8-K: Whitestone REIT Achieves Record Occupancy and Revenue Growth in 2023, Issues Positive 2024 Guidance

Whitestone REIT reported strong fourth quarter and full year 2023 results, highlighted by record occupancy and significant revenue growth, and provided an optimistic outlook for 2024.

Summary

• Whitestone REIT announced its financial results for the fourth quarter and full year of 2023, showing a strong performance.
• The company achieved a record occupancy rate of 94.2% across its wholly-owned properties.
• GAAP leasing spreads reached nearly 22%, indicating strong demand and pricing power.
• Year-over-year revenue increased by more than 5%, demonstrating solid growth.
• For the fourth quarter, revenues were $37.5 million, compared to $34.9 million in the same period of 2022.
• Net income attributable to common shareholders was $1.5 million, or $0.03 per diluted share, down from $19.9 million, or $0.40 per diluted share, in the fourth quarter of 2022.
• Core FFO per diluted share was $0.24, slightly up from $0.23 in the fourth quarter of 2022.
• EBITDAre was $21.0 million, compared to $20.3 million in the fourth quarter of 2022.
• Same-Store Net Operating Income (NOI) grew by 2.4% to $24.0 million.
• Net Effective Annual Base Rental Revenue per leased square foot increased by 6.2% to $23.35.
• For the full year 2023, revenues were $147.0 million, compared to $139.4 million in 2022.
• Net income attributable to common shareholders was $19.2 million, or $0.38 per diluted share, down from $35.3 million, or $0.71 per diluted share, in 2022.
• Core FFO per diluted share was $0.91, down from $1.03 in 2022.
• EBITDAre was $81.0 million, compared to $80.8 million in 2022.
• Same-Store Net Operating Income (NOI) grew by 2.7% to $92.8 million.
• The company provided 2024 Core FFO per share guidance of $0.98 $1.04.
• A 3% dividend increase was announced, with a quarterly cash distribution of $0.12375 per common share and OP unit for the second quarter of 2024.
• Whitestone owns 55 community-centered properties with approximately 5.0 million square feet of gross leasable area, with 29 properties in Texas and 26 in Arizona.
• The company has a diversified tenant base of 1,453 tenants, with the largest tenant accounting for only 2.1% of annualized base rental revenues.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While there are strong positives like record occupancy and revenue growth, the significant decrease in net income and FFO, along with a high debt ratio, temper the overall sentiment. The positive guidance for 2024 provides some optimism, but the past performance is concerning.

Positives

• The company achieved record occupancy of 94.2%, indicating strong demand for its properties.
• GAAP leasing spreads of nearly 22% show the company's ability to increase rental rates.
• Year-over-year revenue growth of over 5% demonstrates the company's ability to generate more income.
• The 3% dividend increase signals management's confidence in future performance and cash flow.
• The company has a diversified tenant base, reducing risk associated with any single tenant.
• Net Effective Annual Base Rental Revenue per leased square foot increased by 6.2% to $23.35.
• The company's properties are located in high-growth markets in the Sunbelt region.

Negatives

• Net income attributable to common shareholders decreased significantly in both the fourth quarter and full year 2023 compared to 2022.
• Funds from Operations (FFO) per diluted share decreased for both the fourth quarter and full year 2023 compared to 2022.
• Core FFO per diluted share decreased for the full year 2023 compared to 2022.
• The company's net debt to EBITDAre ratio is 7.5x, which is relatively high.

Risks

• The company is susceptible to economic downturns and natural disasters in Texas and Arizona, where its properties are concentrated.
• Increases in interest rates could negatively impact the company's operating costs and financing.
• The company faces risks related to lease-up, including the inability to renew leases or obtain new tenants.
• There are risks associated with generative artificial intelligence tools and language models, particularly concerning the spread of misinformation.
• The company's estimates regarding Pillarstone REIT Operating Partnership LP's financial condition and results of operations may differ from actual results.
• The company may be unable to raise capital for working capital, acquisitions, or other uses on attractive terms or at all.

Future Outlook

The company estimates that GAAP net income available to common shareholders will be within the range of $0.32 to $0.38 per diluted share, and Core FFO will be within the range of $0.98 to $1.04 per diluted share and OP Unit for the full year 2024.

Management Comments

• I am proud of the work and dedication of the Whitestone team in executing our strategic priorities and steadfastly serving our tenants and our neighborhood communities.
• We finished the year on a very strong note: hitting record occupancy of 94.2%, GAAP leasing spreads of nearly 22% and achieving a year-over-year revenue increase in excess of 5%.
• I am fully confident that our stellar financial performance and actions will position Whitestone to deliver attractive profitable growth and drive substantial value for all of our stakeholders in the years ahead.

Industry Context

This announcement reflects a positive trend in the REIT sector, particularly for those focused on open-air shopping centers in high-growth markets. The strong occupancy and leasing spreads suggest a healthy demand for retail space in the Sunbelt region, where Whitestone operates. This performance is notable given the broader economic uncertainties and challenges faced by the retail industry.

Comparison to Industry Standards

• Whitestone's occupancy rate of 94.2% is strong compared to the national average for retail REITs, which often fluctuates between 90% and 93%.
• The GAAP leasing spreads of nearly 22% are significantly higher than the industry average, which typically ranges from 5% to 10%, indicating Whitestone's strong pricing power.
• Companies like Regency Centers (REG) and Federal Realty Investment Trust (FRT), which also focus on high-quality retail properties, often report similar occupancy rates, but Whitestone's leasing spreads are notably higher.
• Simon Property Group (SPG), a larger mall REIT, may have higher overall revenue, but Whitestone's focus on community-centered properties in high-growth areas provides a different risk-reward profile.
• Whitestone's same-store NOI growth of 2.7% is in line with or slightly above the average for retail REITs, which typically see growth in the 2% to 3% range.
• The company's net debt to EBITDAre ratio of 7.5x is higher than some of its peers, such as Kimco Realty (KIM), which typically maintain a ratio closer to 6x, indicating a higher leverage profile.

Stakeholder Impact

• Shareholders will benefit from the increased dividend and potential for future growth.
• Tenants will benefit from the company's focus on creating community-centered properties.
• Employees will benefit from the company's strong performance and growth opportunities.
• Customers will benefit from the company's focus on providing a diverse mix of services and experiences.

Next Steps

• The company will hold an earnings release conference call on March 7, 2024.
• A replay of the call will be available on the company's website until the next earnings release.

Key Dates

Keywords

REIT, Real Estate, Occupancy, Leasing, Revenue, FFO, EBITDAre, NOI, Dividend, Sunbelt, Retail, Community Centers