“We delivered a very strong quarter operationally, with GAAP leasing spreads of 23.6% on new leases and 24.6% on renewal leases, revenue increasing by 4.9% and occupancy of 92.7%. This extends our track record to 6 consecutive quarters with over 17% increases in combined GAAP leasing spreads. We are reiterating the guidance from the 2nd quarter earnings call as we anticipate finishing the year with a strong 4th quarter.”
| – Dave Holeman, Chief Executive Officer |
ThirdQuarter 2023 Operating and Financial Results
All per share amounts are on a diluted per common share and operating partnership (“OP”) unit basis unless stated otherwise.
Reconciliations of Net Income Attributable to Whitestone REIT to FFO, NOI and EBITDAre are included herein.
| • | Revenues of $37.1million versus $35.4million for the thirdquarter of 2022. |
| • | Net Income attributable to common shareholders of $2.5 million, or $0.05 per diluted share, versus $3.9 million, or $0.08 per diluted share for the thirdquarter of 2022. |
| • | Funds from Operations (“FFO”) per diluted share of $0.23 versus $0.24for the thirdquarter of 2022.The decrease was primarily the result of higher litigation and interest expenses, offset partially by increased property net operating income. |
| • | EBITDAre of$20.4 million versus $19.4 million for the thirdquarter of2022. |
| • | Same-Store Net Operating Income (“NOI”) grew 4.9% to $23.2 million versus $22.1million for the thirdquarter of 2022. |
| • | Net Effective Annual Base Rental Revenue per leased square foot was up 5.0% to $22.82, compared to the prior year quarter. |
Operating Results
For the three-month periods ending September 30, 2023and 2022, the Company’s operating highlights were as follows:
| Third Quarter 2023 | Third Quarter 2022 | ||||||
| Occupancy: | |||||||
| Wholly Owned Properties – All | 92.7% | 92.5% | |||||
| >10,000 Sq Ft Occupancy | 96.0% | 96.5% | |||||
| ≤ 10,000 Sq Ft Occupancy | 90.8% | 90.1% | |||||
| Same Store Property Net Operating Income Change (1) | 4.9% | 4.5% | |||||
| Rental Rate Growth – Total (GAAP Basis): | 24.4% | 19.2% | |||||
| New Leases | 23.6% | 16.5% | |||||
| Renewal Leases | 24.6% | 20.0% | |||||
| Leasing Transactions: | |||||||
| Number of New Leases | 29 | 35 | |||||
| New Leases – Lease Term Revenue (millions) | $11.2 | $16.7 | |||||
| Number of Renewal Leases | 58 | 51 | |||||
| Renewal Leases – Lease Term Revenue (millions) | $15.7 | $12.3 | |||||
Balance Sheet and Debt Metrics
| • | As of September 30, 2023, Whitestone had totaldebt of $633.2million, along with capacity and availability of $112.5 million each under its $250 million revolving credit facility. |
| • | As of September 30, 2023, the Company has undepreciated real estate assets of $1.2 billion. |
Dividend
On September 6, 2023, the Company declared a quarterly cash distribution of $0.12 per common share and OP unit for the fourth quarter of 2023, to be paid in three equal installments of $0.04 in October, November, and December of 2023.
2023 Full Year Guidance
The Company is reiterating the guidance last updated on August 1, 2023, when it updated its 2023 full-year guidance.
| 2023 Revised Guidance – 8/1/2023 | 2023 Original Guidance | ||||
| (unaudited, amounts in thousands except per share and percentages) | |||||
| Net income attributable to Whitestone REIT | $21,500 – $23,600 | $14,400 – $16,500 | |||
| FFO (1) | $45,750 – $47,850 | $48,300 – $50,400 | |||
| Net income attributable to Whitestone REIT per share | $0.43 – $0.47 | $0.29 – $0.33 | |||
| FFO per diluted share and OP Unit (1) | $0.90 – $0.94 | $0.95 – $0.99 | |||
| Key Drivers: | |||||
| Same store net operating income growth (2) | 2.5% – 4.5% | 2.5% –4.5% | |||
| Bad debt as a percentage of revenue | 0.75% – 1.50% | 0.75% –1.50% | |||
| General and administrative expense | $20,200 – $20,700 | $19,200 – $19,700 | |||
| Deficit in earnings of real estate partnership | $ (1,400) – $ (1,600) | $0 | |||
| Gain on sale of properties | $9,621 | $0 | |||
| Interest expense | $31,700 – $33,200 | $31,700 – $33,200 | |||
| Ending occupancy | 93.5% – 94.5% | 93.5% – 94.5% | |||
| Net Debt to EBITDAre Ratio (3) | 7.7X – 7.3X | 7.3X – 6.9X | |||
| (1) | For the reconciliation of forward-looking non-GAAP financial measure to the comparable GAAP financial measure, see the “FFO per diluted share and OP unit” reconciliation table. |
| (2) | Excludes straight-line rent, amortization of above/below market rates and lease termination fees for both periods. |
| (3) | Fourth quarter annualized EBITDAre. |
Portfolio Statistics
As of September 30, 2023, Whitestone wholly owned 56 Community-Centered Properties™ with 5.0 million square feet of gross leasable area (“GLA”). Five of the 56 Community-Centered Properties™ are land parcels held for future development. The portfolio is comprised of 29properties in Texas, 26in Arizona and 1 in Illinois. Whitestone’s Community-Centered Properties™ are located in the MSA’s of Austin (5), Chicago (1), Dallas-Fort Worth (9), Houston (12), Phoenix (26), and San Antonio (3). The Company’s properties in these markets are generally in high-traffic locations, surrounded by high-household-income communities. The Company also owns an 81.4% equity interest in eight properties containing 0.9 million square feet of GLA through its investment in Pillarstone OP.
