Q4 2024 Whitestone REIT Earnings Call
Greetings and welcome to the Whitestone REIT fourth 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.
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Speaker Change: As a reminder, this conference is being recorded it is now my pleasure to introduce David Moore Director of Investor Relations. Thank you. Sir you May proceed good morning, and thank you for joining Whitestone REIT fourth quarter 2024 earnings Conference call. Joining me on today's call are Dave Holeman, Chief Executive Officer, Christine Mastandrea.
Speaker Change: Chief operating officer, and Scott Hogan Chief Financial Officer.
Please note that some statements made during this call are not historical maybe 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.
Speaker Change: 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.
Speaker Change: Knowledge and the fact that the call may be webcast for a period of time. It's also important to note that this call include time sensitive information that maybe accurate only as of today's date March four 2025.
Speaker Change: Company undertakes no obligation to update this information Whitestone fourth quarter earnings news release, and supplemental operating and financial data package have been filed with the SEC and are available on our website in the Investor Relations section, we published fourth quarter 2024 slides on our website yesterday afternoon, which highlight topics to be discussed today.
Speaker Change: I will now turn the call over to Dave Holeman, Our Chief Executive Officer.
Speaker Change: Thank you David Good morning, and thank you for joining Whitestone <unk> fourth quarter 2024 earnings conference call.
Speaker Change: Yesterday, we released results wrapping up a very strong year in terms of earnings growth and we're going to spend a lot of time. This morning, helping investors understand what enabled us to achieve those results and more importantly, what the blocks of our future growth are they provide us confidence in terms of our trajectory.
Speaker Change: <unk>.
Speaker Change: Let's start with who we are we.
Speaker Change: We lead the peer group and concentration of high value high return shop space, 77% of our ABR that fact is a critical element in our overall strategy, allowing us to capitalize on change and deliver consistent earnings growth for investors.
Speaker Change: I'll start off with what we've delivered over the past three years, then cover what we plan to deliver in the years ahead and the how in terms of our delivering peer leading earnings growth.
Speaker Change: Over the past three years, we have delivered compound annual growth for our core F. F O per share of five 5%.
Speaker Change: In any environment. We believe this is a strong achievement. However, the particulars we overcame our important over.
Speaker Change: Over the past three years interest rates as represented by the 30 day sulfur curb increased 380 basis points, causing a double digit drag on earnings. In addition, we improved our average represented by a $9 two times debt to EBITDA Ari in Q4 'twenty one.
Speaker Change: 266 times for Q4 of 2024.
Speaker Change: So we simultaneously grew earnings while reducing leverage.
Speaker Change: The earnings growth also does not fully reveal the degree to which we have strengthened our portfolio both organically and inorganically.
Speaker Change: The Companys quality of revenue initiative is largely driving the organic growth and one evidence metric is our bad debt as a percent of revenue improving from one 2% in 2019.
Speaker Change: 8% in 2024.
Speaker Change: The key component of our inorganic growth has been our recycling program and our tap score increasing four points over the last year and a half is a great measure to focus on there.
Speaker Change: Today, we are encouraging investors to focus not so much on turnaround elements, which we've talked about on our past calls, but rather on the strategic drivers that fueled our success and that set us up for continued outperformance.
Speaker Change: Over the next five years, we believe we can deliver consistent organic core <unk> growth of 4% to 6% driven by 3% to 5% same store net operating income growth.
Speaker Change: Beyond organic organic growth, we are targeting adding a 100 basis points of core <unk> growth uplift from acquisitions.
Speaker Change: And yet you all to the delivering the earnings growth benefit for investors or the benefits of scaling the model lowering our fixed cost percentage and broadening our investor base.
Speaker Change: However, I phase this in terms of per share earnings growth. We are growing over the last three years in a disciplined fashion and we will continue to grow in a disciplined fashion delivering per share earnings growth.
Speaker Change: Our same store NOI growth at three basic components.
Speaker Change: One contractual escalators to the spreads that we achieve on new and renewal leases and three the returns on readout redevelopment capital that we spend.
Speaker Change: While the majority of the recent contracts for shop space have annual escalators in the 3% to 4% range older and larger contracts, bringing our blended rate to two 3%.
Speaker Change: This is broken down to just under 3% for our shop spaces, and just under 2% for a greater than 10000 square foot spaces.
Speaker Change: So this is the base for our same store NOI growth, adding onto this we looked at our new and renewal leases in terms of what we have achieved over the last three years.
Speaker Change: If we conservatively take 50% to 100% of what we have achieved in terms of cash leasing spreads over the last three years and multiply that times, what we've got coming up over the next five years will add <unk> eight to one 8% same store NOI growth per year.
Speaker Change: This is on top of the $2 three contractual escalators.
Speaker Change: And looking at the fundamentals in our markets. We believe this is a very solid assumption we.
