S-11: Wheeler REIT Files S-11 to Register 100 Million Shares Amidst Ongoing Dilution and Preferred Stock Redemptions

Wheeler Real Estate Investment Trust, Inc. has filed an S-11 registration statement to register over 100 million shares of common stock, primarily for the highly dilutive redemption of its Series D Preferred Stock, signaling continued pressure on common shareholders.

Summary

• Wheeler Real Estate Investment Trust, Inc. (WHLR) has filed an S-11 registration statement to register up to 100,043,323 shares of its common stock, primarily for issuance upon the redemption and conversion of its Series D Cumulative Convertible Preferred Stock.
• The company will not receive any proceeds from the issuance of these shares, as they are intended to satisfy existing obligations to preferred shareholders.
• The filing explicitly states that the issuance of common stock due to Series D Preferred Stock redemptions has already caused, and is expected to continue causing, substantial dilution of common stock and a steep decline in its stock price.
• Wheeler REIT has undergone seven reverse stock splits between May 2024 and May 2025 (1-for-24, 1-for-5, 1-for-3, 1-for-2, 1-for-4, 1-for-5, and 1-for-7), primarily to maintain compliance with Nasdaq listing requirements, including the minimum bid price rule and publicly held shares rule.
• As of March 31, 2025, the company reported a net loss attributable to common stockholders of $(6,852) thousand for the three months ended March 31, 2025, compared to a loss of $(10,749) thousand for the same period in 2024.
• Basic and diluted net loss per share for Q1 2025 was $(157), compared to $(17,226) for Q1 2024 (adjusted for May 2025 reverse stock split).
• The company's total indebtedness as of March 31, 2025, was approximately $489 million.
• Dividends on all classes of stock, including common and preferred, have been suspended since Q4 2018. The annual dividend rate on Series D Preferred Stock has increased to 14.75% as of September 21, 2024, due to missed payments.
• The company's portfolio consists of 72 properties (69 retail shopping centers, 3 undeveloped land parcels) totaling 7,517,677 leasable square feet, with 92.0% leased as of March 31, 2025.
• The largest property, JANAF Shopping Yard, is 85.4% occupied with an average rental rate of $13.11 per square foot as of March 31, 2025, and is subject to a $60 million mortgage due July 6, 2032.
• The company has recently sold several properties, generating net proceeds of $16.7 million, $13.9 million, $1.6 million, $2.8 million, $0.5 million, and $6.8 million from December 2024 to May 2025.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to severe and ongoing dilution of common stock, a history of multiple reverse stock splits, persistent net losses, and the suspension of all dividends since 2018. While the company is actively managing its portfolio and debt, the core issue of preferred stock redemptions causing significant common share dilution remains a major concern, indicating a challenging outlook for common shareholders.

Positives

• The company's operating portfolio is 92.0% leased as of March 31, 2025, indicating a high occupancy rate for its retail properties.
• The portfolio is primarily focused on necessity-based retail, which tends to be less impacted by economic fluctuations and generates consistent consumer traffic.
• Management possesses extensive expertise in managing under-performing properties and increasing operating income through effective leasing strategies and expense management.
• The company has successfully regained compliance with Nasdaq's minimum bid price rule and publicly held shares rule following multiple reverse stock splits, maintaining its listing.
• Recent property dispositions have generated significant net proceeds, which can be used for debt reduction or other strategic purposes.

Negatives

• The issuance of common stock for Series D Preferred Stock redemptions is expected to cause substantial dilution to existing common stockholders and a steep decline in stock price.
• The company has undergone seven reverse stock splits in 2024 and 2025, which, while aiding Nasdaq compliance, often signal underlying financial distress and can negatively impact stock liquidity and market capitalization.
• Dividends on all classes of stock (Common, Series A, B, and D Preferred) have been suspended since Q4 2018, and the Series D Preferred Stock's annual dividend rate has increased to 14.75% due to missed payments.
• The company carries a significant debt load of approximately $489 million as of March 31, 2025, which exposes it to default risk and limits cash flow for operations and distributions.
• Net income attributable to common stockholders remains negative, with a loss of $(6,852) thousand in Q1 2025.
• The conversion price for Series D Preferred Stock into Common Stock is stated as an exceptionally high $17,095,680 per share of Common Stock, which is highly unusual and may indicate a complex or unfavorable conversion mechanism for common shareholders.
• Adjustments to the conversion price of the 7.00% Subordinated Convertible Notes due 2031, resulting from Series D Preferred redemptions, are anticipated to cause further dilution to common stockholders.

