Wheeler Real Estate Investment Trust, Inc. — FY2012 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2012. Wheeler REIT is a newly public Maryland REIT focused on acquiring, owning, leasing and managing retail shopping centers, grocery-anchored centers, strip centers, community centers and free-standing retail properties in the Mid-Atlantic, Southeast and Southwest.
The company completed its initial public offering on November 16, 2012, issuing 3,016,045 common shares at $5.25 per share. At December 31, 2012, the portfolio comprised 11 properties totaling 470,350 square feet and was approximately 94.3% leased. Three properties were acquired in December 2012: Harps at Harbor Point, Twin City Crossing and Surrey Plaza.
Financial performance and key metrics
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Total revenue | $2.434 million | $1.925 million | +26.4% |
| Operating income (loss) | $(0.240) million | $0.251 million | Declined $0.491 million |
| Net loss | $(1.206) million | $(0.555) million | Loss increased $0.651 million |
| Net loss attributable to Wheeler REIT | $(1.162) million | $(0.555) million | Loss increased $0.607 million |
| Basic and diluted loss per share | $(0.35) | Not provided | Not comparable in the filing |
| Funds from operations | $(0.384) million | $0.190 million | Declined $0.574 million |
| Net cash from operating activities | $(0.290) million | $0.350 million | Declined $0.640 million |
| Cash and cash equivalents | $2.053 million | $0.104 million | Increased $1.949 million |
| Mortgage debt | $31.844 million | $12.136 million | Increased $19.707 million |
Revenue consisted primarily of minimum rent of $1.954 million, tenant reimbursements of $452,000 and percentage-of-sales rent of $9,000. Corporate general and administrative expense increased 236.3% to $1.307 million, largely due to REIT formation, public-company and acquisition-related costs. Interest expense increased 19.9% to $966,000.
Reported operating margin was approximately negative 9.8%, net margin was approximately negative 49.5%, and FFO margin was approximately negative 15.8%. These calculations are based on reported GAAP revenue and the company’s disclosed non-GAAP FFO. Property net operating income was $1.915 million, including $1.583 million from same-store properties and $332,000 from properties acquired during the fourth quarter.
Material changes versus the prior comparable period
- Revenue increased 26.4%, primarily from higher minimum rents, tenant reimbursements and fourth-quarter acquisitions.
- Same-store property revenue increased 4.3% to $2.008 million, while same-store property expenses declined 18.2%.
- Higher corporate overhead more than offset property-level improvement; same-store general and administrative expense increased approximately $879,000.
- Investment properties increased to $46.637 million at cost from $15.775 million, primarily due to the REIT formation and 2012 acquisitions.
- Debt increased substantially to $31.844 million. The weighted-average interest rate was 5.70%, with a weighted-average term of approximately 2.57 years.
- Equity increased through the IPO and issuance of operating partnership units, but accumulated deficit reached $5.443 million at year-end.
Liquidity, debt and capital resources
Operating cash flow was negative $290,000, while investing cash flow was negative $8.802 million, including $8.755 million for property acquisitions. Financing cash flow was $11.041 million, including approximately $13.371 million of net common-stock proceeds, $494,000 from preferred-stock issuance and $2.827 million of mortgage principal payments.
Scheduled principal maturities in the debt footnote totaled $12.828 million in 2013, including $6.400 million secured by The Shoppes at TJ Maxx and approximately $2.098 million secured by Riversedge North. Management separately described approximately $12.4 million of 2013 maturities. The Shoppes at Eagle Harbor loan was refinanced after year-end for $4.0 million at a fixed 4.34% rate, while management had a commitment, subject to underwriting, to refinance the TJ Maxx loan at 3.88% with a seven-year maturity. Riversedge North was under discussion for an extension or refinancing.
Management targeted a monthly dividend equivalent to $0.42 per share annually and stated that distributions may initially require use of IPO proceeds. The filing does not provide a formal earnings or occupancy forecast. Management intended to pursue additional acquisitions, including a proposed $10.6 million Bixby Commons grocery property, subject to due diligence and an anticipated second-quarter closing.
Outlook, commentary, risks and unusual items
- Management expects to pursue acquisitions in secondary and tertiary markets, using a combination of equity, debt financing, property contributions and operating partnership units.
- Management believes acquisition cap rates in target markets were generally 8% to 10% or higher and expected acquisitions to generate cash flow supporting dividends; these are forward-looking expectations, not guarantees.
- Key risks include refinancing and interest-rate risk, dependence on external financing, tenant retention and lease-up risk, geographic concentration, reliance on anchor tenants, operating and capital expenditure requirements, economic weakness, and the ability to maintain REIT qualification.
- The portfolio’s annualized base rent was geographically concentrated: approximately 62% in the Mid-Atlantic, 17% in the Southeast and 21% in the Southwest.
- The ten largest tenants represented approximately 56.2% of net rentable area and 44.0% of annualized base rent. BI-LO represented approximately 88% of Twin City Crossing’s rentable area.
- The company reported no impairment charges in 2012 or 2011 and no significant off-balance-sheet arrangements.
- A lawsuit resulted in assessed damages of $13,300, and the opposing attorney sought approximately $368,000 of legal fees. The company intended to appeal and contest the claim.
- Related-party transactions are material: the company paid approximately $890,000 to Wheeler-controlled affiliates in 2012 and received approximately $406,000 in rent and reimbursements from Wheeler Interests.
Most important facts for investors to verify
- Completion and final terms of refinancing for the 2013 maturities, particularly TJ Maxx and Riversedge North.
- Whether negative operating cash flow and negative FFO improve sufficiently to support the targeted $0.42 annualized dividend.
- Actual contribution of the December 2012 acquisitions to recurring revenue, NOI and cash flow on a full-year basis.
- Tenant concentration, lease expirations and renewal prospects, especially for grocery anchors and other major tenants.
- Terms, valuation and financing of the proposed Bixby Commons acquisition and any subsequent acquisitions.
- Potential exposure from the pending litigation and approximately $368,000 legal-fee request.
- Compliance with REIT income, asset and distribution requirements and the consequences of any failure to qualify.
- Accuracy of reported debt maturity totals, because the MD&A and debt footnote present slightly different 2013 maturity amounts.