Over the past few months, I've shifted my focus from discussing Barchart’s Bottom 100 Stocks to Buy to the top 100 stocks to buy. That's primarily because the markets have been doing well, and the pool of poorly performing stocks has not been a worthwhile investment.
However, in the last couple of weeks, I've forced myself to consider some of these companies. As I looked at the bottom 100 stocks to buy this morning, in the first spot was Wheeler Real Estate Investment Trust (WHLR), a Virginia-based REIT that’s been buying commercial real estate on the eastern half of the U.S. since 1999.
The REIT’s market cap of $2.6 million makes it a micro-micro-micro cap stock; the smallest of the small. Jeff Bezos could buy it with the wine bill he amassed from his big Venice wedding.
There’s no question that the retail investor has jumped on Wheeler in a quest for the next great meme stock. You know it’s getting attention from the dumb money when it appears on Reddit. I googled the words “Wheeler REIT meme stock,” and got 41,000 results, including this one from two years ago.
Look, if you're familiar with my writing, you know that I'm not one to recommend stocks that have no financial underpinnings.
While there are plenty of reasons to stay away from this stock, I’m using this as an exercise in objectivity. Trading at $2, buying 100 or even a thousand shares won’t break the bank for most aggressive, experienced investors. However, like a lottery ticket, you never know when one of your hunches will pay off.
Could Wheeler be it? I consider the possibilities.
A Dog With Fleas?
Actor Terence Stamp died the other day. While best known for films like The Limey and The Adventures of Priscilla, Queen of the Desert, I'll always remember him from his role as Sir Larry Wildman in Wall Street.
“I could break you, mate, in two pieces over my knees. You know it, I know it. I could buy you six times over. I could dump the stock just to burn your ass!,” Wildman said to Gordon Gekko, played by Michael Douglas.
Another line from Wall Street that I often utter: “It’s a dog with fleas.” Bud Fox, played by Charlie Sheen, tells his colleague after getting turned down by Gekko.
So, is Wheeler a dog with fleas? That depends on your definition.
As I said in the introduction, Wheeler’s history dates back to 1999, although that was the predecessor company, Perrine Wheeler. In November 2012, Jon Wheeler and his management team took Wheeler Real Estate Investment Trust public, selling 3.03 million shares at $5.25.
At the time of its IPO, it owned 348,490 square feet of commercial property, including five retail shopping centers, two free-standing retail properties, and one office property. They were 90% leased, generating a 2011 annual FFO (funds from operations) of $1.66 million. The prospectus valued the properties at approximately $36 million.
As of June 30, it owned 7.44 million square feet of commercial property, including 66 retail shopping centers and four development sites. They were 91.6% leased, generating adjusted quarterly FFO of $4.08 million, and valued at approximately $510.7 million.
In the 13 years since its IPO, its assets have grown significantly. If only this were the only part of the story. Sadly, that’s not the case.
The Road to Penny-Stock Status
According to Investing.com, Wheeler has had nine reverse stock splits since going public in 2012; the most recent, in May of this year, was a one-for-seven reverse stock split.
If you bought 1,000 shares of WHLR stock in its 2012 IPO (a $5,250 investment) and still held, you would have just 0.0002 shares, valued at 29 cents. However, you’ll want to do the math yourself to confirm.
The REIT’s wheels started to come off in January 2018, when founder and CEO Jon Wheeler was terminated, as far as I can tell, because the stock had done poorly in the years since its IPO.
Activist investor Joseph Stilwell first bought shares in the REIT in Q2 2017, according to WhaleWisdom.com. He was able to get three seats on the board in December 2019. The plan to right the ship was to reduce its debt, watch costs, and increase the occupancy rate.
However, plans changed in August 2022, when it paid $130 million in cash for 19 properties owned by Cedar Realty Trust. The remainder of Cedar Trust’s properties (35) were sold to a joint venture for $840 million, while Cedar sold its two development properties for $80.5 million. Cedar’s common shareholders made out like bandits.
The enterprise value of the acquisition was $291 million, which included $160 million of Cedar’s 7.25% Series B preferred stock and 6.50% Series C preferred stock that continued to trade on the NYSE. Although the properties were of a lower quality, the transaction provided additional cash flow for Wheeler.
Ever since the acquisition, Wheeler’s been working to simplify its capital structure. For example, in the first quarter, it repurchased $10.6 million of its Series C preferred. In the second quarter, it repurchased $10.5 million of its Series B preferreds.
In August, it issued a repurchase authorization to buy back up to $20 million of its preferreds over the next 24 months. As of June 30, approximately $93 million of Cedar’s preferreds were still outstanding.
While Wheeler hasn’t paid dividends since 2017, it continues to pay Cedar’s distributions. In the second quarter, these totaled $3.7 million. More importantly, the REIT’s own Series D convertible preferred dividends are in arrears by $28.3 million. It can’t pay any common dividends until it pays back those or exchanges them for 8.87 common shares per $25 in Series D convertible preferreds.
It’s a dog’s breakfast made worse by the Series D convertibles, which significantly dilute shareholders every time some preferreds get converted. In the first six months of 2025, Wheeler issued 536,477 shares on conversions. As of June 30, the dilutive effect of both its Series D convertible preferreds and 7.00% convertible notes due 2023 was nearly 24.6 million shares, almost 15 times the amount outstanding.
By now, it should be abundantly clear why it’s a penny stock.
The Bottom Line
No risk-averse investor would contemplate buying Wheeler stock. However, if you’re aggressive, the argument for buying its common stock lies hidden in the value of its 66 retail properties and four development sites.
As of June 30, its total assets were $626 million. Lower interest rates would certainly increase that number. Of its $493 million in debt, 86.2% of this comes due in 2031 or later. Further, its AFFO (adjusted funds from operations) in the first six months of 2025 was $5.02 million, 78% higher than a year earlier. It's got time to get its act together.
Further, while I suggested earlier that the board of directors might have sent the founder packing because of the struggling share price, it just as easily could have been because of Jon Wheeler’s $86 million purchase of the Janaf Shopping Yard, which is just down the road from the REIT’s headquarters.
At a time when the REIT should have been focused on deleveraging its balance sheet, management went and acquired an “iconic property” as the former CEO and founder called it in the Jan. 9, 2018, press release announcing the transaction, making a bad situation worse.
However, while Janaf might have been expensive, it is the REIT’s biggest revenue generator, accounting for $9.46 million in annualized base rent, or 13.2% of its total. The next highest is Cedar’s Trexler Mall in Trexler, Pennsylvania, at $3.83 million, or 5.4%. It’s not even close.
The occupancy rate of 91.2% is respectable. Someone should be interested in buying the property. But even if that doesn’t come to fruition, it’s a significant revenue generator that helps cover some of Wheeler’s other interest payments. The $60 million, interest-only loan doesn’t mature until July 2032. At a 5.31% interest rate, the interest expense is approximately $3.2 million, leaving several million for other interest payments.
While it might not have made sense at the time, the Janaf acquisition, rightly or wrongly, is now the REIT’s most valuable asset. With some patience, it could be an excellent card to play down the road once its balance sheet (through non-core sales) is substantially improved.
I wrote too much, but this one was fun. At $2, aggressive investors who can afford to lose it all should consider Wheeler a potential flyer worth riding.
