Q2 2024 Whitestone REIT Earnings Call
Ladies and gentlemen, good morning and welcome to the Whitestone REIT Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
Operator: 2nd quarter, 2024, Arling's conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
Operator: Second Quarter 2024, Earnings Conference Call A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. It is now my pleasure to introduce your host, David Mordy, Director of Investor Relations. Please go ahead.
Operator: If anyone should require your complete assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded.
If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad.
David Mordy: It is now my pleasure to introduce your host, David Mordy, Director of Investor Relations. Please go ahead.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, David Mordy, Director of Investor Relations. Please go ahead.
David Mordy: Good morning and thank you for joining Whitestone REIT 2nd quarter, 2024, arning's conference call. Joining me 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. 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's most recent Form 10-Q and 10-K for a detailed discussion of these factors.
David Mordy: Good morning and thank you for joining Whitestone REIT's second quarter 2024 earnings conference call.
Speaker Change: Joining me 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.
Speaker Change: 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's most recent Form 10-Q and 10-K, for a detailed discussion of these factors.
David Mordy: Signalling 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, August 1, 2024. The company undertakes no obligation to update this information.
David Mordy: 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, August 1st, 2024. The company undertakes no obligation to update this information. Whitestone's second 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. We published second quarter 2024 slides on our website yesterday afternoon, which highlight topics to be discussed today. I will now turn the call over to Dave Holman, our Chief Executive Officer.
Speaker Change: Acknowledging the fact that this call may be webcast for a period of time.
Speaker Change: It is also important to note that this call includes time sensitive information that may be accurate only as of today's date, August 1st, 2024.
David Mordy: Whitestone's second 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. We published second quarter 2024 slides on our website yesterday afternoon, which highlight topics to be discussed today.
Speaker Change: The company undertakes no obligation to update this information. Whitestone's second 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.
Speaker Change: We published second quarter 2024 slides on our website yesterday afternoon, which highlight topics to be discussed today. I will now turn the call over to Dave Holman, our Chief Executive Officer.
David Holeman: I will now turn the call over to Dave Holman, our Chief Executive Officer. Thank you, David. Good morning, and thank you for joining Whitestone's second quarter 2024 earnings conference call. We had another very strong quarter, extending out to nine quarters. We have now had 17% plus leasing spreads. Beyond the very strong supply and demand fundamentals underpinning our business, our strategy, and our focus on operations are driving strong same-store net operating income growth, which is the key to our long-term earnings growth. We reiterated our 2024 FFO guidance of 98 cents to a dollar four this morning and delivered 24 cents core FFO per share for the quarter.
David K. Holeman: Thank you, David. Good morning, and thank you for joining Whitestone's second quarter 2024 earnings conference call. We had another very strong quarter; extending out to nine quarters, we have now had a 17% plus leasing spread. Beyond the very strong supply and demand fundamentals underpinning our business, our strategy and our focus on operations are driving strong same-store net operating income growth, which is the key to our long-term earnings growth. We remain on track with our internal forecast for the year.
Dave Holman: Thank you, David. Good morning, and thank you for joining Whitestone's second quarter 2024 earnings conference call. We had another very strong quarter. Extending out to nine quarters, we have now had 17% plus leasing spreads.
Speaker Change: Beyond the very strong supply and demand fundamentals underpinning our business, our strategy and our focus on operations are driving strong same-store net operating income growth, which is the key to our long-term earnings growth.
Speaker Change: We reiterated our 2024 core FFO guidance of $0.98 to $1.04 this morning and delivered $0.24 core FFO per share for the quarter.
David Holeman: We remain on track with our internal forecasts for the year. In the second quarter, we signed new and renewal leases at a blended 17.5 percent increase over the prior leases on a straight-line basis and a 7.7 percent increase on a cash basis. We grew our top line revenue over 3.3 percent, producing 6.6 percent growth in same-store NLI and achieving core FFO per share of 24 cents. We continued to strengthen our balance sheet with debt to EBITDA RE at eight times, excluding the proxy contest fees in the quarter. Our debt to EBITDA RE ratio with 7.5 times and improvement of 0.8 times from a year ago.
Speaker Change: We remain on track with our internal forecast for the year.
Speaker Change: In the second quarter, we signed new and renewal leases at a blended 17.5% increase over the prior leases on a straight line basis and a 7.7% increase on a cash basis.
David K. Holeman: We grew our top-line revenue by over 3.3%, producing 6.6% growth in same-store NOI, and achieving core FFO per share of $0.24. And we continued to strengthen our balance sheet with debt to EBITDA RE at 8 times. Excluding the proxy contest fees in the quarter, our debt to EBITDA RE ratio was 7.5 times, an improvement of 0.8 times from a year ago.
Speaker Change: We grew our top-line revenue over 3.3 percent, producing 6.6 percent growth in same-store NOI and achieving core FFO per share of 24 cents, and we continued to strengthen our balance sheet with debt to EBITDA RE at eight times.
Speaker Change: Excluding the proxy contest fees in the quarter, our debt to EBITDA RE ratio was 7.5 times, an improvement of 0.8 times from a year ago.
David Holeman: Our occupancy was 93.5% at the end of the quarter, up 20 basis points from a year ago, and our net effective annual base rent per square foot was $24, up 5.4% from 2023.
David Holeman: We recently took a harder look at some of our key differentiators in terms of our ability to drive growth, and I wanted to share some of those with you this morning. These key differentiators are captured on Slide 3. Strategically, these key differentiators allow us to focus our acquisition efforts where we can drive results quickly once we take possession of a property. We assess demand growth drivers in the neighborhood anchoring the property, and determine if our team will be able to improve the alignment of tenants with the surrounding demand. Our leasing team strength is placing high-growth tenants in centers with 1,500 to 3,000 square foot spaces.
