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EX-32 - EXHIBIT 32 CERTIFICATION OF CEO AND CFO 3.31.17 - Wheeler Real Estate Investment Trust, Inc.ex323312017.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION OF CFO 3.31.17 - Wheeler Real Estate Investment Trust, Inc.ex3123312017.htm
EX-31.1 - EXHIBIT 31.1 CERTIFICATION OF CEO 3.31.17 - Wheeler Real Estate Investment Trust, Inc.ex3113312017.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
 
(Mark One)
ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
 ¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-35713
 
WHEELER REAL ESTATE INVESTMENT TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter) 
Maryland
 
45-2681082
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
2529 Virginia Beach Blvd., Suite 200
Virginia Beach. Virginia
 
23452
(Address of Principal Executive Offices)
 
(Zip Code)
 (757) 627-9088
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
¨
  
Accelerated filer
 
ý
Non-accelerated filer
 
¨  (do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
ý
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of May 1, 2017, there were 8,616,247 common shares, $0.01 par value per share, outstanding.

1


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

2


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

 
March 31, 2017
 
December 31, 2016
 
(unaudited)
 
 
ASSETS:
 
 
 
Investment properties, net
$
386,704

 
$
388,880

Cash and cash equivalents
4,664

 
4,863

Restricted cash
9,324

 
9,652

Rents and other tenant receivables, net
3,370

 
3,984

Related party receivables
1,566

 
1,456

Notes receivable
12,000

 
12,000

Goodwill
5,486

 
5,486

Assets held for sale

 
366

Above market lease intangible, net
11,976

 
12,962

Deferred costs and other assets, net
46,453

 
49,397

Total Assets
$
481,543

 
$
489,046

LIABILITIES:
 
 
 
Loans payable, net
$
305,893

 
$
305,973

Liabilities associated with assets held for sale

 
1,350

Below market lease intangible, net
11,886

 
12,680

Accounts payable, accrued expenses and other liabilities
12,274

 
11,321

Total Liabilities
330,053

 
331,324

Commitments and contingencies


 


Series D Cumulative Convertible Preferred Stock (no par value, 4,000,000 shares authorized, 2,237,000 shares issued and outstanding; $55.93 million aggregate liquidation preference)
52,686

 
52,530

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

 
453

Series B Convertible Preferred Stock (no par value, 5,000,000 authorized, 1,871,244 shares issued and outstanding; $46.78 million aggregate liquidation preference)
40,754

 
40,733

Common Stock ($0.01 par value, 18,750,000 shares authorized, 8,588,470 and 8,503,819 shares issued and outstanding, respectively)
86

 
85

Additional paid-in capital
225,104

 
223,939

Accumulated deficit
(177,576
)
 
(170,377
)
Total Shareholders’ Equity
88,821

 
94,833

Noncontrolling interests
9,983

 
10,359

Total Equity
98,804

 
105,192

Total Liabilities and Equity
$
481,543

 
$
489,046

See accompanying notes to condensed consolidated financial statements.


3


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
 
 
Three Months Ended March 31,
 
2017
 
2016
REVENUE:
 
 
 
Rental revenues
$
11,129

 
$
6,742

Asset management fees
162

 
255

Commissions
115

 
153

Tenant reimbursements and other revenues
2,916

 
1,988

Total Revenue
14,322

 
9,138

OPERATING EXPENSES:
 
 
 
Property operations
3,994

 
2,675

Non-REIT management and leasing services
271

 
377

Depreciation and amortization
6,400

 
4,880

Provision for credit losses
252

 
88

Corporate general & administrative
2,232

 
2,282

Total Operating Expenses
13,149

 
10,302

Operating Income (Loss)
1,173

 
(1,164
)
Interest income
356

 
1

Interest expense
(4,177
)
 
(2,420
)
Net Loss from Continuing Operations Before Income Taxes
(2,648
)
 
(3,583
)
Income tax expense
(41
)
 

Net Loss from Continuing Operations
(2,689
)
 
(3,583
)
Discontinued Operations
 
 
 
Income from discontinued operations
16

 
21

Gain on disposal of properties
1,513

 

Net Income from Discontinued Operations
1,529

 
21

Net Loss
(1,160
)
 
(3,562
)
Less: Net loss attributable to noncontrolling interests
(41
)
 
(333
)
Net Loss Attributable to Wheeler REIT
(1,119
)
 
(3,229
)
Preferred stock dividends
(2,483
)
 
(511
)
Net Loss Attributable to Wheeler REIT Common
Shareholders
$
(3,602
)
 
$
(3,740
)
 
 
 
 
Loss per share from continuing operations (basic and diluted)
$
(0.59
)
 
$
(0.45
)
Income per share from discontinued operations
0.17

 

 
$
(0.42
)
 
$
(0.45
)
Weighted-average number of shares:
 
 
 
Basic and Diluted
8,554,304

 
8,284,116

 
 
 
 
Dividends declared per common share
$
0.42

 
$
0.42

See accompanying notes to condensed consolidated financial statements.

4


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statement of Equity
(in thousands, except share data)
 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A
 
Series B
 
 
 
 
 
 
 
 
 
Noncontrolling
 
 
 
Preferred Stock
 
Preferred Stock
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Total
Shareholders’ Equity
 
Interests
 
Total
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
 
 
 
Units
 
Value
 
Equity
Balance,
December 31, 2016
562

 
$
453

 
1,871,244

 
$
40,733

 
8,503,819

 
$
85

 
$
223,939

 
$
(170,377
)
 
$
94,833

 
761,954

 
$
10,359

 
$
105,192

Accretion of
Series B Preferred Stock discount

 

 

 
21

 

 

 

 

 
21

 

 

 
21

Conversion of senior
convertible notes to
Common Stock

 

 

 

 
2,509

 

 
31

 

 
31

 

 

 
31

Issuance of
Common Stock under Share Incentive Plan

 

 

 

 
82,142

 
1

 
1,120

 

 
1,121

 

 

 
1,121

Redemption of fractional units as a result of reverse stock split

 

 

 

 

 

 

 

 

 
(66
)
 
(1
)
 
(1
)
Adjustment for
noncontrolling interest in operating partnership

 

 

 

 

 

 
14

 

 
14

 

 
(14
)
 

Dividends and
distributions

 

 

 

 

 

 

 
(6,080
)
 
(6,080
)
 

 
(320
)
 
(6,400
)
Net loss

 

 

 

 

 

 

 
(1,119
)
 
(1,119
)
 

 
(41
)
 
(1,160
)
Balance,
March 31, 2017 (Unaudited)
562

 
$
453

 
1,871,244

 
$
40,754

 
8,588,470

 
$
86

 
$
225,104

 
$
(177,576
)
 
$
88,821

 
761,888

 
$
9,983

 
$
98,804

See accompanying notes to condensed consolidated financial statements.

5


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 
For the Three Months Ended
March 31,
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(1,160
)
 
$
(3,562
)
Adjustments to reconcile consolidated net loss to net cash from operating activities
 
 
 
Depreciation
2,671

 
1,733

Amortization
3,729

 
3,147

Loan cost amortization
763

 
190

Above (below) market lease amortization, net
193

 
72

Share-based compensation
377

 
70

Gain on disposal of properties
(1,513
)
 

Provision for credit losses
252

 
88

Changes in assets and liabilities, net of acquisitions
 
 
 
Rent and other tenant receivables, net
546

 
323

Unbilled rent
(185
)
 
(8
)
Related party receivables
(110
)
 
(10
)
Cash restricted for operating property reserves
329

 
122

Deferred costs and other assets, net
(786
)
 
(1,870
)
Accounts payable, accrued expenses and other liabilities
1,683

 
329

Net operating cash flows provided by discontinued operations
32

 
4

Net cash from operating activities
6,821

 
628

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(494
)
 
(369
)
Increase in capital property reserves
(1
)
 
37

Cash received from disposal of properties
1,871

 

Net cash from (used in) investing activities
1,376

 
(332
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Payments for deferred financing costs
(163
)
 
(97
)
Dividends and distributions paid
(6,193
)
 
(4,143
)
Offering costs on preferred stock
(18
)
 

Loan proceeds
6,181

 
3,000

Loan principal payments
(6,516
)
 
(2,752
)
Net financing cash flows used in discontinued operations
(1,687
)
 
(5
)
Net cash used in financing activities
(8,396
)
 
(3,997
)
DECREASE IN CASH AND CASH EQUIVALENTS
(199
)
 
(3,701
)
CASH AND CASH EQUIVALENTS, beginning of period
4,863

 
10,478

CASH AND CASH EQUIVALENTS, end of period
$
4,664

 
$
6,777

Supplemental Disclosures:
 
 
 
Non-Cash Transactions:
 
 
 
Noncontrolling interests resulting from the issuance of common units
$

 
$
1,499

Conversion of senior convertible debt into common stock
$
31

 
$

Accretion of preferred stock discounts
$
195

 
$
89

Other Cash Transactions:
 
 
 
Cash paid for taxes
$
107

 
$

Cash paid for interest
$
3,309

 
$
2,262

See accompanying notes to condensed consolidated financial statements.

