Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
 
(Mark One)
ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
 ¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-35713
 
WHEELER REAL ESTATE INVESTMENT TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter) 
Maryland
 
45-2681082
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
2529 Virginia Beach Blvd.,
Virginia Beach. Virginia
 
23452
(Address of Principal Executive Offices)
 
(Zip Code)
 (757) 627-9088
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
Non-accelerated filer
 
ý
  
Smaller reporting company
 
ý
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         Yes  ¨    No  ý

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Table of Contents


Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
Name of each exchange on which registered
 Common Stock, $0.01 par value per share
 
WHLR
Nasdaq Capital Market
 Series B Convertible Preferred Stock
 
WHLRP
Nasdaq Capital Market
 Series D Cumulative Convertible Preferred Stock
 
WHLRD
Nasdaq Capital Market

As of August 2, 2019, there were 9,693,271 common shares, $0.01 par value per share, outstanding.

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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries 
 
 
Page
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 

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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except par value and share data)

 
June 30, 2019
 
December 31, 2018
 
(unaudited)
 
 
ASSETS:
 
 
 
Investment properties, net
$
422,506

 
$
436,006

Cash and cash equivalents
3,934

 
3,544

Restricted cash
16,426

 
14,455

Rents and other tenant receivables, net
5,546

 
5,539

Notes receivable, net

 
5,000

Assets held for sale
6,799

 
6,118

Above market lease intangibles, net
6,136

 
7,346

Operating lease right-of-use assets
11,762

 

Deferred costs and other assets, net
25,681

 
30,073

Total Assets
$
498,790

 
$
508,081

LIABILITIES:
 
 
 
Loans payable, net
$
346,558

 
$
360,190

Liabilities associated with assets held for sale
6,850

 
4,520

Below market lease intangibles, net
8,576

 
10,045

Operating lease liabilities
11,937

 

Accounts payable, accrued expenses and other liabilities
10,001

 
12,116

Total Liabilities
383,922

 
386,871

Series D Cumulative Convertible Preferred Stock (no par value, 4,000,000 shares authorized, 3,600,636 shares issued and outstanding; $96.82 million and $91.98 million aggregate liquidation preference, respectively)
82,090

 
76,955

 
 
 
 
EQUITY:
 
 
 
Series A Preferred Stock (no par value, 4,500 shares authorized, 562 shares issued and outstanding)
453

 
453

Series B Convertible Preferred Stock (no par value, 5,000,000 authorized, 1,875,748 shares issued and outstanding; $46.90 million aggregate liquidation preference)
41,044

 
41,000

Common Stock ($0.01 par value, 18,750,000 shares authorized, 9,693,271 and 9,511,464 shares issued and outstanding, respectively)
97

 
95

Additional paid-in capital
233,861

 
233,697

Accumulated deficit
(244,772
)
 
(233,184
)
Total Shareholders’ Equity
30,683

 
42,061

Noncontrolling interests
2,095

 
2,194

Total Equity
32,778

 
44,255

Total Liabilities and Equity
$
498,790

 
$
508,081

See accompanying notes to condensed consolidated financial statements.


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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
REVENUE:
 
 
 
 
 
 
 
Rental revenues
$
15,391

 
$
15,711

 
$
31,161

 
$
31,532

Asset management fees
13

 
47

 
26

 
172

Commissions
5

 
36

 
47

 
50

Other revenues
123

 
1,147

 
293

 
1,480

Total Revenue
15,532

 
16,941

 
31,527

 
33,234

OPERATING EXPENSES:
 
 
 
 
 
 
 
Property operations
4,595

 
4,518

 
9,321

 
9,117

Non-REIT management and leasing services
1

 

 
24

 
36

Depreciation and amortization
5,287

 
7,422

 
11,103

 
14,898

Impairment of notes receivable
5,000

 

 
5,000

 

Impairment of assets held for sale
1,147

 

 
1,147

 

Corporate general & administrative
1,380

 
2,268

 
3,194

 
4,776

Total Operating Expenses
17,410

 
14,208

 
29,789

 
28,827

(Loss) gain on disposal of properties
(331
)
 

 
1,508

 
1,055

Operating (Loss) Income
(2,209
)
 
2,733

 
3,246

 
5,462

Interest income

 
1

 
1

 
2

Interest expense
(4,947
)
 
(5,180
)
 
(9,740
)
 
(9,757
)
Net Loss from Continuing Operations Before Income Taxes
(7,156
)
 
(2,446
)
 
(6,493
)
 
(4,293
)
Income tax expense
(7
)
 
(17
)
 
(15
)
 
(42
)
Net Loss from Continuing Operations
(7,163
)
 
(2,463
)
 
(6,508
)
 
(4,335
)
Income from Discontinued Operations

 
903

 

 
903

Net Loss
(7,163
)
 
(1,560
)
 
(6,508
)
 
(3,432
)
Less: Net loss attributable to noncontrolling interests
(112
)
 
(35
)
 
(99
)
 
(82
)
Net Loss Attributable to Wheeler REIT
(7,051
)
 
(1,525
)
 
(6,409
)
 
(3,350
)
Preferred Stock dividends - declared

 
(3,206
)
 

 
(6,413
)
Preferred Stock dividends - undeclared
(3,658
)
 

 
(7,315
)
 

Net Loss Attributable to Wheeler REIT Common Shareholders
$
(10,709
)
 
$
(4,731
)
 
$
(13,724
)
 
$
(9,763
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss per share from continuing operations (basic and diluted)
$
(1.10
)
 
$
(0.61
)
 
$
(1.42
)
 
$
(1.18
)
Income per share from discontinued operations

 
0.10

 

 
0.10

 
$
(1.10
)
 
$
(0.51
)
 
$
(1.42
)
 
$
(1.08
)
 
 
 
 
 
 
 
 
Weighted-average number of shares:
 
 
 
 
 
 
 
Basic and Diluted
9,693,271

 
9,246,683

 
9,650,000

 
9,074,506

 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.

