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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, 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)
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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 3, 2023, there were 3,226,691 common shares, $0.01 par value per share, outstanding.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
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PART I – FINANCIAL INFORMATION | |
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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. | | |
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Forward-Looking Statements
Certain statements made in this Quarterly Report on Form 10-Q or incorporated by reference herein are “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”), and, as such, may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Wheeler Real Estate Investment Trust, Inc. (the “Company”) 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.
Important factors that we think could cause our actual results to differ materially from those expressed or forecasted in
the forward-looking statement are summarized below:
•the adverse effect any future pandemic, endemic or outbreak of infectious disease, and mitigation efforts to control their spread;
•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;
•tenant bankruptcies;
•the state of the U.S. economy generally, or specifically in the Southeast, Mid-Atlantic 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 Preferred Stock of their redemption rights and downward adjustment of the conversion price on our outstanding 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 South Carolina, Georgia, Virginia, Pennsylvania, North Carolina, Massachusetts, New Jersey, Florida, Connecticut, Kentucky, Tennessee, Alabama, Maryland, West Virginia, and Oklahoma;
•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 similar 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;
•increases in the Company’s financing and other costs as a result of changes in interest rates and other factors;
•the Company’s ability to maintain listing on Nasdaq Capital Market;
•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;
•inability to successfully integrate the acquisition of Cedar Realty Trust, Inc.;
•changes in our ability to obtain and maintain financing;
•damage to the Company’s properties from catastrophic weather and other natural events, and the physical effects of climate change;
•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;
•continued increases in the cost of necessary insurance could negatively impact the Company's profitability;
•information technology security breaches;
•the Company’s ability and willingness to maintain its qualification as a REIT;
•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
•inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that the Company has anticipated. 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.
You should carefully consider the risks and uncertainties described in this Quarterly Report on Form 10-Q as they identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except par value and share data)
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| (unaudited) | | |
ASSETS: | | | |
Real estate: | | | |
Land and land improvements | $ | 149,272 | | | $ | 144,537 | |
Buildings and improvements | 504,123 | | | 494,668 | |
| 653,395 | | | 639,205 | |
Less accumulated depreciation | (91,176) | | | (78,225) | |
Real estate, net | 562,219 | | | 560,980 | |
| | | |
Cash and cash equivalents | 25,419 | | | 28,491 | |
Restricted cash | 23,438 | | | 27,374 | |
Receivables, net | 11,691 | | | 13,544 | |
| | | |
Investment securities - related party | 6,580 | | | — | |
Above market lease intangibles, net | 2,347 | | | 3,134 | |
Operating lease right-of-use assets | 9,502 | | | 15,133 | |
Deferred costs and other assets, net | 30,741 | | | 35,880 | |
Total Assets | $ | 671,937 | | | $ | 684,536 | |
| | | |
LIABILITIES: | | | |
Loans payable, net | $ | 477,432 | | | $ | 466,029 | |
| | | |
Below market lease intangibles, net | 19,022 | | | 23,968 | |
Derivative liabilities | 13,392 | | | 7,111 | |
Operating lease liabilities | 10,377 | | | 16,478 | |
Series D Preferred Stock redemptions | 6,448 | | | — | |
Accounts payable, accrued expenses and other liabilities | 18,291 | | | 18,398 | |
Total Liabilities | 544,962 | | | 531,984 | |
| | | |
Series D Cumulative Convertible Preferred Stock | 117,353 | | | 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) | 44,976 | | | 44,911 | |
Common Stock ($0.01 par value, 200,000,000 shares authorized, 980,857 and 979,396 shares issued and outstanding, respectively) | 10 | | | 10 | |
Additional paid-in capital | 235,295 | | | 235,081 | |
Accumulated deficit | (337,231) | | | (295,617) | |
Total Stockholders’ Deficit | (56,497) | | | (15,162) | |
