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EX-31.1 - 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Wheeler Real Estate Investment Trust, Inc.ex3116-30x2015.htm
EX-31.2 - 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER - Wheeler Real Estate Investment Trust, Inc.ex3126-30x2015.htm
EX-32 - 906 CERTIFICATION OF CEO AND CFO - Wheeler Real Estate Investment Trust, Inc.ex326-30x2015.htm

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, 2015
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., Suite 200
Virginia Beach. Virginia
 
23452
(Address of Principal Executive Offices)
 
(Zip Code)
 (757) 627-9088
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  (do not check if a smaller reporting company)
  
Smaller reporting company
 
ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of August 10, 2015, there were 65,918,841 common shares, $0.01 par value per share, outstanding.

1


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.
 

2


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

 
June 30, 2015
 
December 31, 2014
 
(unaudited)
 
 
ASSETS:
 
 
 
Investment properties, net
$
192,945,133

 
$
152,250,986

Cash and cash equivalents
49,165,844

 
9,969,748

Rents and other tenant receivables, net
2,193,602

 
1,985,466

Goodwill
5,485,823

 
7,004,072

Above market lease intangible, net
5,681,901

 
4,488,900

Deferred costs and other assets, net
45,688,802

 
29,272,096

Total Assets
$
301,161,105

 
$
204,971,268

LIABILITIES:
 
 
 
Loans payable
$
163,826,466

 
$
141,450,143

Below market lease intangible, net
5,016,648

 
5,267,073

Accounts payable, accrued expenses and other liabilities
8,227,725

 
5,130,625

Total Liabilities
177,070,839

 
151,847,841

Commitments and contingencies

 

 
 
 
 
EQUITY:
 
 
 
Series A preferred stock (no par value, 4,500 shares authorized, 1,809 shares issued
and outstanding)
1,458,050

 
1,458,050

Series B convertible preferred stock (no par value, 3,000,000 shares authorized,
1,595,900 and 1,648,900 shares issued and outstanding, respectively)
36,806,496

 
37,620,254

Common stock ($0.01 par value, 150,000,000 and 75,000,000 shares authorized, 54,419,013 and 7,512,979 shares issued and outstanding, respectively)
544,190

 
75,129

Additional paid-in capital
183,834,995

 
31,077,060

Accumulated deficit
(108,544,140
)
 
(27,660,234
)
Total Shareholders’ Equity
114,099,591

 
42,570,259

Noncontrolling interests
9,990,675

 
10,553,168

Total Equity
124,090,266

 
53,123,427

Total Liabilities and Equity
$
301,161,105

 
$
204,971,268

See accompanying notes to condensed consolidated financial statements.


3


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
REVENUE:
 
 
 
 
 
 
 
Rental revenues
$
4,910,403

 
$
2,999,290

 
$
9,291,008

 
$
5,948,100

Asset management fees
121,184

 

 
333,482

 

Commissions
111,717

 

 
220,610

 

Tenant reimbursements and other revenues
1,560,057

 
634,404

 
2,610,402

 
1,349,746

Total Revenue
6,703,361

 
3,633,694

 
12,455,502

 
7,297,846

OPERATING EXPENSES:
 
 
 
 
 
 
 
Property operations
1,901,313

 
909,037

 
3,533,492

 
1,832,219

Non-REIT management and leasing services
231,777

 

 
601,552

 

Depreciation and amortization
4,074,749

 
1,735,944

 
7,311,233

 
3,521,546

Provision for credit losses
54,538

 
(28,032
)
 
101,736

 
(28,032
)
Corporate general & administrative
3,518,630

 
1,385,549

 
5,829,860

 
2,217,867

Total Operating Expenses
9,781,007

 
4,002,498

 
17,377,873

 
7,543,600

Operating Loss
(3,077,646
)
 
(368,804
)
 
(4,922,371
)
 
(245,754
)
Interest expense
(2,217,592
)
 
(1,536,637
)
 
(4,596,056
)
 
(2,905,575
)
Net Loss
(5,295,238
)
 
(1,905,441
)
 
(9,518,427
)
 
(3,151,329
)
Less: Net loss attributable to noncontrolling interests
(440,216
)
 
(81,451
)
 
(902,592
)
 
(168,703
)
Net Loss Attributable to Wheeler REIT
(4,855,022
)
 
(1,823,990
)
 
(8,615,835
)
 
(2,982,626
)
Preferred stock dividends
(8,334,102
)
 
(423,555
)
 
(10,836,325
)
 
(464,258
)
Deemed dividend related to beneficial conversion feature of preferred stock
(59,520,000
)
 

 
(59,520,000
)
 

Net Loss Attributable to Wheeler REIT Common
Shareholders
$
(72,709,124
)
 
$
(2,247,545
)
 
$
(78,972,160
)
 
$
(3,446,884
)
Loss per share:
 
 
 
 
 
 
 
Basic and Diluted
$
(4.13
)
 
$
(0.31
)
 
$
(6.20
)
 
$
(0.47
)
Weighted-average number of shares:
 
 
 
 
 
 
 
Basic and Diluted
17,594,873

 
7,329,788

 
12,727,710

 
7,258,068

See accompanying notes to condensed consolidated financial statements.


4


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Equity
 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A
 
Series B
 
Series C
 
Common
 
 
 
 
 
 
 
Noncontrolling
 
 
 
Preferred Stock
 
Preferred Stock
 
Preferred Stock
 
Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Total
Shareholders’ Equity
 
Interests
 
Total
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
 
 
 
Units
 
Value
 
Equity
Balance,
December 
31, 2014
1,809

 
$
1,458,050

 
1,648,900

 
$
37,620,254

 

 
$

 
7,512,979

 
$
75,129

 
$
31,077,060

 
$
(27,660,234
)
 
$
42,570,259

 
3,567,623

 
$
10,553,168

 
$
53,123,427

Accretion of
Series B preferred stock discount

 

 

 
395,456

 

 

 

 

 

 

 
395,456

 

 

 
395,456

Conversion
of Series B
preferred stock to common stock

 

 
(53,000
)
 
(1,209,214
)
 

 

 
265,000

 
2,650

 
1,206,564

 

 

 

 

 

Reclass of Series C preferred stock to equity

 

 

 

 
93,000

 
86,415,894

 

 

 

 

 
86,415,894

 

 

 
86,415,894

Accretion of Series C preferred stock

 

 

 

 

 
6,584,106

 

 

 

 

 
6,584,106

 

 

 
6,584,106

Conversion of Series C preferred stock to common stock

 

 

 

 
(93,000
)
 
(93,000,000
)
 
46,500,000

 
465,000

 
92,535,000

 

 

 

 

 

