Q4 2019 Earnings Call
Please standby.
Yeah.
Good day and welcome to the Whitestone <unk> fourth quarter and full year 2019 earnings Conference call. Today's conference is being recorded with that let me pass the call Mr., Kevin <unk> director of Investor Relations.
Justin.
Morning.
Joining whatsoever, its fourth quarter 2019 earnings conference call.
Joining me on today's call Mr., Andrew <unk>, Chairman and Chief Executive Officer.
Our Chief Financial Officer.
No that some statements made during not historical maybe deemed forward looking statements actual results may differ materially from those are forward looking statements due to a number of risks uncertainties and all the factors.
Earnings press release filings with the FCC, including Weisfield's most recent form.
Form 10-Q.
Yeah discussion.
Factors.
This call maybe what caster appear you've done. It is also important to note that this call. Each time sensitive information that may be accurate only as of todays date February 27.
2020, the company undertakes no obligation to update the information.
Killed fourth quarter earnings press release, and supplemental operating and financial data package have been filed with the FCC and are available on our website.
You got Whitestone dotcom.
After relations section during this presentation may reference certain non-GAAP financial measures, which we believe allow investors to better understand the financial condition and performance of the company included in the earnings person needs and supplemental data package all the reconciliations of non-GAAP measures to GAAP financial measures.
Let me pass the call teaching the standard.
Thank you Kevin.
Walter.
My remarks today would you asked the progress that I, just don't mislead you deliver consistent.
Predictable financial results since we do know IPO in 2000.
I was out there.
You are consistent makes driving to perform better today than they did yesterday.
2019 was a very good beautiful legs.
Reached out.
Guidance range.
Successfully execute.
Our strategic plan, while remaining focused on providing excellent well shareholders.
Our commitment to our stakeholders.
For the blogging floors that connect whitestone.
Other stakeholders, especially our tenants that have you ever be.
Absolutely.
Our commitment to the better but what are kind of.
Yes, he is our core values.
We develop but have Smith.
Floppies lifestyles values are crafts outdoor kinda.
Yeah.
Which we operate creating jobs.
Going home values and driving business.
As a result of our long term.
A football team our shareholders awarded.
In 2019.
Just a cheap the ranking of top to shareholder return.
Mhm MSR all the public you have shopping center weeds over the past few years and number two liking over the past five years.
It's ranking is even more she's that's good.
Compared to traditional retail, which have significantly changed over the years.
I was negatively impacted all those of retail properties in this robyn.
The two most notable impacts.
For additional they could be when they do trends.
Well yeah.
Good.
Well they treated.
No big cooler.
Centers.
No.
Property values.
And second transport could fall off the wall Street good tenants.
Yeah, the lease operating companies would trigger.
Yes, there was some game benefits is tenants with no operating expenses increased reserves net income.
Landlord is lower.
Their net operating income.
Oh that Whitestones policy is to stay ahead of the curve exactly what's that.
Consumers.
The awards is good.
Cupboard clubs minimizing the financial impact.
Workloads isn't vacancies.
And our policy permits us.
That's not the block, leaving our business as well.
Nobody wants to.
We completed two thoughts and my team with minimal store closings of solid balance sheet profitable core operating statement larger tenant believes that a pool of wall Street with a higher value.
Other highlights I'm sure.
HM.
Batches of our credit facility.
$550 million extending the time for another five years.
Greetings.
Oh.
The conclusions about.
Bondage.
Which was $100 million 10 year corporate bonds.
The payment of $1.14 cents per share dividend funded from operating cash flow and placements and property sales.
Yes.
The successful selling non core properties.
Yep.
Gain on sale at $13.8 million.
That's great and she's whitestone, although $11 million.
Yes.
No I'd say each rest of share.
Point.
What I'm, sorry of 2.2% put $19.77.
Same store net operating income rose, 4.7% cool and 2.4% full year.
Please visit our general and administrative expense would be to lead Gibbs with 16.6% of revenue.
Okay.
You bet lovely.
<unk> 0.6 times for me.
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In addition to our school upward performance.
We continue to create value.
Oh.
Hi, good markets.
Yeah the development.
I'll close.
But I could be words to properly.
Yeah.
Well 2016.
I was in line.
Lids actually of approximately $20 million.
The development that.
Well that's no problem.
Yes.
Incremental increase of $3.3 billion net operating income decreased 11.9%.
Return on investment.
Over the next several years ago dissolved and developed program will continue as we plan to invest approximately two called the $30 million given our current portfolio.
Yeah incremental value of 175 million.
Total value of approximately 405 million.
