10-K: Wheeler REIT Reports Mixed 2024 Results Amid Strategic Portfolio Adjustments

Wheeler Real Estate Investment Trust's 2024 10-K filing reveals strategic portfolio adjustments, including property dispositions and debt refinancing, alongside ongoing challenges with preferred stock redemptions and Nasdaq compliance.

Summary

• Wheeler Real Estate Investment Trust (WHLR) filed its 10-K report for the year ended December 31, 2024.
• The company sold several properties, including a South Philadelphia retail center for $21 million and Kings Plaza for $14.2 million.
• WHLR recorded an impairment charge of $1.2 million on the Oregon Avenue property.
• The company entered into a term loan agreement for $25.5 million at a fixed rate of 6.80% to refinance existing loans.
• WHLR issued 4,368 shares of Common Stock upon conversion of Convertible Notes, resulting in a $0.4 million loss.
• The conversion price for the Convertible Notes was adjusted to approximately $3.88 per share in February 2025.
• The company processed redemptions for 519,822 shares of Series D Preferred Stock, issuing 294,083 shares of Common Stock in settlement.
• Cedar repurchased 791,306 shares of Cedar Series C Preferred Stock for $11.5 million, leading to a $3.8 million deemed distribution.
• As of December 31, 2024, the portfolio was 93.1% leased.
• The company's investment in Stilwell Activist Investments, L.P. was valued at $12.0 million.
• The total cumulative dividends in arrears for Series D Preferred Stock is $32.8 million as of December 31, 2024 ($14.67 per share).
• The company's same-property NOI increased by 4.9% due to a 3.4% increase in property revenue.
• The company had $43.0 million in cash and cash equivalents at December 31, 2024.
• The company is required to distribute at least 90% of its REIT taxable income to maintain REIT status.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While revenue and NOI increased, net income decreased significantly, and the company faces ongoing challenges with preferred stock redemptions and debt management. The outlook is uncertain, reflecting a neutral sentiment.

Positives

• The company successfully sold several properties, generating net proceeds to deleverage the balance sheet.
• Refinancing activities, including the $25.5 million term loan, improved the company's debt structure.
• Same-property NOI increased by 4.9%, indicating improved operational performance.
• The company reduced the number of outstanding Cedar Series C Preferred Stock through repurchase transactions.
• The company's cash position increased to $43.0 million at the end of 2024.

Negatives

• The company recorded an impairment charge of $1.2 million on the Oregon Avenue property.
• The company incurred a $0.4 million loss on the conversion of Convertible Notes.
• The conversion price of the Convertible Notes was significantly adjusted downwards, potentially diluting Common Stock value.
• The company has a significant amount of cumulative dividends in arrears for Series D Preferred Stock, totaling $32.8 million.
• The company is facing ongoing challenges related to Series D Preferred Stock redemptions and potential dilution of Common Stock.

Risks

• The company faces risks related to the use of and demand for retail space.
• The company faces risks related to general and economic business conditions, including the rate and other terms on which we are able to lease our properties.
• The company faces risks related to the loss or bankruptcy of the Company's tenants.
• The company faces risks related to the geographic concentration of our properties in the Mid-Atlantic, Southeast and Northeast.
• The company faces risks related to consumer spending and confidence trends, including those affecting the ability of individuals to spend in retail shopping centers.
• The company faces risks related to availability, terms and deployment of capital.
• The company faces risks related to substantial dilution of our common stock, par value $0.01 ('Common Stock') and steep decline in its market value resulting from the exercise by the holders of our Series D Cumulative Convertible Preferred Stock (the 'Series D Preferred Stock') of their redemption rights and downward adjustment of the Conversion Price (as defined below) on our outstanding 7.00% Subordinated Convertible Notes due 2031 (the 'Convertible Notes'), each of which has already occurred and is anticipated to continue.
• The company faces risks related to given the volatility in the trading of our Common Stock, whether we have registered and, as necessary, can continue to register sufficient shares of our Common Stock to settle redemptions of all Series D Preferred Stock tendered to us by the holders thereof.
• The company faces risks related to the degree and nature of our competition.
• The company faces risks related to changes in governmental regulations, accounting rules, tax rates and similar matters.
• The company faces risks related to the ability and willingness of the Companys tenants and other third parties to satisfy their obligations under their respective contractual arrangements with the Company.
• The company faces risks related to the ability and willingness of the Companys tenants to renew their leases with the Company upon expiration.
• The company faces risks related to the Companys ability to re-lease its properties on the same or better terms in the event of non-renewal or in the event the Company exercises its right to replace an existing tenant, and obligations the Company may incur in connection with the replacement of an existing tenant.
• The company faces risks related to litigation risks generally.
• The company faces risks related to the risk that shareholder litigation filed by the Company's former CEO, Daniel Khoshaba, may result in significant costs of defense, indemnification and liability, and divert management's attention away from running the Company.
• The company faces risks related to the Company's ability to maintain compliance with the financial and other covenants in its debt agreements and under the terms of its Series D Preferred Stock.
• The company faces risks related to financing risks, such as the Companys inability to obtain new financing or refinancing on favorable terms as the result of market volatility or instability and increases in the Companys borrowing costs as a result of changes in interest rates and other factors.
• The company faces risks related to the impact of the Companys leverage on operating performance.
• The company faces risks related to our ability to successfully execute strategic or necessary asset acquisitions and divestitures.
• The company faces risks related to risks related to the market for retail space generally, including reductions in consumer spending, variability in retailer demand for leased space, adverse impact of e-commerce, ongoing consolidation in the retail sector and changes in economic conditions and consumer confidence.
• The company faces risks related to risks endemic to real estate and the real estate industry generally.
• The company faces risks related to the adverse effect of any future pandemic, endemic or outbreak of infectious diseases, and mitigation efforts, including government-imposed lockdowns, to control their spread.
• The company faces risks related to risks to our information systems or those of our tenants or vendors from service interruption, misappropriation of data, breaches of security or information technology, or other cyber-related attacks.
• The company faces risks related to competitive risks.
• The company faces risks related to the Companys ability to maintain compliance with the listing standards of the Nasdaq Capital Market ('Nasdaq').
• The company faces risks related to the effects on the trading market of our Common Stock of the one-for-10 reverse stock split effected on August 17, 2023 (the 'August 2023 Reverse Stock Split'), the one-for-24 reverse stock split effected on May 16, 2024 (the 'May 2024 Reverse Stock Split'), the one-for-five reverse stock split effected on June 27, 2024 (the 'June 2024 Reverse Stock Split'), the one-for-three reverse stock split effected on September 19, 2024 (the 'September 2024 Reverse Stock Split', the one-for-two reverse stock split effected on November 18, 2024 (the 'November 2024 Reverse Stock Split' and collectively with the May 2024 Reverse Stock Split, June 2024 Reverse Stock Split, September 2024 Reverse Stock Split and November 2024 Reverse Stock Split, the 2024 Reverse Stock Splits), the one-for-four reverse stock split effected on January 27, 2025 (the 'January 2025 Reverse Stock Split' and, together with the August 2023 Reverse Stock Split and the 2024 Reverse Stock Splits, the 'Reverse Stock Splits') and any reverse stock splits the Company may effect in the future.
• The company faces risks related to damage to the Companys properties from catastrophic weather and other natural events, and the physical effects of climate change.
• The company faces risks related to the risk that an uninsured loss on the Companys properties or a loss that exceeds the limits of the Companys insurance policies could subject the Company to lost capital or revenue on those properties.
• The company faces risks related to the risk that continued increases in the cost of necessary insurance could negatively impact the Company's profitability.
• The company faces risks related to the Companys ability and willingness to maintain its qualification as a real estate investment trust ('REIT') in light of economic, market, legal, tax and other considerations.
• The company faces risks related to the ability of our operating partnership, Wheeler REIT, L.P. (the 'Operating Partnership'), and each of our other partnerships and limited liability companies to be classified as partnerships or disregarded entities for federal income tax purposes.
• The company faces risks related to the impact of e-commerce on our tenants business.
• The company faces risks related to the inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws.