Speaker Change: We have chosen to be 100% in business friendly states that are benefiting tremendously from population growth and new business starts and job growth as manufacturing as resort is re shoring.
Speaker Change: This is combined with the fact that there is a growing supply demand imbalance.
Speaker Change: As new neighborhood retail centers have generally not been built in over a decade.
Speaker Change: And high construction costs are indicating this trend will continue.
Speaker Change: Phoenix is leading on this front contracts coming out haven't even caught up with market increases that have occurred over the last three years, but this phenomenon is true in all of our markets.
Speaker Change: The third block of same store NOI growth is redevelopment, we anticipate we'll be able to add up to 100 basis points with a slightly higher redevelopment spend we have already begun the increased capital spend on redevelopment, which will lift same store net operating income growth into the upper portion of the range starting in 2000.
Speaker Change: 26.
Speaker Change: I'll have kristine dive into Redeveloped mall redevelopment more heavily in terms of our plans there.
Speaker Change: Shifting from organic growth inorganic growth, we continue to see plenty of opportunities in terms of accretive acquisitions of centers.
Our seven acquisitions since 2022.
Speaker Change: <unk> Arcadia, Darden Noakes, Scottsdale Commons to non owned multi tenant pads that Dana Park and a non owned pad site at our Anderson Arbor property have all been accretive and continues to provide upside in terms of leasing rights and redevelopment and development potential.
Speaker Change: We can be very selective selective in terms of our acquisitions, we've done approximately $125 million and acquisitions over the last 26 months.
Speaker Change: <unk> forward, we will continue to use a disciplined mix of cash flow from operations property dispositions debt and equity in terms of sources.
Speaker Change: Since 2021, our average same store growth of five 3% has been boosted by approximately 1% from occupancy gains.
Speaker Change: So our 3% to 5% long term projection is perfectly in line with what we've demonstrated we can achieve.
Speaker Change: Our organic growth is the engine behind the 11% earnings growth we delivered in 2024.
Speaker Change: Now about <unk> of the growth in 24 was higher than average termination fees from our quality of revenue focus.
Speaker Change: And our 2025 guidance incorporates replacing those tenants with stronger tenants producing higher NOI.
Speaker Change: I'll have Scott talk about the guidance walk in greater detail.
Speaker Change: All in all I would recommend looking at our combined 2024, and 2025 performance and assessing our longer term sustainable core <unk> target of 5% to 7% growth.
Speaker Change: As you may have seen in our recent December press release, we raised the dividend by over 9%, bringing the dividend CAGR since 2021 to six 5% growth per year, while maintaining an approximately 50% core <unk> payout ratio.
Speaker Change: The core of long term value proposition for those evaluate evaluating whitestone stock is the current approximately 4% dividend plus 5% to 7% targeted core <unk> growth, which will which we intend to translate into dividend growth as well this.
Speaker Change: This team is focused on delivering that value proposition for investors and we believe we have the right model and the right strategy to do it Christine.
Christine Mastandrea: Good morning, everyone as Dave indicated we've delivered strong results for 2024 headlined by our five 1% same store NOI growth.
Essentially our same store NOI growth was three 1% in quarter one.
Christine Mastandrea: Six 6% in quarter, 246% in quarter, three and then five 8% in quarter four.
Christine Mastandrea: I spoke in the last several quarters on the quality of revenue and our strong same store NOI growth as a result of that initiative.
Christine Mastandrea: Our occupancy was relatively stable for the year at slightly over 94% and the key driver of the NOI growth was proactively upgrading the strength of our tenants.
Christine Mastandrea: So the changing demographic spend.
Christine Mastandrea: Today I wanted to take some time and put together the larger picture that quality of revenue fits within covering how this company was designed to proactively identify change privates change occurs and deliver consistent earnings as a result of change.
Christine Mastandrea: We have identified early on the centers with a high percentage of small shop space provided more flexibility to adapt to surrounding demand and more flexibility to a wider range of users and also works well with sophisticated multichannel businesses.
Christine Mastandrea: In addition, the smaller spaces required less capital versus the big box or anchor tenants.
Christine Mastandrea: Complementing the physical design advantage of high values shop space centers was our focus to use technology and the data that would allow us to constantly pay attention to the demand drivers that would translate into success for the business is populating our centers.
Christine Mastandrea: This matching to the demand drivers utilizing strong local knowledge supplemented with the data from <unk> in place for AI is what we mean, when we say connecting to the community.
Christine Mastandrea: And so our competitive advantage to connecting to the community isn't represented by one element of the business. It is the foundation of our business.
Christine Mastandrea: The acquisitions team utilizes the local knowledge and data to understand the community and the opportunity before we acquire a center and we have a very specific center profile as shown on slide nine for our acquisitions.
Christine Mastandrea: Our leasing team specializes in understanding that community and determining the future demand gaps as part of the process and identifying new tenants.
