Q4 2021 Whitestone REIT Earnings Call
Greetings and welcome to Whitestone, REIT fourth quarter and year end 2021 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now.
I'd like to turn the conference over to your host David morning, Whitestone Reits Director of Investor Relations. Thank you you may begin.
Good morning, and thank you for joining Whitestone REIT fourth quarter 2021 earnings Conference call. Joining me today on today's call are Dave Holeman, Chief Executive Officer, Christine Messenger, Chief operating Officer, and Scott Hogan Chief Financial Officer. Please note that some statements made during this call are not historical.
And may be deemed forward looking statements actual results may differ materially from those forward looking statements due to a number of risks uncertainties and other factors. Please refer to the company's earnings news release and filings with the SEC, including Whitestone <unk>. Most recent Form 10-K for a detailed discussion of these factors.
The fact that this call may be webcast for a period of time. It's also important to note that this call includes time sensitive information that may be accurate only as of today's date March 2022.
The company undertakes no obligation to update this information.
Whitestone fourth quarter earnings news release, and supplemental operating and financial data package have been filed with the SEC and are available on our website Whitestone REIT dot com in the Investor Relations section I will now turn the call over to Dave Holeman, Our Chief Executive Officer.
Thank you David Good morning, and thank you for joining Whitestone <unk> fourth quarter 2021 earnings Conference call. We had strong 2021 results as we derive the benefits from our ongoing focus on leasing and some of the fastest growing markets in the country in Arizona.
In Texas.
To that point, our financial performance for the quarter was highlighted by revenue growth of 11, 5% for 2021 Q4 versus 2020 Q4 <unk>.
Same store net operating income rose 12, 8% over the same period.
The improvement was driven by increases in occupancy.
Positive leasing spreads and annual base rent per square foot growth.
We also delivered full year per share <unk> growth of eight 9% adjusting for 2020 loan forgiveness as our centers profited from the ongoing migration of corporations and individuals to our markets.
I am thrilled to have several new members of our senior management team on the call with me today.
David Monty who began the call recently joined Whitestone and Christine Messenger at our recently promoted CLO has been with US since 2006, focusing on operations and strategic initiatives and today, we will provide some insight on our operating metrics leasing focus and our <unk>.
Plans to drive growth.
Scott Hogan our recently promoted CFO has been with US since 2008, as our controller and will take us through the numbers today and provide insight into our 2022 outlook.
While I've been at the helm of Whitestone for less than 60 days I have been with the business since <unk> inception.
As part of the seriousness related to our commitment to be good stewards of invested capital we believe that the recent.
And decisive actions taken by the board of directors. These past two months.
Firm theirs, and management's focus to unlock and build shareholder value.
With the new leadership in place, we expect to build on our 2021 progress as we move through 2022 to maximize returns from our existing portfolio.
We also know that that begins and ends with leasing.
This is our number one priority.
Today I will touch upon some of the many steps that have been taken to ensure that as we execute on our leasing objectives. The company is aligned to drive incremental value and cash flow.
I will also provide a high level view of our motivation for change and began to lay out the strategy going forward.
So this to these points, we've had a number of announcements related to management and governance.
Our motivation for change is quite simple we are laser focused on maximizing value for shareholders with a renewed commitment to listen to shareholders and to execute we are energized by many of the initiatives that are being implemented including first our commitment to reduce <unk>.
General and administrative costs.
As part of the culture and strategy shift that is well underway at Whitestone, there will be an immediate reduction in G&A costs, particularly associated with management compensation.
Second we are committed to the alignment of corporate governance best practices.
The Whitestone board regularly reviews, and aligns with best practices as they relate to corporate governance and the termination of the shareholder rights plan are commonly known as a poison pill in February advances that objective.
In reaching its decision to terminate the plan the board took into careful consideration shareholder feedback received as part of our ongoing outreach and engagement process.
Third we are committed to minimize share dilution and maximize value, we intend to focus on increasing <unk> per share from organic initiatives. We do not expect to close on any acquisitions in the first half of 2022 with our near term.
And long term focus on leasing our existing properties and reducing overhead expenses.
Fourth our geographic focus remains on the nation's highest growth markets in the sunbelt and we believe our mix of entrepreneurial tenants further optimizes our growth potential.
It is important to call out the strength of our markets. We have a portfolio that is located in the right markets and in many high demand and high traffic locations.
Our strategy remains straightforward and we have a very simple and easy to understand business plan. Our intention is to enhance our approach and execute on our strategy to drive revenue and occupancy.
Fifth we understand that we need to grow but we must do it in a disciplined and thoughtful manner, we will not grow for growth's sake, but our growth will be guided by disciplined capital stewardship.
Our new team is in place and with our best in class geography, and strategically designed tenant mix, we are positioned to drive leasing and to scale the business.
In 2022, we will also evaluate the entire portfolio and determine if there are properties, we should monetize and redeploy the proceeds into acquisitions development or balance sheet improvement as.
