UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-35713
WHEELER REAL ESTATE INVESTMENT TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
2529 Virginia Beach Blvd., Suite 200
Virginia Beach. Virginia
(Address of Principal Executive Offices)
45-2681082
(I.R.S. Employer
Identification No.)
23452
(Zip Code)
(757) 627-9088
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value (NASDAQ Capital Market)
Series B convertible Preferred Stock, no par value (NASDAQ Capital Market)
Series D cumulative convertible Preferred Stock, no par value (NASDAQ Capital Market)
Warrants to acquire shares of Common Stock (NASDAQ Capital Market)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No þ
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting
company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated file
¨
Non-accelerated filer
þ
¨ Accelerated filer
þ Smaller reporting company
¨ Emerging growth company
If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨
As of June 30, 2018, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was
$35,227,665.
As of February 27, 2019, there were 9,692,082 shares of Common Stock, $0.01 par value per share, outstanding.
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
EXHIBIT INDEX
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K ("Form 10-K") of Wheeler Real Estate Investment Trust, Inc. (the "Company" or "our
Company") contains forward-looking statements, 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. 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 to
not place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Form 10-K. 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. Factors that could cause actual results to differ materially from any forward-looking
statements made in this Form 10-K include:
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our business and investment
strategy;
our projected operating
results;
actions and initiatives of the U.S. government and changes to U.S. government policies and the execution and impact of these
actions, initiatives and policies;
the state of the U.S. economy generally and in specific geographic
areas;
economic trends and economic
recoveries;
our ability to obtain and maintain financing
arrangements;
financing and advance rates for our target
assets;
our expected
leverage;
availability of investment opportunities in real estate-related
investments;
changes in the values of our
assets;
our ability to make distributions to our stockholders in the
future;
our expected investments and investment
decisions;
changes in interest rates and the market value of our target
assets;
our ability to renew leases at amounts and terms comparable to existing lease
arrangements;
our ability to proceed with potential development opportunities for us and third-
parties;
impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar
matters;
our ability to maintain our qualification as a real estate investment trust
(“REIT”);
our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
availability of qualified personnel and management
team;
the ability of our operating partnership, Wheeler REIT, L.P. (the "Operating Partnership") and each of our other partnerships and
limited liability companies to be classified as partnerships or disregarded entities for federal income tax purposes;
our ability to amend our charter to increase or decrease the aggregate number of authorized shares of stock, to authorize us to issue
additional authorized but unissued shares of our preferred stock, without par value ("Preferred Stock") and to classify or reclassify
unissued shares of our Preferred Stock;
our understanding of our
competition;
• market trends in our industry, interest rates, real estate values or the general
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economy;
the imposition of federal taxes if we fail to qualify as a real estate investment trust (“REIT”) in any taxable year or forego an
opportunity to ensure REIT status;
uncertainties related to the national economy, the real estate industry in general and in our specific
markets;
legislative or regulatory changes, including changes to laws governing
REITs;
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adverse economic or real estate developments in Virginia, Florida, Georgia, Alabama, South Carolina, North Carolina, Oklahoma,
Kentucky, Tennessee, West Virginia, New Jersey and Pennsylvania;
increases in interest rates and operating
costs;
inability to obtain necessary outside
financing;
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litigation
risks;
lease-up
risks;
inability to obtain new tenants upon the expiration of existing
leases;
inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other
applicable laws; and
the need to fund tenant improvements or other capital expenditures out of operating cash
flow.
These forward-looking statements should be read in light of these factors.
Part I
Item 1. Business.
Overview
Wheeler Real Estate Investment Trust, Inc. (the “Trust” or “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. Substantially, all of our assets are held by, and all of our operations are conducted through, our Operating
Partnership. The Company is a fully-integrated, self-managed commercial real estate investment company that shifted focus in 2018 after
the JANAF acquisition from acquiring and managing to owning, leasing and operating income-producing retail properties with a primary
focus on grocery-anchored centers.
Our corporate office is located at 2529 Virginia Beach Boulevard, Virginia Beach, Virginia 23452. Our telephone number is (757)
627-9088.
Portfolio
Our portfolio contains well-located, potentially dominant retail properties in secondary and tertiary markets, with a particular
emphasis on grocery-anchored retail centers. Our properties are in communities that have stable demographics and have historically
exhibited favorable trends, such as strong population and income growth. We generally lease our properties to national and regional
retailers that offer consumer goods and generate regular consumer traffic. We believe our tenants carry goods that are less impacted by
fluctuations in the broader U.S. economy and consumers’ disposable income, generating more predictable property level cash flows.
The Company’s portfolio of properties is dependent upon regional and local economic conditions. As of December 31, 2018, we
own a portfolio consisting of seventy-one properties, including sixty-four retail shopping centers, totaling 5,716,471 total leasable square
feet of which is 89.4% leased (our "operating portfolio"), one office property and six undeveloped land parcels totaling approximately 65
acres. The properties are geographically concentrated in the Northeast, Mid-Atlantic, Southeast and Midwest, which markets represented
approximately 4%, 19%, 76% and 1%, respectively, of the total annualized base rent of the properties in its portfolio as of December 31,
2018.
No tenant represents greater than 10% of the Company’s annualized base rent or % of gross leasable square footage. The top 10
tenants account for 24.59% or $12.11 million of annualized base rent and 29.32% or 1.68 million of gross leasable square footage at
December 31, 2018.
Management Team and People
We have 50 full-time employees. Our management team has experience and capabilities across the real estate sector with
experience in all aspects of the commercial real estate industry, specifically in our target/existing markets. David Kelly has served as Chief
Executive Officer (the "CEO") since January 2018 and Matthew Reddy as CFO since February 2018. David Kelly, our CEO previously
served as the Chief Investment Officer (the "CIO"). He has over twenty-seven years of experience in the real estate industry. Prior to
joining us, he served for thirteen years as the Director of Real Estate for Supevalu, Inc., a Fortune 100 supermarket retailer. While at
Supervalu, he focused on site selection and acquisitions from New England to the Carolinas, completing transactions totaling over $500
million. Matthew Reddy our CFO is a certified public accountant and has
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been with the Company since June 2015 as Chief Accounting Officer. Prior to joining Wheeler, Mr. Reddy was the Assistant Vice
President of Online Products at Liberty Tax Service. While employed at Liberty, Mr. Reddy was also employed as Director of Finance
from 2011 to 2014, and Manager of Financial Reporting from 2008 to 2011. Prior to joining Liberty, Mr. Reddy worked at KPMG LLP as a
Senior Auditor. Andrew Franklin is our Chief Operating Officer and has over eighteen years of commercial real estate experience. Mr.
Franklin is responsible for overseeing the property management, lease administration and leasing divisions of our growing portfolio of
commercial assets. Prior to joining us, Mr. Franklin was a partner with Broad Reach Retail Partners where he ran the day to day operations
of the company, managing the leasing team as well as overseeing the asset, property and construction management of the portfolio with
assets totaling $50 million. Mr. Franklin is a graduate of the University of Maryland, with a Bachelor of Science degree in Finance.
Business Objectives and Investment Strategy
Our primary business objective is to provide attractive risk adjusted returns to our shareholders by increasing cash flows. We
intend to achieve this objective utilizing the following investment strategy:
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Focus on necessity-based retail. Own and operate retail properties that serve the essential day-to-day shopping needs of the
surrounding communities. These necessity-based centers attract high levels of daily traffic resulting in cross-selling of goods and
services from our tenants. The majority of our tenants provide non-cyclical consumer goods and services that are less impacted by
fluctuations in the economy. According to Statista, the average consumer in the US makes a trip to a grocery store 1.6 times per
week. We believe these centers that provide essential goods and services such as groceries results in a stable, lower-risk portfolio
of retail investment properties.
Focus on secondary and tertiary markets with strong demographics and demand. Our properties are in markets that have limited
competition from institutional buyers and relatively low levels of new construction. The markets have strong demographics such as
population density, population growth, tenant sales trends and growth in household income. We seek to identify new tenants and
renew leases with existing tenants in these locations that support the need for necessity-based retail and limited new supply.
Increase operating income through leasing strategies and expense management. We employ intensive lease management
strategies to optimize occupancy. Management has strong expertise in acquiring and managing under-performing properties and
increasing operating income through more effective leasing strategies and expense management such as common area maintenance
("CAM"), or CAM reimbursement and experience utilizing exterior parking for build to suit outparcels or pad sales. Our leases
generally require the tenant to reimburse us for a substantial portion of the expenses incurred in operating, maintaining, repairing,
and managing the shopping center and the common areas, along with the associated insurance costs and real estate taxes.
Operating expenses that qualify for CAM reimbursement include, but are not limited to, landscaping, parking field maintenance
and repairs, building maintenance and repairs, utilities and their associated maintenance and repair within the shopping center. The
amount that each tenant pays is determined on a pro-rata basis as defined in our lease and our leases generally allow us to add an
administrative fee of 15%. Some leases are structured such that they include a cap on paying CAM and additional fees and
charges. Additionally, in some cases the tenant is either fully or partially responsible for all maintenance of the property, thereby
limiting our financial exposure towards maintaining the center and increasing our net income. We refer to this arrangement as a
“triple net lease.”
Selectively utilize our capital to improve retail properties. We intend to make capital investments where the return on such capital
is accretive to our shareholders. We have significant expertise allocating capital to value-added improvements of retail properties
to increase rents, extend long-term leases with anchor tenants and increasing occupancy. We will selectively allocate capital to
revenue enhancing projects that we believe will improve the market position of a given property.
Recycling and sensible management of capital structure. We intend to sell non-income producing land parcels utilizing sales
proceeds to deleverage the balance sheet. In addition, we intend to monetize core-assets to redeploy the capital to further
deleverage and strengthen the balance sheet. In 2018, we sold 4 properties for a total of $6.28 million net proceeds which were
used to deleverage the balance sheet. Additional properties have been slated for disposition based upon management’s periodic
review of our portfolio, and the determination by our Board of Directors that such activity would be in our best interest.
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Policies With Respect to Certain Activities
The following is a discussion of certain activities of our investment, financing and other policies. These policies have been
determined by our Board of Directors and, in general, may be amended or revised from time to time by our Board of Directors without a
vote of our stockholders.
Investment Policies
Investments in Real Estate or Interests in Real Estate
We will conduct all of our investment activities through our Operating Partnership and its subsidiaries. Our investment objectives
are to maximize the cash flow of our properties, provide cash distributions and achieve long-term capital appreciation for our stockholders
through increases in the value of our company. Our Operating Partnership intends to hold its properties for investment with a view to long-
term appreciation and ownership. Occasional sales of the properties will be made consistent with our investment strategy. We have not
established a specific policy regarding the relative priority of these investment objectives.
We expect to pursue our investment objectives primarily through the ownership by our Operating Partnership of our portfolio of
properties and assets. We currently intend to invest primarily in retail properties. Future investment or development activities will not be
limited to any geographic area, property type or to a specified percentage of our assets. While we may diversify in terms of property
locations, size and market, we do not have any limit on the amount or percentage of our assets that may be invested in any one property or
any one geographic area. We intend to engage in such future investment activities in a manner that is consistent with the maintenance of our
status as a REIT for U.S. federal income tax purposes. In addition, we may lease income-producing properties for long-term investment,
expand and improve the properties we presently own, or sell such properties, in whole or in part, when circumstances warrant.
We may also participate with third parties in property ownership, through joint ventures or other types of co-ownership. We also
may acquire real estate or interests in real estate in exchange for the issuance of Common Stock, common units in our Operating
Partnership, Preferred Stock or options to purchase stock. These types of investments may permit us to own interests in larger assets
without unduly restricting our diversification and, therefore, provide us with flexibility in structuring our portfolio. We will not, however,
enter into a joint venture or other partnership arrangement to make an investment that would not otherwise meet our investment policies.
Equity investments in acquired properties may be subject to existing mortgage financing and other indebtedness or to new
indebtedness which may be incurred in connection with acquiring or refinancing these properties. Debt service on such financing or
indebtedness will have a priority over any dividends with respect to our Common Stock. Investments are also subject to our policy not to
fall within the definition of an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”).
Securities of or Interests in Persons Primarily Engaged in Real Estate Activities and Other Issuers
Although not presently contemplated, subject to the percentage of ownership limitations and the income and asset tests necessary
for REIT qualification, we may in the future invest in securities of other REITs, other entities engaged in real estate activities or securities
of other issuers where such investment would be consistent with our investment objectives. We may invest in the debt or equity securities
of such entities, including for the purpose of exercising control over such entities. We have no current plans to invest in entities that are not
engaged in real estate activities. While we may attempt to diversify our investments with respect to the retail properties owned by such
entities, in terms of property locations, size and market, we do not have any limit on the amount or percentage of our assets that may be
invested in any one entity, property or geographic area. Our investment objectives are to maximize cash flow of our investments and
provide cash distributions and long-term capital appreciation to our stockholders through increases in the value of our company. We have
not established a specific policy regarding the relative priority of these investment objectives. We will not underwrite the securities of any
other issuers and will limit our investment in such securities so that we will not fall within the definition of an “investment company” under
the 1940 Act.
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Investments in Other Securities
Other than as described above, we do not currently intend to invest in any additional securities such as bonds, Preferred Stock or
Common Stock, although we reserve the right to do so if our Board of Directors determines that such action would be in our best interests.
Financings and Leverage Policy
In the future, we anticipate using a number of different sources to finance our operations, including cash flows from operations,
asset sales, seller financing, issuance of debt securities, private financings (such as additional bank credit facilities, which may or may not
be secured by our assets), property-level mortgage debt, common or preferred equity issuances or any combination of these sources, to the
extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-
recourse and may be secured or unsecured. We also may take advantage of joint venture or other partnering opportunities as such
opportunities arise in order to acquire properties that would otherwise be unavailable to us. We may use the proceeds of our borrowings to
refinance existing debt or for general corporate purposes.
Although we are not required by our governing documents to maintain a ratio of debt to total market capitalization at any
particular level, our Board of Directors will review our ratio of debt to total capital on a quarterly basis, with the goal of maintaining a
reasonable rate consistent with our expected ratio of debt to total market capitalization going forward. Additionally, we intend, when
appropriate, to employ prudent amounts of leverage and to use debt as a means of providing additional funds to refinance existing debt or
for general corporate purposes. We expect to use leverage conservatively, assessing the appropriateness of new equity or debt capital based
on market conditions, including prudent assumptions regarding future cash flow, the creditworthiness of tenants and future rental rates. Our
charter and bylaws do not limit the amount of debt that we may incur. Our Board of Directors has not adopted a policy limiting the total
amount of debt that we may incur.
Our Board of Directors will consider a number of factors in evaluating the amount of debt that we may incur. If we adopt a debt
policy, our Board of Directors may from time to time modify such policy in light of then-current economic conditions, relative costs of debt
and equity capital, market values of our properties, general conditions in the market for debt and equity securities, fluctuations in the market
price of our Common Stock, growth opportunities and other factors. Our decision to use leverage in the future to finance our assets will be
at our discretion and will not be subject to the approval of our stockholders, and we are not restricted by our governing documents or
otherwise in the amount of leverage that we may use.
Lending Policies
In 2016, we loaned $11.0 million to a related party for the partial funding of the Sea Turtle Development project in Hilton Head,
South Carolina and $1.0 million note receivable in consideration for the sale of a land parcel owned by the Company. The Company
recognized $1.74 million and $5.26 million impairment charges on the note receivable during the years ended December 31, 2018 and
2017, respectively. At December 31, 2018 the carrying value of the note receivable was $5.00 million. We do not have a policy limiting
our ability to make loans to other persons. We may consider offering purchase money financing in connection with the sale of properties
where the provision of that financing will increase the value to be received by us for the property sold. We also may make loans to joint
ventures in which we participate. However, we do not intend to engage in significant lending activities. Any loan we make will be
consistent with maintaining our status as a REIT.
Equity Capital Policies
To the extent that our Board of Directors approve additional capital raises, we may issue debt or equity securities, including
additional units or senior securities of our Operating Partnership, retain earnings (subject to provisions in the Internal Revenue Code of
1986, as amended (the "Code") requiring distributions of income to maintain REIT qualification) or pursue a combination of these
methods. As long as our Operating Partnership is in existence, we will generally contribute the proceeds of all equity capital raised by us to
our Operating Partnership in exchange for additional interests in our Operating Partnership, which will dilute the ownership interests of the
limited partners in our Operating Partnership.
Existing stockholders will have no preemptive rights to Common or Preferred Stock or units issued in any securities offering by
us, and any such offering might cause a dilution of a stockholder’s investment in us. Although we have no current plans to do so, we may in
the future issue shares of Common Stock or units in connection with acquisitions of property.
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We may, under certain circumstances, purchase shares of our Common Stock or other securities in the open market or in private
transactions with our stockholders, provided that those purchases are approved by our Board of Directors. Any repurchase of shares of our
Common Stock or other securities, would only be taken in conformity with applicable federal and state laws and the applicable
requirements for qualification as a REIT.
Change in Investment and Financing Objectives and Policies
Our investment policies and objectives and the methods of implementing our investment objectives and policies, except to the
extent set forth in our charter, may be altered by our Board of Directors, without the approval of our stockholders. If we change these
policies, we will disclose these changes prior to the effective time of these changes. If we change these policies after the offering, we will
inform our stockholders of the change within ten days after our Board of Directors alters our investment objectives and policies, by either a
press release or notice of an “other event” on a Current Report on Form 8-K or another method deemed reasonable by our Board of
Directors.
Conflict of Interest Policies
Overview. Conflicts of interest could arise in the future as a result of the relationships between us and our affiliates, on the one
hand, and our Operating Partnership or any partner thereof, on the other. Our directors and officers have duties to our company under
applicable Maryland law in connection with their management of our company. At the same time, we, as the general partner of our
Operating Partnership, have fiduciary duties and obligations to our Operating Partnership and its other partners under Virginia law and the
partnership agreement of our Operating Partnership (the "Partnership Agreement") in connection with the management of our Operating
Partnership. Our fiduciary duties and obligations, as the general partner of our Operating Partnership, may come into conflict with the
duties of our directors and officers to our company.
Under Virginia law (where our Operating Partnership is formed), a general partner of a Virginia limited partnership has fiduciary
duties of loyalty and care to the partnership and its partners and must discharge its duties and exercise its rights as general partner under the
Partnership Agreement or Virginia law consistently with the obligation of good faith and fair dealing. The duty of loyalty requires a general
partner of a Virginia general partnership to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the
general partner in the conduct of the partnership business or derived from a use by the general partner of partnership property, including the
appropriation of a partnership opportunity, to refrain from dealing with the partnership in the conduct of the partnership’s business as or on
behalf of a party having an interest adverse to the partnership and to refrain from competing with the partnership in the conduct of the
partnership business, although the Partnership Agreement may identify specific types or categories of activities that do not violate the duty
of loyalty. The Partnership Agreement provides that, in the event of a conflict between the interests of our Operating Partnership or any
partner, on the one hand, and the separate interests of our company or our stockholders, on the other hand, we, in our capacity as the
general partner of our Operating Partnership, are under no obligation not to give priority to the separate interests of our company or our
stockholders, and that any action or failure to act on our part or on the part of our directors that gives priority to the separate interests of our
company or our stockholders that does not result in a violation of the contract rights of the limited partners of the Operating Partnership
under its Partnership Agreement does not violate the duty of loyalty that we, in our capacity as the general partner of our Operating
Partnership, owe to the Operating Partnership and its partners. The duty of care requires a general partner to refrain from engaging in
grossly negligent or reckless conduct, intentional misconduct or a knowing violation of law, and this duty may not be unreasonably reduced
by the Partnership Agreement.
The Partnership Agreement provides that we are not liable to our Operating Partnership or any partner for monetary damages for
losses sustained, liabilities incurred or benefits not derived by our Operating Partnership or any limited partner, except for liability for our
intentional harm or gross negligence. The Partnership Agreement also provides that any obligation or liability in our capacity as the general
partner of our Operating Partnership that may arise at any time under the Partnership Agreement or any other instrument, transaction or
undertaking contemplated by the Partnership Agreement will be satisfied, if at all, out of our assets or the assets of our Operating
Partnership only, and no obligation or liability of the general partner will be personally binding upon any of our directors, stockholders,
officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise, and none of
our directors or officers will be liable or accountable in damages or otherwise to the partnership, any partner or any assignee of a partner for
losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or any act or
omission. Our Operating Partnership must indemnify us, our directors and officers, officers of our Operating Partnership and any other
person designated by us against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including, without
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limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, that relate to the operations of the
Operating Partnership, unless (1) an act or omission of the person was material to the matter giving rise to the action and either was
committed in bad faith or was the result of active and deliberate dishonesty, (2) for any transaction for which such person actually received
an improper personal benefit in violation or breach of any provision of the Partnership Agreement, or (3) in the case of a criminal
proceeding, the person had reasonable cause to believe the act or omission was unlawful.
Our Operating Partnership must also pay or reimburse the reasonable expenses of any such person upon its receipt of a written
affirmation of the person’s good faith belief that the standard of conduct necessary for indemnification has been met and a written
undertaking to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the standard of conduct for
indemnification. Our Operating Partnership will not indemnify or advance funds to any person with respect to any action initiated by the
person seeking indemnification without our approval (except for any proceeding brought to enforce such person’s right to indemnification
under the Partnership Agreement) or if the person is found to be liable to our Operating Partnership on any portion of any claim in the
action.
No reported decision of a Virginia appellate court has interpreted provisions similar to the provisions of the Partnership
Agreement of our Operating Partnership that modify or reduce the fiduciary duties and obligations of a general partner or reduce or
eliminate our liability for money damages to the Operating Partnership and its partners, and we have not obtained an opinion of counsel as
to the enforceability of the provisions set forth in the Partnership Agreement that purport to modify or reduce our fiduciary duties that
would be in effect were it not for the Partnership Agreement.
Sale or Refinancing of Properties. Upon the sale of certain of the properties by us, certain unitholders could incur adverse tax
consequences which are different from the tax consequences to us and to holders of our Common Stock. Consequently, unitholders may
have differing objectives regarding the appropriate pricing and timing of any such sale or repayment of indebtedness.
While we will have the exclusive authority under the Partnership Agreement to determine whether, when, and on what terms to
sell a property or when to refinance or repay indebtedness, any such decision would require the approval of our Board of Directors.
Policies Applicable to All Directors and Officers. Our charter and bylaws do not restrict any of our directors, officers,
stockholders or affiliates from having a pecuniary interest in an investment or transaction that we have an interest in or from conducting, for
their own account, business activities of the type we conduct. We intend, however, to adopt policies that are designed to eliminate or
minimize potential conflicts of interest, including a policy for the review, approval or ratification of any related party transactions. This
policy will provide that the audit committee of our Board of Directors will review the relevant facts and circumstances of each related
party transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an
unrelated third party before approving such transaction. We have adopted a code of business conduct and ethics, which provides that all of
our directors, officers and employees are prohibited from taking for themselves opportunities that are discovered through the use of
corporate property, information or position without our consent. However, we cannot assure you that these policies or provisions of law
will always be successful in eliminating the influence of such conflicts, and if they are not successful, decisions could be made that might
fail to reflect fully the interests of all stockholders.
Interested Director and Officer Transactions
Pursuant to the Maryland General Corporation Law (“MGCL”), a contract or other transaction between us and a director or
between us and any other corporation or other entity in which any of our directors is a director or has a material financial interest is not void
or voidable solely on the grounds of such common directorship or interest, the presence of such director at the meeting at which the
contract or transaction is authorized, approved or ratified or the counting of the director’s vote in favor thereof, provided that:
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the fact of the common directorship or interest is disclosed or known to our Board of Directors or a committee of our board, and
our board or such committee authorizes, approves or ratifies the transaction or contract by the affirmative vote of a majority of
disinterested directors, even if the disinterested directors constitute less than a quorum;
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the fact of the common directorship or interest is disclosed or known to our stockholders entitled to vote thereon, and the
transaction or contract is authorized, approved or ratified by a majority of the votes cast by the stockholders entitled to vote other
than the votes of shares owned of record or beneficially by the interested director or corporation, firm or other entity; or
the transaction or contract is fair and reasonable to us at the time it is authorized, ratified or
approved.
Furthermore, under Virginia law, we, as general partner, have a fiduciary duty of loyalty to our Operating Partnership and its
partners and, consequently, such transactions also are subject to the duties that we, as general partner, owe to the Operating Partnership and
its limited partners (as such duty has been modified by the Partnership Agreement). We have adopted a policy that requires that all
contracts and transactions between us, our Operating Partnership or any of our subsidiaries, on the one hand, and any of our directors or
executive officers or any entity in which such director or executive officer is a director or has a material financial interest, on the other hand,
must be approved by the affirmative vote of a majority of our disinterested directors even if less than a quorum. Where appropriate, in the
judgment of the disinterested directors, our Board of Directors may obtain a fairness opinion or engage independent counsel to represent
the interests of non-affiliated security holders, although our Board of Directors will have no obligation to do so.
Policies With Respect To Other Activities
We have authority to offer Common Stock, Preferred Stock or options to purchase stock in exchange for property and to
repurchase or otherwise acquire our Common Stock or other securities in the open market or otherwise, and we may engage in such
activities in the future. We expect, but are not obligated, to issue Common Stock to holders of common units upon exercise of their
redemption rights. Our Board of Directors has the authority, without further stockholder approval, to amend our charter to increase or
decrease the number of authorized shares of Common Stock or Preferred Stock and authorize us to issue additional shares of Common
Stock or Preferred Stock, in one or more series, including senior securities, in any manner, and on the terms and for the consideration, it
deems appropriate. We have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers other than our
Operating Partnership and do not intend to do so. At all times, we intend to make investments in such a manner as to qualify as a REIT,
unless because of circumstances or changes in the Code, or the Treasury regulations, our Board of Directors determines that it is no longer
in our best interest to qualify as a REIT. In addition, we intend to make investments in such a way that we will not be treated as an
"investment company" under the 1940 Act.
Governmental Regulations Affecting Our Properties
We and our properties are subject to a variety of federal, state and local environmental, health, safety and similar laws.
The application of these laws to a specific property that we own depends on a variety of property-specific circumstances, including the
current and former uses of the property, the building materials used at the property and the physical layout of the property. Neither existing
environmental, health, safety and similar laws nor the costs of our compliance with these laws has had a material adverse effect on our
financial condition or results of operations, and management does not believe they will in the future. In addition, we have not incurred, and
do not expect to incur, any material costs or liabilities due to environmental contamination at properties we currently own or have owned in
the past. However, we cannot predict the impact of new or changed laws or regulations on properties we currently own or may acquire in
the future. We have no current plans for substantial capital expenditures with respect to compliance with environmental, health, safety and
similar laws and we carry environmental insurance which covers a number of environmental risks for most of our properties.
Competition
Numerous commercial developers and real estate companies compete with us with respect to the leasing of properties. Some of
these competitors may possess greater capital resources than we do, although we do not believe that any single competitor or group of
competitors in any of the primary markets where our properties are located are dominant in that market. This competition may interfere
with our ability to attract and retain tenants, leading to increased vacancy rates and/or reduced rents and adversely affect our ability to
minimize operating expenses.
Retailers at our properties also face increasing competition from online retailers, outlet stores, discount shopping clubs,
superstores, and other forms of sales and marketing of goods and services, such as direct mail. This competition could contribute to lease
defaults and insolvency of tenants.
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Reporting Policies
The Company’s Common Stock is publicly traded on the NASDAQ under the ticker symbol “WHLR”. We are subject to the
information reporting requirements of the Exchange Act. Pursuant to those requirements, we are required to file annual and periodic
reports, proxy statements and other information, including audited consolidated financial statements, with the SEC which can be found at
http://www.sec.gov.
Additionally, we make available free of charge through our website http://www.whlr.us our most recent Annual Report on Form
10-K, including our audited consolidated financial statements, 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 Securities and
Exchange Commission (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 Annual Report on Form 10-K 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 1A. Risk Factors.
Set forth below are the risk factors that we believe are material to our investors. You should carefully consider the following risks in
evaluating our Company and our business. The occurrence of any of the following risks could materially and adversely affect our business,
prospects, financial condition, results of operations and our ability to make cash distributions to our stockholders, which could cause you to
lose all or a part of your investment. Some statements in this report, including statements in the following risk factors, constitute forward-
looking statement. Please refer to the section entitled "Forward-Looking Statements.”
Risks Related to Our Business and Operations
Construction and development projects are subject to risks that materially increase the costs of completion.
In the event that we decide to develop and construct new properties or redevelop existing properties, we will be subject to risks and
uncertainties associated with construction and development. These risks include, but are not limited to, risks related to obtaining all
necessary zoning, land-use, building occupancy and other governmental permits and authorizations, risks related to the environmental
concerns of government entities or community groups, risks related to changes in economic and market conditions between development
commencement and stabilization, risks related to construction labor disruptions, adverse weather, acts of God or shortages of materials
which could cause construction delays and risks related to increases in the cost of labor and materials which could cause construction costs
to be greater than projected and adversely impact the amount of our development fees or our results of operations or financial condition.
Our portfolio of properties is dependent upon regional and local economic conditions and is geographically concentrated in the
Northeast, Mid-Atlantic, Southeast and Midwest, which may cause us to be more susceptible to adverse developments in those markets
than if we owned a more geographically diverse portfolio.
Our properties are located in Alabama, Virginia, North Carolina, Florida, Georgia, South Carolina, West Virginia, Kentucky,
Oklahoma, Tennessee, New Jersey and Pennsylvania, which exposes us to greater economic risks than if we owned a more geographically
diverse portfolio. If there is a downturn in the economy in our markets, our operations and our revenue and cash available for distribution,
including cash available to pay distributions to our stockholders, could be materially adversely affected. We cannot assure you that our
markets will grow or that underlying real estate fundamentals will be favorable to owners and operators of retail properties. Our operations
may also be affected if competing properties are built in our markets. Moreover, submarkets within any of our markets may be dependent
upon a limited number of industries. Any adverse economic or real estate developments in the Mid-Atlantic, Northeast, Southeast or
Midwest markets, or any decrease in demand for retail space resulting from the regulatory environment, business climate or energy or fiscal
problems, could adversely impact our financial condition, results of operations, cash flow, our ability to satisfy our debt service obligations
and our ability to pay distributions to our stockholders.
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As of December 31, 2018, we had approximately $369.61 million of indebtedness outstanding, which may expose us to the risk of
default under our debt obligations.
As of December 31, 2018, our total indebtedness was approximately $369.61 million, a substantial portion of which is guaranteed by
our Operating Partnership, and we may incur additional debt to finance future acquisition and development activities. Payments of
principal and interest on borrowings may leave us with insufficient cash resources to operate our properties or to pay the dividends
currently contemplated or necessary to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt
agreements could have significant adverse consequences, including the following:
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our cash flow may be insufficient to meet our required principal and interest payments;
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we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things,
adversely affect our ability to meet operational needs;
we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than
the terms of our original indebtedness;
we may be forced to dispose of one or more of our properties, possibly on unfavorable terms or in violation of
certain covenants to which we may be subject;
we may violate financial covenants in our loan documents, which would entitle the lenders to accelerate our debt
obligations; and
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our default under any loan with cross default provisions could result in a default on other indebtedness.
If any one of these events were to occur, our financial condition, results of operations, cash flow and per share trading price of our
securities could be adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which
could hinder our ability to meet the REIT distribution requirements imposed by the Code.
Failure to reduce our overadvance on the KeyBank Line of Credit may cause a default under its terms.
As of December 31, 2018, we are required to pay down the overadvance of $3.83 million on the KeyBank Line of Credit by
February 28, 2019 or otherwise properly balance the borrowing base availability. If we are unable to properly balance the borrowing base
availability we may use funds from our operations to pay down the indebtedness on the line of credit. A pay down from funds from our
operations may leave us with insufficient cash resources to operate our properties or to pay the dividends currently contemplated or
necessary to maintain our REIT qualification. This could have significant adverse consequences, including the following: our cash flow
may be insufficient to make required principal and interest payments on our indebtedness; we may be unable to borrow additional funds as
needed or on favorable terms, which could, among other things, adversely affect our ability to meet operational needs; we may be unable to
refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness; and we
may be forced to dispose of one or more of our properties, possibly on unfavorable terms or in violation of certain covenants to which we
may be subject. If any one of these events were to occur, our financial condition, results of operations, cash flows and the trading price of
our securities could be adversely affected. In addition, we may not have sufficient funds from operations to pay down the line of credit,
which may cause a default under its terms, resulting in a foreclosure of properties that secure the line of credit. Furthermore, foreclosures
could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution
requirements imposed by the Code.
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
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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.
Some of the leases at our retail properties contain “co-tenancy” or “go-dark” provisions, which, if triggered, may allow tenants to
pay reduced rent, cease operations or terminate their leases, any of which could adversely affect our performance or the value of the
applicable retail property.
Some of the leases at our retail properties contain “co-tenancy” provisions that condition a tenant’s obligation to remain open, the
amount of rent payable by the tenant or the tenant’s obligation to continue occupancy on certain conditions, including: (1) the presence of a
certain anchor tenant or tenants; (2) the continued operation of an anchor tenant’s store; and (3) minimum occupancy levels at the
applicable retail property. If a co-tenancy provision is triggered by a failure of any of these or other applicable conditions, a tenant could
have the right to cease operations, to terminate its lease early or to a reduction of its rent. In periods of prolonged economic decline, there is
a higher than normal risk that co-tenancy provisions will be triggered as there is a higher risk of tenants closing stores or terminating leases
during these periods. In addition to these co-tenancy provisions, certain of the leases at our retail properties contain “go-dark” provisions
that allow the tenant to cease operations while continuing to pay rent. This could result in decreased customer traffic at the applicable retail
property, thereby decreasing sales for our other tenants at that property, which may result in our other tenants being unable to pay their
minimum rents or expense recovery charges. These provisions also may result in lower rental revenue generated under the applicable
leases. To the extent co-tenancy or go-dark provisions in our retail leases result in lower revenue or tenant sales or tenants’ rights to
terminate their leases early or to a reduction of their rent, our performance or the value of the applicable retail property could be adversely
affected.
We may be unable to renew leases, lease vacant space or re-let space as leases expire, thereby increasing or prolonging vacancies,
which could adversely affect our financial condition, results of operations, cash flow and per share trading price of our Common Stock.
As of December 31, 2018, leases representing approximately 7.08% of the square footage and approximately 10.31% of the
annualized base rent of the properties in our portfolio are month-to-month leases or will expire during the twelve months ending December
31, 2019, and an additional 10.89% of the square footage of the properties in our portfolio was available. We cannot assure you that leases
will be renewed or that our properties will be re-let at net effective rental rates equal to or above the current average net effective rental
rates or that substantial rent abatements, tenant improvements, early termination rights or below-market renewal options will not be offered
to attract new tenants or retain existing tenants. If the rental rates for our properties decrease, our existing tenants do not renew their leases
or we do not re-let a significant portion of our available space and space for which leases will expire, our financial condition, results of
operations, cash flow ability to make distributions and per share trading price of our securities could be adversely affected.
We may be unable to identify and complete acquisitions of properties that meet our criteria, which may impede our growth and
ability to pay dividends in the future.
Our business strategy involves the acquisition of income producing assets such as strip centers, neighborhood centers, grocery-
anchored centers, community centers, free-standing retail properties and development properties. These activities require us to identify
suitable acquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategies. We
continue to evaluate the market of available properties and may attempt to acquire properties when
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strategic opportunities exist. However, we may be unable to acquire properties identified as potential acquisition opportunities. Our ability
to acquire properties on favorable terms, or at all, may be exposed to the following significant risks:
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we may incur significant costs and divert management attention in connection with evaluating and negotiating
potential acquisitions, including ones that we are subsequently unable to complete;
even if we enter into agreements for the acquisition of properties, these agreements are subject to conditions to
closing, which we may be unable to satisfy; and
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we may be unable to finance the acquisition on favorable terms or at all.
If we are unable to finance property acquisitions or acquire properties on favorable terms, or at all, our financial condition, results of
operations, cash flow and per share trading price of our securities could be adversely affected. In addition, failure to identify or complete
acquisitions of suitable properties could slow our growth and hinder our ability to pay dividends as expected.
We face significant competition for acquisitions of real properties, which may reduce the number of acquisition opportunities
available to us and increase the costs of these acquisitions.
The current market for acquisitions continues to be extremely competitive. This competition may increase the demand for the types of
properties in which we typically invest and, therefore, reduce the number of suitable acquisition opportunities available to us and increase
the prices paid for such acquisition properties. We also face significant competition for attractive acquisition opportunities from an
indeterminate number of investors, including publicly traded and privately held REITs, private equity investors and institutional investment
funds, some of which have greater financial resources than we do, a greater ability to borrow funds to acquire properties and the ability to
accept more risk than we can prudently manage, including risks with respect to the geographic proximity of investments and the payment of
higher acquisition prices. This competition will increase if investments in real estate become more attractive relative to other forms of
investment. Competition for investments may reduce the number of suitable investment opportunities available to us and may have the
effect of increasing prices paid for such acquisition properties and/or reducing the rents we can charge and, as a result, adversely affecting
our operating results.
Our future acquisitions may not yield the returns we expect, and we may otherwise be unable to operate these properties to meet
our financial expectations, which could adversely affect our financial condition, results of operations, cash flow and per share trading
price of our securities.
Our future acquisitions and our ability to successfully operate the properties we acquire in such acquisitions may be exposed to the
following significant risks:
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even if we are able to acquire a desired property, competition from other potential acquirers may significantly
increase the purchase price;
we may acquire properties that are not accretive to our results upon acquisition, and we may not successfully
manage and lease those properties to meet our expectations;
our cash flow may be insufficient to meet our required principal and interest payments or make expected
distributions;
we may spend more than budgeted amounts to make necessary improvements or renovations to acquired
properties;
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of
properties, into our existing operations, and as a result our results of operations and financial condition could be
adversely affected;
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market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with
respect to unknown liabilities such as liabilities for cleanup of undisclosed environmental contamination, claims
by tenants, vendors or other persons dealing with the former owners of the properties, liabilities incurred in the
ordinary course of business and claims for indemnification by general partners, directors, officers and others
indemnified by the former owners of the properties.
If we cannot operate acquired properties to meet our financial expectations, our financial condition, results of operations, cash flow
and per share trading price of our securities could be adversely affected.
We may not be able to control our operating costs or our expenses may remain constant or increase, even if our revenues do not
increase, causing our results of operations to be adversely affected.
Factors that may adversely affect our ability to control operating costs include the need to pay for insurance and other operating costs,
including real estate taxes, which could increase over time, the need periodically to repair, renovate and re-lease space, the cost of
compliance with governmental regulation, including zoning, environmental and tax laws, the potential for liability under applicable laws,
interest rate levels, principal loan amounts and the availability of financing. If our operating costs increase as a result of any of the
foregoing factors, our results of operations may be adversely affected.
The expense of owning and operating a property is not necessarily reduced when circumstances such as market factors and
competition cause a reduction in income from the property. As a result, if revenues decline, we may not be able to reduce our expenses
accordingly. Costs associated with real estate investments, such as real estate taxes, insurance, loan payments and maintenance, generally
will not be reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease. If we are unable to
decrease operating costs when demand for our properties decreases and our revenues decline, our financial condition, results of operations
and our ability to make distributions to our stockholders may be adversely affected.
High mortgage interest rates and/or unavailability of mortgage debt may make it difficult for us to finance or refinance
properties, which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can
make.
If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. If we place mortgage
debt on properties, we may be unable to refinance the properties when the loans become due, or to refinance on favorable terms. If interest
rates are higher when we refinance our properties, our income could be reduced. If any of these events occur, our cash flow could be
reduced. This, in turn, could reduce cash available for debt payments and distributions to our stockholders and may hinder our ability to
raise more capital by issuing more stock or by borrowing more money.
Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property
or group of properties subject to mortgage debt.
Incurring mortgage and other secured debt obligations increases our risk of property losses because defaults on indebtedness secured
by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we
are in default. Any foreclosure on a mortgaged property or group of properties could adversely affect the overall value of our portfolio of
properties. For tax purposes, a foreclosure on any of our properties that is subject to a nonrecourse mortgage loan would be treated as a sale
of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the
debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not
receive any cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.
Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of operations, cash
flow and per share trading price of our securities.
Subject to maintaining our qualification as a REIT, we may enter into hedging transactions to protect us from the effects of interest
rate fluctuations on floating rate debt. We currently do not have any hedges in place. Our hedging transactions may include entering into
interest rate cap agreements or interest rate swap agreements. These agreements involve risks, such as the
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risk that such arrangements would not be effective in reducing our exposure to interest rate changes or that a court could rule that such an
agreement is not legally enforceable. In addition, interest rate hedging can be expensive, particularly during periods of rising and volatile
interest rates. Hedging could reduce the overall returns on our investments. Failure to hedge effectively against interest rate changes could
materially adversely affect our financial condition, results of operations, cash flow and per share trading price of our securities. In addition,
while such agreements would be intended to lessen the impact of rising interest rates on us, they could also expose us to the risk that the
other parties to the agreements would not perform, we could incur significant costs associated with the settlement of the agreements or that
the underlying transactions could fail to qualify as highly-effective cash flow hedges under generally accepted accounting principles in the
United States of America.
Adverse economic and geopolitical conditions and dislocations in the credit markets could have a material adverse effect on our
financial condition, results of operations, cash flow, ability to make distributions to our stockholders and per share trading price of our
securities.
Our business may be affected by market and economic challenges experienced by the U.S. economy or real estate industry as a
whole, including the recent dislocations in the credit markets and general global economic downturn. These conditions, or similar
conditions existing in the future, may adversely affect our financial condition, results of operations, cash flow and per share trading price of
our securities as a result of the following potential consequences, among others:
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decreased demand for retail space, which would cause market rental rates and property values to be negatively
impacted;
reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt
financing secured by our properties and may reduce the availability of unsecured loans; and
our ability to obtain financing on terms and conditions that we find acceptable, or at all, may be limited, which
could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce
our returns from our acquisition and development activities and increase our future interest expense.
In addition, any economic downturn may adversely affect the businesses of many of our tenants. As a result, we may see increases in
bankruptcies of our tenants and increased defaults by tenants, and we may experience higher vacancy rates and delays in re-leasing vacant
space, which could negatively impact our business and results of operations.
We are subject to risks that affect the general retail environment, such as weakness in the economy, the level of consumer
spending, the adverse financial condition of large retailing companies and competition from discount and Internet retailers, any of
which could adversely affect market rents for retail space and the willingness or ability of retailers to lease space in our shopping
centers.
