Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Whitestone REIT (WSR, Financial) achieved its 10th consecutive quarter with leasing spreads above 17%, with a combined total straight line leasing spread of 25.3% for the quarter.
- The company increased its same store net operating income target range for the second quarter in a row, delivering a same store NOI growth of 4.6% in the third quarter.
- Occupancy improved to 94.1%, marking the second highest in company history, with anchor occupancy at 97.4% and small space occupancy at 92.2%.
- Whitestone REIT (WSR) has been successful in its remerchandising initiative, leading to strong results and momentum going into the fourth quarter.
- The company has made progress in deleveraging, improving its debt to EBITDA ratio to 7.2 times and is on track to achieve its year-end target of 6.6 to 7 times.
Negative Points
- Whitestone REIT (WSR) faces uncertainties regarding the timing of proceeds from the Pillarstone settlement, which could impact financial projections.
- The company has a significant portion of its rents coming from the restaurant sector, which is facing challenges such as consumer pullback and higher wages.
- Real estate taxes increased due to potential tax rate hikes in Harris County, impacting financials.
- Despite progress, the company still has a relatively high leverage ratio, with plans to continue deleveraging over time.
- There is some uncertainty in the leasing pipeline, leading to a conservative outlook for same store NOI growth in the fourth quarter.
Q & A Highlights
Q: What were the characteristics of the asset sold that made it a candidate for sale?
A: David Holeman, CEO, explained that the primary characteristic was the limited potential growth and value add of the asset compared to the potential of recycling the capital into an asset where Whitestone could apply its strategy to add more value.
Q: Are you seeing any impact on your restaurant tenants due to consumer pullback and higher wages?
A: Christine Mastandrea, COO, noted that while there might be some flattening in sales, Whitestone's restaurant operators, who cater to middle to higher-income customers, have not been significantly impacted. The company is cautious in underwriting its restaurant operators.
Q: Is the Pillarstone settlement expected to contribute to deleveraging this year or next?
A: David Holeman, CEO, and Scott Hogan, CFO, indicated progress in the Pillarstone collection process, but due to its complexity, it's uncertain whether proceeds will be realized this year or next. The core FFO range remains wide due to this uncertainty.
Q: Are there more assets in the portfolio that might be sold in the future as part of the asset recycling program?
A: David Holeman, CEO, stated that Whitestone continuously evaluates its portfolio to determine which assets to recycle. The program is not about disposing of non-core assets but ensuring the best return on investment for shareholders. Some level of asset sales will continue.
Q: What are the expectations for same-store NOI growth for the fourth quarter and what drives the guidance range?
A: Scott Hogan, CFO, mentioned that while there might be a slight pullback from previous quarters, strong same-store growth is expected in Q4 and into 2025. The guidance range is influenced by the timing of leasing activities and new leases.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
