Wheeler Real Estate Investment Trust, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Real Estate

Real Estate

12 Months Ended

Dec. 31, 2022

Investment properties consist of the following (in thousands):


	December 31,
	2022		2021
Land and land improvements	$	144,537	$	96,752
Buildings and improvements	494,668		357,606
Investment properties at cost	639,205		454,358
Less accumulated depreciation	(78,225)		(67,628)
Investment properties, net	$	560,980	$	386,730

The Company’s depreciation expense on investment properties was $13.49 million and $11.07 million for the years ended December 31, 2022 and 2021, 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.

Assets Held for Sale and Dispositions

At December 31, 2022, there were no assets held for sale. At December 31, 2021, assets held for sale included Walnut Hill Plaza, which was sold in 2022.

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. Impairment expenses for the years ended December 31, 2022 and 2021 are as follows (in thousands):


	Years Ended December 31,
	2022		2021
Harbor Pointe Land Parcel	$	760	$	—
Walnut Hill Plaza	—		100
Columbia Fire Station	—		2,200
Total	$	760	$	2,300

As of December 31, 2022 and 2021, assets held for sale and associated liabilities consist of the following (in thousands):


	December 31,
	2022		2021
Investment properties, net	$	—	$	1,824
Rents and other tenant receivables, net	—		18
Deferred costs and other assets, net	—		205
Total assets held for sale	$	—	$	2,047


	December 31,
	2022		2021
Loans payable	$	—	$	3,145

Accounts payable, accrued expenses and other liabilities	—		236
Total liabilities associated with assets held for sale	$	—	$	3,381

The following properties were sold during the years ended December 31, 2022 and 2021 (in thousands):


Disposal	Property	Contract Price		Gain (Loss)		Net Proceeds
December 9, 2022	Butler Square	$	9,250	$	2,619	$	8,723
January 11, 2022	Walnut Hill Plaza	1,986		(15)		1,786
November 17, 2021	Columbia Fire Station	4,250		(88)		3,903
August 31, 2021	Rivergate Shopping Center Out Parcel	3,700		1,915		3,451
July 9, 2021	Tulls Creek Land Parcel (1.28 acres)	250		52		222
March 25, 2021	Berkley Shopping Center and Berkley Land Parcel (0.75 acres)	4,150		176		3,937

Cedar Acquisition

On August 22, 2022, the Company acquired Cedar, a 2.9 million square foot shopping center portfolio consisting of 19 properties located primarily in the Northeast from Virginia to Massachusetts (the "Cedar Portfolio"). The Cedar Portfolio was acquired through the purchase of the issued and outstanding shares of Cedar’s common stock, par value $0.06 per share (“Cedar Common Stock”), and the issued and outstanding common units of Cedar OP held by persons other than Cedar for an aggregate of $135.51 million of cash merger consideration and acquisition costs.

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



Building and building improvements (a)	$	137,120
Land and land improvements (a)	47,899
Lease intangibles (b)	28,215
Above market lease (c)	1,718
Right of use asset adjustment, ground lease (d)	2,913
Cash, accounts receivable and other assets	14,242
Total assets acquired	232,107

Below market lease (c)	(23,622)
Lease Liabilities, ground lease (d)	(3,552)
Accounts payable and other liabilities	(4,578)
Total liabilities acquired	(31,752)

Noncontrolling interest (e)	(64,845)

Purchase price allocation of net assets acquired, excluding noncontrolling interests	$	135,510

Purchase consideration: (f)
Cash merger consideration	$	130,000
Capitalized acquisition costs	5,510
	$	135,510

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

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

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

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

b. Represents the purchase price allocation of lease intangibles and other assets. Lease intangibles include in place

leases. The income approach was used to determine the allocation of these intangible assets which included estimated market rates and expenses.

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

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

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

f.Represents merger consideration and capitalized transaction costs.

Unaudited pro forma financial information in the aggregate is presented below for the acquisition of the Cedar properties. The unaudited pro forma information presented below includes the effects of the Cedar Acquisition as if it had been consummated as of January 1, 2021. The pro forma results include adjustments for depreciation and amortization associated with acquired tangible and intangible assets, straight-line rent adjustments and interest expense related to debt incurred. The unaudited pro forma financial information is presented for informational purposes only and may not be indicative of the results of operations that would have been achieved if this acquisition had taken place on January 1, 2021 or 2022. (Amounts presented in thousands, except per share figures).


	Year Ended December 31,
	2022		2021
Rental revenues	$	100,315	$	98,802
Net loss from continuing operations	$	(6,950)	$	(9,252)
Net loss attributable to Wheeler REIT	$	(7,022)	$	(20,096)
Net loss attributable to Wheeler REIT common shareholders	$	(26,830)	$	(23,893)
Basic loss per share	$	(2.75)	$	(2.46)
Diluted loss per share	$	(2.75)	$	(2.46)