Good day, and welcome to the Whitestone REIT's Second Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Kevin Reed, Director of Investor Relations. Please go ahead, sir.

Thank you, Eduardo. Good morning, and thank you for joining Whitestone REIT's Second Quarter 2020 Earnings Conference Call. Joining me on today's call are Jim Mastandrea, our Chairman and Chief Executive Officer; and Dave Holeman, our Chief Financial Officer. Please note that some statements made during this call are not historical and may be deemed forward-looking statements. Actual results may differ materially from those forward-looking statements due to a number of risks, uncertainties and other factors. Please refer to the company's earnings press release and filings with the SEC, including Whitestone's most recent Form 10-Q and Form 10-K for a detailed discussion of these factors. Acknowledging the fact that this call may be webcast for a period of time, it is also important to note that this call includes time-sensitive information that may be accurate only as of today's date, August 6, 2020. The company undertakes no obligation to update the information. Whitestone's second quarter earnings press release and supplemental operating and financial data package have been filed with the SEC and are available on our website, www.whitestonereit.com, in the Investor Relations section. During this presentation, we may reference certain non-GAAP financial metrics which we believe allow investors to better understand the financial position and performance of the company. Including the earnings press release and supplemental data package are the reconciliations of non-GAAP measures to GAAP financial measures. With that, let me pass the call to Jim Mastandrea.