David K. Holeman: We recently took a harder look at some of our key differentiators in terms of our ability to drive growth, and I wanted to share some of those with you this morning. We have long believed that neighborhood and community centers correctly configured with the right mix of 1,500 to 3,000 square foot spaces will outperform larger box centers. Turning to slide 5, you'll see this outperformance is even more impressive given the amount of capital we're required to drive these results.
Speaker Change: These key differentiators are captured on slide 3.
Speaker Change: Strategically, these key differentiators allow us to focus our acquisition efforts where we can drive results quickly once we take possession of a property.
Speaker Change: Our leasing team's strength is placing high-growth tenants in centers with 1,500 to 3,000 square foot spaces.
David Holeman: We have long believed that neighborhood and community centers correctly configured with the right mix of 1,500 to 3,000 square foot spaces will outperform larger box centers. This belief is being proven by both national data and by Whitestone's numbers, as you can see on our slide number 4. According to a recent Marcus and Millichap report, neighborhood and community centers grew year-over-year asking rents at 4.6% versus 0.1% for power centers. It is no surprise that our higher mix of neighborhood and community centers have allowed us to outperform the peer groups, same store net operating income growth, averaging 65 basis points over the last years of outperformance versus the group.
Speaker Change: This belief is being proven by both national data and by Whitestone's numbers, as you can see on our slide number four.
David Holeman: Turning to slide 5, you'll see this outperformance is even more impressive given the amount of capital we're required to drive these results. Because we acquire correctly configured centers, our redevelopment capital is generally not spent on reconfiguring a center but rather on areas that drive income.
David K. Holeman: Because we acquire correctly configured centers, our redevelopment capital is generally not spent on reconfiguring a center but rather on areas that drive income. Another key differentiator in terms of driving results is our tenant base. Once again, you need a long-term operational mindset, plus a really strong leasing team, in order to build up that tenant base as a key differentiator. I'd also like to thank Amy Fang for stepping up as our new independent chairperson and for Julia Boothman taking the chair of our Nominating and Governance Committee and leading our board member search effort.
Speaker Change: Because we acquire correctly configured centers, our redevelopment capital is generally not spent on reconfiguring a center, but rather on areas that drive income.
David Holeman: Another key differentiator in terms of driving results is our tenant base. We have over 1,400 tenants that are selected by a leasing team trained to find tenants capable of growing, driving traffic, and allowing us to push our same store net operating income higher. Once again, you need a long-term operational mindset plus a really strong leasing team in order to build up that tenant base as a key differentiator. It is because of these differentiators that we believe we should trade at a more attractive cap rate than most of our peers in the retail sector. We are pleased with the progress we have made in terms of market valuation, and we believe there is more runway ahead for us as we continue to drive results via these key differentiators.
Speaker Change: Another key differentiator in terms of driving results is our tenant base.
Speaker Change: We have over 1,400 tenants that are selected by a leasing team trained to find tenants capable of growing, driving traffic, and allowing us to push our same-store net operating income higher.
Speaker Change: Once again, you need a long-term operational mindset, plus a really strong leasing team in order to build up that tenant base as a key differentiator.
David Holeman: The differentiators became more and more apparent as we consistently drive results, and our success is built on a solid strategy and the ability of our leasing, property management, and acquisition teams to execute.
David Holeman: On the governance front, we continue to make improvements as we recently announced our intent to strengthen and refresh our board of trustees by adding two new experienced and independent board members who will replace David Taylor and Nandita Berry upon appointment to our board. We will share more with investors as we move through this process, and I'm very thankful to David and Nandita for their efforts in leading the company's leadership changes in early 2022, for their ongoing commitment to do the right thing for shareholders, and for their strong support of our board refreshment initiative. They've served investors well for the last seven years, and we are a much better company as a result of their efforts.
Speaker Change: On the governance front, we continue to make improvements, as we recently announced our intent to strengthen and refresh our Board of Trustees by adding two new experienced and independent Board members who will replace David Taylor and Nandita Berry upon appointment to our Board.
David Holeman: I'd also like to thank Amy Fang for stepping up as our new independent chair and for Julia Boothman assuming the chair of our Nominating and Governance Committee and leading our board members' search efforts. Both Amy and Julia have a strong commitment to grow shareholder value and bring a wealth of valuable experience to our team.
Speaker Change: I'd also like to thank Amy Fang for stepping up as our new independent chair and for Julia Boothman assuming the chair of our Nominating and Governance Committee and leading our board member search efforts.
David Holeman: We look forward to attending the Bank of America conference in September, and for those of you attending the conference, we hope you'll find time to meet with Whitestone there.
Speaker Change: We look forward to attending the Bank of America conference in September , and for those of you attending the conference, we hope you'll find time to meet with Whitestone there. And with that, I'll turn the call over to Christine.
Christine Mastandrea: And with that, I'll turn the call over to Christine. Good morning everyone. As Dave mentioned, we remain confident in terms of achieving our 2024 objectives and our interact with our internal monthly and quarterly goals. Occupancy remains high at 93.5%, of 20 basis points from a year ago. Anchor occupancy was 97% and smaller space occupancy was 91.4%. We achieved renewal leasing spreads of 13.9% and new leasing spreads of 33.3% for a combined overall positive leasing spread of 17.5% in the quarter. Our drive to re-merchandize continues unabated and it's one of the primary reasons behind our delivering 6.6% same-store NOI this quarter.
Unnamed Speaker: Good morning, everyone. As Dave mentioned, we remain confident in terms of achieving our 2024 objectives and are on track with our internal monthly and quarterly goals. Occupancy remains high at 93.5%, up 20 basis points from a year ago. Our drive to re-merchandise continues unabated, and it's one of the primary reasons behind our delivering 6.6% same-store NOI this quarter. Rather than viewing our record occupancy percentage as simply an indication of the general strength of the business, we view it as an imperative to continue re-merchandising.