Conversion
of Operating
Partnership units to common stock

 

 

 

 

 

 
63,774

 
638

 
196,338

 

 
196,976

 
(63,774
)
 
(196,976
)
 

Issuance of
common stock under Share Incentive Plan

 

 

 

 

 

 
77,260

 
773

 
194,227

 

 
195,000

 

 

 
195,000

Noncontrolling
interest
investments

 

 

 

 

 

 

 

 

 

 

 
574,743

 
1,327,656

 
1,327,656

Fair value discount on
common units issued for acquisitions

 

 

 

 

 

 

 

 

 

 

 

 
(1,181,250
)
 
(1,181,250
)
Adjustment for
noncontrolling interest in operating partnership

 

 

 

 

 

 

 

 
(894,194
)
 

 
(894,194
)
 

 
894,194

 

Dividends and
distributions

 

 

 

 

 

 

 

 

 
(12,748,071
)
 
(12,748,071
)
 

 
(503,525
)
 
(13,251,596
)
Deemed distribution

 

 

 

 

 

 

 

 
59,520,000

 
(59,520,000
)
 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 
(8,615,835
)
 
(8,615,835
)
 

 
(902,592
)
 
(9,518,427
)
Balance,
June 30, 2015 (Unaudited)
1,809

 
$
1,458,050

 
1,595,900

 
$
36,806,496

 

 
$

 
54,419,013

 
$
544,190

 
$
183,834,995

 
$
(108,544,140
)
 
$
114,099,591

 
4,078,592

 
$
9,990,675

 
$
124,090,266

See accompanying notes to condensed consolidated financial statements.

5


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
For the Six Months Ended
June 30,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(9,518,427
)
 
$
(3,151,329
)
Adjustments to reconcile consolidated net loss to net cash from operating activities
 
 
 
Depreciation
2,437,330

 
1,414,581

Amortization
4,873,903

 
2,106,965

Loan cost amortization
745,248

 
274,600

Above (below) market lease amortization
409,475

 
(45,756
)
Share-based compensation
451,300

 
145,000

Provision for credit losses
101,736

 
(28,032
)
Changes in assets and liabilities, net of acquisitions
 
 
 
Rent and other tenant receivables, net
(8,848
)
 
(100,709
)
Unbilled rent
93,435

 
138,109

Deferred costs and other assets, net
(12,383,359
)
 
(2,869,471
)
Accounts payable, accrued expenses and other liabilities
607,888

 
493,223

Net cash used in operating activities
(12,190,319
)
 
(1,622,819
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Investment property acquisitions
(19,013,503
)
 

Capital expenditures
(230,365
)
 
(187,507
)
Net cash used in investing activities
(19,243,868
)
 
(187,507
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Dividends and distributions paid
(5,666,047
)
 
(2,012,149
)
Proceeds from sales of preferred stock, net of expenses
83,415,894

 
18,671,378

Net payments to related parties
(394,459
)
 
(476,531
)
Loan proceeds

 
2,160,000

Loan principal payments
(6,725,105
)
 
(1,443,588
)
Net cash from financing activities
70,630,283

 
16,899,110

INCREASE IN CASH AND CASH EQUIVALENTS
39,196,096

 
15,088,784

CASH AND CASH EQUIVALENTS, beginning of period
9,969,748

 
1,155,083

CASH AND CASH EQUIVALENTS, end of period
$
49,165,844

 
$
16,243,867

Supplemental Disclosures:
 
 
 
Non-Cash Transactions:
 
 
 
Debt incurred for acquisitions
$
32,140,000

 
$

Noncontrolling interests resulting from the issuance of common units
$
1,327,656

 
$

Conversion of senior convertible debt into Series C preferred stock
$
3,000,000

 
$

Accretion of preferred stock discounts
$
6,979,562

 
$

Deemed dividend for beneficial conversion feature
$
59,520,000

 
$

Other Cash Transactions:
 
 
 
Cash paid for interest
$
3,820,589

 
$
2,802,810

See accompanying notes to condensed consolidated financial statements.

6


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” or “REIT”) is a Maryland corporation formed on June 23, 2011. The Trust serves as the general partner of Wheeler REIT, L.P. (the “Operating Partnership”), which was formed as a Virginia limited partnership on April 5, 2012. As of June 30, 2015, the Trust, through the Operating Partnership, owned and operated thirty-four centers and seven undeveloped properties in Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Oklahoma, Tennessee, Kentucky, New Jersey and West Virginia. Accordingly, the use of the word “Company” refers to the Trust and its consolidated subsidiaries, except where the context otherwise requires.
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, 2014 are derived from the Company’s audited consolidated financial statements as of that date, but do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The Company prepared the accompanying condensed consolidated financial statements in accordance with GAAP for interim financial statements. All 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 2014 Annual Report filed on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”).
2. Summary of Significant Accounting Policies
Rents and Other Tenant Receivables, net
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, 2015 and December 31, 2014, the Company’s allowance for uncollectible accounts totaled $270,101 and $186,517, respectively. During the three and six months ended June 30, 2015, the Company recorded bad debt expenses in the amounts of $54,538 and $101,736, 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, 2014, the Company reduced its allowance by $28,032 due to improved credit-worthiness of certain tenants and the collection of previously past due amounts.  During the three and six months ended June 30, 2015 and 2014, the Company did not realize any recoveries related to tenant receivables previously written off.

Above and Below Market Lease Intangibles, net

The Company determines the above and below market lease intangibles upon acquiring a property. Above and below market lease intangibles are amortized over the life of the respective leases. Amortization of above and below market lease intangibles is recorded as a component of rental revenues.
    
Deferred Costs and Other Assets, net
The Company’s deferred costs and other assets consist primarily of leasing commissions, fees incurred in order to obtain long-term financing, leases in place intangible assets, legal and marketing costs, tenant relationship intangible assets and deposits associated with acquisitions, and various property escrow accounts for real estate taxes, insurance, tenant improvements and replacements. The Company records amortization of financing costs using the effective interest method over the terms of the respective loans or agreements. The Company’s lease origination costs consist primarily of commissions paid in connection with lease originations and renewals. The Company records amortization of lease origination costs on a straight-line basis over the terms of the related leases. The Company’s leases in place intangible asset relates to values assigned leases associated with acquired properties. Leases in place are amortized over the term of the respective leases, while legal and marketing and tenant relationship intangible assets are amortized over their estimated useful lives. Acquisition deposits and escrows relate to advance funding of acquisitions to be completed.

