Wheeler Real Estate Investment Trust(WHLR) - 2020 Q4 - Annual Report

Cautionary Statement on Forward-Looking Statements This statement warns that forward-looking information in the 10-K is subject to risks and uncertainties, which could cause actual results to differ materially - Forward-looking statements are based on management's current expectations and are subject to risks, uncertainties, and other factors that could cause actual results to differ materially[13] - Key factors that could cause actual results to differ include the company's business and investment strategy, projected operating results, U.S. government actions, the state of the U.S. economy, negative impacts from COVID-19, tenant bankruptcies, ability to obtain and maintain financing, and changes in asset values[14] PART I Item 1. Business The company is a self-managed REIT focused on owning and operating grocery-anchored retail properties in secondary and tertiary markets Overview - Wheeler Real Estate Investment Trust, Inc. is a Maryland corporation (formed June 23, 2011) and a fully-integrated, self-managed commercial real estate investment company[17] - The company owns, leases, and operates income-producing retail properties, with a primary focus on grocery-anchored centers[17] Impact of COVID-19 - The U.S. retail market experienced severe pressure due to COVID-19, but the Company remained operational throughout 2020[19] Portfolio - As of December 31, 2020, the portfolio included 66 properties: 60 retail shopping centers (5,561,766 total leasable square feet, 88.9% leased) and 6 undeveloped land parcels (approximately 63 acres)[21] - Properties are geographically located in the Southeast (61% of annualized base rent), Mid-Atlantic (35%), and Northeast (4%)[21] - No single tenant accounts for more than 6% of annualized base rent or 7% of gross leasable square footage; the top 10 tenants represent 26.41% of annualized base rent[22] Management Team and People - The company has 35 full-time employees with an experienced management team in commercial real estate[23] - Key management includes Daniel Khoshaba (CEO since April 2020), Andrew Franklin (COO since 2014), and Crystal Plum (CFO since February 2020)[24][25][26] Business Objectives and Investment Strategy - Primary objective is to provide attractive risk-adjusted returns to stockholders[27] - Investment strategies include focusing on necessity-based retail, secondary and tertiary markets with strong demographics, increasing operating income through leasing and expense management, selectively utilizing capital for property improvements, and recycling capital to deleverage the balance sheet[27][28] - In 2020, two properties were sold for $4.51 million net proceeds, used to reduce outstanding indebtedness[28] Governmental Regulations Affecting Our Properties - Properties are subject to federal, state, and local environmental, health, and safety laws, but compliance costs have not had a material adverse effect[29] Competition - The company faces competition from other commercial developers and real estate companies for leasing properties, potentially impacting tenant attraction, retention, vacancy rates, and rents[30] - Retailers at the company's properties also face increasing competition from online retailers, outlet stores, and discount clubs, which could lead to lease defaults and tenant insolvency[31] Company Website Access and SEC Filings - The company provides access to its SEC filings (10-K, 10-Q, 8-K) and corporate governance documents free of charge on its website, www.whlr.us[33](index=33&type=chunk) Item 1A. Risk Factors As a smaller reporting company, the registrant is not required to provide information under this item - The registrant is a smaller reporting company and is not required to provide information under this item[35] Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report for the company - There are no unresolved staff comments[36] Item 2. Properties This section details the company's property portfolio as of December 31, 2020, including key metrics, top tenants, and lease expiration schedules Our Portfolio - As of December 31, 2020, the company owned 66 properties, including 60 income-producing retail properties across 11 states, totaling 5,561,766 gross leasable square feet[38] Portfolio Overview (December 31, 2020) | Metric | Value | | :--- | :--- | | Total Leasable Square Feet | 5,561,766 | | Percentage Leased | 88.9% | | Percentage Occupied | 87.1% | | Total SF Occupied | 4,846,433 | | Annualized Base Rent (in thousands $) | $46,851 | | Annualized Base Rent per Occupied Sq. Foot ($) | $9.67 | Major Tenants Top 10 Tenants by Annualized Base Rent (December 31, 2020) | Tenant | Annualized Base Rent (in thousands $) | % of Total Annualized Base Rent | Total Occupied Square Feet | Percent Total Leasable Square Foot | Base Rent Per Occupied Square Foot ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Food Lion | $2,733 | 5.83% | 325,576 | 5.85% | $8.39 | | BI-LO | $2,729 | 5.82% | 380,675 | 6.84% | $7.17 | | Kroger | $1,355 | 2.89% | 186,064 | 3.35% | $7.28 | | Piggly Wiggly | $1,322 | 2.82% | 169,750 | 3.05% | $7.79 | | Winn Dixie | $887 | 1.89% | 133,575 | 2.40% | $6.64 | | Planet Fitness | $837 | 1.79% | 100,427 | 1.81% | $8.33 | | Hobby Lobby | $717 | 1.53% | 114,298 | 2.06% | $6.27 | | BJ's Wholesale Club | $651 | 1.39% | 147,400 | 2.65% | $4.42 | | Harris Teeter | $578 | 1.23% | 39,946 | 0.72% | $14.47 | | Lowes Foods | $572 | 1.22% | 54,838 | 0.99% | $10.43 | | Total Top 10 | $12,381 | 26.41% | 1,652,549 | 29.72% | $7.49 | Lease Expirations Lease Expiration Schedule (as of December 31, 2020) | Lease Expiration Period | Number of Expiring Leases | Total Expiring Square Footage | % of Total Expiring Square Footage | % of Total Occupied Square Footage Expiring | Annualized Base Rent (in thousands $) | % of Total Annualized Base Rent | Expiring Base Rent Per Occupied Square Foot ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Available | — | 715,333 | 12.86% | —% | $— | —% | $— | | Month-to-Month | 11 | 24,063 | 0.43% | 0.50% | $296 | 0.63% | $12.30 | | 2021 | 106 | 363,594 | 6.54% | 7.50% | $3,820 | 8.15% | $10.51 | | 2022 | 126 | 509,280 | 9.16% | 10.51% | $5,460 | 11.65% | $10.72 | | 2023 | 133 | 870,708 | 15.66% | 17.97% | $7,675 | 16.38% | $8.81 | | 2024 | 107 | 665,560 | 11.97% | 13.73% | $6,373 | 13.60% | $9.58 | | 2025 | 104 | 787,608 | 14.16% | 16.25% | $7,874 | 16.81% | $10.00 | | 2026 | 68 | 650,641 | 11.70% | 13.43% | $5,807 | 12.39% | $8.93 | | 2027 | 26 | 164,815 | 2.96% | 3.40% | $1,988 | 4.24% | $12.06 | | 2028 | 21 | 331,609 | 5.96% | 6.84% | $2,336 | 4.99% | $7.04 | | 2029 | 16 | 114,020 | 2.05% | 2.35% | $1,143 | 2.44% | $10.02 | | 2030 and thereafter | 38 | 364,535 | 6.55% | 7.52% | $4,079 | 8.72% | $11.19 | | Total | 756 | 5,561,766 | 100.00% | 100.00% | $46,851 | 100.00% | $9.67 | Property Management and Leasing Strategy - The company self-administers property management and most leasing activities, subcontracting on-site functions with costs often passed to tenants via triple net leases[49][27] - The strategy focuses on maximizing sales per square foot, operating cash flow, and property value through intensive lease management, regular property reviews, and market-savvy leasing representatives[50][51][52] Item 3. Legal Proceedings Legal proceedings information is incorporated by reference from Note 10, Commitments and Contingencies, in the consolidated financial statements - Legal proceedings are detailed in Note 10, Commitments and Contingencies, of the consolidated financial statements[53] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[54] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section covers the common stock market, shareholder numbers, suspended dividend policy, and recent preferred stock transactions including a tender offer Market Information - The company's Common Stock is traded on the NASDAQ Capital Market under the symbol 'WHLR'[56] Approximate Number of Holders of Our Common Stock - As of March 16, 2021, there were 144 holders of record of the company's Common Stock[57] Dividend Policy - The Board of Directors suspended common stock dividends in March 2018 and preferred stock dividends (Series A, B, D) beginning December 31, 2018, to retain cash flow and reduce debt[58] - Due to missed Series D Preferred dividends, the annual dividend rate increased to 10.75% starting January 1, 2019, until all accumulated unpaid dividends are paid[58] - No dividends can be paid on Common Stock until all accumulated accrued and unpaid dividends on Preferred Stocks are paid in full[58] Operating Partnership Purchase of Stock - On September 22, 2020, the Operating Partnership purchased 71,343 shares of Series D Preferred Stock at $15.50 per share from an unaffiliated investor[59] Tender Offer - On December 23, 2020, the company announced a modified Dutch auction tender offer to purchase up to $19.00 million in Series D Preferred Shares at $15.50-$18.00 per share[60] - Subsequent to December 31, 2020, the offer value increased to $20.00 million, then decreased to $6.00 million, and was extended multiple times, ultimately expiring on March 12, 2021[60] - The company accepted for purchase 387,097 Series D Preferred Shares at $15.50 per share, totaling $6.00 million[60] Item 6. Selected Financial Data This item is not applicable to the company - This item is not applicable[61] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and results of operations for 2020 versus 2019, covering COVID-19 impact, financial activities, accounting policies, liquidity, and key performance metrics Company Overview - The company is a Maryland corporation focused on owning, leasing, and operating income-producing retail properties, primarily in the Southeast and Mid-Atlantic[63] - As of December 31, 2020, the portfolio included 60 retail shopping centers and 6 undeveloped land parcels, with a total net rentable space of approximately 5,561,766 square feet and an 88.9% leased level[64] Recent Trends and Activities - The company's 60 retail shopping centers remained open and operating, with 43 anchored by grocery and/or drug stores, featuring necessity-based tenants[69] - The company granted 148 rent concessions and modified 72 leases as of March 5, 2021 and December 31, 2020, respectively, with a weighted average rate increase of 3.53% and