WSR - Earnings call transcript Q2 2018

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Operator

Ladies and gentlemen, good day, and welcome to the Whitestone REIT Second Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Kevin Reed, Director of Investor Relations. Please go ahead, sir.

Kevin Reed

Evan. you, Thank Good morning. Second REIT's XXXX Conference Whitestone Earnings Quarter joining Call. for Thanks

this Officer. today's the been Joining Dave that Mastandrea, Financial time, historical some and The call Actual are information our forward-looking may this on made Holeman, that note during statements Chairman call Chief supplemental and maybe factors. and fact www.whitestonereit.com this Jim not Acknowledging Officer; is to release Investor undertakes as of financial may may be data no a me earnings these number it call accurate SEC, detailed and be quarter that the and section. in other obligation press uncertainties differ today's Executive those and have with XXXX. to important second update our materially webcast X, statements. deemed risks, operating our website, only and release date, recent Please most forward-looking Whitestone's also August results Relations available Chief on information. period from Whitestone's filed the that discussion press Please including statements the and the this refer includes Form for of is of filings package a earnings due company time-sensitive call are with to a for company's note SEC factors. XX-Q to of

let the the allow we earnings reconciliation performance Jim are this pass to to certain of During which the supplemental Included financial understand believe With company. financial in measures. measures and non-GAAP to press data investors reference the presentation, we that, GAAP position the may me better of measures, Mastandrea. call release financial package and non-GAAP

James Mastandrea

our all for Kevin. second call. conference Thank on you, Thank quarter us joining XXXX you

achieving on e-commerce estate industry-leading long-term significantly our of stayed the industry, growth which e-commerce. the we IPO, We by investment predictable returns been of successful have Whitestone by stable caused differentiated our continued and from strategy on profitable to has focus our real a business of disruption the resistant model. and our stewardship the sustainable path implementation continue and impacted Since in

consecutive the period, our strongest strong XXX,XXX new We quarter, by the over of leasing community improvements our and value-add who the have we And success square tax represent businesses driven need of in activity. our centers from month are the benefiting of and our future leasing of six of off. are needs XXXX customer wants, paying factors: the industry that half The expansion. we attribute the markets of acquisitions that second the teams, marks with renewable landscape success For feet leasing continued And entrepreneurial the laser our to we've several neighborhood made extensive research produced cuts consumers. focus and economic and of [indiscernible]. first serve the day-to-day estate to real

rooms, friends. our by our operating properties of We high-growth over our transformed of region, share families net income dining that neighborhood revenues outdoor living their years from drive past the increased The visits X by consumers the entertainment and portfolio markets. consider extension their high frequency property property surrounding in venues, result with in have in to rooms, and a region property

in in million has increased this up or For square from XXXX months total period leasing period from of the value, XXXX, first XX% our terms represents $XX the lease and X XXXX. activity same footage in XX% million in $XX

company. for record highest in X-year now XX.X% owned quarter, produce second properties in second stands as represents a our best occupancy Our public the occupancies, and as continued quarter points year-over-year straight up wholly which our the increased operating well-located portfolio, a in during at history XXX neighborhood our high-household-income [indiscernible] to the basis

[indiscernible]. to is strategy anticipated we have the Our reasonably produce results

