Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Wheeler Real Estate Investment Trust (NASDAQ:WHLR)

Q2 2014 Earnings Conference Call

August 15, 2014 10:00 AM ET

Executives

Terry Downs - IR

Jon Wheeler - CEO

Steven Belote - CFO

Analyst

Michael Diana - Maxim Group

John DeMaio - Newbridge Securities Corporation

Vince Thomas - Capital Guardian

Operator

Greeting and welcome to the Wheeler Real Estate Investment Trust Second Quarter 2014 Conference Call. At this time all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder this conference is being recorded. I would now like to turn the conference over to your host Terry Downs of Wheeler Real Estate Investment Trust, Investor Relations from The Equity Group. Thank you, you may begin.

Terry Downs

Good morning everyone and thank you for joining us. On the call today will be Jon Wheeler, our Chairman and CEO of Wheeler Real Estate Investment Trust and Steven Belote, Chief Financial Officer of Wheeler. Following management’s discussion, there will be a question-and-answer session which is open for all participants on the call.

On today’s call management’s prepared results and answers of questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

For more detailed discussion related to these risks and uncertainties we encourage listeners to review the company’s most recent filings with the SEC. As a reminder, forward-looking statements represent management’s view only as of the date of this call. Wheeler Real Estate Investment Trust assumes no obligation to update any forward-looking statements in the future. Definitions and reconciliations of non-GAAP measures are included in the company’s quarterly supplemental package, which is available to the company’s Web site.

And with that, I’d now like to turn the call over to Jon Wheeler, Chief Executive Officer of Wheeler Real Estate Investment Trust. Please go ahead Jon.

Jon Wheeler

Thank you, Terry. Good morning everyone. I would like to thank you all for joining us for our second quarter 2014 earnings conference call. We reported solid results yesterday afternoon and to begin I would like to mention a few highlights from the quarter followed by subsequent activity. Steven, will then review our financial and operational results for the period and I’ll conclude with our outlook for the remainder of the year.

We will then open up the call for any questions you all might have. The pipeline of necessity based and service retail focused properties is strong throughout the secondary and tertiary markets. We continue to see properties that fit our acquisition criteria at higher than average cap rates and we remain a fast growing acquisition company.

All the new assets were acquired during the first half of 2014, later in the call I will touch on the four properties we closed on in the month of July. As of the end of the second quarter 2014, we owned 23 properties located in eight states and had a total gross leasable area of around 1.3 million square feet.

I’d like to point out that, this time last year we had 12 properties in six states with a total gross leasable area of a little more than $0.5 million square feet. I’m extremely proud to say that we have more than doubled our portfolio by GLA in less than a year time. Another factor that I’m extremely proud of is our ability to maintain above average occupancy levels and at June 30th, our occupancy was at 94.7%. This has remained consistent throughout our history as a public company as demonstrated by the fact that immediately filing our IPO, occupancy at the end of Q4 2012 was 94.3%.

Now turning to a few of the highlights from the second quarter as mentioned on our previous call. In April we secured a $25 million guidance line of credit from KeyBank, we’ll be able to utilize this credit facility for acquisitions until December 2015 and in fact we actually use this credit agreement towards the acquisition of one of the properties we closed on in July.

Also in April, we completed a Series B convertible preferred stock offering with net proceeds of approximately 18.7 million. I’ll let Steven provide some additional details in the financial later in the call, which brings me to our acquisition activity subsequent to the quarter end.

In July, we deployed a portion of the capital raised towards the acquisition of four shopping centers. These properties were acquired at a discount replacement cost and include Cypress Shopping Center, which is a Bi-Lo-anchored shopping center located in Boiling Springs, South Carolina. Port Crossing, which is a Food Lion-anchored shopping center located in Harrisonburg, Virginia and LaGrange Marketplace, which is a Food Depot-anchored shopping center located in LaGrange, Georgia.

In addition we also used a portion of the line of credit from KeyBank towards the acquisition of Harrisonburg Marketplace. Harrisonburg Marketplace is a Kroger-anchored shopping center located in Harrodsburg, Kentucky representing our first location in the Commonwealth, Kentucky. In total these four properties have the combined acquisition value of $26.3 million and increase our GLA by over 282,400 square feet.

