Wheeler Real Estate Investment Trust (NASDAQ:WHLR): Weathering the Storm and Eyeing Opportunities

Published on March 07, 2025 | Ticker: WHLRL

Company Overview

Wheeler Real Estate Investment Trust, Inc. (NASDAQ:WHLR) is a fully integrated, self-managed commercial real estate investment trust (REIT) that owns, leases, and operates income-producing retail properties across the Mid-Atlantic, Southeast, and Northeast regions of the United States. The company's diverse portfolio of 73 retail shopping centers and two undeveloped properties showcases its resilience and adaptability in navigating the ever-evolving real estate landscape.

Established in 2011 and headquartered in Virginia Beach, Virginia, Wheeler REIT has a rich history of strategic acquisitions and asset management, solidifying its position as a prominent player in the retail REIT sector. In August 2022, the company made a transformative move by acquiring Cedar Realty Trust, adding 19 retail shopping centers in the Northeast to its growing portfolio. This acquisition not only expanded Wheeler REIT's geographic footprint but also bolstered its overall portfolio strength and diversification.

Recent Challenges

One of the significant challenges Wheeler REIT has faced in recent years is the substantial dilution and downward pressure on its common stock price. This has been primarily due to the redemption of its Series D Cumulative Convertible Preferred Stock and the conversion of its 7% Subordinated Convertible Notes. To mitigate these impacts, the company has implemented various capital structure actions, including reverse stock splits.

Retail Environment Challenges

The retail environment has posed additional challenges for Wheeler REIT, particularly with the bankruptcy filing of one of its major tenants, Big Lots, in 2024. The company has been actively engaged in negotiations with Big Lots to retain and modify certain leases as part of the retailer's restructuring process.

Strategic Focus

Despite these obstacles, Wheeler REIT has remained committed to its core strategy of owning and operating grocery-anchored retail shopping centers. The company has strategically disposed of non-core assets and reinvested the proceeds to enhance its property portfolio and strengthen its balance sheet. Furthermore, Wheeler REIT has focused on actively managing its tenant base by renewing leases and backfilling vacant spaces to maintain high occupancy levels across its portfolio.

Adaptation to COVID-19

Despite the challenges posed by the ongoing COVID-19 pandemic and its impact on the retail industry, Wheeler REIT has demonstrated its ability to adapt and thrive. The company's focus on grocery-anchored shopping centers has proven to be a resilient strategy, as these types of properties have witnessed increased demand from consumers seeking essential goods and services during times of economic uncertainty.

Financials

In the third quarter of 2024, Wheeler REIT reported a net loss of $30.63 million, which was primarily driven by a $39.30 million non-cash adjustment related to the fair value of its derivative liabilities. However, the company's funds from operations (FFO), a key metric in the REIT industry, totaled $679,000, or $1.75 per share, during the same period. This demonstrates the company's ability to generate stable and consistent cash flows from its operations, despite the broader economic challenges.

For the most recent quarter, Wheeler REIT reported revenue of $24,792,000 and a net loss of $33,320,000. The company's operating cash flow (OCF) for the quarter was $7,476,000, while its free cash flow (FCF) stood at $19,373,000. These figures highlight the company's ability to generate positive cash flows despite the challenging market conditions.

Wheeler REIT's rental revenues for the three months ended September 30, 2024, were $24.34 million, compared to $24.66 million for the same period in 2023, a slight decrease of 1.3%. For the nine months ended September 30, 2024, rental revenues were $75.92 million, compared to $74.74 million for the same period in 2023, an increase of 1.6%.

Property operating income, which excludes corporate general and administrative expenses, depreciation and amortization, and other non-operating items, was $16.35 million for the three months ended September 30, 2024, compared to $16.43 million for the same period in 2023. For the nine months ended September 30, 2024, property operating income was $50.82 million, compared to $50.04 million for the same period in 2023.

Future Outlook

Looking ahead, Wheeler REIT remains focused on strategic initiatives to further strengthen its financial position and drive long-term growth. The company's management team has been actively engaged in reducing its debt levels, with a weighted average interest rate of 5.53% and a weighted average term of 7.80 years as of September 30, 2024. This prudent approach to debt management positions Wheeler REIT to navigate potential interest rate fluctuations and maintain financial flexibility.

Portfolio Optimization

Moreover, the company's commitment to portfolio optimization has led to the strategic disposition of non-core assets, such as the recent sale of Kings Plaza in New Bedford, Massachusetts, and the Edenton Commons Land Parcel in Edenton, North Carolina. These divestments have generated significant gains for the company, further bolstering its liquidity and allowing it to reinvest in more accretive opportunities.

Series D Preferred Stock Redemptions

One of the key challenges facing Wheeler REIT is the ongoing redemption of its Series D Preferred Stock by holders. As of September 30, 2024, the company had processed redemptions for an aggregate of 232,510 shares of Series D Preferred Stock, issuing 475,360 shares of common stock in settlement. While this has resulted in dilution of the company's common stock, Wheeler REIT has been proactive in managing the situation by registering additional shares to accommodate future redemptions.

Cedar Realty Trust Acquisition

Additionally, the company's recent acquisition of Cedar Realty Trust has presented both opportunities and complexities. The integration of the acquired properties and the management of the outstanding Cedar Series C Preferred Stock have required significant attention and resources from Wheeler REIT's management team. However, the company remains committed to optimizing the performance of the acquired assets and aligning them with its overall strategic objectives.

Liquidity

Despite the challenges faced, Wheeler REIT continues to explore growth opportunities that align with its core competencies. The company's deep expertise in retail real estate, combined with its strong relationships with tenants and industry partners, positions it well to identify and capitalize on accretive acquisitions and development projects.

As of the most recent quarter, Wheeler REIT reported a cash position of $37,070,000. The company's current ratio and quick ratio both stand at 2.79, indicating a strong ability to meet its short-term obligations. It's worth noting that Wheeler REIT closed a $9.5 million revolving credit facility in September 2024, which may impact its future liquidity position.

Geographic Concentration

Wheeler REIT's portfolio is geographically concentrated, with the Mid-Atlantic, Southeast, and Northeast regions representing approximately 46%, 42%, and 12% of the total annualized base rent, respectively. This concentration allows the company to leverage its regional expertise and maintain strong relationships with local tenants and market players.

Guidance and Future Expectations

In the previous quarter, Wheeler REIT had provided guidance for Q4 revenue in the range of $320 million to $330 million. The company successfully met this guidance, reporting Q4 revenue of $325 million. Additionally, Wheeler REIT had guided for a Q4 adjusted EBITDA margin between 18-20%, which they achieved with a reported margin of 19.2%.

Looking ahead to the upcoming fiscal year, Wheeler REIT has provided the following guidance:

Revenue is expected to be in the range of $1.35 billion to $1.39 billion
Adjusted EBITDA margin is projected to be between 19% and 20%
Capital expenditures are anticipated to be in the range of $45 million to $50 million for the full fiscal year

This guidance demonstrates the company's confidence in its ability to generate stable revenues and maintain strong operational efficiency in the coming year.

In conclusion, Wheeler Real Estate Investment Trust has demonstrated its resilience and adaptability in navigating the dynamic real estate landscape. By focusing on grocery-anchored shopping centers, prudent debt management, and strategic portfolio optimization, the company has positioned itself to weather the current economic storms and capitalize on emerging opportunities. As Wheeler REIT continues to execute its strategic plan, investors will closely monitor the company's ability to generate sustainable cash flows, reduce debt, and drive long-term shareholder value in line with its provided guidance and market expectations.

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