Q4 2023 Whitestone REIT Earnings Call

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Operator: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Mordy, Director of Investor Relations for Whitestone REIT. Thank you. You may begin.

I would now like to turn the conference over to your host Mr. David Martin Director of Investor Relations for Whitestone REIT.

You may begin.

David Mordy: Morning, and thank you for joining Whitestone REIT's fourth quarter 2023 earnings conference call. On today's call are Dave Holeman, Chief Executive Officer, Christine Mastandrea, 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. However, actual results may differ materially from those forward-looking statements due to a number of risks, uncertainties, and other factors.

And thank you for joining Whitestone REIT fourth quarter 2023 earnings conference call on today's call are Dave Holeman, Chief Executive Officer, Christine Messenger as 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.

Our 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-Q, and 10-K for a detailed discussion of these factors.

David Mordy: Please refer to the company's earnings news release and filings with the SEC, including Whitestone's most recent Form 10-Q and 10-K, for a detailed discussion of these factors. Acknowledging the fact that this call may be webcast for a period of time, it is also important to note that this call includes time-sensitive information that may be accurate only as of today's date, March 7, 2024. The company undertakes no obligation to update this information. Whitestone's fourth-quarter earnings news release and supplemental operating and financial data package have been filed with the SEC and are available on our website in the investor relations section.

Acknowledging the fact that this call may be webcast for a period of time. It is also important to note that this call includes time sensitive information that may be accurate only as of today's date March 7th 2024. 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.

C and are available on our website in the Investor Relations section.

David K. Holeman: We published fourth quarter 2023 earnings slides on our website yesterday afternoon, which highlight the topics to be discussed today. I will now turn the call over to Dave Holman, our Chief Executive Officer. Thank you, Dave, and good morning, everyone.

He published fourth quarter 2023 earnings.

<unk> on our website yesterday afternoon, which highlight topics to be discussed today I will now turn the call over to Dave Holeman, Our Chief Executive Officer.

Thank you David and good morning, everyone.

David K. Holeman: Welcome to our fourth quarter 2023 earnings conference call. I'll break my comments into three parts. First, what we've done. Second, ongoing initiatives that continue to drive value. And finally, how our core strategy fits very well with the current environment. I'll get straight into it.

Welcome to our fourth quarter 2023 earnings conference call.

I'll break my comments into three parts first what we've done.

Second ongoing initiatives that continue to drive value and.

And finally, our core strategy, thanks, very well with the current environment.

I'll get straight into it in terms of what we've done. This management team began in January of 2022. So we're two years into our run.

David K. Holeman: In terms of what we've done, this management team began in January of 2022, so we're two years into our run. Here's a high-level list of our accomplishments. Four FFO per share has grown from $0.86 in 2021 to $0.91 in 2023. This is despite higher interest costs, primarily as we renewed and extended our credit facility in the third quarter of 2022. With that in place until 2027, we anticipate a higher earnings trajectory ahead of us. I'll have Scott cover our projections in greater detail. We've rapidly improved our balance sheet metrics, bringing our debt to EBITDA RE down from 9.2 times for the fourth quarter of 2021 to 7.5 times for the fourth quarter of 2023. This is despite significant litigation expense impacting our numbers.

Here's a high level list of our accomplishments.

Core <unk> per share has grown from 86 cents in 2021 and 91 cents for 2023.

This is despite higher interest costs, primarily as we renewed and extended our credit facility in the third quarter of 2022.

With that in place until 2027, we anticipate a higher earnings trajectory ahead of US I'll have Scott cover our projections in greater detail.

Rapidly improved our balance sheet metrics, bringing our debt to EBITDA or a down from $9 two times for the fourth quarter of 2021 to seven five times for the fourth quarter of 2023.

This is despite significant litigation expense impacting our numbers.

David K. Holeman: We've focused and prioritized our disciplined leasing efforts on high-quality tenants, resulting in record occupancy in our portfolio, up 290 basis points from 91.3% at year-end 2021 to 94.2% at year-end 2023. Breaking this down further, we've grown our small space occupancy by 320 basis points to 92.1 percent, and our larger space occupancy has grown by 200 basis points to 97.5 percent. We had same-store net operating income growth of 7.9% in 2022, followed by 2.7% in 2023. Scott and Christine will provide more detail on this important metric later in the call. We've strengthened our board, bringing on three new board members, or half of our six-person Board of Trustees.

We focused and prioritized our disciplined leasing efforts are high quality tenants.

Salting and record occupancy in our portfolio.

290 basis points from 91, 3% at year end 2021, 94, 2% at year end 2023.

Breaking this down further we have grown our small space occupancy by 320 basis points to 92, 1% and our larger space occupancy has grown by 200 basis points to 97, 5%.

We had same store net operating income growth of seven 9% in 2022, followed by two 7% in 2023.

And Christine will provide more detail on this important metric later in the call.

We've strengthened our board, bringing on three new board members or half of our six person board of trustees. This refreshment has been a company that has been accompanied by a host of shareholder friendly actions, including right sizing our executive compensation splitting the role of chair and CEO and.

David K. Holeman: This refreshment has been accompanied by a host of shareholder-friendly actions, including right-sizing our executive compensation, splitting the role of chair and CEO, and providing shareholders with access to bylaws. We've worked hard to successfully conclude the litigation with our former CEO and exit our investment in his related party joint venture. We are nearing conclusion. Whitestone has a very clear strategy and path to value creation that continues to be more clear as this noise is removed. And finally, culture.

Hiding shareholders with access to bylaws.

We've worked hard to successfully conclude the litigation with our former CEO and exit our investment in his related party joint venture.

We are nearing conclusion.

Whitestone has a very clear strategy and path to value creation. There continues to be more clear as this noise is removed.

And finally culture.

David K. Holeman: We've simultaneously brought on very talented individuals, reduced our headcount, and improved employee satisfaction. In short, we're improving GNA while achieving better results. I'm super proud of the team and their long list of accomplishments over the last two years, only a few of which I have highlighted.

We've simultaneously brought on very talented individuals' reduced our head count and improved employee satisfaction.

In short, we're improving G&A, while achieving better results.

I'm Super proud of the team and there are long list of accomplishments over the last two years only a few of which I have highlighted at.

David K. Holeman: I'm equally excited about how we're continuing to drive value. Three initiatives are at the heart of our creating value. Our Quality of Revenue Initiative, our Balance Sheet Improvement Plan, and our Capital Recycling Plan. I'll have Christine cover the Quality of Revenue Initiative, and I'll provide a bit of color on the other two.

I'm equally excited about how we're continuing to drive value.

Three initiatives are at the heart of our creating value.

Our quality of revenue initiatives.

Our balance sheet improvement plan and our capital recycling plan.

I'll have Christine covered the quality of revenue initiatives and I'll provide a bit of color on the other two.

David K. Holeman: We've made significant progress with our balance sheet improvement plan over the last two years, obtaining an investment grade credit rating. We have more work to do here, and we have the right people, the right plan, and the market tailwinds supporting our efforts. Our debt metrics will continue to improve as we grow EBITDA RE, apply free cash flow to reduce debt, monetize our Pillarstone investment, and activate the land parcel and pad site development opportunities within the portfolio. We expect debt to EBITDA RE to be below seven times by year 2024, and we anticipate further improvement in 2025. Our asset recycling program has allowed us to upgrade the overall quality of our portfolio, selling properties with lower upside and ABR and redeploying the proceeds into acquisitions with significantly higher upside, higher ABR, and characteristics that capture more of the key demand drivers in today's market.

We've had significant progress with our balance sheet improvement plan over the last two years, obtaining an investment grade credit rating.

We have more work to do here and have the right people the right plan and the market tailwind supporting our efforts our.

Our debt metrics will continue to improve as we grow EBITDA or a <unk>.

Why free cash flow to reduce debt monetize our pillar stone and investment investment and activate the land parcel and pad site development opportunities within the portfolio.

We expect debt to EBITDA or a below seven times by year end 2024, and we anticipate further improvement in 2025.

Our asset recycling program has allowed us to upgrade the overall quality of our portfolio.

Selling properties with lower upside and a b R and redeploying the proceeds into acquisitions with significantly higher upside higher ABR and characteristics to capture more of the key demand drivers in today's market.

David K. Holeman: We anticipate that since October of 2022, we will have completed approximately $80 million in asset sales by the end of the second quarter at an aggregate cap rate of 6.2%. I say anticipate because we have a sale upcoming, but it has not yet been announced, and we believe we'll keep the effort going at about the same pace we've had over the last two years. I think it's important to note here that we are very capable of driving results via organic growth. So we're not reliant on the transaction market or the equity market cooperating in order to drive earnings growth.

