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EX-32.2 - 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER - Wheeler Real Estate Investment Trust, Inc.ex322q42015.htm
EX-31.2 - 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER - Wheeler Real Estate Investment Trust, Inc.ex312q42015.htm
EX-31.1 - 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Wheeler Real Estate Investment Trust, Inc.ex311q42015.htm
EX-32.1 - 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Wheeler Real Estate Investment Trust, Inc.ex321q42015.htm
EX-23.1 - CONSENT OF CHERRY BEKAERT LLP - Wheeler Real Estate Investment Trust, Inc.ex231q42015.htm
EX-21.1 - SUBSIDIARIES OF THE REGISTRANT - Wheeler Real Estate Investment Trust, Inc.ex211q42015.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
 FORM 10-K
 
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-35713 
 
 
WHEELER REAL ESTATE INVESTMENT TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter) 
Maryland
 
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)
Securities registered pursuant to Section 12(b) of the Act:
Common stock, $0.01 par value (NASDAQ Capital Market)
Series B convertible preferred stock, no par value (NASDAQ Capital Market)
Warrants to acquire shares of common stock (NASDAQ Capital Market)
Securities registered pursuant to Section 12(g) of the Act:
None
  
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ¨    No  þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ¨    No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.: 
Large accelerated file
 
    ¨
þ
  
Accelerated filer
 
 
 
 
Non-accelerated filer
 
    ¨ (Do not check if a smaller reporting company)
¨
  
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨
As of June 30, 2015 the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $108,315,321.
As of March 8, 2016, there were 66,259,673 shares of common stock, $0.01 par value per share, outstanding.





Table of Contents
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 1B.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 
 
Item 7.
 
 
 
 
 
Item 7A.
 
 
 
 
 
Item 8.
 
 
 
 
 
Item 9.
 
 
 
 
 
Item 9A.
 
 
 
 
 
Item 9B.
 
 
 
 
 
 
 
 
Item 10.
 
 
 
 
 
Item 11.
 
 
 
 
 
Item 12.
 
 
 
 
 
Item 13.
 
 
 
 
 
Item 14.
 
 
 
 
 
Item 15.
 
 
 
 




FORWARD- LOOKING STATEMENTS
This Annual Report on Form 10-K ("Form 10-K") of Wheeler Real Estate Investment Trust, Inc. contains forward-looking statements, including discussion and analysis of our financial condition, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our shareholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or the negative of such terms and variations of these words and similar expressions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
    
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned to not place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Form 10-K. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. Factors that could cause actual results to differ materially from any forward-looking statements made in this Form 10-K include:
 
our business and investment strategy;
our projected operating results;
actions and initiatives of the U.S. government and changes to U.S. government policies and the execution and impact of these actions, initiatives and policies;
the state of the U.S. economy generally and in specific geographic areas;
economic trends and economic recoveries;
our ability to obtain and maintain financing arrangements;
financing and advance rates for our target assets;
our expected leverage;
availability of investment opportunities in real estate-related investments;
changes in the values of our assets;
our ability to make distributions to our stockholders in the future;
our expected investments and investment decisions;
changes in interest rates and the market value of our target assets;
our ability to renew leases at amounts and terms comparable to existing lease arrangements;
our ability to proceed with potential development opportunities for us and third-parties;
effects of hedging instruments on our target assets;
the degree to which our hedging strategies may or may not protect us from interest rate volatility;
impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;
our ability to maintain our qualification as a real estate investment trust (“REIT”);
our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended (the "Investment Company Act");
availability of qualified personnel and management team;
the ability of our operating partnership and each of our other partnerships and limited liability companies to be classified as partnerships or disregarded entities for federal income tax purposes;
our ability to amend our charter to increase or decrease the aggregate number of authorized shares of stock, to authorize us to issue additional authorized but unissued shares of our preferred stock and to classify or reclassify unissued shares of our preferred stock;
our understanding of our competition;
market trends in our industry, interest rates, real estate values or the general economy;
the imposition of federal taxes if we fail to qualify as a real estate investment trust (“REIT”) in any taxable year or forego an opportunity to ensure REIT status;
uncertainties related to the national economy, the real estate industry in general and in our specific markets;
legislative or regulatory changes, including changes to laws governing REITs;
adverse economic or real estate developments in Virginia, Florida, Georgia, Alabama, South Carolina, North Carolina, Oklahoma, Kentucky, Tennessee, West Virginia and New Jersey;
increases in interest rates and operating costs;
inability to obtain necessary outside financing;
litigation risks;
lease-up risks;

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inability to obtain new tenants upon the expiration of existing leases;
inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws; and
the need to fund tenant improvements or other capital expenditures out of operating cash flow.

These forward-looking statements should be read in light of these factors.


Part I
 
Item 1.    Business.
Overview

Wheeler Real Estate Investment Trust, Inc. is a fully-integrated, self-managed commercial real estate investment company focused on acquiring and managing income-producing retail properties with a primary focus on grocery-anchored centers. Our strategy is to opportunistically acquire and reinvigorate well-located, potentially dominant retail properties in secondary and tertiary markets that generate attractive risk-adjusted returns, with a particular emphasis on grocery-anchored retail centers. We target competitively protected properties in communities that have stable demographics and have historically exhibited favorable trends, such as strong population and income growth. We generally lease our properties to national and regional retailers that offer consumer goods and generate regular consumer traffic. We believe our tenants carry goods that are less impacted by fluctuations in the broader U.S. economy and consumers’ disposable income, generating more predictable property level cash flows.

As of December 31, 2015, we own a portfolio consisting of fifty-three properties, including thirty-nine retail shopping centers and three freestanding retail properties totaling 3,151,358 gross leasable square feet of which approximately 94% are leased (our "operating portfolio"), one office property and ten undeveloped land parcels totaling approximately 81 acres. We believe the current market environment creates a substantial number of favorable investment opportunities in our target markets with attractive yields on investment and significant upside potential in terms of income and gain.

We have 59 full-time and 2 part-time employees. Our management team has experience and capabilities across the real estate sector with experience in the aggregate and expertise particularly in the retail asset class, which we believe provides for flexibility in pursuing attractive acquisition, development and repositioning opportunities. Because varying market conditions create opportunities at different times across the retail property sector, we believe our expertise enables us to target relatively more attractive investment opportunities throughout economic cycles. In addition, our fully integrated platform with in-house development capabilities allows us to pursue development and redevelopment projects with multiple uses. We believe that our ability to pursue these types of opportunities differentiates us from many competitors in our markets.

Our executive officers and the members of the management team have extensive experience in all aspects of the commercial real estate industry, specifically in our target/existing markets. Jon S. Wheeler, our Chairman and Chief Executive Officer, has over thirty-four years of experience in the real estate sector with particular experience in strategic financial and market analyses and assessments of new or existing properties to maximize returns. Mr. Wheeler has overseen the acquisition of over seventy properties. Wilkes J. Graham became our Chief Financial Officer in January 2016. Prior to joining us, Wilkes spent 16 years in the real estate financial services industry.  Since 2010 Mr. Graham worked with Compass Point Research & Trading, LLC (“Compass Point”), an independent, full-service investment firm focused exclusively on the financial services sector, where he served as Director of Research and as a Senior Sell-Side Equity Research Analyst. Steven M. Belote was our Chief Financial Officer from August 2011 until January 2016, and is now our Chief Operating Officer. Prior to joining us, Mr. Belote was the Chief Financial Officer of Shore Bank for fifteen years. As Chief Financial Officer of Shore Bank, he played an integral role in their initial public offering. Prior to Shore Bank, Mr. Belote spent seven years in public accounting. David Kelly, our Senior Vice President and Director of Acquisitions, has over twenty-five years of experience in the real estate industry. Prior to joining us, he served for thirteen years as the Director of Real Estate for Supevalu, Inc., a Fortune 100 supermarket retailer. While at Supervalu, he focused on site selection and acquisitions from New England to the Carolinas, completing transactions totaling over $500 million. Jeff Parker is our Director of Leasing. Mr. Parker is responsible for leasing operations over our growing portfolio of commercial assets. Prior to joining us, Mr. Parker served as Real Estate Portfolio Manager for the Southeast and Mid-Atlantic regions of the United States for Dollar Tree Stores, Inc. While at Dollar Tree, Mr. Parker was responsible for a portfolio of over 1,100 stores and created many key relationships throughout the industry. Prior to Dollar Tree, Mr. Parker spent ten years handling the leasing and sale of commercial properties for CB Richard Ellis of Virginia, Inc.


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Business Objectives and Investment Strategy

Our primary business objective is to provide attractive risk adjusted returns to our shareholders by increasing cash flows at our existing properties and acquiring additional properties with attractive yields below replacement cost. We intend to achieve this objective utilizing the following investment strategy:

Focus on necessity-based retail. We intend to invest in retail properties that serve the essential day-to-day shopping needs of the surrounding communities. These necessity-based centers attract high levels of daily traffic resulting in cross-selling of goods and services from our tenants. The majority of our tenants provide non-cyclical consumer goods and services that are less impacted by fluctuations in the economy. According to the Food Marketing Institute, the average consumer in the US makes a trip to a grocery store 2.2 times per week. We believe targeting centers that provide essential goods and services such as groceries results in a stable, lower-risk portfolio of retail investment properties.

Target secondary and tertiary markets with strong demographics and demand. We believe these markets have limited competition from institutional buyers and relatively low levels of new construction. In evaluating potential acquisitions, we focus on areas with strong demographics such as population density, population growth, tenant sales trends and growth in household income, and we seek to identify properties in locations where there is a need for necessity-based retail and limited new supply. We generally will seek to avoid markets where we believe potential yields have decreased as a result of acquisition activity from institutional buyers.

Acquire properties that are the number one or number two centers in their respective markets. After we identify an attractive target market, we look to acquire the top center in that market. These centers will have anchor tenants with dominant market share, high sales per square feet, significant capital invested in their respective stores and limited proximity to competing centers.

Increase operating income through leasing strategies and expense management. We employ intensive lease management strategies to optimize occupancy. Management has strong expertise in acquiring and managing under-performing properties and increasing operating income through more effective leasing strategies and expense management such as common area maintenance, or CAM reimbursement and experience utilizing exterior parking for build to suit outparcels or pad sales. Our leases generally require the tenant to reimburse us for a substantial portion of the expenses incurred in operating, maintaining, repairing, and managing the shopping center and the common areas, along with the associated insurance costs and real estate taxes. Operating expenses that qualify for CAM reimbursement include, but are not limited to, landscaping, parking field maintenance and repairs, building maintenance and repairs, utilities and their associated maintenance and repair within the shopping center. The amount that each tenant pays is determined on a pro-rata basis and our leases generally allow us to add an administrative fee of 15%. Some leases are structured such that there is a price per square foot cap on paying additional fees and charges. Additionally, in some cases the tenant is either fully or partially responsible for all maintenance of the property, thereby limiting our obligations towards maintaining the center and increasing our net income. We refer to this arrangement as a “triple net lease.”

