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Wheeler REIT Weighing Options for 64-Property Grocery-Anchored Portfolio

Move Follows Weeks of Turmoil Including CEO's Dismissal and CFO's Resignation
February 6, 2018
Following weeks of turmoil in its C-suite, Virginia Beach, VA-based Wheeler Real Estate Investment Trust (NASDAQ:WHLR) has begun the process of selecting an independent third-party advisor to assist in identifying and pursuing options to maximize shareholder value.

Despite shareholders petitioning for such a move last summer, it took the firing of the REIT's namesake chairman, CEO and president, Jon Wheeler, and the resignation of its CFO before the REIT's board put the plan into action. The REIT provided no reasons for the executive departures.

After the REIT's stock lost more than 60% of its value since the first week of December, the company has now taken a number of steps intended to stabilize, according to newly appointed CEO David Kelly. Among its first steps was a decision to close its Charleston, SC, office and put the seven undeveloped properties in Virginia and North Carolina on the market for sale.

The REIT said it's also working to identify other assets to put on the market.

Wheeler owns and operates 64 grocery-anchored shopping centers, one office building and has seven undeveloped properties in Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Oklahoma, Tennessee, Kentucky, New Jersey, Pennsylvania and West Virginia.

"We have found through a comprehensive review that the company’s existing portfolio and organizational structure confirms our pre-existing belief that our real estate portfolio is solid and performing well," Kelly said in a statement.

However, Wheeler disclosed that it is currently in "proactive and substantive" discussions one of its main tenants, Southeastern Grocers (SEG), regarding a potential effect on the stability of the REIT's portfolio.

Recent media reports have indicated that Southeastern Grocers may be in financial distress and has been considering filing for bankruptcy protection.

As of last September, Southeastern Grocers leased 19 grocery store locations from Wheeler, including 14 Bi-Lo supermarket stores. SEG's leases total 724,348 of leased square feet with annualized base rent of $6.2 million, which represents about 15% of Wheeler's leasable square footage.

"We have been in proactive and substantive discussions with SEG with the goal of ensuring our portfolio’s stability," Kelly said. "While we are not at liberty to discuss all of the details surrounding these discussions, we are encouraged by our progress and plan to be able to share more details with you in the near future."

Also troubling to shareholders has been Wheeler REIT's most recent purchase.

Last month, Wheeler REIT acquired a retail shopping center in Norfolk, VA, known as JANAF, an acronym for Joint Army Navy Air Force, for $85.65 million, including the assumption of approximately $58.9 million of mortgage loans secured by the property. The REIT paid for the property in part by issuing about $1.5 million of the REIT's common stock.

That deal didn't sit well with Andrew Jones, managing partner of North Star Partners, which controls about 6.6% of Wheeler's outstanding stock. Jones was among the first to call on the REIT to consider strategic options last summer. He wrote again to them late last month.

"After ignoring his earlier request, "the board went on to approve the poorly conceived JANAF acquisition, which has resulted in further destruction of shareholder value. In addition to being a diversion from the company's strategy of acquiring smaller grocery anchored shopping centers, it was financed with preferred equity that essentially gave away $12.475 million in shareholder value. This represents a dilution in shareholder value of $1.33/share," Jones wrote.

Jones has called for a complete liquidation of the REIT that would result in the sale of all the company's assets in an orderly manner.

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