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, 2022, compared with the corresponding 2021 periods. Wheeler is a self-managed REIT focused primarily on grocery-anchored retail shopping centers. At June 30, 2022, it owned and operated 57 retail centers and four undeveloped properties across 13 states, with approximately 5.39 million square feet of gross leasable area and a 95.7% leased rate.
Financial performance and key metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $15.48 million, down 0.1% | $30.98 million, up 2.5% |
| Operating income | $5.35 million | $10.04 million |
| Operating margin | 34.6% | 32.4% |
| Net loss | $53 thousand | $4.63 million |
| Net loss attributable to common stockholders | $2.32 million; $0.24 per share | $9.16 million; $0.94 per share |
| Property NOI | $10.74 million | $20.98 million |
| FFO | $3.67 million | $3.39 million |
| AFFO | $3.54 million | $5.88 million |
| Net cash from operating activities | Not separately provided | $9.95 million |
Revenue growth was supported by improved occupancy, while property expenses increased 1.6% in the quarter and 4.6% year to date. Property NOI declined 0.8% in the quarter but increased 1.6% year to date. Same-store property revenue increased 1.0% in the quarter and 3.6% year to date, while same-store property expenses increased 2.9% and 7.0%, respectively.
Cash, cash equivalents and restricted cash totaled $46.55 million at June 30, 2022, including $24.61 million of unrestricted cash and $21.95 million of lender reserves. Investment properties, net, totaled $383.15 million. Total liabilities were $373.43 million, and total equity was a deficit of $3.21 million.
Total debt principal was $350.88 million, or $338.66 million net of unamortized debt issuance costs. Weighted-average debt interest rate was 4.67%, with a weighted-average term of 5.46 years. Debt maturities and scheduled principal repayments totaled $4.48 million during the twelve months ending June 30, 2023.
Material changes versus the prior comparable period
- Six-month revenue increased $758 thousand, or 2.5%, while operating income increased $1.94 million, or 23.9%.
- Net loss improved from $7.10 million to $4.63 million, primarily due to lower interest expense and lower impairment charges.
- Interest expense declined $2.05 million year to date, but increased sharply in the second quarter because of $1.46 million of loan defeasance costs, deferred loan-cost write-offs and convertible-note-related expense.
- Impairment expense declined to $760 thousand year to date from $2.20 million in 2021. The 2022 charge related to the Harbor Pointe land parcel.
- Cash from operations increased 4.4% to $9.95 million. Investing activities used $3.25 million, primarily for capital expenditures, acquisition-related costs and property acquisitions.
- The company entered into a $75.0 million, 4.25% fixed-rate Guggenheim term loan in June 2022, using proceeds to refinance 11 loans. In July 2022, it entered into a $60.0 million, 5.31% fixed-rate JANAF loan with maturity in July 2032.
- Outstanding Series B Preferred Stock increased to 2.30 million shares from 1.87 million at year-end, partly because $2.10 million of convertible-note interest was paid in preferred shares.
- Leased rate improved to 95.7% from 91.9% at June 30, 2021, despite the portfolio declining by two properties.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings or revenue guidance. Management expects to fund near-term obligations through operating cash flow, refinancing, dispositions and available cash. Management also intends to improve liquidity by leasing currently unoccupied space, replacing defaulting tenants, using restricted cash for tenant improvements, disposing of assets and refinancing properties.
The proposed acquisition of Cedar Realty Trust was expected to close around August 22, 2022, subject to customary conditions. The transaction contemplated $130.0 million of cash merger consideration, financing of up to $130.0 million, and the addition of 19 shopping centers. The reported six-month results do not include Cedar’s operations.
The most significant capital-structure issue is the Series D Preferred Stock. Approximately 3.15 million shares were outstanding, with $30.40 million of accrued and unpaid dividends as of June 30, 2022. Beginning September 21, 2023, holders may require redemption at $25 per share plus accrued dividends. Management stated that it is unlikely to have sufficient cash to satisfy the redemption obligation and may need to liquidate assets or issue substantial common stock, potentially causing significant dilution.
Other unusual items included a $691 thousand legal settlement expense, $1.46 million of loan prepayment penalties, non-cash derivative fair-value gains of $2.09 million in the quarter and a $2.10 million non-cash preferred-stock interest payment related to the convertible notes. The company reported $6.65 million of derivative liabilities at quarter-end.
Material risks include refinancing and interest-rate risk, tenant credit and bankruptcy risk, dependence on grocery and other anchor tenants, geographic concentration in the Southeast, Mid-Atlantic and Northeast, litigation, the Cedar acquisition, environmental and insurance exposures, COVID-19 effects, e-commerce pressure and the ability to maintain REIT status. The company is also involved in several pending lawsuits, including disputes concerning Series B and Series D preferred-stock rights and the Cedar transaction.
Most important facts for investors to verify
- Whether the Cedar acquisition closed on the expected timeline and the final financing, consideration and acquired asset portfolio.
- Available liquidity and refinancing plans for upcoming maturities, particularly the $4.48 million due within twelve months of June 30, 2022.
- Progress toward addressing the Series D redemption obligation and $30.40 million of accrued dividends.
- Whether interest on convertible notes continues to be paid in preferred stock and the resulting dilution to preferred and common holders.
- Tenant collections, occupancy, leasing spreads and same-store expense growth, including the effect of credit losses.
- Outcomes and potential financial exposure from the JCP, Steamboat and Cedar-related litigation.
- The filing’s stated controls conclusion: management determined disclosure controls were effective as of June 30, 2022, with no reported changes in internal control over financial reporting.