SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
þ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
For the fiscal year ended December 31, 2021
☐ 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)
|(State or Other Jurisdiction of|
Incorporation or Organization)
| ||(I.R.S. Employer|
2529 Virginia Beach Blvd.,
Virginia Beach, Virginia
|(Address of Principal Executive Offices)|| ||(Zip Code)|
(Registrant’s Telephone Number, Including Area Code)
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
|7.00% Senior Subordinated Convertible Notes due 2031||WHLRL|
Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.:
|Large accelerated file|| |
|Non-accelerated filer|| |
|Smaller reporting company|
|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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
As of June 30, 2021, the last trading day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was $36,779,197, based on the closing price of the registrant’s Common Stock on such date as reported on the Nasdaq Capital Market. For the purposes of this computation, shares held by directors and executive officer of the registrant have been excluded. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant.
As of February 24, 2022, there were 9,720,532 shares of Common Stock, $0.01 par value per share, outstanding.
Documents Incorporated by Reference
Portions of the registrant’s Proxy Statement for its 2022 Meeting to be filed with the Securities and Exchange Commission not later than 120 days after the end of the year covered by this Annual Report are incorporated by reference into Part III of this Annual Report.
Table of Contents
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K ("Form 10-K") of Wheeler Real Estate Investment Trust, Inc. (the "Company" or "our Company") contains forward-looking statements that are subject to risk and uncertainties. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” or the negative of such terms and variations of these words and similar expressions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are cautioned to not place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Form 10-K. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.
Factors that could cause actual results to differ materially from any forward-looking statements made in this Form 10-K include:
•the ongoing adverse effect of the COVID-19 pandemic, and federal, state, and/or local regulatory guidelines and private business actions to control it, on the Company’s financial condition, operating results and cash flows, the Company’s tenants and their customers, the use of and demand for retail space, the real estate market in which the Company operates, the U.S. economy, the global economy and the financial markets;
•general and economic business conditions, including those affecting the ability of individuals to spend in retail shopping centers and/or the rate and other terms on which we are able to lease our properties;
•availability, terms and deployment of capital;
general volatility of the capital markets and the market price of our common and preferred stock;
•the degree and nature of our competition;
•changes in governmental regulations, accounting rules, tax rates and similar matters;
•adverse economic or real estate developments in our markets of Virginia, Florida, Georgia, Alabama, South Carolina, North Carolina, Oklahoma, Kentucky, Tennessee, West Virginia, New Jersey and Pennsylvania;
•increases in the Company’s financing and other costs as a result of changes in interest rates and other factors, including the expected discontinuation of the London Interbank Offered Rate (“LIBOR”);
•changes in our ability to obtain and maintain financing;
•damage to the Company’s properties from catastrophic weather and other natural events, and the physical effects of climate change;
•information technology security breaches;
•the Company’s ability and willingness to maintain its qualification as a REIT in light of economic, market, legal, tax and other considerations;
•the ability of our operating partnership, Wheeler REIT, L.P. (the "Operating Partnership") and each of our other partnerships and limited liability companies to be classified as partnerships or disregarded entities for federal income tax purposes;
•the impact of e-commerce on our tenants’ business; and
•inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws.
Forward-looking statements should be read in light of these factors.
Item 1. Business.
Wheeler Real Estate Investment Trust, Inc. (the “Trust”, the “REIT”, the “Company”, "we", "our" or "us") 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. Substantially, all of our assets are held by, and all of our operations are conducted through, our Operating Partnership. At December 31, 2021, the Company owned 98.59% of the Operating Partnership. The Company is a fully-integrated, self-managed commercial real estate investment company that owns, leases and operates income-producing retail properties with a primary focus on grocery-anchored centers.
For additional information on recent business developments, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K.
Our corporate office is located at 2529 Virginia Beach Boulevard, Virginia Beach, Virginia 23452. Our telephone number is (757) 627-9088. Our registrar and stock transfer agent is Computershare Trust Company, N.A. and may be contacted at 250 Royall Street, Canton, MA 02021 or their website, www.computershare.com.
Our portfolio contains retail properties in secondary and tertiary markets, with a particular emphasis on grocery-anchored retail centers. Our properties are in communities that have stable demographics and have historically exhibited favorable trends, such as strong population and income growth. We generally lease our properties to national and regional retailers that offer consumer goods and services and generate regular consumer traffic. We believe our tenants carry goods and offer services that are less impacted by fluctuations in the broader U.S. economy and consumers’ disposable income, generating more predictable property level cash flows.
The Company’s portfolio of properties is dependent upon regional and local economic conditions. As of December 31, 2021, we own a portfolio consisting of sixty-two properties, including fifty-eight retail shopping centers, totaling 5,478,855 leasable square feet which is 94.2% leased (our "operating portfolio"), and four undeveloped land parcels totaling approximately 61 acres. The properties are geographically located in the Southeast, Mid-Atlantic and Northeast, which markets represented approximately 62%, 34% and 4%, respectively, of the total annualized base rent of the properties in its portfolio as of December 31, 2021.
No tenant represents greater than approximately 10% of the Company’s annualized base rent or 10% of gross leasable square footage. The top 10 tenants account for 29.06% or $14.01 million of annualized base rent and 33.96% or 1.86 million of gross leasable square footage at December 31, 2021.
Management Team and Human Capital
Andrew Franklin, age 41, served as Chief Executive Officer (the "CEO") since October 2021 and has over twenty-three years of commercial real estate experience. Mr. Franklin joined the Company in 2014 and held the position of interim CEO since July 2021 and prior to this role was the Company's Chief Operating Officer. Prior to joining the Company, Mr. Franklin was a partner with Broad Reach Retail Partners, LLC where he ran the day-to-day operations, managed the leasing team as well as oversaw the asset, property and construction management of the portfolio with assets totaling $50 million. Mr. Franklin is a graduate of the University of Maryland, with a Bachelor of Science degree in Finance.
Crystal Plum, age 40, served as Chief Financial Officer (the "CFO") since February 2020 and first joined the Company in 2016. Prior to her appointment as CFO, Ms. Plum most recently served as the Vice President of Financial Reporting and Corporate Accounting for the Company. Prior to that time, she served as Manager at Dixon Hughes Goodman LLP from September 2014 to August 2016 and as Supervisor at Dixon Hughes Goodman LLP from 2008 to September 2014. Ms. Plum has experience reviewing and performing audits, reviews, compilations and tax engagements for a diverse group of clients, as
well as banking experience. Ms. Plum is a Certified Public Accountant and has a Bachelor of Science degree in Accounting and Finance from Old Dominion University.
As of December 31, 2021, we have 36 full-time employees. Our management team has experience and capabilities across the real estate sector with experience in all aspects of the commercial real estate industry, specifically in our target/existing markets. Employees are offered flexibility to meet personal and family needs, which was further expanded when the COVID-19 pandemic began. In addition to exceptional medical insurance support, the Company offers wellness programs including free short and long term disability insurance, free employee assistance programs that includes emotional health support, free gym memberships, volunteer time off and tuition assistance.
Business Objectives and Investment Strategy
Our primary business objective is to provide attractive risk-adjusted returns to our stockholders. We intend to achieve this objective utilizing the following investment strategies:
•Focus on necessity-based retail. Own and operate retail properties that serve the essential day-to-day shopping needs of the surrounding communities. These necessity-based centers attract high levels of daily traffic resulting in cross-selling of goods and services from our tenants. The majority of our tenants provide non-cyclical consumer goods and services that are less impacted by fluctuations in the economy. We believe these centers that provide essential goods and services such as groceries and electric vehicle charging stations result in a stable, lower-risk portfolio of retail investment properties.
•Focus on secondary and tertiary markets with strong demographics and demand. Our properties are in markets that have strong demographics such as population density, population growth, stable tenant sales trends and growth in household income. We seek to identify new tenants and renew leases with existing tenants in these locations that support the need for necessity-based retail and limited new supply.