Noncontrolling interests | 66,119 | | | 66,196 | |
Total Equity | 9,622 | | | 51,034 | |
Total Liabilities and Equity | $ | 671,937 | | | $ | 684,536 | |
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, | | |
| 2023 | | 2022 | | 2023 | | 2022 | | | | |
REVENUE: | | | | | | | | | | | |
Rental revenues | $ | 24,655 | | | $ | 18,486 | | | $ | 74,738 | | | $ | 49,142 | | | | | |
Other revenues | 549 | | | 232 | | | 1,372 | | | 552 | | | | | |
Total Revenue | 25,204 | | | 18,718 | | | 76,110 | | | 49,694 | | | | | |
OPERATING EXPENSES: | | | | | | | | | | | |
Property operations | 8,771 | | | 6,655 | | | 26,068 | | | 16,637 | | | | | |
Depreciation and amortization | 6,875 | | | 4,981 | | | 21,642 | | | 12,222 | | | | | |
Impairment of assets held for sale | — | | | — | | | — | | | 760 | | | | | |
Corporate general & administrative | 2,475 | | | 2,498 | | | 8,364 | | | 5,434 | | | | | |
Total Operating Expenses | 18,121 | | | 14,134 | | | 56,074 | | | 35,053 | | | | | |
Gain (loss) on disposal of properties | 2,204 | | | — | | | 2,204 | | | (15) | | | | | |
Operating Income | 9,287 | | | 4,584 | | | 22,240 | | | 14,626 | | | | | |
Interest income | 163 | | | 15 | | | 336 | | | 42 | | | | | |
Gain on investment securities, net | 49 | | | — | | | 80 | | | — | | | | | |
Interest expense | (7,469) | | | (6,949) | | | (24,125) | | | (19,079) | | | | | |
Net changes in fair value of derivative liabilities | (11,163) | | | (656) | | | (6,281) | | | (2,533) | | | | | |
| | | | | | | | | | | |
Other expense | (2,233) | | | — | | | (5,273) | | | (691) | | | | | |
Net Loss Before Income Taxes | (11,366) | | | (3,006) | | | (13,023) | | | (7,635) | | | | | |
Income tax expense | (2) | | | — | | | (48) | | | — | | | | | |
Net Loss | (11,368) | | | (3,006) | | | (13,071) | | | (7,635) | | | | | |
Less: Net income attributable to noncontrolling interests | 2,693 | | | 1,234 | | | 8,061 | | | 1,237 | | | | | |
Net Loss Attributable to Wheeler REIT | (14,061) | | | (4,240) | | | (21,132) | | | (8,872) | | | | | |
Preferred Stock dividends - undeclared | (2,415) | | | (2,264) | | | (6,940) | | | (6,792) | | | | | |
Deemed distribution related to preferred stock redemptions | (13,542) | | | — | | | (13,542) | | | — | | | | | |
Net Loss Attributable to Wheeler REIT Common Stockholders | $ | (30,018) | | | $ | (6,504) | | | $ | (41,614) | | | $ | (15,664) | | | | | |
| | | | | | | | | | | |
Loss per share: | | | | | | | | | | | |
Basic and Diluted | $ | (30.61) | | | $ | (6.64) | | | $ | (42.46) | | | $ | (16.07) | | | | | |
Weighted average number of shares: | | | | | | | | | | | |
Basic and Diluted | 980,654 | | | 979,282 | | | 980,031 | | | 974,965 | | | | | |
| | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of (Deficit) Equity
(Unaudited, in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A | | Series B | | | | | | | | Total Stockholders’ (Deficit) Equity |
| Preferred Stock | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | |
| Shares | | Value | | Shares | | Value | | Shares | | Value | | | |
Balance, December 31, 2022 | 562 | | | $ | 453 | | | 3,379,142 | | | $ | 44,911 | | | 979,396 | | | $ | 10 | | | $ | 235,081 | | | $ | (295,617) | | | $ | (15,162) | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | — | | | 22 | |
Conversion of Series D Preferred Stock to Common Stock | — | | | — | | | — | | | — | | | 625 | | | — | | | 140 | | | — | | | 140 | |
Adjusted for noncontrolling interest in operating partnership | — | | | — | | | — | | | — | | | — | | | — | | | (13) | | | — | | | (13) | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,264) | | | (2,264) | |
Net (Loss) Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,101) | | | (3,101) | |
Balance, March 31, 2023 (Unaudited) | 562 | | | 453 | | | 3,379,142 | | | 44,933 | | | 980,021 | | | 10 | | | 235,208 | | | (300,982) | | | (20,378) | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | — | | | 22 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,261) | | | (2,261) | |
Net (Loss) Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,970) | | | (3,970) | |
| | | | | | | | | | | | | | | | | |
Balance, June 30, 2023 (Unaudited) | 562 | | | 453 | | | 3,379,142 | | | 44,955 | | | 980,021 | | | 10 | | | 235,208 | | | (307,213) | | | (26,587) | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 21 | | | — | | | — | | | — | | | — | | | 21 | |
| | | | | | | | | | | | | | | | | |
Conversion of Operating Partnership units to Common Stock | — | | | — | | | — | | | — | | | 898 | | | — | | | 57 | | | — | | | 57 | |
Adjustments for noncontrolling interest in operating partnership | — | | | — | | | — | | | — | | | — | | | — | | | 30 | | | — | | | 30 | |
Adjustment of Series D Preferred Stock to redemption value | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13,542) | | | (13,542) | |