Selectively utilize our capital to improve retail properties. We intend to make capital investments where the return on such capital is accretive to our shareholders. We have significant expertise allocating capital to value-added improvements of retail properties to increase rents, extend long-term leases with anchor tenants and increasing occupancy. We will selectively allocate capital to revenue enhancing projects that we believe will improve the market position of a given property.

Selectively utilize our development capabilities for third parties. We intend to invest capital in development and re-development opportunities where we believe the return on such capital is accretive to our shareholders. We believe our experience in development will benefit us by providing opportunities to either develop properties for us at higher cap rates that result in positive returns to our operations or to develop for third parties which will result in development fee income for us. While this objective is not always possible, we generally want a development project to be at least 50% pre-leased prior to commencement.

Acquire properties that meet our strict underwriting guidelines and process. Initially, our underwriting process begins with a cursory review of the asset to determine if there is a fit with our acquisition criteria. The offering memorandum; seller’s financials; lease abstracts (anchor and small shop); rent roll; delinquency reports; assumable debt, if any; tenant sales reports; and the general physical structure of the asset are reviewed. By analyzing the trade

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area we can determine trade area demographics, how the target asset sits within the trade area compared to its competition and how that trade area is currently being serviced by the existing retail base. Provided the cursory review of the target asset is satisfactory we begin the primary underwriting. The acquisition analyst develops an eleven year cash flow analysis using Argus software utilizing lease abstracts, rent roll, financials provided by seller, and historical data from our own portfolio. Lease administration reviews the third-party abstracts of all leases giving particular attention to use restrictions/conflicts, lease termination rights, relocation rights and accuracy against the provided rent roll. Tenant interviews are done with all key tenants per a multi-point checklist. The property is reviewed internally by leasing, asset management and property management departments. Third party reports are generated for environmental, zoning, appraisal and property condition assessment. Legal reviews newly produced survey and title binder. Discussions are held with the local municipality, particularly economic development, zoning and planning to determine potential competitive activity, changes in traffic patterns and possible real estate tax exposure. Lastly, an on-site review of the asset by representatives of the Investment Committee of the Board of Directors, Mr. Wheeler, and Mr. Kelly, our Senior Vice President of Acquisitions, is required before the due diligence portion of any contract closes. In all, a checklist of over 100 items is reviewed and signed off prior to moving into the closing phase of the contract.

Policies With Respect to Certain Activities
    
The following is a discussion of certain of our investment, financing and other policies. These policies have been determined by our board of directors and, in general, may be amended or revised from time to time by our board of directors without a vote of our stockholders.

Investment Policies

Investments in Real Estate or Interests in Real Estate

We will conduct all of our investment activities through our Operating Partnership, Wheeler REIT, L.P., and its subsidiaries. Our investment objectives are to maximize the cash flow of our properties, acquire properties with cash flow growth potential, provide monthly cash distributions and achieve long-term capital appreciation for our stockholders through increases in the value of our company. Consistent with our policy to acquire assets for both income and capital gain, our Operating Partnership intends to hold its properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing and owning its properties and to make occasional sales of the properties as are consistent with our investment objectives. We have not established a specific policy regarding the relative priority of these investment objectives.

We expect to pursue our investment objectives primarily through the ownership by our Operating Partnership of our portfolio of properties and other acquired properties and assets. We currently intend to invest primarily in retail properties. Future investment or development activities will not be limited to any geographic area, property type or to a specified percentage of our assets. While we may diversify in terms of property locations, size and market, we do not have any limit on the amount or percentage of our assets that may be invested in any one property or any one geographic area. We intend to engage in such future investment activities in a manner that is consistent with the maintenance of our status as a REIT for U.S. federal income tax purposes. In addition, we may purchase or lease income-producing properties for long-term investment, expand and improve the properties we presently own or other acquired properties, or sell such properties, in whole or in part, when circumstances warrant.

We may also participate with third parties in property ownership, through joint ventures or other types of co-ownership. We also may acquire real estate or interests in real estate in exchange for the issuance of common stock, units, preferred stock or options to purchase stock. These types of investments may permit us to own interests in larger assets without unduly restricting our diversification and, therefore, provide us with flexibility in structuring our portfolio. We will not, however, enter into a joint venture or other partnership arrangement to make an investment that would not otherwise meet our investment policies.

Equity investments in acquired properties may be subject to existing mortgage financing and other indebtedness or to new indebtedness which may be incurred in connection with acquiring or refinancing these properties. Debt service on such financing or indebtedness will have a priority over any dividends with respect to our common stock. Investments are also subject to our policy not to fall within the definition of an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”).


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Investments in Real Estate Mortgages
    
We do not intend presently or at any time in the future to invest in real estate mortgages.
    
Securities of or Interests in Persons Primarily Engaged in Real Estate Activities and Other Issuers
    
Although not presently contemplated, subject to the percentage of ownership limitations and the income and asset tests necessary for REIT qualification, we may in the future invest in securities of other REITs, other entities engaged in real estate activities or securities of other issuers where such investment would be consistent with our investment objectives. We may invest in the debt or equity securities of such entities, including for the purpose of exercising control over such entities. We have no current plans to invest in entities that are not engaged in real estate activities. While we may attempt to diversify our investments with respect to the retail properties owned by such entities, in terms of property locations, size and market, we do not have any limit on the amount or percentage of our assets that may be invested in any one entity, property or geographic area. Our investment objectives are to maximize cash flow of our investments, acquire investments with growth potential and provide cash distributions and long-term capital appreciation to our stockholders through increases in the value of our company. We have not established a specific policy regarding the relative priority of these investment objectives. We will not underwrite the securities of any other issuers and will limit our investment in such securities so that we will not fall within the definition of an “investment company” under the 1940 Act.

Investments in Other Securities
    
Other than as described above, we do not currently intend to invest in any additional securities such as bonds, preferred stocks or common stock, although we reserve the right to do so if our board of directors determines that such action would be in our best interests.

Dispositions

We disposed of the following free-standing properties in 2015: Harps, Jenks Reasor’s and Bixby Commons. Further, the following free-standing properties are currently listed for sale: Starbucks/Verizon and the Ruby Tuesday/Outback Steakhouse ground leases at Pierpont Centre. The sale and intended sale of these free-standing properties reflects the execution of our strategy of acquiring multi-tenant properties, monetizing core-assets and using proceeds to re-invest in our specialized markets. We may dispose of additional properties based upon management’s periodic review of our portfolio, and the determination by our board of directors that such activity would be in our best interest. The tax consequences to our directors and executive officers that hold common units resulting from a proposed disposition of a property may influence their decision as to the desirability of such proposed disposition.

Financings and Leverage Policy
    
In the future, we anticipate using a number of different sources to finance our acquisitions and operations, including cash flows from operations, asset sales, seller financing, issuance of debt securities, private financings (such as additional bank credit facilities, which may or may not be secured by our assets), property-level mortgage debt, common or preferred equity issuances or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured. We also may take advantage of joint venture or other partnering opportunities as such opportunities arise in order to acquire properties that would otherwise be unavailable to us. We may use the proceeds of our borrowings to acquire assets, to refinance existing debt or for general corporate purposes.

Although we are not required by our governing documents to maintain a ratio of debt to total market capitalization at any particular level, our Board of Directors will review our ratio of debt to total capital on a quarterly basis, with the goal of maintaining a reasonable rate consistent with our expected ratio of debt to total market capitalization going forward. Additionally, we intend, when appropriate, to employ prudent amounts of leverage and to use debt as a means of providing additional funds for the acquisition of assets, to refinance existing debt or for general corporate purposes. We expect to use leverage conservatively, assessing the appropriateness of new equity or debt capital based on market conditions, including prudent assumptions regarding future cash flow, the creditworthiness of tenants and future rental rates. Our charter and bylaws do not limit the amount of debt that we may incur. Our board of directors has not adopted a policy limiting the total amount of debt that we may incur.


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Our board of directors will consider a number of factors in evaluating the amount of debt that we may incur. If we adopt a debt policy, our board of directors may from time to time modify such policy in light of then-current economic conditions, relative costs of debt and equity capital, market values of our properties, general conditions in the market for debt and equity securities, fluctuations in the market price of our common stock, growth and acquisition opportunities and other factors. Our decision to use leverage in the future to finance our assets will be at our discretion and will not be subject to the approval of our stockholders, and we are not restricted by our governing documents or otherwise in the amount of leverage that we may use.

Lending Policies

We have not made any loans to third parties, although we do not have a policy limiting our ability to make loans to other persons. We may consider offering purchase money financing in connection with the sale of properties where the provision of that financing will increase the value to be received by us for the property sold. We also may make loans to joint ventures in which we participate. However, we do not intend to engage in significant lending activities. Any loan we make will be consistent with maintaining our status as a REIT.

Equity Capital Policies

To the extent that our board of directors approve additional capital raises, we may issue debt or equity securities, including additional units or senior securities of our Operating Partnership, retain earnings (subject to provisions in the Code requiring distributions of income to maintain REIT qualification) or pursue a combination of these methods. As long as our Operating Partnership is in existence, we will generally contribute the proceeds of all equity capital raised by us to our Operating Partnership in exchange for additional interests in our Operating Partnership, which will dilute the ownership interests of the limited partners in our Operating Partnership.

Existing stockholders will have no preemptive rights to common or preferred stock or units issued in any securities offering by us, and any such offering might cause a dilution of a stockholder’s investment in us. Although we have no current plans to do so, we may in the future issue shares of common stock or units in connection with acquisitions of property.

We may, under certain circumstances, purchase shares of our common stock or other securities in the open market or in private transactions with our stockholders, provided that those purchases are approved by our board of directors. Our board of directors has no present intention of causing us to repurchase any shares of our common stock or other securities, and any such action would only be taken in conformity with applicable federal and state laws and the applicable requirements for qualification as a REIT.

Change in Investment and Financing Objectives and Policies
    
Our investment policies and objectives and the methods of implementing our investment objectives and policies, except to the extent set forth in our charter, may be altered by our board of directors, without the approval of our stockholders. If we change these policies during the offering period, we will disclose these changes in a prospectus supplement prior to the effective time of these changes. If we change these policies after the offering, we will inform our stockholders of the change within ten days after our board of directors alters our investment objectives and policies, by either a press release or notice of an “other event” on a Current Report on Form 8-K or another method deemed reasonable by our board of directors.