So, as of the date of this call, we now have 27 locations in nine states with a total gross leasable area of approximately 1.6 million square feet. And with that, I’d like to turn the call over to Steven Belote, our Chief Financial Officer. Steven?

Steven Belote

Thank you, Jon and good morning everyone. I will begin by giving our financial and operational results for the second quarter followed by a review of our financial activities during the period. I’ll then conclude with an update on our balance sheet. We also released year-to-date results which are noted in the press release issued yesterday and in our 10-Q which was filed with the SEC. For the second quarter we saw improvements in several categories. Our funds from operations available to common shareholders and common unit holders for the second quarter of 2014 increased by $127,000 or $0.08 per common share and common unit as compared to the same period of the prior year.

Total revenues for the three months period ended June 30, 2014 were $3.7 million representing a 125% increase over the 1.6 million of revenues generated at the same period of 2013. Same store revenues for the second quarter of 2014 were $1.6 million representing approximately 44% of our total revenues. Revenues from new stores was consistent with 12 acquisition made during 2013 contributed approximately 56% or $2 million to our total revenues for the period.

Property net operating income for the second quarter of 2014 was $2.7 million a $1.4 million increase when compared to $1.3 million of NOI in the same quarter of last year. Same stores contributed $1.3 million to the 2014 second quarter NOI while our new stores represented 1.4 million of total NOI.

Net loss attributable to Wheeler REIT common shareholders for the three months ended June 30, 2014 was $2.2 million or $0.31 per basic and diluted share, this compares to a net loss of 1.3 million or $0.39 per basic and diluted share in the same quarter of last year.

The rise in net loss is largely attributed to increases in depreciation, amortization and interest expense related to 12 acquisitions made during 2013. Additional interest expense associated with the senior-notes issued during December 2013 and January 2014 and preferred stock dividend related to the April 2014 preferred stock offering.

Earnings before interest taxes, depreciation and amortization was approximately $1.4 million during the three months ended June 30, 2014 representing an increase of approximately 1.6 million over the negative [indiscernible] EBITDA generated in the three months ended June 30, 2013.

Recent activity remained positive for the second quarter. Six leases were renewed during the period totaling approximately 44,600 square feet, an average weighted decrease of $0.64 per square foot. Also there were three new leases signed during the quarter that totaled approximately 6,900 square feet at an average weighted rate of $11.96 per square foot.

As Jon mentioned in April we completed a Series B convertible preferred stock and warrants offering. The Series B preferred stock convertible at $5 per share and paid 9% annual dividend. The preferred stock was sold in units with warrants to purchase shares of our common stock at an exercise price of $5.50 per share. Net proceeds from the offering totaled approximately $18.7 million with a portion of the proceeds being used towards the four acquisitions that occurred during July.

We expect to use the remainder of these filings towards future acquisitions as well as for general working capital.

Now turning to our balance sheet. Our net investment assets totaled $100.6 million as of June 30th of this year with cash and cash equivalents of 16.2 million at the end of the period. Total outstanding debt at June 30th was $95.2 million compared to $96.5 million at March 31st. Our weighted average interest rate on fixed-rate debt for the second quarter was 5.39% with a weighted average return of approximately five years.

Lastly I would like to touch on a few details regarding [indiscernible] debt. As noted in our quarterly release we saw an 11.9% decrease in our debt to total asset ratio for the second quarter as compared to the March quarter of this year. Our goal was to continue to gradually reduce our leverage quarter-over-quarter with expectation of reaching a debt to total asset ratio [indiscernible] over the long-term.

And with that I would now like to turn the call back over to Jon.

Jon Wheeler

Thank you Steven. As you can see from our second quarter results, we have made significant financial improvements in the last 12 months as we continue to execute our business plan. As I have said many times we’re a growth company and the results continue reflect this fact.

For the remainder of 2014 we’ll continue to pursue assets in the secondary and tertiary markets and are currently conducting due diligence on several potential acquisitions. I would like to also point out something we have not noted in previous releases or mentioned in the last call.

Our approach to acquiring properties is that on average we want to realize an accretive cash flow benefit of approximately $100,000 per asset. This is important to us and this is another way we’re able to achieve a higher level return and maximize value for our shareholders. In the coming months we will continue to process of rolling in our operating companies. We began this process last January when we acquired Wheeler Development Company and expect to complete the transition to the internal management structure by December 31st with the acquisition of the operating assets of Wheeler Interest LLC, Wheeler Real Estate LLC and WHLR Management LLC.