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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
(in thousands, except share data)
 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A
 
Series B
 
 
 
 
 
 
 
 
 
Noncontrolling
 
 
 
Preferred Stock
 
Preferred Stock
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Total
Shareholders’ Equity
 
Interests
 
Total
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
 
 
 
Units
 
Value
 
Equity
Balance,
December 31, 2018
562

 
$
453

 
1,875,748

 
$
41,000

 
9,511,464

 
$
95

 
$
233,697

 
$
(233,184
)
 
$
42,061

 
235,032

 
$
2,194

 
$
44,255

Accretion of Series B Preferred
  Stock discount

 

 

 
22

 

 

 

 

 
22

 

 

 
22

Issuance of Common Stock
  under Share Incentive Plan

 

 

 

 
181,807

 
2

 
164

 

 
166

 

 

 
166

Dividends and distributions

 

 

 

 

 

 

 
(2,589
)
 
(2,589
)
 

 

 
(2,589
)
Net Income

 

 

 

 

 

 

 
642

 
642

 

 
13

 
655

Balance,
March 31, 2019 (Unaudited)
562

 
453

 
1,875,748

 
41,022

 
9,693,271

 
97

 
233,861

 
(235,131
)
 
40,302

 
235,032

 
2,207

 
42,509

Accretion of Series B Preferred
  Stock discount

 

 

 
22

 

 

 

 

 
22

 

 

 
22

Dividends and distributions

 

 

 

 

 

 

 
(2,590
)
 
(2,590
)
 

 

 
(2,590
)
Net Loss

 

 

 

 

 

 

 
(7,051
)
 
(7,051
)
 

 
(112
)
 
(7,163
)
Balance,
June 30, 2019 (Unaudited)
562

 
$
453

 
1,875,748

 
$
41,044

 
9,693,271

 
$
97

 
$
233,861

 
$
(244,772
)
 
$
30,683

 
235,032

 
$
2,095

 
$
32,778


See accompanying notes to condensed consolidated financial statements.


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Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A
 
Series B
 
 
 
 
 
 
 
 
 
Noncontrolling
 
 
 
Preferred Stock
 
Preferred Stock
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Total
Shareholders’ Equity
 
Interests
 
Total
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
 
 
 
Units
 
Value
 
Equity
Balance,
December 31, 2017
562

 
$
453

 
1,875,848

 
$
40,915

 
8,744,189

 
$
87

 
$
226,978

 
$
(204,925
)
 
$
63,508

 
635,018

 
$
7,088

 
$
70,596

Accretion of Series B Preferred
  Stock discount

 

 

 
22

 

 

 

 

 
22

 

 

 
22

Conversion of Series B
Preferred Stock to Common
  Stock

 

 
(100
)
 
(2
)
 
62

 

 
2

 

 

 

 

 

Conversion of operating
  partnership units to Common
  Stock

 

 

 

 
9,706

 

 
64

 

 
64

 
(9,706
)
 
(64
)
 

Issuance of Common Stock
  under Share Incentive Plan

 

 

 

 
43,459

 

 
330

 

 
330

 

 

 
330

Issuance of Common Stock for
  acquisition of JANAF

 

 

 

 
150,000

 
2

 
1,128

 

 
1,130

 

 

 
1,130

Adjustment for noncontrolling
  interest in operating partnership

 

 

 

 

 

 
505

 

 
505

 

 
(505
)
 

Dividends and distributions

 

 

 

 

 

 

 
(3,207
)
 
(3,207
)
 

 

 
(3,207
)
Net Loss

 

 

 

 

 

 

 
(1,825
)
 
(1,825
)
 

 
(47
)
 
(1,872
)
Balance,
March 31, 2018 (Unaudited)
562

 
453

 
1,875,748

 
40,935

 
8,947,416

 
89

 
229,007

 
(209,957
)
 
60,527

 
625,312

 
6,472

 
66,999

Accretion of Series B Preferred
  Stock discount

 

 

 
22

 

 

 

 

 
22

 

 

 
22

Conversion of operating
  partnership units to Common
  Stock

 

 

 

 
311,307

 
3

 
1,151

 

 
1,154

 
(311,307
)
 
(1,154
)
 

Issuance of Common Stock
  under Share Incentive Plan

 

 

 

 
83,854

 
1

 
397

 

 
398

 

 

 
398

Adjustment for noncontrolling
  interest in operating partnership

 

 

 

 

 

 
2,081

 

 
2,081

 

 
(2,081
)
 

Dividends and distributions

 

 

 

 

 

 

 
(3,206
)
 
(3,206
)
 

 

 
(3,206
)
Net Loss

 

 

 

 

 

 

 
(1,525
)
 
(1,525
)
 

 
(35
)
 
(1,560
)
Balance,
June 30, 2018 (Unaudited)
562

 
$
453

 
1,875,748

 
$
40,957

 
9,342,577

 
$
93

 
$
232,636

 
$
(214,688
)
 
$
59,451

 
314,005

 
$
3,202

 
$
62,653


See accompanying notes to condensed consolidated financial statements.

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Table of Contents

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
For the Six Months Ended
June 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Loss
$
(6,508
)
 
$
(3,432
)
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:
 
 
 
Depreciation
6,067

 
6,500

Amortization
5,036

 
8,398

Loan cost amortization
927

 
1,057

Above (below) market lease amortization, net
(420
)
 
(108
)
Straight-line expense
93

 
11

Share-based compensation
172

 
486

Gain on disposal of properties
(1,508
)
 
(1,055
)
Gain on disposal of properties-discontinued operations

 
(903
)
Credit losses on operating lease receivables
200

 
186

Impairment of notes receivable
5,000

 

Impairment of assets held for sale
1,147

 

Changes in assets and liabilities, net of acquisitions
 
 
 
Rent and other tenant receivables, net
(60
)
 
142

Unbilled rent
30

 
(395
)
Related party receivables
4

 
78

Deferred costs and other assets, net
(566
)
 
99

Accounts payable, accrued expenses and other liabilities
(1,805
)
 
1,567

Net operating cash flows used in discontinued operations
(2
)
 
(2
)
Net cash provided by operating activities
7,807

 
12,629

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Investment property acquisitions, net of restricted cash acquired
(24
)
 
(23,153
)
Capital expenditures
(946
)
 
(2,735
)
Cash received from disposal of properties
3,584

 
1,160

Cash received from disposal of properties-discontinued operations
19

 
2,747

Net cash provided by (used in) investing activities
2,633

 
(21,981
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Payments for deferred financing costs
(293
)
 
(947
)
Dividends and distributions paid

 
(8,517
)
Proceeds from sales of Preferred Stock, net of expenses

 
21,158

Loan proceeds
16,500

 
20,803

Loan principal payments
(24,286
)
 
(16,769
)
Net financing cash flows used in discontinued operations

 
(50
)
Net cash (used in) provided by financing activities
(8,079
)
 
15,678

INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
2,361

 
6,326

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
17,999

 
12,286

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
20,360

 
$
18,612

Supplemental Disclosures:
 
 
 
Non-Cash Transactions:
 
 
 
Debt incurred for acquisitions
$

 
$
58,867

Conversion of common units to common stock
$

 
$
1,218

Conversion of Series B Preferred Stock to Common Stock
$

 
$
2

Issuance of Common Stock for acquisition
$

 
$
1,130

Accretion of preferred stock discounts
$
341

 
$
340

Other Cash Transactions:
 
 
 
Cash paid for taxes
$
6

 
$
39

Cash paid for interest
$
8,930

 
$
8,469

 
 
 
 
The following table provides a reconciliation of cash, cash equivalents and restricted cash:
 
 
 
Cash and cash equivalents
$
3,934

 
$
4,052

Restricted cash
16,426

 
14,560

Cash, cash equivalents, and restricted cash
$
20,360

 
$
18,612

See accompanying notes to condensed consolidated financial statements.