a 3-year weighted average extension term for modified leases[69] - Rent collections for Q4 2020 were 97% of contractual base rent and tenant reimbursements, with total 2020 collections at 99%[69] - The company received $552 thousand in Paycheck Protection Program (PPP) funds, which were approved for forgiveness on January 8, 2021[72][74] - Assets held for sale at December 31, 2020, included Columbia Fire Station, Berkley Shopping Center, a land parcel, and two outparcels at Rivergate Shopping Center, with a $600 thousand impairment expense recorded for Columbia Fire Station[75] Property Dispositions (2020) | Disposal Date | Property | Contract Price (in thousands $) | Gain (Loss) (in thousands $) | Net Sales Proceeds (in thousands $) | | :--- | :--- | :--- | :--- | :--- | | December 31, 2020 | Riversedge North - Virginia Beach, VA | $3,000 | $49 | $2,843 | | January 21, 2020 | St. Matthews - St. Matthews, SC | $1,775 | $(26) | $1,665 | - On December 22, 2020, the company entered into a $25.00 million Powerscourt Financing Agreement at 13.50% interest, maturing March 31, 2023, and issued warrants to purchase 496,415 shares of Common Stock[77][78] - The KeyBank Credit Agreement was paid in full as of December 22, 2020, through various paydowns from property sales, refinances, and the Powerscourt Financing Agreement[81] - The Columbia Fire Station loan was extended to December 3, 2020, then defaulted, leading to a lawsuit and a Forbearance Agreement on January 21, 2021, extending maturity to July 21, 2021, at 14% interest[82][83][84] - As of December 31, 2020, accumulated undeclared dividends totaled $30.51 million for Series A, B, and D Preferred Stock, with $13.85 million attributable to 2020[86] New Leases, Leasing Renewals and Expirations Lease Activity Statistics (Years Ended December 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Renewals: | | | | Leases renewed with rate increase (sq feet) | 616,548 | 685,124 | | Leases renewed with rate decrease (sq feet) | 123,935 | 52,282 | | Leases renewed with no rate change (sq feet) | 404,428 | 298,611 | | Total leases renewed (sq feet) | 1,144,911 | 1,036,017 | | Weighted average change over prior rates | 4.63% | 4.17% | | Weighted average change over prior rates, excluding bankruptcy negotiations | 5.58% | N/A | | New Leases: | | | | New leases (sq feet) | 333,279 | 117,605 | | New leases (count) | 72 | 43 | | Weighted average rate ($ per sq foot) | $9.03 | $12.82 | | GLA expiring during the next 12 months, including month-to-month leases | 6.97% | 13.10% | Critical Accounting Policies - Revenue recognition for base and percentage rents and tenant reimbursements is combined and accrued on a straight-line basis[93] - Tenant receivables are reviewed for collectability, with an allowance for uncollectible portions based on creditworthiness, historical bad debt, and economic trends[94] - Investment properties are reviewed for impairment at least annually, measured when estimated undiscounted future operating income plus residual value is less than carrying value[96] - Assets held for sale are reported at the lower of carrying value or fair value less estimated selling costs, with impairment expense recognized if carrying value exceeds this amount[97] Liquidity and Capital Resources Cash Flows (in thousands $) | Activity | 2020 | 2019 | Year Over Year Change ($) | Year Over Year Change (%) | | :--- | :--- | :--- | :--- | :--- | | Operating activities | $15,780 | $15,253 | $527 | 3.46% | | Investing activities | $2,237 | $868 | $1,369 | 157.72% | | Financing activities | $3,160 | $(12,529) | $15,689 | 125.22% | - Operating cash flow increased by 3.46% due to decreased interest and G&A expenses, partially offset by increased accounts receivable and decreased property NOI[100] - Investing cash flow increased by 157.72% primarily due to property sales in 2020 and a decrease in capital expenditures[101] - Financing cash flow increased by 125.22% due to decreased loan principal payments, increased loan proceeds from refinances and the Powerscourt Financing Agreement, and PPP funds, partially offset by increased deferred financing costs and preferred stock redemption[102] Debt Balances (in thousands $) | Debt Type | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Fixed-rate notes | $323,868 | $305,017 | | Adjustable-rate mortgages | $23,576 | $24,163 | | Fixed-rate notes, assets held for sale | $6,472 | $— | | Floating-rate line of credit | $— | $17,879 | | Total debt | $353,916 | $347,059 | - The weighted average interest rate and term for fixed-rate debt were 5.46% and 3.79 years, respectively, at December 31, 2020[104] - The company has $43.93 million of debt maturing in 2021 and plans to meet liquidity needs through refinancing, dispositions, operating cash, and continued suspension of preferred dividends[104][105][108] Off-Balance Sheet Arrangements - The company has an off-balance sheet arrangement related to the Harbor Pointe Tax Increment Revenue Note, where it may be obligated to reimburse the Grove Economic Development Authority for debt service shortfalls if ad valorem taxes are insufficient[111] - The future principal obligation under this agreement