What this means is that Wheeler Real Estate Investment Trust will be an internalized self-managed REIT with development, redevelopment acquisition, leasing and property management services all in-house and under the same umbrella. Since our IPO in November 2012 the company has been able to demonstrate to the public that we know how to buy well. With these services rolled into the REIT I’m confident that we’ll able to demonstrate to the financial community that we know how to lease and manage extremely well. We expect the impact of our net operating results to be minimal since the cost we will absorb from the operating companies will be offset by the cost savings realized by the REIT as a result of these services being internalized and third-party revenues that will continue to benefit our company after the internalization process.

We feel this is an important step in our growth as well as a strategic move that could potentially create a wider shareholder base for WHLR. With that I’m now ready to take any questions you might have. Operator?

Question-and-Answer

Operator

Thank you. At this time we will conduct the question-and-answer session. (Operator Instructions) Our first question comes from Michael Diana with Maxim Group. Please state your question.

Michael Diana - Maxim Group

Thanks. You have an agreement; you announced a while ago an agreement to acquire Freeway Junction. Do you have any update on the possible closing dates for that?

Jon Wheeler

We do, as you know that is current under contract and we’re finalizing our due diligence and actually we believe that is eminent and actually that brings up another good point as we see 10 year swaps and spreads compressed what we contemplated to be the potential return on that asset we feel could be much better by virtue of that compression but we feel hopefully here within the next 30 days for sure that will be closed.

Michael Diana - Maxim Group

Okay, great. And you mentioned in the release and you just mentioned on the call that you expect an average accretive cash flow benefit of about $100,000 per asset would that pertain to the four acquisitions in July and Freeway Junction?

Jon Wheeler

That is correct, and that’s really our (motto) [ph] going forward as you know we utilize a basic tenement in our business 9, 6, 12 where on an average, our goal is to purchase assets at a non-GAAP financing and the 6% or less and deliver a projected return of 12% or more. So, when you see the compression that we’re seeing right now in the debt side and also on the refinancing on existing assets that goal, that $100,000 per asset accretive benefit is truly achievable.

Michael Diana - Maxim Group

Okay, and actually you just touched on my next question which is I noticed in the queue that you were able to refinance Starbucks/Verizon and all material at a lower interest rate than had existed. Are there other possibilities to do that?

Jon Wheeler

Yes, matter of fact as the Wheeler assets come in, some of those are encumbered and have debt maturities whether it be six months, 12 months or 24 months out, as you know on a new asset we bring in that’s a new asset with new debt and at current market rates and utilizing the Starbucks/Verizon, [indiscernible] Plaza and then most recently Port Crossing that we brought in just those refinancings alone established a healthy positive additional accretive benefit than when they were underwritten at the time when they came in.

Michael Diana - Maxim Group

Okay, and I also I noticed that Port Crossing you disclosed is 89% leased when you first disclosed it back in April, it was 82% leased. So, is there any -- can you give us any color on that?

Jon Wheeler

Yes, the difference on that 7% directly related to the ABC which is the Alcohol Beverage Commission in the Commonwealth of Virginia. They finally at least consummated and that space is currently under construction and they should be open soon. As well as we’ve two other potential backfill tenants for that property as well, hopefully to push that into the mid 90’s and as you know that's our goal, right now we're about 94.7% leased that’s one thing that I’m very proud of portfolio wide. We’ll always want to maintain a minimum of 92%, maybe 90% to 92% but I really do look and compare to other REITs in our universe as comparables and I’m very, very proud that 94.7 and of course we're striving always to go 95 and 96 and as you know Michael, we have several assets that are 100% leased as well.

Michael Diana - Maxim Group

Okay, great. Well sounds like you’re making a lot of progress and that’s all my questions, thanks.

Jon Wheeler

Well, I appreciate and we can double revenue and shrink the adjusted yield, those are key block and tackle kind of hitting singles and doubles consistently and we’re very proud of our Q2 results.

Operator

Thank you. (Operator Instructions) Our next question comes from John DeMaio with Newbridge Securities Corporation, please go ahead.

John DeMaio - Newbridge Securities Corporation

Thanks. Four question, you presently have with the new four properties you mentioned this release you have 27 properties, obviously I’m not going to hold you to it, how may do you feel you have by the end of this year?