Future Outlook

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 to settle redemptions of the Series D Preferred Stock in Common Stock until the earlier of (a) the redemption of all outstanding shares of Series D Preferred Stock or (b) an agreed settlement with the holders of two-thirds of the then issued and outstanding Series D Preferred Stock.

Management Comments

• Management has extensive expertise in acquiring and managing under-performing properties and increasing operating income through more effective leasing strategies and expense management.
• 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, including the secured and unsecured debt markets, unsecured lines of credit, and other sources.

Industry Context

The company operates in the competitive commercial real estate market, facing competition from numerous developers and real estate companies. Retailers at the company's properties also face competition from online retailers, outlet stores, discount shopping clubs, superstores, and other forms of sales and marketing of goods and services, such as direct mail.

Comparison to Industry Standards

• The document does not provide enough information to compare the company's results to global benchmarks.
• A comparison to industry standards would require data on occupancy rates, rental rates, and expense ratios of comparable REITs with similar property portfolios and geographic focus.
• Specific comparable companies could include other REITs focused on grocery-anchored shopping centers in the Mid-Atlantic, Southeast, and Northeast regions.

Legal Proceedings

• Daniel Khoshaba, a former CEO, filed a derivative action and putative class action against current and former directors and the CEO, alleging breach of duty and unjust enrichment.
• The United States Court of Appeals for the Fourth Circuit affirmed the United States District Court for the District of Maryland's order dismissing the consolidated complaints in the Sydney, et al. v. Cedar Realty Trust, Inc., et al., (Case No. C-15-CV-22-001527) and Kim v. Cedar Realty Trust, Inc., et al., Civil Action No. 22-cv-01103 lawsuits, and the matters are now concluded.

Related Party Transactions

• The Company performs property management and leasing services for Cedar, a subsidiary of the Company, pursuant to the Wheeler Real Estate Company Management Agreement.
• The Operating Partnership and Cedars operating partnership, Cedar Realty Trust Partnership, L.P., are party to a cost sharing and reimbursement agreement, pursuant to which the parties agreed to share costs and expenses associated with certain employees, certain facilities and property, and certain arrangements with third parties (the Cost Sharing Agreement).
• The Company has investments held with SAI, a related party.

Stakeholder Impact

• Shareholders may experience dilution due to the issuance of Common Stock for Series D Preferred Stock redemptions.
• Tenants may be affected by the company's ability to maintain and improve properties.
• Employees may be impacted by the company's financial performance and strategic decisions.
• Creditors are subject to the company's ability to meet its debt obligations.

Next Steps

• The Company intends to continue to opportunistically exchanging 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 to settle redemptions of the Series D Preferred Stock in Common Stock until the earlier of (a) the redemption of all outstanding shares of Series D Preferred Stock or (b) an agreed settlement with the holders of two-thirds of the then issued and outstanding Series D Preferred Stock.
• The Company plans to undertake measures to grow its operations and increase liquidity through delivering space currently leased but not yet occupied, backfilling vacant anchor spaces, replacing tenants who are in default of their lease terms, increasing future lease revenue through tenant improvements partially funded by restricted cash, disposition of non-core assets in the ordinary course of business and refinancing properties.

Key Dates