Conflict of Interest Policies
    
Overview. Conflicts of interest could arise in the future as a result of the relationships between us and our affiliates, on the one hand, and our Operating Partnership or any partner thereof, on the other. Our directors and officers have duties to our company under applicable Maryland law in connection with their management of our company. At the same time, we, as the general partner of our Operating Partnership, have fiduciary duties and obligations to our Operating Partnership and its other partners under Virginia law and the Partnership Agreement in connection with the management of our Operating Partnership. Our fiduciary duties and obligations, as the general partner of our Operating Partnership, may come into conflict with the duties of our directors and officers to our company.

Under Virginia law (where our Operating Partnership is formed), a general partner of a Virginia limited partnership has fiduciary duties of loyalty and care to the partnership and its partners and must discharge its duties and exercise its rights as general partner under the Partnership Agreement or Virginia law consistently with the obligation of good faith and fair dealing. The duty of loyalty requires a general partner of a Virginia general partnership to account to the partnership and hold as trustee

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for it any property, profit, or benefit derived by the general partner in the conduct of the partnership business or derived from a use by the general partner of partnership property, including the appropriation of a partnership opportunity, to refrain from dealing with the partnership in the conduct of the partnership’s business as or on behalf of a party having an interest adverse to the partnership and to refrain from competing with the partnership in the conduct of the partnership business, although the Partnership Agreement may identify specific types or categories of activities that do not violate the duty of loyalty. The Partnership Agreement provides that, in the event of a conflict between the interests of our Operating Partnership or any partner, on the one hand, and the separate interests of our company or our stockholders, on the other hand, we, in our capacity as the general partner of our Operating Partnership, are under no obligation not to give priority to the separate interests of our company or our stockholders, and that any action or failure to act on our part or on the part of our directors that gives priority to the separate interests of our company or our stockholders that does not result in a violation of the contract rights of the limited partners of the Operating Partnership under its Partnership Agreement does not violate the duty of loyalty that we, in our capacity as the general partner of our Operating Partnership, owe to the Operating Partnership and its partners. The duty of care requires a general partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of law, and this duty may not be unreasonably reduced by the Partnership Agreement.
The Partnership Agreement provides that we are not liable to our Operating Partnership or any partner for monetary damages for losses sustained, liabilities incurred or benefits not derived by our Operating Partnership or any limited partner, except for liability for our intentional harm or gross negligence. The Partnership Agreement also provides that any obligation or liability in our capacity as the general partner of our Operating Partnership that may arise at any time under the Partnership Agreement or any other instrument, transaction or undertaking contemplated by the Partnership Agreement will be satisfied, if at all, out of our assets or the assets of our Operating Partnership only, and no obligation or liability of the general partner will be personally binding upon any of our directors, stockholders, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise, and none of our directors or officers will be liable or accountable in damages or otherwise to the partnership, any partner or any assignee of a partner for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or any act or omission. Our Operating Partnership must indemnify us, our directors and officers, officers of our Operating Partnership and any other person designated by us against any and all losses, claims, damages, liabilities (whether joint or several), expenses (including, without limitation, attorneys’ fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, that relate to the operations of the Operating Partnership, unless (1) an act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (2) for any transaction for which such person actually received an improper personal benefit in violation or breach of any provision of the Partnership Agreement, or (3) in the case of a criminal proceeding, the person had reasonable cause to believe the act or omission was unlawful.

Our Operating Partnership must also pay or reimburse the reasonable expenses of any such person upon its receipt of a written affirmation of the person’s good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the standard of conduct for indemnification. Our Operating Partnership will not indemnify or advance funds to any person with respect to any action initiated by the person seeking indemnification without our approval (except for any proceeding brought to enforce such person’s right to indemnification under the Partnership Agreement) or if the person is found to be liable to our Operating Partnership on any portion of any claim in the action.

No reported decision of a Virginia appellate court has interpreted provisions similar to the provisions of the Partnership Agreement of our Operating Partnership that modify or reduce the fiduciary duties and obligations of a general partner or reduce or eliminate our liability for money damages to the Operating Partnership and its partners, and we have not obtained an opinion of counsel as to the enforceability of the provisions set forth in the Partnership Agreement that purport to modify or reduce our fiduciary duties that would be in effect were it not for the Partnership Agreement.

Sale or Refinancing of Properties. Upon the sale of certain of the properties to be owned by us, certain unitholders could incur adverse tax consequences which are different from the tax consequences to us and to holders of our common stock. Consequently, unitholders may have differing objectives regarding the appropriate pricing and timing of any such sale or repayment of indebtedness.

While we will have the exclusive authority under the Partnership Agreement to determine whether, when, and on what terms to sell a property or when to refinance or repay indebtedness, any such decision would require the approval of our board of directors.


7



Policies Applicable to All Directors and Officers. Our charter and bylaws do not restrict any of our directors, officers, stockholders or affiliates from having a pecuniary interest in an investment or transaction that we have an interest in or from conducting, for their own account, business activities of the type we conduct. We intend, however, to adopt policies that are designed to eliminate or minimize potential conflicts of interest, including a policy for the review, approval or ratification of any related party transactions. This policy will provide that the audit committee of our board of directors will review the relevant facts and circumstances of each related party transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party before approving such transaction. We have adopted a code of business conduct and ethics, which provides that all of our directors, officers and employees are prohibited from taking for themselves opportunities that are discovered through the use of corporate property, information or position without our consent. However, we cannot assure you that these policies or provisions of law will always be successful in eliminating the influence of such conflicts, and if they are not successful, decisions could be made that might fail to reflect fully the interests of all stockholders.

Interested Director and Officer Transactions
    
Pursuant to the Maryland General Corporation Law (“MGCL”), a contract or other transaction between us and a director or between us and any other corporation or other entity in which any of our directors is a director or has a material financial interest is not void or voidable solely on the grounds of such common directorship or interest, the presence of such director at the meeting at which the contract or transaction is authorized, approved or ratified or the counting of the director’s vote in favor thereof, provided that:
 
the fact of the common directorship or interest is disclosed or known to our board of directors or a committee of our board, and our board or such committee authorizes, approves or ratifies the transaction or contract by the affirmative vote of a majority of disinterested directors, even if the disinterested directors constitute less than a quorum;
the fact of the common directorship or interest is disclosed or known to our stockholders entitled to vote thereon, and the transaction or contract is authorized, approved or ratified by a majority of the votes cast by the stockholders entitled to vote other than the votes of shares owned of record or beneficially by the interested director or corporation, firm or other entity; or
the transaction or contract is fair and reasonable to us at the time it is authorized, ratified or approved.

Furthermore, under Virginia law, we, as general partner, have a fiduciary duty of loyalty to our Operating Partnership and its partners and, consequently, such transactions also are subject to the duties that we, as general partner, owe to the Operating Partnership and its limited partners (as such duty has been modified by the Partnership Agreement). We have adopted a policy that requires that all contracts and transactions between us, our Operating Partnership or any of our subsidiaries, on the one hand, and any of our directors or executive officers or any entity in which such director or executive officer is a director or has a material financial interest, on the other hand, must be approved by the affirmative vote of a majority of our disinterested directors even if less than a quorum. Where appropriate, in the judgment of the disinterested directors, our board of directors may obtain a fairness opinion or engage independent counsel to represent the interests of non-affiliated security holders, although our board of directors will have no obligation to do so.

Policies With Respect To Other Activities

We have authority to offer common stock, preferred stock or options to purchase stock in exchange for property and to repurchase or otherwise acquire our common stock or other securities in the open market or otherwise, and we may engage in such activities in the future. We expect, but are not obligated, to issue common stock to holders of common units upon exercise of their redemption rights. Our board of directors has the authority, without further stockholder approval, to amend our charter to increase or decrease the number of authorized shares of common stock or preferred stock and authorize us to issue additional shares of common stock or preferred stock, in one or more series, including senior securities, in any manner, and on the terms and for the consideration, it deems appropriate. We have not engaged in trading, underwriting or agency distribution or sale of securities of other issuers other than our Operating Partnership and do not intend to do so. At all times, we intend to make investments in such a manner as to qualify as a REIT, unless because of circumstances or changes in the Code, or the Treasury regulations, our board of directors determines that it is no longer in our best interest to qualify as a REIT. In addition, we intend to make investments in such a way that we will not be treated as an investment company under the 1940 Act.

Reporting Policies

We make available to our stockholders our annual reports, including our audited consolidated financial statements. We are subject to the information reporting requirements of the Exchange Act. Pursuant to those requirements, we will be required

8



to file annual and periodic reports, proxy statements and other information, including audited consolidated financial statements, with the SEC.

Item 1A.    Risk Factors.
        
Not applicable.

Item 1B.    Unresolved Staff Comments.
Not applicable. 

9



Item 2.    Properties.
Our Portfolio
    
At December 31, 2015, we owned fifty-three properties, including forty-two income producing properties located in Virginia, North Carolina, South Carolina, Florida, Georgia, Kentucky, Oklahoma, Tennessee, Alabama and New Jersey, containing a total of 3,151,358 rentable square feet of retail space, which we refer to as our operating portfolio. The following table presents an overview of our properties, based on information as of December 31, 2015.