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Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Organization and Basis of Presentation and Consolidation
Wheeler Real Estate Investment Trust, Inc. (the "Trust", the "REIT", or "Company") is a Maryland corporation formed on June 23, 2011. The Trust serves as the general partner of Wheeler REIT, L.P. (the “Operating Partnership”), which was formed as a Virginia limited partnership on April 5, 2012. As of June 30, 2019, the Trust, through the Operating Partnership, owned and operated sixty-two centers, one office building and six undeveloped properties in Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Oklahoma, Tennessee, Kentucky, New Jersey, Pennsylvania and West Virginia. Accordingly, the use of the word “Company” refers to the Trust and its consolidated subsidiaries, except where the context otherwise requires.
On October 24, 2014, the Trust, through the Operating Partnership, acquired (i) Wheeler Interests, LLC (“WI”), an acquisition and asset management firm, (ii) Wheeler Real Estate, LLC (“WRE”), a real estate leasing, management and administration firm and (iii) WHLR Management, LLC (“WM” and collectively with WI and WRE the “Operating Companies”), a real estate business operations firm, from Jon S. Wheeler, the Company's then Chairman and CEO, resulting in the Company becoming an internally-managed REIT. Accordingly, the responsibility for identifying targeted real estate investments, the handling of the disposition of real estate investments our 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 now 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.

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the “Form 10-Q”) are unaudited and the results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for future periods or the year. However, amounts presented in the condensed consolidated balance sheet as of December 31, 2018 are derived from the Company’s audited consolidated financial statements as of that date, but do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The Company prepared the accompanying condensed consolidated financial statements in accordance with GAAP for interim financial statements. The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature. All material balances and transactions between the consolidated entities of the Company have been eliminated. You should read these condensed consolidated financial statements in conjunction with our 2018 Annual Report filed on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).

2. Summary of Significant Accounting Policies
Investment Properties
    
The Company records investment properties and related intangibles at fair value upon acquisition. Investment properties include both acquired and constructed assets. Improvements and major repairs and maintenance are capitalized when the repair and maintenance substantially extends the useful life, increases capacity or improves the efficiency of the asset. All other repair and maintenance costs are expensed as incurred. The Company capitalizes interest on projects during periods of construction until the projects reach the completion point that corresponds with their intended purpose.
    
The Company allocates the purchase price of acquisitions to the various components of the asset based upon the fair value of each component which may be derived from various observable or unobservable inputs and assumptions. Also, the Company may utilize third party valuation specialists. These components typically include buildings, land and any intangible assets related to out-of-market leases, tenant relationships and in-place leases the Company determines to exist. The Company determines fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and

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Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)

available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in the analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases, tenant relationships and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.
    
The Company records depreciation on buildings and improvements utilizing the straight-line method over the estimated useful life of the asset, generally 5 to 40 years. The Company reviews depreciable lives of investment properties periodically and makes adjustments to reflect a shorter economic life, when necessary. Tenant allowances, tenant inducements and tenant improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter.
 
Amounts allocated to buildings are depreciated over the estimated remaining life of the acquired building or related improvements. The Company amortizes amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles over the remaining life of the underlying leases. The Company also estimates the value of other acquired intangible assets, if any, and amortizes them over the remaining life of the underlying related intangibles.
    
The Company reviews investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable, but at least annually. These circumstances include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. The Company measures any impairment of investment property when the estimated undiscounted future operating income before depreciation and amortization, plus its residual value, is less than the carrying value of the property. Estimated discounted operating income before depreciation and amortization includes various level 3 fair value assumptions including renewal and renegotiations of current leases, estimates of new leases on vacant spaces, estimates of operating costs and fluctuating market conditions. The renewal and renegotiations of leases in some cases must be approved by additional third parties outside the control of the Company and the tenant. If such renewed or renegotiated leases are approved at amounts below correct estimates, then impairment adjustments may be necessary in the future. To the extent impairment has occurred, the Company charges to income the excess of the carrying value of the property over its estimated fair value. The Company estimates fair value using unobservable data such as operating income, estimated capitalization rates, or multiples, leasing prospects for vacant spaces and local market information. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets Held For Sale and Discontinued Operations
    
The Company may decide to sell properties that are held for 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 2 and 3 inputs. Level 2 inputs are quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices.
Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company recorded a $1.15 million impairment charge for the three and six months ended June 30, 2019 on Perimeter Square based on the carrying value of the property exceeding the fair value, less selling costs based on the recent sale, see Note 12. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 2 inputs.


10

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)

Assets held for sale are presented as discontinued operations in all periods presented if the disposition represents a strategic shift that has, or will have, a major effect on the Company's financial position or results of operations. This includes the net gain (or loss) upon disposal of property held for sale, the property's operating results, depreciation and interest expense.

Cash and Cash Equivalents and Restricted Cash
    
The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash equivalents. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents consist primarily of bank operating accounts and money markets. Financial instruments that potentially subject the Company to concentrations of credit risk include its cash and cash equivalents and its trade accounts receivable. The Company places its cash and cash equivalents with institutions of high credit quality.

Restricted cash represents amounts held by lenders for real estate taxes, insurance, reserves for capital improvements, leasing costs and tenant security deposits.
    
The Company 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 June 30, 2019 and December 31, 2018, the Company’s allowance for uncollectible accounts totaled $982 thousand and $1.07 million, respectively. Upon adoption of ASC Topic 842 "Leases," reserves for uncollectible accounts were recorded and reclassified to revenue. Prior to adoption, reserves for uncollectible accounts were recorded as an operating expense, provision for credit losses. The standard also provides guidance on calculating reserves; however, those did not impact the Company. During the three and six months ended June 30, 2019, the Company recorded a provision for credit losses in the amount of $110 thousand and $200 thousand, respectively, related to tenant receivables that were specifically identified as potentially uncollectible based on an assessment of the tenant’s credit-worthiness. During the three and six months ended June 30, 2018, the Company recorded a provision for credit losses in the amount of $165 thousand and $263 thousand, respectively. These are included in rental revenues on the condensed consolidated statements of operations. During the three and six months ended June 30, 2019 and 2018, the Company did not realize any recoveries related to tenant receivables previously written off.

Notes Receivable

Notes receivable represent financing to Sea Turtle Development as discussed in Note 4 for development of the project. The notes are secured by a 2nd deed of trust on the underlying real estate known as Sea Turtle Development. The Company evaluates the collectability of both the interest and principal of the notes receivable based primarily upon the projected fair market value of the project at stabilization. The notes receivable are determined to be impaired when, based upon current information, it is no longer probable that the Company will be able to collect all contractual amounts due from the borrower. The amount of impairment loss recognized is measured as the difference between the carrying amount of the loan and its estimated realizable value.

