Wheeler Real Estate Investment Trust, Inc. — 2017 Third-Quarter Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; unaudited interim results. The REIT owned and operated 64 centers, one office building, seven undeveloped properties and one redevelopment project across 12 states. The filing reflects a one-for-eight reverse stock split effective March 31, 2017.
Financial Performance and Position
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Total revenue | $15.20 million | $11.91 million | $44.24 million | $32.13 million |
| Operating income | $1.78 million | $1.67 million | $5.49 million | $0.49 million |
| Net loss | $(2.17) million | $(1.63) million | $(4.06) million | $(8.21) million |
| Net loss attributable to common shareholders | $(4.56) million | $(2.75) million | $(11.37) million | $(9.70) million |
| Loss per common share | $(0.52) | $(0.32) | $(1.32) | $(1.16) |
| Operating cash flow | Not separately provided | Not separately provided | $18.51 million | $9.41 million |
| FFO | $5.57 million | $3.36 million | $13.87 million | $6.41 million |
| AFFO | $4.00 million | $2.66 million | $10.55 million | $7.22 million |
- Revenue increased 27.6% in the quarter and 37.7% year to date, primarily reflecting a full-period contribution from 23 retail properties acquired in 2016.
- Operating margins were approximately 11.7% in Q3 2017 versus 14.0% in Q3 2016, and approximately 12.4% for the first nine months versus 1.5% in the prior-year period.
- Depreciation and amortization increased to $7.75 million in Q3 and $20.46 million year to date. The 2017 expense included $1.74 million of accelerated amortization associated with the Bi-Lo lease termination.
- At September 30, 2017, investment properties, net, totaled $383.86 million; cash and cash equivalents totaled $5.66 million; restricted cash totaled $9.63 million; and total assets were $471.06 million.
- Total principal debt was $312.78 million, or $306.96 million net of unamortized issuance costs. Fixed-rate debt represented 69.77% of debt; variable-rate debt represented 30.23%.
- Total equity was $84.91 million, including $53.05 million of Series D preferred stock and $40.89 million of Series B preferred stock. Accumulated deficit was $191.26 million.
- Common dividends declared were $0.34 per share in Q3 and $1.10 per share for the first nine months, compared with $0.42 and $1.26, respectively, in the prior-year periods.
Material Changes Versus the Prior Comparable Period
- Property count increased from 55 to 64 and aggregate gross leasable area increased 30.7% to approximately 4.90 million square feet. Ending occupancy declined to 92.8% from 93.9%.
- Same-store property revenue was broadly stable: $8.78 million in Q3 versus $8.74 million, and $26.12 million for nine months versus $26.27 million. The year-to-date decline was attributed partly to the closure of Career Point Business School.
- New-store property revenue increased to $5.67 million in Q3 and $16.10 million year to date, compared with $2.25 million and $4.24 million, respectively.
- Property NOI increased to $10.72 million in Q3 and $30.75 million year to date, driven primarily by acquired properties.
- Interest expense increased 16.8% in Q3 and 32.6% year to date, reflecting additional borrowings and loan-cost amortization.
- Corporate general and administrative expense declined 12.8% in Q3 and 22.8% year to date.
- Operating cash flow increased $9.11 million year to date, while financing cash flow changed from $35.68 million provided in 2016 to $18.07 million used in 2017, largely because the prior-year period included substantial preferred-stock issuance proceeds.
- The Company completed sales of a Carolina Place land parcel and a Rivergate Steak n’ Shake outparcel, generating approximately $1.02 million of continuing-operations gains. It also completed the sale of the remaining Freestanding Properties, generating $1.50 million of discontinued-operations gains year to date.
Guidance, Outlook, Risks and Unusual Items
- Management did not provide formal earnings guidance. It stated that it expects to meet short-term liquidity needs through cash, operating cash flow, refinancing, and property sales if necessary.
- Debt maturities and scheduled principal repayments total $84.25 million during the 12 months ending September 30, 2018, including $68.03 million under the KeyBank line of credit. The Company was seeking refinancing and planned to reduce the KeyBank commitment below $50 million by December 6, 2017.
- Management stated that refinancing plans were expected to succeed, but lender commitments, definitive documentation and customary conditions remained outstanding. Failure to refinance could materially affect liquidity, operations and future dividends.
- The KeyBank facility had $68.03 million outstanding at September 30, 2017, matured in May 2018 and was subject to financial covenants. The Company reported compliance with applicable covenants and no event of default.
- Bi-Lo represented approximately 11.16% of annualized base rent. Bi-Lo closed two stores, including the Myrtle Park location whose lease was terminated, and Martin’s at Brook Run also closed. Management was negotiating potential backfills for the affected spaces.
- Retail properties remain exposed to anchor-tenant closures, tenant credit deterioration, lease concessions, reduced customer traffic, regional economic conditions and difficulty re-leasing vacant space.
- A 1% increase in interest rates, assuming no change in variable-rate debt, was estimated to reduce annual cash flow by approximately $946 thousand.
- The Company had a $12.0 million related-party note receivable tied to the Sea Turtle Development, bearing interest at 12% and collateralized by a second deed of trust. Related-party receivables totaled $2.32 million.
- The Company reported no material off-balance-sheet arrangements and no material environmental or litigation contingencies known at the filing date.
- The Company expected the 2018 revenue standard adoption to have no material impact and was continuing to evaluate the future lease-accounting standard.
Important Facts for Investors to Verify
- Progress and completed documentation for refinancing the $68.03 million KeyBank maturity and other near-term debt maturities.
- Whether the Company can maintain common and preferred dividend payments while funding debt service, capital expenditures and tenant improvements.
- Occupancy, backfill activity and rent collections following the Bi-Lo and Martin’s closures and the Bi-Lo lease termination.
- Actual recurring cash earnings after preferred dividends, loan-cost amortization, accelerated intangible amortization and capital expenditures; FFO and AFFO are non-GAAP measures.
- Exposure to variable interest rates, covenant compliance and the effect of refinancing terms on interest expense and liquidity.
- Collectability, maturity terms and related-party governance surrounding the $12.0 million Sea Turtle Development notes receivable.