A showdown that's been simmering for months between a struggling regional retail landlord and an agitated activist investor with a nearly $5 million grudge is poised to boil over in South Carolina this week.
In one corner is Wheeler Real Estate Investment Trust, which owns grocery-anchored shopping centers around the Southeast, including about 25 in the Palmetto State.
In the other is a group of New York investment funds led by Joseph Stilwell, who controls the biggest single slug of Wheeler stock and is campaigning to replace three of the company's eight directors.
Whether he prevails could be decided Wednesday, when the publicly traded real estate firm from Virginia brings its annual meeting of shareholders to downtown Charleston.
The proxy battle has largely been a war of words, with Stilwell and an associate publicly blasting Wheeler management in six letters in an effort to sell the shake-up plan to other stockholders.
The company is fighting back, also taking pen to paper. It's raised questions about Stilwell's intentions and lack of real estate experience. Wheeler also is vexed that he's demanding about 40 percent of the board seats even though he owns less than 10 percent of the shares. In addition, it has highlighted a conflict-of-interest scuffle he and his funds had with stock market regulators a few years ago that resulted in six-figure financial penalties and other sanctions.
Wheeler CEO David Kelly has warned investors in letters of his own that Stilwell's plan to put himself and two hand-picked candidates on the board would "impair" and "countermand" recent efforts to turn the business around and "create long-term, sustainable value for shareholders."
Wheeler has been investing in mostly small and off-the-beaten path shopping centers since 1991. It made a modest South Carolina debut in 2012 by purchasing Twin City Crossing in tiny Batesburg-Leesville.
Shares of the expansion-minded company started trading publicly at $48 a share the next year, and Wheeler spent nearly $16 million for five supermarket-anchored properties in Clover, Lancaster, Little River, St. George and West Columbia. It also opened an office on King Street in downtown Charleston at a cost of $100,000 a year.
The company struck its biggest South Carolina deal about two years ago, scooping up another 13 retail centers as part of a $71 million acquisition.
But as the portfolio has grown, the company's stock price has cratered — it's down more than 90 percent from its all-time high.
The acquisition streak came to a halt earlier this year. Founder Jon Wheeler was ousted in late January, shortly after spending $86 million on a shopping center in Norfolk, Va.
Then the revolt began. Stilwell and at least one other investor, North State Partners, were furious over the way the company financed part of the Norfolk deal. Wheeler sold preferred shares with a face value of $25 for $16.50, offering a generous yield of more than 12 percent while putting itself on the hook for a big bill when the time comes to redeem the stock.
In a letter dated July 9, Stilwell called the financing maneuver "completely foolhardy" — "something I've never seen occur at even a reasonably healthy company in my 35 years of working on Wall Street."
“To me, this begs the question: Were none of the board members capable of doing the very basic math, or were they each lacking in judgment, or were they all so lacking in gumption that they couldn't oppose the 'group-think' of their fellow directors?” he vented.
Stilwell has nearly 5 million reasons to looking for a seat or two at the table. He disclosed in 2017 filings that he ponied up nearly $8.2 million to amass his Wheeler stake. As of last week, the market value of those shares had plummeted to about $3.4 million. He said last week that he couldn't comment publicly about the proxy fight until after Wednesday's meeting.
For its part, Wheeler has taken steps to appease investors since Kelly took over as CEO earlier this year. It's reconfigured its board of directors and cut its debt load by $16 million, lowering it to $52 million. Two reputable shareholder advisory firms have recommended that investors vote in favor of the company's slate of directors.
It's unclear why Wheeler is shelling out money to bring this year's shareholder affair to the upscale HarbourView Inn, after announcing plans to close its Charleston office to conserve cash. Previously, all of the annual meetings were held in its hometown of Virginia Beach. A Wheeler spokeswoman did not respond to a request for comment.