UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172019
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., Suite 200 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)
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.
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| | | | | | |
Large accelerated filer | | ¨ | | Accelerated filer | | ý¨ |
Non-accelerated filer | | ¨ (do not check if a smaller reporting company) ý | | Smaller reporting company | | ¨ý |
| | | | Emerging growth company | | ý¨ |
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. ý¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
Securities registered pursuant to Section 12(b) of the Act:
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| | | | |
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 |
As of November 7, 2017,6, 2019, there were 8,730,8599,693,271 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 | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except par value and share data)
| | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| (unaudited) | | | (unaudited) | | |
ASSETS: | | | | | | |
Investment properties, net | $ | 383,861 |
| | $ | 388,880 |
| $ | 418,338 |
| | $ | 436,006 |
|
Cash and cash equivalents | 5,663 |
| | 4,863 |
| 5,233 |
| | 3,544 |
|
Restricted cash | 9,625 |
| | 9,652 |
| 17,294 |
| | 14,455 |
|
Rents and other tenant receivables, net | 5,108 |
| | 3,984 |
| 5,947 |
| | 5,539 |
|
Related party receivables | 2,322 |
| | 1,456 |
| |
Notes receivable | 12,000 |
| | 12,000 |
| |
Goodwill | 5,486 |
| | 5,486 |
| |
Notes receivable, net | | — |
| | 5,000 |
|
Assets held for sale | — |
| | 366 |
| 1,756 |
| | 6,118 |
|
Above market lease intangible, net | 9,521 |
| | 12,962 |
| |
Above market lease intangibles, net | | 5,678 |
| | 7,346 |
|
Operating lease right-of-use assets | | 11,698 |
| | — |
|
Deferred costs and other assets, net | 37,477 |
| | 49,397 |
| 23,257 |
| | 30,073 |
|
Total Assets | $ | 471,063 |
| | $ | 489,046 |
| $ | 489,201 |
| | $ | 508,081 |
|
LIABILITIES: | | | | | | |
Loans payable, net | $ | 306,962 |
| | $ | 305,973 |
| $ | 342,811 |
| | $ | 360,190 |
|
Liabilities associated with assets held for sale | — |
| | 1,350 |
| 2,060 |
| | 4,520 |
|
Below market lease intangible, net | 10,356 |
| | 12,680 |
| |
Below market lease intangibles, net | | 7,909 |
| | 10,045 |
|
Operating lease liabilities | | 11,921 |
| | — |
|
Accounts payable, accrued expenses and other liabilities | 10,307 |
| | 7,735 |
| 10,592 |
| | 12,116 |
|
Dividends payable | 5,478 |
| | 3,586 |
| |
Total Liabilities | 333,103 |
| | 331,324 |
| 375,293 |
| | 386,871 |
|
Commitments and contingencies |
|
| |
|
| |
Series D Cumulative Convertible Preferred Stock (no par value, 4,000,000 shares authorized, 2,237,000 shares issued and outstanding; $55.93 million aggregate liquidation preference) | 53,052 |
| | 52,530 |
| |
Series D Cumulative Convertible Preferred Stock (no par value, 4,000,000 shares authorized, 3,600,636 shares issued and outstanding; $99.24 million and $91.98 million aggregate liquidation preference, respectively) | | 84,657 |
| | 76,955 |
|
| | | | | | |
EQUITY: | | | | | | |
Series A Preferred Stock (no par value, 4,500 shares authorized, 562 shares issued and outstanding) | 453 |
| | 453 |
| 453 |
| | 453 |
|
Series B Convertible Preferred Stock (no par value, 5,000,000 authorized, 1,875,848 and 1,871,244 shares issued and outstanding, respectively; $46.90 million and $46.78 million aggregate liquidation preference, respectively) | 40,893 |
| | 40,733 |
| |
Common Stock ($0.01 par value, 18,750,000 shares authorized, 8,730,859 and 8,503,819 shares issued and outstanding, respectively) | 87 |
| | 85 |
| |
Series B Convertible Preferred Stock (no par value, 5,000,000 authorized, 1,875,748 shares issued and outstanding; $46.90 million aggregate liquidation preference) | | 41,065 |
| | 41,000 |
|
Common Stock ($0.01 par value, 18,750,000 shares authorized, 9,693,271 and 9,511,464 shares issued and outstanding, respectively) | | 97 |
| | 95 |
|
Additional paid-in capital | 226,864 |
| | 223,939 |
| 233,861 |
| | 233,697 |
|
Accumulated deficit | (191,256 | ) | | (170,377 | ) | (248,319 | ) | | (233,184 | ) |
Total Shareholders’ Equity | 77,041 |
| | 94,833 |
| 27,157 |
| | 42,061 |
|
Noncontrolling interests | 7,867 |
| | 10,359 |
| 2,094 |
| | 2,194 |
|
Total Equity | 84,908 |
| | 105,192 |
| 29,251 |
| | 44,255 |
|
Total Liabilities and Equity | $ | 471,063 |
| | $ | 489,046 |
| $ | 489,201 |
| | $ | 508,081 |
|
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, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
REVENUE: | | | | | | | | | | | | | | |
Rental revenues | $ | 11,109 |
| | $ | 8,591 |
| | $ | 33,265 |
| | $ | 23,788 |
| $ | 15,385 |
| | $ | 15,756 |
| | $ | 46,546 |
| | $ | 47,288 |
|
Asset management fees | 145 |
| | 163 |
| | 807 |
| | 623 |
| 16 |
| | 48 |
| | 42 |
| | 220 |
|
Commissions | 449 |
| | 590 |
| | 758 |
| | 834 |
| 18 |
| | 52 |
| | 65 |
| | 102 |
|
Tenant reimbursements | 2,711 |
| | 2,334 |
| | 8,127 |
| | 6,500 |
| |
Development and other revenues | 784 |
| | 233 |
| | 1,282 |
| | 388 |
| |
Other revenues | | 146 |
| | 217 |
| | 439 |
| | 1,697 |
|
Total Revenue | 15,198 |
| | 11,911 |
| | 44,239 |
| | 32,133 |
| 15,565 |
| | 16,073 |
| | 47,092 |
| | 49,307 |
|
OPERATING EXPENSES: | | | | | | | | | | | | | | |
Property operations | 3,726 |
| | 3,027 |
| | 11,467 |
| | 8,499 |
| 4,967 |
| | 4,687 |
| | 14,288 |
| | 13,804 |
|
Non-REIT management and leasing services | 618 |
| | 696 |
| | 1,525 |
| | 1,352 |
| 1 |
| | 23 |
| | 25 |
| | 59 |
|
Depreciation and amortization | 7,746 |
| | 4,994 |
| | 20,455 |
| | 15,306 |
| 5,066 |
| | 6,045 |
| | 16,169 |
| | 20,943 |
|
Provision for credit losses | 23 |
| | 31 |
| | 443 |
| | 196 |
| |
Impairment of notes receivable | | — |
| | — |
| | 5,000 |
| | — |
|
Impairment of assets held for sale | | 400 |
| | — |
| | 1,547 |
| | — |
|
Corporate general & administrative | 1,306 |
| | 1,497 |
| | 4,855 |
| | 6,291 |
| 1,349 |
| | 1,703 |
| | 4,543 |
| | 6,479 |
|
Other operating expenses | | — |
| | 250 |
| | — |
| | 250 |
|
Total Operating Expenses | 13,419 |
| | 10,245 |
| | 38,745 |
| | 31,644 |
| 11,783 |
| | 12,708 |
| | 41,572 |
| | 41,535 |
|
(Loss) gain on disposal of properties | | (81 | ) | | 1,257 |
| | 1,427 |
| | 2,312 |
|
Operating Income | 1,779 |
| | 1,666 |
| | 5,494 |
| | 489 |
| 3,701 |
| | 4,622 |
| | 6,947 |
| | 10,084 |
|
(Loss) gain on disposal of properties | (1 | ) | | — |
| | 1,021 |
| | — |
| |
Interest income | 364 |
| | 299 |
| | 1,080 |
| | 301 |
| 1 |
| | 1 |
| | 2 |
| | 3 |
|
Interest expense | (4,250 | ) | | (3,639 | ) | | (12,997 | ) | | (9,801 | ) | (4,654 | ) | | (5,183 | ) | | (14,394 | ) | | (14,940 | ) |
Net Loss from Continuing Operations Before Income Taxes | (2,108 | ) | | (1,674 | ) | | (5,402 | ) | | (9,011 | ) | (952 | ) | | (560 | ) | | (7,445 | ) | | (4,853 | ) |
Income tax expense | (65 | ) | | — |
| | (175 | ) | | — |
| (8 | ) | | (30 | ) | | (23 | ) | | (72 | ) |
Net Loss from Continuing Operations | (2,173 | ) | | (1,674 | ) | | (5,577 | ) | | (9,011 | ) | (960 | ) | | (590 | ) | | (7,468 | ) | | (4,925 | ) |
Discontinued Operations | | | | | | | | |
Income from operations | — |
| | 39 |
| | 16 |
| | 115 |
| |
Gain on disposal of properties | — |
| | 1 |
| | 1,502 |
| | 689 |
| |
Net Income from Discontinued Operations | — |
| | 40 |
| | 1,518 |
| | 804 |
| |
Income from Discontinued Operations | | — |
| | — |
| | — |
| | 903 |
|
Net Loss | (2,173 | ) | | (1,634 | ) | | (4,059 | ) | | (8,207 | ) | (960 | ) | | (590 | ) | | (7,468 | ) | | (4,022 | ) |
Less: Net loss attributable to noncontrolling interests | (111 | ) | | (122 | ) | | (165 | ) | | (768 | ) | |
Less: Net (loss) income attributable to noncontrolling interests | | (1 | ) | | 12 |
| | (100 | ) | | (70 | ) |
Net Loss Attributable to Wheeler REIT | (2,062 | ) | | (1,512 | ) | | (3,894 | ) | | (7,439 | ) | (959 | ) | | (602 | ) | | (7,368 | ) | | (3,952 | ) |
Preferred stock dividends | (2,496 | ) | | (1,240 | ) | | (7,473 | ) | | (2,263 | ) | |
Preferred Stock dividends - declared | | — |
| | (3,208 | ) | | — |
| | (9,621 | ) |
Preferred Stock dividends - undeclared | | (3,657 | ) | | — |
| | (10,972 | ) | | — |
|
Net Loss Attributable to Wheeler REIT Common Shareholders | $ | (4,558 | ) | | $ | (2,752 | ) | | $ | (11,367 | ) | | $ | (9,702 | ) | $ | (4,616 | ) | | $ | (3,810 | ) | | $ | (18,340 | ) | | $ | (13,573 | ) |
| | | | | | | | |
| | | | | | | | | | | | | | |
Loss per share from continuing operations (basic and diluted) | $ | (0.52 | ) | | $ | (0.32 | ) | | $ | (1.48 | ) | | $ | (1.25 | ) | $ | (0.48 | ) | | $ | (0.41 | ) | | $ | (1.90 | ) | | $ | (1.58 | ) |
Income per share from discontinued operations | — |
| | — |
| | 0.16 |
| | 0.09 |
| — |
| | — |
| | — |
| | 0.10 |
|
| $ | (0.52 | ) | | $ | (0.32 | ) | | $ | (1.32 | ) | | $ | (1.16 | ) | $ | (0.48 | ) | | $ | (0.41 | ) | | $ | (1.90 | ) | | $ | (1.48 | ) |
| | | | | | | | |
Weighted-average number of shares: | | | | | | | | | | | | | | |
Basic and Diluted | 8,692,543 |
| | 8,487,438 |
| | 8,625,523 |
| | 8,394,398 |
| 9,693,271 |
| | 9,385,666 |
| | 9,664,582 |
| | 9,179,366 |
|
| | | | | | | | | | | | | | |
Dividends declared per common share | $ | 0.34 |
| | $ | 0.42 |
| | $ | 1.10 |
| | $ | 1.26 |
| |
See accompanying notes to condensed consolidated financial statements.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated StatementStatements of Equity
(in thousands, except share data)
(Unaudited)
|
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| Series A | | Series B | | | | | | | | | | Noncontrolling | | |
| Preferred Stock | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Shareholders’ Equity | | Interests | | Total |
| Shares | | Value | | Shares | | Value | | Shares | | Value | | | | | Units | | Value | | Equity |
Balance, December 31, 2016 | 562 |
| | $ | 453 |
| | 1,871,244 |
| | $ | 40,733 |
| | 8,503,819 |
| | $ | 85 |
| | $ | 223,939 |
| | $ | (170,377 | ) | | $ | 94,833 |
| | 761,954 |
| | $ | 10,359 |
| | $ | 105,192 |
|
Proceeds from issuance of Series B preferred stock, net of expenses | — |
| | — |
| | 4,604 |
| | 96 |
| | — |
| | — |
| | — |
| | — |
| | 96 |
| | — |
| | — |
| | 96 |
|
Accretion of Series B Preferred Stock discount | — |
| | — |
| | — |
| | 64 |
| | — |
| | — |
| | — |
| | — |
| | 64 |
| | — |
| | — |
| | 64 |
|
Conversion of senior convertible notes to Common Stock | — |
| | — |
| | — |
| | — |
| | 2,509 |
| | — |
| | 31 |
| | — |
| | 31 |
| | — |
| | — |
| | 31 |
|
Conversion of operating partnership units to Common Stock | — |
| | — |
| | — |
| | — |
| | 119,589 |
| | 1 |
| | 1,295 |
| | — |
| | 1,296 |
| | (119,589 | ) | | (1,296 | ) | | — |
|
Issuance of Common Stock under Share Incentive Plan | — |
| | — |
| | — |
| | — |
| | 104,942 |
| | 1 |
| | 1,345 |
| | — |
| | 1,346 |
| | — |
| | — |
| | 1,346 |
|
Redemption of fractional units as a result of reverse stock split | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (66 | ) | | (1 | ) | | (1 | ) |
Adjustment for noncontrolling interest in operating partnership | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 254 |
| | — |
| | 254 |
| | — |
| | (254 | ) | | — |
|
Dividends and distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (16,985 | ) | | (16,985 | ) | | — |
| | (776 | ) | | (17,761 | ) |
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,894 | ) | | (3,894 | ) | | — |
| | (165 | ) | | (4,059 | ) |
Balance, September 30, 2017 (Unaudited) | 562 |
| | $ | 453 |
| | 1,875,848 |
| | $ | 40,893 |
| | 8,730,859 |
| | $ | 87 |
| | $ | 226,864 |
| | $ | (191,256 | ) | | $ | 77,041 |
| | 642,299 |
| | $ | 7,867 |
| | $ | 84,908 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Series A | | Series B | | | | | | | | | | Noncontrolling | | |
| Preferred Stock | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Shareholders’ Equity | | Interests | | Total |
| Shares | | Value | | Shares | | Value | | Shares | | Value | | | | | Units | | Value | | Equity |
Balance, December 31, 2018 | 562 |
| | $ | 453 |
| | 1,875,748 |
| | $ | 41,000 |
| | 9,511,464 |
| | $ | 95 |
| | $ | 233,697 |
| | $ | (233,184 | ) | | $ | 42,061 |
| | 235,032 |
| | $ | 2,194 |
| | $ | 44,255 |
|
Accretion of Series B Preferred Stock discount | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
| | 22 |
|
Issuance of Common Stock under Share Incentive Plan | — |
| | — |
| | — |
| | — |
| | 181,807 |
| | 2 |
| | 164 |
| | — |
| | 166 |
| | — |
| | — |
| | 166 |
|
Dividends and distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,589 | ) | | (2,589 | ) | | — |
| | — |
| | (2,589 | ) |
Net Income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 642 |
| | 642 |
| | — |
| | 13 |
| | 655 |
|
Balance, March 31, 2019 (Unaudited) | 562 |
| | 453 |
| | 1,875,748 |
| | 41,022 |
| | 9,693,271 |
| | 97 |
| | 233,861 |
| | (235,131 | ) | | 40,302 |
| | 235,032 |
| | 2,207 |
| | 42,509 |
|
Accretion of Series B Preferred Stock discount | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
| | 22 |
|
Dividends and distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,590 | ) | | (2,590 | ) | | — |
| | — |
| | (2,590 | ) |
Net Loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7,051 | ) | | (7,051 | ) | | — |
| | (112 | ) | | (7,163 | ) |
Balance, June 30, 2019 (Unaudited) | 562 |
| | 453 |
| | 1,875,748 |
| | 41,044 |
| | 9,693,271 |
| | 97 |
| | 233,861 |
| | (244,772 | ) | | 30,683 |
| | 235,032 |
| | 2,095 |
| | 32,778 |
|
Accretion of Series B Preferred Stock discount | — |
| | — |
| | — |
| | 21 |
| | — |
| | — |
| | — |
| | — |
| | 21 |
| | — |
| | — |
| | 21 |
|
Dividends and distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,588 | ) | | (2,588 | ) | | — |
| | — |
| | (2,588 | ) |
Net Loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (959 | ) | | (959 | ) | | — |
| | (1 | ) | | (960 | ) |
Balance, September 30, 2019 (Unaudited) | 562 |
| | $ | 453 |
| | 1,875,748 |
| | $ | 41,065 |
| | 9,693,271 |
| | $ | 97 |
| | $ | 233,861 |
| | $ | (248,319 | ) | | $ | 27,157 |
| | 235,032 |
| | $ | 2,094 |
| | $ | 29,251 |
|
See accompanying notes to condensed consolidated financial statements.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Series A | | Series B | | | | | | | | | | Noncontrolling | | |
| Preferred Stock | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total Shareholders’ Equity | | Interests | | Total |
| Shares | | Value | | Shares | | Value | | Shares | | Value | | | | | Units | | Value | | Equity |
Balance, December 31, 2017 | 562 |
| | $ | 453 |
| | 1,875,848 |
| | $ | 40,915 |
| | 8,744,189 |
| | $ | 87 |
| | $ | 226,978 |
| | $ | (204,925 | ) | | $ | 63,508 |
| | 635,018 |
| | $ | 7,088 |
| | $ | 70,596 |
|
Accretion of Series B Preferred Stock discount | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
| | 22 |
|
Conversion of Series B Preferred Stock to Common Stock | — |
| | — |
| | (100 | ) | | (2 | ) | | 62 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Conversion of operating partnership units to Common Stock | — |
| | — |
| | — |
| | — |
| | 9,706 |
| | — |
| | 64 |
| | — |
| | 64 |
| | (9,706 | ) | | (64 | ) | | — |
|
Issuance of Common Stock under Share Incentive Plan | — |
| | — |
| | — |
| | — |
| | 43,459 |
| | — |
| | 330 |
| | — |
| | 330 |
| | — |
| | — |
| | 330 |
|
Issuance of Common Stock for acquisition of JANAF | — |
| | — |
| | — |
| | — |
| | 150,000 |
| | 2 |
| | 1,128 |
| | — |
| | 1,130 |
| | — |
| | — |
| | 1,130 |
|
Adjustment for noncontrolling interest in operating partnership | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 505 |
| | — |
| | 505 |
| | — |
| | (505 | ) | | — |
|
Dividends and distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,207 | ) | | (3,207 | ) | | — |
| | — |
| | (3,207 | ) |
Net Loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,825 | ) | | (1,825 | ) | | — |
| | (47 | ) | | (1,872 | ) |
Balance, March 31, 2018 (Unaudited) | 562 |
| | 453 |
| | 1,875,748 |
| | 40,935 |
| | 8,947,416 |
| | 89 |
| | 229,007 |
| | (209,957 | ) | | 60,527 |
| | 625,312 |
| | 6,472 |
| | 66,999 |
|
Accretion of Series B Preferred Stock discount | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
| | — |
| | — |
| | 22 |
| | — |
| | — |
| | 22 |
|
Conversion of operating partnership units to Common Stock | — |
| | — |
| | — |
| | — |
| | 311,307 |
| | 3 |
| | 1,151 |
| | — |
| | 1,154 |
| | (311,307 | ) | | (1,154 | ) | | — |
|
Issuance of Common Stock under Share Incentive Plan | — |
| | — |
| | — |
| | — |
| | 83,854 |
| | 1 |
| | 397 |
| | — |
| | 398 |
| | — |
| | — |
| | 398 |
|
Adjustment for noncontrolling interest in operating partnership | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,081 |
| | — |
| | 2,081 |
| | — |
| | (2,081 | ) | | — |
|
Dividends and distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,206 | ) | | (3,206 | ) | | — |
| | — |
| | (3,206 | ) |
Net Loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,525 | ) | | (1,525 | ) | | — |
| | (35 | ) | | (1,560 | ) |
Balance, June 30, 2018 (Unaudited) | 562 |
| | 453 |
| | 1,875,748 |
| | 40,957 |
| | 9,342,577 |
| | 93 |
| | 232,636 |
| | (214,688 | ) | | 59,451 |
| | 314,005 |
| | 3,202 |
| | 62,653 |
|
Accretion of Series B Preferred Stock discount | — |
| | — |
| | — |
| | 21 |
| | — |
| | — |
| | — |
| | — |
| | 21 |
| | — |
| | — |
| | 21 |
|
Conversion of operating partnership units to Common Stock | — |
| | — |
| | — |
| | — |
| | 18,455 |
| | — |
| | 80 |
| | — |
| | 80 |
| | (18,455 | ) | | (80 | ) | | — |
|
Issuance of Common Stock under Share Incentive Plan | — |
| | — |
| | — |
| | — |
| | 40,904 |
| | 1 |
| | 165 |
| | — |
| | 166 |
| | — |
| | — |
| | 166 |
|
Adjustment for noncontrolling interest in operating partnership | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 120 |
| | — |
| | 120 |
| | — |
| | (120 | ) | | — |
|
Dividends and distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,208 | ) | | (3,208 | ) | | — |
| | — |
| | (3,208 | ) |
Net Loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (602 | ) | | (602 | ) | | — |
| | 12 |
| | (590 | ) |
Balance, September 30, 2018 (Unaudited) | 562 |
| | $ | 453 |
| | 1,875,748 |
| | $ | 40,978 |
| | 9,401,936 |
| | $ | 94 |
| | $ | 233,001 |
| | $ | (218,498 | ) | | $ | 56,028 |
| | 295,550 |
| | $ | 3,014 |
| | $ | 59,042 |
|
See accompanying notes to condensed consolidated financial statements.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
(Unaudited)
| | | For the Nine Months Ended September 30, | For the Nine Months Ended September 30, |
| 2017 | | 2016 | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net loss | $ | (4,059 | ) | | $ | (8,207 | ) | |
Adjustments to reconcile consolidated net loss to net cash from operating activities | | | | |
Net Loss | | $ | (7,468 | ) | | $ | (4,022 | ) |
Adjustments to reconcile consolidated net loss to net cash provided by operating activities: | | | | |
Depreciation | 7,958 |
| | 5,751 |
| 8,991 |
| | 9,553 |
|
Amortization | 12,497 |
| | 9,555 |
| 7,178 |
| | 11,390 |
|
Loan cost amortization | 2,509 |
| | 1,464 |
| 1,336 |
| | 1,682 |
|
Above (below) market lease amortization, net | 448 |
| | 69 |
| (585 | ) | | (421 | ) |
Straight-line expense | | 140 |
| | 16 |
|
Share-based compensation | 735 |
| | 582 |
| 244 |
| | 727 |
|
Gain on disposal of properties | (1,021 | ) | | — |
| (1,427 | ) | | (2,312 | ) |
Gain on disposal of properties-discontinued operations | (1,502 | ) | | (689 | ) | — |
| | (903 | ) |
Provision for credit losses | 443 |
| | 196 |
| |
Credit losses on operating lease receivables | | 315 |
| | 412 |
|
Impairment of notes receivable | | 5,000 |
| | — |
|
Impairment of assets held for sale | | 1,547 |
| | — |
|
Changes in assets and liabilities, net of acquisitions | | | | | | |
Rent and other tenant receivables, net | (612 | ) | | (251 | ) | (520 | ) | | 919 |
|
Unbilled rent | (955 | ) | | (221 | ) | (60 | ) | | (1,037 | ) |
Related party receivables | (866 | ) | | (884 | ) | — |
| | 1 |
|
Cash restricted for operating property reserves | (328 | ) | | (1,257 | ) | |
Deferred costs and other assets, net | (584 | ) | | 134 |
| (335 | ) | | 71 |
|
Accounts payable, accrued expenses and other liabilities | 3,819 |
| | 3,168 |
| (1,738 | ) | | 2,466 |
|
Net operating cash flows provided by (used in) discontinued operations | 32 |
| | (1 | ) | |
Net cash from operating activities | 18,514 |
| | 9,409 |
| |
Net operating cash flows used in discontinued operations | | (2 | ) | | (2 | ) |
Net cash provided by operating activities | | 12,616 |
| | 18,540 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Investment property acquisitions | — |
| | (8,680 | ) | |
Investment property acquisitions, net of restricted cash acquired | | (24 | ) | | (23,153 | ) |
Capital expenditures | (4,262 | ) | | (1,587 | ) | (1,405 | ) | | (3,846 | ) |
Issuance of notes receivable | — |
| | (9,404 | ) | |
Decrease (increase) in capital property reserves | 333 |
| | (622 | ) | |
Increase in cash restricted for property acquisitions | — |
| | (837 | ) | |
Cash received from disposal of properties | 2,416 |
| | — |
| 3,584 |
| | 3,231 |
|
Cash received from disposal of properties-discontinued operations | 1,871 |
| | 1,385 |
| 19 |
| | 2,747 |
|
Net cash from (used in) investing activities | 358 |
| | (19,745 | ) | |
Net cash provided by (used in) investing activities | | 2,174 |
| | (21,021 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Payments for deferred financing costs | (646 | ) | | (3,571 | ) | (537 | ) | | (1,192 | ) |
Dividends and distributions paid | (15,264 | ) | | (12,654 | ) | — |
| | (11,554 | ) |
Proceeds from sales of Preferred Stock, net of expenses | 78 |
| | 61,387 |
| — |
| | 21,158 |
|
Loan proceeds | 17,170 |
| | 20,100 |
| 24,165 |
| | 28,487 |
|
Loan principal payments | (17,723 | ) | | (29,575 | ) | (33,890 | ) | | (26,282 | ) |
Net financing cash flows used in discontinued operations | (1,687 | ) | | (11 | ) | — |
| | (76 | ) |
Net cash (used in) provided by financing activities | (18,072 | ) | | 35,676 |
| (10,262 | ) | | 10,541 |
|
INCREASE IN CASH AND CASH EQUIVALENTS | 800 |
| | 25,340 |
| |
CASH AND CASH EQUIVALENTS, beginning of period | 4,863 |
| | 10,478 |
| |
CASH AND CASH EQUIVALENTS, end of period | $ | 5,663 |
| | $ | 35,818 |
| |
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | 4,528 |
| | 8,060 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | | 17,999 |
| | 12,286 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | | $ | 22,527 |
| | $ | 20,346 |
|
Supplemental Disclosures: | | | | | | |
Non-Cash Transactions: | | | | | | |
Debt incurred for acquisitions | $ | — |
| | $ | 60,320 |
| $ | — |
| | $ | 58,867 |
|
Noncontrolling interests resulting from the issuance of common units | $ | — |
| | $ | 3,499 |
| |
Conversion of common units to common stock | $ | 1,296 |
| | $ | — |
| $ | — |
| | $ | 1,298 |
|
Conversion of senior convertible debt into common stock | $ | 31 |
| | $ | 1,600 |
| |
Conversion of Series B Preferred Stock to Common Stock | | $ | — |
| | $ | 2 |
|
Issuance of Common Stock for acquisition | | $ | — |
| | $ | 1,130 |
|
Accretion of preferred stock discounts | $ | 605 |
| | $ | 255 |
| $ | 510 |
| | $ | 509 |
|
Note receivable in consideration of land | $ | — |
| | $ | 1,000 |
| |
Other Cash Transactions: | | | | | | |
Cash paid for taxes | $ | 220 |
| | $ | — |
| $ | 6 |
| | $ | 39 |
|
Cash paid for interest | $ | 10,404 |
| | $ | 8,259 |
| $ | 13,218 |
| | $ | 13,084 |
|
| | | | |
The following table provides a reconciliation of cash, cash equivalents and restricted cash: | | | | |
Cash and cash equivalents | | $ | 5,233 |
| | $ | 3,638 |
|
Restricted cash | | 17,294 |
| | 16,708 |
|
Cash, cash equivalents, and restricted cash | | $ | 22,527 |
| | $ | 20,346 |
|
See accompanying notes to condensed consolidated financial statements.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation and Consolidation
Wheeler Real Estate Investment Trust, Inc. (the "Trust", the "REIT", or "Company") is a Maryland corporation formed on June 23, 2011. The Trust serves as the general partner of Wheeler REIT, L.P. (the “Operating Partnership”), which was formed as a Virginia limited partnership on April 5, 2012. As of September 30, 2017,2019, the Trust, through the Operating Partnership, owned and operated sixty-foursixty-one centers, one office building sevenand six undeveloped properties and one redevelopment project in Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Oklahoma, Tennessee, Kentucky, New Jersey, Pennsylvania and West Virginia. Accordingly, the use of the word “Company” refers to the Trust and its consolidated subsidiaries, except where the context otherwise requires.