Risks

• Inability to maintain compliance with Nasdaq listing requirements, potentially leading to delisting of Common Stock.
• Decreased liquidity of Common Stock and potential decrease in overall market capitalization due to reverse stock splits.
• Further dilution to existing stockholders from the effective increase in shares available for issuance due to reverse stock splits.
• Substantial dilution of Common Stock and steep decline in its market value resulting from Series D Preferred Stock redemptions.
• Further dilution of Common Stock due to downward adjustments of the conversion price on outstanding 7.00% Subordinated Convertible Notes due 2031.
• Common Stock ranks junior to Series A, Series B, and Series D Preferred Stock in the event of liquidation, dissolution, or winding up.
• Inability to service all indebtedness due to factors beyond control, potentially forcing actions like reducing capital investments, selling assets, or debt restructuring.
• Significant adverse consequences to financial condition, results of operations, cash flow, and per share trading price due to high debt levels and limitations imposed by debt agreements.
• Susceptibility to adverse developments in regional and local economic conditions due to geographic concentration of properties in the Mid-Atlantic, Southeast, and Northeast.
• Adverse effects from the loss or closure of anchor stores or major tenants in retail shopping centers.
• Inability to renew leases, lease vacant space, or re-let space as leases expire, increasing or prolonging vacancies.
• Risks affecting the general retail environment, such as economic weakness, consumer spending trends, adverse financial condition of large retailers, competition from discount and internet retailers, and trade negotiations/tariffs.
• Inability to identify and complete acquisitions of properties that meet criteria, impeding growth.
• Dependence on external sources of capital that may not be available on commercially reasonable terms or at all, limiting ability to meet capital/operating needs or maintain REIT qualification.
• Adverse impact on cash flow and operating results from natural disasters and severe weather conditions.
• Risks relating to cybersecurity attacks, loss of confidential information, and other business disruptions.
• Significant costs of defense, indemnification, and liability, and diversion of management's attention due to shareholder litigation related to the Cedar Acquisition and a lawsuit filed by the former CEO.
• Performance and value subject to risks associated with real estate assets and the real estate industry, including local oversupply, reduction in demand, or adverse changes in financial conditions of buyers, sellers, and tenants.
• Significant costs incurred in complying with various federal, state, and local laws, regulations, and covenants applicable to properties.
• Conflicts of interest between the interests of stockholders and holders of units in the Operating Partnership.
• Board of Directors' ability to change investment and financing policies without stockholder approval, potentially leading to higher leverage.
• Limited rights of stockholders to take action against directors and officers due to charter provisions.
• Board of Directors' power to issue shares without stockholder approval, potentially delaying or preventing a change of control transaction.
• Certain provisions of Maryland law (business combination and control share acquisition statutes) could inhibit changes in control.
• Failure to qualify as a REIT could have significant adverse tax consequences.
• Maintaining REIT status may require engaging in transactions at unfavorable times or terms, or liquidating/forgoing attractive investments.
• Potential for the 100% excise tax on net income from prohibited transactions if properties are deemed held primarily for sale.
• Potential for increased tax rates on certain non-U.S. holders from countries with 'unfair foreign taxes' if the BBB Act is enacted.

Future Outlook

The company anticipates continued substantial dilution of common stock and a steep decline in its stock price due to the ongoing redemption of Series D Preferred Stock. It intends to continue settling these redemptions in common stock. The company does not intend to pay dividends other than those required to maintain its REIT status and minimize tax obligations. Future investment activities will focus on acquiring retail properties in secondary and tertiary markets, particularly grocery-anchored centers, and selectively utilizing capital for value-added improvements and deleveraging through asset sales.

Management Comments

• "The Company has been, and intends to continue, settling redemptions of Series D Preferred Stock in shares of Common Stock until the earlier of (a) the redemption of all outstanding shares of Series D Preferred Stock or (b) an agreed upon settlement with the holders of two-thirds of the then issued and outstanding Series D Preferred Stock."
• "All other Reverse Stock Splits were effected to potentially improve the marketability of the Common Stock and the perception of the Common Stock as an investment security."
• "We believe our tenants carry goods and offer services that are less impacted by fluctuations in the broader U.S. economy and consumers disposable income, generating more predictable property level cash flows."
• "We intend to make capital investments where the risk adjusted returns on such capital is accretive to our stockholders."
• "We intend to sell non-income producing land parcels or non-core assets utilizing sales proceeds to deleverage the balance sheet."
• "The Company seeks to mitigate risk and optimize its capital structure through continuous focus on maintaining prudent leverage and lengthy average debt maturities, as well as access to a diverse selection of capital sources."
• "At this time, the Company does not intend to pay dividends other than those required dividend distributions, if any, that will enable us to maintain our REIT status and to eliminate or minimize our obligation to pay income and excise taxes."