•Increase operating income through leasing strategies and expense management. We employ intensive lease management strategies to optimize occupancy. Management has strong expertise in acquiring and managing under-performing properties and increasing operating income through more effective leasing strategies and expense management. Our leases generally require the tenant to reimburse us for a substantial portion of the expenses incurred in operating, maintaining, repairing, and managing the shopping center and the common areas, along with the associated insurance costs and real estate taxes. In many cases the tenant is either fully or partially responsible for all maintenance of the property, thereby limiting our financial exposure towards maintaining the center and increasing our net income. We refer to this arrangement as a “triple net lease.”
•Selectively utilize our capital to improve retail properties. We intend to make capital investments where the return on such capital is accretive to our stockholders. We allocate capital to value-added improvements of retail properties to increase rents, extend long-term leases with anchor tenants and increase occupancy. We selectively allocate capital to revenue enhancing projects that we believe will improve the market position of a given property.
•Recycling and sensible management of capital structure. We intend to sell non-income producing land parcels utilizing sales proceeds to deleverage the balance sheet. In addition, we intend to monetize assets to redeploy the capital to further deleverage and strengthen the balance sheet. In 2021, we sold two land parcels, two properties and an out parcel for a total of $11.51 million net proceeds which were used to reduce outstanding indebtedness. Additional properties may be slated for disposition based upon management’s periodic review of our portfolio, and the determination by our Board of Directors.
Governmental Regulations Affecting Our Properties
We and our properties are subject to a variety of federal, state and local environmental, health, safety and similar laws. The application of these laws to a specific property that we own depends on a variety of property-specific circumstances, including the current and former uses of the property, the building materials used at the property and the physical layout of the property. Neither existing environmental, health, safety and similar laws nor the costs of our compliance with these laws has had a material adverse effect on our financial condition or results of operations, and management does not believe they will in the future. In addition, we have not incurred, and do not expect to incur, any material costs or liabilities due to environmental
contamination at properties we currently own or have owned in the past. However, we cannot predict the impact of new or changed laws or regulations on properties we currently own or may acquire in the future. We have no current plans for substantial capital expenditures with respect to compliance with environmental, health, safety and similar laws and we carry environmental insurance that covers a number of environmental risks for most of our properties.
Numerous commercial developers and real estate companies compete with us with respect to the leasing of properties. Some of these competitors may possess greater capital resources than we do, although we do not believe that any single competitor or group of competitors in any of the primary markets where our properties are located are dominant in that market. This competition may interfere with our ability to attract and retain tenants, leading to increased vacancy rates and/or reduced rents and adversely affect our ability to minimize operating expenses.
Retailers at our properties also face increasing competition from online retailers, outlet stores, discount shopping clubs, superstores, and other forms of sales and marketing of goods and services, such as direct mail. This competition could contribute to lease defaults and insolvency of tenants.
Company Website Access and SEC Filings
We are subject to the information reporting requirements of the Exchange Act. Pursuant to those requirements, we are required to file annual and periodic reports, proxy statements and other information, including audited consolidated financial statements, with the SEC which can be found at http://www.sec.gov.
Additionally, we make available free of charge through our website http://www.whlr.us our most recent Annual Report on Form 10-K, including our audited consolidated financial statements, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission (the “SEC”). In addition, we have posted the Charters of our Audit Committee, Compensation Committee, and Governance and Nominating Committee, as well as our Code of Business Conduct and Ethics for Employees, Officers, Agents and Representatives, Code of Business Conduct and Ethics for Members of the Board of Directors, Corporate Governance Principles, including guidelines on director independence, and Insider Trading Policy, all under separate headings. The content of our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our website is intended to be inactive textual references only.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
At December 31, 2021, we owned sixty-two properties, including fifty-eight income producing properties located in Virginia, North Carolina, South Carolina, Florida, Georgia, Kentucky, Tennessee, Alabama, New Jersey, Pennsylvania and West Virginia, containing a total of 5,478,855 gross leasable square feet of retail space, which we refer to as our operating portfolio. Additionally, we owned four undeveloped land parcels located in Virginia, North Carolina and Oklahoma. The following table presents an overview of our properties, based on information as of December 31, 2021.
Total SF Occupied
Base Rent (in 000's) (2)
Annualized Base Rent per Occupied Sq. Foot
|Alex City Marketplace||Alexander City, AL||19 ||151,843 ||100.0 ||%||100.0 ||%||151,843 ||$||1,201 ||$||7.91 |
|Amscot Building||Tampa, FL||1 ||2,500 ||100.0 ||%||100.0 ||%||2,500 ||83 ||33.00 |
|Beaver Ruin Village||Lilburn, GA||30 ||74,038 ||96.8 ||%||96.8 ||%||71,648 ||1,250 ||17.44 |
|Beaver Ruin Village II||Lilburn, GA||4 ||34,925 ||100.0 ||%||100.0 ||%||34,925 ||460 ||13.16 |
|Brook Run Shopping Center||Richmond, VA||19 ||147,738 ||87.8 ||%||48.2 ||%||71,237 ||877 ||12.32 |
|Brook Run Properties (3)||Richmond, VA||— ||— ||— ||%||— ||%||— ||— ||— |
|Bryan Station||Lexington, KY||10 ||54,277 ||100.0 ||%||100.0 ||%||54,277 ||597 ||11.00 |
|Butler Square||Mauldin, SC||16 ||82,400 ||98.2 ||%||98.2 ||%||80,950 ||855 ||10.57 |
|Cardinal Plaza||Henderson, NC||9 ||50,000 ||100.0 ||%||100.0 ||%||50,000 ||502 ||10.03 |