Christine Mastandrea: Our underwriting processes have additional elements and utilizing the data to understand the business is cat ability to take advantage of the surrounding demand.
Christine Mastandrea: Our quality of revenue initiative is the willingness to constantly evaluate the capability of our tenants to meet demand and be a far ahead enough of the changing demographic. So that are driving center traffic, replacing tenants rather than staying with the business, that's not meeting the needs and aspirations of our surrounding community.
Christine Mastandrea: Our redevelopment dollars are proactive.
Christine Mastandrea: As community demand demand grows and evolves and our dispositions are done primarily if we believe there are limitations or the community is fully evolved.
Christine Mastandrea: The next two components setting whitestone up to take advantage of change after center computer Asia and threading the community connection through all of our processes are intentionally shorter leases and our focus on service oriented businesses. The shorter leases allow us much more flexibility in putting the puzzle pieces together as we properly curated a center in service.
Christine Mastandrea: Businesses that are much less capital intensive and meeting the new demography.
Christine Mastandrea: All in all the adaptability of our centers, our ability to use local knowledge and data to assess the changes that demand and demography plus the flexibility of our model provides us the confidence that we can strengthen our business had changed occurs rather than it in reverse.
Christine Mastandrea: And 2024, we continue to upgrade our tenant base moving out nonperforming tenants, who then in turn paid termination fees and moving our new tenants driving our center traffic up three 5% in the fourth quarter versus the fourth quarter of 2023 that's.
Christine Mastandrea: That's a proactive result, we've designed for and pleased to deliver to our communities and shareholders.
Christine Mastandrea: So to put into specific the changes we're seeing right now and demographic trends are continuing to drive changing spending patterns with higher income groups wealth is growing with a younger demographic and the younger demographic is focused on self care fitness and experiences and connecting with the app with others, most notably around food.
Christine Mastandrea: We're able to get ahead of the change as we shift to business owners, serving the direction of consumer spend and sophisticated marketing to those needs.
Christine Mastandrea: The pace of this change is accelerating and we're seeing it with a higher number of our communities because those are properties, we've kept or acquired over the past. Several years. This evolution of certain communities is superb writing whitestone with the opportunity to increase same store NOI growth with selective redevelopment capital.
Christine Mastandrea: We've already boosted our redevelopment capital and see this continue in years ahead. This will boost same store NOI growth in 2026 and beyond keeping us at the top of the peer group even without the occupancy gains that have helped us over the last several years.
Christine Mastandrea: One of the more exciting of these redevelopments is already a good portion of the way through the process that is or Williams trace center in Houston.
Christine Mastandrea: Our improvements to the center and the replacement of an underperforming grocer with an E. O S. Fitness has boosted center traffic by 60%.
Christine Mastandrea: And now with a new focus on leasing activity, we target businesses four than active in elderly mobile demographic new to that community as well and we're driving returns from an increased traffic to the center.
Christine Mastandrea: Another center, where the evolution of community around this center is driving changes Lion square, which is the heart of Asian, The Asian community in Houston. This.
Christine Mastandrea: This community is thriving as almost no occupancy available anywhere near at our center.
Christine Mastandrea: We have the opportunity to modernize the center and transform it with a strong traffic up to 18 hours a day, we will do this at the same time additional developments going on around this center and importantly, we can do it efficiently without interrupting the centers cash flow.
Christine Mastandrea: We provided detail on the Redevelopments on the horizon in slides 20 through 21.
Christine Mastandrea: Importantly, we can do most of this redevelopment for 10 to $20 per square foot deliver very high returns.
Christine Mastandrea: I started with Whitestone foundational approach to change in our redevelopment efforts, but I'd be remiss if I didn't talk about what we delivered in 2024. This was our 11th consecutive quarter with leasing spreads in excess of 17%.
Christine Mastandrea: In the fourth quarter, we achieved renewal leasing spreads of 19% and new leasing spreads of 36, 1% for a combined overall positive leasing spread of 21, 9% year.
Christine Mastandrea: Year over year net effective average base rent increased 5% to $24 51 per square foot demonstrating a marked increase in the value of our real estate.
Christine Mastandrea: We have major new deals, including our second deal with E. O S fitness now under construction at Windsor Park in San Antonio After opening the first pass at Williams trace earlier this year to great success.
Christine Mastandrea: We have exciting new restaurants opening across the portfolio, including Pharmion family kitchen, and Quinlan crossing in Austin, and El virus that market Street in Phoenix.
Christine Mastandrea: Also just signed our second Pickler deal the Tirrivee at a center in Arizona.
Christine Mastandrea: Community around here of EDA is evolving as Phoenix booming job market is causing what were once high end vacation homes to change into homes occupied by younger I've been coming professionals.
Christine Mastandrea: <unk> is a perfect fit to capitalize on this change and drive traffic to the center.
This continued leasing success not only drives results and increases the value of our real estate as we've proven Xactly winter type of center can do in the right hands.