At the end of the thirdquarter, the Company’s diversified tenant base was comprised of 1,455tenants, with the largest tenant accounting for only 2.2% of annualized base rental revenues. Lease terms range from less than one year for smaller tenants to more than 15 years for larger tenants. Whitestone’s leases generally include minimum monthly lease payments and tenant reimbursements for payment of taxes, insurance and maintenance, and typically exclude restrictive lease clauses.
Conference Call Information
In conjunction with the issuance of its financial results, the Company invites you to listen to its earnings release conference call to be broadcast live on Wednesday, November 1, 2023, at 8:00 A.M Eastern Time / 7:00 A.M. Central Time. The call will be led by Dave Holeman, Chief Executive Officer. Conference call access information is as follows:
To listen to a webcast of the conference call, click on the Investor Relations tab of the Company’s website, www.whitestonereit.com, and then click on the webcast link. A replay of the call will be available on Whitestone’s website via the webcast link until the Company’s next earnings release. Additional information about Whitestone can be found on the Company’s website.
| Dial-in number for domestic participants: | 1-877-407-0784 |
| Dial-in number for international participants: | 1-201-689-8560 |
The conference call will be recorded, and a telephone replay will be available through Wednesday, November15, 2023. Replay access information is as follows:
| Replay number for domestic participants: | 1-844-512-2921 |
| Replay number for international participants: | 1-412-317-6671 |
| Passcode (for all participants): | 13734726 |
Supplemental Financial Information
The thirdquarter earnings release and supplemental data package will be located in the “News and Events” and “Financial Reporting” tabs of the Investor Relations section of the Company’s website at www.whitestonereit.com. The earnings release and supplemental data package will also be available by mail upon request. To receive a copy, please call Investor Relations at (713) 435-2219.
About Whitestone REIT
Whitestone REIT (NYSE: WSR) is a community-centered real estate investment trust (REIT) that acquires, owns, operates, and develops open-air, retail centers located in some of the fastest growing markets in the country: Phoenix, Austin, Dallas-Fort Worth, Houston and San Antonio.
Our centers are convenience focused: merchandised with a mix of service-oriented tenants providing food (restaurants and grocers), self-care (health and fitness), services (financial and logistics), education and entertainment to the surrounding communities. The Company believes its strong community connections and deep tenant relationships are key to the success of its current centers and its acquisition strategy. For additional information, please visit www.whitestonereit.com.
Forward-Looking Statements
This Report contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition and results of operations, statements related to our expectations regarding the performance of our business, and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
Factors that could cause actual results to differ materially from any forward-looking statements made in this Report include: the imposition of federal income taxes if we fail to qualify as a real estate investment trust (“REIT”) in any taxable year or forego an opportunity to ensure REIT status; uncertainties related to the national economy, the real estate industry in general and in our specific markets; legislative or regulatory changes, including changes to laws governing REITs; adverse economic or real estate developments or conditions in Texas or Arizona, Houston and Phoenix in particular, including the potential impact of public health emergencies, such as COVID-19, on our tenants’ ability to pay their rent, which could result in bad debt allowances or straight-line rent reserve adjustments; increases in interest rates, including as a result of inflationoperating costs or general and administrative expenses; our current geographic concentration in the Houston and Phoenix metropolitan area makes us susceptible to local economic downturns, natural disasters, such as floods and hurricanes, which may increase as a result of climate change, increasing focus by stakeholders on environmental, social, and governance matters, financial institution disruption;availability and terms of capital and financing, both to fund our operations and to refinance our indebtedness as it matures; decreases in rental rates or increases in vacancy rates; harm to our reputation, ability to do business and results of operations as a result of improper conduct by our employees, agents or business partners; litigation risks; lease-up risks, including leasing risks arising from exclusivity and consent provisions in leases with significant tenants; our inability to renew tenant leases or obtain new tenant leases upon the expiration of existing leases; our inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws; geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine; 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;and the risk that we are unable to raise capital for working capital, acquisitions or other uses on attractive terms or at all and other factors detailed in the Company’s most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other documents the Company files with the Securities and Exchange Commission from time to time.