Christine: Good morning everyone. As Dave mentioned, we remain confident in terms of achieving our 2024 objectives and are in track with our internal monthly and quarterly goals.
Christine: Occupancy remains high at 93.5% up 20 basis points from a year ago. Anchor occupancy was 97% and smaller space occupancy was 91.4%.
Christine: We achieved renewal leasing spreads of 13.9% and new leasing spreads of 33.3% for a combined overall positive leasing spread of 17.5% in the quarter.
Christine Mastandrea: Rather than viewing our record occupancy percentage of simply an indication of the general strength of the business, we view it as an imperative to continue re-merchandizing. We are continually advancing our quality of revenue initiative, replacing tenants that are tracking increased demand from the newer, younger demographic and properly serving the neighborhood. The leasing team is continually challenged to understand existing and prospective tenants' business plans to the focus on understanding how business makes money and how they plan to capture demand growth from the surrounding neighborhood. This re-merchandizing effort extends well beyond larger re-merchandizing that we talked about in the past, such as EOS replacing the aging grocery store in the neighborhood for the pickler replacing the Bed Bath and Beyond.
Unnamed Speaker: We are continually advancing our Quality of Revenue Initiative, replacing tenants that aren't tracking increased demand from the newer, younger demographic and properly serving the neighborhood. The leasing team is continually challenged to understand existing and prospective tenants' business plans with a focus on understanding how businesses make money and how they plan to capture demand growth in the surrounding neighborhood. This re-merchandising effort extends well beyond larger re-merchandising efforts that we've talked about in the past, such as EOS replacing the aging grocery store in the neighborhood or Pickler replacing the bed, bath, and beyond. The younger demographic is spending far more on their pets, and we've matched that offering with City Vet at Quinlan Crossing in Austin, Central Bark at Paradise Plaza, and Canine Creed both in Arizona.
Speaker Change: We are continually advancing our quality of revenue initiative, replacing tenants that aren't tracking increased demand from the newer, younger demographic and properly serving the neighborhood.
Christine: This re-merchandising effort extends well beyond larger re-merchandising that we talked about in the past, such as EOS replacing the aging grocery store in the neighborhood, or the Pickler replacing the bed, bath, and beyond.
Christine Mastandrea: The younger demographic is spending far more on their pets, and we've matched that offering with CityVatic Quinlan Crossing and Austin Central Park at Perez Plaza and Canine Creed, both in Arizona. As part of our local franchise, Canine Creed was named the Small Business of the Year by the local Chamber of Commerce, opening their second location at the Promenade at Fulton. We celebrate our local entrepreneurs and welcome the opportunity to participate in their success. We're also seeing the younger generation spend significantly more on self-care and well-being, massage, yoga, beauty, products, blotties, and more. One of the reasons these businesses are often well tied in the local demand is that they have a millennial or a Gen Z operator operating their third, fourth, or fifth franchise and bringing in more sophisticated marketing techniques and the ability to meet demand with lower capital outlays.
Christine: The younger demographic is spending far more on their pets, and we've matched that offering with City Vet at Quinlan Crossing in Austin, Central Bark at Paradise Plaza, and Canine Creed both in Arizona.
Speaker Change: As part of our local franchises, Canine Creed was named the Small Business of the Year by the local Chamber of Commerce, opening their second location at the Promenade at Fulton. We celebrate our local entrepreneurs and welcome the opportunity to participate in their success.
Christine Mastandrea: We've recently brought in the Now Massage at Lakeside Market and Dallas, a perfect example of this. They've done a fantastic job creating a natural Zen environment for their customers, but importantly, they've reduced their cost, and in order to do so, divide the space differently than used to be done in the past by using curtains rather than walls. They're often more of an example of newer operators with strong, long-term business plans that know how to develop and use their capital appropriately to make money. Week in and week out, we are constantly having our leasing team sharing their successes with one another.
Speaker Change: We've recently brought in the Now Massage at Lakeside Market in Dallas, a perfect example of this. They've done a fantastic job creating a natural zen environment for their customers, but importantly,
David K. Holeman: They've done a fantastic job creating a natural zen environment for their customers. But importantly, Week in and week out, we are constantly having our leasing team share their successes with one another. This is leveraging each other's talents and experiences, not confined to how the team finds new prospects. They share their experience and technology and tools they utilize to assess neighborhood demand and how they evaluate businesses and lessons learned from other centers that are evolving. Over the last few years, we've seen a number of competitors brand themselves with a grocery anchor or sunbelt sticker.
Speaker Change: They've reduced their cost and, in order to do so, divide the space differently than used to be done in the past by using curtains rather than walls. They are often more of an example of newer operators with strong, long-term business plans that know how to develop and use their capital appropriately to make money.
Speaker Change: Week in and week out, we are constantly having our leasing teams sharing their successes with one another.
Christine Mastandrea: This is leveraging each other's talents and experiences, not confined to how the team finds new prospects. They share their experience and technology and tools they utilize to ask us neighborhood demand and how they evaluate businesses and lessons learned from other centers that are evolving. Over the last few years, we've seen a number of competitors brand themselves with a grocery incurters Sunbelt sticker. We believe it's critical for investors to understand that the growth model we've built requires far more than shifting an acquisition strategy to draw investors' attention. The centers we've acquired are well positioned to capture neighborhood demands, and they're configured correctly to attract high-growth service-oriented businesses.
Speaker Change: They share their experience and technology and tools they utilize to assess neighborhood demand and how they evaluate businesses and lessons learned from other centers that are evolving.
David K. Holeman: We believe it's critical for investors to understand that the growth model we build requires far more than shifting an acquisition strategy to attract investors' attention. The centers we've acquired are well-positioned to capture neighborhood demands, and they're configured correctly to attract high-growth, service-oriented businesses. However, leasing team expertise is the reason we're able to properly curate centers, and it's critical to understand how interdependent our differentiators are and how that allows us to deliver consistent results.
