assurance can be provided that the Company will obtain forgiveness of the Promissory Note in whole or in part. The PPP proceeds are included in "accounts payable, accrued expenses and other liabilities" on the condensed consolidated balance sheets.

Operating Partnership Purchase of Stock

The Operating Partnership purchased 71,343 shares of the Series D Preferred Stock on September 22, 2020 from an unaffiliated investor at $15.50 per share. The Company considers the purchase of the REIT's equity securities to be retired in the condensed consolidated financial statements. See Note 7 for additional details.

Revenue Recognition

Lease Contract Revenue

The Company has two classes of underlying assets relating to rental revenue activity, retail and office space. The Company retains substantially all of the risks and benefits of ownership of these underlying assets and accounts for these leases as operating leases. The Company combines lease and nonlease components in lease contracts, which includes combining base rent and tenant reimbursement revenue.

The Company accrues minimum rents on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet. At September 30, 2020 and December 31, 2019, there were $4.23 million and $3.41 million, respectively, in unbilled rent which is included in "rents and other tenant receivables, net." Additionally, certain of the lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements as variable lease income.

The Company’s leases generally require the tenant to reimburse the Company for a substantial portion of its expenses incurred in operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common Area Maintenance or “CAM” expenses). This significantly reduces the Company’s exposure to increases in costs and operating expenses resulting from inflation or other outside factors. These reimbursements are considered nonlease components which the Company combines with the lease component. The Company calculates the tenant’s share of operating costs by multiplying the total amount of the operating costs by a fraction, the numerator of which is the total number of square feet being leased by the tenant, and the denominator of which is the total square footage of all leasable buildings at the property. The Company also receives monthly payments for these reimbursements from substantially all its tenants throughout the year. The Company recognizes tenant reimbursements as variable lease income. The Company recognizes differences between
12

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
estimated recoveries and the final billed amounts in the subsequent year. These differences were not material for the three and nine months ended September 30, 2020 and 2019.

Additionally, the Company has tenants who pay real estate taxes directly to the taxing authority. The Company excludes these costs paid directly by the tenant to third parties on the Company’s behalf from both variable revenue payments recognized and the associated property operating expenses. The Company does not evaluate whether certain sales taxes and other similar taxes are the Company’s costs or tenants costs. Instead, the Company accounts for these costs as tenant costs.

The Company recognizes lease termination fees, which is included in "other revenues" on the condensed consolidated statements of operations, in the year that the lease is terminated and collection of the fee is reasonably assured. Upon early lease termination, the Company provides for losses related to unrecovered intangibles and other assets.

Beginning in April 2020, the Company received certain rent relief requests, most often in the form of rent deferral requests, as a result of COVID-19. The Company evaluates each tenant rent relief request on an individual basis, considering a number of factors. Not all tenant requests ultimately result in concessions or modification of agreements, nor is the Company forgoing its contractual rights under its lease agreements. The Financial Accounting Standards Board (the "FASB") issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of COVID-19. The Lease Modification Q&A clarifies that entities may elect to treat qualifying lease concessions as if they were based on enforceable rights and obligations, and may choose to apply or not to apply modification accounting to those qualifying concessions. Qualifying concessions must be in response to COVID-19 and not have a substantial increase in the lessee’s obligation or the lessor’s rights under the contract. The Company has elected not to apply ASC 842 modification guidance for concessions that did not increase the lease term as generally, these concessions do not impact the overall economics of the lease. Concessions that extend the lease term are accounted for under ASC 842, lease modification guidance.

The below table disaggregates the Company’s revenue by type of service for the three and nine months ended September 30, 2020 and 2019 (in thousands, unaudited):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Minimum rent$11,515 $12,035 $35,179 $36,462 
Tenant reimbursements - variable lease revenue3,274 3,262 9,703 9,999 
Percentage rent - variable lease revenue85 69 242 258 
Straight-line rents339 134 838 142 
Lease termination fees100  174 49 
Other108 180 613 497 
     Total15,421 15,680 46,749 47,407 
Credit losses on operating lease receivables(457)(115)(1,042)(315)
     Total$14,964 $15,565 $45,707 $47,092 

13

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Income Taxes

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code and applicable Treasury regulations relating to REIT qualification. In order to maintain this REIT status, the regulations require the Company to distribute at least 90% of its taxable income to shareholders and meet certain other asset and income tests, as well as other requirements. The TRS' have accrued $9 thousand and $22 thousand, respectively, for federal and state income taxes as of September 30, 2020 and December 31, 2019. If the Company fails to qualify as a REIT, it will be subject to tax at regular corporate rates for the years in which it fails to qualify. If the Company loses its REIT status, it could not elect to be taxed as a REIT for five years unless the Company’s failure to qualify was due to reasonable cause and certain other conditions were satisfied.

Management has evaluated the effect of the guidance provided by GAAP on Accounting for Uncertainty of Income Taxes and has determined that the Company had no uncertain income tax positions.

Taxable REIT Subsidiary Cost Allocation

The Company’s overall philosophy regarding cost allocation centers around the premise that the Trust exists to acquire, lease and manage properties for the benefit of its investors. Accordingly, a majority of the Company’s operations occur at the property level. Each property must carry its own weight by absorbing the costs associated with generating its revenues. Additionally, leases generally allow the Company to pass through to the tenant most of the costs involved in operating the property, including, but not limited to, the direct costs associated with owning and maintaining the property (landscaping, repairs and maintenance, taxes, insurance, etc.), property management and certain administrative costs.

Service vendors bill the majority of the direct costs of operating the properties directly to the particular property and each property pays them accordingly. The Non-REIT Properties pay WRE property management and/or asset management fees of 3% and 2% of collected revenues, respectively. The Non-REIT Properties also pay WRE leasing commissions based on the total contractual revenues to be generated under the new/renewed lease agreement (6% for new leases and 3% for renewals).

Costs incurred to manage, lease and administer the Non-REIT Properties are allocated to the TRS. These costs include compensation and benefits, property management, leasing and other corporate, general and administrative expenses associated with generating the TRS' revenues.
    
Financial Instruments
    
The carrying amount of financial instruments included in assets and liabilities approximates fair market value due to their immediate or short-term maturity.

Use of Estimates

The Company has made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reported periods. The Company’s actual results could differ from these estimates.

Corporate General and Administrative Expense
    
A detail for the "corporate general & administrative" line item from the condensed consolidated statements of operations is presented below (in thousands, unaudited):
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Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Professional fees$241 $444 $2,186 $1,371 
Compensation and benefits321 455 1,103 1,562 
Corporate administration309 326 934 934 
Advertising costs for leasing activities32 35 84 198 
Other177 89 260 478 
    Total$1,080 $1,349 $4,567 $4,543 
    
Other Expense

Other expense represent expenses which are non-operating in nature. Other expenses during the three and nine months ended September 30, 2020 were $15 thousand and $1.04 million, respectively, in legal settlement costs and reimbursement of 2019 proxy costs, see Note 9 and Note 10 for additional details. 

Leases Commitments

The Company determines if an arrangement is a lease at inception. Operating leases, in which the Company is the lessee, are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on our condensed consolidated balance sheets.

ROU assets represent the right to use an underlying asset for the lease term and the lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU assets include any lease payments made and excludes lease incentives. The Company's lease terms may include options to extend the lease when it is reasonably certain that the company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company elected the practical expedient to combine lease and associated nonlease components. The lease components are the majority of its leasing arrangements and the Company accounts for the combined component as an operating lease. In the event the Company modifies existing ground leases or enters into new ground leases, such leases may be classified as finance leases.

Noncontrolling Interests

Noncontrolling interests is the portion of equity in the Operating Partnership not attributable to the Trust. The ownership interests not held by the parent are considered noncontrolling interests. Accordingly, noncontrolling interests have been reported in equity on the condensed consolidated balance sheets but separate from the Company’s equity. On the condensed consolidated statements of operations, the subsidiaries are reported at the consolidated amount, including both the amount attributable to the Company and noncontrolling interests. Condensed consolidated statements of equity includes beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.
    
The noncontrolling interest of the Operating Partnership common unit holders is calculated by multiplying the noncontrolling interest ownership percentage at the balance sheet date by the Operating Partnership’s net assets (total assets less total liabilities). The noncontrolling interest percentage is calculated at any point in time by dividing the number of units not owned by the Company by the total number of units outstanding. The noncontrolling interest ownership percentage will change as additional units are issued or as units are exchanged for the Company’s common stock $0.01 par value per share (“Common Stock”). In accordance with GAAP, any changes in the value from period to period are charged to additional paid-in capital.
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements 

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This update enhances the methodology of measuring expected credit losses to include the use of forward-looking information to better calculate credit loss estimates. The guidance will apply to most financial assets measured at amortized cost and certain other instruments, such as accounts receivable and loans. The guidance will require that the Company estimate the lifetime expected credit loss with respect to these receivables and record allowances that, when deducted from the balance of the receivables, represent the net amounts expected to be collected. The Company will also be required to disclose information about how it developed the allowances, including changes in the factors that influenced the Company’s estimate of expected credit losses and the reasons for those changes. The guidance would be effective for interim and annual reporting periods beginning after December 15, 2022, per FASB's issuance of ASU 2019-10, "Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates". The Company is currently in the process of evaluating the impact the adoption of the guidance will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)". This update modifies the disclosure requirements on fair value measurements in Topic 820 with several removals, modifications and additions for disclosures, which includes both prospective and retrospective disclosures. The guidance adds prospective disclosures related to the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements including measurement uncertainty disclosures to communicate the uncertainty in the measurement as of the reporting date. The Company adopted this ASU as of January 1, 2020. The adoption did not have material impact on its consolidated financial statements upon adoption of the guidance and there were no retrospective disclosures necessary.

Other accounting standards that have been issued or proposed by the FASB or other standard-setting bodies are not currently applicable to the Company or are not expected to have a significant impact on the Company’s financial position, results of operations and cash flows.

Reclassifications

The Company has reclassified certain prior period amounts in the accompanying condensed consolidated financial statements in order to be consistent with the current period presentation. These reclassifications had no effect on net income, total assets, total liabilities or equity. The revenue from asset management fees and commissions were reclassified to other revenues on the condensed consolidated statements of operations for consistency with current period presentation.

3. Real Estate

Investment properties consist of the following (in thousands):
September 30, 2020December 31, 2019
 (unaudited) 
Land and land improvements$96,934 $100,599 
Buildings and improvements353,943 366,082 
Investment properties at cost450,877 466,681 
Less accumulated depreciation(56,499)(50,466)
    Investment properties, net$394,378 $416,215 

The Company’s depreciation expense on investment properties was $2.79 million and $8.59 million for the three and nine months ended September 30, 2020, respectively. The Company’s depreciation expense on investment properties was $2.92 million and $8.99 million for the three and nine months ended September 30, 2019, respectively.

A significant portion of the Company’s land, buildings and improvements serve as collateral for its mortgage loans. Accordingly, restrictions exist as to the encumbered property’s transferability, use and other common rights typically associated with property ownership.

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Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
3. Real Estate (continued)
Assets Held for Sale and Dispositi