|Chesapeake Square||Onley, VA||14 ||108,982 ||99.1 ||%||99.1 ||%||108,016 ||823 ||7.62 |
|Clover Plaza||Clover, SC||10 ||45,575 ||100.0 ||%||100.0 ||%||45,575 ||378 ||8.30 |
|Courtland Commons (3)||Courtland, VA||— ||— ||— ||%||— ||%||— ||— ||— |
|Conyers Crossing||Conyers, GA||14 ||170,475 ||100.0 ||%||100.0 ||%||170,475 ||940 ||5.51 |
|Crockett Square||Morristown, TN||4 ||107,122 ||100.0 ||%||100.0 ||%||107,122 ||970 ||9.06 |
|Cypress Shopping Center||Boiling Springs, SC||17 ||80,435 ||41.2 ||%||41.2 ||%||33,175 ||452 ||13.62 |
|Darien Shopping Center||Darien, GA||1 ||26,001 ||100.0 ||%||100.0 ||%||26,001 ||140 ||5.38 |
|Devine Street||Columbia, SC||1 ||38,464 ||89.1 ||%||89.1 ||%||34,264 ||180 ||5.25 |
|Edenton Commons (3)||Edenton, NC||— ||— ||— ||%||— ||%||— ||— ||— |
|Folly Road||Charleston, SC||5 ||47,794 ||100.0 ||%||100.0 ||%||47,794 ||731 ||15.30 |
|Forrest Gallery||Tullahoma, TN||27 ||214,451 ||91.1 ||%||80.8 ||%||173,289 ||1,285 ||7.42 |
|Fort Howard Shopping Center||Rincon, GA||19 ||113,652 ||95.1 ||%||95.1 ||%||108,120 ||1,046 ||9.68 |
|Freeway Junction||Stockbridge, GA||17 ||156,834 ||97.1 ||%||97.1 ||%||152,249 ||1,304 ||8.56 |
|Franklin Village||Kittanning, PA||25 ||151,821 ||100.0 ||%||98.7 ||%||149,821 ||1,274 ||8.50 |
|Franklinton Square||Franklinton, NC||15 ||65,366 ||100.0 ||%||100.0 ||%||65,366 ||591 ||9.05 |
|Georgetown||Georgetown, SC||2 ||29,572 ||100.0 ||%||100.0 ||%||29,572 ||267 ||9.04 |
|Grove Park Shopping Center||Orangeburg, SC||15 ||93,265 ||100.0 ||%||100.0 ||%||93,265 ||745 ||7.99 |
|Harbor Point (3)||Grove, OK||— ||— ||— ||%||— ||%||— ||— ||— |
|Harrodsburg Marketplace||Harrodsburg, KY||8 ||60,048 ||91.0 ||%||91.0 ||%||54,648 ||451 ||8.25 |
|JANAF (4)||Norfolk, VA||118 ||798,086 ||95.3 ||%||93.1 ||%||743,314 ||8,715 ||11.73 |
|Laburnum Square||Richmond, VA||19 ||109,405 ||95.3 ||%||95.3 ||%||104,305 ||950 ||9.11 |
|Ladson Crossing||Ladson, SC||16 ||52,607 ||100.0 ||%||100.0 ||%||52,607 ||535 ||10.17 |
|LaGrange Marketplace||LaGrange, GA||13 ||76,594 ||96.9 ||%||96.9 ||%||74,194 ||433 ||5.84 |
|Lake Greenwood Crossing||Greenwood, SC||8 ||43,618 ||100.0 ||%||100.0 ||%||43,618 ||362 ||8.30 |
|Lake Murray||Lexington, SC||5 ||39,218 ||100.0 ||%||100.0 ||%||39,218 ||255 ||6.50 |
|Litchfield Market Village||Pawleys Island, SC||21 ||86,740 ||90.8 ||%||90.8 ||%||78,797 ||960 ||12.19 |
|Lumber River Village||Lumberton, NC||11 ||66,781 ||98.2 ||%||98.2 ||%||65,581 ||452 ||6.89 |
|Moncks Corner||Moncks Corner, SC||1 ||26,800 ||100.0 ||%||100.0 ||%||26,800 ||323 ||12.07 |
|Nashville Commons||Nashville, NC||11 ||56,100 ||92.0 ||%||92.0 ||%||51,600 ||584 ||11.32 |
|New Market Crossing||Mt. Airy, NC||11 ||117,076 ||90.3 ||%||90.3 ||%||105,738 ||951 ||8.99 |
|Parkway Plaza||Brunswick, GA||4 ||52,365 ||81.7 ||%||81.7 ||%||42,785 ||353 ||8.25 |
Total SF Occupied
Base Rent (in 000's) (2)
Annualized Base Rent per Occupied Sq. Foot
|Pierpont Centre||Morgantown, WV||17 ||111,162 ||97.2 ||%||97.2 ||%||108,001 ||$||996 ||$||9.22 |
|Port Crossing||Harrisonburg, VA||7 ||65,365 ||100.0 ||%||100.0 ||%||65,365 ||847 ||12.96 |
|Ridgeland||Ridgeland, SC||1 ||20,029 ||100.0 ||%||100.0 ||%||20,029 ||140 ||7.00 |
|Riverbridge Shopping Center||Carrollton, GA||10 ||91,188 ||94.7 ||%||94.7 ||%||86,388 ||692 ||8.01 |
|Rivergate Shopping Center||Macon, GA||24 ||193,960 ||87.0 ||%||87.0 ||%||168,816 ||2,450 ||14.51 |
|Sangaree Plaza||Summerville, SC||10 ||66,948 ||100.0 ||%||100.0 ||%||66,948 ||707 ||10.56 |
|Shoppes at Myrtle Park||Bluffton, SC||13 ||56,601 ||97.3 ||%||97.3 ||%||55,084 ||653 ||11.86 |
|South Lake||Lexington, SC||10 ||44,318 ||97.3 ||%||97.3 ||%||43,118 ||239 ||5.54 |
|South Park||Mullins, SC||4 ||60,734 ||96.9 ||%||96.9 ||%||58,834 ||381 ||6.48 |
|South Square||Lancaster, SC||6 ||44,350 ||81.0 ||%||81.0 ||%||35,900 ||302 ||8.40 |
|St. George Plaza||St. George, SC||7 ||59,174 ||96.3 ||%||96.3 ||%||56,999 ||396 ||6.95 |
|Sunshine Plaza||Lehigh Acres, FL||23 ||111,189 ||100.0 ||%||100.0 ||%||111,189 ||1,089 ||9.80 |
|Surrey Plaza||Hawkinsville, GA||3 ||42,680 ||96.5 ||%||96.5 ||%||41,180 ||247 ||6.00 |
|Tampa Festival||Tampa, FL||19 ||137,987 ||97.7 ||%||64.6 ||%||89,166 ||910 ||10.21 |
|Tri-County Plaza||Royston, GA||6 ||67,577 ||88.8 ||%||88.8 ||%||59,977 ||420 ||7.00 |
|Tuckernuck||Richmond, VA||16 ||93,624 ||98.0 ||%||98.0 ||%||91,745 ||971 ||10.58 |
|Twin City Commons||Batesburg-Leesville, SC||5 ||47,680 ||100.0 ||%||100.0 ||%||47,680 ||478 ||10.03 |
|Village of Martinsville||Martinsville, VA||20 ||290,902 ||96.6 ||%||96.6 ||%||280,946 ||2,177 ||7.74 |
|Walnut Hill Plaza||Petersburg, VA||6 ||87,239 ||38.1 ||%||38.1 ||%||33,225 ||279 ||8.41 |
|Waterway Plaza||Little River, SC||10 ||49,750 ||100.0 ||%||100.0 ||%||49,750 ||499 ||10.02 |
|Westland Square||West Columbia, SC||10 ||62,735 ||95.7 ||%||95.7 ||%||60,065 ||443 ||7.38 |
|Winslow Plaza||Sicklerville, NJ||18 ||40,695 ||100.0 ||%||100.0 ||%||40,695 ||641 ||15.75 |
|785 ||5,478,855 ||94.2 ||%||91.6 ||%||5,015,789 ||$||48,232 ||$||9.62 |
(1) Reflects leases executed through January 5, 2022 that commence subsequent to the end of the current reporting period.
(2) Annualized based rent per occupied square foot, assumes base rent as of the end of the current reporting period, excludes the impact of tenant concessions and rent abatements.
(3) This information is not available because the property is undeveloped.
(4) Square footage is net of the Company's on-premise management office and net of building square footage whereby the Company only leases the land.
The following table sets forth information regarding the ten largest tenants in our operating portfolio based on annualized base rent as of December 31, 2021.
|Tenants||Annualized Base Rent|
($ in 000s)
|% of Total Annualized Base Rent||Total Occupied Square Feet||Percent Total Leasable Square Foot||Base Rent Per Occupied Square Foot|
|Food Lion||$||4,428 ||9.18 ||%||551,469 ||10.07 ||%||$||8.03 |
Kroger Co. (1)
|1,948 ||4.04 ||%||226,010 ||4.13 ||%||8.62 |
|Piggly Wiggly||1,488 ||3.09 ||%||202,968 ||3.70 ||%||7.33 |
Dollar Tree (2)
|1,192 ||2.47 ||%||148,605 ||2.71 ||%||8.02 |
Lowes Foods (3)
|1,181 ||2.45 ||%||130,036 ||2.37 ||%||9.08 |
|Winn Dixie||887 ||1.84 ||%||133,575 ||2.44 ||%||6.64 |
|Planet Fitness||837 ||1.74 ||%||100,427 ||1.83 ||%||8.33 |
|Hobby Lobby||717 ||1.49 ||%||114,298 ||2.09 ||%||6.27 |
|Big Lots||679 ||1.41 ||%||105,674 ||1.93 ||%||6.43 |
|BJ'S Wholesale Club||651 ||1.35 ||%||147,400 ||2.69 ||%||4.42 |
|$||14,008 ||29.06 ||%||1,860,462 ||33.96 ||%||$||7.53 |
(1) Kroger 4 / Harris Teeter 1
(2) Dollar Tree 9 / Family Dollar 6
(3) Lowes Foods 1 / KJ's Market 2
The following table sets forth information with respect to the lease expirations of our properties as of December 31, 2021.