estate strategy owning understand acquired drive high-household-income stream Despite our and tenants, points real and costs leasable X record states. become within value-add benefiting letter [indiscernible] operating initial track ratios. the factors, neighborhood and turn, with XXX flow these in income X-year neighborhoods, is remains started We our this caused portfolio working. provide improving of our the from due ratio our disciplined leverage is also our to our our re-tenanting the include specialty driven tenant to and to this culture leased to in in increases properties remain of general to acquisitions adjacent for prime and management estate cities fastest-growing of control XXXX. here progress, second vacant. on component component numerous stated from improve now to in focuses annual local-based spaces land business-friendly rents, we team quarter e-commerce. and when factors time. the insulated of overhead and overall our by and necessities restaurants, in real These and and Digital grocery inelastic. that stated our increasing to proposition operating to remains and relatively of is medical, expandable producing of expensive targeted [indiscernible] In estate relatively XXXX many we unique well-crafted our entrepreneurial to drives shareholders, maximum base, the value-add administrative reconfiguring [indiscernible] an and years our in from on percentage paths through services footage. [Indiscernible] and reduction the our our by rents, country solid is services. how real the through tenants space, our The disruption, The goal insulating These have value of are is entrepreneurial including e-commerce stay, space retail stores, grocery, We improved intend net and revenue [indiscernible] more of psychographics go overall neighborhood, from basis around is achieve long annual made services. confirms [indiscernible] revenues I land and is owner ahead I demographics on cash X%. local enlarge period of turn, disruption with assets. entrepreneurial triple of developing strategy the necessities of and increase focused to add of are property properties. traffic. square Whitestone's underwriting our resistance, from of our spending that revenue rents retail, redevelopment, education By [indiscernible] and Our -- strategy tenants expense we footprint, traffic the landscape a lengthy benefiting consumer X% clauses properties portfolio development leasing disruption culture surrounding ever-evolving space value centered In my our

and increase improve value. that we we over our [indiscernible] flow As With X,XXX payout will produce to ratio will do, time. cash that are dividend property a results stable is will diversified, continue support and

upon call And build for Dave, seek with continue to turn to over please? as that, long-term additional I'll to We progress value the long the create our we Dave. term. shareholders over

David Holeman

incurred discuss Thanks, Please $X.X and professional most in measures to our annual Jim. meeting. the related will that XXXX and related note fees million of the exclude quarter in expenses financial ratios of impact the I

the on start to year-end XXXX. of quarter continue we said, Jim the of second As

operating same-store properties. in highlighted was Whitestone's X.X% by our nonwholly and portfolio growth including net X% quarter second Our owned

as goals and and towards our revenue to percentage expenses and by reducing progress leasing made activity We also spreads general our administrative strong XXXX of a XX.X%. had significant

and X.X% new of income let a year X% was points margin me or million ago, quarterly by quarter expanded acquisitions. new from same-store to Revenue the of $X.X give and result by same-store a Property growth ago, reimbursements. acquisitions. X.X% few as XX.X% from operating results. details of year a net $X.X the higher up million Now XX.X%, more driven for Property XXX growth primarily operating on or basis grew driven a XX.X%

points on and and Interest and quarter, $X.XX XXX,XXX excluding Spreads professional operations, General of $X.X expenses [XX.X%] basis, we on average X.X XX.X% was in leases, representing share, our a year the administrative expense million and was as meeting related to a XX operations Funds X%, share up improved XXXX increased X.X% term $X.XX and per total new XXXX. a from higher XX.X% ago. the Funds our renewal leases, from value, from increased basis revenue $X.XX quarter percentage on incurred blended rates. from The the lease in core year in per million feet new leases the operations fees due overall in annual interest or from future versus GAAP $XXX,XXX on of rise XXXX. years. and signed with revenues. core share a expenses size $XX.X and from XX% a in funds renewal was X,XXX increase basis. connection for During a average were borrowings were per $X.XX to for lease prior square lease representing feet XX square

few sheet. spend on me let minutes a balance Now our

We assets net basis have an with approximately cash-on-cash return unlevered total almost in on income real a gross investment million, place on approximately estate $X.X operating $XX of representing annual an billion, of of book X%.

structure and simple unsecured Further, with underlying debt one secured class corporate-level and combination mix comprises remains shares partnership operating structure debt. and maturities. and debt units a transparent capital Our our property and of of and a well-laddered of

years. fixed, weighted X.X interest growth of provides the of structure average had At from million credit a under capital of facility X/X We additional end and million feature. $XXX of end of approximately with support of term our to flexibility availability of financial opportunity. Our ending quarter, $XX average weighted expansion the quarter, at was X.X% us the the debt a with availability the an

unchanged X.Xx. the debt-to-EBITDA from Our largely first at remained ratio quarter

of owned We debt largely continue properties wholly XX unsecured unencumbered with out to properties. maintain XX structure, a our

to Page happy core guidance, our we year. will take included And for questions. of The from funds to we share with XX $X.XX reaffirming of details that, are be per are on range the $X.XX full our the operations your supplemental. to As

