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Item 7. Management’s Discussion and Analysis

2023-03-02 compared with 2022-02-28 · 196 added, 184 removed, 238 unchanged (61% of the section changed)

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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.

We have targeted properties located within developed areas, commonly referred to as in-fill, that 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 Mid-Atlantic, Southeast and Northeast.

Our portfolio is comprised of seventy-five retail shopping centers and four undeveloped land parcels.

Twenty-one of these properties are located in South Carolina, twelve in Georgia, ten in Virginia, eight in Pennsylvania, six in North Carolina, four in Massachusetts, four in New Jersey, three in Florida, three in Connecticut, two in Kentucky, two in Tennessee, one in Alabama, one in Maryland, one in West Virginia, and one in Oklahoma.

The Company’s portfolio had total gross rentable space of approximately 8,173,000 square feet and a leased level of approximately 92.9% at December 31, 2022.

Impact of COVID-19

The spread of COVID-19 has had a significant impact on the global economy, the U.S.

The spread of COVID-19 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.

Local, state and federal authorities took preventative measures to alleviate the public health crisis primarily in 2020 and those preventative measures affected the operations of the Company’s tenant base to varying degrees depending on the category and location of the tenant.

While substantially all of the limitations and restrictions imposed during the onset of the pandemic have been lifted and/or eased and people have largely resumed pre-pandemic activities, economic conditions continue to negatively impact the financial health of certain retail stores.

The COVID-19 pandemic or variants or future outbreaks of other highly infectious diseases could 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.

Recent Trends and Activities

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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.

Acquisition of Cedar Realty Trust

On August 22, 2022 (the “Cedar Closing Date”), the Company consummated transactions contemplated by that certain Agreement and Plan of Merger, dated as of March 2, 2022 (as amended, the “Merger Agreement”), by and among the

Company, WHLR Merger Sub Inc., a wholly owned subsidiary of the Company (“Merger Sub I”), WHLR OP Merger Sub LLC, a wholly owned subsidiary of Merger Sub I (“Merger Sub II”), Cedar , and Cedar Realty Trust Partnership, L.P., the operating partnership of Cedar (“Cedar OP”).

Pursuant to the Merger Agreement, on the Cedar Closing Date, Merger Sub II merged with and into Cedar OP, with Cedar OP being the surviving limited partnership resulting from such merger, and immediately following such merger, Merger Sub I merged with and into Cedar, with Cedar being the surviving company resulting from such merger (together, the “Cedar Acquisition”).

Each outstanding share of common stock of Cedar and outstanding common unit of Cedar OP held by persons other than Cedar immediately prior to the merger were cancelled and converted into the right to receive a cash payment of $9.48 per share or unit.

As a result of the Cedar Acquisition, the Company acquired all of the outstanding shares of Cedar’s common stock, which ceased to be publicly traded on the NYSE.

Cedar’s 7.25% Series B Preferred Stock and 6.50% Series C Preferred Stock remain outstanding and continue to trade on the NYSE.

As a result, Cedar became a subsidiary of the REIT.

In connection with the consummation of the Cedar Acquisition , the Company entered into a Guaranty of the obligations of Cedar OP under a Loan Agreement (the “ KeyBank-Cedar Loan Agreement ”) by and between the Borrower, KeyBanc Capital Markets, as Lead Arranger and Bookrunner, and KeyBank National Association, as administrative agent and as lender, and under the other loan documents executed in connection with the KeyBank-Cedar Loan Agreement.

By virtue of the Cedar Acquisition, the Company acquired 19 shopping centers (the majority of which are grocery-anchored), consisting of approximately 2.9 million square feet of gross leasable area and increased the Company’s presence in the Northeast.

The consolidated financial statements included in this Form 10-K (the “Form 10-K”) include Cedar starting from the date of acquisition.

We have determined that this acquisition is not a variable interest entity, as defined under the consolidation topic of the Financial Accounting Standards Board (the "FASB"), Accounting Standards Codification, or ASC, and we evaluated such entity under the voting model and concluded we should consolidate the entity.