Non-GAAP Financial Measures
This release contains supplemental financial measures that are not calculated pursuant to U.S. generally accepted accounting principles (“GAAP”) including EBITDAre, FFO, NOI and net debt. Following are explanations and reconciliations of these metrics to their most comparable GAAP metric.
EBITDAre: The National Association of Real Estate Investment Trusts (“NAREIT”) defines EBITDAre as net income computed in accordance with GAAP, plus interest expense, income tax expense, depreciation and amortization and impairment write-downs of depreciable property and of investments in unconsolidated affiliates caused by a decrease in value of depreciable property in the affiliate, plus or minus losses and gains on the disposition of depreciable property, including losses/gains on change in control and adjustments to reflect the entity’s share of EBITDAre of the unconsolidated affiliates and consolidated affiliates with non-controlling interests. The Company calculates EBITDAre in a manner consistent with the NAREIT definition. Management believes that EBITDAre represents a supplemental non-GAAP performance measure that provides investors with a relevant basis for comparing REITs. There can be no assurance the EBITDAre as presented by the Company is comparable to similarly titled measures of other REITs. EBITDAre should not be considered as an alternativeto net income or other measurements under GAAP as indicators of operating performance or to cash flows from operating, investing or financing activities as measures of liquidity. EBITDAre does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.
FFO: Funds From Operations: The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains or losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. We calculate FFO in a manner consistent with the NAREIT definition and also include adjustments for our unconsolidated real estate partnership.
Normalized Funds from Operations (“Normalized FFO”) is a non-GAAP measure. We define Normalized FFO as FFO excluding extinguishment of debt cost.
Management uses FFO and Normalized FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income (loss) alone as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Because real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that use historical cost accounting is insufficient by itself. In addition, securities analysts, investors and other interested parties use FFOand Normalized FFO as the primary metric for comparing the relative performance of equity REITs. FFOand Normalized FFO should not be considered as an alternative to net income or other measurements under GAAP, as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFOand Normalized FFO do not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. Although our calculation of FFOis consistent with that of NAREIT, there can be no assurance that FFOand Normalized FFO presented by us is comparable to similarly titled measures of other REITs.
NOI: Net Operating Income:Management believes that NOI is a useful measure of our property operating performance. We define NOI as operating revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes). Other REITs may use different methodologies for calculating NOI and, accordingly, our NOI may not be comparable to other REITs. Because NOI excludes general and administrative expenses, depreciation and amortization, equity or deficit in earnings of real estate partnership, interest expense, interest, dividend and other investment income, provision for income taxes, gain on sale of property from discontinued operations,management fee (net of related expenses) andgain or loss on sale or disposition of assets, and includesNOI of real estate partnership (pro rata) and net income attributable to noncontrolling interest, it provides a performance measure that, when compared year-over-year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing perspective not immediately apparent from net income. We use NOI to evaluate our operating performance since NOI allows us to evaluate the impact that factors such as occupancy levels, lease structure, lease rates and tenant base have on our results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about our property and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of property performance in the real estate industry. However, NOI should not be viewed as a measure of our overall financial performance since it does not reflect the level of capital expenditure and leasing costs necessary to maintain the operating performance of our properties, including general and administrative expenses, depreciation and amortization, equity or deficit in earnings of real estate partnership, interest expense, interest, dividend and other investment income, provision for income taxes, gain on sale of property from discontinued operations, management fee (net of related expenses) and gain or loss on sale or disposition of assets.
Same Store NOI: Management believes that Same Store NOI is a useful measure of the Company’s property operating performance because it includes only the properties that have been owned for the entire period being compared, and that it is frequently used by the investment community. Same Store NOI assists in eliminating differences in NOI due to the acquisition or disposition of properties during the period being presented, providing a more consistent measure of the Company’s performance. The Company defines Same Store NOI as operating revenues (rental and other revenues, excluding straight-line rent adjustments, amortization of above/below market rents, and lease termination fees) less property and related expenses (property operation and maintenance and real estate taxes), Non-Same Store NOI, and NOI of our investment in Pillarstone OP (pro rata). We define “Non-Same Stores” as properties that have been acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations. Other REITs may use different methodologies for calculating Same Store NOI, and accordingly, the Company’s Same Store NOI may not be comparable to that of other REITs.
Net debt: We present net debt, which we define as total debt net of insurance financing less cashplus our proportional share of net debt of real estate partnership, and net debt to pro forma EBITDAre, which we define as net debt divided by EBITDAre because we believe they are helpful as supplemental measures in assessing our ability to service our financing obligations and in evaluating balance sheet leverage against that of other REITs. However, net debt and net debt to pro forma EBITDAre should not be viewed as a stand-alone measure of our overall liquidity and leverage. In addition, our REITs may use different methodologies for calculating net debt and net debt to pro forma EBITDAre, and accordingly our net debt and net debt to pro forma EBITDAre may not be comparable to that of other REITs.