Speaker Change: Over the last few years, we've seen a number of competitors brand themselves with a grocery anchored or sunbelt sticker. We believe it's critical for investors to understand that the growth model we build requires far more than shifting an acquisition strategy to draw investors' attention.
Speaker Change: The centers we've acquired are well positioned to capture neighborhood demands and they're configured correctly to attract high-growth, service-oriented businesses.
Christine Mastandrea: However, leasing team expertise is the reason we're able to properly curate centers, and it's critical to understand how interdependent our differentiators are and how that allows us to deliver consistent results. We project demand when we acquire the properties, and we continually maintain a pulse on that demand in order to ensure the center is keeping up with it. This is vital for leasing agents to determine the right tenant and for when to apply redevelopment capital. We also factor in the timing of lease expressions both in our acquisition analysis and in our application of redevelopment capital. Investors may have seen recent news on Kroger's proposed acquisition at Albertsons and stores that may be divested to CNS.
David K. Holeman: I'll also expand on our ability to outperform with less capital. The biggest part of the capital difference is redevelopment capital. Redevelopment capital is often a critical component of driving results. However, the key is to be tuned into neighborhood demand, allowing that demand to drive the actions you take. We project demand when we acquire the properties, and we continually maintain a pulse on that demand in order to ensure the center is keeping up with it. If the merger goes through, we believe CNS will be a strong operator. As always, the key is that these centers are well anchored by surrounding neighborhoods.
Speaker Change: I'll also expand on our ability to outperform with less capital. The biggest part of the capital difference is the redevelopment capital. Redevelopment capital is often a critical component of driving results. However, the key is to be tuned into the neighborhood demand, allowing that demand to drive the actions you take. Visit OxfordLearning.com for more.
Speaker Change: We project demand when we acquire the properties and we continually maintain a pulse on that demand in order to ensure the center is keeping up with it.
Speaker Change: This is vital for leasing agents to determine the right tenant and for when to apply redevelopment capital. We also factor in the timing of lease expirations both in our acquisition analysis and in our application of redevelopment capital.
Christine Mastandrea: We have three safely stores on the list: Market Street, Pentecost, Scottsdale, and Anthem Marketplace in our Phoenix market. Plus, another two shadow-anchored centers, Arcadia Town Center and Fountain Square, also in our Phoenix market. These are well performing stores with an average grocery sales of approximately 500 per square foot and a three mile household income of approximately 124,000. If the merger goes through, we believe CNS will be a strong operator. As always, the key is that these centers are well anchored by surrounding neighborhoods. We'll keep investors updated as we learn more. If we look back over the last 10 years, the strongest quarters in terms of total lease value sign were the fourth quarters of 2021, 2022, and 2023.
Speaker Change: We have three Safeway stores on the list, Market Street, Pinnacle of Scottsdale, and Anthem Marketplace in our Phoenix market. Plus another two shadow anchored centers, Arcadia Town Center and Fountain Square also in our Phoenix market.
Speaker Change: If the merger goes through, we believe CNS will be a strong operator. As always, the key is that these centers are well anchored by surrounding neighborhoods. We'll keep investors updated as we learn more.
David K. Holeman: We'll keep investors updated as we learn more. If we look back over the last 10 years, the strongest quarters in terms of total lease value signed were the fourth quarters of 2021, 2022, and 2023. The most recent quarter was the next highest on the list, with nearly $37 million in lease value. While this is impressive and certainly a sign that we're on the right track, my biggest reason for wanting to thank the leasing team and the operations team for delivering space to tenants is their ability to learn from one another and continually sweat out the details necessary to ensure the long-term success of this business. Thank you.
Christine Mastandrea: The most recent quarter was the next highest on the list, with nearly $37 million signed in lease value.
Christine Mastandrea: While this is impressive, and certainly a sign that we're on the right track, my biggest reason for wanting to thank the leasing team and the operations team for delivery space to Tennis is their ability to learn from one another and continually sweat out the details necessary to ensure the long-term success of this business. We've got a busy second half ahead, but we also have the right environment and the right team to deliver. It's my thanks to that team that we've been able to deliver so far.
Speaker Change: While this is impressive and certainly a sign that we're on the right track, my biggest reason for wanting to thank the leasing team and the operations team for delivering space to tennis is their ability to learn from one another and continually sweat out the details necessary to ensure the long-term success of this business.
Speaker Change: We've got a busy second half ahead, but we also have the right environment and the right team to deliver. It's my thanks to that team that we've been able to deliver thus far.
Scott Hogan: Thank you, Christine, and good morning. We were pleased to deliver 24 cents of core FFO for the quarter. As Dave and Christine discussed, this was a very strong quarter led by strong leasing efforts.
Speaker Change: Thank you for joining us. We'll see you next time.
Speaker Change: Thank you, Christine, and good morning. We were pleased to deliver 24 cents of Core FFO for the quarter.
Speaker Change: As Dave and Christine discussed, this was a very strong quarter led by strong leasing efforts.
Scott Hogan: A original and our current forecast anticipates that we will increase FFO in the second half of the year, especially the fourth quarter with GNA reductions, percent of sales clauses kicking in more heavily in the fourth quarter and leasing delivering a fourth quarter similar to the last three years. Pursuant with our delivering same store in a wide growth of 6.6 percent this quarter, we raised the full year same store in a wide guidance range to between 3 percent and 4.5 percent, raising it a half percent both on the bottom and the top end of the range.
Unnamed Speaker: Our original and our current forecast anticipates that we will increase FFO in the second half of the year, especially the fourth quarter, with G&A reductions. Pursuant to our delivering same-store NOI growth of 6.6% this quarter, we raised the full-year same-store NOI guidance range to between 3% and 4.5%, raising it 0.5% both on the bottom and the top end of the range. In essence, this was laddering out our secured debt we have coming due in the second half of this year.
Speaker Change: Our original and our current forecast anticipates that we will increase FFO in the second half of the year, especially the fourth quarter, with GNA reductions.
Speaker Change: Percent of sales clauses kicking in more heavily in the fourth quarter and leasing delivering a fourth quarter similar to the last three years.
Speaker Change: We raised the full-year same-store NOI guidance range to between 3% and 4.5%, raising it 0.5% both on the bottom and the top end of the range.
Scott Hogan: On the debt side, we financed 56 million dollars of 6.2 percent secured debt maturing in 2031. In essence, this was latering out our secured debt we have coming due in the second half of this year. We will keep an eye on latering out a bit more of our revolver debt. Currently, we have 13% of our debt on variable rates, and the revolver matures in 2026, not including two six-month extension options.
Unnamed Speaker: We will keep an eye on laddering out a bit more of our revolver dead. Looking at our core FFO walk on slide 11, we reiterated guidance and updated the forecast in terms of how we get there. Non-same store NOI growth increased, and in conjunction, interest expense also increased. The timing will impact these two contributors, but to the extent one increases, we should see the other approximately balance it out. With that, we will keep our comments brief today, and I will open the line for questions.
Speaker Change: Currently we have 13% of our debt on variable rates.
Scott Hogan: Looking at our core FFO walk on slide 11, we reiterated guidance and updated the forecast in terms of how we get there. Non-same store and OI growth increased, and in conjunction, interest expense also increased. We intend to continue balancing out our acquisitions and dispositions, and the timing will impact these two contributors, but to the extent one increases, we should see the other approximately balance it out.
Speaker Change: Looking at our core FFO walk on slide 11, we reiterated guidance and updated the forecast in terms of how we get there.
Speaker Change: We intend to continue balancing out our acquisitions and dispositions.
Speaker Change: And the timing will impact these two contributors, but to the extent one increases, we should see the other approximately balance it out.
Scott Hogan: Our goal is to make sure that our underlying growth engine becomes more and more visible to investors. We will do this both by eliminating noise and by continuing to drive the drive same store and OI growth in order to deliver bottom line growth.
Speaker Change: Our goal is to make sure that our underlying growth engine becomes more and more visible to investors.
Speaker Change: We will do this both by eliminating noise and by continuing to drive same-store NOI growth in order to deliver bottom-line growth.
Scott Hogan: With that, we will keep our comments brief today, and I will open the line for questions.
Operator: Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions.
Operator: Ladies and gentlemen, we will now be conducting a question and answer session. Please wait for a moment while we poll for questions.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Ladies and gentlemen, we will wait for a moment while we poll for questions.
Anthony Hau: Our first question is from the line of Anthony Howe with two of his securities. Please go ahead. Good morning, guys. Thanks for taking my questions. So in the rental trend chart on page seven in the presentation, rent growth for San Antonio and often moderated sharply. And then you see an uptick for Dallas, right? So just curious. What are you guys seeing on the ground today for those markets?
Speaker Change: Our first question is from the line of Anthony Hau with Truist Securities. Please go ahead.
Anthony Hau: Good morning, guys. Thanks for taking my questions. So, in the rental trend chart on page 7 in the presentation, rent growth for San Antonio and Austin moderated sharply, and then you see an uptick in Fort Dallas, right? So just curious, what are you guys seeing on the ground today for those markets?
Anthony Hau: Good morning, guys. Thanks for taking my questions.
Anthony Howe: So, in the rental trend chart on page 7 in the presentation, rent growth for San Antonio and Austin moderated sharply, and then you see an uptick in Fort Dallas, right? So, just curious, what are you guys seeing on the ground today for those markets?
David K. Holeman: We're seeing strength in all of our markets Anthony, it's just a matter of what leases are turning when and the size of the space, so I don't I don't see a real shift in a negative way. In fact, I'm seeing it still continuing on track with where our expectations are. And quite frankly, the difficulty is some of our markets are getting to, you know, full occupancy. So that's why we continue to work on our re-merchandising efforts.
David Holeman: We're seeing strengths in all of our market's. Anthony still is just a matter of what leases are turning men in the size space. So I don't see a real shift in a negative way. In fact, I'm seeing it's still continuing on track with where our expectations are. And that's across all markets.
David Holeman: And quite frankly, the difficulty of some of our markets is getting to full occupancy. So that's why we continue to work our re-merchandizing efforts to strengthen the base of the growth. Josh, yeah.
Speaker Change: to strengthen the base of the growth.
David Holeman: And then, you know, you're hearing news that I know a lot of some restaurant owners are, you know, like McDonald's, are struggling a little bit. Are there any like no restaurant tenants that's on your watch list right now? Not under watch list right now. What we're finding, and I think this has been talked about quite a bit, is that fast food is starting to meet the same pricing as fast casual. And so people are opting for a choice of sitting down and having a good meal versus, you know, what would be something that would be less desirable, like eating a hamburger in the car.
Speaker Change: Gotcha. And then, you know, you're hearing news that, you know, some restaurant owners or, you know, like McDonald's are struggling a little bit. Are there any, like, you know, restaurant tenants that's on your watch list right now?
Unnamed Speaker: Are there any, like, no, um, restaurant tenants that are on your watch list right now?
Unnamed Speaker: Not on our watch list right now. What we're finding, and this has been talked about quite a bit, is that fast food is starting to cost the same as fast-casual. And so people are opting for a choice of sitting down and having a good meal versus, you know, what would be something that would be less desirable like eating a hamburger in the car.
Speaker Change: Not on our watch list right now. What we're finding, and I think this has been talked about quite a bit, is that
Speaker Change: Fast food is starting to meet the same pricing as fast casual, and so people are opting for a choice of sitting down and having a good meal versus, you know, what would be something that would be less desirable, like eating a hamburger in the car.
David Holeman: Thank you, guys.
Mitch Jermaine: Thank you. Our next question is from the line of Mitch Jermaine with Citizens' JMP Securities. Please go ahead. Thanks for seeing my question. So it appears based on your sense of guidance, you're kind of looking at a little bit of an acceleration in the back corner of the year, just to talk about what the expectation is there. What?
Operator: Our next question is from the line of Mitch Germain with Citizens JMP Securities. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Mitch Germain with Citizens JMP Securities. Please go ahead.
Mitch Germain: It appears, based on your signature guidance, you know, you're kind of looking at a little bit of a deceleration in the back part of the year.
Mitchell Bradley Germain: Let's talk about, you know, kind of what the expectation is there.
Scott Hogan: Hey, Mitch. Thanks for the question, this Scott. We're still looking at sequential, same-store growth, but I think that if you were to look at the first half of the year, same-store growth and compared that to the second half of the year, you know, compared to 2023, the second half will be a little bit lower than the first half of the year was. You may recall in the second half last year we had a quarter that was a little bit lower, so that's one of the reasons why we, one reason why the second quarter this year was a little higher.
Mitch Germain: What?
Scott: Hey Mitch, thanks for the question. This is Scott. We're still looking at sequential, same store growth, but I think that if you were to look at the first half of the year, same store growth, and compare that to the second half of the year, you know,
David K. Holeman: Hey Mitch, it's Dave. As you saw, we did increase our same store guidance for the year. So to Scott's point, I think we're very pleased with the performance. A bit above our original guidance, we moved it up on the bottom and top end, and I think we are pleased with the performance of the portfolio.
David Holeman: Yeah, hey, hey, Mitch, it's Dave. And as you saw, we did, you know, we did increase our same-store guidance for the year, so we're at the Scott's point. I think we're very pleased with the performance, a bit above our original guidance. We moved it up on the bottom and top end, and I think pleased with the performance of the portfolio. Gotcha.
Mitch Germain: Yeah, hey Matt, it's Dave.
Mitch Jermaine: You didn't provide an update on Pillar Stone. I know a lot of what's happening there is a little bit out of your control. I know some of this is, you know, contemplated in your guidance right now.
Mitchell Bradley Germain: You did provide an update on Pillarstone. I know a lot of what's happening there is a little bit out of your control. I know some of this is, you know, contemplated in your guidance right now. You know, anything of note happening there?
David Holeman: You know, anything of note happening there? Hey, Mitch, Dave again. A lot happening. I think we mentioned we're really in the collection phase for our redemption. Working our way through that, and expecting proceeds, you know, as we go through that process, you know, I think we communicated earlier on. We had about 13 million of expected proceeds in our guidance this year, and that kind of, no change to that. And we're working to collect those funds through a disciplined, organized process. Or assets from the pillar stone entity for sale. They are, as part of the BK, obviously, we're working through a plan of reorganization.
David K. Holeman: Hey Mitch, Dave again. A lot going on. I think we mentioned we're really in the collection phase for our redemption. Working our way through that, and expecting proceeds as we go through that process. I think we communicated earlier on that we had about $13 million of expected proceeds in our guidance this year. No change to that, and we're working to collect those funds through a disciplined, organized process.
Dave Holman: Hey Mitch, Dave again.
Speaker Change: A lot happening. I think we mentioned we're really in the collection phase for our redemption.
Dave Holman: You know, I think we communicated earlier on we had about $13 million of expected proceeds in our guidance this year, and that kind of, no change to that, and we're working to collect those funds through a disciplined, organized process.
Speaker Change: Are assets from the Pillowstone entity for sale?
Unnamed Speaker: They are. As part of the BK, obviously, we're working through a plan of reorganization. Right now, we understand they have about 40 million in contracts in place for three of the assets, and we're obviously working to get all of the assets, all or some of the assets liquidated in order to meet Whitestone's redemption.
David Holeman: Right now, we understand they have about 40 million of contracts in place for three of the assets, and we're obviously working to get all the assets, all or some of the assets liquidated in order to meet White Stone's redemption.
Speaker Change: Right now, we understand they have about 40 million of contracts in place for three of the assets.
Dave Holman: We're obviously working to get all of the assets.
Mitch Jermaine: That's you. And then, last for me, Christian, you know, fourth quarter last year, obviously, at a pretty meaningful increase in accuracy, quarter of a quarter from 3Q. You're starting out a little bit of a higher point this year. But, obviously, your comments reference the fact that, you know, the back quarter of the year is the more seasonally active.
Dave Holman: That's right. And then last for me, Christina, you know, fourth quarter last year, obviously, you had a pretty meaningful increase in occupancy, quarter of a quarter from
Unnamed Speaker: In the fourth quarter last year, obviously, you had a pretty meaningful increase in occupancy. Well...
Christina: comments reference the fact that you know the back part of the year are the more seasonally active so you know where do you think
Christine Mastandrea: So, you know, where do you think, you know, where do you think is a comfortable occupancy level for this portfolio to start to kind of perform a little bit more consistently? Well, I mean, like I said, I mean, there's an active re-emergentizing effort because I think there is a profitability that can be achieved with that. But we're still looking at 93.8 to 94.8, but I'm quite confident that we can get this portfolio in a good place at the end of the year.
Unnamed Speaker: Well, I mean, like I said, there's an active re-merchandising effort because I think there's profitability that can be achieved with that, but we're still looking at 93.8 to 94.8. But I'm quite confident that we can get this portfolio in a good place at the end of the year.
Christina: Well, I mean I, like I said, I mean there's an active re-merchandising effort because I think there is a profitability that can be achieved with that, but we're still looking at 93.8 to 94.8, but I
Dave Holman: I'm quite confident that we can get this portfolio in a good place at the end of the year.
Speaker Change: Thank you.
