DEFC14A: Erez Seeks to Shake Up Whitestone REIT Board with Nominees

Erez REIT Opportunities LP is soliciting proxies to elect two nominees to Whitestone REIT's board at the upcoming annual meeting, aiming to address perceived underperformance and strategic issues.

Summary

• Erez REIT Opportunities LP is seeking shareholder support to elect Bruce Schanzer and Catherine Clark to Whitestone REIT's Board of Trustees at the 2024 annual meeting.
• Erez, which owns approximately 1.3% of Whitestone's outstanding shares, believes Whitestone's stock is undervalued and aims to improve company performance.
• The annual meeting is scheduled to be held virtually on May 14, 2024.
• Erez is using a BLUE universal proxy card to allow shareholders to vote for their nominees as well as four of Whitestone's nominees.
• Erez believes Whitestone has chronic underperformance, repeated stock sales below NAV, excessive leverage, and an inefficient cost structure.
• Erez estimates that value-destructive stock sales have resulted in a loss of $75-$80 million in shareholder equity over the past 13 years.
• Whitestone's leverage is at 7.9x debt+preferred/LTM EBITDAre, compared to a peer average of 5.7x.
• Erez estimates that Whitestone's excess G&A is approximately $7.5 million per year, reducing earnings by approximately 15% per year relative to larger shopping center REIT peers.
• Erez intends to vote FOR the election of the Erez Nominees and the Unopposed Trust Nominees, FOR the proposal to approve executive compensation, and FOR the ratification of the appointment of PKF as the Trusts independent registered public accounting firm.

Sentiment

Score: 4

Explanation: The document expresses concerns about Whitestone's performance and strategy, indicating a negative sentiment. However, it also highlights the potential for improvement with the election of Erez's nominees, suggesting a slightly less negative outlook.

Positives

• Erez believes that Whitestone has an attractive portfolio of shopping center properties.
• Erez has nominated two experienced trustee candidates with deep shopping center and REIT industry expertise and capital markets experience.
• The election of Erez's nominees could lead to a re-evaluation of Whitestone's strategy and potentially unlock shareholder value.

Negatives

• Erez believes Whitestone has chronic underperformance relative to peers.
• Whitestone has repeatedly sold stock below NAV, resulting in a loss of $75-$80 million in shareholder equity over the past 13 years.
• Whitestone has excessive leverage, with debt+preferred/LTM EBITDAre at 7.9x as of the most recent quarter vs. a 5.7x peer average.
• Whitestone's operating platform is subscale and structurally inefficient, with excess G&A estimated at $7.5 million per year.

Risks

• There is no assurance that any Trust nominee will serve as a trustee if our Erez Nominees are elected to the Board.
• Voting for Trust nominees other than the Unopposed Trust Nominees may result in the failure of any or all of the Erez Nominees to be elected to the Board.
• Erez may not be successful in its proxy solicitation efforts.
• Even if Erez's nominees are elected, there is no guarantee that they will be able to improve Whitestone's performance or unlock shareholder value.

Future Outlook

Erez aims to improve Whitestone's performance and unlock shareholder value by electing its nominees to the Board and encouraging the company to pursue strategic alternatives.

Management Comments

• Notably, none of Whitestones independent trustees have any material experience with shopping centers or real estate capital markets or the REIT industry.
• Given the reports that the Board summarily dismissed the Fortress proposal, we believe the Board misunderstands the valuation disconnect inherent in the Trusts current configuration and the relative advantages of a sale.

Industry Context

Erez's proxy solicitation highlights concerns about Whitestone's underperformance relative to its shopping center REIT peers and the broader market, as well as its capital allocation decisions and cost structure.

Comparison to Industry Standards

• Whitestone's total shareholder return (TSR) underperformed the FTSE NAREIT Equity Shopping Center Index by 20% in the five years preceding October 25, 2023.
• Whitestone's Price/consensus 2024 Funds From Operations (FFO) per Share is 11.7x vs. 13.0x peer average.
• Whitestone's Price/consensus 2024 Adjusted Funds From Operations (AFFO) per Share is 15.2x vs.17.4x peer average.
• Whitestone's discount to the consensus Mean NAV per Share (NAVPS) is a 24% discount vs. a 14% peer average discount).
• Whitestone's leverage is at 7.9x debt+preferred/LTM EBITDAre, compared to a peer average of 5.7x.

Stakeholder Impact

• The outcome of the proxy solicitation could significantly impact Whitestone's shareholders, potentially leading to changes in strategy and improved performance.
• The election of Erez's nominees could also affect Whitestone's management team and employees.

Next Steps

• Shareholders are urged to vote using the BLUE universal proxy card to elect Erez's nominees and in accordance with Erez's recommendations on other proposals.
• Erez intends to solicit proxies from the holders of the Trusts common shares representing at least 67% of the voting power of common shares entitled to vote on the election of trustees in support of the Erez Nominees election and the Unopposed Trust Nominees in accordance with applicable law and intend to comply with applicable requirements of the Exchange Act.
• Erez intends to seek reimbursement from the Trust for the expenses it incurs in connection with this solicitation.

Key Dates

Keywords

proxy solicitation, Whitestone REIT, Erez REIT Opportunities LP, board of trustees, shareholder value, Bruce Schanzer, Catherine Clark, annual meeting, REIT, nominees