Under the voting model, we consolidate the entity if we determine that we, directly or indirectly, have greater than 50% of the voting rights and that other equity holders do not have substantive participating rights.

KeyBank-Cedar Loan Agreement

On August 22, 2022, Cedar entered into the KeyBank-Cedar Loan Agreement for $130.00 million with interest-only payments due monthly through maturity, August 22, 2023.

The interest rate on this term loan consisted of the Secured Overnight Financing Rate plus 0.10% plus an applicable margin of 2.5% through February 2023, at which time increases to 4.0% and was collateralized by 19 properties.

The obligations under the KeyBank-Cedar Loan Agreement were satisfied in full with the proceeds of the loans under the Guggenheim-Cedar Loan Agreement (as defined below) entered into on October 28, 2022 and the Patuxent Crossing/Coliseum Marketplace Loan Agreement (as defined below) entered into on December 21, 2022.

Exchange Offer and Consent Solicitation

O n November 22, 2022, the Company commenced an exchange offer for its outstanding shares of Series D Preferred (the “Exchange Offer”).

As subsequently amended, the terms of the Exchange Offer provided for the exchange of up to 2,112,103 outstanding shares of Series D Preferred, representing 67% of the outstanding shares of Series D Preferred, for (i) 6.00% Subordinated Convertible Notes due 2028, and (ii) Common Stock, in each case to have been newly issued by the Company, and related consents (the “Consent Solicitation”) from the holders of the Series D Preferred (the “Series D Preferred Holders”) to certain amendments to the Company’s charter that would have modified the terms of the Series D Preferred (the “Proposed Amendments”).

The consummation of the Exchange Offer and Consent Solicitation was subject to, and was conditional upon, the satisfaction of certain conditions, including the condition that the holders of at least 66 2/3% of the outstanding shares of Series D Preferred (i) validly tender their Series D Preferred into the Exchange Offer, and do not validly withdraw such Series D Preferred, on or prior to the expiration date of the Exchange Offer, and (ii) consent to the Proposed Amendments.

As of the expiration of the Exchange Offer on January 20, 2023, 864,391 shares of Series D Preferred (representing 26.8 % of the total outstanding Series D Preferred) had been validly tendered (and not validly withdrawn) in the Exchange Offer.

A ccordingly, the condition that the holders of at least 66 2/3% of the outstanding shares of Series D Preferred (i) validly tender their Series D Preferred into the Exchange Offer, and not validly withdraw such Series D Preferred, and (ii) consent to the Proposed Amendments, had not been satisfied, and the Exchange Offer expired on January 20, 2023.

As a result, the Series D Preferred remains outstanding with no change to its terms.

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.

At December 31, 2022, there were no assets held for sale.

At December 31, 2021, assets held for sale included Walnut Hill Plaza, which was sold in 2022.

Impairment expenses on assets held for sale are a result of reducing the carrying value 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.

Impairment expense was $760 thousand for the year ending December 31, 2022, resulting from reducing the carrying value of Harbor Pointe Land Parcel.

Impairment expense was $2.30 million for the year ending December 31, 2021, resulting from $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 following properties were sold during the year ended December 31, 2022 (in thousands):

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.

Warrant Agreements

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.

December 9, 2022 Butler Square $ 9,250 $ 2,619 $ 8,723

January 11, 2022 Walnut Hill Plaza 1,986 (15) 1,786

In conjunction with the Walnut Hill Plaza sale, the Company made a $1.79 million principal paydown on the Walnut Hill Plaza loan and on February 17, 2022 the Company paid the remaining loan balance of $1.34 million in full.

On December 9, 2022, the Company made a $5.64 million principal payment on the Butler Square loan in conjunction with the sale of the Butler Square property.

Guggenheim Loan Agreement

On June 17, 2022, the Company entered into a loan agreement (the “Guggenheim Loan Agreement”) with Guggenheim Real Estate, LLC, for $75.00 million at a fixed rate of 4.25% with interest-only payments due monthly.

Commencing on August 10, 2027, until the maturity date of July 10, 2032, monthly principal and interest payments will be made based on a 30-year amortization schedule calculated based on the principal amount as of that time.

