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EX-32 - EXHIBIT 32 CERTIFICATION OF CEO AND CFO 6.30.20 - Wheeler Real Estate Investment Trust, Inc.ex32q22020.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION OF CFO 6.30.20 - Wheeler Real Estate Investment Trust, Inc.ex312q22020.htm
EX-31.1 - EXHIBIT 31.1 CERTIFICATION OF CEO 6.30.20 - Wheeler Real Estate Investment Trust, Inc.ex311q22020.htm
EX-4.4 - EXHIBIT 4.4 DESCRIPTION OF SECURITIES 6.30.20 - Wheeler Real Estate Investment Trust, Inc.ex44descriptionofsecuritie.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
 
(Mark One)
ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
 ¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-35713
 
WHEELER REAL ESTATE INVESTMENT TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter) 
Maryland
 
45-2681082
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
2529 Virginia Beach Blvd.
Virginia Beach. Virginia
 
23452
(Address of Principal Executive Offices)
 
(Zip Code)
 (757) 627-9088
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
Name of each exchange on which registered
 Common Stock, $0.01 par value per share
 
WHLR
Nasdaq Capital Market
 Series B Convertible Preferred Stock
 
WHLRP
Nasdaq Capital Market
 Series D Cumulative Convertible Preferred Stock
 
WHLRD
Nasdaq Capital Market

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.

1


Large accelerated filer
 
¨
  
Accelerated filer
 
¨
Non-accelerated filer
 
ý
  
Smaller reporting company
 
ý
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         Yes  ¨    No  ý
As of July 31, 2020, there were 9,699,461 common shares, $0.01 par value per share, outstanding.

2


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.
 

3


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

 
June 30, 2020
 
December 31, 2019
 
(unaudited)
 
 
ASSETS:
 
 
 
Investment properties, net
$
404,386

 
$
416,215

Cash and cash equivalents
7,660

 
5,451

Restricted cash
15,277

 
16,140

Rents and other tenant receivables, net
8,698

 
6,905

Assets held for sale
6,287

 
1,737

Above market lease intangibles, net
4,452

 
5,241

Operating lease right-of-use assets
11,555

 
11,651

Deferred costs and other assets, net
18,871

 
21,025

Total Assets
$
477,186

 
$
484,365

LIABILITIES:
 
 
 
Loans payable, net
$
331,615

 
$
340,913

Liabilities associated with assets held for sale
4,117

 
2,026

Below market lease intangibles, net
5,554

 
6,716

Operating lease liabilities
11,918

 
11,921

Accounts payable, accrued expenses and other liabilities
12,358

 
9,557

Total Liabilities
365,562

 
371,133

Series D Cumulative Convertible Preferred Stock (no par value, 4,000,000 shares authorized, 3,600,636 shares issued and outstanding; $106.50 million and $101.66 million aggregate liquidation preference, respectively)
92,360

 
87,225

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

 
453

Series B Convertible Preferred Stock (no par value, 5,000,000 authorized, 1,875,748 shares issued and outstanding; $46.90 million aggregate liquidation preference)
41,131

 
41,087

Common Stock ($0.01 par value, 18,750,000 shares authorized, 9,695,899 and 9,694,284 shares issued and outstanding, respectively)
97

 
97

Additional paid-in capital
233,884

 
233,870

Accumulated deficit
(258,372
)
 
(251,580
)
Total Shareholders’ Equity
17,193

 
23,927

Noncontrolling interests
2,071

 
2,080

Total Equity
19,264

 
26,007

Total Liabilities and Equity
$
477,186

 
$
484,365

See accompanying notes to condensed consolidated financial statements.


4


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
REVENUE:
 
 
 
 
 
 
 
Rental revenues
$
14,809

 
$
15,391

 
$
30,164

 
$
31,161

Other revenues
360

 
141

 
579

 
366

Total Revenue
15,169

 
15,532

 
30,743

 
31,527

OPERATING EXPENSES:
 
 
 
 
 
 
 
Property operations
4,573

 
4,595

 
9,296

 
9,321

Non-REIT management and leasing services

 
1

 

 
24

Depreciation and amortization
4,446

 
5,287

 
9,245

 
11,103

Impairment of notes receivable

 
5,000

 

 
5,000

Impairment of assets held for sale

 
1,147

 
600

 
1,147

Corporate general & administrative
1,615

 
1,380

 
3,487

 
3,194

Total Operating Expenses
10,634

 
17,410

 
22,628

 
29,789

(Loss) gain on disposal of properties

 
(331
)
 
(26
)
 
1,508

Operating Income (Loss)
4,535

 
(2,209
)
 
8,089

 
3,246

Interest income

 

 
1

 
1

Interest expense
(4,273
)
 
(4,947
)
 
(8,673
)
 
(9,740
)
Other expense

 

 
(1,024
)
 

Net Income (Loss) Before Income Taxes
262

 
(7,156
)
 
(1,607
)
 
(6,493
)
Income tax benefit (expense)
6

 
(7
)
 
(2
)
 
(15
)
Net Income (Loss)
268

 
(7,163
)
 
(1,609
)
 
(6,508
)
Less: Net income (loss) attributable to noncontrolling interests
14

 
(112
)
 
5

 
(99
)
Net Income (Loss) Attributable to Wheeler REIT
254

 
(7,051
)
 
(1,614
)
 
(6,409
)
Preferred Stock dividends - undeclared
(3,657
)
 
(3,658
)
 
(7,314
)
 
(7,315
)
Net Loss Attributable to Wheeler REIT Common Shareholders
$
(3,403
)
 
$
(10,709
)
 
$
(8,928
)
 
$
(13,724
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss per share:
 
 
 
 
 
 
 
Basic and Diluted
$
(0.35
)
 
$
(1.10
)
 
$
(0.92
)
 
$
(1.42
)
 
 
 
 
 
 
 
 
Weighted-average number of shares:
 
 
 
 
 
 
 
Basic and Diluted
9,695,651

 
9,693,271

 
9,694,967

 
9,650,000

 
 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.