Christine Mastandrea: Our Covington and covering analysts continue to increase their any of their assessment of our portfolio as we deliver growth.
Christine Mastandrea: I'd like to congratulate the leasing and operations team on finishing the year strong.
Christine Mastandrea: We have a very dedicated team and they are part of the big reason that we have a robust growth lined up and the runway ahead.
Christine Mastandrea: Got it.
Speaker Change: Thanks Christine.
Speaker Change: We delivered very strong results, both for the fourth quarter and for the year.
Let me start with the 2024 highlights.
Speaker Change: We delivered a dollar in <unk> and core <unk> per share.
Speaker Change: First is 91 and 2023, representing 11% growth.
Speaker Change: The by quarter breakdown for 2020 fours core F F O.
Speaker Change: It was 24 cents in the first quarter 'twenty four cents in the second quarter 'twenty.
Speaker Change: <unk> in the third quarter and 28 in the fourth quarter.
Speaker Change: That's about what we anticipated in terms of seeing growth during the year with some additional revenues in the fourth quarter from percent sales causes that typically help accelerate things in the fourth quarter.
Speaker Change: We anticipate a similar distribution in 2025.
Speaker Change: We delivered same store NOI growth of five 8% for the fourth quarter and five 1% for the full year.
Speaker Change: E O S opening at Williams trace help boost same store NOI growth and we anticipate their Windsor Park opening will boost 2026 same store NOI growth.
Speaker Change: We also expect several other large tenants we signed at the end of 'twenty 'twenty four or so far this year to do the same.
Speaker Change: Occupancy came in at 94, 1% and as a reminder, we only include tenants in our occupancy when they take possession.
Speaker Change: When the contract is signed.
Speaker Change: Both our process and our heavier mix of shop space tenants equates to a much lower signed not occupied list.
Speaker Change: And we view the quicker turnaround as one of our competitive advantages.
Speaker Change: Turning to slide four I'll discuss a few items on the walk in terms of what we anticipate for growth from 2024 to 2025.
Speaker Change: As I mentioned, we finished the year at $1 <unk>.
Speaker Change: Similar to 2024 I anticipate the majority of our growth will come from same store NOI, which is anticipated to add seven of core <unk> per share.
Speaker Change: While we plan to continue our pace of acquisitions arc, our guidance makes no assumptions in terms of non same store NOI growth as we do not yet know the timing.
Speaker Change: DNA is anticipated to reduce earnings by <unk> <unk> per share and.
Speaker Change: And we are projecting a <unk> <unk> per share improvement in interest expense due to lower leverage levels and interest rates.
Speaker Change: On the balance sheet front, we hit our long term goal of getting our debt to EBITDA ratio under seven times.
Speaker Change: Anticipate we will continue to reduce our leverage and improve this metric.
Speaker Change: The fourth quarter is our strongest quarter. So the metric has some predictable quarter to quarter variability.
Speaker Change: In terms of Whitestone liquidity, we have $15 million in cash and we have $125 million available under the credit facility.
Speaker Change: In 2024 cash flow from operations was $58 2 million and dividends were $24 9 billion, leaving strong cash flow after dividends to fund growth in 2024 and to fuel earnings growth in the years ahead.
We have no remaining maturities in 2025 however.
Speaker Change: However, we'll we're in position to be opportunistic if rates drop and more able to ladder out maturities further.
Speaker Change: Our dividend remains one of the most secure highest growing dividends within the peer group.
Speaker Change: And we believe we have the right plan in place to continue the growth trajectory.
Speaker Change: With that we'll open the line for questions.
Speaker Change: Thank you.
Speaker Change: We will now conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: Press Star 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 Keith Once again Thats star one to ask a question at this time one moment, while we poll for our first question.
Speaker Change: The first question comes from Mitch Germain with citizens capital market. Please proceed.
Mitch Germain: Thank you guys and congrats on the year.
Speaker Change: I wanted to circle back on some of the redevelopment opportunities that you talked about obviously there were some pad sites, but I know you have some bigger.
Speaker Change: The redevelopment opportunities that are attached to a couple of your centers, whether it be expansion of the existing shopping center or some sort of other use.
Speaker Change: When do you first see the potential for some of those opportunities to begin to materialize.
Speaker Change: Thanks for the question Mitch Let me break it out really on a couple of different parts. So yes, we've had pad sites, but there are also a number of centers that I would consider well placed a little bit older.
Speaker Change: We also have them at a basis that is a relatively practical basis to be able to reinvest in those locations and remerchandise. We've been actively been doing that so I consider those sort of your bread and butter centers, where.
Speaker Change: You know over time, and I have to stack them right to make sure that we we match the timing of delivery for the team and also for execution and cash flow. So I.
Speaker Change: I would say there is a larger group of that that will be working into and then the other centers that we've been talking about some of the bigger ones.