Above and Below Market Lease Intangibles, net

The Company determines the above and below market lease intangibles upon acquiring a property. Above and below market lease intangibles are amortized over the life of the respective leases. Amortization of above and below market lease intangibles is recorded as a component of rental revenues.


11

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)

Deferred Costs and Other Assets, net
    
The Company’s deferred costs and other assets consist primarily of leasing commissions, leases in place, capitalized legal and marketing costs, tenant relationship and ground lease sandwich interest intangibles associated with acquisitions. The Company’s lease origination costs consist primarily of the portion of property acquisitions allocated to lease originations and commissions paid to third parties in connection with lease originations. The Company generally records amortization of lease origination costs on a straight-line basis over the terms of the related leases. Amortization of lease origination costs, leases in place, legal and marketing costs, tenant relationships and ground lease sandwich interest represents a component of depreciation and amortization expense.

Revenue Recognition
Lease Contract Revenue

The Company has two classes of underlying assets relating to rental revenue activity, retail and office space. The Company retains substantially all of the risks and benefits of ownership of these underlying assets and accounts for these leases as operating leases. The Company combines lease and nonlease components in lease contracts, which includes combining base rent and tenant reimbursement revenue.

The Company accrues minimum rents on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet. At June 30, 2019 and December 31, 2018, there were $3.30 million and $3.12 million, respectively, in unbilled rent which is included in "rents and other tenant receivables, net." Additionally, certain of the lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements as variable lease income.

The Company’s leases generally require the tenant to reimburse the Company for a substantial portion of its expenses incurred in operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common Area Maintenance or “CAM” expenses). This significantly reduces the Company’s exposure to increases in costs and operating expenses resulting from inflation or other outside factors. These reimbursements are considered nonlease components which the Company combines with the lease component. The Company calculates the tenant’s share of operating costs by multiplying the total amount of the operating costs by a fraction, the numerator of which is the total number of square feet being leased by the tenant, and the denominator of which is the average total square footage of all leasable buildings at the property. The Company also receives escrow payments for these reimbursements from substantially all its tenants throughout the year. The Company recognizes tenant reimbursements as variable lease income. The Company recognizes differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material for the three and six months ended June 30, 2019 and 2018.

Additionally, the Company has tenants who pay real estate taxes directly to the taxing authority. The Company excludes these Company costs paid directly by the tenant to third parties on the Company’s behalf from both variable revenue payments recognized and the associated property operating expenses. The Company does not evaluate whether certain sales taxes and other similar taxes are the Company’s costs or tenants costs. Instead, the Company accounts for these costs as tenant costs.

The Company recognizes lease termination fees, which is included in "other revenue" on the condensed consolidated statements of operations, 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.

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 and back office (collecting rents, paying

12

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)

bills), etc. Each of the obligations are bundled together to be one service and are satisfied over time. Non-REIT Properties are billed monthly and typically pay monthly for these services.
Commissions
Commissions are generated from Non-REIT Properties. The Non-REIT Properties pay WRE leasing commissions based on the total contractual revenues to be generated under the new/renewed lease agreement (6% for new leases and 3% for renewals). Revenues are governed by the leasing commission agreements for the various properties. Obligations under the agreements include and are not limited to: monitoring upcoming vacancies, new tenant identification, proposal preparation, lease negotiation and document preparation. Each of the obligations are bundled together to be one service as the overall objective of these services is to maintain the overall occupancy of the property. Revenue is recognized and billed upon lease execution.
The below table disaggregates the Company’s revenue by type of service for the three and six months ended June 30, 2019 and 2018 (in thousands, unaudited):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Minimum rent
$
11,974

 
$
12,873

 
$
24,435

 
$
25,483

Tenant reimbursements - variable lease revenue
3,450

 
2,965

 
6,737

 
6,187

Percentage rent - variable lease revenue
77

 
38

 
189

 
125

Lease termination fees

 
1,038

 
49

 
1,284

Asset management fees
13

 
47

 
26

 
172

Commissions
5

 
36

 
47

 
50

Other
123

 
109

 
244

 
196

     Subtotal
15,642

 
17,106

 
31,727

 
33,497

Credit losses on operating lease receivables
(110
)
 
(165
)
 
(200
)
 
(263
)
     Total
$
15,532

 
$
16,941

 
$
31,527

 
$
33,234


Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code and applicable Treasury regulations relating to REIT qualification. In order to maintain this REIT status, the regulations require the Company to distribute at least 90% of its taxable income to shareholders and meet certain other asset and income tests, as well as other requirements. The TRS' have accrued $23 thousand and $13 thousand, respectively, for federal and state income taxes as of June 30, 2019 and December 31, 2018. If the Company fails to qualify as a REIT, it will be subject to tax at regular corporate rates for the years in which it fails to qualify. If the Company loses its REIT status, it could not elect to be taxed as a REIT for five years unless the Company’s failure to qualify was due to a reasonable cause and certain other conditions were satisfied.
Taxable REIT Subsidiary Cost Allocation

The Company’s overall philosophy regarding cost allocation centers around the premise that the Trust exists to acquire, lease and manage properties for the benefit of its investors. Accordingly, a majority of the Company’s operations occur at the property level. Each property must carry its own weight by absorbing the costs associated with generating its revenues. Additionally, leases generally allow the Company to pass through to the tenant most of the costs involved in operating the property, including, but not limited to, the direct costs associated with owning and maintaining the property (landscaping, repairs and maintenance, taxes, insurance, etc.), property management and certain administrative costs.

Service vendors bill the majority of the direct costs of operating the properties directly to the REIT Properties and Non-REIT Properties and each property pays them accordingly. The Non-REIT Properties pay WRE property management and/

13

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)

or asset management fees of 3% and 2% of collected revenues, respectively. The Non-REIT Properties also pay WRE leasing commissions based on the total contractual revenues to be generated under the new/renewed lease agreement (6% for new leases and 3% for renewals).

Costs incurred to manage, lease and administer the Non-REIT Properties are allocated to the TRS. These costs include compensation and benefits, property management, leasing and other corporate, general and administrative expenses associated with generating the TRS' revenues.
    
Financial Instruments
    
The carrying amount of financial instruments included in assets and liabilities approximates fair market value due to their immediate or short-term maturity.

Use of Estimates

The Company has made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reported periods. The Company’s actual results could differ from these estimates.

Advertising Costs For Leasing Activities
    
The Company expenses advertising and promotion costs as incurred. The Company incurred advertising and promotion costs associated with leasing activities of $114 thousand and $163 thousand for the three and six months ended June 30, 2019, respectively. The Company incurred advertising and promotion costs of $115 thousand and $158 thousand for the three and six months ended June 30, 2018, respectively.