Portfolio
Property
Location
 
Number
of
Tenants
 
Gross Leasable Area ("GLA")
 
Percentage
Leased
 
Annualized
Base Rent (1)
 
Annualized
Base Rent
per Leased
Square
Foot
Alex City Marketplace
Alexander City, AL
 
17

 
147,791

 
87.1
%
 
$
913,691

 
$
7.10

Amscot Building (2)
Tampa, FL
 
1

 
2,500

 
100.0
%
 
$
115,849

 
$
46.34

Beaver Ruin Village
Lilburn, GA
 
27

 
74,048

 
84.4
%
 
$
1,006,968

 
$
16.12

Beaver Ruin Village II
Lilburn, GA
 
4

 
34,925

 
100.0
%
 
$
407,176

 
$
11.66

Berkley (3)
Norfolk, VA
 

 

 
%
 

 

Brook Run Shopping Center
Richmond, VA
 
20

 
147,738

 
93.1
%
 
$
1,547,303

 
$
11.25

Brook Run Properties (3)
Richmond, VA
 

 

 
%
 

 

Bryan Station
Lexington, KY
 
9

 
54,397

 
100.0
%
 
$
553,004

 
$
10.17

Butler Square
Mauldin, SC
 
16

 
82,400

 
100.0
%
 
$
833,358

 
$
10.11

Cardinal Plaza
Henderson, NC
 
7

 
50,000

 
84.0
%
 
$
424,500

 
$
10.11

Carolina Place (3)
Onley, VA
 

 

 
%
 

 

Chesapeake Square
Onley, VA
 
9

 
99,848

 
74.8
%
 
$
593,583

 
$
7.95

Clover Plaza
Clover, SC
 
10

 
45,575

 
100.0
%
 
$
354,771

 
$
7.78

Columbia Fire Station (3)
Columbia, SC
 

 

 
%
 

 

Conyers Crossing
Conyers, GA
 
14

 
170,475

 
100.0
%
 
$
884,797

 
$
5.19

Courtland Commons (3)
Courtland, VA
 

 

 
%
 

 

Crockett Square
Morristown, TN
 
4

 
107,122

 
100.0
%
 
$
886,635

 
$
8.28

Cypress Shopping Center
Boiling Springs, SC
 
16

 
80,435

 
96.5
%
 
$
804,020

 
$
10.36

Edenton Commons (3)
Edenton, NC
 

 

 
%
 

 

Forrest Gallery
Tullahoma, TN
 
27

 
214,450

 
94.3
%
 
$
1,204,701

 
$
5.96

Fort Howard Shopping Center
Rincon, GA
 
16

 
113,652

 
94.9
%
 
$
941,329

 
$
8.73

Freeway Junction
Stockbridge, GA
 
16

 
156,834

 
96.9
%
 
$
1,035,044

 
$
6.81

Franklinton Square
Franklinton, NC
 
11

 
65,366

 
86.1
%
 
$
490,295

 
$
8.71

Graystone Crossing
Tega Cay, SC
 
11

 
21,997

 
100.0
%
 
$
513,256

 
$
23.33

Grove Park
Orangeburg, SC
 
16

 
106,557

 
89.8
%
 
$
685,081

 
$
7.15

Harbor Point (3)
Grove, OK
 

 

 
%
 

 

Harrodsburg Marketplace
Harrodsburg, KY
 
8

 
60,048

 
97.0
%
 
$
438,556

 
$
7.53

Hilton Head (3)
Hilton Head, SC
 

 

 
%
 

 

Jenks Plaza
Jenks, OK
 
5

 
7,800

 
100.0
%
 
$
148,629

 
$
19.06

LaGrange Marketplace
LaGrange, GA
 
13

 
76,594

 
93.3
%
 
$
388,385

 
$
5.43

Laskin Road (3)
Virginia Beach, VA
 

 

 
%
 

 

Lumber River Village
Lumberton, NC
 
12

 
66,781

 
100.0
%
 
$
503,506

 
$
7.54

Monarch Bank
Virginia Beach, VA
 
1

 
3,620

 
100.0
%
 
$
250,538

 
$
69.21

Nashville Commons
Nashville, NC
 
12

 
56,100

 
100.0
%
 
$
564,435

 
$
10.06

Parkway Plaza
Brunswick, GA
 
5

 
52,365

 
96.9
%
 
$
533,398

 
$
10.51

Perimeter Square
Tulsa, OK
 
8

 
58,277

 
95.7
%
 
$
742,287

 
$
13.31

Pierpont Centre
Morgantown, WV
 
20

 
122,259

 
100.0
%
 
$
1,338,612

 
$
10.95

Port Crossing
Harrisonburg, VA
 
8

 
65,365

 
92.4
%
 
$
780,445

 
$
12.92


10



Property
Location
 
Number
of
Tenants
 
Gross Leasable Area
 
Percentage
Leased
 
Annualized
Base Rent (1)
 
Annualized
Base Rent
per Leased
Square
Foot
Riversedge North (4)
Virginia Beach, VA
 

 

 
%
 

 

Shoppes at TJ Maxx
Richmond, VA
 
18

 
93,552

 
100.0
%
 
$
1,117,655

 
$
11.95

South Square
Lancaster, SC
 
5

 
44,350

 
89.9
%
 
$
319,206

 
$
8.01

Starbucks/Verizon (2)
Virginia Beach, VA
 
2

 
5,600

 
100.0
%
 
$
185,695

 
$
33.16

St. George Plaza
St. George, SC
 
5

 
59,279

 
72.3
%
 
$
293,421

 
$
6.85

Sunshine Plaza
Lehigh Acres, FL
 
21

 
111,189

 
96.7
%
 
$
954,702

 
$
8.88

Surrey Plaza
Hawkinsville, GA
 
5

 
42,680

 
100.0
%
 
$
291,495

 
$
6.83

Tampa Festival
Tampa, FL
 
20

 
137,987

 
97.7
%
 
$
1,230,027

 
$
9.13

The Shoppes at Eagle Harbor
Carrollton, VA
 
7

 
23,303

 
100.0
%
 
$
447,844

 
$
19.22

Tulls Creek (3)
Moyock, NC
 

 

 
%
 

 

Twin City Commons
Batesburg-Leesville, SC
 
5

 
47,680

 
100.0
%
 
$
450,310

 
$
9.44

Walnut Hill Plaza
Petersburg, VA
 
11

 
87,239

 
85.2
%
 
$
596,162

 
$
8.02

Waterway Plaza
Little River, SC
 
9

 
49,750

 
97.6
%
 
$
439,583

 
$
9.05

Westland Square
West Columbia, SC
 
10

 
62,735

 
91.9
%
 
$
486,698

 
$
8.44

Winslow Plaza
Sicklerville, NJ
 
17

 
40,695

 
100.0
%
 
$
594,202

 
$
14.60

Total Portfolio
 
 
478

 
3,151,358

 
94.2
%
 
$
27,291,152

 
$
9.19

(1)
Annualized base rent per leased square foot excludes the impact of tenant concessions.
(2)
We own the Amscot building and Starbucks/Verizon building, but we do not own the land underneath the buildings and instead lease the land pursuant to ground leases with parties that are affiliates of Jon Wheeler. As discussed in the financial statements in Item 15, these ground leases require us to make annual rental payments and contain escalation clauses and renewal options.
(3)
This information is not available because the property is undeveloped.
(4)
This property is our corporate headquarters that we 100% occupy.



11



Outstanding Indebtedness
    
As of December 31, 2015, our outstanding indebtedness was approximately $191.3 million, including debt associated with assets held for sale. The following table sets forth information with respect to such indebtedness:
 
 
Amount of Debt
Outstanding as of
December 31, 2015
 
Weighted
Average
Interest Rate
 
Maturity
Date
 
Amortization
Period (Mths)
 
Annual
Debt
Service
 
Balance at
Maturity
Shoppes at Eagle Harbor
$
3,634,085

 
4.34
%
 
3/11/2018
 
240

 
$
301,200

 
$
3,339,834

Monarch Bank Building
1,376,452

 
4.15
%
 
12/30/2017
 
240

 
113,676

 
1,275,249

Perimeter Square
4,166,406

 
6.38
%
 
6/11/2016
 
120

 
168,534

 
4,133,592

Riversedge North
962,281

 
6.00
%
 
1/16/2019
 
360

 
105,624

 
807,904

Walnut Hill Plaza
3,535,606

 
5.50
%
 
7/10/2017
 
240

 
291,276

 
3,389,011

Twin City Commons
3,225,473

 
4.86
%
 
1/6/2023
 
360

 
213,924

 
2,747,631

Shoppes at TJ Maxx
6,081,272

 
3.88
%
 
5/1/2020
 
300

 
406,560

 
5,294,355

Bank Line of Credit
6,873,750

 
2.79
%
 
5/29/2018
 
N/A

 
191,778

 
6,873,750

Forrest Gallery
8,926,712

 
5.40
%
 
9/6/2023
 
360

 
611,676

 
7,794,407

Tampa Festival
8,627,294

 
5.56
%
 
9/6/2023
 
360

 
609,568

 
7,483,025

Starbucks/Verizon
632,042

 
5.00
%
 
7/2/2019
 
120

 
52,596

 
553,571

Winslow Plaza
4,620,000

 
4.82
%
 
12/1/2025
 
N/A

 
222,684

 
4,620,000

Cypress Shopping Center
6,625,000

 
4.70
%
 
7/6/2024
 
240

 
311,375

 
5,700,455

Harrodsburg Marketplace
3,677,501

 
4.55
%
 
9/1/2024
 
240

 
229,344

 
3,058,982

Port Crossing
6,471,636

 
4.84
%
 
8/1/2024
 
240

 
417,456

 
5,423,413

LaGrange Marketplace
2,418,212

 
5.00
%
 
3/26/2020
 
120

 
165,756

 
2,234,334

Freeway Junction
8,150,000

 
4.60
%
 
9/6/2024
 
240

 
374,900

 
6,929,805

Edenton Commons
650,000

 
3.75
%
 
9/30/2016
 
N/A

 
653,047

 

DF I-Moyock
418,538

 
5.00
%
 
7/30/2019
 
60

 
127,980

 

Graystone Crossing
4,000,000

 
4.55
%
 
10/26/2024
 
240

 
244,632

 
3,419,266

Bryan Station
4,625,000

 
4.52
%
 
11/1/2024
 
240

 
209,050

 
3,968,506

Crockett Square
6,337,500

 
4.47
%
 
12/5/2024
 
240

 
283,286

 
4,486,317

Harbor Point
732,685

 
5.85
%
 
12/6/2016
 
240

 
132,288

 
698,688

Pierpont Centre
9,800,000

 
3.95
%
 
2/6/2025
 
N/A

 
387,100

 
8,902,005

Alex City Marketplace
5,750,000

 
3.90
%
 
4/6/2025
 
N/A

 
224,250

 
5,750,000

Butler Square
5,640,000

 
4.08
%
 
5/6/2025
 
N/A

 
230,112

 
5,640,000

Brook Run Shopping Center
10,950,000

 
3.90
%
 
6/6/2025
 
N/A

 
427,050

 
10,950,000

Beaver Ruin Village I and II
9,400,000

 
4.73
%
 
7/6/2025
 
N/A

 
444,620

 
9,400,000

Columbia Fire Station
450,053

 
8.00
%
 
12/31/2017
 
N/A

 
36,004

 
511,003

Sunshine Shopping Plaza
5,900,000

 
4.57
%
 
8/6/2025
 
N/A

 
269,630

 
5,900,000

Barnett Portfolio
8,770,000

 
4.30
%
 
9/6/2025
 
N/A

 
377,110

 
8,770,000

Grove Park Shopping Center
3,800,000

 
4.52
%
 
10/1/2025
 
N/A

 
171,760

 
3,800,000

Parkway Plaza
3,500,000

 
4.57
%
 
10/1/2025
 
N/A

 
159,950

 
3,500,000

Conyers Crossing
5,960,000

 
4.67
%
 
10/6/2025
 
N/A

 
278,332

 
5,960,000


12



 
Amount of Debt
Outstanding as of
December 31, 2015
 
Weighted
Average
Interest Rate
 
Maturity
Date
 
Amortization
Period (Mths)
 
Annual
Debt
Service
 
Balance at
Maturity
Fort Howard Shopping Center
7,100,000

 
4.57
%
 
10/6/2025
 
N/A

 
324,470

 
7,100,000

Senior convertible notes
3,000,000

 
9.00
%
 
12/15/2018
 
N/A

 
270,000

 
3,000,000

Senior non-convertible notes
2,160,000

 
9.00
%
 
1/31/2016
 
N/A

 
16,200

 
2,160,000

South Carolina Food Lions Note
12,375,000

 
5.25
%
 
1/6/2024
 
360

 
649,688

 
10,728,916

 
$
191,322,498

 
 
 
 
 
 
 
 
 
 

Major Tenants
    
The following table sets forth information regarding the ten largest tenants in our operating portfolio based on annualized base rent as of December 31, 2015.
 
