WSR - Earnings call transcript Q3 2018

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Operator

Good day, and welcome to Whitestone REIT Third 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 at Whitestone REIT. Please go ahead, sir.

Kevin Reed

Anna. you, Thank thank XXXX and joining REIT's Whitestone Good conference you call. quarter earnings third morning, for

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

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

James Mastandrea

for on all us Thank third conference XXXX you joining our call. quarter and thank you, Kevin,

growth. strength in and number, from the Whitestone's tenant, are and economic the to entrepreneurial country's benefiting As momentum, service-based in participating continues gain economy over X,XXX

structured the gains shorter-term are rates allow of Highlights income. includes and percent from third occupancy, strength benefit frequent of They leases have in rent include allowing and Our the net increases rental duration, bumps, the more strength quarter our and tenant. of to revenue [indiscernible]. economy revenue for to operating annual Whitestone our in

Continued of improvements in the right. execution portfolio, on overall activity, dispositions, pursuit development operationally activities from timing a the selective move opportunity positioning and to our both selective Whitestone quality acquisition and of when redevelopment quickly is

shareholder Dave primary comment business in per these cash to are property value. operations, for that guidance long-term the turning in we committed Core full XXXX to property XXXX this which FFO year disposition to our Core lower our were will Before comparable model items greater costs than call. pursuit growth added and borrowing on his this back earnings efforts and I'd grow fact in detail differentiated on XXXX. portion share share we periods the inclusion XXXX. reducing execute and flow our during in of our acquisitions as acknowledge and dispositions assured are of remain quarter The per focused cash that today's increased and E-Commerce costs, for and FFO Resistant in flow, reasons He

property X% XXX center we increases quarter-over-quarter, team's quarter-over-quarter, of of Our quarters customers' centers. occupancy have year-over-year first year-to-date. needs customers growth services knowledge with bps revenue X.X% our to grew year-over-year. our Targeting on ability continued to and by add XXXX of the of improvements results rent value up and square for quality due months our and our These X.X% in XX research year-over-year nine and focus enhance for tenants the year-to-date. X.X% Same-store resulted three that the Base of bps NOI feet. was achievements the X.X% were as X% and X.X% [indiscernible]. and over community for nine This leasing needs also quarter-over-quarter. Same-store right leased and months leverage our XXX,XXX quarter-over-quarter our

significant properties income an neighborhoods of traffic a is consider that net located [indiscernible]. entertainment outdoor as business will rooms, in extension the portfolio And are properties are increase, consistent customers increase our incomes. their of dining communities attributes household growth as markets, with of living rooms, operating to our are investment. well properties to our One our Neighborhood who well. These continues venues and in proven

occupancy In our our as growth. addition, expands, [indiscernible] guided real estate

and [indiscernible]. at X.X% quality In operations XXX,XXX selective of through in dispositions. We quarter, the our continue our surrounding financial portfolio properties a buyers improve maturity overall $X.X square sell show neighborhood. we third cap through foot sale the We We focused the that the legacy to asset market, consumer maximized of trailing million. potential monetize the knowledge or and rates Texas located needs the and in sold proceeds

enterprise both that through and over marketplace be and is strategy at dispositions level value time will property creating [indiscernible]. Our recognized the selective property valuation

produce entrepreneurial local development value [indiscernible]. redevelopment to focused property. and within Resistant necessities expand E-Commerce primarily and by tenants We opportunities are property designed provide on by shareholder Our capturing opportunities around long-term and value services. to added We leasing the

growing our are nearly to more and property developing parcels properties. increasing Amazon. foot which in portfolio. or adjacent our attracting and an our Boulevard which Place Foods XXX,XXX increasing we example redevelopment full are office. reconfiguration, successfully land full Whole Houston, we out of square is value Since owns additional purchased rents our of excludes tenants, acquisition, retail footprint, One some Uptown ultimately purchase Specifically, of our Through land by was on