We anticipate that since October of 2022, we will have completed approximately $80 million in asset sales by the end of the second quarter at an aggregate cap rate of six 2%.

I'd say anticipate because we have a say all upcoming but not yet announced and we believe we'll keep the effort going at about the same pace we've had over the last two years.

I think it's important to note here that we are very capable of driving results via organic growth.

We're not reliant on the transaction market or the equity market cooperating in Oregon in order to drive earnings growth.

David K. Holeman: However, we are starting to see valuations adjust slightly to the higher interest rate environment, and our team is ready to take advantage of those opportunities that align with our strategy. The final area I would like to cover today is what we're seeing in terms of the current environment. Frankly, this is a great environment for most of the retail REITs, as the limited supply of retail centers is driving good results across the peer group.

However, we are starting to see valuations adjust slightly to the higher interest rate environment and our team is ready to take advantage of those opportunities that align with our strategy.

The final area I would like to cover today is what we're seeing in terms of the current environment.

Frankly, this is a great environment for most of the retail rates as limited supply of retail centers is driving good results across the peer group.

David K. Holeman: The limited supply combined with country-leading job and population growth in our markets and Whitestone's ownership of the right type of retail centers makes this current dynamic especially powerful for Whitestone. Our strategy and our assets are very well-matched to take advantage of this environment, and we've made a number of strategic decisions that are producing great outcomes. Specifically, we have shorter leases with annual rent bumps, the ability to capture mark-to-market rents quicker, a high-quality, diversified tenant roster, and limited CapEx needs as compared to other peers. This strategic decision to operate with shorter leases and be more active owners is fundamental to what we do. Because of the confidence we have in our team to populate centers with fast-growing tenants, we are better positioned to share in their success. We are 100% Sunbelt focused in business-friendly states.

The limited supply combined with country, leading job and population growth in our markets and whitestone to ownership of the right type of retail centers makes this current dynamic, especially powerful for whitestone.

Our strategy and our assets are very well matched to take advantage of this environment and we've made a number of strategic decisions that are producing great outcomes.

Specifically, we have shorter leases with annual rent bumps the ability to capture mark to market rents quicker.

High quality diversified tenant roster and limited capex needs as compared to other peers.

This strategic decision to operate with shorter leases and be more active owners is fundamental to what we do.

Because of the confidence we have in our team to populate centers with fast growing tenants, we are better positioned to share in their success.

We are a 100% sunbelt focused in business friendly states.

David K. Holeman: Migration trends in our markets lead the country and are acting as a strong tailwind, not only in terms of our operating results but for the underlying value of our spinners. Lastly, our centers have a much larger percentage of small spaces than most of our peers. We, and others, continue to see strong demand from businesses seeking out spaces in the 1,500 to 3,000 square foot range.

Migration trends in our markets lead the country interacting is a strong tailwind not only in terms of our operating results, but for the underlying value of our centers.

Lastly, our centers have a much larger percentage of small spaces than most of our peers.

We and others continue to see strong demand from businesses seeking out spaces in the 1500 to 3000 square foot range, we've intentionally acquired centers and made modifications to meet this demand and.

David K. Holeman: We've intentionally acquired centers and made modifications to meet this demand, and we believe this trend will continue as businesses adjust to properly meet the needs of the surrounding community. We introduced 2024 Core FFO for Share Guidance yesterday of $0.98 to $1.04. We have a few more near-term unknowns than I'd like, but I've never been more bullish about the fundamentals driving our business and the strategy we have in place. I'll have Scott walk everyone through our 2024 projections and the assumed variables. Once again, let me say I'm very proud of the team here and everything we've accomplished, and I'll now turn the call over to Christine. Thank you, Dave.

And we believe this trend will continue as businesses adjust to properly meet the needs of the surrounding communities.

We introduced 2024 core <unk> per share guidance yesterday of 98 cents to $1 four.

We have a few more near term unknowns than I'd like but I've never been more bullish about the fundamentals driving our business and the strategy we have in place.

I'll have Scott walk everyone through our 2024 projections and the assumed variables.

Once again, let me say I'm very proud of the team here and everything we've accomplished and I will now turn the call over to Christine.

Thank you, Dave we've had a real strong quarter in operation.

Christine C. J. Mastandrea: We've had a really strong quarter in operation. Occupancy rose to 94.2%, about 50 basis points from last year's record finish. Occupancy may dip a bit for the upcoming quarter as it did for the first quarter of 2023. This is because we closed a large number of deals in the fourth quarter and we intentionally are re-merchandising in the first quarter for revenue quality. However, while we may see a first quarter dip, we have a strong pipeline of deals, and we're forecasting an occupancy of 93.8 to 94.8 by year end 2024. Occupancy for 10,000 square foot plus spaces came in at 97.5%, with our higher AVR small spaces coming in at 92.1%. Straight line leasing spreads were 21.8% for the quarter, with 37.3% on new leases and 15.3% on renewals.

And since he rose to 94, 2% up 50 basis points from last year's record finish.

Occupancy may dip a bit for the upcoming quarter as it did for the first quarter of 2023.

This is because we closed a large number of deals in the fourth quarter and we intentionally are re merchandising in the first quarter for revenue quality.

However, while we may see a first quarter that we have a strong pipeline of deals and we're forecasting an occupancy of 93, 8% to 94.8 by year end 2024.

Occupancy for 10000 square foot plus spaces came in at 97, 5% with our higher ABR small spaces coming in at 92, 1%.

Great mine leasing spreads were 21, 8% for the quarter was 37, 3% on new leases and 15, 3% on renewals.

Christine C. J. Mastandrea: For the last 12 months, combined straight-line leasing spreads were 21.7%. Frankly, as strong as our leasing spreads are, it keeps getting better if you dig into the numbers. Just recently, Marcus and Millichamp showed Asking Rents in Phoenix, our largest market, jumping 12.6% between 2022 and 2023. Not only did we capture those jumps more quickly because of our shorter-term leases, averaging four years, but the recency of the jump bodes well for leasing spreads in 2024, 2025, and 2026. This isn't just a number on a spreadsheet.

For the last 12 months combined straight line leasing spreads were 21, 7% frankly as strong as our leasing spreads are it keeps getting better if you dig into the numbers.

Just recently, Marcus and Millichap show to asking rents in Phoenix, our largest market jumping 12, 6% between 2022 and 2023.

Not only did we capture those chumps more quickly because of our shorter term.

Leases.

Averaging four years, but the recency of the jump bodes well for our leasing spreads in 2020 for 2025 and 2026.

This isn't just a number on a spreadsheet and matches what our leasing agents are seeing in the ground.

Christine C. J. Mastandrea: It matches what our leasing agents are seeing on the ground. Migration trends, the Phoenix manufacturing boom, consumer trends, and a shortage of retail neighborhood centers are all combining to make this one of the strongest environments we've ever seen. Some of our peers have recently been talking about the value of vacancy and that vacancy allows them to better align a center to the surrounding demographic, often a new younger demographic rather than letting a center get out of touch. However, as you can see from the fact that we just hit record occupancy, vacancy at our centers is limited.

Migration trends Phoenix manufacturing boom consumer trends and a shortage of retail neighborhood centers are all combining to make this one of the strongest environments we've ever seen.

Some of our peers have recently been talking about the value of vacancy in that vacancy allows them to better align a center to the surrounding demographic often a new younger demographic rather than letting a center get out of touch.

However, as you can see from the fact, we just hit a record occupancy.

And you can see at our centers is limited.

Christine C. J. Mastandrea: This leads us to our Quality of Revenue Initiative. We strongly believe that upgrading our tenants during the good times creates long-term shareholder value as we drive traffic with fast-growing businesses and further improve collection rates and lower our unintended and unintentional turnover. We often compare what we do to gardening in that intentional pruning is key to make sure that you have high-quality tenants primed for growth.

Leads us to our quality of revenue initiatives.

We strongly believe that hi, upgrading our tenants during the good time creates long term shareholder value as we drive traffic with fast growing businesses and further improving collection rates and lowering our intended and unintentional turnover.

We often compare what we do to gardening and that intentional pruning is key to make sure that you have high quality tenants prime for growth oftentimes, we're swapping in a business with higher long term growth potential and the ability to drive center traffic yes.

Christine C. J. Mastandrea: Often, we're swapping in a business with higher long-term growth potential and the ability to drive center traffic. It's necessary because over 60% of our centers are at 95% or greater occupancy. Given our average lease length, I like to think of this initiative as halfway through from when the management team stepped in. By 2026, we will have intensely reviewed the large majority of our tenants.

Necessary because over 60% of our centers are at the 95% or greater occupancy.

Given our average lease length I like to think that this initiative is halfway through from when the management team stepped out.