5


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
(in thousands, except share data)
 (Unaudited)
 
Series A
 
Series B
 
 
 
 
 
 
 
 
 
Noncontrolling
 
 
 
Preferred Stock
 
Preferred Stock
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Total
Shareholders’ Equity
 
Interests
 
Total
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
 
 
 
Units
 
Value
 
Equity
Balance,
December 31, 2019
562

 
$
453

 
1,875,748

 
$
41,087

 
9,694,284

 
$
97

 
$
233,870

 
$
(251,580
)
 
$
23,927

 
234,019

 
$
2,080

 
$
26,007

Accretion of Series B Preferred
  Stock discount

 

 

 
22

 

 

 

 

 
22

 

 

 
22

Dividends and distributions

 

 

 

 

 

 

 
(2,589
)
 
(2,589
)
 

 

 
(2,589
)
Net Loss

 

 

 

 

 

 

 
(1,868
)
 
(1,868
)
 

 
(9
)
 
(1,877
)
Balance,
March 31, 2020 (Unaudited)
562

 
453

 
1,875,748

 
41,109

 
9,694,284

 
97

 
233,870

 
(256,037
)
 
19,492

 
234,019

 
2,071

 
21,563

Accretion of Series B Preferred
  Stock discount

 

 

 
22

 

 

 

 

 
22

 

 

 
22

Conversion of operating
  partnership units to Common
  Stock

 

 

 

 
1,615

 

 
2

 

 
2

 
(1,615
)
 
(2
)
 

Adjustments for noncontrolling
  interest in operating partnership

 

 

 

 

 

 
12

 

 
12

 

 
(12
)
 

Dividends and distributions

 

 

 

 

 

 

 
(2,589
)
 
(2,589
)
 

 

 
(2,589
)
Net Income

 

 

 

 

 

 

 
254

 
254

 

 
14

 
268

Balance,
June 30, 2020 (Unaudited)
562

 
$
453

 
1,875,748

 
$
41,131

 
9,695,899

 
$
97

 
$
233,884

 
$
(258,372
)
 
$
17,193

 
232,404

 
$
2,071

 
$
19,264

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A
 
Series B
 
 
 
 
 
 
 
 
 
Noncontrolling
 
 
 
Preferred Stock
 
Preferred Stock
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated Deficit
 
Total
Shareholders’ Equity
 
Interests
 
Total
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
 
 
 
Units
 
Value
 
Equity
Balance,
December 31, 2018
562

 
$
453

 
1,875,748

 
$
41,000

 
9,511,464

 
$
95

 
$
233,697

 
$
(233,184
)
 
$
42,061

 
235,032

 
$
2,194

 
$
44,255

Accretion of Series B Preferred
  Stock discount

 

 

 
22

 

 

 

 

 
22

 

 

 
22

Issuance of Common Stock
  under Share Incentive Plan

 

 

 

 
181,807

 
2

 
164

 

 
166

 

 

 
166

Dividends and distributions

 

 

 

 

 

 

 
(2,589
)
 
(2,589
)
 

 

 
(2,589
)
Net Income

 

 

 

 

 

 

 
642

 
642

 

 
13

 
655

Balance,
March 31, 2019 (Unaudited)
562

 
453

 
1,875,748

 
41,022

 
9,693,271

 
97

 
233,861

 
(235,131
)
 
40,302

 
235,032

 
2,207

 
42,509

Accretion of Series B Preferred
  Stock discount

 

 

 
22

 

 

 

 

 
22

 

 

 
22

Dividends and distributions

 

 

 

 

 

 

 
(2,590
)
 
(2,590
)
 

 

 
(2,590
)
Net Loss

 

 

 

 

 

 

 
(7,051
)
 
(7,051
)
 

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

 
$
453

 
1,875,748

 
$
41,044

 
9,693,271

 
$
97

 
$
233,861

 
$
(244,772
)
 
$
30,683

 
235,032

 
$
2,095

 
$
32,778

See accompanying notes to condensed consolidated financial statements.

6


Wheeler Real Estate Investment Trust, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
For the Six Months
Ended June 30,
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Loss
$
(1,609
)
 
$
(6,508
)
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:
 
 
 
Depreciation
5,800

 
6,067

Amortization
3,445

 
5,036

Loan cost amortization
562

 
927

Above (below) market lease amortization, net
(373
)
 
(420
)
Straight-line expense
92

 
93

Share-based compensation

 
172

Loss (gain) on disposal of properties
26

 
(1,508
)
Credit losses on operating lease receivables
585

 
200

Impairment of notes receivable

 
5,000

Impairment of assets held for sale
600

 
1,147

Net changes in assets and liabilities:
 
 
 
Rent and other tenant receivables, net
(1,943
)
 
(60
)
Unbilled rent
(439
)
 
30

Deferred costs and other assets, net
(1,342
)
 
(562
)
Accounts payable, accrued expenses and other liabilities
2,090

 
(1,805
)
Net operating cash flows used in discontinued operations

 
(2
)
Net cash provided by operating activities
7,494

 
7,807

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Investment property acquisitions, net of restricted cash acquired

 
(24
)
Capital expenditures
(544
)
 
(946
)
Cash received from disposal of properties
1,665

 
3,584

Cash received from disposal of properties-discontinued operations

 
19

Net cash provided by investing activities
1,121

 
2,633

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Payments for deferred financing costs
(326
)
 
(293
)
Loan proceeds
13,350

 
16,500

Loan principal payments
(20,845
)
 
(24,286
)
Paycheck Protection Program proceeds
552

 

Net cash used in financing activities
(7,269
)
 
(8,079
)
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
1,346

 
2,361

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
21,591

 
17,999

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
22,937

 
$
20,360

Supplemental Disclosures:
 
 
 
Non-Cash Transactions:
 
 
 
Conversion of common units to common stock
$
2

 
$

Accretion of preferred stock discounts
$
341

 
$
341

Other Cash Transactions:
 
 
 
Cash paid for taxes
$

 
$
6

Cash paid for interest
$
7,382

 
$
8,930

 
 
 
 
The following table provides a reconciliation of cash, cash equivalents and restricted cash:
 
 
 
Cash and cash equivalents
$
7,660

 
$
3,934

Restricted cash
15,277

 
16,426

Cash, cash equivalents, and restricted cash
$
22,937

 
$
20,360

See accompanying notes to condensed consolidated financial statements.

