Whitestone REIT Q2 FY2024 earnings call

• The company had another strong quarter with 17% plus leasing spreads over nine quarters. • Reiterated 2024 core FFO guidance of $0.98 to $1.04 and delivered $0.24 core FFO per share for the quarter. • Same store NOI grew 6.6%, driven by strong leasing efforts and remerchandising. • Occupancy was 93.5%, up 20 basis points, with anchor occupancy at 97% and smaller space occupancy at 91.4%. • Remerchandising efforts continue to replace tenants not tracking demand from younger demographics. • Board of trustees is being refreshed with the addition of new independent board members. • Leasing team strength in placing high growth tenants in 1,500 to 3,000 square foot spaces, outperforming peer group in same store NOI growth.

Whitestone REIT had a strong second quarter. They reported a core FFO per share of $0.24 for the quarter. Top line revenue grew over 3.3%, and same store net operating income (NOI) increased by 6.6%. Occupancy stood at 93.5%, up 20 basis points from the prior year. Net effective annual base rent per square foot was $24, a 5.4% increase from 2023. Leasing spreads were robust, with new and renewal leases showing a blended 17.5% increase on a straight-line basis and 7.7% on a cash basis.

• Reiterated 2024 core FFO guidance of $0.98 to $1.04. • Raised the full year same store NOI guidance range to between 3% and 4.5%. • Financed $56 million of 6.2% secured debt maturing in 2031, laddering out secured debt due in the second half. • Intends to continue balancing acquisitions and dispositions to drive underlying growth. • Anticipates more normalized general and administrative (G&A) expenses in the second half of 2024, with G&A costs expected to return to normal after front-loaded legal fees in the first half.

• Market risks related to potential impacts of the Kroger-Albertsons merger on grocery-anchored centers. • Interest rate volatility affecting debt servicing costs. • Uncertainty around lease expirations and occupancy levels impacting remerchandising efforts. • Timing uncertainties with dispositions and acquisitions, which can affect the balance between acquisitions and dispositions.

Q: In the rental trend chart on page 7, rent growth for San Antonio and Austin moderated sharply. What are you seeing on the ground today?

A: We're seeing strength in all markets still. It's a matter of when leases turn and space size. No real negative shift, and some markets are approaching full occupancy, so remerchandising efforts continue.

Q: You're hearing news of restaurant owners struggling. Any restaurant tenants on your watch list right now?

A: Not on our watch list right now. Fast food is starting to meet fast casual pricing, so people are opting for better meals.

Q: Your same store guidance shows a deceleration in the back part of the year. Talk about the expectation.

A: We're still looking at sequential same store growth, but the second half may be lower than the first half. We're pleased with performance above our original guidance.

Q: For the second half of 2024, does your G&A guidance include any non-recurring items?

A: In the first half, we had proxy defense costs of around $1.8 million. The second half is expected to be more normal, with legal fees front-loaded in the first half.

Q: Real estate property taxes were lower in the second quarter. How should we expect them for the second half of 2024?

A: Property taxes are expected to normalize. The second quarter was lower due to favorable settlements in Texas, and we expect them to be closer to first quarter levels in the second half.

Q: Any update on expected dispositions?

A: Our recycling efforts are on track. We closed some acquisitions and one disposition before the second quarter. We have a couple of assets still in the pipeline and expect another $20 million to $30 million of dispositions in the balance of the year.

Q: What's the driver of the increase in interest expense expectation?

A: Acquisitions are outpacing dispositions in the first half, leading to higher NOI and interest expense, but the bottom line impact is virtually nothing.

Q: Impact of higher interest rates on different income buckets?

A: We have minimal exposure to lower income consumers, positioned in high HHIs with growth opportunities from job growth. We focus on moving up the HHI curve in our capital recycling plan.