Redemption of fractional units as a result of reverse stock split | — | | | — | | | — | | | — | | | (62) | | | — | | | — | | | — | | | — | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,415) | | | (2,415) | |
Net (Loss) Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (14,061) | | | (14,061) | |
Balance, September 30, 2023 (Unaudited) | 562 | | | $ | 453 | | | 3,379,142 | | | $ | 44,976 | | | 980,857 | | | $ | 10 | | | $ | 235,295 | | | $ | (337,231) | | | $ | (56,497) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries Condensed Consolidated Statements of (Deficit) Equity (Unaudited, in thousands, except share data) Continued |
|
|
| | | | | | | | | | | | | | | | | |
| Noncontrolling Interests | | | | | | | | | | | | |
| Operating Partnership | | Consolidated Subsidiary | | Total | | Total Equity | | | | | | | | | | |
Balance, December 31, 2022 | $ | 1,351 | | | $ | 64,845 | | | $ | 66,196 | | | $ | 51,034 | | | | | | | | | | | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | | | | | | | | | |
Conversion of Series D Preferred Stock to Common Stock | — | | | — | | | — | | | 140 | | | | | | | | | | | |
Adjusted for noncontrolling interest in operating partnership | 13 | | | — | | | 13 | | | — | | | | | | | | | | | |
Dividends and distributions | — | | | (2,688) | | | (2,688) | | | (4,952) | | | | | | | | | | | |
Net (Loss) Income | 4 | | | 2,688 | | | 2,692 | | | (409) | | | | | | | | | | | |
Balance, March 31, 2023 (Unaudited) | 1,368 | | | 64,845 | | | 66,213 | | | 45,835 | | | | | | | | | | | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Dividends and distributions | — | | | (2,688) | | | (2,688) | | | (4,949) | | | | | | | | | | | |
Net (Loss) Income | (12) | | | 2,688 | | | 2,676 | | | (1,294) | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Balance, June 30, 2023 (Unaudited) | 1,356 | | | 64,845 | | | 66,201 | | | 39,614 | | | | | | | | | | | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 21 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Conversion of Operating Partnership units to Common Stock | (57) | | | — | | | (57) | | | — | | | | | | | | | | | |
Adjustments for noncontrolling interest in operating partnership | (30) | | | — | | | (30) | | | — | | | | | | | | | | | |
Adjustment of Series D Preferred Stock to redemption value | — | | | — | | | — | | | (13,542) | | | | | | | | | | | |
Redemption of fractional units as a result of reverse stock split | — | | | — | | | — | | | — | | | | | | | | | | | |
Dividends and distributions | — | | | (2,688) | | | (2,688) | | | (5,103) | | | | | | | | | | | |
Net (Loss) Income | 5 | | | 2,688 | | | 2,693 | | | (11,368) | | | | | | | | | | | |
Balance, September 30, 2023 (Unaudited) | $ | 1,274 | | | $ | 64,845 | | | $ | 66,119 | | | $ | 9,622 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of (Deficit) Equity
(Unaudited, in thousands, except share data)
Continued
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A | | Series B | | | | | | | | Total Stockholders’ (Deficit) Equity |
| Preferred Stock | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | |
| Shares | | Value | | Shares | | Value | | Shares | | Value | | | |
Balance, December 31, 2021 | 562 | | | $ | 453 | | | 1,872,448 | | | $ | 41,189 | | | 972,053 | | | $ | 10 | | | $ | 234,316 | | | $ | (274,107) | | | $ | 1,861 | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | — | | | 22 | |
Conversion of Series B Preferred Stock to Common Stock | — | | | — | | | (4,105) | | | (90) | | | 256 | | | — | | | 90 | | | — | | | — | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,264) | | | (2,264) | |
Net (Loss) Income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,580) | | | (4,580) | |
Balance, March 31, 2022 (Unaudited) | 562 | | | 453 | | | 1,868,343 | | | 41,121 | | | 972,309 | | | 10 | | | 234,406 | | | (280,951) | | | (4,961) | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | — | | | 22 | |
Conversion of Operating Partnership units to Common Stock | — | | | — | | | — | | | — | | | 6,962 | | | — | | | 159 | | | — | | | 159 | |
Adjustments for noncontrolling interest in operating partnership | — | | | — | | | — | | | — | | | — | | | — | | | 470 | | | — | | | 470 | |
Paid-in-kind interest, issuance of Series B Preferred Stock | — | | | — | | | 432,994 | | | 2,099 | | | — | | | — | | | — | | | — | | | 2,099 | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,264) | | | (2,264) | |
Net Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (52) | | | (52) | |
Balance, June 30, 2022 (Unaudited) | 562 | | | 453 | | | 2,301,337 | | | 43,242 | | | 979,271 | | | 10 | | | 235,035 | | | (283,267) | | | (4,527) | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 21 | | | — | | | — | | | — | | | — | | | 21 | |
Conversion of Operating Partnership units to Common Stock | — | | | — | | | — | | | — | | | 78 | | | — | | | 2 | | | — | | | 2 | |
Adjustments for noncontrolling interest in operating partnership | — | | | — | | | — | | | — | | | — | | | — | | | 7 | | | — | | | 7 | |