7



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

1. Organization and Basis of Presentation and Consolidation

Wheeler Real Estate Investment Trust, Inc. (the "Trust", the "REIT", or "Company") is a Maryland corporation formed on June 23, 2011. The Trust serves as the general partner of Wheeler REIT, L.P. (the “Operating Partnership”), which was formed as a Virginia limited partnership on April 5, 2012. As of June 30, 2020, the Trust, through the Operating Partnership, owned and operated sixty centers, one office building and six undeveloped properties in Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Oklahoma, Tennessee, Kentucky, New Jersey, Pennsylvania and West Virginia. Accordingly, the use of the word “Company” refers to the Trust and its consolidated subsidiaries, except where the context otherwise requires.

On October 24, 2014, the Trust, through the Operating Partnership, acquired (i) Wheeler Interests, LLC (“WI”), an acquisition and asset management firm, (ii) Wheeler Real Estate, LLC (“WRE”), a real estate leasing, management and administration firm and (iii) WHLR Management, LLC (“WM” and collectively with WI and WRE the “Operating Companies”), a real estate business operations firm 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, administering our day-to-day business operations, including but not limited to, leasing, property management, payroll and accounting functions, acquisitions, asset management and administration are now handled internally.

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

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

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (the “Form 10-Q”) are unaudited and the results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for future periods or the year. However, amounts presented in the condensed consolidated balance sheet as of December 31, 2019 are derived from the Company’s audited consolidated financial statements as of that date, but do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. The Company prepared the accompanying condensed consolidated financial statements in accordance with GAAP for interim financial statements. The condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature. All material balances and transactions between the consolidated entities of the Company have been eliminated. These condensed consolidated financial statements should be read in conjunction with the Company's 2019 Annual Report filed on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).

2. Summary of Significant Accounting Policies

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

8

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

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

Assets Held For Sale and Discontinued Operations
    
The Company may decide to sell properties that are held for use. The Company records these properties as held for sale when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered probable and is expected within one year. Properties classified as held for sale are reported at the lower of their carrying value or their fair value, less estimated costs to sell. When the carrying value exceeds the fair value, less estimated costs to sell an impairment expense is recognized. The Company estimates fair value, less estimated closing costs based on similar real estate sales transactions. These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 2 and 3 inputs. Level 2 inputs are quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. See Note 3 for additional details on impairment of assets held for sale for the three and six months ended June 30, 2020 and 2019.


9

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

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

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

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

Tenant Receivables and Unbilled Rent

Tenant receivables include base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. The Company determines an allowance for the uncollectible portion of accrued rents and accounts receivable based upon customer credit-worthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. The Company considers a receivable past due once it becomes delinquent per the terms of the lease. The Company’s standard lease form considers a rent charge past due after five days. A past due receivable triggers certain events such as notices, fees and other allowable and required actions per the lease. As of June 30, 2020 and December 31, 2019, the Company’s allowance for uncollectible accounts totaled $1.55 million and $1.14 million, respectively. During the three and six months ended June 30, 2020, the Company recorded a provision for credit losses on operating lease receivables in the amount of $431 thousand and $585 thousand, respectively, related to tenant receivables that were specifically identified as potentially uncollectible based on an assessment of the tenant’s credit-worthiness. During the three and six months ended June 30, 2019, the Company recorded a provision for credit losses on operating lease receivables in the amount of $110 thousand and $200 thousand, respectively, related to tenant receivables that were specifically identified as potentially uncollectible based on an assessment of the tenant’s credit-worthiness. These are included in rental revenues on the condensed consolidated statements of operations. During the three and six months ended June 30, 2020 and 2019, 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, tenant relationships and ground lease sandwich interest intangibles associated with acquisitions. The Company’s lease origination costs consist primarily of the portion of property acquisitions allocated to lease originations and commissions paid to third parties in connection with lease originations. The Company generally records amortization of lease origination costs on a straight-line basis over the terms of the related leases. Amortization of lease origination costs, leases in place, legal and marketing costs, tenant relationships and ground lease sandwich interest represents a component of depreciation and amortization expense.


10

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

Paycheck Protection Program

The Company received proceeds of $552 thousand (the "PPP funds") pursuant to the Paycheck Protection Program (the "PPP") under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

The PPP funds were received in the form of a promissory note, dated April 24, 2020 (the “Promissory Note”), between the Company and KeyBank as the lender that matures on April 24, 2022 bearing interest at a fixed rate of 1% per annum, payable monthly commencing seven months from the date of the note. Under the terms of the PPP, the principal may be forgiven if the proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, mortgage interest, rent and utilities. No assurance can be provided that the Company will obtain forgiveness of the Promissory Note in whole or in part. The PPP proceeds are included in "accounts payable, accrued expenses and other liabilities" on the condensed consolidated balance sheets.

Revenue Recognition

Lease Contract Revenue

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

The Company accrues minimum rents on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet. At June 30, 2020 and December 31, 2019, there were $3.92 million and $3.41 million, respectively, in unbilled rent which is included in "rents and other tenant receivables, net." Additionally, certain of the lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements as variable lease income.

