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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
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 | | 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 |
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.
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ¨ | | Accelerated filer | | ¨ |
Non-accelerated filer | | ý | | 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
As of November 4, 2022, there were 9,793,494 common shares, $0.01 par value per share, outstanding.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
| | | | | | | | |
| | Page |
PART I – FINANCIAL INFORMATION | |
| | |
Item 1. | Financial Statements | |
| | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II – OTHER INFORMATION | |
| | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
| | |
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except par value and share data)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (unaudited) | | |
ASSETS: | | | |
Investment properties, net | $ | 567,573 | | | $ | 386,730 | |
Cash and cash equivalents | 24,057 | | | 22,898 | |
Restricted cash | 30,245 | | | 17,521 | |
Rents and other tenant receivables, net | 11,517 | | | 9,233 | |
Assets held for sale | 419 | | | 2,047 | |
Above market lease intangibles, net | 3,432 | | | 2,424 | |
Operating lease right-of-use assets | 15,129 | | | 12,455 | |
Deferred costs and other assets, net | 40,674 | | | 11,973 | |
Total Assets | $ | 693,046 | | | $ | 465,281 | |
LIABILITIES: | | | |
Loans payable, net | $ | 467,230 | | | $ | 333,283 | |
Liabilities associated with assets held for sale | — | | | 3,381 | |
Below market lease intangibles, net | 26,340 | | | 3,397 | |
Derivative liabilities | 7,309 | | | 4,776 | |
Operating lease liabilities | 16,446 | | | 13,040 | |
Accounts payable, accrued expenses and other liabilities | 21,286 | | | 11,054 | |
Total Liabilities | 538,611 | | | 368,931 | |
| | | |
Series D Cumulative Convertible Preferred Stock (no par value, 6,000,000 shares authorized, 3,152,392 shares issued and outstanding; $111.33 million and $104.97 million aggregate liquidation value, respectively) | 99,276 | | | 92,548 | |
| | | |
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, 2,301,337 and 1,872,448 shares issued and outstanding, respectively; $57.53 million and $46.81 million aggregate liquidation preference, respectively) | 43,263 | | | 41,189 | |
Common Stock ($0.01 par value, 200,000,000 shares authorized 9,793,494 and 9,720,532 shares issued and outstanding, respectively) | 98 | | | 97 | |
Additional paid-in capital | 234,956 | | | 234,229 | |
Accumulated deficit | (288,546) | | | (274,107) | |
Total Stockholders’ (Deficit) Equity | (9,776) | | | 1,861 | |
Noncontrolling interests | 64,935 | | | 1,941 | |
Total Equity | 55,159 | | | 3,802 | |
Total Liabilities and Equity | $ | 693,046 | | | $ | 465,281 | |
See accompanying notes to condensed consolidated financial statements.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
REVENUE: | | | | | | | |
Rental revenues | $ | 18,486 | | | $ | 15,000 | | | $ | 49,142 | | | $ | 44,946 | |
Other revenues | 232 | | | 508 | | | 552 | | | 780 | |
Total Revenue | 18,718 | | | 15,508 | | | 49,694 | | | 45,726 | |
OPERATING EXPENSES: | | | | | | | |
Property operations | 6,655 | | | 5,029 | | | 16,637 | | | 14,573 | |
Depreciation and amortization | 4,981 | | | 3,678 | | | 12,222 | | | 11,033 | |
Impairment of assets held for sale | — | | | — | | | 760 | | | 2,200 | |
Corporate general & administrative | 2,498 | | | 1,756 | | | 5,434 | | | 4,945 | |
Total Operating Expenses | 14,134 | | | 10,463 | | | 35,053 | | | 32,751 | |
(Loss) gain on disposal of properties | — | | | 1,967 | | | (15) | | | 2,143 | |
Operating Income | 4,584 | | | 7,012 | | | 14,626 | | | 15,118 | |
Interest income | 15 | | | 9 | | | 42 | | | 9 | |