|Lease Expiration Period||Number of Expiring Leases||Total Expiring Square Footage||% of Total Expiring Square Footage||% of Total Occupied Square Footage Expiring||Expiring Annualized Base Rent (in 000s) ||% of Total Annualized Base Rent||Expiring Base Rent Per Occupied|
|Available||— ||463,066 ||8.45 ||%||— ||%||$||— ||— ||%||$||— |
|Month-to-Month||7 ||13,489 ||0.25 ||%||0.27 ||%||211 ||0.44 ||%||15.64 |
|2022||105 ||323,894 ||5.91 ||%||6.46 ||%||3,439 ||7.13 ||%||10.62 |
|2023||131 ||817,131 ||14.91 ||%||16.29 ||%||7,107 ||14.74 ||%||8.70 |
|2024||141 ||749,944 ||13.69 ||%||14.95 ||%||7,358 ||15.26 ||%||9.81 |
|2025||120 ||867,537 ||15.83 ||%||17.30 ||%||8,517 ||17.66 ||%||9.82 |
|2026||121 ||830,542 ||15.16 ||%||16.56 ||%||8,207 ||17.02 ||%||9.88 |
|2027||59 ||325,704 ||5.94 ||%||6.49 ||%||3,639 ||7.54 ||%||11.17 |
|2028||22 ||335,606 ||6.13 ||%||6.69 ||%||2,376 ||4.93 ||%||7.08 |
|2029||20 ||150,962 ||2.76 ||%||3.01 ||%||1,479 ||3.07 ||%||9.80 |
|2030||15 ||249,357 ||4.55 ||%||4.97 ||%||1,997 ||4.14 ||%||8.01 |
|2031 and thereafter||44 ||351,623 ||6.42 ||%||7.01 ||%||3,902 ||8.07 ||%||11.10 |
|Total||785 ||5,478,855 ||100.00 ||%||100.00 ||%||$||48,232 ||100.00 ||%||$||9.62 |
Property Management and Leasing Strategy
We self-administer our property management and substantially all of our leasing activities and operating and administrative functions (including leasing, legal, acquisitions, development, data processing, finance and accounting). On-site functions such as maintenance, landscaping, sweeping, plumbing and electrical are subcontracted out at each location and, to the extent permitted by their respective leases, the cost of these functions is passed on to the tenants.
We believe that focused property management, leasing and customer retention are essential to maximizing the sales per square foot, operating cash flow and value of our properties. Our primary goal in property management is to maintain an attractive shopping environment on a cost effective basis for our tenants.
The majority of our property management and leasing functions are supervised and administered by us. We maintain regular contact with our tenants and frequently visit each asset to ensure the proper implementation and execution of our market strategies. As part of our ongoing property management, we conduct regular physical property reviews to improve our properties, react to changing market conditions and ensure proper maintenance.
Our leasing representatives are experienced in the markets in which we operate; they are familiar with current tenants and potential local, regional, and national tenants that would complement our current tenant base. We study demographics, customer sales and merchandising mix to optimize the sales performance of our centers and thereby increase rents. We believe this hands-on approach maximizes the value of our shopping centers.
Item 3. Legal Proceedings.
See the discussion set forth under the heading “Commitments and Contingencies, – Litigation” in Note 10 to
our consolidated financial statements.
Item 4. Mine Safety Disclosures.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our Common Stock is traded on the NASDAQ Capital Market under the symbol “WHLR”.
Approximate Number of Holders of Our Common Stock
As of February 25, 2022 there were 131 holders of record of our Common Stock. This number excludes stockholders whose stock is held in nominee or street name by brokers.
In March 2018, the Board of Directors suspended the payment of dividends on our Common Stock. The Board of Directors also suspended the quarterly dividends on shares of our Series A Preferred Stock ("Series A Preferred"), Series B Convertible Preferred Stock (“Series B Preferred”) and Series D Cumulative Convertible Preferred Stock (“Series D Preferred”), beginning with the three months ended December 31, 2018. Dividends were suspended to retain cash flow to pay operating expenses and reduce debt. On November 3, 2021, common stockholders of the Company voted to amend the Company’s charter (the “Charter”) to remove the cumulative dividend rights of the Series A Preferred and Series B Preferred. Additionally, as the Company has failed to pay cash dividends on the outstanding Series D Preferred, the annual dividend rate on the Series D Preferred has increased to 10.75%; commencing on the first day after the first missed quarterly payment, January 1, 2019 and will continue until such time as the Company has paid all accumulated and unpaid dividends on the Series D Preferred in full. See Note 8, Equity and Mezzanine Equity, to our consolidated financial statements included in this Form 10-K. As a result of the dividend suspension on the Series A Preferred, Series B Preferred and Series D Preferred, no dividends may be declared or paid on the Common Stock until all accumulated accrued and unpaid dividends on the Preferred Stocks have been declared and paid in full. At this time, we can provide no certainty as to when or if dividends will be reinstated. However, we intend to make all required dividend distributions, if any, that will enable us to maintain our REIT status and to eliminate or minimize our obligation to pay income and excise taxes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Future Liquidity Needs.”
Recent Sales of Unregistered Securities
On October 12, 2021, following the Company’s sale of $30.00 million in aggregate principal amount of the Company’s 7.00% senior subordinated convertible notes due 2031 (the “Convertible Notes”) in connection with the Company’s rights
offering made pursuant to an effective registration statement filed with the SEC, Magnetar Structured Credit Fund, LP, Magnetar Longhorn Fund LP, Magnetar Lake Credit Fund LLC, Purpose Alternative Credit Fund – F LLC, Purpose Alternative Credit Fund – T LLC, AY2 Capital LLC (each individually, a “Backstop Party” and, collectively, the “Backstop Parties”) and their assignee purchased from the Company an additional $3.00 million in aggregate principal amount of the Convertible Notes pursuant to a registration rights agreement, dated as of March 12, 2021. The Convertible Notes are convertible, in whole or in part, at any time, at the option of the holders of the Convertible Notes, into shares of the Company’s Common Stock at a conversion price of $6.25 per share of the Company’s Common Stock (the “Conversion Price”); provided, however, that if at any time after September 21, 2023, holders of the Series D Preferred have required the Company to redeem (payable in cash or stock) in the aggregate at least 100,000 shares of Series D Preferred, then the Conversion Price will be adjusted to the lower of (i) 55% of the Conversion Price or (ii) a 45% discount to the lowest price at which any Series D Preferred was converted into the Common Stock. Upon a change of control, each Convertible Note will mandatorily convert into shares of the Company’s Common Stock equal to: (i) the principal amount of each Convertible Note divided by (ii) the product of (x) the average of the per share volume-weighted average prices for the Common Stock for the 15 consecutive trading days ending on the third business day immediately preceding the date of such change of control, and (y) 0.55.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Rights Offering and Convertible Notes” for additional details regarding the Rights Offering and the Convertible Notes.
The additional $3.00 million of Convertible Notes purchased by the Backstop Parties and their assignee pursuant to the registration rights agreement, dated as of March 12, 2021, were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, based upon factual representations of the purchasers thereof. The issuance was made without the use of an underwriter or selling agent, and no commissions or underwriting discounts were paid by the Company in connection with such issuance.
Issuer Purchases of Equity Securities
The Company through “modified Dutch auction” tender offers on the Series D Preferred accepted for purchase 387,097 shares at a purchase price of $15.50 per share, for an aggregate cost of $6.00 million on March 12, 2021 and 103,513 shares of Series D Preferred at a purchase price of $18.00 per share, for an aggregate cost of $1.86 million on May 15, 2021, both excluding fees and expenses.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the notes thereto included in this Form 10-K. For more detailed information regarding the basis of presentation for the following information, you should read the notes to the audited consolidated financial statements included in this Form 10-K.
We are a Maryland corporation focused on owning, leasing and operating income producing grocery-anchored centers, neighborhood centers, community centers and free-standing retail properties. We have targeted competitively protected properties located within developed areas, commonly referred to as in-fill, that possess minimal competition risk and are surrounded by communities that have strong demographics and dynamic, diversified economies that will continue to generate jobs and future demand for commercial real estate. Our primary target markets include the Southeast and Mid-Atlantic.