our benefit in have leases Amazon capitalizing to transaction, brings on increased it however do for the Amazon's the We crisis in added and we recommendation value take no be the increased [indiscernible]. revenue credit the with the we sales community the capturing present location. will property this the on While to by traffic at center the of we

as Our strand DNA. to culture, I you remind all want of a creative

We and cinema Rooftop have an rooftop at Uptown a into [indiscernible] Houston, venue London-based unique the Researched open found and a roof floor Club, theaters. unparalleled experience foods, a we entered venue cocktails, the on which Boulevard This lease a Cinema fine our of them York, overlooking For social structure. air of traditional the and the downtown with top on where creates to releases LA New London. operator for idea than at movie-watching of apartment in more area garage atmosphere brought screenings Place recent Houston. movie Galleria and and scenic sunset example,

rent the along revenue. with a the as amendment have welcoming in agreed and Whole NOI We to bring or and percentage rooftops triple added we cinema effective which a This addition and our value fixed added our breadth rooftop our plus uses our Foods cinema, customer no net cost rent base virtually improvements add launch Whitestone in differentiate exemplifies tenant properties. to like now property. both unique identify increases revenues to This By cost to leased idea received traffic. depth our we revenue to market.

are working of planning other opportunities that at several We on redevelopment and are also execution. different stages

provides by with we make of disciplined add selective additional these progress opportunity. and acquisitions, continue of updates. With When the right the to do, in our on sources for will significant us the As opportunities capital we opportunities matching new them, acquisitions. timing value regard acquisition will finance be we market provide right knowledge to the we

property new on focused we while During to sizable this potential our pipeline the balance past have year, strengthening markets. primarily we acquisition add operations, maintain continued in sheet, a dispositions, of value respective

acquisitions. additional opportunistic and appropriate we will levels, pricing timing reach making be the As

G&A will acquisitions contribute accretive and our long-term improvements positively to Additional debt in goals, to [indiscernible]. ratio our EBITDA ratio our

We corporate our showing on G&A. are key initiatives to progress already reduce

Specifically, of this also XX.X% from period percentage September, program. of beginning year. as revenue. our points year recycling We've last of a we debt basis the our debt. the we of used to end a property capital excluded XXX third of reduce have same We year-over-year portion reduced quarter improved as Through percentage sales the revenue proceeds G&A a XX.X% of and reduction G&A made on to a ratio,

most people. Now let asset, our valuable address me our

consumer tenants drive coming some to future of resolve of FFO ahead We FFO strategy is per the of increased high believe growth around entrepreneurial efforts our ultimately centered team. and experience and values. intend the is to growth drive priority viability led culture property owning in will driven shareholders. [indiscernible] years. to value whose of our the performance-based Whitestone tenants. a ability building their together experience management with the first All Our our deliver team in stay pursue filling to the culture that continue by proposition in revenue, approach with unique long-term understand our our share. in They're these value ever-evolving to them by assets landscape markets proven and We opportunities, woven value is and entrepreneurial a prime this

that leases, [indiscernible]. with large Dave. record large is our share over track call of and our We creating diverse key downside along the the model and reward tenant of our We our our over believe base recognize also our increased conclusion, value time turn to remain marketplace I'll success improving. and cash closer with the to metrics negligible. optimistic our many will In David? business performance of shareholders and With in that is flow price that, - diverse structures

David Holeman

Thanks, Jim.

continued and with and operating rate, we progress successfully a spreads, fronts in cap our of percent revenue, That leasing in during during strong the Jim as occupancy on X.X% highlighted administrative levels, third strong positive several costs the improvement same-store disposing and income growth continued of progress As to general quarter make of X.X%. a at activity properties net quarter. our improvement said, by