On October 24, 2014, the Trust, through the Operating Partnership, acquired (i) Wheeler Interests, LLC (“WI”), an acquisition and asset management firm, (ii) Wheeler Real Estate, LLC (“WRE”), a real estate leasing, management and administration firm and (iii) WHLR Management, LLC (“WM” and collectively with WI and WRE the “Operating Companies”), a real estate business operations firm, from Jon S. Wheeler, the Company's then Chairman and CEO, resulting in the Company becoming an internally-managed REIT. Accordingly, the responsibility for identifying targeted real estate investments, the handling of the disposition of real estate investments our boardBoard of directorsDirectors chooses to sell, administering our day-to-day business operations, including but not limited to, leasing, property management, payroll and accounting functions, acquisitions, asset management and administration are now handled internally.
Prior to being acquired by the Company, theThe Operating Companies served as the external manager for the Company and its properties (the “REIT Properties”) and performedperform property management and leasing functions for certain related and non-related third parties (the “Non-REIT Properties”). The Company will continue to perform these services for the Non-REIT Properties through the Operating Companies,, primarily through WRE. Accordingly, theThe Company converted WRE to a Taxable REIT Subsidiary (“TRS”) to accommodate serving the Non-REIT Properties since applicable REIT regulations consider the income derived from these services to be “bad” income subject to taxation. The regulations allow for costs incurred by the Company commensurate with the services performed for the Non-REIT Properties to be allocated to a TRS.
During January 2014, the Company acquired Wheeler Development, LLC (“WD”) and converted it to a TRS. The Company began performing development activities for both REIT Properties and Non-REIT Properties during 2015.
The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the “Form 10-Q”) are unaudited and the results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for future periods or the year. However, amounts presented in the condensed consolidated balance sheet as of December 31, 20162018 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. All per share amounts, common units and shares outstanding and stock-based compensation amountsThe condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for allthe interim periods presented, reflect our one-for-eight reverse stock split (the "Reverse Stock Split"), which was effective March 31, 2017.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. You should read theseThese condensed consolidated financial statements should be read in conjunction with our 2016the Company's 2018 Annual Report filed on Form 10-K for the year ended December 31, 20162018 (the “2016“2018 Form 10-K”).
2. Summary of Significant Accounting Policies
Investment Properties
The Company records investment properties and related intangibles at fair value upon acquisition. Investment properties include both acquired and constructed assets. Improvements and major repairs and maintenance are capitalized when the repair and maintenance substantially extends the useful life, increases capacity or improves the efficiency of the asset. All other repair and maintenance costs are expensed as incurred. The Company capitalizes interest on projects during periods of construction until the projects reach the completion point that corresponds with their intended purpose.
The Company allocates the purchase price of acquisitions to the various components of the asset based upon the fair value of each component which may be derived from various observable or unobservable inputs and assumptions. Also, the Company may utilize third party valuation specialists. These components typically include buildings, land and any intangible assets related to out-of-market leases, tenant relationships and in-place leases the Company determines to exist. The Company
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Company may utilize third party valuation specialists. These components typically include buildings, land and any intangible assets related to out-of-market leases, tenant relationships and in-place leases the Company determines to exist. The Company determines fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in the analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases, tenant relationships and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.
The Company records depreciation on buildings and improvements utilizing the straight-line method over the estimated useful life of the asset, generally 5 to 40 years. The Company reviews depreciable lives of investment properties periodically and makes adjustments to reflect a shorter economic life, when necessary. Tenant allowances, tenant inducements and tenant improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter.
Amounts allocated to buildings are depreciated over the estimated remaining life of the acquired building or related improvements. The Company amortizes amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles over the remaining life of the underlying leases. The Company also estimates the value of other acquired intangible assets, if any, and amortizes them over the remaining life of the underlying related intangibles.
The Company reviews investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable, but at least annually. These circumstances include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. The Company measures any impairment of investment property when the estimated undiscounted future operating income before depreciation and amortization, plus its residual value, is less than the carrying value of the property. Estimated undiscounted operating income before depreciation and amortization includes various level 3 fair value assumptions including renewal and renegotiations of current leases, estimates of new leases on vacant spaces, estimates of operating costs and fluctuating market conditions. The renewal and renegotiations of leases in some cases must be approved by additional third parties outside the control of the Company and the tenant. If such renewed or renegotiated leases are approved at amounts below correct estimates, then impairment adjustments may be necessary in the future. To the extent impairment has occurred, the Company charges to income the excess of the carrying value of the property over its estimated fair value. The Company estimates fair value using unobservable data such as operating income, estimated capitalization rates, or multiples, leasing prospects for vacant spaces and local market information. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets Held For Sale and Discontinued Operations
The Company may decide to sell properties that are held for useuse. The Company records these properties as held for sale when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale pricesis considered probable and is expected within one year. Properties classified as held for sale are reported at the lower of these properties may differ from their carrying values.value or their fair value, less estimated costs to sell. When the carrying value exceeds the fair value, less estimated costs to sell an impairment charge is recognized. The Company didestimates fair value, less estimated closing costs based on similar real estate sales transactions. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 2 and 3 inputs. Level 2 inputs are quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not record anyactive; and inputs other than quoted prices.
Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company recorded impairment adjustments to its properties duringcharges of $400 thousand and $1.55 million for the three and nine months ended September 30, 20172019, respectively, which resulted from reducing the carrying values of Perimeter Square and 2016.St. Matthews for the amounts that exceeded the properties' fair value less estimated selling costs, see Note 3. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 2 inputs.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Assets held for sale are presented as discontinued operations in all periods presented if the disposition represents a strategic shift that has, or will have, a major effect on the Company's financial position or results of operations. This includes the net gain (or loss) upon disposal of property held for sale, the property's operating results, depreciation and interest expense.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash equivalents. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents consist primarily of bank operating accounts and money markets. Financial instruments that potentially subject the Company to concentrations of credit risk include its cash and cash equivalents and its trade accounts receivable. The Company places its cash and cash equivalents with institutions of high credit quality.
Restricted cash represents amounts held by lenders for real estate taxes, insurance, reserves for capital improvements, leasing costs and tenant security deposits. The Company presents changes in cash restricted for real estate taxes, insurance and tenant security deposits as operating activities in the condensed consolidated statement of cash flows. The Company presents changes in cash restricted for capital improvements as investing activities in the condensed consolidated statement of cash flows.
The Company places its cash and cash equivalents and restricted cash on deposit with financial institutions in the United States, which are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250 thousand. The Company's credit loss in the event of failure of these financial institutions is represented by the difference between the FDIC limit and the total amounts on deposit. Management monitors the financial institutions credit worthiness in conjunction with balances on deposit to minimize risk.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Tenant Receivables and Unbilled Rent
Tenant receivables include base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. The Company determines an allowance for the uncollectible portion of accrued rents and accounts receivable based upon customer credit-worthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. The Company considers a receivable past due once it becomes delinquent per the terms of the lease. The Company’s standard lease form considers a rent charge past due after five days. A past due receivable triggers certain events such as notices, fees and other allowable and required actions per the lease. As of September 30, 20172019 and December 31, 2016,2018, the Company’s allowance for uncollectible accounts totaled $703 thousand$1.07 million and $691 thousand,$1.07 million, respectively. Upon adoption of ASC Topic 842 "Leases," reserves for uncollectible accounts were recorded and reclassified to revenue. Prior to adoption, reserves for uncollectible accounts were recorded as an operating expense, provision for credit losses. The standard also provides guidance on calculating reserves; however, those did not impact the Company. During the three and nine months ended September 30, 2017,2019, the Company recorded bad debt expensesa provision for credit losses in the amount of $23$115 thousand and $443$315 thousand, respectively, related to tenant receivables that were specifically identified as potentially uncollectible based on an assessment of the tenant’s credit-worthiness. During the three and nine months ended September 30, 2016,2018, the Company recorded bad debt expensesa provision for credit losses in the amount of $31$149 thousand and $196$412 thousand, respectively. These are included in rental revenues on the condensed consolidated statements of operations. During the three and nine months ended September 30, 20172019 and 2016,2018, the Company did not realize any recoveries related to tenant receivables previously written off.
Notes Receivable
Notes receivable represent financing to Sea Turtle Development as discussed in Note 4 for development of the project. The notes are secured by a 2nd deed of trust on the underlying real estate known as Sea Turtle Development. The Company evaluates the collectability of both the interest and principal of the notes receivable based primarily upon the projected fair market value of the project at stabilization. The notes receivable are determined to be impaired when, based upon current information, it is no longer probable that the Company will be able to collect all contractual amounts due from the borrower. The amount of impairment loss recognized is measured as the difference between the carrying amount of the loan and its estimated realizable value.
Above and Below Market Lease Intangibles, net
The Company determines the above and below market lease intangibles upon acquiring a property. Above and below market lease intangibles are amortized over the life of the respective leases. Amortization of above and below market lease intangibles is recorded as a component of rental revenues.
Deferred Costs and Other Assets, net
The Company’s deferred costs and other assets consist primarily of leasing commissions, leases in place, capitalized legal and marketing costs and tenant relationship intangibles associated with acquisitions. The Company’s lease origination costs consist primarily of the portion of property acquisitions allocated to lease originations and commissions paid in connection with lease originations.
Details of these deferred costs, net of amortization, and other assets are as follows (in thousands): |
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (unaudited) | | |
Leases in place, net | $ | 27,306 |
| | $ | 35,655 |
|
Tenant relationships, net | 7,670 |
| | 10,944 |
|
Lease origination costs, net | 1,059 |
| | 1,096 |
|
Other | 824 |
| | 517 |
|
Deposits on acquisitions | 536 |
| | 1,086 |
|
Legal and marketing costs, net | 82 |
| | 99 |
|
Total Deferred Costs and Other Assets, net | $ | 37,477 |
| | $ | 49,397 |
|
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Deferred Costs and Other Assets, net
The Company’s deferred costs and other assets consist primarily of leasing commissions, leases in place, capitalized legal and marketing costs, tenant relationship and ground lease sandwich interest intangibles associated with acquisitions. The Company’s lease origination costs consist primarily of the portion of property acquisitions allocated to lease originations and commissions paid to third parties in connection with lease originations. The Company generally records amortization of lease origination costs on a straight-line basis over the terms of the related leases. Amortization of lease origination costs, leases in place, legal and marketing costs, and tenant relationships and ground lease sandwich interest represents a component of depreciation and amortization expense. As of September 30, 2017 and December 31, 2016, the Company’s intangible accumulated amortization totaled $38.72 million and $28.55 million, respectively. During the three and nine months ended September 30, 2017, the Company’s intangible amortization expense totaled $5.09 million and $12.50 million, respectively. Amortization expense for the three and nine months ended September 30, 2017 includes $1.74 million of accelerated amortization on intangibles related to the Bi-Lo lease termination at the Shoppes at Myrtle Park. During the three and nine months ended September 30, 2016, the Company’s intangible amortization expense totaled $3.00 million and $9.56 million, respectively. As of September 30, 2017, the Company's annual amortization for its lease origination costs, leases in place, legal and marketing costs and tenant relationships is as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Leases In Place, net | | Tenant Relationships, net | | Lease Origination Costs, net | | Legal & Marketing Costs, net | | Total |
For the remaining three months ended December 31, 2017 | $ | 2,179 |
| | $ | 865 |
| | $ | 81 |
| | $ | 6 |
| | $ | 3,131 |
|
December 31, 2018 | 7,132 |
| | 2,613 |
| | 241 |
| | 17 |
| | 10,003 |
|
December 31, 2019 | 5,176 |
| | 1,646 |
| | 175 |
| | 14 |
| | 7,011 |
|
December 31, 2020 | 3,698 |
| | 940 |
| | 131 |
| | 11 |
| | 4,780 |
|
December 31, 2021 | 2,380 |
| | 523 |
| | 115 |
| | 9 |
| | 3,027 |
|
December 31, 2022 | 1,931 |
| | 406 |
| | 74 |
| | 6 |
| | 2,417 |
|
Thereafter | 4,810 |
| | 677 |
| | 242 |
| | 19 |
| | 5,748 |
|
| $ | 27,306 |
| | $ | 7,670 |
| | $ | 1,059 |
| | $ | 82 |
| | $ | 36,117 |
|
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 the investment propertiesthese underlying assets and accounts for itsthese 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, 20172019 and December 31, 2016,2018, there were $2.19$3.37 million and $1.24$3.12 million, respectively, in unbilled rent which is included in rents"rents and other tenant receivables, net." Additionally, certain of the lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements. During the three and nine months ended September 30, 2017, the Company recognized percentage rents of $30 thousand and $165 thousand, respectively. During the three and nine months ended September 30, 2016, the Company recognized percentage rents of $58 thousand and $214 thousand, respectively.agreements as variable lease income.
The Company’s leases generally require the tenant to reimburse the Company for a substantial portion of its expenses incurred in operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common Area Maintenance or “CAM” expenses). The Company includes these reimbursements under the Condensed Consolidated Statements of Operations caption "Tenant reimbursements." This significantly reduces the Company’s exposure to increases in costs and operating expenses resulting from inflation or other outside factors. TheThese reimbursements are considered nonlease components which the Company accrues reimbursements from tenants for recoverable portions of all these expenses as revenue incombines with the period the applicable expenditures are incurred.lease component. The Company calculates the tenant’s share of operating costs by multiplying the total amount of the operating costs by a fraction, the numerator of which is the total number of square feet being leased by the tenant, and the denominator of which is the average total square footage of all leasable buildings at the property. The Company also receives escrow payments for these reimbursements from substantially all its tenants throughout the year. The Company recognizes tenant reimbursements as variable lease income. The Company recognizes differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material for the three and nine months ended September 30, 20172019 and 2016.2018.
Additionally, the Company has tenants who pay real estate taxes directly to the taxing authority. The Company excludes these Company costs paid directly by the tenant to third parties on the Company’s behalf from both variable revenue payments recognized and the associated property operating expenses. The Company does not evaluate whether certain sales taxes and other similar taxes are the Company’s costs or tenants costs. Instead, the Company accounts for these costs as tenant costs.
The Company recognizes lease termination fees, which is included in "other revenues" on the condensed consolidated statements of operations, in the periodyear that the lease is terminated and collection of the feesfee is reasonably assured. Upon early lease termination, the Company provides for losses related to unrecovered intangibles and other assets. During the three and nine months ended September 30, 2017, the Company recognized lease termination
Asset Management Fees
Asset management fees are generated from Non-REIT Properties. The Non-REIT Properties pay WRE property management and/or asset management fees of $470 thousand3% and $491 thousand,2% of collected revenues, respectively, primarily a result offor services performed. Revenues are governed by the Bi-Lo at Shoppes at Myrtle Park lease termination. Duringmanagement fee agreements for the three and nine months ended September 30, 2016, the Company recognized lease termination fees of $0 thousand and $26 thousand, respectively. The Company includes termination feesvarious properties. Obligations under the Condensed Consolidated Statementagreements include and are not limited to: managing of Operations caption "Developmentmaintenance, janitorial, security, landscaping, vendors and other revenues."back office (collecting rents,
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
paying bills), etc. Each of the obligations are bundled together to be one service and are satisfied over time. Non-REIT Properties are billed monthly and typically pay monthly for these services.
Commissions
Commissions are generated from Non-REIT Properties. The Non-REIT Properties pay WRE leasing commissions based on the total contractual revenues to be generated under the new/renewed lease agreement (6% for new leases and 3% for renewals). Revenues are governed by the leasing commission agreements for the various properties. Obligations under the agreements include and are not limited to: monitoring upcoming vacancies, new tenant identification, proposal preparation, lease negotiation and document preparation. Each of the obligations are bundled together to be one service as the overall objective of these services is to maintain the overall occupancy of the property. Revenue is recognized and billed upon lease execution.
The below table disaggregates the Company’s revenue by type of service for the three and nine months ended September 30, 2019 and 2018 (in thousands, unaudited):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
Minimum rent | $ | 12,169 |
| | $ | 12,704 |
| | $ | 36,604 |
| | $ | 38,187 |
|
Tenant reimbursements - variable lease revenue | 3,262 |
| | 3,150 |
| | 9,999 |
| | 9,337 |
|
Percentage rent - variable lease revenue | 69 |
| | 51 |
| | 258 |
| | 176 |
|
Lease termination fees | — |
| | (15 | ) | | 49 |
| | 1,269 |
|
Commissions | 18 |
| | 52 |
| | 65 |
| | 102 |
|
Asset management fees | 16 |
| | 48 |
| | 42 |
| | 220 |
|
Other | 146 |
| | 232 |
| | 390 |
| | 428 |
|
Subtotal | 15,680 |
| | 16,222 |
| | 47,407 |
| | 49,719 |
|
Credit losses on operating lease receivables | (115 | ) | | (149 | ) | | (315 | ) | | (412 | ) |
Total | $ | 15,565 |
| | $ | 16,073 |
| | $ | 47,092 |
| | $ | 49,307 |
|
Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code and applicable Treasury regulations relating to REIT qualification. In order to maintain this REIT status, the regulations require the Company to distribute at least 90% of its taxable income to shareholders and meet certain other asset and income tests, as well as other requirements. The TRS' have accrued $62$30 thousand and $107$13 thousand, respectively, for 2017 and 2016 federal and state income taxes as of September 30, 20172019 and December 31, 2016.2018. If the Company fails to qualify as a REIT, it will be subject to tax at regular corporate rates for the years in which it fails to qualify. If the Company loses its REIT status, it could not elect to be taxed as a REIT for five years unless the Company’s failure to qualify was due to a reasonable cause and certain other conditions were satisfied.
Taxable REIT Subsidiary Cost Allocation
The Company’s overall philosophy regarding cost allocation centers around the premise that the Trust exists to acquire, lease and manage properties for the benefit of its investors. Accordingly, a majority of the Company’s operations occur at the property level. Each property must carry its own weight by absorbing the costs associated with generating its revenues. Additionally, leases generally allow the Company to pass through to the tenant most of the costs involved in operating the property, including, but not limited to, the direct costs associated with owning and maintaining the property (landscaping, repairs and maintenance, taxes, insurance, etc.), property management and certain administrative costs.
Service vendors bill the majority of the direct costs of operating the properties directly to the REIT Properties and Non-REIT Properties and each property pays them accordingly. The Non-REIT Properties pay WRE property management and/
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
or asset management fees of 3% and 2% of collected revenues, respectively. The Non-REIT Properties also pay WRE leasing commissions based on the total contractual revenues to be generated under the new/renewed lease agreement (6% for new leases and 3% for renewals). Non-REIT properties pay development fees of 5% of hard costs.
Costs incurred to manage, lease and administer the Non-REIT Properties are allocated to the TRS. These costs include compensation and benefits, property management, leasing and other corporate, general and administrative expenses associated with generating the TRS' revenues.
Financial Instruments
The carrying amount of financial instruments included in assets and liabilities approximates fair market value due to their immediate or short-term maturity.
Use of Estimates
The Company has made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reported periods. The Company’s actual results could differ from these estimates.
Advertising Costs For Leasing Activities
The Company expenses advertising and promotion costs as incurred. The Company incurred advertising and promotion costs associated with leasing activities of $52$35 thousand and $195$198 thousand for the three and nine months ended September 30, 2017,2019, respectively. The Company incurred advertising and promotion costs of $23$36 thousand and $176$194 thousand for the three and nine months ended September 30, 2016,2018, respectively.
Assets Held For SaleCorporate General and Discontinued OperationsAdministrative Expense
A detail for the "corporate general & administrative" ("CG&A") line item from the condensed consolidated statements of operations is presented below (in thousands, unaudited):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
Compensation and benefits | $ | 455 |
| | $ | 554 |
| | $ | 1,562 |
| | $ | 2,001 |
|
Professional fees | 444 |
| | 638 |
| | 1,371 |
| | 2,309 |
|
Corporate administration | 326 |
| | 299 |
| | 934 |
| | 968 |
|
Capital related costs | 4 |
| | 110 |
| | 140 |
| | 408 |
|
Taxes and licenses | 40 |
| | 23 |
| | 172 |
| | 227 |
|
Other | 80 |
| | 168 |
| | 364 |
| | 717 |
|
| 1,349 |
| | 1,792 |
| | 4,543 |
| | 6,630 |
|
Less: Allocation of CG&A to Non-REIT management and leasing services | — |
| | (89 | ) | | — |
| | (151 | ) |
Total | $ | 1,349 |
| | $ | 1,703 |
| | $ | 4,543 |
| | $ | 6,479 |
|
An allocation of professional fees, compensation and benefits, corporate administration and travel is included in Non-REIT management and leasing services on the condensed consolidated statements of operations, which can vary period to period depending on the relative operational fluctuations of these respective services.
The Company records assets as held for sale when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered probable and is expected within one year.
Assets held for sale are presented as discontinued operations in all periods presented if the disposition represents a strategic shift that has, or will have, a major effect on the Company's financial position or results of operations. This includes the net gain (or loss) upon disposal of property held for sale, the property's operating results, depreciation and interest expense.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Corporate GeneralLeases Commitments
The Company determines if an arrangement is a lease at inception. Operating leases, in which the Company is the lessee, are included in operating lease right-of-use (“ROU”) assets and Administrative Expenseoperating lease liabilities on our condensed consolidated balance sheets.
A detailROU assets represent the right to use an underlying asset for the "Corporate General & Administrative" line itemlease term and the lease liabilities represent our obligation to make lease payments arising from the Condensed Consolidated Statements of Operations is presented below (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (unaudited) |
Compensation and benefits | | $ | 444 |
| | $ | 392 |
| | $ | 1,384 |
| | $ | 2,440 |
|
Professional fees | | 295 |
| | 391 |
| | 1,247 |
| | 1,181 |
|
Acquisition and development costs | | 233 |
| | 117 |
| | 832 |
| | 903 |
|
Corporate administration | | 132 |
| | 301 |
| | 483 |
| | 806 |
|
Capital related costs | | 82 |
| | 61 |
| | 468 |
| | 311 |
|
Advertising | | 52 |
| | 23 |
| | 195 |
| | 176 |
|
Travel | | 39 |
| | 153 |
| | 133 |
| | 374 |
|
Taxes and licenses | | 29 |
| | 59 |
| | 113 |
| | 100 |
|
Total Corporate General & Administrative | | $ | 1,306 |
| | $ | 1,497 |
| | $ | 4,855 |
| | $ | 6,291 |
|
An allocation of professional fees, compensationlease. Operating lease ROU assets and benefits, corporate administration and travel is included in Non-REIT management and leasing servicesliabilities are recognized at commencement date based on the statementspresent value of operations, which can vary period to period dependinglease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the relative operational fluctuationsinformation available at commencement date in determining the present value of these respective services.lease payments. The operating lease ROU assets include any lease payments made and excludes lease incentives. The Company's lease terms may include options to extend the lease when it is reasonably certain that the company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company elects the practical expedient to combine lease and associated nonlease components. The lease components are the majority of its leasing arrangements and the Company accounts for the combined component as an operating lease. In the event the Company modifies existing ground leases or enters into new ground leases, such leases may be classified as finance leases.
Noncontrolling Interests
Noncontrolling interests is the portion of equity in the Operating Partnership not attributable to the Trust. The ownership interests not held by the parent are considered noncontrolling interests. Accordingly, noncontrolling interests have been reported in equity on the condensed consolidated balance sheets but separate from the Company’s equity. On the condensed consolidated statements of operations, the subsidiaries are reported at the consolidated amount, including both the amount attributable to the Company and noncontrolling interests. Condensed consolidated statementstatements of equity includes beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.
The noncontrolling interest of the Operating Partnership common unit holders is calculated by multiplying the noncontrolling interest ownership percentage at the balance sheet date by the Operating Partnership’s net assets (total assets less total liabilities). The noncontrolling interest percentage is calculated at any point in time by dividing the number of units not owned by the Company by the total number of units outstanding. The noncontrolling interest ownership percentage will change as additional units are issued or as units are exchanged for the Company’s common stock $0.01 par value per share (“Common Stock”). In accordance with GAAP, any changes in the value from period to period are charged to additional paid-in capital.
Recent Accounting PronouncementsAdoption of ASC Topic 842, “Leases”
In May 2014,February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers,2016-02, “Leases (Topic 842)”, to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. The Company adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective approach within ASU 2018-11, which supersedesallows for the revenue recognition requirements of Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition” and most industry-specific guidance on revenue recognition throughoutapplication date to be the ASC. The new standard is principles based and provides a five step model to determine when and how revenue is recognized. The core principlebeginning of the new standard is that revenue should be recognized when a company transfers promised goods or services to customersreporting period in an amount that reflects the consideration to which the entity first applies the new standard. The Company did not have a cumulative-effect adjustment as of the adoption date. In addition, the Company implemented internal controls to enable the preparation of financial information upon adoption.
The Company elected the package of transition practical expedients where the company expectsis either the lessee or lessor, which among other things, allowed the Company to be entitledcarry forward the historical lease classifications and use hindsight in exchangedetermining the lease terms.
The standard had a material impact on the Company's condensed consolidated balance sheets, but did not have a material impact on the condensed consolidated statements of operations. The most significant impact was the recognition of ROU assets and lease liabilities of approximately $11.90 million and $11.99 million, respectively, for those goods or services.operating leases as of January 1, 2019, calculated based on an incremental borrowing rate of 4.84%. The newdifference between the ROU assets and lease liabilities at adoption represents the accrued straight-line rent liability previously recognized under ASC 840. The standard also requires disclosure of qualitative and quantitative information surroundinghad no impact on the amount, nature, timing and uncertainty of revenues andCompany's cash flows arising from contracts with customers. In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, "Revenue from contracts with customers (Topic 606): Identifying Performance Obligations and Licensing," whichflows.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
provides further guidance on identifying performance obligations and intellectual property licensing implementation. Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-12, “Revenue2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". This update enhances the methodology of measuring expected credit losses to include the use of forward-looking information to better calculate credit loss estimates. The guidance will apply to most financial assets measured at amortized cost and certain other instruments, such as accounts receivable and loans. The guidance will require that the Company estimate the lifetime expected credit loss with respect to these receivables and record allowances that, when deducted from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, which relates to assessing collectability, presentation of sales taxes, noncash consideration and completed contracts and contract modifications in transition. In December 2016, the FASB issued 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," which clarifies or corrects unintended applicationbalance of the standard. Companies are permittedreceivables, represent the net amounts expected to adoptbe collected. The Company will also be required to disclose information about how it developed the ASUs as early as fiscal years beginning after December 15, 2016, butallowances, including changes in the adoption is requiredfactors that influenced the Company’s estimate of expected credit losses and the reasons for fiscal years beginning after December 15, 2017.those changes. In September 2017,addition, in November 2018 the FASB issued ASU 2017-13, "Revenue Recognition (Topic 605)," "Revenue2018-19, which clarifies that receivables arising from Contracts with Customers (Topic 606)," "Leases (Topic 840)," and "Leases (Topic 842)." These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." These new standards will be effective for the Company in the first quarter of the year ending December 31, 2018 and can be applied either retrospectively to all periods presented or as a cumulative-effect adjustment as of the date of adoption.