Investor and Media Relations:
David Mordy
Director, Investor Relations
Whitestone REIT
(713) 435-2219
ir@whitestonereit.com
| Whitestone REIT and Subsidiaries |
| CONSOLIDATED BALANCE SHEETS |
| (in thousands, except share and per share data) |
| September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Real estate assets, at cost | ||||||||
| Property | $ | 1,227,532 | $ | 1,199,041 | ||||
| Accumulated depreciation | (225,636 | ) | (208,286 | ) | ||||
| Total real estate assets | 1,001,896 | 990,755 | ||||||
| Investment in real estate partnership | 33,200 | 34,826 | ||||||
| Cash and cash equivalents | 2,976 | 6,166 | ||||||
| Restricted cash | 97 | 189 | ||||||
| Escrows and acquisition deposits | 10,545 | 12,827 | ||||||
| Accrued rents and accounts receivable, net of allowance for doubtful accounts (1) | 28,983 | 25,570 | ||||||
| Receivable due from related party | 1,505 | 1,377 | ||||||
| Unamortized lease commissions, legal fees and loan costs | 12,741 | 12,697 | ||||||
| Prepaid expenses and other assets(2) | 15,156 | 7,838 | ||||||
| Finance lease right-of-use assets | 10,450 | 10,522 | ||||||
| Total assets | $ | 1,117,549 | $ | 1,102,767 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities: | ||||||||
| Notes payable | $ | 632,750 | $ | 625,427 | ||||
| Accounts payable and accrued expenses(3) | 35,148 | 36,154 | ||||||
| Payable due to related party | 1,577 | 1,561 | ||||||
| Tenants’ security deposits | 8,445 | 8,428 | ||||||
| Dividends and distributions payable | 6,022 | 6,008 | ||||||
| Finance lease liabilities | 725 | 735 | ||||||
| Total liabilities | 684,667 | 678,313 | ||||||
| Commitments and contingencies: | — | — | ||||||
| Equity: | ||||||||
| Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of September 30, 2023 and December 31, 2022 | — | — | ||||||
| Common shares, $0.001 par value per share; 400,000,000 shares authorized; 49,584,705 and 49,422,716 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | 50 | 49 | ||||||
| Additional paid-in capital | 626,815 | 624,785 | ||||||
| Accumulated deficit | (212,551 | ) | (212,366 | ) | ||||
| Accumulated other comprehensive income | 12,491 | 5,980 | ||||||
| Total Whitestone REIT shareholders’ equity | 426,805 | 418,448 | ||||||
| Noncontrolling interest in subsidiary | 6,077 | 6,006 | ||||||
| Total equity | 432,882 | 424,454 | ||||||
| Total liabilities and equity | $ | 1,117,549 | $ | 1,102,767 | ||||
| Whitestone REIT and Subsidiaries |
| CONSOLIDATED BALANCE SHEETS |
| (in thousands) |
| September 30, 2023 | December 31, 2022 | |||||||
| (1) Accrued rents and accounts receivable, net of allowance for doubtful accounts | ||||||||
| Tenant receivables | $ | 16,719 | $ | 16,828 | ||||
| Accrued rents and other recoveries | 24,989 | 22,103 | ||||||
| Allowance for doubtful accounts | (14,184 | ) | (13,822 | ) | ||||
| Other receivables | 1,459 | 461 | ||||||
| Total accrued rents and accounts receivable, net of allowance for doubtful accounts | $ | 28,983 | $ | 25,570 | ||||
| (2) Operating lease right of use assets (net) | $ | 129 | $ | 124 | ||||
| (3) Operating lease liabilities | $ | 132 | $ | 129 | ||||
| Whitestone REIT and Subsidiaries |
| CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
| (in thousands) |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | ||||||||||||||||
| Rental(1) | $ | 36,667 | $ | 35,029 | $ | 108,405 | $ | 103,500 | ||||||||
| Management, transaction, and other fees | 467 | 354 | 1,040 | 1,003 | ||||||||||||
| Total revenues | 37,134 | 35,383 | 109,445 | 104,503 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Depreciation and amortization | 8,332 | 7,889 | 24,538 | 23,661 | ||||||||||||
| Operating and maintenance | 6,862 | 7,317 | 19,847 | 19,253 | ||||||||||||
| Real estate taxes | 4,693 | 4,513 | 14,168 | 13,867 | ||||||||||||
| General and administrative | 5,392 | 4,832 | 15,651 | 13,063 | ||||||||||||
| Total operating expenses | 25,279 | 24,551 | 74,204 | 69,844 | ||||||||||||
| Other expenses (income) | ||||||||||||||||
| Interest expense | 8,400 | 6,816 | 24,563 | 19,111 | ||||||||||||
| (Gain) loss on sale of properties | (5 | ) | — | (9,626 | ) | 7 | ||||||||||
| Loss on disposal of assets, net | 480 | 7 | 500 | 5 | ||||||||||||
| Interest, dividend and other investment income | (11 | ) | (13 | ) | (49 | ) | (43 | ) | ||||||||
| Total other expenses | 8,864 | 6,810 | 15,388 | 19,080 | ||||||||||||
| Income before equity investment in real estate partnership and income tax | 2,991 | 4,022 | 19,853 | 15,579 | ||||||||||||
| Equity (deficit) in earnings of real estate partnership | (375 | ) | 65 | (1,627 | ) | 304 | ||||||||||
| Provision for income tax | (95 | ) | (112 | ) | (339 | ) | (313 | ) | ||||||||
| Net Income | 2,521 | 3,975 | 17,887 | 15,570 | ||||||||||||
| Less: Net income attributable to noncontrolling interests | 35 | 60 | 248 | 239 | ||||||||||||
| Net income attributable to Whitestone REIT | $ | 2,486 | $ | 3,915 | $ | 17,639 | $ | 15,331 | ||||||||
| Whitestone REIT and Subsidiaries |
| CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
| (in thousands, except per share data) |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Basic Earnings Per Share: | ||||||||||||||||
| Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares | $ | 0.05 | $ | 0.08 | $ | 0.36 | $ | 0.31 | ||||||||
| Diluted Earnings Per Share: | ||||||||||||||||
| Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares | $ | 0.05 | $ | 0.08 | $ | 0.35 | $ | 0.31 | ||||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | 49,534 | 49,274 | 49,472 | 49,211 | ||||||||||||
| Diluted | 50,637 | 50,129 | 50,399 | 49,916 | ||||||||||||
| Consolidated Statements of Comprehensive Income | ||||||||||||||||
| Net income | $ | 2,521 | $ | 3,975 | $ | 17,887 | $ | 15,570 | ||||||||
| Other comprehensive income | ||||||||||||||||
| Unrealized gain on cash flow hedging activities | 4,094 | 5,962 | 6,602 | 14,623 | ||||||||||||
| Comprehensive income | 6,615 | 9,937 | 24,489 | 30,193 | ||||||||||||
| Less: Net income attributable to noncontrolling interests | 35 | 60 | 248 | 239 | ||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | 56 | 90 | 91 | 223 | ||||||||||||
| Comprehensive income attributable to Whitestone REIT | $ | 6,524 | $ | 9,787 | $ | 24,150 | $ | 29,731 | ||||||||
| Whitestone REIT and Subsidiaries |
| CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
| (in thousands) |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (1) Rental | ||||||||||||||||
| Rental revenues | $ | 26,521 | $ | 25,244 | $ | 78,780 | $ | 75,023 | ||||||||
| Recoveries | 10,535 | 10,152 | 30,571 | 29,092 | ||||||||||||
| Bad debt | (389 | ) | (367 | ) | (946 | ) | (615 | ) | ||||||||
| Total rental | $ | 36,667 | $ | 35,029 | $ | 108,405 | $ | 103,500 | ||||||||
| Whitestone REIT and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) |
| Nine Months Ended September 30, | ||||||||||
| 2023 | 2022 | |||||||||
| Cash flows from operating activities: | ||||||||||
| Net income | $ | 17,887 | $ | 15,570 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
| Depreciation and amortization | 24,538 | 23,661 | ||||||||
| Amortization of deferred loan costs | 820 | 824 | ||||||||
| (Gain) loss on sale of properties | (9,626 | ) | 7 | |||||||
| Loss on disposal of assets | 500 | 5 | ||||||||
| Bad debt | 946 | 615 | ||||||||
| Share-based compensation | 2,485 | 239 | ||||||||
| (Equity) deficit in earnings of real estate partnership | 1,627 | (304 | ) | |||||||
| Amortization of right-of-use assets – finance leases | 72 | — | ||||||||
| Changes in operating assets and liabilities: | ||||||||||
| Escrows and acquisition deposits | 2,282 | (1,006 | ) | |||||||
| Accrued rents and accounts receivable | (4,359 | ) | (3,403 | ) | ||||||
| Receivable due from related party | (128 | ) | (486 | ) | ||||||
| Unamortized lease commissions, legal fees and loan costs | (2,644 | ) | (1,575 | ) | ||||||
| Prepaid expenses and other assets | 2,432 | (6,266 | ) | |||||||
| Accounts payable and accrued expenses | (1,011 | ) | 4,642 | |||||||
| Payable due to related party | 16 | 563 | ||||||||
| Tenants’ security deposits | 17 | 373 | ||||||||
| Net cash provided by operating activities | 35,854 | 33,459 | ||||||||
| Cash flows from investing activities: | ||||||||||
| Acquisitions of real estate | (25,474 | ) | — | |||||||
| Additions to real estate | (12,748 | ) | (10,118 | ) | ||||||
| Proceeds from sales of properties | 13,447 | — | ||||||||
| Net cash used in investing activities | (24,775 | ) | (10,118 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Distributions paid to common shareholders | (17,754 | ) | (17,049 | ) | ||||||