7

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


Details of these deferred costs, net of amortization, and other assets are as follows:
 
June 30, 2015
 
December 31, 2014
 
(unaudited)
 
 
Lease origination costs, net
$
3,290,512

 
$
3,575,358

Leases in place, net
14,632,372

 
12,198,630

Financing costs, net
3,778,734

 
3,517,045

Property reserves
6,047,017

 
4,242,499

Acquisition deposits and escrows
10,123,660

 
623,350

Legal and marketing costs, net
177,758

 
224,898

Tenant relationships
7,280,428

 
4,485,698

Other
358,321

 
404,618

Total Deferred Costs and Other Assets, net
$
45,688,802

 
$
29,272,096

Amortization of lease origination costs, leases in place and legal and marketing costs represents a component of depreciation and amortization expense. The Company reports amortization of financing costs, amortization of premiums, and accretion of discounts as part of interest expense. Future amortization of lease origination costs, leases in place, financing costs, legal and marketing costs and tenant relationships is as follows:
For the Periods Ending June 30,
Lease
Origination
Costs
 
Leases In
Place
 
Financing
Costs
 
Legal &
Marketing
Costs
 
Tenant
Relationships
2016
$
450,398

 
$
4,139,203

 
$
1,016,531

 
$
30,819

 
$
2,933,729

2017
424,421

 
2,713,626

 
633,700

 
31,310

 
1,454,672

2018
362,067

 
2,097,694

 
495,430

 
24,733

 
1,059,035

2019
274,658

 
1,462,874

 
297,084

 
20,122

 
728,624

2020
220,647

 
1,108,104

 
290,482

 
16,281

 
540,550

Thereafter
1,558,321

 
3,110,871

 
1,045,507

 
54,493

 
563,818

 
$
3,290,512

 
$
14,632,372

 
$
3,778,734

 
$
177,758

 
$
7,280,428

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. Thus, the Company made no provision for federal income taxes for the REIT in the accompanying condensed consolidated financial statements. 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 failed 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.
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.
Noncontrolling Interests
Noncontrolling interests is the portion of equity in the Operating Partnership not attributable to the Trust. Accordingly, the Company has reported noncontrolling interests in equity on the June 30, 2015 unaudited condensed consolidated balance sheet but separate from the Company’s shareholders’ equity. On the June 30, 2015 and 2014 unaudited condensed consolidated statements of operations, the subsidiaries are reported at the consolidated amount, including both the amount attributable to the

8

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

Company and noncontrolling interests. The unaudited condensed consolidated statement 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 redeemed for either cash or, if preferred by the Company, common stock. In accordance with GAAP, any changes in the value from period to period are charged to additional paid-in capital.
Corporate General and Administrative Expense
    
A detail for the "corporate general & administrative" line item from the Statements of Operations is presented below:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(unaudited)
Acquisition costs
 
$
740,223

 
$
37,680

 
$
1,433,739

 
$
94,680

Professional fees
 
978,034

 
755,423

 
1,366,267

 
1,154,113

Compensation and benefits
 
1,137,615

 
100,000

 
1,793,432

 
100,000

Corporate administration
 
316,031

 
136,955

 
589,260

 
238,561

REIT administration fees
 
1,003

 
167,015

 
3,013

 
332,390

Travel
 
265,612

 
85,212

 
428,679

 
123,541

Advertising
 
64,240

 
55,791

 
109,472

 
64,949

Taxes and licenses
 
15,872

 
47,473

 
105,998

 
109,633

Total
 
$
3,518,630

 
$
1,385,549

 
$
5,829,860

 
$
2,217,867

Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements of Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition” and most industry-specific guidance on revenue recognition throughout the ASC. The new standard is principles based and provides a five step model to determine when and how revenue is recognized. The core principle of the new standard is that revenue should be recognized when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also requires disclosure of qualitative and quantitative information surrounding the amount, nature, timing and uncertainty of revenues and cash flows arising from contracts with customers. The new standard will be effective for the Company in the first quarter of the year ended December 31, 2018 and can be applied either retrospectively to all periods presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted. The Company is currently evaluating the impact of adoption of the new standard on its consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40)." This ASU defines management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern and provides guidance on required financial statement footnote disclosures. This ASU is effective for annual periods ending after December 15, 2016. The Company will adopt the ASU in 2016.    
    
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This new guidance requires the presentation of unamortized debt issuance costs to be shown in the liabilities section of the consolidated balance sheets as a reduction of the principal amount of the associated debt, rather than as an asset. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a retrospective approach by

9

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

restating prior period comparative consolidated balance sheets. The Company does not expect the adoption of ASU 2015-03 to materially impact its financial position or results of operations.

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

Reclassifications
    
Certain reclassifications have been made to prior period amounts to make their presentation comparable with the current period. These reclassifications had no impact on net income.

3. Investment Properties
Investment properties consist of the following:
 
June 30, 2015
 
December 31, 2014
 
(unaudited)
 
 
Land
$
41,557,170

 
$
37,195,616

Land held for improvement
8,790,918

 
6,846,918

Buildings and improvements
153,361,807

 
116,584,868

Investment properties at cost
203,709,895

 
160,627,402

Less accumulated depreciation and amortization
(10,764,762
)
 
(8,376,416
)
Investment properties, net
$
192,945,133

 
$
152,250,986

A significant portion of the Company’s land, buildings and improvements serves 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.
Acquisitions
    
Laskin Road Land
    
On January 9, 2015, the Company completed its acquisition of 0.47 acres of undeveloped land located on Laskin Road in Virginia Beach, Virginia ("Laskin Road") for a contract price of $1,644,000. The Company acquired Laskin Road for future development opportunities. The Company paid cash of $150,000 with the $1,494,000 balance of the contract price to be paid in common units on the earlier of the one year anniversary of the acquisition or the completion of any development activities. The number of units issued will be determined using the Company's common stock price on the day prior to issuance.
    
Pierpont Centre
    
On January 14, 2015, the Company completed its acquisition of Pierpont Centre, a 122,259 square foot shopping center located in Morgantown, West Virginia ("Pierpont Centre") for a contract price of $13.89 million, paid through a combination of cash and debt. Pierpont Centre is currently 100% leased and its major tenants include GNC, Hallmark, Michael's, Ruby Tuesday and Outback Steakhouse.
    
Brook Run Properties
    
On March 27, 2015, the Company completed its acquisition of Brook Run Properties, LLC ("Brook Run Properties"), consisting of a 2.0 acre parcel of undeveloped real estate located adjacent to the Brook Run Shopping Center in Richmond, Virginia, for a contract price of $300,000 in cash. The Company acquired the property for potential development and to compliment the adjacent shopping center.
    
