A year after the IPO
It’s been nearly a year since Jon S. Wheeler, chairman and CEO of Wheeler Real Estate Investment Trust Inc., took the company public. The Virginia Beach-based firm was supposed to be a Halloween IPO, making its debut on the NASDAQ under the ticker symbol of WHLR.
Wheeler looked forward to seeing his company’s name flash for a few seconds on the electronic billboard at Times Square in the heart of New York City. But a Halloween trick was in store: In roared Hurricane Sandy – the most devastating hurricane of the 2012 season — closing down Wall Street for two weeks.
“Who would have thought after all the curveballs of taking a company public that Mother Nature would have pushed us to become a Thanksgiving IPO?” says Wheeler.
The delay turned out to be a good thing. When the company finally began listing its shares on Nov. 19 – a typically slow week going into the Thanksgiving holiday — it didn’t have much competition. “We were up on Times Square all day,” Wheeler recalls.
During the IPO, the company sold 3 million shares priced at $5.25, raising $15.8 million.
Maybe that unexpected turn of luck was an omen of things to come. Since going public, Wheeler says the REIT has done exceptionally well. “We’ve doubled the size of our market cap [to nearly $30 million] tripled the size of our GLA [gross leasable area] and doubled our property count. We came out with eight assets; now we have 16,” he said in an interview with Virginia Business.
Wheeler’s company focuses on what he calls “necessity” retail in secondary and tertiary markets. The retail REIT plans to carve a niche in grocery-anchored shopping centers of 50,000 to 300,000 square feet. Typical tenants include Food Lion, Winn Dixie, Bi-Lo and Reasor’s Foods grocery stores as well as national and regional retailers such as CVS and TJ Maxx.
Wheeler says the company keeps a close eye on where large national retailers, such as Wal-Mart, are locating. “If they are in town you don’t want them five miles way, you want them right across the street to serve as sort of shadow anchor. “
The REIT’s properties stretch from east of the Mississippi to as far north as Syracuse, NY. Six of the properties are located in Virginia, including two in Richmond. The REIT’s most recent acquisition earlier this month was in Virginia Beach where it paid $1.4 million for a free standing retail property located close to Interstate 64.
The two tenants at the center are a Verizon store and a Starbuck’s. “We believe that the Starbucks/Verizon property makes a great addition to our portfolio, as it is 100 percent leased by nationally known tenants, and includes large shadow anchors such as TJ Maxx and Food Lion that drive traffic to the property,” Wheeler said.
Currently the REIT’s 16 properties in seven states comprise more than a million square feet and, according to Wheeler, are 95 percent leased.
Asked about his business model, Wheeler says he likes to buy an asset at a 9 percent capitalization rate and finance it at 6 percent or less, which provides a 12 percent rate of return. He refers to it at the 9/6/12.
“We’re buying at a 50 percent replacement cost. It costs $200 to $225 per square foot to build a new shopping center,” he adds. Rather than build new, as a 9/6/12 buyer of an existing center, “I can buy at $100 square foot or less.”
What happens to 9/6/12 if interest rates go up? “If interest rates go up, like they did in July and August … the cap rates will adjust themselves accordingly, and the returns adjust accordingly,” he says. “The model can shift up or down, based on the interest rates. It’s a model I’ve been using now for 14 years, and it has provided my investors with significant cash flow.”
Another of the REIT’s long-term strategies is to acquire properties with shorter-term leases that can be renewed at higher market rates.
Wheeler cut his teeth in the real estate industry in Dallas, worked in Washington D.C. for 10 years with Federal Realty Investment Trust, and in 1999 started a real estate company, Wheeler Interests, in Virginia Beach where he continues to serve as its president and CEO. Wheeler Interests, which manages the REIT, has acquired or built more than 60 shopping centers since its inception.
Wheeler said he decided to go down the public path in 2011, after weathering the recession, because it was a way to improve the company’s liquidity. Since the IPO, the REIT has had other financing transactions, including a $4.5 million private placement deal in June, which allowed it to make a key acquisition in Tampa, Fla. Then in August, it completed a secondary offering with about 3.2 million shares issued at a price of $4.30 per share, which netted another $10.9 million.
The REIT recently hired 14 associates and now has a total of 42 employees.
Being able to tap the public markets gives the REIT the ability to quickly raise money. “All I need is $100 million a year of growth for this to be a $500 million company in five years,” says Wheeler. “I think I can do it in three.”
Spoken like a true salesman.