The Guggenheim Loan Agreement is collateralized by twenty-two properties and loan proceeds were used to refinance eleven loans including paying $1.46 million in defeasance.

JANAF Loan Agreement

On July 6, 2022, the Company entered into a loan agreement (the “JANAF Loan Agreement”) with CITI Real Estate Funding Inc.

for $60.00 million at a fixed interest rate of 5.31% with interest-only payments due monthly through maturity, July 6, 2032.

The JANAF Loan Agreement proceeds were used to refinance three loans including paying $1.16 million in defeasance.

Guggenheim-Cedar Loan Agreement

On October 28, 2022, Cedar entered into a loan agreement (the “Guggenheim-Cedar Loan Agreement”) with Guggenheim Real Estate, LLC, for $110.00 million at a fixed rate of 5.25% with interest-only payments due monthly through November 2027.

Wheeler REIT, L.P.

provided a guarantee in connection with such loan.

Commencing on December 10, 2027, until the maturity date of November 10, 2032, monthly principal and interest payments will be made based on a 30-year amortization schedule calculated based on the principal amount as of that time.

The Guggenheim-Cedar Loan Agreement

proceeds were used to refinance a portion of Cedar’s property portfolio that were previously collateralized by the KeyBank-Cedar Loan Agreement.

Patuxent Crossing/Coliseum Marketplace Loan Agreement

On December 21, 2022, Cedar entered into a loan agreement (the "Patuxent Crossing/Coliseum Marketplace Loan Agreement”) with CITI Real Estate Funding, Inc.

for $25.00 million at a fixed rate of 6.35% with interest-only payments due monthly through maturity, January 6, 2033.

The Patuxent Crossing/Coliseum Marketplace Loan Agreement proceeds were used to satisfy the remaining obligations of the KeyBank-Cedar Loan Agreement and, accordingly, the remaining collateral was released.

Interest Payments on Convertible Notes

The Company’s 7.00% subordinated convertible notes due 2031 (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:

(b) in shares of Series B 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:

(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.

Interest payments on the Convertible Notes were made as follows (in thousands, except for share values):

For the years ended December 31, Series B Preferred

number of shares Series D Preferred

number of shares Convertible Note Interest at 7% Fair value adjustment Paid-in-kind Interest Expense

2021 — 113,709 $ 885 $ 725 $ 1,610

2022 1,511,541 — $ 2,310 $ 1,429 $ 3,739

Preferred Dividends

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, 2022, the Company had accumulated undeclared dividends of $34.63 million to holders of shares of our Series D Preferred of which $8.47 million is attributable to the year ended December 31, 2022.

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(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.

(3) Includes lease data for the Cedar Portfolio for the six months ended December 31, 2022.

Critical Accounting Estimates

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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.

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.

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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.

Acquired Properties and Lease Intangibles

We allocate the purchase price of the acquired properties to land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair values.

Identifiable intangibles include amounts allocated to acquired out-of-market leases, tenant relationships, the value of in-place leases and ground.

We determine fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.

Estimates of future cash flows are based on a number of factors including the historical operating results, known trends and specific market and economic conditions that may affect the property.

Management also estimates costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses.

Such amounts are based on estimates and forecasts which, by their nature, are highly subjective and may result in future changes in the event forecasts are not realized.

Impairment of Long-Lived Assets

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Operating Activities

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.

Our cash flows from operating activities were $30.76 million and $17.04 million during the year ended December 31, 2022 and 2021, representing an increase of 80.49% or $13.72 million.

Net cash provided by operating activities, before net changes in operating assets and liabilities, was $19.71 million and $16.54 million for 2022 and 2021, respectively.

The increase was primarily a result of an increase in non-same store net operating income ("NOI") of $5.91 million, primarily a result of the Cedar Acquisition and an increase in same store NOI of $1.23 million, partially offset by an increase in cash paid for interest expense and corporate general and administrative expenses.

Investing Activities

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.

Our cash flows used in investing activities were $133.51 million during the year ended December 31, 2022, compared to cash flows from investing activities of $5.10 million during the year ended December 31, 2021, representing a decrease of (2,717.37)% or $138.61 million primarily due to costs related to the Cedar Acquisition described in Note 3 included in this Form 10-K and an increase in capital expenditures paid of $2.10 million.