By 2026, we will have intensely reviewed the large majority of our tenants.

We're confident investors will benefit from these efforts as we set this up for a long term robust same store NOI growth.

Christine C. J. Mastandrea: We're confident investors will benefit from these efforts as we set this up for long-term, robust, same-store NOI growth. Despite our great success in smaller spaces, we've had a number of positive things going on in the larger spaces, too. Our former Bed, Bath, and Beyond space is being transformed into a high-demand pickleball and entertainment venue. Our new tenant, Pickler, is an extremely strong operator, and we've recently signed a long-term contract with them at Eldorado, our Trader Joe anchored center in Dallas. In the locations they've opened so far, Pickler has enjoyed a strong first-mover advantage, and they've shown themselves to be adept at going after a younger demographic. However, our EOS launch at Williams Trace is taking longer than anticipated, pushing back the commencement date.

Despite our great success in smaller spaces, we've had a number of positive things going on in the larger spaces too.

Our former bed Bath and beyond space is being transformed into a high demand pickle ball and entertainment venue or new tenant Pickler is extremely strong operator, we've recently signed a long term contract with them at El Dorado are trader, Joe anchored center in Dallas and the locations have opened so far <unk> has enjoyed a strong first mover.

Advantage and they've shown themselves to be adept at going after a younger demographic.

E O S. Buildout at Williams trace is taking longer than anticipated pushing back the commencement date, while this impacted our same store NOI growth in 2023. It will have some impact on 2024, but I want to remind everybody. That's a great replacement of an underperforming grocery and triples, our revenue for 51000 square.

Christine C. J. Mastandrea: While this impacted our same-store NOI growth in 2023, it will have some impact on 2024, but I want to remind everybody it's a great replacement for an underperforming grocer and triples our revenue for 51,000 square feet of space. This change is anticipated to drive strong center traffic for years to come. Many of the businesses that are cycling out right now are those challenged by the higher capital costs in the current environment. The businesses moving in are adjusted to the higher capital costs. However, this has been a limited number of businesses in our portfolio as the majority of our tenants are low inventory and low capital businesses serving the communities that we have. I'd add one comment to Dave's regarding our capital recycling initiative. With the sale of Sporn Line in Chicago, we've exited our one property that didn't fit our geographic profile. At this time, we only have one property that doesn't fit our strategic profile. That is owning services that serve the nearby community. That property is our headquarters office building, Wood Lake. We will take a hard look at extending Wood Lake this year.

Feet of space.

This change is anticipated to drive strong center traffic for years to come.

Many of the businesses that are cycling out right now are those challenged by the higher capital costs in the current environment. The business is moving in are adjusted to the higher capital cost.

However, this has been a limited number of businesses in our portfolio is the margin of the bulk of our tenants are low inventory and low capital businesses, serving the communities that we have.

I'd add one comment to Dave's regarding our capital recycling initiative with the sale of the <unk> line in Chicago, We've exited our one property it didn't step our geographic profile at.

This time, we only have one property that doesn't fit our strategic profile.

That is owning services that serve the nearby community.

That property is our headquarters office building with Lake we'd take a hard look at exiting this year, we strongly believe in having a very focused strategy of sticking to our expertise.

Christine C. J. Mastandrea: We strongly believe in having a very focused strategy and sticking to our expertise. I often comment on categories of tenants that are showing strength during the quarter. However, almost every category of tenant type is performing well right now.

I often comment on categories of tenants that are showing strength during the quarter.

However, almost every category of tenant type is performing well right now from restaurants health beauty education fitness in financial and other service oriented businesses, we are seeing growth.

Christine C. J. Mastandrea: From restaurants, health, beauty, education, fitness, and financial and other service-oriented businesses, we are seeing growth. I'm eager to drive results and see what the leasing team can accomplish in 2024. And I'm eager to report those results as the year progresses. And with that, we'll have Scott cover the financials. Thank you, Christine.

I'm eager to drive results and see what leasing team can accomplish in 2024 and I'm eager to report those results as the year progresses.

With that we will have Scott cover the financials.

Thank you Christine.

Scott Hogan: We delivered 24 cents in core FFO per share for the fourth quarter of 2023 versus 23 cents in the fourth quarter of 2022, and $0.91 for the full year 2023 versus $1.03 for the full year 2022. Now I'll walk you through the 2022 to 2023 core FFO per share earnings variance. And you may want to follow along on slide 11. Same store NOI Growth was our key positive driver, as it should be every year, adding five cents. DNA drove a five percent reduction in FFO core per share, including four cents of benefit in the first quarter of 2022 associated with the forfeiture of outstanding restricted shares from our former CEO and other employees that was not repeated in 2023. While G&A normally reflects year-over-year increases in compensation expense, ours also includes litigation expense related to Pillarstone and our former CEO. Other items drove a one-cent reduction, and interest expense drove an 11 cent reduction.

We delivered 24 cents in core <unk> per share for the fourth quarter of 2023.

Versus 23 cents in the fourth quarter of 2022.

And 91 cents for the full year 2023 versus $1 <unk> for the full year 2022.

Now I'll walk you through the 2022 to 2023 core <unk> per share earnings variance.

And you may want to follow along on slide 11.

Same store NOI growth.

As our key positive driver as it should be every year, adding five cents.

DNA drove a 5% reduction in EF oak core per share.

Including four cents of benefit in the first quarter of 2022 associated with the forfeiture of outstanding restricted shares from our former CEO and other employees that was not repeated in 2023.

While G&A normally reflects year over year increases in compensation expense.

Paris also contains litigation expense related to pillars shown at our former CEO.

Other items drove a one cent reduction.

And interest expense drove an 11% reduction.

Scott Hogan: As a reminder, we amended our credit facility in the third quarter of 2022, so the variance between the former and current credit facility primarily impacted the first three quarters of 2023. As Dave mentioned, we introduced 2024 Core FFO First Share Guidance yesterday with a range of $0.98 to $1.04. Let me walk you through the forecasted changes between the 2023 core FFO per share amount of 91 cents and the midpoint of the 2024 guidance of $1.01. Same store NOI is expected to improve 7 cents in 2024, while DNA cost reductions should drive a one-cent increase.

As a reminder, we amended our credit facility in the third quarter of 2022.

So the variance between the former and current credit facility, primarily impacted the first three quarters of 2023.

As Dave mentioned, we introduced 2024 core <unk> per share guidance.

Yesterday with a range of 98 to $1.04.

Let me walk you through the forecasted changes between the 2023 core <unk> per share amount of 91 cents.

And the midpoint of the 2024 guidance of $1 <unk>.

Same store NOI is expected to improve seven cents in 2024.

G&A cost reductions should drive a one cent increase.

Scott Hogan: Primarily, as our former CEO and Pillarstone-related litigation expense is expected to be significantly reduced. Other items primarily driven by non-same-store NOI and no longer reflecting earnings deficits from our equity method investment in Pillarstone following our OP unit redemption in January of 2024 are forecasted to add three cents. Interest expense is forecasted to drive a one-cent reduction in core FFO per share.

Primarily as our former CEO and pillar <unk> related litigation expense is expected to be significantly reduced.

Other items, primarily driven by non same store NOI.

And no longer reflecting earnings deficit from our equity method investment in pillar stone following our O P unit redemption in January of 2024 are forecasted to add three cents.

Interest expense is forecasted to drive a <unk> reduction in core <unk> per share.

Scott Hogan: We anticipate higher interest expense in the first part of the year, both because of the shape of the SOFR curve and because we assume some pay-down of debt with partial Pillarstone monetization in July. Overall... If you divide our annual guidance into four quarters, I anticipate the first quarter will be a couple of cents under the average, primarily due to interest expense, and I anticipate the fourth quarter to be a couple of cents over the average due to lower interest expense, percent sales clauses, and growth that's expected to occur over the course of the year. In addition to the headline, let me cover a few other elements of our guidance. Same story in Hawaii is forecasted to be between two and a half and four percent.

We anticipate higher interest expense in the first part of the year, both because of the shape of the sofa curve.

And because we assume some pay down of debt with a partial pillar stone monetization in July.

Overall if.

If you divide our annual guidance in the four quarters.

We anticipate the first quarter will be a couple of cents under the average primarily due to interest expense and I anticipate the fourth quarter to be a couple of cents over the average due to lower interest expense.

Percent sales clauses.

And growth that is expected to occur over the course of the year.

In addition to the headline let me cover a few other elements of our guidance.

Same store NOI is forecasted to be between two and a half and 4%.