6


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

1. Organization and Basis of Presentation and Consolidation
Wheeler Real Estate Investment Trust, Inc. (the "Trust", the "REIT", or "Company") is a Maryland corporation formed on June 23, 2011. The Trust serves as the general partner of Wheeler REIT, L.P. (the “Operating Partnership”), which was formed as a Virginia limited partnership on April 5, 2012. As of March 31, 2017, the Trust, through the Operating Partnership, owned and operated sixty-four centers, one office building, eight undeveloped properties, and one redevelopment project in Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Oklahoma, Tennessee, Kentucky, New Jersey, Pennsylvania and West Virginia. Accordingly, the use of the word “Company” refers to the Trust and its consolidated subsidiaries, except where the context otherwise requires.
On October 24, 2014, the Trust, through the Operating Partnership, acquired (i) Wheeler Interests, LLC (“WI”), an acquisition and asset management firm, (ii) Wheeler Real Estate, LLC (“WRE”), a real estate leasing, management and administration firm and (iii) WHLR Management, LLC (“WM” and collectively with WI and WRE the “Operating Companies”), a real estate business operations firm, from Jon S. Wheeler, the Company's Chairman and CEO, resulting in the Company becoming an internally-managed REIT. Accordingly, the responsibility for identifying targeted real estate investments, the handling of the disposition of real estate investments our board of directors chooses to sell, administering our day-to-day business operations, including but not limited to, leasing, property management, payroll and accounting functions, acquisitions, asset management and administration are now handled internally.

Prior to being acquired by the Company, the Operating Companies served as the external manager for the Company and its properties (the “REIT Properties”) and performed property management and leasing functions for certain related and non-related third parties (the “Non-REIT Properties”). The Company will continue to perform these services for the Non-REIT Properties through the Operating Companies, primarily through WRE. Accordingly, the Company converted WRE to a Taxable REIT Subsidiary (“TRS”) to accommodate serving the Non-REIT Properties since applicable REIT regulations consider the income derived from these services to be “bad” income subject to taxation. The regulations allow for costs incurred by the Company commensurate with the services performed for the Non-REIT Properties to be allocated to a TRS.

During January 2014, the Company acquired Wheeler Development, LLC (“WD”) and converted it to a TRS. The Company began performing development activities for both REIT Properties and Non-REIT Properties during 2015.

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the “Form 10-Q”) are unaudited and the results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for future periods or the year. However, amounts presented in the condensed consolidated balance sheet as of December 31, 2016 are derived from the Company’s audited consolidated financial statements as of that date, but do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The Company prepared the accompanying condensed consolidated financial statements in accordance with GAAP for interim financial statements. All per share amounts, common units and shares outstanding and stock-based compensation amounts for all periods presented reflect our one-for-eight reverse stock split (the "Reverse Stock Split"), which was effective March 31, 2017. All material balances and transactions between the consolidated entities of the Company have been eliminated. You should read these condensed consolidated financial statements in conjunction with our 2016 Annual Report filed on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”).

2. Summary of Significant Accounting Policies
Investment Properties
    
The Company records investment properties and related intangibles at fair value upon acquisition. Investment properties include both acquired and constructed assets. Improvements and major repairs and maintenance are capitalized when the repair and maintenance substantially extends the useful life, increases capacity or improves the efficiency of the asset. All other repair and maintenance costs are expensed as incurred. The Company capitalizes interest on projects during periods of construction until the projects reach the completion point that corresponds with their intended purpose.
    
The Company allocates the purchase price of acquisitions to the various components of the asset based upon the fair value of each component which may be derived from various observable or unobservable inputs and assumptions. Also, the

7

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

Company may utilize third party valuation specialists. These components typically include buildings, land and any intangible assets related to out-of-market leases, tenant relationships and in-place leases the Company determines to exist. The Company determines fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property. Factors considered by management in the analysis of determining the as-if-vacant property value include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses. Intangibles related to out-of-market leases, tenant relationships and in-place lease value are recorded as acquired lease intangibles and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.
    
The Company records depreciation on buildings and improvements utilizing the straight-line method over the estimated useful life of the asset, generally 5 to 40 years. The Company reviews depreciable lives of investment properties periodically and makes adjustments to reflect a shorter economic life, when necessary. Tenant allowances, tenant inducements and tenant improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter.
 
Amounts allocated to buildings are depreciated over the estimated remaining life of the acquired building or related improvements. The Company amortizes amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles over the remaining life of the underlying leases. The Company also estimates the value of other acquired intangible assets, if any, and amortizes them over the remaining life of the underlying related intangibles.
    
The Company reviews investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable, but at least annually. These circumstances include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. The Company measures any impairment of investment property when the estimated undiscounted operating income before depreciation and amortization, plus its residual value, is less than the carrying value of the property. To the extent impairment has occurred, the Company charges to income the excess of the carrying value of the property over its estimated fair value. The Company estimates fair value using unobservable data such as operating income, estimated capitalization rates, or multiples, leasing prospects and local market information. The Company may decide to sell properties that are held for use and the sale prices of these properties may differ from their carrying values. The Company did not record any impairment adjustments to its properties during the three months ended March 31, 2017 and 2016.

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

Restricted cash represents amounts held by lenders for real estate taxes, insurance, reserves for capital improvements and tenant security deposits. The Company presents changes in cash restricted for real estate taxes, insurance and tenant security deposits as operating activities in the condensed consolidated statement of cash flows. The Company presents changes in cash restricted for capital improvements as investing activities in the condensed consolidated statement of cash flows.
    
The Company places its cash and cash equivalents and restricted cash on deposit with financial institutions in the United States, which are insured by the Federal Deposit Insurance Company (“FDIC”) up to $250 thousand. The Company's credit loss in the event of failure of these financial institutions is represented by the difference between the FDIC limit and the total amounts on deposit. Management monitors the financial institutions credit worthiness in conjunction with balances on deposit to minimize risk.


8

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


Tenant Receivables and Unbilled Rent
Tenant receivables include base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. The Company determines an allowance for the uncollectible portion of accrued rents and accounts receivable based upon customer credit-worthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. The Company considers a receivable past due once it becomes delinquent per the terms of the lease. The Company’s standard lease form considers a rent charge past due after five days. A past due receivable triggers certain events such as notices, fees and other allowable and required actions per the lease. As of March 31, 2017 and December 31, 2016, the Company’s allowance for uncollectible accounts totaled $964 thousand and $691 thousand, respectively. During the three months ended March 31, 2017 and 2016, the Company recorded bad debt expenses in the amount of $252 thousand and $88 thousand, respectively, related to tenant receivables that were specifically identified as potentially uncollectible based on an assessment of the tenant’s credit-worthiness. During the three months ended March 31, 2017 and 2016, the Company did not realize any recoveries related to tenant receivables previously written off.

Above and Below Market Lease Intangibles, net

The Company determines the above and below market lease intangibles upon acquiring a property. Above and below market lease intangibles are amortized over the life of the respective leases. Amortization of above and below market lease intangibles is recorded as a component of rental revenues.
    