Speaker Change: We've been actively positioning tenants to make those changes and to move forward. So those have a little bit longer timeframe, but yeah.
Speaker Change: Yes, they definitely have some upside opportunity to it. So we are actively moving in that direction as well on three of our larger centers.
Speaker Change: Yeah.
Speaker Change: Great that's helpful.
Speaker Change: Circling over to the.
Speaker Change: Capital plan.
Speaker Change: We've got redevelopment Dave spoke about how it appears that you would anticipate acquisition activity to begin to materialize into greater extent.
Scott: And then Scott in his comments talked about.
Speaker Change: Yeah.
Speaker Change: A further reduction of leverage so how does this entire picture fit together, where you are able to continue to deliver leverage reduction while also.
Speaker Change: Increasing your external or or deployment efforts.
Speaker Change: Hey, Mitch. Good question. This is Dave I think for me it starts with the core engine of this business.
Speaker Change: If you look at look at what we're doing and the momentum we have I think Scott mentioned.
Speaker Change: The cash flow and the amount of free cash that we're producing.
Speaker Change: I think we have a balance sheet. That's in very good position, we have opportunities we have are.
Speaker Change: Growing leasing spreads and with that we're in at a very attractive space. So we've got a number of opportunities we're going to be disciplined I think we've always said, we're going to focus on growth as defined by earnings growth and value growth.
Speaker Change: So we've got opportunities in the rehab area, Chris Christine mentioned some of the larger development areas that are working Scott mentioned continuing to improve leverage and I think we've also began looking at opportunities to grow and scale. This business I think there's going to be some some opportunities that we're now in position for but but our folk.
Speaker Change: This is always on our we're going to do that in an accretive fashion.
Speaker Change: We've done some recycling <unk> seen probably over the last couple of years, where we've done that at a positive spread on what we bought versus what we sold we still think there's some opportunities there.
Speaker Change: But just a number of opportunities in this business and you've got a you've got a team that is is firing on all cylinders and is very focused on making sure all of those add to our earnings growth I think we gave some visibility into what we think are the longer term targets for <unk> growth all of that is part of that strategy and we will.
Speaker Change: Look forward to.
Speaker Change: Reporting more on future calls as we as we execute some of those things. So we want to do that and give a bit of a vision as to what we see the opportunity ahead.
Speaker Change: And Dave you talked about acquisitions.
Speaker Change: I'm curious about the competitive.
Speaker Change: Environment.
Speaker Change: Our <unk>.
Speaker Change: Indications appear some of that capital that was sitting on the sidelines is now becoming a bit more active though that doesn't seem to be.
Speaker Change: Changing your enthusiasm so maybe if you can just provide some perspective as to what youre seeing out there.
Speaker Change: Sure I think there is clear.
Speaker Change: Clearly more interest in the in the space, we're operating in today with a number of capital sources.
Speaker Change: That does it damper our enthusiasm as a team I think we believe that we have a little bit of the secret sauce in that were in these markets. We're very deep in the markets. We're in we have deep relationships with.
Speaker Change: A number of folks in the market. So while we see more competition Whitestone has always been looking for opportunities that are a little different I think in our slide deck, we've got some of our drivers.
Speaker Change: For acquisitions, we talk about.
Speaker Change: Being a bit agnostic on the grocery anchor part I think that separates us a bit we talk about our focus on the smaller shop spaces being a larger component that differentiates us.
Speaker Change: So while there is more competition I think that means there's there continues to be a very good dynamic as far as the supply.
Speaker Change: By being limited in our markets.
Speaker Change: But I think we remain positive on our ability to to find assets and apply our model.
Speaker Change: It seems like to buy smaller.
Speaker Change: Sorry, let me say tenants with smaller assets you need to have a really good operating platform in those markets and not everyone can attest to that.
Last one from me is Scott any one timers this quarter that needs to be called out I mean, obviously management and transaction and other income seem to be a bit high I don't know if that includes percentage ramp but is there anything that needs to be referenced when a model that we should be aware of.
Speaker Change: Sure Yeah, we always have higher percent rents in the fourth quarter than we do in other quarters because of that.
Speaker Change: You know tenants hitting their breakpoints. We also we also had some termination fees in the in the quarter and end the year, a little higher than normal.
Speaker Change: And anytime we have a tenant move out were always looking to maximize.
Speaker Change: That event.
Speaker Change: The spaces are very good.
Speaker Change: I think we're excited to have them back, but we did we did have some termination fees that were higher and those are reflected on the walk on page four.
Speaker Change: Is that was that recorded in the fourth quarter.
Speaker Change: It was recorded throughout the year there were throughout the year.
Speaker Change: In the fourth quarter is there anything I guess, what I'm asking is there anything in <unk> that I need to worry about with regards to my forward run rate.
