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Wheeler Real Estate Investment Trust:  I Am Exiting Preferred Share Position Due To Valuation


After the close of market on December 20th, 2018, Wheeler announced that the company was suspending the dividends on the cumulative preferred "B" and "D" Shares.

On the following day, prices of both shares series plummeted by nearly 50%, but have recovered back to the prices experienced prior to the dividend suspension announcement.

The preferred shares are selling, without the dividend, at the same price as the shares with the dividend, so it appears that the shareholders may be anticipating a dividend resumption.

The analysis contained in my last article suggest that a full dividend resumption is not likely in the foreseeable future;  therefore, a return to earlier prices appears unwarranted and overdone.

While I have not changed my view about Wheeler prospects, it appears that the pricing on the "B" and "D" shares have gotten "ahead of themselves";  therefore, I am selling at these elevated prices but will look to return to the "D" Shares at $10-11.

Late in 2018 (December 20th, 2018), Wheeler Real Estate Investment Trust (WHLR) announced a suspension of the dividends for the Preferred "B" Shares (WHLRP) and the "D" Shares (WHLRD).  On the following day, the prices of the shares dropped by ca. 50%.  Since that time, the prices of both shares series have recovered back nearly to the level at which they traded prior to the dividend suspension.

So, the shares are now trading, without a dividend, at the same prices as that point in which they were receiving a 14-ish% dividend on a quarterly basis.  This suggests to me that shareholders appear to expect a resumption of the dividend. To this analyst, that appears less likely as I explained in a recent article, "Wheeler Real Estate Investment Trust: Update on Recovery Potential for Preferred and Common Equity", found here.  In the view of this analyst, a single dividend appears to cover the REIT distribution requirement for 2019 and, while an analysis has not yet been performed for 2020, the same situation appears to be true for next year.

In the case that there would be a resumption of the dividend, this analyst believes that this decision would severely weaken the already fragile balance sheet, so on that basis (even with a resumption of the dividend), this analyst would want to be out of these names.

Anything can happen and there may come a "deux ex machina" that suddenly results in higher value for Wheeler preferred shares, but this analyst does not see that likely to happen.  The pricing on the "B" and "D" Shares have gotten ahead of themselves, in my view, above what I view currently as a reasonable value for the shares.  As I indicated in the earlier article, I was beginning to sell the "B" shares as the discount to the "D"s had shrunk to a level where they were no longer interesting and I was selling a portion of my "D" shares as well.  At the current pricing, I am finalizing the sale of the remainder of the position, exiting completely any ownership of Wheeler (save a small "placeholder" position to conveniently track the pricing of the "D" shares going forward, not material to the value of my Risk Portfolio).

In the case that the "D" Shares return to the $10-11 range, say $10.50/D Share, I am likely to return back into the name.  If the unexpected "deux ex machina" occurs, I will sell the stub and wave goodbye to the name for now. 

Others in the name, especially those with significant gains by virtue of buying in last December or January, should consider at least taking off some of the chips as it appears to me that the pricing, as stated above repeatedly, is ahead of itself and one would deliver 40-50% gains on this move.  With JNK and HYG appearing to this analyst to continue to struggle to go higher and with the credit uncertainty hanging over the market, this analyst believes this decision to be prudent, even if it cuts off future gains in the name.  However, I believe a significant retracement more likely than continued, significant moves higher.

Remember: anything can happen.

Caveat emptor or, perhaps better to say, Caveat venditor.

Disclosure: I am/we are long WHLRD.

Additional disclosure: My WHLRD position remaining is a small, placeholder position designed to track the pricing of the security conveniently in my portfolio.