Deferred Costs and Other Assets, net
The Company’s deferred costs and other assets consist primarily of leasing commissions, leases in place, capitalized legal and marketing costs and tenant relationship intangibles associated with acquisitions. The Company’s lease origination costs consist primarily of the portion of property acquisitions allocated to lease originations and commissions paid in connection with lease originations.
Details of these deferred costs, net of amortization, and other assets are as follows (in thousands):
 
March 31, 2017
 
December 31, 2016
 
(unaudited)
 
 
Leases in place, net
$
33,075

 
$
35,655

Tenant relationships, net
9,880

 
10,944

Lease origination costs, net
1,131

 
1,096

Other
1,213

 
517

Deposits of acquisitions
1,061

 
1,086

Legal and marketing costs, net
93

 
99

Total Deferred Costs and Other Assets, net
$
46,453

 
$
49,397


9

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

Amortization of lease origination costs, leases in place, legal and marketing costs, and tenant relationships represents a component of depreciation and amortization expense. As of March 31, 2017 and December 31, 2016, the Company’s intangible accumulated amortization totaled $32.28 million and $28.55 million, respectively. During the three months ended March 31, 2017 and 2016, the Company’s intangible amortization expense totaled $3.73 million and $3.15 million, respectively. Future amortization of lease origination costs, leases in place, legal and marketing costs and tenant relationships is as follows (in thousands, unaudited):
For the Periods Ending March 31,
Lease
Origination
Costs, net
 
Leases In
Place, net
 
Legal &
Marketing
Costs, net
 
Tenant
Relationships, net
 
Total
2018
$
296

 
$
9,029

 
$
21

 
$
3,607

 
$
12,953

2019
206

 
6,797

 
16

 
2,428

 
9,447

2020
149

 
4,816

 
13

 
1,428

 
6,406

2021
112

 
3,363

 
11

 
811

 
4,297

2022
94

 
2,340

 
8

 
505

 
2,947

Thereafter
274

 
6,730

 
24

 
1,101

 
8,129

 
$
1,131

 
$
33,075

 
$
93

 
$
9,880

 
$
44,179

Revenue Recognition
    
The Company retains substantially all of the risks and benefits of ownership of the investment properties and accounts for its leases as operating leases. The Company accrues minimum rents on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet. At March 31, 2017 and December 31, 2016, there were $1.42 million and $1.24 million in unbilled rent amount which is included in rents and other tenant receivables, net. Additionally, certain of the lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements. During the three months ended March 31, 2017 and 2016, the Company recognized percentage rents of $87 thousand and $70 thousand, respectively.
    
The Company’s leases generally require the tenant to reimburse the Company for a substantial portion of its expenses incurred in operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common Area Maintenance or “CAM” expenses). The Company includes these reimbursements, along with other revenue derived from late fees and seasonal events, under the Condensed Consolidated Statements of Operations caption "Tenant reimbursements and other revenues." This significantly reduces the Company’s exposure to increases in costs and operating expenses resulting from inflation or other outside factors. The Company accrues reimbursements from tenants for recoverable portions of all these expenses as revenue in the period the applicable expenditures are incurred. The Company calculates the tenant’s share of operating costs by multiplying the total amount of the operating costs by a fraction, the numerator of which is the total number of square feet being leased by the tenant, and the denominator of which is the total square footage of all leasable buildings at the property. The Company also receives escrow payments for these reimbursements from substantially all its tenants throughout the year. The Company recognizes differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material for the three months ended March 31, 2017 and 2016.

The Company recognizes lease termination fees in the period that the lease is terminated and collection of the fees is reasonably assured. Upon early lease termination, the Company provides for losses related to unrecovered intangibles and other assets.

10

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

Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code and applicable Treasury regulations relating to REIT qualification. In order to maintain this REIT status, the regulations require the Company to distribute at least 90% of its taxable income to shareholders and meet certain other asset and income tests, as well as other requirements. The TRS' have accrued $41 thousand and $107 thousand for 2017 and 2016 federal and state income tax expenses as of March 31, 2017 and December 31, 2016. If the Company fails to qualify as a REIT, it will be subject to tax at regular corporate rates for the years in which it fails to qualify. If the Company loses its REIT status, it could not elect to be taxed as a REIT for five years unless the Company’s failure to qualify was due to a reasonable cause and certain other conditions were satisfied.
Taxable REIT Subsidiary Cost Allocation

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

Service vendors bill the majority of the direct costs of operating the properties directly to the REIT Properties and Non-REIT Properties and each property pays them accordingly. The Non-REIT Properties pay WRE property management and/or asset management fees of 3% and 2% of collected revenues, respectively. The Non-REIT Properties also pay WRE leasing commissions based on the total contractual revenues to be generated under the new/renewed lease agreement (6% for new leases and 3% for renewals). Non-REIT properties pay development fees of 5% of hard costs.

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

Use of Estimates

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

Advertising Costs
    
The Company expenses advertising and promotion costs as incurred. The Company incurred advertising and promotion costs of $76 thousand and $62 thousand for the three months ended March 31, 2017 and 2016, respectively.

Assets Held For Sale

The Company records assets as held for sale when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered probable and is expected within one year.

Corporate General and Administrative Expense
    
A detail for the "Corporate General & Administrative" line item from the Condensed Consolidated Statements of Operations is presented below (in thousands):

11

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

 
 
Three Months Ended
March 31,
 
 
2017
 
2016
 
 
(unaudited)
Compensation and benefits
 
$
683

 
$
968

Professional fees
 
637

 
378

Corporate administration
 
257

 
235

Capital related costs
 
220

 
62

Acquisition and development costs
 
260

 
413

Travel
 
66

 
136

Advertising
 
60

 
62

Taxes and licenses
 
49

 
28

Total
 
$
2,232

 
$
2,282

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

Recent Accounting Pronouncements
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. In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, "Revenue from contracts with customers (Topic 606): Identifying Performance Obligations and Licensing," which provides further guidance on identifying performance obligations and intellectual property licensing implementation. In June 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, which relates to assessing collectability, presentation of sales taxes, noncash consideration and completed contracts and contract modifications in transition. In December 2016, the FASB issued 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," which clarifies or corrects unintended application of the standard. Companies are permitted to adopt the ASUs as early as fiscal years beginning after December 15, 2016, but the adoption is required for fiscal years beginning after December 15, 2017. These new standards will be effective for

12

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

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.
    
The Company is currently evaluating the impact of this standard.  The majority of the Company’s revenue is based on real estate lease contracts which are not within the scope of this ASU.  The Company has identified its non-lease revenue streams and initial analysis indicates the adoption of this standard will not have a material impact on 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. The accounting for leases under which we are the lessor remains largely unchanged. Lessees with a large portfolio of leases are likely to see a significant increase in balance sheet assets and liabilities. While we are currently assessing the impact of the standard on our financial position and results of operations we expect the primary impact to be on those ground leases which we are the lessor. The new standard will result in the recording of right of use assets and lease obligations. See Note 9 for the Company’s current lease commitments. The Company continues to evaluate the impact of ASU 2016-02 on its financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718):  Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for annual periods beginning after December 15, 2016 and early adoption is permitted.  The Company adopted this ASU as of January 1, 2017 and applied prospectively. The adoption did not have a material impact on the financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of certain cash receipts and cash payments (a consensus of the Emerging Issues Task Force).” The ASU addresses eight specific cash flow issues in an effort to reduce diversity in practice. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. The new standard is to be applied retrospectively for all period presented.  The Company will adopt this ASU in 2018 and does not expect the adoption to materially impact its consolidated statements of cash flows.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” The ASU provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows in an effort to reduce diversity in practice. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. The new standard is to be applied retrospectively for all period presented.  The Company will adopt this ASU in 2018 and does not expect the adoption to materially impact its consolidated statements of cash flows.