| Distributions paid to OP unit holders | (249 | ) | (263 | ) | ||||||
| Net proceeds from (payments of) credit facility | 34,000 | (5,000 | ) | |||||||
| Repayments of notes payable | (29,823 | ) | (2,705 | ) | ||||||
| Payments of loan origination costs | — | (4,144 | ) | |||||||
| Repurchase of common shares | (525 | ) | (527 | ) | ||||||
| Payment of finance lease liability | (10 | ) | — | |||||||
| Net cash used in financing activities | (14,361 | ) | (29,688 | ) | ||||||
| Net decrease in cash, cash equivalents and restricted cash | (3,282 | ) | (6,347 | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | 6,355 | 15,914 | ||||||||
| Cash, cash equivalents and restricted cash at end of period (1) | $ | 3,073 | $ | 9,567 | ||||||
| (1) | For a reconciliation of cash, cash equivalents and restricted cash, see supplemental disclosures below. |
| Whitestone REIT and Subsidiaries |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Supplemental Disclosures |
| (in thousands) |
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 23,223 | $ | 18,980 | ||||
| Cash paid for taxes | $ | 435 | $ | 366 | ||||
| Non cash investing and financing activities: | ||||||||
| Disposal of fully depreciated real estate | $ | 864 | $ | 80 | ||||
| Financed insurance premiums | $ | 3,002 | $ | 1,846 | ||||
| Value of shares issued under dividend reinvestment plan | $ | 55 | $ | 49 | ||||
| Value of common shares exchanged for OP units | $ | 16 | $ | 616 | ||||
| Change in fair value of cash flow hedge | $ | 6,602 | $ | 14,623 | ||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash, cash equivalents and restricted cash | ||||||||
| Cash and cash equivalents | $ | 2,976 | $ | 9,504 | ||||
| Restricted cash | 97 | 63 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 3,073 | $ | 9,567 | ||||
| Whitestone REIT and Subsidiaries |
| RECONCILIATION OF NON-GAAP MEASURES |
| (in thousands, except per share and per unit data) |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| FFO (NAREIT) AND NORMALIZED FFO | ||||||||||||||||
| Net income attributable to Whitestone REIT | $ | 2,486 | $ | 3,915 | $ | 17,639 | $ | 15,331 | ||||||||
| Adjustments to reconcile to FFO:(1) | ||||||||||||||||
| Depreciation and amortization of real estate assets | 8,294 | 7,846 | 24,417 | 23,534 | ||||||||||||
| Depreciation and amortization of real estate assets of real estate partnership (pro rata) (2) | 403 | 403 | 1,209 | 1,209 | ||||||||||||
| Loss on disposal of assets, net | 480 | 7 | 500 | 5 | ||||||||||||
| (Gain) loss on sale of properties | (5 | ) | — | (9,626 | ) | 7 | ||||||||||
| Net income attributable to noncontrolling interests | 35 | 60 | 248 | 239 | ||||||||||||
| FFO (NAREIT) | $ | 11,693 | $ | 12,231 | $ | 34,387 | $ | 40,325 | ||||||||
| Adjustments to reconcile to Normalized FFO: | ||||||||||||||||
| Early debt extinguishment costs | — | 147 | — | 147 | ||||||||||||
| Normalized FFO | $ | 11,693 | $ | 12,378 | $ | 34,387 | $ | 40,472 | ||||||||
| FFO PER SHARE AND OP UNIT CALCULATION | ||||||||||||||||
| Numerator: | ||||||||||||||||
| FFO | $ | 11,693 | $ | 12,231 | $ | 34,387 | $ | 40,325 | ||||||||
| Normalized FFO | $ | 11,693 | $ | 12,378 | $ | 34,387 | $ | 40,472 | ||||||||
| Denominator: | ||||||||||||||||
| Weighted average number of total common shares – basic | 49,534 | 49,274 | 49,472 | 49,211 | ||||||||||||
| Weighted average number of total noncontrolling OP units – basic | 694 | 752 | 694 | 753 | ||||||||||||
| Weighted average number of total common shares and noncontrolling OP units – basic | 50,228 | 50,026 | 50,166 | 49,964 | ||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Unvested restricted shares | 1,103 | 855 | 927 | 705 | ||||||||||||
| Weighted average number of total common shares and noncontrolling OP units – diluted | 51,331 | 50,881 | 51,093 | 50,669 | ||||||||||||
| FFO per common share and OP unit – basic | $ | 0.23 | $ | 0.24 | $ | 0.69 | $ | 0.81 | ||||||||
| FFO per common share and OP unit – diluted | $ | 0.23 | $ | 0.24 | $ | 0.67 | $ | 0.80 | ||||||||
| Normalized FFO per common share and OP unit – basic | $ | 0.23 | $ | 0.25 | $ | 0.69 | $ | 0.81 | ||||||||
| Normalized FFO per common share and OP unit – diluted | $ | 0.23 | $ | 0.24 | $ | 0.67 | $ | 0.80 | ||||||||
| (1) | Includes pro-rata share attributable to real estate partnership. |