Our portfolio is comprised of fifty-eight retail shopping centers and four undeveloped land parcels. Ten of these properties are located in Virginia, three are located in Florida, six are located in North Carolina, twenty-two are located in South Carolina, twelve are located in Georgia, two are located in Kentucky, two are located in Tennessee, one is located in New Jersey, one is located in Alabama, one is located in West Virginia, one is located in Oklahoma and one is located in Pennsylvania. The Company’s portfolio had total gross rentable space of approximately 5,478,855 square feet and a leased level of approximately 94.2% at December 31, 2021.
Impact of COVID-19
The spread of COVID-19 has had a significant impact on the global economy, the U.S. economy, the economies of the local markets in which the Company’s properties are located, and the broader financial markets. Local, state and federal authorities have taken preventative measures to alleviate the public health crisis and these preventative measures have affected the operations of the Company’s tenant base to varying degrees depending on the category and location of the tenant.
The Company derives revenues primarily from rents and reimbursement payments received from tenants under leases at the Company’s properties. The Company’s operating results therefore depend materially on the ability of its tenants to make required rental payments. The extent to which the COVID-19 pandemic impacts the businesses of the Company’s tenants, and the Company’s operations and financial condition, will depend on future developments which are still uncertain and cannot be predicted with confidence. In addition, the trend toward online shopping for goods and services that accelerated during the COVID-19 pandemic may continue and could result in a permanent decrease in spending levels at brick-and-mortar commercial establishments. The factors described above, as well as additional factors that the Company may not currently be aware of, could materially negatively impact the Company’s ability to collect rent and could lead to increases in rent relief requests from tenants, termination of leases by tenants, tenant bankruptcies, decreases in demand for retail space at the Company’s properties, difficulties in accessing capital, impairment of the Company’s long-lived assets and other impacts that could materially and adversely affect the Company’s business, results of operations, financial condition and ability to pay distributions to stockholders. The comparability of the Company’s results of operations for the year ended December 31, 2021 to future periods may be impacted by the effects of the COVID-19 pandemic.
Recent Trends and Activities
There have been several significant events in 2021 that have impacted our Company. These events are summarized below.
Paycheck Protection Program
On April 24, 2020, the Company received proceeds of $552 thousand in the form of a promissory note (the "Promissory Note") pursuant to the Paycheck Protection Program (the "PPP") under the Coronavirus Aid, Relief and Economic Security ("CARES") Act. Under the terms of the CARES Act, the Promissory Note was forgiven during the year ended December 31, 2021.
Assets Held for Sale and Dispositions
At December 31, 2021, assets held for sale included Walnut Hill Plaza, as the Company has committed to a plan to sell the property. During the year ended December 31, 2021, the Company sold the below properties, of which Columbia Fire Station, Berkley Shopping Center, the 0.75-acre land parcel at Berkley and the outparcel at Rivergate Shopping Center were included as assets held for sale at December 31, 2020. Additionally at December 31, 2020, the Company held for sale a second outparcel at Rivergate Shopping Center which the Company is no longer pursuing. The Company recorded $2.30 million in impairments during the year ended December 31, 2021, $100 thousand on Walnut Hill Plaza and $2.20 million on Columbia Fire Station reducing the carrying value for the amounts that exceeded the property's fair value less estimated selling costs. The Company recorded $600 thousand in impairments on Columbia Fire Station during the year ended December 31, 2020.
|Disposal Date||Property||Contract Price||Gain (loss)||Net Proceeds|
|(in thousands, unaudited)|
|November 17, 2021||Columbia Fire Station - Columbia, SC||$||4,250 ||$||(88)||$||3,903 |
|August 31, 2021||Rivergate Shopping Center Out Parcel - Macon, GA||3,700 ||1,915 ||3,451 |
|July 9, 2021||Tulls Creek Land Parcel (1.28 acres) - Moyock, NC||250 ||52 ||222 |
|March 25, 2021||Berkley Shopping Center and Berkley Land Parcel (0.75 acres) - Norfolk, VA||4,150 ||176 ||3,937 |
In conjunction with the Berkley Shopping Center disposition the Company made a $3.22 million principal payment on the Berkley/Sangaree/Tri-County loan and paid $687 thousand in defeasance.
In conjunction with the Rivergate Shopping Center Out Parcel disposition the Company made a $3.54 million principal payment on the Rivergate loan.
Powerscourt Financing Agreement Payoff
On March 12, 2021, the Company paid in full the $25.00 million Powerscourt Financing Agreement. The Powerscourt Warrant Agreement and the Powerscourt Registration Rights Agreement remain.
Wilmington Financing Agreement
On March 12, 2021, the Company entered into a financing agreement (the "Wilmington Financing Agreement") as borrower, certain subsidiaries of the Company from time to time party thereto, as guarantors (together with the Company, the “Loan Parties”), the lenders from time to time party thereto, and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent. The Wilmington Financing Agreement provides for a term loan in the aggregate principal amount of $35.00 million. The proceeds of the Wilmington Financing Agreement are intended for the following: (i) to paydown the Company’s indebtedness on the Powerscourt Financing Agreement, (ii) to fund the redemption of certain shares of the Company’s 8.75% Series D Preferred and (iii) to pay fees and expenses in connection with the transactions contemplated by the Wilmington Financing Agreement. The Wilmington Financing Agreement is at a rate of 8.00% and matures in March 2026 with quarterly interest only payments beginning on April 15, 2021. Any payment or repayment of principal will be made with a premium equal to 5% of the amount repaid or prepaid.
Pursuant to the Wilmington Financing Agreement, the Company issued to the holders from time to time party thereto a warrant (the “Wilmington Warrant”) to purchase in the aggregate, 1,061,719 shares of Common Stock in three tranches: warrants to purchase an aggregate of 510,204 shares at an exercise price of $3.430 per share ("Tranche A"); warrants to purchase an aggregate of 424,242 shares at an exercise price of $4.125 per share ("Tranche B"); and warrants to purchase an aggregate of 127,273 shares at an exercise price of $6.875 per share ("Tranche C") (the “Wilmington Warrant Agreement”). The Warrant is exercisable at the option of its holder in whole or in part into shares of Common Stock from time to time on or after March 12, 2021 (the “Effective Date”) and before the maturity date of the Wilmington Financing Agreement.
On December 21, 2021, the principal balance on the Wilmington Financing Agreement was paid in full. The Wilmington Warrant Agreement and the Wilmington Registration Rights Agreement remain.
Registration Rights Agreements
In connection with the Powerscourt Financing Agreement and Wilmington Financing Agreement, the Company entered into a registration rights agreement with the holders from time to time of the Powerscourt Warrant, dated as of December 22, 2020 (the “Powerscourt Registration Rights Agreement”) and Wilmington Warrants, dated as of March 12, 2021 (the “Wilmington Registration Rights Agreement”), respectively. Accordingly, the Company registered the resale of the common stock underlying the Powerscourt Warrant and Wilmington Warrant on a Form S-11 Registration Statement which became effective on May 25, 2021.
The Company utilized the Monte Carlo simulation model to calculate the fair value of the Powerscourt Warrant and Wilmington Warrant (collectively, the "Warrant Agreements"). Significant observable and unobservable inputs include stock price, conversion price, risk-free rate, term, likelihood of an event of contractual conversion and expected volatility. The Monte Carlo simulation is a Level 3 valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators. The Warrant Agreements were valued at approximately $2.61 million upon issuance and recorded as a liability on the consolidated balance sheets. For the year ended December 31, 2021, the Company reported non-operating income of approximately $1.36 million, due to changes in fair value. See Note 6 included in this Form 10-K for additional details.
Series D Preferred Stock Tender Offers
The Company through “modified Dutch auction” tender offers on the Series D Preferred accepted for purchase 387,097 shares at a purchase price of $15.50 per share, for an aggregate cost of $6.00 million on March 12, 2021 and 103,513 shares of Series D Preferred at a purchase price of $18.00 per share, for an aggregate cost of $1.86 million on May 15, 2021, both excluding fees and expenses.