Tenants
Total Gross Leaseable Area
 
Percent of 
Total
Gross Leasable Area
 
Annualized
Base Rent
($ in 000s)
 
Percent of Total
Annualized
Base Rent
 
Base Rent
Per Leased
Square Foot
Bi-Lo/Winn Dixie
392,898

 
12.47
%
 
$
2,853

 
10.45
%
 
$
7.26

Food Lion
325,576

 
10.33
%
 
2,691

 
9.86
%
 
8.27

Hobby Lobby
114,298

 
3.63
%
 
675

 
2.47
%
 
5.91

Kroger
84,938

 
2.70
%
 
534

 
1.96
%
 
6.29

Burlington Coat Factory
83,552

 
2.65
%
 
176

 
0.64
%
 
2.11

Family Dollar
67,626

 
2.15
%
 
465

 
1.70
%
 
6.88

Giant Food Stores, LLC
58,473

 
1.86
%
 
380

 
1.39
%
 
6.50

Goodwill
56,343

 
1.79
%
 
433

 
1.59
%
 
7.69

Dollar Tree
51,974

 
1.65
%
 
441

 
1.62
%
 
8.49

Goody's
51,275

 
1.63
%
 
139

 
0.51
%
 
2.71

 
1,286,953

 
40.86
%
 
$
8,787

 
32.19
%
 
$
6.83



13



Lease Expirations
    
The following table sets forth information with respect to the lease expirations of our properties as of December 31, 2015.
 
Lease Expiration Year
Number of
Expiring
Leases
 
Total Expiring
Gross Leaseable Area
 
Percent of
Total Gross Leaseable Area
 
Expiring Base
Rent (in 000s)
 
Percent of
Total
Base Rent
 
Expiring
Base Rent
Per Leased
Square Foot
Available

 
182,621

 
5.79
%
 
$

 

 
$

2016
71

 
188,045

 
5.97
%
 
2,244

 
8.22
%
 
11.93

2017
105

 
436,806

 
13.86
%
 
4,591

 
16.82
%
 
10.51

2018
97

 
588,498

 
18.67
%
 
5,025

 
18.41
%
 
8.54

2019
70

 
466,894

 
14.82
%
 
4,209

 
15.42
%
 
9.01

2020
72

 
572,140

 
18.16
%
 
5,071

 
18.58
%
 
8.86

2021
23

 
358,741

 
11.38
%
 
2,526

 
9.26
%
 
7.04

2022
10

 
67,484

 
2.14
%
 
880

 
3.22
%
 
13.04

2023
9

 
129,841

 
4.12
%
 
1,303

 
4.77
%
 
10.04

2024
12

 
100,228

 
3.18
%
 
844

 
3.09
%
 
8.42

2025 and thereafter
9

 
60,060

 
1.91
%
 
598

 
2.21
%
 
9.94

 
 
 
3,151,358

 
100.00
%
 
$
27,291

 
100.00
%
 
$
9.19


Property Management and Leasing Strategy

We administer our property management and substantially all of our leasing activities and operating and administrative functions (including leasing, legal, acquisitions, development, data processing, finance and accounting). On-site functions such as maintenance, landscaping, sweeping, plumbing and electrical are subcontracted out at each location and, to the extent permitted by their respective leases, the cost of these functions is passed on to the tenants.
We believe that focused property management, leasing and customer retention are essential to maximizing the sales per square foot, operating cash flow and value of our properties. Our primary goal in property management is to maintain an attractive shopping environment on a cost effective basis for our tenants.
The majority of our property management and leasing functions are supervised and administered by us. We maintain regular contact with our tenants and frequently visit each asset to ensure the proper implementation and execution of our market strategies. As part of our ongoing property management, we conduct regular physical property reviews to improve our properties, react to changing market conditions and ensure proper maintenance.
Our leasing representatives have become experienced in the markets in which we operate by becoming familiar with current tenants as well as potential local, regional and national tenants that would complement our current tenant base. We study demographics, customer sales and merchandising mix to optimize the sales performance of our centers and thereby increase rents. We believe this hands-on approach maximizes the value of our shopping centers.


14



Depreciation
    
The following table sets forth depreciation information for our properties, including assets held for sale, as of December 31, 2015.  
 
Federal Tax
Basis
 
Depreciation
Rate
 
Method of
Depreciation
 
Useful Life
Claimed
Shoppes at TJ Maxx
$
7,121,369

 
3.88
%
 
Straight-Line
 
5-39 Years
Walnut Hill Plaza
3,606,700

 
3.17
%
 
Straight-Line
 
5-39 Years
Lumber River Village
4,486,787

 
2.98
%
 
Straight-Line
 
5-39 Years
Perimeter Square
5,191,021

 
3.25
%
 
Straight-Line
 
5-39 Years
The Shoppes at Eagle Harbor
4,477,700

 
2.76
%
 
Straight-Line
 
5-39 Years
Riversedge North
2,295,510

 
2.51
%
 
Straight-Line
 
5-39 Years
Monarch Bank
1,986,363

 
2.90
%
 
Straight-Line
 
5-39 Years
Amscot Building
492,828

 
2.77
%
 
Straight-Line
 
5-39 Years
Twin City Crossing
3,045,189

 
3.20
%
 
Straight-Line
 
5-39 Years
Surrey Plaza
1,856,515

 
4.07
%
 
Straight-Line
 
5-39 Years
Tampa Festival
6,829,558

 
3.79
%
 
Straight-Line
 
5-39 Years
Forrest Gallery
7,714,646

 
3.92
%
 
Straight-Line
 
5-39 Years
Starbucks/Verizon
1,137,971

 
2.04
%
 
Straight-Line
 
5-39 Years
Jenks Plaza
917,898

 
4.25
%
 
Straight-Line
 
5-39 Years
Winslow Plaza
3,684,181

 
4.93
%
 
Straight-Line
 
5-39 Years
Clover Plaza
1,222,554

 
2.89
%
 
Straight-Line
 
5-39 Years
St. George Plaza
1,271,236

 
3.21
%
 
Straight-Line
 
5-39 Years
South Square
1,911,330

 
2.62
%
 
Straight-Line
 
5-39 Years
Westland Square
1,719,692

 
2.95
%
 
Straight-Line
 
5-39 Years
Waterway Plaza
1,247,952

 
3.06
%
 
Straight-Line
 
5-39 Years
Cypress Shopping Center
4,578,838

 
2.95
%
 
Straight-Line
 
5-39 Years
Harrodsburg Marketplace
2,484,653

 
3.11
%
 
Straight-Line
 
5-39 Years
Port Crossing Shopping Center
7,002,682

 
4.68
%
 
Straight-Line
 
5-39 Years
LaGrange Marketplace
2,647,956

 
4.53
%
 
Straight-Line
 
5-39 Years
Freeway Junction
6,754,803

 
3.89
%
 
Straight-Line
 
5-39 Years
Graystone Crossing
2,856,365

 
2.86
%
 
Straight-Line
 
5-39 Years
Bryan Station
2,756,142

 
3.32
%
 
Straight-Line
 
5-39 Years
Crockett Square
6,844,567

 
3.66
%
 
Straight-Line
 
5-39 Years
Pierpont Centre
9,253,152

 
3.64
%
 
Straight-Line
 
5-39 Years
Alex City Marketplace
7,836,903

 
3.65
%
 
Straight-Line
 
5-39 Years
Butler Square
6,411,277

 
2.89
%
 
Straight-Line
 
5-39 Years
Brook Run Shopping Center
13,175,827

 
5.75
%
 
Straight-Line
 
5-39 Years
Brook Run Properties (1)
8,856

 
%
 
N/A
 
N/A
Laskin Road (1)
185,018

 
%
 
N/A
 
N/A
Beaver Ruin Village
8,283,904

 
3.15
%
 
Straight-Line
 
5-39 Years
Beaver Ruin Village II
2,814,398

 
2.90
%
 
Straight-Line
 
5-39 Years
Sunshine Shopping Plaza
6,368,471

 
3.25
%
 
Straight-Line
 
5-39 Years
Cardinal Plaza
2,475,266

 
3.48
%
 
Straight-Line
 
5-39 Years
Franklinton Square
2,958,171

 
4.39
%
 
Straight-Line
 
5-39 Years
Nashville Commons
3,503,161

 
3.76
%
 
Straight-Line
 
5-39 Years
Chesapeake Square
4,111,707

 
4.86
%
 
Straight-Line
 
5-39 Years
Grove Park Shopping Center
4,589,698

 
4.35
%
 
Straight-Line
 
5-39 Years
Parkway Plaza
4,229,713

 
3.15
%
 
Straight-Line
 
5-39 Years

15



 
Federal Tax
Basis
 
Depreciation
Rate
 
Method of
Depreciation
 
Useful Life
Claimed
Conyers Crossing
6,819,984

 
4.09
%
 
Straight-Line
 
5-39 Years
Fort Howard Shopping Center
7,350,084

 
3.18
%
 
Straight-Line
 
5-39 Years
Columbia Fire House (1)
278,557

 
%
 
N/A
 
N/A
WHLR Macpherson, LLC (1)
7,412

 
%
 
N/A
 
N/A
LBP Blairmill, LLC (1)
23,965

 
%
 
N/A
 
N/A
LBP Milltown, LLC (1)
100,364

 
%
 
N/A
 
N/A
LBP Vauxhall, LLC (1)
14,627

 
%
 
N/A
 
N/A
Wheeler Real Estate, LLC
53,541

 
10.68
%
 
Straight-Line
 
5-39 Years
Wheeler Interests, LLC
8,734

 
29.48
%
 
Straight-Line
 
5-39 Years
Wheeler Real Estate Investment Trust, Inc.
480,674

 
15.93
%
 
Straight-Line
 
5-39 Years
Wheeler REIT, LP (1)
22,064

 
%
 
N/A
 
N/A
 
$
189,508,534

 
 
 
 
 
 
 
(1) Amount consists of assets not yet placed in service.