Interest expense | (6,949) | | | (5,637) | | | (19,079) | | | (19,813) | |
Net changes in fair value of derivative liabilities | (656) | | | 1,884 | | | (2,533) | | | 303 | |
Other income | — | | | — | | | — | | | 552 | |
Other expense | — | | | (185) | | | (691) | | | (185) | |
Net (Loss) Income Before Income Taxes | (3,006) | | | 3,083 | | | (7,635) | | | (4,016) | |
Income tax expense | — | | | — | | | — | | | (2) | |
Net (Loss) Income | (3,006) | | | 3,083 | | | (7,635) | | | (4,018) | |
Less: Net income attributable to noncontrolling interests | 1,234 | | | 57 | | | 1,237 | | | 72 | |
Net (Loss) Income Attributable to Wheeler REIT | (4,240) | | | 3,026 | | | (8,872) | | | (4,090) | |
Preferred Stock dividends - undeclared | (2,264) | | | (2,198) | | | (6,792) | | | (6,649) | |
Deemed contribution related to preferred stock redemption | — | | | — | | | — | | | 5,040 | |
Net (Loss) Income Attributable to Wheeler REIT Common Stockholders | $ | (6,504) | | | $ | 828 | | | $ | (15,664) | | | $ | (5,699) | |
| | | | | | | |
(Loss) income per share: | | | | | | | |
Basic and Diluted | $ | (0.66) | | | $ | 0.09 | | | $ | (1.61) | | | $ | (0.59) | |
Weighted-average number of shares: | | | | | | | |
Basic and Diluted | 9,792,815 | | | 9,713,125 | | | 9,749,651 | | | 9,708,588 | |
| | | | | | | |
See accompanying notes to condensed consolidated financial statements.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of (Deficit) Equity
(in thousands, except share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A | | Series B | | | | | | | | Total Stockholders’ (Deficit) Equity | | Noncontrolling | | |
| Preferred Stock | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | | Interests | | Total |
| Shares | | Value | | Shares | | Value | | Shares | | Value | | | | | Units | | Value | | (Deficit) Equity |
Balance, December 31, 2021 | 562 | | | $ | 453 | | | 1,872,448 | | | $ | 41,189 | | | 9,720,532 | | | $ | 97 | | | $ | 234,229 | | | $ | (274,107) | | | $ | 1,861 | | | 215,343 | | | $ | 1,941 | | | $ | 3,802 | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | — | | | 22 | | | — | | | — | | | 22 | |
Conversion of Series B Preferred Stock to Common Stock | — | | | — | | | (4,105) | | | (90) | | | 2,561 | | | — | | | 90 | | | — | | | — | | | — | | | — | | | — | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,264) | | | (2,264) | | | — | | | — | | | (2,264) | |
Net (Loss) Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,580) | | | (4,580) | | | — | | | 4 | | | (4,576) | |
Balance, March 31, 2022 (Unaudited) | 562 | | | 453 | | | 1,868,343 | | | 41,121 | | | 9,723,093 | | | 97 | | | 234,319 | | | (280,951) | | | (4,961) | | | 215,343 | | | 1,945 | | | (3,016) | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | — | | | 22 | | | — | | | — | | | 22 | |
Adjustment for noncontrolling interest in operating partnership | — | | | — | | | — | | | — | | | — | | | — | | | 470 | | | — | | | 470 | | | — | | | (470) | | | — | |
Conversion of Operating Partnership units to Common Stock | — | | | — | | | — | | | — | | | 69,620 | | | 1 | | | 158 | | | — | | | 159 | | | (69,620) | | | (159) | | | — | |
Paid-in-kind interest, issuance of Series B Preferred Stock | — | | | — | | | 432,994 | | | 2,099 | | | — | | | — | | | — | | | — | | | 2,099 | | | — | | | — | | | 2,099 | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,264) | | | (2,264) | | | — | | | — | | | (2,264) | |
Net Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (52) | | | (52) | | | — | | | (1) | | | (53) | |
Balance, June 30, 2022 (Unaudited) | 562 | | | 453 | | | 2,301,337 | | | 43,242 | | | 9,792,713 | | | 98 | | | 234,947 | | | (283,267) | | | (4,527) | | | 145,723 | | | 1,315 | | | (3,212) | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 21 | | | — | | | — | | | — | | | — | | | 21 | | | — | | | — | | | 21 | |
Adjustment for noncontrolling interest in operating partnership | — | | | — | | | — | | | — | | | — | | | — | | | 7 | | | — | | | 7 | | | — | | | (7) | | | — | |
Conversion of Operating Partnership units to Common Stock | — | | | — | | | — | | | — | | | 781 | | | — | | | 2 | | | — | | | 2 | | | (781) | | | (2) | | | — | |
Noncontrolling interests assumed from the acquisition (1) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 64,845 | | | 64,845 | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,264) | | | (2,264) | | | — | | | (1,225) | | | (3,489) | |
Net (Loss) Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,015) | | | (3,015) | | | — | | | 9 | | | (3,006) | |
Balance, September 30, 2022 (Unaudited) | 562 | | | $ | 453 | | | 2,301,337 | | | $ | 43,263 | | | 9,793,494 | | | $ | 98 | | | $ | 234,956 | | | $ | (288,546) | | | $ | (9,776) | | | 144,942 | | | $ | 64,935 | | | 55,159 | |
(1) See Notes 1, 2 and 3 of the Notes to the Condensed Consolidated Financial Statements for further details.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A | | Series B | | | | | | | | Total Stockholders’ (Deficit) Equity | | Noncontrolling | | |
| Preferred Stock | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | | Interests | | Total |
| Shares | | Value | | Shares | | Value | | Shares | | Value | | | | | Units | | Value | | (Deficit) Equity |
Balance, December 31, 2020 | 562 | | | $ | 453 | | | 1,875,748 | | | $ | 41,174 | | | 9,703,874 | | | $ | 97 | | | $ | 234,061 | | | $ | (260,867) | | | $ | 14,918 | | | 224,429 | | | $ | 1,931 | | | $ | 16,849 | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | — | | | 22 | | | — | | | — | | | 22 | |
Conversion of operating partnership units to Common Stock | — | | | — | | | — | | | — | | | 2,864 | | | — | | | 9 | | | — | | | 9 | | | (2,864) | | | (9) | | | — | |
Adjustment for noncontrolling interest in operating partnership | — | | | — | | | — | | | — | | | — | | | — | | | 16 | | | — | | | 16 | | | — | | | (16) | | | — | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,273) | | | (2,273) | | | — | | | — | | | (2,273) | |
Deemed contribution related to preferred stock redemption | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,389 | | | 4,389 | | | — | | | — | | | 4,389 | |
Net (Loss) Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,049) | | | (4,049) | | | — | | | 15 | | | (4,034) | |
Balance, March 31, 2021 (Unaudited) | 562 | | | 453 | | | 1,875,748 | | | 41,196 | | | 9,706,738 | | | 97 | | | 234,086 | | | (262,800) | | | 13,032 | | | 221,565 | | | 1,921 | | | 14,953 | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | — | | | 22 | | | — | | | — | | | 22 | |
Conversion of operating partnership units to Common Stock | — | | | — | | | — | | | — | | | 3,676 | | | — | | | 18 | | | — | | | 18 | | | (3,676) | | | (18) | | | — | |
Adjustment for noncontrolling interest in operating partnership | — | | | — | | | — | | | — | | | — | | | — | | | 15 | | | — | | | 15 | | | — | | | (15) | | | — | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,189) | | | (2,189) | | | — | | | — | | | (2,189) | |
Deemed contribution related to preferred stock redemption | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 651 | | | 651 | | | — | | | — | | | 651 | |
Net Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,067) | | | (3,067) | | | — | | | — | | | (3,067) | |
Balance, June 30, 2021 (Unaudited) | 562 | | | 453 | | | 1,875,748 | | | 41,218 | | | 9,710,414 | | | 97 | | | 234,119 | | | (267,405) | | | 8,482 | | | 217,889 | | | 1,888 | | | 10,370 | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 21 | | | — | | | — | | | — | | | — | | | 21 | | | — | | | — | | | 21 | |
Conversion of operating partnership units to Common Stock | — | | | — | | | — | | | — | | | 801 | | | — | | | 3 | | | — | | | 3 | | | (801) | | | (3) | | | — | |
Conversion of Series B Preferred Stock to Common Stock | — | | | — | | | (3,300) | | | (72) | | | 2,572 | | | — | | | 72 | | | — | | | — | | | — | | | — | | | — | |