13

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


In February 2015, the FASB issued ASU 2015-02 related to ASC Topic 810, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” This new guidance changes the identification of variable interests, the variable interest entity (“VIE”) characteristics for a limited partnership or similar entity, and primary beneficiary determination. The guidance also eliminates the presumption that a general partner controls a limited partnership.  The ASU is effective for annual periods beginning after December 15, 2015.  The Company has adopted this ASU with no material impact on the Company’s consolidated financial statements. In October 2016, the FASB issued ASU 2016-17, “Consolidation (Topic 810) Interests Held through Related Parties That are under Common Control,” which amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE.  The ASU is effective for annual periods beginning after December 15, 2016. The Company adopted this ASU as of January 1, 2017. The adoption did not have a material impact on the financial position or results of operations.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805):  Clarifying the Definition of a Business.” The ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. The new standard is to be applied prospectively. The adoption of this standard will most likely result in less real estate acquisitions qualifying as businesses and, accordingly, acquisition costs for those acquisitions that are not businesses will be capitalized rather than expensed.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350):  Simplifying the test for Goodwill Impairment.” The amendments in ASU 2017-04 eliminate the current two-step approach used to test goodwill for impairment and require an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019 and early adoption is permitted on testing dates after January 1, 2017. The new standard is to be applied prospectively. The Company will adopt this ASU in 2020 and does not expect the adoption to materially impact its financial position or results of operations.

In February 2017, the FASB issued ASU 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20):  Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” This amendment provides guidance for partial sales of nonfinancial assets. This ASU is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The standard is to be applied retrospectively or modified retrospectively. The Company is evaluating the impact that ASU 2017-05 on its financial statements.

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

Reclassifications
    
Certain reclassifications have been made to prior period amounts to make their presentation comparable with the current period. These reclassifications had no impact on net income. All per share amounts, common units and shares outstanding and stock based compensation amounts for all periods presented reflect our one-for-eight reverse stock split which was effective March 31, 2017.






14

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


3. Investment Properties
Investment properties consist of the following (in thousands):
 
March 31, 2017
 
December 31, 2016
 
(unaudited)
 
 
Land and land improvements
$
90,732

 
$
90,531

Land held for improvement
11,420

 
11,420

Buildings and improvements
307,704

 
307,411

Investment properties at cost
409,856

 
409,362

Less accumulated depreciation
(23,152
)
 
(20,482
)
Investment properties, net
$
386,704

 
$
388,880

The Company’s depreciation expense on investment properties was $2.67 million and $1.73 million for the three months ended March 31, 2017 and March 31, 2016, respectively.
A significant portion of the Company’s land, buildings and improvements serves as collateral for its mortgage loans payable portfolio. Accordingly, restrictions exist as to the encumbered property’s transferability, use and other common rights typically associated with property ownership.
4. Notes Receivable
The Company, through WD, is performing development services for a related party of the Company, for the redevelopment of Pineland Station Shopping Center in Hilton Head, South Carolina to be known in the future as Sea Turtle Marketplace (“Sea Turtle Development”). Sea Turtle Development is a related party as discussed in Note 10.
On September 29, 2016, the Company entered into an $11.0 million note receivable for the partial funding of the Sea Turtle Development and an $1.0 million note receivable in consideration for the sale of 10.39 acres of land owned by the Company. Both promissory notes are collateralized by a 2nd deed of trust on the property and accrue interest at a rate of 12% annually. Interest only payments at a rate of 8% are due on the notes at the beginning of every calendar quarter starting October 2016. Interest at a rate of 4% accrues and is due at maturity. The notes mature the earlier of September 29, 2021 or the disposition of the property. The balance on the notes receivable at March 31, 2017 is $12.0 million.
5. Assets Held for Sale and Discontinued Operations
In August 2015, the Company’s management and Board of Directors committed to a plan to sell Bixby Commons, Jenks Reasors, Harps at Harbor Point, Starbucks/Verizon and the ground leases for Ruby Tuesday’s and Outback Steakhouse at Pierpont Centre (the “Freestanding Properties”) as part of the Company’s continuous evaluation of strategic alternatives. Accordingly, the Freestanding Properties have been classified as held for sale and the results of their operations have been classified as discontinued operations for all periods presented. As of March 31, 2017 the sales of all Freestanding Properties have occurred and the Company will receive no residual cash flows.
On February 28, 2017, the Company completed its sales of Ruby Tuesday’s and Outback Steakhouse at Pierpont Centre for a contract price of approximately $2.29 million, resulting in a gain of $1.51 million.  The Company has defeased the $1.69 million loan payable at a cost of $223 thousand.






15

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

5. Assets Held for Sale and Discontinued Operations (continued)

As of March 31, 2017 and December 31, 2016, assets held for sale consisted of the following (in thousands):
 
 
March 31, 2017
 
December 31, 2016
 
 
(unaudited)
 
 
Investment properties, net
 
$

 
$
217

Above market lease intangible, net
 

 
3

Deferred costs and other assets, net
 

 
146

Total assets held for sale
 
$

 
$
366

As of March 31, 2017 and December 31, 2016, liabilities associated with assets held for sale consisted of the following (in thousands):
 
 
March 31, 2017
 
December 31, 2016
 
 
(unaudited)
 
 
Loans payable
 
$

 
$
1,350

Total liabilities associated with assets held for sale
$

 
$
1,350


The condensed consolidated statements of operations reflect reclassifications of revenues, property operating expenses, corporate general and administrative expenses and interest expense from continuing operations to income from discontinued operations for all periods presented. All interest expense disclosed below is directly related to the debt incurred to acquire the Freestanding Properties.
    
The following is a summary of the income from discontinued operations for the three months ended March 31, 2017 and 2016 (in thousands):
 
 
Three Months Ended
March 31,
 
 
2017
 
2016
 
 
(unaudited)
Revenues
 
$
26

 
$
100

Expenses
 
1

 
57

Operating income
 
25

 
43

Interest expense
 
9

 
22

Income from discontinued operations before gain on disposals
 
16

 
21

Gain on disposal of properties
 
1,513

 

Income from discontinued operations
 
$
1,529

 
$
21


16

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


6. Loans Payable

The Company’s loans payable consist of the following (in thousands except monthly payment):
Property/Description
Monthly Payment
 
Interest
Rate
 
Maturity
 
March 31, 2017
 
December 31, 2016
 Revere Loan
Interest only

 
8.00
%
 
April 2017
 
$
7,450

 
$
7,450

 Walnut Hill Plaza
$
24,273

 
5.50
%
 
July 2017
 
3,414

 
3,440

 Bank Line of Credit
Interest only

 
4.25
%
 
September 2017
 
3,000

 
3,000

 Columbia Fire Station
 Interest only

 
8.00
%
 
December 2017
 
497

 
487

 Monarch Bank Building
$
9,473

 
4.15
%
 
December 2017
 
1,305

 
1,320

 Shoppes at Eagle Harbor
$
25,100

 
4.34
%
 
March 2018
 
3,455

 
3,492

 KeyBank Line of Credit
Interest only

 
Libor + 250 basis points

 
May 2018
 
68,032

 
74,077

 Lumber River
Interest only

 
Libor + 295 basis points

 
June 2018
 
1,500

 
1,500

 Senior convertible notes
Interest only

 
9.00
%
 
December 2018
 
1,369

 
1,400

 Harbor Point
$
11,024

 
5.85
%
 
December 2018
 
626

 
649

 Riversedge North
$
8,802

 
6.00
%
 
January 2019
 
901

 
914

 DF I-Moyock
$
10,665

 
5.00
%
 
July 2019
 
281

 
309

 Rivergate
Interest only

 
Libor + 295 basis points

 
December 2019
 
24,213

 
24,213

 LaGrange Marketplace
$
15,065

 
Libor + 375 basis points

 
March 2020
 
2,357

 
2,369

 Folly Road
Interest only

 
4.00
%
 
March 2020
 
6,181

 

