Wheeler Real Estate Investment Trust, Inc. — 2019 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2019; the “2019 Q4” reference corresponds to the fourth quarter within this annual reporting period. Wheeler is a self-managed Maryland REIT that owns, leases and operates grocery-anchored and necessity-based retail properties, primarily in secondary and tertiary markets.
- At year-end, the portfolio comprised 68 properties: 61 retail shopping centers, one office property and six undeveloped land parcels.
- The operating portfolio contained 5.62 million leasable square feet and was 89.8% leased, compared with 89.4% at December 31, 2018.
- Annualized base rent was $48.51 million. The top 10 tenants represented 25.34% of annualized base rent; no individual tenant exceeded 6%.
- Geographic exposure by annualized base rent was approximately 60% Southeast, 36% Mid-Atlantic and 4% Northeast.
Financial performance and key metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $63.16 million | $65.28 million | Down 3.2% |
| Property NOI | $43.91 million | $46.40 million | Down 5.4% |
| Operating income | $10.85 million | $2.46 million | Up $8.40 million |
| Net loss | $(8.14) million | $(16.91) million | Improved $8.76 million |
| Net loss attributable to Wheeler REIT | $(8.04) million | $(16.50) million | Improved $8.46 million |
| Net loss attributable to common shareholders | $(22.67) million | $(29.33) million | Improved $6.66 million |
| Loss per common share | $(2.34) | $(3.17) | Improved $0.83 |
| FFO | $13.38 million | $16.25 million | Down 17.7% |
| AFFO | $3.97 million | $7.08 million | Down 44.0% |
| Cash flow from operations | $15.25 million | $22.00 million | Down 30.7% |
Operating income margin was approximately 17.2%, while the net loss margin was approximately negative 12.9%. NOI margin on total revenue was approximately 69.5%; these margins are calculated from the reported amounts. The filing does not present a separate GAAP gross margin.
- Cash, cash equivalents and restricted cash increased to $21.59 million from $18.00 million, including $5.45 million of unrestricted cash and $16.14 million in lender reserves.
- Total debt principal declined to $347.06 million from $369.61 million. Net loans payable on the balance sheet were $340.91 million.
- Fixed-rate debt had a weighted-average interest rate of 4.67% and a weighted-average remaining term of 4.77 years.
- Debt maturities and scheduled principal repayments totaled $62.07 million in 2020, including $17.88 million under the KeyBank line of credit.
- Total assets were $484.37 million, total liabilities were $371.13 million and total equity was $26.01 million at year-end.
Material changes versus the prior comparable period
- Revenue declined primarily because 2018 included larger early lease termination fees and because of rent reductions, property dispositions and vacant anchor spaces. A full year of JANAF operations and higher tenant reimbursements partly offset the decline.
- Property NOI fell $2.49 million, with same-store NOI down $1.60 million and non-same-store NOI down $0.89 million.
- Operating expenses decreased $11.58 million, largely because 2018 included goodwill, real estate and lease-related impairment charges and higher depreciation and amortization. This more than offset the 2019 Sea Turtle and held-for-sale impairments.
- Interest expense decreased $1.24 million, reflecting debt reductions and lower loan-cost amortization, partially offset by a full year of JANAF interest.
- The Company sold four properties or land parcels in 2019 for aggregate contract prices of $15.95 million and reported net proceeds of $3.60 million, which were used primarily to reduce debt.
- Refinancings of Village of Martinsville, Laburnum Square and Litchfield Market Village generated principal paydowns on the KeyBank facility. The Revere Term Loan and senior convertible notes were fully repaid.
- The Company adopted ASC 842 on January 1, 2019. This added approximately $11.90 million of operating lease right-of-use assets and $11.99 million of lease liabilities, without a material impact on earnings or cash flow.
- Renewed leases covered 1.04 million square feet in 2019, with a weighted-average rate increase of 4.17%. New leases covered 117,605 square feet at an average $12.82 per square foot.
Guidance, outlook, risks and unusual items
The filing provides no formal earnings, occupancy or dividend guidance. Management’s stated priorities are to refinance or extend maturing debt, reduce leverage through dispositions, backfill vacant anchor spaces, fund selected tenant improvements and improve liquidity.
- Dividends on common stock and Series A, Series B and Series D preferred stock remained suspended. No certainty was provided regarding reinstatement. Series D dividends accumulated at an increased 10.75% rate beginning January 1, 2019.
- Accumulated undeclared preferred dividends totaled $16.99 million at December 31, 2019, including $13.95 million attributable to 2019.
- The KeyBank facility required further reductions and additional collateral. Subsequent to year-end, the Company sold St. Matthews and refinanced Shoppes at Myrtle Park, reducing the KeyBank balance to $10.00 million as of January 31, 2020. The Rivergate loan was extended to March 20, 2020.
- The Company recorded a $5.00 million impairment on Sea Turtle Development notes receivable in 2019; cumulative impairment was $12.00 million and the carrying value was reduced to zero. The related project was subject to bankruptcy and senior lender claims; BOKF’s $18.75 million credit bid was approved in February 2020, with expected proceeds to Wheeler deemed immaterial.
- The Company recorded a $1.60 million impairment on assets held for sale, primarily Perimeter Square and St. Matthews.
- Material risks include refinancing the 2020 maturities, compliance with debt and preferred-stock covenants, weak occupancy or tenant credit, concentration in regional retail markets, anchor tenant departures, online retail competition, interest-rate increases, litigation and the ability to maintain REIT status.
- Pending matters included litigation by a former CEO seeking approximately $1.00 million, a defamation action, and the JCP preferred-stock covenant dispute. The JCP matter was settled in February 2020 for dismissal without prejudice; the other matters’ outcomes were not predictable at filing.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor issued an unqualified opinion on the consolidated financial statements; no auditor attestation of internal controls was required for this smaller reporting company.
Most important facts for investors to verify
- Ability to refinance or repay the $62.07 million of 2020 debt maturities and scheduled principal payments.
- Current status and terms of the KeyBank facility, Rivergate loan and other post-year-end refinancing or disposition activity.
- Whether suspended preferred dividends can be reinstated and how the $16.99 million accumulated obligation affects common equity and distributions.
- Actual occupancy, leasing spreads, anchor tenant renewals and tenant receivable collectability, particularly given 10.6% of leasable area with no stated lease expiration and 13.1% of GLA expiring or month-to-month within 12 months.
- Potential recovery, if any, from the Sea Turtle-related notes and related-party balances, which were impaired or reserved at year-end.
- Resolution and financial exposure from the remaining former-CEO litigation, defamation litigation and any preferred-stock asset-coverage claims.
- Reconciliation of non-GAAP FFO and AFFO to GAAP results and the sustainability of cash flow after recurring capital expenditures and tenant-improvement requirements.