The Company is currently evaluating the impact of this standard. The majority of the Company’s revenue is based on real estate lease contracts whichoperating leases are not within the scope of this ASU. The Company has identified its non-lease revenue streams and initial analysis indicates the adoption of thiscredit losses standard, will not have a material impact on our financial position or results of operations. The Company will increase disclosures around revenue recognition in the notes to condensed consolidated financial statements to comply with the standard upon adoption. The Company will adopt the standard January 1, 2018 as a cumulative-effect adjustment.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet the new ASU will require both types of leases (i.e. operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease willbut rather, should be accounted for in substantiallyaccordance with the same manner as capital leases are accounted for under existing GAAP.standard. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases.
In September 2017, the FASB issued ASU 2017-13, "Revenue Recognition (Topic 605)," "Revenue from Contracts with Customers (Topic 606)," "Leases (Topic 840)," and "Leases (Topic 842)," which provides additional implementation guidance on the previously issued ASU 2016-02. "Leases (Topic 842)."
The leasing standard willwould be effective for calendar year-end public companies beginning after December 15, 2018. Public companies will be required to adopt the new leasing standard for fiscal years,interim and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption will be permitted for all companies and organizations upon issuance of the standard. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018 and 2017. The accounting for leases under which we are the lessor remains largely unchanged. Lessees with a large portfolio of leases are likely to see a significant increase in balance sheet assets and liabilities. While we are currently assessing the impact of the standard on our financial position and results of operations we expect the primary impact to be on those ground leases which we are the lessor. The new standard will result in the recording of right of use assets and lease obligations. See Note 9 for the Company’s current lease commitments. The Company continues to evaluate the impact of ASU 2016-02 on its financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for annual periods beginning after December 15, 2016 and early adoption is
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
permitted. The Company adopted this ASU as of January 1, 2017 and applied prospectively. The adoption did not have a material impact on the financial position or results of operations.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of certain cash receipts and cash payments (a consensus of the Emerging Issues Task Force).” The ASU addresses eight specific cash flow issues in an effort to reduce diversity in practice. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. The new standard is to be applied retrospectively for all period presented.2019. The Company will adopt this ASUis currently in 2018 and does not expectthe process of evaluating the impact the adoption to materially impactof the guidance will have on its consolidated statements of cash flows.financial statements.
In November 2016,August 2018, the FASB issued ASU 2016-18, “Statement of Cash Flows2018-13, "Fair Value Measurement (Topic 230): Restricted Cash (a consensus of820)". This update modifies the FASB Emerging Issues Task Force).”disclosure requirements on fair value measurements in Topic 820 with several removals and additions for disclosures. The ASU provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows in an effort to reduce diversity in practice. The standard requires a reconciliation of total cash, cash equivalents and restricted cash in the cash flow statement or in the noteswill add disclosures related to the financial statements. This ASU isrange and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance would be effective for annualinterim and interimannual reporting periods beginning after December 15, 2017 and early adoption is permitted. The new standard is to be applied retrospectively for all period presented.2019. The Company anticipates that there will adopt this ASU in 2018 and does not expect the adoption to materially impact its consolidated statements of cash flows.
In February 2015, the FASB issued ASU 2015-02 related to ASC Topic 810, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” This new guidance changes the identification of variable interests, the variable interest entity (“VIE”) characteristics for a limited partnership or similar entity, and primary beneficiary determination. The guidance also eliminates the presumption that a general partner controls a limited partnership. The ASU is effective for annual periods beginning after December 15, 2015. The Company has adopted this ASU withbe no material impact on the Company’sits consolidated financial statements. In October 2016, the FASB issued ASU 2016-17, “Consolidation (Topic 810) Interests Held through Related Parties That are under Common Control,” which amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE. The ASU is effective for annual periods beginning after December 15, 2016. The Company adopted this ASU as of January 1, 2017. The adoption did not have a material impact on the financial position or results of operations.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. The new standard is to be applied prospectively. Thestatements upon adoption of this standard will most likely result in less real estate acquisitions qualifying as businesses and, accordingly, acquisition costs for those acquisitions that are not businesses will be capitalized rather than expensed.the guidance.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the test for Goodwill Impairment.” The amendments in ASU 2017-04 eliminate the current two-step approach used to test goodwill for impairment and require an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019 and early adoption is permitted on testing dates after January 1, 2017. The new standard is to be applied prospectively. The Company will adopt this ASU in 2020 and does not expect the adoption to materially impact its financial position or results of operations.
In February 2017, the FASB issued ASU 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” This amendment provides guidance for partial sales of nonfinancial assets. This ASU is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The standard is to be applied retrospectively or modified retrospectively. The Company is evaluating the impact that ASU 2017-05 on its financial statements.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” This updates clarifies when modification accounting guidance in Topic 718 should be applied to a change in terms or conditions of a share-based payment award. This ASU is effective for annual and interim periods beginning after December 15, 2017 with early adoption permitted. The new standard is to be applied prospectively to an award modified on or after the adoption date. The Company does not expect the update to have a material impact on its financial position or results of operations.
Other accounting standards that have been issued or proposed by the FASB or other standard-setting bodies are not currently applicable to the Company or are not expected to have a significant impact on the Company’s financial position, results of operations and cash flows.
Reclassifications
Reclassifications
Certain reclassifications have been made to
The Company has reclassified certain prior period amounts in the accompanying condensed consolidated financial statements in order to make their presentation comparablebe consistent with the current period.period presentation. These reclassifications had no impacteffect on net income. All per share amounts, common unitsincome, total assets, total liabilities or equity.
Tenant reimbursements and shares outstandingprovision for credit losses were reclassified to rental revenues on the condensed consolidated statements of operations to conform to 2019 presentation as a result of adopting ASU 2016-02, “Leases (Topic 842).” There are two reclassifications within the condensed consolidated statement of cash flows, one pertains to the straight-line expense operating activity adjustment on those leases which the Company is a lessee and stock based compensation amountsthe other is the presentation of credit losses on operating lease receivables. These reclassifications did not impact cash provided by (used in) operating, investing, or financing activities.
As of September 30, 2019, it was determined that the six undeveloped Land Parcels (the “Land Parcels”) previously classified as assets held for sale at December 31, 2018 no longer meet the definition of assets held for sale. Management’s intention to sell the parcels has not changed; however, they are in secondary and tertiary markets with minimal land sales and it is not probable they will sell in the next twelve months. Accordingly, the assets and liabilities of the Land Parcels were reclassified to “land and land improvements” within investment properties for all periods presented, reflect our Reverse Stock Split which was effective March 31, 2017.see Note 3.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
3. Investment PropertiesReal Estate
Investment properties consist of the following (in thousands): | | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| (unaudited) | | | (unaudited) | | |
Land and land improvements | $ | 91,108 |
| | $ | 90,531 |
| $ | 100,135 |
| | $ | 101,696 |
|
Land held for improvement | 11,170 |
| | 11,420 |
| |
Buildings and improvements | 310,000 |
| | 307,411 |
| 365,686 |
| | 374,499 |
|
Investment properties at cost | 412,278 |
| | 409,362 |
| 465,821 |
| | 476,195 |
|
Less accumulated depreciation | (28,417 | ) | | (20,482 | ) | (47,483 | ) | | (40,189 | ) |
Investment properties, net | $ | 383,861 |
| | $ | 388,880 |
| $ | 418,338 |
| | $ | 436,006 |
|
The Company’s depreciation expense on investment properties was $2.65$2.92 million and $7.96$8.99 million for the three and nine months ended September 30, 2017,2019, respectively. The Company’s depreciation expense on investment properties was $2.00$3.05 million and $5.75$9.55 million for the three and nine months ended September 30, 2016,2018, respectively.
A significant portion of the Company’s land, buildings and improvements servesserve as collateral for its mortgage loans payable portfolio. Accordingly, restrictions exist as to the encumbered property’s transferability, use and other common rights typically associated with property ownership.
Assets Held for Sale
At December 31, 2018, assets held for sale included a 1.28 acre undeveloped land parcel at Harbor Pointe ("Harbor Pointe land parcel"), Graystone Crossing and Jenks Plaza. All three were sold during the nine months ended September 30, 2019. Additionally, in 2019 the Board committed to a plan to sell Perimeter Square and St. Matthews. Perimeter Square sold in July 2019. St. Matthews is classified as assets held for sale as of September 30, 2019.
The Harbor Pointe land parcel sale represents discontinued operations as it is a strategic shift that has a major effect on the Company's financial position or results of operations. Accordingly, the assets and liabilities associated with the Harbor Pointe land parcel have been reclassified for all periods presented.
The impairment charge on assets held for sale was $400 thousand and $1.55 million for the three and nine months ended September 30, 2019, respectively. These impairment charges resulted from reducing the carrying value of St. Matthews during the three months ended September 30, 2019 and Perimeter Square and St. Matthews during the nine months ended September 30, 2019, for the amounts that exceeded the properties' fair value less estimated selling costs. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 2 inputs.
As of September 30, 2019 and December 31, 2018, assets held for sale and associated liabilities, excluding discontinued operations, consisted of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | (unaudited) | | |
Investment properties, net | | $ | 1,702 |
| | $ | 4,912 |
|
Rents and other tenant receivables, net | | 52 |
| | 72 |
|
Above market leases, net | | — |
| | 420 |
|
Deferred costs and other assets, net | | 2 |
| | 228 |
|
Total assets held for sale, excluding discontinued operations | $ | 1,756 |
| | $ | 5,632 |
|
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
3. Real Estate (continued)
|
| | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | (unaudited) | | |
Loans payable | | $ | 1,974 |
| | $ | 3,818 |
|
Accounts payable | | 86 |
| | 240 |
|
Total liabilities associated with assets held for sale, excluding discontinued operations | $ | 2,060 |
| | $ | 4,058 |
|
As of September 30, 2019 and December 31, 2018, assets held for sale and associated liabilities for discontinued operations, consisted of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | (unaudited) | | |
Investment properties, net | | $ | — |
| | $ | 486 |
|
Total assets held for sale, discontinued operations | | $ | — |
| | $ | 486 |
|
|
| | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | (unaudited) | | |
Loans payable | | $ | — |
| | $ | 460 |
|
Accounts payable | | — |
| | 2 |
|
Total liabilities associated with assets held for sale, discontinued operations | $ | — |
| | $ | 462 |
|
Dispositions
On June 27, 2017,
In May 2019, an approximate 10,000 square foot outparcel at the Company completedJANAF property was demolished resulting in a $331 thousand write-off to make way for a new approximate 20,000 square foot building constructed by a new grocer tenant.
The following properties were sold during the nine months ended September 30, 2019 and 2018:
|
| | | | | | | | | | | | | | |
Disposal Date | | Property | | Contract Price | | Gain (loss) | | Net Proceeds |
| | | | (in thousands, unaudited) |
July 12, 2019 | | Perimeter Square | | $ | 7,200 |
| | $ | (81 | ) | | $ | — |
|
March 18, 2019 | | Graystone Crossing | | 6,000 |
| | 1,452 |
| | 1,744 |
|
February 7, 2019 | | Harbor Pointe Land Parcel (1.28 acres) | | 550 |
| | — |
| | 19 |
|
January 11, 2019 | | Jenks Plaza | | 2,200 |
| | 387 |
| | 1,840 |
|
September 27, 2018 | | Shoppes at Eagle Harbor | | 5,705 |
| | 1,270 |
| | 2,071 |
|
June 19, 2018 | | Laskin Road Land Parcel (1.5 acres) | | 2,858 |
| | 903 |
| | 2,747 |
|
January 12, 2018 | | Chipotle Ground Lease at Conyers Crossing | | 1,270 |
| | 1,042 |
| | 1,160 |
|
The sale of the 2.14 acre land parcelChipotle ground lease at Carolina Place for a contract price of $250 thousand, resulting in a loss of $12 thousand with net proceeds of $238 thousand.
On June 26, 2017, the Company completed the sale of the Steak n' Shake, a 1.06 acre outparcelConyers Crossing, Shoppes at Rivergate, for a contract price of approximately $2.25 million, resulting in a gain of $1.03 million with net proceeds of $2.18 million.
The sales of the Steak n' Shake outparcel at RivergateEagle Harbor, Jenks Plaza, Graystone Crossing and the land parcel at Carolina Place doPerimeter Square did not represent a strategic shift that has a major effect on the Company's financial position or results of operations. Accordingly, the operating results of these properties remains classified within continuing operations for all periods presented.
JANAF Executive Building
In April 2019, the Company absorbed an approximate 25,000 square foot outparcel at JANAF as a result of an unlawful detainer with a delinquent tenant, Mariner Investments, LTD.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
4. Notes Receivable
The Company, through WD, is performing development services for a related party of the Company, for the redevelopment of Pineland Station Shopping Center in Hilton Head, South Carolina to be known in the future as Sea Turtle Marketplace (“Sea Turtle Development”). Sea Turtle Development is a related party as discussed in Note 10.
On September 29, 2016, the Company entered into an $11.0$11.00 million note receivable for the partial funding of the Sea Turtle Development (“Sea Turtle”) and a $1.0$1.00 million note receivable in consideration for the sale of 10.39 acres of land owned by the Company. Both promissory notes are collateralized bySea Turtle was a 2nd deedrelated party as Jon Wheeler, the Company's former CEO and shareholder of trustthe Company, is the managing member as discussed in Note 11. The rate on the property and accrue interest at a rate ofloans is 12% annually. Interest only payments at a rate of 8% are due on the notes at the beginning of every calendar quarter starting October 2016. Interest at a rate of 4% accrues and is due at maturity. The notes mature the earlier of September 29, 2021 or the disposition of the property.
Both promissory notes are subordinated to the construction loans made by the Bank of Arkansas (“BOKF”), totaling $20.00 million.
On or about April 9, 2019, BOKF filed a Verified Complaint in state court in Beaufort County, South Carolina for Sea Turtle’s default on payment of the BOKF construction loans, and for the appointment of a receiver, injunctive relief and accounting records. On May 7, 2019, Sea Turtle filed a Chapter 11 Voluntary Petition for Bankruptcy in the United States Bankruptcy Court for the District of South Carolina in Charleston. The principal balancebankruptcy petition automatically stayed BOKF’s suit.
The pleadings in the state court action and the bankruptcy action state that Sea Turtle has been in default on its payments to BOKF since September, 2018. The pleadings further state that the project is $8.00 million over budget as of August 8, 2018. Sea Turtle has retained a broker to try and sell the property. There is a possibility that a judicially approved sale of the property will not bring a price that exceeds what is owed to BOKF on its construction loans. If a sale is not approved through the bankruptcy court in 2019, it is expected that the bankruptcy petition will be dismissed and BOKF will resume its suit in South Carolina state court, possibly leading to a foreclosure on the property. The pending legal proceedings have provided additional uncertainty with regards to the estimated fair market value of the development. As such, the Company recognized $0.00 million and $5.00 million in impairment charges on the notes receivable atfor the three and nine months ended September 30, 20172019, respectively, as the estimated fair value of Sea Turtle is $12.0 million. Accrued but unpaid interest is includednot expected to provide for the cash required to repay the notes receivable in related party receivablesthe event of a judicially approved sale. The total impairment charge on the condensed consolidated balance sheets.notes receivable is $12.00 million and the carrying value is zero as of September 30, 2019.
The fair market value of Sea Turtle is based on the three-level valuation hierarchy for fair value measurement and represents Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Additionally in 2018, the Company placed the notes receivable on nonaccrual status and during the three and nine months ended September 30, 2019 and 2018 has not recognized $363 thousand and $1.08 million, respectively, of interest income due on the notes.
5. Assets Held for SaleDeferred Costs
Deferred costs, net of amortization and Discontinued Operations
In August 2015, the Company’s management and Board of Directors committed to a plan to sell Bixby Commons, Jenks Reasors, Harps at Harbor Point, Starbucks/Verizon and the ground leases for Ruby Tuesday’s and Outback Steakhouse at Pierpont Centre (the “Freestanding Properties”)other assets are as part of the Company’s continuous evaluation of strategic alternatives. Accordingly, the Freestanding Properties have been classified as held for sale and the results of their operations have been classified as discontinued operations for all periods presented. As of September 30, 2017 the sales of all Freestanding Properties have occurred and the Company will receive no residual cash flows.
On February 28, 2017, the Company completed its sales of Ruby Tuesday’s and Outback Steakhouse at Pierpont Centre for a contract price of approximately $2.29 million, resulting in a gain of $1.50 million. The Company has defeased the $1.69 million loan payable at a cost of $223 thousand.
As of September 30, 2017 and December 31, 2016, assets held for sale consisted of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (unaudited) | | |
Investment properties, net | | $ | — |
| | $ | 217 |
|
Above market lease intangible, net | | — |
| | 3 |
|
Deferred costs and other assets, net | | — |
| | 146 |
|
Total assets held for sale | | $ | — |
| | $ | 366 |
|
As of September 30, 2017 and December 31, 2016, liabilities associated with assets held for sale consisted of the followingfollows (in thousands): |
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (unaudited) | | |
Loans payable | | $ | — |
| | $ | 1,350 |
|
Total liabilities associated with assets held for sale | $ | — |
| | $ | 1,350 |
|
The condensed consolidated statements of operations reflect reclassifications of revenues, property operating expenses, corporate general and administrative expenses and interest expense from continuing operations to income from discontinued operations for all periods presented. All interest expense disclosed below is directly related to the debt incurred to acquire the Freestanding Properties.
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (unaudited) | | |
Leases in place, net | $ | 16,530 |
| | $ | 21,785 |
|
Tenant relationships, net | 2,481 |
| | 3,764 |
|
Ground lease sandwich interest, net | 2,283 |
| | 2,488 |
|
Lease origination costs, net | 1,166 |
| | 1,261 |
|
Legal and marketing costs, net | 48 |
| | 59 |
|
Other | 749 |
| | 716 |
|
Total deferred costs and other assets, net | $ | 23,257 |
| | $ | 30,073 |
|
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
5. Deferred Costs (continued)
The following is a summaryAs of September 30, 2019 and December 31, 2018, the income from discontinued operations forCompany’s intangible accumulated amortization totaled $55.36 million and $50.55 million, respectively. During the three and nine months ended September 30, 20172019, the Company’s intangible amortization expense totaled $2.14 million and 2016$7.18 million, respectively. During the three and nine months ended September 30, 2018, the Company's intangible amortization expense totaled $2.99 million and $11.39 million, respectively. Future amortization of lease origination costs, leases in place, legal and marketing costs, tenant relationships, and ground lease sandwich interests is as follows (in thousands)thousands, unaudited):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (unaudited) |
Revenues | | $ | — |
| | $ | 54 |
| | $ | 26 |
| | $ | 249 |
|
Expenses | | — |
| | 1 |
| | 1 |
| | 78 |
|
Operating income | | — |
| | 53 |
| | 25 |
| | 171 |
|
Interest expense | | — |
| | 14 |
| | 9 |
| | 56 |
|
Income from discontinued operations before gain on disposal of properties | | — |
| | 39 |
| | 16 |
| | 115 |
|
Gain on disposal of properties | | — |
| | 1 |
| | 1,502 |
| | 689 |
|
Net Income from discontinued operations | | $ | — |
| | $ | 40 |
| | $ | 1,518 |
| | $ | 804 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Leases In Place, net | | Tenant Relationships, net | | Ground Lease Sandwich Interest, net | | Lease Origination Costs, net | | Legal & Marketing Costs, net | | Total |
For the remaining three months ending December 31, 2019 | $ | 1,358 |
| | $ | 308 |
| | $ | 68 |
| | $ | 54 |
| | $ | 3 |
| | $ | 1,791 |
|
For the years ending: | | | | | | | | | | | |
December 31, 2020 | 4,506 |
| | 860 |
| | 274 |
| | 187 |
| | 11 |
| | 5,838 |
|
December 31, 2021 | 2,810 |
| | 448 |
| | 274 |
| | 174 |
| | 9 |
| | 3,715 |
|
December 31, 2022 | 2,142 |
| | 354 |
| | 274 |
| | 132 |
| | 6 |
| | 2,908 |
|
December 31, 2023 | 1,661 |
| | 227 |
| | 274 |
| | 115 |
| | 6 |
| | 2,283 |
|
December 31, 2024 | 1,147 |
| | 128 |
| | 274 |
| | 100 |
| | 3 |
| | 1,652 |
|
Thereafter | 2,906 |
| | 156 |
| | 845 |
| | 404 |
| | 10 |
| | 4,321 |
|
| $ | 16,530 |
| | $ | 2,481 |
| | $ | 2,283 |
| | $ | 1,166 |
| | $ | 48 |
| | $ | 22,508 |
|
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. 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, 2017 | | December 31, 2016 | | Monthly Payment | | Interest Rate | | Maturity | | September 30, 2019 | | December 31, 2018 |
Bank Line of Credit | Interest only |
| | 4.25 | % | | December 2017 | | 3,000 |
| | 3,000 |
| |
Columbia Fire House | Interest only |
| | 8.00 | % | | December 2017 | | 259 |
| | 487 |
| |
Monarch Bank Building | $ | 9,473 |
| | 4.15 | % | | December 2017 | | 1,276 |
| | 1,320 |
| |
KeyBank Line of Credit | Interest only |
| | Libor + 250 basis points |
| | December 2017 | | 18,032 |
| | — |
| |
Shoppes at Eagle Harbor | $ | 25,100 |
| | 4.34 | % | | March 2018 | | 3,380 |
| | 3,492 |
| |
Revere Loan | Interest only |
| | 8.00 | % | | April 2018 | | 6,808 |
| | 7,450 |
| |
KeyBank Line of Credit | Interest only |
| | Libor + 250 basis points |
| | May 2018 | | 50,000 |
| | 74,077 |
| |
Lumber River | Interest only |
| | Libor + 295 basis points |
| | June 2018 | | 1,500 |
| | 1,500 |
| |
Harbor Pointe (1) | | | $ | 11,024 |
| | 5.85 | % | | December 2018 | | $ | — |
| | $ | 460 |
|
Perimeter Square (1) | | | Interest only |
| | 6.50 | % | | June 2019 | | — |
| | 6,250 |
|
Perimeter Square construction loan (1) | | | Interest only |
| | 6.50 | % | | June 2019 | | — |
| | 247 |
|
Revere Term Loan | | | $ | 109,658 |
| | 10.00 | % | | April 2019 | | — |
| | 1,059 |
|
Senior convertible notes | Interest only |
| | 9.00 | % | | December 2018 | | 1,369 |
| | 1,400 |
| | $ | 234,199 |
| | 9.00 | % | | June 2019 | | — |
| | 1,369 |
|
Harbor Point | $ | 11,024 |
| | 5.85 | % | | December 2018 | | 578 |
| | 649 |
| |
Perimeter Square | Interest only |
| | 5.50 | % | | December 2018 | | 5,236 |
| | 4,500 |
| |
Riversedge North | $ | 8,802 |
| | 6.00 | % | | January 2019 | | 876 |
| | 914 |
| |
DF I-Moyock | $ | 10,665 |
| | 5.00 | % | | July 2019 | | 224 |
| | 309 |
| | $ | 10,665 |
| | 5.00 | % | | July 2019 | | — |
| | 73 |
|
Rivergate | Interest only |
| | Libor + 295 basis points |
| | December 2019 | | 22,689 |
| | 24,213 |
| | $ | 144,937 |
| | Libor + 295 basis points |
| | December 2019 | | 21,688 |
| | 22,117 |
|
LaGrange Marketplace | $ | 15,065 |
| | Libor + 375 basis points |
| | March 2020 | | 2,331 |
| | 2,369 |
| |
KeyBank Line of Credit (6) | | | $ | 250,000 |
| | Libor + 350 basis points |
| | Various (6) | | 25,991 |
| | 52,102 |
|
Folly Road | Interest only |
| | 4.00 | % | | March 2020 | | 6,181 |
| | — |
| | $ | 32,827 |
| | 4.00 | % | | March 2020 | | 5,961 |
| | 6,073 |
|
Columbia Fire House construction loan | Interest only |
| | 4.00 | % | | May 2020 | | 1,850 |
| | — |
| |
Columbia Fire Station | | | $ | 25,452 |
| | 4.00 | % | | May 2020 | | 4,086 |
| | 4,189 |
|
Shoppes at TJ Maxx | $ | 33,880 |
| | 3.88 | % | | May 2020 | | 5,773 |
| | 5,908 |
| | $ | 33,880 |
| | 3.88 | % | | May 2020 | | 5,394 |
| | 5,539 |
|
First National Bank Line of Credit | | | $ | 24,656 |
| | Libor + 300 basis points |
| | September 2020 | | 1,271 |
| | 2,938 |
|
Lumber River | | | $ | 10,723 |
| | Libor + 350 basis points |
| | October 2020 | | 1,416 |
| | 1,448 |
|
JANAF Bravo | | | $ | 36,935 |
| | 4.65 | % | | January 2021 | | 6,407 |
| | 6,500 |
|
Walnut Hill Plaza | Interest only |
| | 5.50 | % | | September 2022 | | 3,903 |
| | 3,440 |
| | $ | 26,850 |
| | 5.50 | % | | September 2022 | | 3,787 |
| | 3,868 |
|
Twin City Commons | $ | 17,827 |
| | 4.86 | % | | January 2023 | | 3,126 |
| | 3,170 |
| | $ | 17,827 |
| | 4.86 | % | | January 2023 | | 3,000 |
| | 3,048 |
|
New Market | | | $ | 48,747 |
| | 5.65 | % | | June 2023 | | 6,763 |
| | 6,907 |
|
Benefit Street Note (3) | | | $ | 53,185 |
| | 5.71 | % | | June 2023 | | 7,414 |
| | 7,567 |
|
Deutsche Bank Note (2) | | | $ | 33,340 |
| | 5.71 | % | | July 2023 | | 5,660 |
| | 5,713 |
|
JANAF | | | $ | 333,159 |
| | 4.49 | % | | July 2023 | | 51,021 |
| | 52,253 |
|
Tampa Festival | $ | 50,797 |
| | 5.56 | % | | September 2023 | | 8,403 |
| | 8,502 |
| | $ | 50,797 |
| | 5.56 | % | | September 2023 | | 8,116 |
| | 8,227 |
|
Forrest Gallery | $ | 50,973 |
| | 5.40 | % | | September 2023 | | 8,704 |
| | 8,802 |
| | $ | 50,973 |
| | 5.40 | % | | September 2023 | | 8,419 |
| | 8,529 |
|
South Carolina Food Lions Note | $ | 68,320 |
| | 5.25 | % | | January 2024 | | 12,096 |
| | 12,224 |
| |
Riversedge North | | | $ | 11,436 |
| | 5.77 | % | | December 2023 | | 1,775 |
| | 1,800 |
|
South Carolina Food Lions Note (5) | | | $ | 68,320 |
| | 5.25 | % | | January 2024 | | 11,725 |
| | 11,867 |
|
Cypress Shopping Center | $ | 34,360 |
| | 4.70 | % | | July 2024 | | 6,510 |
| | 6,585 |
| | $ | 34,360 |
| | 4.70 | % | | July 2024 | | 6,297 |
| | 6,379 |
|
Port Crossing | $ | 34,788 |
| | 4.84 | % | | August 2024 | | 6,291 |
| | 6,370 |
| | $ | 34,788 |
| | 4.84 | % | | August 2024 | | 6,063 |
| | 6,150 |
|
Freeway Junction | $ | 41,798 |
| | 4.60 | % | | September 2024 | | 8,026 |
| | 8,119 |
| | $ | 41,798 |
| | 4.60 | % | | September 2024 | | 7,761 |
| | 7,863 |
|
Harrodsburg Marketplace | $ | 19,112 |
| | 4.55 | % | | September 2024 | | 3,570 |
| | 3,617 |
| | $ | 19,112 |
| | 4.55 | % | | September 2024 | | 3,434 |
| | 3,486 |
|
Graystone Crossing | $ | 20,386 |
| | 4.55 | % | | October 2024 | | 3,944 |
| | 3,990 |
| |
Graystone Crossing (1) | | | $ | 20,386 |
| | 4.55 | % | | October 2024 | | — |
| | 3,863 |
|
Bryan Station | $ | 23,489 |
| | 4.52 | % | | November 2024 | | 4,566 |
| | 4,619 |
| | $ | 23,489 |
| | 4.52 | % | | November 2024 | | 4,414 |
| | 4,472 |
|
Crockett Square | Interest only |
| | 4.47 | % | | December 2024 | | 6,338 |
| | 6,338 |
| | Interest only |
| | 4.47 | % | | December 2024 | | 6,338 |
| | 6,338 |
|
Pierpont Centre | Interest only |
| | 4.15 | % | | February 2025 | | 8,113 |
| | 8,450 |
| | Interest only |
| | 4.15 | % | | February 2025 | | 8,113 |
| | 8,113 |
|
Alex City Marketplace | Interest only |
| | 3.95 | % | | April 2025 | | 5,750 |
| | 5,750 |
| | Interest only |
| | 3.95 | % | | April 2025 | | 5,750 |
| | 5,750 |
|
Butler Square | Interest only |
| | 3.90 | % | | May 2025 | | 5,640 |
| | 5,640 |
| | Interest only |
| | 3.90 | % | | May 2025 | | 5,640 |
| | 5,640 |
|
Brook Run Shopping Center | Interest only |
| | 4.08 | % | | June 2025 | | 10,950 |
| | 10,950 |
| | Interest only |
| | 4.08 | % | | June 2025 | | 10,950 |
| | 10,950 |
|
Beaver Ruin Village I and II | Interest only |
| | 4.73 | % | | July 2025 | | 9,400 |
| | 9,400 |
| | Interest only |
| | 4.73 | % | | July 2025 | | 9,400 |
| | 9,400 |
|
Sunshine Shopping Plaza | Interest only |
| | 4.57 | % | | August 2025 | | 5,900 |
| | 5,900 |
| | Interest only |
| | 4.57 | % | | August 2025 | | 5,900 |
| | 5,900 |
|
Barnett Portfolio | Interest only |
| | 4.30 | % | | September 2025 | | 8,770 |
| | 8,770 |
| |
Barnett Portfolio (4) | | | Interest only |
| | 4.30 | % | | September 2025 | | 8,770 |
| | 8,770 |
|
Fort Howard Shopping Center | Interest only |
| | 4.57 | % | | October 2025 | | 7,100 |
| | 7,100 |
| | Interest only |
| | 4.57 | % | | October 2025 | | 7,100 |
| | 7,100 |
|
Conyers Crossing | Interest only |
| | 4.67 | % | | October 2025 | | 5,960 |
| | 5,960 |
| | Interest only |
| | 4.67 | % | | October 2025 | | 5,960 |
| | 5,960 |
|
Grove Park Shopping Center | Interest only |
| | 4.52 | % | | October 2025 | | 3,800 |
| | 3,800 |
| | Interest only |
| | 4.52 | % | | October 2025 | | 3,800 |
| | 3,800 |
|
Parkway Plaza | Interest only |
| | 4.57 | % | | October 2025 | | 3,500 |
| | 3,500 |
| | Interest only |
| | 4.57 | % | | October 2025 | | 3,500 |
| | 3,500 |
|
Winslow Plaza | Interest only |
| | 4.82 | % | | December 2025 | | 4,620 |
| | 4,620 |
| | Interest only |
| | 4.82 | % | | December 2025 | | 4,620 |
| | 4,620 |
|
JANAF BJ's | | | $ | 29,964 |
| | 4.95 | % | | January 2026 | | 4,985 |
| | 5,065 |
|
Chesapeake Square | $ | 23,857 |
| | 4.70 | % | | August 2026 | | 4,519 |
| | 4,578 |
| | $ | 23,857 |
| | 4.70 | % | | August 2026 | | 4,373 |
| | 4,434 |
|
Sangaree/Tri-County/Berkley | Interest only |
| | 4.78 | % | | December 2026 | | 9,400 |
| | 9,400 |
| |
Berkley/Sangaree/Tri-County | | | Interest only |
| | 4.78 | % | | December 2026 | | 9,400 |
| | 9,400 |
|
Riverbridge | Interest only |
| | 4.48 | % | | December 2026 | | 4,000 |
| | 4,000 |
| | Interest only |
| | 4.48 | % | | December 2026 | | 4,000 |
| | 4,000 |
|
Franklin | Interest only |
| | 4.93 | % | | January 2027 | | 8,516 |
| | 8,516 |
| |
Total Principal Balance | | | | | 312,777 |
| | 313,698 |
| |
Unamortized debt issuance cost | | | | | (5,815 | ) | | (7,725 | ) | |
Total Loans Payable | | | | | $ | 306,962 |
| | $ | 305,973 |
| |
Franklin Village | | | Interest only |
| | 4.93 | % | | January 2027 | | 8,516 |
| | 8,516 |
|
Village of Martinsville | | | $ | 89,664 |
| | 4.28 | % | | July 2029 | | 16,442 |
| | — |
|
Laburnum Square | | | Interest only |
| | 4.28 | % | | September 2029 | | 7,665 |
| | — |
|
Total Principal Balance (1) | | | | | | | 349,085 |
| | 369,612 |
|
Unamortized debt issuance cost (1) | | | | | | | (4,300 | ) | | (5,144 | ) |
Total Loans Payable, including assets held for sale | | | | | | | 344,785 |
| | 364,468 |
|
Less loans payable on assets held for sale, net loan amortization costs | | Less loans payable on assets held for sale, net loan amortization costs | | | 1,974 |
| | 4,278 |
|
Total Loans Payable, net | | | | | | | $ | 342,811 |
| | $ | 360,190 |
|
(1) Includes loans payable on assets held for sale, see Note 3.