Operator

Instructions]. [Operator

from with Mitch will Securities. our JMP take first Germain We question

Mitchell Germain

a the and going schedule -- when that the time there? curious two properties you've I'm commencing bunch obviously, got just to were thoughts of with last particularly acquired is parcels And development within year. what line So land whole portfolio. of the about, you're to Any

James Mastandrea

XXXX. the so place long we've locations the the bring Yes, to in ground going been But when working But got we process. them looking on totally. and a mean scheduling, break to and we're now, XXXX. We're online of on to some We've it's -- start in entitlements expect plans. begin it doesn't we

Mitchell Germain

before ground? Or... do some plan you doing And breaking on preleasing

David Holeman

that Mitch, have then Absolutely, prelease intend Obviously there development that to we is ensure [indiscernible], and leasing. whereby phases significant we demand in is Dave. do to this obviously

Mitchell Germain

Got you.

that's record I we certainly least leasing So of levels have in I level, [indiscernible] because feel the nature think of years. But like a occupancy you levels lease done Do sustainable? levels obviously or I [indiscernible] for there's apologize. these you always XX.X%, several lot at [indiscernible]. rolling, short-term that think missed Do guys the of comments. current portfolio the some your you a of for are

David Holeman

there, Mitch, are up little I but Broke I sustainable. you asked a think levels bit what Is that these these think said? you --

Mitchell Germain

about occupancy. sorry I've here, some that. issues got for Yes, phone

David Holeman

That's all right. Sure.

said, year-over-year. in think, our occupancy properties we've XXX first As activity. X.X% spreads feel the we've such, year, leasing occupancy, strong activity as about the We half from of strong an leasing the I And had headroom very leasing good increased perspective. points great basis we've and or in the

continue increase to ability drive flow to additional about and our cash and we NOI. very So confident feel occupancies

from we -- had roll that the We spreads. obviously we had our ability also [indiscernible] [indiscernible] increases for [indiscernible] those leases also rental

Mitchell Germain

you. for any that? you've The plan Got but a to facility, credit there year, Last is about accelerate know got I one me.

James Mastandrea

Sure.

We conclude right, report for so got to that's like expect that we'll we absolutely We a and just a we've four-year tool we great credit you're us that. think to utilize. are renew -- extend But we've I absolutely, that, continue as and facility. facility

James Mastandrea

Can't you hear Mitch.

Mitchell Germain

you. done. Thank I'm

James Mastandrea

said didn't great probably we like it you a think Probably keep quarter, I up somewhat hear guys? you.

Mitchell Germain

Exactly said. I what

Operator

from Instructions]. [Operator our question We'll Kim SunTrust. take Bin Ki next with

Ki Bin Kim

of similar even occupancy revenues, when look NOI guys marginally, of And you better reported occupancy first X%. they I at up and in your revenue same-store NOI lease [indiscernible] was spreads, dynamic X%. But same-store sort were [indiscernible] this gave percent. rental points quarter this and XXX So grew declined grew basis improvement where kind in

some imported. that same-store be of could there spread. same just is between know I curious why GAAP [indiscernible] the for But there's rents reasons So

David Holeman

Okay. This A of is Thanks, Bin. Ki Dave. items. couple

rate, -- on that we've see that the some But between is globally on our from of you So movement statement gross legacy rental things of net converting that, been leases. the leases and one revenues. triple income doing revenues see we're the other some you

you're looking if revenues. rental portion the So a that's at just

total at one That's were look on I same-store X%. think if revenues you up a basis, we factor.

this larger looking were of just the of know I that instance, there factor with probably occupancy And [indiscernible] the properties. the improvement both continued of revenues. Another at end then leases but third drives some is is for quarter factor occupancy, the

on report So the what our is we wholly-owned occupancy portfolio.

reflects I think one to quarter was 'XX, during well. second occupancy that our to 'XX positive overall disposition of and time that period that from as disposition

Ki Bin Kim

back throughout Okay. And how the should about same-store half? we the revenue think catered

David Holeman

Yes.