As we move into 2022, we will look to build on our 2021 record leasing activity, increasing occupancy and strong annualized base rent growth.
Together with our focus on cost reductions, we expect to drive best in class earnings per share growth in 2022 that will position whitestone to prosper for years to come with that I will now turn the call over to Christine.
Thank you Dave first I want to thank our team for their driving the results of the past year with their commitment to our communities tenants and customers. Our overall focus from an operations perspective, what's on improving revenue quality and scalability.
This resulted in an increase in same store occupancy to 91, 7% from 88.2% an overall increase of 350 basis points.
Leasing spreads were a positive 14, 9% in the fourth quarter and a positive tempering, 8% for the full year.
New leasing spreads increased to 11, 2% in the fourth quarter and increased six 1% for the full year.
Renewal leasing spreads increased 15, 7% in the fourth quarter and an increased 12, 2% for the full year.
Our total lease value basis, our new leasing activity for 2021 was more than double our pre COVID-19 two now think 2019 level.
This is a result of being disciplined with our business model, which begins with knowing the neighborhoods. We serve we engage in heavy research to ensure businesses, we partner with meet the needs of our communities rather than standardization, we prefer localization.
Early on we concentrated our acquisitions and heightened income neighborhoods in the fastest growing markets in the country driven by job and population growth Houston, Dallas Fort Worth Austin, San Antonio Phoenix and Scottsdale.
We expect migration to continue to these areas as we continue to scale our regional infrastructure.
We invest in centers positioned to meet the changing retail environment. Our average tenant space size is approximately 3000 square feet. This allows us to meet a wider range of uses giving further flexibility and lower conversion cost to meet community needs retail footprints are downsizing and we are well positioned for the opportunity.
At over $21 per square foot or a b R increased almost 8% in 'twenty 'twenty. One. This is the result of smaller shops, providing a higher ABR per square foot than the big box space and focusing on convenience and service says versus soft and hard goods.
By focusing on the needs at the time Crunch consumer our tenant mix is compatible with the Amazon effect, our tenant basis intentionally built to be diversified with food self care and wellness services education and entertainment in particular restaurants health care and the wellness sectors are growing at a fast pace.
Our bounce back from Covid shows, our overall strength and with near complete by year end 2021 with cash collections and accounts receivable at pre Covid levels. In addition, we transitioned out weaker businesses and are cultivating and developing high value enterprise tenants and expanding their businesses with us examples our bar.
<unk> pizza and he's hardware.
Forbes recently mentioned that in 2022 maybe the year franchise growth and we are certainly seeing the evidence of that in some of our key franchises Orange theory, Dunkin' Donuts, Mathnasium and others continue to add locations going forward, we'll continue to work and build a durable economic advantage by improving the lives of others.
Ours by striving to meet the community needs of connection convenience and commerce and we'll continue to work to grow with our tenants provide our team members opportunities for growth and continue to build long term shareholder value with that I'd like to turn the call over to Scott.
Thank you Christine.
I appreciate the opportunity to share our 2021 year end results.
Total revenue grew 11.5% to $33 million for the quarter versus the fourth quarter of 2020.
Full year revenue was $125 4 million versus $117 9 million for 2020 up six 3%.
The revenue growth was driven by a three 5% same store occupancy improvement compared to 2020.
And we also benefited from a 7.7% ABR growth.
Net income for the year was 26 cents per share up from 14 cents per share in the prior year.
NAREIT funds from operations per diluted share grew 4%.
286%.
I'm, sorry, 86 cents per full year, 'twenty or 'twenty, one versus 83 cents for 2020.
Importantly, four cents of the F O in 'twenty 'twenty came from our gain on loan forgiveness during the fourth quarter.
Adjusting for the Twenty-twenty loan forgiveness, our year over year F. F O per share growth was 8.9%.
While we published F F O core excluding stock compensation, one last time.
We plan to stop using the metric going forward as it is not consistent with industry standards.
Turning to the balance sheet.
Since early last year, we have implemented various measures to strengthen our liquidity.
At the end of 2021 our total net debt was $636 million.
Improving our debt to gross book real estate cost ratio to 51%.
An improvement of over 55% a year ago.
Our debt to EBITDA ratio was 9.1 times for the full year 2021 .
First is 10.2 times for the full year 'twenty 'twenty.
In the past, we reported EBITDA Ari with adjustments for share based compensation and management fees.
We do not intend to continue making those adjustments.
We are targeting a debt to EBITDA or a ratio of 7.8 to 8.1 times by year end 2022.
We are pleased with the significant progress we've made on strengthening our balance sheet.
And we remain steadfast in our commitment in this area.
Our board recently approved a quarterly dividend of 12 cents per share for the second quarter, representing an annual dividend amount of 48 cents per share.
And an 11.6% increase from the first quarter of 2022.
To wrap up I'm excited to introduce our 2022 guidance.