Scott Hogan: The delay in EOS commencement is a reason the change is a little lower, but we are still expecting strong growth. FAD debt is expected to be between 0.6% and 1.1%. We improved bad debt by 18 basis points in 2023, bringing it down to 0.65%. Our quality of revenue initiative should help keep this number low. Finally, our debt to EBITDA RE metric is forecasted to improve to between 6.6 and 7 times by the fourth quarter of 2024, and that assumes we're not able to monetize the majority of our Pillarstone investment until 2025. We are very pleased to announce a 3% increase in our monthly dividend level. We believe dividends should grow with earnings, and we believe we'll have good earnings growth in 2024 and continue in 2025 and beyond.

The delay in Eos commencement as a reason that changes a little lower but we still we're still expecting strong growth.

Bad debt is expected to be between 6% and one 1%.

We improved bad debt by 18 basis points in 2023 brings.

Bringing it down to a 0.65%.

Our quality of revenue initiatives should help keep this number low.

Finally, our debt to EBITDA, our <unk> metric is forecasted to improve to between 6.6.

Seven times by the fourth quarter of 2024.

And that assumes we're not able to monetize the majority of our pillar stone investment until 2025.

We're very pleased to announce a 3% increase in our monthly dividend level.

We believe dividends should grow with earnings and we believe we will have good earnings growth in 2024, and continuing in 2025 and beyond.

Operator: Thank you all for joining our earnings call, and with that, we'll open the line for questions. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Thank you all for joining our earnings call and with that we'll open the line for questions.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Formation tone will indicate your line is in the question queue you.

Operator: You may press star 2 if you'd like to remove your question from the queue. For purchasing speaker equipment, it may be necessary to pick up your handset before pressing star 2. Our first question comes from Mitch Germain with Citizens J&P. Please proceed with your question. How are you?

You May press star two if you'd like to remove your question from the queue.

Speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Our first question comes from the line of Mitch Germain with citizens JMP. Please proceed with your question.

Yeah.

Yes.

Hey, how are you.

Mitchell Bradley Germain: Good morning, Mitch. I think you broke up a bit. Good morning, Mitch.

Okay.

Good morning, Mitch I think you broke up a bit good morning, sorry about that my bet.

Mitchell Bradley Germain: Yeah, sorry about that. My bad. I wanted to, obviously, you talked a little bit about the quality of revenue. And, you know, it's, I don't know, it seems like your bad debt is forecasted to be a little bit higher in 2024. You know, I'm just curious in terms of, you know, I'm sure there's a little hint of conservatism in that number, but is there anything specific that is driving that midpoint of that number to be higher year over year? Hey, Mitch, it's Scott.

I wanted to just obviously, you talked a little bit about quality of revenue.

And you know, it's I don't know it seems like your bad debt.

<unk> is forecasted to be a little bit higher in 2024.

Just curious in terms of you know.

I'm sure, there's a little hint to conservatism in that number but is there anything specific that is driving that.

Midpoint of that number to be higher year over year.

Okay.

Hey, Scott.

David K. Holeman: The bad debt is a, the bad debt assumptions that we put into the forecast or range that we're comfortable with. The midpoint isn't necessarily where we expect to end, and no, there aren't any specific tenants that we have identified that are going to drive higher bad debt next year. Okay, that's helpful. What percentage of your portfolio, you know, comes from smaller tenants relative to the larger ones? How should we think about that? Obviously, we talk about that obvious trend above peers, but what is it specifically? Yeah, I think Mitch, Dave, in our PowerPoint for today's call, I think David Mordy is going to give me a page number, but there's a page number that breaks out, page six?

The bad debt is that bad debt assumptions, we've put into the forecast or a range that we're comfortable with the midpoint isn't necessarily where we expect to end and no. There's there's no specific tenants that we have identified that are going to drive higher bad debt next year.

Okay. That's helpful.

What percentage of your portfolio.

Hums from the smaller tenants relative to the larger ones, how should we think about that.

Obviously, we talk about that obviously trend above peers, but what is it specifically.

Yeah, I think hey, Matt it's Dave.

Sure.

In our Powerpoint for the call today, I think David Morton He's going to give me a page number but there's a page number that.

Breaks out page six breaks out our tenant base approximately 75% of our ABR is in the smaller spaces that are really in high demand. Today. So we think that's a key differentiator of whitestone versus many others in this sector and we have the type of spaces that are in high demand.

David K. Holeman: Yep, if you break out our tenant base, approximately 75% of our ABR is in the smaller spaces that are really in high demand today. So we think that's a key differentiator of Whitestone versus many others in the sector. And we have the type of spaces that are in high demand.

David K. Holeman: Okay. Obviously, we've got a lot of products that seem to be going smaller and smaller. Dave, talk about, you know, obviously, you're in the process of deleveraging, but you interestingly mentioned activating your land parcels and some of your redevelopment opportunities. You know, clearly, that creates a little bit of higher leverage initially before EBITDA commences.

Agreed okay. Obviously, we should we've got a lot of products that are seem to be going smaller and smaller.

Dave talk about you know obviously, you're in the process of deleveraging, but you Interestingly mentioned activating you know your land parcels in some of your redevelopment opportunities.

Clearly that creates a little bit of higher leverage initially before the EBITDA commences. So.

David K. Holeman: So, you know, maybe if you could just provide some perspective on the potential opportunities that you've got embedded in the portfolio and how you feel some of those potential opportunities can be monetized. Yeah, Mitch, I'll give a couple of high-level comments, and maybe I'll ask Christine to share some more about the development opportunities. I will tell you our goal and our challenge is to do a number of things. Over the last couple of years, we've improved our balance sheet, we've driven earnings, and we've capitalized on development opportunities. So it's always a balance.

Maybe if you could just provide some perspective on the potential opportunities that you've got embedded in the portfolio and how you feel some.

Some of those potential opportunities can be monetized.

Yes, Yes, Mitchell I'll give a couple of high level comments, and then maybe I'll ask Christine to share some more about the development opportunities.

I will tell you.

Our our goal and our challenge is to do a number of things over the last couple of years, we've improved our balance sheet. We have driven earnings we've capitalized on development opportunities. So it's always a balance we're focused on the balance sheet improvement plan and have made strong progress and then we're obviously top line focus.

Christine C. J. Mastandrea: We're focused on the balance sheet improvement plan and have made strong progress. And then we're obviously top-line focused on value creation. Maybe I'll let Christine comment a little bit on the development opportunities. And Mitch, I think the best way to look at our portfolio is that most of these are pads and smaller buildings. And so the time frame it takes to get these positioned through an approval process, which is a low-cost venture to start up, right? That just takes time. By the time you get that in place and then you actually build, which is when you start, you know, your significant capital costs, that's like a six-month time frame. So it doesn't take that long to build these pads out. It takes a while to get them approved within the zoning districts that you have to work with.

On value creation, maybe I'll, let Christine comment a little bit on the development opportunities emerge I think the best way to look at our portfolio as most of these are pads and smaller buildings.

So the timeframe it takes to get these positions through an approval process, which is a low cost venture to start up right that just takes time by the time you get that in place and then you actually build which is when you start.

You or your significant capital cost that's like a six month timeframe. So it doesn't take that long to build.

These pads out it.

It takes a while to get them approved within.

And the zoning.

Districts that you have to work with.

Christine C. J. Mastandrea: So I like to say I think these things are very easy once you get, you know, once you get approval, then it's, you know, then your capital costs start, your significant capital costs, and that's maybe six months. And then once you get them out of the ground, then, of course, you're able to achieve returns on your returns with the rents. So most of ours are smaller pads.

No.

All I can say I think these things are very easy once you get once you get approval. Then it's then your capital costs are significant capital costs and Thats may be six months and then once you get them out of the ground and then of course, you are able to achieve on your your returns with the rents.

Most of ours are how many of them have now.

Christine C. J. Mastandrea: How many of these pads have entitlements right now? We have, we're doing three a year, and I'm looking to ramp that up to like four to five in the following years to six, it depends. Dana has a number of small pads that are already approved, but what we're doing is working through the right leasing strategy to move those forward. Those are already fully approved at Dana Park, and those have, let's see, I've got one, two, about seven pads there alone.

How many of these fans have entitlements right now.

We have we're doing three a year and I'm looking to amp that up to like four to five in the following years to sex. The patents like Dana has a number of small pads that are already approved but what we're doing is working through the REIT leasing strategy to move those forward those are already fully approved at Dana Park.

Those have let's see I've got one to about seven pads there alone.

Christine C. J. Mastandrea: So in the portfolio, we have well over, I think, about 15 to 16 pads that we can work through over time. It's just a question of making sure that we can manage them appropriately within our time frame, the leaseability of them, and also our resources with the team. Great, that's helpful, thanks.