Christine Mastandrea: No I mean, Mitch remember at the beginning of last year, I said that we'd re merchandise and the activity that we would take doing that that's been active throughout the year and that incur that include termination fees as part of the re merchandising that we do so I don't see much different now and youre going to see next year or this year, we will plan to have termination fees every year.
Speaker Change: I think I'd take a look at the <unk>.
Speaker Change: <unk> that we had in the quarterly earnings <unk> 24, and expect a similar trajectory in 'twenty five.
Speaker Change: Thank you.
Speaker Change: The next question comes from Anthony <unk> with <unk> Securities. Please proceed.
Speaker Change: Good morning, guys. Thanks for taking my question.
Speaker Change: So I noticed that the <unk> lease is expiring. This year, just curious where are you guys in the negotiation process and what's the plan and whats the mark to market opportunity for this space.
Speaker Change: So I think a couple of things that are really important to talk about that this is one portion of our business that's not as big as the rest of it but it is office, but it relates to mixed use and so what we've seen especially in certain areas in.
Speaker Change: In particular in Houston, where you have boutique office opportunities and where the pricing is starting to adjust and change for that upper end of the market, especially in this areas Uptown Gallery, that's not downtown you have a number of tenants that are moving from downtown Theyre moving out to our town and country area at City Center and Theyre also moving out to the Gallo.
Speaker Change: So that's where the demand is so we want to make sure that we're managing appropriately towards those upside opportunities as they come because there is a change in the need of a specific type of office space, specifically people that are looking for a mixed use.
Speaker Change: And also because the demand for talent. This is also in a neighborhood where you have.
Speaker Change: If you really want to attract a good work for US. This is the location to habit. So I'd just say they have to be careful and talking about these things as you know, but we see a real positive upward dynamic in this market.
Speaker Change: Towards that type of space, Yes, just to Echo Christine this is.
Speaker Change: Great property, great location, and we feel very good about it I think if you look at our top tenant list there are 4% of revenue and.
Speaker Change: So we are welcoming a role like this at this space as we have.
Speaker Change: Gotcha.
Speaker Change: And then.
Speaker Change: My second question is you know I understand the proceeds from pillar stone is not part of the guidance, but can you provide any color on the or any update on the liquidation process.
Speaker Change: I'll start out and Scott may want to provide some more detail so hey, Anthony we feel.
Speaker Change: It's been a long process.
Speaker Change: But we're nearing.
Speaker Change: And hearing the and I feel like I think we've reported previously that this is the collection mode. There's a plan of liquidation in place.
Speaker Change: Currently all of the properties that are part of pillar zone are either sold under contract or have offers.
Speaker Change: And so we feel very good about moving forward about receiving those proceeds I think frankly, we wanted to concentrate on the core business today and not talk as much about some of the turnaround elements or pillar. So and so we feel very good about collecting that I think I think Scott can report, but we've got in our balance sheet at roughly 45.
Speaker Change: And I believe and given what I just described we feel very comfortable about the proceeds being being well north of that.
Speaker Change: Yes.
Speaker Change: Anthony as we as we start to receive those liquidation proceeds we'll revise our guidance to reflect that just very hard to predict the timing and a bankruptcy court situation quarter by quarter.
Speaker Change: Okay, well thank you.
Speaker Change: Okay.
Speaker Change: Rob matter with Alliance Global Partners. Please proceed.
Speaker Change: Thank you good morning.
Speaker Change: I wanted to go back to your comments around redevelopment and just to clarify are you expecting any capital spend.
Speaker Change: <unk> development in 2025.
Speaker Change: Yeah, Hey, garbage Dave Yes.
Mitch Germain: I think Christine mentioned I think in our slide deck on pages 20, and 21, we show kind of are our bread and butter development.
Mitch Germain: I think we gave a number of $20 million to $30 million, that's probably over a couple of years, but traditionally we have done kind of that normal amount of development you will see in our cash flow statement for the year and so we anticipate that that same level of activity and slightly starting to ramp up and then as Christine mentioned the larger projects are in <unk>.
Mitch Germain: <unk>, but it takes a bit longer so we'll report on those as we as we get closer to the time, where we'll start to see some results, but yes, we're going to we're going to have our.
Mitch Germain: Redevelopment activity, we're going to have some pad sites, probably just a little bit more than our historical spend.
Speaker Change: Okay, and can you guys remind us what kind of yields youre underwriting on needs for redevelopment.
Speaker Change: Okay. So a couple of things this is pretty intensive process that we go through the portfolio and we look for those opportunities and it's an evaluation of what the comp set is in the market what the upside opportunities are for rents and also I would like to keep the in place existing cash flow. So some of these can take place over <unk>.
Six months, where they can go over 18 months just to make sure that we structured appropriately I'll give you. An example of this and this might give you a little bit of an idea of how we work. So when we evaluated the opportunity at Williams trace where we had underperforming grocer.