Same-store on from ago. let grew Revenue the property X.X%. or details was by X.X% from year of a give driven This for growth Now me up net or ago. revenue $XXX,XXX X.X% quarter year operating $XXX,XXX same-store a few results. was a income these

second portfolio, the the from points our portfolio, the And pool operating points XX Our occupancy our occupancy same-store XXXX slightly basis points points XX grew a our inclusion year-over-year to our our XX due year-over-year. the second occupancy XXX of and same-store points down growth year-over-year was second QX. In sequentially grew and quarter. from in our wholly-owned basis grew year-over-year acquisitions in grew basis operating XXX same-store portfolio XXX basis basis total our the In and quarter basis quarter. points sequentially X.X% for in same-store from occupancy the portfolio quarter

and size overall feet value positive XXX $XX.X new rolling prior professional of with square in lease $X.X months quarter million at share the containing our GAAP flat in from plus were term XXXX. fees feet per signed of per by and of a in on XX rental disposition signed pursuit versus leases, year XX.X% The NAREIT a discussed X.X revenue and revenues. years. back approximately ago. increased increases $XX.X primary from was were by presentation a an leases for which income we Interest per were of Both positive the $XX.X year-over-year $X.XX per from a on share renewal and XX.X% operating reasons excluding our offset the in Spreads a interest expense increase percentage explanation year interest The year, XXX,XXX costs share NAREIT average or of core new Funds the FFO during quarter, reduction lease and increased a administrative General to or changes $XXX,XXX share were decrease of in increase XXXX. per costs, expense, prior the $X.XX the and The total net XX.X% or future in on basis for share compensation a increased of X% and year added rate. driven renewal XX.X% primary our basis. representing acquisition count accounting X,XXX expenses, in acquisition million in average in of of and square quarter FFO operations and $XXX,XXX. During these Core were X.X% share. our not a blended improved in from items stock $XXX,XXX the was the on from to the leases the XX was in XXXX. rise lease a increase prior million FFO million the the bps as $X.XX

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

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

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

ago. weighted quarter, support end X.X of a a years. rate X.X% growth financial of of provides our approximately feature. structure million $XX million variable the remaining two-thirds of approximately to term The the flexibility had the with opportunities. average on at credit with additional and under capital rate rate from Our was and was At quarter $XXX end up X.X%, fixed year us average of X% the availability We a debt average facility availability the an weighted interest from debt our of our an accordion of weighted the

which to with second was debt X.Xx, at year. was the the and down EBITDA ratio beginning flat Our quarter from of the X.Xx

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

$X.XX, from in $X.XX be from and costs compensation income to NAREIT the operations FFO to our year. net incurred the decreases $X.XX includes contest, year-over-year increased by XXXX, and which our $X.XX XXXX. contest, XXXX cost And for $X.X be in in share and range be to from the stock same-store in interest rate lower reflect improvement on positive defined the to are questions. growth of guidance to We completed per reduction in pursuit are These with I happy dispositions We offset to in XXXX, full-year of range be $X.XX to proxy NAREIT and from and your to will costs, reduction, million $X.XX fees professional to FFO primary and $X.XX related $X.XX our NOI fees driven $X.XX in changes FFO of rates. proxy variable approximately our project funds take are updating by in increases the core. range G&A XXXX dispositions full share higher year-over-year acquisition Jim impact of from disposition property interest of to professional XXXX projected acquisition a incurred cost of in that, positive in $X.XX costs $X.XX $X.XX Core per the related our The

Operator

a question Hau with Instructions]. SunTrust. now [Operator take We'll from Anthony

Anthony Hau

the mentioned previous lender you a guys XX-Q, tangible Have that valued net one you at In covenant. had set? the with your of worth reached loans resolution

David Holeman

Yes.

normal credit customary the facility, our So, have covenants. and we

of an those as a GAAP were any compliance with One on that is the We a not lenders, quarter. we with received waiver. slightly of a of issue second but network. the Was

credit a I of new think I which mentioned has updating on about we're maturity facility, of in left the our it. year process

the I - no of to get third but be expect the by lenders did reset that a we so And and covenant. to that waiver again are year-end be in quarter, there any absolutely issues regarding with

Anthony Hau

this, you're or missed the I are what do assets use acquisitions? maybe sell, for Is the And match us proceeds down for? plan to it you X to to but debt paying planning that What right?

