Q1 2025 Whitestone REIT Earnings Call
Brief question and answer session will follow the formal presentation.
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Scott Hogan: Then we also had some termination fees in the fourth quarter that were higher than we had in the first quarter here. So I think when we get to the end of the year, we expect to be in the low 60s.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host David Martin Director of Investor Relations. Please go ahead.
David Holeman: Hey Gaurav, Dave, I might just add, I think you've seen obviously over the last few years our focus on continuing to strengthen the balance sheet. Through that we received an investment grade credit rating. We continue to be committed to growing, obviously, earnings per share, but also strengthening the balance sheet. So I think if you look back, Scott mentioned the seasonality, but if you look back clearly, I think we're down 600 basis points from the first quarter of 24. I think it was 7.2 versus 7.8. So super pleased with the progress we're making. We think we've taken some big steps there and you should continue to see us not only grow earnings at a rate we think will be very attractive, but also have a stronger balance Okay, thank you.
Speaker Change: Good morning, and thank you for joining Whitestone REIT first quarter 2025 earnings conference call.
Speaker Change: Joining me on today's call are Dave Holeman, Chief Executive Officer, Christine <unk>, President and Chief operating Officer, and Scott Hogan Chief Financial Officer. Please.
Speaker Change: 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.
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 this call may be webcast for a period of time. It is also important to note that this call includes time sensitive information that maybe accurate only as of today's date may one 2025.
Gaurav Mehta: That's all I have. Thank you.
Mitch Germain: The next question comes from the line of Mitch Germain from Citizens Bank. Please go ahead. Good morning.
Speaker Change: The company undertakes no obligation to update this information.
Speaker Change: Stone's 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.
Mitch Germain: I wanted to touch on some of the redevelopment efforts. I think all of you provided some perspective on them and I think we have a lot of work to do. You know, I get that you're doing work on pet sites. It seems like a lot of those, though, are build to sell.
Speaker Change: We published first quarter slides on our website yesterday afternoon, which highlight topics to be discussed today.
Speaker Change: I'll now turn the call over to Dave Holeman, our Chief Executive Officer.
Mitch Germain: I guess more granularly, what are the projects that are underway at your centers that you think are really contributing to that 100 basis point list in SafeStore?
Speaker Change: Good morning.
Speaker Change: For a lot of investors looking at a lot of companies. They may not view, the first quarter as overly indicative of the future as it was entirely pre tariff announcement.
David Holeman: Hey Mitch, it's Dave. I'm going to give just a quick intro to your question and then I'm going to turn it over to Christine to give you some more details, but one of the things we've tried to do is show the building blocks for investors of how we continue to have consistent, sustainable earnings growth, and a piece of that is through redevelopment, re-merchandising, and making sure that we're getting the most value out of each piece of our property. As you said in our deck, I think we have a series of slides that shows the properties we're working, and maybe I'll just pause and turn it over to Christine to maybe talk about the specifics.
Speaker Change: We believe there are number of reasons to look at Whitestone, <unk> first quarter results and view it exactly as the type of quarter you should expect.
Speaker Change: This morning, we are reiterating our core <unk> guidance and I'd like to walk you through the reasons why we believe this quarter very much represents what investors will see in terms of continued performance from Whitestone.
Speaker Change: There are three primary reasons.
Speaker Change: First our redevelopment efforts are translating into same store net operating income growth exactly as we expected and exactly in the way we are anticipating our ongoing redevelopment will translate into financial results. The capital is modest $20 million to $30 million over the next few years, but we anticipate.
Christine Mastandrea: I think in her comment she talked about Lions Square, but Christine, hit anything you want to hit. It'd be great. I think the important part in the redevelopment process is to evaluate where the opportunity to lease is turned. So we always evaluate the terms and then look where we can turn tenants and improve the quality of revenue. In addition to that, that requires some investment, usually in the facade, but also into some of the TI with those tenants. And so we found really good opportunities. I think the one that we've used as an example was Williams Trace, where we re-tenanted with an EOS Fitness, and that allowed us to free up some of the parking for some pads.
Speaker Change: Dissipate our investments will deliver strong results.
Speaker Change: Second as we've discussed on our last earnings call Whitestone is designed to benefit as change occurs. This design means we're capable of performing better and various economic cycles and today, we will highlight how our business model and the actions we've taken over the past three years provide both accelerated growth.
Speaker Change: And greater durability of cash flows if economic conditions worsen.
Speaker Change: And third our properties are at the heart of the re shoring dynamic that is occurring right. Now we strongly believe re shoring isn't really a matter of whether tariffs succeed or not trillions of dollars of Chinese manufacturing no longer has a young labor force needed to operate effectively.
Christine Mastandrea: In addition to that, Line Square is one of the larger ones that we'll be doing this year, should be completed, or the majority of the completion should be by the end of the year. That'll allow us to re-tenant some of the space, too, to, again, higher quality of revenue. We look for these ideal locations where we're also seeing adjacent development activity. So we ramp up some of those opportunities tied to where we're seeing, you know, massing and new development coming to the area. So I anticipate that along those lines, too, for example, Garden Oaks has a very large track next to it.
Speaker Change: <unk> and globalization is breaking down.
Speaker Change: That translates into TFS Emc's, new operations in Phoenix, and Apple's announcement of a 250000 square foot manufacturing facility in Houston.
Speaker Change: Those investments transform the communities around them and we benefit as long as we ensure that our centers remain anchored to the community and adapt in tandem.
Christine Mastandrea: It should be sold at some point. I think there's rumblings with various large grocers looking at the site. When that turns, we're already starting to do the planning effort to invest in that property. The planning is something that's really most of the time when you do an investment like this, most of it's into the planning. The actual execution takes anywhere from six months to eight months to complete. So you're seeing the ones, especially the ones that we've been talking about on page 20 and 21. These are already in planning and we'll start continuing the execution through 2020, this year 2025 and 2026.
Speaker Change: We are confident there is more reassuring on the horizon and our strategy and operational model is set up to benefit from that.
Speaker Change: In 2024, we spent roughly $8 million in capital above the 2023 level and this translated into an approximate 1% lift in same store NOI growth that we delivered this quarter.
Speaker Change: Of the six redevelopment centers shown on slides 20, and 21 Williams trace was the vanguard in terms of our efforts and Windsor Park is well underway.
Christine Mastandrea: And we're already starting to look at 2027 and 2028 with additional properties. So hopefully it gives you a little bit of color as to what we look for and why. And then, again, that's where we expect that we'll be able to drive quite a bit of the returns in our portfolio.
Speaker Change: We've issued press releases on redevelopment efforts at Lion square, Taro Vita and Davenport and collectively those centers are anticipated to create up to a 100 basis points of same store NOI growth lift in 2026 27 28.
Mitch Germain: Great. That's helpful.
Mitch Germain: On to the balance sheet. There were some nuances, some notes were, a portion of some notes paid seems like with a revolver. Can you just talk about, you know, kind of what happened in the quarter and, you know, what is that like? to push. leverage lower. You know, I know Pillarstone is certainly something that is out there, but what else is exists that's going to bring us into the kind of low six times range?
Speaker Change: So here's what we delivered for the quarter core <unk> per share of 25 for the quarter up four 2% versus Q1 dollars 24.
Speaker Change: Same store net operating income growth of four 8% near the top of our forecasted range.
Speaker Change: Straight line leasing spreads of 23%, our 12th consecutive quarter with leasing spreads in excess of 17%.
Speaker Change: And we raised our annual net effective ABR per square foot, 4% over Q1 24.
Scott Hogan: Mitchell, Scott, thanks for the question. First, the... The debt that was paid in the first quarter was just some amortization on our prudential bonds that we rolled into the revolver. To lowering leverage, I think it's going to come from both the increase in earnings that we expect to realize over the course of the year and over the next few years, and then also cash flow from operations. Last year, we had about $58 million from operating cash flows. We were able to use a good portion of that to improve our balance sheet, and this year I think we'll be in the $50 to $60 million range in operating cash flows again.
Speaker Change: All of this fits perfectly within our longer term expectation of 4% to 6% organic core <unk> per share growth driven by 3% to 5% same store NOI growth.
Speaker Change: As a reminder, that same store NOI growth breaks down two 2% from contractual escalators, 1% to 2% from new and renewal leasing and up to 1% from redevelopment.
Speaker Change: I'm going to have Christine talk about what we've done organically that provides greater durability of cash flows, but I wanted to touch briefly on our acquisition and disposition activity.
Speaker Change: In 2020, we were one of the top performing retail rates as measured by year over year same store NOI performance or as measured by bad debt levels.
Scott Hogan: And so there's both just continuing operating cash flow improvement, and certainly the pillar stone when we work through that bankruptcy process, and we expect those proceeds to be probably between $50 and $70 million, but it's hard to predict the timing. That's why we haven't included it in our guidance. We'll certainly also improve the balance sheet and lower our... Great.
Speaker Change: Since 2020, we have sold 11 properties and acquired like Woodlands, Arkady Ed Garden Oaks.
Speaker Change: <unk> Commons to non owned multi tenant pads Dana Park and a non owned pad site at our Anderson Arbor property in Austin.
Speaker Change: One obvious benefit from our capital recycling has been to raise the average household income level and ABR for our properties, but what is more important is that we have a greater degree of confidence about the growth of the communities surrounding our centers and our ability to continue matching tenants to that growing demand.
Mitch Germain: Now, last one for me and probably for Christine, I know you and your team do a really fantastic job. getting the pulse of what is happening at your centers and your tenants. So, you know, obviously, with everything happening in the world, you know, there is some likelihood of a consumer pullback. And I'm curious if. Some of your tenants on the service side or on the restaurant side are seeing any indication of that trend, you know, happening at this point.
Speaker Change: That science of connecting tenants to demand is the key to performing in any economic environment, and we're always eager to walk investors through exactly how we do that.
Speaker Change: While the overall macroeconomic environment has uncertainty to it right now the dynamics in our markets, especially for service based businesses are much more favorable.
Christine Mastandrea: Thank you for the question, Mitch. It is something that we've been having a close eye on. You know, it may have mentioned this earlier, but we see this as a trend more than just a pullback, but alcohol sales for our restaurants have decreased. It seems like dry January is extending into the year, but we see it more related to people making healthful choices and lifestyle. We have not. We've been tracking quite closely on the fitness side to see if there's been a decrease in traffic, and that has not been the case of anything we've seen a pickup on fitness.
Speaker Change: Green Street's population forecast for our footprint is 50 to 70 basis points higher versus the national average and the job growth CAGR is forecasted to run 40 basis points above the rest of the nation.
Speaker Change: According to commercial edge Phoenix, our largest market leads the country in terms of industrial construction underway.
Speaker Change: All of these trends are in line with what we've seen over the past decade, and it allows demand to recover much more quickly from any shocks to the system.
Christine Mastandrea: Again, I look at that as people really looking for the comfort of their communities. On the restaurant portion, you know, we do have a few restaurants that are towards the high end. Surprisingly, that's probably been a little bit where we've seen some pullback, but then we've had two restaurants that do serve a little bit more on the higher end of the community, and Phoenix just opened with huge success. So it's been something we've been watching, but we haven't really seen it impact us yet. But again, closely monitoring it, but it hasn't been We're not seeing the full effects of it and we're also not seeing people pull back on the traffic yet as well.
Speaker Change: We pay close attention to the current environment in terms of the decisions we make.
Speaker Change: But we are making decisions with a multi year horizon in mind and we are very bullish on the future of service based businesses in the sunbelt.
Speaker Change: We're looking forward to seeing many of you at REIT week in June.
Christine: Reach out to our Investor Relations. If you will be at the conference and I would like to spend some time with management and I'll now turn the call over to Christine.
Christine: Good morning, everyone. We delivered a very strong quarter with $31 million a total lease value signed it is the highest first quarter amount, we've ever signed with 40% over the average of the last decade.
Christine Mastandrea: So the traffic's still there, sales may be changing, definitely do see the restaurant trade that they're starting to move again towards a different mix for items that they're producing out there to entice people, but hasn't been a big pullback in sales yet.
Christine: Leasing spreads were 22, 6% for new leases and 19, 9% for renewals, giving us a combined leasing spreads of 23% for the quarter.
Christine: This activity combined with our previous strong quarters translated into a four 8% same store NOI growth, which is the key to our delivering our targeted earnings growth.
David Holeman: Hey Mitch, it's Dave. The only thing I might add, Christine is spot on, but I will tell you that her and her team do a tremendous job of picking the right operators. I mean, obviously, in any market, picking the right operators. So our underwriting standards, our tenant identification standards have improved significantly since Christine has taken leadership of that team, and so that's a big part of what Whitestone does, is obviously watching, but ensuring we're picking the strongest tenants, the local knowledge and data. Now, and I just will add one more thing to it. This is really something that's been very striking is we're definitely seeing the contractors coming out of their book shortening in 2026, which is one of the reasons why we're looking at amping up some of that investment into the centers because we see that there might be a bending of the cost curve, you know, with construction projects.
Christine: As we discussed on the fourth quarter call our shop space at 77% of ABR versus the peer average of 50% provides greater flexibility to adapt to surrounding demand more flexibility in terms of the mix of businesses that we can accommodate and is more attractive to a sophisticated multichannel services business.
Christine: Complementing the physical design advantage of high value shop space is our ability to utilize local knowledge and relevant data from <unk> phase III to constantly pay attention to the demand drivers that translate into the success for the business is populating our centers.
Christine: Matching the tenants to the community not only provides whitestone the opportunity to deliver peer leading growth. It provides better downside protection in three distinct ways.
Christine: First relying strictly on anchor tenants in order to drive success for shop space tenants exposes shelf space tenants unnecessarily to the anchor.
Mitch Germain: Mitch, do you have any more questions?
Christine: Rather we ensure that all tenants are connected to the primary demand needs driven by the community and accordingly limit the risk presented by roping, our climbers together.
John Massocca: The next question comes from the line of John Massocca from B Riley Securities. Please go ahead. Good morning. Thank you. Morning, John.
Christine: Second businesses that are out of sync with the community or the first businesses to become more problematic during difficult times, our proactive approach to minimize the risk of scale businesses gives financial guarantees and long leases that don't protect the traffic and the vibrancy of the center, which is why our underwriting process goes well beyond the financial guarantees.
John Massocca: I know you talked a little bit about, you know, kind of what was moving the numbers around in the occupancy this quarter, but if you included those two leases you talked about where you, you know, you brought in kind of a higher paying tenant, what would kind of be the occupancy on like a signed but not, you know, open basis, if you will? Okay. Thank you. I think it was roughly... If you look at just Terra Vita and moving out the tenant that Scott talked about in the two new ones, Pickler and Ace, roughly that makes up our, we think we were 93.9 last quarter, correct me Scott, but we were down about 700 basis points from last quarter, and it's largely flat with those two new tenants.
Christine: And assesses the ability of the businesses to thrive in their new location.
Christine: For existing tenants our team constantly assesses the health of each tenant and does not wait for the end of the lease term to take action. If we can upgrade to a tenant that better serves the community.
Christine: This proactive approach better protects cash flows in challenging times.
Christine: <unk> is a perfect example, we had a previous tenant that wasn't adapting to the changing demographics in the area. The surrounding area was dominated by second homes, but it has been rapidly changing as high paying jobs for Taiwanese semiconductors facility and other reassuring operations are causing young upwardly mobile families to transform the community and to one dominated by prime.
John Massocca: We don't report signs not open like some of our peers, because typically it's not as big a gap for us because we get tenants open very quickly, but I think roughly it would be flat, John. That's very helpful.
Christine: Mary restaurants.
Christine: We identified this mismatch between the prior tenant and the community early and move to bring in a tenant that would capture the community shift we are already familiar with the <unk> as the best in class operators, we brought them in our Mckinney, Texas El Dorado Center.
David Holeman: And then bigger picture, you know, just in kind of the context of tariffs, as you think about, you know, your shop tenant base today, you know, what's kind of the rough divide between people offering services and people selling kind of hard goods? Yeah, I'll start out and Christine will probably maybe add some as well, but I think in our deck we do have a slide that talks about our mix. We've always focused on services and kind of e-commerce compatible tenants, and so if you look at our space that we've identified as kind of hard, soft goods, it's probably 15%, but we don't have your traditional big boxes, so our tenants tend to be a little less impacted clearly by the impact of tariffs.
Christine: We knew that it would be a high traffic driver capturing the active minded families and health conscious individuals into the <unk> community.
Christine: The third and final dynamic I'll mention in terms of downside protection is the diversity of service based tenants, we achieved a combination with our high percentage of shop space.
Christine: Having a diverse spread of strong local regional and national tenants removes leverage dynamics that can work against re incentive cult times during.
Christine: During the pandemic, many private property owners relying on national tenants for achieving the security were pressured by these tenants leveraging the size in order to obtain numerous concessions from rates. Our largest tenant is two 2% of whitestone to annual base rental revenues and this definitely helped translate into our outperformance during the.
Christine Mastandrea: And I'll let Christine add if she'd like. Yeah, I mean, that's one of the reasons why we've leaned into the services side because of the challenge of the goods being just, if you look back, you know, just with Amazon. So we've always been defined our role around that in the community is to be more service focused. And so along with that, I'd say it's really less than 15%. If that we've asked again, checked in touch base with some of our restaurants. And again, they're able to pivot quite quickly. So they haven't been as affected. You know, we do have some, you know, we do have Ferguson's in the portfolio.
Christine: <unk>.
Christine: So those are reasons shop space produces greater durability of cash flows.
Christine: In a strong environment shop space tenants have higher rents signed higher escalators in a far more flexible.
Speaker Change: This flexibility allows whitestone to better control, the real estate and far better ability to capture the upside opportunities as we constantly evaluate bringing in the strongest tenants possible shop spaces also perfectly suited to service tenants that have a lower capital requirements, allowing us to use the cash flow for growth either in the form of redevelopment or acquisition.
Speaker Change: Both of which are important components of our 5% to 7% core <unk> growth target.
John Massocca: We haven't seen anything from them yet that would cause us concern. But again, that's less than 15%. Maybe a fact that's maybe a generous portion. Okay, that's helpful.
Speaker Change: Dave spoke of some of these financial benefits anticipated with our overall redevelopment efforts that I'd like to dive into that one specifically to give a little color on what our investments look like.