Adjustment for noncontrolling interest in operating partnership | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | — | | | 5 | | | — | | | (5) | | | — | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,198) | | | (2,198) | | | — | | | — | | | (2,198) | |
Net Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,026 | | | 3,026 | | | — | | | 57 | | | 3,083 | |
Balance, September 30, 2021 (Unaudited) | 562 | | | $ | 453 | | | 1,872,448 | | | $ | 41,167 | | | 9,713,787 | | | $ | 97 | | | $ | 234,199 | | | $ | (266,577) | | | $ | 9,339 | | | 217,088 | | | $ | 1,937 | | | 11,276 | |
See accompanying notes to condensed consolidated financial statements.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net Loss | $ | (7,635) | | | $ | (4,018) | |
Adjustments to reconcile consolidated net loss to net cash provided by operating activities: | | | |
Depreciation | 8,966 | | | 8,193 | |
Amortization | 3,256 | | | 2,840 | |
Loan cost amortization | 2,154 | | | 5,200 | |
Changes in fair value of derivative liabilities | 2,533 | | | (303) | |
Above (below) market lease amortization, net | 559 | | | 28 | |
Paid-in-kind interest | 2,099 | | | — | |
Straight-line expense | 24 | | | 26 | |
Loss (gain) on disposal of properties | 15 | | | (2,143) | |
Credit losses on operating lease receivables | 267 | | | 168 | |
Impairment of assets held for sale | 760 | | | 2,200 | |
Net changes in assets and liabilities: | | | |
Rents and other tenant receivables, net | 770 | | | 1,829 | |
Unbilled rent | (548) | | | (1,061) | |
Deferred costs and other assets, net | 3,074 | | | (904) | |
Accounts payable, accrued expenses and other liabilities | 11,660 | | | 2,458 | |
Net cash provided by operating activities | 27,954 | | | 14,513 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Investment property acquisitions, net of cash acquired | (135,510) | | | — | |
Capital expenditures | (6,382) | | | (3,791) | |
Cash received from disposal of properties | 1,786 | | | 7,610 | |
Net cash (used in) provided by investing activities | (140,106) | | | 3,819 | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Payments for deferred financing costs | (8,748) | | | (6,026) | |
Loan proceeds | 265,000 | | | 94,650 | |
Loan principal payments | (127,603) | | | (68,801) | |
Preferred stock redemption | — | | | (8,336) | |
Loan prepayment penalty | (2,614) | | | (687) | |
Net cash provided by financing activities | 126,035 | | | 10,800 | |
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 13,883 | | | 29,132 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | 40,419 | | | 42,768 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $ | 54,302 | | | $ | 71,900 | |
Supplemental Disclosures: | | | |
Non-Cash Transactions: | | | |
Paycheck Protection Program forgiveness | $ | — | | | $ | 552 | |
Initial fair value of warrants | $ | — | | | $ | 2,018 | |
Initial fair value of derivative liability at issuance of convertible notes | $ | — | | | $ | 5,393 | |
Conversion of common units to common stock | $ | 160 | | | $ | 30 | |
Conversion of Series B Preferred Stock to common stock | $ | 90 | | | $ | 72 | |
Accretion of Preferred Stock discounts | $ | 438 | | | $ | 454 | |
Deemed contribution related to Preferred Stock discount | $ | — | | | $ | 5,040 | |
Other Cash Transactions: | | | |
| | | |
Cash paid for interest | $ | 14,137 | | | $ | 14,305 | |
| | | |
The following table provides a reconciliation of cash, cash equivalents and restricted cash: | | | |
Cash and cash equivalents | $ | 24,057 | | | $ | 36,234 | |
Restricted cash | 30,245 | | | 35,666 | |
Cash, cash equivalents, and restricted cash | $ | 54,302 | | | $ | 71,900 | |
See accompanying notes to condensed consolidated financial statements.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
1. Organization and Basis of Presentation and Consolidation