The Company’s leases generally require the tenant to reimburse the Company for a substantial portion of its expenses incurred in operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common Area Maintenance or “CAM” expenses). This significantly reduces the Company’s exposure to increases in costs and operating expenses resulting from inflation or other outside factors. These reimbursements are considered nonlease components which the Company combines with the lease component. The Company calculates the tenant’s share of operating costs by multiplying the total amount of the operating costs by a fraction, the numerator of which is the total number of square feet being leased by the tenant, and the denominator of which is the total square footage of all leasable buildings at the property. The Company also receives monthly payments for these reimbursements from substantially all its tenants throughout the year. The Company recognizes tenant reimbursements as variable lease income. The Company recognizes differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material for the three and six months ended June 30, 2020 and 2019.

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

The Company recognizes lease termination fees, which is included in "other revenues" on the condensed consolidated statements of operations, in the year that the lease is terminated and collection of the fee is reasonably assured. Upon early lease termination, the Company provides for losses related to unrecovered intangibles and other assets.

Beginning in April 2020, the Company received certain rent relief requests, most often in the form of rent deferral requests, as a result of COVID-19. The Company evaluates each tenant rent relief request on an individual basis, considering a number of factors. Not all tenant requests ultimately result in concessions or modification of agreements, nor is the Company forgoing its contractual rights under its lease agreements. The Financial Accounting Standards Board (the "FASB") issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to

11

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

lease concessions provided as a result of COVID-19. The Lease Modification Q&A clarifies that entities may elect to treat qualifying lease concessions as if they were based on enforceable rights and obligations, and may choose to apply or not to apply modification accounting to those qualifying concessions. Qualifying concessions must be in response to COVID-19 and not have a substantial increase in the lessee’s obligation or the lessor’s rights under the contract. The Company has elected not to apply ASC 842 modification guidance for concessions that did not increase the lease term as generally, these concessions do not impact the overall economics of the lease. Concessions that extend the lease term are accounted for under ASC 842, lease modification guidance.

The below table disaggregates the Company’s revenue by type of service for the three and six months ended June 30, 2020 and 2019 (in thousands, unaudited):

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
Minimum rent
$
12,050

 
$
11,974

 
$
24,163

 
$
24,435

Tenant reimbursements - variable lease revenue
3,141

 
3,450

 
6,429

 
6,737

Percentage rent - variable lease revenue
49

 
77

 
157

 
189

Lease termination fees
12

 

 
74

 
49

Other
348

 
141

 
505

 
317

     Total
15,600

 
15,642

 
31,328

 
31,727

Credit losses on operating lease receivables
(431
)
 
(110
)
 
(585
)
 
(200
)
     Total
$
15,169

 
$
15,532

 
$
30,743

 
$
31,527


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 $24 thousand and $22 thousand, respectively, for federal and state income taxes as of June 30, 2020 and December 31, 2019. 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 reasonable cause and certain other conditions were satisfied.

Management has evaluated the effect of the guidance provided by GAAP on Accounting for Uncertainty of Income Taxes and has determined that the Company had no uncertain income tax positions.

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 particular property 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).


12

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

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.

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, unaudited):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
Professional fees
$
919

 
$
328

 
$
1,945

 
$
927

Compensation and benefits
375

 
431

 
782

 
1,107

Corporate administration
294

 
303

 
625

 
608

Advertising costs for leasing activities
21

 
114

 
52

 
163

Other
6

 
204

 
83

 
389

    Total
$
1,615

 
$
1,380

 
$
3,487

 
$
3,194

    
Other Expense

Other expense represent expenses which are non-operating in nature. Other expenses during the three and six months ended June 30, 2020 include $0 thousand and $585 thousand, respectively, in legal settlement costs, see Note 9 for additional details, and $0 and $439 thousand for the three and six months ended June 30, 2020, respectively, for reimbursement of 2019 proxy costs to a current board member as approved by the Company's Board of Directors in March 2020, see Note 10 for additional details. 

Leases Commitments

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

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


13

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

Noncontrolling Interests

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

Recent Accounting Pronouncements 

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This update enhances the methodology of measuring expected credit losses to include the use of forward-looking information to better calculate credit loss estimates. The guidance will apply to most financial assets measured at amortized cost and certain other instruments, such as accounts receivable and loans. The guidance will require that the Company estimate the lifetime expected credit loss with respect to these receivables and record allowances that, when deducted from the balance of the receivables, represent the net amounts expected to be collected. The Company will also be required to disclose information about how it developed the allowances, including changes in the factors that influenced the Company’s estimate of expected credit losses and the reasons for those changes. The guidance would be effective for interim and annual reporting periods beginning after December 15, 2022, per FASB's issuance of ASU 2019-10, "Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates". The Company is currently in the process of evaluating the impact the adoption of the guidance will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)". This update modifies the disclosure requirements on fair value measurements in Topic 820 with several removals, modifications and additions for disclosures, which includes both prospective and retrospective disclosures. The guidance adds prospective disclosures related to the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements including measurement uncertainty disclosures to communicate the uncertainty in the measurement as of the reporting date. The Company adopted this ASU as of January 1, 2020. The adoption did not have material impact on its consolidated financial statements upon adoption of the guidance and there were no retrospective disclosures necessary.

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

Reclassifications

The Company has reclassified certain prior period amounts in the accompanying condensed consolidated financial statements in order to be consistent with the current period presentation. These reclassifications had no effect on net income, total assets, total liabilities or equity. The revenue from asset management fees and commissions were reclassified to other revenues on the condensed consolidated statements of operations for consistency with current period presentation.

14

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


3. Real Estate

Investment properties consist of the following (in thousands):
 
June 30, 2020
 
December 31, 2019
 
(unaudited)
 
 
Land and land improvements
$
98,981

 
$
100,599

Buildings and improvements
360,956

 
366,082

Investment properties at cost
459,937

 
466,681

Less accumulated depreciation
(55,551
)
 
(50,466
)
    Investment properties, net
$
404,386

 
$
416,215


The Company’s depreciation expense on investment properties was $2.86 million and $5.80 million for the three and six months ended June 30, 2020, respectively. The Company’s depreciation expense on investment properties was $2.88 million and $6.07 million for the three and six months ended June 30, 2019, respectively.