John Massocca: And then I know it's only 60 basis points, but your dollar tree exposure, just as a reminder, are those true dollar trees or those family dollars and kind of, if they are family dollars, what are you kind of expecting in terms of underwriting or credit impact from the split? All right. That answers that.
Speaker Change: Lion square should represent a little over the six of the overall $20 million to $30 million forecasted redevelopment spend.
Speaker Change: Square sits within the Houston Asia town, which attracts over 9 million visitors annually. We've recently improved the center, bringing in Sun wing supermarket and are closely monitoring parked eight place a $1 billion investment down the road that is transferring transforming halliburton's former campus into a 17 acre mixed.
John Massocca: That's it for me. Thank you very much. Thank you.
David Holeman: Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Dave Holeman for his closing comments. Thank you. Thanks to all for joining us today. We very much appreciate your attending and your interest in Whitestone. We're pleased with our start to 2025 and really remain very optimistic about our business model and the ability to produce in different economic cycles. Obviously, there's a fair amount of uncertainty today in the economic environment, but Whitestone is positioned very well. We look forward to engaging with a number of you at the upcoming conferences, ICFC and NARIT.
Speaker Change: Juice projects centered on a healthier lifestyles.
Speaker Change: Lion square benefits from the high barriers to entry or the area being adjacent to this development, we expect 30% to 50% boost in the center's NOI as a result of this redevelopment project our capital is extremely well targeted and time to deliver strong results.
Speaker Change: We are also seeing an acceleration in construction timeframes as the government University project cancellations free up resources. It is important to note that taking advantage of newly available construction resources isn't something that happens without forethought plant permits vendors need to be ready to go when we are primed to take advantage of the current environment when the pricing changes.
Speaker Change: I'll wrap up by pointing out the percentage of shop space versus the peer set we show on slide 12. It is important for investors to recognize that our higher percentage of shop space only delivers results because it's paired with our ability to connect with the surrounding community and because we built a company with the operational chops to manage it.
David Holeman: And with that, I'll wish everyone a great day. Thank you.
Operator: Ladies and gentlemen, the conference of Whitestone REIT has now concluded. Thank you for your participation. You may now disconnect your lines.
Scott: The team there is guided keeping the pedal down and advancing our continued growth I'd like to thank them for keeping us at the front of the pack with that I'll turn things over to Scott to cover the financials.
Scott: Thank you Christine.
Scott: This morning, we reiterated our $1 <unk> to $1 seven core <unk> per share guidance and our longer term, 3% to 5% same store NOI growth target.
Scott: For the quarter as planned we.
Scott: We took back some space slightly lower lowering our occupancy from the prior quarter and we produced strong same store NOI growth of four 8%.
Scott: Intentionally taking back space in order to bring in higher performing tenants and drive growth as a fundamental part of our quality of revenue focus.
Specifically this quarter, we made room for the Pickler and Ace hardware coming in at Taro Vita.
Scott: All in all we are reiterating our 3% to four 5% same store net operating income projection for 2025.
Scott: The longer term, 3% to 5% is higher in anticipation of the full impact of redevelopment projects.
Scott: We continue to see opportunities to acquire centers that fit our stringent criteria and that have the potential to contribute to earnings in both the short and long term as our leasing team utilizes data from placer AI and as re to anchor tenants to surrounding demand to a much greater degree than.
Scott: Previous owners.
Scott: I'll estimate that we have about $50 million in acquisitions in the current pipeline financed primarily through cash flow and dispositions.
Scott: Switching on the balance sheet, our debt to EBITDA Ari was seven two times versus seven eight times a year ago and.
Scott: And we remain on track to continue to strengthen our balance sheet in 2025.
Scott: In terms of Whitestone is liquidity.
Scott: We have $16 million in cash and $98 million available under the credit facility.
Scott: Our dividend remains very well supported with nearly with a nearly 50% payout ratio and we anticipate strong dividend growth as we grow the dividend in conjunction with earnings growth.
Scott: And with that I'll keep my comments brief and open the line for questions.
Scott: Thank you.
Scott: Ladies and gentlemen, we will now begin the question and answer session.
Scott: If you would like to ask a question. Please press star and one on your telephone keypad.
Scott: A confirmation tone will indicate your line is in the question queue.
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Scott: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Scott: Ladies and gentlemen, we will debate for a moment, while we poll for questions.
Speaker Change: The first question comes from the line of Gaurav Mehta from Alliance Global Partners. Please go ahead.
Gaurav Mehta: Thank you good morning.
Gaurav Mehta: I wanted to follow up on Europe.
Gaurav Mehta: And comments around occupancy taking some space back can you provide some more color on why the occupancy went lower.
Scott: Yes, sure Hi, <unk>. Good morning. This is Scott.
Scott: The biggest the biggest piece of the decline in occupancy is from a <unk> effort of Taro Vita.