is no more than $2.21 million as of December 31, 2020, with no amounts accrued due to uncertainty in estimating future shortfalls[112] Inflation, Deflation and Economic Condition Considerations - Most leases include provisions for tenants to pay pro-rata operating expenses, mitigating inflation impact, and some have percentage rent clauses[114] - Deflationary periods or economic weakness could lead to declining minimum and percentage rents, and lower recovery rates of operating expenses[114] Recent Accounting Pronouncements - The company is evaluating the impact of ASU 2016-13, 'Financial Instruments - Credit Losses (Topic 326)', effective after December 15, 2022[241] - ASU 2018-13, 'Fair Value Measurement (Topic 820)', adopted January 1, 2020, did not have a material impact on consolidated financial statements[242] Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019 - Results of Operations Consolidated Statements of Operations Summary (in thousands $) | Metric | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $61,003 | $63,162 | $(2,159) | (3.42)% | | Total Operating Expenses | $42,608 | $53,702 | $(11,094) | (20.66)% | | Operating Income | $18,418 | $10,854 | $7,564 | 69.69% | | Interest expense | $(17,092) | $(18,983) | $1,891 | 9.96% | | Net Income (Loss) Attributable to Wheeler REIT | $245 | $(8,039) | $8,284 | 103.05% | | Basic and Diluted Loss per share | $(1.40) | $(2.34) | $0.94 | 40.17% | | Weighted-average number of shares | 9,698,274 | 9,671,847 | 26,427 | 0.27% | - Total revenue decreased by 3.42% primarily due to sold properties, new anchor vacancies, and increased credit loss on operating receivables, partially offset by straight-line rental revenue increases[119] - Total operating expenses decreased by 20.66% mainly due to decreases in impairments ($5.00 million for notes receivable, $1.00 million for assets held for sale), depreciation and amortization ($4.03 million), and corporate general and administrative expenses ($802 thousand)[120][121] - Operating Income increased by 69.69% to $18.42 million in 2020 from $10.85 million in 2019[118] - Interest expense decreased by 9.96% ($1.89 million) due to a $12.86 million reduction in loans payable and lower loan cost amortization[123] - Other expenses of $1.04 million in 2020 included $600 thousand in legal settlement costs and $439 thousand for proxy solicitation expense reimbursement[124] Property Net Operating Income (NOI) (in thousands $) | Category | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Same Store NOI | $41,863 | $43,362 | $(1,499) | (3.46)% | | Non-same Store NOI | $(18) | $548 | $(566) | (103.28)% | | Total Property NOI | $41,845 | $43,910 | $(2,065) | (4.70)% | Funds from Operations (FFO) (in thousands $) | Category | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Same Store FFO | $18,175 | $13,141 | $5,034 | 38.31% | | Non-same Store FFO | $(20) | $238 | $(258) | (108.40)% | | Total FFO | $18,155 | $13,379 | $4,776 | 35.70% | Adjusted Funds from Operations (AFFO) (in thousands $) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | FFO | $18,155 | $13,379 | | Preferred stock dividends - undeclared | $(14,528) | $(14,629) | | FFO available to common stockholders and common unitholders | $4,400 | $(570) | | AFFO | $4,329 | $3,970 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - This item is not applicable[139] Item 8. Financial Statements and Supplementary Data Financial statements and supplementary data are incorporated by reference from page 30 of this Annual Report on Form 10-K - The required information is incorporated by reference to the Financial Statements beginning on page 30 of this Annual Report on Form 10-K[140] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in and disagreements with accountants on accounting and financial disclosure[141] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 Disclosure Controls and Procedures - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[142] Management's Annual Report on Internal Control Over Financial Reporting - Management is responsible for establishing and maintaining adequate internal control over financial reporting[143] - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2020, using the COSO framework, and determined it was effective[145] - The report does not include an attestation report from the independent registered public accounting firm regarding internal controls[147] Changes in Internal Control Over Financial Reporting - There were no changes in internal control over financial reporting for the year ended December 31, 2020, that materially affected or are reasonably likely to materially affect the company's internal control over financial reporting[148] Item 9B. Other Information This item is not applicable to the company - This item is not applicable[149] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement, including the company's ethics code - Information is incorporated by reference from the company's 2021 Proxy Statement[151] - The company has adopted an ethics code of conduct applicable to directors, officers, and employees, available on www.whlr.us[152](index=152&type=chunk) Item 11. Executive Compensation Executive