A significant portion of the Company’s land, buildings and improvements serve as collateral for its mortgage loans. Accordingly, restrictions exist as to the encumbered property’s transferability, use and other common rights typically associated with property ownership.

Assets Held for Sale and Dispositions

At June 30, 2020 and December 31, 2019 assets held for sale included Columbia Fire Station and St. Matthews, respectively as the Board committed to a plan to sell each property.

The Company recorded impairment expense on assets held for sale of $0 thousand and $600 thousand for the three and six months ended June 30, 2020, respectively, related to Columbia Fire Station. During the three and six months ended June 30, 2019, the Company's impairment expense of $1.15 million relates to Perimeter Square. The impairments result from reducing the carrying value of properties held for sale for the amount that exceeded the property's fair value less estimated selling costs. The valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 2 inputs.

As of June 30, 2020 and December 31, 2019, assets held for sale and associated liabilities consisted of the following (in thousands):
 
 
June 30, 2020
 
December 31, 2019
 
 
(unaudited)
 
 
Investment properties, net
 
$
6,189

 
$
1,651

Rents and other tenant receivables, net
 
38

 
77

Deferred costs and other assets, net
 
60

 
9

Total assets held for sale
$
6,287

 
$
1,737

 
 
June 30, 2020
 
December 31, 2019
 
 
(unaudited)
 
 
Loans payable
 
$
4,013

 
$
1,974

Accounts payable, accrued expenses and other liabilities
 
104

 
52

Total liabilities associated with assets held for sale
$
4,117

 
$
2,026








15

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

The following properties were sold during the six months ended June 30, 2020 and 2019:
Disposal Date
 
Property
 
Contract Price
 
Gain (loss)
 
Net Proceeds
 
 
 
 
(in thousands, unaudited)
January 21, 2020
 
St. Matthews
 
$
1,775

 
$
(26
)
 
$
1,665

March 18, 2019
 
Graystone Crossing
 
6,000

 
1,452

 
1,744

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

 

 
19

January 11, 2019
 
Jenks Plaza
 
2,200

 
387

 
1,840

    
The Harbor Pointe land parcel sale represents discontinued operations as it was a strategic shift that had a major effect on the Company's financial position or results of operations.
    
The sale of Jenks Plaza, Graystone Crossing and St. Matthews did not represent a strategic shift that has a major effect on the Company's financial position or results of operations. Accordingly, the operating results of these properties remains classified within continuing operations for all periods presented.

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

4. Deferred Costs
Deferred costs and other assets, net of amortization are as follows (in thousands):
 
June 30, 2020
 
December 31, 2019
 
(unaudited)
 
 
Leases in place, net
$
12,355

 
$
14,968

Ground lease sandwich interest, net
2,078

 
2,215

Tenant relationships, net
1,636

 
2,173

Lease origination costs, net
1,025

 
1,038

Legal and marketing costs, net
29

 
43

Other
1,748

 
588

    Total deferred costs and other assets, net
$
18,871

 
$
21,025

As of June 30, 2020 and December 31, 2019, the Company’s intangible accumulated amortization totaled $59.03 million and $57.15 million, respectively. During the three and six months ended June 30, 2020, the Company’s intangible amortization expense totaled $1.59 million and $3.45 million, respectively. During the three and six months ended June 30, 2019, the Company’s intangible amortization expense totaled $2.41 million and $5.04 million, respectively. Future amortization of lease origination costs, leases in place, legal and marketing costs, tenant relationships and ground lease sandwich interests is

16

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

as follows (in thousands, unaudited):
 
Leases In
Place, net
 
Ground Lease Sandwich Interest, net
 
Tenant
Relationships, net
 
 Lease
Origination
Costs, net
 
Legal &
Marketing
Costs, net
 
Total
For the remaining six months ending December 31, 2020
$
1,967

 
$
137

 
$
324

 
$
90

 
$
7

 
$
2,525

December 31, 2021
2,762

 
274

 
448

 
169

 
8

 
3,661

December 31, 2022
2,119

 
274

 
354

 
127

 
6

 
2,880

December 31, 2023
1,638

 
274

 
227

 
109

 
5

 
2,253

December 31, 2024
1,124

 
274

 
128

 
93

 
3

 
1,622

December 31, 2025
799

 
274

 
62

 
72

 

 
1,207

Thereafter
1,946

 
571

 
93

 
365

 

 
2,975

 
$
12,355

 
$
2,078

 
$
1,636

 
$
1,025

 
$
29

 
$
17,123


17

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


5. Loans Payable

The Company’s loans payable consist of the following (in thousands, except monthly payment):
Property/Description
 
Monthly Payment
 
Interest
Rate
 
Maturity
 
June 30,
 2020
 
December 31,
2019
 Rivergate
 
$
112,578

 
LIBOR + 295 basis points

 
June 2020
 
$
21,402

 
$
21,545

 Tuckernuck
 
Interest only

 
3.88
%
 
August 2020
 
5,278

 
5,344

 Columbia Fire Station (1)
 
$
25,580

 
4.00
%
 
September 2020
 
4,013

 
4,051

 First National Bank Line of Credit (7)
 
$
24,656

 
LIBOR + 300 basis points

 
September 2020
 
1,156

 
1,214

 Lumber River
 
$
10,723

 
LIBOR + 350 basis points

 
October 2020
 
1,390

 
1,404

 KeyBank Credit Agreement (6)
 