Scott: There was a low PE, there's low paying tenant in there at the end of the year. That's about a 37000 square foot space that was formerly a grocery store and we have two great new tenants coming in the pickler and Ace hardware.
Scott: So while we prepare that space for the new tenants take occupancy.
A slide deck there is a.
Scott: A roughly 7% decline in occupancy from the end of the year.
Scott: And that's the majority of it.
Scott: Okay.
Scott: Second question on your comments around $50 million in acquisitions and current pipeline.
Scott: Is that amount that you guys are looking at or is that something that you already have under contract.
Scott: Okay.
Scott: Dave Thanks for your question, Yes, I think we're we're currently obviously looking for opportunities in our market to acquire properties that match, our what we look for as far as characteristics in our ability to add value.
Scott: So $50 million is just as an estimate of where we are right now with our expectation. If you look back we've done roughly that level over the last couple of years and we funded that from.
Scott: From cash flow and dispositions. So currently that's what we expect this year, obviously, we are looking for opportunities and.
Scott: Our continued to do so but right now we're very confident in kind of that $50 million amount that Scott talked about being.
Being able to add properties, we've done that through that we've improved the overall quality of the portfolio I think we talked about you've seen the increase in our ABR you've seen the increase probably in our in our Green Street tap scores. So that's really an effort just to continue to add.
Scott: To refine and improve the quality of this portfolio.
Scott: Yes.
Scott: Okay, and then lastly on your debt to EBITDA at seven two times seems a little bit higher than six six times in <unk>.
Scott: Can you provide some color on your expectations for your leverage level this year.
Scott: Yes, I think we expect to end the year in the low sixes, that's where we expect to end up there is there is always a little bit of.
Scott: Extra NOI that comes into the fourth quarter around percent sales from tenants.
Scott: Tenants tend to hit their breakpoints in the fourth quarter and so we see.
Scott: A pretty sizable increase in percentage rent in the fourth quarter.
Scott: Doesn't repeat in the first quarter and then we also had some termination fees in the fourth quarter.
Scott: We're higher than we had in the first quarter here. So I think when we get to the end of the year, we expect to be in the low sixes.
Dave Holeman: Hey, Dave I might just add.
Dave Holeman: Yes, I think <unk> seen obviously over the last few years, our focus on continuing to strengthen the balance sheet through that we received an investment grade credit rating. We continue to be committed to growing obviously earnings per share, but also strengthening the balance sheet. So I think if you look back Scott mentioned the seasonality, but if you look back clearly I think were down.
Dave Holeman: 600 basis points from from the first quarter of 'twenty four I think it was.
Dave Holeman: Seven two versus seven eight.
Dave Holeman: Super pleased with the progress we're making we think we've taken some big steps there and you should continue to see us not only grow earnings at a rate, we think will be very attractive, but also have a stronger balance sheet.
Dave Holeman: Okay. Thank you that's all I had.
Dave Holeman: Thank you.
Speaker Change: The next question comes from the line of Mitch the gentleman from citizens Bank. Please go ahead.
Dave Holeman: Okay.
Speaker Change: Hi, good morning.
Dave Holeman: Wanted to touch on some of the redevelopment efforts I. Thank all of you.
Speaker Change: Providing some perspective on them.
Dave Holeman: No I get that you're doing.
Speaker Change: Work on pad sites. It seems like a lot of those though are a build to sell.
Dave Holeman: I just.
Dave Holeman: I guess more granularly like what are the projects that are underway at.
Dave Holeman: At your centers that you think are really contributing to that 100 basis point lift.
Dave Holeman: In same store.
Dave Holeman: Hey, Matt, it's Dave I'm going to give up just a quick answer to your question that I'm going to turn it over to Christine to give you some more details but yes.
Speaker Change: One of the things we've tried to do is show the building blocks for for investors of how we continue to have consistent sustainable earnings growth and a piece of that is through.
Speaker Change: Redevelopment re merchandising and making sure that we're getting the most value out of each piece of our property as you said in our deck I think we have a series of slides that shows the properties were working and maybe I'll, just pause and turn it over to Christine to maybe talk about the specifics I think in our comments she talked about Lion square, but.
Speaker Change: Christine.
Christine: You want to you want ahead would be great.
Speaker Change: Sure.
Speaker Change: I think the important part in the redevelopment processes to <unk>.
Speaker Change: Evaluate worthy opportunity the lease term at leases turn right. So we always evaluate the terms.
Speaker Change: And then look where we can turn tenants and improve the quality of revenue.
Speaker Change: In addition to that that requires some investment usually in the facade, but also into some of the ti with those tenants and so we found really good opportunities I think the one that we've used as an example with.
Speaker Change: Williams trace where we re tenanted with any OS fitness and that allowed us to free up.