Gaurav Mehta: Our next question is from the line of Gaurav Mehta with Alliance Global Partners. Please go ahead. Thank you. Good morning. I wanted to ask you on your GNA guidance for the second half of 24. Does your guidance include any non-lettering items within the GNA? No, they said that so in the first half of the year we had proxy defense costs of around a million eight, and that's the majority of the increase in GNA. In the second half, we expect to be a little bit more normal. Some of the legal fees were front-loaded into the first half of the year, associated with a bankruptcy and other legal matters.
Speaker Change: Thank you. Our next question is from the line of Gaurav Mehta with Alliance Global Partners. Please go ahead.
Gaurav Mehta: Does your guidance include any non-lettering items within the GNA?
Unnamed Speaker: No, so in the first half of the year, we had proxy defense costs of around $1.8 million, and that's the majority of...
Speaker Change: No, so in the first half of the year we had proxy defense costs of around $1.8 million and that's the majority of...
Gaurav Mehta: The increase in GNA in the second half we expect to be a little bit more normal. Some of the legal fees were front-loaded into the first half of the year associated with the bankruptcy and other legal matters. So we do expect a more normalized GNA in the second half of the year.
Scott Hogan: So we do expect a more normalized GNA in the second half of the year. Okay, thank you. The second question I had was on the real estate property taxes, which were lower in the second quarter. How should we expect about real estate property taxes for the second half of 24? So, in the state of taxes, there's a long process to dispute and litigate property taxes, and you often get tax refunds. You don't know when you'll get those. So we had a few more tax refunds in the second quarter than we normally would. So I would expect property taxes to normalize and be closer where we were in the first quarter for the second half of the year.
Gaurav Mehta: So in the state of Texas, there's a long process to dispute and litigate property taxes, and you often get tax refunds. You don't know when you'll get those.
Gaurav Mehta: And the reason the second quarter is so much lower is we just we've had a number of favorable settlements on properties in Texas. Okay, and then maybe lastly on the transaction, I think on the last call you talked about maybe selling 25 million dollars of property in the second quarter. Was there any update on those expected decisions?
David Holeman: Hey Garb, it's Dave. Yeah, our recycling efforts are on track. I think in the second quarter we closed on a couple acquisitions, and I think we closed on one disposition right before the second quarter. We do have a you know couple assets still on the in the pipeline and to close in the balance of the year. I think we've done about a hundred million in acquisitions over the last, you know, last couple years and 85 million of dispositions. Our plan is to continue to balance those, so we probably got you know other 20 to 30 million of dispositions coming in the balance of the year.
David K. Holeman: Hey Gaurav, it's Dave.
Gaurav Mehta: Hey Gaurav, it's Dave. Yeah, our recycling efforts are on track, I think in the second quarter.
Speaker Change: We closed on a couple acquisitions and...
Speaker Change: And I think we closed on one disposition right before the second quarter.
Speaker Change: I think we've done...
Gaurav Mehta: And those are going well. We're continuing to be able to to buy assets where we think they're significantly more upside and an initial day one spread as well. Okay, thank you. That's all I had. Thank you.
Speaker Change: And those are going well, we're continuing to...
Gaurav Mehta: to be able to buy assets where we think they're significantly more upside and an initial day one spread as well.
John Massocca: Ladies and gentlemen, if you wish to ask a question, please press star and one. Our next question is from the line of John Massocca with B. Riley Securities. Please go ahead. Good morning. I mean, I decided I missed this earlier in the call, but I am splitting hairs a little bit. The interest expense expectation increased versus kind of prior guidance. What's the driver of that?
Speaker Change: Thank you.
Speaker Change: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and 1.
Speaker Change: Good morning.
Speaker Change: I'm sorry if I missed this earlier in the call, but I am splitting hairs a little bit. But the interest expense expectation increased versus kind of prior guidance?
Scott Hogan: Is it anything to do with disposition timing versus kind of what your expectations were last quarter or with just execution on the mortgage you recently did? Just trying to get a little color on the change in that guidance that look. Now, the majority of the increase in the interest expense guidance is just we ever recycling plan where we, you know, the plan is to be capital neutral. But in the first half of the year and a little bit into the second half of the year, the acquisitions are outpacing the dispositions. And so with that, you, you just have a little bit higher in a lot and a little bit higher interest expense, and so the bottom line impact FFO is going to be virtually, you know, nothing.
Speaker Change: What's the driver of that? Is it anything to do with disposition timing versus kind of what your expectations were last quarter? Or was it just execution on the mortgage you recently did? Just trying to get a little color on the change in that guidance outlook.
Speaker Change: No, the majority of the increase in the interest expense guidance is just, we have a recycling plan where we, you know, the plan is to be capital neutral.
Scott Hogan: And maybe, maybe 20 to 25 million dollars would be the amount that we're ahead on acquisitions versus dispositions for the year. I guess in the, in the original and the guidance last quarter and 1, 2, with the anticipation that there would have been earlier timing on dispositions then. Yes. Yeah, the day of these things.
Speaker Change: The amount, maybe $20 to $25 million would be the amount that we're ahead on acquisitions versus dispositions for the year.
Speaker Change: Just to give you a sense of the...
Scott Hogan: And I guess they what kind of is being assumed from a variable, you know, interest expense perspective, just given all the volatility we're seeing. I don't know when that was determined. It seems like any given week, that can be very different, but it just kind of interested in the timeframe of when you sent that element of the interest expense expectation. Well, we're down to 13% variable interest rate as of the end of the quarter, the second quarter. And we look at the one we take a look at the one month SOFA curve going out through the end of the year.
Speaker Change: Yeah, it's difficult to predict the dates of these things.
Speaker Change: And I guess, what kind of is being assumed from a variable, you know, interest expense perspective, just given all the volatility we're seeing? I don't know when...
Speaker Change: That was determined. It seems like in a given week that can be very different, but just kind of interested in the timeframe of when you set that element of the interest expense expectation.