compensation information is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[153] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the Proxy Statement, including details on equity compensation plans as of December 31, 2020 - Information is incorporated by reference from the company's Proxy Statement[154] Equity Compensation Plan Information (December 31, 2020) | Plan Category | 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 | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | — | — | 173,811 | | Equity compensation plans not approved by stockholders | — | — | — | | Total | — | — | 173,811 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[157] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[158] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits included in this Annual Report on Form 10-K Financial Statements - The financial statements filed include the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Equity, and Consolidated Statements of Cash Flows, along with Notes to Consolidated Financial Statements[159] Financial Statement Schedules - Financial statement schedules include Schedule II-Valuation and Qualifying Accounts and Schedule III-Real Estate and Accumulated Depreciation[162] Exhibits - A comprehensive Exhibit Index is provided at the end of the Annual Report on Form 10-K[161] Item 16. Form 10-K Summary This item is not applicable to the company - This item is not applicable[372] Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Cherry Bekaert LLP issued an unqualified opinion on the 2020 and 2019 consolidated financial statements, noting investment property impairment as a critical audit matter - Cherry Bekaert LLP issued an unqualified opinion on the consolidated financial statements for 2020 and 2019[164] - Evaluation of investment properties for impairment was identified as a critical audit matter due to the subjectivity in assessing significant assumptions for recoverability[168][169] Consolidated Balance Sheets The consolidated balance sheets present the financial position of the company and its subsidiaries as of December 31, 2020 and 2019 Consolidated Balance Sheets (in thousands $) | Account | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | ASSETS: | | | | Investment properties, net | $392,664 | $416,215 | | Cash and cash equivalents | $7,660 | $5,451 | | Restricted cash | $35,108 | $16,140 | | Rents and other tenant receivables, net | $9,153 | $6,905 | | Assets held for sale | $13,072 | $1,737 | | Total Assets | $489,379 | $484,365 | | LIABILITIES: | | | | Loans payable, net | $334,266 | $340,913 | | Liabilities associated with assets held for sale | $13,124 | $2,026 | | Warrant liability | $594 | $— | | Total Liabilities | $376,967 | $371,133 | | EQUITY: | | | | Total Stockholders' Equity | $14,918 | $23,927 | | Noncontrolling interests | $1,931 | $2,080 | | Total Equity | $16,849 | $26,007 | | Total Liabilities and Equity | $489,379 | $484,365 | Consolidated Statements of Operations The consolidated statements of operations present the company's revenues, expenses, and net income (loss) for the years ended December 31, 2020 and 2019 Consolidated Statements of Operations (in thousands $) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenue | $61,003 | $63,162 | | Total Operating Expenses | $42,608 | $53,702 | | Operating Income | $18,418 | $10,854 | | Interest expense | $(17,092) | $(18,983) | | Other expense | $(1,039) | $— | | Net Income (Loss) Before Income Taxes | $287 | $(8,129) | | Net Income (Loss) Attributable to Wheeler REIT | $245 | $(8,039) | | Net Loss Attributable to Wheeler REIT Common Stockholders | $(13,557) | $(22,668) | | Basic and Diluted Loss per share | $(1.40) | $(2.34) | Consolidated Statements of Equity The consolidated statements of equity detail changes in stockholders' equity and noncontrolling interests for the years ended December 31, 2020 and 2019 Consolidated Statements of Equity Summary (in thousands $) | Account | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Stockholders' Equity | $14,918 | $23,927 | | Noncontrolling Interests | $1,931 | $2,080 | | Total Equity | $16,849 | $26,007 | | Net Income (Loss) Attributable to Wheeler REIT | $245 | $(8,039) | | Dividends and distributions | $(10,258) | $(10,357) | Consolidated Statements of Cash Flows The consolidated statements of cash flows detail cash generated from or used in operating, investing, and financing activities for 2020 and 2019 Consolidated Statements of Cash Flows (in thousands $) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,780 | $15,253 | | Net cash provided by investing activities | $2,237 | $868 | | Net cash provided by (used in) financing activities | $3,160 | $(12,529) | | Increase in cash, cash equivalents and restricted cash | $21,177 | $3,592 | | Cash, cash equivalents and restricted cash, end of year | $42,768 | $21,591 | | Cash paid for interest | $15,889 | $17,379 | Notes to Consolidated Financial Statements These notes provide detailed information supporting the consolidated financial statements, covering organization, accounting policies, asset/liability details, equity, commitments, and subsequent events Note 1. Organization