Jon Wheeler

Well, Freeway Junction in Stockbridge, Georgia would take us to 28. Let’s focus on the past to start off with, when we went public we brought in eight assets and then in the fourth quarter 2012 an additional three, so that took us to 11, then in 2013 we brought in 12 assets which took us to 23. So, really looking forward, not to really give any forward-looking statements but I feel comfortable with our growth of trying to add an additional $100 million enterprise value each year, that could translate potentially into somewhere between 10 and 12 assets a year. And that will be a good stable steady growth that we’d like to see.

John DeMaio - Newbridge Securities Corporation

Okay. The question I have and I get it from a lot of clients is, do you know when the clients would be able to do the dividend reinvestment plan?

Jon Wheeler

Well, actually I’ll let Steven talk about that, that’s something we're actually working on presently. Steven?

Steven Belote

Yes, we’ve been very positive that, we get that question too when we're on the road and that is definitely in the works very shortly, looks like the best thing I can tell you is stay tuned.

John DeMaio - Newbridge Securities Corporation

Okay.

Steven Belote

But we’re very conscious of that, we want to get that done so yes, that will be -- it’s in our immediate plans.

Operator

Our next question comes from Vince Thomas with Capital Guardian. Please go ahead.

Vince Thomas - Capital Guardian

Jon, the $25 million guidance line can you explain how that gives you a competitive advantage of, as you’re going out to add the new properties to the portfolio?

Jon Wheeler

Sure. Obviously it’s $25 million facility, there is a balance to it where KeyBank will provide 65% loan proceeds to an acquisition and then WHLR will provide the additional 35%. And quite frankly what it does, it gives ability for us to move quickly, but also it gives us ability to bring in the asset that may have a slight business plan to it.

Personally after this point in time, we’ll buy in stable well leased properties, firstly we found an asset that had a 10,000 or 15,000 junior anchor spot that we can give a real bang for a buck if you will before we put permanent debt on it.

The KeyBank facility gives us the ability to reposition an asset over a nine month period which in turn then would refinance it in the permanent market on a CMBS type note and the like. And as we grow we would like to see those type of facilities grow. KeyBank has been very good to us and very important to us in our early business cycle as a public company and we see them as a long-term benefit to us and us for them as well.

Vince Thomas - Capital Guardian

You mentioned a lot in the pipeline now, can you talk a little bit about what states are appealing at this time?

Jon Wheeler

Yes, if you look at our geographic footprint and if anybody on the call has been to our website you’ll see that we’re pretty much east of Mississippi. Privately we’ve been as high as Syracuse, New York all the way down to Florida and [indiscernible] in Texas and now publicly we will invest and deploy proceeds and purchase assets pretty much in the similar geographic footprint.

But I like to see as you saw in our earnings release and now in this call, we’re in Kentucky, we’re going in another asset down in Georgia. I do love Ohio, I love Mississippi and Louisiana and I think it’s important to note I was born and raised in Oklahoma and we do have assets that are in the trust in Oklahoma and I see Kansas, Arkansas and Missouri as tremendous opportunities as well and really what will happen is as we grow the state count will grow and then we also like to cluster in those states where we can continue our good strong leasing and management for results for the shareholder.

So looking at almost like a boomerang going from modestly in the northeast where prices are a little bit higher Mid Atlantic, Southeast and then Southwest and then maybe just modestly overtime if there is a portfolio of acquisition maybe over to New Mexico and Colorado. But we’ve got a lot of wood to chop in these particular regions where we’ve done business for years and there is a lot of opportunity out there for us [indiscernible] to available equity to invest.

Operator

Thank you. (Operator Instructions) Ladies and gentlemen it appears to be no further questions at this time. I’ll turn the conference back to Jon Wheeler for closing remarks. Thank you.

Jon Wheeler

Thank you all. We enjoyed, this is our second earnings call. As you know we are new as a public company but each quarter-over-quarter gives us ability to prove publicly what we’ve done privately for the last 15 years. And as noted in our earnings release the internalization of the operating companies is important to us and we really see fantastic opportunities going forward and we look forward to your future importance as well. Thank you and have a great day.

Operator

Thank you. This concludes today’s conference. All parties may disconnect. Have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Wheeler Real Estate Investment Trust's (WHLR) Q2 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts