Wheeler Real Estate Investment Trust, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Unaudited quarterly report for the three months ended March 31, 2013. Wheeler REIT owned and operated 11 properties totaling 470,350 square feet across six states, compared with five properties and 129,880 square feet in the prior comparable period. This was the company’s first full quarter as a publicly traded company following its November 2012 initial public offering and formation transactions.
Key Financial Metrics
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenue | $1.618 million | $0.530 million |
| Rental revenue | $1.393 million | $0.397 million |
| Operating income | $0.070 million | $0.058 million |
| Net loss | $0.479 million | $0.140 million |
| Net loss attributable to Wheeler REIT | $0.434 million | $0.140 million |
| Loss per share | $0.13 | Not clearly provided |
| Net cash from operating activities | $(0.075) million | $0.025 million |
| Funds from operations | $0.169 million | $0.046 million |
| Cash and cash equivalents at period end | $1.053 million | $0.172 million |
| Mortgage and other indebtedness | $31.821 million | $31.844 million |
Operating expenses were $1.548 million, including $0.648 million of depreciation and amortization, $0.584 million of corporate general and administrative expense, and a $15,000 provision for credit losses. Operating margin was approximately 4.3%, compared with approximately 10.9% in Q1 2012; net margin was approximately negative 29.6%, compared with negative 26.5%.
Fixed-rate debt had a weighted-average interest rate of 5.47% and a weighted-average remaining term of 2.94 years at March 31, 2013. Total equity was $15.211 million, including $7.499 million of noncontrolling interests. Debt represented approximately 62% of total assets.
Material Changes Versus the Prior Comparable Period
- Revenue increased $1.088 million, or 205%, primarily because six properties acquired in the fourth quarter of 2012 contributed a full quarter of operations.
- Property count increased from five to 11, and ending occupancy increased from 88% to 94%.
- Operating expenses increased 228%, while interest expense increased 178% to $0.550 million.
- Corporate general and administrative expense increased $0.413 million, primarily because of professional fees and costs associated with operating as a public company, including approximately $105,000 for external management.
- Same-store property revenue decreased 6.1% to $0.498 million, partly because of prior-year tenant reimbursement reconciliations and changes in utility payment arrangements. Same-store property expenses decreased 13.1%.
- Cash flow from operations declined from $25,000 provided to $75,000 used. Investing cash outflow increased to $111,000, primarily due to approximately $108,000 of roof replacement expenditures.
- Financing cash outflow was $814,000, including $614,000 of distributions. The company continued paying a $0.035 monthly dividend, or a targeted annual dividend of $0.42 per share.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management identified approximately $2.10 million of debt maturing during the twelve months ending March 31, 2014, in addition to ongoing debt service, distributions, capital expenditures, and potential acquisition funding needs.
- The Shoppes at TJ Maxx loan was refinanced on April 19, 2013 with a $6.50 million loan maturing May 1, 2020 at a fixed 3.88% rate. The Riversedge North loan, which matured April 16, 2013, was extended to August 15, 2013 while refinancing alternatives are evaluated.
- Management expects to refinance maturing debt on reasonable terms but cautioned that an inability to do so could materially affect financial condition, results, liquidity, growth, and future dividends.
- The company had entered into or assumed numerous acquisition contracts after March 31, 2013, with stated purchase prices totaling approximately $81.5 million, including grocery-anchored centers and other retail properties. Closing dates and completion remain subject to contract and due diligence conditions.
- A lawsuit resulted in $13,300 of assessed damages against the company. The opposing party also sought approximately $368,000 of legal fees; the company is contesting the matter and appealing.
- Related-party activity included rent and reimbursement income from Wheeler Interests of $98,500 and $291,000 of receivables due from Wheeler Interests at March 31, 2013. Several subsequent acquisition agreements involved related parties.
- The company intends to qualify as a REIT and must satisfy applicable income, asset, distribution, and other requirements. Failure to qualify could subject it to corporate-level taxation.
- Management stated that disclosure controls were effective as of March 31, 2013 and that there were no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm refinancing or other resolution of the Riversedge North maturity and the company’s ability to address the remaining near-term debt maturities.
- Assess whether operating cash flow can support debt service, capital expenditures, acquisitions, and the targeted $0.42 annual dividend.
- Evaluate the sustainability of revenue growth from the recently acquired properties and the effect of elevated public-company and external-management costs.
- Review the funding, leverage, related-party terms, and closing conditions associated with the substantial acquisition pipeline announced after quarter-end.
- Monitor tenant credit quality, the allowance for uncollectible accounts, occupancy, lease expirations, and the pending litigation and legal-fee claim.
- Reconcile the filing’s non-GAAP FFO presentation with GAAP net loss and confirm the basis for the reported FFO measure.