Noncontrolling interests assumed from the acquisition | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,264) | | | (2,264) | |
Net Loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,240) | | | (4,240) | |
Balance, September 30, 2022 (Unaudited) | 562 | | | $ | 453 | | | 2,301,337 | | | $ | 43,263 | | | 979,349 | | | $ | 10 | | | $ | 235,044 | | | $ | (289,771) | | | $ | (11,001) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries Condensed Consolidated Statements of (Deficit) Equity (Unaudited, in thousands, except share data) Continued |
|
|
| | | | | | | | | | | | | | | | | |
| Noncontrolling Interests | | | | | | | | | | | | |
| Operating Partnership | | Consolidated Subsidiary | | Total | | Total Equity | | | | | | | | | | |
Balance, December 31, 2021 | $ | 1,941 | | | $ | — | | | $ | 1,941 | | | $ | 3,802 | | | | | | | | | | | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | | | | | | | | | |
Conversion of Series B Preferred Stock to Common Stock | — | | | — | | | — | | | — | | | | | | | | | | | |
Dividends and distributions | — | | | — | | | — | | | (2,264) | | | | | | | | | | | |
Net (Loss) Income | 4 | | | — | | | 4 | | | (4,576) | | | | | | | | | | | |
Balance, March 31, 2022 (Unaudited) | 1,945 | | | — | | | 1,945 | | | (3,016) | | | | | | | | | | | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 22 | | | | | | | | | | | |
Conversion of Operating Partnership units to Common Stock | (159) | | | — | | | (159) | | | — | | | | | | | | | | | |
Adjustments for noncontrolling interest in operating partnership | (470) | | | — | | | (470) | | | — | | | | | | | | | | | |
Paid-in-kind interest, issuance of Series B Preferred Stock | — | | | — | | | — | | | 2,099 | | | | | | | | | | | |
Dividends and distributions | — | | | — | | | — | | | (2,264) | | | | | | | | | | | |
Net Loss | (1) | | | — | | | (1) | | | (53) | | | | | | | | | | | |
Balance, June 30, 2022 (Unaudited) | 1,315 | | | — | | | 1,315 | | | (3,212) | | | | | | | | | | | |
Accretion of Series B Preferred Stock discount | — | | | — | | | — | | | 21 | | | | | | | | | | | |
Conversion of Operating Partnership units to Common Stock | (2) | | | — | | | (2) | | | — | | | | | | | | | | | |
Adjustments for noncontrolling interest in operating partnership | (7) | | | — | | | (7) | | | — | | | | | | | | | | | |
Noncontrolling interests assumed from acquisition | — | | | 64,845 | | | 64,845 | | | 64,845 | | | | | | | | | | | |
Dividends and distributions | — | | | (1,225) | | | (1,225) | | | (3,489) | | | | | | | | | | | |
Net Loss | 9 | | | 1,225 | | | 1,234 | | | (3,006) | | | | | | | | | | | |
Balance, September 30, 2022 (Unaudited) | $ | 1,315 | | | $ | 64,845 | | | $ | 66,160 | | | $ | 55,159 | | | | | | | | | | | |
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, |
| 2023 | | 2022 |
OPERATING ACTIVITIES: | | | |
Net Loss | $ | (13,071) | | | $ | (7,635) | |
Adjustments to reconcile consolidated net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | 21,642 | | | 12,222 | |
Deferred financing cost amortization | 2,357 | | | 2,154 | |
Changes in fair value of derivative liabilities | 6,281 | | | 2,533 | |
Above (below) market lease amortization, net | (3,865) | | | (478) | |
Paid-in-kind interest | 2,006 | | | 2,099 | |
Loss on repurchase of debt securities | 1,647 | | | — | |
Unrealized gain on investment securities, net | (80) | | | — | |
Straight-line expense | 7 | | | 24 | |
(Gain) loss on disposal of properties | (2,204) | | | 15 | |
Credit losses on operating lease receivables | 481 | | | 267 | |
Impairment of assets held for sale | — | | | 760 | |
Net changes in assets and liabilities: | | | |
Receivables, net | 1,373 | | | 222 | |
Deferred costs and other assets, net | (3,166) | | | 3,074 | |
Accounts payable, accrued expenses and other liabilities | 1,624 | | | 12,697 | |
Net cash provided by operating activities | 15,032 | | | 27,954 | |
INVESTING ACTIVITIES: | | | |
Investment property acquisitions | (4,259) | | | (135,510) | |
Expenditures for real estate improvements | (11,618) | | | (6,382) | |
Purchase of investment securities | (6,500) | | | — | |
Cash received from disposal of properties | 2,759 | | | 1,786 | |
Net cash used in investing activities | (19,618) | | | (140,106) | |
FINANCING ACTIVITIES: | | | |
Payments for deferred financing costs | (4,440) | | | (8,748) | |
Dividends and distributions paid on noncontrolling interests | (8,064) | | | — | |
Loan proceeds | 123,230 | | | 265,000 | |
Loan principal payments | (108,274) | | | (127,603) | |
| | | |
Repurchase of debt securities | (3,116) | | | — | |
Loan prepayment penalty | (1,758) | | | (2,614) | |
Net cash (used in) provided by financing activities | (2,422) | | | 126,035 | |
(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (7,008) | | | 13,883 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | 55,865 | | | 40,419 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $ | 48,857 | | | $ | 54,302 | |