Financing Activities

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;

• $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):

Our cash flows from financing activities were $118.20 million during the year ended December 31, 2022, compared to cash flows used in financing activities of $24.49 million for the year ended December 31, 2021, respectively, representing an increase of 582.63% or $142.69 million due to the following:

• $302.35 million increase in loan proceeds a result of the KeyBank-Cedar Loan Agreement, Guggenheim-Cedar Loan Agreement, Guggenheim Loan Agreement, JANAF Loan Agreement and Patuxent Crossing/Coliseum Marketplace Loan Agreement, partially offset by the 2021 refinancing activity including the Wilmington Financing Agreement;

• $8.34 million decrease as a result of 2021 preferred stock redemptions made in the Company's tender offers;

partially offset by

• $4.87 million increase in deferred financing costs primarily related to the KeyBank-Cedar Loan Agreement, Guggenheim-Cedar Loan Agreement, Guggenheim Loan Agreement JANAF Loan Agreement and Patuxent Crossing/Coliseum Marketplace Loan Agreement, partially offset by 2021 refinancing activity including the Wilmington Financing Agreement;

• $158.51 million increase in loan principal payments primarily a result of the KeyBank-Cedar Loan Agreement payoff, eleven loans paid associated with the Guggenheim Loan Agreement, the three loans paid associated with the JANAF Loan Agreement and the 2022 Walnut Hill Plaza and Butler Square payoffs, partially offset by the 2021 Powerscourt Financing Agreement payoff, the 2021 refinancing activities and the loans paid down as a result of 2021 property sales;

• $1.93 million increase in prepayment penalties related to defeasance associated with the Guggenheim Loan Agreement and JANAF Loan Agreement, partially offset by the Berkley/Sangaree/Tri-County loan payoff;

• $2.69 million increase in dividend and distributions paid on noncontrolling interests.

The Company continues to endeavor to manage its debt prudently with the objective of achieving a conservative capital structure and minimizing leverage within the Company.

Our debt balances, excluding unamortized debt issuance costs, consisted of the following (in thousands) :

Fixed-rate notes (1)

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The weighted average interest rate and term of our fixed-rate debt including liabilities held for sale are 4.99% and 7.43 years, respectively, at December 31, 2022.

We have $13.57 million of debt maturing, including scheduled principal repayments, during the year ending December 31, 2022.

We have no debt maturing during the year ending December 31, 2023.

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.

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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;

Our expected material cash requirements for the year ended December 31, 2022 and thereafter are comprised of (i) contractually obligated expenditures;

(ii) other essential expenditures;

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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;

To meet these future liquidity needs, the Company:

• had $28.49 million in cash and cash equivalents at December 31, 2022;

• had $27.37 million held in lender reserves for the purpose of tenant improvements, lease commissions, real estate taxes and insurance at December 31, 2022;

• intends to use cash generated from operations during the year ended December 31, 2023.

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.

Additionally, the Company plans to undertake measures to grow its operations and increase liquidity through delivering space currently leased but not yet occupied, 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 and refinancing properties.

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.

If we are unable to execute in these areas, our ability to grow may be limited without additional capital.

In addition, the 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.

Series D Preferred Stock

After September 21, 2023 (the “Series D Redemption Date”), the Series D Preferred Holders 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 and unpaid dividends.

This redemption price is payable by the Company, at the Company’s election, in cash or shares of our common stock, $0.01 par value per share (“Common Stock”), or a combination of cash and shares of Common Stock.

Since January 2019, Series D Preferred (of which there are approximately 3.15 million shares outstanding at December 31, 2022) has been accruing unpaid dividends at a rate of 10.75% per annum of the $25.00 liquidation preference per share, or at $2.6875 per share per annum .

As of December 31, 2022, the outstanding Series D Preferred had an aggregate liquidation preference of approximately $78.81 million, with aggregate accrued and unpaid dividends in the amount of approximately $34.63 million, for a total liquidation value of $113.44 million.