Rights Offering and Convertible Notes
On July 22, 2021, the Company commenced the rights offering (the “Rights Offering”) for the purchase of up to $30.00 million in aggregate principal amount of the Company’s 7.00% senior subordinated convertible notes due 2031 (the “Convertible Notes”). On August 13, 2021, the Rights Offering expired. Pursuant to the Rights Offering, the Company distributed to holders of its Common Stock, as of 5:00 p.m. New York City time on June 1, 2021 (the “Record Date”), non-transferable subscription rights to purchase Convertible Notes. Each holder of the Company’s Common Stock as of the Record Date received one right for each eight shares of the Company’s Common Stock owned, and each right entitled a holder to purchase $25.00 principal amount of Convertible Notes. The Rights Offering was made pursuant to an effective registration statement filed with the U.S. Securities and Exchange Commission. The aggregate principal amount of Convertible Notes issued in the Rights Offering was $30.00 million. The Rights Offering was backstopped by Magnetar Structured Credit Fund, LP, Magnetar Longhorn Fund LP, Magnetar Lake Credit Fund LLC, Purpose Alternative Credit Fund – F LLC, Purpose Alternative Credit Fund – T LLC, and AY2 Capital LLC (each individually, a “Backstop Party” and, collectively, the “Backstop Parties”) in the amount of $2.19 million in aggregate principal. On October 12, 2021, the Backstop Parties and their assignee elected to exercise their “accordion right” in full and purchased from the Company an additional $3.00 million in aggregate principal amount of the Company’s Convertible Notes.
On August 13, 2021, the Company, as Issuer, and Wilmington Savings Fund Society, FSB., as Trustee, entered into an Indenture governing the terms of the Convertible Notes (the “Indenture”).
The Convertible Notes bear interest at a rate of 7.00% per annum. Interest on the Convertible Notes is payable semi-annually in arrears on June 30 and December 31 of each year, commencing on December 31, 2021.
The Convertible Notes are subordinate and junior in right of payment to the Company’s obligations to the holders of senior indebtedness, and that in the case of any insolvency, receivership, conservatorship, reorganization, readjustment of debt, marshalling of assets and liabilities or similar proceedings or any liquidation or winding-up of or relating to the Company as a whole, whether voluntary or involuntary, all obligations to holders of senior indebtedness shall be entitled to be paid in full before any payment shall be made on account of the principal or interest on the Convertible Notes.
Interest on the Convertible Notes is payable, at the Company’s election: (a) in cash; (b) in shares of Series B Preferred; (c) in shares of Series D Preferred; or (d) in any combination of (a), (b), and/or (c). For purposes of determining the value of Series B Preferred and Series D Preferred Stock paid as interest on the Convertible Notes, each share of Series B Preferred and Series D Preferred Stock shall be deemed have a value equal to the product of (x) the average of the VWAPs (as defined in the Indenture) for the Series B Preferred or the Series D Preferred, as the case may be, for the 15 consecutive trading days ending on the third business day immediately preceding the relevant interest payment date, and (y) 0.55. On December 31, 2021, the first interest payment date on the Convertible Notes, the Company issued a total of 113,709 shares of Series D Preferred in payment of interest on the Convertible Notes.
The Convertible Notes are convertible, in whole or in part, at any time, at the option of the holders of the Convertible Notes, into shares of the Company’s Common Stock at a conversion price of $6.25 per share of the Company’s Common Stock (the “Conversion Price”); provided, however, that if at any time after September 21, 2023, holders of the Series D Preferred have required the Company to redeem (payable in cash or stock) in the aggregate at least 100,000 shares of Series D Preferred, then the Conversion Price will be adjusted to the lower of (i) 55% of the Conversion Price or (ii) a 45% discount to the lowest price at which any Series D Preferred was converted into the Common Stock. Upon a change of control, each Convertible Note will mandatorily convert into shares of the Company’s Common Stock equal to: (i) the principal amount of each Convertible Note divided by (ii) the product of (x) the average of the per share volume-weighted average prices for the Common Stock for the 15 consecutive trading days ending on the third business day immediately preceding the date of such change of control, and (y) 0.55.After January 1, 2024, the Company may redeem the Convertible Notes at any time (in whole or in part) at the Company’s option at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest as of
the redemption date (the “Redemption Price”). The Redemption Price may be paid: (a) in cash; (b) in shares of Common Stock; or (c) in any combination of (a) and (b).
The Company identified certain embedded derivatives related to the conversion features of the Convertible Notes. In accordance with ASC 815-40, Derivatives and Hedging Activities, the embedded conversion options contained within the Convertible Notes were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through each reporting date. The Company utilized a multinomial lattice model to calculate the fair value of the embedded derivatives. The embedded derivative liabilities were assigned a value of $5.93 million. For the year ended December 31, 2021, the Company reported non-operating income of approximately $2.41 million, due to changes in the fair value of the embedded derivative liability. See Note 6 included in this Form 10-K for additional details.
On November 3, 2021, common stockholders of the Company voted to amend the Company’s Charter to remove the cumulative dividend rights of the Series A Preferred and Series B Preferred. At December 31, 2021, the Company had accumulated undeclared dividends of $26.16 million to holders of shares of our Series D Preferred of which $8.17 million is attributable to the year ended December 31, 2021.
New Leases, Leasing Renewals and Expirations
The following table presents selected lease activity statistics for our properties.
|Years Ended December 31,|
|Leases renewed with rate increase (sq feet)||402,875 ||616,548 |
|Leases renewed with rate decrease (sq feet)||67,743 ||123,935 |
|Leases renewed with no rate change (sq feet)||148,542 ||404,428 |
|Total leases renewed (sq feet)||619,160 ||1,144,911 |
|Leases renewed with rate increase (count)||104 ||127 |
|Leases renewed with rate decrease (count)||11 ||24 |
|Leases renewed with no rate change (count)||23 ||53 |
|Total leases renewed (count)||138 ||204 |
|Option exercised (count)||22 ||22 |
|Weighted average on rate increases (per sq foot)||$||0.85 ||$||1.12 |
|Weighted average on rate decreases (per sq foot)||$||(2.18)||$||(1.43)|
|Weighted average rate (per sq foot)||$||0.32 ||$||0.45 |
|Weighted average change over prior rates||3.05 ||%||4.63 ||%|
New Leases(1) (2):
|New leases (sq feet)||436,170 ||333,279 |
|New leases (count)||76 ||72 |
|Weighted average rate (per sq foot)||$||8.30 ||$||9.03 |
|Gross Leasable Area ("GLA") expiring during the next 12 months, including month-to-month leases||6.16 ||%||6.97 ||%|
(1) Lease data presented is based on average rate per square foot over the renewed or new lease term.
(2) The Company does not include ground leases entered into for the purposes of new lease sq feet and weighted average rate (per sq foot) on new leases.
Critical Accounting Estimates
The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The critical accounting estimates and policies summarized in this section are discussed in further detail in the notes to the consolidated financial statements appearing elsewhere in this Form 10-K. We believe that the application of these policies
on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition. The following accounting estimates are considered critical because they are particularly dependent on management’s judgment about matters that have a significant level of uncertainty at the time the accounting estimates are made, and changes to those estimates could have a material impact on our financial condition or operating results.
Principal components of our total revenues include base and percentage rents and tenant reimbursements. The Company combines lease and nonlease components in lease contracts, which includes combining base rent and tenant reimbursement revenue. We accrue minimum (base) rent on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet. Certain lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent) which we recognize when the tenants achieve the specified targets as defined in their lease agreements. Although we periodically review the valuation of the asset/liability resulting from the straight-line accounting treatment of our leases in light of any changes in lease terms, financial condition or other factors concerning our tenants, they are subject to uncertainty. These assessments are inherently sensitive as they are based on the judgment of management and information available at the time of evaluation.
Rents and Other Tenant Receivables
We record a tenant receivable for amounts due from tenants such as base rents, tenant reimbursements and other charges allowed under the lease terms. We periodically review tenant receivables for collectability and determine the need for an allowance for the uncollectible portion of accrued rents and other accounts receivable based upon customer creditworthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels and current economic trends. We consider a receivable past due once it becomes delinquent per the terms of the lease; our standard lease form considers a rent charge past due after five days. A past due receivable triggers certain events such as notices, fees and other allowable and required actions per the lease.
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 evaluated 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 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, 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.
Impairment of Long-Lived Assets
We periodically review investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable, with an evaluation performed at least annually. These circumstances include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. We measure any impairment of investment property when the estimated undiscounted future 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, we charge to income the excess of carrying value of the property over its estimated fair value. We estimate fair value using unobservable data such as operating income, estimated capitalization rates or multiples, leasing prospects and local market information. 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.
The Company may decide to sell properties. 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.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants and convertible notes, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statement of operations. The assumptions used in these fair value estimates 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.
Liquidity and Capital Resources
At December 31, 2021, our consolidated cash, cash equivalents and restricted cash totaled $40.42 million compared to consolidated cash, cash equivalents and restricted cash of $42.77 million at December 31, 2020. Cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2021 and 2020 are as follows (in thousands):
| ||Years Ended December 31,||Year Over Year Change|
|Operating activities||$||17,041 ||$||15,780 ||$||1,261 ||7.99 ||%|
|Investing activities||$||5,101 ||$||2,237 ||$||2,864 ||128.03 ||%|
|Financing activities||$||(24,491)||$||3,160 ||$||(27,651)||(875.03)||%|
During the year ended December 31, 2021, our cash flows from operating activities were $17.04 million, compared to cash flows from operating activities of $15.78 million during the year ended December 31, 2020, representing an increase of 7.99% or $1.26 million. This increase is primarily a result of the timing of receivables and accounts payable, accrued expenses and other liabilities and the decrease in non-operating other expenses, partially offset by the increase in interest expense, corporate general and administrative expense and a decrease in property net operating income ("NOI") of $189 thousand.
During the year ended December 31, 2021, our cash flows from investing activities were $5.10 million, compared to cash flows from investing activities of $2.24 million during the year ended December 31, 2020, representing an increase of 128.03% or $2.86 million primarily due to the four 2021 sales described in Note 3 included in this Form 10-K compared to two in 2020, partially offset by an increase in capital expenditures of $4.14 million resulting from increased occupancy.
During the year ended December 31, 2021, our cash flows used in financing activities were $24.49 million, compared to $3.16 million of cash flows provided by financing activities during the year ended December 31, 2020, representing a decrease of 875.03% or $27.65 million due to the following:
•$14.51 million increase in loan principal payments, net loan proceeds, due to the Wilmington Financing Agreement, Powerscourt Financing Agreement, and Columbia Fire Station payoffs, the Convertible Notes and refinancing activity described in Note 5 of this Form 10-K;
•$7.23 million increase in preferred stock redemption;
•$4.67 million increase in deferred financing costs primarily related to the Wilmington Financing Agreement and Convertible Notes; and
•$687 thousand prepayment penalty related to the Berkley/Sangaree/Tri-County loan payoff.
We intend to continue managing our debt prudently so as to maintain a conservative capital structure and minimize leverage within our company. As of December 31, 2021 and 2020, our debt balances, excluding unamortized debt issuance costs, consisted of the following (in thousands):
| ||December 31,|
Fixed-rate notes (1)
|$||344,177 ||$||330,340 |
Adjustable-rate mortgages (1)
|2,085 ||23,576 |
|Total debt||$||346,262 ||$||353,916 |
(1) Includes portion attributable to liabilities held for sale, see Note 3 included in this Form 10-K.
The weighted average interest rate and term of our fixed-rate debt including liabilities held for sale are 4.90% and 4.13 years, respectively, at December 31, 2021. We have $13.57 million of debt maturing, including scheduled principal repayments, during the year ending December 31, 2022. While we anticipate being able to refinance all the loans at reasonable market terms upon maturity, our inability to do so may materially impact our financial position and results of operations. See Note 5 included in this Form 10-K for additional mortgage indebtedness details.
Material Cash Requirements, Contractual Obligations and Commitments
Our expected material cash requirements for the twelve months ended December 31, 2022 and thereafter are comprised of (i) contractually obligated expenditures; (ii) other essential expenditures; and (iii) opportunistic expenditures.
The primary liquidity needs of the Company, in addition to the funding of our ongoing operations, at December 31, 2021 are $13.57 million in principal and regularly scheduled payments due in the year ended December 31, 2022 as described in Note 5 on this Form 10-K.
In addition to liquidity required to fund debt payments we may incur some level of capital expenditures during the year for our existing properties that cannot be passed on to our tenants.
To meet these future liquidity needs, the Company had:
•$22.90 million in cash and cash equivalents at December 31, 2021;
•$17.52 million held in lender reserves for the purpose of tenant improvements, lease commissions, real estate taxes and insurance at December 31, 2021; and
•intends to use cash generated from operations during the year ended December 31, 2022.
Additionally, the Company plans to undertake measures to grow its operations and increase liquidity through backfilling vacant anchor spaces, replacing tenants who are in default of their lease terms, increasing future lease revenue through tenant improvements partially funded by restricted cash, disposition of assets, refinancing properties and operating cash.
Our success in executing on our strategy will dictate our liquidity needs going forward. If we are unable to execute in these areas, our ability to grow and reinstate dividends may be limited without additional capital.
In addition, our Board of Directors suspended Series A Preferred, Series B Preferred and Series D Preferred dividend payments beginning with the fourth quarter 2018 dividend. On November 3, 2021, common stockholders of the Company approved amendments to the Company’s Charter to remove the cumulative dividend of the Series A Preferred and the Series B Preferred. The Company believes that these actions support the Company's liquidity needs and improve the Company's capital structure.
Looking ahead to 2023, beginning on September 21, 2023, holders of the Series D Preferred will have the right to cause the Company to redeem their Series D Preferred at a price of $25.00 per share plus the amount of all accrued but unpaid dividends. This redemption price is payable by the Company, at the Company’s election, in cash or shares of the Company’s
common stock, or a combination of cash and shares of the Company’s common stock. Since January 2019, the Company’s Series D Preferred (of which there are currently approximately 3.15 million shares outstanding at December 31, 2021) have been accruing unpaid dividends at a rate of 10.75% per annum of the $25.00 liquidation preference per share of Series D Preferred, or at $2.6875 per share per annum. As of December 31, 2021, the outstanding Series D Preferred had a liquidation preference of approximately $78.81 million, with aggregate accrued and unpaid dividends in the amount of approximately $26.16 million. Furthermore, based upon the closing price of the Company’s common stock on February 24, 2022 of $1.97 per share, the Company believes it is unlikely that holders of the Series D Preferred would convert their shares into common stock at the current conversion price of $16.96 per share of common stock. As such, there is a significant risk that the Company will not have sufficient cash to pay the aggregate redemption price, and would not be able to meet its redemption obligation without substantial dilution of its common stock.
Inflation, Deflation and Economic Condition Considerations
Inflation has been historically low and had a minimal impact on the operating performance of our shopping centers; however, inflation has recently increased in the United States. Increased inflation could have a negative impact on the Company’s property operating expenses, as these costs could increase at a rate higher than the Company’s rents. Inflation could also have an adverse effect on consumer spending which could impact the Company’s tenants’ sales and, in turn, the Company’s percentage rents, where applicable, and the willingness and ability of tenants to enter into or renew leases and/or honor their obligations under existing leases. Conversely, deflation could lead to downward pressure on rents and other sources of income. Most of our leases contain provisions designed to partially mitigate the impact of inflation, which require tenants to pay their pro-rata share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation, although some tenants have capped the amount of these operating expenses they are responsible for under the lease. A small number of our leases also include percentage rent clauses enabling us to receive additional rent based on tenant sales above a predetermined level, which sales generally increase as prices rise and are typically related to increases in the Consumer Price Index or similar inflation indices. In addition, many of our leases are for terms of less than ten years, which permits us to seek increased rents upon re-rental at market rates.