Speaker Change: Some of the parking for some pads in.
Speaker Change: In addition to that Lion square is one of the larger ones that we'll be doing this year should be completed or the majority of the completion should be by the end of the year that.
Speaker Change: And that will allow us to re tenant some of this phase II to again higher quality of revenue.
Speaker Change: We look for these ideal locations, where we're also seeing adjacent development activity.
Speaker Change: So we ramp up some of those opportunities tied to where.
Speaker Change: Where we're seeing.
Massing, new development coming to the area. So.
Speaker Change: I anticipate that along those lines too for example guard <unk> since very large track next to it it should be sold at some point there is rumblings with various.
Speaker Change: Large grocery is looking at the site.
Speaker Change: When that turns we're already starting to do the planning effort to to invest in that property. The planning is something that's really most of the time when you do an investment like this most of it into the planning the actual execution takes anywhere from six months to eight to eight months to complete so youre seeing the ones, especially the ones that we.
Speaker Change: <unk> been talking about page 20, and 21 these are already in planning.
Speaker Change: We will start <unk>.
Speaker Change: <unk> the execution through 2020, this year 2025, and 2026 and we're already starting to look at 2027 and 2028 with additional properties. So hopefully it gives you a little bit of color as to what we look for and why and then.
Speaker Change: That's where we expect that we'll be able to drive quite a bit of returns in our portfolio.
Speaker Change: Great that's helpful onto the balance sheet.
Speaker Change: But there were some nuances some notes where a portion of some notes paid it seems like with the revolver can you just talk about kind of what happened in the quarter end.
Speaker Change: What is that lag.
Speaker Change: To push.
Speaker Change: Yeah.
Speaker Change: Leverage lower as I.
Speaker Change: I know pillar stone.
Speaker Change: Certainly something that is out there but.
Speaker Change: What else is it.
Speaker Change: <unk>, that's going to bring us into the kind of low six times range.
Scott: Mitch It's Scott Thanks for the question.
First the.
Scott: The debt that was paid in the first quarter was just some amortization on our prudential bonds that we rolled into the revolver.
Scott: To lowering leverage I don't think its going to come from both the increase in earnings.
Scott: That we expect to realize over the course of the year and over the next few years.
Scott: And then also cash flow from operations last year.
Scott: At about $58 million from operating cash flows.
Scott: Well to us.
Scott: A good portion of that to improve our balance sheet and this year I think we'll be in the $50 million to $60 million range in operating cash flows again and so there is both just.
Scott: Continuing operating cash flow improvement.
Scott: And certainly the pillar stone.
Scott: When we work through that bankruptcy process.
Scott: And we expect those proceeds to be.
Scott: Billy between 50, and $70 million, but it's hard to predict the timing. That's why we haven't included it in our guidance, we'll certainly also improve the balance sheet and lower our leverage.
Scott: Great.
Scott: One for me and probably for Christine.
Speaker Change: I know you and your team do a really fantastic job.
Speaker Change: Getting the pulse of what is happening at your centers in your tenants.
Speaker Change: Obviously with everything happening in the world.
Speaker Change: There is some likelihood of a consumer pullback and I'm curious.
Speaker Change: Some of your tenants on the service side or on the restaurant side.
Speaker Change: Seeing any indication of that trend.
Speaker Change: <unk> happening at this point.
Speaker Change: Thank you for the question Mitch It is something that we've been having a close eye on.
Speaker Change: It may have mentioned this earlier, but one of those that we see this as a trend more than just state a pullback, but alcohol sales for our restaurants have decreased.
Speaker Change: It seems like dry January is extending into the year, but we still have more related to people, making healthful choices and lifestyle.
Speaker Change: We have not we've been tracking quite closely.
Speaker Change: Fitness side to see if there's been a decrease in traffic and that has not been the case if anything we've seen a pick up on.
Speaker Change: Fitness again, I look at that as people really looking for the comfort of their communities.
Speaker Change: On the restaurant portion.
Speaker Change: We do have a few restaurants that are towards the high end.
Speaker Change: Surprisingly.
Speaker Change: That's probably been.
Speaker Change: A little bit where we've seen some pullback, but then we had two restaurants.
Speaker Change: They do serve a little bit more on the higher end of the communion in Phoenix just open with huge success. So it's been something we've been watching but we haven't really seen an impact just yet.
Speaker Change: But again closely monitoring yet but.
Speaker Change: It hasn't been.
Speaker Change: <unk> seen the full effects of it and we're also not seeing.
Speaker Change: People pull back from on the traffic yet as well so the traffic still there sales may be changing.
Speaker Change: Definitely do see the restaurant trade that they're starting to move again towards.
Speaker Change: A different mix for items that they're producing out there to entice people.