F O per fully diluted common share in O. P unit guidance is expected to range from 98 cents to a dollar and two cents, representing a 14% to 19% increase from 'twenty to 'twenty one.
The key assumptions included in our 2022 guidance are.
And you know occupancy of 92% to 93%.
Same store NOI growth of 3% to 5%.
G&A cost reductions of approximately three to three and a half million inclusive of a half million in nonrecurring stock forfeitures and severance cost.
And bad debt of 1.5% of revenue.
We look forward to updating investors over the course of the year as we progress towards these targets.
With that now.
Now we will take questions.
Operator, please open the lines.
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One moment please.
For questions.
Our first question comes from Craig Chris Era with B Riley Securities. Please proceed with your question.
Okay.
I appreciate that Youre opening comments, Dave on and many of them philosophical changes of the company is going to make in light of the management change and I appreciate that.
You guys are tackling a lot and clearly listening to your investor base, but one topic you didn't addressed with pillar stone in those legacy non retail assets is becoming a pure play shopping center REIT a goal for whitestone over time.
Thanks, Craig absolutely, we intend to focus on what we do and do it well.
The pillar stone assets originally the investment in those assets. Originally was 14 properties. The number of years ago since that time, we've liquidated six of those 14 properties.
And I think those properties would continue to be in the category. We categorized as assets, we want to look at and look to monetize and reinvest those proceeds into really what we do which is community centered properties.
Got it that's helpful changing gears.
You mentioned that she had a pretty nice improvement leasing momentum in the fourth quarter and really throughout the year can you talk about how the first quarter traffic is looking at it at the remaining vacancy that you do have.
Okay.
Hi, Thanks for getting a question Craig This is Christine speaking and we still see traffic very strong and a lot of it has to do with where I'd like to say, we're Wayne Gretzky said skating, where the puck is going.
The downsizing of retail and also in our markets. We're seeing just a quite a bit of traffic for leasing activity, we talked a little bit about this already most of our.
Our second generation restaurants are filled we have very few of them left.
Along with that the health and wellness sector.
We've seen very little pullback in our markets.
Okay great.
And I know you touched on that there were some of the reduction in G&A with some some stock forfeiture, but kind of bigger picture looking at the reduction can.
Can you can you kind of give us a sense of how much is noncash versus what is what is cash as far as a reduction in 2022.
Yeah, Hi, this is Scott so for 2022 we expect to have one time reductions of.
$500000, which include forfeitures that of some.
Severance costs.
And then for the balance of the year, we should have about $2 million and share based compensation expense reductions with the balance of the cost savings and cash.
Largely from our executive compensation.
Okay, Great and just one more for me again on the guidance.
It's bad debt at a kind of 1% to 2% just being conservative or are you guys seeing any indications of maybe some tenants that that gives you some pause thinking about 'twenty two.
Thanks for the question, we don't really have any tenants that give us pause for 2022 in 2020 one.
We had about a million dollars of cash that we collected from deferrals in 'twenty 'twenty and we expect our collections to continue to be strong into 2022 .
And.
No no issues with any individual tenants. So what one 5% may be on the conservative side, we'll just have to see how collections go.
Okay. Thanks, that's it for me.
Yeah.
Okay.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Our next question comes from the line of Michael Diana with Maxim Group. Please proceed with your question.
Thank you.
Got it.
You mentioned you are going to make any acquisitions at least for the first half of 'twenty to 'twenty two.
Do you have any development or redevelopment plan.
Your you're out parcels or the various other.
Opportunities you have.
Yeah, I'll I'll ask thanks, Michael I'll start out and Christine may chime in as well.
I think we as we've communicated we've got one of the things. We've done is we've bought properties, where there is the ability to add some out parcels. There's also the ability to add a little more GLA will continue to do that as we've done in the past with a for instance, a 2021, we built up a pad site that we put a dunkin' donuts and so there'll be opportunities like that we exit.
Acute on I think the message is just for the first half of the year, we're going to we're going to really focus on driving organic growth on leasing and implementing our our overhead cost reductions Christine anything you'd like to add.
As you can imagine Michael that drive throughs are really hot right now so we identified a number of sites in the portfolio. We continue to market those in a number of those are in process and we do expect to keep delivering on our execution with that portfolio. This year and we have picked back up on a redevelopment, which we had.
We had put on pause in 'twenty. One you can imagine during COVID-19 , how were getting those plants back into shape and we will we'll let you know where we go from here, but it's moving forward.
Okay, great. Thank you very much.
Thanks, Michael.
We have reached the end of the question and answer session I would now like to turn the call back over to David Hoffman for closing comments.
Thank you operator, and thank everyone for joining us on the call today.
We're energized as we move into 2022 with our new leadership team in place, we expect to build off of our 2021 progress with continued strong property performance and significantly reduced overhead expenses. We believe this will help us to provide best in class earnings per share growth in two.
2022, and with that we will end our call and thank everyone and have a great day.
This concludes today's call you may disconnect your lines at this time and we thank you for your participation.