David Holeman

added to to feel to value. I both to look and and But Jim have think we add recycling properties do we some value the we we will where on look we comment own as look I we this. like capital the obviously of company, grow

using an overall so this two which that of some probably they there recycling those have with for the portfolio, far others, had capital, the well completed effort on of proceeds and of out property also differed We close. acquisitions comment we the as some we debt, quality we selling to so we think But year, sense. improve are as makes reduction as continuously properties,

James Mastandrea

to believe, area. and occupancy market we the of stabilized closely. X fairly has that X occupied, Everything risk buy what mile equivalent value-add will fill or I surrounding occupancy often XX% think at to towards is only mile a it component and something our we - it percentage and assets begin the looked stabilized, that's them we your we you've to Anthony buy the means as XX% to

and at seems we discussed. So in with that we buy I've also opportunities which the to look add value, view mind, like rooftop

put we've sell around some seen. to - what value for tenants, getting we've now. And point we're to some are to and feel when - to back book bought, the but then So be in small legacy you'll years look just can compared had, getting the if seeing they assets effective the IPO at where know you of the assets as be the we we we price not and it now that them we price, a the up look is opportunity you management as as did of as our you've be our the the - we sales space that only got, no the a where ready you We as sales of of you'll point are longer entrepreneurial paying getting downcycle, value-add property turning few as at lot seeing well have, you a sale. in if team the

You at a when at look might your look asset forecasting take value also well. you that as calculations net

Operator

Brandon our take next now Ladenburg with Thalmann. Travis question from We'll

Brandon Travis

John Hi guys. I'm for Massocca. in

the With set opportunity outside for Square - is the Verizon mind what in of Torrey capital morning, of portfolio? good recycling the size

David Holeman

Brandon, guess said question? would that you I that repeat - you

Brandon Travis

capital the What set Verizon recycling is the outside of the Yes. for size opportunities portfolio?

David Holeman

$XX not we $XX data Yes, in I a I our updated and our so year have - think think number of - guidance dispositions a of this our range to in as million. guidance. million supplemental We given to gave

So, where probably into out We'll that's to this year. look we believe as at go - opportunities think capital can we I what value better think forward, there add continue by is I assets. we recycling

Brandon Travis

portfolio Pillarstone, Houston-focused? strong a better is the you on is also Would performance? the to it then driving market oil And Okay. given what relate

James Mastandrea

So a of couple things.

assets number have that is - portfolio. we Houston have driving it we we all, of Currently, What's itself. First the contracts limited a XXX in have of market.

the mean, XXXX through in that. this debacle XXXX tax from a been strong. policies we since I are we relatively well. lot market has always think been the tailwind and came Texas built of I've I getting into

tax the for space, you're continued in been acquire you're seeing we're have performance well-located that and properties And - slight leasing. a seeing the seeing implications, are you companies [indiscernible] opportunities that that So to managing portfolio.

Brandon Travis

And then quarter the Pillar for also be portfolio, in other to expenses. outpacing seems to in it's the and regards revenue Stone higher operating

reimbursement. touch not on that? be quite Can you all So, what could driving

David Holeman

some I am typically with in any anything - revenue continue unusual not that know cost. obviously I in other was telecom we Brandon. I as with not of to the have portfolio the - can't aware I'm quarter, drives specific looking have that to property the anything, you you in obviously, the and we tax you thinking in operating quarter, mean of terms remember are items said, the

Brandon Travis

then pressure interest and given your plans what for Okay, debt? additional low on curve, of the the end swapping are out

David Holeman

to can and commitment that Obviously, the debt portion the maintain us match debt. we really the credit rate With - greater to shorter-term piece our for we done a bigger to we've others. We've reasons; then variable for our our rate leverage secondly expect prepay interest our some it, one facility ability continued we revenue. in leverage levels of the update giving is increases of lower said, a to that and leases, two and fix with the rates on raising we like as of by feel our economy amend to

increase you'll to we're that think the XX% about and year-end. probably look to XX% see fixed Today that I So we'll by range XX% up. to go

Brandon Travis

more for one and mean you. I

a On of or incentives, couple specifically? the the properties TI those a in spike maybe to renewals large attributed and of percentage

David Holeman

commissions because restaurants. Place had did Houston. at period it at number and spreads any in leased couple we obviously amount. a leases. don't hit to large have spends a - We the within have We other had TI new rolling we good quarter a over was really some of restaurant That large a Boulevard and are a larger of It's look quarter during TI

couple see larger did of a that What tenant for we number any look of didn't larger that increase. general see So we improvement made deals portfolio the quarter. good this were kind is the

than handful larger we couple trends, leases we obviously of look TI I - a a blended seen overall any rate with think amounts. and haven't bigger other at a

Operator

from a take Craig FBR. with question We Kucera Riley will B. now

Craig Kucera

resolve I But credit. mean the into Apologize that collateralizing taking these I consider want I How had you to does are of care to Pillarstone some really ask I come that an the hop has about on. to that asked line Pillarstone as if recasting of that? you the before think of And or anybody already. issue? know assets just is questions not need line. do you

David Holeman

issue. It's not an

year-end. So has to are secured today. will Pillarstone financing structure Pillarstone have issue, will we - way properties today, in Whitestone then own really think included that new by mortgages not expect its does it's has any its really credit Whitestone But out capital a and I there it are impacted Pillarstone debt then in we of facility own outside Whitestone's And structure have loan and its by It take an has creditability own from substantially the not four in that Pillarstone the that. and amendment. is being and repay

James Mastandrea

me back should responded pure we you you Pillarstone, it for a don't said, lot about I Whitestone How pure that we want up in let can. company. structure have to that - And assets. retail want if take those don't play, investors a give seconds, we it. came value we Just can in to play any saying XX RA to of become Pillarstone and how a to also making

we so - upside get the now. can we So can

is, a huge on that investment the we amount found them what over of did the any in company. of the bank can influence to on where for So would us mechanism, alternatives would and out to those find laid participate explore say, spin a a off And and we take I be an off, upside them. different we a should some still value Whitestone mechanism, downside have comes assets

the raised sheet. to done be needs sheet, That valuation off where balance balance were. Whitestone's they it in assets to those on or to be So, a any of borrowing excess not do bring any equity, would

we did still rates we execute So reason behind we make on have it [indiscernible] that's shareholders. could purpose the control that it sure the the and we actually real that so wanted of to

Craig Kucera

the terrific you velocity incremental leasing the Are all assets, year. But strength here the Yes, as color. this quarter? and into quarter see continuing fourth enter going we wholly-owned appreciate to I

David Holeman

say you we between Now I exciting [indiscernible] and spaces, CUBEXEC. called one XXX are, built product owned out. feet by XXX% stuff. the building our there's space square We maybe primarily tiny a a give where example. incubator we've say created users and we square this are It's will XXX out We're which blend retail seeing feet the for in this is maximum I'd small pretty or to in companies. some Whitestone in centers

businesses our this for The with first they lot it's one numbers that huge - we built X out, X benefits are our small restaurants of if they the can for tenants door business can thought I Internet, the the or street we've they rent had we our - just to And communications such you a millenials feet, we down get they starting of they way because a [indiscernible] around the space. the run tremendous within from want lounge and of want to anyone property tenancy, success, month, it these while the now give there, out the is observe that's day, new about approximation working X,XXX people [indiscernible] for a do. square the month last can $XX,XXX the and on they day, their getting cigar clients to can walk to have kind us for there, bench can of walk they can take

really off is for product us. CUBEXEC taking So, this

about and at expand to looking We to three decided it have feet now we're we're square it, going so XXXX other add since locations.

a get things we would the By that one we're you. to to that's doing difficult So to space see was love really the a chance it it, exercise lease. to show But very backspace way the of if you that.

