Wheeler Real Estate Investment Trust, Inc. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023; filed March 5, 2024. The filing reports full-year results rather than a standalone fourth quarter. WHLR is a self-managed REIT focused primarily on grocery-anchored and necessity-based retail properties in the Mid-Atlantic, Southeast and Northeast. The portfolio included 75 shopping centers and four undeveloped land parcels totaling 8.1 million leasable square feet and 93.7% leased occupancy at year-end. Cedar Realty Trust, acquired in August 2022, contributed 19 shopping centers and a significant portion of the year-over-year growth.
Key Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $102.3 million | $76.6 million | Up 33.5% |
| Property operating income | $67.5 million | $50.9 million | Up $16.5 million |
| Operating income | $29.4 million | $24.6 million | Up $4.8 million |
| Net income (loss) | $6.1 million | $(8.5) million | Improved $14.6 million |
| Net loss attributable to Wheeler REIT | $(4.7) million | $(12.5) million | Improved $7.8 million |
| Net loss attributable to common stockholders | $(29.2) million | $(21.5) million | Worsened $7.7 million |
| Basic and diluted loss per share | $(4.57) | $(22.04) | Improved; affected by share issuance |
| Same-property NOI | $41.0 million | $41.4 million | Down 0.9% |
| FFO | $32.4 million | $9.2 million | Up $23.2 million |
| AFFO | $(0.2) million | $7.9 million | Down $8.2 million |
| Net cash from operating activities | $20.9 million | $30.8 million | Down 31.9% |
Revenue growth was driven principally by a full year of Cedar operations, higher rental revenue, market lease amortization and same-property revenue. Property operating expenses, depreciation and amortization, general and administrative costs and interest expense also increased. Net income benefited from a $9.9 million gain on Series D preferred redemptions and a $3.5 million favorable change in derivative liabilities, but common-stockholder results remained negative after preferred dividends and a $15.3 million deemed distribution associated with the Series D redemptions.
Liquidity, Debt and Capital Structure
- Cash and cash equivalents were $18.4 million; restricted cash was $21.4 million, for combined cash, cash equivalents and restricted cash of $39.8 million versus $55.9 million at December 31, 2022.
- Total debt principal was $495.6 million, with net loans payable of $477.6 million after deferred financing costs. The weighted-average fixed-rate debt cost was 5.42%, with an average term of 8.2 years.
- Debt maturities and scheduled principal repayments include $7.2 million in 2024, $12.3 million in 2025, $16.3 million in 2026, $3.0 million in 2027 and $12.9 million in 2028; $443.8 million is due thereafter.
- The Company reported $3.1 million of outstanding construction commitments at year-end and expects additional property capital expenditures that may not be recoverable from tenants.
- Series D preferred stock had a $64.8 million liquidation preference and $32.3 million of accrued and unpaid dividends, for total liquidation value of approximately $97.1 million. Common, Series A, Series B and Series D dividends have been suspended, subject to distributions required to preserve REIT status or limit tax obligations.
- Operating cash flow funded ongoing needs, while management also expects to use lender reserves, property dispositions, refinancing and leasing initiatives to support liquidity.
Material Changes Compared with 2022
- The Cedar acquisition contributed materially to revenue, NOI, expenses and debt balances in 2023 because 2023 reflected a full year of operations compared with approximately four months in 2022.
- The Company issued 52.8 million common shares during 2023 to settle the redemption of 864,070 Series D preferred shares with an aggregate redemption price of approximately $32.7 million. This substantially increased common shares outstanding and diluted existing holders.
- A one-for-ten reverse stock split became effective August 17, 2023. The Company subsequently regained Nasdaq bid-price compliance on September 1, 2023, but received another deficiency notice in December 2023 with a compliance deadline of June 4, 2024.
- The Company refinanced 12-property and eight-property loan pools for $61.1 million and $53.1 million, respectively, and entered into a $11.6 million Timpany Plaza loan, of which $9.1 million was initially funded.
- The Company sold the Carll’s Corner outparcel for $3.0 million, generating a $2.2 million gain and $2.8 million of net proceeds, and acquired two South Carolina land parcels for a combined approximately $4.3 million.
- The Company invested $10.0 million in Stilwell Activist Investments, L.P.; the investment had a reported year-end value of $10.7 million and generated a $0.7 million unrealized gain. The investment is related-party in nature because certain directors are affiliated with the investment manager.
- Same-property NOI declined modestly despite higher rental revenue, primarily because of higher property operating costs, a demolition expense and increased tenant credit losses.
Outlook, Risks and Unusual Items
- Management intends to improve liquidity and operating results through lease-up of space leased but not yet occupied, backfilling vacant anchor space, replacing defaulting tenants, tenant improvements, asset dispositions and refinancing.
- Series D holders may continue monthly redemptions, and the Company expects to settle those redemptions primarily with common stock rather than cash or new debt. Continued redemptions may cause substantial dilution and additional downward pressure on the common share price.
- The 7.00% Convertible Notes had approximately $31.5 million of principal outstanding at year-end. Their conversion price was repeatedly reduced by Series D redemption activity, reaching approximately $0.21 per common share in December 2023 and approximately $0.12 per share after February 2024 redemptions. The notes could therefore create substantial additional dilution.
- On February 29, 2024, the Company entered into a $9.5 million Cedar revolving credit agreement, collateralized by six properties, with maturity on February 28, 2025, subject to extension options.
- Interest rates, refinancing availability, tenant bankruptcies or defaults, retail-sector competition, e-commerce, geographic concentration, insurance costs, severe weather, cybersecurity incidents and the ability to maintain Nasdaq listing remain significant risks.
- Litigation related to the Cedar acquisition remains pending on appeal in one matter. The filing states that the outcome is uncertain, although management does not currently believe ordinary-course litigation will materially affect results.
- The Company reported no 2023 impairment expense, compared with $0.8 million in 2022. Real estate impairment estimates remain sensitive to occupancy, lease renewals, market rents, operating costs and capitalization rates.
- The Company reported effective disclosure controls and internal control over financial reporting as of December 31, 2023. The independent auditor did not provide an internal-control attestation because the Company is a smaller reporting company.
Investor Verification Items
- Liquidity and refinancing: Verify the Company’s ability to refinance or repay the $7.2 million of 2024 debt maturities and fund $3.1 million of construction commitments.
- Preferred redemptions and dilution: Track monthly Series D redemptions, common shares issued, accrued dividends and the impact on per-share value.
- Convertible Notes: Confirm current principal, conversion price, derivative liability valuation and potential share issuance following subsequent redemptions.
- Nasdaq compliance: Confirm whether WHLR regained compliance by the June 4, 2024 deadline and whether additional listing deficiencies arose.
- Operating performance: Monitor same-property NOI, occupancy, tenant credit losses, anchor vacancies and lease expirations, particularly the 2024-2028 expirations.
- Dividend capacity: Verify the status of suspended common and preferred dividends, the $32.3 million Series D dividend arrearage and any distributions required for REIT qualification.
- Related-party matters: Review the Stilwell investment, ownership-limit exemptions, subsequent amendments and the related-party governance process.