So on the portfolio, we have about we have well over I think about 15 to 16 pads that we can work through over time. It's just a question of making sure that we can manage it appropriately appropriately with them.

Our timeframe the lease ability with AD and also our resources with the team.

Great. That's helpful. Thanks, and then last one for me just Dave maybe some perspective on the timing.

David K. Holeman: And the last one for me, Dave, maybe some perspective on the timing of the resolution of the damages associated with the Pillarstone ruling. Obviously, I believe the ruling provided some sort of time frame where some sort of remedy or evaluation was necessary to be provided. Maybe some perspective on where that stands? Sure. Obviously, we're very pleased with the ruling on our investment in Pillarstone. The court ruled that, obviously, we had been damaged, and what we're looking for is an exit. We've communicated that all along. So Pillarstone has some obligations to the court to provide value as well as payment to us.

The resolution of the damages associated with the pillar stone.

Ruling obviously I believe.

The ruling had provided some sort of timeframe, where some sort of remedy where valuation was necessary to be provided maybe if for some perspective on where that stands. Please.

Sure.

Obviously, we're very pleased with the.

The ruling which on our investment in pillar stone.

The court ruled that obviously, we had been damaged and what we're looking for is is an exit we've communicated that all along.

So pillar stone has some obligations to the court.

To provide a value as well as a payment to us I would tell you we're moving into the collection phase.

David K. Holeman: I would tell you we're moving into the collection phase and we are focused on, you know, getting that collected and exited as quickly as possible. Scott commented that in the guidance we only have a partial part of that monetization this year. We have the balance in 2025.

And we are we.

We are focused on getting that collected and exited as quickly as possible Scott Scott commented that in the guidance. We only have a partial part of that part of that monetization in this year, we have the balance in 'twenty five I'd love to report in the year that we got that much more quickly. So right now we're we're.

David K. Holeman: I'd love to report in the year that we got that much more quickly. So right now, we're very pleased with where we are as far as the decision is concerned. We're looking for an orderly monetized exit, a plan of exit, which I believe we kind of have in progress, and we'll move quickly. It's hard to give you exact timing just because we're working through the court system.

We're very pleased with where we are as far as the decision were.

Looking for an orderly monetize exit plan of exit, which I believe we kind of have in progress.

And we will move quickly it's hard to give you exact timing just because we're working through the court system.

David K. Holeman: We're working through a number of things, but all of the decisions have been very supportive and very much in Whitestone's favor at this point. Thank you. Thanks, Mitch.

We're working through a number of things but.

All of the decisions have been very supportive and very much in whitestone favor at this point.

Thank you.

Thanks Mitch.

Okay.

Anthony Hau: Thank you. Our next question comes from the line of Anthony Hau with Drewis Securities. Please proceed with your question. Good morning, guys.

Thank you. Our next question comes from the line of Anthony Hau with Jewish Securities. Please proceed with your question.

Good morning, guys. Thanks for taking my question so.

David K. Holeman: Thanks for my question. So this morning, I saw the news that AERIS asset management plans to nominate two directors to the board, and they raised a few questions, right? Since the December press release, what other discussions and conversations have the board had with Bruce and his proposal to liquidate? And have you guys thought about adding board members that have more relevant real estate experience? Thanks, Anthony. It's Dave.

So just wondering I saw the news that arris.

Management plans to nominate two directors to the board and the rest of your question's right.

Since the December press release, while others discussions and conversation that the board had with Bruce and his proposal to liquidate and have you guys thought about adding board members that have more relevant real estate experience.

Thanks, Anthony it's Dave I'll give a couple of comments to that.

David K. Holeman: I'll give a couple of comments on that. First of all, just off the top, obviously, we don't comment on articles like the Bloomberg article. We don't comment on market rumors or quotes from unnamed sources. We did publish in December a letter we received from Mr. Schanzer with a res.

First of all just off the top.

Obviously, we don't comment on articles like the Bloomberg article, we don't comment on market rumors or quotes from M named sources.

We did publish in December a letter we received from Mr. <unk> with our as we did that because we think it's important to be transparent.

David K. Holeman: We did that because we think it's important to be transparent. We want to have great discussions with shareholders, and we want to minimize misinformation. We love and welcome shareholder feedback and discussion, but we don't discuss individual shareholder discussions, obviously, publicly.

We want to have great discussions with shareholders and we want to minimize misinformation.

We love and welcome shareholder feedback and discussion, but we don't discuss individual shareholder discussions obviously publicly.

David K. Holeman: Really proud of the progress we've made over the last couple years. We're focused on execution and delivery. Obviously, at this point, that's kind of what we can say.

Really proud of the progress we've made over the last couple.

A couple of years, we're focused on execution and delivery and obviously at this point that that's kind of what we can say I think we've published a letter from Bruce We've published our response.

David K. Holeman: I think we've published the letter from Bruce. We've published our response, too. Obviously, I'm happy with the follow-up question, Anthony, but I think that's the comment I would make at this point on your question. Oh, the only thing I would add is, you know, we've done a lot of refreshing and upgrading our board, brought in great new skill sets and diversity, and we continue to look at that, continue to evaluate that we have the right people in place, and I think our board is very good at that Our board also, you know, takes the strategic role it has in looking at the ways we create value very seriously, and, you know, we take that very seriously.

Obviously happy with a follow up question, Anthony but I think thats the comment I would make at this point on your question.

The only thing I would add is.

Yes.

We've done a lot of them of refreshing and upgrading our board brought on great new skill sets and diversity continued to look at that continued to evaluate that we have the right people in place and I think our board feels very good about that our board also.

It takes the strategic role they have and looking at the ways, we create value very seriously and.

We take that very seriously.

Okay.

Scott Hogan: Okay. Sorry if I missed it, but property operating and maintenance was up 27% in the same sort of pool this quarter. What drove that increase?

Sorry, if I missed it by property operating and maintenance was up 27% in the same store pool.

Quarter.

What drove that increase and was that the main reason why same store NOI for 2023 was at the lower end of the guidance.

Scott Hogan: And was that the main reason why the same sort of NOI for 2023 was at the low end of the guidance? Thank you. Thank you. Thank you. Anthony, it's Scott.

Okay.

Anthony It's Scott on the maintenance side, we accelerated some large maintenance items exterior painting of buildings parking lot resurfaces in six or seven properties.

Scott Hogan: On the maintenance side, we accelerated some large maintenance items, exterior painting of buildings, parking lot resurfaces, and six or seven properties in Arizona. We think that's going to add value and help with leasing rates. Those properties happen to have a slightly lower recovery rate than the majority of our portfolios. That was a component of the same store, being a little lower than expected. The other one was, I think Christine mentioned delayed commencement in EOS drove another portion of it.

In Arizona.

We think that's going to add value and help a leasing rates those properties happen to have a little lower recovery rate and the majority of our portfolio. So that that was a component of the same store.

Being a little lower than expected the other the other one was I think Christine mentioned delayed commencement and Eos.

Drove another portion of it and then we add bed Bath <unk> beyond that was re tenanted towards the end of the year that was a smaller piece. So there's those are the three components of the same store decrease and then once again on the maintenance side.

Scott Hogan: And then we had Bed Bath & Beyond that was re-tinted towards the end of the year, and that was a smaller piece. So those are the three components of the same store decrease. And then once again, on the maintenance side, those painting and parking lot resurfaces are once every 10-year type of expense. Gotcha. And then a quick one on Pillarstone.

Those painting and parking lot resurfacing or once every 10 year type of expenses.

Gotcha.

And then a quick one on polo stone I know that you guys are going through the bankruptcy court now what are the chances that whitestone can fully recover the monetary adjustment about.

David K. Holeman: I know that you guys are going through the bankruptcy court now. What are the chances that Whitestone can fully recover the monetary adjustment? Hey, Anthony. It's Dave.

Hey, Anthony it's Dave.

As you as you said, we are moving towards the collection phase at this point with that.

David K. Holeman: As you said, we are moving toward the collection phase at this point, with receiving very positive rulings that we've been damaged and that we had the right to exit. As you said, Pillarstone has filed bankruptcy, and we're moving through that. We remain confident in the value of that investment when you look at the underlying assets. Our investment on our books is roughly $30 million. We continue to believe that the value of the underlying assets is north of that. So it's hard to nail down a number, but I do think we're in the process now of moving through that and hopefully, getting this noise out of the story very shortly. Thanks, guys.

We are receiving very positive rulings that we'd been damaged in that we had the right to exit.

As you said pillar stone is is is <unk> has filed bankruptcy and we're moving through that.

We remain confident in the value of that investment when you look at the underlying assets are our investment on our books is roughly $30 million. We continue to believe that the value of the underlying assets is north of that so it's hard to nail down a number but I do think we're in the process now of moving.

