Whitestone REIT Q4 FY2024 earnings call

• Over the past 3 years, Whitestone delivered compound annual growth in core FFO per share of 5.5% despite a 380 basis point increase in interest rates and reduced leverage from 9.2x debt-to-EBITDAre in Q4 '21 to 6.6x in Q4 2024.
• Over the next 5 years, they aim for 4%-6% organic core FFO growth driven by 3%-5% same-store net operating income growth, with additional uplift from acquisitions. Same-store NOI growth has components: contractual escalators (2.3% blended rate), leasing spreads (0.8%-1.8% added), and redevelopment (up to 100 basis points).
• Quality of revenue initiative focuses on constantly evaluating tenant capability to meet demand, using local knowledge and data to connect to the community. They have a center profile for acquisitions, shorter leases for service-oriented businesses, and proactive redevelopment and dispositions.
• In 2024, leasing spreads were in excess of 17%, with renewal spreads of 19% and new leasing spreads of 36.1% in the fourth quarter, and net effective average base rent increased 5% to $24.51 per square foot.

Whitestone REIT reported core FFO per share of $1.01 in 2024, up from $0.91 in 2023, representing 11% growth. Same-store NOI growth was 5.1% for the full year, with 5.8% in the fourth quarter. Bad debt as a percent of revenue improved from 1.2% in 2019 to 0.8% in 2024. No detailed breakdown of product segments by revenue contribution was provided.

• Anticipate core FFO per share of around $1.01 in 2025, with same-store NOI expected to add $0.07 to core FFO per share. G&A is expected to reduce earnings by $0.01 per share, and interest expense is projected to improve by $0.03 per share due to lower leverage and interest rates.
• Aim to reduce debt-to-EBITDAre ratio under 7x and continue to lower leverage. Liquidity includes $15 million in cash and $125 million available under the credit facility. No assumptions on non-same-store NOI growth from acquisitions as timing is unknown.
• Projected same-store NOI growth to contribute to core FFO growth, with focus on organic growth and disciplined acquisitions.

• Market uncertainties and interest rate changes could impact financial performance.
• Tenant bankruptcies or underperformance could affect leasing spreads and NOI if not managed properly.
• Uncertainty in the timing of liquidation proceeds from Pillarstone and its impact on guidance.

Q: When do you foresee redevelopment opportunities to materialize?

A: Christine Mastandrea mentioned there are bread and butter centers being worked on with a larger group, and larger projects have a longer time frame but have upside.

Q: How does the capital plan fit with leverage reduction and deployment?

A: Dave Holeman stated the core engine is strong, with cash flow and balance sheet in good position, opportunities in redev and acquisitions, and focus on accretive growth.

Q: What's the status of the Regis lease expiration negotiation?

A: Christine Mastandrea noted changing demand in office space, particularly in mixed-use areas, with positive upward dynamic in the market.

Q: Any update on Pillarstone liquidation?

A: David Holeman said proceeds from Pillarstone are nearing, with properties sold, under contract, or have offers, and Scott Hogan noted proceeds will revise guidance but timing is hard to predict.

Q: Impact of maintenance CapEx on 2025?

A: J. Scott Hogan said run rate should be similar to the last 2-3 years, possibly similar to 2024 levels.

Q: Does guidance include capital recycling?

A: J. Scott Hogan said no.

Q: Occupancy and leasing spreads?

A: Christine Mastandrea said 95% occupancy is good, can go higher, and they look for lease-up and merchandising opportunities.

Q: Cap rate on dispositions?

A: David Holeman said Providence was sold, part of portfolio recycling, with cap rate in mid-6s.

Q: Leverage range expected in 2025?

A: J. Scott Hogan said aiming for low 6s, possibly high 5s, depending on liquidation proceeds.

Q: Impact of retailer bankruptcies?

A: Christine Mastandrea and J. Scott Hogan said no exposure due to focus on smaller spaces and different tenant model, with high tenant concentration not a risk.

Q: Lease termination fees guidance?

A: Christine Mastandrea and J. Scott Hogan said there's a base level anticipated, with terminations occurring over time with little downtime and tied to new demographic spend.