DEFA14A: Whitestone REIT Urges Shareholders to Support Trustee Nominees Amidst Proxy Contest

Whitestone REIT is urging shareholders to vote for its trustee nominees at the upcoming annual meeting, highlighting the company's successful turnaround strategy and improvements in financial performance and governance.

Summary

• Whitestone REIT is asking shareholders to vote for its board nominees at the Annual Meeting on May 14, 2024.
• The company highlights its turnaround since January 18, 2022, including the appointment of a new CEO and Chairman.
• Whitestone reports strong operational performance with occupancy near a multi-year high of 94.2% in Q4 2023 and average annual same-store NOI growth of +5.3% since 2022.
• Core FFO per Share has grown from $0.86 in 2021 to $0.91 in 2023, with an anticipated +11% growth in 2024 to $1.01 per share.
• The company has reduced leverage from 10.2x in 2020 to 7.8x in 2023 and projects a further reduction to a range of 6.6x to 7.0x by Q4 2024.
• Whitestone has improved corporate governance by refreshing the board, right-sizing compensation, and splitting the Chairman and CEO roles.
• The company successfully resolved past litigation matters and is working to monetize its stake in Pillarstone.
• Whitestone's total return since January 18, 2022, is +36% through May 8, 2024, outperforming its peers.
• The company is opposing nominees from Erez Asset Management, citing their lack of relevant experience and a history of value destruction.
• Proxy advisory firms Glass Lewis and Egan Jones recommend shareholders vote for Whitestone's nominees.
• ISS has put the spotlight on Erez and its nominees fixation with a sale process.

Sentiment

Score: 7

Explanation: The document expresses a positive outlook on Whitestone's performance and future prospects, highlighting its successful turnaround and strong financial metrics. However, it also addresses the challenges posed by the proxy contest and potential risks, resulting in a moderately positive sentiment score.

Positives

• Strong operational performance with high occupancy rates.
• Solid same-store NOI growth.
• Growth in Core FFO per Share.
• Reduced leverage and proactive balance sheet management.
• Improved corporate governance practices.
• Successful resolution of past litigation.
• Strong total return compared to peers.
• Positive recommendations from proxy advisory firms Glass Lewis and Egan Jones.

Negatives

• Erez Asset Management is seeking to derail Whitestone's strategy by nominating 2 nominees who lack relevant skillsets, have a record of value destruction at other companies, and have failed to put forth a compelling alternate strategy.
• Mr. Schanzer's collusion with our former CEO James Mastandrea, as revealed on May 6, 2024 (link), in a brazen attempt to acquire Whitestone, put in question the ulterior motives of Mr. Schanzer.
• Investors should be wary of an individual with a checkered track record of strategic missteps and value destruction.

Risks

• Uncertainties related to the national economy and the real estate industry.
• Legislative or regulatory changes affecting REITs.
• Adverse economic conditions in Texas and Arizona.
• Increases in interest rates and operating costs.
• Geographic concentration in Houston and Phoenix.
• Availability and terms of capital and financing.
• Decreases in rental rates or increases in vacancy rates.
• Litigation risks.
• Inability to renew tenant leases or obtain new leases.
• Risks related to generative artificial intelligence tools and language models.
• Geopolitical conflicts.
• The need to fund tenant improvements or other capital expenditures out of operating cash flow.
• The extent to which our estimates regarding Pillarstone REIT Operating Partnership LP's financial condition and results of operations differ from actual results.
• The risk that we are unable to raise capital for working capital, acquisitions or other uses on attractive terms or at all.

Future Outlook

The company anticipates Core FFO per Share to grow an additional +11% in 2024 to reach $1.01 per share and projects continued improvement of its Net Debt / EBITDAre ratio to a range of 6.6x to 7.0x by the fourth quarter of 2024.

Management Comments

• Whitestone today is a vastly different company than it was before January 18, 2022.
• The market has recognized and rewarded our efforts we are the best performing shopping center REIT since January 18, 2022, with a total return of +36% through May 8, 2024: a validation of our successful turnaround strategy.

Industry Context

The document positions Whitestone as outperforming its peers in the shopping center REIT sector since January 2022, with a total return of +36%. It also references commentary from independent research analysts highlighting the company's healthy operating fundamentals and improved portfolio.

Comparison to Industry Standards

• The document compares Mr. Schanzer's tenure as Cedar Realty CEO from June 15, 2011 to August 22, 2022 where Cedar Realty generated dividend adjusted returns of approximately 35.7%... well off the pace relative to both Whitestone and the FTSE NAREIT Equity Shopping Centers Index, which generated total returns of 96.1% and 87.1%, respectively.

Stakeholder Impact

• Shareholders are urged to vote to protect the value of their investment.
• The outcome of the proxy contest will impact the future direction and performance of the company.

Next Steps

• Shareholders are urged to vote using the WHITE proxy card.
• The company will hold its 2024 Annual Meeting of Shareholders on May 14, 2024.

Key Dates

Keywords

Whitestone REIT, Shareholders, Proxy, Board Nominees, Erez Asset Management, Corporate Governance, REIT, Real Estate, FFO, NOI, Leverage