Assuming dividends continue to accrue and remain unpaid on the Series D Preferred, then on the Series D Redemption Date we estimate that the aggregate liquidation preference (based on the 3,152,392 shares outstanding as of December 31, 2022) would be approximately $78.81 million, with aggregate accrued and unpaid dividends in the amount of approximately $40.99 million, for a total liquidation value of $119.80 million.

As of December 31, 2022, the Series D Preferred is convertible, in whole or in part, at any time, at the option of the Series D Preferred Holders, into previously unissued Common Stock at a conversion price of $16.96 per share of Common Stock.

Based upon the closing price of our Common Stock on February 28, 2023 of $1.58 per share, we believe it unlikely that Series D Preferred Holders would convert their shares of Series D Preferred into Common Stock in advance of the Series D Redemption Date, and likely that they would instead choose to exercise their redemption rights after the Series D Redemption Date.

In an effort to address the risk of a significant reduction to the value of a Series D Preferred Holder’s investment in Series D Preferred and Common Stock following the Series D Redemption Date, the Company launched a modified Dutch auction tender offer in December 2020 for up to $19.00 million (subsequently reduced to $6.00 million) of Series D Preferred, in which 1,467,162 shares were tendered and 387,097 shares were accepted for purchase for an aggregate cost of $6.00 million.

We subsequently launched a second modified Dutch auction tender offer in April 2021 for up to $12.00 million of our Series D Preferred, in which 103,513 shares were tendered and accepted for purchase for an aggregate cost of $1.86 million.

In July 2021, we raised additional capital for the Company through a rights offering pursuant to which the Common Stock holders purchased $30.00 million in aggregate principal amount of our Convertible Notes.

Interest on the Convertible Notes is payable at the Company’s option in cash, Series B Preferred and/or Series D Preferred.

On December 31, 2021, the first interest payment date on the Convertible Notes, interest was paid in the form of Series D Preferred.

For purposes of determining the value of the Series D Preferred paid as interest on the Convertible Notes, each share of Series D Preferred was deemed to have a value equal to the product of (x) the average of the per share volume-weighted average prices of the Series D Preferred for the 15 consecutive trading days ending on the third business day immediately preceding the interest payment date, and (y) 0.55.

On June 30, 2022, interest on the Convertible Notes was paid in the form of Series B Preferred.

For purposes of determining the value of the Series B Preferred paid as interest on the Convertible Notes, each share of Series B Preferred was deemed to have a value equal to the product of (x) the average of the per share volume-weighted average prices of the Series B Preferred for the 15 consecutive trading days ending on the third business day immediately preceding the interest payment date, and (y) 0.55.

On January 3, 2023 (the next succeeding Business Day after December 31, 2022), interest was paid on the Convertible Notes in the form of Series B Preferred.

The Convertible Notes could have the effect of causing, if interest is paid in the future in shares of Series D Preferred, substantial dilution of the Series D Preferred and reduction in the value of any Series D Preferred.

In an effort to address the risk associated with the significant and growing financial obligation to the Series D Preferred H olders, and to provide the Series D Preferred Holders with an opportunity to receive value for their Series D Preferred prior to the Series D Redemption Date, o n November 22, 2022, the Company commenced an Exchange Offer and related Consent Solicitation.

As a result, the Series D Preferred remains outstanding with no change to its terms, including its redemption rights.

We anticipate that, in the event of the Series D Preferred Holders’ exercise of such redemption rights after the Series D Redemption Date, the Company will not have sufficient available cash to pay the aggregate redemption price.

Accordingly, in such event, we will not be able to meet our redemption obligation without either liquidating assets or issuing significant additional amounts of Common Stock.

The Company does not believe it is in its interests to liquidate assets or incur indebtedness to fund cash redemptions of the Series D Preferred Stock and, accordingly, it has no intention of doing so.

Therefore, the Company will likely be required to settle redemptions of Series D Preferred following the Series D Redemption Date in Common Stock.

We believe that the issuance of Common Stock to either (i) fund cash redemptions or (ii) directly settle redemptions in Common Stock, will result in a substantial dilution of 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.