$
350,000

 
LIBOR + 350 basis points

 
December 2020
 
5,400

 
17,879

 JANAF Bravo
 
$
36,935

 
4.65
%
 
January 2021
 
6,336

 
6,372

 Walnut Hill Plaza
 
$
26,850

 
5.50
%
 
September 2022
 
3,730

 
3,759

 Litchfield Market Village
 
$
46,057

 
5.50
%
 
November 2022
 
7,418

 
7,452

 Twin City Commons
 
$
17,827

 
4.86
%
 
January 2023
 
2,950

 
2,983

 New Market
 
$
48,747

 
5.65
%
 
June 2023
 
6,612

 
6,713

 Benefit Street Note (3)
 
$
53,185

 
5.71
%
 
June 2023
 
7,308

 
7,361

 Deutsche Bank Note (2)
 
$
33,340

 
5.71
%
 
July 2023
 
5,604

 
5,642

 JANAF
 
$
333,159

 
4.49
%
 
July 2023
 
49,747

 
50,599

 Tampa Festival
 
$
50,797

 
5.56
%
 
September 2023
 
8,012

 
8,077

 Forrest Gallery
 
$
50,973

 
5.40
%
 
September 2023
 
8,304

 
8,381

 Riversedge North
 
$
11,436

 
5.77
%
 
December 2023
 
1,756

 
1,767

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

 
5.25
%
 
January 2024
 
11,576

 
11,675

 Cypress Shopping Center
 
$
34,360

 
4.70
%
 
July 2024
 
6,230

 
6,268

 Port Crossing
 
$
34,788

 
4.84
%
 
August 2024
 
5,971

 
6,032

 Freeway Junction
 
$
41,798

 
4.60
%
 
September 2024
 
7,655

 
7,725

 Harrodsburg Marketplace
 
$
19,112

 
4.55
%
 
September 2024
 
3,380

 
3,416

 Bryan Station
 
$
23,489

 
4.52
%
 
November 2024
 
4,360

 
4,394

 Crockett Square
 
Interest only

 
4.47
%
 
December 2024
 
6,338

 
6,338

 Pierpont Centre
 
$
39,435

 
4.15
%
 
February 2025
 
8,068

 
8,113

 Shoppes at Myrtle Park
 
$
33,180

 
4.45
%
 
February 2025
 
5,957

 

 Folly Road
 
$
41,482

 
4.65
%
 
March 2025
 
7,300

 
5,922

 Alex City Marketplace
 
 Interest only

 
3.95
%
 
April 2025
 
5,750

 
5,750

 Butler Square
 
 Interest only

 
3.90
%
 
May 2025
 
5,640

 
5,640

 Brook Run Shopping Center
 
 Interest only

 
4.08
%
 
June 2025
 
10,950

 
10,950

 Beaver Ruin Village I and II
 
 Interest only

 
4.73
%
 
July 2025
 
9,400

 
9,400

 Sunshine Shopping Plaza
 
 Interest only

 
4.57
%
 
August 2025
 
5,900

 
5,900

 Barnett Portfolio (4)
 
 Interest only

 
4.30
%
 
September 2025
 
8,770

 
8,770

 Fort Howard Shopping Center
 
 Interest only

 
4.57
%
 
October 2025
 
7,100

 
7,100

 Conyers Crossing
 
 Interest only

 
4.67
%
 
October 2025
 
5,960

 
5,960

 Grove Park Shopping Center
 
 Interest only

 
4.52
%
 
October 2025
 
3,800

 
3,800

 Parkway Plaza
 
 Interest only

 
4.57
%
 
October 2025
 
3,500

 
3,500

 Winslow Plaza
 
$
24,295

 
4.82
%
 
December 2025
 
4,598

 
4,620

 JANAF BJ's
 
$
29,964

 
4.95
%
 
January 2026
 
4,901

 
4,957

 Chesapeake Square
 
$
23,857

 
4.70
%
 
August 2026
 
4,317

 
4,354

 Berkley/Sangaree/Tri-County
 
Interest only

 
4.78
%
 
December 2026
 
9,400

 
9,400

 Riverbridge
 
Interest only

 
4.48
%
 
December 2026
 
4,000

 
4,000

 Franklin Village
 
$
45,336

 
4.93
%
 
January 2027
 
8,465

 
8,516

 Village of Martinsville
 
$
89,664

 
4.28
%
 
July 2029
 
16,197

 
16,351

 Laburnum Square
 
Interest only

 
4.28
%
 
September 2029
 
7,665

 
7,665

Total Principal Balance (1)
 
 
 
 
 
 
 
339,564

 
347,059

Unamortized debt issuance cost (1)
 
 
 
 
 
 
 
(3,936
)
 
(4,172
)
Total Loans Payable, including assets held for sale
 
 
 
 
 
 
 
335,628

 
342,887

Less loans payable on assets held for sale, net loan amortization costs
 
 
 
 
4,013

 
1,974

Total Loans Payable, net
 
 
 
 
 
 
 
$
331,615

 
$
340,913

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

18

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


KeyBank Credit Agreement
 
As of June 30, 2020, the Company has borrowed $5.40 million under the Amended and Restated Credit Agreement ("KeyBank Credit Agreement") with KeyBank National Association ("KeyBank"), which is collateralized by five properties. At June 30, 2020, the outstanding borrowings are accruing interest at 3.67%.

The KeyBank Credit Agreement had the following activity during the six months ended June 30, 2020:
Entered into the Second Amendment to the KeyBank Credit Agreement (the "Second Amendment") on January 24, 2020, effective December 21, 2019, and the Company began making monthly principal payments of $350 thousand on November 1, 2019. The Second Amendment, among other provisions, requires a pledge of additional collateral of $15.00 million in residual equity interests and fully matures on June 30, 2020.
Entered into a Third Amendment to the KeyBank Credit Agreement (the "Third Amendment") on July 21, 2020. The Third Amendment, among other provisions, reduces the pledge of additional collateral by two properties and extends the maturity to December 31, 2020.
The KeyBank Credit Agreement had principal paydowns as noted below:
$1.78 million paydown from St. Matthews sale proceeds on January 21, 2020;
$5.75 million paydown from Shoppes at Myrtle Park refinancing proceeds on January 23, 2020; and
$2.50 million paydown from cash released to the Company from restricted cash accounts on May 20, 2020.

