10-Q: Wheeler REIT Q3: Net Income Rebounds Amid Strategic Shifts

Wheeler Real Estate Investment Trust reports a significant rebound in net income for Q3 2025, driven by non-cash derivative gains and ongoing strategic asset dispositions.

Summary

• Net income attributable to Wheeler REIT common shareholders was $8.9 million for the three months ended September 30, 2025, a substantial improvement from a loss of $35.7 million in the prior year period.
• The year-to-date net loss attributable to common shareholders improved to $3.0 million for the nine months ended September 30, 2025, compared to a loss of $54.2 million in the prior year period.
• Total revenue decreased by 3.9% to $23.8 million for Q3 2025 and by 3.5% to $74.3 million for the nine months ended September 30, 2025, primarily due to property sales.
• Same-Property Net Operating Income (NOI) increased by 3.3% to $15.0 million for Q3 2025 and by 4.2% to $45.9 million for the nine months ended September 30, 2025.
• Adjusted Funds From Operations (AFFO) increased to $2.0 million for Q3 2025 from $1.0 million in Q3 2024, and to $7.1 million for the nine months ended September 30, 2025, from $3.8 million in the prior year.
• The company completed six property sales during the nine months ended September 30, 2025, generating $33.4 million in net proceeds.
• Three properties (Carll's Corner, Fieldstone Marketplace, South Philadelphia land parcel) were classified as assets held for sale as of September 30, 2025, with subsequent sales completed in October and November 2025.
• The company issued 643,258 shares of Common Stock to exchange for 469,074 Series B Preferred Stock and 401,474 Series D Preferred Stock during the nine months ended September 30, 2025.
• Repurchased 1,921,228 shares of Cedar Series C Preferred Stock for $31.3 million and 592,372 shares of Cedar Series B Preferred Stock for $10.6 million during the nine months ended September 30, 2025, reducing future annual dividend payments by $5.5 million.
• Accumulated undeclared dividends on Series D Preferred Stock totaled $26.6 million ($16.86 per share) as of September 30, 2025.
• The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, permanently extending the 20% deduction for qualified REIT dividends and increasing the Taxable REIT Subsidiary (TRS) asset test limit to 25% after December 31, 2025.

Sentiment

Score: 5

Explanation: While net income and key operating metrics like Same-Property NOI and AFFO showed improvement, largely due to non-cash derivative gains and strategic asset sales, the company faces ongoing challenges with substantial common stock dilution from preferred stock redemptions and a history of multiple reverse stock splits. The strategic asset sales and preferred stock repurchases are positive for debt reduction and future dividend obligations, but the overall capital structure remains complex and dilutive for common shareholders.

Positives

• Net income attributable to common shareholders significantly improved to $8.9 million in Q3 2025 from a loss of $35.7 million in Q3 2024.
• Same-Property NOI increased by 3.3% for Q3 2025 and 4.2% for the nine months ended September 30, 2025, indicating improved operational performance of existing properties.
• Adjusted Funds From Operations (AFFO) increased to $2.0 million for Q3 2025 and $7.1 million for the nine months ended September 30, 2025, demonstrating improved cash flow from operations.
• Successful disposition of six properties generated $33.4 million in net proceeds, contributing to debt reduction and liquidity.
• Strategic repurchases of Cedar Series B and C Preferred Stock totaling $41.9 million are expected to reduce future annual dividend payments by $5.5 million.
• New lease activity shows a weighted average rate increase of 19.7% for Q3 2025 and 24.4% for the nine months ended September 30, 2025, over prior rates.
• Lease renewals show a weighted average rate increase of 10.6% for Q3 2025 and 11.9% for the nine months ended September 30, 2025, over prior rates.
• The OBBBA permanently extended the 20% deduction for qualified REIT dividends and increased the TRS asset test limit, which could be beneficial for REITs.

Negatives

• Total revenue decreased by 3.9% for Q3 2025 and 3.5% for the nine months ended September 30, 2025, primarily due to property sales.
• Operating income decreased to $5.5 million for Q3 2025 from $13.9 million in Q3 2024.
• Impairment charges of $2.5 million were recorded on Carll's Corner during the three and nine months ended September 30, 2025.
• Accumulated undeclared dividends on Series D Preferred Stock remain high at $26.6 million ($16.86 per share) as of September 30, 2025.
• The company's strategy of settling Series D Preferred Stock redemptions in Common Stock is expected to cause 'substantial dilution' to outstanding Common Stock.
• Multiple reverse stock splits (four in 2025 alone) indicate ongoing challenges with share price and Nasdaq listing compliance.
• Loss on conversion of Convertible Notes was $0.9 million for the nine months ended September 30, 2025.
• Gain on preferred stock redemptions significantly decreased to $0.2 million in Q3 2025 from $2.5 million in Q3 2024, and to $1.2 million year-to-date 2025 from $2.7 million year-to-date 2024.

