8-K: Wheeler Real Estate Investment Trust Reports Mixed Results for First Quarter 2024

Wheeler Real Estate Investment Trust (WHLR) announced its financial and operating results for the first quarter of 2024, showing a net loss but some improvements in leasing and same-property NOI.

Summary

• Wheeler Real Estate Investment Trust (WHLR) reported a net loss of $10.7 million, or $0.17 per share, for the first quarter of 2024.
• This compares to a net loss of $5.48 per share for the same period in 2023.
• The company's portfolio occupancy rate increased slightly to 91.2%, while the leased rate rose to 93.5%.
• WHLR executed 28 lease renewals with a 7.62% increase in rental rates and signed 10 new leases with a 19.2% rent spread.
• The Cedar portfolio saw a 3.07% increase on lease renewals but a negative 12.5% rent spread on new leases.
• Same-Property Net Operating Income (NOI) increased by 2.72%, or $0.4 million.
• The company's FFO was $(4.1) million, or $(0.07) per share, compared to $2.3 million, or $2.27 per share, in the prior year.
• Adjusted FFO (AFFO) was $205,000, or $0.00 per share, compared to $(1.07) per share in the prior year.
• WHLR entered into a $9.5 million revolving credit agreement with KeyBank, secured by six properties.
• The company also received $1.0 million in deferred loan proceeds from the Timpany Plaza Loan Agreement.
• The conversion price for the company's convertible notes was approximately $0.12 per share as of March 31, 2024.
• The company repurchased $0.6 million of convertible notes at a cost of $1.3 million, resulting in a $0.7 million loss.
• Total debt was $497.0 million, compared to $495.6 million at the end of 2023.
• The company's weighted average interest rate on property level debt, excluding Cedar, was 5.20% with a term of 7.7 years.
• Total cumulative dividends in arrears for WHLR's Series D Preferred Stock were $33.3 million, or $13.28 per share, as of March 31, 2024.

Sentiment

Score: 4

Explanation: The document presents mixed results with some positive leasing activity but significant financial losses and high debt levels. The negative FFO and AFFO, along with the high level of preferred stock dividends in arrears, contribute to a negative sentiment.

Positives

• The company's real estate portfolio occupancy rate increased slightly to 91.2%.
• The company's real estate portfolio leased rate increased to 93.5%.
• WHLR achieved a 7.62% increase in rental rates on lease renewals.
• The company secured a 19.2% rent spread on new leases.
• Same-Property NOI increased by 2.72%, or $0.4 million.
• WHLR secured a $9.5 million revolving credit agreement with KeyBank.
• The company received $1.0 million in deferred loan proceeds from the Timpany Plaza Loan Agreement.

Negatives

• WHLR reported a net loss of $10.7 million, or $0.17 per share, for the first quarter of 2024.
• The company's FFO was $(4.1) million, or $(0.07) per share, a significant decrease compared to the prior year.
• Adjusted FFO (AFFO) was $205,000, or $0.00 per share, a decrease compared to the prior year.
• The Cedar portfolio experienced a negative 12.5% rent spread on new leases.
• The company recognized a $0.7 million loss from repurchasing convertible notes.
• The company recognized a non-operating loss of $5.5 million in net changes in fair value of derivative liabilities.
• Total cumulative dividends in arrears for WHLR's Series D Preferred Stock were $33.3 million, or $13.28 per share, as of March 31, 2024.

Risks

• The company faces risks related to the use of and demand for retail space.
• There are risks associated with the loss or bankruptcy of the company's tenants.
• The company is exposed to risks related to the state of the U.S. economy, particularly in the Mid-Atlantic, Southeast, and Northeast.
• The company faces risks related to consumer spending and confidence trends.
• There are risks related to the availability, terms, and deployment of capital.
• The company faces substantial dilution of its common stock due to the exercise of redemption rights by holders of Series D Preferred Stock.
• There are risks related to the company's ability to register sufficient shares of common stock to cover redemptions of Series D Preferred Stock.
• The company faces competition risks.
• There are risks related to changes in governmental regulations, accounting rules, and tax rates.
• The company faces risks related to adverse economic or real estate developments in its markets.
• There are risks related to the company's ability to maintain its qualification as a REIT.
• The company faces risks related to the impact of e-commerce on its tenants' businesses.
• The company faces risks related to the inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, and changes in tax or other applicable laws.
• The company is at risk of not regaining compliance with the Nasdaq bid price rule by June 4, 2024.

Future Outlook

The document contains forward-looking statements and cautions that actual results may differ materially due to various risks and uncertainties. The company undertakes no obligation to update these statements.

Management Comments

• The company has posted supplemental information to its website regarding Wheeler Real Estate Investment Trust's financial and operating results for the three months ended March 31, 2024.
• The company believes that Same-Property NOI is a useful measure of the company's property operating performance.

Industry Context

The results reflect the challenges faced by retail REITs in the current economic environment, including the impact of e-commerce and changing consumer spending habits. The company's focus on grocery-anchored centers is a common strategy to mitigate these risks, but the mixed results indicate ongoing challenges.

Comparison to Industry Standards

• WHLR's occupancy rate of 91.2% is below the average for well-performing retail REITs, which often see rates above 93%.
• The 7.62% increase in rental rates on renewals is a positive sign, but the negative 12.5% rent spread on new leases in the Cedar portfolio is concerning compared to industry averages.
• The company's debt-to-total assets ratio of 74.45% is relatively high compared to some peers, indicating higher leverage.
• The negative FFO and AFFO per share are significantly below industry benchmarks for profitable REITs.
• Companies like Regency Centers (REG) and Federal Realty Investment Trust (FRT), which focus on high-quality retail properties, typically report much stronger financial metrics.
• The company's reliance on debt financing and the high level of preferred stock dividends in arrears are also areas of concern compared to industry standards.

Legal Proceedings

• The company faces the risk that shareholder litigation in connection with the Cedar Acquisition may result in significant costs of defense, indemnification and liability, and divert management's attention away from running our business.

Stakeholder Impact

• Shareholders are negatively impacted by the net loss, decreased FFO and AFFO, and the high level of preferred stock dividends in arrears.
• Employees may be impacted by the company's financial performance and potential cost-cutting measures.
• Tenants may be impacted by the company's ability to maintain and improve its properties.
• Creditors are exposed to the company's high debt levels and potential financial instability.
• Suppliers may be impacted by the company's financial performance and potential cost-cutting measures.

Next Steps

• The company needs to regain compliance with Nasdaq's bid price rule by June 4, 2024.
• The company anticipates receiving the remaining $1.5 million of deferred loan proceeds from the Timpany Plaza Loan Agreement upon the satisfaction of certain lease-related contingencies.
• The company will continue to manage its portfolio and leasing activities.

Key Dates

Keywords

Real Estate Investment Trust, REIT, Retail Properties, Grocery-Anchored Centers, Leasing, Occupancy Rate, Net Operating Income, NOI, Funds From Operations, FFO, Adjusted FFO, AFFO, Debt, Convertible Notes, Dividends