Shoppes at Myrtle Park Refinance

On January 23, 2020, the Company refinanced the Shoppes at Myrtle Park collateralized portion of the KeyBank Credit Agreement for $6.00 million at a fixed interest rate of 4.45%, resulting in a paydown of $5.75 million on the KeyBank Credit Agreement. The loan matures in February 2025 with monthly principal and interest payments of $33 thousand.

Rivergate Extension

Subsequent to June 30, 2020, the Company entered into an agreement to extend the maturity date from June 2020 to October 20, 2020 with monthly principal and interest payments of $48 thousand plus accrued and unpaid interest resuming August 1, 2020.

Folly Road Refinance

On March 23, 2020, the Company executed a promissory note for $7.35 million for the refinancing of Folly Road at a rate of 4.65%. The loan matures in March 2025 with monthly principal and interest payments of $41 thousand.

Columbia Fire Station Extension
    
On May 4, 2020, the Company extended the Columbia Fire Station promissory note ("Columbia Fire Station Loan") to September 3, 2020, with principal and interest payments resuming on July 3, 2020 in the amount of $26 thousand. The Columbia Fire Station Loan continues to bear interest at 4.00%.

Tuckernuck Extension

On May 22, 2020, the Company entered into an agreement to extend the Tuckernuck promissory note ("Tuckernuck Loan") to August 1, 2020, with 3-month forbearance of principal. The Tuckernuck Loan continues to bear interest at 3.88%.



19

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


Debt Maturity

The Company’s scheduled principal repayments on indebtedness as of June 30, 2020, including assets held for sale, are as follows (in thousands, unaudited):
For the remaining six months ended December 31, 2020
$
41,053

December 31, 2021
11,333

December 31, 2022
16,080

December 31, 2023
85,576

December 31, 2024
44,240

December 31, 2025
91,426

Thereafter
49,856

    Total principal repayments and debt maturities
$
339,564

 

The Company has considered its short-term (one year or less) liquidity needs and the adequacy of its estimated cash flows from operating activities and other expected financing sources to meet these needs. In particular, the Company has considered its scheduled debt maturities for the twelve months ending June 30, 2021 of $49.85 million. The Company plans to pay this obligation through a combination of refinancings, dispositions and operating cash. All loans due to mature are collateralized by properties within the portfolio. Additionally, the Company expects to meet the short-term liquidity requirements, through a combination of the following:

continued suspension of Series A Preferred, Series B Preferred and Series D Preferred dividends;
available cash and cash equivalents;
cash flows from operating activities;
refinancing of maturing debt;
loan forbearance;
possible sale of six undeveloped land parcels; and
sale of additional properties, if necessary.

6. Rentals under Operating Leases

Future minimum rents to be received under noncancelable tenant operating leases, excluding rents on assets held for sale properties, for each of the next five years and thereafter, excluding CAM and percentage rent based on tenant sales volume, as of June 30, 2020 are as follows (in thousands, unaudited): 
For the remaining six months ended December 31, 2020
$
23,010

December 31, 2021
42,654

December 31, 2022
37,062

December 31, 2023
30,949

December 31, 2024
24,050

December 31, 2025
17,672

Thereafter
40,927

    Total minimum rents
$
216,324


20

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


7. Equity and Mezzanine Equity

Series A Preferred Stock
    
At June 30, 2020 and December 31, 2019, the Company had 562 shares of Series A Preferred Stock, without par value (“Series A Preferred”) issued and outstanding and 4,500 shares authorized 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 or accumulated 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 June 30, 2020 and December 31, 2019, the Company had 1,875,748 shares and 5,000,000 shares of Series B Convertible Preferred Stock, without par value (“Series B Preferred”) issued and authorized with a $25.00 liquidation preference per share, or $46.90 million in aggregate. The Series B Preferred bears interest at a rate of 9% per annum. The Series B Preferred has no redemption rights. However, the Series B Preferred is subject to a mandatory conversion once the 20-trading day volume-weighted average closing price of our Common Stock, exceeds $58 per share; once this weighted average closing price is met, each share of our Series B Preferred will automatically convert into shares of our Common Stock at a conversion price equal to $40.00 per share of Common Stock. In addition, holders of our Series B Preferred also have the option, at any time, to convert shares of our Series B Preferred 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 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 B Preferred has no maturity date and will remain outstanding indefinitely unless subject to a mandatory or voluntary conversion as described above.

Series D Preferred Stock - Redeemable Preferred Stock

At June 30, 2020 and December 31, 2019, the Company had 3,600,636 issued and 4,000,000 authorized shares of Series D Cumulative Convertible Preferred Stock, without par value ("Series D Preferred") with a $25.00 liquidation preference per share, or $106.50 million and $101.66 million in aggregate, respectively. Until September 21, 2023, the holders of the Series D Preferred 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, for cash 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. The holder of the Series D Preferred 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 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.

Dividends on the Series D Preferred cumulate from the end of the most recent dividend period for which dividends have been paid. Dividends on the Series D Preferred cumulate whether or not (i) we have earnings, (ii) there are funds legally available for the payment of such dividends and (iii) such dividends are authorized by our Board of Directors or declared by us. Dividends on the Series D Preferred Stock do not bear interest. If the Company, fails to pay any dividend within three (3) business days after the payment date for such dividend, the then-current dividend rate increases following the payment date by an additional 2.0% of the $25.00 stated liquidation preference per share, or $0.50 per annum, until we pay the dividend, subject to our ability to cure the failure. On December 20, 2018, the Company suspended the Series D Preferred dividend. As such, the Series D Preferred shares began accumulating dividends at 10.75% beginning January 1, 2019 and will continue to accumulate dividends at this rate until all accumulated dividends have been paid.