Prior to 2021, inflation was relatively low and did not have a significant detrimental impact on the Company’s results of operations.

However, inflation substantially increased in 2022.

In addition, substantially all of the Company’s tenant leases contain provisions designed to partially mitigate the negative impact of inflation in the near term.

Such lease provisions include clauses that require tenants to reimburse the Company for inflation-sensitive costs such as real estate taxes, insurance and many of the operating expenses it incurs.

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.

Significant inflation rate increases over a prolonged period of time may have a material adverse impact on the Company’s business.

Conversely, deflation could lead to downward pressure on rents and other sources of income.

Interest rate increases could result in higher incremental borrowing costs for the Company and our tenants.

The duration of our indebtedness and our relatively low exposure to floating rate debt have mitigated the direct impact of inflation and interest rate increases, the degree and pace of these changes have had and may continue to have impacts on our business.

Recent Accounting Pronouncements

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Results of Operations

Results from operations for the year ended December 31, 2022 reflect the results of the Company’s acquisition of Cedar on August 22, 2022.

Accordingly, our results of operations will reflect the combined operations for the entire period for future quarters.

Therefore, our historical financial statements may not be indicative of future operating results.

The following table presents a comparison of the consolidated statements of operations for the years ended December 31, 2022 and 2021, respectively (in thousands, except Property Data).

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Other expense (691) (185) (506) (273.51) %

Net Income (Loss) Before Income Taxes (9,349) 287 (9,636) (3,357.49) %

Net Loss Before Income Taxes (8,470) (9,349) 879 9.40 %

Income tax expense — (2) 2 100.00 %

Net Income (Loss) (9,351) 287 (9,638) (3,358.19) %

Net Loss (8,470) (9,351) 881 9.42 %

Net loss attributable to noncontrolling interests 3,984 92 3,892 4,230.43 %

Net Income (Loss) Attributable to Wheeler REIT $ (9,443) $ 245 $ (9,688) (3,954.29) %

Net Loss Attributable to Wheeler REIT $ (12,454) $ (9,443) $ (3,011) (31.89) %

(1) Excludes the undeveloped land parcels.

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Total revenue was $76.65 million and $61.31 million for the years ended December 31, 2022 and December 31, 2021, respectively, representing an increase of 25.01%.

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.

The increase in rental revenues of $14.83 million is primarily a result of the Cedar Acquisition, partially offset by the decrease from sold properties.

See Same Store and Non-same Store Operating Income for further details about the changes within operating revenue.

Total Operating Expenses

Total operating expenses were $54.65 and $43.86 million for the years ended December 31, 2022 and 2021, respectively, representing an increase of 24.62%.

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.

The increases are primarily a result of the Cedar Acquisition.

See Same Store and Non-same Store Operating Income for further details about the changes within property operations expense.

Impairment of assets held for sale was $760 thousand and $2.30 million for the years ended December 31, 2022 and 2021 respectively, as a result of Harbor Pointe Land Parcel and Columbia Fire Station, respectively.

Depreciation and amortization increased 32.05% for the year ended December 31, 2022 primarily as a result of the Cedar Acquisition.

Corporate general and administrative expenses were $8.62 million and $7.14 million for the years ended December 31, 2022 and 2021, respectively, representing an increase of 20.73%, 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.

• $811 thousand increase in compensation and benefits primarily driven by hiring more employees due to the Cedar Acquisition and payroll related costs;

• $694 thousand increase in professional fees primarily a result of the Cedar preferred litigation;

• $200 thousand increase in advertising related costs;

• $130 thousand increase in corporate administration costs;

and partially offset by

• $355 thousand decrease in other expenses, primarily related to lower fees associated with capital, debt and financing activities.

Disposal of Properties

The net gain on disposal of properties increase of $549 thousand for the year ended December 31, 2022 is a result of the 2022 sale of Walnut Hill Plaza and Butler Square compared to the 2021 sale of the Rivergate Shopping Center Out Parcel, Berkley Shopping Center and Berkley Land Parcel, Columbia Fire Station and Tulls Creek Land Parcel.

Interest Expense

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.