I year of the growth is [Indiscernible] for half, the second think X% the X%. half year. same-store the we've given guidance revenue NOI about for is full our for portfolio operating first same-store growth or wholly-owned and

to continue those on guidance the we reaffirm areas. given So we've

Ki Bin Kim

of your but the talk the you? of to past And XX%, out. retail going your this me know couple quarters. and vintage comparable represents you of retail percentage the of But spreads I and all in line this Is And -- to keeps going these or drop that leasing, know. in different of from just happen you And let with can XX% leasing. is XX%

were talk So some the the leases spreads color you why on why, that of renewable? lease it can reasons was kind about perhaps of not pool, in

David Holeman

again. Dave is This

-- it's obviously criteria comparable. the if for determining I think define are leases we we

changing bit square re-leasing with we the was within doing there's of then sometimes tenants footage. XX not the what the if of, of the look smaller our last in just and footage square was we those little XX% is Obviously, tenant things. the it's bit expired -- renewed for there where more within with defined sub-data footage, think a sometimes I a standard, more square the leases months, a

been we've very consistent definition. in So our

new If the months, is square a the we've XX%. then that of comparable, within don't there's obviously pool, XX our leases But which criteria you last a look renewables. meet at within defined our high is percentage footage percent as it large and of

Ki Bin Kim

window? is that square the more because footage? more that it is timing XX-month And of of fact you're reassembling Or of the kind

David Holeman

And of all it's the have we -- the tenants, to obviously, a hesitate timing think piece. I'd some I factor of But some these I of with then a to think which move new with little space smaller And wouldn't ability comment re-leases. on do the of size the of those. bit -- that, around a I our you one. is more.

Ki Bin Kim

of first portfolio, it XX about [indiscernible. of And It question the at looks was square just on smaller just But the representing you total the volume think why be I of like retail feet. leasing That looks I Pillar, actually which think represents XXXX may on about in Pillarstone the year, end, any is which signed XX% half that high? number I which and it the leases smaller leases. X.X million tenants, commentary square feet know the outside

David Holeman

leases. being mean, Pillarstone a I X I years, you Yes. bit lease about X if term to think does guess, our have shorter little

a I ultimately use. think in make the different that other Pillarstone portfolio, properties there's some

So expect. bit just what is doesn't volume term. would a we That little -- lease

Operator

Instructions]. [Operator

SunTrust. Ki question follow-up a from take Bin will We Kim with

Ki Bin Kim

back. Well, I'm

David Holeman

That good. That's was quick.

Ki Bin Kim

I on that and days, cash really bit you the perfectly I on you finding rental if out show to for is the not it's a you've but past? CapEx. a part I renewal, what guys a little this but bit rate, do big economic not I of know basis, renewals than But rate those in a an it growth that deals it's -- on of it rental CapEx like not know more Are CapEx the is basis. said dollar of a seen apples-to-apples, So take little the spend apples-to-apples. basically

David Holeman

and leasing our think so. we the I'm TI where spreads looking incentives. mean, report I I don't at

the TI, efficient go into of [indiscernible], our than it's put predictable, longer than just larger you have cycle As But four a more much if last know, spaces. lease. current obviously have a you and the that some whereby and space over at incentives quarters, -- lease improvements life the the those been spend capital especially TI you the look beyond relatively

at I the the square of for a and, new foot renewals that. just being about leases think $X looking obviously total smaller

Ki Bin Kim

about The X. goal What you to drive from us your On to on X.Xx a Xx? X there how real walk-through you levered, elements here? just was last Can question stated get X your levered, here. give the

David Holeman

a to to committed long-term of We've Sure. goal X Xx.

it think long-term is a the there key goal. is I

we continue time, -- there's longer little so a make over And you'll But from us will to quarter-to-quarter, do that. progress. see

the think of leveraging our I biggest potentially growth, occupancy, recycling a with some and factors the in headroom capital lot the are same-store component. then

James Mastandrea

a which me things revenues. look that. occupancy let to we our can couple add There's at of drive increase, you'll Steven, that will And see Yes.

