Wheeler Real Estate Investment Trust, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2015, compared with the corresponding 2014 periods. The REIT owned and operated 34 shopping centers and held seven undeveloped properties across 11 states at June 30, 2015. The portfolio had 2.4 million square feet of gross leasable area and 95.57% ending occupancy, versus 94.70% a year earlier.
2015 results include the internalized Operating Companies and contributions from 2014 acquisitions plus six 2015 acquisitions: Laskin Road land, Pierpont Centre, Brook Run Properties, Alex City Marketplace, Butler Square and Brook Run Shopping Center.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $6.70 million, up 84.5% | $12.46 million, up 70.7% |
| Rental revenue | $4.91 million, up 63.7% | $9.29 million, up 56.2% |
| Operating loss | $(3.08) million | $(4.92) million |
| Net loss | $(5.30) million | $(9.52) million |
| Net loss attributable to common shareholders | $(72.71) million | $(78.97) million |
| Basic and diluted loss per share | $(4.13) | $(6.20) |
| Operating loss margin | Approximately (45.9)% | Approximately (39.5)% |
| FFO | $(1.22) million | $(2.21) million |
| Core FFO | $(1.49) million | $(2.38) million |
The common-shareholder loss included $8.33 million and $10.84 million of preferred dividends for the quarter and six-month period, respectively, and a $59.52 million deemed dividend from the beneficial conversion feature of Series C preferred stock. These items materially increased GAAP loss per share but were not cash operating expenses.
Property NOI was $4.57 million for the quarter and $8.37 million for the six months, compared with $2.72 million and $5.47 million, respectively, in 2014. Same-store property NOI was $2.82 million for the quarter and $5.36 million for the six months; new stores contributed $1.75 million and $3.01 million, respectively.
Cash and cash equivalents were $49.17 million at June 30, 2015, versus $9.97 million at December 31, 2014. Six-month cash flow from operations was $(12.19) million, investing cash flow was $(19.24) million and financing cash flow was $70.63 million. Financing cash flow included $83.42 million of net proceeds from the Series C preferred offering.
Total loans payable were $163.83 million, compared with $141.45 million at year-end 2014. Management reported a weighted-average interest rate of 4.86% and an average term of 6.62 years. Scheduled principal maturities total $20.83 million during the twelve months ending June 30, 2016. A new $45 million KeyBank revolving credit facility was established on May 29, 2015; no amounts had been drawn at quarter-end.
Material changes versus the prior comparable period
- Revenue growth primarily reflected portfolio expansion, including 19 properties acquired since June 2014, as well as new asset-management fees and commissions.
- Operating expenses increased 144.4% in the second quarter and 130.4% for the six months. General and administrative expense increased 154.0% and 162.9%, respectively, partly because of internalization and acquisition-related activity.
- Net loss increased to $5.30 million for the quarter and $9.52 million for the six months, from $1.91 million and $3.15 million in the prior-year periods.
- Total interest expense increased 44.3% for the quarter and 58.2% for the six months, principally due to acquisition-related debt and loan-cost amortization.
- Same-store revenues increased modestly after adjusting for Riversedge North, which ceased paying rent after the Operating Companies were internalized. Same-store FFO declined because corporate expenses increased substantially.
- Series C preferred stock issued in March 2015 was automatically converted into common stock on June 11, 2015. The conversion involved 93,000 preferred shares converting into 46.5 million common shares at a $2.00 conversion price.
- In July 2015, the Company completed an exchange of Series A and Series B preferred stock for 11.44 million newly issued common shares.
Guidance, outlook, risks and unusual items
- Management expected leases representing approximately 11.31% of gross leasable area and expiring during the twelve months ending June 30, 2016 to renew at comparable amounts and terms, although this is not a formal earnings outlook.
- Management stated that refinancing the $20.83 million of near-term maturities and executing the growth strategy will determine future liquidity. Failure to refinance or obtain additional capital could limit acquisitions and future dividends.
- The Company was paying a targeted annual common dividend of $0.21 per share. Debt service, preferred dividends, distributions, capital expenditures and acquisitions were identified as major liquidity requirements.
- Six-month operating cash flow was negative, partly because approximately $9.5 million was placed in acquisition escrows for transactions completed after quarter-end.
- Subsequent to June 30, the Company acquired Beaver Ruin Village, Beaver Ruin Village II, Columbia Fire Station, Chesapeake Square and Sunshine Plaza for aggregate stated contract prices of approximately $35.8 million, using combinations of cash, debt and operating partnership units.
- The Company recorded approximately $2.60 million of identified non-recurring general and administrative expenses during the six months, including acquisition, capital-related, legal, commission, marketing, Sarbanes-Oxley and recruitment costs.
- An Oklahoma legal matter resulted in an affirmed award of approximately $352,000 against a subsidiary. The Company accrued the judgment and posted bonds, and intended to appeal to the Oklahoma Supreme Court.
- Substantial tenant, occupancy, refinancing, interest-rate, acquisition-integration and redevelopment risks remain. The filing states that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Verify the refinancing plan and available liquidity for the $20.83 million of debt maturities through June 30, 2016.
- Assess whether recurring property cash flow can support corporate overhead, debt service, preferred dividends and the common dividend, given negative operating cash flow, FFO and Core FFO.
- Review the effect of the July 2015 preferred-stock exchange and other conversions on common-share dilution and future dividend obligations.
- Confirm occupancy, lease rollover, tenant concentration and leasing progress at recently acquired properties, particularly assets reported below full occupancy.
- Evaluate the cash funding, debt levels and integration requirements associated with the post-quarter-end acquisitions.
- Distinguish recurring operating expenses from acquisition, capital-market, legal and internalization costs when assessing normalized earnings.
- Review the terms and covenants of the KeyBank revolving facility and all mortgage debt, including near-term maturities and interest-rate exposure.