Recent Accounting Pronouncements
See Note 2 to the consolidated financial statements beginning on page 34 of this Annual Report on Form 10-K.
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
Results of Operations
The following table presents a comparison of the consolidated statements of operations for the years ended December 31, 2021 and 2020, respectively (in thousands, except Property Data).
| ||For the Years Ended December 31,||Year over Year Changes|
Number of properties owned and leased at period end (1)
|58 ||60 ||(2)||(3.33)||%|
Aggregate gross leasable area at period end(1)
|5,478,855 ||5,561,766 ||(82,911)||(1.49)||%|
Ending leased rate at period end (1)
|94.2 ||%||88.9 ||%||5.3 ||%||5.96 ||%|
|Rental revenues||$||60,368 ||$||60,039 ||$||329 ||0.55 ||%|
|Other revenues||942 ||964 ||(22)||(2.28)||%|
|Total Revenue||61,310 ||61,003 ||307 ||0.50 ||%|
|Property operations||19,618 ||18,886 ||732 ||3.88 ||%|
|Depreciation and amortization||14,797 ||17,291 ||(2,494)||(14.42)||%|
|Impairment of assets held for sale||2,300 ||600 ||1,700 ||283.33 ||%|
|Corporate general & administrative||7,140 ||5,831 ||1,309 ||22.45 ||%|
|Total Operating Expenses||43,855 ||42,608 ||1,247 ||2.93 ||%|
|Gain on disposal of properties||2,055 ||23 ||2,032 ||8,834.78 ||%|
|Operating Income||19,510 ||18,418 ||1,092 ||5.93 ||%|
|Interest income||34 ||1 ||33 ||3,300.00 ||%|
|Net changes in fair value of derivative liabilities||3,768 ||— ||3,768 ||100.00 ||%|
|Other income||552 ||— ||552 ||100.00 ||%|
|Other expense||(185)||(1,039)||854 ||82.19 ||%|
|Net Income (Loss) Before Income Taxes||(9,349)||287 ||(9,636)||(3,357.49)||%|
|Income tax expense||(2)||— ||(2)||(100.00)||%|
|Net Income (Loss)||(9,351)||287 ||(9,638)||(3,358.19)||%|
|Less: Net loss attributable to noncontrolling interests||92 ||42 ||50 ||119.05 ||%|
|Net Income (Loss) Attributable to Wheeler REIT||$||(9,443)||$||245 ||$||(9,688)||(3,954.29)||%|
(1) Excludes the undeveloped land parcels. Includes assets held for sale.
Total revenue was $61.31 million and $61.00 million for the years ended December 31, 2021 and December 31, 2020, respectively, representing an increase of 0.50%. The increase in rental revenues of $329 thousand is a result of an $892 thousand decline in the provision for credit losses due to collections returning to pre-COVID levels, partially offset by the decrease of property revenues due to dispositions.
Total Operating Expenses
Total operating expenses were $43.86 and $42.61 million for the years ended December 31, 2021 and 2020, respectively, representing an increase of 2.93%. Impairment of assets held for sale was $2.30 million for the year ended December 31, 2021 as a result of Walnut Hill Plaza and Columbia Fire Station and impairment was $600 thousand for the year ended December 31, 2020, a result of Columbia Fire Station. Depreciation and amortization decreased $2.49 million for the
year ended December 31, 2021 primarily as a result of lease intangibles becoming fully amortized and ceasing of depreciation and amortization as properties were classified as assets held for sale. See Same Store and Non-same Store Operating Income for further details about the changes within property operations expense.
Corporate general and administrative expenses were $7.14 million and $5.83 million for the years ended December 31, 2021 and 2020, respectively, representing an increase of 22.45%, primarily a result of the following:
•$650 thousand increase in professional fees primarily related to property and corporate legal fees along with costs associated with the Special Meeting of Common Stockholders;
•$531 thousand increase in corporate administration primarily related to office rent expense for the Company's corporate headquarters that had a sale leaseback in December 2020, credit card fees the Company has borne on cash receipts and increased directors and officers insurance costs.
Gain on Disposal of Properties
The net gain on disposal of properties increase of $2.03 million for the year ended December 31, 2021 is a result of the 2021 sales of Columbia Fire Station, Rivergate Shopping Center Out Parcel, Berkley Shopping Center and Berkley Land Parcel, along with the Tulls Creek Land Parcel sale compared to the 2020 sales of St. Matthews and Riversedge North.
Interest expense was $33.03 million and $17.09 million for the years ended December 31, 2021 and 2020, representing an increase of 93.23%. Loan cost amortization accounted for $11.61 million of the increase, primarily attributable to the write-off of debt issuance costs related to the Powerscourt Financing Agreement and Wilmington Financing Agreement. Interest expense on the Convertible Notes accounted for $1.61 million, which includes the adjustment to fair value with the remaining increase of $2.71 million a result of the Powerscourt and Wilmington Financing Agreements and defeasance resulting from the sale of Berkley Shopping Center.
Net Change in Fair Value of Derivative Liabilities
The net change in the fair value of derivative liabilities of $3.77 million for the year ended December 31, 2021 is a result of the fair value calculations described in Note 6 included in this Form 10-K with the largest impact in the valuation attributed to the change in the Company’s stock price since the issuance of each warrant and embedded derivative.
Other Income and Expense
Other incomes were $552 thousand and $0 for the years ended December 31, 2021 and 2020, respectively, relating to PPP Promissory Note forgiveness.
Other expenses were $185 thousand for the year ended December 31, 2021, which consist of legal settlement costs. Other expenses were $1.04 million for the year ended December 31, 2020 which includes $600 thousand in legal settlement costs and $439 thousand for reimbursement of 2019 proxy expenses. These expenses are non-operating in nature.
Same Store and Non-same Store Operating Income
NOI is a widely-used non-GAAP financial measure for REITs. The Company believes that NOI is a useful measure of the Company's property operating performance. The Company defines NOI as property revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes). Because NOI excludes general and administrative expenses, depreciation and amortization, interest expense, interest income, provision for income taxes, gain or loss on sale or capital expenditures and leasing costs, impairment of assets held for sale and held for use and impairment of notes receivable, it provides a performance measure, that when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing perspective not immediately apparent from net income. The Company uses NOI to evaluate its operating performance since NOI allows the Company to evaluate the impact of factors, such as occupancy levels, lease structure, lease rates and tenant base, have on the Company's results, margins and returns. NOI
should not be viewed as a measure of the Company's overall financial performance since it does not reflect general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes, gain or loss on sale or disposition of assets, and the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company's properties. Other REITs may use different methodologies for calculating NOI, and accordingly, the Company's NOI may not be comparable to that of other REITs.
The following table is a reconciliation of same and non-same store NOI from the most directly comparable GAAP financial measure of net income (loss). Same stores consist of those properties owned during all periods presented in their entirety, non-same stores consist of those properties acquired or disposed of during the periods presented. The non-same
store category consists of the following properties:
• Continuing operations
◦ St. Matthews (sold January 21, 2020);
◦ JANAF Executive Building (24,980 square foot building, decommissioned as of March 31, 2020);
◦ Berkley Shopping Center and Berkley Land Parcel (sold March 25, 2021);
◦ Tulls Creek Land Parcel (sold July 9, 2021);
◦ Rivergate Shopping Center Out Parcel (sold August 31, 2021); and
◦ Columbia Fire Station (sold November 17, 2021).
| ||Years Ended December 31,|
| ||Same Store||Non-same Store||Total|
|Net (Loss) Income||$||(8,201)||$||1,280 ||$||(1,150)||$||(993)||$||(9,351)||$||287 |
|Income tax expense||2 ||— ||— ||— ||2 ||— |
|Other expense||185 ||1,039 ||— ||— ||185 ||1,039 |
|Other income||(552)||— ||— ||— ||(552)||— |
|Net changes in fair value of derivative liabilities||(3,768)||— |