Risks

• Substantial dilution of common stock and steep decline in its market value resulting from Series D Preferred Stock redemption rights and downward adjustment of Convertible Notes conversion price.
• Uncertainty regarding the ability to register sufficient shares of Common Stock to settle redemptions of Series D Preferred Stock due to stock volatility.
• Geographic concentration of properties in the Mid-Atlantic, Southeast, and Northeast makes the company susceptible to adverse developments in those markets.
• Dependence on anchor stores or major tenants, with potential adverse effects from loss or bankruptcy of such tenants.
• Inability to obtain new financing or refinancing on favorable terms due to market volatility or instability and increases in borrowing costs.
• Impact of leverage on operating performance.
• Risks related to the market for retail space generally, including reductions in consumer spending, variability in retailer demand, adverse impact of e-commerce, and consolidation in the retail sector.
• Litigation risks, including the ongoing Aquino Action where the company has a contractual obligation to indemnify former Cedar directors.
• Inability to maintain compliance with Nasdaq listing standards.
• Damage to properties from catastrophic weather, natural events, and climate change, and the risk of uninsured losses or losses exceeding insurance limits.
• Continued increases in the cost of necessary insurance could negatively impact profitability.
• Inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, or changes in tax or other applicable laws.
• Fluctuations in interest rates and governmental tariff-related measures could significantly impact the operating portfolio and overall financial performance.

Future Outlook

The company intends to continue its strategy of opportunistically exchanging Common Stock for Series B and Series D Preferred Stock to reduce outstanding securities and optimize capital allocation. It also plans to continue repurchasing Cedar Series B and C Preferred Stock, which are trading at a discount, to enhance financial stability and offset lost NOI from property sales. Future liquidity will be supported by delivering currently leased but unoccupied space, backfilling vacant anchor spaces, replacing defaulting tenants, increasing lease revenue through tenant improvements, disposing of non-core assets, and refinancing properties. The company aims to maintain its REIT qualification, requiring distribution of at least 90% of REIT taxable income.

Management Comments

• The Company intends to continue to opportunistically exchange shares of its Common Stock for its Series B Preferred Stock and/or its Series D Preferred Stock with the holders thereof as an additional strategy to reduce the outstanding number of each security, enhance the Company's financial stability and optimize its capital allocation.
• The Company intends to continue repurchasing its Cedar Series B Preferred Stock and Cedar Series C Preferred Stock as both series are currently trading at a discount to their liquidation value, presenting a strategic opportunity to buy back shares at favorable prices.
• The Company does not believe it is in its interests to liquidate assets or incur indebtedness to fund cash redemptions of the Series D Preferred Stock and, accordingly, it has no intention of doing so. Therefore, the Company intends to continue to settle redemptions of the Series D Preferred Stock in Common Stock. We believe that the issuance of Common Stock to settle redemptions in Common Stock will continue to result in a substantial dilution of the outstanding Common Stock.

Industry Context

The company operates in the retail real estate sector, primarily focusing on grocery-anchored shopping centers. Its performance is influenced by regional and local economic conditions, consumer spending, and the ongoing impact of e-commerce. The strategic dispositions and preferred stock repurchases reflect a broader industry trend of optimizing portfolios and capital structures in response to market dynamics. The OBBBA's permanent extension of the 20% deduction for qualified REIT dividends and increased TRS asset test limit could provide a more favorable tax environment for REITs, potentially encouraging further investment in the sector.

Comparison to Industry Standards

• The company's focus on grocery-anchored centers aligns with a resilient segment of retail real estate, often outperforming other retail formats during economic downturns due to essential services.
• The strategy of repurchasing preferred stock at a discount is a common capital management tactic employed by companies to reduce dividend obligations and enhance shareholder value, similar to share buyback programs.
• The multiple reverse stock splits indicate a struggle to maintain Nasdaq listing standards and share price, which is not typical for well-performing, stable REITs and suggests underlying financial or market perception challenges compared to industry leaders like Regency Centers (REG) or Federal Realty Investment Trust (FRT) which generally exhibit stable stock performance and dividend growth.
• The geographic concentration in the Mid-Atlantic, Southeast, and Northeast is a common strategy for regional REITs, but it also exposes the company to localized economic risks more than diversified national REITs.