    

10

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

Alex City Marketplace
    
On April 1, 2015, the Company completed its acquisition of Alex City Marketplace, a 147,791 square foot shopping center located in Alexander City, Alabama ("Alex City Marketplace") for a contract price of $10,250,000, paid through a combination of cash and debt. Alex City Marketplace is 86% leased as of the date of this filing and its major tenants include Winn Dixie and Goody's.

Butler Square

On April 15, 2015, the Company completed its acquisition of Butler Square, a 82,400 square foot shopping center located in Mauldin, South Carolina ("Butler Square") for a contract price of $9,400,000, paid through a combination of cash and debt. Butler Square is 100% leased as of the date of this filing and its major tenants include Bi-Lo and Dollar Tree.

Brook Run Shopping Center

On June 2, 2015, the Company completed its acquisition of Brook Run Shopping Center, a 147,738 square foot shopping center located in Richmond, Virginia ("Brook Run") for a contract price of $18,496,159. Brook Run is 92% leased as of the date of this filing and its major tenants include Martin's Food Store and CVS. The Company acquired Brook Run from a related party through a combination of cash, the issuance of 574,743 common units in the Operating Partnership and debt.

The following summarizes the consideration paid and the preliminary estimated fair values of assets acquired and liabilities assumed in conjunction with the acquisitions described above, along with a description of the methods used to determine fair value. In determining fair values, the Company considered many factors including, but not limited to, cash flows, market cap rates, location, occupancy rates, appraisals, other acquisitions and management’s knowledge of the current acquisition market for similar properties. The valuations and purchase price allocations for these acquisitions remain preliminary but are expected to be finalized prior to December 31, 2015.
 
 
 
 
Total
Preliminary estimated fair value of assets acquired and liabilities assumed:
 
 
Investment property (a)
$
42,715,751

 
Lease intangibles and other assets (b)
9,362,070

 
Above market leases (b)
2,189,548

 
Below market leases (b)
(292,210
)
 
 
 
 
 
 
Preliminary fair value of net assets acquired
$
53,975,159

 
 
 
 
 
Purchase consideration:
 
 
 
Consideration paid with cash and debt
$
51,153,503

 
Consideration paid with common units
2,821,656

 
 
 
 
 
 
Total consideration (c)
$
53,975,159

a.
Represents the preliminary estimated fair value of the investment property acquired which includes land, buildings, site improvements and tenant improvements. The fair value was determined using the following approaches:
i. the market approach valuation methodology for land by considering similar transactions in the markets;
ii. a combination of the cost approach and income approach valuation methodologies for buildings, including replacement cost evaluations, "go dark" analyses and residual calculations incorporating the land values; and
iii.
the cost approach valuation methodology for site and tenant improvements, including replacement costs and prevailing quoted market rates.

11

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

b.
Represents the preliminary estimated fair value of lease intangibles and other assets. Lease intangibles include leasing commissions, leases in place, above/below market leases and legal and marketing fees associated with replacing existing leases. The income approach was used to determine the fair value of these intangible assets which included estimated market rates and expenses. It was determined that carrying value approximated fair value for other asset amounts.
c.
Represents the components of purchase consideration paid. Consideration paid with common units includes amounts currently due for acquisitions that, per the original contract, are to be settled by issuing common units subsequent to June 30, 2015.
The Company incurred $1,433,739 in acquisition expenses for the six months ended June 30, 2015. These costs are included on the unaudited condensed consolidated statement of operations under the caption "Corporate general & administrative."
Unaudited pro forma financial information in the aggregate is presented below for certain acquisitions. The unaudited pro forma information presented below includes the effects of the acquisitions as if they had been consummated as of the beginning of the prior fiscal year. The pro forma results include adjustments for depreciation and amortization associated with acquired tangible and intangible assets, straight-line rent adjustments and interest expense related to debt incurred. Unaudited pro forma financial information has not been presented for Laskin Road and Brook Run Properties as the Company's management has determined that their inclusion would not be meaningful due to the lack of operating history.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Rental revenue
 
$
5,254,799

 
$
4,060,364

 
$
10,570,336

 
$
8,070,249

Net loss
 
$
(5,330,903
)
 
$
(2,260,875
)
 
$
(9,702,059
)
 
$
(3,778,249
)
Net loss attributable to Wheeler REIT
$
(4,884,410
)
 
$
(2,111,898
)
 
$
(8,767,148
)
 
$
(3,490,619
)
Net loss attributable to Wheeler REIT common shareholders
$
(72,738,512
)
 
$
(2,535,553
)
 
$
(79,123,473
)
 
$
(3,954,877
)
Basic loss per share
 
$
(4.13
)
 
$
(0.35
)
 
$
(6.22
)
 
$
(0.54
)
Diluted loss per share
 
$
(4.13
)
 
$
(0.35
)
 
$
(6.22
)
 
$
(0.54
)

12

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

4. Goodwill
As part of the acquisition of Wheeler Interests, LLC, Wheeler Real Estate, LLC and WHLR Management, LLC (the "Operating Companies") on October 24, 2014, the Company recorded preliminary goodwill of $7,004,072. In June 2015, the Company finalized its valuation of the Operating Companies. In accordance with the valuation, the Company has recorded a fair value discount to the $6,750,000 in common units issued for the acquisition of the Operating Companies due to the one year restriction on their conversion into shares of common stock, and reallocated a portion of goodwill to finite-lived intangibles as follows:
Beginning balance, January 1, 2015
$
7,004,072

Fair value discount on common units issued for acquisition
(1,181,250
)
Allocation to finite-lived intangibles
(336,999
)
Ending balance, June 30, 2015
$
5,485,823


13

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


5. Loans Payable
The Company’s loans payable consist of the following:
 
Monthly
 
Interest
 
 
 
 
 
 
Property/Description
Payment
 
Rate
 
Maturity
 
June 30, 2015
 
December 31, 2014
 
 
 
 
 
 
 
(unaudited)
 