will our see some about as on development and see as from to bring Most you'll increase online. debt, kick this our assets anywhere of we generating IRR are also parcels percentage gear X% XX% and of in, You'll development the developments. to the that reduce the leases

going And that's for to the years. doing continue see those And just into that properties buy some one-by-one time to of been so long bring past value-add when you're It to happen. you production. a takes X what we've

Ki Bin Kim

is what retail is So a probably I on sustainable get occupancy, your mind, to portfolio hard it's the in -- but XX% the number know basis? say, you on at this, to can

David Holeman

that high-quality I of think extremely well great located. this is assets a portfolio are

properties giving that. of without had I shown we a against We've significant lease-up that this to time, there's year-over-year. number, value-add bought continuing over think of in we're and feel so properties And a many portfolio. there's room like lease-up, component where I of And that the execute

James Mastandrea

those if that or plus we a before the Ki and about marketplace rate, you'll increasing now happening. IRR to start this, marketplace of a property XX we're Bin, market have of get the terms we in have will you young up projected in that for at sales stabilized decreasing percent, see rents you that and goals have recall, our terms of talked is Since place company, when And we've all of least sale. probably some at we a in

in we're we our sell you're taken maximum the portfolio of expand that as occupancy, So going growing it. always them. we the assets mid-XXs to -- see of to the once value call going it, we've plan. That's we're out but can, And part the the

Operator

question our will with Ladenburg We Thalmann. John take next Massocca from

John Massocca

of So dispositions made sales any answer on change of assets? any the Have non-core the touching Has been there potential of you last kind of or gave. you're part in last contemplating? progress the on the scope that timing you

David Holeman

John. question, good a That's

think I doing. But as on process, execute committed obviously continue prefer in and report what just those we'd remain to the we to committed recycling to we remain We're capital. to we it. to

John Massocca

is mostly that potential buyer mean, of who buyers And on these might assets. of is perspective? kind I REITs I'm out this there kind investors, potential retail private a there I these? interested these in the smaller of any assets. regional it's from Just properties development other Are imagining be investors? for the primarily mean, color

David Holeman

Yes.

group broad in a seeing broad where, that of we're level of potential widely. marketing, think I we're the properties interest. buyers. And there's a seeing think I a category we're particular doing don't we're

James Mastandrea

having interest. actually fire restaurant in who Arizona restaurants like a We're buyers we're to a think assets. our lot mean, walk-throughs, a There's California of market. lot there the private properties. the particularly markets, entrepreneurs come is a own would our example, some are right in of our who've seeing of showings. capital absolutely money on now, of to made business, for a of I I looking and lot some at we're lot Yes, seeing And in of lot of

So that of traffic. kind we're seeing

it's mix, So Dave said. a as

John Massocca

made Okay. consolidation the Is OCA practical there And regards that to historical of decision the any then Pillarstone? gears. impact from the with switching

David Holeman

No.

I our explanation more you detail release. gave than we probably want in think press

no in treatment the a kind previous from activity has has our So revised accounting. difference back forth of and material really that that slightly accounting that's resulted

John Massocca

restate financials really Is not you is at just that something... going to to of require all? Or kind past that's immaterial

David Holeman

If we would that. immaterial, not require it's

Operator

[Operator Instructions].

Bin We SunTrust. from will take Ki a follow-up question Kim with

Ki Bin Kim

fight the and What comp to was spend nonrecurring more. due items? the One the proxy G&A,

David Holeman

question? question G&A So the was what was, I'm That's the proxy the the related sorry, to contest?

Ki Bin Kim

outsized G&A Yes, the portion?

David Holeman

as sorts That the proxy was of obviously involved of professional things. in firms mailings effort direct Sure. as expenses cost and related those well of contest the the

Ki Bin Kim

dollar The amount?

David Holeman

$X.X was of I'm the was Oh, million It months, million quarter. $X.X for sorry. X in this which

Ki Bin Kim

that is end the pretty -- that? And going to of much is that

David Holeman

Yes.