 Shoppes at TJ Maxx
$
33,880

 
3.88
%
 
May 2020
 
5,863

 
5,908

 Twin City Commons
$
17,827

 
4.86
%
 
January 2023
 
3,155

 
3,170

 Tampa Festival
$
50,797

 
5.56
%
 
September 2023
 
8,468

 
8,502

 Forrest Gallery
$
50,973

 
5.40
%
 
September 2023
 
8,768

 
8,802

 South Carolina Food Lions Note
$
68,320

 
5.25
%
 
January 2024
 
12,180

 
12,224

 Cypress Shopping Center
$
34,360

 
4.70
%
 
July 2024
 
6,559

 
6,585

 Port Crossing
$
34,788

 
4.84
%
 
August 2024
 
6,343

 
6,370

 Freeway Junction
$
31,265

 
4.60
%
 
September 2024
 
8,087

 
8,119

 Harrodsburg Marketplace
$
19,112

 
4.55
%
 
September 2024
 
3,601

 
3,617

 Graystone Crossing
$
15,672

 
4.55
%
 
October 2024
 
3,973

 
3,990

 Bryan Station
$
17,421

 
4.52
%
 
November 2024
 
4,600

 
4,619

 Crockett Square
Interest only

 
4.47
%
 
December 2024
 
6,338

 
6,338

 Pierpont Centre
 Interest only

 
4.15
%
 
February 2025
 
8,113

 
8,450

 Alex City Marketplace
 Interest only

 
3.95
%
 
April 2025
 
5,750

 
5,750

 Butler Square
 Interest only

 
3.90
%
 
May 2025
 
5,640

 
5,640

 Brook Run Shopping Center
 Interest only

 
4.08
%
 
June 2025
 
10,950

 
10,950

 Beaver Ruin Village I and II
 Interest only

 
4.73
%
 
July 2025
 
9,400

 
9,400

 Sunshine Shopping Plaza
 Interest only

 
4.57
%
 
August 2025
 
5,900

 
5,900

 Barnett Portfolio
 Interest only

 
4.30
%
 
September 2025
 
8,770

 
8,770

 Fort Howard Shopping Center
 Interest only

 
4.57
%
 
October 2025
 
7,100

 
7,100

 Conyers Crossing
 Interest only

 
4.67
%
 
October 2025
 
5,960

 
5,960

 Grove Park Shopping Center
 Interest only

 
4.52
%
 
October 2025
 
3,800

 
3,800

 Parkway Plaza
 Interest only

 
4.57
%
 
October 2025
 
3,500

 
3,500

 Winslow Plaza
Interest only

 
4.82
%
 
December 2025
 
4,620

 
4,620

 Chesapeake Square
$
23,857

 
4.70
%
 
August 2026
 
4,559

 
4,578

 Perimeter Square
Interest only

 
4.06
%
 
August 2026
 
4,500

 
4,500

 Sangaree/Tri-County/Berkley
Interest only

 
4.78
%
 
December 2026
 
9,400

 
9,400

 Riverbridge
Interest only

 
4.48
%
 
December 2026
 
4,000

 
4,000

 Franklin
Interest only

 
4.93
%
 
January 2027
 
8,515

 
8,516

Total Principal Balance
 
 
 
 
 
 
312,993

 
313,698

Unamortized debt issuance cost
 
 
 
 
 
 
(7,100
)
 
(7,725
)
Total Loans Payable
 
 
 
 
 
 
$
305,893

 
$
305,973



    

17

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



KeyBank Credit Agreement

On May 29, 2015, the Operating Partnership entered into a $45.00 million revolving credit line (the "Credit Agreement") with KeyBank National Association ("KeyBank"). Pursuant to the Credit Agreement, outstanding borrowings accrue monthly interest which is paid at a rate of the one-month London Interbank Offer Rate ("LIBOR") plus a margin ranging from 1.75% to 2.50% depending on the Company's consolidated leverage ratio. On April 12, 2016, the Operating Partnership entered into a First Amendment and Joinder Agreement (“First Amendment”) to the Credit Agreement. The First Amendment increased the $45.00 million revolving credit line with KeyBank to $67.20 million and the Company utilized this additional borrowing capacity to acquire the A-C Portfolio. Pursuant to the terms of the First Amendment, the monthly interest of the increased credit facility is adjusted to LIBOR plus a margin of 5.00% until such time that the Company can meet certain repayment and leverage conditions. The Company used proceeds from the 2016 Series B Preferred Stock Offering to reduce its borrowings under the Credit Agreement to $46.10 million and the margin reduced back to the stated range of the original Credit Agreement on August 15, 2016. On December 7, 2016, the Operating Partnership entered into a Second Amendment and Joinder Agreement ("Second Amendment") to the Credit Agreement. The Second Amendment increased the line of credit to $75.0 million. Pursuant to the terms of the Second Amendment, the pricing reverts back to the original Credit Agreement. The unutilized amounts available to the Company under the Credit Agreement accrue fees which are paid at a rate of 0.30%.

As of March 31, 2017, the Company has borrowed $68.03 million under the Credit Agreement, which is collateralized by 16 properties. At March 31, 2017, the outstanding borrowings are accruing interest at 3.46%. The Credit Agreement contains certain financial covenants that the Company must meet, including minimum leverage, fixed charge coverage and debt service coverage ratios as well as a minimum tangible net worth requirement. The Company was in compliance with the financial covenants under the Credit Agreement as of March 31, 2017. 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 March 31, 2017, the Company has not incurred an event of default.

Senior Convertible Notes Amendment

Effective as of April 28, 2016, the Company and certain investors: Calapasas West Partners, L.P.; Full Value Partners, L.P.; Full Value Special Situations Fund, L.P.; MCM Opportunity Partners, L.P.; Mercury Partners, L.P.; Opportunity Partners, L.P.; Special Opportunities Fund, Inc.; and Steady Gain Partners, L.P. (collectively the “Bulldog Investors”) amended the convertible 9% senior notes (“Amended Convertible Notes”) to purchase shares of the Company’s common stock. Prior to the amendment, the aggregate principal amount of the Convertible Notes ("Convertible Notes") was $3.00 million.

Pursuant to the terms of the Amended Convertible Notes, upon thirty (30) calendar days’ notice (“Notice”), the Company may prepay any portion of the outstanding Principal Amount and accrued and unpaid interest, if any, without penalty. In addition, upon Notice the Bulldog Investors may now exercise their right to convert all or any portion of the outstanding Principal Amount and any accrued but unpaid interest into shares of common stock any time prior to the repayment in full of the Amended Convertible Notes. The maximum number of shares of common stock issuable upon conversion of the Amended Convertible Notes is 1,417,079 shares. As of March 31, 2017, the Bulldog Investors have converted approximately $1.64 million of principal amount into 1,417,079 shares of the Company's Common Stock, the maximum number of shares allowed.

Folly Road Refinance

In March 2017, the Company executed a promissory note for $8.57 million to refinance the Folly Road collateralized portion of the KeyBank Credit Agreement totaling $6.05 million. The loan matures in March 2020 with monthly interest only payments due through April 2018 at which time monthly principal and interest payments begin based on a 25 year amortization.  The loan bears interest at 4.00%. As of March 31, 2017, $6.18 million has been borrowed on the note with the remaining $2.39 million available for construction and development.

Certain of the Company’s loans payable have covenants with which the Company is required to comply. As of March 31, 2017, the Company believes it is in compliance with all applicable covenants.


18

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


Debt Maturity

The Company’s scheduled principal repayments on indebtedness as of March 31, 2017 are as follows (in thousands):
 
For the Periods Ending March 31,
 
 
(unaudited)
2018
$
20,804

2019
74,141

2020
33,770

2021
6,952

2022
1,776

Thereafter
175,550

Total principal maturities
$
312,993

 

The Company has considered our short-term (one year or less) liquidity needs and the adequacy of our estimated cash flows from operating activities and other expected financing sources to meet these needs. In particular, we have considered our scheduled debt maturities for the next year of $20.80 million. Included in the $20.80 million is the Revere Term Loan of $7.45 million which has a maturity date of April 30, 2017. A $450 thousand principal payment and $140 thousand extension fee were made on this loan on May 1, 2017 and, as a result, the loan maturity date has been extended to April 30, 2018, as disclosed in Note 11. There are an additional five loans totaling $11.67 million that have maturities in the next twelve months, each collateralized by properties within our portfolio. The Company expects to meet these short-term liquidity requirements, including maturing loans, through a combination of the following:

available cash and cash equivalents;
cash flows from operating activities;
borrowings under our revolving credit facility; and
refinancing of maturing debt.

