Wheeler Real Estate Investment Trust, Inc. — Q1 2020 Form 10-Q
Business Context and Reporting Period
Unaudited results cover the three months ended March 31, 2020, with comparisons to the three months ended March 31, 2019. The REIT owned and operated 60 retail shopping centers, one office building and six undeveloped properties across 12 states. The portfolio was approximately 89.2% leased at March 31, 2020, and grocery and drug stores anchored 45 of the 60 retail properties.
Financial Performance and Position
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $15.574 million | $15.995 million | (2.6%) |
| Operating income | $3.554 million | $5.455 million | (34.9%) |
| Net income (loss) | $(1.877) million | $0.655 million | $(2.532) million |
| Net loss attributable to common shareholders | $(5.525) million | $(3.015) million | $(2.510) million |
| Basic and diluted loss per share | $(0.57) | $(0.31) | $(0.26) |
| Property NOI | $10.829 million | $11.214 million | (3.4%) |
| FFO | $3.548 million | $4.632 million | (23.4%) |
| AFFO | $0.843 million | $1.064 million | (20.8%) |
| Cash flow from operations | $3.223 million | $2.697 million | 19.5% |
At March 31, 2020, total assets were $479.149 million, including $406.815 million of investment properties, $6.695 million of unrestricted cash and $16.543 million of restricted cash. Loans payable, net, were $336.277 million, while total liabilities were $367.794 million and total equity was $21.563 million.
Total debt principal was $344.470 million, consisting primarily of $307.207 million of fixed-rate notes, $23.948 million of adjustable-rate mortgages, $4.015 million of fixed-rate debt associated with assets held for sale and $9.300 million drawn under the KeyBank credit agreement. Fixed-rate debt had a weighted-average interest rate of 4.68% and a weighted-average term of 4.63 years.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of lower revenue from properties sold during 2019 and 2020. The portfolio decreased from 62 to 60 owned and leased properties, while the leased rate remained broadly stable at 89.2% versus 89.1%.
- Operating income fell $1.901 million. The decline reflected the absence of the $1.839 million gain on property disposals recognized in Q1 2019, a $600 thousand impairment charge on Columbia Fire Station and lower property NOI, partly offset by lower depreciation and amortization.
- Interest expense decreased $393 thousand to $4.400 million, primarily due to lower debt balances and reduced loan-cost amortization.
- Other expense of $1.024 million was recorded in Q1 2020, including $585 thousand of legal settlement costs and $439 thousand reimbursing proxy solicitation expenses.
- Same-store property revenue was substantially flat at $15.542 million, but same-store property expenses increased 1.7%, reducing same-store NOI by $113 thousand.
- Cash flow from operations increased $526 thousand, while investing cash flow declined because Q1 2020 included only the St. Matthews sale compared with several property sales in Q1 2019.
Guidance, Outlook, Risks and Unusual Items
- The filing provides no formal earnings or revenue guidance. Management expects to fund near-term liquidity needs through operating cash flow, cash and restricted cash, refinancings, property dispositions, possible land sales, loan forbearance and continued suspension of preferred dividends.
- Debt maturities and scheduled principal repayments totaled $53.78 million for the 12 months ending March 31, 2021, including $9.30 million under the KeyBank credit agreement. Management planned to refinance, extend or dispose of collateral securing maturing loans.
- The KeyBank agreement required a $2.00 million balance by April 30, 2020 and full maturity on June 30, 2020. The Company did not meet the April 30 paydown requirement and was negotiating an extension to December 31, 2020. The May 12, 2020 balance was $8.60 million.
- COVID-19 had not caused significant disruption during Q1, but management reported that approximately 86% of tenants were open in April and approximately 72% of April contractual base rent and tenant reimbursements had been collected. The Company had received rent relief requests and could not predict the pandemic’s effect on future collections, occupancy, property values or financing access.
- Eight loans received COVID-19-related forbearance, deferring approximately $928 thousand of principal and interest. The Company also received a $552 thousand Paycheck Protection Program loan on April 27, 2020; forgiveness was uncertain.
- Preferred dividends remained suspended. Cumulative dividends in arrears on Series A, Series B and Series D preferred stock totaled $20.47 million at March 31, 2020. A Series D preferred dividend default occurred on April 15, 2020, potentially giving preferred holders rights to elect two additional directors.
- Subsequent to quarter-end, the Company extended the Columbia Fire Station loan to September 3, 2020, obtained a non-binding term sheet to extend the Tuckernuck loan to August 1, 2020, and extended the Rivergate loan to June 20, 2020.
- Legal matters include a $475 thousand severance award to former CEO Jon Wheeler, for which $485 thousand was accrued, an unresolved defamation action, and an expected approximately $196 thousand recovery from the Sea Turtle bankruptcy that was not recorded at March 31, 2020.
Important Facts for Investors to Verify
- Progress and final terms of the KeyBank extension or refinancing, including compliance with required paydowns and the June 30, 2020 maturity.
- Ability to refinance or extend the $53.78 million of debt due within 12 months and the effect of loan covenants and collateral requirements.
- Actual rent collections, tenant concessions, delinquencies, bankruptcies and occupancy trends following the COVID-19 disruption.
- Status of the Columbia Fire Station sale and the $600 thousand impairment, as well as other planned asset and land dispositions.
- Accumulation and potential governance consequences of unpaid preferred dividends, including the Series D preferred dividend default.
- Whether the PPP loan is forgiven and the ultimate costs or resolution of outstanding litigation and related-party matters.