Operator

with is question FBR. Kucera from Our Craig B. Riley next

Craig Kucera

rents was I've But identified jumped revenue down a you trying portfolio of and I'm seen same-store over of about It what's something on late, I the this are so revenue occupancy's X%, rents the actual you going and last Is looks in Or same-store to have your answered there nicely. that I'm there? like up already. rental $XX,XXX. may the to -- call But your in reconcile have year. effective little on your kind missing your pool? up sort both then both your your what

David Holeman

of couple A Craig. Thanks, Sure. things.

I legacy is of leases done gross think things net leases. we mentioned our to some the one we've convert of

a lines So bit the and revenues movement revenues. rental you other in between of there see

at If quarter, those the you same-store growth was lines. second of for X% it revenue look the for including both

a possession when Secondly, there second the that look the at taking end possession obviously, tenants of the took occupancy, you timing, of there's were tenants quarter space. larger 'XX, of the quarter. at of the few In

So portfolio. that to see in then of forward. those And improvement also wholly-owned we we our the occupancy results when continued include report the portfolio, increase does our expected

period had level. that one property sold lower this time I during occupancy there a we think was

as are, leading to the and indicators, spreads, time leasing well it a contributed me through to the I the that results. to bit So think the But takes those for occupancy. of come obviously, occupancy

James Mastandrea

for net which those our stat of are X,XXX Yes. leases. XX% that you of a And just these tenants, I'll add triple is about portfolio, on

station gas them a converted. a converted converted gross example, we We've net. Wells we to triple Merrill a net. a to We net. converted of triple Like to Some Fargo from triple Lynch for Shell

leases a about And So of of XX% is significant those a the and have added that have lot we to of of does to charge in portfolio. fronts, able we're our number cost. operating this leases percentage done XXX What those them. on we've

increases, rent, plus and a doing rent. the we plus percentage they're get we when get base above well, that triple the nets, So the

newest positive percentage that results And at corner on Amazon our the a like Whole real generate Main one the will also also Main. We're tenant. [indiscernible] like things of which revenues. ads rent of is have to do that, of Foods, in and we particular seeing and some one we have that's estate We Foods, clause and Whole traffic, terms, generate in located, very

you think promising I have So the some to look to numbers in forward future.

Craig Kucera

Got it. Jim, kind you kind apologize. don't if leases out. from to of end And it on summarize again? or financial gross switching sort I but know your cutting could of just net what my the were you I end, was these for of of impact some leases is

David Holeman

No Craig. worries. that, do I'll

the I a twofold. think financial the One impact on placement is line. is different

triple a and financially, If from expenses other forward a lease rental provides other does, greater at some revenues, expense reimbursement. other protects increases net then than showing taxes look you reimbursement obviously, TAM, additionally, the of gross the revenues, in obviously, costs. and And in of up revenue going us

James Mastandrea

is at against that growing inflation. growing. an is got truly multiple. economy the Yes. protection is And We've a key And Texas probably

you have great types these when So you've a against inflation. hedge got of leases,

debt until So years. where amount the we We a and in is not The offset they -- our the large increases. much centers. -- X annual [X%] every big pretty usually small noticed really some payable strip by have the get it that's boxes, of it's year, relatively

estate real that our industry. So some you of make don't other -- retail it companies some that, a doesn't in comparable things have really the to like

Operator

time. And at additional [Operator phone there questions this Instructions]. no are

Jim conference Mastandrea to for any like additional remarks. So or the turn I to back closing would

James Mastandrea

operator. to set of you, in sitting Well, achieving, a been that this numbers Yes. some Thank the for also record we've call. addition time we've

us call. for second conference So XXXX our I thank all you in quarter joining

in of create half to for And you at our available visit the provides ourselves to very start solid any make to shareholders. long-term do. also, or if value with might our like you'd to easy some the We to Our that's us of look confidence XXXX properties, ability first us have. questions

give and let Just a Thank us us call, you. know.

Operator

thank and participation. for your This today's concludes call, you we

disconnect. now may You

Whitestone REIT (WSR) 2 Aug 182018 Q2 Earnings call transcript