Item 3.    Legal Proceedings.
    
We are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.

On July 10, 2008, one of our 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 which includes interest and other fees. Perimeter then appealed to the Oklahoma Supreme Court, which on November 16, 2015, the final judgment was affirmed against Perimeter, resulting in a total award of approximately $415,000, which was paid by Perimeter in December 2015.

On May 22, 2013, WHLR-HPA-1, LLC, (“Harp’s”), a subsidiary of our Operating Partnership that owned our Harps at Harbor Point property, (“Harp’s Food Store”), filed suit against Crossland Heavy Contractors (“Crossland”) for equitable relief to divide a mechanic and materialmen’s lien (“Lien”) of approximately $856,000 filed on three properties which includes the Harp’s Food Store property and two adjacent properties owned by our affiliates. Crossland subsequently filed a counterclaim adding us, among others, as a defendant to the case. The Lien related to cost overruns incurred by Crossland during the construction and development process that occurred prior to us acquiring the Harp’s Food Store property. On October 22, 2013, the parties reached a settlement whereby it was agreed that the Lien would be paid in full by November 22, 2013. Since the Lien related to construction and development costs incurred prior to us acquiring the property, the affiliated parties that developed the property intended to fully satisfy the Lien, resulting in no liability to us. However, since there was no evidence as of September 30, 2013 that the affiliated parties had finalized their funding sources to satisfy the Lien, management concluded that the appropriate treatment was to accrue the $856,000 in the September 30, 2013 financial statements. On January 31, 2014, Crossland removed the lien as our affiliates fulfilled their obligation to pay the Lien. Accordingly, the accrual was reversed as of December 31, 2013 since the Lien was satisfied without liability to us and the consolidated financial statements had not been issued when the Lien was released.

Item 4.    Mine Safety Disclosures.

Not applicable.

16




Part II
 
Item 5.    Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
    
Market Information.
    
Our common stock is traded on the NASDAQ Capital Market under the symbol “WHLR”. On March 8, 2016, the closing price of our common stock reported on the NASDAQ Capital Market was $1.33 per share. The high and low common stock sales prices per share during the periods indicated were as follows:
Price per share of common stock:
Quarter Ended
Mar. 31
 
June 30
 
Sept. 30
 
Dec. 31
 
Year
Fiscal Year 2015
 
 
 
 
 
 
 
 
 
High
$
4.14

 
$
2.45

 
$
2.10

 
$
2.03

 
$
4.14

Low
$
2.27

 
$
1.98

 
$
1.68

 
$
1.60

 
$
1.60

 
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 
 
 
 
 
 
 
 
Fiscal Year 2014
 
 
 
 
 
 
 
 
 
High
$
4.86

 
$
5.08

 
$
5.16

 
$
4.67

 
$
5.16

Low
$
4.14

 
$
4.35

 
$
4.45

 
$
3.94

 
$
3.94

    
Our Series B preferred stock is traded on the NASDAQ Capital Market under the symbol “WHLRP”. On March 8, 2016, the closing price of our common stock reported on the NASDAQ Capital Market was $19.50 per share. Our Series B preferred stock began trading on April 30, 2014. The high and low preferred stock sales prices per share during the periods indicated were as follows:

Price per share of Series B preferred stock:
Quarter Ended
Mar. 31
 
June 30
 
Sept. 30
 
Dec. 31
 
Year
Fiscal Year 2015
 
 
 
 
 
 
 
 
 
High
$
24.96

 
$
25.45

 
$
24.56

 
$
23.50

 
$
25.45

Low
$
18.75

 
$
23.02

 
$
22.05

 
$
22.13

 
$
18.75

 
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 
 
 
 
 
 
 
 
Fiscal Year 2014
 
 
 
 
 
 
 
 
 
High
N/A

 
$
27.43

 
$
25.55

 
$
23.85

 
$
27.43

Low
N/A

 
$
24.20

 
$
23.20

 
$
21.28

 
$
21.28


Approximate Number of Holders of Our Common Shares
    
As of March 8, 2016 there were 147 holders of record of our common shares and 0 holders of our Series B preferred shares. This number excludes our common and Series B preferred stock owned by shareholders holding under nominee security position listings.

Dividend Policy
    
We pay cash dividends to holders of our common stock on a monthly basis. We intend to make dividend distributions that will enable us to meet the distribution requirements applicable to REITs and to eliminate or minimize our obligation to pay income and excise taxes. We may in the future also choose to pay dividends in shares of our common stock. While we intend to maintain the annual $0.21 per share dividend that we currently pay for the foreseeable future, our current cash flow does not support this amount. Accordingly, we may be forced to reduce the annual dividend if the cash flow deficit continues for an extended period of time. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Future Liquidity Needs.”    

17



Dividend Payments
    
We have made dividend payments to holders of our common stock and holders of common units in our Operating Partnership as follows in 2015 and 2014:
Dividend Period
Record Date
 
Payment Date
 
Payment Amount
per Share or Unit
January 1, 2015 - January 31, 2015
1/31/2015
 
2/28/2015
 
$
0.035

February 1, 2015 - February 28, 2015
2/28/2015
 
3/31/2015
 
$
0.035

March 1, 2015 - March 31, 2015
3/31/2015
 
4/30/2015
 
$
0.0175

April 1, 2015 - April 30, 2015
4/30/2015
 
5/31/2015
 
$
0.0175

May 1, 2015 - May 31, 2015
5/31/2015
 
6/30/2015
 
$
0.0175

June 1, 2015 - June 30, 2015
6/30/2015
 
7/31/2015
 
$
0.0175

July 1, 2015 - July 31, 2015
7/31/2015
 
8/31/2015
 
$
0.0175

August 1, 2015 - August 31, 2015
8/31/2015
 
9/30/2015
 
$
0.0175

September 1, 2015 - September 30, 2015
9/30/2015
 
10/31/2015
 
$
0.0175

October 1, 2015 - October 31, 2015
10/31/2015
 
11/30/2015
 
$
0.0175

November 1, 2015 - November 30, 2015
11/30/2015
 
12/31/2015
 
$
0.0175

December 1, 2015 - December 31, 2015
12/31/2015
 
1/31/2016
 
$
0.0175

    
Dividend Period
Record Date
 
Payment Date
 
Payment Amount
per Share or Unit
January 1, 2014 - January 31, 2014
1/31/2014
 
2/28/2014
 
$
0.035

February 1, 2014 - February 28, 2014
2/28/2014
 
3/31/2014
 
$
0.035

March 1, 2014 - March 31, 2014
3/31/2014
 
4/30/2014
 
$
0.035

April 1, 2014 - April 30, 2014
4/30/2014
 
5/31/2014
 
$
0.035

May 1, 2014 - May 31, 2014
5/31/2014
 
6/30/2014
 
$
0.035

June 1, 2014 - June 30, 2014
6/30/2014
 
7/31/2014
 
$
0.035

July 1, 2014 - July 31, 2014
7/31/2014
 
8/31/2014
 
$
0.035

August 1, 2014 - August 31, 2014
8/31/2014
 
9/30/2014
 
$
0.035

September 1, 2014 - September 30, 2014
9/30/2014
 
10/31/2014
 
$
0.035

October 1, 2014 - October 31, 2014
10/31/2014
 
11/30/2014
 
$
0.035

November 1, 2014 - November 30, 2014
11/30/2014
 
12/31/2014
 
$
0.035

December 1, 2014 - December 31, 2014
12/31/2014
 
1/31/2015
 
$
0.035


We have made dividend payments to holders of our Series B preferred stock as follows in 2015 and 2014 (1):
Dividend Period
Record Date
 
Payment Date
 
Payment Amount
per Share or Unit
January 1, 2015 - March 31, 2015
3/31/2015
 
4/15/2015
 
$
56.25

April 1, 2015 - June 30, 2015
6/30/2015
 
7/15/2015
 
$
56.25

July 1, 2015 - September 30, 2015
9/30/2015
 
10/15/2015
 
$
56.25

October 1, 2015 - December 31, 2015
12/31/2014
 
1/15/2016
 
$
56.25


Dividend Period
Record Date
 
Payment Date
 
Payment Amount
per Share or Unit
April 29, 2014 - June 30, 2014
6/30/2014
 
7/15/2014
 
$
38.75

July 1, 2014 - September 30, 2014
9/30/2014
 
10/15/2014
 
$
56.25

October 1, 2014 - December 31, 2014
12/31/2014
 
1/15/2015
 
$
56.25

(1) There is no dividend history for the Series B Preferred Stock prior to April 29, 2014 because it was not issued until April 29, 2014.

18



Security Authorized For Issuance Under Equity Compensation Plan
    
Please see Item 11 for a discussion regarding our equity compensation plan.

Item 6.    Selected Financial Data.
Not applicable.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
    
You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the notes thereto included in this Form 10-K, and the consolidated financial statements and the notes thereto. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the audited consolidated financial statements included in this Form 10-K.

Company Overview
    
We are a Maryland corporation formed with the principle objective of acquiring, financing, developing, leasing, owning and managing income producing, strip centers, neighborhood centers, grocery-anchored centers, community centers and free-standing retail properties. Our strategy is to opportunistically acquire quality, well-located, predominantly retail properties in secondary and tertiary markets that generate attractive risk-adjusted returns. We generally target competitively protected properties located within developed areas, commonly referred to as in-fill, that possess minimal competition risk and are surrounded by communities that have strong demographics and dynamic, diversified economies that will continue to generate jobs and future demand for commercial real estate. Our primary target markets include the Northeast, Mid-Atlantic, Southeast and Southwest.

Our portfolio is comprised of thirty-nine retail shopping centers, three free-standing retail properties, our office building and ten undeveloped land parcels. Fourteen of these properties are located in Virginia, three are located in Florida, six are located in North Carolina, twelve are located in South Carolina, eight are located in Georgia, two are located in Kentucky, two are located in Tennessee, one is located in New Jersey, three are located in Oklahoma, one is located in Alabama and one is located in West Virginia. Our operating portfolio has a total GLA of 3,151,358 square feet and an occupancy level of approximately 94%.

Recent Trends and Activities

There have been several significant events in 2015 that have positively impacted our company. These events are summarized below.
    
Property Acquisitions

On January 9, 2015, we completed our acquisition of 1.5 acres of undeveloped land located on Laskin Road in Virginia Beach, Virginia ("Laskin Road") for a contract price of $1.6 million. The Company acquired Laskin Road for future development opportunities. We paid cash of $150,000 with the 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. On January 19, 2016, 807,727 common units were issued by the Operating Partnership to finalize this transaction.


On January 14, 2015, we completed our acquisition of Pierpont Centre, a 122,259 square foot shopping center located in Morgantown, West Virginia ("Pierpont Centre") for a contract price of $13.9 million, paid through a combination of cash and debt. Pierpont Centre was 100% leased as of the acquisition date and its major tenants include GNC, Hallmark, Michael's, Ruby Tuesday and Outback Steakhouse.
    
On March 27, 2015, we completed our acquisition of Brook Run Properties, LLC ("Brook Run Properties") from a related party, consisting of a 2 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. We acquired the property for potential development and to compliment the adjacent shopping center.


19



On April 1, 2015, the we completed our 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 $10.3 million, paid through a combination of cash and debt. Alex City Marketplace was 86% leased as of the the acquisition date and its major tenants include Winn Dixie and Goody's.

On April 15, 2015, we completed our acquisition of Butler Square, a 82,400 square foot shopping center located in Mauldin, South Carolina ("Butler Square") for a contract price of $9.4 million, paid through a combination of cash and debt. Butler Square was 100% leased as of the acquisition date and its major tenants include Bi-Lo and Dollar Tree.

On June 2, 2015, we completed our acquisition of Brook Run Shopping Center, a 147,738 square foot shopping center located in Richmond, Virginia ("Brook Run") from a related party for a contract price of $18.5 million. Brook Run was 92% leased as of the acquisition date and its major tenants include Martin's Food Store and CVS. We 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.

On July 1, 2015, we completed our acquisition of Beaver Ruin Village, a 74,048 square foot shopping center located in Lilburn, Georgia ("Beaver Ruin Village") for a contract price of $12.4 million, paid through a combination of cash and debt. Beaver Ruin Village was 91% leased as of the acquisition date and its major tenants include Chase Bank, Firehouse Subs and State Farm Insurance.

On July 1, 2015, we completed our 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 $4.4 million, paid through a combination of cash and debt. Beaver Ruin Village II was 100% leased as of the acquisition date and its major tenants include AutoZone and Metro PCS.

On July 1, 2015, we completed our acquisition of Columbia Fire Station, consisting of two vacant buildings on a 1.0 acre land parcel located in Columbia, South Carolina ("Columbia Fire Station") for a contract price of $2.4 million, paid through a combination of cash and debt. We plan to redevelop this property for retail use.

On July 10, 2015, we completed our acquisition of Chesapeake Square, a 99,848 square foot shopping center located in Onley, Virginia ("Chesapeake Square") from a related party for a contract price of $6.3 million. Chesapeake Square was 76% leased as of the acquisition date and is anchored by a Food Lion grocery store. We acquired Chesapeake Square from a related party through a combination of cash and the issuance of 125,966 common units in the Operating Partnership.

On July 21, 2015, we completed our acquisition of Sunshine Plaza, a 111,189 square foot shopping center located in Lehigh Acres, Florida ("Sunshine Plaza") for a contract price of $10.4 million. Sunshine Plaza was 96% leased as of the acquisition date and is anchored by a Winn-Dixie grocery store. We acquired Sunshine Plaza through a combination of cash and debt.

On July 24, 2015, we completed our acquisition of Carolina Place consisting of a 2.14 acre parcel of land adjacent to Chesapeake Square for a contract price of $250,000 in cash. We acquired the property for potential development and to compliment the adjacent shopping center.

On August 14, 2015, we completed our acquisition of 10.39 acres located in Hilton Head, South Carolina ("Hilton Head Land") for a contract price of $1.0 million paid in cash. We acquired the property for potential development and to compliment an adjacent redevelopment project.

On August 21, 2015, we completed our acquisition of Cardinal Plaza, located in Henderson, North Carolina, Franklinton Square, located in Franklinton, North Carolina and Nashville Commons, located in Nashville, North Carolina (collectively known as the "Barnett Portfolio") for a contract price of $15.3 million. The Barnett Porfolio properties total 171,466 square feet, were 91% leased as of the acquisition date and all are anchored by Food Lion grocery stores. We acquired the Barnett Portfolio through a combination of cash and debt.

On September 9, 2015, we completed our acquisition of Grove Park Shopping Center, a 106,557 square foot shopping center located in Orangeburg, South Carolina ("Grove Park") for a contract price of $6.6 million. Grove Park was 90% leased as of the acquisition date and is anchored by a Bi-Lo grocery store. We acquired Grove Park through a combination of cash and debt.

On September 15, 2015, we completed our acquisition of Parkway Plaza Shopping Center, a 52,365 square foot shopping center and 2.1 acres of adjacent undeveloped land located in Brunswick, Georgia ("Parkway Plaza") for a contract

20



price of $6.1 million. Parkway Plaza was 97% leased as of the acquisition date and is anchored by a Winn Dixie grocery store. We acquired Parkway Plaza through a combination of cash and debt.

On September 30, 2015, we completed our acquisition of Fort Howard Square Shopping Center, a 113,652 square foot shopping center located in Rincon, Georgia ("Fort Howard Square") for a contract price of $11.5 million. Fort Howard Square was 95% leased as of the acquisition date and is anchored by nationally recognized tenants Goodwill and Dollar Tree. We acquired Fort Howard Square through a combination of cash and debt.

On September 30, 2015, we completed our acquisition of Conyers Crossing Shopping Center, a 170,475 square foot shopping center located in Conyers, Georgia ("Conyers Crossing") for a contract price of $10.8 million. Conyers Crossing was 99% leased as of the acquisition date and is anchored by nationally recognized tenants Hobby Lobby and Burlington Coat Factory. We acquired Conyers Crossing through a combination of cash and debt.

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

On May 29, 2015, we entered into a credit agreement (the "Credit Agreeement") with KeyBank National Association ("KeyBank"). Outstanding borrowings accrue monthly interest which is paid at a rate of the one-month London Interbank Offer Rate ("LIBOR") plus a margin ranging from 1.75% to 2.50% depending on our consolidated leverage ratio. As of December 31, 2015, we have pledged Lumber River and Chesapeake Square as collateral towards the Credit Agreement with outstanding borrowings of $6,873,750 at an interest rate of 2.79%. The available borrowing capacity of approximately $38.1 million as of December 31, 2015 is available for the Company as long as such amounts are fully collateralized. The amounts available to us under the Credit Agreement that have not been borrowed accrue fees which are paid at a rate of 0.30% on a monthly basis. The Credit Agreement contains certain financial covenants that we must meet, including minimum leverage, fixed charge coverage and debt service coverage ratios as well as a minimum tangible net worth requirement. We were in compliance with the financial covenants as of December 31, 2015. The Credit Agreement also contains certain events of default that if they occur may cause KeyBank to terminate the Credit Agreement and declare amounts owed to become immediately payable. As of December 31, 2015, we have not incurred an event of default.

On November 24, 2015, we entered into a promissory note for $4,620,000 to refinance the Winslow Plaza loan. The new loan matures on December 1, 2025 with principal due at maturity and bears interest at 4.82%.    
    
Certain debt agreements into which we have entered have covenants with which we must comply. As of December 31, 2015, we believe we are in compliance with the applicable covenants.

New Leases, Leasing Renewals and Expirations
    
New leases during the year ended December 31, 2015 were comprised of twenty-three deals totaling 45,161 square feet with a weighted average rate of $13.35 per square foot. The commission rate per square foot equated to $1.34.

Renewals during the year ended December 31, 2015 were comprised of sixty-two deals totaling 334,928 square feet with a weighted average increase of $0.64 per square foot, representing an increase of 6.9% over prior rates. The rates on negotiated renewals resulted in a weighted average increase of $1.11 per square foot on forty-one renewals, a $1.48 per square foot decrease on five renewals and no changes on sixteen renewals. Fifteen of these renewals represented options being exercised. We also had a lease assignment for a 4,100 square foot space with all lease terms remaining the same.
    
Approximately 5.97% of our gross leasable area is subject to leases that expire during the twelve months ending December 31, 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.
    
Funds from Operations
    
We use Funds From Operations (“FFO”) as an alternative measure of our operating performance, specifically as it relates to results of operations and liquidity. We compute FFO in accordance with standards established by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”) in its March 1995 White Paper (as amended in November 1999 and April 2002). As defined by NAREIT, FFO represents net income (computed in accordance with accounting principles generally accepted in the United States, or “GAAP”), excluding gains (or losses) from sales of

21



property, plus real estate related depreciation and amortization (excluding amortization of loan origination costs) and after adjustments for unconsolidated partnerships and joint ventures. Most industry analysts and equity REITs, including us, consider FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses on dispositions and excluding depreciation, FFO is a helpful tool that can assist in the comparison of the operating performance of a company’s real estate between periods, or as compared to different companies. Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, while historically real estate values have risen or fallen with market conditions. Accordingly, we believe FFO provides a valuable alternative measurement tool to GAAP when presenting our operating results.

Critical Accounting Policies

The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting policies summarized in this section are discussed in further detail in the notes to the financial statements appearing elsewhere in this Form 10-K. We believe that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.

Revenue Recognition
    
Principal components of our total revenues include base and percentage rents and tenant reimbursements. We accrue minimum (base) rent on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet. Certain lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent) which we recognize when the tenants achieve the specified targets as defined in their lease agreements. We periodically review the valuation of the asset/liability resulting from the straight-line accounting treatment of our leases in light of any changes in lease terms, financial condition or other factors concerning our tenants.

Receivables

We record a tenant receivable for amounts due from tenants such as base rents, tenant reimbursements and other charges allowed under the lease terms. We periodically review tenant receivables for collectability and determine the need for an allowance for the uncollectible portion of accrued rents and other accounts receivable based upon customer creditworthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels and current economic trends. We consider a receivable past due once it becomes delinquent per the terms of the lease; our standard lease form considers a rent charge past due after five days. A past due receivable triggers certain events such as notices, fees and other allowable and required actions per the lease.

Acquired Properties and Lease Intangibles

We allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values. Identifiable intangibles include amounts allocated to acquired out-of-market leases, tenant relationships and the value of in-place leases. We determine fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Such amounts are based on estimates and forecasts which, by their nature, are highly subjective and may result in future changes in the event forecasts are not realized.


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Impairment of Long-Lived Assets

We periodically review investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable, with an evaluation performed at least annually. These circumstances include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. We measure any impairment of investment property when the estimated undiscounted operating income before depreciation and amortization, is less than the carrying value of the property. To the extent impairment has occurred, we charge to income the excess of carrying value of the property over its estimated fair value. We estimate fair value using unobservable data such as operating income, estimated capitalization rates or multiples, leasing prospects and local market information. We may decide to sell properties that are held for use and the sale prices of these properties may differ from their carrying values. We did not record any impairment charges during the years ended December 31, 2015, 2014 and 2013.

Liquidity and Capital Resources

At December 31, 2015, our consolidated cash and cash equivalents totaled $11.31 million compared to consolidated cash and cash equivalents of $9.97 million at December 31, 2014. Cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2015 and 2014 are as follows:
 
 
Years Ended December 31,
 
Period Over Period Change
 
2015
 
2014
 
$
 
%
Operating activities
(9,304,298
)
 
(4,441,020
)
 
$
(4,863,278
)
 
109.51
%
Investing activities
(52,932,252
)
 
(18,161,992
)
 
$
(34,770,260
)
 
191.45
%
Financing activities
63,572,987

 
31,417,677

 
$
32,155,310

 
102.35
%

Operating Activities
    
During the year ended December 31, 2015, our cash flows used in operating activities were $9.30 million, compared to cash flows used in operating activities of $4.44 million during the year ended December 31, 2014. Operating cash flows were primarily impacted by the $7.03 million increase in our consolidated net loss due to the factors discussed in the "Results of Operations" section below, specifically the $4.03 million increase in total corporate general and administrative expenses from continuing operations associated with operating the REIT and acquiring and operating twenty additional properties in 2015. Also impacting operating cash flows was a $3.90 million increase in escrows and required reserves primarily related to the 2015 property acquisitions.

Investing Activities

During the year ended December 31, 2015, our cash flows used in investing activities were $52.93 million, compared to cash flows used in investing activities of $18.16 million during the year ended December 31, 2014. The 2015 amount reflects cash of $62.03 million used to acquire the twenty properties in 2015, compared to cash of $17.64 million used to acquire the fifteen properties in 2014. This increase was partially offset by the $8.71 million received for the sale of Bixby Commons, Harps at Harbor Point and Jenks Reasors, and also by the impact of $0.91 million related to the Ruby Tuesday and Outback Steakhouse ground leases at Pierpont Centre, which are now assets held for sale.

Financing Activities

During the year ended December 31, 2015, our cash flows from financing activities were $63.57 million, compared to $31.42 million of cash flows from financing activities during the year ended December 31, 2014. During the year ended December 31, 2015, we received $83.42 million from the completion of our Series C preferred stock offering in March 2015, compared to $37.24 million received for the Series B preferred stock offerings in April and September 2014. These proceeds were partially offset by dividends and distributions, which increased to $14.19 million in the year ended December 31, 2015 from $5.43 million during the year ended December 31, 2014, primarily resulting from the additional common shares, common units and preferred shares that were either issued during 2015 or 2014.

Mortgage indebtedness activity during the year ended December 31, 2015 included $75.66 million of loans associated with the 2015 acquisitions and borrowings of $6.87 million on the KeyBank line of credit for general corporate purposes. These increases were offset by payoffs of refinancing of a $5.0 million loan that matured during the year, payoffs of the Lumber

23



River and VantageSouth line of credit, which totaled $4.9 million and the payoff of $4.0 million of senior nonconvertible debt. Debt associated with assets held for sale also decreased $18.43 million due to the sales of Bixby Commons, Harps at Harbor Point and Jenks Reasors. Excluding the net impact of the refinancing transactions and payoffs, principal payments on mortgage indebtedness (including payments on assets held for sale) were approximately $3.18 million during the year ended December 31, 2015, compared to approximately $2.72 million during the year ended December 31, 2014.

We intend to continue managing our debt prudently so as to maintain a conservative capital structure and minimize leverage within our company. As of December 31, 2015 and 2014, our debt balances consisted of the following:
 
 
December 31,
 
2015
 
2014
Fixed-rate notes
$
182,466,706

 
$
122,296,547

Fixed-rate notes, assets held for sale
1,982,042

 
19,153,596

Floating-rate line of credit
6,873,750

 

Total debt
$
191,322,498

 
$
141,450,143

    
The increase in total mortgage indebtedness at December 31, 2015 is primarily due to $75.66 million in debt from acquisitions made during 2015 compared to $46.68 million of debt in 2014 related to acquisitions. The weighted average interest rate and term of our fixed-rate debt are 4.71% and 7.60 years, respectively, at December 31, 2015. We have $9.07 million of debt maturing during the year ending December 31, 2016. While we anticipate being able to refinance all the loans at reasonable market terms upon maturity, our inability to do so may materially impact our financial position and results of operations. See the financial statements included elsewhere in this Form 10-K for additional mortgage indebtedness details.

Future Liquidity Needs

The $9.07 million in debt maturities, ongoing debt service and the $0.21 per share annual targeted dividend represent the most significant factors outside of normal operating activities impacting cash flow over the next year. Our success in refinancing the debt and executing on the acquisition strategy discussed below will dictate our liquidity needs going forward. If we are unable to execute in these areas, our ability to grow and pay future dividends may be limited without additional capital. Additionally, distributions paid in excess of earnings and profits may represent a return of capital for U.S. federal income tax purposes.

We believe significant opportunities exist in the current commercial real estate environment that will enable us to sufficiently leverage our capital and execute our growth plan. Several factors are contributing to an increased supply in available properties for acquisition, including a significant level of maturities of commercial mortgage backed securities (“CMBS”) debt, strategic shifts by larger REITs to reduce debt levels and exit certain markets, and the negative impact on the real estate industry as a result of the economic downtown experienced in recent years. We believe the public REIT model provides a unique growth vehicle whereby we can either acquire properties through traditional third party acquisitions using a combination of cash generated in the capital markets and debt financing; contributions of properties by third parties in exchange for common units issued by the Operating Partnership; and contributions of existing properties owned by Mr. Wheeler and his affiliates in exchange for common units issued by the Operating Partnership. Additionally, access to public market capital enhances our ability to formulate acquisition structures and terms that better meet our growth strategies.
    
We envision acquiring properties during the next twelve months, consisting primarily of a blend of traditional acquisitions using equity capital and external financing and property contributions in exchange for common units and debt assumption. Based on our knowledge of the property acquisition markets, there appears to be an ample inventory of properties available to enable us to meet our acquisition goals over the next twelve months, especially as it relates to those in the secondary and tertiary markets where we have historically excelled. Current cap rates in these markets have typically ranged from 8% to 10% and beyond. We believe that acquisitions at these price ranges, assuming a reasonable blend of traditional acquisition strategies and property contributions in exchange for common units and external debt financing, will produce excess cash flow to fund distributions to our stockholders and common unit holders. We intend to aggressively pursue acquisitions that fit these parameters and that will generate sufficient cash flow to support our operating model. We believe our experience and success in acquiring and managing properties since 1999 will enable us to execute on our strategies.

In addition to liquidity required to fund debt payments, distributions and acquisitions, we may incur some level of capital expenditures during the year for the existing thirty retail properties that cannot be passed on to our tenants. The majority of these expenditures occur subsequent to acquiring a new property that requires significant improvements to maximize

24



occupancy and lease rates, with an existing property that needs a facelift to improve its marketability or when tenant improvements are required to make a space fit a particular tenant’s needs.

On April 1, 2014, we announced that we had entered into a $25 million secured guidance line credit facility with KeyBank National Association. In May 2015, this facility was increased to $45 million. We will be able to utilize this credit facility until May 31, 2018. We expect to use the facility for the acquisition of select grocery-anchored properties located in secondary and tertiary markets throughout the Northeast, Mid-Atlantic, Southeast and Southwest regions of the United States.

Off-Balance Sheet Arrangements

As of December 31, 2015, the KeyBank and VantageSouth lines of credit represent the only significant off-balance sheet arrangements that are likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

Recent Accounting Pronouncements
    
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" ("ASU 2014-08"). This ASU changes the criteria for reporting discontinued operations while enhancing disclosures in this area. Under this ASU, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the Company's operations and financial results. Examples include a disposal of a major geographical area, a major line of business, or a major equity method investment. Additionally, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The adoption of ASU 2014-08 was effective prospectively for reporting periods beginning on or after December 15, 2014. We adopted ASU 2014-08 on January 1, 2015 and used its guidance in determining the effect of discontinued operations as disclosed in Note 5.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements of Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition” and most industry-specific guidance on revenue recognition throughout the ASC. The new standard is principles based and provides a five step model to determine when and how revenue is recognized. The core principle of the new standard is that revenue should be recognized when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also requires disclosure of qualitative and quantitative information surrounding the amount, nature, timing and uncertainty of revenues and cash flows arising from contracts with customers. The new standard will be effective for the Company in the first quarter of the year ending December 31, 2018 and can be applied either retrospectively to all periods presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted. We are 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. We 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 restating prior period comparative consolidated balance sheets. In August 2015, the FASB issued ASU No. 2015-15, "Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements", which clarifies that absent authoritative guidance in ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the staff of the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We do not expect the adoption of ASU 2015-03 to materially impact our financial position or results of operations.


25



In September 2015, the FASB issued ASU 2015-16, "Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments." This new guidance requires that the acquirer recognizes adjustments to preliminary acquisition values and account for the cumulative effect of any required adjustments in the period in which they are determined. ASU 2015-16 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 prospective approach for adjustments that occur after the effective date. We do not expect the adoption of ASU 2015-16 to materially impact our financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets referred to as “Lessees” to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. An organization is to provide disclosures designed to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements concerning additional information about the amounts recorded in the financial statements. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet the new ASU will require both types of leases (i.e. operating and capital) to be recognized on the balance sheet. The FASB lessee accounting model will continue to account for both types of leases. The capital lease will be accounted for in substantially the same manner as capital leases are accounted for under existing GAAP. The operating lease will be accounted for in a manner similar to operating leases under existing GAAP, except that lessees will recognize a lease liability and a lease asset for all of those leases.

The leasing standard will be effective for calendar year-end public companies beginning after December 15, 2018.
Public companies will be required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption will be permitted for all companies and organizations upon issuance of the standard. For calendar year-end public companies, this means an adoption date of January 1, 2019 and retrospective application to previously issued annual and interim financial statements for 2018 and 2017. Lessees with a large portfolio of leases are likely to see a significant increase in balance sheet assets and liabilities. See Note 9 for the Company’s current lease commitments. We are currently evaluating the impact of ASU 2016-02 on our financial statements.


26



Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014

Results of Operations
    
The following table presents a comparison of the consolidated statements of operations for the years ended December 31, 2015 and 2014, respectively.
 
 
For the Years Ended December 31,
 
Period over Period Changes
 
2015
 
2014
 
$/#
 
%
PROPERTY DATA: