Wheeler Real Estate Investment Trust, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2021, compared with the same period in 2020. The Company owned and operated 59 retail shopping centers and five undeveloped properties across 12 states, with approximately 5.5 million square feet of gross leasable area and a 91.1% leased rate at quarter-end. The Company owned 98.54% of its operating partnership.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $14.73 million | $15.57 million | Down 5.4% |
| Operating income | $4.72 million | $3.55 million | Up 32.9% |
| Net loss | $4.03 million | $1.88 million | Loss increased $2.16 million |
| Net loss attributable to common stockholders | $3.00 million | $5.53 million | Loss decreased $2.52 million |
| Basic and diluted loss per share | $0.31 | $0.57 | Improved |
| Property NOI | $9.83 million | $10.83 million | Down 9.2% |
| FFO | $(494) thousand | $3.55 million | Down $4.04 million |
| AFFO | $87 thousand | $843 thousand | Down $756 thousand |
| Cash flow from operations | $4.74 million | $3.22 million | Up 47.0% |
Operating margin was approximately 32.1% in Q1 2021 versus 22.8% in Q1 2020, primarily because depreciation and amortization, impairment charges and corporate general and administrative expenses declined. Property NOI margin was approximately 66.8% versus 69.6% in the prior-year quarter.
At March 31, 2021, total assets were $483.08 million, total liabilities were $380.81 million and total equity was $14.95 million. Cash and cash equivalents were $9.37 million, with restricted cash of $34.84 million. Gross debt principal was $358.63 million, or $338.53 million of loans payable net of debt issuance costs and amounts classified with assets held for sale. The weighted-average interest rate on fixed-rate debt was 5.14%, with a weighted-average term of 3.88 years.
Material changes versus the prior comparable period
- Revenue declined primarily because three anchor vacancies resulted in co-tenancy provisions and lease modifications associated with tenant bankruptcies. Two vacant anchors were subsequently backfilled, with rent commencing in 2021.
- The leased rate increased to 91.1% from 89.2%, while the property count declined by one and gross leasable area declined by approximately 53,000 square feet.
- Property expenses increased 3.4%, including higher insurance, real estate taxes and snow removal, while property NOI declined 9.2%.
- Interest expense more than doubled to $8.96 million, primarily because of the write-off of Powerscourt debt issuance costs, a defeasance fee and interest on the Powerscourt facility.
- The Company paid off the $25.00 million Powerscourt Financing Agreement and entered into a $35.00 million Wilmington Financing Agreement at 8.00%, maturing in March 2026. The Wilmington facility is interest-only initially, secured by Company assets and subject to restrictive covenants.
- The Company redeemed 387,097 Series D preferred shares for $6.00 million in cash. The carrying value of the redeemed shares, including issuance costs and dividends in arrears, was $10.49 million, resulting in a $4.39 million deemed contribution.
- The Company sold Berkley Shopping Center and a Berkley land parcel for $4.15 million, recording a $176 thousand gain and receiving $3.94 million of net proceeds. It used $3.22 million of proceeds to repay debt and paid a $687 thousand defeasance fee.
- The $552 thousand Paycheck Protection Program loan was forgiven and recorded as other income.
- Accumulated undeclared preferred dividends totaled $31.40 million at March 31, 2021. Dividends on Series A, Series B and Series D preferred stock remained suspended.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings or revenue guidance. Management expects to address scheduled debt maturities through refinancing, property dispositions and operating cash flow, and stated that it anticipates refinancing maturing loans on reasonable market terms. Debt maturities and scheduled principal repayments for the twelve months ending March 31, 2022 totaled $38.19 million.
Management intends to improve liquidity by backfilling vacant anchor space, replacing defaulting tenants, using restricted cash for tenant improvements, selling assets and refinancing properties. The Company stated that failure to refinance or extend debt, execute dispositions or improve operations could limit growth and the reinstatement of dividends.
- COVID-19, tenant bankruptcies, anchor tenant closures, consumer spending and regional economic conditions remain material risks.
- The portfolio is geographically concentrated, with approximately 61% of annualized base rent in the Southeast, 35% in the Mid-Atlantic and 4% in the Northeast.
- The Wilmington financing includes a 5% premium on principal repayments or prepayments, collateral requirements and restrictions on additional debt, asset sales, dividends and other corporate actions.
- Warrants issued in connection with the Powerscourt and Wilmington financings created a $2.96 million derivative liability at quarter-end; the Company recorded a $347 thousand fair-value loss in Q1 2021.
- Pending litigation includes claims by former CEO David Kelly, a Series D preferred stockholder lawsuit brought by JCP entities and an appeal relating to former CEO Jon Wheeler. Outcomes were stated to be uncertain; the filing does not provide a clear quantified maximum exposure for these matters.
- The Harbor Pointe tax increment financing arrangement could require future payments of up to $2.18 million of principal, plus possible interest, although future shortfalls cannot be reasonably estimated. The Company funded $44 thousand of shortfalls in Q1 2021.
Most important facts for investors to verify
- Whether the Company can refinance or extend the $38.19 million of debt maturities and scheduled principal payments due through March 31, 2022.
- Actual collections, tenant bankruptcies, anchor replacements and the sustainability of the 91.1% leased rate.
- The terms and dilution potential of warrants for up to approximately 1.56 million common shares, including the Powerscourt and Wilmington warrants.
- The extent and timing of accumulated preferred dividends totaling $31.40 million and the prospects for resuming preferred dividends.
- Progress on planned property dispositions and the use of sale proceeds for debt reduction and liquidity.
- Developments in the JCP preferred-stock litigation, former executive claims and the Harbor Pointe contingent obligation.
- The filing states that disclosure controls were effective as of March 31, 2021 and that there were no changes in internal control over financial reporting.