Scott Hogan: And, you know, to high sixes, low sevens would be the range that we're looking at for the balance of the year, at least in this quarter's forecast. Yeah.
Speaker Change: And, you know, to high sixes, low sevens would be the range that we're looking at for the balance of the year, at least in this quarter's forecast.
John Massocca: And then it's a bit switching gears to kind of operational stuff. You know, there's a lot of talk on calls over the last couple quarters about the impact of higher interest rates on kind of low-income consumers versus high-income consumers. I mean, if you look at your own portfolio to the extent you have exposure to those different kinds of income buckets. Are you seeing any kind of difference in terms of your ability to push rent at properties that are maybe a little closer to lower income consumers for higher income consumers? And does that shape kind of how you're thinking about your capital recycling plan?
Speaker Change: Okay, and switching gears to kind of operational stuff.
Speaker Change: Yeah, there's been a lot of talk on calls over the last couple quarters about the
Speaker Change: I mean, if you look at your own portfolio to the extent you have, you know, exposure to those different kind of income buckets,
Speaker Change: Are you seeing any kind of difference in terms of your ability to push rent at properties that are maybe a little closer to lower income consumers versus higher income consumers? And does that shape kind of how you're thinking about your capital recycling plan?
David Holeman: Good question. I think a couple of things. That's why we've positioned most of our acquisitions and our properties in high HIs. And in those higher incomes where we see those growth opportunities really come from job growth. So we've been very fortunate that we've been able to see the upside of that growth as well with those incomes. Truly, this has been a concern. to see what's happening with the lower income consumers. We don't have a lot of exposure there. Where we do, on some of those properties, they're still not really on the lower end. They're about mid-range.
Speaker Change: we've been able to see the upside of that growth as well with those incomes. Truly this has been, you know, a concerning
Speaker Change: thing to see what's happening with the lower-income consumers. We don't have a lot of exposure there. Where we do on some of those properties, they're still not really on the lower end. They're about mid-range. So again, I haven't seen anything as of yet.
David Holeman: So again, I haven't seen anything as of yet, but that being said, you feel bad for what's happening, right, to these people. And it's very unfortunate. So hopefully things will balance out towards the end of the year for everybody in a good way. But, like I said, we don't have a lot of exposure in that area. That's very minimal.
Speaker Change: But, that being said, you know, I feel bad for what's happening.
Speaker Change: to these people, and it's very unfortunate. So hopefully things will balance out towards the end of the year for everybody in a good way. But like I said, we don't have a lot of exposure in that area. In fact, it's very minimal.
John Massocca: So did you look at the capital recycle? I mean, is the thought process continue to move up that HHJ curve? Hey, John, say, it is. I mean, we've continued. Part of our recycling is just, you know, the biggest part is the ability to add value through the new acquisition. But we have recycled with a little bit higher HHI and also higher ABR. So continuing to focus on where we think the greatest opportunity is. Okay, that's helpful. And that's just me. Thank you very much. Thanks, John. Thank you.
Dave Holman: Hey John , it's Dave. It is. I mean, we've continued. Part of our recycling is just...
Speaker Change: The biggest part is the ability to add value through the new acquisition, but we have recycled with a little bit higher HHIs and also higher ABRs, so continuing to focus on where we think the greatest opportunity is.
David Holeman: As there are no further questions, I would now hand the conference over to Dave Holman, CEO, for his closing comments. Thank you. Thanks everyone for joining us this morning at Whitestone. We're pleased with our progress in the second quarter and really look forward to performing for the balance of the year.
David K. Holeman: Yeah, our recycling efforts are on track. I think in the second quarter, we closed on a couple acquisitions, and I think we closed on one disposition right before the second quarter. We do have a couple assets still in the pipeline to close during the balance of the year. I think we've done about $100 million in acquisitions over the last couple years and $85 million in dispositions. Our plan is to continue to balance those, so we've probably got another $20 million to $30 million of dispositions coming in the balance of the year. Those are going well. We're continuing to be able to buy assets where we think they have significantly more upside and an initial day one spread as well.
Unnamed Speaker: Okay, thank you. That's all I had.
Unnamed Speaker: This is, I mean, I'm sorry if I missed this earlier in the call, but I am splitting hairs a little bit, but the interest expense expectation increased versus kind of prior guidance.
Unnamed Speaker: So did you look at any kind of capital recycling? I mean, is the thought process to continue to move up that HHA curve?
David K. Holeman: Hey John, it's Dave. Yes, it is.
Speaker Change: Thank you. Thanks, everyone, for joining us this morning at Whitestone. We're pleased with our progress in the second quarter and really look forward to performing for the balance of the year. We will be out among investors in the fall and would love to interact with any of you that would like to, so please reach out to us. Have a great day. Thanks.
David K. Holeman: I mean, we've continued. Part of our recycling is just, you know, the biggest part is the ability to add value through the new acquisition, but we have recycled with a little bit higher HHI and also higher, you know, ABR. So, continuing to focus on where we think the greatest opportunity is.
Unnamed Speaker: Okay, that's helpful, and that's it for me. Thank you very much.
David K. Holeman: Thank you. Thank you everyone for joining us this morning at Whitestone. We're pleased with our progress in the second quarter and really look forward to performing for the balance of the year. We will be out among investors in the fall and would love to interact with any of you that would like to, so please reach out to us.
David Holeman: We will be out among investors in the fall and would love to interact with any of you that would like to, so please reach out to us.
Operator: Have a great day. Thanks. Thank you. The conference of Whitestone REIT has now concluded. Thank you for your participation. You may now disconnect your lines.
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Operator: I have a great day.
Operator: Thanks, Dave. Thank you.
Operator: The Conference of Whitestone Reap has now concluded. Thank you for your participation. You may now disconnect your lines. Thank you.
Speaker Change: Thank you. The conference of Whitestone REIT has now concluded. Thank you for your participation. You may now disconnect your lines.
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