Interest expense was $30.11 million and $33.03 million for the year ended December 31, 2022 and 2021, respectively, representing a decrease of 8.84%.

Below is a comparison of the components which make up interest expense (in thousands):

December 31, Changes

2022 2021 Change % Change

Property debt interest - excluding Cedar debt $ 14,717 $ 14,611 $ 106 0.73 %

Convertible Notes interest (1)

3,739 1,610 2,129 132.24 %

Defeasance paid 2,614 687 1,927 280.49 %

Amortization of deferred financing costs 6,098 12,710 (6,612) (52.02) %

Interest on corporate debt — 3,410 (3,410) (100.00) %

Property debt interest - Cedar 2,939 — 2,939 100.00 %

Total Interest Expense $ 30,107 $ 33,028 $ (2,921) (8.84) %

(1) Includes the fair value adjustment for the paid-in-kind interest.

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.

The net changes in the fair value of derivative liabilities was a loss of $2.34 million and a gain of $3.77 million for the years ended December 31, 2022 and 2021, respectively, which represents a non-cash adjustment from a change in the fair value.

The largest impact on the derivative liabilities' valuation is a result of the change in fair market value of the Company's securities described at Note 6 on this Form 10-K.

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.

Other income was $0 and $552 thousand for the years ended December 31, 2022 and 2021, respectively, relating to Paycheck Protection Program (the "PPP") Promissory Note forgiveness.

Other expense was $691 thousand and $185 thousand

for the years ended December 31, 2022, respectively, relating to legal settlement costs.

Other income and other expense are non-operating in nature.

Same Store and Non-same Store Operating Income

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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.

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 charges, 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.

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.

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, market lease amortization, 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.

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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.

store category consists of the following properties:

The non-same store category consists of the following properties:

• Continuing operations

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);

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◦ Columbia Fire Station (sold November 17, 2021);

◦ Walnut Hill Plaza (sold January 11, 2022);

◦ Butler Square (sold December 9, 2022);

◦ Cedar Portfolio, 19 properties (acquired August 22, 2022).

Years Ended December 31,

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Other expense 691 185 — — 691 185

Other income (552) — — — (552) —

Net changes in fair value of derivative liabilities 2,335 (3,768) — — 2,335 (3,768)

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Property Revenues

Total same store property revenues were $60.95 million and $60.00 million for the years ended December 31, 2021 and 2020, respectively, representing an increase of 1.58% primarily due to:

• $915 thousand decrease in provision for credit losses a result of the Company's proactive tenant outreach during the pandemic and collection initiatives, which included accepting credit card payments;

• $333 thousand increase in rental revenue due to increased occupancy;

partially offset by

• $467 thousand decrease in above (below) market lease amortization related to leases becoming fully amortized.

Total same store property revenues were $62.15 million and $59.59 million for the years ended December 31, 2022 and 2021, respectively, representing an increase of 4.29%.

The same store property revenue increases are primarily related to the occupancy growth since December 31, 2020.

Property Expenses

Total same store property expenses were $19.40 million and $18.44 million for the years ended December 31, 2021 and 2020, respectively, an increase of 5.18% primarily due to increasing management fee allocation and an increase of $301 thousand in grounds and landscaping and an increase of $222 thousand in real estate taxes and utilities, partially offset by $105 thousand decrease in insurance expense.

There were no significant unusual or non-recurring items included in non-same store property expenses for the years ended December 31, 2021 and 2020.

Total same store property expenses were $20.28 million and $18.96 million for the years ended December 31, 2022 and 2021, respectively, an increase of 6.98% .

Same store property expense increase was primarily due to expense increases in insurance, grounds and landscaping and repairs and maintenance.

Property Net Operating Income

Total property net operating income were $41.66 million and $41.85 million for the years ended December 31, 2021 and 2020, respectively, representing a decrease of 0.45%.

Non-same stores had a decrease of $183 thousand in property net operating income, resulting from the loss of NOI associated with sold properties.

Total property net operating income were $48.81 million and $41.67 million for the years ended December 31, 2022 and 2021, respectively, representing a increase of 17.14%, primarily as a result of the Cedar Acquisition.

Funds from Operations (FFO)

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Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the primary measure of our operating performance.

Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, while historically real estate values have risen or fallen with market conditions.

Historical cost accounting for real estate

assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, while historically real estate values have risen or fallen with market conditions.

Accordingly, we believe FFO provides a valuable alternative measurement tool to GAAP when presenting our operating results.

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2022 2021 2022 2021 2022 2021 $ %

Net (Loss) income $ (8,201) $ 1,280 $ (1,150) $ (993) $ (9,351) $ 287 $ (9,638) (3,358.19) %

Net Loss $ (5,926) $ (8,179) $ (2,544) $ (1,172) $ (8,470) $ (9,351) $ 881 9.42 %

Depreciation and amortization of real estate assets 14,193 14,404 5,347 393 19,540 14,797 4,743 32.05 %

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FFO $ 9,027 $ 6,225 $ 199 $ (534) $ 9,226 $ 5,691 $ 3,535 62.12 %

During the year ended December 31, 2021, same store FFO decreased $11.72 million primarily due to the following:

• $15.37 million increase in interest expense;

• $1.32 million increase in corporate general and administrative expenses;

partially offset by

• $854 thousand decrease in other expense for legal settlements and reimbursement of 2019 proxy costs;

• $552 thousand increase in other income for PPP Promissory Note forgiveness;

• $3.77 million net change in the fair value of derivative liabilities.

During the year ended December 31, 2022, same store FFO increased $2.80 million.

We believe the computation of FFO in accordance with NAREIT's definition includes certain items that are not indicative of the results provided by our operating portfolio and affect the comparability of our period-over-period performance.

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Preferred stock dividends - undeclared (9,056) (8,837)

Dividends on noncontrolling interests preferred stock (3,913) —

Preferred stock redemption — 70

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Other non-recurring and non-cash expenses are costs we believe will not be incurred on a go forward basis.

Other nonrecurring expenses of $352 thousand for the year ended December 31, 2021 include $687 thousand loan prepayment penalty on sale of the Berkley Shopping Center and $185 thousand in legal settlement costs, partially offset with $552 thousand in PPP Promissory Note forgiveness.

Other nonrecurring expenses of $1.09 million for the year ended December 31, 2020, include legal settlement costs of $600 thousand, reimbursement of 2019 proxy solicitation expenses of $439 thousand incurred in connection with the Company's 2019 annual meeting of stockholders and severance of $51 thousand.

Loan cost amortization was $12.71 million and $1.10 million for the years ended December 31, 2021 and 2020, respectively.

The 2021 increase primarily related to the write-off of loan costs associated with the Powerscourt Financing Agreement and Wilmington Financing Agreement as a result of paying off each loan and the addition of the Convertible Notes.

Paid-in-kind interest was $1.61 million for the year ended December 31, 2021 due to interest related to the Convertible Notes paid with shares of Series D Preferred.

See Note 5 included in this form 10-K for additional details.

The preferred stock redemption of $70 thousand and $96 thousand for the years ended December 31 2021 and

Other nonrecurring expenses of $3.07 million for the year ended December 31, 2022 primarily include $2.61 million in loan defeasance payments, a result of the 2022 loan refinancing activities, $691 thousand legal settlement costs and severance partially offset with $353 thousand nonrecurring revenue related to Cedar's recognition of easement revenue.

Other nonrecurring expenses of $352 thousand for the year ended December 31, 2021 include $185 thousand in legal settlement costs, $687 thousand in loan prepayment penalty on sale of the Berkley Shopping Center, partially offset with $552 thousand in PPP Promissory Note forgiveness.

The preferred stock redemption of $0 and $70 thousand for the years ended December 31, 2022 and

2021, respectively, represents the undeclared dividends on the stock retirement for the months preceding their retirement.

Net changes in fair value of derivative liabilities is the result of the non-cash loss or gain from adjusting the warrant liabilities and embedded derivative liabilities to their fair market value, further details are described at Note 6 on this Form 10-K.

The preferred stock accretion adjustments represent the amortization of offering costs associated with raising the Series B Preferred and Series D Preferred.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis