Financial Performance Overview

Wheeler REIT, a real estate investment trust focused on retail properties, has released its financial results for the third quarter and first nine months of 2024. The report provides insights into the company’s recent performance, highlighting both strengths and challenges faced during the period.

Revenue and Profit Trends

For the third quarter of 2024, Wheeler REIT reported revenues of $24.8 million, a slight decrease of 1.6% compared to the same period in 2023. This decline was primarily due to a decrease in market lease amortization, an increase in credit adjustments on operating lease receivables, and a decrease in other income, partially offset by an increase in tenant reimbursements.

On a year-to-date basis, the company’s revenues increased by 1.1% to $77.0 million for the first nine months of 2024, driven by higher tenant reimbursements and base rent, partially offset by decreases in market lease amortization and other income.

Despite the modest revenue growth, Wheeler REIT’s net loss widened significantly in the third quarter and first nine months of 2024 compared to the same periods in 2023. The company reported a net loss of $30.6 million in the third quarter, compared to a net loss of $11.4 million in the same quarter of 2023. For the first nine months of 2024, the net loss was $39.0 million, compared to a net loss of $13.1 million in the prior-year period.

The primary driver of the increased net losses was a significant non-cash adjustment related to the fair value of the company’s derivative liabilities, primarily the Convertible Notes. This adjustment resulted in a $39.3 million loss in the third quarter and a $49.8 million loss in the first nine months of 2024.

Strengths and Weaknesses

One of Wheeler REIT’s key strengths is its ability to manage property operating expenses, which decreased by 3.7% in the third quarter and 0.3% in the first nine months of 2024 compared to the same periods in 2023. This was primarily due to a decrease in repairs and maintenance costs.

Another strength is the company’s focus on improving its capital structure. During the nine-month period, Wheeler REIT refinanced several loans, which helped to maintain a weighted average interest rate of 5.53% on its fixed-rate debt as of September 30, 2024. Additionally, the company repurchased $1.3 million of its Convertible Notes, reducing its debt burden.

However, the company faces several challenges, including the ongoing impact of the Big Lots bankruptcy. Big Lots leased five locations from Wheeler REIT, representing approximately 1.5% of the company’s portfolio’s annualized base rent. The company is currently negotiating with Big Lots on potential lease modifications, but there is no assurance that these negotiations will be successful.

Another weakness is the company’s continued struggle to comply with Nasdaq’s listing requirements. In June 2024, Wheeler REIT received a notice from Nasdaq that it was not in compliance with the minimum publicly held shares rule. The company has until December 25, 2024, to regain compliance by issuing additional shares in settlement of its Series D Preferred Stock redemptions.

Outlook and Future Prospects

Looking ahead, Wheeler REIT’s future prospects will depend on its ability to execute on several key initiatives. The company plans to focus on delivering currently leased but unoccupied space, backfilling vacant anchor spaces, and replacing tenants in default of their lease terms. These efforts are aimed at increasing future lease revenue and improving the company’s overall financial performance.

Additionally, Wheeler REIT intends to continue disposing of non-core assets and refinancing properties to improve its liquidity and capital structure. The company had $37.1 million in cash and cash equivalents and $17.9 million in lender reserves as of September 30, 2024, which should provide sufficient liquidity to meet its near-term obligations.

However, the company’s ability to execute on its strategy and maintain its REIT status will be heavily influenced by the ongoing redemptions of its Series D Preferred Stock. As holders of the Series D Preferred Stock continue to exercise their redemption rights, Wheeler REIT will be required to issue additional shares of its common stock, which could result in significant dilution for existing shareholders.

Furthermore, the continued volatility in the fair value of the company’s derivative liabilities, particularly the Convertible Notes, could lead to significant non-cash losses and further strain the company’s financial performance.

Conclusion

Wheeler REIT’s third-quarter and year-to-date 2024 financial results highlight both the challenges and opportunities facing the company. While the company has made progress in managing its property operating expenses and strengthening its capital structure, the significant non-cash losses related to its derivative liabilities and the ongoing impact of the Big Lots bankruptcy have weighed heavily on its financial performance.

Looking ahead, the company’s ability to execute on its strategic initiatives, navigate the redemptions of its Series D Preferred Stock, and maintain its Nasdaq listing will be critical in determining its future success. Investors will need to closely monitor the company’s progress in these areas as it seeks to improve its financial position and create value for shareholders.