Speaker Change: It hasn't been a big pullback in sales yet.
Gaurav Mehta: I imagine Dave the only thing I might add.
Speaker Change: Christine is.
Speaker Change: Is spot on but I will tell you that her and her team do a tremendous job of picking the right operators I mean, obviously in any market.
Speaker Change: The right operators so.
Speaker Change: Our underwriting standards, our tenant identification standards have improved significantly since Christine is has taken leadership of that team and so thats a big part of why we're Whitestone does is obviously watching but ensuring we're picking the strongest tenants the local knowledge and data.
Speaker Change: Yeah, and I'll just add one more thing to it. This is really something that's been very striking is we're definitely seeing the contractors coming out of their books short ending in 2026, which is one of the reasons why we're looking at amping up some of that investment into the centers because we see that there might be a bending of the cost curve.
Speaker Change: With construction projects.
Speaker Change: Mitch.
Speaker Change: Any more questions.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of John Masako from <unk> Securities. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Good morning, John.
Speaker Change: So you talked a little bit about.
Speaker Change: Kind of what was moving numbers around on the occupancy this quarter, but if you included those two leases you talked about where are you.
Speaker Change: He brought in kind of a higher paying tenants.
Speaker Change: What was kind of a BD occupancy like assigned but not.
Speaker Change: Opened basis, if you will.
Speaker Change: Roughly.
Speaker Change: I think I think it was roughly.
Speaker Change: <unk>.
Speaker Change: Flat if you look at just tear of EDA and moving out.
Speaker Change: Tenant that talk Scott talked about in the two new ones.
Speaker Change: <unk> and Ace roughly that makes up our we think we were.
Speaker Change: We were 93 nine last quarter correct me, Scott, but we were down about 700 basis points from last quarter, and it's largely flat with those two new tenants we don't report.
Speaker Change: Signed not opened like some of our peers could typically it's not as big a gap for us because we get tenants open very quickly, but I think roughly it would be flat John.
Speaker Change: Okay, that's very helpful.
Speaker Change: And then bigger picture.
Speaker Change: Just to kind of the context of tariffs as you think about your shop tenant base today.
Speaker Change: Whats kind of the rough divide between people offering services and people selling kind of hard goods.
Speaker Change: Yes, I will.
Speaker Change: Start out in Christina probably maybe add some as well, but I think in our in our deck, we do have.
Speaker Change: A slide that talks about our mix.
Speaker Change: We've always focused on.
Speaker Change: Services and kind of e-commerce compatible tenants and so if you look at our our space that we've identified is kind of hard soft goods, it's probably 15%.
Speaker Change: But we we don't have your traditional big boxes. So our tenants tend to be a little less impacted clearly by by the impact of tariffs and I'll I'll, let Christine add if you'd like.
Speaker Change: Yes.
Speaker Change: One of the reasons why we've leaned in to the services side because of.
Speaker Change: The challenge in the goods being just pack.
Speaker Change: Pat.
Speaker Change: With Amazon, So we've always been defined or roll around.
Speaker Change: That in the community it has to be more service focused and so along with that I would say, it's really less than 15% if that.
Speaker Change: We've asked again checked and touch base with some of our <unk>.
Speaker Change: Restaurants, and again, they're able to pivot quite quickly so they haven't been as affected.
Speaker Change: We do have some.
Speaker Change: We do have ferguson's in the portfolio.
Speaker Change: Yes, we haven't seen anything from them, yet that would cause us concern, but again, that's less than 15% maybe of fat that's maybe a generous portion.
Speaker Change: Okay. That's helpful. And then I know, it's only 60 basis points, but your dollar tree exposure just as a reminder, our those true dollar trees are those family dollars and kind of.
Speaker Change: If they are family dollars, what are you kind of expecting in terms of the credit underwriting credit impact from.
Speaker Change: The split.
Speaker Change: There are no trees.
Speaker Change: Yes.
Speaker Change: I answered that that's it for me thank you very much.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen.
Speaker Change: No further questions I will now hand, the conference over to Dave Holeman for his closing comments Dave.
Dave Holeman: Thank you thanks to all for joining us today.
We very much appreciate your attending and your interest in Whitestone.
Dave Holeman: Pleased with our start to 2025 and really remain very optimistic about our business model and the ability to produce and different economic cycles. Obviously, there is a fair amount of uncertainty today in the in the in the economic environment. The Whitestone is positioned very well we look forward to.
Dave Holeman: Engaging with a number of you at upcoming conferences, ICSC and NAREIT and with that I'll wish everyone. A great day. Thank you.
Dave Holeman: Thank you.
Dave Holeman: Ladies and gentlemen, the conference of Whitestone REIT has now concluded. Thank you for your participation you may now disconnect your lines.