| (2) | We rely on reporting provided to us by our third party partners for financial information regarding the Company’s investment in Pillarstone OP. Because Pillarstone OP financial statements as of September 30, 2023 have not been made available to us, we have estimated depreciation and amortization of real estate assets based on the information available to us at the time of this Report. |
| Whitestone REIT and Subsidiaries |
| RECONCILIATION OF NON-GAAP MEASURES |
| (continued) |
| (in thousands) |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| PROPERTY NET OPERATING INCOME | ||||||||||||||||
| Net income attributable to Whitestone REIT | $ | 2,486 | $ | 3,915 | $ | 17,639 | $ | 15,331 | ||||||||
| General and administrative expenses | 5,392 | 4,832 | 15,651 | 13,063 | ||||||||||||
| Depreciation and amortization | 8,332 | 7,889 | 24,538 | 23,661 | ||||||||||||
| (Equity) deficit in earnings of real estate partnership (1) | 375 | (65 | ) | 1,627 | (304 | ) | ||||||||||
| Interest expense | 8,400 | 6,816 | 24,563 | 19,111 | ||||||||||||
| Interest, dividend and other investment income | (11 | ) | (13 | ) | (49 | ) | (43 | ) | ||||||||
| Provision for income taxes | 95 | 112 | 339 | 313 | ||||||||||||
| (Gain) loss on sale of properties | (5 | ) | — | (9,626 | ) | 7 | ||||||||||
| Management fee, net of related expenses | — | 31 | 16 | 112 | ||||||||||||
| Loss on disposal of assets, net | 480 | 7 | 500 | 5 | ||||||||||||
| NOI of real estate partnership (pro rata)(1) | 667 | 723 | 1,883 | 2,429 | ||||||||||||
| Net income attributable to noncontrolling interests | 35 | 60 | 248 | 239 | ||||||||||||
| NOI | $ | 26,246 | $ | 24,307 | $ | 77,329 | $ | 73,924 | ||||||||
| Non-Same Store NOI (2) | (1,092 | ) | (725 | ) | (2,786 | ) | (2,232 | ) | ||||||||
| NOI of real estate partnership (pro rata) (1) | (667 | ) | (723 | ) | (1,883 | ) | (2,429 | ) | ||||||||
| NOI less Non-Same Store NOI and NOI of real estate partnership (pro rata) | 24,487 | 22,859 | 72,660 | 69,263 | ||||||||||||
| Same Store straight-line rent adjustments | (759 | ) | (421 | ) | (2,193 | ) | (1,105 | ) | ||||||||
| Same Store amortization of above/below market rents | (218 | ) | (224 | ) | (647 | ) | (677 | ) | ||||||||
| Same Store lease termination fees | (300 | ) | (92 | ) | (600 | ) | (115 | ) | ||||||||
| Same Store NOI (3) | $ | 23,210 | $ | 22,122 | $ | 69,220 | $ | 67,366 | ||||||||
| (1) | We rely on reporting provided to us by our third party partners for financial information regarding the Company’s investment in Pillarstone OP. Because Pillarstone OP financial statements as of September 30, 2023 have not been made available to us, we have estimated (equity) deficit in earnings and pro rata share of NOI of real estate partnership based on the information available to us at the time of this Report. |
| (2) | We define “Non-Same Store” as properties that have been acquired since the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations.For purposes of comparing the three months ended September 30, 2023to the three months ended September 30, 2022, Non-Same Store includes properties owned before July 1, 2022and not sold before September 30, 2023, but not included in discontinued operations. For purposes of comparing the nine months ended September 30, 2023to the nine months ended September 30, 2022, Non-Same Store includes properties owned before January 1, 2022and not sold before September 30, 2023, but not included in discontinued operations. |
| (3) | We define “Same Store” as properties that have been owned during the entire period being compared. For purposes of comparing the three months ended September 30, 2023to the three months ended September 30, 2022, Same Store includes properties owned before July 1, 2022and not sold before September 30, 2023. For purposes of comparing the nine months ended September 30, 2023to the nine months ended September 30, 2022, Same Store includes properties owned before January 1, 2022and not sold before September 30, 2023.Straight line rent adjustments, above/below market rents, and lease termination fees are excluded. |
| Whitestone REIT and Subsidiaries |
| RECONCILIATION OF NON-GAAP MEASURES |
| (continued) |
| (in thousands) |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION FOR REAL ESTATE (EBITDAre) | ||||||||||||||||