 
Shoppes at Eagle Harbor
$
25,100

 
4.34
%
 
March 2018
 
$
3,707,182

 
$
3,773,319

Lumber River Plaza
$
18,414

 
5.65
%
 
May 2015
 

 
2,894,862

Monarch Bank Building
$
9,473

 
4.15
%
 
December 2017
 
1,403,911

 
1,430,961

Perimeter Square
$
28,089

 
6.38
%
 
June 2016
 
4,230,486

 
4,294,216

Riversedge North
$
8,802

 
6.00
%
 
January 2019
 
985,332

 
1,007,856

Walnut Hill Plaza
$
24,273

 
5.50
%
 
July 2017
 
3,581,642

 
3,626,945

Harps at Harbor Point
$
18,122

 
3.99
%
 
December 2015
 
3,208,045

 
3,251,552

Twin City Commons
$
17,827

 
4.86
%
 
January 2023
 
3,252,384

 
3,279,076

Shoppes at TJ Maxx
$
33,880

 
3.88
%
 
May 2020
 
6,165,620

 
6,248,349

Bixby Commons
Interest only

 
2.77
%
 
June 2018
 
6,700,000

 
6,700,000

Bank Line of Credit
Interest only

 
4.25
%
 
September 2015
 

 
2,074,432

Forrest Gallery
$
50,973

 
5.40
%
 
September 2023
 
8,986,434

 
9,045,880

Jenks Reasors
Interest only

 
4.25
%
 
September 2016
 
8,550,000

 
8,550,000

Tampa Festival
$
50,797

 
5.56
%
 
September 2023
 
8,687,246

 
8,746,860

Starbucks/Verizon
$
4,383

 
5.00
%
 
July 2019
 
642,125

 
652,044

Winslow Plaza
Interest only

 
5.22
%
 
December 2015
 
5,000,000

 
5,000,000

Cypress Shopping Center
Interest only

 
4.70
%
 
July 2024
 
6,625,000

 
6,625,000

Harrodsburg Marketplace
$
19,112

 
4.55
%
 
September 2024
 
3,706,721

 
3,735,739

Port Crossing
$
34,788

 
4.84
%
 
August 2024
 
6,520,434

 
6,568,918

LaGrange Marketplace
$
13,813

 
5.00
%
 
March 2020
 
2,441,717

 
2,463,909

Freeway Junction
Interest only

 
4.60
%
 
September 2024
 
8,150,000

 
8,150,000

DF I-Courtland
$
1,411

 
6.50
%
 
January 2019
 

 
115,728

DF I-Edenton
$
250,000

1 
3.75
%
 
September 2016
 
1,150,000

 
1,650,000

DF I-Moyock
$
10,665

 
5.00
%
 
July 2019
 
471,108

 
522,430

Graystone Crossing
$
20,386

 
4.55
%
 
October 2024
 
4,000,000

 
4,000,000

Bryan Station
Interest only

 
4.52
%
 
November 2024
 
4,625,000

 
4,625,000

Crockett Square
Interest only

 
4.47
%
 
December 2024
 
6,337,500

 
6,337,500

Harbor Point
$
11,024

 
5.85
%
 
December 2016
 
1,023,579

 
1,544,567

Pierpont Centre
Interest only

 
4.15
%
 
February 2025
 
9,800,000

 

Alex City Marketplace
Interest only

 
4.08
%
 
April 2025
 
5,750,000

 

Butler Square
Interest only

 
3.95
%
 
April 2025
 
5,640,000

 

Brook Run Shopping Center
Interest only

 
3.90
%
 
July 2025
 
10,950,000

 

Senior convertible notes
Interest only

 
9.00
%
 
December 2018
 
3,000,000

 
6,000,000

Senior non-convertible notes
Interest only

 
9.00
%
 
December 2015
 
4,000,000

 
4,000,000

Senior non-convertible notes
Interest only

 
9.00
%
 
January 2016
 
2,160,000

 
2,160,000

South Carolina Food Lions note
Interest only

 
5.25
%
 
January 2024
 
12,375,000

 
12,375,000

Total Loans Payable
 
 
 
 
 
 
$
163,826,466

 
$
141,450,143

(1) $250,000 plus accrued interest paid quarterly until maturity.

On May 1, 2015, the Lumber River Plaza note was paid in full from cash on hand.

14

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


On May 29, 2015, the Operating Partnership entered into a credit agreement (the "Credit Agreeement") with KeyBank National Association ("KeyBank") for a $45,000,000 revolving credit facility. The facility has a three year term and the interest rate will be based on LIBOR. As of June 30, 2015, the Operating Partnership has not drawn on the revolving credit facility.
Debt Maturity
The Company’s scheduled principal repayments on indebtedness as of June 30, 2015 are as follows:
 
For the Periods Ending June 30,
 
 
(unaudited)
2016
$
20,831,510

2017
11,696,973

2018
16,244,637

2019
5,568,842

2020
9,747,349

Thereafter
99,737,155

Total principal maturities
$
163,826,466

 
6. Rentals under Operating Leases

Future minimum rentals to be received under noncancelable tenant operating leases for each of the next five years and thereafter, excluding Common Area Maintenance and percentage rent based on tenant sales volume, as of June 30, 2015 are as follows: 
 
For the Periods Ending June 30,
 
(unaudited)
2016
$
21,158,420

2017
19,124,526

2018
16,415,769

2019
12,691,570

2020
10,054,152

Thereafter
38,065,716

 
$
117,510,153

7. Equity
Earnings per share
Basic earnings per share for the Company’s common shareholders is calculated by dividing income (loss) from continuing operations, excluding amounts attributable to preferred stockholders and the net loss attributable to noncontrolling interests, by the Company’s weighted-average shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the net income (loss) attributable to common shareholders, excluding amounts attributable to preferred shareholders and the net loss attributable to noncontrolling interests, by the weighted-average number of common shares including any dilutive shares.
As of June 30, 2015, 1,724,024 of the Operating Partnership’s common units outstanding to noncontrolling interests are eligible to be converted into shares of common stock on a one-to-one basis. Additionally, 1,595,900 shares of Series B convertible preferred stock ("Series B Preferred Stock") and $3,000,000 of senior convertible debt are eligible to be converted into 9,396,579 shares of the Company's common stock and warrants to purchase 2,635,025 shares of the Company's common stock were outstanding at June 30, 2015. The common units, convertible preferred stock, senior convertible debt and warrants have been excluded from the Company’s diluted earnings per share calculation because their inclusion would be antidilutive.

15

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


Dividends
Dividends were made to holders of common units, common shares and preferred shares as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2015
 
2014
 
2015
 
2014
Common unit and common shareholders
 
$
1,422,387

 
$
966,487

 
$
2,415,271

 
$
1,933,437

Preferred shareholders
 
8,334,102

 
423,555

 
$
10,836,325

 
$
464,258

Total
 
$
9,756,489

 
$
1,390,042

 
$13,251,596
 
$2,397,695
 

On June 17, 2015, the Company declared a $0.0175 per share dividend payable on or about July 31, 2015 to shareholders and unitholders of record as of June 30, 2015. Accordingly, the Company has accrued $1,023,709 as of June 30, 2015 for this dividend.
During the three months ended June 30, 2015, the Company declared quarterly dividends of $938,396 to preferred shareholders of record as of June 30, 2015 to be paid on July 15, 2015. Accordingly, the Company has accrued $938,396 as of June 30, 2015 for this dividend.