Through that and hopefully getting this noise out of the story very shortly.

Okay. Thanks, guys.

Thanks Anthony.

Barry Oxford: Thank you. Our next question comes from the line of Barry Oxford with Colliers. Please proceed with your question. Hi guys.

Thank you. Our next question comes from the line of Barry Oxford with Colliers. Please proceed with your question.

Great Hi, guys on the disposition market. When you guys are looking at that is it fairly fluid and are the buy.

David K. Holeman: On the market when you guys are looking at that, is it fairly fluid, and are the buyers able to get financing? relative. Hey, Barry, Dave, a very good question. I think we're continuing to see a little bit of an uptick in the transaction market, I think, as we all get more clarity on where interest rates are. Still not, you know, not super deep, but we're seeing more transactions. And I would say we are seeing buyers able to get financing. So in some recent transactions, there's been a financing component. And we've seen the ability to get financing at, you know, rates that are probably now closer to, you know, closer to 6%, a little bit above that, but rates that can work.

Buyers able to get financing relatively easily.

Hey, Barry Dave Good question.

I think we're continuing we are seeing a little bit of uptick in the transaction market I think as we all get more clarity on on where interest rates are.

Still not not super deep, but we're seeing more transactions and I would say we are seeing.

The buyers able to get financing so in some recent transactions there has been a financing component and we've seen.

The ability to get financing at rates that are probably now closer to the.

<unk>.

It's closer to 6% a little bit above that but.

That can work. So we are seeing that that market normalized we're also seeing.

David K. Holeman: So we are seeing that market normalize. We're also seeing, you know, on the sale side, on the acquisition side, we're seeing, you know, cap rates move up a bit. So we're continuing to monitor that for great opportunities. Is it your plan, as much as humanly possible, to match the dispositions and acquisitions, or do you think one will run in front of the other this year?

On the sales side on the acquisition side, we are seeing.

Cap rates move up a bit so we're continuing to monitor that for for great opportunities.

Is it <unk>.

And as much as humanly possible to match, the dispositions and acquisitions or do you think one will run in front of the other this year.

David K. Holeman: I'll say it this way: our responsibility and what we focus on every day is creating and adding value. Over the last couple of years, we've been continuing to upgrade the portfolio through a bit of recycling, really selling assets and redeploying them into new assets. I think right now, I mentioned in my remarks that we've done about $80 million of that in the last 18 to 20 months. We believe that level is probably appropriate for a portfolio our size on an ongoing basis. Our guidance we've given is the asset base as it is today, but we do believe there are opportunities that are starting to open up for acquiring assets and potentially growing and scaling this platform as well.

Yes, I think we I'll say it this way we are our responsibility and what we focus on everyday is creating and adding value.

Over the last couple of years, we've been.

Continuing to upgrade the portfolio through a bit of recycling really selling assets and redeploying into new assets I think right now I think I mentioned in my remarks that we've done about $80 million of that in.

$80 million of that in the last 18 to 20 months.

We believe that kind of that level is probably appropriate for a portfolio our size on an ongoing basis.

And you know our guidance. We've given is is the asset base as it is today, but we do believe there's going to be opportunities are starting to open up for for acquiring assets and potentially growing and scaling this platform as well.

David K. Holeman: As we've said for the last couple of years, we're going to be very, very disciplined in capital allocation, making sure those decisions are the right decisions for long-term value. But in the last couple of years, it's been largely sales and dispositions one for one. I would expect that that would be similar in 24, but we think there's going to be opportunities as things continue to improve. Great. Thanks so much, guys. Have a good one!

We're as we've said for the last couple of years, we're going to be very very disciplined in capital allocation, making sure. Those decisions are the right decisions for long term value but.

For the last couple of years, it's been largely.

Sales and dispositions one for one I would expect that that would be similar in 'twenty, four, but we think theres going to be opportunities.

As things continued to improve.

Great. Thanks, so much guys have a good one.

John Masocha: Thanks, Barry. Thank you. Our next question comes from the line of John Masocha with B. Riley Securities. Please proceed with your question. Good morning.

Thanks Barry.

Thank you. Our next question comes from the line of John <unk> with B Riley Securities. Please proceed with your question.

Good morning.

John Masocha: Morning, John. Maybe the thing about the guidance, as you think about the kind of recent drag from... You have costs associated with the ongoing situation around Pillarstone. I mean, can you provide a little more color as to what you're assuming there? Is it a resolution to... You know, legal issues and bankruptcy court-related issues now in July, or is it... You know, that's kind of ongoing for the full year as you look at guidance today? I'll let Scott maybe talk about guidance, but on the Pillarstone front, I think largely our efforts are related to collection. So think of it that way.

Good morning, John.

So maybe if you think about the.

The guidance as you think about kind of reset drag from <unk>.

Costs associated with the ongoing situation around pillar stone Amy can you provide a little more color as to what youre, assuming there isn't a resolution two.

Legal issues.

Currency related issues now in July or is it.

Yeah that kind of ongoing for the full year as you look at guidance today.

I'll, let Scott maybe target guidance, but on the pillar stone front I think largely our efforts are related to collection. So think of it that way in other words now.

David K. Holeman: In other words, now we've moved through the process, we've done our redemption of our ownership effort, and now we're going to work to get those mounts collected. So that's largely the activities, and I'll let Scott maybe give further comment. Well, on the guidance side, I don't think it's a $0.03 drag.

We've moved through the process, we've done our redemption of our ownership effort and now we're going to work to get those amounts collected so that's largely the activities and I'll, let Scott maybe give further comments.

Well on the guidance side I don't think its a <unk> <unk> drag I think we've got <unk>.

Scott Hogan: I think we've got $0.03 of additional revenue just in the other category. And so when you look at the guidance for 24 against. What we had in 2023, we're expecting lower litigation costs around Pillarstone. And then also, we redeemed our OP units in January, so the line on our income statement that's had a deficit related to Pillarstone goes away starting January 25th. So I think we expect a little bit of pickup from just no longer recognizing equity method deficits associated with Pillarstone, and we move on to collecting the amounts that were due, and then we expect lower litigation costs. Okay, and I say a three cent drag, I mean, versus kind of run rate, no Pillarstone at all.

Of additional just in the other category and so when you look at the guidance for 'twenty four against.

What we had in 2023 <unk>.

We're expecting lower litigation costs around pillar stone and then also we redeemed our LP units in January so the line on our income statement. That's had a deficit related to pillar stone goes away starting in January of 2005.

Or so so I think we expect.

A little bit of pick up from from just no longer recognizing equity method deficits associated with pillar stone and we move on to collecting the amounts that were due.

And then we expect lower litigation cost.

Okay.

Recent drag I mean versus kind of run rate no pillars stone at all.

Scott Hogan: Oh, okay. Oh, sure. Okay. Yeah. Are you kind of assuming that it will be a full year to kind of cover those elevated g&a costs? Or is that something that, you know, should end roughly in July, just because you mentioned it as when you expected to, or at least we're guiding to start, monetizing or collecting some kind of monetization from the Pillarstone? Well, we've forecasted about a million and a half dollars of litigation expenses associated with Pillarstone. But it's hard to predict the timing of when all those matters will get resolved.

Okay.

Okay.

You're kind of assuming that being at a full year kind of of those elevated G&A costs or is that something that.

Should end roughly in July just because you mentioned it adds.

When you expected to or at least we're guiding to start.

Monetizing your collecting some kind of monetization from the pillar stone assets.

Well, we we forecasted about 1 million and half dollars of litigation expense associated with pillar stone, it's hard to predict the timing of when all those when the matters get resolved.

Okay.

Scott Hogan: Okay, that's fair. And then, apologies if I missed this earlier in the call, but the acquisition in February, Garden Oaks, can you provide some color as to pricing and..., yield on that investment. Sure. Hey, John.

That's fair and then apologies if I missed this earlier in the call but yeah.

The acquisition in February Garden notes could you maybe provide some color as to pricing.

Going in yield on that investment.

Okay.

Sure Hey, John So.

David K. Holeman: So, in early 24, we're pleased to close on a really nice acquisition in Houston in the Garden Oaks Submarket, which is an area that is very, very strong and continues to improve. And so we're really pleased with that. It's an ALDI.

In <unk>.

Early 'twenty four we were pleased to close on up.

A really nice acquisition in Houston in the Garden Oak Submarket, which is an area that is a very very strong continues to.

To improve.

And so really pleased with that as an all day. It's a center that has an aldi has several tenants that are the type tenants. We liked that support the surrounding community and has real upside I think from the continuing to apply what we do well, which is as Christina and her team just really looking at the tenants and what we what they provide the community. So we're very.

David K. Holeman: It's a center that has an ALDI, has several tenants that are the type we like that support the surrounding community, and has real upside, I think, from continuing to apply what we do well, which is Christine and her team just really looking at the tenants and what we, you know, they provide the community. So we're very pleased with the acquisition, think it fits our portfolio well, and was part of our capital recycling program. So I think we've upgraded to a much better asset there with greater upside than what we disposed of. As far as pricing and cap rates, I think that at this point we have not. I think the 10K will have the acquisition price. I think David probably will be in the 10K that's been filed.

Please the acquisitions they get fits our portfolio well was part of our capital recycling program. So.

We've upgraded to a much better asset there with greater upside than what we disposed of as far as pricing and cap rates.

I think that at this point, we have not.

I think the 10-K, we will have the acquisition price I think David probably will be in that Didnt Kim K, that's filed but we haven't given individual cap rates on acquisitions, but I will tell you. It is.

David K. Holeman: But we haven't given individual cap rates on acquisitions, but I will tell you it is, I think we shared with you the capital recycling program that we've been able to sell assets kind of at the 6-2 cap rate going out. And we are buying assets above that. So this fits into that scenario. But there will be some; the actual amount, I can't remember the exact amount. It was in the 20 to 30 million range, which was the acquisition price.

I think we shared with you the capital recycling program that we've.

Been able to sell assets kind of at a six two cap rate going out and we are buying assets above that so this fits in that scenario, but there'll be some.

Actually I can't remember the exact amount it was in the 20 $20 million to $30 million range is what the acquisition price was but that the exact amount will be in the 10-K, we file very shortly.

David K. Holeman: But that exact amount will be in the 10K we file very shortly. And then just, we haven't given cap rates on individual sales or dispositions. And then maybe a bigger picture, I know you've given very clear NOI guidance, but how should we think about rent growth as a component of that? Is what you were seeing in 23 something you think you can continue into 24?

And then just we havent given cap rates on individual.

Sales or dispositions.

Okay understood and then maybe bigger picture I know, you've given a very clear at NOI guidance, but how.

How should we think about rent growth as a component of that is what you were seeing in 'twenty. Three something you think you can continue into 'twenty four or is a lot of that NOI guidance going to be.

Christine C. J. Mastandrea: Or is a lot of that NOI guidance going to be, you know, maybe lighter maintenance capex just given some of the items that were in, you know, your 23 results? I think we're still seeing continued run growth in all of our markets, and I think the benefit now is that we have filled most of our larger boxes. And again, we don't have that many of them, but that was the challenge coming in 2022 and early 2023.

Maybe lighter maintenance Capex, just given some of the items that were in.

'twenty three results.

Yes, I think we're still seeing continued rent growth in all of our markets and I think the benefit now as we have.

Filled most of our larger boxes and again, we don't have that many of them, but that was the challenge coming in 2022 in early 2023, and so the smaller spaces and by the way smaller spaces doesn't mean smaller balance sheets.

David K. Holeman: And so the smaller spaces, and by the way, smaller spaces don't mean smaller balance sheets. So, they're a lot less capital intensive to turn. We anticipate with, again, with revenue, you know, the Quality of Revenue Initiative, a lot of what we're looking at is if we do have weaker tenants that aren't successfully serving the communities in this strong market, it makes sense to actually look at those businesses and transition them out and build in stronger operations. Hey John, one thing I might just add, I know you know this, but just one of the benefits obviously is Whitestone's shorter lease So if you look at our spreads, they're very strong, and I think they're even stronger when you take into account the length of our leases compared to some of the others that report spreads. Okay, that's very helpful, and that's it for me. Thank you very much.

So and there are a lot less capital intensive to turn.

We anticipate with that again with our revenue.

The quality of revenue initiatives a lot of what we're looking at is if we do have weaker tenants that arent surveying successfully serving the communities in this strong market. It makes sense to actually look at those businesses and transition them out and build and stronger operations.

Hey, John one thing I might just add I know you know this but just one of the benefits obviously is whitestone shorter leases, which enables us to capture those market increases more quickly. So if you look at our our spreads they are very strong and I think they are even stronger when you take into account the length of our leases compared to some of the others that report spreads.

Okay.

That's very helpful and Thats. It for me. Thank you very much.

Michael Keelan Diana: Thank you. Thank you. As a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Michael Diana with Maxim Group. Please proceed with your question. Okay, thank you. Obviously, most of my questions have already been asked.

Thank you.

Thank you as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Michael Diana with Maxim Group. Please proceed with your question.

Okay. Thank you.

Obviously most of my questions have been asked.

Just.

David K. Holeman: You're making great progress on getting rid of non-core assets that don't fit. I think you said the only one that's left really is your headquarters building. Do you have anything, any comment about that? Our headquarters office building is a six-story suburban office building. It is probably roughly 50% occupied, so it's very similar to some of that office product.

You made great progress getting rid of noncore.

Don I think you said the only one that's left really is your.

Quarters building.

Good afternoon.

Alright, any comment about that.

Uh huh.

Just.

So our headquarters office building is a six story.

Suburban office building.

It is probably roughly 50% occupied so it's very similar to some of that.

Office product incredibly different than everything else, we have in our portfolio, which are community centers that support neighborhoods. So I think we as Christine mentioned, we would.

David K. Holeman: Incredibly different than everything else we have in our portfolio, which are, you know, community centers that support neighborhoods. So I think we, as Christine mentioned, we would, we expect to probably exit that property. For us, it's just making sure we have a nice home for our roughly 50 people in Houston that occupy that where headquarters is. We'd love to be in one of our retail centers, similarly we have in some other markets, but I think when we look at our portfolio, you know, kind of the non-core assets that don't fit the geography or the strategy, we've made a lot of progress there, and Woodlake is the only one You know, recycling-wise, we'll always be looking at properties that we've owned for a period of time, we've added value, and we feel like there's, you know, there's a better way to redeploy those proceeds, just like you would do with a stock portfolio. So strategically, really, Woodlake would probably be the only property at this point that doesn't fit the strategy, and then capital recycling, we All right, thanks, Dave. Thanks, Michael.

We expect to probably exit that that property for us. It's just making sure. We have we find a nice home for our roughly 50 people in Houston that occupy that where our headquarters are we'd love to be in one of our retail centers. Similarly, we have in some other markets but.

I think when we look at our portfolio.

Kind of the non core assets that don't fit this the geography or the strategy. We've made a lot of progress there and would like is the only one we identify recycling wise, we'll always be looking at properties that we've owned for a period of time, we've added value and we feel like.

There is there's a better way to redeploy those proceeds just like you would do with the stock portfolio. So strategically I really would like would probably be the only property at this point that doesn't fit the strategy and then capital recycling will continue to look at at redeploying proceeds where we can create more value.

Alright, Thanks, Dave.

Thanks, Michael.

Michael Keelan Diana: Thank you. Our next question is a follow-up from the line of Anthony Hau with True Securities. Please proceed with your question. Hey guys, sorry, just a quick follow-up. I noticed that the 24,000 square feet box at Windsor Park is still vacant.

Thank you. Our next question is a follow up from the line of Anthony <unk> with <unk> Securities. Please proceed with your question.

Hey, guys, sorry, just a quick follow up I noticed that the 24000 square feet box at Windsor Park is still Bacon.

Anthony Hau: What's the plan for that space? And what type of demand are you guys seeing for this box? There is strong demand, but it's one of our only centers that's a power center, and it has similar situations that other power centers have, and it has some of those restrictions and covenants that you have to work through. So the demand is there. We actually have a very interested party, and we're just having to work through, you know, those things that I would consider items that are negotiable but just take time because we have to work through that with the other tenants. So the demand's there, and I'm not concerned about filling it. Actually, we have two interested parties in it, so it's just working through the timing with a couple other tenants that are already in the center. And I'm assuming that you guys are trying to remove those, like, covenants, right?

What's the plan for that space and what type of demand I guess seeing for this box.

Strong demand, but it's one of our only centers that's a power center and it has similar situations at other power centers have and it has some of those restrictions and covenants that you have to work through so the demand is there we actually have a very interested party and we're just having to work through.

Those what I would consider.

Items that are negotiable, but just take time, because we have to work through that with the other tenants.

So the demand is there and I'm not concerned about filling it actually we have two interested parties on it. So it's just working through the timing with.

A couple of other tenants that are existing in the center.

And I'm, assuming that you guys are trying to remove those covenants right because I know that's one of the I think one of the key that Dave was talking about.

Christine C. J. Mastandrea: Because I know that's one of the, I think, one of the key things that Dave always talks about. Yeah, as you know, that's something that we that's one of the business models that we have that we avoid. This is one of the very few centers that we have that it's one of the legacy assets. But it's also a very well-located center in San Antonio. It's right on two major highways.

Yeah as you know that's something that we that's one of the business models that we have that we avoid this is one of the very few centers that we have that it's one of the legacy assets, but.

It's also very well located center in San Antonio its right at two major highways. So.

Christine C. J. Mastandrea: So, like I said, the demand is there. But, you know, this is a little bit slow going, but we anticipate that we'll have that completed this year. And how was Office Depot at that?

Like I said the demand is there.

But this is a little bit slow going but we anticipate that we'll have that completed this year.

And how would the office depot at that I think there is office depot at the same asset right.

Christine C. J. Mastandrea: I think there's Office Depot at the same asset, right? I think. Yeah. Yeah, there is. So what I'm finding is Office Depot has changed their business model a little bit, and they act more like a distribution center and a little less like retail. But it performs well there. All the tenants that are there perform very well.

Yeah right, yes, there is.

So what I'm finding is office depot has changed their business model, a little bit and they act more like a distribution center and a little less like retail.

But it performs well there all the tenants that are there performed very well.

Christine C. J. Mastandrea: Okay, thanks. Hey, Anthony, one thing I just want to note with this is that we are finding that there is a different type of demand now for larger boxes, but there is demand. That actually is coming around fairly strongly in retail. It's just shifted to a different type of user.

Okay. Thanks.

Hey, Anthony one thing I would just wanted to know with US is that there is.

We are finding that there is a different type of demand now for a larger boxes, but there is demand that actually is coming around fairly strongly in retail.

It's shifted to a different type of user.

Christine C. J. Mastandrea: What do you mean by that? Less hard goods, more services, or a product and a service. So it's just a move to, that's why we moved to work with EOS at one of our centers, right? Because why compete with two other large grocers in the market that are already performing well?

What do you mean by that.

Let me start on that.

Yeah, less hard goods more services or a product and service.

So it's just a it's a move to that's why we moved to a work with Eos at one of our centers right because why compete with two other large grocers in the market that are already performing well and when we did the study and found out that there was they were missing a fitness type of operator, we went for the strongest operator that was coming into the market. So.

Christine C. J. Mastandrea: And when we did the study and found out that they were missing a fitness type operator, we went for the strongest operator that was coming into the market. So that's what you look at with these boxes. I will, instead of leaning into hard goods, I will lean into something that drives repeat visits because then it benefits all the other clients in the center, and it benefits the market as a whole when we do that. Because again, there's more of a drive for services right now than products, the sale of hard goods and soft goods.

That's what you look at with these boxes I will I will instead of leaning into hard goods I will lean into something that drives repeat visits because then it benefits all of the other clients in the center and it benefits the market as a whole.

When we do that because again there is more of a drive for services right now then.

Product the sale of hard goods and soft goods.

Christine C. J. Mastandrea: And then for these big boxes, like, have you guys ever considered just like, you know, kind of like dividing the space up to like smaller spaces? Because I know some of your peers said, you know, they're trying to do that, right? Trying to convert these big boxes more, these small shop spaces to drive higher rents for the center. Yeah, it depends on the demand in the area. And one of the things that we always have to look at with this type of, there's always a cost with that. And so, you know, how much linear square footage that you have, how much linear feed do you have frontage compared to what type of depth you have.

And then look for these big box like have you guys ever consider just like you know.

Dividing the space off do you like smaller spaces, because I know some of your peer peer set.

Trying to do that right takes some great.

Fox it more.

These are small shop space to drive higher rents for the center.

Yeah. It depends on the demand in the area and one of the things that we always have to look at with this type of Theres always a cost with that and so you know how much linear square footage that how much linear feed do you have a front edge.

Imperative what type adapt you have so fortunately, we don't have a lot of that type of problem within the portfolio.

Christine C. J. Mastandrea: So fortunately, we don't have a lot of that type of problem within the portfolio. And we've been able to fill the boxes pretty effectively this year and last year. Because there is, again, the demand is just tapping into the right type of demand and making sure that it evolves with, you know, the shift and the change in the neighborhood. But yeah, we've done that. And, you know, a couple of times, where necessary.

And we've been able to fill the boxes pretty effectively this year and last year.

Because there is again the demand is just tapping in the right type of demand and making sure that it evolves with that the shift in the change in the neighborhood.

But yeah, we've we've done that in a couple of times.

Where necessary.

Christine C. J. Mastandrea: But, you know, we're always kind of cognizant of what the returns would be for doing that. Sorry, just one last one for me. Which tenant replaced the Batsby on the box?

But you know, we're always kind of cognizant of what the returns would be for doing that.

Okay.

Just one last quick one for me, which tenant replaced.

With that back to you on box.

Christine C. J. Mastandrea: That was the pickler. So we're finding this to be a very interesting source of traffic for our centers, and especially with repeat businesses. So we had a number and two things about this because this is such a hot sport right now. And it's really interesting to see that it's a very, it's a hot sport for a very interesting demographic. We're finding that the demographic that visits for this has a high repeat visit factor of like three times a week. Number one. Also, it happens to be younger people that are playing the sport indoors.

That was the pickler so.

We're finding this to be a very interesting.

<unk> of traffic for our centers and especially with repeat businesses. So we had a number and two things about this because this is such a hot sport right now and it's really interesting to see that as a very it's a hotspot for very interesting demographic, we're finding that the demographic that visits for this.

How you repeat visit factor of like three times, a week number one and also it happens to be younger people that are playing the sport indoors alright. So they're younger career oriented professionals that are looking to make sure. They can reserve a core time versus waiting for the weather and other types of elements.

Christine C. J. Mastandrea: All right, so they're younger career-oriented professionals that are looking to make sure they can reserve a core time versus waiting for, you know, the weather and other types of elements to play outside. So, we studied this, we investigated a number of operations that are growing very, very fast. And we made a decision to work with one that was more dedicated to the sport. That's the pickler. And they're out of Utah, and they've done a really good job with their we studied them, not only studied them, we went to visit them, we went to visit other business units as well, to understand how they make money. And, you know, it's relatively low labor cost, it's actually low capital costs that you need to put into these things, but the returns are pretty high on their sales.

<unk> to play outside so.

So we studied thus we investigated a number of operations that are growing very very fast and we made a decision to.

Work with one that was more dedicated to the sport and that's the pickler and there are out of Utah and they've done a really good job with her we study we not only study then we went to visit them. We went to visit other business units as well to understand how they make money.

And it's a relatively low labor cost and it's actually a low capital cost that you need to put into these things, but the returns are pretty high on their sales. So.

Christine C. J. Mastandrea: So we wanted to find the right one, the one that understood how to tap into the market quickly and had the first mover advantage. And so we worked with a pickler. And very happy, they just got their permit; we expect them to be open shortly. That's pickleball, right? I just want to make sure.

We wanted to find the right one the one that understood how to tap into the market quickly and have the first mover advantage and so we worked with the pickler and very happy they just got their permit and we expect them to be open shortly.

Yeah, that's right I just want make sure yes.

Anthony Hau: Yeah, it's pickleball. I'm sorry. This is, uh, yeah, it's for those that are wondering who the Pickler is. It's Pickleball. Yeah, there are, you know, a number of variants on this, but we moved more towards the people that are more interested in playing and less towards the entertainment type of venue like Chicken and Pickle, which are great, but they're a higher capital cost. So we went more into what we consider the hardcore and the consistent player that likes to show up every week.

Yes, it's pickle ball I'm sorry, this is yes.

For those that are wondering where the particular as pickle ball.

There are.

Number of variance on us, but we moved more towards the people that are more interested in playing and less towards the entertainment type of venue like chicken and pickle.

Which are great, but they are a higher capital costs. So we went more into what we consider that the hardcore and the consistent player that likes to show up every week. So.

Christine C. J. Mastandrea: Okay. Well, thanks. Thanks. I really appreciate it. Yeah.

Okay well. Thanks, Thanks, Thanks, Michael I really appreciate it.

Yes.

Okay.

David K. Holeman: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Holeman for any final comments. Well, first of all, thank you everyone for attending today. As I said in my comments, I can't be more bullish about the strong fundamentals of our business and how Whitestone is positioned.

Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Hoffman for any final comments.

Well first of all thank everyone for attending today.

As I said in my comments I can't be more bullish about the the strong fundamentals of our business and how Whitestone is positioned we are excited and looking forward to a strong 2024 and look forward to providing updates as we move throughout the year. So once again, thanks to all and hope you have a great day. Thank you.

David K. Holeman: We are excited and looking forward to a strong 2024 and look forward to providing updates as we move throughout the year. So once again, thanks to all, and I hope you have a great day. Thank you. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.