| Net income attributable to Whitestone REIT | $ | 2,486 | $ | 3,915 | $ | 17,639 | $ | 15,331 | ||||||||
| Depreciation and amortization | 8,332 | 7,889 | 24,538 | 23,661 | ||||||||||||
| Interest expense | 8,400 | 6,816 | 24,563 | 19,111 | ||||||||||||
| Provision for income taxes | 95 | 112 | 339 | 313 | ||||||||||||
| Net income attributable to noncontrolling interests | 35 | 60 | 248 | 239 | ||||||||||||
| (Equity) deficit in earnings of real estate partnership (1) | 375 | (65 | ) | 1,627 | (304 | ) | ||||||||||
| EBITDAre adjustments for real estate partnership (1) | 223 | 662 | 169 | 2,093 | ||||||||||||
| (Gain) loss on sale of properties | (5 | ) | — | (9,626 | ) | 7 | ||||||||||
| Loss on disposal of assets, net | 480 | 7 | 500 | 5 | ||||||||||||
| EBITDAre | $ | 20,421 | $ | 19,396 | $ | 59,997 | $ | 60,456 | ||||||||
| (1 | ) | We rely on reporting provided to us by our third party partners for financial information regarding the Company’s investment in Pillarstone OP. Because Pillarstone OP financial statements as of September 30, 2023 have not been made available to us, we have estimated (equity) deficit in earnings and EBITDAre adjustments for real estate partnership based on the information available to us at the time of this Report. |
| Whitestone REIT and Subsidiaries |
| RECONCILIATION OF NON-GAAP MEASURES |
| Original and Revised Full Year Guidance for 2023 |
| (in thousands, except per share and per unit data) |
| Projected Range Full Year 2023 (Revised – 8/1/2023) | Projected Range Full Year 2023 (Original) | |||||||||||||||
| Low | High | Low | High | |||||||||||||
| FFO per diluted share and OP unit | ||||||||||||||||
| Net income attributable to Whitestone REIT | $ | 21,500 | $ | 23,600 | $ | 14,400 | $ | 16,500 | ||||||||
| Depreciation and amortization of real estate assets | 32,199 | 32,199 | 32,228 | 32,228 | ||||||||||||
| Depreciation and amortization of real estate assets of real estate partnership (pro rata) | 1,672 | 1,672 | 1,672 | 1,672 | ||||||||||||
| Gain on sale of properties | (9,621 | ) | (9,621 | ) | — | — | ||||||||||
| FFO | $ | 45,750 | $ | 47,850 | $ | 48,300 | $ | 50,400 | ||||||||
| Dilutive shares | 50,327 | 50,327 | 50,327 | 50,327 | ||||||||||||
| OP Units | 738 | 738 | 738 | 738 | ||||||||||||
| Dilutive share and OP Units | 51,065 | 51,065 | 51,065 | 51,065 | ||||||||||||
| Net income attributable to Whitestone REIT per diluted share | $ | 0.43 | $ | 0.47 | $ | 0.29 | $ | 0.33 | ||||||||
| FFO per diluted share and OP Unit | $ | 0.90 | $ | 0.94 | $ | 0.95 | $ | 0.99 | ||||||||
| Whitestone REIT and Subsidiaries | ||||||||||||||||
| RECONCILIATION OF NON-GAAP MEASURES | ||||||||||||||||
| (in thousands) | ||||||||||||||||
| Projected Range Fourth Quarter 2023 (Revised – 8/1/2023) | Projected Range Fourth Quarter 2023 (Original) | |||||||||||||||
| Low | High | Low | High | |||||||||||||
| EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION FOR REAL ESTATE (EBITDAre) | ||||||||||||||||
| Net income attributable to Whitestone REIT | $ | 5,031 | $ | 4,506 | $ | 5,573 | $ | 5,148 | ||||||||
| Depreciation and amortization | 8,142 | 8,142 | 8,142 | 8,142 | ||||||||||||
| Interest expense | 7,967 | 7,967 | 7,967 | 7,967 | ||||||||||||
| Provision for income taxes | 118 | 118 | 118 | 118 | ||||||||||||
| Net income attributable to noncontrolling interests | 82 | 82 | 82 | 82 | ||||||||||||
| (Equity) deficit in earnings of real estate partnership | 150 | 150 | — | — | ||||||||||||
| EBITDAre adjustments for real estate partnership | 422 | 422 | 572 | 572 | ||||||||||||
| (Gain) loss on sale of properties | — | — | — | — | ||||||||||||
| (Gain) loss on disposal of assets | — | — | — | — | ||||||||||||
| EBITDAre | $ | 21,912 | $ | 21,387 | $ | 22,454 | $ | 22,029 | ||||||||
| Annualized EBITDAre | $ | 87,648 | $ | 85,548 | $ | 89,816 | $ | 88,116 | ||||||||
| Outstanding debt, net of insurance financing | 633,315 | 651,315 | 615,315 | 635,315 | ||||||||||||
| Less: Cash | (2,962 | ) | (2,962 | ) | (4,425 | ) | (4,425 | ) | ||||||||
| Add: Proportional share on net debt of unconsolidated real estate partnership | 8,759 | 8,759 | 8,759 | 8,759 | ||||||||||||
| Total net debt | $ | 639,112 | $ | 657,112 | $ | 619,649 | $ | 639,649 | ||||||||
| Ratio of Net Debt to EBITDAre | 7.3 | 7.7 | 6.9 | 7.3 | ||||||||||||