Series C Preferred Stock Offering

On March 19, 2015, the Company entered into securities purchase agreements dated as of March 19, 2015 (the “Securities Purchase Agreements”), with certain accredited investors (the “Investors”), pursuant to which, among other things, the Company sold an aggregate of 93,000 shares of Series C Mandatorily Convertible Cumulative Perpetual Preferred Stock, liquidation value $1,000 per share (the “Series C Preferred Stock”), in a private placement (the “Private Placement”) to the Investors in exchange for aggregate consideration of $93,000,000, consisting of $90,000,000 in cash and the exchange of $3,000,000 in senior convertible debt. Each share of Series C Preferred Stock was sold to the Investors at an offering price of $1,000 per share. Net proceeds from the Private Placement totaled $83,415,894, which includes the impact of the underwriters' selling commissions and legal, accounting and other professional fees. The Company is using the net offering proceeds to acquire properties and for general working capital.

From March 19, 2015 until June 11, 2015, the holders of Series C Preferred Stock were entitled to receive, when, and if authorized by the Company’s Board of Directors and declared by the Company out of legally available funds, a dividend, on an as converted basis, that mirrors any dividend payable on shares of common stock and also were entitled to share in any other distribution made on the common stock on an as converted basis (other than dividends or other distributions payable in common stock). Any dividends or other distributions on the Series C Preferred Stock during this time period were to be paid, on an as converted basis, pro rata from the date of issuance.
 
The Series C Preferred Stock was automatically converted into shares of common stock on June 11, 2015, which was the fifth business day following the June 4, 2015 approval by the requisite holders of the common stock of the conversion of the Series C Preferred Stock into Common Stock and the issuance of Common Stock upon such conversion. Each share of Series C Preferred Stock converted into 500 shares of common stock at the conversion price of $2.00 per share. The conversion of the Series C Preferred stock into Common Stock at this rate was considered to be a beneficial conversion feature, which resulted in a deemed distribution of $59,520,000, which is included in the condensed consolidated statement of equity and also in the condensed consolidated statements of cash flows as a non-cash transaction.
    
Series A and Series B Preferred Stock Exchange Offer

On June 15, 2015, the Company entered into an exchange offer (the “Exchange Offer”) to holders of its Series A Preferred Stock, no par value per share, $1,000 liquidation preference per share (the “Series A Preferred Stock”) and Series B Preferred Stock. The Exchange Offer permitted tendering shareholders to exchange their shares of Series A Preferred Stock or Series B Preferred Stock for an aggregate of up to 20,853,250 of newly issued shares of the Company’s common stock, $0.01 par value per share.

16

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



Each share of Series A Preferred Stock was exchangeable for 500 shares of common stock, and each share of the Series B Preferred Stock was exchangeable for 12.5 shares of common stock. On July 20, 2015, the Company completed the Exchange Offer, under which 1,247 shares of Series A Preferred Stock and 865,481 shares of Series B Preferred Stock were tendered for 11,442,002 newly issued shares of the Company's common stock. The Company paid cash in lieu of any fractional shares of common stock upon the exchange of the Series A Preferred Stock and Series B Preferred Stock.

On June 1, 2015, in conjunction with the Exchange Offer, the Company increased the number of common stock shares authorized from 75,000,000 to 150,000,000 shares.
    
Equity Issuances under Share Incentive Plan

During the six months ended June 30, 2015, the Company issued 77,260 shares to consultants for services rendered to the Company. The market value of these shares at the time of issuance was approximately $195,000. As of June 30, 2015, there are 316,906 shares available for issuance under the Company’s 2012 Stock Incentive Plan.
2015 Long-Term Incentive Plan
On June 4, 2015, the Company's shareholders approved the 2015 Long-Term Incentive Plan (the "2015 Incentive Plan"). The 2015 Incentive Plan allows for issuance of up to 1,000,000 shares of the Company's common stock to employees, directors, officers and consultants for services rendered to the Company.
8. Commitments and Contingencies
The Company is involved in various legal proceedings arising in the ordinary course of its business, including, but not limited to commercial disputes. The Company believes that such litigation, claims and administrative proceedings will not have a material adverse impact on its financial position or its results of operations. The Company records a liability when it considers the loss probable and the amount can be reasonably estimated.
On July 10, 2008, one of the Company’s subsidiaries, Perimeter Associates, LLC (“Perimeter”), sued a tenant for breach of contract, guaranty of the contract and fraud related to an executed lease. In response, on August 22, 2008, the defendant filed a counterclaim against Perimeter for breach of contract, unjust enrichment and fraud. On April 8, 2013, the court found in favor of the defendant and assessed damages against Perimeter in the amount of $13,300. On or about May 8, 2013, Perimeter appealed the judgment of the lower court to the Oklahoma Supreme Court. Subsequent to the initial judgment, the defendant’s attorney applied to the court to be reimbursed for approximately $368,000 in legal fees incurred by the defendant during litigation. On July 9, 2013, the lower court awarded the defendant approximately $267,000 of the defendant’s legal fees. On July 24, 2015, the Oklahoma Court of Civil Appeals affirmed the judgment against Perimeter, resulting in a total award of approximately $352,000. The Company will appeal the judgment to the Oklahoma Supreme Court. The Company has posted bonds for both judgments and has accrued for the judgments in its financial statements. The Company will continue to vigorously litigate the issues raised upon appeal.
9. Related Party Transactions
Prior to being acquired by the Company in October 2014, Wheeler Interests, LLC (“Wheeler Interests”), which was controlled by Jon S. Wheeler (“Mr. Wheeler”), the Company’s Chairman and Chief Executive Officer, leased the Company’s Riversedge property under a 10 year operating lease expiring in November 2017, with four five year renewal options available. The lease required monthly base rent payments of $24,000 and provided for annual increases throughout the term of the lease and subsequent option periods. Additionally, Wheeler Interests reimbursed the Company for a portion of the property’s operating expenses and real estate taxes.

17

Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Related Party Transactions (continued)



The following summarizes related party activity as of and for the six months ended June 30, 2015 and 2014 (unaudited):
 
June 30,
 
2015
 
2014
Amounts paid to affiliates
$
232,002

 
$
1,939,188

Amounts due from affiliates
$
569,142

 
$
574,739

Rent and reimbursement income received from Wheeler Interests
$

 
$
196,459

Rent and other tenant receivables due from Wheeler Interests
$

 
$
470,245


18

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


10. Subsequent Events
Beaver Ruin Village

On July 1, 2015, the Company completed its acquisition of Beaver Ruin Village, a 74,038 square foot shopping center located in Lilburn, Georgia ("Beaver Ruin Village") for a contract price of $12,350,000, paid through a combination of cash and debt. Beaver Ruin Village is 91% leased as of the date of this filing and its major tenants include Chase Bank, Firehouse Subs and State Farm Insurance.