and Basis of Presentation and Consolidation - Wheeler Real Estate Investment Trust, Inc. is a Maryland corporation and a self-managed REIT, operating primarily through its Operating Partnership[183] - The company owns and operates 60 centers and 6 undeveloped properties, totaling approximately 5,561,766 square feet, with an 88.9% leased level as of December 31, 2020[183] - The business strategy focuses on acquiring high-quality, competitively protected retail properties, especially grocery-anchored centers, in stable demographic markets[184] - The company became an internally-managed REIT in October 2014 through the acquisition of Wheeler Interests, LLC, Wheeler Real Estate, LLC, and WHLR Management, LLC[185] Note 2. Summary of Significant Accounting Policies - Investment properties are recorded at fair value upon acquisition, with purchase price allocated to buildings, land, and intangible assets (e.g., out-of-market leases, tenant relationships)[190] - Depreciation on buildings and improvements is recorded using the straight-line method over 5 to 40 years, with periodic reviews of depreciable lives[191] - Investment properties are reviewed for impairment at least annually, triggered by events or changes indicating that carrying value may not be recoverable[193] - Assets held for sale are reported at the lower of carrying value or fair value less estimated selling costs, with impairment expense recognized if applicable[196] - Cash and cash equivalents include highly liquid investments with original maturities of 90 days or less; restricted cash is held by lenders for various reserves and the 2020 tender offer[199][200] - Tenant receivables include base rents and reimbursements, with an allowance for uncollectible portions based on creditworthiness and economic trends[202] - The company received $552 thousand in PPP funds, recorded as a promissory note, with principal potentially forgivable for qualifying expenses[207][208] - Derivative financial instruments, such as stock purchase warrants, are initially recorded at fair value and re-valued at each reporting date, with changes reported in the consolidated statement of operations[209] - The Operating Partnership's purchase of 71,343 Series D Preferred Stock shares on September 22, 2020, is considered retired on the consolidated financial statements[212] - Lease contract revenue combines lease and nonlease components, with minimum rents accrued on a straight-line basis and tenant reimbursements recognized as variable lease income[213][214][215] Revenue Disaggregation by Type of Service (in thousands $) | Revenue Type | 2020 | 2019 | | :--- | :--- | :--- | | Minimum rent | $46,349 | $49,006 | | Tenant reimbursements - variable lease revenue | $13,273 | $13,369 | | Percentage rent - variable lease revenue | $393 | $334 | | Straight-line rents | $1,155 | $182 | | Lease termination fees | $178 | $117 | | Other | $786 | $603 | | Subtotal | $62,134 | $63,611 | | Credit losses on operating lease receivables | $(1,131) | $(449) | | Total | $61,003 | $63,162 | - The company has elected to be taxed as a REIT, requiring distribution of at least 90% of taxable income and meeting other asset and income tests[221] - Operating leases, where the company is the lessee, are included in operating lease right-of-use (ROU) assets and operating lease liabilities on the consolidated balance sheets[231][232] - The company adopted ASC Topic 842, 'Leases,' on January 1, 2019, using the modified retrospective approach, resulting in the recognition of ROU assets and lease liabilities of approximately $11.90 million and $11.99 million, respectively[238][240] Note 3. Real Estate Investment Properties (in thousands $) | Account | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Land and land improvements | $97,117 | $100,599 | | Buildings and improvements | $354,738 | $366,082 | | Investment properties at cost | $451,855 | $466,681 | | Less accumulated depreciation | $(59,191) | $(50,466) | | Investment properties, net | $392,664 | $416,215 | - Depreciation expense on investment properties was $11.32 million in 2020 and $12.02 million in 2019[246] - At December 31, 2020, assets held for sale included Columbia Fire Station, Berkley Shopping Center, a land parcel, and two outparcels at Rivergate Shopping Center[248] Impairment Expenses on Assets Held for Sale (in thousands $) | Property | 2020 | 2019 | | :--- | :--- | :--- | | Columbia Fire Station | $600 | $— | | St. Matthews | $— | $451 | | Perimeter Square | $— | $1,147 | | Total | $600 | $1,598 | Assets Held for Sale and Associated Liabilities (in thousands $) | Account | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets Held for Sale: | | | | Investment properties, net | $12,593 | $1,651 | | Total assets held for sale | $13,072 | $1,737 | | Liabilities Associated with Assets Held for Sale: | | | | Loans payable | $12,838 | $1,974 | | Total liabilities associated with assets held for sale | $13,124 | $2,026 | Property Disposals (in thousands $) | Disposal Date | Property | Contract Price | Gain (Loss) | Net Proceeds | | :--- | :--- | :--- | :--- | :--- | | December 31, 2020 | Riversedge North | $3,000 | $49 | $2,843 | | January 21, 2020 | St. Matthews | $1,775 | $(26) | $1,665 | | July 12, 2019 | Perimeter Square | $7,200 | $(95) | $— | | March 18, 2019 | Graystone Crossing | $6,000 | $1,433 | $1,744 | | February 7, 2019 | Harbor Pointe Land Parcel | $550 | $— | $19 | | January 11, 2019 | Jenks Plaza | $2,200 | $387 | $1,840 | Note 4. Notes Receivable - On May 7, 2019, Sea Turtle Development filed for Chapter 11 bankruptcy, leading to a $5.00 million impairment expense on notes receivable for 2019, reducing the carrying value to zero[254] - No interest income was recognized on the Sea Turtle Development note in 2019 or 2020[254] Note 5. Deferred Costs Deferred Costs and Other Assets, Net (in thousands $) | Account | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Leases in place, net | $10,233 | $14,968 | | Ground lease sandwich interest, net | $1,941 | $2,215 | | Lease origination costs, net | $1,334 | $1,038 | | Tenant relationships, net | $1,308 | $2,173 | | Legal and marketing costs, net | $22 | $43 | | Other | $592 | $588 | | Total deferred costs and other assets, net | $15,430 | $21,025 | - Total intangible accumulated amortization was $60.33 million in 2020 and $57.15 million in 2019[256] - Intangible amortization expense totaled $5.97 million in 2020 and $9.30 million in 2019[256] Note 6. Loans Payable Loans Payable (in thousands $) | Property/Description | Interest Rate | Maturity | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | KeyBank Credit Agreement | LIBOR + 350 bps | December 2020 | $— | $17,879 | | Powerscourt Financing Agreement | 13.50% | March 2023 | $25,000 | $— | | Total Principal Balance | N/A | N/A | $353,916 | $347,059 | | Unamortized debt issuance cost | N/A | N/A | $(6,812) | $(4,172) | | Total Loans Payable, net | N/A | N/A | $334,266 | $340,913 | - The KeyBank Credit Agreement was paid in full as of December 22, 2020, through various paydowns from property sales and refinances[262] - The Powerscourt Financing Agreement, a $25.00 million term loan at 13.50% maturing March 31, 2023, was entered into on December 22, 2020, with proceeds used to pay down KeyBank debt and redeem Series D Preferred shares[262] - In conjunction with the Powerscourt Financing Agreement, warrants to purchase 496,415 shares of Common Stock were issued, valued at approximately $594 thousand[263][266] - The Revere Term Loan was paid in full as of December 31, 2019, and associated warrants expired in 2019[267] - The Columbia Fire Station loan was extended to December 3, 2020, then defaulted, leading to a lawsuit and a Forbearance Agreement on January 21, 2021, extending maturity to July 21, 2021, at 14% interest[290][291][292] Debt Maturity Schedule (in thousands $) | Year | Total Principal Repayments and Debt Maturities | | :--- | :--- | | 2021 | $43,933 | | 2022 | $12,586 | | 2023 | $111,875 | | 2024 | $44,240 | | 2025 | $91,426 | | Thereafter | $49,856 | | Total | $353,916 | Note 7. Rentals under Operating Leases Future Minimum Rents from Noncancelable Tenant Operating Leases (in thousands $) | Year | Total Minimum Rents | | :--- | :--- | | 2021 | $44,061 | | 2022 | $40,091 | | 2023 | $34,385 | | 2024 | $27,053 | | 2025 | $21,239 | | Thereafter | $46,311 | | Total minimum rents | $213,140 | Note 8. Equity and Mezzanine Equity - The company has authority to issue 33,750,000 shares of stock, including 18,750,000 Common Stock and 15,000,000 Preferred Stock (Series A, B, D)[297] - The Trust owned a 98.53% interest in the Operating Partnership as of December 31, 2020[299] - Series A Preferred Stock: 562 shares outstanding, $1,000 liquidation preference, 9% cumulative dividends, redeemable at 103% of purchase price plus accrued dividends[300] - Series B Preferred Stock: 1,875,748 shares outstanding, $25.00 liquidation preference, 9% interest, mandatory conversion if Common Stock volume-weighted average closing price exceeds $58 per share[301] - Series D Preferred Stock: 3,529,293 shares outstanding, $25.00 liquidation preference, 8.75% cumulative cash dividends (increasing by 2% annually after Sept 21, 2023, up to 14%)[302] - The Series D Preferred dividend rate increased to 10.75% beginning January 1, 2019, due to suspension of payments[305] - A Preferred Dividend Default occurred on April 15, 2020, potentially allowing Series D and Parity Preferred Stockholders to elect two additional directors[306] - The Operating Partnership purchased 71,343 Series D Preferred shares on September 22, 2020, for $15.50 per share, which are deemed retired[307] Series D Preferred Stock Carrying Value (in thousands $) | Date | Value | | :--- | :--- | | Balance December 31, 2018 | $76,955 | | Balance December 31, 2019 | $87,225 | | Balance December 31, 2020 | $95,563 | - The total cumulative dividends in arrears for Series A, B, and D Preferred Stock as of December 31, 2020, is $30.51 million[313] - The 2015 and 2016 Long-Term Incentive Plans allow for issuance of Common Stock to employees, directors, officers, and consultants, with 41,104 and 132,707 shares available, respectively, as of December 31, 2020[315][318] - A Stock Appreciation Rights Agreement (SARs) for 5,000,000 shares at a strike price of $1.85 per share was granted to