Corporate General and Administrative Expense
    
A detail for the "corporate general & administrative" ("CG&A") line item from the condensed consolidated statements of operations is presented below (in thousands, unaudited):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Compensation and benefits
$
431

 
$
446

 
$
1,107

 
$
1,447

Professional fees
328

 
810

 
927

 
1,671

Corporate administration
303

 
327

 
608

 
669

Capital related costs
62

 
245

 
136

 
298

Taxes and licenses
70

 
39

 
132

 
204

Other
186

 
427

 
284

 
549

 
1,380

 
2,294

 
3,194

 
4,838

Less: Allocation of CG&A to Non-REIT management and leasing services

 
(26
)
 

 
(62
)
    Total
$
1,380

 
$
2,268

 
$
3,194

 
$
4,776

    
An allocation of professional fees, compensation and benefits, corporate administration and travel is included in Non-REIT management and leasing services on the condensed consolidated statements of operations, which can vary period to period depending on the relative operational fluctuations of these respective services.
    



14

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)

Leases Commitments

The Company determines if an arrangement is a lease at inception. Operating leases, in which the Company is the lessee, are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on our condensed consolidated balance sheets.

ROU assets represent the right to use an underlying asset for the lease term and the lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU assets include any lease payments made and excludes lease incentives. The Company's lease terms may include options to extend the lease when it is reasonably certain that the company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company elects the practical expedient to combine lease and associated nonlease components. The lease components are the majority of its leasing arrangements and the Company accounts for the combined component as an operating lease. In the event the Company modifies existing ground leases or enters into new ground leases, such leases may be classified as finance leases.

Noncontrolling Interests

Noncontrolling interests is the portion of equity in the Operating Partnership not attributable to the Trust. The ownership interests not held by the parent are considered noncontrolling interests. Accordingly, noncontrolling interests have been reported in equity on the condensed consolidated balance sheets but separate from the Company’s equity. On the condensed consolidated statements of operations, the subsidiaries are reported at the consolidated amount, including both the amount attributable to the Company and noncontrolling interests. Condensed consolidated statements of equity includes beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.
    
The noncontrolling interest of the Operating Partnership common unit holders is calculated by multiplying the noncontrolling interest ownership percentage at the balance sheet date by the Operating Partnership’s net assets (total assets less total liabilities). The noncontrolling interest percentage is calculated at any point in time by dividing the number of units not owned by the Company by the total number of units outstanding. The noncontrolling interest ownership percentage will change as additional units are issued or as units are exchanged for the Company’s common stock $0.01 par value per share (“Common Stock”). In accordance with GAAP, any changes in the value from period to period are charged to additional paid-in capital.

Adoption of ASC Topic 842, “Leases”

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases (Topic 842)”, to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. The Company adopted ASU 2016-02 as of January 1, 2019 using the modified retrospective approach within ASU 2018-11, which allows for the application date to be the beginning of the reporting period in which the entity first applies the new standard. The Company did not have a cumulative-effect adjustment as of the adoption date. In addition, the Company implemented internal controls to enable the preparation of financial information upon adoption.

The Company elected the package of transition practical expedients where the company is either the lessee or lessor, which among other things, allowed the Company to carry forward the historical lease classifications and use hindsight in determining the lease terms.

The standard had a material impact on the Company's condensed consolidated balance sheets, but did not have a material impact on the condensed consolidated statements of operations. The most significant impact was the recognition of ROU assets and lease liabilities of approximately $11.90 million and $11.99 million, respectively, for operating leases as of January 1, 2019, calculated based on an incremental borrowing rate of 4.84%. The difference between the ROU assets and lease liabilities at adoption represents the accrued straight-line rent liability previously recognized under ASC 840. The standard had no impact on the Company's cash flows.

15

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements 
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Loses (Topic 326): Measurement of Credit Losses on Financial Instruments". This update enhances the methodology of measuring expected credit losses to include the use of forward-looking information to better calculate credit loss estimates. The guidance will apply to most financial assets measured at amortized cost and certain other instruments, such as accounts receivable and loans. The guidance will require that the Company estimate the lifetime expected credit loss with respect to these receivables and record allowances that, when deducted from 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.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)". This update modifies the disclosure requirements on fair value measurements in Topic 820 with several removals and additions for disclosures. The guidance will add disclosures related to the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance would be effective for interim and annual reporting periods beginning after December 15, 2019. The Company anticipates that there will be no material impact on its consolidated financial statements upon adoption of the guidance.

Other accounting standards that have been issued or proposed by the FASB or other standard-setting bodies are not currently applicable to the Company or are not expected to have a significant impact on the Company’s financial position, results of operations and cash flows.

Reclassifications

The Company has reclassified certain prior period amounts in the accompanying condensed consolidated financial statements in order to be consistent with the current period presentation. These reclassifications had no effect on net income, total assets, total liabilities or equity.

Tenant reimbursements and provision for credit losses were reclassified to rental revenues on the condensed consolidated statements of operations to conform to 2019 presentation as a result of adopting ASU 2016-02, “Leases (Topic 842).” There is a reclassification within the condensed consolidated statement of cash flows that pertains to the straight-line expense operating activity adjustment on those leases which the Company is a lessee. This reclassification did not impact cash provided by (used in) operating, investing, or financing activities.

As of June 30, 2019, it was determined that the six undeveloped Land Parcels (the “Land Parcels”) previously classified as assets held for sale at December 31, 2018 no longer meet the definition of assets held for sale. Management’s intention to sell the parcels has not changed; however, they are in secondary and tertiary markets with minimal land sales and it is not probable they will sell in the next twelve months. Accordingly, the assets and liabilities of the Land Parcels were reclassified to “land and land improvements” within investment properties for all periods presented, see Note 3.

3. Real Estate
Investment properties consist of the following (in thousands):
 
June 30, 2019
 
December 31, 2018
 
(unaudited)
 
 
Land and land improvements
$
100,351

 
$
101,696

Buildings and improvements
367,056

 
374,499

Investment properties at cost
467,407

 
476,195

Less accumulated depreciation
(44,901
)
 
(40,189
)
    Investment properties, net
$
422,506

 
$
436,006


16

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
3. Real Estate (continued)

The Company’s depreciation expense on investment properties was $2.88 million and $6.07 million for the three and six months ended June 30, 2019, respectively. The Company’s depreciation expense on investment properties was $3.33 million and $6.50 million for the three and six months ended June 30, 2018, 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.

Assets Held for Sale

At December 31, 2018, assets held for sale included a 1.28 acre undeveloped land parcel at Harbor Pointe ("Harbor Pointe land parcel"), Graystone Crossing and Jenks Plaza. All three were sold during the six months ended June 30, 2019. Additionally, in 2019 the Board committed to a plan to sell Perimeter Square, which is classified as assets held for sale as of June 30, 2019.

The Harbor Pointe land parcel sale represents discontinued operations as it is a strategic shift that has a major effect on the Company's financial position or results of operations. Accordingly, the assets and liabilities associated with the Harbor Pointe land parcel have been reclassified for all periods presented.

