Wheeler Real Estate Investment Trust, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Wheeler REIT is a Maryland REIT that owns and operates grocery-anchored and other retail properties. As of September 30, 2014, it owned 29 operating centers and three undeveloped properties across nine states, totaling 32 properties and approximately 1.76 million square feet of gross leasable area. The unaudited filing covers the three and nine months ended September 30, 2014, compared with the corresponding 2013 periods.
| Metric | Three Months 2014 | Three Months 2013 | Nine Months 2014 | Nine Months 2013 |
|---|---|---|---|---|
| Total revenue | $4.17 million | $1.98 million | $11.47 million | $5.22 million |
| Operating loss | $(2.28) million | $(1.92) million | $(2.53) million | $(2.79) million |
| Net loss | $(4.00) million | $(2.51) million | $(7.15) million | $(4.37) million |
| Net loss attributable to common shareholders | $(4.60) million | $(1.80) million | $(8.05) million | $(3.53) million |
| Basic and diluted loss per share | $(0.62) | $(0.38) | $(1.10) | $(0.93) |
| Property NOI | $3.01 million | $1.59 million | $8.48 million | $4.25 million |
| FFO | $(1.80) million | $(1.64) million | $(1.43) million | $(2.17) million |
Financial Condition, Cash Flow, Margins, Debt and Liquidity
- Total assets increased to $188.3 million from $125.4 million at December 31, 2013, primarily reflecting property acquisitions. Investment properties, net, increased to $137.5 million from $101.8 million.
- Cash and cash equivalents were $19.86 million at September 30, 2014, compared with $1.16 million at year-end 2013.
- Loans payable totaled $129.8 million, up from $94.6 million. The weighted-average interest rate was 5.18%, with a weighted-average term of 5.91 years. Scheduled principal maturities totaled $7.56 million in 2015 and $29.33 million in 2016.
- Nine-month cash flow from operating activities was negative $4.72 million, compared with negative $1.70 million in 2013. Investing cash flow was negative $11.61 million, including $11.42 million for property acquisitions. Financing cash flow was positive $35.04 million, supported principally by preferred stock offerings and debt financing.
- Operating margin was approximately negative 54.7% for the quarter and negative 22.0% for the nine-month period. Net margin was approximately negative 96.0% and negative 62.4%, respectively. These figures were materially affected by depreciation and amortization, corporate costs, acquisition expenses and interest expense.
- Ending occupancy was 95.2%, compared with 95.0% in the comparable 2013 period. Same-store revenue was broadly stable, while new properties generated most of the revenue and NOI growth.
- The Company declared a $0.035 per-share common dividend for the quarter and stated that it was targeting an annual dividend of $0.42 per share. Preferred dividends were $1.55 million for the nine months.
Material Changes Versus the Prior Comparable Period
- Revenue increased 110.9% in the third quarter and 119.5% for the nine-month period, driven primarily by acquisitions. The portfolio grew from 15 to 32 properties and gross leasable area increased 78.7%.
- Property NOI increased 89.2% in the quarter and 99.2% for the nine months. Same-store revenue was nearly flat, while new-store property NOI increased to $1.82 million in the quarter and $4.70 million for the nine months.
- Despite revenue and NOI growth, the quarterly net loss increased 59.2% and the nine-month net loss increased 63.5%. Interest expense increased 190.6% in the quarter and 191.4% for the nine months as a result of acquisition debt and senior notes.
- Corporate general and administrative expense increased 16.5% in the quarter and 10.3% for the nine months. The filing cites approximately $1.9 million of 2014 acquisition-related professional fees, transaction costs, increased travel and administrative costs, franchise taxes and $190,000 of share-based compensation.
- Total FFO remained negative at $(1.80) million in the quarter but improved to $(1.43) million for the nine months from $(2.17) million in 2013. Core FFO, after adjustments for acquisition and legal costs and share-based compensation, was negative $1.15 million for the quarter and negative $0.47 million for the nine months.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- Management intends to continue acquiring grocery-anchored properties in secondary and tertiary markets across the Northeast, Mid-Atlantic, Southeast and Southwest. A $25 million secured guidance line with KeyBank was available through December 31, 2015 for selected acquisitions.
- Management stated that approximately 5.56% of gross leasable area was subject to leases expiring during the twelve months ending September 30, 2015 that had not already been renewed, and expected renewals at comparable terms. First-nine-month activity included 23 renewals covering 106,470 square feet and 14 new leases covering 33,996 square feet.
- Liquidity depends on refinancing $7.56 million of debt maturing in the twelve months ending September 30, 2015, meeting debt service and dividend obligations, funding capital expenditures and accessing additional capital. Management cautioned that failure to refinance debt or execute its growth strategy could limit growth and future dividends.
- Preferred stock offerings in April and September raised approximately $37.45 million net during the nine months. The Series B preferred stock carries a 9% dividend, is convertible into common stock subject to stated conditions and was accompanied by warrants, creating potential future dilution.
- Subsequent to quarter-end, the Company acquired Bryan Station for $6.1 million and Crockett Square for $9.75 million. It also agreed to internalize management through the contribution of management-company interests in exchange for 1,516,853 operating partnership units valued at $6.75 million.
- The Company disclosed an ongoing Perimeter litigation matter involving approximately $13,300 of damages and approximately $267,000 of awarded legal fees. Bonds have been posted and the amounts accrued; management does not expect material adverse effects, although the outcome of the appeal is uncertain.
- Port Crossing and LaGrange were acquired from related parties using operating partnership units. The filing also reports substantial transactions with entities controlled by the CEO, including $2.80 million paid to the CEO’s affiliates during the nine months and $296,000 of related-party rent and reimbursement income.
- The Company had no significant off-balance-sheet arrangements and reported that disclosure controls were effective as of September 30, 2014. It was evaluating the impact of the new revenue-recognition standard effective in 2017.
Important Facts for Investors to Verify
- Whether operating cash flow and FFO become positive after the acquired properties contribute full-period results.
- The Company’s ability to refinance the $7.56 million of near-term maturities and manage the $129.8 million debt balance.
- Whether the $0.42 annualized common dividend and preferred dividend obligations are sustainable given negative operating cash flow and negative FFO.
- The final purchase-price allocations and performance of the 2014 acquisitions, including occupancy, rent growth and integration costs.
- The dilution implications of Series B preferred stock, convertible senior debt, warrants and outstanding operating partnership units.
- The terms and financial effects of the post-quarter-end management internalization and subsequent acquisitions.