the CEO, Daniel Khoshaba, effective upon stockholder approval in 2021[319] Note 9. Lease Commitments - The company has ground leases and leases its corporate headquarters, accounted for as operating leases, with a weighted average remaining lease term of 32 years as of December 31, 2020[321] Undiscounted Cash Flows of Scheduled Operating Lease Obligations (in thousands $) | Year | Total Minimum Lease Payments | | :--- | :--- | | 2021 | $902 | | 2022 | $905 | | 2023 | $907 | | 2024 | $909 | | 2025 | $913 | | Thereafter | $23,785 | | Total minimum lease payments | $28,321 | | Discount | $(15,121) | | Operating lease liabilities | $13,200 | - On December 31, 2020, the company sold its corporate headquarters for $2.84 million (net) and simultaneously leased it back for 10 years at an annual base rent of $265 thousand, recognizing a $49 thousand gain[326] Note 10. Commitments and Contingencies - The company carries comprehensive liability, fire, extended coverage, business interruption, and rental loss insurance for its properties, along with directors', officers', entity, and employment practices liability insurance[327] - The company's portfolio is concentrated in the Southeast, Mid-Atlantic, and Northeast, making it susceptible to adverse regional economic developments[329] - The company is involved in various legal proceedings, including a settlement with former CEO Jon Wheeler for $500 thousand in October 2020, and a lawsuit with former CEO David Kelly for alleged improper termination[332][333][335] - The company has a contingent obligation under the Harbor Pointe Agreement to reimburse the Grove Economic Development Authority for debt service shortfalls on a $2.42 million tax increment revenue note, with a future principal obligation of no more than $2.21 million as of December 31, 2020[337][338] Note 11. Related Party Transactions Related Party Activity (in thousands $) | Account | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Amounts paid to affiliates | $106 | $— | | Amounts received from affiliates | $— | $19 | - The company agreed to reimburse the Stilwell Group $439 thousand for proxy solicitation expenses incurred in connection with the 2019 annual meeting[340] - A tax protection agreement obligates the Operating Partnership to reimburse former CEO Jon Wheeler for tax liabilities if certain actions are taken with respect to Sangaree Plaza, Tri-County Plaza, and Berkley prior to November 10, 2023[341] Note 12. Subsequent Events - On January 8, 2021, the PPP Promissory Note application for forgiveness was approved[343] - The tender offer for Series D Preferred Shares was extended multiple times and ultimately resulted in the purchase of 387,097 shares at $15.50 per share for an aggregate cost of $6.00 million on March 12, 2021[344] - On February 2, 2021, the Tuckernuck Loan was refinanced for $5.15 million at 5.00%, maturing March 1, 2026[345] - On March 12, 2021, the $25.00 million Powerscourt Financing Agreement was paid in full, though the associated warrant agreement remains[346] - On March 12, 2021, the company entered into a $35.00 million Wilmington Financing Agreement at 8.00% interest, maturing March 2026, to pay down the Powerscourt Financing Agreement and fund Series D Preferred redemption[347] - In conjunction with the Wilmington Financing Agreement, warrants to purchase 1,061,719 shares of Common Stock were issued in three tranches with varying exercise prices[349] Schedule II-Valuation and Qualifying Accounts This schedule details the allowance for doubtful accounts for the years ended December 31, 2020 and 2019 Allowance for Doubtful Accounts (in thousands $) | Description | Balance at Beginning of Year | Charged to Costs and Expense | Deductions from Reserves | Balance at End of Year | | :--- | :--- | :--- | :--- | :--- | | Year Ended December 31, 2020 | $3,293 | $1,131 | $(3,430) | $994 | | Year Ended December 31, 2019 | $3,269 | $426 | $(402) | $3,293 | Schedule III-Real Estate and Accumulated Depreciation This schedule provides a detailed breakdown of the company's real estate assets and accumulated depreciation as of December 31, 2020 Real Estate and Accumulated Depreciation Summary (in thousands $) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Balance at beginning of period | $468,499 | $482,103 | | Additions during the period: | | | | Acquisitions | $— | $35 | | Improvements | $3,066 | $2,711 | | Impairments | $(600) | $(1,598) | | Disposals | $(6,151) | $(14,752) | | Balance at end of period | $464,814 | $468,499 | - The schedule lists individual properties with their land and building values, capitalized improvements, and accumulated depreciation, showing a total gross amount of $464,814 thousand at December 31, 2020[358] SIGNATURES This section contains the signatures of the CEO, CFO, and Board of Directors, certifying the report's filing - The report is signed by Daniel Khoshaba (Chief Executive Officer) and Crystal Plum (Chief Financial Officer) on March 18, 2021[376] - The Board of Directors, including Stefani D. Carter (Chairman), Andrew Jones, Clayton Andrews, Joseph D. Stilwell, Paula J. Poskon, Kerry G. Campbell, and E.J. Borrack, also signed the report[379]