Wheeler Real Estate Investment Trust, Inc. — 2022 First-Quarter Form 10-Q
Business Context and Reporting Period
Wheeler REIT is a self-managed commercial REIT focused primarily on grocery-anchored retail centers. As of March 31, 2022, it owned and operated 57 retail shopping centers and four undeveloped properties across 12 states. The unaudited filing covers the three months ended March 31, 2022, compared with the same period in 2021.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $15.50 million | $14.73 million | 5.2% increase |
| Operating income | $4.69 million | $4.72 million | 0.6% decrease |
| Net loss | $4.58 million | $4.03 million | 13.4% higher loss |
| Net loss attributable to common stockholders | $6.84 million | $1.93 million | Loss increased |
| Basic and diluted loss per share | $0.70 | $0.20 | Higher loss per share |
| Property NOI | $10.24 million | $9.83 million | 4.2% increase |
| FFO | $(285) thousand | $(494) thousand | Improved by $209 thousand |
| AFFO | $2.34 million | $1.16 million | Increase of $1.19 million |
| Cash flow from operations | $3.37 million | $4.74 million | 28.8% decrease |
Rental revenue increased 4.6% to $15.33 million, primarily due to higher occupancy. Ending leased rate improved to 95.8% from 91.1%. Same-store property revenue increased 6.4%, while same-store property expenses increased 11.0%, driven principally by insurance, snow removal and common-area costs.
Cash, cash equivalents and restricted cash totaled $36.82 million at March 31, 2022, including $21.11 million of unrestricted cash and $15.71 million of lender-restricted reserves. Total assets were $460.04 million, compared with $465.28 million at December 31, 2021. Total liabilities were $368.26 million, and total equity was negative $3.02 million.
Total debt principal was $341.55 million, or $331.14 million net of unamortized debt issuance costs. The weighted-average interest rate and term of fixed-rate debt were 4.90% and 3.91 years, respectively. Scheduled principal repayments totaled $16.20 million during the twelve months ending March 31, 2023, including $11.85 million due during the remaining nine months of 2022.
Material Changes Versus the Prior Comparable Period
- Revenue increased $769 thousand, while operating expenses increased $608 thousand.
- Interest expense declined $4.33 million, principally because Q1 2021 included substantial debt issuance-cost write-offs and a loan prepayment penalty.
- A $3.96 million non-cash loss from changes in derivative liabilities materially reduced earnings, compared with a $347 thousand loss in Q1 2021.
- The Company recorded a $660 thousand impairment charge on the Harbor Pointe land parcel and $691 thousand of legal settlement expense. Q1 2021 included $552 thousand of PPP loan forgiveness income.
- Operating cash flow decreased $1.37 million, and total cash, cash equivalents and restricted cash declined by $3.60 million during the quarter.
- The Company sold Walnut Hill Plaza for $1.99 million, recognized a $15 thousand loss, and repaid the related debt, including a final $1.34 million payoff in February 2022.
- Leasing activity improved in pricing but declined in volume. Renewals covered 92,005 square feet versus 188,005 square feet in Q1 2021, while the weighted-average change over prior rates increased to 5.86% from 4.22%.
Guidance, Outlook, Risks and Unusual Items
The Company did not provide formal earnings or operating guidance. Management expects to address upcoming debt obligations through refinancing, property dispositions and operating cash flow, but states that failure to refinance maturing debt could materially affect financial position and results.
On March 2, 2022, Wheeler entered into an agreement to acquire Cedar Realty Trust in an all-cash transaction for aggregate merger consideration of $130.0 million. The transaction is supported by a debt financing commitment of up to $130.0 million and was expected by management to close by the end of the second quarter of 2022, subject to stockholder approval and other conditions. The filing states that the outside date was August 30, 2022, subject to a possible extension. Q1 results do not include Cedar's operations.
The Series D Preferred Stock represents a significant liquidity and capital-structure risk. Approximately 3.15 million shares were outstanding, with an aggregate liquidation preference of approximately $78.81 million and accrued, unpaid dividends of approximately $28.28 million as of March 31, 2022. Beginning September 21, 2023, holders may require redemption at $25 per share plus accrued unpaid dividends. Management does not expect to have sufficient cash to fund redemption obligations and warns that asset sales or substantial common-stock issuance could be required, potentially causing significant dilution.
Material legal matters include litigation concerning the Series D Preferred Stock, the rights offering and the proposed Cedar acquisition. The outcomes of the JCP, Steamboat and Cedar-related proceedings were uncertain as of the filing. The Company paid $691 thousand in March 2022 to satisfy a judgment and related fees in the former-CEO David Kelly matter.
Additional risks include regional concentration, tenant credit and bankruptcy risk, reliance on retail anchors, interest-rate and LIBOR-transition risk, refinancing risk, adverse economic conditions, e-commerce, environmental liabilities, uninsured losses, litigation and the effects of the COVID-19 pandemic. The Company early adopted the current expected credit-loss standard effective January 1, 2022, with no material reported impact.
Important Facts for Investors to Verify
- Confirm the status, closing terms, financing and litigation surrounding the proposed Cedar acquisition.
- Review the $16.20 million of debt scheduled to mature or amortize through March 31, 2023 and the Company's refinancing plans.
- Assess the ability to address the Series D Preferred redemption beginning September 21, 2023, including accrued dividends and potential dilution.
- Reconcile AFFO with recurring cash needs, capital expenditures, tenant improvements and preferred dividend obligations.
- Evaluate the effect of the $3.96 million derivative fair-value loss and the valuation assumptions for warrants and convertible-note features.
- Monitor occupancy, same-store expense growth, tenant receivables, restricted cash reserves and the planned sale of the Harbor Pointe land parcel.