Whitestone REIT Q3 FY2025 earnings call

• Occupancy: 94.2% occupancy, up 30 basis points from Q2, with Q4 typically being the strongest leasing quarter.
• Same-store NOI: 4.8% same-store net operating income growth fueled by increases in shop space leases across various tenant types in Texas and Arizona.
• Credit facility: Extended and improved the terms of the credit facility, locking down a key variable for achieving long-term 5% to 7% core FFO per share growth.
• Redevelopment: Near completion on La Mirada's redevelopment, 75% complete on Lion Square's transformation, and kicking off facade work at Terravita; redevelopment expected to add up to 1% to same-store NOI growth with $20 million to $30 million capital spend over the next couple of years.
• Leasing: Signed $29.1 million in total lease value with spreads on new leases at 22.5% and renewals at 18.6% for a combined 19.3% straight-line leasing spreads; foot traffic across the portfolio up 4% vs Q3 2024.
• Disposition: Disposed of Sugar Park Plaza in Houston, with total acquisitions and dispositions over past 3 years approximately $150 million; anticipate 1 to 2 dispositions to finish out the year.

Whitestone REIT achieved 94.2% occupancy in the third quarter, up 30 basis points from Q2. Same-store net operating income grew by 4.8% for the quarter. Average base rent is $25.59, an 8.2% increase over Q3 2024 and a 26% increase versus Q3 2021, translating to a 5.9% compound annual growth rate. The portfolio's TAP score has increased by 5 points over 2.5 years as recognized by Green Street.

• Reiterated 2025 core FFO per share guidance of $1.03 to $1.07.
• Improved same-store NOI growth range to 3.5% to 4.5%.
• Anticipates fourth quarter annualized debt-to-EBITDA to be in the mid to high 6s.
• Expect to have a couple more acquisitions shortly and 1 to 2 dispositions to finish out the year.
• Dividend expected to grow in sync with earnings growth.

• Real estate tax: Texas has a choppy real estate valuation process with costs that can take 2 to 3 years to litigate, though most costs are passed through to tenants.
• Market uncertainties: Potential changes in market conditions that could impact leasing and occupancy; uncertainties with the Pillarstone JV settlement process.

Q: The rent expirations in 2026, should we expect similar leasing spreads as in recent quarter?

A: Dave Holeman and Christine Mastandrea stated there's no unique factor for 2026, and they see no weakening in leasing spreads with a highly diversified tenant base.

Q: Could you give more information on the change in occupancy?

A: David Holeman and J. Scott Hogan explained that some small spaces are taken back for higher revenue and better tenants, with larger spaces filled due to city approvals; occupancy is fully commenced at 94.2% and up 30 basis points from Q2.

Q: Update on the Pillarstone JV?

A: Dave Holeman said they received $13.6 million in the quarter, nearing settlement with the court, expecting court approval and proceeds distribution in December as detailed in the 10-Q.

Q: Leverage comments, mid to high 6s in 4Q from 7.2% as of 3Q. What's the assumption driving leverage lower?

A: J. Scott Hogan said it's due to improving the balance sheet, operations improving, and fourth quarter being a strong quarter with percent sales breakpoints hitting, expecting mid to high 6s debt-to-EBITDA in Q4.

Q: Real estate tax accruals this quarter, expectations for the year?

A: J. Scott Hogan explained Texas has a choppy real estate valuation process with costs passed through to tenants, expecting costs to come down after litigation over 2-3 years.

Q: Update on acquisitions and dispositions, has the $40 million number changed?

A: David Holeman said they're likely to be a bit higher than $40 million, continuing to work the portfolio with recent acquisitions like San Clemente and Hulen and more expected shortly.

Q: Update on Pillarstone timing and dollar figures?

A: Dave Holeman said they received $13.6 million in the quarter, settlement reached with court, expecting another $40 million in distribution after court approval in November, with distribution expected in mid-December.

Q: Redevelopment or center enhancement CapEx impact on same-store NOI?

A: David Holeman said redevelopment projects are stacked evenly, with some projects impacting 2027, but 2026 expected to be similar to past year in terms of pad production and value add.

Q: Signed not open pipeline for 4Q rents?

A: David Holeman and J. Scott Hogan stated Whitestone has solid occupancy with quick lease commencement, no substantial signed not open gap as they move tenants in quickly, and confidence in finishing Q4 strong due to strong leasing activity.