Wheeler Real Estate Investment Trust, Inc. (the “Trust,” the “REIT,” the “Company,” "we," "our" or "us") 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. At September 30, 2022, the Trust owned 99.05% of the Operating Partnership. As of September 30, 2022, the Trust, through the Operating Partnership, owned and operated seventy-six centers and four undeveloped properties in Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Oklahoma, Tennessee, Kentucky, New Jersey, Pennsylvania, Massachusetts, Maryland, Connecticut and West Virginia. Accordingly, the use of the word “Company” refers to the Trust and its consolidated subsidiaries, except where the context otherwise requires.
The Trust through the Operating Partnership owns Wheeler Interests (“WI”) and Wheeler Real Estate, LLC (“WRE”) (collectively 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.
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. The accompanying condensed consolidated financial statements include the accounts of the Company. The Company’s subsidiaries are accounted in accordance with the Consolidation Guidance of the Financial Accounting Standards Board (“FASB”). However, amounts presented in the condensed consolidated balance sheet as of December 31, 2021 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 2021 Annual Report filed on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).
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 Realty Trust, Inc. (“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 (the “Cedar Acquisition”).
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 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. 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 nine months ended September 30, 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 included in this Form 10-Q for further details.
The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the “Form 10-Q”) include Cedar starting from the date of acquisition. We have determined that this acquisition is not a variable interest entity, as
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
1. Organization and Basis of Presentation and Consolidation (continued)
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.
2. Summary of Significant Accounting Policies
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. As of September 30, 2022 and December 31, 2021, the Company’s allowance for uncollectible tenant receivables totaled $3.81 million and $633 thousand, respectively.
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, 2022 and December 31, 2021, there were $6.32 million and $5.77 million, respectively, in unbilled rent which is included in "rents and other tenant receivables, net."
The below table disaggregates the Company’s revenue by type of service (in thousands, unaudited):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Minimum rent | $ | 14,285 | | | $ | 11,487 | | | $ | 38,085 | | | $ | 34,149 | |
Tenant reimbursements - variable lease revenue | 3,875 | | | 3,178 | | | 10,455 | | | 9,604 | |
Percentage rent - variable lease revenue | 89 | | | 177 | | | 322 | | | 463 | |
Straight-line rents | 314 | | | 290 | | | 547 | | | 898 | |
Other | 232 | | | 508 | | | 552 | | | 780 | |
Total | 18,795 | | | 15,640 | | | 49,961 | | | 45,894 | |
Credit losses on operating lease receivables | (77) | | | (132) | | | (267) | | | (168) | |
Total | $ | 18,718 | | | $ | 15,508 | | | $ | 49,694 | | | $ | 45,726 | |
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
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Corporate general & administrative expenses consist of the following (in thousands, unaudited):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Professional fees | $ | 946 | | | $ | 717 | | | $ | 1,918 | | | $ | 2,133 | |
Compensation and benefits | 863 | | | 325 | | | 1,554 | | | 900 | |
Corporate administration | 598 | | | 542 | | | 1,512 | | | 1,314 | |
Advertising costs for leasing activities | 22 | | | 36 | | | 232 |