Thank you, Kevin, and thank you all for joining us on our second quarter investor call today. Today, I would like to share what I believe are pivotal to Whitestone's business, and our CFO, Dave Holeman, will provide even greater detail on our operating and financial performance as well as a more detailed COVID update. Given that we've all been affected by the COVID-19 pandemic, we hope that all of you, your families and the businesses are doing well and staying safe. The past six months have been incredibly challenging for everyone across the country and the world. As the U.S. economy fell off the cliff in March of 2020, we reacted quickly with safeguards we had in place. In terms of our markets and specifically, as it relates to our community-centered shopping centers located within Texas and Arizona, we too have faced extraordinary challenges, although I believe somewhat less than other parts of the country, operating in states with more business-friendly characteristics as we are. At the time of our earnings call back in May, we were in the early stages of the pandemic and 63% of our tenants were open, and April collections were 64%. As I report today, I am pleased to say that 94% of our businesses are open, and we collected 81% of our rents during the second quarter and have collected 86% for July so far. Our business model, which has been crafted from the lessons we learned during the 2008 recession and prior economic downturns, performs exceptionally well in good times and minimizes financial risk in these toughest of times. Our business operations have produced exceptional compounded growth rates since our IPO in 2010, and this trend continues, with our relatively strong performance in the second quarter and in the face of very difficult headwinds. Whitestone's foundation is built on three key pillars. First, Whitestone's investment philosophy, including how we acquire the right real estate and then how we effectively operate and lease and manage it. The second is our entrepreneurial culture in which employees become shareholders and participate shoulder-to-shoulder with our shareholders and help create value. And third, our experienced management team that extends beyond the 12 years they've worked together producing results for our investors, and consistently demonstrating an ability to capture and capitalize on opportunities that others may miss. My first point is that our philosophy provides us with autonomy to act quickly and decisively. Even before the pandemic, the rapid shift towards online shopping as the preferred distribution channel was taking a huge toll. Store closures and retail bankruptcies hit all-time highs. The pandemic only served to amplify that trend. Overall, Whitestone stayed on point with our strategy. Our business strategy, which was formulated in an economic down cycle with the Great Recession a decade ago, is created to withstand tough times and weather significant structural changes in our industry, e-commerce. Our contrarian approach focuses on buying open air properties in Texas and Arizona. These states have led the nation in population growth and small business formations over the past several years. These states welcome growing business and provide tax incentives and reduced regulations to attract businesses. Investing in real estate in these states allows us more freedom and control of our properties to lease and manage the owners as builders. This affords the flexibility to make decisions that could be implemented quickly and strategically. If a tenant performs well, we can expand them into other locations. And if they do not succeed, we can replace them with no hesitation. Keep in mind that we have a large tenant base and a single tenant can impact our revenue stream by more than 3% if they go out of business. We fill our properties with business owners committed to innovating, growing and contributing to their communities. Our diversified mix of tenants provide essential services for needs that can't be easily acquired online, if at all. As a result, our open air centers are providing community experiences that cater to the adjacent neighborhood as an extension of the resident's lifestyle. We continue to take a proactive approach to engaging with our tenants and are always looking for ways to help their businesses. Our market level teams, with their deep tenant knowledge, have developed longtime relationships with local entrepreneurs. This is what differentiates us from many of our peers who tend to have relationships with the real estate arm of national tenants, not the person fully committed to making daily tough decisions in running the business. We have implemented numerous strategic initiatives at the property level, including on-site measures to help customers feel safe, digital signing, and have worked with many of our restaurant tenants to increase their takeout and meal delivery business, and expand their outdoor spaces to generate more revenue, while maintaining safe social distancing. As our tenant businesses return to full capacity, we believe our initiatives will continue to produce additional revenue sources for them. Our philosophy has produced sustained profitability and added value to our properties, resulting in industry-leading returns because it works. My second point is at Whitestone, the core of our culture is our people. We believe a strong culture makes for a strong business. Our team members are committed to creating value for all shareholders and they go the extra mile. After two months of effective remote working, our associates reported feeling safe and excited about returning to the office. We implemented safety measures in our offices, and now we have our entire dedicated workforce back in each of our offices. From the beginning of the pandemic, Whitestone associates worked tirelessly, continuing to manage these properties with an expansive base of approximately 1,400 tenants. They conducted themselves with integrity and fairness, helped tenants access PPP loans, provided temporary open/closed signs, and in some cases agreed to rent deferrals, not forgiving any payment or giving tenants undue preference but allowing tenants time to recover. Working in the team, they have also been willing to make tough decisions that are in the best interest of our shareholders. We want all of our tenants to succeed and make it through these tough times. Yet we've seen a few who are taking advantage of this situation, not working collaboratively with us and not necessarily willing to pay the rent. We expect to honor our commitments and we expect our tenants to honor theirs, which means paying the rent on time. During the quarter, we locked out a few tenants who by the way are well capitalized. They assumed they could avoid paying rent. In most of these situations, these tenants pay the full amount of rent always and continue operating in the states. We repeated this tough love approach several times, even though we prefer a more collaborative approach of working with our tenants. Our leadership team has both the depth and breadth of experience in the industry, which leads me to my third point. I would like to say that it is not only what we own but it's what we do with what we own. As a result of the skills and experience of our team, we have and we will continue to identify structural shifts in the industry before they happen and capitalize on those opportunities. We know our markets, we know our properties, we know our tenants and we know the consumer. From the start, we understood that by owning and operating quality properties in growth markets, mastering consumer business and preferences and staying disciplined, we could succeed. In closing, our philosophy, culture and experience underlies our brand that identifies lifestyle in the real estate industry with a formula that produces leading investment results. We call this hard work and as our brand evolves within the industry, we believe our work will be recognized for the results we produce. We believe that all shareholders should have the benefit of real estate by owning shares in Whitestone. We also know that we have continued to gain their confidence by delivering meaningful value and producing stable, predictable cash flow, value appreciation through asset management and leasing that increased 2% to 3% annually. And when appropriate, both through acquisitions and development, to achieve scale and long-term sustainable value. With that, I'd like to turn the call over to Dave Holeman, our Chief Financial Officer. Dave?