Beaver Ruin Village II

On July 1, 2015, the Company completed its acquisition of Beaver Ruin Village II, a 34,925 square foot shopping center located in Lilburn, Georgia ("Beaver Ruin Village II") for a contract price of $4,375,000, paid through a combination of cash and debt. Beaver Ruin Village II is 100% leased as of the date of this filing and its major tenants include AutoZone and Metro PCS.

Columbia Fire Station

On July 1, 2015, the Company completed its acquisition of Columbia Fire Station, consisting of two vacant buildings on a 1.00 acre land parcel located in Columbia, South Carolina ("Columbia Fire Station") for a contract price of $2,396,300, paid through a combination of cash and debt. The Company plans to redevelop this property for retail use.

Chesapeake Square

On July 10, 2015, the Company completed its acquisition of Chesapeake Square, a 99,848 square foot shopping center located in Onley, Virginia ("Chesapeake Square") for a contract price of $6,339,175. Chesapeake Square is 76% leased and is anchored by a Food Lion grocery store. The Company acquired Chesapeake Square from a related party through a combination of cash and the issuance of 125,966 common units in the Operating Partnership.

Sunshine Plaza

On July 21, 2015, the Company completed its acquisition of Sunshine Plaza, a 111,189 square foot shopping center located in Lehigh Acres, Florida ("Sunshine Plaza") for a contract price of $10,350,000. Sunshine Plaza is 96% leased and is anchored by a Winn-Dixie grocery store. The Company acquired Sunshine Plaza through a combination of cash and debt.
    
    



19


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Form 10-Q, along with the consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2014 Form 10-K for the year ended December 31, 2014. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the unaudited condensed consolidated financial statements included in this Form 10-Q.
This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our shareholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.
The forward-looking statements should be read in light of these factors and the factors identified in the “Risk Factors” sections of our Registration Statement on Form S-11 (as amended) filed with the Securities and Exchange Commission (“SEC”) on September 9, 2014.
Executive Overview
The June 30, 2015 three and six month periods includes the combined operations of all properties owned at December 31, 2014 as described in our 2014 Form 10-K, approximately six months of operations for Pierpont Centre, a full quarter of Alex City Marketplace, and a partial quarter of operations for Butler Square and Brook Run. Conversely, the June 2014 three and six month periods only include a full period of combined operations for all properties owned at December 31, 2013 as described in our 2013 Annual Report on Form 10-K for the year ended December 31, 2013 ("2013 Form 10-K"). The June 2015 three and six month period results also include the full impact from internalizing the Operating Companies. In providing the following discussion and analysis of our results of operations, we have separately identified the activities of properties owned for the entire 2014 annual period (collectively referred to as “same stores”) and of those properties acquired during 2014 and 2015 (collectively referred to as “new stores”). This illustrates the significant impact the properties acquired during 2014 and 2015 had on our results of operations.
Leasing Activity
Renewals during the three months ended June 30, 2015 consisted of sixteen deals totaling 67,138 square feet with a weighted-average increase of $0.32 per square foot, representing an increase of 4.05% over prior rates. The rates on negotiated renewals resulted in a weighted-average increase of $0.98 per square foot on nine renewals, a $4.00 decrease on one renewal and no change per square foot on six renewals. Three renewals represented options being exercised. Additionally, we signed six new leases totaling 9,462 square feet during the three months ended June 30, 2015 with weighted-average rents of $13.01.
Renewals during the first six months of 2015 were comprised of twenty-six deals totaling 155,963 square feet with a weighted-average increase of $0.66 per square foot, representing an increase of 7.24% over prior rates. The rates on negotiated renewals resulted in a weighted-average increase of $0.97 per square foot on eighteen renewals, a $3.07 weighted-average decrease on two renewals and no changes per square foot on six renewals. Seven renewals represented options being exercised.
Approximately 11.31% of our gross leasable area is subject to leases that expire during the twelve months ending June 30, 2016 that have not already been renewed. Based on recent market trends, we believe that these leases will be renewed at amounts and terms comparable to existing lease agreements.

20


Acquisitions
On January 9, 2015, the Company completed its acquisition of 0.47 acres of undeveloped land located on Laskin Road in Virginia Beach, Virginia ("Laskin Road") for a contract price of $1,644,000. The Company acquired Laskin Road for future development opportunities. The Company paid cash of $150,000 with the $1,494,000 balance of the contract price to be paid in common units on the earlier of the one year anniversary of the acquisition or the completion of any development activities. The number of units issued will be determined using the Company's Common Stock price on the day prior to issuance.

On January 14, 2015, the Company completed its acquisition of Pierpont Centre, a 122,259 square foot shopping center located in Morgantown, West Virginia ("Pierpont Centre") for a contract price of $13.89 million, paid through a combination of cash and debt. Pierpont Centre is currently 100% leased and its major tenants include GNC, Hallmark, Michael's, Ruby Tuesday and Outback Steakhouse.

On March 27, 2015, the Company completed its acquisition of Brook Run Properties, LLC ("Brook Run Properties"), consisting of a 2.0 acre parcel of undeveloped real estate located adjacent to the Brook Run Shopping Center in Richmond, Virginia, for a contract price of $300,000, paid in cash. The Company acquired the property for potential development and to complement the adjacent shopping center.

On April 1, 2015, the Company completed its acquisition of Alex City Marketplace, a 147,791 square foot shopping center located in Alexander City, Alabama ("Alex City Marketplace") for a contract price of $10,250,000, paid through a combination of cash and debt. Alex City Marketplace is 86% leased as of the date of this filing and its major tenants include Winn Dixie and Goody's.

On April 15, 2015, the Company completed its acquisition of Butler Square, a 82,400 square foot shopping center located in Mauldin, South Carolina ("Butler Square") for a contract price of $9,400,000, paid through a combination of cash and debt. Butler Square is 100% leased as of the date of this filing and its major tenants include Bi-Lo and Dollar Tree.

On June 2, 2015, the Company completed its acquisition of Brook Run Shopping Center, a 147,738 square foot shopping center located in Richmond, Virginia ("Brook Run") for a contract price of $18,496,159, paid through a combination of cash and debt. Brook Run is 92% leased as of the date of this filing and its major tenants include Martin's Food Store and CVS.

Critical Accounting Policies

In preparing the condensed consolidated financial statements, we have made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results may differ from these estimates. A summary of our critical accounting policies is included in our 2014 Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to these policies during the six months ended June 30, 2015. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 of the condensed consolidated financial statements included in this Form 10-Q.

