Business Context and Reporting Period
Wheeler Real Estate Investment Trust, Inc. (WHLR) is a self-managed REIT focused primarily on grocery-anchored retail shopping centers. For the quarter ended March 31, 2024, the Company owned and operated 75 retail shopping centers and four undeveloped properties across 15 states, concentrated in the Mid-Atlantic, Southeast and Northeast. The portfolio includes properties acquired through the 2022 Cedar Realty Trust transaction.
The Form 10-Q contains unaudited consolidated results for the three months ended March 31, 2024, compared with the corresponding 2023 period. The Company is a smaller reporting company and stated that its disclosure controls were effective as of March 31, 2024.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $25.9 million | $26.1 million | Down 0.7% |
| Operating income | $7.5 million | $6.6 million | Up $0.9 million |
| Operating margin | 28.9% | 25.2% | Improved |
| Net loss | $6.0 million | $0.4 million | Loss increased |
| Net loss attributable to common shareholders | $10.7 million | $5.4 million | Loss increased |
| Basic and diluted loss per share | $0.17 | $5.48 | Per-share comparison affected by share issuance and reverse split |
| Same-property NOI | $15.5 million | $15.1 million | Up 2.7% |
| FFO available to common stockholders and common unitholders | $(4.1) million | $2.3 million | Declined |
| AFFO | $0.2 million | $(1.1) million | Improved |
| Net cash provided by operating activities | $5.2 million | $3.7 million | Up 42.0% |
Rental revenue increased modestly to $25.7 million, but other revenue declined to $0.2 million. Property operating expenses rose 1.1% to $9.1 million, primarily due to higher insurance costs. Depreciation and amortization declined 11.6% to $6.6 million, and corporate general and administrative expense declined 10.6% to $2.7 million.
Interest expense increased 14.3% to $7.4 million because of higher average borrowing rates and a higher average principal balance. A $5.5 million unfavorable change in the fair value of derivative liabilities was a significant non-cash expense, compared with a $1.9 million favorable change in the prior-year quarter. The Company also recorded a $0.7 million loss on repurchasing Convertible Notes and a $0.1 million loss on related-party investment securities.
Balance Sheet, Debt and Liquidity
- Total assets were $667.6 million at March 31, 2024, including $544.1 million of net real estate.
- Total liabilities were $534.6 million, including $478.2 million of loans payable, net of deferred financing costs.
- Total equity declined to $37.1 million from $44.8 million at December 31, 2023. Shareholders’ deficit was $29.0 million.
- Cash and cash equivalents were $17.7 million, and restricted cash was $20.8 million, for total cash, cash equivalents and restricted cash of $38.5 million.
- Total debt principal was $497.0 million, consisting primarily of fixed-rate debt. The weighted-average interest rate and term of fixed-rate debt were 5.43% and 7.9 years, respectively.
- The Company reported $8.7 million of debt principal and scheduled payments due during the 12 months ending March 31, 2025, including a $5.7 million Cypress Shopping Center maturity in July 2024 and a $1.4 million Cedar revolving credit balance due in February 2025.
- Construction commitments totaled $8.2 million at March 31, 2024.
Operating activities generated $5.2 million of cash, while real estate investing activities used $4.1 million and financing activities used $2.4 million. Financing inflows included $1.4 million drawn under the Cedar Revolving Credit Agreement and $1.0 million received under the Timpany Plaza Loan Agreement. Financing outflows included $2.7 million of distributions to noncontrolling interests, $1.3 million for debt security repurchases, $0.4 million of deferred financing costs and $0.4 million of scheduled principal payments.
Material Changes Versus the Prior Comparable Period
- Revenue decreased $0.2 million, primarily because of lower market lease amortization and lower non-property revenue, partly offset by higher base rent and tenant reimbursements.
- Same-property NOI increased 2.7%, supported by a 2.1% increase in property revenue, partially offset by a 1.1% increase in property expenses.
- Operating income improved despite slightly lower revenue because depreciation and amortization and corporate overhead declined.
- Net loss worsened substantially because the prior-year derivative valuation benefit became a current-year $5.5 million valuation loss and interest expense increased.
- During the quarter, 84,561 Series D Preferred Stock shares were redeemed for approximately $3.2 million of value, settled through the issuance of 14,253,931 common shares. Common shares outstanding increased from 53.8 million at year-end 2023 to 68.0 million at March 31, 2024.
- The Company classified South Philadelphia assets totaling $24.1 million as held for sale, with $1.2 million of associated liabilities.
- The Company entered into a Cedar revolving credit facility permitting borrowings of up to $9.5 million, secured by six properties and maturing in February 2025, subject to extension provisions.
- The Company repurchased $0.6 million of Convertible Notes for $1.3 million, recognizing a $0.7 million loss.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal earnings, revenue or FFO guidance. Management expects to address liquidity through operating cash flow, restricted cash reserves, tenant improvements, leasing vacant space, refinancing, and dispositions of non-core assets. Management also expects to receive the remaining $1.5 million of deferred Timpany Plaza loan proceeds if specified lease-related contingencies are satisfied.
Series D Preferred Stock holders may request monthly redemptions. As of March 31, 2024, the Company had $33.3 million of cumulative undeclared Series D dividends in arrears and an aggregate Series D liquidation value of $95.9 million. Management stated that it intends to settle future redemptions in common stock rather than liquidate assets or incur additional debt, which is expected to cause substantial dilution.
The Convertible Notes had a conversion price of approximately $0.12 per common share at March 31, 2024. The filing states that continuing preferred stock redemptions may further reduce the conversion price and pressure the common stock price. The embedded conversion features and warrants produced significant quarter-to-quarter non-cash fair-value volatility.
Nasdaq notified the Company that its common stock had failed the $1.00 minimum bid-price requirement. The Company had until June 4, 2024, to regain compliance. Failure to regain or maintain listing compliance is a material risk.
Other key risks include refinancing risk, leverage, higher interest rates, tenant defaults or bankruptcies, retail and consumer-spending weakness, geographic concentration, anchor-tenant dependence, insurance costs, catastrophic events, litigation, related-party transactions, dilution, REIT qualification and the Company’s ability to generate sufficient cash flow.
Pending legal matters include an appeal concerning litigation related to the Cedar acquisition, litigation by the City of Grove, Oklahoma, and a shareholder putative class and derivative action filed in April 2024. The Company states that the outcomes are uncertain; it is providing indemnification, including legal fees and costs, to certain defendants in the shareholder action.
Facts Investors Should Verify
- Near-term refinancing and repayment capacity for the $8.7 million of debt obligations due within 12 months of March 31, 2024.
- Progress toward satisfying Nasdaq’s $1.00 minimum bid-price requirement and maintaining the Company’s listing.
- The pace and pricing of Series D Preferred Stock redemptions, resulting common-stock issuance and cumulative dividend arrears.
- The impact of the Convertible Notes’ low conversion price and potential additional dilution.
- Whether operating cash flow, restricted cash and expected financing or asset-sale proceeds are sufficient to fund debt service, construction commitments, capital expenditures and tenant improvements.
- The execution and proceeds of the South Philadelphia disposition and other planned non-core asset sales.
- Tenant occupancy, anchor-tenant stability, renewal spreads and the ability to backfill vacant or non-performing spaces.
- The outcome and potential costs of the disclosed litigation, including the Cedar-related appeal and shareholder action.