| | | |
Supplemental Disclosure: | | | |
The following table provides a reconciliation of cash, cash equivalents and restricted cash: | | | |
Cash and cash equivalents | $ | 25,419 | | | $ | 24,057 | |
Restricted cash | 23,438 | | | 30,245 | |
Cash, cash equivalents, and restricted cash | $ | 48,857 | | | $ | 54,302 | |
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. Business and Organization
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, 2023, the Trust owned 99.11% of the Operating Partnership. As of September 30, 2023, the Trust, through the Operating Partnership, owned and operated seventy-five retail shopping centers and four undeveloped properties in South Carolina, Georgia, Virginia, Pennsylvania, North Carolina, Massachusetts, New Jersey, Florida, Connecticut, Kentucky, Tennessee, Alabama, Maryland, West Virginia, and Oklahoma. These centers and undeveloped properties include the properties acquired through the Cedar Acquisition (defined below). 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") (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 August 22, 2022, the Company completed a merger transaction (the "Cedar Acquisition") with Cedar Realty Trust, Inc. ("Cedar"). As a result of the merger, the Company acquired all of the outstanding shares of Cedar’s common stock, which ceased to be publicly traded on the New York Stock Exchange ("NYSE"). Through this acquisition, the Company acquired an additional 19 retail shopping centers in the Northeast. 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 of the Cedar Acquisition, Cedar became a subsidiary of the REIT.
2. Summary of Significant Accounting Policies
Principles of Consolidation/Basis of Preparation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by U.S. Generally Accepted Accounting Principles ("GAAP") for interim reporting. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statement disclosures. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring accruals) have been included. All material balances and transactions between the consolidated entities of the Company have been eliminated. All per share amounts, common units and shares outstanding, warrants, and conversion features of our 7.00% Subordinated Convertible Notes due 2031 (the "Convertible Notes") for all periods presented reflect the one-for-ten Reverse Stock Split, which took effect on August 17, 2023. The financial statements are prepared on the accrual basis in accordance with GAAP, which requires management to make estimates and assumptions that affect the disclosure of contingent assets and liabilities, the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the periods covered by the financial statements. Actual results could differ from these estimates. The unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Form 10-K").
The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q include Cedar starting from the date of the Cedar 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.
See the Company's audited 2022 Form 10-K for further disclosure regarding the Cedar Acquisition.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Supplemental Condensed Consolidated Statements of Cash Flows Information
| | | | | | | | | | | |
| For the Nine Months Ended September 30, |
| 2023 | | 2022 |
Non-Cash Transactions: | | | |
| | | |
| | | |
Conversion of common units to Common Stock | $ | 57 | | | $ | 160 | |
Conversion of Series B Preferred Stock to Common Stock | $ | — | | | $ | 90 | |
Conversion of Series D Preferred Stock to Common Stock | $ | 140 | | | $ | — | |
Accretion of Preferred Stock discounts | $ | 438 | | | $ | 438 | |
| | | |
Buildings and improvements included in accounts payable, accrued expenses and other liabilities | $ | 1,979 | | | $ | 736 | |
Other Cash Transactions: | | | |
| | | |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 798 | | | $ | 700 | |
Cash paid for interest | $ | 18,951 | | | $ | 14,137 | |
Other Expense
Other expense represents expenses which are non-operating in nature. Other expenses were $2.2 million and $5.3 million for the three and nine months ended September 30, 2023, respectively, which consisted of $0.0 million and $2.4 million for an exchange offer (the "Exchange Offer") for outstanding shares of the Company's Series D Cumulative
Convertible Preferred Stock (the “Series D Preferred Stock”) and $1.1 million and $1.6 million for the three and nine months ended September 30, 2023, respectively, for the repurchases of the Company's Convertible Notes described in Note 7 in this Form 10-Q. Additionally, other expense included transaction costs related to the redemptions by holders of the Series D Preferred Stock and Reverse Stock Split for $1.1 million and $1.3 million for the three and nine months ended September 30, 2023, respectively.
