8-K: Wheeler Real Estate Investment Trust Reports Second Quarter 2024 Results, Shows Mixed Performance

Wheeler Real Estate Investment Trust announced its financial and operating results for the second quarter of 2024, revealing a net loss but improvements in leasing and same-property net operating income.

Summary

• Wheeler Real Estate Investment Trust (WHLR) reported a net loss of $7.788 million, or $13.74 per share, for the three months ended June 30, 2024.
• The company's Funds From Operations (FFO) was a loss of $3.6 million, or $6.27 per share, while Adjusted FFO (AFFO) was $2.069 million, or $3.65 per share.
• Total revenue increased by 5.9% to $26.3 million, driven by higher tenant reimbursements and base rent.
• Total operating expenses decreased by 4.2% to $17.7 million, mainly due to lower depreciation and legal fees.
• Same-Property Net Operating Income (NOI) increased by 9.3%, or $1.4 million.
• The company executed 40 lease renewals totaling 188,152 square feet with a 10.8% increase in rental rates and signed 9 new leases totaling 85,487 square feet with a 29.9% new rent spread.
• The portfolio occupancy rate was 90.8%, a slight decrease from 90.9%, while the leased rate increased to 93.8% from 92.6%.
• WHLR completed a $25.5 million term loan at a fixed rate of 6.80% to refinance four existing loans.
• The company sold Oakland Commons for $6.0 million, generating a gain of $3.4 million.
• The company also settled with the City of Grove, Oklahoma, transferring a land parcel and making a one-time payment of $160,000.
• The company recognized a non-operating loss of $5.0 million due to changes in the fair value of derivative liabilities.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the reported net loss and negative FFO, despite positive trends in leasing and same-property NOI. The high debt levels and non-operating losses also contribute to the negative sentiment.

Positives

• Total revenue increased by 5.9% to $26.3 million.
• Total operating expenses decreased by 4.2% to $17.7 million.
• Same-Property NOI increased by 9.3% or $1.4 million.
• The company achieved a 10.8% increase in rental rates on lease renewals.
• New leases were signed with a 29.9% rent spread.
• The company successfully refinanced four loans with a new $25.5 million term loan.
• The company generated a $3.4 million gain from the sale of Oakland Commons.

Negatives

• The company reported a net loss of $7.788 million, or $13.74 per share.
• FFO was a loss of $3.6 million, or $6.27 per share.
• The portfolio occupancy rate decreased slightly by 10 basis points to 90.8%.
• The company recognized a non-operating loss of $5.0 million due to changes in the fair value of derivative liabilities.
• The company incurred $0.5 million in non-operating expenses, primarily for capital structure costs.

Risks

• The company faces risks related to the use of and demand for retail space.
• The company is exposed to general and economic business conditions, including those affecting consumer spending.
• The company is at risk of tenant loss or bankruptcy.
• 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 the availability, terms, and deployment of capital.
• The company is at risk of substantial dilution of common stock and a decline in its market value due to the exercise of redemption rights by holders of Series D Preferred Stock.
• The company is at risk of downward adjustment of the conversion price on outstanding convertible notes.
• The company faces litigation risks, including shareholder litigation related to the Cedar Acquisition.
• The company is exposed to financing risks, such as the inability to obtain new financing or refinancing on favorable terms.
• The company is at risk of the impact of leverage on operating performance.
• The company is exposed to risks related to the market for retail space, including reductions in consumer spending and the impact of e-commerce.
• The company is at risk of damage to properties from catastrophic weather and other natural events.
• The company is exposed to the risk of uninsured losses on properties.
• The company is at risk of not maintaining its qualification as a REIT.
• The company is exposed to the impact of e-commerce on its tenants' businesses.

Future Outlook

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

Industry Context

This announcement reflects the ongoing challenges and opportunities within the commercial real estate sector, particularly for REITs focused on retail properties. The company's focus on grocery-anchored centers is a common strategy to maintain stable occupancy and revenue streams. The mixed results, with improvements in leasing and NOI but a net loss, highlight the complexities of the current market environment.

Comparison to Industry Standards

• The reported occupancy rate of 90.8% is slightly below the average for retail REITs, which often aim for 92-95% occupancy.
• The 9.3% increase in Same-Property NOI is a positive sign, indicating strong operational performance compared to industry averages which are typically in the 2-5% range.
• The new rent spread of 29.9% on new leases is significantly higher than the industry average, suggesting strong demand for the company's properties.
• The company's debt-to-total assets ratio of 74.47% is relatively high compared to some peers, which may indicate higher financial risk.
• Companies like Regency Centers (REG) and Kimco Realty (KIM), which are also focused on grocery-anchored centers, often report higher occupancy rates and lower debt ratios.
• The company's AFFO per share of $3.65 is lower than some of its larger peers, which typically report AFFO in the $0.50 to $1.00 per share range on a quarterly basis, but this is not a direct comparison due to the reverse stock splits.
• The company's use of non-GAAP measures like AFFO and Same-Property NOI is consistent with industry practice, but the specific adjustments may vary from company to company.

Legal Proceedings

• The company settled litigation with the City of Grove, Oklahoma, involving the transfer of a land parcel and a one-time payment of $160,000.

Related Party Transactions

• The company subscribed for limited partnership interest in Stilwell Activist Investments, L.P. (SAI) in exchange for a $10.5 million capital contribution.

Stakeholder Impact

• Shareholders are impacted by the reported net loss and the volatility of the stock price.
• Tenants benefit from the company's focus on maintaining and improving its properties.
• Creditors are impacted by the company's debt levels and refinancing activities.
• Employees are impacted by the company's overall financial performance and operational decisions.

Next Steps

• The company will continue to manage its portfolio and lease properties.
• The company will continue to monitor and manage its debt.
• The company will continue to process redemptions of Series D Preferred Stock.
• The company will continue to evaluate strategic opportunities for asset acquisitions and dispositions.

Key Dates

Keywords

Real Estate Investment Trust, REIT, Retail Properties, Grocery-Anchored Centers, Leasing, Occupancy Rate, Net Operating Income, FFO, AFFO, Debt Refinancing, Property Dispositions