Industry Context

Wheeler Real Estate Investment Trust operates within the retail real estate sector, specifically focusing on grocery-anchored centers in secondary and tertiary markets. This niche is generally considered more resilient to economic downturns and e-commerce pressures compared to other retail formats, as it caters to necessity-based consumer spending. However, the broader retail environment still faces challenges from online competition, changing consumer habits, and economic conditions. The company's strategy to focus on necessity-based retail and actively manage its portfolio through dispositions and targeted capital investments aligns with current trends in the retail REIT space, where landlords are adapting to evolving retail landscapes by enhancing property utility and tenant mix. The significant debt levels and ongoing dilution issues, however, place the company at a disadvantage compared to more financially stable peers in the industry.

Corporate Governance

Legal Proceedings

• A shareholder derivative action and putative class action lawsuit was filed on April 10, 2024, by former CEO Daniel Khoshaba, alleging that current and certain former directors breached their duty to the company and common stockholders, and were unjustly enriched. The complaint primarily asserts failure to mitigate dilution from Series D Preferred Stock redemption rights and authorization of Notes interest payment in Series D Preferred Stock. The company is a nominal defendant and is indemnifying the director and officer defendants. Motions to dismiss derivative and unjust enrichment claims were granted, but other grounds were denied, with discovery ongoing.
• A putative class action suit (Aquino Action) was filed by preferred stockholders of Cedar Realty Trust, Inc. (a company subsidiary) against Cedar's former directors, alleging breach of fiduciary duties related to the Cedar Acquisition. The company is not sued but has a contractual obligation to indemnify the former Cedar Directors. A motion to dismiss was filed on May 2, 2025, and the outcome remains uncertain.

Related Party Transactions

• The company subscribed for an investment of $10 million in limited partnership interests in Stilwell Activist Investments, L.P. (SAI) in 2023, with an additional $500,000 investment on June 1, 2024. These transactions were approved by disinterested directors and the Related Person Transactions Committee. Joseph Stilwell, a member of the Board of Directors, is the managing member and owner of Stilwell Value LLC, the general partner of SAI and related entities.

Stakeholder Impact

• **Shareholders (Common Stockholders):** Face significant and ongoing dilution from the redemption of Series D Preferred Stock and conversion of Notes, leading to a steep decline in stock price. Dividends have been suspended since Q4 2018, impacting direct returns. Litigation risks could result in significant costs.
• **Shareholders (Preferred Stockholders):** Series D Preferred Holders have redemption rights and an increasing dividend rate due to non-payment, but the company's intention to settle redemptions in common stock means they will receive dilutive common shares rather than cash. Series A and B Preferred Stockholders have had cumulative dividend rights removed.
• **Employees:** The company emphasizes hiring experienced leaders and team members, offering competitive wages, benefits, and wellness programs, indicating a focus on employee well-being and retention.
• **Customers (Tenants):** The company's focus on necessity-based retail and active lease management aims to provide stable environments for tenants. However, risks related to the general retail environment, tenant bankruptcies, and competition could impact tenant businesses.
• **Creditors:** The company's high level of indebtedness ($489 million) and potential inability to generate sufficient cash flow to service debt obligations pose risks, including potential default and foreclosure actions. The Asset Coverage Ratio requirement for Series D Preferred Stock also impacts debt management.

Next Steps

• The company anticipates the first Holder Redemption Date following the prospectus date to occur on July 7, 2025, for Series D Preferred Stock redemptions.
• The company intends to continue settling redemptions of Series D Preferred Stock in shares of Common Stock until all outstanding shares are redeemed or an agreed-upon settlement with two-thirds of holders is reached.
• Management will continue to evaluate the asset portfolio regularly to determine if it satisfies investment criteria and may sell investments opportunistically for debt reduction or additional acquisitions/stock repurchases.
• The company intends to continue acquiring retail properties in secondary and tertiary markets, with a particular emphasis on grocery-anchored retail centers.
• The company will continue to employ intensive lease management strategies to optimize occupancy and increase operating income.
• The company will selectively allocate capital to value-added improvements of retail properties to increase rents, extend long-term leases, and increase occupancy.
• The company will continue to monitor compliance with REIT qualification requirements and Nasdaq listing standards.

Key Dates

Recommendation

Keywords

Real Estate Investment Trust, REIT, Commercial Real Estate, Retail Properties, Grocery-Anchored Centers, SEC Filing, S-11, Stock Dilution, Reverse Stock Split, Preferred Stock Redemption, Corporate Governance, Nasdaq Listing, Financial Reporting, Debt Management, Litigation Risk