Business Context and Reporting Period
Wheeler Real Estate Investment Trust, Inc. is a self-managed REIT focused primarily on grocery-anchored retail shopping centers. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023. Through its operating partnership, the Company owned and operated 75 retail shopping centers and four undeveloped properties across 15 states. Results include Cedar Realty Trust operations following the August 2022 acquisition, limiting comparability with the prior period.
At September 30, 2023, the portfolio had approximately 8.1 million square feet and a 93.1% leased rate, compared with 92.1% at September 30, 2022. The Company completed a one-for-ten reverse stock split effective August 17, 2023.
Financial Performance and Key Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Total revenue | $25.2 million, up 34.7% | $76.1 million, up 53.2% |
| Operating income | $9.3 million, up 102.6% | $22.2 million, up 52.1% |
| Net loss | $11.4 million | $13.1 million |
| Net loss attributable to common stockholders | $30.0 million | $41.6 million |
| Basic and diluted loss per share | $30.61 | $42.46 |
| Same-store NOI | $9.5 million, down 7.0% | $30.0 million, down 1.8% |
| FFO | $(6.7) million | $6.4 million |
| AFFO | $(1.8) million | $(1.7) million |
| Cash flow from operating activities | Not separately presented | $15.0 million |
Revenue growth primarily reflected the Cedar acquisition, including $21.7 million of nine-month non-same-store property revenue, together with higher market lease amortization. Nine-month operating expenses increased 60.0% to $56.1 million, including higher property expenses, depreciation and amortization, and corporate costs.
Net loss included a $6.3 million nine-month non-cash loss from changes in derivative liabilities, $5.3 million of other expense, $13.5 million of deemed distribution related to Series D preferred stock redemptions, and $6.9 million of undeclared preferred dividends. The quarter included an $11.2 million derivative fair-value loss.
Balance Sheet, Debt and Liquidity
- Total assets were $671.9 million at September 30, 2023, compared with $684.5 million at December 31, 2022.
- Real estate, net was $562.2 million; cash and cash equivalents were $25.4 million and restricted cash was $23.4 million.
- Loans payable, net were $477.4 million. Principal debt was $495.9 million, with a weighted-average fixed interest rate of 5.42% and weighted-average term of 8.41 years.
- Debt maturities and scheduled principal repayments during the 12 months ending September 30, 2024 were $7.1 million. Management expects to refinance maturing loans but acknowledges that refinancing may not be available on acceptable terms.
- Cash, cash equivalents and restricted cash declined to $48.9 million from $54.3 million at September 30, 2022.
- Operating cash flow of $15.0 million was more than offset by $19.6 million of investing outflows and $2.4 million of financing outflows.
During 2023, the Company refinanced 12 properties with a $61.1 million loan at 6.194%, refinanced eight properties with a $53.1 million loan at 6.24%, and obtained a Timpany Plaza loan with $9.1 million funded at September 30, 2023 and up to $2.5 million subject to lease-related contingencies.
Material Changes Versus the Prior Comparable Period
- Nine-month revenue increased 53.2%, primarily because 2022 included only a partial period of Cedar operations.
- Nine-month same-store NOI decreased 1.8%, as higher property expenses offset modest revenue growth. Third-quarter same-store NOI decreased 7.0%.
- Nine-month operating cash flow fell from $28.0 million to $15.0 million, despite higher operating income, primarily reflecting higher interest, corporate and other cash costs and working-capital effects.
- Investing outflows fell substantially from $140.1 million to $19.6 million because the prior-year period included Cedar acquisition spending.
- The Company recorded a $2.2 million gain on the sale of the Carll’s Corner outparcel and made $6.5 million of investments in a related-party investment partnership, Stilwell Activist Investments, L.P.
- Series D preferred stock carrying value increased to $117.4 million, while $6.4 million was classified as a redemption liability. Accumulated undeclared Series D dividends were $41.1 million at September 30, 2023.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal earnings or revenue guidance. Management plans to improve liquidity and operations by delivering leased but unoccupied space, backfilling vacant anchor space, replacing defaulting tenants, using restricted cash for tenant improvements, disposing of non-core assets and refinancing properties.
- Series D holders obtained monthly redemption rights beginning in late September 2023. The Company intends to settle redemptions in common stock rather than liquidate assets or incur debt for cash redemptions, which management expects will substantially dilute common stockholders.
- After subsequent redemptions, the Convertible Notes conversion price was reduced to $1.59 per share effective October 5, 2023 and then to $0.46 per share following November redemptions. These adjustments may create substantial additional dilution.
- In October and November 2023, the Company issued approximately 2.2 million and 14.4 million common shares, respectively, to settle Series D redemptions totaling approximately $6.5 million and $12.1 million.
- Major risks include high leverage, refinancing requirements, rising interest and insurance costs, tenant bankruptcies and defaults, retail and e-commerce trends, geographic concentration, anchor-tenant exposure, catastrophic events, litigation, REIT qualification, Nasdaq listing compliance and continued dilution.
- The Company regained compliance with Nasdaq’s minimum bid-price requirement on September 1, 2023 and with audit committee composition requirements on September 14, 2023.
- Pending litigation related to Cedar preferred stock remains uncertain, including an appeal of a Maryland dismissal and a separate New York action.
- Management reported that disclosure controls were effective as of September 30, 2023 and that there were no changes in internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether recurring property cash flow can support debt service, capital expenditures, preferred obligations and ongoing redemption requirements.
- The pace and terms of future Series D redemptions and the resulting common-share dilution.
- The effect of the Convertible Notes conversion-price reductions on potential dilution and the Company’s capital structure.
- Refinancing availability and pricing for the $7.1 million of debt payments due within 12 months, as well as longer-dated maturities.
- Underlying same-store trends, including occupancy, tenant collections, property expenses and anchor-tenant stability.
- The sustainability of liquidity after restricted cash requirements, capital spending and preferred obligations.
- The outcomes and potential costs of the remaining Cedar-related litigation.