(2) Collateralized by LaGrange Marketplace, Ridgeland and Georgetown.
(3) Collateralized by Ladson Crossing, Lake Greenwood Crossing and South Park.
(4) Collateralized by Cardinal Plaza, Franklinton Square, and Nashville Commons.
(5) Collateralized by Clover Plaza, South Square, St. George, Waterway Plaza and Westland Square.
(6) Collateralized by Darien Shopping Center, Devine Street, Lake Murray, Litchfield Market Village, Moncks Corner, Shoppes at Myrtle Park, South Lake and St. Matthews (assets held for sale). The various maturity dates are disclosed below within Note 6 under the KeyBank Credit Agreement.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Loans Payable (continued)
KeyBank Credit Agreement
On May 29, 2015, the Operating Partnership entered into a $45.00 million revolving credit line (the "Credit Agreement") with KeyBank National Association ("KeyBank"). Pursuant to the Credit Agreement, outstanding borrowings accrue monthly interest which is paid at a rate of the one-month London Interbank Offer Rate ("LIBOR") plus a margin ranging from 1.75% to 2.50% depending on the Company's consolidated leverage ratio. On April 12, 2016, the Operating Partnership entered into a First Amendment and Joinder Agreement (“First Amendment”) to the Credit Agreement. The First Amendment increased the $45.00 million revolving credit line with KeyBank to $67.20 million and the Company utilized this additional borrowing capacity to acquire the 14 retail shopping centers located in Georgia and South Carolina, commonly known as the A-C Portfolio ("A-C Portfolio"). Pursuant to the terms of the First Amendment, the monthly interest of the increased credit facility is adjusted to LIBOR plus a margin of 5.00% until such time that the Company can meet certain repayment and leverage conditions. The Company used proceeds from the 2016 Series B Preferred Stock Offering to reduce its borrowings under the Credit Agreement to $46.10 million and the margin reduced back to the stated range of the original Credit Agreement on August 15, 2016. On December 7, 2016, the Operating Partnership entered into a Second Amendment and Joinder Agreement ("Second Amendment") to the Credit Agreement. The Second Amendment increased the line of credit to $75.0 million. Pursuant to the terms of the Second Amendment, the pricing reverts back to the original Credit Agreement. On August 7,21, 2017, the Company executed a Third Amendmententered into an Amended and Restated Credit Agreement to the KeyBank Credit Agreement (the "Third Amendment"“Amended and Restated Credit Agreement”) for the line of credit with KeyBank (the "KeyBank Line of Credit"). The Third Amendment changedrevolving facility will mature on December 21, 2019, but may be extended at the Company’s option for an additional one-year period, subject to certain customary conditions. The interest payment date torate remains the first day of each calendar month and decreased the total commitmentsame at Libor plus 250 basis points based on the revolving credit line by $25 million to $50 million effective October 7, 2017. The Company and KeyBank agreed Shoppes at Myrtle Park shall continue to be includedCompany’s Consolidated Leverage Ratio (as defined in the calculation ofAmended and Restated Credit Agreement).
At December 31, 2018, a $3.83 million over advance (the “Overadvance”) on the Borrowing Base Availability (as defined in the Amended and Restated Credit Agreement) through December 21, 2017.existed as a result of the 2018 refinancing of six assets off the KeyBank Line of Credit. The unutilized amounts availableCompany was to repay the Overadvance of $3.83 million by February 28, 2019 or otherwise properly balance the Borrowing Base Availability.
On March 11, 2019, KeyBank extended the time which the Company is to repay the Overadvance to March 31, 2019 or otherwise properly balance the Borrowing Base Availability.
On March 19, 2019, the Company made a $850 thousand principal payment.
On April 25, 2019, the Company entered into a First Amendment to the Company under theAmended and Restated Credit Agreement accrue fees which are paid at(the "First Amendment"). In conjunction with the First Amendment, the Company made a $1.00 million principal payment on the KeyBank Line of Credit and began making monthly principal payments of $250 thousand on May 1, 2019. The First Amendment, among other provisions, waived the Overadvance (as defined in the Amended and Restated Credit Agreement) and replaced the Borrowing Base Availability (as defined in the Amended and Restated Credit Agreement) with an interest coverage ratio. Additionally, the KeyBank Line of Credit shall be reduced to $27.00 million by July 31, 2019, $7.50 million by September 30, 2019 and the interest rate increases to Libor plus 350 basis points on August 31, 2019 if the outstanding balance is not below $11.00 million.
On June 28, 2019, the Company refinanced the Village of 0.25%. TheMartinsville collateralized portion of the Amended and Restated Credit Agreement maturesresulting in May 2018.a paydown of $15.46 million.
On August 1, 2019, the Company refinanced the Laburnum Square collateralized portion of the Amended and Restated Credit Agreement resulting in a paydown of $7.55 million on the KeyBank Line of Credit.
As of September 30, 2017,2019, $25.99 million is borrowed on the Company has borrowed $68.03 million underKeyBank Line of Credit pursuant to the Amended and Restated Credit Agreement, which is collateralized by 168 properties. At September 30, 2017,2019, the outstanding borrowings are accruing interest at 3.74%5.54%. The Amended and Restated Credit Agreement contains certain financial covenants that the Company must meet, including minimum leverage, fixed charge coverage, interest coverage and debt service coverage ratios as well as a minimum tangible net worth requirement. The Company was in compliance with the financial covenants under the Credit Agreement as of September 30, 2017.2019. The Amended and Restated Credit Agreement also contains certain events of default, thatand if they occur, may cause KeyBank to terminate the Amended and Restated Credit Agreement and declare amounts owed to become immediately due and payable. As of September 30, 2017,2019, the Company has not incurred an eventreceived any notice of default.default under the Amended and Restated Credit Agreement.
Senior Convertible Notes Amendment
Effective as of April 28, 2016, the Company and certain investors: Calapasas West Partners, L.P.; Full Value Partners, L.P.; Full Value Special Situations Fund, L.P.; MCM Opportunity Partners, L.P.; Mercury Partners, L.P.; Opportunity Partners, L.P.; Special Opportunities Fund, Inc.; and Steady Gain Partners, L.P. (collectively the “Bulldog Investors”) amended the convertible 9% senior notes (“Amended Convertible Notes”) to purchase shares of the Company’s Common Stock. Prior to the amendment, the aggregate principal amount of the Convertible Notes ("Convertible Notes") was $3.00 million.
Pursuant to the terms of the Amended Convertible Notes, upon thirty (30) calendar days’ notice (“Notice”), the Company may prepay any portion of the outstanding Principal Amount and accrued and unpaid interest, if any, without penalty. In addition, upon Notice the Bulldog Investors may now exercise their right to convert all or any portion of the outstanding Principal Amount and any accrued but unpaid interest into shares of Common Stock any time prior to the repayment in full of the Amended Convertible Notes. The maximum number of shares of Common Stock issuable upon conversion of the Amended Convertible Notes is 1,417,079 shares, pre-reverse split. As of September 30, 2017, the Bulldog Investors have converted approximately $1.64 million of principal amount into 1,417,079 shares, pre-reverse split, of the Company's Common Stock, the maximum number of shares allowed.
Folly Road RefinanceRevere Term Loan
On March 22, 2017,January 29, 2019, the Company executedentered into a promissory note for $8.57 millionSixth Amendment to refinanceLoan Documents to the Folly Road collateralized portionRevere Term Loan (the “Revere Sixth Amendment”). The Revere Sixth Amendment extended the maturity date to April 1, 2019 from February 1, 2019 and created an additional “Exit Fee” of the KeyBank Credit Agreement totaling $6.05 million. The loan matures in March 2020 with monthly interest only payments due through April 2018 at which time monthly principal and interest payments begin based on a 25 year amortization. The loan bears interest at 4.00%. $20 thousand.
As of September March 31, 2019, the Revere Term Loan was paid in full using proceeds from the following:
•$323 thousand with proceeds from the sale of Jenks Plaza on January 11, 2019;
•$30 2017, $6.18 million has been borrowed on the notethousand in conjunction with the sale of a Harbor Pointe parcel on February 7, 2019;
•$300 thousand in monthly scheduled principal payments; and,
$406 thousand, the remaining $2.39 million available for constructionprincipal balance and development.the $20 thousand Exit Fee on March 29, 2019 from operating cash flows.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Loans Payable (continued)
Revere LoanFirst National Bank Line of Credit
On May 1, 2017,January 11, 2019, the Operating Partnership extendedCompany paid $1.51 million on the $7.45 million Term Loan Agreement dated April 18, 2016 betweenFirst National Bank Line of Credit, the Operating Partnership,portion collateralized by Jenks Plaza, as borrower and Revere High Yield Fund, L.P., as lender ("Revere Loan") maturity to April 30, 2018, as permitted within the terms of the loan agreement, with a $450 thousand principal payment and $140 thousand extension fee. In June 2017, upon the completion of the sale of Carolina Place, as discusseddetailed in Note 3, a $167 thousand principal payment was made on the loan. On August 29, 2017, a $25 thousand principal payment was made on the loan as a result of the Walnut Hill Plaza amendment discussed below. The balance on the loan is $6.81 million at September 30, 2017.3.
Columbia Fire HousePerimeter Square Refinance and Construction Loan
On May 3, 2017,January 15, 2019, the Company renewed the promissory notes for $6.25 million and $247 thousand at Perimeter Square. The loans were extended to March 2019 with interest only payments beginning February 15, 2019. The loans bear interest at 6.50%. In April 2019, the Company extended the $6.50 million of Perimeter Square loans to June 5, 2019.
On July 12, 2019, the principal balance on the Perimeter Square loans were paid in full with the sale of the property, as detailed in Note 3.
Harbor Pointe
On February 7, 2019, the principal balance on the Harbor Pointe loan was paid in full with the sale of a 1.28 acre parcel located at the property, as detailed in Note 3.
Graystone Crossing
On March 18, 2019, the principal balance on the Graystone Crossing loan was paid in full with the sale of the property, as detailed in Note 3.
Senior Convertible Notes
On June 10, 2019, through scheduled principal and interest payments the senior convertible notes were paid in full.
Village of Martinsville Refinance
On June 28, 2019, the Company executed a promissory note for $4.30$16.50 million related to constructionfor the refinancing of Village of Martinsville at Columbia Fire House ("Columbia Fire House Construction Loan") at which time the original Columbia Fire House note ("Columbia Fire House Loan") was paid down to $262 thousand.a rate of 4.28%. The loan matures in May 2020on July 6, 2029 with monthly interest only payments through November 2018 at which time monthly principal and interest payments begin based on a 20 year amortization. The loan bears interest at 4.00%. As of September 30, 2017, $1.85 million has been borrowed on the note with the remaining $2.45 million available for construction and development.$89,664.
PerimeterLaburnum Square Refinance
On June 14, 2017,August 1, 2019, the Company executed a promissory note for $6.25$7.67 million to refinancefor the Perimeter loan totaling $4.50 million.refinancing of Laburnum Square at a rate of 4.28%. The loan matures December 2018 with monthlyis interest only payments. Principal is due at maturity. The loan bears interest at 5.50%. As of September 30, 2017, $5.24 million has been borrowed on the note with the remaining $1.01 million available for tenant improvements.
Rivergate Paydown
With the sale of the Steak n' Shake outparcel at Rivergate, as discussed in Note 3, a $1.52 million principal payment was made on the Rivergate loan. The balance on the Rivergate loan was $22.69 million at September 30, 2017.
Walnut Hill Plaza Amendment
On July 18, 2017, the Company extended the $3.39 million Walnut Hill Plaza loan maturity to October 31, 2017.
On August 29, 2017, the Company amended the Walnut Hill Plaza promissory note for $3.90 million. The amended loan matures in September 2022 with monthly interest only payments through August 2018 at which time monthly2024 with principal and interest payments of $26,850 begin based on a 20 year amortization.$37,842 beginning in September 2024. The loan bears interest at 5.50%.matures on September 5, 2029.
Bank Line of Credit
On September 16, 2017, the Company extended the $3.00 million bank line of credit to December 15, 2017. Loan Covenants
Certain of the Company’s loans payable have covenants with which the Company is required to comply. As of September 30, 2017,2019, the Company believes it is in compliance with all applicable covenants.
covenants and is not considered in default on any loans.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Loans Payable (continued)
Debt Maturity
The Company’s scheduled principal repayments on indebtedness as of September 30, 20172019, including assets held for sale, are as follows (in thousands, unaudited): | | For the remaining three months ended December 31, 2017 | $ | 23,013 |
| |
December 31, 2018 | 71,099 |
| |
December 31, 2019 | 24,785 |
| |
For the remaining three months ended December 31, 2019 | | $ | 48,899 |
|
December 31, 2020 | 17,016 |
| 22,506 |
|
December 31, 2021 | 1,907 |
| 10,944 |
|
December 31, 2022 | 5,534 |
| 8,482 |
|
December 31, 2023 | | 85,326 |
|
December 31, 2024 | | 44,020 |
|
Thereafter | 169,423 |
| 128,908 |
|
Total principal repayments and debt maturities | $ | 312,777 |
| $ | 349,085 |
|
The Company has considered ourits short-term (one year or less) liquidity needs and the adequacy of ourits estimated cash flows from operating activities and other expected financing sources to meet these needs. In particular, we havethe Company has considered ourits scheduled debt maturities for the twelve months endedending September 30, 20182020 of $84.25$64.39 million, which includes the $68.03including $25.99 million maturity of the KeyBank Line of Credit. Management is in the process of refinancing properties offon the KeyBank Line of Credit to reducewhich is collateralized by eight properties within the line to under $50.00 million prior to December 6, 2017 in accordance with the Fourth Amendment as described in Footnote 11.portfolio. The Company is inplans to pay this obligation through a combination of refinancings, dispositions and operating cash. Subsequent to September 30, 2019 there was a $7.16 million paydown to the process of refinancing the $3.00 million BankKeyBank Line of Credit which has been extendedin addition to December 2017 and hasa non-binding modification extending the abilitymaturity to repay the $259 thousand Columbia Fire House Loan with available funds from the Columbia Fire House Construction Loan.June 30, 2020, as discussed in greater detail in Note 12. All loans due to mature are collateralized by properties within ourthe portfolio. Additionally, the Company expects to meet the short-term liquidity requirements, through a combination of the following:
suspension of Series A Preferred, Series B Preferred and Series D Preferred dividends;
available cash and cash equivalents;
cash flows from operating activities;
refinancing of maturing debt;
possible sale of six undeveloped land parcels; and
sale of additional properties, if necessary.
Management is currently working with lenders to refinance certain properties off of the loans noted above.KeyBank Line of Credit in an effort to reduce the balance prior to maturity. The loans are expected to have customary interest rates similar to current loans. They are subject to formal lender commitment, definitive documentation and customary conditions.
7. Rentals under Operating Leases
Future minimum rentalsrents to be received under noncancelable tenant operating leases, excluding rents on assets held for sale properties, for each of the next five years and thereafter, excluding CAM and percentage rent based on tenant sales volume, as of September 30, 20172019 are as follows (in thousands, unaudited):
| | For the remaining three months ended December 31, 2017 | $ | 10,769 |
| |
December 31, 2018 | 41,601 |
| |
December 31, 2019 | 35,685 |
| |
For the remaining three months ended December 31, 2019 | | $ | 11,817 |
|
December 31, 2020 | 28,514 |
| 43,201 |
|
December 31, 2021 | 21,420 |
| 35,531 |
|
December 31, 2022 | 16,564 |
| 28,790 |
|
December 31, 2023 | | 22,962 |
|
December 31, 2024 | | 16,539 |
|
Thereafter | 43,765 |
| 41,662 |
|
Total minimum rentals | $ | 198,318 |
| |
Total minimum rents | | $ | 200,502 |
|
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Equity and Mezzanine Equity
Common Stock One-for-Eight Reverse Stock Split
On February 27, 2017, we announced that our Board of Directors had approved the Reverse Stock Split. The Reverse Stock Split took effect at approximately 5:00 p.m. Eastern Time on March 31, 2017 (the “Effective Time”). At the Effective Time, every eight issued and outstanding shares of Common Stock were converted into one share of Common Stock, and as a result, the number of outstanding shares of Common Stock was reduced from approximately 68,707,755 to approximately 8,588,470. At the Effective Time, the number of authorized shares of Common Stock was also reduced, on a one-for-eight basis, from 150,000,000 to 18,750,000. The par value of each share of Common Stock remained unchanged. No fractional shares were issued in connection with the Reverse Stock Split. Instead, the Company's transfer agent, aggregated all fractional shares that otherwise would have been issued as a result of the Reverse Stock Split and those shares were sold into the market. Shareholders who would otherwise hold a fractional share of the Company's stock received a cash payment from the net proceeds of the sale in lieu of such fractional shares. All share and share-related information presented in this Quarterly Report on Form 10-Q, including our consolidated financial statements, has been retroactively adjusted to reflect the decreased number of shares resulting from the Reverse Stock Split.
Series A Preferred Stock
At September 30, 20172019 and December 31, 2016,2018, the Company had 562 and 4,500 shares of no par value Series A Preferred Stock, without par value (“Series A Preferred”) issued and outstanding and 4,500 shares authorized with a $1,000 liquidation preference per share, or $562 thousand in aggregate. The Series A Preferred accrues cumulative dividends at a rate of 9% per annum, which is paid or accumulated quarterly. The Company has the right to redeem the 562 shares of Series A Preferred, on a pro rata basis, at any time at a price equal to 103% of the purchase price for the Series A Preferred plus any accrued but unpaid dividends.
Series B Preferred Stock
At September 30, 20172019 and December 31, 2016,2018, the Company had 1,875,848 and 1,871,2441,875,748 shares respectively, and 5,000,000 shares of noSeries B Convertible Preferred Stock, without par value Series B Preferred Stock (“Series B Preferred”) issued and authorized with a $25.00 liquidation preference per share, or $46.90 million and $46.78 million in aggregate, respectively.aggregate. The Series B Preferred bears interest at a rate of 9% per annum. The Series B Preferred has no redemption rights. However, the Series B Preferred is subject to a mandatory conversion once the 20-trading day volume-weighted average closing price of our Common Stock, exceeds $58 per share; once this weighted average closing price is met, each share of our Series B Preferred will automatically convert into shares of our Common Stock at a conversion price equal to $40.00 per share of Common Stock. In addition, holders of our Series B Preferred also have the option, at any time, to convert shares of our Series B Preferred into shares of our Common Stock at a conversion price of $40.00 per share of Common Stock. Upon any voluntary or involuntary liquidation, dissolution or winding up of our company, the holders of shares of our Series B Preferred shall be entitled to be paid out of our assets a liquidation preference of $25.00 per share, plus an amount equal to all accumulated, accrued and unpaid dividends to and including the date of payment. The Series B Preferred has no maturity date and will remain outstanding indefinitely unless subject to a mandatory or voluntary conversion as described above.
In conjunction with the 2014 issuance of Series B Preferred, 1,986,600 warrants were issued. Each warrant permitspermitted investors to purchase 0.125 share of Common Stock at an exercise price of $44 per share of Common Stock, subject to adjustment. On April 29, 2019, the 1,986,600 warrants exchangeable into 248,325 shares of Common Stock expired. The warrants expire in April 2019.were registered on the Nasdaq Stock Market under the trading symbol "WHLRW" (CUSIP No.: 963025119).
Series D Preferred Stock - Redeemable Preferred Stock
At September 30, 20172019 and December 31, 2016,2018, the Company had 2,237,0003,600,636 issued and 4,000,000 authorized shares of noSeries D Cumulative Convertible Preferred Stock, without par value ("Series D Preferred Stock (“Series D Preferred”Preferred") issued and authorized with a $25.00 liquidation preference per share, or $55.93$99.24 million and $91.98 million in aggregate.aggregate, respectively. Until September 21, 2023, the holders of the Series D Preferred are entitled to receive cumulative cash dividends at a rate of 8.75% per annum of the $25.00 liquidation preference per share (equivalent to the fixed annual amount of $2.1875 per share) (the “Initial Rate”). Commencing September 21, 2023, the holders will be entitled to cumulative cash dividends at an annual dividend rate of the Initial Rate increased by 2% of the liquidation preference per annum on each subsequent anniversary thereafter, subject to a maximum annual dividend rate of 14%. Dividends are payable quarterly in arrears on or before January 15th, April 15th, July 15th and October 15th of each year. On or after September 21, 2021, the Company may, at its option, redeem the Series D Preferred, for cash at a redemption price of $25.00 per share, plus an amount
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Equity and Mezzanine Equity (continued)
equal to all accrued and unpaid dividends, if any, to and including the redemption date. The holder of the Series D Preferred may convert shares at any time into shares of the Company’s Common Stock at an initial conversion rate of $16.96 per share of Common Stock. On September 21, 2023, the holders of the Series D Preferred may, at their option, elect to cause the Company to redeem any or all of their shares at a redemption price of $25.00 per share, plus an amount equal to all accrued and unpaid dividends, if any, to and including the redemption date, payable in cash or in shares of Common Stock, or any combination thereof, at the holder’s option.
Dividends on the Series D Preferred cumulate from the end of the most recent dividend period for which dividends have been paid. Dividends on the Series D Preferred cumulate whether or not (i) we have earnings, (ii) there are funds legally available for the payment of such dividends and (iii) such dividends are authorized by our Board of Directors or declared by us. Dividends on the Series D Preferred Stock do not bear interest. If the Company, fails to pay any dividend within three (3) business days after the payment date for such dividend, the then-current dividend rate increases following the payment date by an additional 2.0% of the $25.00 stated liquidation preference per share, or $0.50 per annum, until we pay the dividend, subject to our ability to cure the failure. On December 20, 2018, the Company suspended the Series D Preferred dividend. As
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Equity and Mezzanine Equity (continued)
such, the Series D Preferred shares began accumulating dividends at 10.75% beginning January 1, 2019 and will continue to accumulate dividends at this rate until all accumulated dividends have been paid.
