Wheeler Real Estate Investment Trust, Inc. — 2021 Form 10-K Summary
Business Context and Reporting Period
The filing reports the fiscal year ended December 31, 2021, with comparative financial information for 2020. Wheeler is a self-managed REIT focused primarily on grocery-anchored, neighborhood and community retail centers in secondary and tertiary markets. At year-end, it owned 58 retail shopping centers and four undeveloped land parcels totaling approximately 5.48 million leasable square feet. The operating portfolio was 94.2% leased and generated $48.23 million of annualized base rent.
- The Southeast, Mid-Atlantic and Northeast represented approximately 62%, 34% and 4%, respectively, of annualized base rent.
- No tenant exceeded approximately 10% of annualized base rent or gross leasable area. The top 10 tenants represented 29.06% of annualized base rent.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $61.31 million | $61.00 million | 0.5% increase |
| Operating income | $19.51 million | $18.42 million | 5.9% increase |
| Net income (loss) | $(9.35) million | $0.29 million | $(9.64) million |
| Net loss attributable to Wheeler REIT | $(9.44) million | $0.25 million | $(9.69) million |
| Net loss attributable to common stockholders | $(13.24) million | $(9.29) million | $(3.95) million |
| Basic and diluted loss per share | $(1.36) | $(0.96) | Worsened |
| Property NOI | $41.66 million | $41.85 million | 0.5% decrease |
| FFO | $5.69 million | $18.16 million | 68.7% decrease |
| AFFO | $6.77 million | $8.60 million | 21.3% decrease |
Revenue benefited from improved collections and higher occupancy, but the earnings comparison was adversely affected by significantly higher interest expense, debt-cost write-offs, impairments and higher corporate expenses. Operating expenses increased 2.9% to $43.86 million, including $2.30 million of impairments and $7.14 million of corporate general and administrative expense.
Cash Flow, Debt and Liquidity
- Cash flow from operating activities was $17.04 million, up from $15.78 million in 2020.
- Cash flow from investing activities was $5.10 million, including $11.51 million of property-sale proceeds and $6.41 million of capital expenditures.
- Cash flow used in financing activities was $(24.49) million, primarily reflecting debt repayments, preferred-stock redemptions and financing costs.
- Cash, cash equivalents and restricted cash totaled $40.42 million at year-end, including $22.90 million of unrestricted cash and $17.52 million of restricted cash.
- Total debt principal was $346.26 million, compared with $353.92 million at year-end 2020. Fixed-rate debt had a weighted-average interest rate of 4.90% and weighted-average term of 4.13 years.
- Scheduled principal repayments and maturities totaled $13.57 million in 2022, $89.29 million in 2023, $50.49 million in 2024, $92.02 million in 2025 and $23.53 million in 2026.
Material Changes and Unusual Items
- The Company sold Columbia Fire Station, a Rivergate outparcel, the Tulls Creek land parcel, and Berkley Shopping Center together with a related land parcel, generating $11.51 million of net proceeds. Proceeds were used primarily to reduce debt.
- Impairment charges increased to $2.30 million from $0.60 million, including $2.20 million for Columbia Fire Station and $0.10 million for Walnut Hill Plaza.
- Interest expense increased 93.2% to $33.03 million. The increase included $11.61 million of loan-cost amortization and write-offs, $1.61 million of interest expense related to the convertible notes and additional financing and defeasance costs.
- The Company issued $33.00 million principal amount of 7.00% senior subordinated convertible notes due 2031. Interest may be paid in cash or preferred stock; the first interest payment was satisfied with 113,709 shares of Series D Preferred.
- The Company entered into and subsequently repaid a $35.00 million Wilmington Financing Agreement. It also repaid the $25.00 million Powerscourt Financing Agreement. Related warrants remain outstanding.
- Changes in the fair value of warrant and convertible-note derivative liabilities produced $3.77 million of non-operating income.
- The $552 thousand Paycheck Protection Program loan was forgiven and recorded as other income.
Guidance, Outlook, Management Commentary and Risks
Management did not provide formal earnings or operating guidance. Its stated priorities are to increase occupancy by backfilling vacant anchor spaces, improve leasing and expense management, selectively invest in properties, sell non-income-producing land and other assets, refinance debt and reduce leverage.
- Common-stock dividends have been suspended since 2018, and the filing provides no certainty regarding reinstatement. Preferred dividends also remain suspended.
- Series D Preferred dividends accrue at 10.75% after the missed January 2019 payment. Accrued and unpaid Series D dividends totaled $26.16 million at December 31, 2021.
- Beginning September 21, 2023, Series D holders may require redemption at $25 per share plus accrued and unpaid dividends. Management stated that available cash may be insufficient and that satisfying the obligation could require substantial common-stock dilution.
- COVID-19, tenant bankruptcies, e-commerce, rent collection, inflation, interest rates, refinancing availability and regional economic conditions remain key operating and financial risks.
- Several properties have low occupancy, including Cypress Shopping Center, Walnut Hill Plaza, Brook Run Shopping Center and Tampa Festival, creating lease-up and asset-value risk.
- Material litigation includes claims by former executives and preferred-stock investors concerning employment, charter amendments, dividend rights and the convertible-note rights offering. The filing states that outcomes cannot currently be predicted for certain matters.
- The Harbor Pointe tax increment financing arrangement may require future debt-service shortfall payments of up to $2.11 million of principal, plus potential interest; no liability was accrued because future shortfalls could not be reasonably estimated.
- Management reported effective disclosure controls and internal control over financial reporting. Because the Company is a smaller reporting company, the independent auditor did not provide an internal-control attestation.
Investor Verification Items
- Verify the Company’s ability to refinance or repay the $13.57 million of 2022 maturities and the larger 2023-2025 maturity concentrations.
- Assess the cash and dilution implications of the Series D Preferred redemption rights beginning in September 2023, including the $26.16 million accrued dividend balance.
- Review the terms, conversion mechanics and potential dilution from the $33.00 million convertible notes and approximately 1.56 million common-stock warrants and potential warrant shares.
- Evaluate whether occupancy improvements and tenant collections can offset elevated interest expense, corporate costs and capital expenditures.
- Monitor the sale of Walnut Hill Plaza, which was held for sale at year-end and sold in January 2022, and the related debt payoff.
- Review the pending preferred-stock and rights-offering litigation and any resulting effects on dividends, financing or corporate governance.