Wheeler Real Estate Investment Trust, Inc. — Q3 2021 Form 10-Q Summary
Business Context and Reporting Period
Unaudited quarterly report for the three and nine months ended September 30, 2021. The Company owned and operated 59 retail shopping centers and four undeveloped properties across 13 states, primarily in the Southeast and Mid-Atlantic. The Company owned 98.57% of Wheeler REIT, L.P. at quarter-end.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 |
|---|---|---|---|---|
| Total revenue | $15.51 million | $14.96 million | $45.73 million | $45.71 million |
| Operating income | $7.01 million | $4.85 million | $15.12 million | $12.94 million |
| Net income (loss) | $3.08 million | $0.72 million | $(4.02) million | $(0.89) million |
| Net income (loss) attributable to Wheeler REIT | $3.03 million | $0.71 million | $(4.09) million | $(0.91) million |
| Net loss attributable to common stockholders | $(0.23) million | $(2.18) million | $(8.90) million | $(11.10) million |
| Basic and diluted loss per share | $(0.02) | $(0.22) | $(0.92) | $(1.14) |
| Operating cash flow | Not separately provided | Not separately provided | $14.51 million | $13.98 million |
| FFO | $4.79 million | $4.94 million | $7.07 million | $13.20 million |
| AFFO | $0.69 million | $1.26 million | $1.96 million | $2.97 million |
Q3 property NOI was $10.47 million, up 3.38% year over year. Nine-month property NOI was $31.13 million, down 0.67%. The ending leased rate improved to 92.2% from 88.3% a year earlier, while gross leasable area declined 1.14% to approximately 5.50 million square feet.
At September 30, 2021, investment properties, net, were $387.57 million; cash and cash equivalents were $36.23 million; restricted cash was $35.67 million; total assets were $502.48 million; and total equity was $11.29 million. Loans payable, net, were $362.14 million, compared with $334.27 million at December 31, 2020. Total principal debt was $379.77 million, with a weighted-average fixed-rate debt interest rate of 5.17% and weighted-average term of 4.33 years.
Cash, cash equivalents and restricted cash increased to $71.90 million from $42.77 million at December 31, 2020. Nine-month cash flows included $14.51 million from operating activities, $3.82 million from investing activities and $10.80 million from financing activities.
Material Changes Versus the Prior Comparable Period
- Q3 revenue increased 3.64%, primarily from lower credit losses and nonrecurring easement and transaction-fee revenue. Nine-month revenue was essentially flat.
- Operating income increased 44.61% in Q3 and 16.85% for the nine months, aided by gains on property dispositions and lower depreciation and amortization.
- Interest expense increased 37.02% in Q3 and 54.95% for the nine months, primarily due to debt refinancing, the Wilmington Financing Agreement, Convertible Notes and the write-off of Powerscourt debt issuance costs.
- Corporate general and administrative expense increased 62.59% in Q3 and 8.28% for the nine months, including higher legal, administrative, office, insurance and financing-related costs.
- FFO declined 2.86% in Q3 and 46.41% for the nine months. AFFO declined 45.02% in Q3 and 34.16% for the nine months.
- The Company sold Berkley Shopping Center and related land, the Tulls Creek Land Parcel and a Rivergate outparcel for aggregate contract prices of approximately $8.10 million and recorded aggregate gains of approximately $2.14 million.
- The Company issued $30.00 million of 7.00% senior subordinated convertible notes due 2031 through a rights offering. The notes may be paid in cash or certain preferred stock and are subordinate to senior indebtedness.
- The Company entered into a $35.00 million, 8.00% Wilmington Financing Agreement maturing in March 2026 and issued warrants to purchase up to 1.06 million common shares.
- Series D Preferred shares outstanding declined to approximately 3.04 million from 3.53 million at year-end following two tender offers totaling approximately $7.86 million.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal financial guidance. Management intends to improve liquidity through leasing vacant anchor space, replacing defaulting tenants, tenant improvements, property dispositions, refinancing and operating cash flow. Management states that the ability to execute these measures will affect growth and the potential reinstatement of dividends.
- Preferred dividends have been suspended since the fourth quarter of 2018. Accumulated dividends in arrears on Series A, Series B and Series D Preferred Stock totaled $36.91 million at September 30, 2021. No common dividends were declared.
- Beginning September 21, 2023, Series D holders may require redemption at $25 per share plus accrued unpaid dividends. The filing identifies a significant risk that the Company will not have sufficient cash to fund this obligation and may need to use common stock, resulting in substantial dilution.
- Debt principal repayments and maturities total $379.77 million, including $89.29 million due in 2023, $92.02 million due in 2025 and $58.53 million due in 2026. Management expects to refinance maturing loans but states that inability to do so could materially affect results and financial condition.
- Restricted cash of $35.67 million is held for tenant improvements, leasing commissions, taxes, insurance and Series D Preferred redemptions and may not be freely available for general corporate purposes.
- COVID-19, tenant bankruptcies, retail-market conditions, occupancy, tenant credit, geographic concentration, interest rates, financing availability, debt covenants and REIT qualification remain principal risks.
- The portfolio is geographically concentrated, with approximately 62% of annualized base rent in the Southeast, 34% in the Mid-Atlantic and 4% in the Northeast.
- The Company recorded a $2.20 million impairment charge on assets held for sale during the first nine months and a $1.88 million Q3 gain from changes in derivative liabilities. These items are not representative of recurring property operations.
- Material litigation includes claims by a former CEO, a shareholder action involving Series D Preferred amendments and a subsequent shareholder action concerning the rights offering and unpaid preferred dividends. Outcomes of the pending matters cannot be predicted.
- The Company has an off-balance-sheet Harbor Pointe tax increment financing obligation with a potential future principal obligation of up to $2.15 million, plus possible interest. No liability was accrued because future shortfalls cannot be reasonably estimated.
- Subsequent to quarter-end, the backstop parties purchased an additional $3.00 million of Convertible Notes, and common stockholders approved amendments removing cumulative dividend rights of Series A and Series B Preferred Stock.
Important Facts for Investors to Verify
- Confirm the refinancing plan and available liquidity for the substantial 2023–2026 debt maturities.
- Assess whether operating cash flow and unrestricted cash can support debt service, capital expenditures and preferred redemption obligations.
- Review the terms, potential dilution and payment alternatives associated with the Convertible Notes and outstanding warrants.
- Evaluate the enforceability and financial impact of the amendments removing Series A and Series B cumulative dividend rights.
- Monitor Series D accrued dividends and the September 2023 holder redemption right.
- Determine whether improved occupancy and collections are sustainable after excluding nonrecurring easement, transaction-fee, disposition and derivative valuation items.
- Review the pending shareholder and employment litigation and the potential implications for preferred rights, dividend arrearages and the rights offering.