Just aggregate investment you're producing additional.
$24 billion of annual net operating income.
Whitestones profitable growth.
Operations.
Development in development.
In acquisitions.
Well 2010 to 2019.
That's there's approximately $920 million and the acquisition that would create high quality properties.
Since the acquisition will net operating income like 17.5%.
HM.
Levered cash on cash returned 6.8% 7.5%.
Population.
Redevelopment and development.
We plan to continue making off market acquisitions.
That upside opportunities that exhibit growth.
Demographic trends.
Whitestones core markets.
As of the past.
Tend to be good stewards of capital and expected for these off the Sydney.
Multiple sources of capital.
With that has a dal tile what could be.
Our Chief Financial Officer, because then they would be appeal on our financial and operating results.
Thanks, Jim.
My remarks, I will provide.
On our fourth quarter.
Operating.
Actual results.
Balance sheet.
Our acquisition and disposition efforts.
Our long term goals.
Alan.
[music].
During the fourth quarter.
The overall quality.
Yes.
Asset management, and the addition of Las Colinas village located in our Dallas market.
I will provide you more details.
Later in my remarks.
Additionally, right.
Bruce.
Sure.
Annual base rent.
And strong same store.
Yeah.
On annual basis.
And your annual base rent for me.
$19.
Yeah.
Same store NOI for the fourth quarter.
4.7.
From the fourth quarter of 2018.
Beginning this quarter.
Our definition of same store NOI.
Provide greater transparency.
No.
Most of our peers.
Getting it makes reporting period.
Morning, same store NOI, excluding straight line rent.
Amortization of above or below market rents.
Termination.
On this basis.
Store in NOI increase.
Before.
For the full year.
For the fourth quarter.
The primary driver, but same store growth embedded contractual rent increases.
Rental rate increases.
Leases.
You can see levels.
That's recovery.
Prior to this year.
Our 2019.
We reported same store growth, including.
Oriented.
Action below market rents and lease termination.
Yep.
Same store NOI increased 1.1% for the quarter and 25% for the year, which was at the lower end.
2019 Guy.
Our leasing volume for the fourth quarter is very strong.
The 55%.
Now you signed for new and renewal leases versus the fourth quarter 2018.
Leasing spreads were also very strong in the fourth quarter growing 14.4%.
On new and renewal leases signed during the quarter.
[noise] in 2019.
Nine to 208 renewal leases.
Hundrednine usually.
Representing 953000 square feet.
Weighted average lease term <unk> 0.10.
In an average size of approximately 3000 square.
The blended leasing spread.
<unk> was 10.1 person.
Thanks, Mike things for example on new leases.
18% for Middle East.
Our total occupancy.
It was 90.3%, which was relatively flat with the previous quarter and a year ago quarter.
General and administrative expenses.
Let me give revenue.
60 basis points.
15.9% in Q4.
All year were 16.6% and improved 80 basis points over the prior year.
For the quarter.
<unk> expense.
Allison.
The prior year.
Repeatable to increase.
The funding or 2019 acquisition.
Lower weighted average interest rate of five basis point.
For the full year.
Yes.
1.1 million.
Yeah.
Sure.
The increase in our weighted average interest rate 12 basis points.
Net income attributable to whitestone rate for the year twice.
I haven't done getting 57 cents per share compared to 21.4 million.
Two cents per share in 2018.
Funds from operations as defined by name right for the quarter with 8.9 million.
In one centsper share.
Parenting 9.5 million or 23 cents per share in the fourth quarter 2018.
For the year.
So with 38.
For 90 cents per share compared to 39.4 million or 94 cents per share in 2018.
Fs, our core which.
Definition.
Thousand 80, 94 noncash stock compensation.
Early extinguishment cost.
In 2018 home.
Yes, absolutely.
Was 11.1 million for 26 cents per share in the fourth quarter compared to 11.4 million or 27 cents for here in 2018.
For the full year.
From operations for 44.9.
<unk> dollar six per share.
The 48.8 million or $1.16.
We're in the prior year.
Dissipated and communicated previously.
Operations for per share.
This year.
Prior year.
Based on property dispositions.
Harvesting of value created providing recycled capital for future investment opportunities.
Legal fees related to litigation.
Higher interest costs, driven by our fixing the interest rate on a greater percentage of our gas extending maturities.
For the quarter funds from operations core per share declined one Smith from the prior year quarter.
This is over the whole.
Property disposition offset by increased NOI for same store and our late 2019 acquisition.
While our funds from operation core per share decreased from 2018.
Only the progress we have made this year in place.
Upgrading the portfolio through selective disposition.
