8-K: Wheeler Real Estate Investment Trust Reports Third Quarter 2024 Results, Shows Improvement in Occupancy and Leasing

Wheeler Real Estate Investment Trust announced its financial and operating results for the third quarter of 2024, highlighting improvements in occupancy and leasing rates despite a net loss.

Summary

• Wheeler Real Estate Investment Trust (WHLR) reported a net loss of $35.7 million, or $91.99 per share, for the third quarter of 2024.
• The company's FFO was $(35.3) million, or $(90.98) per share, while Adjusted FFO (AFFO) was $1.75 per share.
• The real estate portfolio's occupancy rate increased to 92.0%, up from 90.9% in the same period last year.
• The leased rate also improved to 93.8%, compared to 93.1% in the prior year.
• Same-Property Net Operating Income (NOI) increased by 3.1%, or $0.5 million.
• Total revenue decreased slightly by 1.6% to $24.8 million, primarily due to a decrease in market lease amortization and credit adjustments.
• Total operating expenses decreased by 0.8% to $18.0 million, driven by lower repairs, legal fees, and salaries, offset by increased impairment charges.
• The company executed 42 lease renewals totaling 332,528 square feet with a weighted average increase of $0.59 per square foot, and signed 10 new leases totaling 30,345 square feet with a weighted average rental rate of $15.48 per square foot.
• WHLR effected a one-for-three reverse stock split on September 19, 2024.
• Big Lots bankruptcy impacted the company with approximately 1.5% of the portfolio's annualized base rent and $0.2 million in reserved amounts due from Big Lots.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the significant net loss, negative FFO, and the non-operating loss related to derivative liabilities. While there are some positive aspects like improved occupancy and leasing rates, the overall financial performance is weak and concerning.

Positives

• The occupancy rate of the real estate portfolio increased by 110 basis points to 92.0%.
• The leased rate of the real estate portfolio increased by 70 basis points to 93.8%.
• Same-Property NOI increased by 3.1% or $0.5 million.
• Lease renewals saw a weighted average increase of $0.59 per square foot, a 6.5% increase over in-place rental rates.
• New leases were signed with a weighted average rental rate of $15.48 per square foot, resulting in a new rent spread of 39.0%.
• AFFO per share was $1.75, a significant improvement compared to $(660.75) per share in the same period last year.
• The company's weighted average interest rate on property level debt was 5.44% with a term of 7.8 years.
• The company sold three properties during the year generating a gain of $10.5 million and net proceeds of $20.7 million.

Negatives

• The company reported a net loss of $35.7 million, or $91.99 per share, for the third quarter of 2024.
• FFO was $(35.3) million, or $(90.98) per share.
• Total revenue decreased by 1.6% to $24.8 million.
• The company recognized a non-operating loss of $39.3 million in net changes in fair value of derivative liabilities.
• Big Lots bankruptcy has impacted the company with approximately 1.5% of the portfolio's annualized base rent.
• The company recognized non-operating expenses of $1.5 million, primarily consisting of capital structure costs.

Risks

• The company faces risks related to the use of and demand for retail space, general economic conditions, and tenant bankruptcies.
• There is a risk of substantial dilution of common stock and a steep decline in its market value due to the exercise of redemption rights by holders of Series D Preferred Stock.
• The company is exposed to litigation risks, including shareholder litigation filed by the company's former CEO.
• Financing risks include the inability to obtain new financing or refinancing on favorable terms due to market volatility.
• The company faces risks related to the market for retail space, including reductions in consumer spending and the adverse impact of e-commerce.
• The company's ability to maintain its qualification as a REIT is subject to economic, market, legal, and tax considerations.
• The company is exposed to risks related to the geographic concentration of its properties in the Mid-Atlantic, Southeast, and Northeast.
• The company's ability to regain compliance with the listing standards of the Nasdaq Capital Market is a risk.
• The company is exposed to risks related to damage to its properties from catastrophic weather and other natural events.
• The company is exposed to risks related 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 release publicly any revisions to any forward-looking statements.

Management Comments

• The company announced that it has reported its financial and operating results for the three and nine months ended September 30, 2024 on Form 10-Q.
• The company has posted supplemental information to its website regarding Wheeler Real Estate Investment Trust's financial and operating results for the three and nine months ended September 30, 2024.

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 stability in a changing retail landscape. The results are impacted by broader economic trends, including consumer spending and e-commerce growth, as well as specific events like tenant bankruptcies.

Comparison to Industry Standards

• WHLR's occupancy rate of 92.0% is below the average occupancy rate for retail REITs, which is typically in the mid-90s. For example, Regency Centers (REG) reported an occupancy rate of 96.1% in their latest quarter.
• The company's same-property NOI growth of 3.1% is below the average for retail REITs, which is typically in the 4-6% range. For example, Federal Realty Investment Trust (FRT) reported a same-property NOI growth of 4.5% in their latest quarter.
• WHLR's AFFO per share of $1.75 is significantly lower than the average for retail REITs, which is typically in the $0.50-$1.00 range per quarter. For example, Kimco Realty Corporation (KIM) reported an AFFO per share of $0.40 in their latest quarter.
• The company's debt to total assets ratio of 74.32% is higher than the average for retail REITs, which is typically in the 30-50% range. For example, Simon Property Group (SPG) reported a debt to total assets ratio of 38.5% in their latest quarter.
• The company's high level of preferred stock redemptions and the associated dilution of common stock are not typical for most retail REITs.

Related Party Transactions

• The company performs property management and leasing services for Cedar, a subsidiary of the company, and received $0.9 million for these services year to date.
• Related party amounts due to WHLR from Cedar for financing and real estate taxes, management fees, leasing commissions and Cost Sharing Agreement allocations were $9.4 million as of September 30, 2024.
• The company has an investment in Stilwell Activist Investments, L.P., with a fair value of $12.0 million as of September 30, 2024.

Stakeholder Impact

• Shareholders are negatively impacted by the net loss and dilution of common stock.
• Employees may be affected by cost-cutting measures and potential restructuring.
• Tenants may be impacted by the company's financial performance and any changes in property management.
• Creditors may be concerned about the company's high debt levels and ability to meet its obligations.
• Customers of the retail properties may be impacted by changes in tenant mix and property conditions.

Next Steps

• The company will continue to negotiate with Big Lots regarding the locations they will continue to operate and the terms and conditions of such leases.
• The company will continue to process redemptions of Series D Preferred Stock.
• The company will continue to monitor and manage its debt obligations.
• The company will continue to focus on leasing and occupancy improvements.

Key Dates

Keywords

Real Estate Investment Trust, REIT, Retail Properties, Grocery-Anchored Centers, Leasing, Occupancy Rate, Financial Results, Net Operating Income, FFO, AFFO, Debt, Reverse Stock Split, Preferred Stock, Bankruptcy