Speaker Change: We started into the process, which is a design process. It takes a little bit of time working through what youre going to do to the center and Tinker at your way towards what I would consider an optimal result in that we already started targeting a certain tenant type that we thought would fit well in the center and drive traffic because they saw that traffic has fallen off.
Speaker Change: Significantly with an underperforming grocery so that being said when we targeted Eos and brought them into the market. We also saw that there was a way to start crafting a tenant mix also around that type of strength in user and so along the way we started adding in one case, we start adding some patio space.
Speaker Change: We improved the Walkability of the center. The overall look at the center and then applied some of the.
Speaker Change: The rights, what I would consider ti towards.
Speaker Change: Turning and re merchandising existing tenants and with that we've had a real improvement in performance not just traffic, but also performance as well, while keeping a lot of the existing cash flow in place. So we target.
Speaker Change: Look for double digit returns for this and we also look for the ability to push 20% to 30% and an increase in rents.
Speaker Change: Okay.
Speaker Change: Thanks for that color.
Speaker Change: Question on your maintenance Capex.
Speaker Change: The $4 $1 million maintenance Capex that you reported in <unk> like going.
Speaker Change: Going forward, what kind of run rate should we expect for 'twenty five should we expect similar capex numbers.
Speaker Change: You guys reported overall for 2004.
Speaker Change: I think I look at the last two or three years and expect a run rate similar to the average of the last two or three years.
Speaker Change: It may have been a little higher in 'twenty four.
Speaker Change: Okay. Thank you that's all I had.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: A couple of weeks out with lucid capital markets. Please proceed.
Speaker Change: Yeah, Hey, good morning, guys.
Speaker Change: First is the does the guidance include any capital recycling assumptions.
Speaker Change: It does not.
Speaker Change: Okay Gotcha.
Speaker Change: Changing gears.
Speaker Change: Go back to the years coming out of the pandemic I think your occupancy was in the high 80% range now you're pushing towards 95% is that optimal for pushing leasing spreads in the 20% range or do you think you can take occupancy further than the 95% or is that just sort of a natural ceiling.
Speaker Change: So I think we can but I think quite frankly again, when you have such a strong market.
Speaker Change: I'm trying to take I'm trying to get vacancy quite frankly, so I can turn the rental rates upward. So I would say 95 is good could I get higher than that yeah.
Speaker Change: But I will tell you that we're also going to be looking for opportunities, where there is lease up opportunities to re merchandising opportunities in our acquisitions. So I think we've demonstrated that we're good at this and I think we want to stay consistent with what we do well in our business, which is looking for how do you keep adding value alright, and so part of that is looking at three.
Speaker Change: Merchandising was looking for acquisitions, where we can do there re merchandising that.
Speaker Change: <unk> in addition to that where we've seen new opportunities too.
Speaker Change: I'd say add additional value through the redevelopment like we've talked about so so yes.
Speaker Change: But again I think.
Mentioned this for the last two years, we're going to be taking space back where we can in turn it because that's where the opportunity for growth is.
Speaker Change: Okay, Great and just one more for me.
Speaker Change: Can you talk I think you sold Providence in Houston This quarter can you talk about the.
Speaker Change: The cap rate on dispositions.
Speaker Change: Yeah.
Speaker Change: Hey, Greg we did sell Providence, which was.
Speaker Change: One of the assets that within the portfolio for a bunch of years was one of the original assets of Whitestone, So part of our discontinuing.
Speaker Change: Upgrade the quality of our portfolio was recycling out of assets like that solid asset is that an area of town that we don't see evolving as the rate that we do other areas.
Speaker Change: Our total we're not reporting.
Speaker Change: Excuse me individual cap rates on sales, but if you look at everything we sold I think it's in the mid sixes.
Speaker Change: And Providence was kind of in line with that group I think from.
Speaker Change: From a from a sale cap perspective, so good center, just a little bit lower <unk> than our historical portfolio.
Speaker Change: As part of our continuing that quality of revenue upgrade the portfolio. I think you saw one of the things the third party measures our tap scores continue to improve so if you look at the progress we've made not only organically, but through recycling I think we've really continued to upgrade the portfolio.
Speaker Change: Okay.
Speaker Change: Okay. Thanks. Thanks.
Speaker Change: Thanks, Greg.
Speaker Change: The next question comes from Thomas <unk> with B Riley. Please proceed.
Thomas: Good morning.
Good morning, John.
Thomas: So sorry, if I missed this earlier in the call is there a leverage range, we're either looking at or expecting in 2025 or by year end 2025.
Thomas: Okay.
Thomas: Uh huh.
Thomas: I think ultimately we like to be in the low the low sixes, maybe high fives, the timing of that John is going to be difficult to predict just because.
Thomas: A bit of it is going to depend on <unk>.
Thomas: Liquidation proceeds so but I think that's the range, where we would like to end up eventually high fives low sixes.
Speaker Change: Okay, and then any impact from some of the smaller recent retailer bankruptcies, specifically I think party city and Joanne just because that would impact <unk> numbers. If you had any exposure.
