Business Context and Reporting Period
Wheeler Real Estate Investment Trust, Inc. filed an audited Form 10-K for the fiscal year ended December 31, 2020. The Company is a self-managed REIT focused on grocery-anchored and necessity-based retail properties in secondary and tertiary markets. At year-end, it owned 60 operating shopping centers and six undeveloped land parcels totaling approximately 5.56 million leasable square feet; the operating portfolio was 88.9% leased and 87.1% occupied.
Annualized base rent was $46.85 million. The Southeast, Mid-Atlantic and Northeast represented approximately 61%, 35% and 4% of annualized base rent, respectively. No tenant exceeded 6% of annualized base rent; the ten largest tenants represented 26.41%.
Financial Performance and Key Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $61.00 million | $63.16 million | (3.42%) |
| Operating income | $18.42 million | $10.85 million | 69.69% |
| Net income | $287 thousand | $(8.14) million | Improved $8.43 million |
| Net income attributable to Wheeler REIT | $245 thousand | $(8.04) million | Improved $8.28 million |
| Net loss attributable to common stockholders | $(13.56) million | $(22.67) million | Improved $9.11 million |
| Property NOI | $41.85 million | $43.91 million | (4.70%) |
| FFO | $18.16 million | $13.38 million | 35.70% |
| AFFO | $4.33 million | $3.97 million | 9.05% |
| Net cash from operating activities | $15.78 million | $15.25 million | 3.46% |
Operating margin was approximately 30.2% and property NOI margin was approximately 68.6%, based on reported revenue. Net income remained modest after interest expense and preferred dividend accruals.
At December 31, 2020, cash and cash equivalents were $7.66 million, restricted cash was $35.11 million, and total cash, cash equivalents and restricted cash were $42.77 million, compared with $21.59 million at December 31, 2019. Total assets were $489.38 million and total equity was $16.85 million.
Total debt principal was $353.92 million, compared with $347.06 million in 2019. Fixed-rate debt had a weighted-average interest rate of 5.46% and weighted-average term of 3.79 years. Debt maturities and scheduled principal repayments totaled $43.93 million in 2021, including six loans collateralized by seven properties.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of property dispositions, three anchor vacancies and higher credit losses related to COVID-19.
- Property NOI declined $2.07 million, including a $1.50 million decrease in same-store NOI and a $566 thousand decrease from non-same-store properties.
- Operating income improved substantially because of lower depreciation and amortization, lower impairment charges, reduced corporate general and administrative costs and the absence of the $5.00 million 2019 impairment of notes receivable.
- Interest expense decreased $1.89 million to $17.09 million, primarily because of debt reductions, refinancing activity and lower loan-cost amortization.
- The Company sold St. Matthews and Riversedge North for aggregate net proceeds of approximately $4.51 million, using proceeds to reduce indebtedness. Additional assets were classified as held for sale at year-end.
- The Company entered into a $25.00 million Powerscourt term loan at 13.50% maturing March 31, 2023 and issued warrants to purchase 496,415 common shares at $3.12 per share. The KeyBank Credit Agreement was paid in full on December 22, 2020.
- Common and preferred dividends remained suspended. Accumulated undeclared preferred dividends totaled $30.51 million at year-end, and Series D Preferred dividends accrued at 10.75% after the suspension.
Guidance, Outlook, Risks and Unusual Items
Management did not provide formal earnings guidance. Its stated priorities are refinancing or extending 2021 debt maturities, using dispositions and operating cash flow to reduce leverage, backfilling vacant anchor space, funding tenant improvements and preserving liquidity. The Company stated that it cannot provide certainty as to when or whether dividends will be reinstated.
- COVID-19 affected tenant operations, rent collections, vacancies and credit losses. The Company collected 99% of 2020 contractual base rent and tenant reimbursements and 97% for the fourth quarter. Nine tenants vacated because of bankruptcy, while nine bankrupt tenants received lease modifications.
- The Company granted 148 concessions through March 5, 2021 and modified 72 leases through December 31, 2020. Nine bankrupt-tenant modifications produced a weighted-average rate decrease of 7.54%.
- Columbia Fire Station debt entered default status in December 2020, with the interest rate increasing to 14%. A January 2021 forbearance agreement extended maturity to July 21, 2021 after a $500 thousand principal payment.
- The Company recorded a $600 thousand impairment on Columbia Fire Station and held several properties and parcels for sale.
- Other expense included $600 thousand of legal settlement costs and $439 thousand reimbursing proxy solicitation expenses. A former CEO received a $500 thousand settlement; a separate former CEO employment lawsuit seeks at least $400 thousand and remained unresolved.
- The Company has an uncapped-to-estimate Harbor Pointe tax-increment financing obligation with a maximum future principal obligation of $2.21 million, plus potentially variable interest; no liability was accrued because future shortfalls could not be reasonably estimated.
- Subsequent events included forgiveness approval for the $552 thousand PPP loan, a $6.00 million Series D Preferred tender offer, repayment of the $25.00 million Powerscourt loan, and a new $35.00 million Wilmington financing agreement at 8.00% maturing in March 2026. The Wilmington facility included warrants for 1,061,719 common shares and restrictive covenants.
Important Facts for Investors to Verify
- Ability to refinance or repay the $43.93 million of 2021 debt maturities and scheduled principal payments.
- Current occupancy, anchor backfill progress, tenant bankruptcies, rent concessions and collection trends after year-end.
- Liquidity available after restricted cash requirements, tenant improvements, lease commissions, taxes, insurance and preferred-stock redemptions.
- Terms, covenants and collateral requirements of the Wilmington financing and the dilution potential from outstanding warrants and proposed equity awards.
- Magnitude and priority of the $30.51 million accumulated preferred dividends and conditions for dividend reinstatement.
- Disposition timing and proceeds for assets held for sale, including Columbia Fire Station, Berkley-related assets and Rivergate outparcels.
- Resolution and potential cost of pending litigation, tax-protection obligations and the Harbor Pointe financing contingency.
- Whether reported FFO and AFFO remain sufficient to support common-stock value after preferred dividend accruals, debt service and recurring capital expenditures.