With the exception of our Riversedge North property, which houses our corporate offices, all of our improved properties are in the
retail real estate market. This means that we are subject to factors that affect the retail sector generally, as well as the market for retail
space. The retail environment and the market for retail space have been, and could continue to be, adversely affected by weakness in the
national, regional and local economies, the level of consumer spending and consumer confidence, the adverse financial condition of some
large retailing companies, the ongoing consolidation in the retail sector, the excess amount of retail space in a number of markets and
increasing competition from discount retailers, outlet malls, Internet retailers and other online businesses. Increases in consumer spending
via the Internet may significantly affect our retail tenants’ ability to generate sales in their stores. In addition, some of our retail tenants face
competition from the expanding market for digital content and hardware. New and enhanced technologies, including new digital
technologies and new web services technologies, may increase competition for certain of our retail tenants.
Any of the foregoing factors could adversely affect the financial condition of our tenants and the willingness of retailers to lease
space in our shopping centers. In turn, these conditions could negatively affect market rents for retail space and could materially and
adversely affect our financial condition, results of operations, cash flow, the trading price of our common shares and our ability to satisfy
our debt service obligations and to pay distributions to our stockholders.
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We face significant competition in the leasing market, which may decrease or prevent increases of the occupancy and rental rates
of our properties.
We compete with numerous developers, owners and operators of real estate, many of which own properties similar to ours in the
same submarkets in which our properties are located. If our competitors offer space at rental rates below current market rates, or below the
rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates
below those we currently charge or to offer more substantial rent abatements, tenant improvements, early termination rights or below-
market renewal options in order to retain tenants when our tenants’ leases expire. As a result, our financial condition, results of operations,
cash flow and per share trading price of our Common Stock could be adversely affected.
We may be required to make rent or other concessions and/or significant capital expenditures to improve our properties in order
to retain and attract tenants, causing our financial condition, results of operations, cash flow, ability to make distributions to our
stockholders and per share trading price of our securities to be adversely affected.
To the extent adverse economic conditions continue in the real estate market and demand for retail space falls, we expect that, upon
expiration of leases at our properties, we may be required to make rent or other concessions to tenants, accommodate requests for
renovations, build-to-suit remodeling and other improvements or provide additional services to our tenants. As a result, we may have to
make significant capital or other expenditures in order to retain tenants whose leases expire and to attract new tenants in sufficient numbers.
Additionally, we may need to raise capital to make such expenditures. If we are unable to do so or capital is otherwise unavailable, we may
be unable to make the required expenditures. This could result in non-renewals by tenants upon expiration of their leases, which could
cause an adverse effect to our financial condition, results of operations, cash flow and per share trading price of our securities.
The actual rents we receive for the properties in our portfolio may be less than our asking rents, which could negatively impact
our ability to generate cash flow growth.
As a result of various factors, including competitive pricing pressure in our submarkets, adverse conditions in the Northeast, Mid-
Atlantic, Southeast and Midwest real estate markets, a general economic downturn and the desirability of our properties compared to other
properties in our submarkets, we may be unable to realize the asking rents across the properties in our portfolio. In addition, the degree of
discrepancy between our asking rents and the actual rents we are able to obtain may vary both from property to property and among
different leased spaces within a single property. If we are unable to obtain rental rates that are on average comparable to our asking rents
across our portfolio, then our ability to generate cash flow growth will be negatively impacted. In addition, depending on asking rental rates
at any given time as compared to expiring leases in our portfolio, from time to time rental rates for expiring leases may be higher than
starting rental rates for new leases.
We have and may continue to acquire properties or portfolios of properties through tax deferred contribution transactions, which
could result in stockholder dilution and limit our ability to sell such assets.
We have and in the future we may continue to acquire properties or portfolios of properties through tax deferred contribution
transactions in exchange for partnership interests in our Operating Partnership, which may result in stockholder dilution. This acquisition
structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the
acquired properties, and may require that we agree to protect the contributors’ ability to defer recognition of taxable gain through
restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their
tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions.
Our real estate development activities are subject to risks particular to development, such as unanticipated expenses, delays and
other contingencies, any of which could adversely affect our financial condition, results of operations, cash flow and the per share
trading price of our securities.
We may engage in development and redevelopment activities with respect to certain of our properties. To the extent that we do so, we
will be subject to the following risks associated with such development and redevelopment activities:
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unsuccessful development or redevelopment opportunities could result in direct expenses to us;
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construction or redevelopment costs of a project may exceed original estimates, possibly making the project less
profitable than originally estimated, or unprofitable;
time required to complete the construction or redevelopment of a project or to lease up the completed project may
be greater than originally anticipated, thereby adversely affecting our cash flow and liquidity;
contractor and subcontractor disputes, strikes, labor disputes or supply disruptions;
failure to achieve expected occupancy and/or rent levels within the projected time frame, if at all;
delays with respect to obtaining or the inability to obtain necessary zoning, occupancy, land use and
other governmental permits, and changes in zoning and land use laws;
occupancy rates and rents of a completed project may not be sufficient to make the project profitable;
our ability to dispose of properties developed or redeveloped with the intent to sell could be impacted by the
ability of prospective buyers to obtain financing given the current state of the credit markets; and
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the availability and pricing of financing to fund our development activities on favorable terms or at all.
These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of
development or redevelopment activities once undertaken, any of which could have an adverse effect on our financial condition, results of
operations, cash flow, ability to make distributions to our stockholders and the per share trading price of our securities.
Our success depends upon our retaining and recruiting key personnel.
Our future success depends heavily upon the continued service of our key executives. In particular, we rely on the expertise and
experience of David Kelly, our President and CEO, Matthew Reddy, our CFO and Andy Franklin, our Chief Operating Officer ("the
COO"). We rely on their industry expertise and experience in our business operations, and in particular, their business vision, financial and
accounting, management skills, and working relationship with our employees, our major shareholders, the regulatory authorities, and many
of our tenants. If they became unable or unwilling to continue in their present positions, or they left our Company, we may not be able to
replace them, our business may be significantly disrupted and our financial condition and results of operations may be materially adversely
affected.
We may be subject to on-going or future litigation, including existing claims relating to the entities that own the properties
described in this annual filing and otherwise in the ordinary course of business, which could have a material adverse effect on our
financial condition, results of operations, cash flow and per share trading price of our securities.
We may be subject to on-going litigation, including existing claims relating to the entities that own the properties and operate the
businesses described in this annual filing and otherwise in the ordinary course of business. Some of these claims may result in significant
defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We generally intend to
vigorously defend ourselves; however, we cannot be certain of the ultimate outcomes of currently asserted claims or of those that may arise
in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements,
which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our earnings and cash flows,
thereby having an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our Common
Stock. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which
could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely
impact our ability to attract officers and directors.
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We may not be able to rebuild our existing properties to their existing specifications if we experience a substantial or
comprehensive loss of such properties.
In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such
property to its existing specifications. Further, reconstruction or improvement of such a property would likely require significant upgrades
to meet zoning and building code requirements. Environmental and legal restrictions could also restrict the rebuilding of our properties.
Potential losses may not be covered by insurance or may exceed policy limits and we could incur significant costs and lose our
equity in the damaged properties.
We carry comprehensive liability insurance policies, covering all of our properties. Our insurance coverage contains policy
specifications and insured limits customarily carried for similar properties and business activities. If a loss or damages are suffered at one or
more of our properties, our insurer may attempt to limit or void our coverage by arguing that the loss resulted from facts or circumstances
not covered by our policy. Furthermore, if we experience a loss that is uninsured or that exceeds our policy limits, we could incur
significant costs and lose the capital invested in the damaged or otherwise adversely affected properties as well as the anticipated future
cash flows from those properties.
We have a limited operating history as a REIT and a publicly traded company. We have limited financing sources, and we may not
be able to successfully operate as a REIT or a publicly traded company.
We have a limited operating history as a REIT and a publicly traded company. We cannot assure you that the past experience of
Mr. Kelly and our management team will be sufficient to successfully operate our company as a REIT or a publicly traded company,
including the requirements to timely meet disclosure requirements of the SEC, and comply with the Sarbanes-Oxley Act of 2002 and REIT
requirements imposed by the Code. Failure to operate successfully as a public company or maintain our qualification as a REIT would have
an adverse effect on our financial condition, results of operations, cash flow and per share trading price of our Common Stock.
Additionally, we have limited financing sources. If our capital resources are insufficient to support our operations, we will not be
successful. You should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies that
are, like us, in the early stages of development. To be successful in this market, we must, among other things:
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identify and acquire additional investments that further our investment strategies;
increase awareness of our REIT within the investment products market;
attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations; and
respond to competition for our targeted real estate properties and other investment as well as for potential
investors.
We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could cause you to lose all or a portion of
your investment.
Our estimated cash available for distribution is insufficient to cover our anticipated annual dividends and distributions paid from
sources other than our cash flow from operations will result in us having fewer funds available for the acquisition of properties, which
may adversely affect our ability to fund future distributions with cash flow from operations and may adversely affect your overall
return.
Our operating cash flow currently is insufficient to cover our anticipated monthly and quarterly distributions to common stockholders
and preferred stockholders. We have paid distributions from sources other than from our cash flow from operations. Until we acquire
additional properties, we will not generate sufficient cash flow from operations to pay our anticipated monthly and quarterly distributions.
Moreover, our Board of Directors may change this policy, in its sole discretion, at any time.
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By funding distributions from our cash on hand or borrowings we will have less funds available for acquiring properties. As a result,
the return you realize on your investment may be reduced. Funding distributions from borrowings could restrict the amount we can borrow
for investments, which may affect our profitability. Funding distributions with the sale of assets or the proceeds of offerings may affect our
ability to generate cash flows. Funding distributions from the sale of securities could dilute your interest in us if we sell shares of our
Common Stock or securities convertible or exercisable into shares of our Common Stock to third party investors. Payment of distributions
from the mentioned sources could restrict our ability to generate sufficient cash flow from operations, affect our profitability and/or affect
the distributions payable to you, any or all of which may have an adverse effect on your investment.
Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’
financial condition and disputes between our co-venturers and us.
We may co-invest in the future with other third parties through partnerships, joint ventures or other entities, acquiring non-
controlling interests in or sharing responsibility for managing the affairs of a property, partnership, joint venture or other entity.
Consequently, with respect to any such arrangement we may enter into in the future, we would not be in a position to exercise sole decision-
making authority regarding the property, partnership, joint venture or other entity. Investments in partnerships, joint ventures or other
entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or
co-venturers might become bankrupt or fail to fund their share of required capital contributions. Partners or co-venturers may have
economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take
actions contrary to our policies or objectives, and they may have competing interests in our markets that could create conflict of interest
issues. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-
venturer would have full control over the partnership or joint venture. In addition, a sale or transfer by us to a third party of our interests in
the joint venture may be subject to consent rights or rights of first refusal, in favor of our joint venture partners, which would in each case
restrict our ability to dispose of our interest in the joint venture. Where we are a limited partner or non-managing member in any partnership
or limited liability company, if such entity takes or expects to take actions that could jeopardize our status as a REIT or require us to pay
tax, we may be forced to dispose of our interest in such entity. Disputes between us and partners or co-venturers may result in litigation or
arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business.
Consequently, actions by or disputes with partners or co-venturers might result in subjecting properties owned by the partnership or joint
venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers.
Our joint ventures may be subject to debt and, in the current volatile credit market, the refinancing of such debt may require equity capital
calls.
Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially
reasonable terms or at all, which could limit our ability, among other things, to meet our capital and operating needs or make the cash
distributions to our stockholders necessary to maintain our qualification as a REIT.
In order to maintain our qualification as a REIT, we are required under the Code, among other things, to distribute annually at least
90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In
addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our REIT taxable
income, including any net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs,
including any necessary acquisition financing, from operating cash flow. Consequently, we intend to rely on third-party sources to fund our
capital needs. We may not be able to obtain such financing on favorable terms or at all and any additional debt we incur will increase our
leverage and likelihood of default. Our access to third-party sources of capital depends, in part, on:
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general market conditions;
the market’s perception of our growth potential;
our current debt levels;
our current and expected future earnings;
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our cash flow and cash distributions; and
the market price per share of our securities.
Recently, the capital markets have been subject to significant disruptions. If we cannot obtain capital from third-party sources, we
may not be able to acquire or develop properties when strategic opportunities exist, meet the capital and operating needs of our existing
properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to maintain our qualification as
a REIT.
We may not comply with the Asset Coverage Ratio contained in the terms of our Series D Preferred Stock.
The terms of our Series D Preferred Stock require us to maintain a certain level of asset coverage. More specifically, we are required
to maintain an asset coverage percentage of at least 200% on the last business day of each calendar quarter. This percentage is calculated by
dividing (i) our total assets plus accumulated depreciation, plus accumulated amortization minus our total liabilities and indebtedness as
reported in our financial statements (exclusive of the book value of any Redeemable and Term Preferred Stock) by (ii) the aggregate
liquidation preference, plus an amount equal to all accrued and unpaid dividends, of the outstanding shares of our Series D Preferred Stock
and any outstanding shares of Redeemable and Term Preferred Stock. If we fail to satisfy the Asset Coverage Ratio (as defined in Note 9 to
the consolidated financial statements of this Annual Report on Form 10-K), we must cure the failure during the period that expires at the
close of business on the date that is 30 calendar days following the filing date of our Annual Report on Form 10-K or Quarterly Report on
Form 10-Q, as applicable, for that quarter. If we fail to cure the failure prior to the Asset Coverage Cure Date (as defined in Note 9 to the
consolidated financial statements of this Annual Report on Form 10-K), the terms of our Series D Preferred Stock require us to redeem,
within 90 calendar days of the Asset Coverage Cure Date, shares of Redeemable and Term Preferred Stock, which may include Series D
Preferred Stock, at least equal to the lesser of (i) the minimum number of shares of Redeemable and Term Preferred Stock that will result in
us having an Asset Coverage Ratio of at least 200% and (ii) the maximum number of shares of Redeemable and Term Preferred Stock that
can be redeemed solely out of funds legally available for such redemption.
There can be no guarantee that we will continue to comply with the Asset Coverage Ratio in the future. To the extent we fail to
satisfy the Asset Coverage Ratio and are required to redeem shares of our Series D Preferred Stock, our business and its operations may be
materially and adversely impacted.
If a major tenant declares bankruptcy or experiences a downturn in its business, we may be unable to collect balances due under
relevant leases.
We may experience concentration in one or more tenants across several of the properties in our portfolio. 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. In addition, we may not be able 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.
Any of our tenants, or any guarantor of one of our tenant’s lease obligations, could become subject to a bankruptcy proceeding
pursuant to Title 11 of the United States Code (the “Bankruptcy Code”). If a tenant becomes a debtor under the Bankruptcy Code, federal
law prohibits us from evicting such tenant based solely upon the commencement of such bankruptcy. Further, such a bankruptcy filing
could prevent us from attempting to collect pre-bankruptcy debts from the bankrupt tenant or
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its properties or taking other debt enforcement actions, unless we receive an enabling order from the bankruptcy court. Generally, post-
bankruptcy debts are required by statute to be paid currently, which would include payments on our leases that come due after the date of
the bankruptcy filing. Such a bankruptcy filing also could cause a decrease, delay or cessation of current rental payments, reducing our
operating cash flows and the amount of cash available for distributions to stockholders. Prior to emerging from bankruptcy, the tenant will
need to decide whether to assume or reject its leases. Generally, and unless otherwise agreed to by the tenant and the lessor, if a tenant
assumes a lease, all pre-bankruptcy balances and unpaid post-bankruptcy amounts owed under the lease must be paid in full. If a given
lease or guaranty is not assumed, our operating cash flows and the amount of cash available for distribution to stockholders may be
adversely affected. If a lease is rejected by a tenant in bankruptcy, we are entitled to general unsecured claims for damages. If a lease is
rejected, we may not receive any further rent payments from the tenant, and the amount of our general unsecured claim for future rent
would be capped at the rent reserved under the lease, without acceleration, for the greater of one year or 15% of the remaining term of the
lease, but not greater than three years, plus rent and damages already due but unpaid. We would only receive recovery on our general
unsecured claim in the event that funds or other consideration were available for distribution to general unsecured creditors, and then only
in the same percentage as that realized on other general unsecured claims. We may also be unable to re-lease a terminated or rejected
property or to re-lease it on comparable or more favorable terms.
Our business and the market price of our common stock could be negatively affected as a result of the actions of activist
stockholders.
The Stilwell Group filed a Schedule 13D announcing their plans to nominate director candidates for election to our board of directors
at our 2019 annual meeting of stockholders. They were unsuccessful at this attempt at the 2018 annual meeting, but may seek board seats in
2019. Our business, operating results or financial condition could be harmed by these potential proxy contests because, among other things:
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Responding to proxy contests is costly and time-consuming, is a significant distraction for our board of directors,
management and employees, and diverts the attention of our board of directors and senior management from the
pursuit of our business strategy, which could adversely affect our results of operations and financial condition;
Perceived uncertainties as to our future direction, our ability to execute on our strategy, or changes to the
composition of our board of directors or senior management team, including our CEO, may lead to the perception
of a change in the direction of our business, instability or lack of continuity which may be exploited by our
competitors, and may result in the loss of potential business opportunities and make it more difficult to attract and
retain qualified personnel and business partners;
The expenses for legal and advisory fees and administrative and associated costs incurred in connection with
responding to proxy contests and any related litigation may be substantial; and
We may choose to initiate, or may become subject to, litigation as a result of the proxy contests or matters arising
from the proxy contests, which would serve as a further distraction to our board of directors, management and
employees and would require us to incur significant additional costs.
In addition, the market price of our securities could be subject to significant fluctuations or otherwise be adversely affected by the
uncertainties described above or the outcome of the proxy contests.
The federal government’s “green lease” policies may adversely affect us.
In recent years, the federal government has instituted “green lease” policies that allow a government tenant to require leadership in
energy and environmental design for commercial interiors, or LEED®-CI, certification in selecting new premises or renewing leases at
existing premises. In addition, the Energy Independence and Security Act of 2007 allows the General Services Administration to prefer
buildings for lease that have received an “Energy Star” label. Obtaining such certifications and labels may be costly and time consuming,
but our failure to do so may result in our competitive disadvantage in acquiring new or retaining existing government tenants.
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Technological developments may impact customer traffic at certain tenants’ stores and ultimately sales at such stores.
We may be adversely affected by developments of new technology that may cause the business of certain of our tenants to become
substantially diminished or functionally obsolete, with the result that such tenants may be unable to pay rent, become insolvent, file for
bankruptcy protection, close their stores or terminate their leases. Examples of the potentially adverse effects of new technology on retail
businesses include, amongst other things, the advent of online movie rentals on video stores, the effect of e-books and small screen readers
on book stores, and increased sales of many products online.
Substantial recent annual increases in online sales have also caused many retailers to sell products online on their websites with pick-
ups at a store or warehouse or through deliveries. With special reference to our principal tenants, online grocery orders are available in
some areas and may become a major factor affecting grocers in our portfolio.
Natural disasters and severe weather conditions could have an adverse impact on our cash flow and operating results.
Some of our properties could be subject to potential natural or other disasters. In addition, we may acquire properties that are located
in areas that are subject to natural disasters, such as earthquakes and droughts. Properties could also be affected by increases in the
frequency or severity of tornadoes, hurricanes or other storms, whether such increases are caused by global climate changes or other
factors. The occurrence of natural disasters or severe weather conditions can increase investment costs to repair or replace damaged
properties, increase operating costs, increase future property insurance costs, and/or negatively impact the tenant demand for lease space. If
insurance is unavailable to us, or is unavailable on acceptable terms, or if our insurance is not adequate to cover business interruption or
losses from such events, our earnings, liquidity and/or capital resources could be adversely affected.
We face risks relating to cybersecurity attacks, loss of confidential information and other business disruptions.
Our business is at risk from and may be impacted by cybersecurity attacks, including attempts to gain unauthorized access to our
confidential data, and other electronic security breaches. Such cyber attacks can range from individual attempts to gain unauthorized access
to our information technology systems to more sophisticated security threats. While we employ a number of measures to prevent, detect
and mitigate these threats, there is no guarantee such efforts will be successful in preventing a cyber attack. A cybersecurity attack could
compromise the confidential information of our employees, tenants and vendors. A successful attack could disrupt and otherwise adversely
affect our business operations.
Risks Related to the Real Estate Industry
There are inherent risks associated with real estate investments and with the real estate industry, each of which could have an
adverse impact on our financial performance and the value of our properties.
Real estate investments are subject to various risks and fluctuations and cycles in value and demand, many of which are beyond our
control. Our financial performance and the value of our properties can be affected by many of these factors, including the following:
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adverse changes in financial conditions of buyers, sellers and tenants of our properties, including bankruptcies,
financial difficulties or lease defaults by our tenants;
the national, regional and local economy, which may be negatively impacted by concerns about increasing interest
rates, inflation, deflation and government deficits, high unemployment rates, decreased consumer confidence,
industry slowdowns, reduced corporate profits, liquidity concerns in our markets and other adverse business
concerns;
local real estate conditions, such as an oversupply of, or a reduction in, demand for retail space and the availability
and creditworthiness of current and prospective tenants;
vacancies or ability to rent retail space on favorable terms, including possible market pressures to offer tenants
rent abatements, tenant improvements, early termination rights or below-market renewal options;
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changes in operating costs and expenses, including, without limitation, increasing labor and material costs,
insurance costs, energy prices, environmental restrictions, real estate taxes and costs of compliance with laws,
regulations and government policies, which we may be restricted from passing on to our tenants;
fluctuations in interest rates, which could adversely affect our ability, or the ability of buyers and tenants of our
properties, to obtain financing on favorable terms or at all;
competition from other real estate investors with significant capital, including other real estate operating
companies, publicly traded REITs and institutional investment funds;
inability to refinance our indebtedness, which could result in a default on our obligation;
the convenience and quality of competing retail properties;
inability to collect rent from tenants;
our ability to secure adequate insurance;
our ability to secure adequate management services and to maintain our properties;
changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without
limitation, health, safety, environmental, zoning and tax laws, government fiscal policies and the Americans with
Disabilities Act of 1990 (the “ADA”); and
civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes, wind damage and floods,
which may result in uninsured and underinsured losses.
In addition, because the yields available from equity investments in real estate depend in large part on the amount of rental income
earned, as well as property operating expenses and other costs incurred, a period of economic slowdown or recession, or declining demand
for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased
incidence of defaults among our existing leases, and, consequently, our properties, including any held by joint ventures, may fail to
generate revenues sufficient to meet operating, debt service and other expenses. As a result, we may have to borrow amounts to cover fixed
costs, and our financial condition, results of operations, cash flow, per share market price of our securities and ability to satisfy our principal
and interest obligations and to make distributions to our stockholders may be adversely affected.
Our performance and value are subject to risks associated with real estate assets and the real estate industry, including local
oversupply, reduction in demand or adverse changes in financial conditions of buyers, sellers and tenants of properties, which could
decrease revenues or increase costs, which would adversely affect our financial condition, results of operations, cash flow, ability to
make distributions to our stockholders and the per share trading price of our securities.
Our ability to pay expected dividends to our stockholders depends on our ability to complete future acquisitions as well as our ability
to generate revenues in excess of expenses, scheduled principal payments on debt and capital expenditure requirements. Events and
conditions generally applicable to owners and operators of real property that are beyond our control may decrease cash available for
distribution and the value of our properties. These events include many of the risks set forth above under “-Risks Related to Our Business
and Operations,” as well as the following:
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adverse changes in financial conditions of buyers, sellers and tenants of properties;
vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants
rent abatements, tenant improvements, early termination rights or below-market renewal options, and the need to
periodically repair, renovate and re-let space;
increased operating costs, including insurance premiums, utilities, real estate taxes and state and local taxes;
civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes and floods, which may result
in uninsured or underinsured losses;
decreases in the underlying value of our real estate;
changing submarket demographics; and
changing traffic patterns.
In addition, periods of economic downturn or recession, rising interest rates or declining demand for real estate, or the public
perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing
leases, which would adversely affect our financial condition, results of operations, cash flow, ability to make distributions to our
stockholders and per share trading price of our securities.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our
properties and harm our financial condition.
The real estate investments made, and to be made, by us are relatively difficult to sell quickly. As a result, our ability to promptly sell
one or more properties in our portfolio in response to changing economic, financial and investment conditions is limited. Return of capital
and realization of gains, if any, from an investment generally will occur upon disposition or refinancing of the underlying property. We
may be unable to realize our investment objectives by sale, other disposition or refinancing at attractive prices within any given period of
time or may otherwise be unable to complete any exit strategy. In particular, our ability to dispose of one or more properties within a
specific time period is subject to weakness in or even the lack of an established market for a property, changes in the financial condition or
prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws, regulations or fiscal
policies of jurisdictions in which the property is located.
In addition, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real
estate companies. In particular, the tax laws applicable to REITs effectively require that we hold our properties for investment, rather than
primarily for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be in
our best interest. Therefore, we may not be able to vary our portfolio in response to economic or other conditions promptly or on favorable
terms, which may adversely affect our financial condition, results of operations, cash flow, ability to make distributions to our stockholders
and per share trading price of our securities.
Our property taxes could increase due to property tax rate changes or reassessment, which would adversely impact our cash flows.
Although we believe we qualify as a REIT for U.S. federal income tax purposes, we will be required to pay some state and local taxes
on our properties. The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or
reassessed by taxing authorities. The amount of property taxes we pay in the future may increase substantially from what we have paid in
the past. If the property taxes we pay increase, our cash flow would be adversely impacted, and our ability to pay any expected dividends to
our stockholders could be adversely affected.
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Our properties may contain asbestos or develop harmful mold, which could lead to liability for adverse health effects and costs of
remediating the problem, which could adversely affect the value of the affected property and our ability to make distributions to our
stockholders.
We are required by federal regulations with respect to our properties to identify and warn, via signs and labels, of potential hazards
posed by workplace exposure to installed asbestos-containing materials (“ACMs”), and potential ACMs. We may be subject to an increased
risk of personal injury lawsuits by workers and others exposed to ACMs and potential ACMs at our properties as a result of these
regulations. The regulations may affect the value of any of our properties containing ACMs and potential ACMs. Federal, state and local
laws and regulations also govern the removal, encapsulation, disturbance, handling and disposal of ACMs and potential ACMs when such
materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a property.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture
problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern
about indoor exposure to mold has been increasing because exposure to mold may cause a variety of adverse health effects and symptoms,
including allergic or other reactions.
The presence of ACMs or significant mold at any of our properties could require us to undertake a costly remediation program to
contain or remove the ACMs or mold from the affected property. In addition, the presence of ACMs or significant mold could expose us to
claims of liability to our tenants, their or our employees, and others if property damage or health concerns arise.
Acquired properties may be located in new markets where we may face risks associated with investing in an unfamiliar market.
We may acquire properties in markets that are new to us. When we acquire properties located in new markets, we may face risks
associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and
unfamiliarity with local government and permitting procedures. We work to mitigate such risks through extensive diligence and research
and associations with experienced service providers. However, there can be no guarantee that all such risks will be eliminated.
We may acquire properties with lock-out provisions, or agree to such provisions in connection with obtaining financing, which
may prohibit us from selling or refinancing a property during the lock-out period.
We may acquire properties in exchange for common units of our Operating Partnership and agree to restrictions on sales or
refinancing, called “lock-out” provisions, which are intended to preserve favorable tax treatment for the owners of such properties who sell
them to us. In addition, we may agree to lock-out provisions in connection with obtaining financing for the acquisition of properties. Lock-
out provisions could materially restrict us from selling, otherwise disposing of or refinancing properties. These restrictions could affect our
ability to turn our investments into cash and thus affect cash available for distributions to our stockholders. Lock-out provisions could
impair our ability to take actions during the lock-out period that would otherwise be in the best interests of our stockholders and, therefore,
could adversely impact the market value of our Common Stock. In particular, lock-out provisions could preclude us from participating in
major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control
might be in the best interests of our stockholders.
As an owner of real estate, we could incur significant costs and liabilities related to environmental matters.
Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of
real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or
petroleum products at, on, in, under or migrating from such property, including costs to investigate, clean up such contamination and
liability for harm to natural resources. Such laws often impose liability without regard to whether the owner or operator knew of, or was
responsible for, the presence of such contamination, and the liability may be joint and several. These liabilities could be substantial and the
cost of any required remediation, removal, fines or other costs could exceed the value of the property and/or our aggregate assets. In
addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for
costs of remediation and/or personal or property damage or materially adversely affect our ability to sell, lease or develop our properties or
to borrow using the properties as collateral. In addition, environmental laws may create liens on contaminated sites in favor of the
government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties,
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environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and these
restrictions may require substantial expenditures.
Additionally, we possess Phase I Environmental Site Assessments for all of the properties in our portfolio. However, the assessments
are limited in scope (e.g., they do not generally include soil sampling, subsurface investigations, hazardous materials surveys or lead-based
paint inspections or asbestos inspections) and may have failed to identify all environmental conditions or concerns. Furthermore, the Phase
I Environmental Site Assessment reports for all of the properties in our portfolio are limited to the information available to the licensed site
professional at the time of the investigation, and, as such, may not disclose all potential or existing environmental contamination liabilities
at the properties in our portfolio arising after the date of such investigation. As a result, we could potentially incur material liability for
these issues, which could adversely impact our financial condition, results of operations, cash flow and the per share trading price of our
Common Stock. Some of the Phase I Environmental Site Assessments in our possession indicate the possibility of lead-based paint and
asbestos containing materials located on and within buildings on some of our properties and polychlorinated biphenyl-containing electrical
transformers located or adjacent to some of our properties. However, management believes that the potential liabilities resulting from
removing these items would be immaterial.
As the owner of the buildings on our properties, we 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 our buildings. Environmental laws govern the presence, maintenance, and
removal of hazardous materials in buildings, and if we do not comply with such laws, we could face fines for such noncompliance. Also,
we could be liable to third parties (e.g., occupants of the buildings) for damages related to exposure to hazardous materials or adverse
conditions in our buildings, and we could incur material expenses with respect to abatement or remediation of hazardous materials or other
adverse conditions in our buildings. In addition, some of our 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 us or our tenants to liability resulting from these activities. Environmental liabilities could affect a tenant’s ability to make
rental payments to us, 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 our operations, or those of our tenants, which could in turn
have an adverse effect on us.
We cannot assure you that costs or liabilities incurred as a result of environmental issues will not affect our ability to make
distributions to you or that such costs or other remedial measures will not have an adverse effect on our financial condition, results of
operations, cash flow and per share trading price of our Common Stock. If we do incur material environmental liabilities in the future, we
may face significant remediation costs, and we may find it difficult to sell any affected properties.
We may incur significant costs complying with various federal, state and local laws, regulations and covenants that are applicable
to our properties.
The properties in our portfolio are subject to various covenants and federal, state and local laws and regulatory requirements,
including permitting and licensing requirements. Local regulations, including municipal or local ordinances, zoning restrictions and
restrictive covenants imposed by community developers may restrict our use of our properties and may require us to obtain approval from
local officials or restrict our use of our properties and may require us to obtain approval from local officials of community standards
organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of
our existing properties. Among other things, these restrictions may relate to fire and safety, seismic or hazardous material abatement
requirements. There can be no assurance that existing laws and regulatory policies will not adversely affect us or the timing or cost of any
future acquisitions or renovations, or that additional regulation will not be adopted that increase such delays or result in additional costs.
Our growth strategy may be affected by our ability to obtain permits, licenses and zoning relief. Our failure to obtain such permits, licenses
and zoning relief or to comply with applicable laws could have an adverse effect on our financial condition, results of operations, cash flow
and per share trading price of our Common Stock.
In addition, federal and state laws and regulations, including laws such as the ADA and the Fair Housing Amendment Act of 1988
(the “FHAA”), impose further restrictions on our properties and operations. Under the ADA and the FHAA, all public accommodations
must meet federal requirements related to access and use by disabled persons. Some of our properties may currently be in non-compliance
with the ADA or the FHAA. If one or more of the properties in our portfolio is not in compliance with the ADA, the FHAA or any other
regulatory requirements, we may be required to incur additional costs to bring the property into compliance and we might incur
governmental fines or the award of damages to private litigants. In
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addition, we do not know whether existing requirements will change or whether future requirements will require us to make significant
unanticipated expenditures that will adversely impact our financial condition, results of operations, cash flow, ability to make distributions
to our stockholders and per share trading price of our securities.
The Sea Turtle Development notes receivable are subject to significant risks and losses related to the underlying collateral which
could have a material adverse effect on our financial condition and results of operations.
As discussed in greater detail in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations,"
we have originated notes receivable to Sea Turtle Development which take the form of subordinated loans secured by second mortgages on
the underlying development. This type of loan involves a higher degree of risk than first lien position mortgages because the loan may
become unsecured as a result of foreclosure by the senior lender. In addition, these loans have higher loan-to-value ratios than conventional
mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. If the borrower defaults on our loan or in
the event of a borrower bankruptcy our loan will be satisfied only after the senior debt is paid in full. As a result, we may not recover some
or all of our initial investment. In the event of default, significant losses related to loan investments could have a material adverse effect on
our financial condition and results of operations.
The risks associated with undeveloped land parcels and related activities could have a material adverse effect on our results of
operations.
We have six undeveloped parcels of land. The risks inherent in owning land increase as demand or rental rates for office, retail or
multifamily properties decreases. Real estate markets are uncertain, and as a result, the value of undeveloped land can fluctuate depending
on prospective uses or intended developments. In addition, carrying costs, can be significant and can result in losses or reduced
profitability. If there are subsequent changes in the fair value of our undeveloped land parcels that cause us to determine that the fair value
of our undeveloped land parcels is less than their carrying basis reflected in our financial statements plus estimated costs to sell, we may be
required to take future impairment charges which would reduce our net income and could materially and adversely affect our results of
operations.
Risks Related to Our Organization Structure
Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of holders of
units in our Operating Partnership, which may impede business decisions that could benefit our stockholders.
Conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates, on the one
hand, and our Operating Partnership or any partner thereof, on the other. Our directors and officers have duties to our company under
Maryland law in connection with their management of our company. At the same time, we, as the general partner of our Operating
Partnership, have fiduciary duties and obligations to our Operating Partnership and its limited partners under Virginia law and the
partnership agreement of our Operating Partnership (the “Partnership Agreement”) in connection with the management of our Operating
Partnership. Our fiduciary duties and obligations as the general partner of our Operating Partnership may come into conflict with the duties
of our directors and officers to our company.
Under Virginia law, a general partner of a Virginia limited partnership has fiduciary duties of loyalty and care to the partnership and
its partners and must discharge its duties and exercise its rights as general partner under the Partnership Agreement or Virginia law
consistently with the obligation of good faith and fair dealing. The Partnership Agreement provides that, in the event of a conflict between
the interests of our Operating Partnership or any partner, on the one hand, and the separate interests of our company or our stockholders, on
the other hand, we, in our capacity as the general partner of our Operating Partnership, are under no obligation not to give priority to the
separate interests of our company or our stockholders, and that any action or failure to act on our part or on the part of our directors that
gives priority to the separate interests of our company or our stockholders that does not result in a violation of the contract rights of the
limited partners of the Operating Partnership under its Partnership Agreement does not violate the duty of loyalty that we, in our capacity as
the general partner of our Operating Partnership, owe to the Operating Partnership and its partners.
Additionally, the Partnership Agreement provides that we will not be liable to the Operating Partnership or any partner for monetary
damages for losses sustained, liabilities incurred or benefits not derived by the Operating Partnership or any limited partner, except for
liability for our intentional harm or gross negligence. Our Operating Partnership must indemnify us, our directors and officers, officers of
our Operating Partnership and our designees from and against any and all claims that relate to the operations of our Operating Partnership,
unless (1) an act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was
the result of active and deliberate dishonesty, (2) the person actually
26
received an improper personal benefit in violation or breach of the Partnership Agreement or (3) in the case of a criminal proceeding, the
indemnified person had reasonable cause to believe that the act or omission was unlawful. Our Operating Partnership must also pay or
reimburse the reasonable expenses of any such person upon its receipt of a written affirmation of the person’s good faith belief that the
standard of conduct necessary for indemnification has been met and a written undertaking to repay any amounts paid or advanced if it is
ultimately determined that the person did not meet the standard of conduct for indemnification. Our Operating Partnership will not
indemnify or advance funds to any person with respect to any action initiated by the person seeking indemnification without our approval
(except for any proceeding brought to enforce such person’s right to indemnification under the Partnership Agreement) or if the person is
found to be liable to our Operating Partnership on any portion of any claim in the action.
Our Board of Directors may change our investment and financing policies without stockholder approval and we may become more
highly leveraged, which may increase our risk of default under our debt obligations.
Our investment and financing policies are exclusively determined by our Board of Directors. Accordingly, our stockholders do not
control these policies. Further, while our Board of Directors will review our ratio of debt to total capital on a quarterly basis, with the goal
of maintaining a reasonable rate consistent with our expected ratio of debt to total market capitalization going forward, our charter and
bylaws do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Our Board of Directors may alter or
eliminate our current policy on borrowing at any time without stockholder approval. If this policy changed, we could become more highly
leveraged, which could result in an increase in our debt service. Higher leverage also increases the risk of default on our obligations. In
addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of
assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes
to our policies with regard to the foregoing could adversely affect our financial condition, results of operations, cash flow and per share
trading price of our Common Stock.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
As permitted by Maryland law, our charter eliminates the liability of our directors and officers to us and our stockholders for money
damages, except for liability resulting from:
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actual receipt of an improper benefit or profit in money, property or services; or
a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was
material to the cause of action adjudicated.
As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist.
Accordingly, in the event that actions taken in good faith by any of our directors or officers impede the performance of our company, your
ability to recover damages from such director or officer will be limited.
We are a holding company with no direct operations and, as such, we will rely on funds received from our Operating Partnership
to pay liabilities, and the interests of our stockholders will be structurally subordinated to all liabilities and obligations of our Operating
Partnership and its subsidiaries.
We are a holding company and will conduct substantially all of our operations through our Operating Partnership. We do not have,
apart from an interest in our Operating Partnership, any independent operations. As a result, we will rely on distributions from our
Operating Partnership to pay any dividends we might declare on shares of our Common Stock. We will also rely on distributions from our
Operating Partnership to meet any of our obligations, including any tax liability on taxable income allocated to us from our Operating
Partnership. In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing
and future liabilities and obligations (whether or not for borrowed money) of our Operating Partnership and its subsidiaries. Therefore, in
the event of our bankruptcy, liquidation or reorganization, our assets and those of our Operating Partnership and its subsidiaries will be
available to satisfy the claims of our stockholders only after all of our and our Operating Partnership’s and our other subsidiaries’ liabilities
and obligations have been paid in full.
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We suspended dividend payments with respect to our Series A Preferred, Series B Preferred and Series D Preferred for the fourth
quarter 2018, first quarter 2019 and in March 2018 suspended the Common Stock dividend.
We suspended dividend payments with respect to our Series A Preferred, Series B Preferred and Series D Preferred for the fourth
quarter 2018, first quarter 2019 and in March 2018 suspended the Common Stock dividend. We plan to revisit the dividend payment policy
with respect to our Series A Preferred, Series B Preferred and Series D Preferred in the second quarter of 2019. See Part II, Item 7.,
“Management's Discussion and Analysis of Financial Condition and Results of Operations - Future Liquidity Needs” of this Annual
Report. As a result of this dividend suspension, no dividends may be declared or paid on the common stock until all accumulated accrued
and unpaid dividends on our Series A Preferred, Series B Preferred and Series D Preferred have been, or contemporaneously are, declared
and paid, or declared and a sum sufficient for the payment thereof is set apart for payment, for all past dividend periods.
Our common stock ranks junior to our Series A Preferred , Series B Preferred and Series D Preferred with respect to dividends
and amounts payable in the event of our liquidation.
Our common stock ranks junior to our Series A Preferred, Series B Preferred and Series D Preferred with respect to the payment of
dividends and amounts payable in the event of our liquidation, dissolution or winding-up. This means that, unless accumulated accrued
dividends have been paid or set aside for payment on all outstanding shares of our Series A Preferred, Series B Preferred and Series D
Preferred for all past dividend periods, no dividends may be declared or paid, or set aside for payment on, our common stock. Likewise, in
the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our
common stock until we have paid to holders of our Series A Preferred, Series B Preferred and Series D Preferred the applicable liquidation
preference plus all accumulated accrued and unpaid dividends.
We suspended dividend payments with respect to our Series A Preferred, Series B Preferred and Series D Preferred for the fourth
quarter 2018, first quarter 2019 and in March 2018 suspended the Common Stock dividend. We plan to revisit the dividend payment policy
with respect to our Series A Preferred, Series B Preferred and Series D Preferred in the second quarter of 2019. See Part II, Item 7.,
“Management's Discussion and Analysis of Financial Condition and Results of Operations - Future Liquidity Needs” of this Annual
Report. As a result, the value of your investment in our common stock may suffer if sufficient funds are not available to first satisfy our
obligations to the holders of our Series A Preferred, Series B Preferred and Series D Preferred in the event of our liquidation.
Our Operating Partnership may issue additional partnership units to third parties without the consent of our stockholders, which
would reduce our ownership percentage in our Operating Partnership and would have a dilutive effect on the amount of distributions
made to us by our Operating Partnership and, therefore, the amount of distributions we can make to our stockholders.
As of December 31, 2018, we own 98.33% of the outstanding common units of our Operating Partnership, and we may, in connection
with our acquisition of properties or otherwise, issue additional partnership units to third parties. Such issuances would reduce our
ownership percentage in our Operating Partnership and affect the amount of distributions made to us by our Operating Partnership and,
therefore, the amount of distributions we can make to our stockholders. Because you will not directly own partnership units, you will not
have any voting rights with respect to any such issuances or other partnership level activities of our Operating Partnership.
Loss of exclusion from regulation pursuant to the Investment Company Act of 1940 would adversely affect us.
We conduct our operations so that our company and each of its subsidiaries are exempt from registration as an investment company
under the Investment Company Act of 1940, or the Investment Company Act. Under Section 3(a)(1)(A) of the Investment Company Act, a
company is an “investment company” if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the
business of investing, reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed
to be an “investment company” if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading
in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets
(exclusive of government securities and cash items) on an unconsolidated basis, or the 40% test.
We conduct our operations so that our company and most, if not all, of our subsidiaries will comply with the 40% test. We will
continuously monitor our holdings on an ongoing basis to determine the compliance of our company and each subsidiary with this test. In
addition, we believe that neither our company nor any of our subsidiaries will be considered investment
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companies under Section 3(a)(1)(A) of the Investment Company Act because they will not engage primarily, or propose to engage
primarily, or hold themselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, our
company and its subsidiaries are primarily engaged in non-investment company businesses related to real estate. Our business will
be materially and adversely affected if we fail to qualify for this exclusion from regulation pursuant to the Investment Company Act.
Risks Related to Our Status as a REIT
Failure to qualify as a REIT would have significant adverse consequences to us and the value of our Common Stock.
We have elected to be taxed, and we operate in a manner that will allow us to qualify, as a REIT for U.S. federal income tax purposes.
We have not requested, and do not plan to request, a ruling from the Internal Revenue Service (the “IRS”) that we qualify as a REIT, and
the statements in this annual filing are not binding on the IRS or any court. Therefore, we cannot assure you that we qualify as a REIT, or
that we will remain qualified as such in the future. If we lose our REIT status, we will face serious tax consequences that would
substantially reduce the funds available for distribution to our stockholders for each of the years involved because:
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we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would
be subject to U.S. federal income tax at regular corporate rates;
we also could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and
unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for
five taxable years following the year during which we were disqualified.
Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and
distributions to stockholders. In addition, if we fail to qualify as a REIT, we will not be required to make distributions to our stockholders.
As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and
could materially and adversely affect the value of our Common Stock.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited
judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been
promulgated under the Code, or the Treasury Regulations, is greater in the case of a REIT that, like us, holds its assets through a
partnership. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify
as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our
stock, requirements regarding the composition of our assets and a requirement that at least 95% of our gross income in any year must be
derived from qualifying sources, such as “rents from real property.” Also, we must make distributions to stockholders aggregating annually
at least 90% of our REIT taxable income, excluding net capital gains. In addition, legislation, new regulations, administrative
interpretations or court decisions may materially adversely affect our investors, our ability to qualify as a REIT for U.S. federal income tax
purposes or the desirability of an investment in a REIT relative to other investments.
Even if we continue to qualify as a REIT for U.S. federal income tax purposes, we may be subject to some federal, state and local
income, property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a
dealer. In addition, our taxable REIT subsidiaries will be subject to tax as regular corporations in the jurisdictions they operate.
If our Operating Partnership fails to continue to qualify as a partnership for U.S. federal income tax purposes, we would cease to
qualify as a REIT and suffer other adverse consequences.
We believe that our Operating Partnership will continue to be treated as a partnership for U.S. federal income tax purposes. As a
partnership, our Operating Partnership will not be subject to U.S. federal income tax on its income. Instead, each of its partners, including
us, will be allocated, and may be required to pay tax with respect to, its share of our Operating Partnership’s income. We cannot assure you,
however, that the IRS will not challenge the status of our Operating Partnership or any other subsidiary partnership in which we own an
interest as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful
in treating our Operating Partnership or any such other
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subsidiary partnership as an entity taxable as a corporation for U.S. federal income tax purposes, we would fail to meet the gross income
tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to continue to qualify as a REIT. Also, the
failure of our Operating Partnership or any subsidiary partnerships to continue to qualify as a partnership could cause it to become subject
to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for
distribution to its partners, including us.
To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions, and the unavailability of
such capital on favorable terms at the desired times, or at all, may cause us to curtail our investment activities and/or to dispose of assets
at inopportune times, which could adversely affect our financial condition, results of operations, cash flow, ability to make distributions
to our stockholders and per share trading price of our securities.
To continue to qualify as a REIT, we generally must distribute to our stockholders at least 90% of our REIT taxable income each
year, excluding net capital gains, and we will be subject to regular corporate income taxes to the extent that we distribute less than 100% of
our REIT taxable income each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which
distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and
100% of our undistributed income from prior years. In order to maintain our REIT status and avoid the payment of income and excise taxes,
we may need to borrow funds to meet the REIT distribution requirements even if the then- prevailing market conditions are not favorable
for these borrowings. These borrowing needs could result from, among other things, differences in timing between the actual receipt of
cash and inclusion of income for U.S. federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of
reserves or required debt or amortization payments. These sources, however, may not be available on favorable terms or at all. Our access
to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current debt
levels, the market price of our Common Stock, and our current and potential future earnings. We cannot assure you that we will have
access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to
dispose of assets at inopportune times, and could adversely affect our financial condition, results of operations, cash flow, ability to make
distributions to our stockholders and per share trading price of our securities.
We may in the future choose to pay dividends in our securities, in which case you may be required to pay tax in excess of the cash
you receive.
We may distribute taxable dividends that are payable in our securities. Taxable stockholders receiving such dividends will be
required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for
U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of the
cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the
amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. For more
information on the tax consequences of distributions with respect to our securities, see “Material U.S. Federal Income Tax Considerations.”
Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in
respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell
shares of our stock in order to pay taxes owed on dividends, such sales may have an adverse effect on the per share trading price of our
securities.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts and
estates is 20%. Dividends payable by REITs, however, generally are not eligible for the 20% rate. Although these rules do not adversely
affect the taxation of REITs or dividends payable by REITs, to the extent that the 20% rate continues to apply to regular corporate qualified
dividends, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than
investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs,
including the per share trading price of our Common Stock.
The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions that would be
treated as sales for U.S. federal income tax purposes.
A REIT’s net income from prohibited transactions is subject to a 100% excise tax. In general, prohibited transactions are sales or
other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our
business, unless a sale or disposition qualifies under certain statutory safe harbors, such
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characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our
properties or that we will always be able to make use of the available safe harbors.
Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise attractive
investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the nature and diversification of our assets,
the sources of our income and the amounts we distribute to our stockholders. We may be required to liquidate or forgo otherwise attractive
investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We also may be required to
make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. As a result,
having to comply with the distribution requirement could cause us to: (1) sell assets in adverse market conditions; (2) borrow on
unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of
debt. Accordingly, satisfying the REIT requirements could have an adverse effect on our business results, profitability and ability to
execute our business plan. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income or distribution
tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may
be subject to a 100% tax on any resulting gain if such sales constitute prohibited transactions.
Legislative or other actions affecting REITs could have a negative effect on us, including our ability to qualify as a REIT or the
U.S. federal income tax consequences of such qualification.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by
the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could adversely affect
our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury Regulations,
administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the U.S. federal
income tax consequences of such qualification.
Item 1B. Unresolved Staff Comments.
None.
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Item 2. Properties.
Our Portfolio
At December 31, 2018, we owned seventy-one properties, including sixty-four income producing properties located in Virginia,
North Carolina, South Carolina, Florida, Georgia, Kentucky, Oklahoma, Tennessee, Alabama, New Jersey, Pennsylvania and West
Virginia, containing a total of 5,716,471 gross leasable square feet of retail space, which we refer to as our operating portfolio. The
following table presents an overview of our properties, based on information as of December 31, 2018.
Portfolio
Property
Location
Number of
Tenants (1)
Total Leasable
Square Feet
Percentage
Leased (1)
Occupied Square
Foot Percentage
Total SF
Occupied
Annualized
Base Rent (2)
Annualized Base
Rent per Occupied
Sq. Foot
Alex City Marketplace
Amscot Building (3)
Beaver Ruin Village
Beaver Ruin Village II
Berkley (4)
Berkley Shopping Center
Brook Run Shopping Center
Brook Run Properties (4)
Bryan Station
Butler Square
Cardinal Plaza
Chesapeake Square
Clover Plaza
Columbia Fire Station
Courtland Commons (4)
Conyers Crossing
Crockett Square
Cypress Shopping Center
Darien Shopping Center
Devine Street
Edenton Commons (4)
Folly Road
Forrest Gallery
Fort Howard Shopping
Center
Freeway Junction
Franklin Village
Franklinton Square
Georgetown
Graystone Crossing
Grove Park
Harbor Pointe (4)
Harrodsburg Marketplace
JANAF (6)
Jenks Plaza
Laburnum Square
Ladson Crossing
LaGrange Marketplace
Lake Greenwood Crossing
Alexander City, AL
Tampa, FL
Lilburn, GA
Lilburn, GA
Norfolk, VA
Norfolk, VA
Richmond, VA
Richmond, VA
Lexington, KY
Mauldin, SC
Henderson, NC
Onley, VA
Clover, SC
Columbia, SC
Courtland, VA
Conyers, GA
Morristown, TN
Boiling Springs, SC
Darien, GA
Columbia, SC
Edenton, NC
Charleston, SC
Tullahoma, TN
Rincon, GA
Stockbridge, GA
Kittanning, PA
Franklinton, NC
Georgetown, SC
Tega Cay, SC
Orangeburg, SC
Grove, OK
Harrodsburg, KY
Norfolk, VA
Jenks, OK
Richmond, VA
Ladson, SC
LaGrange, GA
Greenwood, SC
19
1
27
4
—
9
19
—
10
15
7
12
10
3
—
12
4
15
1
2
—
5
24
18
14
29
13
2
11
15
—
8
117
5
21
15
13
5
147,791
2,500
74,038
34,925
—
47,945
147,738
—
54,397
82,400
50,000
108,982
45,575
21,273
—
170,475
107,122
80,435
26,001
38,464
—
47,794
214,451
113,652
156,834
151,821
65,366
29,572
21,997
106,557
—
60,048
810,137
7,800
109,405
52,607
76,594
47,546
32
100.0 %
100.0 %
84.7 %
100.0 %
— %
39.5 %
92.1 %
— %
100.0 %
96.5 %
94.0 %
96.5 %
100.0 %
79.0 %
— %
98.3 %
100.0 %
37.8 %
100.0 %
100.0 %
— %
100.0 %
93.0 %
93.6 %
94.6 %
100.0 %
90.7 %
100.0 %
100.0 %
87.5 %
— %
91.0 %
85.9 %
100.0 %
100.0 %
100.0 %
95.3 %
85.0 %
100.0 % 147,791 $ 1,156,565 $
100.0 %
84.7 %
100.0 %
— %
2,500
62,701
34,925
—
115,849
1,091,836
448,130
—
39.5 %
18,940
232,030
92.1 % 136,102
1,498,354
— %
100.0 %
96.5 %
94.0 %
—
54,397
79,550
47,000
96.5 % 105,182
100.0 %
79.0 %
— %
45,575
16,800
—
98.3 % 167,575
100.0 % 107,122
37.8 %
100.0 %
100.0 %
— %
30,375
26,001
38,464
—
—
596,441
848,760
449,600
792,110
363,137
449,884
—
870,171
920,322
407,147
156,006
318,500
—
100.0 %
47,794
725,840
93.0 % 199,504
1,348,619
93.6 % 106,320
879,340
94.6 % 148,424
1,084,566
100.0 % 151,821
1,254,274
90.7 %
100.0 %
92.3 %
87.5 %
— %
59,300
29,572
20,297
93,265
—
542,253
267,215
545,353
737,810
—
91.0 %
54,648
413,640
84.5 % 684,533
7,819,908
100.0 %
7,800
100.0 % 109,405
100.0 %
95.3 %
85.0 %
52,607
72,994
40,418
165,820
994,847
491,572
417,150
316,490
7.83
46.34
17.41
12.83
—
12.25
11.01
—
10.96
10.67
9.57
7.53
7.97
26.78
—
5.19
8.59
13.40
6.00
8.28
—
15.19
6.76
8.27
7.31
8.26
9.14
9.04
26.87
7.91
—
7.57
11.42
21.26
9.09
9.34
5.71
7.83
Number of
Tenants (1)
Total Leasable
Square Feet
Percentage
Leased (1)
Occupied Square
Foot Percentage
Total SF Occupied
Annualized
Base Rent (2)
Annualized Base
Rent per Occupied
Sq. Foot
39,218
100.0 %
100.0 %
39,218 $
256,162 $
6.53
Property
Lake Murray
Litchfield Market
Village
Lumber River
Village
Location
Lexington, SC
Pawleys Island, SC
Lumberton, NC
Moncks Corner, SC
Moncks Corner
Nashville Commons Nashville, NC
New Market
Crossing
Parkway Plaza
Perimeter Square
Pierpont Centre
Port Crossing
Mt. Airy, NC
Brunswick, GA
Tulsa, OK
Morgantown, WV
Harrisonburg, VA
Ridgeland, SC
Ridgeland
Riverbridge
Shopping Center
Riversedge North (5) Virginia Beach, VA
Rivergate Shopping
Center
Carrollton, GA
Macon, GA
Summerville, SC
South Park
South Square
St. George Plaza
Bluffton, SC
Sangaree Plaza
Shoppes at Myrtle
Park
Shoppes at TJ Maxx Richmond, VA
Lexington, SC
South Lake
Mullins, SC
Lancaster, SC
St. George, SC
St. Matthews, SC
Lehigh Acres, FL
Hawkinsville, GA
Tampa, FL
Royston, GA
Moyock, NC
Batesburg-Leesville,
SC
Tri-County Plaza
Tampa Festival
Tulls Creek (4)
Sunshine Plaza
St. Matthews
Surrey Plaza
Twin City Commons
Village of
Martinsville
Martinsville, VA
Petersburg, VA
Little River, SC
West Columbia, SC
Sicklerville, NJ
Walnut Hill Plaza
Waterway Plaza
Westland Square
Winslow Plaza
Total Portfolio
5
18
11
1
12
13
4
9
17
9
1
11
—
31
9
12
16
6
3
5
6
5
21
2
17
6
—
5
18
6
10
10
16
86,740
66,781
26,800
56,100
117,076
52,365
58,277
122,259
65,365
20,029
91,188
—
201,680
66,948
56,601
93,624
44,318
60,734
44,350
59,279
29,015
111,189
42,680
137,987
67,577
—
86.6 %
86.6 %
75,103
911,274
98.2 %
100.0 %
99.9 %
96.0 %
81.7 %
66.6 %
90.9 %
97.9 %
98.2 %
100.0 %
99.9 %
96.0 %
81.7 %
66.6 %
89.3 %
97.9 %
100.0 %
100.0 %
98.5 %
— %
97.5 %
100.0 %
76.3 %
95.9 %
14.2 %
83.2 %
74.2 %
86.5 %
87.2 %
96.6 %
78.5 %
63.2 %
89.2 %
— %
98.5 %
— %
97.5 %
100.0 %
76.3 %
95.9 %
14.2 %
83.2 %
74.2 %
86.5 %
87.2 %
96.6 %
78.5 %
63.2 %
89.2 %
— %
65,581
26,800
56,050
112,368
42,785
38,815
446,203
323,451
602,724
976,833
346,979
470,601
109,203
1,294,704
64,000
20,029
813,644
140,203
89,788
688,391
—
—
196,719
66,948
2,814,797
648,335
43,204
89,815
6,300
50,509
32,900
51,278
25,314
107,396
33,500
87,266
60,277
—
489,327
1,092,673
89,793
351,189
272,005
332,439
185,508
987,132
211,050
910,413
399,073
—
47,680
100.0 %
100.0 %
47,680
434,093
12.13
6.80
12.07
10.75
8.69
8.11
12.12
11.86
12.71
7.00
7.67
—
14.31
9.68
11.33
12.17
14.25
6.95
8.27
6.48
7.33
9.19
6.30
10.43
6.62
—
9.10
7.77
8.95
9.75
9.30
15.40
9.67
297,950
87,239
49,750
62,735
40,695
800
5,716,471
96.1 %
34.3 %
100.0 %
80.8 %
94.1 %
89.4 %
96.1 %
34.3 %
100.0 %
80.8 %
94.1 %
89.1 %
286,431
2,224,821
29,957
49,750
50,690
38,295
268,048
485,140
471,206
589,702
5,093,671 $ 49,247,452 $
(1) Reflects leases executed through January 9, 2019 that commence subsequent to the end of the current period.
(2) Annualized based rent per occupied square foot, assumes base rent as of the end of the current reporting period, excludes the impact of tenant concessions and rent
abatements.
(3) We own the Amscot building, but we do not own the land underneath the buildings and instead lease the land pursuant to ground leases. As discussed in the
financial statements, these ground leases require us to make annual rental payments and contain escalation clauses and renewal options.
(4) This information is not available because the property is undeveloped.
(5) This property is our corporate headquarters that we 100% occupy.
(6) Square footage is net of management office the Company occupies on premise and buildings on ground lease which the Company only leases the land.
33
Major Tenants
The following table sets forth information regarding the ten largest tenants in our operating portfolio based on annualized base rent
as of December 31, 2018.
Annualized Base
Rent
($ in 000s)
% of Total
Annualized Base
Rent
Total Occupied
Square Feet
Percent Total
Leasable Square
Foot
Base Rent Per
Occupied Square
Foot
BI-LO (1)
Food Lion
Piggly Wiggly
Tenants
1.
2.
3.
4. Kroger (2)
5. Winn Dixie (1)
6. Hobby Lobby
7. Dollar Tree
8.
9. Harris Teeter (2)
10. TJ Maxx
BJ's Wholesale Club
$
$
2,717
2,651
1,474
1,324
863
675
660
594
578
574
12,110
(1) These tenants are both owned by Southeastern Grocers.
(2) These tenants are both owned by The Kroger Company.
380,675
325,576
191,363
186,064
133,575
114,298
87,133
147,400
39,946
69,783
1,675,813
6.66% $
5.70%
3.35%
3.25%
2.34%
2.00%
1.52%
2.58%
0.70%
1.22%
29.32% $
7.14
8.14
7.70
7.12
6.46
5.91
7.57
4.03
14.47
8.23
7.23
5.52%
5.38%
2.99%
2.69%
1.75%
1.37%
1.34%
1.21%
1.17%
1.17%
24.59%
34
Lease Expirations
The following table sets forth information with respect to the lease expirations of our properties as of December 31, 2018.
% of Total
Expiring
Square
Footage
% of Total
Occupied
Square
Footage
Expiring
Expiring
Annualized
Base Rent (in
000s)
% of Total
Annualized
Base Rent
Lease Expiration Period
Available
Month-to-Month
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028 and thereafter
Total
Number of
Expiring
Leases
Total
Expiring
Square
Footage
622,800
—
33,491
16
370,966
133
170 1,238,042
702,359
138
462,647
112
659,199
96
418,792
42
312,103
20
304,186
23
83,850
12
38
508,036
800 5,716,471
10.89%
0.59%
6.49%
21.66%
12.29%
8.09%
11.53%
7.33%
5.46%
5.32%
1.47%
8.88%
100.00%
—% $
0.66%
7.28%
24.31%
13.79%
9.08%
12.94%
8.22%
6.13%
5.97%
1.65%
9.97%
100.00% $
—
433
4,642
10,234
7,060
5,343
6,405
3,553
2,925
2,713
1,023
4,916
49,247
Expiring Base
Rent Per
Occupied
Square Foot
—
12.93
12.51
8.27
10.05
11.55
9.72
8.48
9.37
8.92
12.20
9.68
9.67
—% $
0.88%
9.43%
20.78%
14.33%
10.84%
13.01%
7.21%
5.94%
5.51%
2.08%
9.99%
100.00% $
Property Management and Leasing Strategy
We administer our property management and substantially all of our leasing activities and operating and administrative functions
(including leasing, legal, acquisitions, development, data processing, finance and accounting). On-site functions such as maintenance,
landscaping, sweeping, plumbing and electrical are subcontracted out at each location and, to the extent permitted by their respective
leases, the cost of these functions is passed on to the tenants.
We believe that focused property management, leasing and customer retention are essential to maximizing the sales per square
foot, operating cash flow and value of our properties. Our primary goal in property management is to maintain an attractive shopping
environment on a cost effective basis for our tenants.
The majority of our property management and leasing functions are supervised and administered by us. We maintain regular
contact with our tenants and frequently visit each asset to ensure the proper implementation and execution of our market strategies. As part
of our ongoing property management, we conduct regular physical property reviews to improve our properties, react to changing market
conditions and ensure proper maintenance.
Our leasing representatives have become experienced in the markets in which we operate by becoming familiar with current
tenants as well as potential local, regional and national tenants that would complement our current tenant base. We study demographics,
customer sales and merchandising mix to optimize the sales performance of our centers and thereby increase rents. We believe this hands-
on approach maximizes the value of our shopping centers.
Item 3. Legal Proceedings.
In May 2018, former Chief Executive Officer and President Jon S. Wheeler filed suit against the Company in the Circuit Court for
the City of Virginia Beach, Virginia, asserting claims for breaches of his employment agreement with the Company and retaliatory
termination. The Company is vigorously defending the claims set forth in the lawsuit. The non-jury
35
trial of the lawsuit is scheduled for April 17-18, 2019. The parties are presently engaging in discovery. At this juncture, the outcome of the
matter cannot be predicted.
On or about June 28, 2018, JCP Investment Partnership, LP and JCP Investment Partnership II, Master Fund LP filed suit against
the Company in the Circuit Court for Baltimore County, Maryland, alleging the Company failed to maintain the designated asset coverage
ratio under the Articles Supplementary governing the issuance of the Company’s Series D Preferred Stock, and is therefore required to
redeem those Preferred Shares at the price of $25.00 per share. The Company is responding to the lawsuit, defending the lawsuit and has
filed an answer denying liability; however, the parties are engaging in discovery. Trial has been scheduled for March 2-6, 2020. At this
early juncture, the outcome of the matter cannot be predicted.
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 CEO and President David Kelly defamed him in communications with an industry association.
The Company’s D&O carrier has retained counsel for Mr. Kelly, who is vigorously defending the lawsuit. The parties are presently
engaging in written discovery. At this early 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 4. Mine Safety Disclosures.
Not applicable.
Part II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Market Information.
Our Common Stock is traded on the NASDAQ Capital Market under the symbol “WHLR”.
Approximate Number of Holders of Our Common Stock
As of February 27, 2019 there were 176 holders of record of our common stock. This number excludes our Common Stock owned
by shareholders holding under nominee security position listings.
Dividend Policy
In the second quarter of 2017, we began paying dividends to holders of our Common Stock on a quarterly basis. Prior to this time
we paid monthly dividends. In March 2018, the Board of Directors suspended the Common Stock dividends. On December 20, 2018 and
February 27, 2019, the Board of Directors suspended the 2018 fourth quarter and 2019 first quarter dividends, respectively, on shares of its
Series A Preferred, Series B Preferred and Series D Preferred. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations-Future Liquidity Needs.” We intend to make dividend distributions that will enable us to meet the distribution
requirements applicable to REITs and to eliminate or minimize our obligation to pay income and excise taxes. We may in the future also
choose to pay dividends in shares of our Common Stock.
Dividend Payments
We have made dividend payments to holders of our Common Stock and holders of common units in our Operating Partnership as
follows in 2018 and 2017, all periods presented adjusted for our Reverse Stock Split, which was effective March 31, 2017:
36
Dividend Period
January 1, 2017 - January 31, 2017
February 1, 2017 - February 28, 2017
March 1, 2017 - March 31, 2017
April 1, 2017 - June 30, 2017
July 1, 2017 - September 30, 2017
October 1, 2017 - December 31, 2017
Unregistered Sale of Securities
Record Date
Payment Date
1/31/2017
2/28/2017
3/31/2017
6/30/2017
9/29/2017
12/28/2017
2/28/2017 $
3/31/2017 $
4/28/2017 $
7/15/2017 $
10/15/2017 $
1/15/2018 $
Payment Amount
per Share or Unit
0.1400
0.1400
0.1400
0.3400
0.3400
0.3400
On October 4, 2018, the Company issued an aggregate of 10,869 of its common stock worth $50,000 pursuant to a Subscription
Agreement between the Company and its former CFO, Wilkes J. Graham as consideration for the settlement and release of certain
employment related claims of Mr. Graham. The issuance of the 10,869 shares of common stock was exempt from registration under the
Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof and the provisions of Rule 506(b) of Regulation D promulgated
thereunder.
Item 6. Selected Financial Data.
Not applicable.
Item 7. 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 audited
consolidated financial statements and the notes thereto included in this Form 10-K. For more detailed information regarding the basis of
presentation for the following information, you should read the notes to the audited consolidated financial statements included in this Form
10-K.
Company Overview
We are a Maryland corporation formed with the principle objective of acquiring, financing, developing, leasing, owning and
managing income producing, strip centers, neighborhood centers, grocery-anchored centers, community centers and free-standing retail
properties that shifted focus in 2018 to managing, leasing and owning. Our strategy has been to opportunistically acquire quality, well-
located, predominantly retail properties in secondary and tertiary markets that generate attractive risk-adjusted returns. We have targeted
competitively protected properties located within developed areas, commonly referred to as in-fill, that possess minimal competition risk
and are surrounded by communities that have strong demographics and dynamic, diversified economies that will continue to generate jobs
and future demand for commercial real estate. Our primary target markets include the Northeast, Mid-Atlantic, Southeast and Midwest.
Our portfolio is comprised of sixty-four retail shopping centers, our office building and six undeveloped land parcels. Thirteen of
these properties are located in Virginia, three are located in Florida, seven are located in North Carolina, twenty-five are located in South
Carolina, twelve are located in Georgia, two are located in Kentucky, two are located in Tennessee, one is located in New Jersey, three are
located in Oklahoma, one is located in Alabama, one is located in West Virginia and one is located Pennsylvania. Our operating portfolio
has a total Gross Leasable Area ("GLA") of 5,716,471 square feet and an occupancy level of approximately 89.11%.
Recent Trends and Activities
There have been several significant events in 2018 that have impacted our company. These events are summarized below.
JANAF Acquisition
On January 18, 2018, the Company acquired JANAF, a retail shopping center located in Norfolk, Virginia, for a
37
purchase price of $85.65 million, paid through a combination of cash, restricted cash and debt assumption and the issuance of 150,000
shares of Common Stock at $7.53 per share. The shopping center, anchored by BJ's Wholesale Club, totals 810,137 square feet and was
94% leased at the acquisition date.
On January 18, 2018, the Company assumed a promissory note for $53.71 million for the purchase of JANAF at a rate of 4.49%.
The loan matures in July 2023 with monthly principal and interest payments of $333,159.
On January 18, 2018, the Company assumed a promissory note for $5.16 million for the purchase of JANAF at a rate of 4.95%.
The loan matures in January 2026 with monthly principal and interest payments of $29,964.
On January 18, 2018, the Company executed a promissory note for $6.50 million for the purchase of JANAF at a rate of 4.65%.
The loan matures in January 2021 with interest due monthly through January 2019 and monthly principal and interest payments of $36,935
beginning in February 2019.
Dispositions
Property
Contract Price
Gain
(in thousands)
Net Proceeds
January 12, 2018
June 19, 2018
September 27, 2018
October 22, 2018
Chipotle Ground Lease at Conyers Crossing
Laskin Road Land Parcel (1.5 acres)
Shoppes at Eagle Harbor
Monarch Bank Building
$
$
$
$
1,270 $
2,858 $
5,705 $
1,750 $
1,042 $
903 $
1,270 $
151 $
1,160
2,747
2,071
299
The sale of the Chipotle ground lease at Conyers Crossing, Shoppes at Eagle Harbor and Monarch Bank Building 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.
Assets Held for Sale
In 2018, the Company’s management and Board of Directors committed to a plan to sell the seven undeveloped land parcels (the
“Land Parcels”), along with the Monarch Bank Building, Shoppes at Eagle Harbor, Graystone Crossing and Jenks Plaza. Accordingly,
these properties have been classified as held for sale.
The sale of the Land Parcels represents discontinued operations as it is a strategic shift to sell the undeveloped land parcels as
opposed to holding for future development purposes. Accordingly, the assets and liabilities associated with the Land Parcels have been
reclassified for all periods presented. Based on recent real estate sales transactions for undeveloped land within the surrounding market it
was determined that the carrying value of the undeveloped land exceeded the fair value, less estimated selling costs by $3.94 million;
accordingly, an impairment loss of that amount was recognized and is included in the loss from discontinued operations in the consolidated
statements of operations. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and
represent Level 3 inputs.
Revere Term Loan
The Company reduced the Revere Term Loan to $1.06 million at December 31, 2018 from $6.81 million at December 31, 2017, a
decrease of $5.75 million, using the following sources: $4.27 million through sales of properties, $150 thousand though refinancing of
properties and $1.33 million from operating cash. In addition, the Company paid the $575 thousand Exit Fee with proceeds from the
Riversedge North refinance. Per the November 5, 2018 Fourth Amendment, the maturity date of the Revere Term Loan is February 1, 2019
at a rate of 10%. On January 29, 2019, the Company entered into a Sixth Amendment to Loan Documents to the Revere Term Loan (the
“Revere Sixth Amendment”). The Revere Sixth Amendment extends the maturity date to April 1, 2019 from February 1, 2019 and creates
an additional “Exit Fee” of $20 thousand.
KeyBank Credit Agreement
The Company reduced the KeyBank Line of Credit to $52.10 million at December 31, 2018 from $68.03 million at December 31,
2017, a decrease of $15.93 million by refinancing New Market, Ridgeland, Georgetown, Ladson Crossing, Lake
38
Greenwood and South Park collateralized portion of the December 21, 2017 Amended and Restated Credit Agreement (the "Amended and
Restated Credit Agreement") for the KeyBank Line of Credit. These refinances resulted in a $3.83 million Overadvance on the Borrowing
Base Availability. The Company is to repay the Overadvance of $3.83 million by February 28, 2019 or otherwise properly balance the
Borrowing Base Availability. Based on discussions and correspondence with KeyBank, KeyBank is drafting documents to extend the time
which the Company is to repay the Overadvance until at least March 31, 2019. As of December 31, 2018, the Amended and Restated Credit
Agreement is collateralized by 10 properties, accruing interest at 5.02% with a December 2019 maturity.
Goodwill
During the last quarter of 2018, the market capitalization of the Company’s common stock sustained a significant decline so that it
fell below the book value of the Company’s net assets. The outcome of the annual goodwill impairment test resulted in an impairment of
goodwill of $5.49 million, which was recorded in the audited consolidated financial statements during the year ended December 31, 2018.
Sea Turtle Development and Related Receivables
In 2016, the Company 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.
In 2018 and 2017, the Company recognized $1.74 million and $5.26 million impairment charges, respectively, on the notes receivable and
in 2017 fully reserved $1.34 million in accrued interest of which $895 thousand was due at note maturity. In 2018, the Company placed the
notes receivable on nonaccrual status and has not recognized $1.44 million of interest income due on the notes for the twelve months ended
December 31, 2018.
In 2018, the Company's agreement to perform development, leasing, property and asset management services for Sea Turtle
Development in Hilton Head, South Carolina was terminated. Sea Turtle Development 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, development fees of
5% of hard costs incurred were due to the Company. Leasing, property and asset management fees were consistent with those charged for
services provided to non-related properties.
As of December 31, 2018, the Company believes the estimated fair market value of the development upon stabilization and lease
up at a future date will provide for the cash required to repay the $5.00 million carrying value of the notes receivable in the event of a sale.
The Company’s estimated fair value of the project is based upon cash flow models that include information available to the Company at
December 31, 2018, including assumptions on future lease up and the estimated fair value at full stabilization. Capitalization rates utilized
in these models are based upon rates that the Company believes to be within a reasonable range of current market rates for the respective
project. The notes are collateralized by a 2nd deed of trust on the property. If the holder of the $20.00 million 1st deed of trust proceeds to
foreclosure, this may have an adverse effect on assumptions used in the Company's fair value analysis leading to further impairment.
39
New Leases, Leasing Renewals and Expirations
The following table presents selected lease activity statistics for our properties.
Renewals(1):
Leases renewed with rate increase (sq feet)
Leases renewed with rate decrease (sq feet)
Leases renewed with no rate change (sq feet)
Total leases renewed (sq feet)
Leases renewed with rate increase (count)
Leases renewed with rate decrease (count)
Leases renewed with no rate change (count)
Total leases renewed (count)
Option exercised (count)
Weighted average on rate increases (per sq foot)
Weighted average on rate decreases (per sq foot)
Weighted average rate (per sq foot)
Weighted average change over prior rates
New Leases(1):
New leases (sq feet)
New leases (count)
Weighted average rate (per sq foot)
Twelve Months Ended December 31,
2018
2017 (2)
540,896
43,935
109,139
693,970
93
8
18
119
31
$
$
$
0.93
(2.23)
0.52
6.05%
282,335
70,049
218,077
570,461
78
9
25
112
60
0.92
(1.18)
0.31
3.35%
290,986
55
9.06
$
160,341
55
11.95
$
$
$
$
Gross Leasable Area ("GLA") expiring during the next 12 months, including month-to-
month leases
7.08%
9.39%
(1) Lease data presented for the years ended December 31, 2018 and 2017 is based on average rate per square foot over the renewed or new lease term.
(2) 2017 lease data adjusted to reflect average rate per square foot over the renewed or new lease term for consistency with 2018 presentation.
Anchor Lease Modifications and Early Terminations
During the year ended December 31, 2018, the Company modified thirteen leases with Southeastern Grocers' ("SEG") anchor
tenants and recaptured four locations. These modifications include a combination of term adjustments, rent adjustments (decreases and
increases), deferred landlord contributions for remodels, and adjusted lease language. The Company elected to recapture Ladson Crossing,
St. Matthews, South Park, and Tampa Festival in the second quarter of 2018. The Cypress Shopping Center lease expired on March 31,
2018. As part of the negotiated recaptures the Company received $246 thousand in termination fees during the year ended December 31,
2018. The remaining thirteen lease modifications were approved by the Southeastern Grocer's bankruptcy court in the second quarter of
2018. The initial annualized base rent impact of these
modifications and recaptures, including the Cypress lease expiration, is approximately $2.50 million. Three of these locations have been
backfilled and two of these locations had rents commence in 2018, with the third location commencing rent in February 2019.
40
The Berkley Shopping Center Farm Fresh lease was terminated effective June 30, 2018. The Company received $980 thousand in
early lease termination fees as a result of the early termination.
Critical Accounting Policies
The following discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates based on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
The critical accounting policies summarized in this section are discussed in further detail in the notes to the financial statements
appearing elsewhere in this Form 10-K. We believe that the application of these policies on a consistent basis enables us to provide useful
and reliable financial information about our operating results and financial condition.
Revenue Recognition
Principal components of our total revenues include base and percentage rents and tenant reimbursements. We accrue minimum
(base) rent 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. Certain lease agreements contain provisions that grant additional rents based on tenants’ sales volumes
(contingent or percentage rent) which we recognize when the tenants achieve the specified targets as defined in their lease agreements. We
periodically review the valuation of the asset/liability resulting from the straight-line accounting treatment of our leases in light of any
changes in lease terms, financial condition or other factors concerning our tenants.
The new standard related to revenue recognition had an immaterial effect in our consolidated financial statements as the Company
only changed its accounting policies for revenue recognized on non-real estate lease contracts. Real estate lease contracts continue to be
reported in accordance with historic accounting under Topic 605, as discussed in Note 2 of the audited consolidated financial statements.
Rents and Other Tenant Receivables
We record a tenant receivable for amounts due from tenants such as base rents, tenant reimbursements and other charges allowed
under the lease terms. We periodically review tenant receivables for collectability and determine the need for an allowance for the
uncollectible portion of accrued rents and other accounts receivable based upon customer creditworthiness (including expected recovery of
a claim with respect to any tenants in bankruptcy), historical bad debt levels and current economic trends. We consider a receivable past due
once it becomes delinquent per the terms of the lease; our 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.
Acquired Properties and Lease Intangibles
We allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to
the acquired liabilities based on their respective fair values. Identifiable intangibles include amounts allocated to acquired out-of-market
leases, tenant relationships, the value of in-place leases and ground lease sandwich interest. We determine 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. Management also estimates costs to execute similar leases including leasing commissions, tenant
improvements, legal and other related expenses. Such amounts are based on estimates and forecasts which, by their nature, are highly
subjective and may result in future changes in the event forecasts are not realized.
Impairment of Long-Lived Assets
41
We periodically review 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, with an evaluation performed at least
annually. These circumstances include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. We
measure 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. To the extent impairment has occurred, we charge to
income the excess of carrying value of the property over its estimated fair value. We estimate fair value using unobservable data such as
operating income, estimated capitalization rates or multiples, leasing prospects 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. The Company did
not recognize any impairment charges to its investment properties for the years ended December 31, 2018, 2017 and 2016.
The Company may decide to sell properties. Properties classified as held for sale are reported at the lower of their carrying value
or their fair value, less estimated costs to sell. When the carrying value exceeds the fair value, less estimated costs to sell an impairment
charge is recognized. The Company estimates fair value, less estimated closing costs based on similar real estate sales transactions. These
valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 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. The Company recorded a $3.94 million impairment charge for the year ended December 31, 2018 on its undeveloped land
parcels classified as held for sale and discontinued operations after making the decision to no longer pursue future development activities.
No impairment charges were recorded for the years ended December 31, 2017 and 2016.
Notes Receivable
Notes receivable represent financing to Sea Turtle Development as discussed in Note 4 of the audited consolidated financial
statements 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 on and principal of the notes receivable based primarily upon
the projected fair market value of the project at stabilization and lease up. 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.
Goodwill
Goodwill is deemed to have an indefinite economic life and is not subject to amortization. Goodwill is tested annually for
impairment and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. The
Company performs its goodwill impairment test using the simplified method, whereby the fair value of the reporting unit is compared to its
carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is
not considered impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit,
then goodwill is considered impaired by an amount equal to that difference.
Liquidity and Capital Resources
At December 31, 2018, our consolidated cash, cash equivalents and restricted cash totaled $18.00 million compared to
consolidated cash, cash equivalents and restricted cash of $12.29 million at December 31, 2017. Cash flows from operating activities,
investing activities and financing activities for the years ended December 31, 2018 and 2017 are as follows (in thousands):
Operating activities
Investing activities
Financing activities
Years Ended December 31,
2018
2017
$
$
$
22,002 $
(22,450) $
6,161 $
42
23,818 $
(3,079) $
(22,968) $
Year Over Year Change
$
(1,816)
(19,371)
29,129
%
(7.62)%
(629.13)%
126.82 %
Operating Activities
During the twelve months ended December 31, 2018, our cash flows from operating activities were $22.00 million, compared to
cash flows from operating activities of $23.82 million during the twelve months ended December 31, 2017, representing a decrease of $1.82
million. This decrease is primarily a result of same store decreases of $1.49 million in property revenues, $1.18 million in third party
revenues net of related expenses, $1.44 million decrease in interest income, increase of $772 thousand in corporate general and
administrative expenses in addition to timing of payables and receivables. This same store activity was offset by $4.50 million in operating
cash flows generated by new stores.
Investing Activities
During the twelve months ended December 31, 2018, our cash flows used in investing activities were $22.45 million, compared to
cash flows used in investing activities of $3.08 million during the twelve months ended December 31, 2017, representing an increase of
$19.37 million due to the following:
•
•
•
$23.15 million increase in cash outflows used for the acquisition of
JANAF;
$1.74 million decrease in cash outflows on capital expenditures primarily a result of the redevelopment at Columbia Fire Station
and tenant improvements at Forrest Gallery in 2017, partially offset by 2018 tenant improvements at Perimeter Square and Myrtle
Park;
$1.99 million increase in cash received as a result of the 2018 sales of Chipotle ground lease at Conyers Crossing, the undeveloped
land parcel at Laskin Road, Shoppes at Eagle Harbor and Monarch Bank Building compared to the 2017 sales of a land parcel at
Carolina Place, the Steak n' Shake outparcel at Rivergate and Ruby Tuesdays/Outback at Pierpont Shopping Center.
Financing Activities
During the twelve months ended December 31, 2018, our cash flows provided by financing activities were $6.16 million,
compared to $22.97 million of cash flows used in financing activities during the twelve months ended December 31, 2017, representing an
increase of $29.13 million due to the following:
•
•
•
•
•
$21.16 million in proceeds from sale of preferred stock due to the 2018 Series D Preferred
offering;
$11.65 million increase in loan proceeds due to the JANAF Bravo Loan, Columbia Fire Station Construction Loan advances,
LaGrange, refinancing of six properties off the KeyBank Line of Credit and refinancing Riversedge North partially offset by prior
year refinances and construction advances;
$10.63 million increase in loan principal payments primarily a result of the pay-down of the Revere Term Loan by $5.75 million
and KeyBank Line of Credit of $15.93 million, partially offset by prior year loan principal payments;
$1.68 million decrease in cash flows used in discontinued operations a result of the 2017 paydown of debt related to the sale of
Ruby Tuesdays/Outback at Pierpont Shopping Center; and
$6.15 million decrease in cash outflows for dividends and distributions primarily as a result of suspending Common Stock
dividend distributions in 2018 resulting in a decrease of $8.40 million partially offset by an increase of $2.24 million in Series D
Preferred distributions;
We intend to continue managing our debt prudently so as to maintain a conservative capital structure and minimize leverage
within our company. As of December 31, 2018 and 2017, our debt balances, excluding unamortized debt issuance costs, consisted of the
following (in thousands):
Fixed-rate notes
Adjustable-rate mortgages
Fixed-rate notes, assets held for sale
Floating-rate line of credit
Total debt
December 31,
2018
2017
286,611 $
26,503
4,396
52,102
369,612 $
215,493
29,506
747
68,032
313,778
$
$
43
The weighted average interest rate and term of our fixed-rate debt including liabilities held for sale are 4.71% and 5.18 years,
respectively, at December 31, 2018. We have $88.04 million of debt maturing, including scheduled principal repayments, during the year
ending December 31, 2019. While we anticipate being able to refinance all the loans at reasonable market terms upon maturity, our
inability to do so may materially impact our financial position and results of operations. See the Note 7 included in the audited consolidated
financial statements for additional mortgage indebtedness details.
Future Liquidity Needs
The primary liquidity needs of the Company, in addition to the funding of our ongoing operations, at December 31, 2018 are
$88.04 million in debt maturities and principal payments due in 2019 and covenant requirements as detailed in our Amended and Restated
Credit Agreement as described in Note 7. Included in the $88.04 million due in the year ended December 31, 2019 is $52.10 million on the
KeyBank Line of Credit. The KeyBank Line of Credit is collateralized by ten properties within our portfolio and may be extended at the
Company’s option for an additional one year period, subject to certain customary conditions. Management intends to refinance the $22.12
million Rivergate loan, maturing in December 2019. Management intends to refinance the $6.50 million Perimeter loan, maturing in March
2019, or sell to pay-off the outstanding balance. The Revere Term Loan has been reduced by $553 thousand since December 31, 2018,
$200 thousand from operating cash, $323 thousand in proceeds from the Jenks Plaza sale and $30 thousand in proceeds from the Harbor
Pointe sale. This loan is expected to be paid in full by April 1, 2019. Subsequent to year end, upon the sale of a portion of the Harbor
Pointe property the $460 thousand loan was paid in full. Additionally, $1.44 million in maturing debt fully amortizes through regularly
scheduled principal payments.
In addition to liquidity required to fund debt payments 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.
To meet these future liquidity needs, the Company had $3.54 million in cash and cash equivalents, $14.46 million held in lender
reserves for the purpose of tenant improvements, real estate taxes and insurance at December 31, 2018 and intends to use cash generated
from operations during the year ending December 31, 2019. In addition, in December 2018 and February 2019, the Board suspended the
2018 fourth quarter and 2019 first quarter dividend payments, respectively, on the Series A Preferred, Series B Preferred and Series D
Preferred. 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 ($3.04 million a quarter).
Additionally, the Company plans to undertake measures to grow its operations and increase liquidity through 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 including undeveloped land and sale of Graystone Crossing and possibly Perimeter Square combined with refinancing
or paying debt down to reduce interest costs and mandatory principal repayments.
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 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 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 “Agreement”). In 2014, Harbor
Pointe Associates, LLC was acquired by the Company.
44
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
Agreement will be no more than $2.28 million, the principal amount of the bonds, as of December 31, 2018. 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. In 2018, 2017, and
2016, we funded approximately $73 thousand, $58 thousand and $49 thousand, respectively in debt service shortfalls. No amounts have
been accrued for this as of December 31, 2018 as a reasonable estimate of future debt service shortfalls cannot be determined based on
variables noted above.
As of December 31, 2018, 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 consolidated financial statements beginning on page 86 of this Annual Report on Form 10-K.
45
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Results of Operations
The following table presents a comparison of the consolidated statements of operations for the years ended December 31, 2018
and 2017, respectively (in thousands, except Property Data).
For the Years Ended December 31,
Year over Year Changes
2018
2017
$/#
%
PROPERTY DATA:
Number of properties owned and leased at period end
(1)
Aggregate gross leasable area at period end(1)
Occupancy rate at period end (1)
64
5,716,471
64
4,902,381
—
814,090
89.1%
91.9%
(2.8)%
FINANCIAL DATA:
Rental revenues
Asset management fees
Commissions
Tenant reimbursements
Development income
Other revenues
Total Revenue
EXPENSES:
Property operations
Non-REIT management and leasing services
Depreciation and amortization
Impairment of goodwill
Provision for credit losses
Impairment of notes receivable
Corporate general & administrative
Other operating expense
Total Operating Expenses
Gain on disposal of properties
Operating Income
Interest income
Interest expense
Net Loss from Continuing Operations Before
Income Taxes
Income tax expense
Net Loss from Continuing Operations
Discontinued Operations
$
$
50,952
189
140
12,595
—
1,833
65,709
18,473
75
27,094
5,486
434
1,739
8,228
250
61,779
2,463
6,393
4
(20,228)
(13,831)
(40)
(13,871)
$
44,156
927
899
11,032
537
984
58,535
15,389
927
26,231
—
2,821
5,261
7,364
—
57,993
1,021
1,563
1,443
(17,165)
(14,159)
(137)
(14,296)
Net (Loss) Income from Discontinued Operations
(Loss) income from discontinued operations
Gain on disposal of properties
16
1,502
1,518
(12,778)
(684)
(12,094)
(1) Excludes the undeveloped land parcels and Riversedge North, our corporate headquarters. Includes assets held for
sale.
Less: Net loss attributable to noncontrolling interests
Net Loss Attributable to Wheeler REIT
(3,938)
903
(3,035)
(16,906)
(406)
(16,500)
Net Loss
$
$
$
6,796
(738)
(759)
1,563
(537)
849
7,174
3,084
(852)
863
5,486
(2,387)
(3,522)
864
250
3,786
1,442
4,830
(1,439)
(3,063)
328
97
425
(3,954)
(599)
(4,553)
(4,128)
278
(4,406)
— %
16.61 %
(3.05)%
15.39 %
(79.61)%
(84.43)%
14.17 %
(100.00)%
86.28 %
12.26 %
20.04 %
(91.91)%
3.29 %
100.00 %
(84.62)%
(66.95)%
11.73 %
100.00 %
6.53 %
141.23 %
309.02 %
(99.72)%
(17.84)%
2.32 %
70.80 %
2.97 %
(24,712.50)%
(39.88)%
(299.93)%
(32.31)%
40.64 %
(36.43)%
46
Total Revenue
Total revenue was $65.71 million for the year ended December 31, 2018 compared to $58.54 million for the year ended December
31, 2017, a $7.17 million increase. The combined increases in rental revenues and tenant reimbursements of $8.36 million are primarily
attributable to operations reported for the JANAF acquisition. The increase of $849 thousand in other revenues was a result of early lease
termination fees associated with the Berkley Center Shopping Center Farm Fresh and the SEG store recaptures during 2018, partially offset
by early termination fees associated with the BI-LO at the Shoppes at Myrtle Park during 2017. Total revenue earned for leasing, property
management and development services decreased $2.03 million as a result of terminating certain contracts to provide these services to
related party properties in February 2018.
Total Operating Expenses
Total operating expenses for the year ended December 31, 2018 were $61.78 million, representing an increase of $3.79 million
over the year ended December 31, 2017. The increase of $863 thousand noted in depreciation and amortization is a result of additional
depreciation on the JANAF acquisition offset by the change in amortization taken on the write-off of lease intangibles associated with the
2018 SEG recaptures offset by the write-off of lease intangibles associated with the 2017 lease termination of BI-LO at Shoppes at Myrtle
Park. Property operations increase of $3.08 million is primarily a result of the additional expenses associated with the JANAF acquisition.
The decrease of $852 thousand in non-REIT management and leasing services is a result of decline in the number of non-REIT properties
the Company manages.
For the year ended December 31, 2018, the Company recorded impairment charges of $5.49 million on goodwill and $1.74
million on the Sea Turtle Development notes receivable, which were partially offset by the 2017 impairment charge of $5.26 million on the
Sea Turtle Development notes receivable.
Provision for credit losses for the year ended December 31, 2018 decreased $2.39 million, primarily a result of the $2.36 million
provision for credit losses attributable to Sea Turtle Development and other related party receivables for the year ended December 31,
2017. Contracts to perform services for these entities were terminated in early 2018.
Corporate general and administrative expenses for the year ended December 31, 2018 increased $864 thousand, as a result of the
following:
•
•
•
$1.06 million increase in professional fees associated with hiring of KeyBanc Advisors which is a one-time cost, proxy solicitation
and increased audit and legal costs;
$801 thousand decrease in acquisition and development costs as a result of no longer acquiring properties offset by writing off
costs associated with both the development of an outparcel at Folly Road and a Lightbridge joint venture, both which the Company
is no longer pursuing; and
$538 thousand decrease in costs allocated from corporate administration to non-REIT management and leasing services resulting
from the termination of certain contracts to provide these services to related party properties in February 2018.
Other operating expenses increased $250 thousand for the year ended December 31, 2018 as a result of lease termination expense
for $250 thousand to allow the space to be available for a high credit grocery store tenant.
Gain on Disposal of Properties
Gain on disposal of properties increased $1.44 million during the year ended December 31, 2018, when compared to the prior
year, which is a result of the sale of Shoppes at Eagle Harbor, Chipotle ground lease at Conyers Crossing and Monarch Bank Building in
2018 net of the 2017 sale of Carolina Place and Steak n' Shake outparcel at Rivergate.
Interest Income
Interest income was $4 thousand for the year ended December 31, 2018, which represents a decrease of $1.44 million as compared
to $1.44 million for the year ended December 31, 2017. The decreases are primarily attributable to the Company placing the notes
receivable on non-accrual status and not recognizing $1.44 million in interest income for the year ended December 31, 2018, due to note
impairment.
47
Interest Expense
Interest expense increased $3.06 million or 17.84% for the year ended December 31, 2018, compared to $17.17 million for the
year ended December 31, 2017. The increase is primarily attributed to the incremental debt service associated with the additional
borrowings utilized to acquire JANAF and increases in Libor on variable rate debt.
Discontinued Operations
Net loss from discontinued operations totaled $3.04 million for the year ended December 31, 2018, compared to net income of
$1.52 million for the year ended December 31, 2017. The loss for 2018 is primarily a result of $3.94 million impairment charge on Land
Parcels, partially offset by the gain on the sale of the Laskin Road land parcel while income for 2017 resulted from the sale of Ruby
Tuesday’s and Outback Steakhouse at Pierpont Centre.
Same Store and New 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 goodwill, 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 new store NOI from the most directly comparable GAAP financial
measure of net income (loss). Same stores consist of those properties we owned during all periods presented in their entirety, while new
stores consist of those properties acquired during the periods presented. The discussion below focuses on same store results of operations
since the JANAF acquisition occurred in January 2018 and there were no 2017 acquisitions.
Same store discontinued operations financial information reflects the activity for the following properties:
•
•
Outback Steakhouse and Ruby Tuesday ground leases at Pierpont Centre (acquired January 14, 2015, sold
February 28, 2017)
Laskin Road land parcel (acquired January 9, 2015, sold June 19,
2018)
48
Years Ended December 31,
Same Store
New Store
Total
2018
2017
2018
2017
2018
2017
$
(16,696 ) $
(12,778 ) $
(in thousands)
(210) $
— $
(16,906 ) $
(12,778 )
3,035
40
17,379
(4)
(2,463 )
—
8,136
1,739
(77)
5,486
22,386
75
—
(329)
38,707 $
(1,518 )
137
17,165
(1,443 )
(1,021 )
—
7,364
5,261
2,364
—
26,231
927
(537)
(1,826 )
40,326 $
—
—
2,849
—
—
250
92
—
—
—
4,708
—
—
—
7,689 $
54,680 $
15,572
401
38,707 $
56,172 $
15,389
457
40,326 $
10,700 $
2,901
110
7,689 $
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
—
—
— $
3,035
40
20,228
(4)
(2,463 )
250
8,228
1,739
(77)
5,486
27,094
75
—
(329)
46,396 $
(1,518 )
137
17,165
(1,443 )
(1,021 )
—
7,364
5,261
2,364
—
26,231
927
(537)
(1,826 )
40,326
65,380 $
18,473
511
46,396 $
56,172
15,389
457
40,326
Net Loss
Adjustments:
Net Loss (Income) from Discontinued Operations
Income tax expense
Interest expense
Interest income
Gain on disposal of properties
Other operating expenses
Corporate general & administrative
Impairment of notes receivable
Provision for credit losses- non-tenant
Impairment of goodwill
Depreciation and amortization
Non-REIT management and leasing services
Development income
Asset management and commission revenues
Property Net Operating Income
Property revenues
Property expenses
Provision for credit losses- tenant
Property Net Operating Income
Property Revenues
Total same store property revenues for the year ended December 31, 2018 decreased to $54.68 million compared to $56.17 million
for the year ended December 31, 2017. The decrease is primarily a result of SEG recaptures and rent modifications accompanied by
expiring anchor leases at South Lake, Fort Howard and Walnut Hill offset by the $980 thousand termination fee for the Farm Fresh
Shopping Center at Berkley Shopping Center.
The twelve months ended December 31, 2018, represents a partial period of activity for JANAF shopping center. This property
(new stores) contributed $10.70 million in revenues for 2018 compared to no revenue for 2017.
Property Expenses
Total same store property expenses for the year ended December 31, 2018 were relatively flat at $15.57 million, compared to
$15.39 million for the year ended December 31, 2017, representing an increase of $183 thousand. Total property expenses increased
primarily due to new store increases of $2.90 million.
There were no significant unusual or non-recurring items included in new store property expenses for the year ended December
31, 2018.
Property Net Operating Income
Total property net operating income was $46.40 million for the year ended December 31, 2018, compared to $40.33 million for
the year ended December 31, 2017 representing an increase of $6.07 million over 2017. New stores accounted for
49
this increase by generating $7.69 million in property net operating income for the year ended December 31, 2018, compared to $0 for the
year ended December 31, 2017.
Funds from Operations
We use 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 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 store FFO, which is a non-GAAP measurement, for the years ended December 31, 2018 and 2017
(in thousands):
Net loss
Depreciation and amortization
of real estate assets
Impairment of goodwill
Impairment of land
Gain on disposal of properties
Gain on disposal of
properties-discontinued
operations
FFO
Same Stores
New Stores
Total
Year Over Year Changes
Years Ended December 31,
2018
(16,696 ) $
2017
(12,778 ) $
$
2018
2017
(210) $
— $
2018
(16,906 ) $
2017
(12,778 ) $
$
(4,128 )
22,386
5,486
3,938
(2,463 )
26,231
—
—
(1,021 )
4,708
—
—
—
—
—
—
—
27,094
5,486
3,938
(2,463 )
26,231
—
—
(1,021 )
863
5,486
3,938
(1,442 )
%
(32.31 )%
3.29 %
100.00 %
100.00 %
(141.23 )%
(903)
11,748 $
(1,502 )
10,930 $
$
—
4,498 $
—
— $
(903)
16,246 $
(1,502 )
10,930 $
599
5,316
39.88 %
48.64 %
Total FFO increased $5.32 million for the year ended December 31, 2018, primarily due to incremental new store FFO of $4.50
million attributable to the JANAF acquisition partially offset by the same store changes described above.
During the year ended December 31, 2018, same store FFO increased $818 thousand primarily due to the following:
•
•
•
•
•
•
$3.52 million decrease in impairment charge on notes
receivable;
$2.44 million decrease in provision for non-tenant credit losses; offset
by:
$1.44 million decrease in interest income as notes receivable are on a non-accrual
basis;
$1.18 million decrease in development, asset management and commission revenues, net of savings on related non-REIT
management and leasing services as a result of termination of related party agreements to perform services;
$1.62 million decrease in property net operating income;
and
$772 thousand increase in corporate general and administrative
expenses.
We believe that 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 AFFO, which we define to exclude such items. Management believes that these
adjustments are appropriate in determining AFFO as they are not
50
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 years ended December 31, 2018 and 2017 is shown in the table below (in thousands):
FFO
Preferred Stock dividends - declared
Preferred Stock dividends - undeclared
Preferred Stock accretion adjustments
FFO available to common shareholders and common unitholders
Impairment of notes receivable
Acquisition and development costs
Capital related costs
Other non-recurring and non-cash expenses
Share-based compensation
Straight-line rent
Loan cost amortization
Accrued interest income
(Below)/above market lease amortization
Recurring capital expenditures and tenant improvement reserves
AFFO
Years Ended December 31,
2018
2017
16,246 $
(9,790)
(3,037)
678
4,097
1,739
300
576
103
940
(1,197)
2,363
—
(695)
(1,143)
7,083 $
10,930
(9,969)
—
809
1,770
5,261
1,101
663
294
870
(712)
3,087
415
453
(941)
12,261
$
$
Acquisition and development costs at December 31, 2018 are related to the write-off of costs associated with the construction
contract for the development of an outparcel at Folly Road and a Light Bridge joint venture, both of which the Company is no longer
pursuing. Acquisition expenses at December 31, 2017 were primarily related to compensation paid to personnel working directly on
acquisitions related activities and other costs associated with due diligence of potential acquisitions at that time. In 2018, the Company
adopted ASU 2017-01 and external acquisition costs are now capitalized as part of the acquisition. The Company has ceased acquisition
activities since acquiring JANAF. Thus, internal salaries previously related to acquisitions have been reallocated to compensation and
benefits and not represented in acquisition costs during 2018.
Other nonrecurring and non-cash expenses are miscellaneous costs we believe will not be incurred on a going 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. Accrued interest income represents interest income on notes receivable due at maturity which was
fully reserved as of December 31, 2017.
Impairment on notes receivable in 2018 and 2017 relates to a impairment charge of $1.74 million and $5.26 million, respectively,
on notes receivable related to Sea Turtle Development that is not indicative of our core portfolio of properties and future operations.
The preferred stock accretion adjustments represent the amortization of offering costs associated with raising the Series B
Preferred Stock and Series D Preferred Stock.
51
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Results of Operations
The following table presents a comparison of the consolidated statements of operations for the years ended December 31, 2017
and 2016, respectively (in thousands, except Property Data).
For the Years Ended December 31,
Year over Year Changes
2017
2016
$/#
%
PROPERTY DATA:
Number of properties owned and leased at period end
(1)
Aggregate gross leasable area at period end (1)
Occupancy rate at period end (1)
64
4,902,381
64
4,906,511
91.9%
94.0%
—
(4,130)
(2.1)%
FINANCIAL DATA:
Rental revenues
Asset management fees
Commissions
Tenant reimbursements
Development income
Other revenues
Total Revenue
EXPENSES:
Property operations
Non-REIT management and leasing services
Depreciation and amortization
Provision for credit losses
Impairment of notes receivable
Corporate general & administrative
Total Operating Expenses
Gain on disposal of properties
Operating Income (Loss)
Interest income
Interest expense
Net Loss from Continuing Operations Before
Income Taxes
Income tax expense
Net Loss from Continuing Operations
Discontinued Operations
Income from discontinued operations
Gain on disposal of properties
Net Income from Discontinued Operations
Net Loss
Net loss attributable to noncontrolling interests
Net Loss Attributable to Wheeler REIT
$
$
44,156
927
899
11,032
537
984
58,535
15,389
927
26,231
2,821
5,261
7,364
57,993
1,021
1,563
1,443
(17,165)
(14,159)
(137)
(14,296)
$
33,165
855
964
8,649
244
283
44,160
11,898
1,567
20,637
425
—
9,924
44,451
—
(291)
692
(13,356)
(12,955)
(107)
(13,062)
10,991
72
(65)
2,383
293
701
14,375
3,491
(640)
5,594
2,396
5,261
(2,560)
13,542
1,021
1,854
751
(3,809)
(1,204)
(30)
(1,234)
136
688
824
(12,238)
(1,035)
(11,203)
(120)
814
694
(540)
351
(891)
16
1,502
1,518
(12,778)
(684)
(12,094)
52
$
(1) Excludes the undeveloped land parcels and Riversedge North, our corporate headquarters, and the redevelopment property. Includes assets held for
sale.
$
$
— %
(0.08)%
(2.23)%
33.14 %
8.42 %
(6.74)%
27.55 %
120.08 %
247.70 %
32.55 %
29.34 %
(40.84)%
27.11 %
563.76 %
— %
(25.80)%
30.47 %
— %
637.11 %
108.53 %
(28.52)%
(9.29)%
(28.04)%
(9.45)%
(88.24)%
118.31 %
84.22 %
(4.41)%
33.91 %
(7.95)%
Total Revenue
Total revenue was $58.54 million for the year ended December 31, 2017 compared to $44.16 million for the year ended December
31, 2016, a $14.38 million increase. The increase in rental revenues and tenant reimbursements of $13.37 million is attributable to a full
period of operations reported for the twenty-three retail acquisitions made during the year ended December 31, 2016. The increase in
development income and other revenues is due to $293 thousand of incremental development fees for the Sea Turtle Development along
with $701 thousand of incremental lease termination fees, of which $460 thousand is a result of the BI-LO closure at Shoppes at Myrtle
Park.
Total Operating Expenses
Total operating expenses for the year ended December 31, 2017 were $57.99 million, representing an increase of $13.54 million
over the year ended December 31, 2016. Total operating expenses increased due to a non-cash impairment charge of $5.26 million on notes
receivable to Sea Turtle Development along with an increase of $2.40 million in provision for credit losses primarily attributable to Sea
Turtle Development and other related party receivables. Overall increases of $5.59 million were noted in depreciation and amortization and
$3.49 million in property operations resulting from the additional expenses associated with the twenty-three retail properties acquired in
2016. These amounts were offset by a decrease of $2.56 million in general and administrative expenses. General and administrative
expenses during the year ended December 31, 2017 included approximately $2.04 million of non-recurring expenses related to acquisitions,
capital events and other miscellaneous costs.
Gain on Disposal of Properties - Operations
Gain on disposal of properties from continuing operations was $1.02 million for the year ended December 31, 2017, which
represents an increase of $1.02 million. The increase is primarily attributed to the sale of the Steak n' Shake, a 1.06 acre outparcel at
Rivergate.
Interest Income
Interest income was $1.44 million for the year ended December 31, 2017, which represents an increase of $751 thousand as
compared to $692 thousand for the year ended December 31, 2016. The increase is primarily attributed to interest income on the Sea Turtle
Development note receivable earned during the year ended December 31, 2017. Accrued interest income of $443 thousand, currently due
and $895 thousand, due at maturity related to Sea Turtle Development was reserved at December 31, 2017 and included in provision for
credit losses.
Interest Expense
Interest expense increased $3.81 million or 28.52% for the year ended December 31, 2017, compared to $13.36 million for the
year ended December 31, 2016. The increase is primarily attributed to the incremental debt service associated with the additional
borrowings utilized to acquire the twenty-three retail properties representing new stores since January 1, 2016.
Discontinued Operations
Net income from discontinued operations totaled $1.52 million for the year ended December 31, 2017, compared to a net income
of $824 thousand for the year ended December 31, 2016. The income for both years primarily resulted from the gain on sale of assets held
for sale. Starbucks/Verizon was sold in 2016 while Ruby Tuesday’s and Outback Steakhouse at Pierpont Centre was sold in 2017.
Same Store and New 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 and leasing costs, it provides a performance measure,
53
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 new store NOI from the most directly comparable GAAP financial
measure of net income (loss). Same stores consist of those properties we owned during all periods presented in their entirety, while new
stores consist of those properties acquired during the periods presented. The discussion below focuses on same store results of operations
since the twenty-three 2016 retail acquisitions occurred at various points throughout the respective periods but have a full annual period of
results in 2017.
Same store discontinued operations financial information reflects the activity for the following properties:
•
Outback Steakhouse and Ruby Tuesday ground leases at Pierpont Centre (acquired January 14, 2015, sold
February 28, 2017)
Years Ended December 31,
Same Store
New Store
Total
2017
2016
2017
2016
2017
2016
$
(10,770 ) $
(10,402 ) $
(in thousands)
(2,008 ) $
(1,836 ) $
(12,778 ) $
(12,238 )
(1,518 )
137
10,488
(1,442 )
12
7,026
2,711
5,261
14,749
927
(537)
(1,826 )
25,218 $
(824)
107
10,582
(692)
—
8,816
422
—
17,388
1,567
(244)
(1,819 )
24,901 $
—
—
6,677
(1)
(1,033 )
338
110
—
11,482
—
—
—
15,565 $
—
—
2,774
—
—
1,108
3
—
3,249
—
—
—
5,298 $
(1,518 )
137
17,165
(1,443 )
(1,021 )
7,364
2,821
5,261
26,231
927
(537)
(1,826 )
40,783 $
34,797 $
9,579
34,865 $
9,964
21,375 $
5,810
7,232 $
1,934
56,172 $
15,389
25,218 $
24,901 $
15,565 $
5,298 $
40,783 $
(824)
107
13,356
(692)
—
9,924
425
—
20,637
1,567
(244)
(1,819 )
30,199
42,097
11,898
30,199
$
$
$
Net Loss
Adjustments:
Net Income from Discontinued Operations
Income tax expense
Interest expense
Interest income
Loss (gain) on disposal of properties
Corporate general & administrative
Provision for credit losses
Impairment of notes receivable
Depreciation and amortization
Non-REIT management and leasing services
Development income
Asset management and commission revenues
Property Net Operating Income
Property revenues
Property expenses
Property Net Operating Income
Property Revenues
Total same store property revenues for the year ended December 31, 2017 were relatively flat at $34.80 million, compared to
$34.87 million for the year ended December 31, 2016.
54
The year ended December 31, 2017 represents a full period of operations reported for the twenty-three retail acquisitions made in
2016. These properties (new stores) contributed $21.38 million in revenues for the year ended December 31, 2017, compared to $7.23
million in revenue for the year ended December 31, 2016.
Property Expenses
Total same store property expenses for the year ended December 31, 2017 were $9.58 million, compared to $9.96 million for the
year ended December 31, 2016, representing a decrease of $385 thousand or 3.86%. The decrease was primarily due to decreases in real
estate taxes and grounds and landscaping. Total property expenses increased primarily due to new store increases of $1.93 million.
There were no significant unusual or non-recurring items included in new store property expenses for the year ended December
31, 2017.
Property Net Operating Income
Total property net operating income was $40.78 million for the year ended December 31, 2017, compared to $30.20 million for
the year ended December 31, 2016 representing an increase of $10.58 million over 2016. New stores accounted for the majority of this
increases by generating $15.57 million in property net operating income for the year ended December 31, 2017, compared to $5.30 million
for the year ended December 31, 2016.
Funds from Operations
We use 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 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) 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 store FFO, which is a non-GAAP measurement, for the years ended December 31, 2017 and 2016
(in thousands):
Net loss
Depreciation and amortization
of real estate assets
Loss (gain) on disposal of
properties
Gain on disposal of
properties-discontinued
operations
FFO
Same Stores
New Stores
Total
Year Over Year Changes
2017
(10,770 ) $
2016
(10,402 ) $
$
2017
2016
(2,008 ) $
(1,836 ) $
2017
(12,778 ) $
2016
(12,238 ) $
$
%
(540)
(4.41 )%
Years Ended December 31,
14,749
17,388
11,482
3,249
26,231
20,637
5,594
27.11 %
12
—
(1,033 )
—
(1,021 )
—
(1,021 )
— %
(1,502 )
2,489 $
(688)
6,298 $
—
8,441 $
—
1,413 $
(1,502 )
10,930 $
(688)
7,711 $
$
(814)
3,219
(118.31 )%
41.75 %
During the year ended December 31, 2017, same store FFO decreased $3.81 million, primarily due to $5.26 million non-cash
impairment charges on notes receivable and an increase of $2.40 million in provision for credit losses offset by
55
decreases of $1.79 million in corporate general and administrative expenses, increases in property net operating income of $317 thousand,
and an increase in interest income of $750 thousand. Total FFO increased $3.22 million, for the year ended December 31, 2017, primarily
due to the expansion of operations resulting from the twenty-three acquisitions occurring subsequent to January 1, 2016, representing new
stores, that contributed incremental FFO of $7.03 million when compared to the year ended December 31, 2016.
We believe that 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 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 years ended December 31, 2017 and 2016 is shown in the table below (in thousands):
FFO
Preferred Stock dividends
Preferred Stock accretion adjustments
FFO available to common shareholders and common unitholders
Impairment of notes receivable
Acquisition and development costs
Capital related costs
Other non-recurring and non-cash expenses
Share-based compensation
Straight-line rent
Loan cost amortization
Accrued interest income
Above/below market lease amortization
Recurring capital expenditures and tenant improvement reserves
AFFO
Years Ended December 31,
2017
2016
$
$
10,930 $
(9,969)
809
1,770
5,261
1,101
663
294
870
(712)
3,087
415
453
(941)
12,261 $
7,711
(4,713)
417
3,415
—
2,029
514
664
1,454
(386)
2,126
(415)
29
(760)
8,670
Acquisition expenses of $1.10 million and $2.03 million at December 31, 2017 and 2016, respectively, were primarily related to
$591 thousand and $433 thousand, for the years ended December 31, 2017 and 2016, respectively, of compensation paid to personnel
working directly on acquisitions related activities and other costs associated with due diligence of potential acquisitions currently in our
pipeline. Other nonrecurring and non-cash expenses are miscellaneous costs we believe will not be incurred on a going 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. Accrued interest income represents interest income due at maturity for the year ended December
31, 2016 which has been fully reserved as of December 31, 2017 and included as reduction to FFO as of December 31, 2017.
Impairment on notes receivable relates to a non-cash impairment charge of $5.26 million on notes receivable related to Sea Turtle
Development that is not indicative of our core portfolio of properties and future operations.
The preferred stock accretion adjustments represent the amortization of offering costs associated with raising the Series B
Preferred Stock and Series D Preferred Stock.
56
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is incorporated by reference to our Financial Statements beginning on page 80 of this
Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our principal executive and financial officer, 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 our company’s management, as
appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officer
have concluded that such disclosure controls and procedures were effective as of December 31, 2018 (the end of the period covered by this
Annual Report).
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting, as defined in rules promulgated under the Exchange Act, is a process designed by, or under the supervision of, our
CEO and CFO and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal
control over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations
of our management and our Board of Directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial statements.
Our internal control over financial reporting is evaluated on a regular basis by personnel in our organization. The overall goals of
these various evaluation activities are to monitor our internal control over financial reporting and to make modifications as necessary, as
disclosure and internal controls are intended to be dynamic systems that change (including improvements and corrections) as conditions
warrant.
Management conducted an assessment of the effectiveness of our company’s internal control over financial reporting as of
December 31, 2018, utilizing the framework established in “INTERNAL CONTROL-INTEGRATED FRAMEWORK” issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on this assessment, management has determined that
our internal controls over financial reporting as of December 31, 2018 were effective.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may
57
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal
controls over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm
pursuant to the rules of the SEC that permit us to provide only management's report in this Annual Report.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial reporting for the three months ended December 31, 2018
that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
Item 9B. Other Information
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance.
Our Directors and Executive Officers
PART III
Our board of directors consists of eight members, including a majority of directors who are independent within the meaning of the
listing standards of the NASDAQ Capital Market. Pursuant to our charter, each of our directors will be elected by our stockholders to serve
until the next annual meeting of our stockholders and until his or her successor is duly elected and qualifies. Subject to rights pursuant to
any employment agreements, officers serve at the pleasure of our board of directors.
The following table sets forth certain information concerning our directors, executive officers and certain other officers:
Name
David Kelly
Matthew T. Reddy
M. Andrew Franklin
Stewart J. Brown (1)
John McAuliffe (1)
Carl B. McGowan, Jr. (1)
Jeffrey Zwerdling (1)
John Sweet (1)
Andrew Jones (1)
Sean F. Armstrong (1)
(1) Independent director.
Age Position
54
36
38
71
65
71
74
74
56
Director
Chief Executive Officer and Director (previously Chief Investment Officer)
Chief Financial Officer (previously Chief Accounting Officer)
Chief Operating Officer (previously Senior Vice President of Operations)
Director
Director
Director
Director
Chairman of Board of Directors
57
Director
58
Biographical Summaries of Directors and Executive Officers
The following are biographical summaries of the experience of our directors and executive officers.
David Kelly was appointed as CEO in January 2018 and has served as a director of the Company since 2011. Mr. Kelly has over 25 years of
experience in the real estate industry. Mr. Kelly previously served as CIO. Prior to joining the Company, Mr. Kelly served as a Principal
with Kelly Development, LLC, a real estate development firm he founded in March 2011, which specializes in the acquisition and
management of retail properties in the Mid-Atlantic region. Prior to founding Kelly Development, Mr. Kelly served as the Director of Real
Estate for Supervalu, Inc., a Fortune 100 supermarket retailer, from 1998 through 2011. Prior to his time with Supervalu, Mr. Kelly served
as an Asset Manager from 1993 through 1998. Mr. Kelly currently serves on the Board of Directors of the Norfolk, Virginia SPCA. He
earned a Bachelor of Science in Finance degree from Bentley College (now Bentley University). Mr. Kelly was selected as a director based
upon his years of experience in the real estate industry as well as his real estate management experience within a publicly traded company.
Matthew T. Reddy was named as CFO in February 2018. Mr. Reddy previously served as our Chief Accounting Officer since June 2015.
Prior to joining the Company, Mr. Reddy worked at Liberty Tax, Inc. (“Liberty”), serving as Assistant Vice President of Online Products
from 2014 to 2015, where his responsibilities included coordination and leadership of Liberty’s online tax business. While employed at
Liberty, Mr. Reddy was also employed as Director of Finance from 2011 to 2014, and Manager of Financial Reporting from 2008 to 2011.
His primary responsibilities in these positions included overseeing corporate forecasting, assisting in the planning and analysis of business
and financial strategies, and managing Liberty’s accounting team. Prior to joining Liberty, Mr. Reddy worked at KPMG LLP as a Senior
Auditor. Mr. Reddy is a Certified Public Accountant and holds a degree in accounting from James Madison University.
M. Andrew Franklin was appointed to COO in February 2018. He previously served as the Senior Vice President of Operations since
January 2017. Mr. Franklin has over 18 years of commercial real estate experience. Mr. Franklin is responsible for overseeing the property
management, lease administration and leasing divisions of our growing portfolio of commercial assets. Prior to joining us, Mr. Franklin
was a partner with Broad Reach Retail Partners where he ran the day to day operations of the company, managing the leasing team as well
as overseeing the asset, property and construction management of the portfolio with assets totaling $50 Million. Mr. Franklin is a graduate
of the University of Maryland, with a Bachelor of Science degree in Finance.
Stewart J. Brown has served as a director since 2015. Mr. Brown has over 45 years of financial and organizational management experience
in executive management positions within the real estate, banking, and finance industries, most recently as Chairman of the Credit/Risk
Committee for Community and Southern Bank and is a member of the board’s Joint Audit Committee. Mr. Brown has also served as the
past Chairman of the Board of Lodgian, Inc. of Atlanta and Opportunity Bank of Dallas. Mr. Brown also served for over 32 years as an
officer in the US Army in a variety of assignments. Mr. Brown received his Bachelor’s degree in Political Science and Economics from UC
Santa Barbara and has an MBA from NYU’s Leonard N. Stern’s School of Business. Based upon his leadership and organizational
development expertise, we have determined that Mr. Brown should serve as a director.
John McAuliffe has served as a director since 2015. Mr. McAuliffe previously served as a director from November 2012 until April 2013.
Mr. McAuliffe has over 36 years of experience in the financial services industry. Presently, Mr. McAuliffe serves as a Lead Investment
Banker with Newbridge Securities Corporation, a full-service securities brokerage and investment banking firm. Prior to joining Newbridge
Securities Corporation in 2005, Mr. McAuliffe ran his own consulting firm which provided advisory and structural development services to
the management of small to medium sized publicly traded companies. Throughout his career, Mr. McAuliffe has participated in excess of
over 200 capital raises and has been involved in all aspects of the capital formation process serving in a variety of positions ranging from
institutional salesman to the Managing Director of an investment banking firm. Mr. McAuliffe received his Bachelor of Science degree in
political science and economics from State University of New York at Brockport. Mr. McAuliffe was chosen as a director because of his
leadership and investment banking experience.
59
Carl B. McGowan, Jr., PhD, CFA has served as a director of the Company since 2013. Dr. McGowan brings over 30 years of extensive
financial experience to the Board. Dr. McGowan joined the faculty of Norfolk State University in 2005 and presently serves as the Faculty
Distinguished Professor of Finance. From 2004-2005, Dr. McGowan served as a Visiting Associate Professor of Finance at the University
of Sharjah in the United Arab Emirates. From 2003-2004, Dr. McGowan served as the RHB Bank Distinguished Chair in Finance at the
University of Kebangsaan in Malaysia. Dr. McGowan has a Bachelor of Arts in International Relations (Syracuse), an MBA in Finance
(Eastern Michigan), and a PhD in Business Administration (Michigan State). Dr. McGowan has conducted extensive research in the areas
of corporate finance and international finance, with specific studies relating to real estate operations. In addition to over 150 conference
presentations, Dr. McGowan has published 68 articles in numerous peer-reviewed journals including: The Journal of Real Estate Research,
The American Journal of Business Education, Applied Financial Economics, Decision Science, Financial Practice and Education, The
Financial Review, International Business and Economics Research Journal, The International Review of Financial Analysis, The Journal of
Applied Business Research, The Journal of Business Case Studies, The Journal of Diversity Management, Managerial Finance, Managing
Global Transitions, The Southwestern Economic Review, and Urban Studies. Dr. McGowan was chosen as a director based upon his
diverse experience and well-known authority in finance and economics, which will be valuable as we pursue the continued growth of the
Company.
Jeffery M. Zwerdling has served as a director of the Company since 2013. Mr. Zwerdling is founder and managing partner of the law firm
of Zwerdling, Oppleman & Adams which was formed in 1972 in Richmond, Virginia. Mr. Zwerdling’s areas of concentration include
corporate law, commercial and residential real estate, personal estate planning, and general litigation. From 1999-2012 he served as
President and Director of The Corporate Centre, a 225,000 square foot office park complex located in Richmond, Virginia. In May of 2013,
Mr. Zwerdling was appointed to the Board of Directors of Capitol Securities Management Inc. (“CSM”). CSM is a Financial Industry
Regulatory Authority registered broker dealer whose assets exceed $4 billion. Mr. Zwerdling was commissioned as a Second Lieutenant in
the United States Army in 1967, served in the Army Reserve and Virginia National Guard, and received his honorable discharge after
obtaining the rank of Captain in 1981. Mr. Zwerdling holds a Bachelor of Science Degree from Virginia Commonwealth University and
received a Juris Doctor Degree from the College of William and Mary School of Law. He was an organizational investor in Southern
Community Bank & Trust, now Village Bank. In 1998, Mr. Zwerdling was elected to the Board of Directors of Supertel Hospitality, Inc., a
public company which trades on the Nasdaq Stock Exchange. Supertel is a real estate investment trust (REIT) which is a focused-service
segment of the lodging industry. During his tenure at Supertel, Mr. Zwerdling served on various committees, including the Acquisitions
and Dispositions Committee, and was a member and former chairman of the Audit Committee. Prior to being appointed a Director of the
Company in September 2013, Mr. Zwerdling served as a Board Observer for the Company. He is a Master Mason of Fraternal Lodge No.
53, belongs to the Scottish Rite of Freemasonry, and is a Noble of the Acca Temple Shrine of Richmond, Virginia. Mr. Zwerdling was
chosen as a director based upon his legal experience in real estate matters and his vast experiences with real estate investment trusts.
John Sweet has served as a director of the Company since 2016 and was appointed to Chairman of the Board in 2018. Mr. Sweet has forty
years of investment banking and corporate finance experience. Mr. Sweet is the co-founder and Chief Investment Officer at Physicians
Realty Trust (NYSE:DOC), a self-managed healthcare real estate investment trust. Prior to founding Physicians Realty Trust in 2013, Mr.
Sweet was a Managing Director for the privately owned, full-service, specialty investment firm, Ziegler. While at Ziegler, Mr. Sweet
assisted in the financing and then management of a medical office building investment fund which became the initial core portfolio for
Physicians Realty Trust. In 2002, Mr. Sweet also co-founded Windrose Medical Properties Trust, a publicly traded medical office REIT that
was sold to Healthcare REIT (NASDAQ:HCN) in 2006. John has been involved at a senior financial level in publicly traded and private
companies, family offices and investment banking firm over the course of his career. He has also served on the boards of philanthropic and
charitable organizations and was in the Army from 1968-1970. Mr. Sweet received his Bachelor’s degree in Business Administration from
St. John Fisher College and an MBA from Rochester Institute of Technology. Mr. Sweet was chosen as a director based on his leadership
and experience managing a publically-traded REIT.
Andrew R. Jones, CFA, has served as a director of the Company since 2018. Mr. Jones is Founder and Chief Executive Officer of North
Star Partners, LP. Since its founding in January 1996, North Star has been an alternative investment program that is dedicated to value
investing and focuses on the small-cap sector of the U.S. equity markets. Prior to the formation of North Star, Mr. Jones was a Managing
Director at Tweedy, Browne Company, LP. Mr. Jones is a former director of Certus Bank, NA, Cornell Companies, Inc. and Chem Rx
Corporation. He is a Chartered Financial Analyst and is a member of the New York Society of Securities Analysts. Mr. Jones received a
BS in Finance from Ithaca College and an MBA in Finance from the
60
University of Chicago. Mr. Jones was chosen as a director based on his expertise within the real estate industry and financial markets.
Sean F. Armstrong, CFA, has served as a director of the Company since 2018. Mr. Armstrong serves as Principal & Portfolio Manager of
Westport Capital Partners LLC. Mr. Armstrong has over 24 years of real estate investment experience across the spectrum of property
types, including retail shopping centers. He has had direct experience in the asset management for both transitional and stabilized
properties, including new development. Prior to joining Westport in 2006, Mr. Armstrong was a Managing Director at Oaktree Capital
Management and one of the real estate group’s senior professionals. Mr. Armstrong was formerly a director of Lodgian, Inc., a Delaware
corporation listed on the American Stock Exchange. Mr. Armstrong graduated with a B.S. in Biomedical Engineering magna cum laude
from the University of Southern California, where he was elected to Phi Beta Kappa. He went on to earn an MBA in Finance magna cum
laude, also from the University of Southern California. He is a Chartered Financial Analyst. Mr. Armstrong was chosen as a director based
on his expertise within the real estate industry and the financial markets.
Corporate Governance Profile
Our board consists of eight directors, seven of whom are independent as determined in accordance with the listing standards
established by the NASDAQ Capital Market, and our board makes an affirmative determination as to the independence of each of our
directors on an annual basis. We have adopted a code of business ethics and corporate governance principles.
Role of the Board in Risk Oversight
One of the key functions of our Board of Directors is informed oversight of our risk management process. Our Board of Directors
administers this oversight function directly, with support from its five standing committees, the Audit Committee, the Nominating and
Corporate Governance Committee, the Compensation Committee, the Investment Committee and the Finance Committee, each of which
addresses risks specific to their respective areas of oversight. In particular, our Audit Committee has the responsibility to consider and
discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including
guidelines and policies to govern the process by which risk assessment and management is undertaken. The Audit Committee also monitors
compliance with legal and regulatory requirements, in addition to oversight of the performance of our internal audit function. Our
Nominating and Corporate Governance Committee monitors the effectiveness of our corporate governance guidelines, including whether
they are successful in preventing illegal or improper liability-creating conduct. Our Compensation Committee assesses and monitors
whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. Our Investment Committee is
responsible for reviewing and analyzing strategic real estate acquisitions and investments. Our Finance Committee is responsible for
overseeing the financial policies and practices of the Company.
Selection of Nominees for the Board
The Nominating and Corporate Governance Committee will consider candidates for Board membership suggested by its members
and other Board members, as well as management and stockholders. The committee may also retain a third-party executive search firm to
identify candidates upon request of the committee from time to time. A stockholder who wishes to recommend a prospective nominee for
the Board should notify the Company’s Corporate Secretary or any member of the Nominating and Corporate Governance Committee in
writing with whatever supporting material the stockholder considers appropriate. The Nominating and Corporate Governance Committee
will also consider whether to nominate any person nominated by a stockholder pursuant to the provisions of the Company’s Bylaws
relating to stockholder nominations.
Once the Nominating and Corporate Governance Committee has identified a prospective nominee, the committee will make an
initial determination as to whether to conduct a full evaluation of the candidate. This initial determination will be based on whatever
information is provided to the committee with the recommendation of the prospective candidate, as well as the committee’s own
knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others. The
preliminary determination will be based primarily on the need for additional Board members to fill vacancies or expand the size of the
Board and the likelihood that the prospective nominee can satisfy the evaluation factors described below. If the committee determines, in
consultation with the Chairman of the Board and other
61
Board members as appropriate, that additional consideration is warranted, it may request the third-party search firm to gather additional
information about the prospective nominee’s background and experience and to report its findings to the committee. The committee will
then evaluate the prospective nominee against the standards and qualifications generally set out in the Company’s Corporate Governance
Guidelines, including:
•
•
•
•
•
•
the ability of the prospective nominee to represent the interests of the stockholders of the Company;
the prospective nominee’s standards of integrity, commitment and independence of thought and judgment;
the prospective nominee’s ability to dedicate sufficient time, energy, and attention to the diligent performance of
his or her duties, including the prospective nominee’s service on other public company boards, as specifically set
out in the Company’s Corporate Governance Guidelines;
the extent to which the prospective nominee contributes to the range of talent, skill and expertise appropriate for
the Board;
the extent to which the prospective nominee helps the Board reflect the diversity of the Company’s stockholders,
employees, customers, guests and communities; and
the willingness of the prospective nominee to meet any minimum equity interest holding guideline.
The Nominating and Corporate Governance Committee also considers such other relevant factors as it deems appropriate,
including the current composition of the Board, the balance of management and independent directors, the need for Audit Committee
expertise and the evaluations of other prospective nominees. In connection with this evaluation, the Nominating and Corporate Governance
Committee determines whether to interview the prospective nominee, and if warranted, one or more members of the committee, and others
as appropriate, interview prospective nominees in person or by telephone. After completing this evaluation and interview, the Nominating
and Corporate Governance Committee makes a recommendation to the full Board as to the persons who should be nominated by the Board,
and the Board determines the nominees after considering the recommendation and report of the committee.
The Nominating and Corporate Governance Committee will consider persons recommended by stockholders to become nominees
for election as directors, provided that those recommendations are submitted in writing to our Corporate Secretary specifying the nominee’s
name and qualifications for Board membership. For a stockholder to nominate a director candidate, the stockholder must comply with the
advance notice provisions and other requirements of Section 11 of Article II of our bylaws.
We urge any stockholder who intends to recommend a director candidate to the Nominating and Corporate Governance Committee
for consideration to review thoroughly our Nominating and Corporate Governance Committee Charter and Section 11 of Article II of our
bylaws. Copies of our Nominating and Corporate Governance Committee Charter and our bylaws are available upon written request to
Angelica Beltran, Wheeler Real Estate Investment Trust, Inc., Riversedge North, 2529 Virginia Beach Boulevard, Virginia Beach, Virginia
23452
Stockholder proposals including nominations for persons for election to the Board of Directors, for our Annual Meeting to be held
in 2019 must be received by us between April 3, 2019 and May 3, 2019, and must otherwise comply with the rules promulgated by the SEC
to be considered for inclusion in our proxy statement for that year.
Determinations of Director Independence
The Board of Directors reviews the independence of each director yearly. During this review, the Board of Directors considers
transactions and relationships between each director (and his or her immediate family and affiliates) and the Company and its management
to determine whether any such relationships or transactions are inconsistent with a determination that the director is independent in light of
applicable law, listing standards and the Company’s director independence standards. The Company believes that it maintains a majority of
independent directors who are deemed to be independent under the definition of independence provided by NASDAQ Listing Rule 5605(a)
(2).
62
Board Meetings During Fiscal 2018
The Board met nineteen times during fiscal year 2018. No directors attended fewer than 75% of the meetings of the aggregate of:
(i) The total number of meetings of the Board (held during the period for which he or she has been a director); and (ii) the total number of
meetings held by all committees of the Board on which he or she served (during the periods that he or she served). Under the Company’s
Corporate Governance Guidelines, each director is expected to dedicate sufficient time, energy and attention to ensure the diligent
performance of his or her duties, including by attending meetings of the stockholders of the Company, the Board and Committees of which
he or she is a member.
Board Committees
Our Board of Directors has established five standing committees: an Audit Committee, a Nominating and Corporate Governance
Committee, a Compensation Committee, an Investment Committee and a Finance Committee. The principal functions of each committee
are briefly described below. Each of these committees is comprised exclusively of independent directors. Additionally, our board of
directors may from time to time establish certain other committees to facilitate the management of our company.
Audit Committee
Our Audit Committee consists of three of our independent directors: Carl B. McGowan, Jr., Stewart Brown and Andrew Jones.
Dr. McGowan, the chairman of our Audit Committee, qualifies as an “audit committee financial expert” as that term is defined by the
applicable SEC regulations and NASDAQ Capital Market corporate governance requirements. In addition, each of the Audit Committee
members is “financially sophisticated” as that term is defined by the NASDAQ Capital Market corporate governance requirements. The
functions of the Audit Committee are described below under the heading “Report of the Audit Committee.” The charter of the Audit
Committee was adopted on November 16, 2012, and is available on the Company’s Investor Relations tab of our website (www.whlr.us).
All of the members of the Audit Committee are independent within the meaning of SEC regulations, the listing standards of the Nasdaq
Stock Market and the Company’s Corporate Governance Principles. The Audit Committee met five times in 2018.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee consists of three of our independent directors: Stewart J. Brown, John
Sweet and Carl B. McGowan, Jr.. Mr. Brown has been designated as chair of this committee. The Nominating and Corporate Governance
Committee is responsible for developing and implementing policies and practices relating to corporate governance, including reviewing and
monitoring implementation of the Company’s Corporate Governance Guidelines. In addition, the Nominating and Corporate Governance
Committee develops and reviews background information on candidates for the Board and makes recommendations to the Board regarding
such candidates. The Nominating and Corporate Governance Committee also prepares and supervises the Board’s annual review of director
independence and the Board’s performance self-evaluation. The charter of the Nominating and Corporate Governance Committee was
adopted on November 16, 2012 and updated in 2016, and is available on the Company’s Investor Relations website (www.whlr.us). All of
the members of the Nominating and Corporate Governance Committee are independent within the meaning of the listing standards of the
Nasdaq Stock Market and the Company’s Corporate Governance Principles. The Nominating and Corporate Governance Committee met
six times in 2018.
Compensation Committee
Our Compensation Committee consists of three of our independent directors: John McAuliffe, Jeffrey Zwerdling, and John Sweet.
Mr. Zwerdling has been designated as chair of the Compensation Committee. The Compensation Committee is responsible for overseeing
the policies of the Company relating to compensation to be paid by the Company to the Company’s principal executive officer and any
other officers designated by the Board, and to make recommendations to the Board with respect to such policies, produce necessary reports
on executive compensation for inclusion in the Company’s proxy statement in accordance with applicable rules and regulations and to
monitor the development and implementation of succession plans for the principal executive officer and other key executives and make
recommendations to the Board with respect to such plans. The charter of the Compensation Committee was adopted on November 16, 2012
and updated in 2014 and 2016, and is available on the Company’s Investor Relations website (www.whlr.us). All of the members of the
Compensation Committee are independent within the meaning of the listing standards of the Nasdaq Stock Market and the Company’s
Corporate Governance Principles. The Compensation Committee may not delegate its authority to other persons. While the Company’s
executives will communicate with the Compensation Committee regarding executive compensation issues, the Company’s executive
officers do not participate in any executive compensation decisions. The Compensation Committee met once in 2018.
63
The Compensation Committee retained Mercer as its independent compensation consultant to assist in executive compensation
issues. Specifically, Mercer assisted the Compensation Committee in its review and design of the Company’s executive compensation
program for executives and directors. Mercer was engaged by the Compensation Committee after review and consideration of other
proposals submitted by prospective compensation consultants. The Compensation Committee engaged Mercer based upon the value and the
scope of services that they provide. The Compensation Committee instructed Mercer to provide market assessment of executive and officer
compensation, and provide appropriate executive compensation plan designs. Mercer reported directly to the Compensation Committee and
performs no other work for the Company.
The Compensation Committee has analyzed whether the work of Mercer as a compensation consultant has raised any conflict of interest,
taking into consideration the following factors:
i.
The provision of other services to the Company by Mercer;
ii. The amount of fees from the Company paid to Mercer as a percentage of the firm’s total revenue;
iii. Mercer policies and procedures that are designed to prevent conflicts of interest;
Any business or personal relationship of Mercer or the individual compensation advisors employed by the firm
with an executive officer of the Company;
Any business or personal relationship of the individual compensation advisors with any member of the
Compensation Committee; and
iv.
v.
vi. Any stock of the Company owned by Mercer or the individual compensation advisors employed by the firm.
The Compensation Committee has determined, based on its analysis of the above factors, that the work of Mercer and the individual
compensation advisors employed by Mercer as compensation consultants to the Company has not created any conflict of interest.
Investment Committee
Our Investment Committee consists of two independent directors: Sean Armstrong and Jeffrey Zwerdling. Mr. Armstrong has
been designated as the chair of this committee. The Investment Committee is responsible for reviewing and analyzing strategic real estate
acquisitions and investments. In addition, the Investment Committee makes recommendations to the Board regarding the potential real
estate acquisitions and investments. The Investment Committee was formed on September 25, 2013 and has not adopted a charter. All of the
members of the Investment Committee are independent within the meaning of the listing standards of the Nasdaq Stock Market and the
Company’s Corporate Governance Principles. Members of the Investment Committee toured certain properties of ours in 2018.
Finance Committee
Our Finance Committee consists of four independent directors: Stewart J. Brown, John McAuliffe, Sean Armstrong and Andrew
Jones. Mr. McAuliffe has been designated as chair of this committee. The Finance Committee is responsible for overseeing the financial
policies and practices of the Company. In addition, the Finance Committee oversees the budget process of the Company, including the
review of budget policies, practices, and annual budget schedule. The Finance Committee provides regular review of the budget throughout
the year and recommends to the Board any changes, additions or deletions to the financial policies and practices as it deems appropriate.
The Finance Committee was formed in February 2016 and has not adopted a charter. All of the members of the Finance Committee are
independent within the meaning of the listing standards of the Nasdaq Stock Market and the Company’s Corporate Governance Principles.
Compliance with Section 16(a) of Reporting Requirements
Based solely on a review of Forms 3 and 4 and any amendments thereto furnished us pursuant to Rule 16a-3(e) under the
Securities Exchange Act of 1934, or representations that no Forms 5 were required, we believe that with respect to fiscal 2018 our officers,
directors, and beneficial owners of more than 10% of our equity timely complied with all applicable Section 16(a) filing requirements,
except a late Form 4 was filed for one of our Directors, Stewart Brown on March 27, 2018 reporting the March 21, 2018 and March 22,
2018 purchase of 2,300 and 400 shares of common stock, respectively.
64
Code of Ethics
The Company has adopted a Code of Business Conduct and Ethics, which applies to all directors, officers and employees. The text
of the document is available on the Company’s Investor Relations tab of our website (www.whlr.us). The Company intends to post any
amendments to or waivers from its Code of Ethics (to the extent applicable to the Company’s CEO and CFO) at this location on its website.
The Company will provide a copy of our Code of Business Conduct and Ethics, without charge, to its shareholders. Request for copies
should be directed to the Company's CEO at the address indicated on the cover page of this Annual Report on Form 10-K.
Item 11. Executive Compensation.
Role of Compensation Committee
Executive compensation is overseen by the Compensation Committee, which we created in connection with our IPO in 2012. Our
Compensation Committee consists of three of our independent directors: John Sweet, John McAuliffe and Jeffrey Zwerdling. Mr.
Zwerdling has been designated as chair of the Compensation Committee. The committee is responsible for establishing, implementing, and
continually monitoring adherence to our compensation philosophy as applied to our NEOs.
Employment Agreements With The Company’s Executive Officers
Generally
In 2018, we entered into employment agreements with David Kelly, CEO, Matthew Reddy, CFO, and M. Andrew Franklin, COO.
The employment agreements for Jon S. Wheeler, former CEO, and Wilkes Graham, former CFO, were terminated in January 2018. We
believe that the protections contained in our current executive employment agreements help to ensure the day-to-day stability necessary to
our executives to enable them to properly focus their attention on their duties and responsibilities with the Company and provide security
with regard to some of the most uncertain events relating to continued employment, thereby limiting concern and uncertainty and
promoting productivity. Each of our employment agreements with our executive officers provides for a term of three years.
Employment Agreement of David Kelly
Employment Agreement and Salary. On February 14, 2018, the Company on its behalf and on behalf of its subsidiaries, including
Wheeler REIT, L.P. entered into an employment agreement with David Kelly (the “Kelly Employment Agreement”) for a period of three
years beginning on February 14, 2018, and ending on February 13, 2021 (the “Initial Term”). At the end of the Initial Term, the Kelly
Employment Agreement will automatically renew for subsequent one-year terms (each an “Annual Term”) unless terminated pursuant to
the terms of the Kelly Employment Agreement. Under the terms of the Kelly Employment Agreement, Mr. Kelly shall be employed as the
Company’s President and CEO and is required to devote his best efforts to the Company’s business and affairs and in return will receive the
following:
• Base compensation of $400,000 per annum; and
•
Reimbursement of reasonable and necessary business expenses, and Mr. Kelly is eligible to participate in any
current or future bonus, incentive and other compensation plans available to the Company’s executives.
Severance Terms. Under the Kelly Employment Agreement, if Mr. Kelly’s employment is terminated by the Company without
“Cause” (as defined in the Kelly Employment Agreement) then Mr. Kelly shall generally be entitled to severance pay of the greater of (i)
salary continuation payments at Mr. Kelly's current salary, less mandatory deductions, for six months plus one additional month for each
full calendar quarter remaining in the then-current term of Mr. Kelly's employment or (ii) salary continuation equal to the sum of Mr.
Kelly's then current base salary for a period equal to the remainder of the term of the Kelly Employment Agreement. Mr. Kelly will also be
entitled to any annual bonuses that would have been earned based solely on his continued employment for the remainder of the term of the
Kelly Employment Agreement. In addition, Mr. Kelly is entitled to disability, accident and health insurance for a 12 month period
following termination substantially similar to those insurance benefits Mr. Kelly is receiving immediately prior to the date of termination or
the cash equivalent, offset by any comparable benefits actually received by Mr. Kelly.
In the event Mr. Kelly terminates his employment with “Good Reason” (as defined in the Kelly Employment Agreement), but not
a "Change in Control" (as defined in the Kelly Employment Agreement) then Mr. Kelly shall generally be entitled to the greater of current
base salary, less mandatory deductions (i) for the remainder of the term or (ii) 12 months, plus any earned but unpaid bonus for the fiscal
year prior to the year in which termination occurs. In addition, Mr. Kelly is entitled
65
to disability, accident and health insurance for a 12 month period following termination substantially similar to those insurance benefits Mr.
Kelly is receiving immediately prior to the date of termination or the cash equivalent, offset by any comparable benefits actually received
by Mr. Kelly.
In the event Mr. Kelly terminates his employment with Good Reason, which follows a Change in Control or by the Company
without Cause and such termination occurs within six months of a Change of Control then Mr. Kelly shall generally be entitled to a lump
sum payment equal to 2.99 times Mr. Kelly’s annual base salary less mandatory deductions payable within 90 calendar days of the
termination. In addition, Mr. Kelly is entitled to health care coverage pursuant to COBRA at Mr. Kelly's expense for up to 18 months.
Mr. Kelly shall not be entitled to any benefits under the Kelly Employment Agreement in the case of the Company terminating his
employment for Cause or Mr. Kelly terminating his employment without Good Reason.
Death and Disability. In the event of a termination of employment on account of death occurring during the Initial Term or Annual
Term then Mr. Kelly’s estate shall generally be entitled to: (a) Mr. Kelly’s regular base salary (determined on the date of death) for a period
of twelve months following death; (b) the amount of any bonus remaining payable by the Company to Mr. Kelly for its fiscal year prior to
death; and (c) any accrued and unpaid bonus determined by the Board of Directors for the year in which the death occurs prorated for the
number of completed calendar months served prior to death.
In the event of a “Disability” (as defined in the Kelly Employment Agreement) by Mr. Kelly for 120 consecutive days or longer at
any point during his employment, then the Company will pay to Mr. Kelly his regular base salary for a twelve month period following the
date on which the Disability first begins, net of any benefits received by Mr. Kelly under any disability policy obtained by the Company or
Mr. Kelly, the premiums for which are paid by the Company. Mr. Kelly will also be entitled to any bonus remaining payable by the
Company to Mr. Kelly for its fiscal year prior to the date the Disability began and any unpaid bonus determined by the Board of Directors
for the fiscal year in which the disability occurs prorated for the number of completed calendar months served prior to the date of
Disability.
Miscellaneous Provisions. The Kelly Employment Agreement provides for confidentiality and nondisclosure provisions, whereby
Mr. Kelly is required to keep confidential the Company’s trade secrets that he acquired during the course of his employment. His
employment contract also contains a non-solicitation of employees clause for a duration of (18) months following the last day of his
employment with the Company.
Employment Agreement of Matthew Reddy
Employment Agreement and Salary. On February 14, 2018, the Company on its behalf and on behalf of its subsidiaries, including
Wheeler REIT, L.P. entered into an employment agreement with Matthew Reddy (the “Reddy Employment Agreement”) for a period of
three years beginning on February 14, 2018, and ending on February 13, 2021 (the “Initial Term”). At the end of the Initial Term, the
Reddy Employment Agreement will automatically renew for subsequent one-year terms (each an “Annual Term”) unless terminated
pursuant to the terms of the Reddy Employment Agreement. Under the terms of the Reddy Employment Agreement, Mr. Reddy shall be
employed as the Company’s CFO and is required to devote his best efforts to the Company’s business and affairs and in return will receive
the following:
• Base compensation of $250,000 per annum; and
•
Reimbursement of reasonable and necessary business expenses, and Mr. Reddy is eligible to participate in any
current or future bonus, incentive and other compensation plans available to the Company’s executives.
Severance Terms. Under the Reddy Employment Agreement, if Mr. Reddy’s employment is terminated by the Company without
“Cause” (as defined in the Reddy Employment Agreement) then Mr. Reddy shall generally be entitled to severance pay of the greater of (i)
salary continuation payments at Mr. Reddy's current salary, less mandatory deductions, for six months plus one additional month for each
full calendar quarter remaining in the then-current term of Mr. Reddy's employment or (ii) salary continuation equal to the sum of Mr.
Reddy's then current base salary for a period equal to the remainder of the term of the Reddy Employment Agreement. Mr. Reddy will also
be entitled to any annual bonuses that would have been earned based solely on his continued employment for the remainder of the term of
the Reddy Employment Agreement. In addition, Mr. Reddy is entitled to disability, accident and health insurance for a 12 month period
following termination substantially similar to those insurance benefits Mr. Reddy is receiving immediately prior to the date of termination
or the cash equivalent, offset any by comparable benefits actually received by Mr. Reddy.
In the event Mr. Reddy terminates his employment with “Good Reason” (as defined in the Reddy Employment Agreement), but
not a “Change in Control” (as defined in the Reddy Employment Agreement) then Mr. Reddy shall generally be entitled to the greater of
current base salary, less mandatory deductions (i) for the remainder of the term or (ii) 12 months,
66
plus any earned but unpaid bonus for the fiscal year prior to the year in which termination occurs. In addition, Mr. Reddy is entitled to
disability, accident and health insurance for a 12 month period following termination substantially similar to those insurance benefits Mr.
Reddy is receiving immediately prior to the date of termination or the cash equivalent, offset by any comparable benefits actually received
by Mr. Reddy.
In the event Mr. Reddy terminates his employment with Good Reason, which follows a Change in Control or by the Company
without Cause and such termination occurs within six months of a Change in Control then Mr. Reddy shall generally be entitled to a lump
sum payment equal to 2.99 times Mr. Reddy’s annual base salary less mandatory deductions payable within 90 calendar days of the
termination. In addition, Mr. Reddy is entitled to health care coverage pursuant to COBRA at Mr. Reddy's expense for up to 18 months.
Mr. Reddy shall not be entitled to any benefits under the Reddy Employment Agreement in the case of the Company terminating
his employment for Cause or Mr. Reddy terminating his employment without Good Reason.
Death and Disability. In the event of a termination of employment on account of death occurring during the Initial Term or Annual
Term then Mr. Reddy’s estate shall generally be entitled to: (a) Mr. Reddy’s regular base salary (determined on the date of death) for a
period of twelve months following death; (b) the amount of any bonus remaining payable by the Company to Mr. Reddy for its fiscal year
prior to death; and (c) any accrued and unpaid bonus determined by the Board of Directors for the year in which the death occurs prorated
for the number of completed calendar months served prior to death.
In the event of a “Disability” (as defined in the Reddy Employment Agreement) by Mr. Reddy for 120 consecutive days or longer
at any point during his employment, then the Company will pay to Mr. Reddy his regular base salary for a twelve month period following
the date on which the Disability first begins, net of any benefits received by Mr. Reddy under any disability policy obtained by the
Company or Mr. Reddy, the premiums for which are paid by the Company. Mr. Reddy will also be entitled to any bonus remaining payable
to Mr. Reddy for his fiscal year prior to the date the Disability began and any unpaid bonus for the fiscal year in which the disability occurs
prorated for the number of completed calendar months served prior to the date of Disability.
Miscellaneous Provisions. The Reddy Employment Agreement provides for confidentiality and nondisclosure provisions, whereby
Mr. Reddy is required to keep confidential the Company’s trade secrets that he acquired during the course of his employment. His
employment contract also contains a non-solicitation of employees clause for a duration of (18) months following the last day of his
employment with the Company.
Employment Agreement of M. Andrew Franklin
Employment Agreement and Salary. On February 14, 2018, the Company on its behalf and on behalf of its subsidiaries, including
Wheeler REIT, L.P. entered into an employment agreement with M. Andrew Franklin (the “Franklin Employment Agreement”) for a
period of three years beginning on February 14, 2018, and ending on February 13, 2021 (the “Initial Term”). At the end of the Initial Term,
the Franklin Employment Agreement will automatically renew for subsequent one-year terms (each an “Annual Term”) unless terminated
pursuant to the terms of the Franklin Employment Agreement. Under the terms of the Franklin Employment Agreement, Mr. Franklin shall
be employed as the Company’s COO and is required to devote his best efforts to the Company’s business and affairs and in return will
receive the following:
• Base compensation of $250,000 per annum; and
•
Reimbursement of reasonable and necessary business expenses, and Mr. Franklin is eligible to participate in any
current or future bonus, incentive and other compensation plans available to the Company’s executives.
Severance Terms. Under the Franklin Employment Agreement, if Mr. Franklin’s employment is terminated by the Company without
“Cause” (as defined in the Franklin Employment Agreement) then Mr. Franklin shall generally be entitled to severance pay of the greater
of (i) salary continuation payments at Mr. Franklin's current salary, less mandatory deductions, for six months plus one additional month
for each full calendar quarter remaining in the then-current term of Mr. Franklin's employment or (ii) salary continuation equal to the sum
of Mr. Franklin's then current base salary for a period equal to the remainder of the term of the Franklin Employment Agreement. Mr.
Franklin will also be entitled to any annual bonuses that would have been earned based solely on his continued employment for the
remainder of the term of the Franklin Employment Agreement. In addition, Mr. Franklin is entitled to disability, accident and health
insurance for a 12 month period following termination substantially similar to those insurance benefits Mr. Franklin is receiving
immediately prior to the date of termination or the cash equivalent, offset by any comparable benefits actually received by Mr. Franklin.
67
In the event Mr. Franklin terminates his employment with “Good Reason” (as defined in the Franklin Employment Agreement),
but not a “Change in Control” (as defined in the Franklin Employment Agreement) then Mr. Franklin shall generally be entitled to the
greater of current base salary, less mandatory deductions (i) for the remainder of the term or (ii) 12 months, plus any earned but unpaid
bonus for the fiscal year prior to the year in which termination occurs. In addition, Mr. Franklin is entitled to disability, accident and health
insurance for a 12 month period following termination substantially similar to those insurance benefits Mr. Franklin is receiving
immediately prior to the date of termination or the cash equivalent, offset by any comparable benefits actually received by Mr. Franklin.
In the event Mr. Franklin terminates his employment with Good Reason, which follows a Change in Control or by the Company
without Cause and such termination occurs within six months of a Change of Control then Mr. Franklin shall generally be entitled to a
lump sum payment equal to 2.99 times Mr. Franklin’s annual base salary less mandatory deductions payable within 90 calendar days of the
termination. In addition, Mr. Franklin is entitled to health care coverage pursuant to COBRA at Mr. Franklin's expense for up to 18 months.
Mr. Franklin shall not be entitled to any benefits under the Franklin Employment Agreement in the case of the Company
terminating his employment for Cause or Mr. Franklin terminating his employment without Good Reason.
Death and Disability. In the event of a termination of employment on account of death occurring during the Initial Term or Annual
Term then Mr. Franklin’s estate shall generally be entitled to: (a) Mr. Franklin’s regular base salary (determined on the date of death) for a
period of twelve months following death; (b) the amount of any bonus remaining payable by the Company to Mr. Franklin for its fiscal
year prior to death; and (c) any accrued and unpaid bonus determined by the Board of Directors for the year in which the death occurs
prorated for the number of completed calendar months served prior to death.
In the event of a “Disability” (as defined in the Franklin Employment Agreement) by Mr. Franklin for 120 consecutive days or
longer at any point during his employment, then the Company will pay to Mr. Franklin his regular base salary for a twelve month period
following the date on which the Disability first begins, net of any benefits received by Mr. Franklin under any disability policy obtained by
the Company or Mr. Franklin, the premiums for which are paid by the Company. Mr. Franklin will also be entitled to any bonus remaining
payable to Mr. Franklin for his fiscal year prior to the date the Disability began and any unpaid bonus for the fiscal year in which the
disability occurs prorated for the number of completed calendar months served prior to the date of Disability.
Miscellaneous Provisions. The Franklin Employment Agreement provides for confidentiality and nondisclosure provisions,
whereby Mr. Franklin is required to keep confidential the Company’s trade secrets that he acquired during the course of his employment.
His employment contract also contains a non-solicitation of employees clause for a duration of (18) months following the last day of his
employment with the Company.
Stock Plans
2015 Long-Term Incentive Plan
Pursuant to our 2015 Long-Term Incentive Plan, we may award incentives covering an aggregate of 125,000 shares of our
Common Stock. As of February 27, 2019, we have issued 83,896 shares under the plan to employees, directors and outside contractors for
services provided.
2016 Long-Term Incentive Plan
Pursuant to our 2016 Long-Term Incentive Plan, we may award incentives covering an aggregate of 625,000 shares of our
Common Stock. As of February 27, 2019, we have issued 491,104 under the plan to employees, directors and outside contractors for
services provided.
Security Authorized For Issuance Under Equity Compensation Plan
The following table sets forth information as of December 31, 2018 regarding our compensation plans and the Common Stock we
may issue under the plan.
68
Equity Compensation Plan Information Table
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights
Weighted-average exercise price of
outstanding options, warrants and
rights
Number of securities remaining
available for future issuance under
equity compensation plans
Plan Category
Equity compensation plans
approved by stockholders (1)
Equity compensation plans not
—
approved by stockholders
Total
—
(1) Includes our 2015 and 2016 Long-Term Incentive Plans, which authorized a maximum of 125,000 and 625,000 shares, respectively, of our Common Stock for
issue. Awards are granted by the Compensation Committee.
—
—
—
—
—
355,618
355,618
Grants of Plan Based Awards in 2018
The following Common Stock share awards were made in 2018. Awards were made in 2018 to the named executive officer.
Name
Wilkes Graham
Total
Grant Date
September 12, 2018
All Other Stock
Awards: Number
of shares of stock
or units (1)
Grant Date Fair
Value
10,869 $
10,869 $
50,000
50,000
(1) Dividends are paid on all issued shares of Common Stock at the same rate and time as paid to all other holders of our shares of
Common Stock as declared by our Board.
Outstanding Equity Awards at Fiscal-Year End
The Company has no outstanding Equity Awards at the end of the 2018 fiscal year.
Compensation Tables
Summary Compensation Table
The table below summarizes the total compensation for the fiscal years indicated paid or awarded to each of the NEOs, calculated
in accordance with SEC rules and regulations.
69
Name and Principal Position
David Kelly
Chief Executive Officer (2)
2018
2017
388,462
298,077
Fiscal
Year Salary ($)
Bonus
Stock
Awards
Option
Awards
Jon S. Wheeler
Former Chief Executive Officer (5)
2018
2017
47,500
475,000
—
—
—
—
—
—
—
—
—
—
—
—
Non-Equity
Incentive Plan
Compensation
—
—
All Other
Compensation ($)
Total ($)
14,179
(1) 402,641
11,007
(6) 309,084
—
—
—
2,495
(1)
49,995
8,618
(6) 483,618
17,334
(1) 261,565
2018
244,231
—
—
—
2018
246,731
—
—
—
—
17,027
(1) 263,758
Andrew Franklin
Chief Operating Officer (3)
Matthew Reddy
Chief Financial Officer (4)
(1) Company's match on 401(k) plan other Company provided benefits (ex. Group Term Life, Short-term and Long-term Disability and Medical Coverage) available
to all employees.
(2) Mr. Kelly was appointed to this position in 2018, prior to this he was the Chief Investment Officer.
(3) Mr. Franklin was appointed to this position in 2018, prior to this he was the Senior Vice President of Operations and not a named executive officer.
(4) Mr. Reddy was appointed to this position in 2018, prior to this he was the Chief Accounting Officer and not a named executive officer.
(5) Mr. Wheeler was terminated in January 2018.
(6) Company's match on 401(k) plan and Group Term Life Insurance.
Director Compensation
Directors who are officers of our Company do not receive any compensation for their services. Non-employee directors are entitled
to receive $40,000 per year for serving as directors and may receive stock grants from our Company. The Board set annual retainers for the
Audit, Compensation, Nominating and Governance, Investment, and Finance committee chairs at $10,000, $8,000, $8,000, $8,000, and
$8,000, respectively. The Board set an annual retainer for the chairman at $20,000. Additionally, each board member received a $50,000 in
equity incentive compensation. We reimburse each of our directors for his or her travel expenses incurred in connection with his or her
attendance at full board of directors and committee meetings. In 2018, Directors agreed to receive the majority of their compensation in
stock grants in lieu of cash. The following table summarizes directors’ compensation for 2018, including $173 thousand paid in 2019:
Name
Stewart J. Brown
Kurt R. Harrington (1)
William W. King (1)
John McAuliffe
Carl B. McGowan, Jr.
Jeffrey M. Zwerdling
John Sweet
Sean F. Armstrong (2)
Andrew Jones (2)
(1) Resigned from the Board in April 2018.
(2) Appointed to the Board in April 2018.
70
Fees Earned
or Paid in
Cash
Stock
Awards
$
11,250 $
12,250
11,250
47,000
12,500
14,751
12,250
—
—
84,745 $
12,255
11,248
51,000
87,500
88,853
95,004
72,641
67,503
Total
95,995
24,505
22,498
98,000
100,000
103,604
107,254
72,641
67,503
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans
See "Stock Plans" in Item 11.
Security Ownership of Certain Beneficial Owners and Management
The following tables set forth certain information regarding the beneficial ownership of shares of our common stock and shares of
common stock into which common units are exchangeable for (1) each person who is the beneficial owner of 5% or more of our
outstanding common stock, (2) each of our directors and named executive officers, and (3) all of our directors and executive officers as a
group. Each person or entity named in the tables has sole voting and investment power with respect to all of the shares of our common
stock shown as beneficially owned by such person, except as otherwise set forth in the notes to the tables. The extent to which a person will
hold shares of common stock as opposed to units is set forth in the footnotes below.
The SEC has defined “beneficial ownership” of a security to mean the possession, directly or indirectly, of voting power and/or
investment power over such security. A stockholder is also deemed to be, as of any date, the beneficial owner of all securities that such
stockholder has the right to acquire within 60 days after that date through (1) the exercise of any option, warrant or right, (2) the conversion
of a security, (3) the power to revoke a trust, discretionary account or similar arrangement or (4) the automatic termination of a trust,
discretionary account or similar arrangement. In computing the number of shares beneficially owned by a person and the percentage
ownership of that person, common shares subject to options or other rights (as set forth above) held by that person that are exercisable as of
this filing or will become exercisable within 60 days thereafter, are deemed outstanding, while such shares are not deemed outstanding for
purposes of computing percentage ownership of any other person. As of February 27, 2019, we had 176 stockholders of record. This
number excludes our common shares owned by shareholders holding under nominee security position listings.
Unless otherwise indicated, the address of each named person is c/o Wheeler Real Estate Investment Trust, Inc., Riversedge
North, 2529 Virginia Beach Blvd., Suite 200, Virginia Beach, Virginia 23452.
David Kelly
M. Andrew Franklin
Matthew Reddy
Carl B. McGowan, Jr.
Jeff Zwerdling
John Sweet
Stewart Brown
John McAuliffe
Sean Armstrong
Andrew Jones
All directors, director nominees and executive officers as a group
(10 persons)
Number of Shares
Beneficially
Owned
30,219
4,295
3,690
58,673
143,011 (2)
60,611
57,807
38,349
39,104
555,143 (3)
Percentage of
All Shares(1)
*
*
*
*
*
*
*
*
*
5.7%
990,902
10.2%
*
(1)
(2)
Less than
1.0%
Based upon 9,692,082 shares of common stock outstanding on February 27, 2019. In addition, amounts for individuals assume that
all Series B and Series D convertible preferred stock held by the individual are converted into common stock and all warrants held
by the person are exercised.
Includes 98,454 shares of common stock, 14,000 shares of Series B convertible preferred stock convertible into 8,750 shares of
common stock, 16,800 warrants to purchase 2,100 shares of common stock, and 5,000 shares of Series D cumulative convertible
preferred stock convertible into 7,370 shares of common stock. In addition, includes 17,812 shares of common stock, 11,000
shares of Series B convertible preferred stock convertible into 6,875 shares of
71
(3)
common stock and 13,200 warrants to purchase 1,650 shares of common stock, which are held by a trust in which Mr. Zwerdling
serves as co-trustee and has voting and investing authority over the shares.
Includes 493,656 shares of common stock, 47,435 shares of Series B convertible preferred stock convertible into 29,647 shares of
common stock and 21,600 shares of Series D cumulative convertible preferred stock convertible into 31,840 shares of common
stock. Of these securities Mr. Jones owns 12,464 shares of common stock and 2,100 shares of Series B preferred stock personally
and the remaining shares are held by various investment partnerships, funds and managed accounts, in which NS Advisors, LLC
(“NS Advisors”) serves as the investment manager. Mr. Jones is the managing member of NS Advisors and has sole voting and
investment authority over the shares.
Based upon our records and the information reported in filing with the SEC, the following were beneficial owners of more than
5% of our shares of Common Stock as of February 27, 2019.
Name and Address of Beneficial Owner
Stilwell Value Partners VII, L.P. (2)
111 Broadway, 12th Floor
New York, NY 10006-1901
Richard S. Strong (3)
c/o Godfrey & Kahn, S.C.
833 East Michigan St., Suite 1800
Milwaukee, WI 53202
Westport Capital Partners, LLC (4)
40 Danbury Road
Wilton, CT 06897
FMR, LLC (5)
245 Summer Street
Boston, MA 02210
NS Advisors, LLC (6)
274 Riverside Associates
Westport, CT 06880
Eidelman Virant Capital, Inc. (7) 8000 Maryland Ave, Suite 600
Saint Louis, Missouri 63105
Total of 5% or more shareholders as a group (5 shareholders)
Amount and Nature
of Beneficial
Ownership
Percentage of Our
Outstanding Shares
(1)
919,540
9.5%
683,724
7.1%
857,864
8.9%
1,092,673
11.3%
555,143
537,187
4,646,131
5.7%
5.5%
48.0%
(1)
(2)
(3)
(4)
Based upon 9,692,082 shares of common stock outstanding on February 27,
2019.
Based solely upon the Schedule 13D/A filed with the SEC by the beneficial owner on October 29, 2018 reporting beneficial
ownership as of October 29, 2018 of 919,540 shares, which includes 25,400 shares of Series D cumulative convertible preferred
stock that are convertible into 37,441 shares of common stock. Stillwell Activist Fund, L.P., Stillwell Activist Investments, L.P.,
Stillwell Value LLC and Joseph Stillwell possess shared voting and dispositive power over 919,540 shares with Stillwell Value
Partners VII, L.P.
Based solely upon the Schedule 13G/A filed with the SEC by the beneficial owner on January 18, 2019 reporting beneficial
ownership as of December 31, 2018 of 683,724 shares. Mr. Strong possesses shared voting power over 559,157 of the shares with
Calm Waters Partnership. Mr. Strong possesses sole voting power over 124,567 of the shares.
Based solely upon the Schedule 13D/A filed with the SEC by the beneficial owner on April 13, 2018 reporting beneficial
ownership as of April 11, 2018. In addition, based solely upon the Schedule 13D, Russel Bernard, Sean Armstrong, Wm. Gregory
Geiger, Jordan Socaransky and Marc Porosoff are members of the investment committee of Westport Capital Partners LLC and
may be deemed to have beneficial ownership over the shares. The 857,864 shares include 373,390 shares held by the record owner
WCP Real Estate Fund IV, L.P, and 187,930 shares held by the record owner WCP Real Estate Fund IV (ERISA), L.P.
72
(5)
(6)
(7)
Based solely upon the Schedule 13G filed with the SEC by the beneficial owner on February 12, 2018 reporting beneficial
ownership as of February 9, 2018 of 1,092,673 shares. Includes the shares reported by Abigail Johnson and Fidelity Real Estate
Income Fund.
Based solely upon the Form 4 filed with the SEC by the beneficial owner on February 27, 2019 reporting beneficial ownership as
of February 27, 2019 of 555,143 shares. NS Advisors possesses shared voting power of 505,258 with Andrew R. Jones. In
addition, Andrew R. Jones possesses sole voting power of an additional 49,885 shares. These are the same shares beneficially
owned by Mr. Jones identified in the executive officer and director table above.
Based solely upon the Schedule 13G filed with the SEC by the beneficial owner on February 12, 2019 reporting beneficial
ownership as of December 31, 2018 of 537,187 shares.
73
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Partnership Agreement
In connection with the completion of our initial public offering, we entered into a partnership agreement with various persons
receiving common units in the formation transactions, including our former Chairman and CEO Mr. Wheeler, his affiliates and certain
former executive officers or our Company. As a result, these persons became limited partners of our operating partnership, Wheeler REIT,
L.P. (the “Operating Partnership”).
Pursuant to the partnership agreement with our Operating Partnership, limited partners of the Operating Partnership and some
assignees of limited partners will have the right, beginning 12 months after acquiring the common units, to require our Operating
Partnership to redeem part or all of their common units for cash equal to the then-current market value of an equal number of shares of our
Common Stock (determined in accordance with and subject to adjustment under the Partnership Agreement), or, at our election, to
exchange their common units for shares of our Common Stock on a one-for-one basis, subject to certain adjustments and the restrictions on
ownership and transfer of our stock set forth in our charter.
Employment Agreements
Our CEO, CFO and COO have entered into three-year employment agreements, which in addition to the items noted throughout
this Compensation Discussion and Analysis, include disability and termination provisions, among other provisions. See “Employment
Agreements With The Company’s Executive Officers” for a summary of the terms of Mr. Kelly and Mr. Reddy’s and Mr. Franklin's
employment agreements.
Indemnification of Officers and Directors
Our charter and bylaws provide for certain indemnification rights for our directors and officers and we will enter into an
indemnification agreement with each of our executive officers and directors, providing for procedures for indemnification and
advancements by us of certain expenses and costs relating to claims, suits or proceedings arising from their service to us or, at our request,
service to other entities, as officers or directors to the maximum extent permitted by Maryland law.
Other Related Party Transactions
The following summarizes related party activity as of and for the years ended December 31, 2018 and 2017. The amounts
disclosed below reflect the activity between the Company and Mr. Wheeler's affiliates (in thousands).
Amounts paid to affiliates
Amounts received from affiliates
Amounts due from affiliates
Notes receivable
December 31,
2018
2017
15 $
116 $
— $
5,000 $
48
2,517
—
6,739
$
$
$
$
The Company 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. At
December 31, 2018 and 2017, the Company recognized a $1.74 million and $5.26 million, respectively, impairment charge on the note
receivable as discussed in greater detail in Note 4 of the consolidated financial statements. The Company has placed the notes receivable on
nonaccrual status and has not recognized $1.44 million of interest income due on the notes for the twelve months ended December 31,
2018, respectively. In February 2018, the Company's agreement to perform development, leasing, property and asset management services
for Sea Turtle Development was terminated. Sea Turtle Development 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, development fees of 5% of hard costs
incurred were earned by the Company. Leasing, property and asset management fees were consistent with those charged for services
provided to non-related properties.
74
The Company recovered $77 thousand in amounts due from related parties for the year ended December 31, 2018, which were
previously reserved. The recovery is included in “provision for credit losses” on the consolidated statements of operations. The total
allowance on related party receivables at December 31, 2018 and 2017 is $2.20 million and $2.36 million, respectively.
Amounts due from Sea Turtle Development are reserved due to uncertainty surrounding the collectability given the information
currently available to the Company. Amounts due from other non-REIT properties have been reserved based on available cash flows at the
respective properties and payment history. The management agreements for these properties have been terminated.
In 2016, in connection with the acquisition of Berkley and Sangaree/Tri-County, the Operating Partnership entered into a tax
protection agreement that obligates the Operating Partnership to reimburse Jon Wheeler, the Company's former CEO for his tax liabilities
resulting from the recognition of certain taxable income or gain in the event the Operating Partnership takes certain action prior to
November 10, 2023 with respect to Sangaree Plaza, Tri-County Plaza and Berkley.
75
Item 14. Principal Accounting Fees and Services.
The Audit Committee has appointed Cherry Bekaert LLP as the independent registered public accounting firm of the Company for
the 2018 fiscal year and to conduct quarterly reviews through March 31, 2019. The Company’s Bylaws do not require that stockholders
ratify the appointment of Cherry Bekaert LLP as the Company’s independent registered public accounting firm. Cherry Bekaert LLP has
served as the Company’s independent public accounting firm for each of the fiscal years ended December 31, 2011 through December 31,
2018. The Audit Committee will consider the outcome of this vote in its decision to appoint an independent registered public accounting
firm next year. The Company, however, is not bound by the stockholders’ decision. Even if the selection is ratified, the Audit Committee,
in its sole discretion, may change the appointment at any time during the year if it determines that such a change would be in the best
interest of the Company and its stockholders.
A representative of Cherry Bekaert LLP will attend the Annual Meeting. The representative will have an opportunity to make a
statement if he or she desires to do so and will be available to respond to appropriate questions from the stockholders.
The following table summarizes fees paid to independent registered public accounting firm for the years ended December 31,
2018 and 2017:
Types of Fee
Audit Fees (1)
Audit Related Fees (2)
Tax Fees (3)
All Other Fees
Total
(1) Audit fees includes annual audits, quarterly reviews, SOX and property audits.
(2) Audit related fees for services related to the REIT's financing offering documents and associated filings.
(3) Tax fees related primarily to tax advisory services related to REIT status.
Audit Committee Pre-Approval Policies
2018
2017
(in thousands)
341 $
50
159
3
553 $
335
15
134
—
484
$
$
Before Cherry Bekaert was engaged by the Company to render audit or non-audit services, the engagement was approved by the
Company's Audit Committee. All services rendered by Cherry Bekaert have been so approved.
Item 15. Exhibits and Financial Statement Schedules.
1. Financial Statements. The following financial statements filed as a part of this Annual Report on Form 10-K is as follows:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
a.
b.
Schedule II- Valuation and Qualifying
Accounts
Schedule III- Real Estate and Accumulated
Depreciation
Page
79
80
81
82
84
85
present, is not present in amounts sufficient to require a schedule or is included in the consolidated financial statements.
All other financial statements schedules have been omitted because the required information of such schedules is not
76
3. Exhibits. The list of exhibits filed as a part of this Annual Report on Form 10-K in response to Item 601 of Regulation S-K
is submitted on the Exhibit Index attached hereto and incorporated herein by reference.
77
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.
SIGNATURE
Date: February 28, 2019
WHEELER REAL ESTATE INVESTMENT TRUST, INC.
By:
/s/ MATTHEW REDDY
Matthew Reddy
Chief Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacity and on the dates indicated. Each person whose signature appears below
hereby constitutes and appoints each of Dave Kelly and Matthew T. Reddy as his or her attorney-in-fact and agent, with full power of
substitution and resubstitution for him or her in any and all capacities, to sign any or all amendments to this Report and to file same, with
exhibits thereto and other documents in connection therewith, granting unto such attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all
that such attorney-in-fact and agent or his or her substitutes may do or cause to be done by virtue hereof.
Signature
Title
/S/ DAVID KELLY
Chief Executive Officer and Director (Principal Executive Officer)
Date
February 28, 2019
David Kelly
/S/ MATTHEW REDDY
Matthew Reddy
/S/ STEWART J. BROWN
Stewart J. Brown
/S/ SEAN F. ARMSTRONG
Sean F. Armstrong
/S/ ANDREW JONES
Andrew Jones
/S/ JOHN MCAULIFFE
John McAuliffe
/S/ CARL B. MCGOWAN, JR.
Carl B. McGowan, Jr.
/S/ JOHN SWEET
John Sweet
/S/ JEFFREY ZWERDLING
Jeffrey Zwerdling
Chief Financial Officer
February 28, 2019
Director
Director
Director
Director
Director
Director
Director
78
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
February 28, 2019
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Virginia Beach, Virginia
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Wheeler Real Estate Investment Trust, Inc. and Subsidiaries (the
“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ equity, and cash
flows for each of the years in the three-year period ended December 31, 2018, and the related notes and schedules (collectively referred to
as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States
of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As
part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provides a reasonable basis for our opinion.
/s/ Cherry Bekaert LLP
We have served as the Company’s auditor since 2012.
Virginia Beach, Virginia
February 28, 2019
79
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except par value and share data)
ASSETS:
Investment properties, net
Cash and cash equivalents
Restricted cash
Rents and other tenant receivables, net
Notes receivable, net
Goodwill
Assets held for sale
Above market lease intangible, net
Deferred costs and other assets, net
Total Assets
LIABILITIES:
Loans payable, net
Liabilities associated with assets held for sale
Below market lease intangible, net
Accounts payable, accrued expenses and other liabilities
Dividends payable
Total Liabilities
Commitments and contingencies
Series D Cumulative Convertible Preferred Stock (no par value, 4,000,000 shares authorized,
3,600,636 and 2,237,000 shares issued and outstanding; $91.98 million and $55.93 million
aggregate liquidation preference, respectively)
EQUITY:
Series A Preferred Stock (no par value, 4,500 shares authorized, 562 shares issued and
outstanding)
Series B Convertible Preferred Stock (no par value, 5,000,000 authorized, 1,875,748 and
1,875,848 shares issued and outstanding, respectively; $46.90 million aggregate liquidation
preference)
Common Stock ($0.01 par value, 18,750,000 shares authorized, 9,511,464 and 8,744,189
shares issued and outstanding, respectively)
Additional paid-in capital
Accumulated deficit
Total Shareholders’ Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
See accompanying notes to consolidated financial statements.
80
December 31,
2018
2017
433,142 $
3,544
14,455
5,539
5,000
—
8,982
7,346
30,073
508,081 $
360,117 $
4,632
10,045
12,077
—
386,871
—
375,199
3,677
8,609
5,619
6,739
5,486
9,135
8,778
34,432
457,674
307,375
792
9,616
10,579
5,480
333,842
—
76,955
53,236
453
453
41,000
40,915
95
233,697
(233,184)
42,061
2,194
44,255
508,081 $
87
226,978
(204,925)
63,508
7,088
70,596
457,674
$
$
$
$
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)
Years Ended December 31,
2017
2018
2016
REVENUE:
Rental revenues
Asset management fees
Commissions
Tenant reimbursements
Development and other revenues
Total Revenue
OPERATING EXPENSES:
Property operations
Non-REIT management and leasing services
Depreciation and amortization
Impairment of goodwill
Provision for credit losses
Impairment of notes receivable
Corporate general & administrative
Other operating expenses
Total Operating Expenses
Gain on disposal of properties
Operating Income (Loss)
Interest income
Interest expense
Net Loss from Continuing Operations Before Income Taxes
Income tax expense
Net Loss from Continuing Operations
Discontinued Operations
(Loss) income from discontinued operations
Gain on disposal of properties
Net (Loss) Income from Discontinued Operations
Net Loss
Less: Net loss attributable to noncontrolling interests
Net Loss Attributable to Wheeler REIT
Preferred Stock dividends - declared
Preferred Stock dividends - undeclared
Net Loss Attributable to Wheeler REIT Common Shareholders
Loss per share from continuing operations (basic and diluted)
(Loss) income per share from discontinued operations
Total loss per share
Weighted-average number of shares:
Basic and Diluted
See accompanying notes to consolidated financial statements.
81
$
$
$
$
50,952 $
189
140
12,595
1,833
65,709
44,156 $
927
899
11,032
1,521
58,535
18,473
75
27,094
5,486
434
1,739
8,228
250
61,779
2,463
6,393
4
(20,228)
(13,831)
(40)
(13,871)
(3,938)
903
(3,035)
(16,906)
(406)
(16,500)
(9,790)
(3,037)
(29,327) $
(2.85) $
(0.32)
(3.17) $
15,389
927
26,231
—
2,821
5,261
7,364
—
57,993
1,021
1,563
1,443
(17,165)
(14,159)
(137)
(14,296)
16
1,502
1,518
(12,778)
(684)
(12,094)
(9,969)
—
(22,063) $
(2.70) $
0.16
(2.54) $
33,165
855
964
8,649
527
44,160
11,898
1,567
20,637
—
425
—
9,924
—
44,451
—
(291)
692
(13,356)
(12,955)
(107)
(13,062)
136
688
824
(12,238)
(1,035)
(11,203)
(4,713)
—
(15,916)
(1.98)
0.09
(1.89)
9,256,234
8,654,240
8,420,374
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Equity
(in thousands, except share data)
Series A
Preferred Stock
Series B
Preferred Stock
Common Stock
Shares
Value
Shares
Value
Shares
Value
Additional
Paid-in
Capital
Accumulated
Total
Shareholders’ Noncontrolling Interests
Total
Deficit
Equity
Units
Value
Equity
562
$
453
729,119
$
17,085
8,282,459
$
82
$ 220,950
$ (140,306 ) $
98,264
506,911
$
9,101
$ 107,365
—
— 1,142,225
23,385
—
—
—
—
23,385
—
—
23,385
—
—
—
265
—
—
—
—
265
—
—
265
—
—
(100 )
(2 )
63
—
2
—
—
—
—
—
—
—
—
—
174,626
—
—
—
—
46,671
2
1
—
—
—
—
—
—
—
578
—
—
579
—
—
579
—
255,043
4,273
4,273
1,602
—
1,604
—
—
1,604
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
807
—
—
—
807
(18,868 )
(11,203 )
(18,868 )
(11,203 )
—
—
—
(807 )
(1,173 )
(1,035 )
—
(20,041 )
(12,238 )
562
453
1,871,244
40,733
8,503,819
85
223,939
(170,377 )
94,833
761,954
10,359
105,192
—
—
4,604
—
—
—
96
86
—
—
—
—
—
—
—
—
—
—
—
—
2,509
—
31
—
96
86
31
—
—
—
—
96
86
—
—
31
—
—
—
—
126,870
—
—
—
—
110,991
1
1
1,370
—
1,371
(126,870 )
(1,371 )
—
1,415
—
1,416
—
—
1,416
—
—
—
—
—
—
—
—
—
(66 )
(1 )
(1 )
—
—
—
—
—
—
—
—
—
—
—
—
223
—
—
223
—
(223 )
—
(22,454 )
(22,454 )
—
(992 )
(23,446 )
Balance,
December 31,
2015
Proceeds from
issuance of
Series B
Preferred
Stock
Accretion of
Series B
Preferred
Stock discount
Conversion of
Series B
Preferred
Stock to
Common
Stock
Conversion of
senior
convertible
notes to
Common
Stock
Issuance of
Common
Stock under
Share
Incentive Plan
Noncontrolling
interest
investments
Adjustment for
noncontrolling
interest in
operating
partnership
Dividends and
distributions
Net loss
Balance,
December 31,
2016
Proceeds from
issuance of
Series B
Preferred
Stock, net of
expenses
Accretion of
Series B
Preferred
Stock discount
Conversion of
senior
convertible
notes to
Common
Stock
Conversion of
operating
partnership
units to
Common
Stock
Issuance of
Common
Stock under
Share
Incentive Plan
Redemption of
fractional
units as a
result of
reverse stock
split
Adjustment for
noncontrolling
interest in
operating
partnership
Dividends and
distributions
Net loss
Balance,
December 31,
2017
—
—
—
—
—
—
—
(12,094 )
(12,094 )
—
(684 )
(12,778 )
562
453
1,875,848
40,915
8,744,189
87
226,978
(204,925 )
63,508
635,018
7,088
70,596
82
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Equity
(in thousands, except share data, continued)
Series A
Preferred Stock
Series B
Preferred Stock
Common Stock
Shares
Value
Shares
Value
Shares
Value
Additional
Paid-in
Capital
Accumulated
Total
Shareholders’ Noncontrolling Interests
Total
Deficit
Equity
Units
Value
Equity
— $
—
— $
87
— $
— $
— $
— $
87
— $
— $
87
—
—
—
—
(100 )
(2 )
62
—
2
—
—
—
—
—
—
—
—
399,986
—
—
—
—
206,358
4
2
1,514
1,055
—
1,518
(399,986 )
(1,518 )
—
1,057
—
—
1,057
—
—
—
—
10,869
—
50
—
50
—
—
50
—
—
—
—
150,000
2
1,128
—
1,130
—
—
1,130
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,970
—
2,970
—
—
(11,759 )
(16,500 )
(11,759 )
(16,500 )
—
—
—
(2,970 )
—
—
(406 )
(11,759 )
(16,906 )
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
Conversion of
Series B
Preferred Stock
to Common
Stock
Conversion of
operating
partnership units
to Common
Stock
Issuance of
Common Stock
under Share
Incentive Plan
Issuance of
Common Stock
outside Share
Incentive Plan
Issuance of
Common Stock
for acquisition of
JANAF
Adjustment for
noncontrolling
interest in
operating
partnership
Dividends and
distributions
Net loss
Balance,
December 31,
2018
See accompanying notes to consolidated financial statements.
83
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities
For the Years Ended December 31,
2018
2017
2016
$
(16,906 ) $
(12,778 ) $
(12,238 )
Depreciation
Amortization
Loan cost amortization
Above (below) market lease amortization, net
Share-based compensation
Gain on disposal of properties
Gain on disposal of properties-discontinued operations
Provision for credit losses
Impairment of notes receivable
Impairment of goodwill
Impairment of land-discontinued operations
Changes in assets and liabilities, net of acquisitions
Rent and other tenant receivables, net
Unbilled rent
Related party receivables
Deferred costs and other assets, net
Accounts payable, accrued expenses and other liabilities
Net operating cash flows (used in) provided by discontinued operations
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment property acquisitions, net of restricted cash acquired
Capital expenditures
Issuance of notes receivable
Cash received from disposal of properties
Cash received from disposal of properties-discontinued operations
Net investing cash flows used in discontinued operations
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for deferred financing costs
Dividends and distributions paid
Proceeds from sales of Preferred Stock, net of expenses
Loan proceeds
Loan principal payments
Net financing cash flows used in discontinued operations
Net cash provided by (used in) financing activities
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH , beginning of year
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year
Supplemental Disclosures:
Other Cash Transactions:
Cash paid for taxes
Cash paid for interest
Non-cash Transactions:
Debt incurred for acquisitions
Noncontrolling interests resulting from the issuance of common units
Conversion of Series B Preferred Stock to Common Stock
Conversion of common units to Common Stock
Conversion of senior convertible debt into Common Stock
Issuance of Common Stock for acquisition
Accretion of Preferred Stock discounts
Note receivable in consideration of land
See accompanying notes to consolidated financial statements.
84
$
$
$
$
$
$
$
$
$
$
$
12,660
14,434
2,363
(695 )
940
(2,463 )
(903 )
434
1,739
5,486
3,938
(145 )
(820 )
77
(236 )
2,104
(5 )
22,002
(23,153 )
(5,567 )
—
3,530
2,747
(7 )
10,590
15,641
3,087
453
870
(1,021 )
(1,502 )
2,821
5,261
—
—
(990 )
(1,101 )
(909 )
(74 )
3,406
64
23,818
—
(7,308 )
—
2,416
1,871
(58 )
7,883
12,754
2,126
29
1,454
—
(688 )
425
—
—
—
(1,065 )
(384 )
(974 )
(695 )
2,486
(13 )
11,100
(49,159 )
(1,885 )
(9,404 )
—
1,385
(73 )
(22,450 )
(3,079 )
(59,136 )
(1,870 )
(14,591 )
21,158
30,534
(28,856 )
(214 )
6,161
5,713
12,286
17,999
$
(1,065 )
(20,742 )
78
18,886
(18,227 )
(1,898 )
(22,968 )
(2,229 )
14,515
12,286
$
42
17,574
$
$
230
13,936
$
$
58,867
2
$
— $
$
$
— $
$
$
678
— $
1,518
1,130
1,371
— $
— $
— $
$
$
31
— $
$
809
— $
(5,174 )
(17,692 )
75,763
21,600
(29,163 )
(854 )
44,480
(3,556 )
18,071
14,515
—
11,015
134,398
4,273
2
—
1,600
—
417
1,000
Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation and Consolidation
Wheeler Real Estate Investment Trust, Inc. (the “Trust” or “REIT”) 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 December 31, 2018, the Trust, through the Operating Partnership, owned and operated sixty-four centers, one office
and six undeveloped properties. Thirteen of these properties are located in Virginia, three are located in Florida, seven are located in North
Carolina, twenty-five are located in South Carolina, twelve are located in Georgia, two are located in Kentucky, two are located in
Tennessee, one is located in New Jersey, one is located in Alabama, one is located in West Virginia, three are located in Oklahoma and one
is located in Pennsylvania. The Company’s portfolio had total net rentable space of approximately 5,716,000 square feet and an occupancy
level of approximately 89.11% at December 31, 2018. Accordingly, the use of the word “Company” refers to the Trust and its consolidated
subsidiaries, except where the context otherwise requires. The Company includes the Trust, the Operating Partnership, the entities included
in the REIT formation and the entities acquired since November 2012. The Company prepared the accompanying consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America, or GAAP. All material balances
and transactions between the consolidated entities of the Company have been eliminated.
The Company was formed with the principal objective of acquiring, financing, developing, leasing, owning and managing income
producing, strip centers, neighborhood, grocery-anchored, community and free-standing retail properties with a strategy to acquire high
quality, well-located, dominant retail properties that generate attractive risk-adjusted returns. The Company targeted competitively
protected properties in communities that have stable demographics and have historically exhibited favorable trends, such as strong
population and income growth. The Company considers competitively protected properties to be located in the most prominent shopping
districts in their respective markets, ideally situated at major “Main and Main” intersections. The Company generally leases its properties
to national and regional supermarket chains and selects retailers that offer necessity and value oriented items and generate regular consumer
traffic. The Company’s tenants carry goods that are less impacted by fluctuations in the broader U.S. economy and consumers’ disposable
income, which it believes generates more predictable property-level cash flows. Subsequent to the 2018 JANAF acquisition, as disclosed in
Note 3 "Real Estate", the Company shifted focus from acquisitions and managing to owning and operating its current portfolio.
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 Board of
Directors 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 handled internally.
The Operating Companies perform property management and leasing functions for certain related and non-related third parties
(the “Non-REIT Properties”), primarily through WRE. The Company converted WRE to a Taxable REIT Subsidiary (“TRS”) to
accommodate serving the Non-REIT Properties since applicable REIT regulations consider the income derived from these services to be
“bad” income subject to taxation. The regulations allow for costs incurred by the Company commensurate with the services performed for
the Non-REIT Properties to be allocated to a TRS.
During January 2014, the Company acquired Wheeler Development, LLC (“WD”) and converted it to a TRS. The Company
began performing development activities for both REIT Properties and Non-REIT Properties during 2015.
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies
Investment Properties
The Company records investment properties and related intangibles at fair value upon acquisition. Investment properties include
both acquired and constructed assets. Improvements and major repairs and maintenance are capitalized when the repair and maintenance
substantially extends the useful life, increases capacity or improves the efficiency of the asset. All other repair and maintenance costs are
expensed as incurred. The Company capitalizes interest on projects during periods of construction until the projects reach the completion
point that corresponds with their intended purpose.
The Company allocates the purchase price of acquisitions to the various components of the asset based upon the fair value of each
component which may be derived from various observable or unobservable inputs and assumptions. Also, the Company may utilize third
party valuation specialists. These components typically include buildings, land and any intangible assets related to out-of-market leases,
tenant relationships and in-place leases the Company determines to exist. The Company determines fair value based on estimated cash flow
projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are
based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may
affect the property. Factors considered by management in the analysis of determining the as-if-vacant property value include an estimate of
carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating
carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up
periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing
commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases, tenant relationships and in-
place lease value are recorded at fair value as acquired lease intangibles and are amortized as an adjustment to rental revenue or
amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market
debt are amortized to interest expense over the remaining term of such debt.
The Company records depreciation on buildings and improvements utilizing the straight-line method over the estimated useful life
of the asset, generally 5 to 40 years. The Company reviews depreciable lives of investment properties periodically and makes adjustments
to reflect a shorter economic life, when necessary. Tenant allowances, tenant inducements and tenant improvements are amortized utilizing
the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter.
Amounts allocated to buildings are depreciated over the estimated remaining life of the acquired building or related
improvements. The Company amortizes amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles
over the remaining life of the underlying leases. The Company also estimates the value of other acquired intangible assets, if any, and
amortizes them over the remaining life of the underlying related intangibles.
The Company reviews investment properties for impairment on a property-by-property basis whenever events or changes in
circumstances indicate that the carrying value of investment properties may not be recoverable, but at least annually. These circumstances
include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. The Company measures any
impairment of investment property when the estimated undiscounted future operating income before depreciation and amortization, plus its
residual value, is less than the carrying value of the property. Estimated discounted operating income before depreciation and amortization
includes various level 3 fair value assumptions including renewal and renegotiations of current leases, 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 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. The Company did
not recognize any impairment charges to its investment properties for the years ended December 31, 2018, 2017 and 2016.
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
Assets Held For Sale and Discontinued Operations
The Company may decide to sell properties that are held for use. The Company records these properties as held for sale when
management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered
probable and is expected within one year. Properties classified as held for sale are reported at the lower of their carrying value or their fair
value, less estimated costs to sell. When the carrying value exceeds the fair value, less estimated costs to sell an impairment charge is
recognized. The Company estimates fair value, less estimated closing costs based on similar real estate sales transactions. These valuation
assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 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. The
Company recorded a $3.94 million impairment charge for year ended December 31, 2018 on its undeveloped land parcels classified as held
for sale and discontinued operations after making the decision to no longer pursue future development activities. No impairment charges
were recorded for the years ended December 31, 2017 and 2016.
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.
Conditional Asset Retirement Obligation
A conditional asset retirement obligation represents a legal obligation to perform an asset retirement activity in which the timing
and/or method of settlement depends on a future event that may or may not be within the Company’s control. Currently, the Company does
not have any conditional asset retirement obligations. However, any such obligations identified in the future would result in the Company
recording a liability if the fair value of the obligation can be reasonably estimated. Environmental studies conducted at the time the
Company acquired its properties did not reveal any material environmental liabilities, and the Company is unaware of any subsequent
environmental matters that would have created a material liability. The Company believes that its properties are currently in material
compliance with applicable environmental, as well as non-environmental, statutory and regulatory requirements. The Company did not
record any conditional asset retirement obligation liabilities as of December 31, 2018, 2017 and 2016.
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
and tenant security deposits.
The Company places its cash and cash equivalents and restricted cash on deposit with financial institutions in the United States,
which are insured by the Federal Deposit Insurance Company ("FDIC") up to $250 thousand. The Company's 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.
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 December 31, 2018 and 2017, the Company’s allowance for uncollectible tenant
receivables totaled $1.26 million and $705
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
thousand, respectively. During the years ended December 31, 2018, 2017 and 2016, the Company recorded bad debt expenses in the
amount of $511 thousand, $457 thousand and $425 thousand, respectively, related to tenant receivables that were specifically identified as
potentially uncollectible based on the an assessment of the tenant’s credit-worthiness. During the years ended December 31, 2018, 2017 and
2016, 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. The impairment on the Sea Turtle Development
note is further discussed at Note 4.
Goodwill
Goodwill is deemed to have an indefinite economic life and is not subject to amortization. Goodwill is tested annually for
impairment and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. The
Company performs its goodwill impairment test using the simplified method, whereby the fair value of this reporting unit is compared to its
carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is
not considered impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit,
then goodwill is considered impaired by an amount equal to that difference.
During the last quarter of 2018, the market capitalization of the Company’s common stock sustained a significant decline so that it
fell below the book value of the Company’s net assets. The outcome of the annual goodwill impairment test resulted in an impairment of
goodwill of $5.49 million, which was recorded in the consolidated financial statements during the year ended December 31, 2018. See
Note 5 for assessment of Goodwill impairment for the year ended December 31, 2018.
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, tenant relationships and ground lease sandwich interest intangibles associated with acquisitions. The Company’s lease
origination costs consist primarily of the portion of property acquisitions allocated to lease originations and commissions paid in
connection with lease originations.
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
The Company generally records amortization of lease origination costs on a straight-line basis over the terms of the related leases.
Details of these deferred costs, net of amortization and other assets are as follows (in thousands):
Leases in place, net
Tenant relationships, net
Ground lease sandwich interest, net
Lease origination costs, net
Other
Deposits on acquisitions
Legal and marketing costs, net
Total Deferred Costs and Other Assets, net
December 31,
2018
2017
21,785 $
3,764
2,488
1,261
716
—
59
30,073 $
25,118
6,804
—
1,077
810
547
76
34,432
$
$
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 December 31, 2018 and December 31, 2017, the
Company’s intangible accumulated amortization totaled $50.55 million and $41.83 million, respectively. During the years ended
December 31, 2018, 2017 and 2016, the Company’s intangible amortization expense totaled $14.43 million, $15.64 million, and $12.75
million, respectively. Amortization expense for the year ended December 31, 2018 includes $1.38 million of accelerated amortization on
intangibles related to the SEG early lease termination at Ladson Crossing, South Park, St. Matthews and Tampa Festival. Amortization
expense for the year ended December 31, 2017 includes $1.74 million of accelerated amortization on intangibles related to the BI-LO early
lease termination at the Shoppes at Myrtle Park. Future amortization of lease origination costs, leases in place, legal and marketing costs,
tenant relationships and ground lease sandwich interest is as follows (in thousands):
For the Years Ended
December 31,
2019
2020
2021
2022
2023
Thereafter
$
Revenue Recognition
Leases
In Place, net
$
Tenant
Relationships,
net
Lease
Origination
Costs, net
Legal &
Marketing
Costs, net
Ground Lease
Sandwich
Interest, net
1,567 $
865
453
359
232
288
3,764 $
233 $
190
175
134
116
413
1,261 $
14 $
11
9
6
6
13
59 $
274 $
274
274
274
274
1,118
2,488 $
Total
8,479
5,893
3,761
2,954
2,324
5,946
29,357
6,391 $
4,553
2,850
2,181
1,696
4,114
21,785 $
Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
As detailed in “Recent Accounting Pronouncements,” the Company adopted Topic 606, Revenue from Contracts with Customers
on January 1, 2018. The cumulative effect of initially applying the standard recognized on this date was immaterial. As a result, the
Company has changed its accounting policies for revenue recognized on non-real estate lease contracts. As of adoption, non-lease revenue
streams are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our
historic accounting under Topic 605.
Lease Contract Revenue
The Company retains substantially all of the risks and benefits of ownership of the investment properties and accounts for its
leases as operating leases. 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 December 31, 2018 and 2017, there were
$3.12 million and $2.34 million, respectively, in unbilled rent which is included in "rents and other
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
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.
The Company’s leases generally require the tenant to reimburse the Company for a substantial portion of its expenses incurred in
operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common Area
Maintenance or “CAM” expenses). This significantly reduces the Company’s exposure to increases in costs and operating expenses
resulting from inflation or other outside factors. The Company accrues reimbursements from tenants for recoverable portions of all these
expenses as revenue in the period the applicable expenditures are incurred. 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
differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material for the
twelve months ending December 31, 2018, 2017 and 2016.
The Company recognizes lease termination fees in the year that the lease is terminated and collection of the fee is reasonably
assured. Upon early lease termination, the Company provides for losses related to unrecovered intangibles and other assets. Lease
termination fees during the year ended December 31, 2018 are primarily a result of early lease termination fees on SEG recaptures and the
early termination of the Farm Fresh at Berkley Shopping Center. Lease termination fees during the year ended December 31, 2017 are
primarily a result of the BI-LO at Shoppes at Myrtle Park early 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 3% and 2% of collected revenues, respectively for services performed. Revenues are governed by the
management fee agreements for the various properties. Obligations under the agreements include and are not limited to: managing of
maintenance, janitorial, security, landscaping, vendors, back office (collecting rents, 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, document preparation, etc. 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.
Development Income
Non-REIT properties pay development fees of 5% of hard costs. Revenues are governed by the development agreements for each
development. Obligations under the agreements include overseeing the development of the project. The Company’s performance creates or
enhances the project that the Non-REIT property controls as such this revenue is recognized over time. The projects are billed monthly and
typically pay monthly for these services.
The below table disaggregates the Company’s revenue by type of service for the years ended December 31, 2018, 2017 and 2016
(in thousands):
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
Minimum rent
Tenant reimbursements
Lease termination fees
Percentage rent
Asset management fees
Commissions
Development income
Other
Total
Income Taxes
Twelve Months Ended December 31,
2016
2017
2018
$
$
50,698 $
12,595
1,271
254
189
140
—
562
65,709 $
43,957 $
11,032
560
199
927
899
537
424
58,535 $
32,876
8,649
26
289
855
964
244
257
44,160
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 $13 thousand and $15 thousand at December 31, 2018 and 2017, respectively, for federal and state income tax expenses. If the
Company fails to qualify as a REIT, it will be subject to tax at regular corporate rates for the years in which it fails to qualify. If the
Company loses its REIT status it could not elect to be taxed as a REIT for five years unless the Company’s failure to qualify was due to
reasonable cause and certain other conditions were satisfied.
Management has evaluated the effect of the guidance provided by GAAP on Accounting for Uncertainty of Income Taxes and has
determined that the Company had no uncertain income tax positions.
Taxable REIT Subsidiary Cost Allocation
The Company’s overall philosophy regarding cost allocation centers around the premise that the Trust exists to acquire, lease and
manage properties for the benefit of its investors. Accordingly, a majority of the Company’s operations occur at the property level. Each
property must carry its own weight by absorbing the costs associated with generating its revenues. Additionally, leases generally allow the
Company to pass through to the tenant most of the costs involved in operating the property, including, but not limited to, the direct costs
associated with owning and maintaining the property (landscaping, repairs and maintenance, taxes, insurance, etc.), property management
and certain administrative costs.
Service vendors bill the majority of the direct costs of operating the properties directly to the REIT Properties and Non-REIT
Properties and each property pays them accordingly. The Non-REIT Properties pay WRE property management and/or asset management
fees of 3% and 2% of collected revenues, respectively. The Non-REIT Properties also pay WRE leasing commissions based on the total
contractual revenues to be generated under the new/renewed lease agreement (6% for new leases and 3% for renewals). 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.
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Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
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 period. The
Company’s actual results could differ from these estimates.
Advertising Costs
The Company expenses advertising and promotion costs as incurred. The Company incurred advertising and promotion costs of
$261 thousand, $237 thousand and $228 thousand for the years ended December 31, 2018, 2017 and 2016, respectively.
Corporate General and Administrative Expense
A detail for the "corporate general & administrative" ("CG&A") line item from the consolidated statements of operations is
presented below (in thousands):
Professional fees
Compensation and benefits
Acquisition and development costs
Corporate administration
Capital related costs
Travel
Advertising
Taxes and licenses
Less: Allocation of CG&A to Non-REIT management and leases services
Total
2018
December 31,
2017
2016
2,844 $
2,673
300
1,272
576
240
261
212
8,378
(150)
8,228 $
1,780 $
2,736
1,101
1,156
663
289
237
90
8,052
(688)
7,364 $
1,683
5,046
2,018
1,111
514
481
228
162
11,243
(1,319)
9,924
$
$
In 2017, the Company started allocating professional fees, compensation and benefits, corporate administration and travel to Non-
REIT management and leasing services on the statements of operations. This allocation varies period to period depending on the relative
operational fluctuations of Non-REIT management and leasing services.
Other Operating Expense
In July 2018, the Company recorded lease termination expense of $250 thousand to allow a space to be available for a high credit
grocery store tenant.
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
consolidated balance sheets but separate from the Company’s equity. On the consolidated statements of operations, the subsidiaries are
reported at the consolidated amount, including both the amount attributable to the Company and noncontrolling interests. Consolidated
statements of changes in equity include 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
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Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
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 $0.01 par value per share common stock ("Common Stock"). In accordance with
GAAP, any changes in the value from period to period are charged to additional paid-in capital.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, “Revenue from Contracts with
Customers,” which supersedes the revenue recognition requirements of Accounting Standards Codification (“ASC”) Topic 605, “Revenue
Recognition” and most industry-specific guidance on revenue recognition throughout the ASC. The new standard is principles based and
provides a five step model to determine when and how revenue is recognized. The core principle of the new standard is that revenue should
be recognized when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or services. The new standard also requires disclosure of qualitative and
quantitative information surrounding the amount, nature, timing and uncertainty of revenues and 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," which provides further guidance on identifying performance obligations and intellectual property
licensing implementation. In June 2016, the FASB issued ASU 2016-12, “Revenue 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 application of the standard.
Companies are permitted to adopt the ASUs as early as fiscal years beginning after December 15, 2016, but the adoption is required for
fiscal years beginning after December 15, 2017. 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)." These amendments provide
additional clarification and implementation guidance on the previously issued ASU 2014-09, "Revenue from Contracts with Customers
(Topic 606)."
On January 1, 2018, the Company adopted Topic 606. The cumulative effect of initially applying the standard as of this date to
those contracts which were not completed as of January 1, 2018 was immaterial. Results for reporting periods beginning after January 1,
2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our
historic accounting under Topic 605. The majority of the Company’s revenue is based on real estate lease contracts which are not within
the scope of this ASU. The Company has identified its non-lease revenue streams and adoption of this standard does not have a material
impact on our financial position or results of operations. The Company has increased disclosures around revenue recognition in the notes to
consolidated financial statements to comply with the standard.
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 will be accounted for in
substantially the same manner as capital leases are accounted for under existing GAAP. 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.
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Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies (continued)
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)."
In July 2018, the FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases" and ASU 2018-11 "Leases
(Topic 842): Targeted Improvements". ASU 2018-10 provides narrow amendments that clarify how to apply certain aspects of the
guidance in ASU 2016-02. ASU 2018-11 provides lessors with a practical expedient in combining lease and non-lease components, if
certain criteria are met.
The leasing standard will 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, 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 lessee. The new standard will result in the recording of right of use assets and lease obligations. See Note 10 for the Company’s
current lease commitments. The Company continues to evaluate the impact of ASU 2016-02 and the related ASU amendments on its
financial statements.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the
FASB Emerging Issues Task Force).” 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 notes to the financial statements. 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 periods presented. The Company adopted this ASU as of January 1, 2018 and applied retrospectively. The adoption resulted in a
reduction of $942 thousand and an increase of $658 thousand in net cash provided by operating activities and a reduction of $101 thousand
and an increase of $1.40 million in net cash provided by investing activities for the years ended December 31, 2017 and 2016, respectively,
on the consolidated statements of cash flows.
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. The 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 Company adopted this ASU as of January 1, 2018. As a
result of this adoption, the acquisition costs incurred in 2018 with the purchase of JANAF were capitalized as a cost of the asset.
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. The Company adopted this
standard for the fourth quarter of 2018, and applied the guidance to its annual goodwill impairment test at that time. Refer to Note 5 for
details of the goodwill impairment test performed.
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 adopted this ASU as of January 1, 2018. The adoption did not have a material impact on the financial position or results of
operations.
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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 update 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
adopted this ASU as of January 1, 2018. The adoption did not have a material impact on the financial position or results of operations.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Loses (Topic 326): Measurement of Credit Losses
on Financial Instruments." This updated enhances the methodology of measuring expected credit losses to include the use of forward-
looking information to better calculate credit loss estimates. The guidance will apply to most financial assets measured at amortized cost
and certain other instruments, such as accounts receivable and loans. The guidance will require that the Company estimate the lifetime
expected credit loss with respect to these receivables and record allowances that, when deducted from the balance of the receivables,
represent the net amounts expected to be collected. The Company will also be required to disclose information about how it developed the
allowances, including changes in the factors that influenced the Company’s estimate of expected credit losses and the reasons for those
changes. The guidance would be effective for interim and annual reporting periods beginning after December 15, 2019. The Company is
currently in the process of evaluating the impact the adoption of the guidance will have on its consolidated financial statements.
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.
95
Table of Contents
3. Real Estate
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Investment properties consist of the following (in thousands):
Land and land improvements
Land held for development
Buildings and improvements
Investment properties at cost
Less accumulated depreciation
Investment properties, net
December 31,
2018
2017
98,846 $
—
374,485
473,331
(40,189)
433,142 $
91,108
2,305
312,831
406,244
(31,045)
375,199
$
$
The Company’s depreciation expense on investment properties was $12.66 million, $10.59 million and $7.88 million for the years
ended December 31, 2018, 2017 and 2016, respectively.
A significant portion of the Company’s land, buildings and improvements serve 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.
JANAF Acquisition
On January 18, 2018, the Company acquired JANAF, a retail shopping center located in Norfolk, Virginia, for a purchase price of
$85.65 million, paid through a combination of cash, restricted cash, debt assumption and the issuance of 150,000 shares of Common Stock
at $7.53 per share. The shopping center, anchored by BJ's Wholesale Club, totals 810,137 square feet and was 94% leased at the acquisition
date.
The following summarizes the consideration paid and the purchase allocation of assets acquired and liabilities assumed in
conjunction with the acquisition described above in accordance with ASU 2017-01, along with a description of the methods used to
determine the purchase price allocation (in thousands, unaudited). In determining the purchase price allocation, the Company considered
many factors including, but not limited to, cash flows, market cap rates, location, occupancy rates, appraisals, other acquisitions and
management’s knowledge of the current acquisition market for similar properties.
Purchase price allocation of assets acquired:
Investment property (a)
Lease intangibles and other assets (b)
Above market leases (d)
Restricted cash (c)
Below market leases (d)
Net purchase price allocation of assets acquired:
Purchase consideration:
Consideration paid with cash
Consideration paid with restricted cash (c)
Consideration paid with assumption of debt (e)
Consideration paid with common stock
Total consideration (f)
$
$
$
$
75,123
10,718
2,019
2,500
(4,710 )
85,650
23,153
2,500
58,867
1,130
85,650
a.
Represents the purchase price allocation of the net investment properties acquired which includes land, buildings, site
improvements and tenant improvements. The purchase price allocation was determined using following approaches:
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3. Real Estate (continued)
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
i.
ii.
the market approach valuation methodology for land by considering similar transactions in the
markets;
a combination of the cost approach and income approach valuation methodologies for buildings, including replacement cost
evaluations, “go dark” analyses and residual calculations incorporating the land values; and
iii.
the cost approach valuation methodology for site and tenant improvements, including replacement costs and prevailing quoted
market rates.
Represents the purchase price allocation of lease intangibles and other assets. Lease intangibles includes in place leases and
ground lease sandwich interests associated with replacing existing leases. The income approach was used to determine the
allocation of these intangible assets which included estimated market rates and expenses.
Represents the purchase price allocation of deleveraging reserve (the “Deleveraging Reserve”) released upon the maturity or
earlier payment in full of the loan or until the reduction of the principal balance of the loan to $50,000,000.
Represents the purchase price allocation of above/below market leases. The income approach was used to determine the allocation
of above/below market leases using market rental rates for similar properties.
Assumption of $53.71 million of debt at a rate of 4.49%, maturing July 2023 with monthly principal and interest payments of
$333,159 and assumption of $5.16 million of debt at a rate of 4.95%, maturing January 2026 with monthly principal and interest
payments of $29,964.
Represents the components of purchase consideration
paid.
Assets Held for Sale
b.
c.
d.
e.
f.
In 2018, the Company’s management and Board of Directors committed to a plan to sell the seven undeveloped land parcels (the
“Land Parcels”), along with the Monarch Bank Building, Shoppes at Eagle Harbor, Graystone Crossing and Jenks Plaza. Accordingly,
these properties have been classified as held for sale.
The sale of the Land Parcels 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 Land Parcels have been reclassified for
all periods presented. See Note 6, for disclosure of operating results of discontinued operations.
As of December 31, 2018 and 2017, assets held for sale and associated liabilities, excluding discontinued operations, consisted of
the following (in thousands):
December 31, 2018
December 31, 2017
Investment properties, net
Rents and other tenant receivables, net
Above market lease, net
Deferred costs and other assets, net
Total assets held for sale, excluding discontinued operations
Loans payable
Accounts payable
Total liabilities associated with assets held for sale, excluding discontinued
operations
97
$
$
$
$
4,912 $
72
420
228
5,632 $
December 31, 2018
December 31, 2017
3,818 $
240
4,058 $
—
—
—
—
—
—
—
—
Table of Contents
3. Real Estate (continued)
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2018 and 2017, assets held for sale and associated liabilities for discontinued operations, consisted of the
following (in thousands):
Investment properties, net
Total assets held for sale, discontinued operations
Loans payable
Accounts payable
Total liabilities associated with assets held for sale, discontinued operations
December 31, 2018
December 31, 2017
3,350 $
3,350 $
9,135
9,135
December 31, 2018
December 31, 2017
533 $
41
574 $
747
45
792
$
$
$
$
Dispositions
Property
Contract Price
$
October 22, 2018
September 27, 2018
June 19, 2018
January 12, 2018
June 27, 2017
June 26, 2017
February 28, 2017
June 29, 2016
Monarch Bank Building
Shoppes at Eagle Harbor
Laskin Road Land Parcel (1.5 acres)
Chipotle Ground Lease at Conyers Crossing
Carolina Place Land Parcel (2.14 acres)
Steak n' Shake outparcel at Rivergate (1.06
acres)
Ruby Tuesday's and Outback at Pierpont
Starbucks/Verizon
1,750 $
5,705
2,858
1,270
250
2,250
2,285
2,128
Gain/(Loss)
(in thousands)
151
1,270
903
1,042
$
(12)
1,033
1,502
688
Net Proceeds
299
2,071
2,747
1,160
238
2,178
1,871
1,385
The sale of the Chipotle ground lease at Conyers Crossing, Shoppes at Eagle Harbor, Monarch Bank Building, Steak n' Shake
outparcel at Rivergate and the land parcel at Carolina Place 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. See Note 6 for discontinued operation disclosures for the sales of Laskin Road, Ruby Tuesday's and
Outback at Pierpont and Starbuck/Verizon.
Impairment of Investment Properties and Assets Held for Sale
The annual review of investment properties for impairment performed for the year ended December 31, 2018 resulted in no
impairment adjustment for the Company's properties in continuing operations.
During 2018, the Company made the strategic decision to sell the undeveloped land parcels as opposed to holding for
development purposes. Upon this determination the properties were classified as held for sale. Based on recent real estate sales transactions
for undeveloped land within the surrounding markets it was determined that the carrying value of the properties exceeded the fair value,
less estimated selling costs by $3.94 million; accordingly, an impairment loss of that amount was recognized and is included in the loss
from discontinued operations in the consolidated statement of operations, see Note 6. These valuation assumptions are based on the three-
level valuation hierarchy for fair value measurement and represent Level 3 inputs.
4. Notes Receivable
On September 29, 2016, the Company entered into an $11.00 million note receivable for the partial funding of the Sea Turtle
Development and a $1.00 million note receivable in consideration for the sale of 10.39 acres of land owned by the Company. Sea Turtle
Development was a related party as Jon Wheeler, the Company's former CEO and shareholder of the
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Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
4. Notes Receivable (continued)
Company, is the managing member as discussed in Note 11. Both promissory notes are collateralized by a 2nd deed of trust on the property
and accrue interest at a rate of 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.
For the years ended December 31, 2018 and 2017, the Company recognized $1.74 million and $5.26 million impairment charges,
respectively, on the notes receivable reducing the carrying value to $5.00 million as of December 31, 2018. The Company placed the notes
receivable on nonaccrual status and has not recognized $1.44 million of interest income due on the notes for the twelve months ended
December 31, 2018.
As of December 31, 2018, the Company believes the estimated fair market value of the development upon stabilization and lease
up at a future date will provide for the cash required to repay the $5.00 million carrying value of the notes receivable in the event of a sale.
The Company’s estimated fair value of the project is based upon cash flow models that include information available to the Company at
December 31, 2018, including assumptions on future lease up and the estimated fair value at full stabilization. Capitalization rates utilized
in these models are based upon rates that the Company believes to be within a reasonable range of current market rates for the respective
project. 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. If the holder of the $20.00 million, 1st deed of trust proceeds to foreclosure, this may have an adverse effect on
assumptions used in the Company's fair value analysis leading to further impairment.
5. Goodwill
As part of the acquisition of the Operating Companies on October 24, 2014, the Company recorded preliminary goodwill of $7.00
million. In June 2015, the Company finalized its valuation of the Operating Companies. In accordance with the valuation, the Company
recorded a fair value discount of $1.18 million to the $6.75 million in common units issued for the acquisition of the Operating Companies
due to the one year restriction on their conversion into shares of Common Stock, and reallocated $337 thousand to finite-lived intangibles
during the year ended December 31, 2015.
Effective December 1, 2018, the Company early adopted ASU 2017-04, Intangibles – Goodwill and Other: Simplifying the
Accounting for Goodwill Impairment (Topic 350), which eliminates the requirement to compute the implied fair value of goodwill to test
for impairment. Instead, a goodwill impairment is measured as the amount by which the carrying amount of a reporting unit exceeds its fair
value. For the purposes of the goodwill impairment test performed during the year ended December 31, 2018, the Company estimated the
fair value of its sole reporting unit, described above, using the market approach. Under the market approach, the Company utilized the
market capitalization of its Common Stock, Series B Preferred, Series D Preferred and noncontrolling operating partnership units. The
significant inputs used in this analysis are readily available from public markets and can be derived from identical market transactions, as
such they have been classified as level 1 within the fair value hierarchy. Based on this approach, the Company determined that the carrying
value of its sole reporting unit exceeded its fair value by more than the goodwill balance $5.49 million, resulting in a $5.49 million
impairment of goodwill for the year ended December 31, 2018. No adjustments to goodwill were made in the years ending December 31,
2017 and 2016.
6. Discontinued Operations
The consolidated statements of operations reflect reclassifications of revenue, 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.
The net income from discontinued operations for the twelve months ended December 31, 2018, 2017 and 2016, consists of the
2018 gain on disposal of Laskin Road, the 2017 gain on disposal and related operating activity of Ruby Tuesday’s and Outback Steakhouse
at Pierpont Centre and the 2016 gain on disposal and related operating activity of Starbucks/Verizon.
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Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. Discontinued Operations (continued)
The following is a summary of the income from discontinued operations for the years ended December 31, 2018, 2017 and 2016
(in thousands):
Years Ended December 31,
2017
2018
2016
Revenues
Expenses
Impairment of land
Operating (loss) income
Interest expense
(Loss) income from discontinued operations before gain on disposals
Gain on disposal of properties
(Loss) income from discontinued operations
$
$
— $
—
3,938
(3,938)
—
(3,938)
903
(3,035) $
26 $
1
—
25
9
16
1,502
1,518 $
284
79
—
205
69
136
688
824
The $3.94 million impairment of land is based on the carrying value of the properties exceeding the fair value, less estimated
selling costs based on recent real estate sales transactions for undeveloped land within the surrounding markets. These valuation
assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 3 inputs.
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Table of Contents
7. Loans Payable
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company’s loans payable consist of the following (in thousands except monthly payment):
Monthly Payment
Interest
Rate
Property/Description
Harbor Pointe (1)
Perimeter Square
Perimeter Square construction loan
KeyBank Line of Credit
Revere Term Loan
Monarch Bank Building
Senior convertible notes
DF I-Moyock (1)
Rivergate
KeyBank Line of Credit
LaGrange Marketplace
Folly Road
Columbia Fire Station construction loan
Shoppes at TJ Maxx
First National Bank Line of Credit
Lumber River
JANAF Bravo
Walnut Hill Plaza
Riversedge North
Twin City Commons
Shoppes at Eagle Harbor
New Market
Benefit Street Note (3)
Deutsche Bank Note (2)
JANAF
Tampa Festival
Forrest Gallery
South Carolina Food Lions Note
Cypress Shopping Center
Port Crossing
Freeway Junction
Harrodsburg Marketplace
Graystone Crossing (1)
Bryan Station
Crockett Square
Pierpont Centre
Alex City Marketplace
Butler Square
Brook Run Shopping Center
Beaver Ruin Village I and II
Sunshine Shopping Plaza
Barnett Portfolio
Fort Howard Shopping Center
Conyers Crossing
Grove Park Shopping Center
Parkway Plaza
Winslow Plaza
JANAF BJ's
Chesapeake Square
Berkley/Sangaree/Tri-County
Riverbridge
Franklin
11,024
Interest only
Interest only
5.85 %
5.50 %
6.00 %
Interest only
Libor + 250 basis points
109,658
7,340
234,199
10,665
144,823
10.00 %
4.85 %
9.00 %
5.00 %
Libor + 295 basis points
Interest only
Libor + 250 basis points
15,065
32,827
25,452
33,880
Libor + 375 basis points
4.00 %
4.00 %
3.88 %
Interest only
Libor + 300 basis points
10,723
Libor + 350 basis points
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Interest only
26,850
11,436
17,827
26,528
48,747
53,185
33,340
333,159
50,797
50,973
68,320
34,360
34,788
41,798
19,112
20,386
23,489
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
Interest only
29,964
23,857
Interest only
Interest only
Interest only
Maturity
December 2018 $
December 2018
December 2018
February 2019
February 2019
June 2019
June 2019
July 2019
December 2019
December 2019
March 2020
March 2020
May 2020
May 2020
September 2020
October 2020
January 2021
September 2022
December 2023
January 2023
March 2023
June 2023
June 2023
July 2023
July 2023
September 2023
September 2023
January 2024
July 2024
August 2024
September 2024
September 2024
October 2024
November 2024
December 2024
February 2025
4.65 %
5.50 %
5.77 %
4.86 %
5.10 %
5.65 %
5.71 %
5.71 %
4.49 %
5.56 %
5.40 %
5.25 %
4.70 %
4.84 %
4.60 %
4.55 %
4.55 %
4.52 %
4.47 %
4.15 %
3.95 %
April 2025
3.90 %
4.08 %
4.73 %
4.57 %
4.30 %
4.57 %
4.67 %
4.52 %
4.57 %
4.82 %
4.95 %
4.70 %
4.78 %
4.48 %
4.93 %
May 2025
June 2025
July 2025
August 2025
September 2025
October 2025
October 2025
October 2025
October 2025
December 2025
January 2026
August 2026
December 2026
December 2026
January 2027
December 31,
2018
December 31,
2017
460
$
6,250
247
3,830
1,059
—
1,369
73
22,117
48,272
—
6,073
4,189
5,539
2,938
1,448
6,500
3,868
1,800
3,048
—
6,907
7,567
5,713
52,253
8,227
8,529
11,867
6,379
6,150
7,863
3,486
3,863
4,472
6,338
8,113
5,750
5,640
10,950
9,400
5,900
8,770
7,100
5,960
3,800
3,500
4,620
5,065
4,434
9,400
4,000
8,516
553
5,382
—
15,532
6,808
1,266
1,369
194
22,689
52,500
2,317
6,181
3,421
5,727
3,000
1,500
—
3,903
863
3,111
3,341
—
—
—
—
8,368
8,669
12,050
6,485
6,263
7,994
3,553
3,928
4,547
6,338
8,113
5,750
5,640
10,950
9,400
5,900
8,770
7,100
5,960
3,800
3,500
4,620
—
4,507
9,400
4,000
8,516
Total Principal Balance (1)
Unamortized debt issuance cost (1)
369,612
(5,144 )
313,778
(5,656 )
Total Loans Payable, including Assets Held for Sale
Less loans payable on assets held for sale, net loan amortization costs
Total Loans Payable, net
(1) Includes loans payable on assets held for sale, see Note 3.
(2) This loan is collateralized by LaGrange Marketplace, Ridgeland and Georgetown.
(3) This loan is collateralized by Ladson Crossing, Lake Greenwood Crossing and South Park.
101
364,468
4,351
$
360,117
$
308,122
747
307,375
Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7. 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 A-C Portfolio. Pursuant to the terms
of the First Amendment, the monthly interest of the increased credit facility was 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, 2017, the
Company executed a Third Amendment to the KeyBank Credit Agreement (the "Third Amendment"). The Third Amendment changed the
interest payment date to the first day of each calendar month and decreased the total commitment on the revolving credit line by $25.00
million to $50.00 million effective October 7, 2017. The Company and KeyBank agreed Shoppes at Myrtle Park shall continue to be
included in the calculation of the Borrowing Base Availability (as defined in the Credit Agreement) through December 21, 2017. On
October 6, 2017, the Company executed a Fourth Amendment to the KeyBank Credit Agreement (the "Fourth Amendment"). The Fourth
Amendment provided for a sixty day extension from October 7, 2017 to December 6, 2017 upon which the $75.00 million total
commitment on the revolving credit line was to decrease to $50.00 million.
On December 21, 2017, the Company entered into an Amended and Restated Credit Agreement to the Credit Agreement (the
“Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement provides for an increase in borrowing capacity
from $50.00 million to $52.50 million and also increases the accordion feature by $50.00 million to $150.00 million. Additionally, the
Amended and Restated Credit Agreement provides for an extension of the requirement to reduce the outstanding borrowings under the
facility from $68.03 million to $52.50 million by July 1, 2018. The revolving 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 rate remains the
same at LIBOR plus 250 basis points based on the Company’s Consolidated Leverage Ratio (as defined in the Amended and Restated
Credit Agreement). The unutilized amounts available to the Company under the Credit Agreement accrue fees which are paid at a rate of
0.25%.
On March 2, 2018, KeyBank reduced the liquidity requirement from $5.00 million to $3.50 million through March 31, 2018. The
liquidity requirement reverts back to $5.00 million subsequent to March 31, 2018 until such time as the Total Commitment (as defined in
the Amended and Restated Credit Agreement) has been reduced to $52.50 million and $3.50 million at all times thereafter.
On June 28, 2018, the Company refinanced the New Market, Ridgeland and Georgetown collateralized portions of the Amended and
Restated Credit Agreement resulting in a paydown of $9.13 million.
On August 7, 2018, the Company and KeyBank agreed to modify the existing Amended and Restated Credit Agreement effective
July 1, 2018 which provided for an extension to August 23, 2018 by which the outstanding borrowings were to be reduced to $52.50
million, in addition to modifying certain covenants. The Company and KeyBank anticipated that an over advance (the “Overadvance”) on
the Borrowing Base Availability (as defined in the Amended and Restated Credit Agreement) would exist and agreed that the Company
should have a period through October 31, 2018 to repay such Overadvance or otherwise properly balance the Borrowing Base Availability.
In September 2018, the Company refinanced the Ladson Crossing, Lake Greenwood and South Park collateralized portion of the
Amended and Restated Credit Agreement resulting in a paydown of $6.80 million and a $3.83 million Overadvance on the Borrowing Base
Availability.
On October 15, 2018, KeyBank extended the time which the Company is to repay the Overadvance of $3.83 million to February 28,
2019 or otherwise properly balance the Borrowing Base Availability. Based on discussions and correspondence
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Notes to Consolidated Financial Statements (Continued)
7. Loans Payable (continued)
with KeyBank, KeyBank is drafting documents to extend the time which the Company is to repay the Overadvance until at least March 31,
2019.
As of December 31, 2018, the Company has borrowed $52.10 million under the Credit Agreement, which is collateralized by 10
properties. At December 31, 2018, the outstanding borrowings are accruing interest at 5.02%. The Amended and Restated Credit
Agreement contains certain financial covenants that the Company must meet, including minimum leverage, fixed charge coverage and debt
service coverage ratios as well as a minimum tangible net worth requirement. The Company was in compliance with the financial
covenants as of December 31, 2018. The Amended and Restated Credit Agreement also contains certain events of default that if they occur
may cause KeyBank to terminate the Amended and Restated Credit Agreement and declare amounts owed to become immediately payable.
As of December 31, 2018, the Company has not incurred an event of default under the Amended and Restated Credit Agreement.
Revere Term Loan Agreement
In connection with the closing of the A-C Portfolio, the Operating Partnership, as borrower, and Revere High Yield Fund, LP, a
Delaware limited partnership (“Revere”), as lender, entered into a Term Loan Agreement dated as of April 8, 2016 (“Revere Term Loan”)
in the principal amount of $8.0 million. The Revere Term Loan has a maturity date of April 30, 2017 and an interest rate of 8.00% per
annum. The Company and certain of its subsidiaries serve as guarantors under the Revere Term Loan. The proceeds of the Revere Term
Loan were used as partial consideration for the purchase of the A-C Portfolio. A warrant (“Warrant”) to purchase an aggregate of 750,000
shares of the Company’s Common Stock (under circumstances described below under the section “Revere Warrant Agreement”) serves as
collateral for the Revere Term Loan.
On May 1, 2017, the Operating Partnership extended the remaining $7.45 million Revere Term 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 discussed 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.
On May 3, 2018, the Company extended the $6.81 million Revere Term Loan to May 15, 2018.
On May 14, 2018, the Company entered into a Second Amendment to Loan Documents to the Revere Term Loan (the "Revere
Second Amendment"). The Revere Second Amendment extends the maturity from May 15, 2018 to November 1, 2018 with monthly
principal payments of $200 thousand, until the balance of the Revere Term Loan is less than $3.50 million, at which time the monthly
principal payments are reduced to $100 thousand. The Revere Second Amendment increased the interest rate from 8.00% to 9.00% and
increased the “Exit Fee” from $360 thousand to $500 thousand. If the balance of the Revere Term Loan was not less than $3.50 million by
July 15, 2018, then the interest rate would increase to 10%. The Company paid $500 thousand towards principal on the Revere Term Loan
in conjunction with the Second Amendment.
On June 19, 2018, the Company paid down $2.60 million on the Revere Term Loan in conjunction with the sale of the
undeveloped land parcel at Laskin Road, as detailed in Note 3, and made a $150,000 principal payment on June 28, 2018 as part of the
Deutsche Bank refinance, as discussed below.
On September 27, 2018, the Company paid down $1.30 million on the Revere Term Loan in conjunction with the sale of Shoppes
at Eagle Harbor, as detailed in Note 3 and per Third Amendment to the Loan Documents to the Revere Term Loan the Company paid a $75
thousand release fee.
On October 22, 2018, the Company paid down $299 thousand as part of the sale of Monarch Bank.
On November 5, 2018, the Company entered into a Fourth Amendment to Loan Documents to the Revere Term Loan (the
“Revere Fourth Amendment”). The Fourth Amendment extends the maturity date to February 1, 2019 from November 1, 2018, increased
the “Exit Fee” to $575 thousand from $500 thousand and increased the interest rate to 10% from 9%. The Company paid down $100
thousand on the Revere Term Loan in conjunction with this Fourth Amendment, see Note 12.
On November 21, 2018, the Company entered into a Fifth Amendment to Loan Documents to the Revere Term Loan (the "Revere
Fifth Amendment"). The Fifth Amendment resulted in the Company paying the $575 thousand Exit Fee with proceeds from the Riversedge
North refinance.
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Notes to Consolidated Financial Statements (Continued)
7. Loans Payable (continued)
As of December 31, 2018 and 2017, the balance of the Revere Term Loan was $1.06 million and $6.81 million with future
monthly principal and interest payments of $110 thousand at a rate of 10.00%.
Revere Warrant Agreement
In connection with the Revere Term Loan, the Company and Revere entered into the Revere Warrant Agreement dated as of
April 8, 2016, pursuant to which the Company agreed to issue the Warrant to Revere. The terms of the Revere Warrant Agreement provide
that solely in the event of an Event of Default (as defined in the Revere Term Loan) under the Revere Term Loan, Revere shall have the
right to purchase an aggregate of up to 750,000 shares of the Company’s Common Stock for an exercise price equal to $0.0001 per share.
The Warrant is exercisable at any time and from time to time during the period starting on April 8, 2016 and expiring on February 1, 2019
at 11:59 p.m. (see Note 12), Virginia Beach, Virginia time, solely in the event of an Event of Default under the Revere Term Loan. The
Company will not receive any proceeds from the issuance of the Warrant; rather the Warrant serves as collateral for the Revere Term
Loan, the proceeds of which were used as partial consideration for the A-C Portfolio. The issuance of the Warrant is exempt from
registration pursuant to the exemption provided by Rule 506 of Regulation D under the Securities Act of 1933, as amended based upon the
above facts, because Revere is an accredited investor and because the issuance of the Warrant was a private transaction by the Company
and did not involve any public offering. The Warrant is treated as embedded equity and separate disclosure is not necessary.
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 $3,000,000.
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. As of December 31,
2017, the Bulldog Investors 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.
Effective as of December 15, 2018, the Company extended the $1.37 million Amended Convertible Notes to June 15, 2019 with
monthly principal and interest payments of $234,199 at a rate of 9.00% (the "Amended and Restated Notes").
Perimeter Square Refinance and Construction Loan
On June 14, 2017, the Company executed a promissory note for $6.25 million to refinance the Perimeter loan totaling $4.50
million. The loan matures December 2018 with monthly interest only payments. Principal is due at maturity. The loan bears interest at
5.50%.
On October 5, 2018, the Company executed a promissory note for $247 thousand for construction at Perimeter at a rate of 6.00%.
The loan matures in December 2018 with monthly interest only payments due through December 2018, see Note 12.
Rivergate
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.
Folly Road Refinance
On March 22, 2017, the Company executed a promissory note for $8.57 million to refinance the Folly Road collateralized portion
of the KeyBank Credit Agreement totaling $6.05 million. The loan matures in March 2020 with monthly
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Notes to Consolidated Financial Statements (Continued)
7. Loans Payable (continued)
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%.
Columbia Fire Station Construction Loan
On May 3, 2017, the Company executed a promissory note for $4.30 million related to construction at Columbia Fire Station
("Columbia Fire Station Construction Loan") at which time the original Columbia Fire Station note ("Columbia Fire Station Loan") was
paid down to $262 thousand. The loan matures in May 2020 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 December 31, 2018,
construction is complete.
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 monthly principal and interest payments of
$26,850 begin based on a 20 year amortization. The loan bears interest at 5.50%.
First National Bank Line of Credit Renewal
On September 16, 2017, the Company extended the $3.00 million First National Bank line of credit ("First National Bank Line of
Credit") to December 15, 2017.
On January 10, 2018, the Company extended the First National Bank Line of Credit to June 15, 2018 with interest only payments
due monthly at a rate of Libor + 3.00% with a floor of 4.25%.
On June 15, 2018 the Company extended the First National Bank Line of Credit to October 10, 2018 with principal and interest
payments due monthly at a rate of Libor + 3.50%.
On October 15, 2018, the Company extended the First National Bank Line of Credit to September 15, 2020 with interest only
payments due monthly at a rate of Libor + 3.00% with a floor of 4.25%.
Monarch Bank Building
On December 12, 2017, the Company extended the $1.27 million Monarch Bank Building loan to June 2019 with monthly
principal and interest payments of $7,340 at a rate of 4.85%.
On October 22, 2018, the principal balance on the Monarch Bank Building loan was paid in full with the sale of the property, as
detailed in Note 3.
Columbia Fire Station
On December 21, 2017, the Company paid $262 thousand to satisfy the loan in full.
JANAF
On January 18, 2018, the Company assumed a promissory note for $53.71 million for the purchase of JANAF at a rate of 4.49%.
The loan matures in July 2023 with monthly principal and interest payments of $333,159.
JANAF - BJ's
On January 18, 2018, the Company assumed a promissory note for $5.16 million for the purchase of JANAF at a rate of 4.95%.
The loan matures in January 2026 with monthly principal and interest payments of $29,964.
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Notes to Consolidated Financial Statements (Continued)
7. Loans Payable (continued)
JANAF - Bravo
On January 18, 2018, the Company executed a promissory note for $6.50 million for the purchase of JANAF at a rate of 4.65%.
The loan matures in January 2021 with interest due monthly through January 2019 and monthly principal and interest payments of $36,935
beginning in February 2019.
Shoppes at Eagle Harbor Renewal and Payoff
On March 11, 2018, the Company renewed the promissory note for $3.32 million on Shoppes at Eagle Harbor for five years. The
loan matures in March 2023 with monthly principal and interest payments of $26,528. The loan bears interest at 5.10%.
On September 27, 2018, the Company paid down the remaining balance on the Shoppes at Eagle Harbor promissory note in
conjunction with the sale of Shoppes at Eagle Harbor, as detailed in Note 3.
New Market Refinance
On May 23, 2018, the Company executed a promissory note for $7.00 million for the refinancing of New Market at a rate of
5.65%. The loan matures in June 2023 with monthly principal and interest payments of $48,747.
Lumber River Renewal
On June 15, 2018, the Company extended the $1.48 million promissory note on Lumber River to October 10, 2018 with monthly
principal and interest payments of $10,723 at a rate of Libor + 3.50%.
On November 8, 2018, the Company extended the $1.46 million promissory note on Lumber River to October 10, 2020 with
monthly principal and interest payments of $10,723 at a rate of Libor + 3.50%.
Deutsche Bank
On June 28, 2018, the Company executed a loan agreement for $5.74 million on Georgetown, Ridgeland and LaGrange
Marketplace at a rate of 5.71%. The loan matures in July 2023 with monthly principal and interest payments of $33,340.
Benefit Street Refinance
On September 7, 2018, the Company executed a promissory note for $7.60 million for the refinancing of Ladson Crossing, Lake
Greenwood Crossing and South Park at a rate of 5.71%. The loan matures in June 2023 with monthly principal and interest payments of
$53,185.
Riversedge Refinance
On December 11, 2018, the Company executed a promissory note for $1.80 million for the refinance of Riversedge to December
10, 2023 with monthly principal and interest payments of $11,436 at a rate of 5.77%. In conjunction with the refinance, the Company paid
the $575 thousand exit fee on the Revere Term Loan.
Loan Covenants
Certain of the Company’s loans payable have covenants with which the Company is required to comply. As of
December 31, 2018, the Company is not in compliance with the interest coverage ratio on the Revere Term Loan which was adversely
impacted by the impairment on notes receivable, impairment of goodwill and reserve on related party receivables recognized during fourth
quarter 2018. The Revere Term Loan has been paid down $553 thousand since December 31, 2018 to a remaining balance of $505
thousand as of February 27, 2019. The Company intends to make payment in full by April 1, 2019. As of December 31, 2018, the Company
believes it is in compliance with all other applicable covenants.
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7. Loans Payable (continued)
Debt Maturity
The Company’s scheduled principal repayments on indebtedness as of December 31, 2018, including loans payable on assets held
for sale, are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total principal repayments and debt maturities
For the Years Ended
December 31,
$
$
88,036
23,806
10,628
8,152
84,982
154,008
369,612
The Company has considered our short-term (one year or less) liquidity needs and the adequacy of our estimated cash flows from
operating activities and other expected financing sources to meet these needs. In particular, we have considered our scheduled debt
maturities and principal payments for the year ended December 31, 2019 of $88.04 million. Included in the $88.04 million due in the year
ended December 31, 2019 is $52.10 million on the KeyBank Line of Credit. The KeyBank Line of Credit is collateralized by ten properties
within our portfolio and may be extended at the Company’s option for an additional one year period, subject to certain customary
conditions. The Revere Term Loan has been reduced by $553 thousand subsequent to December 31, 2018, $200 thousand from operating
cash, $323 thousand in proceeds from the Jenks Plaza sale and $30 thousand in proceeds from the Harbor Pointe sale. Subsequent to year
end, upon the sale of a portion of the Harbor Pointe property the $460 thousand loan was paid in full. Additionally, $1.44 million in
maturing debt fully amortizes through regularly scheduled principal payments. All loans due to mature are collateralized by properties
within our portfolio. Additionally, the Company expects to meet the short-term liquidity requirements, through a combination of the
following:
•
•
•
•
•
suspension of 2018 fourth quarter and 2019 first quarter dividend payments on Series A Preferred, Series B Preferred and Series D
Preferred;
available cash and cash
equivalents;
cash flows from operating
activities;
refinancing of maturing debt;
and
intended sale of six undeveloped land parcels and sale of additional properties, if
necessary.
Management is currently working with lenders to refinance the loans noted above. 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.
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Notes to Consolidated Financial Statements (Continued)
8. Rentals under Operating Leases
Future minimum rents 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
December 31, 2018 are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total minimum rents
9. Equity and Mezzanine Equity
Common Stock One-for-Eight Reverse Stock Split
For the Years Ended
December 31,
$
$
46,186
38,758
30,541
24,218
18,715
47,141
205,559
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 Annual
Report on Form 10-K have been retroactively adjusted to reflect the decreased number of shares resulting from the Reverse Stock Split.
The Company has authority to issue 33,750,000 shares of stock, consisting of 18,750,000 shares of $0.01 par value Common
Stock (“Common Stock”) and 15,000,000 shares of preferred stock of which 5,000,000 shares have been classified as no par value Series B
Preferred Stock (“Series B Preferred ”), 4,000,000 shares as Redeemable Preferred Stock ("Series D Preferred") and 4,500 shares of Series
A Preferred Stock ("Series A Preferred). The Company increased the number of shares of Common Stock authorized from 1,875,000 to
9,375,000 during June 2013, and from 9,375,000 to 18,750,000 during June 2015.
Substantially all of our business is conducted through the Company’s Operating Partnership. The Trust is the sole general partner
of the Operating Partnership and owned a 98.33% interest in the Operating Partnership as of December 31, 2018. Limited partners in the
Operating Partnership have the right to redeem their common units for cash or, at our option, common shares at a ratio of one common unit
for one common share. Distributions to common unit holders are paid at the same rate per unit as dividends per share to the Trust’s
common shareholders. As of December 31, 2018 and 2017, there were 14,105,712 and 11,226,868, respectively, of common units
outstanding with the Trust owning 13,870,680 and 10,591,850, respectively, of these common units.
Series A Preferred Stock
At December 31, 2018 and December 31, 2017, the Company had 562 shares without par value Series A
Preferred Stock ("Series A Preferred") issued and outstanding, 4,500 authorized and 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 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.
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Notes to Consolidated Financial Statements (Continued)
9. Equity and Mezzanine Equity (continued)
Series B Preferred Stock
On July 7, 2016 the Company filed a shelf registration statement relating to the potential issuance of up to $50.00 million of our
Series B Preferred. On July 21, 2016, the Company entered into an Equity Distribution Agreement (the "Equity Distribution Agreement")
with a third party agent to sell such securities. As of December 31, 2018, the Company has issued 1,146,829 shares of Series B Preferred,
1,142,225 in 2016 and 4,604 in 2017, pursuant to the Equity Distribution Agreement in addition to the 729,119 shares that were currently
issued and outstanding. 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, $0.01 par value per share, 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. 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 Preferred B has no maturity date and will remain
outstanding indefinitely unless subject to a mandatory or voluntary conversion as described above.
Net proceeds from the Series B Preferred offering totaled $96 thousand and $23.40 million which includes the impact of the
underwriters’ selling concessions and legal, accounting and other professional fees for years ended December 31, 2017 and 2016,
respectively.
In conjunction with the 2014 issuances of Series B Preferred 1,986,600 warrants were issued. Each warrant permits investors to
purchase 0.125 share of Common Stock at an exercise price of $44 per share of Common Stock, subject to adjustment. The warrants expire
in April 2019.
At December 31, 2018 and December 31, 2017, the Company had 1,875,748 and 1,875,848 shares, respectively, and 5,000,000
shares of no par value Series B Preferred issued and authorized with a $25.00 liquidation preference per share, or $46.90 million. The
Series B Preferred bears interest at a rate of 9% per annum.
Series D Preferred Stock- Redeemable Preferred Stock
In 2016, the Company issued and sold 2,237,000 shares of Series D Cumulative Convertible Preferred Stock, without par value
("Series D Preferred"), liquidation value $25.00 per share, in a combination of two public offerings. In September 2016, 1,600,000 shares of
Series D Preferred were sold to investors at an offering price of $25.00 per share. In December 2016, 637,000 shares of Series D Preferred
were sold to investors at an offering price of $24.00 per share. In January 2018, the Company, issued and sold 1,363,636 shares of Series D
Preferred, in a public offering. Each share of Series D Preferred Stock was sold to investors at an offering price of $16.50 per share. 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 holder’s 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 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.
Net proceeds from the 2016 public offerings totaled $52.4 million and $21.16 million from the 2018 public offering, both which
include the impact of the underwriters' selling commissions and legal, accounting and other professional fees.
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Notes to Consolidated Financial Statements (Continued)
9. Equity and Mezzanine Equity (continued)
The Series D Preferred requires the Company maintain asset coverage of at least 200%. If we fail to maintain asset coverage of at
least 200% calculated by determining the percentage value of (i) our total assets plus accumulated depreciation and accumulated
amortization minus our total liabilities and indebtedness as reported in our financial statements prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) (exclusive of the book value of any Redeemable and Term Preferred Stock
(defined below)) over (ii) the aggregate liquidation preference, plus an amount equal to all accrued and unpaid dividends, of outstanding
shares of our Series D Preferred Stock and any outstanding shares of term preferred stock or preferred stock providing for a fixed
mandatory redemption date or maturity date (collectively referred to as “Redeemable and Term Preferred Stock”) on the last business day
of any calendar quarter (“Asset Coverage Ratio”), and such failure is not cured by the close of business on the date that is 30 calendar days
following the filing date of our Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as applicable, for that quarter, or the
“Asset Coverage Cure Date,” then we will be required to redeem, within 90 calendar days of the Asset Coverage Cure Date, shares of
Redeemable and Term Preferred Stock, which may include Series D Preferred Stock, at least equal to the lesser of (i) the minimum number
of shares of Redeemable and Term Preferred Stock that will result in us having a coverage ratio of at least 200% and (ii) the maximum
number of shares of Redeemable and Term Preferred Stock that can be redeemed solely out of funds legally available for such redemption.
In connection with any redemption for failure to maintain the Asset Coverage Ratio, we may, in our sole option, redeem any shares of
Redeemable and Term Preferred Stock we select, including on a non-pro rata basis. We may elect not to redeem any Series D Preferred
Stock to cure such failure as long as we cure our failure to meet the Asset Coverage Ratio by or on the Asset Coverage Cure Date. If shares
of Series D Preferred Stock are to be redeemed for failure to maintain the Asset Coverage Ratio, such shares will be redeemed solely in
cash at a redemption price equal to $25.00 per share plus an amount equal to all accrued but unpaid dividends, if any, on such shares
(whether or not declared) to and including the redemption date.
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.
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 Directors will be elected by a plurality of the votes cast in the election. For the avoidance of doubt, 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
Stock and Parity Preferred Stock to deliver such written request for the election of the Series D Preferred Directors.
On May 3, 2018, the Company filed a Certificate of Correction (the “Certificate of Correction”) with the State Department of
Assessments and Taxation of Maryland (the “SDAT”) correcting an inadvertently omitted reference to “accumulated amortization” in
“Section 10(a) (Mandatory Redemption for Asset Coverage)” of the Articles Supplementary for the Series D Preferred that was previously
filed with SDAT on September 16, 2016. The Certificate of Correction became effective upon filing.
Accretion of Series D Preferred discount was $591 thousand, $723 thousand and $0 thousand for the years ended December 31,
2018, 2017 and 2016, respectively. The carrying value of Series D Preferred increased $1.97 million for undeclared fourth quarter 2018
dividends.
At December 31, 2018 and December 31, 2017, the Company had 3,600,636 and 2,237,000 issued, respectively and 4,000,000
authorized shares of Series D Preferred with a $25.00 liquidation preference per share, or $91.98 million and $55.93 million in aggregate.
110
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
9. Equity and Mezzanine Equity (continued)
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 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 income
(loss) attributable to noncontrolling interests, by the weighted-average number of common shares including any dilutive shares.
As of December 31, 2018, 2017 and 2016, 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.
December 31, 2018
December 31, 2017
December 31, 2016
Outstanding
shares
Potential
Dilutive
Shares
Outstanding
shares
Potential
Dilutive
Shares
Outstanding
shares
Potential
Dilutive
Shares
Common units
Series B Preferred Stock
Series D Preferred Stock
Warrants to purchase Common
Stock
Senior Convertible Notes
Dividends
235,032
1,875,748
3,600,636
235,032
1,172,343
5,307,541
635,018
1,875,848
2,237,000
761,954
635,018
506,911
1,172,405 1,871,244 1,169,528
3,297,465 2,237,000 3,297,465
276,746
329,378
2,509
329,378
2,509
Dividends declared to holders of common units, common shares and preferred shares are as follows (in thousands):
Common unit and common shareholders
Preferred shareholders
Total
Dividends declared per share type are as follows:
Dividends declared per common share
Dividends declared per Series A Preferred share
Dividends declared per Series B Preferred share
Dividends declared per Series D Preferred share
Years Ended December 31,
2017
2018
2016
— $
9,790
9,790 $
13,477 $
9,969
23,446 $
15,328
4,713
20,041
Years Ended December 31,
2017
2018
2016
— $
67.50 $
1.69 $
1.64 $
1.44 $
90.00 $
2.25 $
2.19 $
1.68
90.00
2.25
0.61
$
$
$
$
$
$
On December 20, 2018, the Board of Directors suspended payment of the fourth quarter dividends on shares of its Series A
Preferred, Series B Preferred and Series D Preferred. At December 31, 2018, the amounts of dividends in arrears are
111
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
9. Equity and Mezzanine Equity (continued)
$13 thousand ($22.50 per share) on Series A Preferred, $1.06 million ($0.56 per share) on Series B Preferred and $1.97 million ($0.55 per
share) on Series D Preferred for a total of $3.04 million.
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 ("Stock Incentive
Plan").
For the Years Ended December 31,
Shares Issued
2018
2017
2016
— $
11,464
42,070
Market Value
(in thousands)
—
155
519
As of December 31, 2018, there are 41,104 shares available for issuance under the Company’s 2015 Incentive Plan.
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.
For the Years Ended December 31,
Shares Issued
2018
2017
2016
206,358 $
99,527
4,601
Market Value
(in thousands)
1,057
1,261
60
As of December 31, 2018, there are 314,514 shares available for issuance under the Company’s 2016 Incentive Plan.
112
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. 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 (in thousands):
Amscot
Beaver Ruin Village
Beaver Ruin Village II
Leased office space Charleston, SC
Moncks Corner
Devine Street
JANAF
Total Ground Leases
For the Years Ended December 31,
Expiration Year
2018
2017
2016
18 $
46
19
100
121
250
258
812 $
18 $
46
19
100
121
251
—
555 $
18
46
18
92
87
180
—
441
2045
2054
2056
2019
2040
2035
2069
$
$
JANAF ground lease expense of $258 thousand for the year ended December 31, 2018, includes $113 thousand in percentage rent.
Future minimum lease payments due under the operating leases, including applicable automatic extension options, are as follows
(in thousands):
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
Insurance
For the Years Ended December
31,
$
$
644
583
635
638
640
16,063
19,203
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.
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. Commitments and Contingencies (continued)
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 Midwest, which markets represented approximately 4%, 19%, 76% and 1%,
respectively, of the total annualized base rent of the properties in its portfolio as of December 31, 2018. 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.
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 to the above, the below legal proceedings are in process.
In May 2018, former Chief Executive Officer and President Jon S. Wheeler filed suit against the Company in the Circuit Court for
the City of Virginia Beach, Virginia, asserting claims for breaches of his employment agreement with the Company and retaliatory
termination. The Company is vigorously defending the claims set forth in the lawsuit. The non-jury trial of the lawsuit is scheduled for
April 17-18, 2019. The parties are presently engaging in discovery. At this juncture, the outcome of the matter cannot be predicted.
On or about June 28, 2018, JCP Investment Partnership, LP and JCP Investment Partnership II, Master Fund LP filed suit against
the Company in the Circuit Court for Baltimore County, Maryland, alleging the Company failed to maintain the designated asset coverage
ratio under the Articles Supplementary governing the issuance of the Company’s Series D Preferred Stock, and is therefore required to
redeem those Preferred Shares at the price of $25.00 per share. The Company is responding to the lawsuit, defending the lawsuit and has
filed an answer denying liability; however, the parties are engaging in discovery. Trial has been scheduled for March 2-6, 2020. At this
early juncture, the outcome of the matter cannot be predicted.
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 CEO and President David Kelly defamed him in communications with an industry association.
The Company’s D&O carrier has retained counsel for Mr. Kelly, who is vigorously defending the lawsuit. The parties are presently
engaging in written discovery. At this early 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
114
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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. Commitments and Contingencies (continued)
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 “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
Agreement will be no more than $2.28 million, the principal amount of the bonds, as of December 31, 2018. 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. In 2018, 2017, and
2016, we funded approximately $73 thousand, $58 thousand and $49 thousand, respectively in debt service shortfalls. No amounts have
been accrued for this as of December 31, 2018 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 as of and for the years ended December 31, 2018, 2017 and 2016. The amounts
disclosed below reflect the activity between the Company and its affiliates (in thousands).
Amounts paid to affiliates
Amounts received from affiliates
Amounts due from affiliates
Notes receivable
December 31,
2018
2017
2016
15 $
116 $
— $
5,000 $
48 $
2,517 $
— $
6,739 $
125
1,347
1,456
12,000
$
$
$
$
As discussed in Note 4, the Company 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. At December 31, 2018 and 2017, the Company recognized a $1.74 million and $5.26 million impairment charge,
respectively, on the note receivable as discussed in greater detail in Note 4. The Company has placed the notes receivable on nonaccrual
status and has not recognized $1.44 million of interest income due on the notes for the year ended December 31, 2018. In February 2018,
the Company's agreement to perform development, leasing, property and asset management services for Sea Turtle Development was
terminated. Sea Turtle Development 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, development fees of 5% of hard costs incurred were due to the Company.
Leasing, property and asset management fees were consistent with those charged for services provided to non-related properties.
The Company recovered $77 thousand in amounts due from related parties for the year ended December 31, 2018, respectively,
which were previously reserved. The recovery is included in “provision for credit losses” on the consolidated statements of operations. The
total allowance on related party receivables at December 31, 2018 and 2017 is $2.20 million and $2.36 million, respectively.
115
Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
A detail of the allowance on related party receivables as of December 31, 2018 and 2017 is presented below (in thousands):
Sea Turtle Development
Accrued interest on note receivable - due at maturity
Accrued interest on note receivable - currently due
Leasing Commissions
Development fees
Other
Other non-REIT Properties
For the Years Ended December 31,
2018
2017
$
$
895 $
443
107
182
18
557
2,202 $
895
443
190
182
18
636
2,364
Amounts due from Sea Turtle Development are reserved due to uncertainty surrounding the collectability given current cash flow
models. The Company’s estimated fair value of the project is based upon cash flow models that include information available to the
Company at December 31, 2018, including assumptions on future lease up and the estimated fair value at full stabilization. Capitalization
rates utilized in these models are based upon rates that the Company believes to be within a reasonable range of current market rates for the
respective project.
Amounts due from other non-REIT properties have been reserved based on available cash flows at the respective properties and
payment history. The reserve of $636 thousand was recorded in 2017 and is included in “provision for credit losses” on the consolidated
statements of operations. There were no additional reserves recorded in 2018. In February 2018 the management agreements for these
properties were terminated.
In 2016, in connection with the acquisition of Berkley and Sangaree/Tri-County, the Operating Partnership entered into a tax
protection agreement that obligates the Operating Partnership to reimburse Jon Wheeler, the Company's former CEO, for his tax liabilities
resulting from the recognition of certain taxable income or gain in the event the Operating Partnership takes certain action prior to
November 10, 2023 with respect to Sangaree Plaza, Tri-County Plaza and Berkley.
12. Subsequent Events
Jenks Plaza
On January 11, 2019, the Company completed the sale of Jenks Plaza for a contract price of $2.20 million, resulting in a gain of
$388 thousand with net proceeds of $1.84 million, of which $323 thousand was used to further paydown the Revere Term Loan and $1.51
million to paydown the portion of the First National Bank Line of Credit collateralized by Jenks Plaza.
Perimeter Square Refinance and Construction Loan
On January 15, 2019, the Company renewed the promissory notes for $6.25 million and $247 thousand at Perimeter Square. The
loans mature in March 2019 with interest only payments beginning February 15, 2019. The loans bears interest at 6.50%.
Revere Term Loan Extension
On January 29, 2019, the Company entered into a Sixth Amendment to Loan Documents to the Revere Term Loan (the “Revere
Sixth Amendment”). The Revere Sixth Amendment extends the maturity date to April 1, 2019 from February 1, 2019 and creates an
additional “Exit Fee” of $20 thousand.
Harbor Pointe Sale
On February 7, 2019, the Company completed the sale of a 1.28 acre parcel of land at Harbor Pointe for a contract price of $550
thousand, paying off the underlying mortgage and $30 thousand on the Revere Term Loan.
116
Suspension of Dividends
On February 27, 2019, the Board of Directors suspended the 2019 first quarter dividends on shares of its Series A Preferred, Series
B Preferred and Series D Preferred.
117
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Schedule II-Valuation and Qualifying Accounts
December 31, 2018
Description
Allowance for doubtful accounts:
Year Ended December 31, 2018
Year Ended December 31, 2017
Balance at
Beginning
of Year
Charged to
Costs and
Expense
Deductions
from
Reserves
Balance at
End of
Year
(in thousands)
$
3,069 $
691
434 $
2,821
$
(32)
(443)
3,471
3,069
118
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Schedule III-Real Estate and Accumulated Depreciation
December 31, 2018
Property Name
Land
Initial Cost
Building and
Improvements
Amscot Building
$
Lumber River Village
Perimeter Square
Riversedge North
Surrey Plaza
The Shoppes at TJ Maxx
Twin City Commons
Walnut Hill Plaza
Tampa Festival
Forrest Gallery
Jenks Plaza
Winslow Plaza
Clover Plaza
St. George Plaza
South Square
Westland Square
Waterway Plaza
Cypress Shopping
Center
Harrodsburg
Marketplace
Port Crossing Shopping
Center
LaGrange Marketplace
DF I-Courtland (1)
Edenton Commons (1)
DF I-Moyock (1)
Freeway Junction
Graystone Crossing
Bryan Station
Crockett Square
Harbor Pointe (1)
DF I-Berkley
Pierpont Centre
Brook Run Properties
Alex City Marketplace
Butler Square
Brook Run Shopping
Center
Beaver Ruin Village
Beaver Ruin Village II
— $
800
1,566
910
381
2,115
800
734
4,653
3,015
498
1,325
356
706
353
887
1,280
2,064
1,431
792
390
196
746
179
1,521
922
1,658
1,546
1,538
250
484
300
454
1,024
2,209
2,604
1,153
462 $
4,487
5,081
2,208
1,857
6,719
3,041
2,414
6,691
7,455
918
3,684
1,197
1,264
1,911
1,710
1,248
4,579
2,485
6,921
2,648
—
—
—
6,755
2,856
2,756
6,834
—
—
9,221
—
7,837
6,401
12,919
8,284
2,809
Costs Capitalized
Subsequent
to Acquisition
Gross Amount at which Carried
at End of Period
Improvements
(net)
(in thousands)
31 $
151
1,950
721
—
644
24
1,324
407
884
227
205
26
46
10
55
136
251
78
102
285
—
—
—
8
—
57
183
134
—
30
8
1,488
192
520
19
5
119
Carrying
Costs
Land
Building and
Improvements
Total
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
942
1,705
910
381
2,115
800
734
4,695
3,015
498
1,370
356
752
353
901
1,280
2,064
1,509
792
430
196
746
179
1,521
922
1,658
1,565
1,665
250
504
300
577
1,024
2,256
2,604
1,153
493 $
4,496
6,892
2,929
1,857
7,363
3,065
3,738
7,056
8,339
1,145
3,844
1,223
1,264
1,921
1,751
1,384
4,830
2,485
7,023
2,893
—
—
—
6,763
2,856
2,813
6,998
7
—
9,231
8
9,202
6,593
493
5,438
8,597
3,839
2,238
9,478
3,865
4,472
11,751
11,354
1,643
5,214
1,579
2,016
2,274
2,652
2,664
6,894
3,994
7,815
3,323
196
746
179
8,284
3,778
4,471
8,563
1,672
250
9,735
308
9,779
7,617
13,392
8,303
2,814
15,648
10,907
3,967
Initial Cost
Costs Capitalized
Subsequent
to Acquisition
Land
Building and
Improvements
Improvements
(net)
Carrying
Costs
Gross Amount at which Carried
at End of Period
Building and
Improvements
Land
Total
1,706 $
895
1,183
3,107
722
772
1,890
2,034
—
188
365
5,992
742
2,981
550
447
568
568
2,970
—
203
3,182
804
943
338
1,005
2,302
411
774
3,736
2,608
5,208
993
1,570
8,267
101,864 $
599 $
4,112
6,368
8,912
4,590
4,230
7,350
6,820
—
1,054
1,941
4,527
1,917
3,920
2,499
1,537
929
936
4,716
1,109
376
5,360
2,025
2,967
1,941
2,865
2,922
3,421
5,384
5,928
9,426
12,879
5,216
30,694
66,856
361,978 $
4,780 $
900
131
141
3
47
246
—
1
—
—
—
93
21
18
—
—
—
29
—
—
816
(37)
(21)
(9)
(62)
236
139
—
115
—
—
363
89
21
18,261 $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
1,706 $
1,232
1,183
3,193
722
778
1,928
2,034
—
188
365
5,992
742
2,981
550
447
568
568
2,970
—
203
3,182
804
943
338
1,005
2,503
552
774
3,736
2,608
5,208
1,042
1,570
8,267
103,604 $
5,379 $
4,675
6,499
8,967
4,593
4,271
7,558
6,820
1
1,054
1,941
4,527
2,010
3,941
2,517
1,537
929
936
4,745
1,109
376
6,176
1,988
2,946
1,932
2,803
2,957
3,419
5,384
6,043
9,426
12,879
5,530
30,783
66,877
378,499 $
7,085
5,907
7,682
12,160
5,315
5,049
9,486
8,854
1
1,242
2,306
10,519
2,752
6,922
3,067
1,984
1,497
1,504
7,715
1,109
579
9,358
2,792
3,889
2,270
3,808
5,460
3,971
6,158
9,779
12,034
18,087
6,572
32,353
75,144
482,103
Property Name
Columbia Fire Station
Chesapeake Square
$
Sunshine Plaza
Barnett Portfolio
Grove Park
Parkway Plaza
Fort Howard Square
Conyers Crossing
LBP Vauxhall
Darien Shopping Center
Devine Street
Folly Road
Georgetown
Ladson Crossing
Lake Greenwood Crossing
Lake Murray
Litchfield I
Litchfield II
Litchfield Market Village
Moncks Corner
Ridgeland
Shoppes at Myrtle Park
South Lake
South Park
St. Matthews
Berkley
Sangaree
Tri-County
Riverbridge
Laburnum Square
Franklin Village
Village at Martinsville
New Market Crossing
Rivergate Shopping Center
JANAF
Totals
$
(1) Includes impairment charge described in Note 3 of the consolidated audited financial statements.
120
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Schedule III-Real Estate and Accumulated Depreciation
Property Name
Encumbrances
Accumulated
Depreciation
Date of
Construction
Date
Acquired
Depreciation
Life
Amscot Building
Lumber River Village
Perimeter Square
Riversedge North
Surrey Plaza
The Shoppes at TJ Maxx
Twin City Commons
Walnut Hill Plaza
Tampa Festival
Forrest Gallery
Jenks Plaza
Winslow Plaza
Clover Plaza
St. George Plaza
South Square
Westland Square
Waterway Plaza
Cypress Shopping Center
Harrodsburg Marketplace
Port Crossing Shopping Center
LaGrange Marketplace
DF I-Courtland (undeveloped land)
Edenton Commons (undeveloped land)
DF I-Moyock (undeveloped land)
Freeway Junction
Graystone Crossing
Bryan Station
Crockett Square
Harbor Pointe (undeveloped land)
DF I-Berkley (undeveloped land)
Pierpont Centre
Brook Run Properties (undeveloped land)
Alex City Marketplace
Butler Square
Brook Run Shopping Center
Beaver Ruin Village
Beaver Ruin Village II
Columbia Fire Station
Chesapeake Square
Sunshine Plaza
$
(in thousands)
(3)
(5) $
1,448
6,497
1,800
(5)
(3)
(5)
5,539
3,048
3,868
8,227
8,529
(5)
(3)
(5)
4,620
2,018
2,544
2,072
2,644
2,589
6,379
3,486
6,150
(6)
73
7,863
3,863
4,472
6,338
460
8,113
5,750
5,640
10,950
(5)
(5)
(5)
(5)
(5)
(5)
(5)
(4)
(4)
(5)
4,189
4,434
5,900
121
216
879
1,079
1,432
436
1,617
590
1,928
1,377
1,552
207
784
176
198
252
249
189
606
356
1,438
457
—
—
—
955
302
378
950
—
—
1,174
—
1,001
687
2,598
870
280
73
660
690
5/15/2004
4/17/2008
8/31/2018
11/16/2012
11/16/2012
12/21/2012
12/21/2012
11/16/2012
12/18/2012
12/14/2007
8/26/2013
8/29/2013
12/17/2013
12/19/2013
12/23/2013
12/23/2013
12/23/2013
12/23/2013
12/23/2013
7/1/2014
7/1/2014
7/3/2014
7/25/2014
8/15/2014
8/15/2014
8/15/2014
9/4/2014
9/26/2014
10/2/2014
11/5/2014
11/21/2014
12/1/2014
1/14/2015
3/27/2015
4/1/2015
4/15/2015
6/2/2015
7/1/2015
7/1/2015
7/1/2015
7/10/2015
7/21/2015
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
N/A
N/A
N/A
5-40 years
5-40 years
5-40 years
5-40 years
N/A
N/A
5-40 years
N/A
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
Property Name
Barnett Portfolio
Grove Park
Parkway Plaza
Fort Howard Square
Conyers Crossing
Darien Shopping Center
Devine Street
Folly Road
Georgetown
Ladson Crossing
Lake Greenwood Crossing
Lake Murray
Litchfield I
Litchfield II
Litchfield Market Village
Moncks Corner
Ridgeland
Shoppes at Myrtle Park
South Lake
South Park
St. Matthews
Berkley
Sangaree
Tri-County
Riverbridge
Laburnum Square
Franklin Village
Village at Martinsville
New Market Crossing
Rivergate Shopping Center
JANAF
Totals
Encumbrances
Accumulated
Depreciation
Date of
Construction
Date
Acquired
Depreciation
Life
1,055
585
440
724
891
90
148
357
156
328
202
155
93
106
414
94
38
466
158
220
138
191
319
325
384
403
574
888
342
1,833
1,946
40,699
8/21/2015
9/9/2015
9/15/2015
9/30/2015
9/30/2015
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
4/12/2016
11/10/2016
11/10/2016
11/10/2016
11/15/2016
12/7/2016
12/12/2016
12/16/2016
12/20/2016
12/21/2016
1/18/2018
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
5-40 years
$
(in thousands)
$
8,770
3,800
3,500
7,100
5,960
(1)
(1)
6,073
(6)
(7)
(7)
(1)
(1)
(1)
(1)
(1)
(6)
(1)
(1)
(7)
(1)
(2)
(2)
(2)
4,000
(1)
8,516
(1)
6,907
22,117
63,818
$
122
(1) Properties secure a $52.1 million mortgage note.
(2) Properties secure a $9.4 million mortgage note.
(3) These properties secure a $3.0 million bank line of credit.
(4) Properties secure a $9.4 million mortgage note.
(5) Properties secure the $1.1 million Revere Term Loan.
(6) Properties secure a $5.74 million mortgage note.
(7) Properties secure a $7.60 million mortgage note.
Balance at beginning of period
Additions during the period:
Acquisitions
Improvements
Impairments
Disposals
Balance at end of period
2018
2017
(in thousands)
415,379
$
409,585
75,123
5,567
(3,938 )
(10,028 )
482,103
$
—
7,367
—
(1,573)
415,379
$
$
123
Item 16. Form 10-K Summary.
Not applicable.
EXHIBIT INDEX
Exhibit
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
10.1
10.2
10.3
10.4
10.5
Articles of Amendment and Restatement of the Registrant. (1)
Articles of Supplementary of the Registrant dated September 16, 2016. (15)
Articles of Supplementary of the Registrant dated December 1, 2016. (17)
Articles of Amendment and Restatement, effective March 31, 2017 (18)
Articles of Amendment and Restatement, effective March 31, 2017 (18)
Amended and Restated Bylaws of Registrant (2)
Certificate of Correction of Articles Supplementary (30)
Form of Certificate of Common Stock of Registrant (18)
Form of Certificate of Series B Preferred Stock of Registrant (3)
Form of Certificate of Series D Preferred Stock of the Registrant (15)
Form of Warrant Certificate of Registrant (3)
Form of Warrant Agreement for December 2013/January 2014 Private Placement Offering (4)
Form of Warrant Agreement with Revere High Yield Fund, LP. (11)
Calapasas West Partners, L.P. Amended Convertible Promissory Note. (12)
Full Value Partners, L.P. Amended Convertible Promissory Note. (12)
Full Value Special Situations Fund, L.P. Amended Convertible Promissory Note. (12)
MCM Opportunity Partners, L.P. Amended Convertible Promissory Note. (12)
Mercury Partners, L.P. Amended Convertible Promissory Note. (12)
Opportunity Partners, L.P. Amended Convertible Promissory Note. (12)
Special Opportunities Fund, Inc. Amended Convertible Promissory Note. (12)
Steady Gain Partners, L.P. Amended Convertible Promissory Note. (12)
Warrant Agreement by and among the Registrant, Computershare, Inc. and Computershare Trust Company,N.A. (3)
Amended and Restated Agreement of Limited Partnership of Wheeler REIT, L.P. (5)
Amendment to the Amended and Restated Agreement of Limited Partnership of Wheeler REIT, L.P. Designation of
Series A Convertible Preferred Units. (6)
Amendment to the Amended and Restated Agreement of Limited Partnership of Wheeler REIT, L.P. Amended
Designation of Series B Convertible Preferred Units. (16)
Amendment to the Amended and Restated Agreement of Limited Partnership of Wheeler REIT, L.P. Designation of
Series D Cumulative Convertible Preferred Units. (15)
Amendment to the Amended and Restated Agreement of Limited Partnership of Wheeler REIT, L.P. Amended
Designation of Additional Series D Cumulative Convertible Preferred Units. (17)
10.6
Wheeler Real Estate Investment Trust, Inc. 2015 Long-Term Incentive Plan (7)
124
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
Wheeler Real Estate Investment Trust, Inc. 2016 Long-Term Incentive Plan (14)
Employment Agreement with Jon S. Wheeler (10)
Employment Agreement with Wilkes Graham (10)
Employment Agreement with David Kelly (22)
Employment Agreement with Matthew Reddy (22)
Employment Agreement with M. Andrew Franklin (22)
Tax Protection Agreement dated October 24, 2014, by and among Jon S. Wheeler, Wheeler REIT, L.P., and
Wheeler Real Estate Investment Trust, Inc. (8)
Shareholders Rights Agreement, dated March 19, 2015, by and between Wheeler Real Estate Investment Trust, Inc.
and Westport Capital Partners LLC as agent on behalf of certain investor. (9)
Board Observer Rights Agreement, dated March 19, 2015, by and between Wheeler Real Estate Investment Trust,
Inc. and MFP Investors, LLC. (9)
Letter Agreement, dated March 19, 2015, by and between Wheeler Real Estate Investment Trust, Inc. and Jon S.
Wheeler. (9)
Term Loan Agreement by and between Wheeler REIT, LP and Revere High Yield Fund, LP dated April 8, 2016.
(11)
First Amendment by and between Wheeler REIT, LP and Revere High Yield Fund, LP dated August 25, 2017. (25)
Second Amendment by and between Wheeler REIT, LP and Revere High Yield Fund, LP dated May 14, 2018. (25)
Third Amendment by and between Wheeler REIT, LP and Revere High Yield Fund, LP dated September 26, 2018.
(26)
Fourth Amendment by and between Wheeler REIT, LP and Revere High Yield Fund, LP dated November 5, 2018.
(26)
Fifth Amendment by and between Wheeler REIT, LP and Revere High Yield Fund, LP dated November 5, 2018.
(31)
Sixth Amendment by and between Wheeler REIT, LP and Revere High Yield Fund, LP dated January 29, 2019. (31)
Borrower's Certification Regarding Loan Extension and Guarantor's Reaffirmation of Obligation as Lender Guaranty
by and between Wheeler REIT, LP and Revere High Yield Fund, LP dated May 3, 2018. (25)
Tax Protection Agreement dated February 8, 2017 (13)
Amended and Restated Credit Agreement dated December 21, 2017. (19)
Keybank Letter Agreement Amendment to the Amended and Restated Credit Agreement dated March 2, 2018. (27)
KeyBank Letter Amendment to the Amended and Restated Credit Agreement dated August 7, 2018. (28)
KeyBank Letter Amendment to the Amended and Restated Credit Agreement dated October 15, 2018. (29)
Purchase and Sale Agreement dated November 3, 2016 between WHLR-JANAF, LLC, JANAF Shopping Center,
LLC, JANAF Shops, LLC, JANAF HQ, LLC, and JANAF Crossing, LLC. (20)
First Amendment to JANAF Purchase and Sale Agreement, dated December 2, 2016. (20)
Second Amendment to JANAF Purchase and Sale Agreement, dated January 6, 2017. (20)
Third Amendment to JANAF Purchase and Sale Agreement, dated January 9, 2017. (20)
Fourth Amendment to JANAF Purchase and Sale Agreement, dated January 11, 2017. (20)
125
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
14.1
21.1
23.1
31.1
31.2
32.1
32.2
Fifth Amendment to JANAF Purchase and Sale Agreement, dated January 13, 2017. (20)
Sixth Amendment to JANAF Purchase and Sale Agreement, dated February 3, 2017. (20)
Seventh Amendment to JANAF Purchase and Sale Agreement, dated March 6, 2017. (20)
Eighth Amendment to JANAF Purchase and Sale Agreement, dated March 7, 2017. (20)
Ninth Amendment to JANAF Purchase and Sale Agreement, dated March 8, 2017. (20)
Tenth Amendment to JANAF Purchase and Sale Agreement, dated June 9, 2017. (20)
Eleventh Amendment to JANAF Purchase and Sale Agreement, dated October 17, 2017. (20)
Twelfth Amendment to JANAF Purchase and Sale Agreement, dated November 9, 2017. (20)
Thirteenth Amendment to JANAF Purchase and Sale Agreement, dated November 30, 2017. (20)
Fourteenth Amendment to JANAF Purchase and Sale Agreement, dated December 19, 2017. (20)
Fifteenth Amendment to JANAF Purchase and Sale Agreement, dated January 17, 2018 (23)
JANAF Loan Agreement dated June 5, 2013. (21)
Code of Ethics (24)
Subsidiaries of Registrant (31)
Consent of Cherry Bekaert LLP (31)
Certification of the Chief Executive Officer of Wheeler Real Estate Investment Trust, Inc. pursuant to Rule 13a-14
of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (31)
Certification of the Chief Financial Officer of Wheeler Real Estate Investment Trust, Inc. pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (31)
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (31)
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (31)
101.INS
XBRL
Instance Document (31)
101.SCH XBRL Taxonomy Extension Schema Document (31)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase (31)
101.DEF
XBRL Taxonomy Extension Definition Linkbase (31)
101.LAB
XBRL Taxonomy Extension Labels Linkbase (31)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase (31)
(1)
(2)
(3)
(4)
Filed as an exhibit to the Registrant's report on Form 8-K, filed on August 8, 2016 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Registration Statement on Form S-11/A (Registration No. 333-177262) previously filed on
February 14, 2012 pursuant to the Securities Act of 1933 and hereby incorporated by reference.
Filed as an exhibit to the Registrant's Registration Statement on Form S-11/A (Registration No. 333-194831) previously filed on
April 23, 2014 pursuant to the Securities Act of 1933 and hereby incorporated by reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on December 18, 2013 and hereby incorporated by
reference.
126
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
Filed as an exhibit to the Registrant's Registration Statement on Form S-11 (Registration No. 333-198245) previously filed on
August 20, 2014 pursuant to the Securities Act of 1933 and hereby incorporated by reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on April 15, 2015 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on June 8, 2015 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's report on Form 8-K, filed on October 30, 2014 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on March 19, 2015 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on March 16, 2016 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on April 12, 2016 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on January 4, 2019 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on February 10, 2017 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on June 16, 2016 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on September 20, 2016 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on July 15, 2016 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on December 5, 2016 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on April 3, 2017 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on December 22, 2017 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on January 9, 2018 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on January 23, 2018 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on February 20, 2018 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 10-K, filed on March 7, 2018 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form S-11 (Registration No. 333-177262) previously filed on October 12, 2011
pursuant to the Securities Act of 1933 and hereby incorporated by reference.
Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on May 17, 2018 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 10-Q, filed on November 7, 2018 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on March 7, 2018 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on August 8, 2018 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K/A, filed on October 19, 2018 and hereby incorporated by
reference.
Filed as an exhibit to the Registrant's Report on Form 8-K, filed on May 4, 2018 and hereby incorporated by
reference.
Filed
herewith.
127
FIFTH AMENDMENT TO LOAN DOCUMENTS
Exhibit 10.22
THIS FIFTH AMENDMENT TO LOAN DOCUMENTS (the "Agreement") made effective as of the 21
day of November, 2018 (the "Effective Date"), between REVERE HIGH YIELD FUND, LP, a Delaware limited
partnership having an address of 2000 McKinney Avenue, Suite 2125, Dallas, Texas 75201, (the "Lender"),
WHEELER REIT, L.P., a Virginia limited partnership having an office and place of business located at 2529 Virginia
Beach Boulevard, Virginia Beach, Virginia 23452 (the "Borrower") and WHEELER REAL ESTATE
INVESTMENT TRUST, INC., a Maryland corporation located at 2529 Virginia Beach Boulevard, Virginia Beach,
Virginia 23452 on behalf of itself and on behalf of guarantors listed on Exhibit A hereto (herein together with
successors and assigns, the "Guarantor"). By execution of this Agreement, Guarantor agrees and consents to be
bound by all of the terms set forth herein.
WITNESSETH:
WHEREAS, Lender made a loan to Borrower (the "Loan") in the original principal amount of EIGHT
MILLION AND 00/100 DOLLARS ($8,000,000.00), which Loan is evidenced by a Term Note in the amount of
EIGHT MILLION AND 00/100 DOLLARS ($8,000,000.00) from Borrower to Lender dated as of April 8, 2016 (the
"Note ");
WHEREAS, the Note was executed in connection with and secured by, among other things, (i) that certain
Term Loan and Security Agreement dated as of April 8, 2016 by and between Borrower and Lender (the "Loan
Agreement"); (ii) the Guaranty; (iii) the Mortgage; (iv) the Environmental Indemnity; and (viii) all other loan
documents executed by Borrower in favor of Lender in connection with the Loan (all of the foregoing subparagraphs (i)
through (viii), as from time to time thereafter amended or modified, collectively, the "Loan Documents");
WHEREAS, Borrower has requested Lender release: (i) that certain Deed of Trust, Assignment of Leases and
Rents, Security Agreement and Fixture Filing dated April 8, 2016 encumbering 2529 Virginia Beach Boulevard,
Virginia Beach, Virginia, which deed of trust was recorded in the Clerk's Office of the City of Virginia Beach, Virginia
on April 18, 2016, Instrument No.20160418000311390, from Riversedge Office Associates, LLC in favor of Lender;
(the "Released Mortgage");
WHEREAS, all terms defined in the Loan Agreement are used herein with their defined meanings unless
otherwise provided;
WHEREAS, Borrower and Lender are mutually desirous of making certain changes to the Loan Documents as
set forth below; and
NOW, THEREFORE, in consideration of One ($1.00) Dollar and other valuable consideration, each to the
other in hand paid, receipt thereof being hereby acknowledged, and in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
1.
2.
3.
4.
5.
6.
7.
8.
The above recitals are true and correct and are incorporated into this Agreement.
As of the date hereof, the outstanding principal balance of the Loan is $1,158,936.77.
Simultaneously with the execution of this Agreement, Borrower shall deliver, or cause to be delivered, to
Lender the prepayment in full of the Exit Fee of $575,000.00 (the “Exit Fee Payment”). Borrower should also
deliver to Rogin Nassau LLC $1,000.00 in immediately available funds on account of legal fees incurred in the
preparation of this Agreement (the "Legal Fees") Upon receipt of the Exit Fee Payment by Lender and Rogin
Nassau LLC's receipt of the Legal Fees, Lender shall cause an original, executed release of the Released
Mortgage to be delivered to Borrower or its designee for recording.
All of the other terms and conditions of the Loan Documents shall remain the same and in full force and effect,
except as specifically amended herein. Borrower hereby reaffirms the Note, the Mortgage, the Loan Agreement
and the other Loan Documents, and acknowledges that Borrower has no setoffs, counterclaims or defenses to
any of the Loan Documents.
Any default by Borrower in any of the covenants herein made shall, at the option of Lender, or its successors
and assigns, constitute an Event of Default under the Loan Documents entitling Lender, or its successors or
assigns, to any or all of the other remedies it or they may have thereunder.
All of the remaining Borrower Collateral (as defined in the Loan Agreement) and the remaining Collateral (as
defined in the Mortgage) shall remain in all respects subject to the lien, charge and encumbrance of the Loan
Agreement and Mortgage, as the case may be, and nothing herein contained and nothing done pursuant hereto,
shall affect or be construed to affect the lien, charge or encumbrance of the Loan Agreement and Mortgage, as
the case may be or the priority thereof over all liens, charges or encumbrances, except as expressly provided
herein.
This Agreement shall be binding upon Borrower and any subsequent owner of the remaining Collateral or any
part thereof (provided, however, that any provisions against sale or transfer contained in the Mortgage shall
remain in full force and effect) and shall be binding and inure to the benefit of Lender, its successors and
assigns, including any subsequent holder of the Mortgage or the Loan Documents.
BORROWER, AND ANY SUBSEQUENT ENDORSER, GUARANTOR OR OTHER ACCOMMODATION
MAKER, EACH HEREBY WAIVE PRESENTMENT, DEMAND FOR PAYMENT AND NOTICE OF
DISHONOR, TOGETHER WITH ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION WITH RESPECT
TO THE NOTE, THE MORTGAGE, THE LOAN AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THIS AGREEMENT AND AS TO ANY ISSUES ARISING RELATING TO THE
NOTE, THE MORTGAGE, THE LOAN AGREEMENT, THE OTHER LOAN DOCUMENTS OR THIS
AGREEMENT.
9.
1.
2.
P.
All of the other terms and conditions of Guaranty and Environmental Indemnity shall remain the same and in
full force and effect, except as specifically amended herein. Each Guarantor hereby consents to the terms of this
Agreement and reaffirm his obligations under Guaranty and the Environmental Indemnity, agree that such
Guaranty and Environmental Indemnity continue to be binding and enforceable obligations of the Guarantor,
and acknowledge that Borrower has no setoffs, counterclaims or defenses to any of the Guaranty or
Environmental Indemnity.
This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute but one and the same Agreement.
This Agreement shall be governed and construed by and interpreted in accordance with the laws of the State of
Virginia, without regard to conflict of law provisions thereof
As a material inducement to Lender to enter into this Agreement, Borrower and Guarantor hereby acknowledge,
admit, and agree that, as of the date hereof, there exist no rights of offset, defense, counterclaim, claim, or
objection in favor of Borrower or Guarantor against Lender with respect to the Note, the Loan Agreement or
any of the other Loan Documents, or alternatively, that any and all such rights of offset, defense, counterclaim,
claim, or objection which they may have or claim, of any nature whatsoever, whether known or unknown, are
hereby expressly and irrevocably waived and released. Borrower and Guarantor hereby release and forever
discharge Lender, its directors, officers, employees, administrators, subsidiaries, affiliates, attorneys, agents,
successors, and assigns from any and all rights, claims, demands, actions, causes of action, suits, proceedings,
agreements, contracts, judgments, damages, debts, costs, expenses, promises, agreements, duties, liabilities, or
obligations, whether in law or in equity, known or unknown, choate or inchoate, which they had, now have, or
hereafter may have, arising under or in any manner relating to, whether directly or indirectly, the Note, the Loan
Agreement, any other Loan Document or any transaction contemplated by any Loan Document or this
Agreement, from the beginning of time until the date of full execution and delivery hereof.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed, sealed and delivered
the day and year first above written.
LENDER:
REVERE HIGH YIELD FUND, LP,
a Delaware limited partnership
By: Revere GP, LP, its General Partner
By: Revere Capital Corp.
Its: General Partner
By: /s/ Clark Briner
Name: Clark Briner
Its: Sole Shareholder
BORROWER:
WHEELER REIT, L.P., a Virginia limited partnership
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
By: Its general partner
By: /s/ David Kelly
David Kelly
its Chief Executive Officer
GUARANTOR:
WHEELER REAL ESTATE INVESTMENT TRUST, INC., a
Maryland corporation
By: /s/ David Kelly
David Kelly
Chief Executive Officer
SIGNATURE PAGE TO FIFTH AMENDMENT TO LOAN DOCUMENTS
HARBOR POINT ASSOCIATES, LLC, a Virginia limited liability company
by: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
by: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
its general partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
NORTHPOINTE INVESTORS, LLC, a Virginia limited liability company
by: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
by: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
its general partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
SIGNATURE PAGE TO FIFTH AMENDMENT TO LOAN DOCUMENTS
RIVERSEDGE OFFICE ASSOCIATES, LLC, a Virginia limited liability company
by: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
by: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
its general partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
SIGNATURE PAGE TO FIFTH AMENDMENT TO LOAN DOCUMENTS
SURREY PLAZA ASSOCIATES, LLC, a Virginia limited liability company
by: Wheeler REIT, L.P,
a Virginia limited partnership,
its sole member and its member manager
by: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
its general partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
SIGNATURE PAGE TO FIFTH AMENDMENT TO LOAN DOCUMENTS
JENKS PLAZA ASSOCIATES, LLC, a Virginia limited liability company
by: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
by: Wheeler Real Estate Investment Trust, Inc,
a Maryland corporation,
its general partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
SIGNATURE PAGE TO FIFTH AMENDMENT TO LOAN DOCUMENTS
DF I-COURTLAND, LLC,
a Virginia limited liability company
by: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
by: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
its general partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
DF I-MOYOCK II, LLC,
a Virginia limited liability company
by: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
by: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
its general partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
SIGNATURE PAGE TO FIFTH AMENDMENT TO LOAN DOCUMENTS
WD-III ASSOCIATES, LLC, a Virginia limited liability company
by: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
by: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
its general partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
WHLR-BERKLEY, LLC, a Virginia limited liability company
by: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
by: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
its general partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
SIGNATURE PAGE TO FIFTH AMENDMENT TO LOAN DOCUMENTS
LUMBER RIVER ASSOCIATES, LLC a Virginia limited partnership
By: Lumber River Management, LLC, a Virginia limited
partnership
Its: Managing Member
By: Wheeler REIT, L.P., a Virginia limited partnership Its: Sole Member
By: Wheeler Real Estate Investment Trust, Inc., a
Maryland corporation
Its: General Partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
SIGNATURE PAGE TO FIFTH AMENDMENT TO LOAN DOCUMENTS
TUCKERNUCK ASSOCIATES, LLC, a Virginia limited liability company
by: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
by: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
its general partner
By /s/ David Kelly
David Kelly
its Chief Executive Officer
WHLR-BROOK RUN PROPERTY, LLC, a Virginia limited liability company
By /s/ David Kelly
David Kelly its Manager
SIGNATURE PAGE TO FIFTH AMENDMENT TO LOAN DOCUMENTS
SIXTH AMENDMENT TO LOAN DOCUMENTS
Exhibit 10.23
THIS SIXTH AMENDMENT TO LOAN DOCUMENTS (the "Agreement") made effective as of the day
of January 29, 2019 (the "Effective Date"), between REVERE HIGH YIELD FUND, LP, a Delaware limited
partnership having an address of 2000 McKinney Avenue, Suite 2125, Dallas, Texas 75201, (the "Lender"),
WHEELER REIT, L.P., a Virginia limited partnership having an office and place of business located at 2529 Virginia
Beach Boulevard, Virginia Beach, Virginia 23452 (the "Borrower") a n d WHEELER REAL ESTATE
INVESTMENT TRUST, INC., a Maryland corporation located at 2529 Virginia Beach Boulevard, Virginia Beach,
Virginia 23452 on behalf of itself and on behalf of guarantors listed on Exhibit A hereto (herein together with
successors and assigns, the "Guarantor"). By execution of this Agreement, Guarantor agrees and consents to be
bound by all of the terms set forth herein.
WITNESSETH:
WHEREAS, Lender made a loan to Borrower (the "Loan") in the original principal amount of EIGHT
MILLION AND 00/100 DOLLARS ($8,000,000.00), which Loan is evidenced by a Term Note in the amount of
EIGHT MILLION AND 00/100 DOLLARS ($8,000,000.00) from Borrower to Lender dated as of April 8, 2016 (the
"Note ");
WHEREAS, the Note was executed in connection with and secured by, among other things, (i) that certain
Term Loan and Security Agreement dated as of April 8, 2016 by and between Borrower and Lender (the "Loan
Agreement"); (ii) the Guaranty; (iii) the Mortgage; (iv) the Environmental Indemnity; and (viii) all other loan
documents executed by Borrower in favor of Lender in connection with the Loan (all of the foregoing subparagraphs (i)
through (viii), as from time to time thereafter amended or modified, collectively, the "Loan Documents");
WHEREAS, Borrower has requested that Lender extend the Maturity Date (as defined in the Loan Agreement)
to April 1, 2019;
WHEREAS, all terms defined in the Loan Agreement are used herein with their defined meanings unless
otherwise provided;
WHEREAS, Borrower and Lender are mutually desirous of making certain changes to the Loan Documents as
set forth below; and
NOW, THEREFORE, in consideration of One ($1.00) Dollar and other valuable consideration, each to the
other in hand paid, receipt thereof being hereby acknowledged, and in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
1.
The above recitals are true and correct and are incorporated into this Agreement.
2.
3.
4.
5.
6.
7.
8.
9.
As of the date hereof, the outstanding principal balance of the Loan is $635,958.02.
The first sentence of Section 2.03 of the Loan Agreement is hereby deleted in its entirety and replaced with the
following: “The Maturity Date of the Term Loan is April 1, 2019”
As consideration for Lender’s agreement to extend the Maturity Date to April 1, 2019, Borrower shall be
obligated to pay Lender no later than the Maturity Date an extension fee of $20,000.00 ( the “Extension Fee”),
which Extension Fee has been fully earned as of the date hereof, and Borrower shall, simultaneously with the
execution of this Agreement, deliver, or cause to be delivered to Rogin Nassau LLC, $1,000.00 in immediately
available funds on account of legal fees incurred in the preparation of this Agreement ("Legal Fees").
Upon payment of the Legal Fees simultaneously with the execution of this Agreement, and contingent upon
Lender’s receipt of the interest and principal payments due on the Loan on February 1, 2019, the Maturity Date
(as defined in the Loan Agreement) shall be extended to April 1, 2019.
All of the other terms and conditions of the Loan Documents shall remain the same and in full force and effect,
except as specifically amended herein. Borrower hereby reaffirms the Note, the Mortgage, the Loan
Agreement and the other Loan Documents, and acknowledges that Borrower has no setoffs,
counterclaims or defenses to any of the Loan Documents.
Any default by Borrower in any of the covenants herein made shall, at the option of Lender, or its successors
and assigns, constitute an Event of Default under the Loan Documents entitling Lender, or its successors or
assigns, to any or all of the other remedies it or they may have thereunder.
All of the remaining Borrower Collateral (as defined in the Loan Agreement) and the remaining Collateral (as
defined in the Mortgage) shall remain in all respects subject to the lien, charge and encumbrance of the Loan
Agreement and Mortgage, as the case may be, and nothing herein contained and nothing done pursuant hereto,
shall affect or be construed to affect the lien, charge or encumbrance of the Loan Agreement and Mortgage, as
the case may be or the priority thereof over all liens, charges or encumbrances, except as expressly provided
herein.
This Agreement shall be binding upon Borrower and any subsequent owner of the remaining Collateral or any
part thereof (provided, however, that any provisions against sale or transfer contained in the Mortgage shall
remain in full force and effect) and shall be binding and inure to the benefit of Lender, its successors and
assigns, including any subsequent holder of the Mortgage or the Loan Documents.
10.
BORROWER, AND ANY SUBSEQUENT ENDORSER, GUARANTOR OR OTHER ACCOMMODATION
MAKER, EACH HEREBY WAIVE PRESENTMENT, DEMAND FOR PAYMENT AND NOTICE OF
DISHONOR, TOGETHER WITH ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION WITH RESPECT TO THE NOTE, THE MORTGAGE, THE LOAN
AGREEMENT, THE OTHER LOAN DOCUMENTS OR THIS AGREEMENT AND AS TO ANY ISSUES
ARISING RELATING TO THE
NOTE, THE MORTGAGE, THE LOAN AGREEMENT, THE OTHER LOAN DOCUMENTS OR THIS
AGREEMENT.
11. All of the other terms and conditions of Guaranty and Environmental Indemnity shall remain the same and in
full force and effect, except as specifically amended herein. Each Guarantor hereby consents to the terms of this
Agreement and reaffirm his obligations under Guaranty and the Environmental Indemnity, agree that such
Guaranty and Environmental Indemnity continue to be binding and enforceable obligations of the Guarantor,
and acknowledge that Borrower has no setoffs, counterclaims or defenses to any of the Guaranty or
Environmental Indemnity.
12. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute but one and the same Agreement.
13.
14.
This Agreement shall be governed and construed by and interpreted in accordance with the laws of the State of
Virginia, without regard to conflict of law provisions thereof
As a material inducement to Lender to enter into this Agreement, Borrower and Guarantor hereby acknowledge,
admit, and agree that, as of the date hereof, there exist no rights of offset, defense, counterclaim, claim, or
objection in favor of Borrower or Guarantor against Lender with respect to the Note, the Loan Agreement or
any of the other Loan Documents, or alternatively, that any and all such rights of offset, defense, counterclaim,
claim, or objection which they may have or claim, of any nature whatsoever, whether known or unknown, are
hereby expressly and irrevocably waived and released. Borrower and Guarantor hereby release and forever
discharge Lender, its directors, officers, employees, administrators, subsidiaries, affiliates, attorneys, agents,
successors, and assigns from any and all rights, claims, demands, actions, causes of action, suits, proceedings,
agreements, contracts, judgments, damages, debts, costs, expenses, promises, agreements, duties, liabilities, or
obligations, whether in law or in equity, known or unknown, choate or inchoate, which they had, now have, or
hereafter may have, arising under or in any manner relating to, whether directly or indirectly, the Note, the Loan
Agreement, any other Loan Document or any transaction contemplated by any Loan Document or this
Agreement, from the beginning of time until the date of full execution and delivery hereof.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed, sealed and delivered
the day and year first above written.
LENDER:
REVERE HIGH YIELD FUND, LP,
a Delaware limited partnership
By: Revere GP, LP, its General Partner
By: Revere Capital Corp.
Its: General Partner
By: /s/ Clark Briner
Name: Clark Briner
Its: Sole Shareholder
BORROWER:
WHEELER REIT, L.P., a Virginia limited partnership
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation,
By: Its General Partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
GUARANTOR:
WHEELER REAL ESTATE INVESTMENT TRUST, INC ., a
Maryland corporation
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
SIGNATURE PAGE TO SIXTH AMENDMENT TO LOAN DOCUMENTS
HARBOR POINT ASSOCIATES, LLC, a Virginia limited liability company
By: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation, its general partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
NORTHPOINTE INVESTORS, LLC, a Virginia limited liability company
By: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation, its general partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
SIGNATURE PAGE TO SIXTH AMENDMENT TO LOAN DOCUMENTS
RIVERSEDGE OFFICE ASSOCIATES, LLC, a Virginia limited liability company
By: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation, its general partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
SIGNATURE PAGE TO SIXTH AMENDMENT TO LOAN DOCUMENTS
SURREY PLAZA ASSOCIATES, LLC, a Virginia limited liability company
By: Wheeler REIT, L.P,
a Virginia limited partnership,
its sole member and its member manager
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation, its general partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
SIGNATURE PAGE TO SIXTH AMENDMENT TO LOAN DOCUMENTS
DF I-COURTLAND, LLC,
a Virginia limited liability company
By: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation, its general partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
DF I-MOYOCK II, LLC,
a Virginia limited liability company
By: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation, its general partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
SIGNATURE PAGE TO SIXTH AMENDMENT TO LOAN DOCUMENTS
WD-III ASSOCIATES, LLC, a Virginia limited liability company
By: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation, its general partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
WHLR-BERKLEY, LLC, a Virginia limited liability company
By: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation, its general partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
SIGNATURE PAGE TO SIXTH AMENDMENT TO LOAN DOCUMENTS
LUMBER RIVER ASSOCIATES, LLC a Virginia limited partnership
By: Lumber River Management, LLC, a Virginia limited
partnership
Its: Managing Member
By: Wheeler REIT, L.P., a Virginia limited partnership Its: Sole Member
By: Wheeler Real Estate Investment Trust, Inc., a
Maryland corporation
Its: General Partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
SIGNATURE PAGE TO SIXTH AMENDMENT TO LOAN DOCUMENTS
TUCKERNUCK ASSOCIATES, LLC, a Virginia limited liability company
By: Wheeler REIT, L.P.,
a Virginia limited partnership,
its sole member and its member manager
By: Wheeler Real Estate Investment Trust, Inc.,
a Maryland corporation, its general partner
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
WHLR-BROOK RUN PROPERTY, LLC, a Virginia limited liability company
By: /s/ David Kelly
David Kelly
Its Chief Executive Officer
SIGNATURE PAGE TO SIXTH AMENDMENT TO LOAN DOCUMENTS
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21.1
Wheeler Development, LLC
Wheeler Interests, LLC,
Wheeler Real Estate, LLC
WHLR Management, LLC
Brook Run Associates, LLC
Chesapeake Square Associates, LLC
DF I - Courtland, LLC
DF I - Moyock II, LLC
Harbor Point Associates, LLC
LaGrange Associates, LLC
Lumber River Associates, LLC
Northpointe Investors, LLC
PCSC Associates, LLC
Perimeter Associates, LLC
Riversedge Office Associates, LLC
Tuckernuck Associates, LLC
Walnut Hill Plaza Associates, LLC
WD III Associates, LLC
WHLR - Alex City Marketplace, LLC
WHLR - Beaver Ruin Village II, LLC
WHLR - Beaver Ruin Village, LLC
WHLR - Brook Run Property, LLC
WHLR - Bryan Station LLC
WHLR - Butler Square, LLC
WHLR - Cardinal Plaza, LLC
WHLR - Carolina Place, LLC
WHLR - Clover LLC
WHLR - Columbia Fire House, LLC
WHLR - Conyers Crossing, LLC
WHLR - Crockett Square, LLC
WHLR - Cypress LLC
WHLR - Darien, LLC
WHLR - Devine Street, LLC
WHLR - Folly Road Crossing, LLC
WHLR - Ft. Howard Square, LLC
WHLR - Franklinton Square, LLC
WHLR - Freeway Junction LLC
WHLR - Georgetown, LLC
WHLR - Grove Park, LLC
WHLR - Harrodsburg Marketplace LLC
WHLR - Ladson Crossing, LLC
WHLR - Lake Greenwood Crossing, LLC
WHLR - Lake Murray, LLC
WHLR - Litchfield Market Village, LLC
WHLR - Moncks Corner, LLC
WHLR - Mullins South Park, LLC
WHLR - Nashville Commons, LLC
WHLR - Parkway Plaza, LLC
WHLR - Pierpont Center, LLC
WHLR - Ridgeland, LLC
WHLR - Shoppes at Myrtle Park, LLC
WHLR - South Lake Pointe, LLC
WHLR - South Square LLC
WHLR - St. George LLC
WHLR - St. Matthews, LLC
WHLR - Sunshine Shopping Plaza, LLC
WHLR - Waterway LLC
WHLR - Westland LLC
WHLR - Winslow LLC
WHLR - Berkley, LLC
WHLR - Forrest Gallery, LLC
Jenks Plaza Associates, LLC
Surrey Plaza Associates, LLC
WHLR - Tampa Festival, LLC
WHLR - Twin City Associates, LLC
WHLR - Graystone Crossing LLC
South Main Street Associates, LLC
P&W SC/GA Properties I, LLC
WHLR - Riverbridge Shopping Center, LLC
WHLR - Rivergate, LLC
WHLR - Franklin Village, LLC
WHLR - Laburnum Square, LLC
WHLR - Village of Martinsville, LLC
WHLR - New Market Crossing, LLC
WHLR - JANAF, LLC
WHLR - JANAF BRAVO, LLC
WHLR - JANAF BJ’s, LLC
WHLR - JANAF OFFICE, LLC
WHLR – Pierpont Center, LLC
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Virginia Beach, Virginia
We hereby consent to the incorporation by reference in the Registration Statements of Wheeler Real Estate Investment Trust, Inc., on Form
S-11 (Nos. 333-189887, 333-194831, 333-195492, 333-198245 and 333-198696), Form S-3 (No. 333-193563, 333-194252, 333-203563,
333-206014, 333-207241, 333-211506, 333-212426, 333-213294, 333-221877 and 333-222971), Form S-4 (No. 333-204957) and Form S-
8 (333-205845 and 333-213102) of our report dated February 28, 2019, relating to the consolidated financial statements and consolidated
financial statement schedules as of December 31, 2018 and 2017 and for each of the years in the three-year period ended December 31,
2018, which appears in the Company’s annual report on Form 10-K.
/s/ Cherry Bekaert LLP
Virginia Beach, Virginia
February 28, 2019
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, David Kelly, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Wheeler Real Estate Investment Trust, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 28, 2019
/s/ David Kelly
David Kelly
Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Matthew Reddy, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Wheeler Real Estate Investment Trust, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 28, 2019
/s/ Matthew T. Reddy
Matthew T. Reddy
Chief Financial Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, David Kelly, Chief Executive Officer of Wheeler Real Estate Investment Trust, Inc. (the “Company”),
certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. The Annual Report on Form 10-K of the Company for the year ended December 31, 2018 (“the Report”) fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
/s/ David Kelly
David Kelly
Chairman and Chief Executive Officer
Date: February 28, 2019
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Matthew Reddy, Chief Financial Officer of Wheeler Real Estate Investment Trust, Inc. (the “Company”),
certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. The Annual Report on Form 10-K of the Company for the year ended December 31, 2018 (“the Report”) fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
/s/ Matthew T. Reddy
Matthew T. Reddy
Chief Financial Officer
Date: February 28, 2019