Wheeler Real Estate Investment Trust, Inc. — 2013 Q2 Form 10-Q Summary
Business Context and Reporting Period
Unaudited quarterly report for the three and six months ended June 30, 2013. The REIT owned and operated 12 properties totaling 545,350 square feet across six states, compared with five properties and 129,880 square feet in the comparable 2012 period. Ending occupancy was 95.1%, versus 88.0% at June 30, 2012. The Company owned 68.17% of its operating partnership at quarter-end.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $1.629 million, versus $0.486 million | $3.247 million, versus $1.016 million |
| Operating loss | $(0.936) million, versus $(0.062) million | $(0.866) million, versus $(0.004) million |
| Net loss | $(1.382) million, versus $(0.259) million | $(1.862) million, versus $(0.399) million |
| Net loss attributable to common shareholders | $(1.293) million, or $(0.39) per share | $(1.727) million, or $(0.52) per share |
| Operating cash flow | Not separately reported | $(1.310) million, versus $(0.036) million |
| Funds from operations | $(0.698) million, versus $(0.074) million | $(0.529) million, versus $(0.028) million |
Calculated operating margins were approximately negative 57.5% for the quarter and negative 26.7% for the six-month period. Calculated net margins were approximately negative 84.8% and negative 57.3%, respectively. Results were affected by acquisition-related, legal, professional and public-company costs.
- Cash and cash equivalents declined to $0.866 million from $2.053 million at December 31, 2012.
- Investment properties, net, increased to $51.757 million from $43.346 million.
- Total assets increased to $62.328 million from $52.688 million.
- Mortgage and other indebtedness increased to $39.939 million from $31.844 million. Weighted-average fixed-rate debt cost was 4.56%, with a weighted-average term of 4.31 years.
- Total equity declined to $13.445 million from $16.232 million, while accumulated deficit increased to $8.073 million.
- Contractual minimum tenant rentals totaled $41.439 million, including $5.460 million due during the twelve months ending June 30, 2014.
Material Changes Versus the Prior Comparable Period
- Revenue increased 235.3% for the quarter and 219.7% for the six months, primarily because properties acquired in late 2012 contributed full-period results and Bixby Commons contributed partial-period results.
- Rental revenue increased 256.3% for the quarter and 253.7% for the six months.
- Same-store revenue declined 1.35% for the quarter and 12.62% for the six months, primarily because of the timing and amount of prior-year tenant reimbursement reconciliations. Same-store property NOI declined to $0.367 million for the quarter and $0.765 million for the six months.
- Corporate general and administrative expense increased to $1.573 million for the quarter and $2.157 million for the six months, including approximately $318,000 of Bixby acquisition costs, approximately $400,000 of offering-related professional fees, approximately $267,000 of legal costs related to the Perimeter litigation, and approximately $95,000 of additional public-company expenses.
- Interest expense increased 125.8% for the quarter and 151.8% for the six months as the Company added debt to fund growth, although the Shoppes at TJ Maxx refinancing reduced that loan’s rate from 6.00% to 3.88%.
- Six-month investing cash outflows were $4.267 million, including approximately $4.025 million for Bixby Commons. Financing cash inflows were $4.389 million, including $4.157 million from preferred stock issuance and substantial refinancing activity.
Guidance, Outlook, Risks and Unusual Items
- On June 11, 2013, the Company acquired Bixby Commons in Oklahoma for approximately $10.6 million. The property was 100% leased under a 20-year triple-net grocery lease.
- Management expected several additional acquisitions to close during the third quarter of 2013, with stated purchase prices totaling approximately $83.3 million across Forrest Gallery, Winslow Plaza, Reasor’s Jenks, Warren Commons, Northeast Plaza, Jenks Plaza, Brook Run, Port Crossing, the Starbucks/Verizon building and Tampa Festival. These transactions were subject to closing conditions, and several involved related parties.
- The Company targeted an annual common dividend of $0.42 per share and declared a $0.035 per share dividend payable in July 2013. Management stated that refinancing, acquisitions and capital expenditures would determine future liquidity and dividend capacity.
- Approximately $7.73 million of debt was scheduled to mature during the twelve months ending June 30, 2014. The Riversedge North loan had matured in April 2013 and was temporarily extended to August 2013 while refinancing options were evaluated. Management expected refinancing on comparable terms but warned that failure to refinance could materially affect financial condition and results.
- The Company issued $4.5 million of Series A convertible preferred stock in June 2013. The securities accrue dividends at 9% annually, may automatically convert into common stock, and may result in up to 656,998 common shares. Preferred stock was recorded as a $4.157 million liability because of redemption features outside the Company’s control.
- Perimeter Associates lost a tenant litigation matter and was assessed $13,300 of damages. A lower court subsequently awarded approximately $267,000 of legal fees to the defendant. The Company posted bonds and accrued for the judgments while pursuing an appeal.
- The Company disclosed related-party transactions involving Wheeler Interests, controlled by the CEO, including property leasing, reimbursements, payments and proposed acquisitions.
- Management stated that disclosure controls were effective as of June 30, 2013 and that there were no material changes in internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether the Company successfully refinanced the $7.73 million of near-term maturities, particularly the temporarily extended Riversedge North loan.
- Whether the planned third-quarter acquisitions closed, their financing sources, final purchase prices and related-party terms.
- Whether operating cash flow and FFO improved sufficiently to support the targeted $0.42 annual dividend despite reported losses and negative six-month operating cash flow.
- The dilution, dividend burden and conversion terms associated with the Series A preferred stock.
- The status and final cost of the Perimeter litigation and legal-fee award.
- Tenant concentration, renewal performance and the effect of approximately 6.63% of gross leasable area expiring during the following twelve months.
- Whether the significant increase in corporate overhead and acquisition-related costs is recurring or declines as the portfolio and public-company infrastructure mature.