Craig Kucera

me. Okay, and from more one

on pretty You pricing you potential moving - around? Are front quiet the external growth year you transactions and years. it's looking of prior kind how at versus have been this any are

David Holeman

- we focused we as remarks in the we've on talked doing think comment operations. a been that of Jim I is we've been things well. about I'll I our think let little one bit But

look We to will business But and to some balance going right believe there active feel but obviously - we at be is disciplined can and our and strategy a larger asset be larger our recycling a We're sheet. we kept that focused we've scaled the over be right in on out timing, and operating continue the actionable. the then really also future. pipeline be that like model very price

James Mastandrea

add to and fairly management And usually the We've occupancy that. on some buy, and similar a we the of very prices assets I'll the either consistent. the stress. got either pipeline pretty there assets And type stress, are stress

Here but owned left have development on it may one somebody with it it. went some by asset who asset, own is major need company, great a help they is out a their and

that what of make learned these of business that So year, is start gone real at operating we We're more the cost we've these side got desirable in. markets this well. just estate we've capital, assets in looking in we the our currently has and - XXXX, we're reducing wanted our tremendously to working towards

them. And and really a of on because down capital our cost bring lower we're so working the capital about capital, can learn to cost of with we now exercise structure that knowing

to our we value, and in place We with have bring we in mechanism real of on place, we matter and the cost and we value-add - opportunities really enough business extract our that model have create now in infrastructure company capital. lower have within a estate can grow have now with is the place, portfolio, to

Operator

We'll Securities. from with now Germain take JMP question Mitch a

Mitchell Germain

willingness agree of there some you've you've their to back the their many to in really to more customers of more downside changed today with rates customers. smaller touch your or businesses, mind? of in any with I about on your maybe all push sentiment recently, seen leases? kind would anything Anything and So regards of risks Obviously changed economic I'm points at the terms Is entrepreneurial-type sign the than think some had curious lot of a - given -

James Mastandrea

business Internet than we're I'll And being and resistant Dave in But probably to focused can is [indiscernible] start and what a willing Mitch. Good definition off and today jump a model are you a Haven't business finding really businesses. from regulations the while. that's of in, heard the with better rates legislation for type with morning, we're The on. company. on we retail the more is, what are expand reduction the getting of tax entrepreneurs some Mitch.

to take for seen like that's well-located people range. entrepreneurs - at the seeing millennial we areas their risk and have in sitting seeing different at the been good tenants market, into in X people. and and outside. collaborating at found more back age We're or more QX ours. gathering X to a is we We're QX, the going we've properties these in of think a see come we out that So interest been we'll What particularly lot more location lot example willing that

that and the commitment a their seeing at sign entrepreneurial So I week's have to Street looking where the expenses, had Wall networks this a important it. types of of is X.X begins have well. gone traction at the million Journal, to coverage York Brookfield through they smaller saw in type an they least look networks, What's look that. we some lease, that we're lease as we tenants for and the model for New group

covenants that permit or replacing tenant from negative don't our things will annual have assets. through are X% one covenants [indiscernible] sign, leases to businesses, No we our point. the and loans they a What X% we are the will In leases. us We committed small at percentage restaurant their occupancy like to permit have increase business restrict that. they in dissipate any to break subordinations

it it ownership real versus puts hand. a estate lot the has our So flexibility the in hands of and of the tenant's

Operator

the or any questions, over closing for to time this further there Mastandrea at telephone like And additional Mr. are turn remarks. I'd to no conference

James Mastandrea

So thank you.

briefly us call. in conference you all would XXXX to today our I quarter like third for thank Just joining

meeting. with FFO results pleased are lines, We solid we that to along you share. us in our providing expect our they long-term conclude I increase continued shareholder per and are confidence create will thank future and some ability I and our true really value those with

Operator

And does now all once you may today's for participation, conclude you again thank conference. disconnect. We your that

Kevin Reed	Director, IR
James Mastandrea	Chairman & CEO
David Holeman	CFO
Anthony Hau	SunTrust Robinson Humphrey
Brandon Travis	Ladenburg Thalmann
sCraig Kucera	Wunderlich Securities
Mitchell Germain	JMP Securities

Whitestone REIT (WSR) 1 Nov 182018 Q3 Earnings call transcript