Business Context and Reporting Period
Wheeler Real Estate Investment Trust, Inc. is a Maryland REIT that, through its operating partnership, owned and operated 59 retail shopping centers and five undeveloped properties across 12 states as of June 30, 2021. The unaudited Form 10-Q covers the three and six months ended June 30, 2021, with comparisons to the same periods in 2020.
Financial Performance and Position
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Total revenue | $15.49 million | $15.17 million | $30.22 million | $30.74 million |
| Operating income | $3.38 million | $4.54 million | $8.11 million | $8.09 million |
| Net income attributable to Wheeler REIT | $(3.07) million | $0.25 million | $(7.12) million | $(1.61) million |
| Net loss attributable to common stockholders | $(5.67) million | $(3.40) million | $(8.67) million | $(8.93) million |
| Basic and diluted loss per share | $(0.58) | $(0.35) | $(0.89) | $(0.92) |
| Net cash from operating activities | Not separately provided | Not separately provided | $9.54 million | $7.49 million |
| FFO | $2.77 million | $4.71 million | $2.28 million | $8.26 million |
| AFFO | $1.11 million | $0.78 million | $1.20 million | $1.62 million |
Q2 operating margin was approximately 21.8%, compared with 29.9% in the prior-year quarter. Six-month operating margin was approximately 26.8%, compared with 26.3% in the prior-year period. Q2 net margin was approximately negative 19.8%; six-month net margin was approximately negative 23.5%.
- Rental revenue increased 3.3% in Q2 but decreased 0.7% for the first six months. Total revenue increased 2.1% in Q2 and decreased 1.7% year to date.
- Property NOI was $10.82 million in Q2 and $20.65 million for the six months, compared with $10.38 million and $21.20 million, respectively, in the prior-year periods.
- Ending leased rate improved to 91.9% from 90.1% at June 30, 2020, while gross leasable area declined 1.0% to 5.51 million square feet.
- Cash, cash equivalents and restricted cash totaled $44.15 million at June 30, 2021, including $10.85 million of unrestricted cash and $33.30 million of restricted cash.
- Loans payable, net, totaled $335.26 million, while total debt principal, including debt associated with assets held for sale, was $356.89 million. Fixed-rate debt had a weighted-average interest rate of 5.15% and a weighted-average term of 3.65 years.
- Total assets were $478.15 million and total equity was $10.37 million at June 30, 2021. Accumulated deficit was $267.41 million.
Material Changes Versus the Prior Comparable Period
- Q2 net loss attributable to Wheeler REIT increased to $3.07 million from net income of $0.25 million, primarily due to higher interest expense, a $1.23 million warrant fair-value loss and a $2.20 million impairment charge on Columbia Fire Station.
- Six-month interest expense increased 63.5% to $14.18 million, reflecting the payoff of the Powerscourt financing, related debt-cost write-offs and defeasance costs, and interest on the Wilmington financing.
- Operating expenses increased 13.8% in Q2 because of the Columbia Fire Station impairment, although six-month operating expenses decreased 1.5% as depreciation and amortization declined.
- FFO declined 41.2% in Q2 and 72.4% for the six months. AFFO increased in Q2 but declined 26.3% for the six months.
- The Company sold Berkley Shopping Center and a related land parcel for $4.15 million, generating $3.94 million of net proceeds and a $176 thousand gain. Assets held for sale totaled $8.85 million at quarter-end.
- The Company redeemed 490,610 shares of Series D Preferred Stock through two tender offers for an aggregate purchase price of approximately $7.86 million, excluding fees and expenses. Preferred dividends remained suspended, and cumulative dividends in arrears totaled $33.82 million.
- Leased occupancy improved, but the Company continued to experience the effects of two anchor vacancies, co-tenancy provisions and tenant bankruptcies. One vacant anchor was backfilled during the second quarter.
Guidance, Outlook, Risks, Contingencies and Unusual Items
The filing does not provide formal earnings or revenue guidance. Management plans to address liquidity through refinancing, property dispositions, operating cash flow, backfilling vacant anchor space, replacing defaulting tenants and using restricted cash for tenant improvements. Management expects to refinance or otherwise address debt obligations but states that failure to do so could materially affect financial condition and results.
- Debt maturities and scheduled principal repayments over the 12 months ending June 30, 2022 totaled $31.92 million. Management planned to fund these obligations through refinancing, dispositions and operating cash. The $3.36 million Columbia Fire Station loan was paid in full on July 21, 2021.
- The March 2021 Wilmington term loan provided $35.00 million at 8.00%, matures in March 2026, is secured by Company assets and contains restrictive covenants. It also resulted in warrants to purchase up to 1,061,719 common shares.
- Warrant liabilities increased to $4.19 million at June 30, 2021. Changes in fair value generated a $1.23 million Q2 loss and a $1.58 million six-month loss; these amounts were based on a Level 3 Monte Carlo valuation.
- The Company commenced a rights offering in July 2021 for up to $30 million of 7.00% senior subordinated convertible notes due 2031. The filing does not state the final amount subscribed.
- COVID-19, tenant bankruptcies, retail-property market conditions, regional concentration, anchor-tenant dependence, interest rates, refinancing availability, debt covenants and REIT qualification remain significant risks.
- The portfolio is geographically concentrated, with approximately 62% of annualized base rent in the Southeast, 34% in the Mid-Atlantic and 4% in the Northeast.
- Pending litigation includes claims by a former CEO seeking approximately $400 thousand plus additional damages and a shareholder action concerning Series D Preferred Stock rights and alleged securities-law violations. The outcomes were uncertain at the filing date. A separate former-CEO appeal was settled for $185 thousand on July 28, 2021.
- The Company may have future obligations under the Harbor Pointe tax increment financing arrangement of up to $2.15 million of principal, plus potential interest. No liability was accrued because future shortfalls could not be reasonably estimated.
- Effective July 5, 2021, Daniel Khoshaba resigned as President and CEO and as a director. His stock appreciation rights were forfeited for no consideration.
Most Important Facts for Investors to Verify
- Progress on refinancing or repaying the remaining $31.92 million of near-term debt maturities and principal payments.
- Results and final proceeds of the $30 million convertible-note rights offering.
- Current rent collection, anchor occupancy, tenant bankruptcies and leasing spreads following the 2021 vacancies and renewals.
- Ability to generate sufficient operating cash flow and asset-sale proceeds while preferred dividends remain suspended.
- Terms, covenant compliance and potential dilution associated with the Wilmington and Powerscourt warrants and financing agreements.
- Accrued preferred dividends of $33.82 million and the implications of future redemption, conversion or dividend-payment requirements.
- Outcomes and potential financial exposure from the disclosed litigation and Harbor Pointe obligation.