21

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

Holders of shares of the Series D Preferred have no voting rights. Pursuant to the Company’s Articles Supplementary, if dividends on the Series D Preferred are in arrears for six or more consecutive quarterly periods (a “ Preferred Dividend Default”), the number of directors on our Board of Directors will automatically be increased by two, and holders of shares of the Series D Preferred and the holders of Series A Preferred and Series B Preferred (the Series A Preferred and Series B Preferred together, being the “Parity Preferred Stock”), shall be entitled to vote for the election of two additional directors (the “Series D Preferred Directors”). A Preferred Dividend Default occurred on April 15, 2020. The election of such directors will take place upon the written request of the holders of record of at least 20% of the Series D Preferred Stock and Parity Preferred Stock. The Board of Directors is not permitted to fill the vacancies on the Board of Directors as a result of the failure of the holders of 20% of the Series D Preferred Stock and Parity Preferred Stock to deliver such written request for the election of the Series D Preferred Directors. The Series D Preferred Directors may serve on our Board of Directors, until all unpaid dividends on such Series D Preferred and Parity Preferred Stock, if any, have been paid or declared and a sum sufficient for the payment thereof set apart for payment.

The changes in the carrying value of the Series D Preferred for the three and six months ended June 30, 2020 and 2019 are as follows (in thousands, unaudited):

 
Series D Preferred
 
(unaudited)
Balance December 31, 2019
$
87,225

   Accretion of Preferred Stock discount
148

   Undeclared dividends
2,419

Balance March 31, 2020
89,792

   Accretion of Preferred Stock discount
149

   Undeclared dividends
2,419

Balance June 30, 2020
$
92,360

 
Series D Preferred
 
(unaudited)
Balance December 31, 2018
$
76,955

   Accretion of Preferred Stock discount
148

   Undeclared dividends
2,419

Balance March 31, 2019
79,522

   Accretion of Preferred Stock discount
149

   Undeclared dividends
2,419

Balance June 30, 2019
$
82,090


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 income (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 income (loss) attributable to noncontrolling interests, by the weighted-average number of common shares including any dilutive shares.

As of June 30, 2020, the below shares are able to be converted to Common Stock. The common units, convertible preferred stock and cumulative convertible preferred stock have been excluded from the Company’s diluted earnings per share calculation because their inclusion would be antidilutive.

22

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

 
 
June 30, 2020
 
 
Outstanding shares
 
Potential Dilutive Shares
 
 
(unaudited)
Common units
 
232,404

 
232,404

Series B Preferred Stock
 
1,875,748

 
1,172,343

Series D Preferred Stock
 
3,600,636

 
5,307,541


Dividends

The following table summarizes the preferred stock dividends (unaudited, in thousands except for per share amounts):
    
 
 
Series A Preferred
 
Series B Preferred
 
Series D Preferred
Record Date/Arrears Date
 
Arrears
Per Share
 
Arrears
Per Share
 
Arrears
Per Share
For the three months ended June 30, 2020
 
$
13

22.50

 
$
1,055

0.56

 
$
2,419

0.67

For the six months ended June 30, 2020
 
$
26

22.50

 
$
2,110

0.56

 
$
4,838

0.67

 
 
 
 
 
 
 
 
 
 
For the three months ended June 30, 2019
 
$
13

22.50

 
$
1,055

0.56

 
$
2,419

0.67

For the six months ended June 30, 2019
 
$
26

22.50

 
$
2,110

0.56

 
$
4,838

0.67


The total cumulative dividends in arrears for Series A Preferred (per share $157.50), Series B Preferred (per share $3.92) and Series D Preferred (per share $4.58) as of June 30, 2020 is $23.96 million.
 
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. The 2015 Incentive Plan replaced the 2012 Stock Incentive Plan.

As of June 30, 2020, there are 41,104 shares available for issuance under the Company’s 2015 Incentive Plan. There were no shares issued during the three and six months ended June 30, 2020 and 2019.

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.
For the Six Months Ended June 30,
 
Shares Issued
 
Market Value
 
 
(in thousands except for share amounts, unaudited)
2019
 
181,807

 
166


As of June 30, 2020, there are 132,707 shares available for issuance under the Company’s 2016 Incentive Plan. There were no shares issued during the three and six months ended June 30, 2020.

8. Leases Commitments

The Company has ground leases that are accounted for as operating leases. The Charleston, SC lease ended August 31, 2019 and was accounted for as an operating lease. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 5 to 50 years. As of June 30, 2020 and 2019, the weighted average remaining lease term of our leases is 34 and 35 years, respectively. The following properties are subject to leases which require the Company to make

23

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


fixed annual rental payments and variable lease payments, which are immaterial and include escalation clauses and renewal options as follows (unaudited, in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Expiration Year
Amscot
$
7

 
$
6

 
$
13

 
$
12

2045
Beaver Ruin Village
13

 
13

 
27

 
27

2054
Beaver Ruin Village II
5

 
5

 
11

 
11

2056
Leased office space Charleston, SC

 
25

 

 
50

2019
Moncks Corner
31

 
31

 
61

 
61

2040
Devine Street (1)
99

 
99

 
198

 
198

2051
JANAF (2)
72

 
68

 
143

 
135

2069
    Total ground leases
$
227

 
$
247

 
$
453

 
$
494

 
(1) Lease options are exercised through 2035 with options which are reasonably certain to be exercised through 2051.
(2) Includes $35 thousand and $69 thousand in variable percentage rent, during the three and six months ended June 30, 2020, respectively. Includes $31 thousand and $61 thousand in variable percentage rent, during the three and six months ended June 30, 2019, respectively.

Supplemental information related to leases is as follows (in thousands, unaudited):
 
Three Months Ended
June 30, 2020
 
Six Months Ended
June 30, 2020
Cash paid for amounts included in the measurement of operating lease liabilities
$
145

 
$
291

Leased assets obtained in exchange for new operating lease liabilities
$

 
$