Holders of shares of the Series D Preferred have no voting rights. However, if dividends on the Series D Preferred are in arrears for six or more consecutive quarterly periods, the number of directors on our Board of Directors will automatically be increased by two, and holders of shares of the Series D Preferred and the holders of shares of Parity Preferred Stock upon which like voting rights have been conferred and are exercisable (voting together as a single class) will be entitled to vote, at a special meeting called upon the written request of the holders of at least 20% of such stock or at our next annual meeting and at each subsequent annual meeting of stockholders, for the election of two additional directors to serve on our Board of Directors, until all unpaid dividends on such Series D Preferred and Parity Preferred Stock, if any, have been paid or declared and a sum sufficient for the payment thereof set apart for payment. The Series D Preferred requiresDirectors will be elected by a plurality of the Company maintain asset coveragevotes cast in the election. For the avoidance of at least 200%. Accretiondoubt, the Board of Directors shall not be permitted to fill the vacancies on the Board of Directors as a result of the failure of the holders of 20% of the Series D Preferred was $540 thousandStock and Parity Preferred Stock to deliver such written request for the election of the Series D Preferred Directors.
The changes in the carrying value of the Series D Preferred for the three and nine months ended September 30, 2017.2019 and 2018 is as follows (in thousands, unaudited):
|
| | | |
| Series D Preferred |
Balance December 31, 2018 | $ | 76,955 |
|
Accretion of Preferred Stock discount | 148 |
|
Undeclared dividends | 2,419 |
|
Balance March 31, 2019 | 79,522 |
|
Accretion of Preferred Stock discount | 149 |
|
Undeclared dividends | 2,419 |
|
Balance June 30, 2019 | 82,090 |
|
Accretion of Preferred Stock discount | 148 |
|
Undeclared dividends | 2,419 |
|
Balance September 30, 2019 | $ | 84,657 |
|
|
| | | |
| Series D Preferred |
Balance December 31, 2017 | $ | 53,236 |
|
Accretion of Preferred Stock discount | 148 |
|
Issuance of Preferred Stock for acquisition of JANAF | 21,158 |
|
Balance March 31, 2018 | 74,542 |
|
Accretion of Preferred Stock discount | 148 |
|
Balance June 30, 2018 | 74,690 |
|
Accretion of Preferred Stock discount | 148 |
|
Balance September 30, 2018 | $ | 74,838 |
|
Earnings per share
Basic earnings per share for the Company’s common shareholders is calculated by dividing income (loss) from continuing operations, excluding amounts attributable to preferred stockholders and the net lossincome (loss) attributable to noncontrolling interests, by the Company’s weighted-average shares of Common Stock outstanding during the period. Diluted earnings per share is computed by dividing the net income (loss) attributable to common shareholders, excluding amounts attributable to preferred shareholders and the net lossincome (loss) attributable to noncontrolling interests, by the weighted-average number of common shares including any dilutive shares.
As of September 30, 2017, the below shares are able to be converted to Common Stock. The common units, convertible preferred stock, cumulative convertible preferred stock, and warrants have been excluded from the Company’s diluted earnings per share calculation because their inclusion would be antidilutive. In addition to the below, 750,000 shares of the Company's Common Stock may be issued upon exercise of a warrant, solely in the event of a default under a loan agreement in which we serve as a guarantor.
|
| | | | | | |
| | September 30, 2017 |
| | Outstanding shares | | Potential Dilutive Shares |
| | (unaudited) |
Common units | | 642,299 |
| | 599,333 |
|
Series B Preferred Stock | | 1,875,848 |
| | 1,172,405 |
|
Series D Preferred Stock | | 2,237,000 |
| | 3,297,465 |
|
Warrants to purchase Common Stock | | | | 329,378 |
|
Dividends
Dividends were declared to holders of common units, common shares and preferred shares as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (unaudited) | | (unaudited) |
Common unit and common shareholders | | $ | 3,187 |
| | $ | 3,867 |
| | $ | 10,288 |
| | $ | 11,444 |
|
Preferred shareholders | | 2,496 |
| | 1,241 |
| | 7,473 |
| | 2,264 |
|
Total | | $ | 5,683 |
| | $ | 5,108 |
| | $ | 17,761 |
| | $ | 13,708 |
|
On September 18, 2017, the Company declared a quarterly $0.34 per share dividend payable on or about October 15, 2017 to common shareholders and unitholders of record as of September 29, 2017. Accordingly, the Company has accrued $3.19 million as of September 30, 2017 for this dividend.
During the three months ended September 30, 2017, the Company declared quarterly dividends of $2.29 million to preferred shareholders of record as of September 29, 2017 to be paid on October 15, 2017. Accordingly, the Company has accrued $2.29 million as of September 30, 2017 for this dividend.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Equity and Mezzanine Equity (continued)
As of September 30, 2019, the below shares are able to be converted to Common Stock. The common units, convertible preferred stock and cumulative convertible preferred stock have been excluded from the Company’s diluted earnings per share calculation because their inclusion would be antidilutive.
|
| | | | | | |
| | September 30, 2019 |
| | Outstanding shares | | Potential Dilutive Shares |
| | (unaudited) |
Common units | | 235,032 |
| | 235,032 |
|
Series B Preferred Stock | | 1,875,748 |
| | 1,172,343 |
|
Series D Preferred Stock | | 3,600,636 |
| | 5,307,541 |
|
Dividends
The following table summarizes the preferred stock dividends (unaudited, in thousands except for per share amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series A Preferred | | Series B Preferred | | Series D Preferred |
Record Date/Arrears Date | | Declared | Arrears | Per Share | | Declared | Arrears | Per Share | | Declared | Arrears | Per Share |
12/31/18 | | $ | — |
| $ | 13 |
| $ | 22.50 |
| | $ | — |
| $ | 1,055 |
| $ | 0.56 |
| | $ | — |
| $ | 1,969 |
| $ | 0.55 |
|
| | | | | | | | | | | | |
3/31/19 | | — |
| 13 |
| $ | 22.50 |
| | — |
| 1,055 |
| $ | 0.56 |
| | — |
| 2,419 |
| $ | 0.67 |
|
6/30/19 | | — |
| 13 |
| $ | 22.50 |
| | — |
| 1,055 |
| $ | 0.56 |
| | — |
| 2,419 |
| $ | 0.67 |
|
9/30/19 | | — |
| 13 |
| $ | 22.50 |
| | — |
| 1,056 |
| $ | 0.56 |
| | — |
| 2,419 |
| $ | 0.67 |
|
For the nine months ended September 30, 2019 | | $ | — |
| $ | 39 |
|
|
| | $ | — |
| $ | 3,166 |
|
|
| | $ | — |
| $ | 7,257 |
|
|
|
| | | | | | | | | | | | |
3/31/18 | | $ | 13 |
| $ | — |
| $ | 22.50 |
| | $ | 1,055 |
| $ | — |
| $ | 0.56 |
| | $ | 1,969 |
| $ | — |
| $ | 0.55 |
|
6/30/18 | | 13 |
| — |
| $ | 22.50 |
| | 1,055 |
| — |
| $ | 0.56 |
| | 1,969 |
| — |
| $ | 0.55 |
|
9/30/18 | | 13 |
| — |
| $ | 22.50 |
| | 1,056 |
| — |
| $ | 0.56 |
| | 1,969 |
| — |
| $ | 0.55 |
|
For the nine months ended September 30, 2018 | | $ | 39 |
| $ | — |
| | | $ | 3,166 |
| $ | — |
| | | $ | 5,907 |
| $ | — |
| |
2015 Long-Term Incentive Plan
On June 4, 2015, the Company's shareholders approved the 2015 Long-Term Incentive Plan (the "2015 Incentive Plan"). The 2015 Incentive Plan allows for issuance of up to 125,000 shares of the Company's Common Stock to employees, directors, officers and consultants for services rendered to the Company. The 2015 Incentive Plan replaced the 2012 Stock Incentive Plan.
During the nine months ended September 30, 2017, the Company issued 11,465 shares to employees for services rendered to the Company. The market value of these shares at the time of issuance was approximately $155 thousand. As of September 30, 2017,2019, there are 41,104 shares available for issuance under the Company’s 2015 Incentive Plan. There were no shares issued during the three and nine months ended September 30, 2019 and 2018.
2016 Long-Term Incentive Plan
On June 15, 2016, the Company's shareholders approved the 2016 Long-Term Incentive Plan (the "2016 Incentive Plan"). The 2016 Incentive Plan allows for issuance of up to 625,000 shares of the Company's Common Stock to employees, directors, officers and consultants for services rendered to the Company.
During the nine months ended September 30, 2017, the Company issued 93,478 shares to consultants, directors and employees for services rendered to the Company. The market value of these shares at the time of issuance was approximately $1.19 million. As of September 30, 2017, there are 526,921 shares available for issuance under the Company’s 2016 Incentive Plan.
9. Commitments and Contingencies
Lease Commitments
The following properties are subject to ground leases which requires the Company to make a fixed annual rental payment and includes escalation clauses and renewal options as follows (unaudited, in thousands):
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | Expiration Year |
| 2017 | | 2016 | | 2017 | | 2016 | | |
Amscot | $ | 5 |
| | $ | 5 |
| | $ | 14 |
| | $ | 14 |
| | 2045 |
Beaver Ruin Village | 11 |
| | 11 |
| | 34 |
| | 34 |
| | 2054 |
Beaver Ruin Village II | 5 |
| | 4 |
| | 14 |
| | 13 |
| | 2056 |
Leased office space Charleston, SC | 25 |
| | 26 |
| | 75 |
| | 67 |
| | 2019 |
Moncks Corner | 30 |
| | 30 |
| | 91 |
| | 57 |
| | 2040 |
Devine Street | 63 |
| | 62 |
| | 188 |
| | 117 |
| | 2035 |
Total Ground Leases | $ | 139 |
| | $ | 138 |
| | $ | 416 |
| | $ | 302 |
| | |
Future minimum lease payments due under the operating leases, including applicable automatic extension options, as of September 30, 2017 are as follows (in thousands, unaudited):
|
| | | |
For the remaining three months ended December 31, 2017 | $ | 132 |
|
December 31, 2018 | 530 |
|
December 31, 2019 | 499 |
|
December 31, 2020 | 433 |
|
December 31, 2021 | 485 |
|
December 31, 2022 | 488 |
|
Thereafter | 9,666 |
|
Total minimum lease payments | $ | 12,233 |
|
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Equity and Mezzanine Equity (continued)
|
| | | | | | | |
For the Nine Months ended September 30, | | Shares Issued | | Market Value |
| | (in thousands except for per share amounts, unaudited) |
2019 | | 181,807 |
| | $ | 166 |
|
2018 | | 168,217 |
| | 894 |
|
As of September 30, 2019, there are 132,707 shares available for issuance under the Company’s 2016 Incentive Plan.
9. Leases Commitments
The Company has ground leases that are accounted for as operating leases. The Charleston, SC lease ended August 31, 2019 and was accounted for as an operating lease. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 5 to 50 years. As of September 30, 2019, the weighted average remaining lease term of our leases is 35 years. The following properties are subject to leases which require the Company to make fixed annual rental payments and variable lease payments, which are immaterial and include escalation clauses and renewal options as follows (unaudited, in thousands):
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| 2019 | | 2018 | | 2019 | | 2018 | Expiration Year | |
Amscot | $ | 7 |
| | $ | 5 |
| | $ | 19 |
| | $ | 14 |
| 2045 | |
Beaver Ruin Village | 14 |
| | 11 |
| | 41 |
| | 34 |
| 2054 | |
Beaver Ruin Village II | 6 |
| | 5 |
| | 17 |
| | 15 |
| 2056 | |
Leased office space Charleston, SC | 17 |
| | 25 |
| | 67 |
| | 75 |
| 2019 | |
Moncks Corner | 30 |
| | 30 |
| | 91 |
| | 91 |
| 2040 | |
Devine Street | 99 |
| | 63 |
| | 297 |
| | 188 |
| 2051 | (1) |
JANAF (2) | 65 |
| | 65 |
| | 200 |
| | 191 |
| 2069 | |
Total ground leases | $ | 238 |
| | $ | 204 |
| | $ | 732 |
| | $ | 608 |
| | |
(1) Lease options are exercised through 2035 with options which are reasonably certain to be exercised through 2051.
(2) Includes $29 thousand and $90 thousand in variable percentage rent, during the three and nine months ended September 30, 2019, respectively. Includes $29 thousand and $82 thousand in variable percentage rent, during the three and nine months ended September 30, 2018, respectively.
Supplemental information related to leases is as follows (in thousands, unaudited):
|
| | | | | | | |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 161 |
| | $ | 500 |
|
Leased assets obtained in exchange for new operating lease liabilities | $ | — |
| | $ | 11,904 |
|
Undiscounted cash flows of our scheduled obligations for future minimum lease payments due under the operating leases, including applicable automatic extension options and options reasonably certain of being exercised, as of September 30, 2019 and a reconciliation of those cash flows to the operating lease liabilities at September 30, 2019 are as follows (in thousands, unaudited):
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
9. Leases Commitments (continued)
|
| | | |
For the remaining three months ended December 31, 2019 | $ | 144 |
|
December 31, 2020 | 583 |
|
December 31, 2021 | 637 |
|
December 31, 2022 | 640 |
|
December 31, 2023 | 642 |
|
December 31, 2024 | 644 |
|
Thereafter | 23,109 |
|
Total minimum lease payments (1) | 26,399 |
|
Discount | (14,478 | ) |
Operating lease liabilities | $ | 11,921 |
|
(1) Operating lease payments include $7.54 million related to options to extend lease terms that are reasonably certain of being exercised.
10. Commitments and Contingencies (continued)
Insurance
The Company carries comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all of the properties in its portfolio under a blanket insurance policy, in addition to other coverages, such as trademark and pollution coverage that may be appropriate for certain of its properties. Additionally, the Company carries a directors’, officers’, entity and employment practices liability insurance policy that covers such claims made against the Company and its directors and officers. The Company believes the policy specifications and insured limits are appropriate and adequate for its properties given the relative risk of loss, the cost of the coverage and industry practice; however, its insurance coverage may not be sufficient to fully cover its losses.
Concentration of Credit Risk
The Company is subject to risks incidental to the ownership and operation of commercial real estate. These risks include, among others, the risks normally associated with changes in the general economic climate, trends in the retail industry, creditworthiness of tenants, competition for tenants and customers, changes in tax laws, interest rates, the availability of financing and potential liability under environmental and other laws.
The Company’s portfolio of properties is dependent upon regional and local economic conditions and is geographically concentrated in the Northeast, Mid-Atlantic Southeast and Southwest,Southeast, which markets represented approximately 4%, 24%, 71%36% and 1%,60% respectively, of the total annualized base rent of the properties in its portfolio as of September 30, 2017.2019. The Company’s geographic concentration may cause it to be more susceptible to adverse developments in those markets than if it owned a more geographically diverse portfolio. Additionally, the Company’s retail shopping center properties depend on anchor stores or major tenants to attract shoppers and could be adversely affected by the loss of, or a store closure by, one or more of these tenants.
Regulatory and Environmental
As the owner of the buildings on our properties, the Company could face liability for the presence of hazardous materials (e.g., asbestos or lead) or other adverse conditions (e.g., poor indoor air quality) in its buildings. Environmental laws govern the presence, maintenance, and removal of hazardous materials in buildings, and if the Company does not comply with such laws, it could face fines for such noncompliance. Also, the Company could be liable to third parties (e.g., occupants of the buildings) for damages related to exposure to hazardous materials or adverse conditions in its buildings, and the Company could incur material expenses with respect to abatement or remediation of hazardous materials or other adverse conditions in its buildings. In addition, some of the Company’s tenants routinely handle and use hazardous or regulated substances and wastes as part of their operations at our properties, which are subject to regulation. Such environmental and health and safety laws and regulations could subject the Company or its tenants to liability resulting from these activities. Environmental liabilities could affect a tenant’s ability to make rental payments to the Company, and changes in laws could increase the potential liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise materially and adversely affect the Company’s operations. The Company is not aware of any material contingent liabilities, regulatory matters or environmental matters that may exist.
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
10. Commitments and Contingencies (continued)
Litigation
The Company is involved in various legal proceedings arising in the ordinary course of its business, including, but not limited to commercial disputes. The Company believes that such litigation, claims and administrative proceedings will not have a material adverse impact on its financial position or its results of operations. The Company records a liability when it considers the loss probable and the amount can be reasonably estimated. In addition, the below legal proceedings are in process.
Stilwell Activist Investments LP v. Wheeler Real Estate Investment Trust, Inc., Circuit Court for Baltimore County, Maryland. This is an action brought by one of the largest investors in the Company seeking the production of documents and information beyond what the Company provides in its public filings and what it has already provided to Stilwell after a written request. The Company filed a motion to dismiss Stilwell's suit for failure to state a claim. At a hearing on that motion on October 31, 2019, the Court denied motion to dismiss, so the case will proceed, for now. Stilwell does not seek any monetary damages in this action.
JCP Investment Partnership LP, et al v. Wheeler Real Estate Investment Trust, Inc., Circuit Court for Baltimore County, Maryland. This is an action brought by a large minority shareholder of the Company alleging that in 2018, the Company breached an asset coverage ratio covenant, so as to require the Company to buy back shares of its Series D Preferred. The Company is defending this suit on the grounds it validly amended the Articles Supplementary through the Certificate of Correction filed with the Maryland Department of Taxation on or about May 3, 2018, curing any alleged breach of the covenant. Plaintiffs are not seeking any specific damage amount; rather, their prayer for relief asks the Court to order that the Company must redeem the Series D Preferred in accordance with the terms of the original Articles Supplementary, not commit any further alleged violations of the Articles Supplementary, and award them their costs, expenses and attorneys' fees. In the event a redemption is required, the redemption provisions of the Articles Supplementary permit the Company to redeem those Series D Preferred that it chooses to redeem (not necessarily JCP's Preferred Shares). Accordingly, it is difficult to assess the Company's anticipated exposure in this case at this time. The case is presently in discovery and is scheduled for trial on March 2, 2020. However, the parties conducted a settlement conference in July, 2019, and have continued their efforts to resolve the case short of trial.
Jon Wheeler v. Wheeler Real Estate Investment Trust, Inc., Circuit Court for the City of Virginia Beach, Virginia. Former CEO, Jon Wheeler, alleges that he was improperly terminated and is owed severance and bonus payments pursuant to his Employment Agreement. Altogether, his alleged damages total approximately $1.00 million. The Company is defending the action on the grounds that Jon Wheeler was properly terminated for cause, including for his failure to properly apprise the Board of Directors of critical information, and placing his own personal interests above the Company's, including contracting counsel about filing suit on his behalf against the Company and the Board of Directors while he was still CEO and President of the Board. The Company has filed a Counterclaim against Wheeler for approximately $150 thousand for reimbursement of personal expenses the Company paid, but that Wheeler should have borne. Trial of this action is scheduled for December 17, 2019. At this juncture, the outcome of the matter cannot be predicted.
BOKF, NA v. WD-1 Associates, LLC, et al, Court of Common Pleas for Beaufort County, South Carolina. This is a lawsuit filed by BOKF ("Bank of Arkansas") the lead lender for Sea Turtle project in Hilton Head, South Carolina against WD-1 Associates, LLC and Jon Wheeler for default on BOKF's two construction loans. BOKF seeks appointment of a Receiver to take over the financial management of the project that WD-1 was allegedly (mis)handling. The lawsuit pending in Beaufort County is presently stayed as to WD-1, pursuant to the Chapter 11 Bankruptcy proceeding it filed in Charleston, South Carolina. In the lawsuit pending in Beaufort County, BOKF has moved for a default judgment against Jon Wheeler, who personally guaranteed the two BOKF loans. The Company's subsidiary, Wheeler Real Estate, LLC is named in the lawsuit pending in Beaufort County solely in its position as the former property manager for WD-1 Associates, to obtain financial information. No damages are sought from Wheeler Real Estate, LLC in the Beaufort County action. The Company's subsidiaries are creditors in the Chapter 11 Bankruptcy. WD-1 is seeking a sale of the project real estate through the bankruptcy proceedings. At this juncture, the outcome of the matter cannot be predicted.
Jon Wheeler v. Wheeler Real Estate Investment Trust, Inc. and David Kelly, Individually, Circuit Court for the City of Virginia Beach, Virginia. In September, 2018, former Chief Executive Officer and President Jon S. Wheeler filed claims for defamation and tortious interference with contract expectancy, prospective business relationships and
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
10. Commitments and Contingencies (continued)
economic advantage in the Circuit Court for the City of Virginia Beach, Virginia, asserting current Chief Executive Officer and President, David Kelly, defamed him in communications with an industry association. In February, 2019, Jon Wheeler’s counsel amended the suit to add the Company as a Defendant, but dropped all but the defamation claims. Mr. Kelly and the Company are defending the lawsuit. Trial is set for June 10, 2020. At this juncture, the outcome of the matter cannot be predicted.
Harbor Pointe Tax Increment Financing
On September 1, 2011, the Grove Economic Development Authority issued the Grove Economic Development Authority Tax Increment Revenue Note, Taxable Series 2011 in the amount of $2,415,000, bearing a variable interest rate of 2.29%, not to exceed 14% and payable in 50 semi-annual installments. The proceeds of the bonds were to provide funding for the construction of public infrastructure and other site improvements and to be repaid by incremental additional property taxes generated by development. Harbor Pointe Associates, LLC, then owned by an affiliate of Jon Wheeler, entered into an Economic Development Agreement with the Grove Economic Development Authority for this infrastructure development and in the event the ad valorem taxes were insufficient to cover annual debt service, Harbor Pointe Associates, LLC would reimburse the Grove Economic Development Authority (the “Harbor Pointe Agreement”). In 2014, Harbor Pointe Associates, LLC was acquired by the Company.
The total debt service shortfall over the life of the bond is uncertain as it is based on ad valorem taxes, assessed property values, property tax rates, LIBOR and future potential development ranging until 2036. The Company’s future total principal obligation under the Harbor Pointe Agreement will be no more than $2.26 million, the principal amount of the bonds, as of September 30, 2019. In addition, the Company may have an interest obligation on the note based on the principal balance and LIBOR rates in effect at future payment dates. During the three and nine months ended September 30, 2019, the Company funded $0 thousand and $44 thousand, respectively, in debt service shortfalls. During the three and nine months ended September 30, 2018, the Company funded $0 thousand and $5 thousand, respectively, in debt service shortfalls. No amounts have been accrued for this as of September 30, 2019 as a reasonable estimate of future debt service shortfalls cannot be determined based on variables noted above.
11. Related Party Transactions
The following summarizes related party activity for the nine months ended September 30, 2019 and 2018 and as of September 30, 2019 and December 31, 2018. The amounts disclosed below reflect the activity between the Company and its affiliates (in thousands).
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2019 | | 2018 |
| (unaudited) |
Amounts paid to affiliates | $ | — |
| | $ | 15 |
|
Amounts received from affiliates | $ | 16 |
| | $ | 113 |
|
|
| | | | | | | |
| September 30, | | December 31, |
| 2019 | | 2018 |
| (unaudited) | | |
Notes receivable | $ | — |
| | $ | 5,000 |
|
As discussed in Note 4, the Company loaned $11.00 million for the partial funding of Sea Turtle and loaned $1.00 million for the sale of land to be used in the development. As of September 30, 2019, the Company in total has recognized $12.00 million in impairment charges on the notes receivable reducing the carrying value to zero, as discussed in greater detail in Note 4. During the three and nine months ended September 30, 2019, the Company recognized $0.00 million and $5.00 million, respectively, in impairment charges on the notes receivable. The Company has placed the notes receivable on nonaccrual status and during the three and nine months ended September 30, 2019 and 2018 has not recognized $363 thousand and $1.08 million, respectively, of interest income due on the notes. At September 30, 2019, a total of $3.86 million in interest on the notes receivable remains unpaid. In February 2018, the Company's agreement to perform development, leasing, property and asset management services for Sea Turtle was terminated. Sea Turtle is a related party as Jon Wheeler, the Company's former CEO and shareholder of the Company, is the managing member. Prior to the termination of the agreements,
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
11. Related Party Transactions (continued)
10. Related Party Transactions
The amounts disclosed below reflect the activity between the Company and Mr. Wheeler's affiliates.
|
| | | | | | | |
| September 30, |
| 2017 | | 2016 |
| (unaudited, in thousands) |
Amounts paid to affiliates | $ | 39 |
| | $ | 115 |
|
Amounts received from affiliates | $ | 1,573 |
| | $ | 785 |
|
Amounts due from affiliates | $ | 2,322 |
| | $ | 1,366 |
|
Notes receivable | $ | 12,000 |
| | $ | 12,000 |
|
As discussed in Note 4, the Company has loaned $11.00 million for the partial funding of Pineland Station Shopping Center in Hilton Head, South Carolina to be known in the future as Sea Turtle Development and loaned $1.00 million for the sale of land to be used in the development. The Company is performing development leasing, property and asset management services for Sea Turtle Development. Development fees of 5% of hard costs incurred are paidwere due to the Company. Leasing, property and asset management fees arewere consistent with those charged for services provided to non-related properties. Amounts
The Company recovered $22 thousand due from affiliates include $1.02 millionrelated parties for the three and $294nine months ended September 30, 2019, respectively, which were previously reserved. The Company recovered $0 thousand and $77 thousand in amounts due from related parties for the three and nine months ended September 30, 2018, respectively, which were previously reserved. These recoveries are included in the respective revenue category which they relate. The total allowance on related party receivables at September 30, 20172019 and 2016, respectively, in accrued interest onDecember 31, 2018 is $2.15 million and $2.20 million, respectively. There were no additional reserves recorded for the notes receivable, of this $1.02 million atthree and nine months ended September 30, 2017, $774 thousand is due at maturity. Amounts due from affiliates also include $272 thousand2019 and $169 thousand in development fees at September 30, 2017 and 2016, respectively.the year ended December 31, 2018.
11.12. Subsequent Events
Litchfield Market Village Refinance
On November 1, 2019, the Company refinanced the Litchfield Market Village collateralized portion of the Amended and Restated Credit Agreement resulting in a paydown of $7.16 million on the KeyBank AgreementLine of Credit.
On October 6, 2017,November 1, 2019 the Company executed a Fourth Amendmentpromissory note for $7.50 million for the refinancing of Litchfield Market Village at a fixed interest rate of 5.50%.
KeyBank Line of Credit
On November 5, 2019, the Company and KeyBank entered into a non-binding term sheet (the “Term Sheet”) to amend the Amended and Restated Credit Agreement with KeyBank. Pursuant to the Term Sheet, the Company began making monthly principal payments of $350 thousand on November 1, 2019. The Term Sheet, among other provisions, requires a pledge of additional collateral of $15.00 million in residual equity interests. Additionally, the KeyBank Line of Credit Agreement (the "Fourth Amendment").shall be reduced to $12.00 million by December 31, 2019, $10.00 million by January 31, 2020, $2.00 million by April 30, 2020 and fully matures on June 30, 2020. The Fourth Amendment provides forTerm Sheet is not a sixty day extensionbinding commitment from October 7, 2017KeyBank and will be superseded by a formal contract amendment, subject to December 6, 2017 upon which the $75 million total commitment on the revolving credit line decreases to $50 million.customary closing conditions.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Form 10-Q, along with the consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 20162018 Form 10-K for the year ended December 31, 2016. All per share amounts, common units and shares outstanding and stock-based compensation amounts for all periods presented reflect our one-for-eight Reverse Stock Split, which was effective at the Effective Time.2018. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the unaudited condensed consolidated financial statements included in this Form 10-Q.
This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our shareholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.
The forward-looking statements should be read in light of these factors and the factors identified in the “Risk Factors” sections in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017.2019.
ExecutiveCompany Overview
As of September 30, 2017,2019, the Trust, through the Operating Partnership, owned and operated sixty-foursixty-one centers, one office building sevenand six undeveloped properties and one redevelopment project in Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Oklahoma, Tennessee, Kentucky, New Jersey, Pennsylvania and West Virginia. Accordingly, the use of the word “Company” refers to the Trust and its consolidated subsidiaries, except where the context otherwise requires.
Recent Trends and Activities
There have been several significant events in 2019 that have impacted our company. These events are summarized below.
Dispositions
|
| | | | | | | | | | | | | | |
Disposal Date | | Property | | Contract Price | | Gain (loss) | | Net Proceeds |
| | | | (in thousands, unaudited) |
July 12, 2019 | | Perimeter Square | | $ | 7,200 |
| | $ | (81 | ) | | $ | — |
|
March 18, 2019 | | Graystone Crossing | | 6,000 |
| | 1,452 |
| | 1,744 |
|
February 7, 2019 | | Harbor Pointe Land Parcel (1.28 acres) | | 550 |
| | — |
| | 19 |
|
January 11, 2019 | | Jenks Plaza | | 2,200 |
| | 387 |
| | 1,840 |
|
| | | | $ | 15,950 |
| | $ | 1,758 |
| | $ | 3,603 |
|
Assets Held for Sale
In 2019, the Company’s management and Board of Directors committed to a plan to sell Perimeter Square and St. Matthews. The Company recorded a $400 thousand and $1.55 million impairment charge for the three and nine months ended September 30, 2019, respectively. These impairment charges resulted from reducing the carrying value of St. Matthews during the three months ended September 30, 2019, and Perimeter Square and St. Matthews during the nine months ended September 30, 2019, for the amounts that exceeded the properties' fair value less estimated selling costs.
KeyBank Credit Agreement
On April 25, 2019, the Company entered into the First Amendment. In conjunction with the First Amendment, the Company made a $1.00 million principal payment on the KeyBank Line of Credit and began making monthly principal payments of $250 thousand on May 1, 2019. The First Amendment, among other provisions, waived the Overadvance (as defined in the Amended and Restated Credit Agreement) and replaced the Borrowing Base Availability (as defined in the Amended and Restated Credit Agreement) with an interest coverage ratio. Additionally, the KeyBank Line of Credit shall be reduced to $27.00 million by July 31, 2019, $7.50 million by September 30, 2019 and the interest rate increases to Libor plus 350 basis points on August 31, 2019 if the outstanding balance is not below $11.00 million.
On June 28, 2019, the Company refinanced the Village of Martinsville collateralized portion of the Amended and Restated Credit Agreement resulting in a paydown of $15.46 million. On August 1, 2019, the Company refinanced the Laburnum Square collateralized portion of the Amended and Restated Credit Agreement resulting in a paydown of $7.55 million. Additionally, the Company has made principal payments of $3.10 million during the nine months ended September 30, 2019.
Subsequent to September 30, 2019, there was a $7.16 million paydown to the KeyBank Line of Credit in addition to a modification extending the maturity to June 30, 2020, as discussed in greater detail in Note 12.
Revere Term Loan
As of March 31, 2019, the Revere Term Loan has been paid in full using proceeds from the following:
•$323 thousand with proceeds from the sale of Jenks Plaza on January 11, 2019;
•$30 thousand with proceeds from the sale of Harbor Pointe on February 7, 2019;
•$300 thousand in monthly scheduled principal payments; and,
$406 thousand, the remaining principal balance and the $20 thousand Exit Fee on March 29, 2019 from operating cash flows.
Sea Turtle Development
In 2016, the Company loaned $11.00 million for the partial funding of Sea Turtle and loaned $1.00 million for the sale of land to be used in the development. Both promissory notes are subordinated to the construction loans made by BOKF, totaling $20.00 million.
On or about April 9, 2019, BOKF filed a Verified Complaint in state court in Beaufort County, South Carolina for Sea Turtle’s default on payment of the BOKF construction loans, and for the appointment of a receiver, injunctive relief and accounting records. On May 7, 2019, Sea Turtle filed a Chapter 11 Voluntary Petition for Bankruptcy in the United States Bankruptcy Court for the District of South Carolina in Charleston. The bankruptcy petition automatically stayed BOKF’s suit.
The pleadings in the state court action and the bankruptcy action state that Sea Turtle has been in default on its payments to BOKF since September, 2018. The pleadings further state that the project is $8.00 million over budget as of August 8, 2018. Sea Turtle has retained a broker to try and sell the property. There is a possibility that a judicially approved sale of the property will not bring a price that exceeds what is owed to BOKF on its construction loans. If a sale is not approved through the bankruptcy court in 2019, it is expected that the bankruptcy petition will be dismissed and BOKF will resume its suit in South Carolina state court, possibly leading to a foreclosure on the property. The pending legal proceedings have provided additional uncertainty with regards to the estimated fair market value of the development. As such, the Company recognized $0.00 million and $5.00 million in impairment charges on the notes receivable for the three and nine months ended September 30, 2019, respectively, as the estimated fair value of Sea Turtle is not expected to provide for the cash required to repay the notes receivable in the event of a judicially approved sale. This brings the total impairment charge on notes receivable to $12.00 million reducing the carrying value to zero as of September 30, 2019.
The fair market value of Sea Turtle is based on the three-level valuation hierarchy for fair value measurement and represents Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
PreferredDividends
At September 30, 2019, the Company had accumulated undeclared dividends of $13.50 million to holders of shares of our Series A Preferred Stock, Series B Preferred Stock, and Series D Preferred Stock of which $3.49 million and $10.46 million is attributable to the three and nine months ended September 30, 2019, respectively.
New Leases, Leasing Renewals and Expirations
The following table presents selected lease activity statistics for our properties.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018(2) |
Renewals: | | | | | | | | |
Renewals(1): | | | | | | | | |
Leases renewed with rate increase (sq feet) | 118,074 |
| | 31,527 |
| | 235,337 |
| | 96,715 |
| 193,609 |
| | 101,355 |
| | 374,580 |
| | 359,854 |
|
Leases renewed with rate decrease (sq feet) | 1,007 |
| | — |
| | 53,669 |
| | — |
| 1,040 |
| | 1,240 |
| | 31,196 |
| | 39,720 |
|
Leases renewed with no rate change (sq feet) | 86,018 |
| | 9,847 |
| | 203,957 |
| | 53,476 |
| 141,650 |
| | 136,452 |
| | 150,233 |
| | 162,796 |
|
Total leases renewed (sq feet) | 205,099 |
| | 41,374 |
| | 492,963 |
| | 150,191 |
| 336,299 |
| | 239,047 |
| | 556,009 |
| | 562,370 |
|
| | | | | | | | | | | | | | |
Leases renewed with rate increase (count) | 25 |
| | 11 |
| | 60 |
| | 31 |
| 39 |
| | 21 |
| | 88 |
| | 71 |
|
Leases renewed with rate decrease (count) | 1 |
| | — |
| | 6 |
| | — |
| 1 |
| | 1 |
| | 9 |
| | 6 |
|
Leases renewed with no rate change (count) | 8 |
| | 4 |
| | 24 |
| | 10 |
| 6 |
| | 6 |
| | 11 |
| | 13 |
|
Total leases renewed (count) | 34 |
| | 15 |
| | 90 |
| | 41 |
| 46 |
| | 28 |
| | 108 |
| | 90 |
|
| | | | | | | | | | | | | | |
Option exercised (count) | 22 |
| | 4 |
| | 44 |
| | 15 |
| 15 |
| | 6 |
| | 28 |
| | 23 |
|
| | | | | | | | | | | | | | |
Weighted average on rate increases (per sq foot) | $ | 0.90 |
| | $ | 1.21 |
| | $ | 0.81 |
| | $ | 0.99 |
| $ | 0.73 |
| | $ | 1.10 |
| | $ | 0.77 |
| | $ | 0.97 |
|
Weighted average on rate decreases (per sq foot) | $ | (3.97 | ) | | $ | — |
| | $ | (1.07 | ) | | $ | — |
| $ | (2.46 | ) | | $ | (1.36 | ) | | $ | (3.02 | ) | | $ | (1.85 | ) |
Weighted average rate (per sq foot) | $ | 0.50 |
| | $ | 0.92 |
| | $ | 0.27 |
| | $ | 0.64 |
| |
Weighted average rate on all renewals (per sq foot) | | $ | 0.41 |
| | $ | 0.46 |
| | $ | 0.35 |
| | $ | 0.49 |
|
Weighted average change over prior rates | 5.78 | % | | 7.48 | % | | 3.13 | % | | 5.58 | % | 5.46 | % | | 6.46 | % | | 3.92 | % | | 6.00 | % |
| | | | | | | | | | | | | | |
New Leases: | | | | | | | | |
New Leases(1) (3): | | | | | | | | |
New leases (sq feet) | 30,364 |
| | 46,745 |
| | 118,435 |
| | 91,414 |
| 29,756 |
| | 31,491 |
| | 76,974 |
| | 234,407 |
|
New leases (count) | 12 |
| | 19 |
| | 44 |
| | 38 |
| 11 |
| | 11 |
| | 30 |
| | 47 |
|
Weighted average rate (per sq foot) | $ | 10.98 |
| | $ | 10.01 |
| | $ | 12.92 |
| | $ | 14.15 |
| $ | 12.10 |
| | $ | 11.24 |
| | $ | 12.95 |
| | $ | 8.75 |
|
| | | | | | | | | | | | | | |
Gross Leasable Area ("GLA") expiring during the next 3 months | 1.88 | % | | 2.10 | % | | 1.88 | % | | 2.10 | % | |
Gross Leasable Area ("GLA") expiring during the next 3 months, including month-to-month leases | | 2.86 | % | | 1.48 | % | | 2.86 | % | | 1.48 | % |
Anchor Lease Modifications
In September 2017, the Company modified leases with two anchor tenants. The lease modifications include a reduction of lease term from 2028 to 2023 on 34,264 square feet and no change in the 2018 lease expiration term on 33,218 square feet. The overall weighted average base rent reduction is $5.59 per square foot.
Dispositions
On June 27, 2017, the Company completed the sale of the 2.14 acre land parcel at Carolina Place for a contract price of $250 thousand, resulting in a gain of gain of $12 thousand with net proceeds of $238 thousand.
On June 26, 2017, the Company completed the sale of the Steak n' Shake, a 1.06 acre outparcel at Rivergate, for a contract price of approximately $2.25 million, resulting in a gain of $1.03 million with net proceeds of $2.18 million.
| |
(1) | Lease data presented for the three and nine months ended September 30, 2019 and 2018 is based on average rate per square foot over the renewed or new lease term. |
| |
(2) | 2018 lease data adjusted to reflect average rate per square foot over the renewed or new lease term for consistency with 2019 presentations. |
| |
(3) | The Company does not include ground leases entered into for the purposes of new lease sq feet and weighted average rate (per sq foot) on new leases. |
Three and Nine Months Ended September 30, 20172019 Compared to the Three and Nine Months Ended September 30, 20162018
Results of Operations
The following table presents a comparison of the condensed consolidated statements of operations for the three and nine months ended September 30, 20172019 and 2016,2018, respectively.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended Changes | | Nine Months Ended Changes | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended Changes | | Nine Months Ended Changes |
| 2017 | | 2016 | | 2017 | | 2016 | | Change | | % Change | | Change | | % Change | 2019 | | 2018 | | 2019 | | 2018 | | Change | | % Change | | Change | | % Change |
PROPERTY DATA: | (in thousands, unaudited) | | | | | | | | | | | | | | | |
Number of properties owned and leased at period end (1) | 64 |
| | 55 |
| | 64 |
| | 55 |
| | 9 |
| | 16.36 | % | | 9 |
| | 16.36 | % | 61 |
| | 65 |
| | 61 |
| | 65 |
| | (4 | ) | | (6.15 | )% | | (4 | ) | | (6.15 | )% |
Aggregate gross leasable area at period end (1) | 4,902,381 |
| | 3,750,976 |
| | 4,902,381 |
| | 3,750,976 |
| | 1,151,405 |
| | 30.70 | % | | 1,151,405 |
| | 30.70 | % | 5,643,266 |
| | 5,720,091 |
| | 5,643,266 |
| | 5,720,091 |
| | (76,825 | ) | | (1.34 | )% | | (76,825 | ) | | (1.34 | )% |
Ending occupancy rate at period end (1) | 92.80 | % | | 93.90 | % | | 92.80 | % | | 93.90 | % | | (1.10 | )% | | (1.17 | )% | | (1.10 | )% | | (1.17 | )% | 89.0 | % | | 90.0 | % | | 89.0 | % | | 90.0 | % | | (1.0 | )% | | (1.11 | )% | | (1.0 | )% | | (1.11 | )% |
FINANCIAL DATA: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Rental revenues | $ | 11,109 |
| | $ | 8,591 |
| | $ | 33,265 |
| | $ | 23,788 |
| | $ | 2,518 |
| | 29.31 | % | | $ | 9,477 |
| | 39.84 | % | $ | 15,385 |
| | $ | 15,756 |
| | $ | 46,546 |
| | $ | 47,288 |
| | $ | (371 | ) | | (2.35 | )% | | $ | (742 | ) | | (1.57 | )% |
Asset management fees | 145 |
| | 163 |
| | 807 |
| | 623 |
| | (18 | ) | | (11.04 | )% | | 184 |
| | 29.53 | % | 16 |
| | 48 |
| | 42 |
| | 220 |
| | (32 | ) | | (66.67 | )% | | (178 | ) | | (80.91 | )% |
Commissions | 449 |
| | 590 |
| | 758 |
| | 834 |
| | (141 | ) | | (23.90 | )% | | (76 | ) | | (9.11 | )% | 18 |
| | 52 |
| | 65 |
| | 102 |
| | (34 | ) | | (65.38 | )% | | (37 | ) | | (36.27 | )% |
Tenant reimbursements | 2,711 |
| | 2,334 |
| | 8,127 |
| | 6,500 |
| | 377 |
| | 16.15 | % | | 1,627 |
| | 25.03 | % | |
Development income | 155 |
| | 169 |
| | 454 |
| | 169 |
| | (14 | ) | | (8.28 | )% | | 285 |
| | 168.64 | % | |
Other revenues | 629 |
| | 64 |
| | 828 |
| | 219 |
| | 565 |
| | 882.81 | % | | 609 |
| | 278.08 | % | 146 |
| | 217 |
| | 439 |
| | 1,697 |
| | (71 | ) | | (32.72 | )% | | (1,258 | ) | | (74.13 | )% |
Total Revenue | 15,198 |
| | 11,911 |
| | 44,239 |
| | 32,133 |
| | 3,287 |
| | 27.60 | % | | 12,106 |
| | 37.67 | % | 15,565 |
| | 16,073 |
| | 47,092 |
| | 49,307 |
| | (508 | ) | | (3.16 | )% | | (2,215 | ) | | (4.49 | )% |
EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property operations | 3,726 |
| | 3,027 |
| | 11,467 |
| | 8,499 |
| | 699 |
| | 23.09 | % | | 2,968 |
| | 34.92 | % | 4,967 |
| | 4,687 |
| | 14,288 |
| | 13,804 |
| | 280 |
| | 5.97 | % | | 484 |
| | 3.51 | % |
Non-REIT management and leasing services | 618 |
| | 696 |
| | 1,525 |
| | 1,352 |
| | (78 | ) | | (11.21 | )% | | 173 |
| | 12.80 | % | 1 |
| | 23 |
| | 25 |
| | 59 |
| | (22 | ) | | (95.65 | )% | | (34 | ) | | (57.63 | )% |
Depreciation and amortization | 7,746 |
| | 4,994 |
| | 20,455 |
| | 15,306 |
| | 2,752 |
| | 55.11 | % | | 5,149 |
| | 33.64 | % | 5,066 |
| | 6,045 |
| | 16,169 |
| | 20,943 |
| | (979 | ) | | (16.20 | )% | | (4,774 | ) | | (22.80 | )% |
Provision for credit losses | 23 |
| | 31 |
| | 443 |
| | 196 |
| | (8 | ) | | (25.81 | )% | | 247 |
| | 126.02 | % | |
Impairment of notes receivable | | — |
| | — |
| | 5,000 |
| | — |
| | — |
| | — | % | | 5,000 |
| | 100.00 | % |
Impairment of assets held for sale | | 400 |
| | — |
| | 1,547 |
| | — |
| | 400 |
| | 100.00 | % | | 1,547 |
| | 100.00 | % |
Corporate general & administrative | 1,306 |
| | 1,497 |
| | 4,855 |
| | 6,291 |
| | (191 | ) | | (12.76 | )% | | (1,436 | ) | | (22.83 | )% | 1,349 |
| | 1,703 |
| | 4,543 |
| | 6,479 |
| | (354 | ) | | (20.79 | )% | | (1,936 | ) | | (29.88 | )% |
Other operating expenses | | — |
| | 250 |
| | — |
| | 250 |
| | (250 | ) | | (100.00 | )% | | (250 | ) | | (100.00 | )% |
Total Operating Expenses | 13,419 |
| | 10,245 |
| | 38,745 |
| | 31,644 |
| | 3,174 |
| | 30.98 | % | | 7,101 |
| | 22.44 | % | 11,783 |
| | 12,708 |
| | 41,572 |
| | 41,535 |
| | (925 | ) | | (7.28 | )% | | 37 |
| | 0.09 | % |
(Loss) gain on disposal of properties | | (81 | ) | | 1,257 |
| | 1,427 |
| | 2,312 |
| | (1,338 | ) | | (106.44 | )% | | (885 | ) | | (38.28 | )% |
Operating Income | 1,779 |
| | 1,666 |
| | 5,494 |
| | 489 |
| | 113 |
| | 6.78 | % | | 5,005 |
| | 1,023.52 | % | 3,701 |
| | 4,622 |
| | 6,947 |
| | 10,084 |
| | (921 | ) | | (19.93 | )% | | (3,137 | ) | | (31.11 | )% |
(Loss) gain on disposal of properties | (1 | ) | | — |
| | 1,021 |
| | — |
| | (1 | ) | | — | % | | 1,021 |
| | — | % | |
Interest income | 364 |
| | 299 |
| | 1,080 |
| | 301 |
| | 65 |
| | 21.74 | % | | 779 |
| | 258.80 | % | 1 |
| | 1 |
| | 2 |
| | 3 |
| | — |
| | — | % | | (1 | ) | | (33.33 | )% |
Interest expense | (4,250 | ) | | (3,639 | ) | | (12,997 | ) | | (9,801 | ) | | (611 | ) | | (16.79 | )% | | (3,196 | ) | | (32.61 | )% | (4,654 | ) | | (5,183 | ) | | (14,394 | ) | | (14,940 | ) | | 529 |
| | 10.21 | % | | 546 |
| | 3.65 | % |
Net Loss from Continuing Operations Before Income Taxes | (2,108 | ) | | (1,674 | ) | | (5,402 | ) | | (9,011 | ) | | (434 | ) | | (25.93 | )% | | 3,609 |
| | 40.05 | % | (952 | ) | | (560 | ) | | (7,445 | ) | | (4,853 | ) | | (392 | ) | | (70.00 | )% | | (2,592 | ) | | (53.41 | )% |
Income tax expense | (65 | ) | | — |
| | (175 | ) | | — |
| | (65 | ) | | — | % | | (175 | ) | | — | % | (8 | ) | | (30 | ) | | (23 | ) | | (72 | ) | | 22 |
| | 73.33 | % | | 49 |
| | 68.06 | % |
Net Loss from Continuing Operations | (2,173 | ) | | (1,674 | ) | | (5,577 | ) | | (9,011 | ) | | (499 | ) | | (29.81 | )% | | 3,434 |
| | 38.11 | % | (960 | ) | | (590 | ) | | (7,468 | ) | | (4,925 | ) | | (370 | ) | | (62.71 | )% | | (2,543 | ) | | (51.63 | )% |
Discontinued Operations | | | | | | | | | | | | | | | | |
Income from operations | — |
| | 39 |
| | 16 |
| | 115 |
| | (39 | ) | | (100.00 | )% | | (99 | ) | | (86.09 | )% | |
Gain on disposal of properties | — |
| | 1 |
| | 1,502 |
| | 689 |
| | (1 | ) | | (100.00 | )% | | 813 |
| | 118.00 | % | |
Net Income from Discontinued Operations | — |
| | 40 |
| | 1,518 |
| | 804 |
| | (40 | ) | | (100.00 | )% | | 714 |
| | 88.81 | % | |
Income from Discontinued Operations | | — |
| | — |
| | — |
| | 903 |
| | — |
| | — | % | | (903 | ) | | (100.00 | )% |
Net Loss | (2,173 | ) | | (1,634 | ) | | (4,059 | ) | | (8,207 | ) | | (539 | ) | | (32.99 | )% | | 4,148 |
| | 50.54 | % | (960 | ) | | (590 | ) | | (7,468 | ) | | (4,022 | ) | | (370 | ) | | (62.71 | )% | | (3,446 | ) | | (85.68 | )% |
Net loss attributable to noncontrolling interests | (111 | ) | | (122 | ) | | (165 | ) | | (768 | ) | | 11 |
| | 9.02 | % | | 603 |
| | 78.52 | % | |
Less: Net (loss) income attributable to noncontrolling interests | | (1 | ) | | 12 |
| | (100 | ) | | (70 | ) | | (13 | ) | | (108.33 | )% | | (30 | ) | | (42.86 | )% |
Net Loss Attributable to Wheeler REIT | $ | (2,062 | ) | | $ | (1,512 | ) | | $ | (3,894 | ) | | $ | (7,439 | ) | | $ | (550 | ) | | (36.38 | )% | | $ | 3,545 |
| | 47.65 | % | $ | (959 | ) | | $ | (602 | ) | | $ | (7,368 | ) | | $ | (3,952 | ) | | $ | (357 | ) | | (59.30 | )% | | $ | (3,416 | ) | | (86.44 | )% |
| |
(1) | Excludes the undeveloped land parcels and Riversedge North, our corporate headquarters, and the redevelopment property.headquarters. Includes assets held for sale. |
Same StoreTotal Revenue
Total revenue was $15.57 million and New Store Operating Income
The September 30, 2017$47.09 million for the three and nine month periods include the combined operations of all properties owned at December 31, 2016 as described in our 2016 Form 10-K. Conversely, themonths ended September 30, 20162019, respectively, compared to $16.07 million and $49.31 million for the three and nine month periods include the combined operationsmonths ended September 30, 2018, respectively, representing a decrease of all properties owned at December 31, 2015 as described in our 2015 Annual Report on Form 10-K$508 thousand and $2.22 million, respectively. The decrease of $1.26 million for the year ended December 31, 2015 ("2015 Form 10-K") and those acquired during the nine months ended September 30, 2016. In providing2019 in other revenues is primarily a result of early lease termination fees associated with Berkley Center Shopping Center Farm Fresh and Southeastern Grocers ("SEG") recaptures during 2018. The rent adjustments for certain SEG leases, sold properties and additional vacant anchor spaces attributed to the following discussion and analysisdecrease in rental revenues which was partially offset by a full period of our results of operations, we have separately identified the activities of properties ownedJANAF operations.
Total Operating Expenses
Total operating expenses for the entire 2016 annual and 2017 three and nine month periods (collectively referred to as “same store”)months ended September 30, 2019 were $11.78 million and $41.57 million, respectively, representing a decrease of $925 thousand and an increase of $37 thousand over the three and nine months ended September 30, 2018, respectively. For the three and nine months ended September 30, 2019, the Company recorded impairment charges of $0 million and $5.00 million, respectively, on the Sea Turtle notes receivable and a $400 thousand and $1.55 million impairment charge on assets held for sale, respectively, which did not occur during the three and nine months ended September 30, 2018. After consideration of these 2019 items, total operating expenses decreased for the three and nine months ended September 30, 2019 by $1.33 million and $6.58 million, respectively.
ndThe decrease of $979 thousand and $4.77 million noted in depreciation and amortization is a result of the write-off of lease intangibles from early terminations of leases in 2018 and properties either sold or classified as held for sale.
Corporate general and administrative expenses for the three and nine months ended September 30, 2019 decreased $354 thousand and $1.94 million, respectively, as a result of the following:
$99 thousand and $439 thousand decrease, respectively, in compensation and benefits primarily driven by the decrease in employee share based compensation and severance;
$194 thousand and $938 thousand decrease, respectively, in professional fees associated with hiring of KeyBanc Advisors in 2018, SOX internal audit compliance and the timing of the annual shareholder meeting;
$81 thousand and $321 thousand decrease, respectively, in acquisition and development costs as a result of costs associated with the development of an outparcel at Folly Road which the Company chose to no longer pursue in 2018; and
$106 thousand and $268 thousand decrease, respectively, in capital and debt financing costs as a result of costs incurred on refinancing of properties which the Company opted to stop pursuing in 2018. These costs did not reoccur in 2019.
Gain on Disposal of Properties
The gain on disposal of properties decrease of $1.34 million for the three months ended September 30, 2019 is a result of the loss on the Perimeter Square sale, net of the 2018 gain on the Shoppes at Eagle Harbor sale. The decrease of $885 thousand for the nine months ended September 30, 2019 is a result of the demolition of an approximate 10,000 square foot building at the JANAF property in 2019 to make space available for a new approximate 20,000 square foot building constructed by a new grocer tenant and the 2019 sales of Jenks Plaza, Graystone Crossing and Perimeter Square, net of the 2018 sales of the Chipotle ground lease at Conyers Crossing and Shoppes at Eagle Harbor.
Interest Expense
Interest expense for the three and nine months ended September 30, 2019 was $4.65 million and $14.39 million, respectively, representing decreases of $529 thousand and $546 thousand from the three and nine months ended September 30, 2018, respectively. The decreases are primarily attributable to lower loan cost amortization due to 2018 loan modifications, reduction of loans payable by $22.44 million from September 30, 2018, partially offset by a full nine months of interest expense on JANAF.
Same Store and Non-same Store Operating Income
Net operating income (“NOI”) is a widely-used non-GAAP financial measure for REITs. The Company believes that NOI is a useful measure of the Company's property operating performance. The Company defines NOI as property revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes). Because NOI excludes general and administrative expenses, depreciation and amortization, interest expense, interest income, provision for income taxes, gain or loss on sale or capital expenditures, impairment of assets held for sale, impairment of notes receivable and leasing costs, it provides a performance measure, that when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing perspective not immediately apparent from net income. The Company uses NOI to evaluate its operating performance since NOI allows the Company to evaluate the impact of factors, such as occupancy levels, lease structure, lease rates and tenant base, have on the Company's results, margins and returns. NOI should not be viewed as a measure of the Company's overall financial performance since it does not reflect general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes, gain or loss on sale or disposition of assets, and the level of capital expenditures and leasing costs necessary to maintain the operating
performance of the Company's properties. Other REITs may use different methodologies for calculating NOI, and accordingly, the Company's NOI may not be comparable to that of other REITs.
The following table is a reconciliation of same store and non-same store NOI from the most directly comparable GAAP financial measure of net income (loss). Same stores consist of those properties owned during all periods presented in their entirety, while non-same stores consist of those properties acquired after December 31, 2015 (collectively referred to as “new store”). This illustratesor disposed of during the significant impact these properties acquired during 2016 had on our results of operations.
periods presented. The following tables provide samenon-same store and new store financial information. The discussion below primarily focuses on same store results of operations since ninecategory represents the JANAF acquisition that occurred in January 2018, the absorption of the twenty-three 2016 retail acquisitions occurred subsequent to September 30, 2016 andJANAF Executive Building in April 2019, offset by the remaining fourteen acquisitions occurred during the three months ended June 30, 2016.below properties sold:
Discontinued operations
| |
◦ | Laskin Road land parcel (sold June 19, 2018); and |
| |
◦ | Harbor Pointe Land Parcel (sold February 7, 2019); |
Continuing operations
| |
◦ | Chipotle Ground Lease at Conyers Crossing (sold January 12, 2018) |
| |
◦ | Shoppes at Eagle Harbor (sold September 27, 2018); |
| |
◦ | Monarch Bank Building (sold October 22, 2018); |
| |
◦ | Jenks Plaza (sold January 11, 2019); |
| |
◦ | Graystone Crossing (sold March 18, 2019); and |
| |
◦ | Perimeter Square (sold July 12, 2019). |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| Same Store | | New Store | | Total |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | (in thousands, unaudited) | | | | |
Property revenues | $ | 8,781 |
| | $ | 8,738 |
| | $ | 5,668 |
| | $ | 2,251 |
| | $ | 14,449 |
| | $ | 10,989 |
|
Property expenses | 2,388 |
| | 2,406 |
| | 1,338 |
| | 621 |
| | 3,726 |
| | 3,027 |
|
Property Net Operating Income | 6,393 |
| | 6,332 |
| | 4,330 |
| | 1,630 |
| | 10,723 |
| | 7,962 |
|
Asset Management and Commission Revenue | 594 |
| | 753 |
| | — |
| | — |
| | 594 |
| | 753 |
|
Development income | 155 |
| | 169 |
| | — |
| | — |
| | 155 |
| | 169 |
|
Other Income | 749 |
| | 922 |
| | — |
| | — |
| | 749 |
| | 922 |
|
Non-REIT management and leasing services | 618 |
| | 696 |
| | — |
| | — |
| | 618 |
| | 696 |
|
Depreciation and amortization | 3,612 |
| | 4,064 |
| | 4,134 |
| | 930 |
| | 7,746 |
| | 4,994 |
|
Provision for credit losses | (23 | ) | | 19 |
| | 46 |
| | 12 |
| | 23 |
| | 31 |
|
Corporate general & administrative | 1,251 |
| | 1,493 |
| | 55 |
| | 4 |
| | 1,306 |
| | 1,497 |
|
Total Other Operating Expenses | 5,458 |
| | 6,272 |
| | 4,235 |
| | 946 |
| | 9,693 |
| | 7,218 |
|
Loss on disposal of properties | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
|
Interest income | 363 |
| | 299 |
| | 1 |
| | — |
| | 364 |
| | 299 |
|
Interest expense | (2,568 | ) | | (2,743 | ) | | (1,682 | ) | | (896 | ) | | (4,250 | ) | | (3,639 | ) |
Net Loss from Continuing Operations Before Income Taxes | (522 | ) | | (1,462 | ) | | (1,586 | ) | | (212 | ) | | (2,108 | ) | | (1,674 | ) |
Income tax expense | (65 | ) | | — |
| | — |
| | — |
| | (65 | ) | | — |
|
Net Loss from Continuing Operations | (587 | ) | | (1,462 | ) | | (1,586 | ) | | (212 | ) | | (2,173 | ) | | (1,674 | ) |
Discontinued Operations | | | | | | | | | | | |
Income from operations | — |
| | 39 |
| | — |
| | — |
| | — |
| | 39 |
|
Gain on disposal of properties | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Net Income from Discontinued Operations | — |
| | 40 |
| | — |
| | — |
| | — |
| | 40 |
|
Net Loss | $ | (587 | ) | | $ | (1,422 | ) | | $ | (1,586 | ) | | $ | (212 | ) | | $ | (2,173 | ) | | $ | (1,634 | ) |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| Same Store | | Non-same Store | | Total |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | |
| (in thousands, unaudited) |
Net (Loss) Income | $ | (956 | ) | | $ | (1,887 | ) | | $ | (4 | ) | | $ | 1,297 |
| | $ | (960 | ) | | $ | (590 | ) |
Adjustments: | | | | | | | | | | | |
Income tax expense | 8 |
| | 30 |
| | — |
| | — |
| | 8 |
| | 30 |
|
Interest expense | 3,909 |
| | 4,241 |
| | 745 |
| | 942 |
| | 4,654 |
| | 5,183 |
|
Interest income | (1 | ) | | (1 | ) | | — |
| | — |
| | (1 | ) | | (1 | ) |
Loss (gain) on disposal of properties | — |
| | — |
| | 81 |
| | (1,257 | ) | | 81 |
| | (1,257 | ) |
Other operating expenses | — |
| | — |
| | — |
| | 250 |
| | — |
| | 250 |
|
Corporate general & administrative | 1,324 |
| | 1,675 |
| | 25 |
| | 28 |
| | 1,349 |
| | 1,703 |
|
Impairment of assets held for sale | 400 |
| | — |
| | — |
| | — |
| | 400 |
| | — |
|
Depreciation and amortization | 4,031 |
| | 4,932 |
| | 1,035 |
| | 1,113 |
| | 5,066 |
| | 6,045 |
|
Non-REIT management and leasing services | 1 |
| | 23 |
| | — |
| | — |
| | 1 |
| | 23 |
|
Asset management and commission revenues | (34 | ) | | (100 | ) | | — |
| | — |
| | (34 | ) | | (100 | ) |
Property Net Operating Income | $ | 8,682 |
| | $ | 8,913 |
| | $ | 1,882 |
| | $ | 2,373 |
| | $ | 10,564 |
| | $ | 11,286 |
|
| | | | | | | | | | | |
Property revenues | $ | 12,733 |
| | $ | 12,712 |
| | $ | 2,798 |
| | $ | 3,261 |
| | $ | 15,531 |
| | $ | 15,973 |
|
Property expenses | 4,051 |
| | 3,799 |
| | 916 |
| | 888 |
| | 4,967 |
| | 4,687 |
|
Property Net Operating Income | $ | 8,682 |
| | $ | 8,913 |
| | $ | 1,882 |
| | $ | 2,373 |
| | $ | 10,564 |
| | $ | 11,286 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| Same Store | | New Store | | Total |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | (in thousands, unaudited) | | | | |
Property revenues | $ | 26,120 |
| | $ | 26,265 |
| | $ | 16,100 |
| | $ | 4,242 |
| | $ | 42,220 |
| | $ | 30,507 |
|
Property expenses | 7,334 |
| | 7,355 |
| | 4,133 |
| | 1,144 |
| | 11,467 |
| | 8,499 |
|
Property Net Operating Income | 18,786 |
| | 18,910 |
| | 11,967 |
| | 3,098 |
| | 30,753 |
| | 22,008 |
|
Asset Management and Commission Revenue | 1,565 |
| | 1,457 |
| | — |
| | — |
| | 1,565 |
| | 1,457 |
|
Development income | 454 |
| | 169 |
| | — |
| | — |
| | 454 |
| | 169 |
|
Other Income | 2,019 |
| | 1,626 |
| | — |
| | — |
| | 2,019 |
| | 1,626 |
|
Non-REIT management and leasing services | 1,525 |
| | 1,352 |
| | — |
| | — |
| | 1,525 |
| | 1,352 |
|
Depreciation and amortization | 11,269 |
| | 13,414 |
| | 9,186 |
| | 1,892 |
| | 20,455 |
| | 15,306 |
|
Provision for credit losses | 284 |
| | 184 |
| | 159 |
| | 12 |
| | 443 |
| | 196 |
|
Corporate general & administrative | 4,566 |
| | 5,636 |
| | 289 |
| | 655 |
| | 4,855 |
| | 6,291 |
|
Total Other Operating Expenses | 17,644 |
| | 20,586 |
| | 9,634 |
| | 2,559 |
| | 27,278 |
| | 23,145 |
|
(Loss) gain on disposal of properties | (12 | ) | | — |
| | 1,033 |
| | — |
| | 1,021 |
| | — |
|
Interest income | 1,079 |
| | 301 |
| | 1 |
| | — |
| | 1,080 |
| | 301 |
|
Interest expense | (7,921 | ) | | (7,899 | ) | | (5,076 | ) | | (1,902 | ) | | (12,997 | ) | | (9,801 | ) |
Net Loss from Continuing Operations Before Income Taxes | (3,693 | ) | | (7,648 | ) | | (1,709 | ) | | (1,363 | ) | | (5,402 | ) | | (9,011 | ) |
Income tax expense | (175 | ) | | — |
| | — |
| | — |
| | (175 | ) | | — |
|
Net Loss from Continuing Operations | (3,868 | ) | | (7,648 | ) | | (1,709 | ) | | (1,363 | ) | | (5,577 | ) | | (9,011 | ) |
Discontinued Operations | | | | | | | | | | | |
Income from operations | 16 |
| | 115 |
| | — |
| | — |
| | 16 |
| | 115 |
|
Gain on disposal of properties | 1,502 |
| | 689 |
| | — |
| | — |
| | 1,502 |
| | 689 |
|
Net Income from Discontinued Operations | 1,518 |
| | 804 |
| | — |
| | — |
| | 1,518 |
| | 804 |
|
Net Loss | $ | (2,350 | ) | | $ | (6,844 | ) | | $ | (1,709 | ) | | $ | (1,363 | ) | | $ | (4,059 | ) | | $ | (8,207 | ) |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| Same Store | | Non-same Store | | Total |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | |
| (in thousands, unaudited) |
Net (Loss) Income | $ | (8,183 | ) | | $ | (7,203 | ) | | $ | 715 |
| | $ | 3,181 |
| | $ | (7,468 | ) | | $ | (4,022 | ) |
Adjustments: | | | | | | | | | | | |
Income from Discontinued Operations | — |
| | — |
| | — |
| | (903 | ) | | — |
| | (903 | ) |
Income tax expense | 23 |
| | 72 |
| | — |
| | — |
| | 23 |
| | 72 |
|
Interest expense | 11,915 |
| | 12,226 |
| | 2,479 |
| | 2,714 |
| | 14,394 |
| | 14,940 |
|
Interest income | (2 | ) | | (3 | ) | | — |
| | — |
| | (2 | ) | | (3 | ) |
Gain on disposal of properties | — |
| | — |
| | (1,427 | ) | | (2,312 | ) | | (1,427 | ) | | (2,312 | ) |
Other operating expenses | — |
| | — |
| | — |
| | 250 |
| | — |
| | 250 |
|
Corporate general & administrative | 4,388 |
| | 6,321 |
| | 155 |
| | 158 |
| | 4,543 |
| | 6,479 |
|
Impairment of assets held for sale | 400 |
| | — |
| | 1,147 |
| | — |
| | 1,547 |
| | — |
|
Impairment of notes receivable | 5,000 |
| | — |
| | — |
| | — |
| | 5,000 |
| | — |
|
Depreciation and amortization | 13,049 |
| | 17,235 |
| | 3,120 |
| | 3,708 |
| | 16,169 |
| | 20,943 |
|
Non-REIT management and leasing services | 25 |
| | 59 |
| | — |
| | — |
| | 25 |
| | 59 |
|
Asset management and commission revenues | (107 | ) | | (322 | ) | | — |
| | — |
| | (107 | ) | | (322 | ) |
Property Net Operating Income | $ | 26,508 |
| | $ | 28,385 |
| | $ | 6,189 |
| | $ | 6,796 |
| | $ | 32,697 |
| | $ | 35,181 |
|
| | | | | | | | | | | |
Property revenues | $ | 38,142 |
| | $ | 39,668 |
| | $ | 8,843 |
| | $ | 9,317 |
| | $ | 46,985 |
| | $ | 48,985 |
|
Property expenses | 11,634 |
| | 11,283 |
| | 2,654 |
| | 2,521 |
| | 14,288 |
| | 13,804 |
|
Property Net Operating Income | $ | 26,508 |
| | $ | 28,385 |
| | $ | 6,189 |
| | $ | 6,796 |
| | $ | 32,697 |
| | $ | 35,181 |
|
Property Revenues
Total same store property revenues for the three and nine month periodsmonths ended September 30, 2017 were $8.782019 increased to $12.73 million and $26.12decreased to $38.14 million, respectively, compared to $8.74$12.71 million and $26.27$39.67 million respectively, for the three and nine month periodsmonths ended September 30, 2016, representing an increase of $43 thousand and a decrease of $145 thousand,2018, respectively. The $1.53 million decrease for the nine months ended September 30, 20172019 is primarily a result of lost revenue duethe 2018 early termination fees associated with Farm Fresh at Berkley Center Shopping Center, rent modifications to certain 2018 SEG leases, reduced rent at the closure of Career Point Business School.three SEG recaptured properties and backfilled locations and incremental vacancies.
New store revenues for the three and nine month periods ended September 30, 2017 were $5.67 million and $16.10 million, respectively, compared to $2.25 million and $4.24 million, respectively, for the the three and nine month periods ended September 30, 2016, representing an increase of $3.42 million and $11.86 million, respectively. The three and nine month periods ended September 30, 2017 represents a full period of operations reported for the twenty-three retail acquisitions made in 2016, nine of which were acquired subsequent to September 30, 2016. These properties will generate a significant amount of revenue for us and we will benefit from future contractual rent increases and expansion opportunities.
Property Expenses
Total same store property expenses for the three and nine month periodsmonths ended September 30, 2017 were $2.392019 increased to $4.05 million and $7.33$11.63 million, respectively, compared to $2.41$3.80 million and $7.36$11.28 million respectively, for the the three and nine month periods ended September 30, 2016, representing a decrease of $18 thousand and $21 thousand, respectively.
Total property expenses increased primarily due to new store increases of $717 thousand and $2.99 million for the three and nine month periods ended September 30, 2017, respectively, over the comparable prior year period.
Property Net Operating Income
Total property net operating income for the three and nine month periods ended September 30, 2017 were $10.72 million and $30.75 million, respectively, representing an increase of $2.76 million and $8.75 million, respectively. New stores accounted for the majority of these increases by generating $4.33 million and $11.97 million, respectively, in property net operating income
for the three and nine month periods ended September 30, 2017, compared to $1.63 million and $3.10 million for the three and nine month periods ended September 30, 2016, respectively.
Other Income
Total other income for the three and nine month periods ended September 30, 2017 was $749 thousand and $2.02 million, respectively, representing a decrease of $173 thousand and an increase of $393 thousand, respectively. The change is a result of a $14 thousand decrease and $285 thousand increase, respectively, in development fees earned on the Sea Turtle Development project as the development began in the three months ended September 30, 2016 and a $159 thousand decrease and $108 thousand increase, respectively, in asset management and commission revenue.
Other Operating Expenses
Same store other operating expenses for the three and nine month periods ended September 30, 2017 were $5.46 million and $17.64 million, respectively, representing a decrease of $814 thousand and $2.94 million, respectively, primarily due to the following:
$452 thousand and $2.15 million decrease, respectively, in depreciation and amortization expense from additional assets becoming fully depreciated;
$242 thousand and $1.07 million decrease, respectively, in general and administrative expenses due to an overall decrease in salaries and compensation partially related to the elimination of Chief Operating Officer role at June 30, 2016 and the allocation of property management expenses to the twenty-three properties acquired in 2016 for the full 2017 respective periods; and
$78 thousand decrease and $173 thousand increase, respectively, in non-REIT management and leasing services related to the revenue associated with asset management fees, leasing commissions and development fees.
Total other operating expenses increased by $2.48 million and $4.13 million, respectively, for the three and nine month periods ended September 30, 2017 due to an overall increase in depreciation and amortization resulting from the additional expense associated with the twenty-three properties acquired in 2016 of which $1.74 million relates to the Bi-Lo lease termination at Shoppes at Myrtle Park. The increase in depreciation and amortization is offset by an overall decrease in general and administrative expenses as noted above.
General and administrative expenses during the three and nine month periods ended September 30, 2017 included approximately $362 thousand and $1.48 million of expenses related to acquisitions, capital events and other miscellaneous costs.
Gain on Disposal of Properties - Operations
Overall, the gain on disposal of properties of $1.02 million for the nine month period ended September 30, 2017 is primarily attributable to the sale of the Steak n' Shake outparcel at Rivergate in June 2017, as discussed in Note 3.
Interest Income
Same store interest income was $363 thousand and $1.08 million, respectively, for the three and nine month periods ended September 30, 2017, which represents increases of $64 thousand and $778 thousand, respectively, as compared to the same 2016 periods. The increase is primarily attributed to interest income on the Sea Turtle Development note receivable recognized during the three and nine months ended September 30, 2017 as the note receivable was issued in2018, respectively. Total same store property expenses increased for the three months ended September 30, 2016. Theand nine months ended September 30, 2017 represents a full nine months of interest income on the note receivable.2019 primarily due to increased repairs and maintenance expenses related to buildings and parking lots.
Interest ExpenseProperty Net Operating Income
During the three and nine month periods ended September 30, 2017, same store interest expense decreased $175 thousand and increased $22 thousand, respectively, when compared to the period in 2016, primarily due to incremental debt service associated with additional borrowings.
Total interest expenseproperty net operating income was $10.56 million and $32.70 million for the three and nine month periodsmonths ended September 30, 2017 increased by $611 thousand2019, respectively, compared to $11.29 million and $3.20$35.18 million respectively, which is primarily attributable to amortization of loan costs and the incremental debt service associated with the additional borrowings utilized to acquire the twenty-three retail properties occurring in 2016, nine of which were acquired subsequent to September 30, 2016.
Discontinued Operations
Net (loss) income from discontinued operations totaled $0 thousand and $1.52 million, respectively, for the three and nine month periods ended September 30, 2017, compared to a net income of $40 thousand and $804 thousand, respectively, for three and nine month periods ended September 30, 2016. The nine month period increase is due to the sale of Ruby Tuesdays/Outback at Pierpont occurring during the nine months ended September 30, 2017, which resulted in a larger gain compared to the sale2018, respectively, representing decreases of Starbucks/Verizon occurring during the six months ended June 30, 2016.$722 thousand and $2.48 million, respectively. Same stores accounted for decreases of $231 thousand and $1.88 million, respectively, while non-same stores had decreases of $491 thousand and of $607 thousand, respectively, resulting from loss of NOI associated with sold properties.
Funds from Operations (FFO)
We use Funds from Operations ("FFO"),FFO, a non-GAAP measure, as an alternative measure of our operating performance, specifically as it relates to results of operations and liquidity. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999, April 2002 and April 2002)December 2018). As defined by NAREIT, FFO represents net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization (excluding amortization of loan origination costs), plus impairment of
goodwill, impairment of real estate related long-lived assets and after adjustments for unconsolidated partnerships and joint ventures. Most industry analysts and equity REITs, including us, consider FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses on dispositions and excluding depreciation, FFO is a helpful tool that can assist in the comparison of the operating performance of a company’s real estate between periods, or as compared to different companies. Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, while historically real estate values have risen or fallen with market conditions. Accordingly, we believe FFO provides a valuable alternative measurement tool to GAAP when presenting our operating results.
Below is a comparison of same and newnon-same store FFO, which is a non-GAAP measurement, for the three and nine month periods ended September 30, 20172019 and 2016:2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| Same Store | | New Store | | Total | | Period Over Period Changes |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | $ | | % |
| | | | | | | (in thousands, unaudited) | | | | | | |
Net Loss | $ | (587 | ) | | $ | (1,422 | ) | | $ | (1,586 | ) | | $ | (212 | ) | | $ | (2,173 | ) | | $ | (1,634 | ) | | $ | (539 | ) | | (32.99 | )% |
Depreciation and amortization of real estate assets | 3,612 |
| | 4,064 |
| | 4,134 |
| | 930 |
| | 7,746 |
| | 4,994 |
| | 2,752 |
| | 55.11 | % |
Loss on disposal of properties | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | — | % |
Gain on disposal of properties-discontinued operations | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) | | 1 |
| | 100.00 | % |
FFO | $ | 3,026 |
| | $ | 2,641 |
| | $ | 2,548 |
| | $ | 718 |
| | $ | 5,574 |
| | $ | 3,359 |
| | $ | 2,215 |
| | 65.94 | % |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| Same Store | | Non-same Store | | Total | | Period Over Period Changes |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | $ | | % |
| | | | | | | | | | | | | | | |
| | | | | | | (in thousands, unaudited) | | | | | | |
Net (Loss) Income | $ | (956 | ) | | $ | (1,887 | ) | | $ | (4 | ) | | $ | 1,297 |
| | $ | (960 | ) | | $ | (590 | ) | | $ | (370 | ) | | (62.71 | )% |
Depreciation and amortization of real estate assets | 4,031 |
| | 4,932 |
| | 1,035 |
| | 1,113 |
| | 5,066 |
| | 6,045 |
| | (979 | ) | | (16.20 | )% |
Loss (gain) on disposal of properties | — |
| | — |
| | 81 |
| | (1,257 | ) | | 81 |
| | (1,257 | ) | | 1,338 |
| | 106.44 | % |
Impairment of assets held for sale | 400 |
| | — |
| | — |
| | — |
| | 400 |
| | — |
| | 400 |
| | 100.00 | % |
FFO | $ | 3,475 |
| | $ | 3,045 |
| | $ | 1,112 |
| | $ | 1,153 |
| | $ | 4,587 |
| | $ | 4,198 |
| | $ | 389 |
| | 9.27 | % |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| Same Store | | New Store | | Total | | Period Over Period Changes |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | $ | | % |
| | | | | | | (in thousands, unaudited) | | | | | | |
Net Loss | $ | (2,350 | ) | | $ | (6,844 | ) | | $ | (1,709 | ) | | $ | (1,363 | ) | | $ | (4,059 | ) | | $ | (8,207 | ) | | $ | 4,148 |
| | 50.54 | % |
Depreciation and amortization of real estate assets | 11,269 |
| | 13,414 |
| | 9,186 |
| | 1,892 |
| | 20,455 |
| | 15,306 |
| | 5,149 |
| | 33.64 | % |
Loss (gain) on disposal of properties | 12 |
| | — |
| | (1,033 | ) | | — |
| | (1,021 | ) | | — |
| | (1,021 | ) | | — | % |
Gain on disposal of properties-discontinued operations | (1,502 | ) | | (689 | ) | | — |
| | — |
| | (1,502 | ) | | (689 | ) | | (813 | ) | | (118.00 | )% |
FFO | $ | 7,429 |
| | $ | 5,881 |
| | $ | 6,444 |
| | $ | 529 |
| | $ | 13,873 |
| | $ | 6,410 |
| | $ | 7,463 |
| | 116.43 | % |
| | | | | | | | | | | | | | | |
During the three and nine month periods ended September 30, 2017, same store FFO increased $385 thousand and $1.55 million, respectively, primarily due to the following:
$242 thousand and $1.07 million, respectively, decrease in general and administrative expenses;
$173 thousand decrease and $393 thousand increase, respectively, in other income as a result of development fees earned on Sea Turtle Development project and asset management and commission revenues;
$78 thousand decrease and $173 thousand increase, respectively, in non-REIT management and leasing services;
$65 thousand and $175 thousand, respectively, increase in income tax expense;
$64 thousand and $778 thousand, respectively, increase in interest income as a result of notes receivable; and
$61 thousand increase and $124 thousand decrease, respectively, in property net operating income.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| Same Store | | Non-same Store | | Total | | Period Over Period Changes |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | $ | | % |
| | | | | | | | | | | | | | | |
| | | | | | | (in thousands, unaudited) | | | | | | |
Net (Loss) Income | $ | (8,183 | ) | | $ | (7,203 | ) | | $ | 715 |
| | $ | 3,181 |
| | $ | (7,468 | ) | | $ | (4,022 | ) | | $ | (3,446 | ) | | (85.68 | )% |
Depreciation and amortization of real estate assets | 13,049 |
| | 17,235 |
| | 3,120 |
| | 3,708 |
| | 16,169 |
| | 20,943 |
| | (4,774 | ) | | (22.80 | )% |
Gain on disposal of properties | — |
| | — |
| | (1,427 | ) | | (2,312 | ) | | (1,427 | ) | | (2,312 | ) | | 885 |
| | 38.28 | % |
Gain on disposal of properties-discontinued operations | — |
| | — |
| | — |
| | (903 | ) | | — |
| | (903 | ) | | 903 |
| | 100.00 | % |
Impairment of assets held for sale | 400 |
| | — |
| | 1,147 |
| | — |
| | 1,547 |
| | — |
| | 1,547 |
| | 100.00 | % |
FFO | $ | 5,266 |
| | $ | 10,032 |
| | $ | 3,555 |
| | $ | 3,674 |
| | $ | 8,821 |
| | $ | 13,706 |
| | $ | (4,885 | ) | | (35.64 | )% |
| | | | | | | | | | | | | | | |
Total FFO increased $2.22$389 thousand and decreased $4.89 million and $7.46 million, respectively, for the three and nine month periods ended September 30, 20172019, respectively, compared to the same periodperiods in 2016,2018. The decrease is primarily due to incremental new store FFOimpairment of $1.83 million and $5.92 million, respectively, attributable to the twenty-three retail acquisitions that occured during 2016.notes receivable as detailed in Note 4.
We believe the computation of FFO in accordance with NAREIT's definition includes certain items that are not indicative of the results provided by our operating portfolio and affect the comparability of our period-over-period performance. These items include, but are not limited to, legal settlements, non-cash share-based compensation expense, non-cash amortization on loans and acquisition costs. Therefore, in addition to FFO, management uses Adjusted FFO ("AFFO"), which we define to exclude such items. Management believes that these adjustments are appropriate in determining AFFO as they are not indicative of the operating performance of our assets. In addition, we believe that AFFO is a useful supplemental measure for the investing
community to use in comparing us to other REITs as many REITs provide some form of adjusted or modified FFO. However, there can be no assurance that AFFO presented by us is comparable to the adjusted or modified FFO of other REITs.
Total AFFO for the three and nine month periods ended September 30, 20172019 and 2016, respectively,2018 is shown in the table below: | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended September 30, | | Nine Months Ended September 30, | 2019 | | 2018 | | 2019 | | 2018 |
| 2017 | | 2016 | | 2017 | | 2016 | | | | | | | |
| (in thousands, unaudited) | (in thousands, unaudited) |
FFO | $ | 5,574 |
| | $ | 3,359 |
| | $ | 13,873 |
| | $ | 6,410 |
| $ | 4,587 |
| | $ | 4,198 |
| | $ | 8,821 |
| | $ | 13,706 |
|
Preferred stock dividends | (2,496 | ) | | (1,240 | ) | | (7,473 | ) | | (2,263 | ) | |
Preferred Stock dividends - declared | | — |
| | (3,208 | ) | | — |
| | (9,621 | ) |
Preferred Stock dividends - undeclared | | (3,657 | ) | | — |
| | (10,972 | ) | | — |
|
Preferred stock accretion adjustments | 205 |
| | 78 |
| | 605 |
| | 255 |
| 169 |
| | 169 |
| | 510 |
| | 509 |
|
FFO available to common shareholders and common unitholders | 3,283 |
| | 2,197 |
| | 7,005 |
| | 4,402 |
| 1,099 |
| | 1,159 |
| | (1,641 | ) | | 4,594 |
|
Acquisition costs | 233 |
| | 118 |
| | 832 |
| | 914 |
| |
Impairment of notes receivable | | — |
| | — |
| | 5,000 |
| | — |
|
Acquisition and development costs | | 1 |
| | 82 |
| | 25 |
| | 346 |
|
Capital related costs | 82 |
| | 61 |
| | 468 |
| | 311 |
| 4 |
| | 110 |
| | 140 |
| | 408 |
|
Other non-recurring and non-cash expenses | 47 |
| | 47 |
| | 177 |
| | 506 |
| 35 |
| | — |
| | 61 |
| | 103 |
|
Share-based compensation | 134 |
| | 171 |
| | 735 |
| | 582 |
| 72 |
| | 241 |
| | 244 |
| | 727 |
|
Straight-line rent | (162 | ) | | (81 | ) | | (566 | ) | | (223 | ) | |
Straight-line rental revenue, net straight-line expense | | (86 | ) | | (348 | ) | | (1 | ) | | (937 | ) |
Loan cost amortization | 682 |
| | 629 |
| | 2,509 |
| | 1,464 |
| 409 |
| | 625 |
| | 1,336 |
| | 1,682 |
|
Accrued interest income | (121 | ) | | (294 | ) | | (359 | ) | | (294 | ) | |
Above (below) market lease amortization | 65 |
| | (3 | ) | | 448 |
| | 69 |
| |
(Below) above market lease amortization | | (165 | ) | | (313 | ) | | (585 | ) | | (421 | ) |
Recurring capital expenditures and tenant improvement reserves | (245 | ) | | (188 | ) | | (696 | ) | | (514 | ) | (276 | ) | | (284 | ) | | (846 | ) | | (858 | ) |
AFFO | $ | 3,998 |
| | $ | 2,657 |
| | $ | 10,553 |
| | $ | 7,217 |
| $ | 1,093 |
| | $ | 1,272 |
| | $ | 3,733 |
| | $ | 5,644 |
|
Impairment on notes receivable during the nine months ended September 30, 2019 is due to the impairment of the notes receivable related to Sea Turtle and is not indicative of our core portfolio of properties and future operations.
Acquisition expenses were primarilyand development costs at September 30, 2018 are related to acquisitions personnelthe write-off of costs associated with the construction contract for the development of an outparcel at Folly Road and due diligence of potential acquisitions currently in our pipeline. Light Bridge joint venture.
Other nonrecurring and non-cash expenses are miscellaneousseverance costs and one time fees we believe will not be incurred on a goinggo forward basis including expenses such as vacation accrual, severance and consulting fees which are no longer under contract and are not expected to be under contract for the foreseeable future.basis.
The preferred stock accretion adjustments represent the amortization of offering costs associated with raising the Series B Preferred Stock and Series D Preferred. Other non-recurring expenses primarily relatePreferred Stock.
AFFO for the three and nine months ended September 30, 2019 was $1.09 million and $3.73 million, respectively, compared to those costs that are$1.27 million and $5.64 million for the three and nine months ended September 30, 2018, respectively, representing decreases of $179 thousand and $1.91 million. The decreases were driven by increases in Preferred Dividends of $449 thousand and $1.35 million, respectively, related to miscellaneous items that we do not anticipate incurringthe increased dividend rate on a going forward basis.the Preferred Series D in 2019 and decreases of $722 thousand and $2.48 million, respectively, in property NOI; partially offset by decreases of $313 thousand and of $200 thousand, respectively, in interest expense, net of loan amortization and decreases in corporate general and administrative expenses.
Liquidity and Capital Resources
At September 30, 2017,2019, our consolidated cash, and cash equivalents and restricted cash totaled $5.66$22.53 million compared to consolidated cash, and cash equivalents and restricted cash of $4.86$18.00 million at December 31, 2016.2018. Cash flows from operating activities, investing activities and financing activities for the nine month periodperiods ended September 30, 20172019 and 20162018 were as follows: | | | | | | | | | | | Nine Months Ended September 30, | | Period Over Period Change |
| Nine Months Ended September 30, | | Period Over Period Change | 2019 | | 2018 | | $ | | % |
| 2017 | | 2016 | | $ | | % | | | | | | | |
| | | (in thousands, unaudited) | | | | | (in thousands, unaudited) | | |
Operating activities | $ | 18,514 |
| | $ | 9,409 |
| | $ | 9,105 |
| | 96.77 | % | $ | 12,616 |
| | $ | 18,540 |
| | $ | (5,924 | ) | | (31.95 | )% |
Investing activities | $ | 358 |
| | $ | (19,745 | ) | | $ | 20,103 |
| | 101.81 | % | $ | 2,174 |
| | $ | (21,021 | ) | | $ | 23,195 |
| | 110.34 | % |
Financing activities | $ | (18,072 | ) | | $ | 35,676 |
| | $ | (53,748 | ) | | (150.66 | )% | $ | (10,262 | ) | | $ | 10,541 |
| | $ | (20,803 | ) | | (197.35 | )% |
Operating Activities
During the nine months ended September 30, 2017,2019, our cash flows from operating activities were $18.51$12.62 million, compared to cash flows from operating activities of $9.41$18.54 million during the nine months ended September 30, 2016,2018, representing an increasea decrease of $9.11$5.92 million. This increasedecrease is primarily thea result of a $4.15decreases in property NOI of $2.48 million decreaseand reduction of accounts payable, accrued expenses and other liabilities of $4.20 million in our consolidated net loss dueaddition to factors discussed in the Results of Operations section above, specifically the incremental increase in FFO of $5.92 million from new store properties earned during the respective periods. Also impacting operating cash flows is the fluctuation in acquisition deposits included within deferred costs and the timing of the respective acquisitions accompanied by a decrease in cash restricted for operating property reserves.receivables and deferred costs.
Investing Activities
During the nine months ended September 30, 2017,2019, our cash flows fromprovided by investing activities were $358 thousand,$2.17 million, compared to cash flows used in investing activities of $19.75$21.02 million during the nine months ended September 30, 2016,2018, representing an increase in cash provided of $20.10$23.20 million due to the following:
$9.4023.13 million decrease in cash outflows for the issuance of the Sea Turtle Development notes receivable;
$8.68 million decrease in cash outflows used for the acquisition of the fourteen A-C Portfolio propertiesJANAF in 2016;2018;
$2.422.44 million increasedecrease in cash outflows used for capital expenditures primarily a result of the redevelopment of Columbia Fire House as well as Perimeter Square and Shoppes at Myrtle Park tenant improvements in 2018; and offset by
$2.38 million decrease in cash received as a result of the sale2019 sales of aJenks Plaza, Graystone, Perimeter and Harbor Pointe land parcel, compared to the 2018 sales of the Chipotle ground lease at Carolina PlaceConyers Crossing, Shoppes at Eagle Harbor and the Steak n' Shake outparcel at Rivergate;
$955 thousand decrease in cash outflows for capital property reserves;
$837 thousand decrease in cash outflows for cash restricted for property acquisitions;
$486 thousand increase in cash received for disposal of properties as a result of the 2017 sale of the Ruby Tuesdays/Outback at Pierpont Shopping Center offset by the 2016 sale of Starbucks/Verizon; and
Offset by $2.68 million increase in cash outflows on capital expenditures.Laskin Road Land Parcel.
Financing Activities
During the nine months ended September 30, 2017,2019, our cash flows used in financing activities were $18.07$10.26 million, compared to $35.68$10.54 million of cash flows provided by financing activities during the nine months ended September 30, 2016,2018, representing a decrease of $53.75$20.80 million due to the following:
$61.3121.16 million decrease in proceeds from sale of preferred stock due to the Series B Preferred and2018 Series D Preferred offerings occurring in 2016;offering;
$2.934.32 million decrease in loan proceeds due to the $8.00 million Revere Loan occurring in 20162019 Village of Martinsville and Laburnum Square refinances offset by a $3.22 million increase in refinancing proceeds and the $1.85 million2018 JANAF Bravo Loan, Columbia Fire House Construction Loan occurringadvances, refinance of LaGrange and refinancing of six properties off the KeyBank Line of Credit;
$7.61 million increase in 2017;loan principal payments primarily a result of the payoff of the Revere Term Loan and Senior Convertible Notes, in addition to the Village of Martinsville and Laburnum Square refinances and pay-down of the KeyBank Line of Credit; and offset by
$2.6111.55 million decrease in additional cash outflows for dividends and distributions primarily as a result of Series Bsuspending the Preferred and Series D Preferred offerings;
Partially offset by $11.85 million decreaseStock dividends in loan principal payments due to the 2016 KeyBank pay-down of $21.1 million offset by the 2017 refinancing of loans along with paydown of the Rivergate loan and Revere Loan as a result of Steak n' Shake and Carolina Place sales; and
$2.93 million decrease in payments for deferred financing costs primarily related to the acquisition of the fourteen A-C Portfolio properties in 2016 compared to costs associated with less 2017 refinances.2019.
We intend to continue managing our debt prudently so as to maintain a conservative capital structure and minimize leverage within our company. As of September 30, 20172019 and December 31, 2016,2018, our debt balances, excluding unamortized debt issuance costs, consisted of the following:following (in thousands): | | | September 30, 2017 | | December 31, 2016 | September 30, 2019 | | December 31, 2018 |
| (in thousands, unaudited) | (unaudited) | | |
Fixed-rate notes | $ | 218,225 |
| | $ | 211,539 |
| $ | 298,719 |
| | $ | 286,684 |
|
Adjustable-rate mortgages | 26,520 |
| | 28,082 |
| 24,375 |
| | 26,503 |
|
Fixed-rate notes, assets held for sale | — |
| | 1,350 |
| — |
| | 4,323 |
|
Floating-rate line of credit(1) | 68,032 |
| | 74,077 |
| 25,991 |
| | 52,102 |
|
Total debt | $ | 312,777 |
| | $ | 315,048 |
| $ | 349,085 |
| | $ | 369,612 |
|
(1) Includes portion attributable to liabilities held for sale, see Note 3 included in this Form 10-Q.
The weighted-average interest rate and term of our fixed-rate debt including assets held for sale are 4.78%4.65% and 6.415.06 years, respectively, at September 30, 2017.2019. We have $23.01$48.90 million of debt maturing, including scheduled principal repayments, during the three months ending December 31, 2017.2019. While we anticipate being able to refinance our maturing loans at reasonable market terms upon maturity or receive short term extensions, our inability to do so may materially impact our financial position and results of operations. See FootnoteNote 6 included in this Form 10-Q for additional mortgage indebtedness details.
Future Liquidity Needs
InThe primary liquidity needs of the Company, in addition to the funding of our ongoing operations, the primary liquidity needs of the Company at September 30, 20172019 are $84.25$68.85 million in debt maturities and principal payments due in the twelve months ended September 30, 2018, debt service payments, Series B Preferred2020 and Series D Preferred dividends (approximately $9.2 million), margin covenant requirements as detailed in our Amended and Restated Credit Agreement with KeyBank and the $1.44 per share (approximately $13.50 million) targeted annual Common Stock dividends we are planning to pay on a quarterly basis.as described in Note 6. Included in the $84.25$68.85 million of debt maturities is the $68.03$25.99 million maturity ofon the KeyBank Line of Credit. ManagementThe KeyBank Line of Credit is collateralized by eight properties within our portfolio. Subsequent to September 30, 2019, the Company made a $7.16 million principal paydown and entered into a non-binding Term Sheet with KeyBank which among other provisions increases the monthly principal payments to $350 thousand in addition to lowering the process of refinancing properties offamount borrowed on the KeyBank Line of Credit to reduce the line to under $50.00 million prior to December 6, 2017by certain dates through June 30, 2020, see Note 12 included in accordance with the Fourth Amendment as described in Footnote 11.this Form 10-Q. The Company is in the process of refinancing the $3.00 million Bank Line of Credit loan which has been extended to December 2017 and has the ability to repay the $259 thousand Columbia Fire House Loan with available funds from the Columbia Fire House Construction Loan. The KeyBank Line of Credit and all loans due are collateralized by properties within our portfolio. Management is currently working with lenders to refinance these loans. Based on our proven ability to refinance debt and obtain
alternative sources of capital, and existing market conditions, we believe it to be probable that our plans to meet these obligations will be successful.
Our success in refinancing the debt and executing on our growth strategy will dictate our liquidity needs going forward. If we are unable to execute in these areas, our ability to grow and pay future dividends may be limited without additional capital.
We believe significant opportunities existremaining deadlines described in the current commercial real estate environment that will enable usTerm Sheet through monthly principal payments, refinances and dispositions. Management intends to sufficiently leverage our capital and execute our growth plan. Several factors are contributing to an increased supply in available properties for acquisition, including a significant level of maturities of CMBSrefinance or extend the remaining maturing debt strategic shifts by larger REITs to reduce debt levels and exit certain markets. We believe the public REIT model provides a unique growth vehicle whereby we can either acquire properties through traditional third party acquisitions using a combination of cash generated in the capital markets and debt financing; contributions of properties by third parties in exchange for common units issued by the Operating Partnership; and contributions of existing properties owned by Mr. Wheeler and his affiliates in exchange for common units issued by the Operating Partnership. Additionally, access to public market capital enhances our ability to formulate acquisition structures and terms that better meet our growth strategies.as it comes due.
In addition to liquidity required to fund debt payments distributions and acquisitions, we may incur some level of capital expenditures during the year for our existing properties that cannot be passed on to our tenants. The majority of these expenditures occur subsequent to acquiring a new property that requires significant improvements to maximize occupancy and lease rates, with an existing property that needs a facelift to improve its marketability or when tenant improvements are required to make a space fit a particular tenant’s needs. Significant capital expenditures could also impact
To meet these future liquidity needs, the Company had $5.23 million in cash and cash equivalents, $17.29 million held in lender reserves for the purpose of tenant improvements, lease commissions, real estate taxes and insurance at September 30, 2019 and intends to use cash generated from operations during the year ending September 30, 2020. In addition, the Board suspended Series A Preferred, Series B Preferred and Series D Preferred dividend payments beginning with the fourth quarter 2018 dividend. The Board plans to revisit the dividend payment policy with respect to the Series A Preferred, Series B Preferred and Series D Preferred on an ongoing basis. The Board believes that the dividend suspension will provide the Company with additional funds to meet its ongoing liquidity needs, approximately $3.49 million a quarter.
Additionally, the Company plans to undertake measures to grow its operations and increase liquidity through backfilling vacant anchor spaces, replacing tenants who are in default of their lease terms, increasing future lease revenue through tenant improvements partially funded by restricted cash, disposition of assets and refinancing properties.
Our success in refinancing the debt, and executing on our strategy will dictate our liquidity needs going forward. If we are unable to execute in these areas, our ability to grow and pay future dividends.reinstate dividends may be limited without additional capital.
Off-Balance Sheet Arrangements
On September 1, 2011, the Grove Economic Development Authority issued the Grove Economic Development Authority Tax Increment Revenue Note, Taxable Series 2011 in the amount of $2,415,000, bearing a variable interest rate of 2.29%, not to exceed 14% and payable in 50 semi-annual installments. The proceeds of the bonds were to provide funding for the construction of public infrastructure and other site improvements and to be repaid by incremental additional property taxes generated by development. Harbor Pointe Associates, LLC, then owned by an affiliate of Jon Wheeler, entered into the Harbor Pointe Agreement. In 2014, Harbor Pointe Associates, LLC was acquired by the Company.
The total debt service shortfall over the life of the bond is uncertain as it is based on ad valorem taxes, assessed property values, property tax rates, LIBOR and future potential development ranging until 2036. The Company’s future total principal obligation under the Harbor Pointe Agreement will be no more than $2.26 million, the principal amount of the bonds, as of September 30, 2019. In addition, the Company may have an interest obligation on the note based on the principal balance and LIBOR rates in effect at future payment dates. During the three and nine months ended September 30, 2019, the Company funded approximately $0 thousand and $44 thousand, respectively, in debt service shortfalls. During the three and nine months ended September 30, 2018, the Company funded approximately $0 thousand and $5 thousand, respectively, in debt service shortfalls. No amounts have been accrued for this as of September 30, 2019 as a reasonable estimate of future debt service shortfalls cannot be determined based on variables noted above.
As of September 30, 2017,2019, we have no off-balance sheet arrangements, other than that noted above, that are likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.
Recent Accounting Pronouncements
See Note 2 to the condensed consolidated financial statements beginning on page 79 of this Current Report on Form 10-Q.10-Q, this note provides a description of the accounting standard adopted for leases, ASU 2016-02, "Leases (Topic 842)".
Critical Accounting Policies
In preparing the condensed consolidated financial statements, we have made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results may differ from these estimates. A summary of our critical accounting policies is included in our 20162018 Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to these policies during the nine months ended September 30, 2017.2019, with the exception of those polices surrounding our lessee and lessor activities. These policy changes were made as part of adopting ASU 2016-02, "Leases (Topic 842)." The most significant impact of adoption was the recognition of ROU assets and lease liabilities of approximately $11.90 million and $11.99 million, respectively, for operating leases which the Company is the lessee as of January 1, 2019. The policy changes had no impact on our cash flows and an immaterial impact on the condensed consolidated statement of operations. For additional disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 of the condensed consolidated financial statements included in this Form 10-Q.
Available Information
The Company’s internet website address is www.whlr.us. We make available free of charge through our website our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. In addition, we have posted the Charters of our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, as well as our Code of Business Conduct and Ethics for Employees, Officers, Agents and Representatives, Code of Business Conduct and Ethics for Members of the Board of Directors, Corporate Governance Principles, including guidelines on director independence, and Insider Trading Policy, all under separate headings. The content of our website is not incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our website is intended to be inactive textual references only.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The primary market risk to which we are exposed is interest rate risk. Our primary interest rate exposure is LIBOR. We primarily use fixed interest rate financing to manage our exposure to fluctuations in interest rates.
At September 30, 2017, approximately $218.23 million, or 69.77%, of our debt had fixed interest rates and approximately $94.55 million, or 30.23%, had variable interest rates. Assuming no increase in the level of our variable rate debt, if interest rates increased by 1.0%, our cash flow would decrease by approximately $946 thousand per year. At September 30, 2017, LIBOR was approximately 123 basis points. Assuming no increase in the level of our variable rate debt, if LIBOR was reduced to zero basis points, our cash flow would increase by approximately $1.17 million per year.Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The management of the Trust or the Company, under the supervision and with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to the Trust’s management, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of September 30, 20172019 (the end of the period covered by this Form 10-Q).
Changes in Internal Control Over Financial Reporting
None.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
WeStilwell Activist Investments LP v. Wheeler Real Estate Investment Trust, Inc., Circuit Court for Baltimore County, Maryland. This is an action brought by one of the largest investors in the Company seeking the production of documents and information beyond what the Company provides in its public filings and what it has already provided to Stilwell after a written request. The Company filed a motion to dismiss Stilwell's suit for failure to state a claim. At a hearing on that motion on October 31, 2019, the Court denied motion to dismiss, so the case will proceed, for now. Stilwell does not seek any monetary damages in this action.
JCP Investment Partnership LP, et al v. Wheeler Real Estate Investment Trust, Inc., Circuit Court for Baltimore County, Maryland. This is an action brought by a large minority shareholder of the Company alleging that in 2018, the Company breached an asset coverage ratio covenant, so as to require the Company to buy back shares of its Series D Preferred. The Company is defending this suit on the grounds it validly amended the Articles Supplementary through the Certificate of Correction filed with the Maryland Department of Taxation on or about May 3, 2018, curing any alleged breach of the covenant. Plaintiffs are not seeking any specific damage amount; rather, their prayer for relief asks the Court to order that the Company must redeem the Series D Preferred in accordance with the terms of the original Articles Supplementary, not commit any further alleged violations of the Articles Supplementary, and award them their costs, expenses and attorneys' fees. In the event a redemption is required, the redemption provisions of the Articles Supplementary permit the Company to redeem those Series D Preferred that it chooses to redeem (not necessarily JCP's Preferred Shares). Accordingly, it is difficult to assess the Company's anticipated exposure in this case at this time. The case is presently in discovery and is scheduled for trial on March 2, 2020. However, the parties conducted a settlement conference in July, 2019, and have continued their efforts to resolve the case short of trial.
Jon Wheeler v. Wheeler Real Estate Investment Trust, Inc., Circuit Court for the City of Virginia Beach, Virginia. Former CEO, Jon Wheeler, alleges that he was improperly terminated and is owed severance and bonus payments pursuant to his Employment Agreement. Altogether, his alleged damages total approximately $1.00 million. The Company is defending the action on the grounds that Jon Wheeler was properly terminated for cause, including for his failure to properly apprise the Board of Directors of critical information, and placing his own personal interests above the Company's, including contracting counsel about filing suit on his behalf against the Company and the Board of Directors while he was still CEO and President of the Board. The Company has filed a Counterclaim against Wheeler for approximately $150 thousand for reimbursement of personal expenses the Company paid, but that Wheeler should have borne. Trial of this action is scheduled for December 17, 2019. At this juncture, the outcome of the matter cannot be predicted.
BOKF, NA v. WD-1 Associates, LLC, et al, Court of Common Pleas for Beaufort County, South Carolina. This is a lawsuit filed by BOKF ("Bank of Arkansas") the lead lender for Sea Turtle project in Hilton Head, South Carolina against WD-1 Associates, LLC and Jon Wheeler for default on BOKF's two construction loans. BOKF seeks appointment of a Receiver to take over the financial management of the project that WD-1 was allegedly (mis)handling. The lawsuit pending in Beaufort County is presently stayed as to WD-1, pursuant to the Chapter 11 Bankruptcy proceeding it filed in Charleston, South Carolina. In the lawsuit pending in Beaufort County, BOKF has moved for a default judgment against Jon Wheeler, who personally guaranteed the two BOKF loans. The Company's subsidiary, Wheeler Real Estate, LLC is named in the lawsuit pending in Beaufort County solely in its position as the former property manager for WD-1 Associates, to obtain financial information. No damages are sought from Wheeler Real Estate, LLC in the Beaufort County action. The Company's subsidiaries are creditors in the Chapter 11 Bankruptcy. WD-1 is seeking a sale of the project real estate through the bankruptcy proceedings. At this juncture, the outcome of the matter cannot be predicted.
Jon Wheeler v. Wheeler Real Estate Investment Trust, Inc. and David Kelly, Individually, Circuit Court for the City of Virginia Beach, Virginia. In September, 2018, former Chief Executive Officer and President Jon S. Wheeler filed claims for defamation and tortious interference with contract expectancy, prospective business relationships and economic advantage in the Circuit Court for the City of Virginia Beach, Virginia, asserting current Chief Executive Officer and President, David Kelly, defamed him in communications with an industry association. In February, 2019, Jon Wheeler’s counsel amended the suit to add the Company as a Defendant, but dropped all but the defamation claims. Mr. Kelly and the Company are defending the lawsuit. Trial is set for June 10, 2020. At this juncture, the outcome of the matter cannot be predicted.
In addition to the above, we are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on our financial position, results of operation or liquidity.
Item 1A. Risk Factors.
There have been no material changes from the risk factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016 other than the revision of the following risk factor:
The majority of our properties are retail shopping centers and depend on anchor stores or major tenants to attract shoppers and could be adversely affected by the loss of, or a store closure by, one or more of these tenants.
Large, regionally or nationally recognized tenants typically anchor our properties. At any time, our tenants may experience a downturn in their business that may significantly weaken their financial condition. As a result, our tenants, including our anchor and other major tenants, may fail to comply with their contractual obligations to us, seek concessions in order to continue operations or declare bankruptcy, any of which could result in the termination of such tenants’ leases and the loss of rental income attributable to the terminated leases. In addition, certain of our tenants may cease operations while continuing to pay rent, which could decrease customer traffic, thereby decreasing sales for our other tenants at the applicable retail property. In addition to these potential effects of a business downturn, mergers or consolidations among large retail establishments could result in the closure of existing stores or duplicate or geographically overlapping store locations, which could include stores at our retail properties.
Loss of, or a store closure by, an anchor or major tenant could significantly reduce our occupancy level or the rent we receive from our retail properties, and we may not have the right to re-lease vacated space or we may be unable to re-lease vacated space at attractive rents or at all. Moreover, in the event of default by a major tenant or anchor store, we may experience delays and costs in enforcing our rights as landlord to recover amounts due to us under the terms of our agreements with those parties. The occurrence of any of the situations described above, particularly if it involves an anchor tenant with leases in multiple locations, could seriously harm our performance and could adversely affect the value of the applicable retail property.
As of September 30, 2017, our largest anchor tenant, Bi-Lo, which represents approximately 11.16% of our total annualized base has closed two of the fifteen stores located in our portfolio, representing 85,160 square feet and approximately $1.02 million of annualized base rent. The Bi-Lo lease at the Myrtle Park location has been terminated as of September 30, 2017. In addition, Martin’s at Brook Run, representing 58,473 square feet and $380 thousand of annualized base rent closed in August 2017. We are currently collecting rent from Bi-Lo at Cypress and Martin's at Brook Run on their remaining lease terms which expire in 2018 and 2020, respectively. The loss of these anchor tenants at these three properties may result in decrease customer traffic for our other tenants at these properties, thereby decreasing sales for such tenants and may make it more difficult for us to secure tenant lease renewals or new tenants for these properties. Management is currently in negotiations with potential backfills on the three spaces.
2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
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101.INS | | XBRL Instance Document. (23) |
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101.INS XBRL | | Instance Document (26) |
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101.SCH | | XBRL Taxonomy Extension Schema Document. (23)Document (26) |
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(1) | Filed as an exhibit to the Registrant's report on Form 8-K, filed on August 8, 2016 and hereby incorporated by reference. |
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(2) | Filed as an exhibit to the Registrant's Registration Statement on Form S-11S-11/A (Registration No. 333-177262) previously filed on February 14, 2012 pursuant to the Securities Act of 1933 and hereby incorporated by reference. |
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(3) | Filed as an exhibit to the Registrant's Registration Statement on Form S-11S-11/A (Registration No. 333-194831) previously filed on April 23, 2014 pursuant to the Securities Act of 1933 and hereby incorporated by reference. |
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(4) | Filed as an exhibit to the Registrant's ReportRegistration Statement on Form 8-K,S-11 (Registration No. 333-198245) previously filed on December 18, 2013August 20, 2014 pursuant to the Securities Act of 1933 and hereby incorporated by reference. |
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(5) | Filed as an exhibit to the Registrant's Registration StatementReport on Form S-11 (Registration No. 333-198245) previously8-K, filed pursuant to the Securities Act of 1933on April 15, 2015 and hereby incorporated by reference. |
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(6) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on April 15,June 8, 2015 and hereby incorporated by reference. |
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(7) | Filed as an exhibit to the Registrant's report on Form 8-K, filed on October 30, 2014 and hereby incorporated by reference. |
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(8) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on filed on April 3, 2017 and hereby incorporated by reference. |
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(9) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on March 19, 2015 and hereby incorporated by reference. |
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(10) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on June 2, 2015 and hereby incorporated by reference. |
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(11) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on March 16, 2016 and hereby incorporated by reference. |
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(12) | Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on December 12, 2016 and hereby incorporated by reference. |
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(13) | Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on April 12, 2016 and hereby incorporated by reference. |
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(14) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on May 2, 2016 and hereby incorporated by reference. |
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(15)(9) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on February 10, 2017 and hereby incorporated by reference. |
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(16)(10) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on June 16, 2016 and hereby incorporated by reference. |
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(17)(11) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on September 20, 2016 and hereby incorporated by reference. |
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(18)(12) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on July 15, 2016 and hereby incorporated by reference. |
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(19)(13) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on December 5, 2016 and hereby incorporated by reference. |
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(20)(14) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on JuneApril 3, 2017 and hereby incorporated by reference. |
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(15) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on December 22, 2017 and hereby incorporated by reference. |
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(16) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on January 23, 2018 and hereby incorporated by reference. |
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(17) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on February 20, 2018 and hereby incorporated by reference. |
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(18) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on May 4, 2018 and hereby incorporated by reference. |
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(19) | Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on March 7, 2018 and hereby incorporated by reference. |
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(20) | Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on August 8, 20152018 and hereby incorporated by reference. |
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(21) | Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on August 9, 2017October 19, 2018 and hereby incorporated by reference. |
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(22) | Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on October 12, 2017March 14, 2019 and hereby incorporated by reference. |
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(23) | Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on May 1, 2019 and hereby incorporated by reference. |
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(24) | Filed as an exhibit to the Registrant's Report on Form 8-K, filed on September 5, 2019 and hereby incorporated by reference. |
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(25) | Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on September 17, 2019 and hereby incorporated by reference. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | WHEELER REAL ESTATE INVESTMENT TRUST, INC. |
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| | | By: | | /s/ WILKES J. GRAHAMMATTHEW T. REDDY |
| | | | | Wilkes J. GrahamMATTHEW T. REDDY |
| | | | | Chief Financial Officer |
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Date: | November 9, 20177, 2019 | | | | |