Corporate Governance

Legal Proceedings

• **Daniel Khoshaba v. Joseph D. Stilwell, et al.**: A derivative and putative class action lawsuit filed on April 10, 2024, alleging breach of duty by current and former directors and the CEO regarding potential dilution from Series D Preferred Stock redemptions and authorization of dividends on Convertible Notes paid in Series D Preferred Stock. A settlement agreement was reached on October 21, 2025, pending court approval, which includes full releases of liability for defendants from a defined settlement class. The company is a nominal defendant and not responsible for settlement payment.
• **Anthony Aquino, et al. v. Bruce Schanzer, et al.**: A putative class action suit filed against former Cedar directors alleging breach of fiduciary duties related to the Cedar Acquisition. The company has a contractual obligation to indemnify the former Cedar directors for costs and legal fees. The outcome of the litigation remains uncertain.

Related Party Transactions

• The company performs property management and leasing services for Cedar, a consolidated subsidiary, receiving $0.7 million for these services during the nine months ended September 30, 2025.
• The Operating Partnership and Cedar's operating partnership have a Cost Sharing Agreement for employees, facilities, and third-party arrangements. Related party amounts due from Cedar totaled $10.7 million as of September 30, 2025, which are eliminated for consolidation.
• The company has an investment in Stilwell Activist Investments, L.P. (SAI), a related party, with a net asset value of $14.3 million as of September 30, 2025. Joseph Stilwell, E.J. Borrack, and Megan Parisi, members of the company's Board of Directors, are affiliated with SAI.

Stakeholder Impact

• **Shareholders (Common Stock)**: Face substantial dilution due to the company's policy of settling Series D Preferred Stock redemptions with Common Stock. The multiple reverse stock splits also negatively impact common shareholders.
• **Shareholders (Preferred Stock)**: Holders of Series D Preferred Stock have significant undeclared dividends ($26.6 million) and their redemptions are settled in Common Stock, which may not be at their preferred value. Holders of Cedar Series B and C Preferred Stock benefit from repurchases at a premium to carrying value.
• **Creditors**: Debt management through asset sales and new credit facilities aims to maintain financial stability, but the overall leverage remains a factor.
• **Employees**: The Cost Sharing Agreement with Cedar's operating partnership includes allocations for executive compensation and directors and officers liability insurance.
• **Tenants**: Lease renewals and new leases show positive rate increases, indicating a healthy demand for the company's retail spaces.

Next Steps

• Continue to opportunistically exchange Common Stock for Series B and Series D Preferred Stock.
• Continue repurchasing Cedar Series B and C Preferred Stock.
• Deliver space currently leased but not yet occupied.
• Backfill vacant anchor spaces.
• Replace tenants in default of their lease terms.
• Increase future lease revenue through tenant improvements.
• Dispose of non-core assets in the ordinary course of business.
• Refinance properties.
• Monitor the impact of the OBBBA on consolidated financial statements and disclosures.
• Await final court approval for the settlement agreement in the Daniel Khoshaba v. Joseph D. Stilwell, et al. lawsuit.
• Monitor the outcome of the Anthony Aquino, et al. v. Bruce Schanzer, et al. lawsuit.

Key Dates

Recommendation

While Wheeler REIT demonstrated a significant rebound in net income for Q3 2025, largely driven by non-cash derivative gains, and showed positive Same-Property NOI and AFFO growth, the underlying financial health for common shareholders remains challenged. The company's strategy of settling Series D Preferred Stock redemptions with Common Stock is explicitly stated to cause 'substantial dilution,' and the history of multiple reverse stock splits indicates persistent issues with share price stability and Nasdaq compliance. Strategic asset sales and preferred stock repurchases are positive for debt reduction and future dividend obligations, but the complex capital structure and ongoing dilution risks for common equity suggest a 'hold' recommendation. Investors should monitor the impact of dilution, the resolution of legal proceedings, and the company's ability to execute its growth and liquidity strategies before considering further investment.

Keywords

REIT, Real Estate Investment Trust, Retail Properties, Grocery-Anchored Centers, Property Dispositions, Preferred Stock, Convertible Notes, Capital Structure, Dilution, SEC Filing, Financial Performance, Net Operating Income, FFO, AFFO, Asset Sales, Debt Management, Corporate Governance, Legal Proceedings, Nasdaq Listing, Stilwell Activist Investments