Improving our debt structure for reducing leverage.
Sure and fixing the right kind of larger percentage.
Do you think RG <unk> costs.
I think our corporate governance, which all will result in long term value creation for our shareholders.
Let me turn to our balance sheet.
Our total.
Real estate assets were 1.1 billion.
Here.
48 million from a year ago, reflecting acquisition.
That's an existing assets and development of additional leasable area.
As of quarter end total real estate debt net of cash on hand.
640 million down from 644 million at December 31, 2018, and our debt as a percentage of total market capitalization improved to 52%.
Experts in a year ago.
During the quarter, we raised $12.6 million at an average price thirteenseventy per share.
I think our aftermarket offering program.
Let me now I'll give a couple brief comments on our acquisition.
Mission and development activity for the year.
In December.
Market acquisition, Las Colinas village, a 105000 work what center.
Located in the upwardly mobile young professional community Irving, Texas, along North Dallas.
Board or an area was very strong demographics.
The acquisition was funded and leverage positive manner using proceeds from dispositions.
From our credit facility.
Wayne issuance of shares under our ATM program.
Our Dallas regional team in place will further scale our operating platform.
No additional overhead required.
On the disposition front.
2019, so reducing non core properties for 39.7 billion, representing a 6.8% cap rate.
Regarding our long term goals that we communicated in 2018.
<unk> leverage and <unk> expenses I am pleased to report that he has made significant progress.
<unk> expenses have improved from 19%.
Revenue in 2017% to 15.3% in the most recent order.
On the debt leverage side, we have not made as much progress remain committed the goal.
Largest driver of leveraging.
The funny thing of acquisition.
Lower than probably which we did with our most recent acquisition.
2019, we were able to improve the debt.
<unk> ratio for 8.6 times down from 8.7 times in Q4 2018.
We expect the pace of improvement on the key metrics to build in the next few years.
Now, let me hand, I, focusing my comments on our 2020 outlook.
Guidance reflects management's view current and future market condition.
Well I'd be earnings impact of events referenced in our earnings release.
No data package.
This guidance does not include operational for capital impact of any future unannounced acquisitions.
Position for development activity.
As the plans for any of these activities becomes final we will communicate and that's knight our guidance as needed.
Yes at the site net income per share to be in the range of 20 cents in 24 cents.
Funds from operations as defined by name.
In the range.
The 91 cents per share.
Funds from operations core.
In the range to the dollar size <unk> dollar nine cents per share.
He assumptions in our 2020 guidance estimate our same store growth.
A straight line amortization.
Thanks.
Below market rent.
Termination fees.
1% to 3%.
Average occupancy for 2020 of 90.5% 92%.
Average interest on all that the 4.2%.
We have provided they walk from 2019 actual results.
South and 20 guidance.
Supplemental data package further details on the expected year over year changes.
Although we don't give guidance on a quarterly basis.
Two thirds of away into our first quarter I would like that I like the fact that the first quarter typically has higher accounting and professional fees relative to the other falling reporters.
And with that.
And I will now be happy to take your questions.
Well. Thank you if you would like to signal with questions. Please press star one.
I just don't telephone if you're joining us today, you say speakerphone. Please make sure you function, it's turned off to why your signal to reach our equipment.
Again that would mean star one if you'd like to ask questions. Please start won our first question will come from Craig Kucera with B Riley FBR.
Hey, good morning, guys one of caught up by talking about the Las Colinas Hey, Jim.
Wanted to talk about the Las Colinas acquisition first he tells how you source that transaction and what the initial cap rate is expected to be here in 2020.
Hi, Yes, I'll, such maybe beyond that the cap rate and then I'll like to get a little more detail on that the sourcing at the acquisition.
In flight in a lie at the time of acquisition, representing about a 7% unlevered.
On our investment costs.
The asset was 86% occupied so.
Obviously from a cap rate perspective, it would be a higher African that many stabilized.
It's an occupancy.
Thanks, Dave.
Yeah, Great. We I'm reluctant to say I've said several times are probably more than four time, including myself.
And it fits perfectly into the business model, we have added to our Dallas portfolio.
Number of crackers come into when we buy something like this first of all we have upside because it's a 6% occupied by the cash on cash going in is 7%. We also have an excellent team in Dallas that car, which our portfolio is performing above the 90%.
Quite a ways above that and occupancy and so that.
The ward.
You know operation by feeding them more poppies like this so we're pretty excited about it we think there's some upside opportunity buys from additional portion is there and fits very well into our portfolio.
Got it so it sounds like.