Thanks, Jim. First, I would like to take this opportunity to thank all of our associates who continue to produce the best results possible given very difficult times. We have a highly dedicated team that works every day to create local connections and communities that thrive, and we feel strongly that we are positioned to withstand the current headwinds and thrive into the future. Given the severe economic pressures caused by the stay-at-home orders during the quarter, our portfolio has held up remarkably well. Entering the pandemic, our overall occupancy stood at 89.7%. Despite having a significant amount of our tenant businesses closed or severely impacted for all or part of the quarter, we only had a handful of tenants closed for good, such that the portfolio occupancy rate held up well, ending the quarter at 89.2%. Also, our annualized space rent per square foot held relatively flat at $19.58. While our square foot leasing activity was down 37% from the second quarter of 2019, we were pleased with positive leasing spreads of 13.5% and 3.4% on renewals and new leases signed in the quarter. As Jim mentioned, for the quarter, we collected 81% of our rents. This includes base rent and triple net charges billed monthly. We have also entered into rent deferral agreements for 5% of our second quarter rents. As part of the deferral agreement, we have negotiated beneficial items such as entry into our online payment portal, reporting of tenant sales, suspension of co-tenancy requirements, loosening of exclusives or restrictions, allowing further development and stronger guarantees. Today, 94% of our businesses are open. As a result, July collections have shown improvement. To date, we have collected 86% of our July rents which compares favorably to Q2 and to the April collections of 64% we reported at this time last quarter. While we are encouraged by how things are progressing, the pandemic took a toll on our business during the second quarter in terms of our financial results. Funds from operations for the quarter was $9.6 million, or $0.22 per share, compared to $11.1 million, or $0.27 per share, in the same quarter of the prior year. The decrease is primarily due to the impact of the pandemic, which resulted in a charge of $2.8 million, or $0.07 per share, related to the collectibility of revenue, which includes $500,000, or $0.01 per share, for noncash straight-line rent receivables. Let me add a little color on our flexibility analysis related to the pandemic. For the quarter, we recorded a bad debt reserve of $2.3 million, which excludes reserves for straight-line rents and unbilled amounts. Our cash collections for the quarter were 81%. So with the remaining 19% of uncollected rents, which includes 5% of agreed rent deferrals, we reserved 41%. Additionally, we have converted approximately 70 tenants, representing 3% of our GLA and 3.2% of our revenue, to cash basis accounting. Those tenants paid 41% of their own rent in Q2. We have provided some additional details on our collections that can be found on Page 25 of the supplemental. Turning to the balance sheet. Since March, we have implemented various measures to conserve cash, including further reductions in head count. Today, we have approximately $45 million in cash, representing an $8 million or 22% increase since March 31. We have one $9 million mortgage loan maturing in 2020, which we expect to refinance in the third quarter, and no debt maturities in 2021. Currently, we have $110.5 million of capacity and $1.2 million of borrowing availability under our credit facility. Borrowing availability under the credit facility is largely driven by trailing 12-month net operating income for unencumbered properties. Assuming that NOI for the third quarter is the same as the second quarter, we project that our current borrowing will exceed our available borrowing at the next measure period, which is September 30, 2020. We expect to remain in compliance with our debt covenants and continue to work closely with our bank group. We have seen pent-up demand in our markets as consumers are leaving their homes and returning quickly and in force. Parking lots are filling, stores and restaurants are active, and figuring out creative ways to do business. Whitestone is well positioned to capture this pent-up demand and intends to do so. Our team has worked together through this ongoing crisis, and our shareholders will reap significant future benefits through greater collaboration, a more robust exchange of ideas, better and more effective communication, and improved systems and processes that provide new actionable data and allow us to more efficiently scale our infrastructure. Whitestone is continuing to perform and deliver on its strategic plan. It is in many of the most highly desirable growth markets and high population growth states. We look forward to providing an update as we progress. And with that, we will now take questions. Operator, please open the lines.

We will now take our first question from Aaron Hecht at JMP Securities.

Dave, you made a comment about parking lots filling back up, consumer demand expanding. Just wondering if you guys could talk about that a little bit more. Do you have any metrics year-over-year on the traffic that you're seeing at your community centers? And is that traffic — do you think that supports the majority of the businesses that are operating today in terms of the rent profile that they're paying?

Yes. Thanks, Aaron. I'll comment and Jim may comment as well. Great question. We do monitor the traffic at our centers as well as our tenants, and we have seen significant increases, obviously, since the beginning of the pandemic and continue to see increases. We also, as you know, operate in states that have been probably a little less restrictive on some of the shutdown orders and continued to operate businesses. So we are monitoring the traffic. We are seeing increased traffic. Obviously, it's still down from a year ago, but I think the trends are good in our markets and like many markets, I think you have people that are anxious to get out and go along with life in a very safe manner.

Aaron, this is Jim here. It is important for someone in our management team to be property managers or leasing representatives who are active and familiar with the centers. We still have activity of people interested in leasing space. Some of our properties are visited weekly by the corporate management. I personally try to visit each property four times a year. What we're seeing is a significant pickup in the traffic in and out of some of our tenants and the key is it's an interesting time of year because in Phoenix, it's like 118 degrees. So it's relatively hot, and we still see tenants who are visiting the properties and visiting the storefronts. You can smell when it is picking up. You see the traffic that's picking up. It's sometimes hard to find the parking space and just the obvious signs of activity happening. As far as the data representing that, we continue to track it. I think that we're collecting 81% of our billings for the second quarter, which really puts us at the top of the heap in terms of collectibility. And keep in mind that that's relative to having the huge tenant base that we have. So we work with the tenants very closely. We get feedback from them and we respond to them. We know the social distancing hurt them. And most of the things that we hear is that they're looking forward to the year-end and they think this is being settled out.

Right. And obviously, some retailers have performed better during this environment than others. Are you seeing certain groups locally looking to expand their footprint and approaching you guys about that? Are there requests for — or demand for space? Would that represent declines year-over-year if you changed our retailers — kind of the demand from the retailer side and the price in there? Can you comment on that?

Yes. I think a couple of comments. We are seeing certain groups performing better than others as it's fairly obvious. If you look at our supplemental data, Page 25, you'll see our breakout of our tenant mix, which we think is well crafted. So there are groups that are performing a little better. Some of them, like entertainment venues, are having a little softer and slower time getting back. But we are seeing demand from kind of creative and new uses. I think one of the things we've seen is some of the traditional mall tenants are looking for spaces in open air centers. So that's something we feel very good about and are reaching out to some of those folks. And then our business model was crafted with smaller spaces, we're very focused geographically, know the markets really well, know the tenants. So we're very comfortable in our ability to re-lease quickly if we do have some fallout. And so I think we are seeing demand. And as we mentioned, one of the things we're doing, obviously, is looking for ways to help tenants grow their revenues in these tough times. And so expanding into parking lots, doing those kinds of things, being creative with tenants has gone a long way of showing our tenants that we are working with them.

Yes. And I'll add to that, Aaron. What we're seeing is we have some small office spaces called CUBEXEC. We're seeing an interest in those because they're enclosed and then they are basically individuals working alone and it is a safe environment, which they feel safe in as well. We're seeing that continuing to increase in the four locations in our centers like that. We're seeing an interest in other specialty uses. They're starting to branch out with our centers, where people are having interest in boutique or niche concepts and that's starting to take on some more momentum today. We're seeing activity in the cigar lounges that we have, which are located in high-income neighborhoods. We're seeing them fairly well attended with the spacing that they require, but it seems like we're seeing a lot of interest in that. Some of the coffee shops we have, we're seeing some of the employees taking the role of being social police, which is kind of interesting. The takeout service seems to be picking up. I was talking to one of our tenants today. And they said 50% of their business now is online. I can get their order and just walk-in and pick it up. So we're still — we're seeing this pick up. We're seeing people adjust quite nicely. And what's interesting with our properties, they're all open air. And open air, people feel very good. And we're only in Texas and Arizona. So there is that. We have much benefit by just being in those two states.

Right. Good job on the collection.

There seems to be no further questions. I'll turn it back to James Mastandrea for any additional or closing remarks. Please, go ahead.

Well, we like it when we don't get a lot of questions. It says we've adequately covered the events that people would like to hear. I think one of the things just in closing, I'd like to say a few things. One is that we are in a very difficult industry and yet we've been able to perform relatively well. I've mentioned in my remarks about Whitestone trying to solidify its brand, and I think as investors begin to understand what we do and how we do it, I think they'll be very pleased with their investment in Whitestone. We recognize that these are really extraordinary times, and we continue to evolve and evolve rapidly. While the near term we see is relatively difficult to predict, we do believe it will come to pass and we do believe there are better times ahead. Our platform is strong. Our business model is proven, and we remain resolute on our focus of capital and value preservation. Our team is passionate and committed to successfully navigating the crisis and being positioned to execute on future opportunities which I will add that we're starting to see some really interesting opportunities in this marketplace. So we look forward to moving ahead and we intend to stay true to our values. We want to do that as we stay true to our strategic plan because it's working and so why change it if it's working, and work with the same standards that we've been applying since we've really put this company together ten years ago and have remained unwavering through this pandemic. The responsibility is on our shoulders as we remain focused on serving our shareholders and creating and preserving for you long-term value. So with that, I'd leave just by saying thank you. And for now, if anyone would like to call me or Dave or anyone with the company or visit our properties, please don't hesitate to do so. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.