Other expenses were $0.0 million and $0.7 million for the three and nine months ended September 30, 2022, respectively, which consisted of legal settlement costs.
Recently Issued and Adopted Accounting Pronouncements
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.
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 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.
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.
St. George Plaza Land Acquisition
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
3. Real Estate (continued)
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"). 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 three and nine months ended September 30, 2023. Impairment expense was $0.0 million and $0.8 million for the three and nine months ended September 30, 2022, respectively, resulting from reducing the carrying value of Harbor Pointe Associates, LLC, an approximate 5 acre land parcel ("Harbor Pointe Land Parcel"). The Harbor Pointe Land Parcel did not meet the requirements to be classified as held for sale at September 30, 2023 or December 31, 2022.
The following properties were sold during the nine months ended September 30, 2023 and 2022 (in thousands, unaudited):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Disposal Date | | Property | | Contract Price | | Gain (Loss) | | Net Proceeds |
July 11, 2023 | | Carll's Corner Outparcel | | $ | 3,000 | | | $ | 2,204 | | | $ | 2,759 | |
January 11, 2022 | | Walnut Hill Plaza | | $ | 1,986 | | | $ | (15) | | | $ | 1,786 | |
4. Investment 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 limited partnership formed in the State of Delaware (“SAI”). On September 1, 2023, the Company subscribed for an additional investment 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 (the "Board"), is the managing member of Value and a limited partner in funds advised by Value. Additionally, E.J. Borrack, a member of the Board, 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, 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 was approved by the disinterested directors of the Company, and, after the formation of the Related Person Transactions Committee, the second subscription was 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.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
4. Investment securities (continued)
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 "gains (losses) on investment securities, net" on the condensed consolidated statements of operations. As of September 30, 2023, the fair value of the Company’s SAI investment was $6.6 million, which includes $6.5 million from subscriptions and $33 thousand in fees. Unrealized gains on investment securities, net of fees were $49 thousand and $80 thousand for the three and nine months ended September 30, 2023, respectively.
5. Deferred Costs and Other Assets, Net
Deferred costs and other assets, net of accumulated amortization are as follows (in thousands, unaudited):
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Leases in place, net | $ | 18,374 | | | $ | 24,956 | |
Lease origination costs, net | 6,573 | | | 7,165 | |
Ground lease sandwich interest, net | 1,188 | | | 1,393 | |
Tenant relationships, net | 328 | | | 500 | |
Legal and marketing costs, net | 331 | | | 389 | |
Prepaid expenses | 3,944 | | | 1,456 | |
Other | 3 | | | 21 | |
Total deferred costs and other assets, net | $ | 30,741 | | | $ | 35,880 | |
As of September 30, 2023 and December 31, 2022, the Company’s intangible accumulated amortization totaled $68.2 million and $62.4 million, respectively.
6. Rental Revenue and Tenant Receivables
Tenant Receivables
As of September 30, 2023 and December 31, 2022, the Company’s allowance for uncollectible tenant receivables totaled $1.3 million and $3.1 million, respectively.
Lease Contract Revenue
At September 30, 2023 and December 31, 2022, there were $7.5 million and $6.5 million, respectively, in unbilled straight-line rent, which is included in "receivables, net."
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Rental Revenue and Tenant Receivables (continued)
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, | | |
| 2023 | | 2022 | | 2023 | | 2022 | | | | |
Base rent | $ | 18,190 | | | $ | 13,791 | | | $ | 54,316 | | | $ | 37,607 | | | | | |
Tenant reimbursements - variable lease revenue | 5,030 | | | 3,875 | | | 15,467 | | | 10,455 | | | | | |
Above (below) market lease amortization | 1,232 | | | 494 | | | 3,865 | | | 478 | | | | | |
Straight-line rents | 285 | | | 314 | | | 1,004 | | | 547 | | | | | |
Percentage rent - variable lease revenue | 217 | | | 89 | | | 567 | | | 322 | | | | | |
Lease termination fees | — | | | 10 | | | 115 | | | 117 | | | | | |
Other | 549 | | | 222 | | | 1,257 | | | 435 | | | | | |
Total | 25,503 | | | 18,795 | | | 76,591 | | | 49,961 | | | | | |
Credit losses on operating lease receivables | (299) | | | (77) | | | (481) | | | (267) | | | | | |
Total | $ | 25,204 | | | $ | 18,718 | | | $ | 76,110 | | | $ | 49,694 | | | | | |
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
7. Loans Payable
The Company’s loans payable consist of the following (in thousands, except monthly payment):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property/Description | | Monthly Payment | | Interest Rate | | Maturity | | September 30, 2023 | | December 31, 2022 |
Cypress Shopping Center | | $ | 34,360 | | | 4.70% | | July 2024 | | $ | 5,804 | | | $ | 5,903 | |
Conyers Crossing | | Interest only | | 4.67% | | October 2025 | | 5,960 | | | 5,960 | |
Winslow Plaza | | $ | 24,295 | | | 4.82% | | December 2025 | | 4,351 | | | 4,409 | |
Tuckernuck | | $ | 32,202 | | | 5.00% | | March 2026 | | 4,807 | | | 4,915 | |
Chesapeake Square | | $ | 23,857 | | | 4.70% | | August 2026 | | 4,038 | | | 4,106 | |
Sangaree/Tri-County | | $ | 32,329 | | | 4.78% | | December 2026 | | 6,014 | | | 6,086 | |
Timpany Plaza | | Interest only | | 7.27% | | September 2028 | | 9,060 | | | — | |
Village of Martinsville | | $ | 89,664 | | | 4.28% | | July 2029 | | 14,864 | | | 15,181 | |
Laburnum Square | | Interest only | | 4.28% | | September 2029 | | 7,665 | | | 7,665 | |
Rivergate (1) | | $ | 100,222 | | | 4.25% | | September 2031 | | 17,670 | | | 18,003 | |
Convertible Notes | | Interest only | | 7.00% | | December 2031 | | 31,530 | | | 33,000 | |
Guggenheim Loan Agreement (2) | | Interest only | | 4.25% | | July 2032 | | 75,000 | | | 75,000 | |
JANAF Loan Agreement (3) | | Interest only | | 5.31% | | July 2032 | | 60,000 | | | 60,000 | |
Guggenheim-Cedar Loan Agreement (4) | | Interest only | | 5.25% | | November 2032 | | 110,000 | | | 110,000 | |
Patuxent Crossing/Coliseum Marketplace Loan Agreement | | Interest only | | 6.35% | | January 2033 | | 25,000 | | | 25,000 | |
Term loan, 12 properties | | Interest only | | 6.19% | | June 2033 | | 61,100 | | | — | |
Term loan, 8 properties | | Interest only | | 6.24% | | June 2033 | | 53,070 | | | — | |
Term loans - fixed interest rate | | various | | 4.47% (5) | | various | | — | | | 107,219 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total Principal Balance | | | | | | | | 495,933 | | | 482,447 | |
Unamortized deferred financing cost | | | | | | | | (18,501) | | | (16,418) | |
Total Loans Payable, net | | | | | | | | $ | 477,432 | | | $ | 466,029 | |
| | | | | | | |
| | | | | | | | | | |
(1) In October 2026, the interest rate changes to variable interest rate equal to the 5 years U.S. Treasury Rate plus 2.70%, with a floor of 4.25%.
(2) Collateralized by 22 properties.
(3) Collateralized by JANAF properties.
(4) Collateralized by 10 Cedar properties.
(5) Contractual interest rate weighted average.
Debt Maturity
The Company’s scheduled principal repayments on indebtedness as of September 30, 2023 are as follows (in thousands, unaudited):
| | | | | |
For the remaining three months ended December 31, 2023 | $ | 361 | |
December 31, 2024 | 7,220 | |
December 31, 2025 | 12,313 | |
December 31, 2026 | 16,260 | |
December 31, 2027 | 3,049 | |
December 31, 2028 | 12,924 | |
Thereafter | 443,806 | |
Total principal repayments and debt maturities | $ | 495,933 | |
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 12 properties, including $1.1 million in defeasance.
Term Loan Agreement, 8 properties
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
7. Loans Payable (continued)
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 8 properties, including $0.7 million in defeasance.
Timpany Plaza Loan Agreement
On September 12, 2023, the Company entered into a term loan agreement with Cornerstone Bank for $11.6 million at a fixed rate of 7.27% with interest-only payments due monthly for the first twelve months (the "Timpany Plaza Loan Agreement"). 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 certain lease-related contingencies being met. The Timpany Plaza Loan Agreement is collateralized by the Timpany Plaza shopping center.
Convertible Notes
Interest expense on the Convertible Notes consisted of the following (in thousands, except for shares ):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the nine months ended September 30, | | 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 | | — | | | 160,455 | | | $ | 1,718 | | | $ | 851 | | | $ | 2,569 | |
2022 | | 432,994 | | | — | | | $ | 1,733 | | | $ | 944 | | | $ | 2,677 | |
(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 $1.1 million and $1.6 million loss for the three and nine months ended September 30, 2023, respectively, which represents the fair value of the purchase over principal pay down. The loss is included in "other expense" on the condensed consolidated statements of operations.
Fair Value Measurements
The fair value of the Company’s fixed rate secured term loans was estimated using available market information and discounted cash flow analyses based on borrowing rates the Company believes it could obtain with a similar term and maturities. As of September 30, 2023 and December 31, 2022, the fair value of the Company’s fixed rate secured term loans, which were determined to be Level 3 within the valuation hierarchy, was $441.8 million and $429.1 million, respectively, and the carrying value of such loans, was $451.2 million and $440.2 million, respectively.
The fair value of the Convertible Notes was estimated using available market information. As of September 30, 2023 and December 31, 2022, the fair value of the Convertible Notes, which were determined to be Level 1 within the valuation hierarchy, was $69.4 million and $40.9 million, respectively, and the carrying value, was $26.2 million and $25.8 million, respectively.
8. Derivative Liabilities
Fair Value of Warrants
The Company utilized the Monte Carlo simulation model to calculate the fair value of the two warrant agreements (the "Warrant Agreements") described within the 2022 Form 10-K. Significant observable and unobservable inputs include stock price, conversion price, risk-free rate, term, likelihood of an event of contractual conversion and expected volatility. The Monte
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Derivative Liabilities (continued)
Carlo simulation is a Level 3 valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators. The Warrant Agreements contain terms and features that give rise to derivative liability classification.
Warrants to purchase shares of Common Stock outstanding at September 30, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | |
Warrant Name | | Warrants | | Exercise Price | | Expiration Date |
Powerscourt Warrant | | 49,641 | | $31.20 | | 12/22/2023 |
Wilmington Warrant Tranche A | | 51,020 | | $34.30 | | 3/12/2026 |
Wilmington Warrant Tranche B | | 42,424 | | $41.25 | | 3/12/2026 |
Wilmington Warrant Tranche C | | 12,727 | | $68.75 | | 3/12/2026 |
| | | | | | |
In measuring the warrant liabilities, the Company used the following inputs in its Monte Carlo model:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Common Stock price | $3.28 | | $13.96 |
Weighted average contractual term to maturity | 1.7 years | | 2.5 years |
Range of expected market volatility % | 92.98% - 168.12% | | 66.00% - 72.88% |
Range of risk free interest rate | 4.92% - 5.55% | | 4.14% - 4.68% |
| | | |
Fair Value of Conversion Features Related to Convertible Notes
The Company identified certain embedded derivatives related to the conversion features of the Convertible Notes. In accordance with ASC 815-40, Derivatives and Hedging Activities, the embedded conversion options contained within the Convertible Notes were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through each reporting date. The Company utilized a binomial lattice model to calculate the fair value of the embedded derivatives. Significant observable and unobservable inputs include conversion price, stock price, dividend rate, expected volatility, risk-free rate, optional conversion price and term. The binomial lattice model is a Level 3 valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Derivative Liabilities (continued)
In measuring the embedded derivative liability, the Company used the following inputs in its binomial lattice model:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Conversion price | $1.85 (1) | | $62.50 |
Common Stock price | $3.28 | | $13.96 |
Contractual term to maturity | 8.3 years | | 9.0 years |
Expected market volatility % | 80.00% | | 205.00% |
Risk-free interest rate | 4.60% | | 3.87% |
Traded WHLRL price, % of par | 220.00% | | 120.50% |
(1) Represents the volume weighted average of the Company's closing Common Stock price for the 10 trading days preceding the valuation date of September 30, 2023, less a discount of 45%. |
The following table sets forth a summary of the changes in fair value of the Company's derivative liabilities, which include both the warrant liabilities and embedded derivative liability (in thousands, unaudited):
| | | | | | | | | | | |
| Nine Months Ended September 30, 2023 | | Year Ended Decem |