Job, one probably be immediate playing in 20 companies probably to try to push up occupancy and then perhaps longer term proceeds under development opportunities.
That's correct.
We will always focused on the occupancy there you can see.
When you buy a new properties and it takes anywhere from 18 to 24 months <unk> integrated into the operation and it's even 6% occupied you're gonna have that the upside pressure on the occupancy, but we're doing a pretty good job getting there. So yes, that's right.
I'll highlight how we've also been able to.
Good job of increasing our rental rates as we renewed leases and las colinas as well as other assets, we feel like it become in operating property.
Isn't model will have the ability to push the rates on those wells those renewals as well.
Leasing spreads for the trailing 12 month on renewals are around 10%. So it's just one what additionally, I would say that we bought everything that we call off market no. There's it's not circulated [laughter], it's usually not a portfolio lifted by a broker you don't get into a bidding auctions you don't get into the final that's the point a while none.
As a straight up you know deal you know principal to principal and sometimes there's a broker involved most of the time, it's not all but that's how we've been.
Buying our properties and we found therefore very successful in the past.
And one other item like the high line I think like I said this in my remarks grain, but you really got unable us to scale our in like the infrastructure.
Our team in Dallas is very good dominating we added the fact that without having any additional costs will continue.
Improve in that.
Average another aspect you acquisitions like one.
Okay.
And just given your commentary on guidance. It doesn't include any dispositions there should we take away from that that you're not currently marketing any be remaining eight assets and pillar settled the work or those.
Eventually could be sold and recycled habitues. It's included in guidance at this point.
I think from a from a guidance perspective.
It's obviously difficult to predict the timing of those kind of activity.
So from a guidance perspective, we give guidance based on our current portfolio, we're going to continue to look for for opportunity.
The to take the value, we created an asset and recycle that but they just do the difficulty of timing. We don't include that in our acquisition guidance and we will as those activities occur obviously, we'll update our guidance if necessary.
Your.
But oh exactly as out of great way too when you're looking at creating the net asset value of the company.
Take the game that we've looked at a and then build that into add that to the cash flow of the business.
Woman. She is it's very significant and that's what our business model is create added value.
And as we sell those properties off or you'll see some more value now.
Outside of that is if we take away something okay. So that's lukas when Dave mentioned in his remarks College.
It is reduced to AFFO reduced because we sold a massive took away that's gonna cool. So it's very sensitive relatively cheap.
Got it one more for me just again circling back to the guidance, there's a pretty healthy bump in share counts for the average for the year, how should we assume that that's sort of ATM issuance throughout the year or have you been relatively active here in the first quarter or any color there would be appreciated.
I think that's.
Largely driven by buying.
The impact of during the fourth quarter of 19, we sold 12.6 million in your ATM program I think for the full year.
He'd be sold about $21 million under our ATM program.
2020 that will be.
Fully diluted where it was only partially dilutive for for 2019. So that's the largest driver also just the impact of ladies effect.
I'm kind of long term stock grants.
That's the biggest pieces the ATM full year dilution.
[music].
From from 19.
Mm Hmm.
Okay. Thank you.
Right.
And just.
I can comment on like.
The second is we're excited here because that's our first acquisition since we went through about a two year sabbatical dealing with the activists investors, who and also the class action suit, which we were the kids out very favorably for Whitestone shareholders. So we're now back on track to continue or judicious growth. So.
Got it.
Excited about that so I think that's something that all shareholders will welcome.
I remind everyone before.
Sure some closing comments that.
We've been doing this go long time and thus.
I find it to track record is starting to really from up in terms of being stable predictable.
And once again, if you would like to signal with questions. Please press star one it getting star one if he would like to ask questions. We'll pause for just a moment.
And at this time there are no further questions Mr. Mr. Andrea I'll now turn the conference back over to you.
Yes. Thank you.
As always I want to thank you for joining us in our and on our Investor call today.
We look forward <unk>, we we.
Or sharing with our investors.
The success, we've had and knowing that we're staying true to our.
Supplement to our.
As we look forward to 2020, you know I want to say that are listed objectives the goal to clear.
To us and hopefully they'll be clear you always alerts.
So if we could do better this year than you did last year.
No that you know I am committed to serving blood, whose hands I.
I believe and feel on my Chili's proof, serving all of your shareholders, serving our tenants our employees in our stakeholders that I'll say, thank you very much.
If anybody have any questions I'd like to be a breather me call or Kevin. Please feel free to do so we'll make ourselves available and as well would do you have to be too I mean these properties that you won't thank you very much.
Well. Thank you that does conclude today's conference where do you think you for your participation have a wonderful day.
No.