Speaker Change: No we don't and we focused as we've talked about our model is different than others. We stayed away from a lot of those large spaces thats why we went into the smaller formats smaller spaces, we saw the disbursement of risk.
Speaker Change: And we've always favorite that we've stayed away from that type of tenant model, where it's really I look at if you really look what's not making at out there its restaurants. Its retail that is not focused on the changing demographic.
Speaker Change: These are older business models are somewhat tire business models, it's rather unfortunate that they werent able to adapt to the change.
Speaker Change: That being said, what we're seeing is quite a bit of demand in leasing right now and it's mostly because it's focusing on our new demography is spent.
Speaker Change: So we don't have that exposure and that was by design from the very beginning.
Speaker Change: And John I'd, just add that we really don't have a high concentration in any one tenant.
Speaker Change: Two 2% of revenue is the highest concentration we have.
Speaker Change: So.
Speaker Change: And in the few cases, we have bankruptcies and I think we're happy to have the space back and we can usually get higher rents.
Speaker Change: Okay.
And then a couple of clarifying ones on guidance.
Speaker Change: How much impact if any on G&A this year.
Speaker Change: Some stuff related to pillar stone that maybe isn't run rate starting in 2026.
Speaker Change: Okay.
Speaker Change: Well, we had in 2024, we had about of about $1 million in bankruptcy cost and I think we expect to have a similar level.
Speaker Change: In 2025.
Speaker Change: And then.
Speaker Change: Hard to say, where 26 will be but I think we will we expect to see that start tapering off in 'twenty six.
Speaker Change: Okay, and then last one from me on the lease termination fees any reason, that's not going to kind of be similar to 224 and 25 just given.
Speaker Change: It seems like there is continued kind of portfolio refreshing reshaping, maybe just you don't want to put that in guidance until it actually occurs or is it a.
Speaker Change: Just something different about the portfolio lease expirations this year.
Speaker Change: I think we're we're forecasting it at a lower level, but certainly if you have a few tenants go out it certainly could be at a higher level in 'twenty five, but we don't have that many on our radar right now for 25%.
Speaker Change: Okay, and I guess with the.
Speaker Change: Terminations in <unk> kind of anticipated at the time of year.
Speaker Change: <unk> earnings or earnings guidance.
Speaker Change: Now most of that.
Speaker Change: Those kind of deals who work throughout the year.
Speaker Change: So it's always a timing as to when.
Speaker Change: So let me just explain how we go about this and maybe that'll help a little bad.
Speaker Change: We identify through sales, where we see that quite a bit.
Speaker Change: In a market, where we know where performance should be and in most of our markets, we know where performance, especially with the high Hh is that we have in our neighborhoods. We can determine from those sales where a tenant should be performing and we see that there is the lack of performance or they're struggling it's at a point.
Speaker Change: In time, where you need to have a discussion those discussions take place that they don't happen overnight. They take a little bit of time at the same time, we're already looking to see where the replacement will be so theres very little downtime even between the timing of the.
Speaker Change: The lease termination to the new lease execution.
Speaker Change: And so that could take anywhere sometimes it can take several months to six months or so and then it's just a matter of negotiating.
Speaker Change: Termination fee and then the hand over to the next tenant and.
Speaker Change: We don't do a termination fee just on the gap of the timing.
Speaker Change: <unk> is an investment we look back as to what that investment was and then we negotiate a position from that because we expect a return on our real estate.
Speaker Change: So.
Speaker Change: And just thinking.
Speaker Change: Yeah, and I just want to mention too, it's really important and because you brought this up earlier.
Speaker Change: There is a change in demography demographic spend right now and so leaning into that new spend and where its going is an important place to be right now, especially for the demand for this type of space.
Speaker Change: Yes that makes sense I was just thinking.
Speaker Change: Trying to get a sense of like timing of when this could hit.
Speaker Change: And I just look back at like.
Speaker Change: There's a slightly more detailed walk right on page four of your current investment slide in terms of.
Speaker Change: How youre getting to that guidance and I don't know if.
Speaker Change: The lease termination income that you received in 2024 was anticipated as of kind of <unk> results and so is it just something that's going to kind of get layered into guidance as it happens or is it something where.
Speaker Change: I think there is a base level that we anticipate John and then as larger ones occur will factor those into the guidance.
Speaker Change: Okay.
Speaker Change: Understood. That's it for me thank you very much.
John: Thanks, John.
John: Thank you at this time I would like to turn the call back to management for closing comments.
John: Okay.
John: Dave Holeman again, thank you for joining today's call. We hope we've given investors a view into the building blocks of our future trajectory. We're excited about.
John: What lies ahead of US we're excited about the guidance, we've given and we look forward to updating everyone on the progress we make.
John: Everyone have a great day. Thank you.
Speaker Change: Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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