Wheeler Real Estate Investment Trust: Update On Recovery Potential For Preferred And Common Equity

Summary

• On December 20th, 2018, Wheeler announced a suspension of the preferred shares dividends, resulting in substantial downdraft of preferred share pricing, bottoming in late December.
• Since then, valuations have recovered for both publicly-traded preferred shares series by nearly 50%.
• In this article, recovery potential for all tiers in the capital structure is updated, based upon the Q1'19 earnings report.
• This analysis shows that, while there is no longer a full recovery for preferred shares based upon net book assets, a recovery greater than current market value should be secured.
• Unfortunately, the chances of any recovery on common shares continue to decline as there are insufficient assets to satisfy the senior preferred-share liquidation claims (at face value), much less to cover dividends accruing for those preferred shares also having a senior claims.

Author's Note: This article is intended for investors oriented towards value-deep, value-distressed asset investing. Those seeking moderate- to high-risk value investments may have an interest in this article. Investments in this company at any level of the capital structure are unsuitable for those seeking retirement income, and I strongly discourage purchase of securities related to this company for retirement income accounts, where a focus on risk aversion should be paramount.

All tables and graphs have been produced by the author using source data, either from the Wheeler Financial Trust IR Website (where the Wheeler SEC Filings were found and from which most information was obtained, including the 10Q for Q1'2019, found here) or from the Yahoo Finance Website (for current or historical market price data).

Conclusions:

1. While remaining possible, recovery for common shares (NASDAQ:WHLR) appears increasingly unlikely as net book assets continue to decline as the Wheeler team wrestles with financing and deleveraging of the Trust.

2. The publicly traded B (NASDAQ:WHLRP) and D (NASDAQ:WHLRD) shares appear to have net assets available to support a partial recovery nearing 90%, relative to market prices for the two preferred shares series at 60% of face value. Current net book asset recovery exceeds the current market price by nearly 50%, so there remains upside even if recovery does not reach full face value.

3. Since there do not appear to be net book assets available to pay off full face value of the preferred shares, the preferred dividends which are accruing at a rate of $3.5M per quarter do not appear likely to be covered in the long run. However, the growing backlog of preferred dividend accruals makes it ever less likely that the common shares will ever see a recovery, so these accruals are significant in security selection.

4. Expect one dividend

Analyst’s Disclosure:I am/we are long WHLRD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

No guarantees or representations are made. The Owl is not a registered investment adviser and does not provide specific investment advice. The article is for informational purposes only. You should always consult an investment adviser.