Management is currently working with lenders to refinance the five loans noted above. The loans are expected to have customary interest rates similar to the five loans noted above. They are subject to formal lender commitment, definitive documentation and customary conditions.

7. Rentals under Operating Leases

Future minimum rentals to be received under noncancelable tenant operating leases for each of the next five years and thereafter, excluding CAM and percentage rent based on tenant sales volume, as of March 31, 2017 are as follows (in thousands): 
 
For the Periods Ending March 31,
 
(unaudited)
2018
$
43,349

2019
37,862

2020
31,200

2021
23,661

2022
17,795

Thereafter
48,288

Total minimum rentals
$
202,155


19

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


8. Equity and Mezzanine Equity
Common Stock One-for-Eight Reverse Stock Split
On February 27, 2017, we announced that our Board of Directors had approved the Reverse Stock Split. The Reverse Stock Split took effect at approximately 5:00 p.m. Eastern Time on March 31, 2017 (the “Effective Time”). At the Effective Time, every eight issued and outstanding shares of common stock were converted into one share of common stock, and as a result, the number of outstanding shares of common stock was reduced from approximately 68,707,755 to approximately 8,588,470. At the Effective Time, the number of authorized shares of common stock was also reduced, on a one-for-eight basis, from 150,000,000 to 18,750,000. The par value of each share of common stock remained unchanged. No fractional shares were issued in connection with the Reverse Stock Split. Instead, the Company's transfer agent, aggregated all fractional shares that otherwise would have been issued as a result of the Reverse Stock Split and those shares were sold into the market. Shareholders who would otherwise hold a fractional share of the Company's stock received a cash payment from the net proceeds of the sale in lieu of such fractional shares. All share and share-related information presented in this Quarterly Report on Form 10-Q, including our consolidated financial statements, has been retroactively adjusted to reflect the decreased number of shares resulting from the Reverse Stock Split.
Series A Preferred Stock
    
At March 31, 2017 and December 31, 2016, the Company had 562 and 4,500 shares of no par value Series A Preferred Stock (“Series A Preferred”) issued and outstanding with a $1,000 liquidation preference per share, or $562 thousand in aggregate. The Series A Preferred accrues cumulative dividends at a rate of 9% per annum, which is paid quarterly. The Company has the right to redeem the 562 shares of Series A Preferred, on a pro rata basis, at any time at a price equal to 103% of the purchase price for the Series A Preferred plus any accrued but unpaid dividends.

Series B Preferred Stock

At March 31, 2017 and December 31, 2016, the Company had 1,871,244 and 5,000,000 shares of no par value Series B Preferred Stock (“Series B Preferred”) issued and authorized with a $25.00 liquidation preference per share, or $46.78 million in aggregate. The Series B Preferred bears interest at a rate of 9% per annum. The Series B Preferred Stock has no redemption rights. However, the Series B Preferred Stock is subject to a mandatory conversion once the 20-trading day volume-weighted average closing price of our Common Stock, $0.01 par value per share, exceeds $58 per share; once this weighted average closing price is met, each share of our Series B Preferred Stock will automatically convert into shares of our Common Stock at a conversion price equal to $40.00 per share. In addition, holders of our Series B Preferred Stock also have the option, at any time, to convert shares of our Series B Preferred Stock into shares of our Common Stock at a conversion price of $40.00 per share of Common Stock. Upon any voluntary or involuntary liquidation, dissolution or winding up of our company, the holders of shares of our Series B Preferred Stock shall be entitled to be paid out of our assets a liquidation preference of $25.00 per share, plus an amount equal to all accumulated, accrued and unpaid dividends to and including the date of payment. The Series Preferred B Stock has no maturity date and will remain outstanding indefinitely unless subject to a mandatory or voluntary conversion as described above.

In conjunction with the 2014 issuance of Series B Preferred, 248,325 warrants were issued. Each warrant permits investors to purchase one share of Common Stock at an exercise price of $44 per share, subject to adjustment. The warrants expire in April 2019.

Series D Preferred Stock - Redeemable Preferred Stock

At March 31, 2017 and December 31, 2016, the Company had 2,237,000 and 4,000,000 shares of no par value Series D Preferred Stock (“Series D Preferred”) issued and authorized with a $25.00 liquidation preference per share, or $55.93 million in aggregate. Until September 21, 2023, the holders of the Series D Preferred Stock are entitled to receive cumulative cash dividends at a rate of 8.75% per annum of the $25.00 liquidation preference per share (equivalent to the fixed annual amount of $2.1875 per share) (the “Initial Rate”). Commencing September 21, 2023, the holders will be entitled to cumulative cash dividends at an annual dividend rate of the Initial Rate increased by 2% of the liquidation preference per annum on each subsequent anniversary thereafter, subject to a maximum annual dividend rate of 14%. Dividends are payable quarterly in arrears on or before January 15th, April 15th, July 15th and October 15th of each year. On or after September 21, 2021, the Company, may at its option, redeem the Series D Preferred Stock, for cash at a redemption price of $25.00 per share, plus an

20

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

8. Equity and Mezzanine Equity (continued)

amount equal to all accrued and unpaid dividends, if any, to and including the redemption date. The holder of the Series D Preferred Stock may convert shares at any time into shares of the Company’s Common Stock at an initial conversion rate of $16.96 per share of Common Stock. On September 21, 2023, the holders of the Series D Preferred Stock may, at their option, elect to cause the Company to redeem any or all of their shares at a redemption price of $25.00 per share, plus an amount equal to all accrued and unpaid dividends, if any, to and including the redemption date, payable in cash or in shares of Common Stock, or any combination thereof, at the holder’s option. The Series D Preferred Stock requires the Company maintain asset coverage of at least 200%.

Earnings per share
Basic earnings per share for the Company’s common shareholders is calculated by dividing income (loss) from continuing operations, excluding amounts attributable to preferred stockholders and the net loss attributable to noncontrolling interests, by the Company’s weighted-average shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the net income (loss) attributable to common shareholders, excluding amounts attributable to preferred shareholders and the net loss attributable to noncontrolling interests, by the weighted-average number of common shares including any dilutive shares.
As of March 31, 2017, the below shares are able to be converted to common stock. The common units, convertible preferred stock, cumulative convertible preferred stock, and warrants have been excluded from the Company’s diluted earnings per share calculation because their inclusion would be antidilutive. In addition to the below, 750,000 shares of the Company's common stock may be issued upon exercise of a warrant, solely in the event of a default under a loan agreement in which we serve as a guarantor.
 
 
March 31, 2017
 
 
Outstanding shares
 
Potential Dilutive Shares
 
 
(unaudited)
Common units
 
761,888

 
607,877

Series B Preferred Stock
 
1,871,244

 
1,169,528

Series D Preferred Stock
 
2,237,000

 
3,297,465

Warrants to purchase
 
 
 
329,378


Dividends
Dividends were declared to holders of common units, common shares and preferred shares as follows (in thousands):
 
 
Three Months Ended 
 March 31,
 
 
2017
 
2016
 
 
(unaudited)
Common unit and common shareholders
 
$
3,917

 
$
3,735

Preferred shareholders
 
2,483

 
511

Total
 
$
6,400

 
$
4,246

 

On March 17, 2017, the Company declared a $0.0175 per share dividend payable on or about April 28, 2017 to shareholders and unitholders of record as of March 31, 2017. Accordingly, the Company has accrued $1.31 million as of March 31, 2017 for this dividend.
During the three months ended March 31, 2017, the Company declared quarterly dividends of $2.29 million to preferred shareholders of record as of March 31, 2017 to be paid on April 15, 2017. Accordingly, the Company has accrued $2.29 million as of March 31, 2017 for this dividend.


21

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

8. Equity and Mezzanine Equity (continued)

Effective April 1, 2017 the Company Board of Directors has approved a change in the Company's common stock dividend payment schedule such that future dividends are expected to be paid quarterly commencing in July 2017 to shareholders of record on June 30, 2017.

2015 Long-Term Incentive Plan

On June 4, 2015, the Company's shareholders approved the 2015 Long-Term Incentive Plan (the "2015 Incentive Plan"). The 2015 Incentive Plan allows for issuance of up to 125,000 shares of the Company's common stock to employees, directors, officers and consultants for services rendered to the Company.

During the three months ended March 31, 2017, the Company issued 11,465 shares to consultants and employees for services rendered to the Company. The market value of these shares at the time of issuance was approximately $155 thousand. As of March 31, 2017, there are 41,104 shares available for issuance under the Company’s 2015 Incentive Plan.
2016 Long-Term Incentive Plan

On June 15, 2016, the Company's shareholders approved the 2016 Long-Term Incentive Plan (the "2016 Incentive Plan"). The 2016 Incentive Plan allows for issuance of up to 625,000 shares of the Company's common stock to employees, directors, officers and consultants for services rendered to the Company.

During the three months ended March 31, 2017, the Company issued 70,678 shares to consultants and employees for services rendered to the Company. The market value of these shares at the time of issuance was approximately $965 thousand. As of March 31, 2017, there are 549,721 shares available for issuance under the Company’s 2016 Incentive Plan.
9. Commitments and Contingencies
Lease Commitments
The following properties are subject to ground leases which requires the Company to make a fixed annual rental payment and includes escalation clauses and renewal options as follows (unaudited, in thousands):
 
Three Months Ended March 31,
 
 
 
2017
 
2016
 
Expiration Year
Amscot
$
5

 
$
5

 
2045
Beaver Ruin Village
11

 
11

 
2054
Beaver Ruin Village II
5

 
4

 
2056
Leased office space Charleston, SC
25

 
17

 
2019
Moncks Corner
30

 

 
2040
Devine Street
63

 

 
2035
 
$
139

 
$
37

 
 














22

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

9. Commitments and Contingencies (continued)

Future minimum lease payments due under the operating leases, including applicable automatic extension options, are as follows (unaudited, in thousands):
 
 
For the Period Ended March 31,
2018
$
521

2019
525

2020
467

2021
440

2022
480

Thereafter
9,891

 
$
12,324


Insurance
    
The Company carries comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all of the properties in its portfolio under a blanket insurance policy, in addition to other coverages, such as trademark and pollution coverage that may be appropriate for certain of its properties. Additionally, the Company carries a directors’, officers’, entity and employment practices liability insurance policy that covers such claims made against the Company and its directors and officers. The Company believes the policy specifications and insured limits are appropriate and adequate for its properties given the relative risk of loss, the cost of the coverage and industry practice; however, its insurance coverage may not be sufficient to fully cover its losses.

Concentration of Credit Risk
    
The Company is subject to risks incidental to the ownership and operation of commercial real estate. These risks include, among others, the risks normally associated with changes in the general economic climate, trends in the retail industry, creditworthiness of tenants, competition for tenants and customers, changes in tax laws, interest rates, the availability of financing and potential liability under environmental and other laws.
    
The Company’s portfolio of properties is dependent upon regional and local economic conditions and is geographically concentrated in the Northeast, Mid-Atlantic, Southeast and Southwest, which markets represented approximately 4%, 23%, 72% and 1%, respectively, of the total annualized base rent of the properties in its portfolio as of March 31, 2017. The Company’s geographic concentration may cause it to be more susceptible to adverse developments in those markets than if it owned a more geographically diverse portfolio. Additionally, the Company’s retail shopping center properties depend on anchor stores or major tenants to attract shoppers and could be adversely affected by the loss of, or a store closure by, one or more of these tenants.
        
Regulatory and Environmental
    
As the owner of the buildings on our properties, the Company could face liability for the presence of hazardous materials (e.g., asbestos or lead) or other adverse conditions (e.g., poor indoor air quality) in its buildings. Environmental laws govern the presence, maintenance, and removal of hazardous materials in buildings, and if the Company does not comply with such laws, it could face fines for such noncompliance. Also, the Company could be liable to third parties (e.g., occupants of the buildings) for damages related to exposure to hazardous materials or adverse conditions in its buildings, and the Company could incur material expenses with respect to abatement or remediation of hazardous materials or other adverse conditions in its buildings. In addition, some of the Company’s tenants routinely handle and use hazardous or regulated substances and wastes as part of their operations at our properties, which are subject to regulation. Such environmental and health and safety laws and regulations could subject the Company or its tenants to liability resulting from these activities. Environmental liabilities could affect a tenant’s ability to make rental payments to the Company, and changes in laws could increase the potential liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise materially and adversely affect the Company’s operations. The Company is not aware of any material contingent liabilities, regulatory matters or environmental matters that may exist.

23

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

9. Commitments and Contingencies (continued)


Litigation
    
The Company is involved in various legal proceedings arising in the ordinary course of its business, including, but not limited to commercial disputes. The Company believes that such litigation, claims and administrative proceedings will not have a material adverse impact on its financial position or its results of operations. The Company records a liability when it considers the loss probable and the amount can be reasonably estimated.

10. Related Party Transactions
The amounts disclosed below reflect the activity between the Company and Mr. Wheeler's affiliates.
 
March 31,
 
2017
 
2016
 
(unaudited, in thousands)
Amounts paid to affiliates
$
9

 
$
76

Amounts received from affiliates
$
471

 
$
302

Amounts due from affiliates
$
1,566

 
$
465

Notes receivable
$
12,000

 
$

As discussed in Note 4, the Company has loaned $11.00 million for the partial funding of Pineland Station Shopping Center in Hilton Head, South Carolina to be known in the future as Sea Turtle Development and loaned $1.00 million for the sale of land to be used in the development. The Company is performing development, leasing, property and asset management services for Sea Turtle Development. Development fees of 5% of hard costs incurred are paid to the Company. Leasing, property and asset management fees are consistent with those charged for services provided to non-related properties. Amounts due from affiliates include $770 thousand in accrued interest on the notes receivable and $207 thousand in development fees at March 31, 2017.

11. Subsequent Events
On May 1, 2017, the Company extended the $7.45 million Revere Term Loan maturity to April 30, 2018, as permitted within the terms of the loan agreement, with a $450 thousand principal payment and $140 thousand extension fee.


24


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Form 10-Q, along with the consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2016 Form 10-K for the year ended December 31, 2016. All per share amounts, common units and shares outstanding and stock-based compensation amounts for all periods presented reflect our one-for-eight reverse stock split (the "Reverse Stock Split"), which was effective March 31, 2017. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the unaudited condensed consolidated financial statements included in this Form 10-Q.
This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition, anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our shareholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.
The forward-looking statements should be read in light of these factors and the factors identified in the “Risk Factors” sections in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017.
Executive Overview
The March 31, 2017 three month periods include the combined operations of all properties owned at December 31, 2016 as described in our 2016 Form 10-K. Conversely, the March 31, 2016 three month periods include the combined operations of all properties owned at December 31, 2015 as described in our 2015 Annual Report on Form 10-K for the year ended December 31, 2015 ("2015 Form 10-K"). In providing the following discussion and analysis of our results of operations, we have separately identified the activities of properties owned for the entire 2016 annual and 2017 three month periods (collectively referred to as “same stores”) and of those properties acquired after December 31, 2015 (collectively referred to as “new stores”). This illustrates the significant impact these properties acquired during 2016 had on our results of operations.

25


New Leases, Leasing Renewals and Expirations
The following table presents selected lease activity statistics for our properties.
 
Three Months Ended March 31,
 
2017
 
2016
Renewals:
 
 
 
Leases renewed with rate increase (sq feet)
92,223

 
26,081

Leases renewed with rate decrease (sq feet)
16,804

 

Leases renewed with no rate change (sq feet)
70,094

 
5,975

Total leases renewed (sq feet)
179,121

 
32,056

 
 
 
 
 
 
 
 
Leases renewed with rate increase (count)
22

 
                        7

Leases renewed with rate decrease (count)
3

 

Leases renewed with no rate change (count)
8

 
                        3

Total leases renewed (count)
33

 
10

 
 
 
 
Option exercised (count)
12

 
                        4

 
 
 
 
Weighted average on rate increases (per sq foot)
$
0.70

 
$
1.14

Weighted average on rate decreases (per sq foot)
$
(0.60
)
 
$

Weighted average rate (per sq foot)
$
0.30

 
$
0.93

Weighted average change over prior rates
3.50
%
 
7.39%

 
 
 
 
New Leases:
 
 
 
New leases (sq feet)
54,279

 
               18,937

New leases (count)
18

 
                      10

Weighted average rate (per sq foot)
$
13.92

 
$
14.03

 
 
 
 
Gross Leasable Area Expiring during the next 12 months
9.86
%
 
8.57%

Based on recent market trends, we believe that these leases will be renewed at amounts and terms comparable to existing lease agreements.
Critical Accounting Policies

In preparing the condensed consolidated financial statements, we have made estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results may differ from these estimates. A summary of our critical accounting policies is included in our 2016 Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to these policies during the three months ended March 31, 2017. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 of the condensed consolidated financial statements included in this Form 10-Q.








26


Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016
Results of Operations
The following table presents a comparison of the condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016, respectively.
 
Three Months Ended 
March 31,
 
Three Months Ended Changes
 
2017
 
2016
 
Change
 
% Change
PROPERTY DATA:
 
 
(in thousands)
 
 
Number of properties owned and leased at period end (1)
64

 
42

 
22

 
52.38
 %
Aggregate gross leasable area at period end (1)
4,906,511

 
3,151,358

 
1,755,153

 
55.70
 %
Ending occupancy rate at period end (1)
93.00
%
 
93.88
%
 
(0.88
)%
 
(0.94
)%
FINANCIAL DATA:
 
 
 
 
 
 
 
Rental revenues
$
11,129

 
$
6,742

 
$
4,387

 
65.07
 %
Asset management fees
162

 
255

 
(93
)
 
(36.47
)%
Commissions
115

 
153

 
(38
)
 
(24.84
)%
Other non-property development income
136

 

 
136

 
 %
Tenant reimbursements and other revenues
2,780

 
1,988

 
792

 
39.84
 %
Total Revenue
14,322

 
9,138

 
5,184

 
56.73
 %
EXPENSES:
 
 
 
 
 
 
 
Property operations
3,994

 
2,675

 
1,319

 
49.31
 %
Non-REIT management and leasing services
271

 
377

 
(106
)
 
(28.12
)%
Depreciation and amortization
6,400

 
4,880

 
1,520

 
31.15
 %
Provision for credit losses
252

 
88

 
164

 
186.36
 %
Corporate general & administrative
2,232

 
2,282

 
(50
)
 
(2.19
)%
Total Operating Expenses
13,149

 
10,302

 
2,847

 
27.64
 %
Operating Income (Loss)
1,173

 
(1,164
)
 
2,337

 
200.77
 %
Interest income
356

 
1

 
355

 
35,500.00
 %
Interest expense
(4,177
)
 
(2,420
)
 
(1,757
)
 
(72.60
)%
Net Loss from Continuing Operations Before Income Taxes
(2,648
)
 
(3,583
)
 
935

 
26.10
 %
Income tax expense
(41
)
 

 
(41
)
 
 %
Net Loss from Continuing Operations
(2,689
)
 
(3,583
)
 
894

 
24.95
 %
Discontinued Operations
 
 
 
 
 
 
 
Income from operations
16

 
21

 
(5
)
 
(23.81
)%
Gain on disposal of properties
1,513

 

 
1,513

 
 %
Net Income from Discontinued Operations
1,529

 
21

 
1,508

 
7,180.95
 %
Net Loss
(1,160
)
 
(3,562
)
 
2,402

 
67.43
 %
Net loss attributable to noncontrolling interests
(41
)
 
(333
)
 
292

 
87.69
 %
Net Loss Attributable to Wheeler REIT
$
(1,119
)
 
$
(3,229
)
 
$
2,110

 
65.35
 %
(1)
Excludes the undeveloped land parcels and Riversedge North, our corporate headquarters, and the redevelopment property. Includes assets held for sale.
    

27


Same Store and New Store Operating Income
    
The following table provides same store and new store financial information. The discussion below primarily focuses on same store results of operations since all twenty-three of our 2016 retail acquisitions occurred subsequent to March 31, 2016.
 
Three Months Ended March 31,
 
Same Store
 
New Store
 
Total
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
(in thousands)
 
 
 
 
Property revenues
$
8,734

 
$
8,730

 
$
5,175

 
$

 
$
13,909

 
$
8,730

Property expenses
2,546

 
2,675

 
1,448

 

 
3,994

 
2,675

Property Net Operating Income
6,188

 
6,055

 
3,727

 

 
9,915

 
6,055

Asset Management and Commission Revenue
277

 
408

 

 

 
277

 
408

Other non-property income
136

 

 

 

 
136

 

Other Income
413

 
408

 

 

 
413

 
408

Non-REIT management and leasing services
271

 
377

 

 

 
271

 
377

Depreciation and amortization
3,854

 
4,880

 
2,546

 

 
6,400

 
4,880

Provision for credit losses
229

 
88

 
23

 

 
252

 
88

Corporate general & administrative
2,065

 
2,282

 
167

 

 
2,232

 
2,282

Total Other Operating Expenses
6,419

 
7,627

 
2,736

 

 
9,155

 
7,627

Interest income
356

 
1

 

 

 
356

 
1

Interest expense
(2,600
)
 
(2,420
)
 
(1,577
)
 

 
(4,177
)
 
(2,420
)
Net Loss from Continuing Operations Before Income Taxes
(2,062
)
 
(3,583
)
 
(586
)
 

 
(2,648
)
 
(3,583
)
Income tax expense
(41
)
 

 

 

 
(41
)
 

Net Loss from Continuing Operations
(2,103
)
 
(3,583
)
 
(586
)
 

 
(2,689
)
 
(3,583
)
Discontinued Operations
 
 
 
 
 
 
 
 
 
 
 
Income from operations
16

 
21

 

 

 
16

 
21

Gain on disposal of properties
1,513

 

 

 

 
1,513

 

Net Income from Discontinued Operations
1,529

 
21

 

 

 
1,529

 
21

Net Loss
$
(574
)
 
$
(3,562
)
 
$
(586
)
 
$

 
$
(1,160
)
 
$
(3,562
)
 
 
 
 
 
 
 
 
 
 
 
 
Property Revenues
Total same store property revenues for the three month periods ended March 31, 2017 and 2016 were consistent at $8.73 million.

New store revenues for the three month periods ended March 31, 2017 and 2016 were $5.18 million and $0, respectively. The three month period ended March 31, 2017 represents a full period of operations reported for the twenty-three retail acquisitions made in 2016. These properties will generate a significant amount of revenue for us and we will benefit from future contractual rent increases and expansion opportunities.

Property Expenses
Total same store property expenses for the three month periods ended March 31, 2017 and 2016 were $2.55 million and $2.68 million, respectively. The decrease was primarily due to the following:

$110 thousand decrease in grounds and landscaping and parking lot repairs needed;
$31 thousand decrease in real estate taxes.

Total property expenses increased primarily due to new store increases of $1.45 million for the three month period ended March 31, 2017, respectively, over the comparable prior year period. There were no significant unusual or non-recurring items included in new store property expenses for the three month period ended March 31, 2017.



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Property Net Operating Income

Total property net operating income for the three month periods ended March 31, 2017 and 2016 were $9.91 million and $6.05 million, respectively, representing an increase of $3.86 million. New stores accounted for the majority of these increases by generating $3.73 million in property net operating income for the three month period ended March 31, 2017, compared to $0 for the three month period ended March 31, 2016.

Other Income

Total other income for the three month periods ended March 31, 2017 and 2016 were $413 thousand and $408 thousand, respectively, representing an increase of $5 thousand. The increase is a result of $136 thousand of development fees earned on the Sea Turtle Development project offset by a decrease of $131 thousand in asset management and commission revenue.

Other Operating Expenses
Same store other operating expenses for the three month periods ended March 31, 2017 and 2016 were $6.42 million and $7.63 million, respectively, representing a decrease of $1.21 million primarily due to the following:

$1.03 million decrease in depreciation and amortization expense from additional assets becoming fully depreciated;