The $1.15 million impairment charge on assets held for sale for the three and six months ended June 30, 2019 is based on the carrying value of the property exceeding the fair value, less selling costs based on the recent sale subsequent to June 30, 2019, see Note 12. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 2 inputs.

As of June 30, 2019 and December 31, 2018, assets held for sale and associated liabilities, excluding discontinued operations, consisted of the following (in thousands):
 
 
June 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Investment properties, net
 
$
6,634

 
$
4,912

Rents and other tenant receivables, net
 
111

 
72

Above market leases, net
 

 
420

Deferred costs and other assets, net
 
54

 
228

Total assets held for sale, excluding discontinued operations
$
6,799

 
$
5,632

 
 
June 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Loans payable
 
$
6,497

 
$
3,818

Below market leases, net
 
1

 

Accounts payable
 
352

 
240

Total liabilities associated with assets held for sale, excluding discontinued operations
$
6,850

 
$
4,058

As of June 30, 2019 and December 31, 2018, assets held for sale and associated liabilities for discontinued operations, consisted of the following (in thousands):
 
 
June 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Investment properties, net
 
$

 
$
486

Total assets held for sale, discontinued operations
 
$

 
$
486


17

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
3. Real Estate (continued)

 
 
June 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Loans payable
 
$

 
$
460

Accounts payable
 

 
2

Total liabilities associated with assets held for sale, discontinued operations
$

 
$
462

Dispositions

In May 2019, an approximate 10,000 square foot outparcel at the JANAF property was demolished resulting in a $331 thousand write-off to make way for a new approximate 20,000 square foot building constructed by a new grocer tenant.

The following properties were sold during the six months ended June 30, 2019 and 2018:

Disposal Date
 
Property
 
Contract Price
 
Gain
 
Net Proceeds
 
 
 
 
(in thousands, unaudited)
March 18, 2019
 
Graystone Crossing
 
$
6,000

 
$
1,452

 
$
1,744

February 7, 2019
 
Harbor Pointe Land Parcel (1.28 acres)
 
550

 

 
19

January 11, 2019
 
Jenks Plaza
 
2,200

 
387

 
1,840

June 19, 2018
 
Laskin Road Land Parcel (1.5 acres)
 
2,858

 
903

 
2,747

January 12, 2018
 
Chipotle Ground Lease at Conyers Crossing
 
1,270

 
1,055

 
1,160

    
The sale of the Chipotle ground lease at Conyers Crossing, Jenks Plaza and Graystone Crossing did not represent a strategic shift that has a major effect on the Company's financial position or results of operations. Accordingly, the operating results of these properties remains classified within continuing operations for all periods presented.

JANAF Executive Building
In April 2019, the Company absorbed an approximate 25,000 square foot outparcel at JANAF as a result of an unlawful detainer with a delinquent tenant, Mariner Investments, LTD.

The Company inadvertently disclosed the former tenant as Mariner Finance, LLC in the Form 10-Q for the three months ended March 31, 2019 in error.

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 (“Sea Turtle”) and a $1.00 million note receivable in consideration for the sale of 10.39 acres of land owned by the Company. Sea Turtle was a related party as Jon Wheeler, the Company's former CEO and shareholder of the Company, is the managing member as discussed in Note 11. The rate on the loans is 12% annually. Interest only payments at a rate of 8% are due on the notes at the beginning of every calendar quarter starting October 2016. Interest at a rate of 4% accrues and is due at maturity. The notes mature the earlier of September 29, 2021 or the disposition of the property.
    
Both promissory notes are subordinated to the construction loans made by the Bank of Arkansas (“BOKF”), totaling $20.00 million.

On or about April 9, 2019, BOKF filed a Verified Complaint in state court in Beauford County, South Carolina for Sea Turtle’s default on payment of the BOKF construction loans, and for the appointment of a receiver, injunctive relief and accounting records. On May 7, 2019, Sea Turtle filed a Chapter 11 Voluntary Petition for Bankruptcy in the United States Bankruptcy Court for the District of South Carolina in Charleston. The bankruptcy petition automatically stayed BOKF’s suit.


18

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
4. Notes Receivable (continued)


The pleadings in the state court action and the bankruptcy action state that Sea Turtle has been in default on its payments to BOKF since September, 2018. The pleadings further state that the project is $8.00 million over budget as of August 8, 2018. Sea Turtle has retained a broker to try and sell the property. There is a possibility that a judicially approved sale of the property will not bring a price that exceeds what is owed to BOKF on its construction loans. If a sale is not approved through the bankruptcy court in 2019, it is expected that the bankruptcy petition will be dismissed and BOKF will resume its suit in South Carolina state court, possibly leading to a foreclosure on the property. The pending legal proceedings have provided additional uncertainty with regards to the estimated fair market value of the development. As such, effective June 30, 2019, the Company recognized $5.00 million in impairment charges on the notes receivable for the three and six months ended June 30, 2019 as the estimated fair value of Sea Turtle is not expected to provide for the cash required to repay the notes receivable in the event of a judicially approved sale. This brings the total impairment charge on the notes receivable to $12.00 million reducing the carrying value to zero.

The fair market value of Sea Turtle is based on the three-level valuation hierarchy for fair value measurement and represents Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Additionally in 2018, the Company placed the notes receivable on nonaccrual status and has not recognized $359 thousand and $714 thousand of interest income due on the notes for the three and six months ended June 30, 2019, respectively. The Company has not recognized $359 thousand and $714 thousand of interest income due on the notes for the three and six months ended June 30, 2018, respectively.

5. Deferred Costs
Deferred costs, net of amortization and other assets are as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
 
(unaudited)
 
 
Leases in place, net
$
18,158

 
$
21,785

Tenant relationships, net
2,809

 
3,764

Ground lease sandwich interest, net
2,352

 
2,488

Lease origination costs, net
1,240

 
1,261

Legal and marketing costs, net
51

 
59

Other
1,071

 
716

    Total deferred costs and other assets, net
$
25,681

 
$
30,073


19

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
5. Deferred Costs (continued)

As of June 30, 2019 and December 31, 2018, the Company’s intangible accumulated amortization totaled $53.59 million and $50.55 million, respectively. During the three and six months ended June 30, 2019, the Company’s intangible amortization expense totaled $2.41 million and $5.04 million, respectively. During the three and six months ended June 30, 2018, the Company's intangible amortization expense totaled $4.09 million and $8.40 million, respectively. Future amortization of lease origination costs, leases in place, legal and marketing costs, tenant relationships, and ground lease sandwich interests is as follows (in thousands, unaudited):
 
Leases In
Place, net
 
Tenant
Relationships, net
 
Ground Lease Sandwich Interest, net
 
 Lease
Origination
Costs, net
 
Legal &
Marketing
Costs, net
 
Total
For the remaining six months ending December 31, 2019
$
2,839

 
$
629

 
$
137

 
$
114

 
$
6

 
$
3,725

For the years ending:
 
 
 
 
 
 
 
 
 
 
 
December 31, 2020
4,533

 
861

 
274

 
194

 
11

 
5,873

December 31, 2021
2,833

 
449

 
274

 
180

 
9

 
3,745

December 31, 2022
2,166

 
355

 
274

 
139

 
6

 
2,940

December 31, 2023
1,684

 
228

 
274

 
121

 
6

 
2,313

December 31, 2024
1,171

 
129

 
274

 
106

 
3

 
1,683

Thereafter
2,932

 
158

 
845

 
386

 
10

 
4,331

 
$
18,158

 
$
2,809

 
$
2,352

 
$
1,240

 
$
51

 
$
24,610



20

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


6. Loans Payable

The Company’s loans payable consist of the following (in thousands, except monthly payment):
Property/Description
 
Monthly Payment
 
Interest
Rate
 
Maturity
 
June 30,
2019
 
December 31, 2018
 Harbor Pointe (1)
 
$
11,024

 
5.85
%
 
December 2018
 
$

 
$
460

 Perimeter Square (1)
 
Interest only

 
6.50
%
 
June 2019
 
6,250

 
6,250

 Perimeter Square construction loan (1)
 
Interest only

 
6.50
%
 
June 2019
 
247

 
247

 Revere Term Loan
 
$
109,658

 
10.00
%
 
April 2019
 

 
1,059

 Senior convertible notes
 
$
234,199

 
9.00
%
 
June 2019
 

 
1,369

 DF I-Moyock
 
$
10,665

 
5.00
%
 
July 2019
 
11

 
73

 Rivergate
 
$
150,001

 
Libor + 295 basis points

 
December 2019
 
21,831

 
22,117

 KeyBank Line of Credit (6)
 
$
250,000

 
Libor + 250 basis points

 
Various (6)
 
34,291

 
52,102

 Folly Road
 
$
32,827

 
4.00
%
 
March 2020
 
5,998

 
6,073

 Columbia Fire Station
 
$
25,452

 
4.00
%
 
May 2020
 
4,120

 
4,189

 Shoppes at TJ Maxx
 
$
33,880

 
3.88
%
 
May 2020
 
5,443

 
5,539

 First National Bank Line of Credit
 
$
24,656

 
Libor + 300 basis points

 
September 2020
 
1,325

 
2,938

 Lumber River
 
$
10,723

 
Libor + 350 basis points

 
October 2020
 
1,427

 
1,448

 JANAF Bravo
 
$
36,935

 
4.65
%
 
January 2021
 
6,442

 
6,500

 Walnut Hill Plaza
 
$
26,850

 
5.50
%
 
September 2022
 
3,814

 
3,868

 Twin City Commons
 
$
17,827

 
4.86
%
 
January 2023
 
3,016

 
3,048

 New Market
 
$
48,747

 
5.65
%
 
June 2023
 
6,811

 
6,907

 Benefit Street Note (3)
 
$
53,185

 
5.71
%
 
June 2023
 
7,466

 
7,567

 Deutsche Bank Note (2)
 
$
33,340

 
5.71
%
 
July 2023
 
5,678

 
5,713

 JANAF
 
$
333,159

 
4.49
%
 
July 2023
 
51,432

 
52,253

 Tampa Festival
 
$
50,797

 
5.56
%
 
September 2023
 
8,153

 
8,227

 Forrest Gallery
 
$
50,973

 
5.40
%
 
September 2023
 
8,455

 
8,529

 Riversedge North
 
$
11,436

 
5.77
%
 
December 2023
 
1,783

 
1,800

 South Carolina Food Lions Note (5)
 
$
68,320

 
5.25
%
 
January 2024
 
11,771

 
11,867

 Cypress Shopping Center
 
$
34,360

 
4.70
%
 
July 2024
 
6,324

 
6,379

 Port Crossing
 
$
34,788

 
4.84
%
 
August 2024
 
6,092

 
6,150

 Freeway Junction
 
$
41,798

 
4.60
%
 
September 2024
 
7,794

 
7,863

 Harrodsburg Marketplace
 
$
19,112

 
4.55
%
 
September 2024
 
3,452

 
3,486

 Graystone Crossing (1)
 
$
20,386

 
4.55
%
 
October 2024
 

 
3,863

 Bryan Station
 
$
23,489

 
4.52
%
 
November 2024
 
4,433

 
4,472

 Crockett Square
 
Interest only

 
4.47
%
 
December 2024
 
6,338

 
6,338

 Pierpont Centre
 
 Interest only

 
4.15
%
 
February 2025
 
8,113

 
8,113

 Alex City Marketplace
 
 Interest only

 
3.95
%
 
April 2025
 
5,750

 
5,750

 Butler Square
 
 Interest only

 
3.90
%
 
May 2025
 
5,640

 
5,640

 Brook Run Shopping Center
 
 Interest only

 
4.08
%
 
June 2025
 
10,950

 
10,950

 Beaver Ruin Village I and II
 
 Interest only

 
4.73
%
 
July 2025
 
9,400

 
9,400

 Sunshine Shopping Plaza
 
 Interest only

 
4.57
%
 
August 2025
 
5,900

 
5,900

 Barnett Portfolio (4)
 
 Interest only

 
4.30
%
 
September 2025
 
8,770

 
8,770

 Fort Howard Shopping Center
 
 Interest only

 
4.57
%
 
October 2025
 
7,100

 
7,100

 Conyers Crossing
 
 Interest only

 
4.67
%
 
October 2025
 
5,960

 
5,960

 Grove Park Shopping Center
 
 Interest only

 
4.52
%
 
October 2025
 
3,800

 
3,800

 Parkway Plaza
 
 Interest only

 
4.57
%
 
October 2025
 
3,500

 
3,500

 Winslow Plaza
 
Interest only

 
4.82
%
 
December 2025
 
4,620

 
4,620

 JANAF BJ's
 
$
29,964

 
4.95
%
 
January 2026
 
5,011

 
5,065

 Chesapeake Square
 
$
23,857

 
4.70
%
 
August 2026
 
4,395

 
4,434

 Berkley/Sangaree/Tri-County
 
Interest only

 
4.78
%
 
December 2026
 
9,400

 
9,400

 Riverbridge
 
Interest only

 
4.48
%
 
December 2026
 
4,000

 
4,000

 Franklin Village
 
Interest only

 
4.93
%
 
January 2027
 
8,516

 
8,516

 Village of Martinsville
 
$
89,664

 
4.28
%
 
July 2029
 
16,500

 

Total Principal Balance (1)
 
 
 
 
 
 
 
357,522

 
369,612

Unamortized debt issuance cost (1)
 
 
 
 
 
 
 
(4,467
)
 
(5,144
)
Total Loans Payable, including Assets Held for Sale
 
 
 
 
 
 
 
353,055

 
364,468

Less loans payable on assets held for sale, net loan amortization costs
 
 
 
 
6,497

 
4,278

Total Loans Payable, net
 
 
 
 
 
 
 
$
346,558

 
$
360,190

(1) Includes loans payable on assets held for sale, see Note 3.
(2) Collateralized by LaGrange Marketplace, Ridgeland and Georgetown.
(3) Collateralized by Ladson Crossing, Lake Greenwood Crossing and South Park.
(4) Collateralized by Cardinal Plaza, Franklinton Square, and Nashville Commons.
(5) Collateralized by Clover Plaza, South Square, St. George, Waterway Plaza and Westland Square.
(6) Collateralized by Darien Shopping Center, Devine Street, Laburnum Square, Lake Murray, Litchfield Market Village, Moncks Corner, Shoppes at Myrtle Park, South Lake and St. Matthews. The various maturity dates are disclosed below within Note 6 under the KeyBank Credit Agreement.

21

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Loans Payable (continued)


KeyBank Credit Agreement

On December 21, 2017, the Company entered into an Amended and Restated Credit Agreement to the KeyBank Credit Agreement (the “Amended and Restated Credit Agreement”). 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).

At December 31, 2018, a $3.83 million over advance (the “Overadvance”) on the Borrowing Base Availability (as defined in the Amended and Restated Credit Agreement) existed as a result of the 2018 refinancing of six assets off the KeyBank Line of Credit. The Company was to repay the Overadvance of $3.83 million by February 28, 2019 or otherwise properly balance the Borrowing Base Availability.

On March 11, 2019, KeyBank extended the time which the Company is to repay the Overadvance to March 31, 2019 or otherwise properly balance the Borrowing Base Availability.

On March 19, 2019, the Company made a $850 thousand principal payment.

On April 25, 2019, the Company entered into a First Amendment to the Amended and Restated Credit Agreement (the "First Amendment"). In conjunction with the First Amendment, the Company made a $1.00 million principal payment on the KeyBank Line of Credit and began making monthly principal payments of $250 thousand on May 1, 2019. The First Amendment, among other provisions, waived the Overadvance (as defined in the Amended and Restated Credit Agreement) and replaced the Borrowing Base Availability (as defined in the Amended and Restated Credit Agreement) with an interest coverage ratio. Additionally, the KeyBank Line of Credit shall be reduced to $27.00 million by July 31, 2019, $7.50 million by September 30, 2019 and the interest rate increases to Libor plus 350 basis points on August 31, 2019 if the outstanding balance is not below $11.00 million.

On June 28, 2019, the Company refinanced the Village of Martinsville collateralized portion of the Amended and Restated Credit Agreement resulting in a paydown of $15.46 million.

As of June 30, 2019, $34.29 million is borrowed on the KeyBank Line of Credit pursuant to the Amended and Restated Credit Agreement, which is collateralized by 9 properties. At June 30, 2019, the outstanding borrowings are accruing interest at 4.90%. The Amended and Restated Credit Agreement contains certain financial covenants that the Company must meet, including minimum leverage, fixed charge coverage, interest coverage and debt service coverage ratios as well as a minimum tangible net worth requirement. The Company was in compliance with the financial covenants as of June 30, 2019. The Amended and Restated Credit Agreement also contains certain events of default, and if they occur, may cause KeyBank to terminate the Amended and Restated Credit Agreement and declare amounts owed to become immediately due and payable. As of June 30, 2019, the Company has not received any notice of default under the Amended and Restated Credit Agreement.

Revere Term Loan

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 extended the maturity date to April 1, 2019 from February 1, 2019 and creates an additional “Exit Fee” of $20 thousand.

As of March 31, 2019, the Revere Term Loan has been paid in full using proceeds from the following:
$323 thousand with proceeds from the sale of Jenks Plaza on January 11, 2019;
$30 thousand in conjunction with the sale of a Harbor Pointe parcel on February 7, 2019;
$300 thousand in monthly scheduled principal payments; and,
$406 thousand, the remaining principal balance and the $20 thousand Exit Fee on March 29, 2019 from operating cash flows.





22

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Loans Payable (continued)


First National Bank Line of Credit

On January 11, 2019, the Company paid $1.51 million on the First National Bank Line of Credit, the portion collateralized by Jenks Plaza, as detailed in Note 3.

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 were extended to March 2019 with interest only payments beginning February 15, 2019. The loans bear interest at 6.50%. In April 2019, the Company extended the $6.50 million in Perimeter Square loans to June 5, 2019.

The loans were paid in full through the sale of the property subsequent to June 30, 2019, see Note 12.

Harbor Pointe

On February 7, 2019, the principal balance on the Harbor Pointe loan was paid in full with the sale of a 1.28 acre parcel located at the property, as detailed in Note 3.

Graystone Crossing

On March 18, 2019, the principal balance on the Graystone Crossing loan was paid in full with the sale of the property, as detailed in Note 3.

Senior Convertible Notes

On June 10, 2019, through scheduled principal and interest payments the senior convertible notes were paid in full.

Village of Martinsville Refinance

On June 28, 2019, the Company executed a promissory note for $16.50 million for the refinancing of Village of Martinsville at a rate of 4.28%. The loan matures on July 6, 2029 with monthly principal and interest payments of $89,664.

Loan Covenants

Certain of the Company’s loans payable have covenants with which the Company is required to comply. As of June 30, 2019, the Company believes it is in compliance with covenants and is not considered in default on any loans.

Debt Maturity

The Company’s scheduled principal repayments on indebtedness as of June 30, 2019, including assets held for sale, are as follows (in thousands, unaudited):
For the remaining six months ended December 31, 2019
$
64,997

December 31, 2020
22,508

December 31, 2021
10,944

December 31, 2022
8,482

December 31, 2023
85,326

December 31, 2024
43,980

Thereafter
121,285

    Total principal repayments and debt maturities
$
357,522

 

The Company has considered our short-term (one year or less) liquidity needs and the adequacy of its estimated cash flows from operating activities and other expected financing sources to meet these needs. In particular, the Company has considered our scheduled debt maturities for the twelve months ending June 30, 2020 of $78.19 million, including $34.29

23

Table of Contents
Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Loans Payable (continued)


million on the KeyBank Line of Credit which is collateralized by nine properties within the portfolio. The Company plans to pay this obligation through a combination of refinancings, dispositions and operating cash. On August 1, 2019, the KeyBank Line of Credit was reduced by $7.55 million with the proceeds from the refinance of Laburnum Square. The KeyBank Line of Credit may be extended at the Company’s option for an additional one-year period to December 2020, subject to certain customary conditions. The $6.50 million in Perimeter Square loans were paid upon sale of the center, see subsequent events Note 12. All loans due to mature are collateralized by properties within the portfolio. Additionally, the Company expects to meet the short-term liquidity requirements, through a combination of the following:

suspension of Series A Preferred, Series B Preferred and Series D Preferred dividends;
available cash and cash equivalents;
cash flows from operating activities;
refinancing of maturing debt;