21


Three and Six Months Ended June 30, 2015 Compared to the Three and Six Months Ended June 30, 2014
Results of Operations
The following table presents a comparison of the condensed consolidated statements of operations for the three and six months ended June 30, 2015 and 2014, respectively.
 
Three Months Ending 
June 30,
 
Six Months Ending
June 30,
 
Three Months Ended Changes
 
Six Months Ended Changes
 
2015
 
2014
 
2015
 
2014
 
Change
 
% Change
 
Change
 
% Change
PROPERTY DATA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of properties owned and operated at period end(1)
34

 
22

 
34

 
22

 
12

 
54.55
%
 
12

 
54.55
%
Aggregate gross leasable area at period end(1)
2,404,334

 
1,284,022

 
2,404,334

 
1,284,022

 
1,120,312

 
87.25
%
 
1,120,312

 
87.25
%
Ending occupancy rate at period end (1)
95.57
%
 
94.70
%
 
95.57
%
 
94.70
%
 
0.87
%
 
0.92
%
 
0.87
%
 
0.92
%
FINANCIAL DATA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental revenues
$
4,910,403

 
$
2,999,290

 
$
9,291,008

 
$
5,948,100

 
$
1,911,113

 
63.72
%
 
$
3,342,908

 
56.20
%
Asset management fees
121,184

 

 
333,482

 

 
121,184

 
%
 
333,482

 
%
Commissions
111,717

 

 
220,610

 

 
111,717

 
%
 
220,610

 
%
Tenant reimbursements and other revenues
1,560,057

 
634,404

 
2,610,402

 
1,349,746

 
925,653

 
145.91
%
 
1,260,656

 
93.40
%
Total Revenue
6,703,361

 
3,633,694

 
12,455,502

 
7,297,846

 
3,069,667

 
84.48
%
 
5,157,656

 
70.67
%
EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property operations
1,901,313

 
909,037

 
3,533,492

 
1,832,219

 
992,276

 
109.16
%
 
1,701,273

 
92.85
%
Non-REIT management and leasing services
231,777

 

 
601,552

 

 
231,777

 
%
 
601,552

 
%
Depreciation and amortization
4,074,749

 
1,735,944

 
7,311,233

 
3,521,546

 
2,338,805

 
134.73
%
 
3,789,687

 
107.61
%
Provision for credit losses
54,538

 
(28,032
)
 
101,736

 
(28,032
)
 
82,570

 
294.56
%
 
129,768

 
462.93
%
Corporate general & administrative
3,518,630

 
1,385,549

 
5,829,860

 
2,217,867

 
2,133,081

 
153.95
%
 
3,611,993

 
162.86
%
Total Operating Expenses
9,781,007

 
4,002,498

 
17,377,873

 
7,543,600

 
5,778,509

 
144.37
%
 
9,834,273

 
130.37
%
Operating Loss
(3,077,646
)
 
(368,804
)
 
(4,922,371
)
 
(245,754
)
 
(2,708,842
)
 
734.49
%
 
(4,676,617
)
 
1,902.97
%
Interest expense
(2,217,592
)
 
(1,536,637
)
 
(4,596,056
)
 
(2,905,575
)
 
(680,955
)
 
44.31
%
 
(1,690,481
)
 
58.18
%
Net Loss
(5,295,238
)
 
(1,905,441
)
 
(9,518,427
)
 
(3,151,329
)
 
(3,389,797
)
 
177.90
%
 
(6,367,098
)
 
202.04
%
Net loss attributable to noncontrolling interests
(440,216
)
 
(81,451
)
 
(902,592
)
 
(168,703
)
 
(358,765
)
 
440.47
%
 
(733,889
)
 
435.02
%
Net Loss Attributable to Wheeler REIT
$
(4,855,022
)
 
$
(1,823,990
)
 
$
(8,615,835
)
 
$
(2,982,626
)
 
$
(3,031,032
)
 
166.18
%
 
$
(5,633,209
)
 
188.87
%
(1)    Excludes the undeveloped land parcels and Riversedge North that ceased paying rent upon acquiring the Operating Companies.
    
    

22


Same Store and New Store Operating Income
    
The following table provides same store and new store financial information. The discussion below primarily focuses on same store results of operations since our six 2015 acquisitions and all twelve of our 2014 acquisitions occurred subsequent to June 30, 2014.
 
Three Months Ended June 30,
 
Same Store
 
New Store
 
Total
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Property revenues
$
3,885,835

 
$
3,633,694

 
$
2,584,625

 
$

 
$
6,470,460

 
$
3,633,694

Property expenses
1,063,748

 
909,037

 
837,565

 

 
1,901,313

 
909,037

Property Net Operating Income
2,822,087

 
2,724,657

 
1,747,060

 

 
4,569,147

 
2,724,657

Asset Management and Commission Revenue

 

 
232,901

 

 
232,901

 

Non-REIT management and leasing services

 

 
231,777

 

 
231,777

 

Depreciation and amortization
1,675,071

 
1,735,944

 
2,399,678

 

 
4,074,749

 
1,735,944

Provision for credit losses
64,958

 
(28,032
)
 
(10,420
)
 

 
54,538

 
(28,032
)
Corporate general & administrative
2,875,363

 
1,385,549

 
643,267

 

 
3,518,630

 
1,385,549

Total Other Operating Expenses
4,615,392

 
3,093,461

 
3,264,302

 

 
7,879,694

 
3,093,461

Interest expense
1,396,785

 
1,536,637

 
820,807

 

 
2,217,592

 
1,536,637

Net Loss
$
(3,190,090
)
 
$
(1,905,441
)
 
$
(2,105,148
)
 
$

 
$
(5,295,238
)
 
$
(1,905,441
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
Same Store
 
New Store
 
Total
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Property revenues
$
7,512,874

 
$
7,297,846

 
$
4,388,536

 
$

 
$
11,901,410

 
$
7,297,846

Property expenses
2,152,424

 
1,832,219

 
1,381,068

 

 
3,533,492

 
1,832,219

Property Net Operating Income
5,360,450

 
5,465,627

 
3,007,468

 

 
8,367,918

 
5,465,627

Asset Management and Commission Revenue

 

 
554,092

 

 
554,092

 

Non-REIT management and leasing services

 

 
601,552

 

 
601,552

 

Depreciation and amortization
3,323,853

 
3,521,546

 
3,987,380

 

 
7,311,233

 
3,521,546

Provision for credit losses
89,570

 
(28,032
)
 
12,166

 

 
101,736

 
(28,032
)
Corporate general & administrative
4,694,632

 
2,217,867

 
1,135,228

 

 
5,829,860

 
2,217,867

Total Other Operating Expenses
8,108,055

 
5,711,381