Greetings, and welcome to Whitestone Real Estate Investment Trust First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded.

Good morning, and thank you for joining Whitestone REIT's first quarter 2024 earnings conference call. Joining me on today's call are Dave Holeman, Chief Executive Officer, Christine Mastandrea, Chief Operating Officer, and Scott Hogan, 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 news release and filings with the SEC, including Whitestone's most recent Form 10-Q and 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, May 2, 2024. The company undertakes no obligation to update this information. Whitestone's first quarter earnings news release and supplemental operating and financial data package have been filed with the SEC and are available on our website in the Investor Relations section. We published first quarter 2024 earnings slides on our website yesterday afternoon, which highlight topics to be discussed today. I will now turn the call over to Dave Holeman, our Chief Executive Officer.

Thank you, David. Good morning. And once again, we thank you for joining Whitestone's first quarter 2024 earnings conference call. Let me begin by saying that we are very focused on delivering solid, consistent results for shareholders and our first quarter results are exactly that. We put out our 2024 full-year guidance less than 2 months ago with strong core FFO per share growth of 11%, a robust same-store NOI growth target, and a goal to beat last year's record occupancy finish. The team is delivering, and we are on track with our internal forecast and reaffirming our previously issued guidance. In the first quarter, we signed new and renewal leases at a blended 17% increase over the prior leases on a straight-line basis and a 9.3% increase on a cash basis. We grew our top-line revenue over 3.7%, produced 3.1% growth in same-store NOI and achieved core FFO per share of $0.24. We continued to strengthen our balance sheet with debt to EBITDAre at 7.8x, which was negatively impacted by professional fees in the quarter related to our proxy contest, which Scott will go into further detail in his comments. Our occupancy was 93.6% at the end of the quarter, up 90 basis points from a year ago, and our net effective annual base rent per square foot was $23.83, up 7.2% from 2023. Our occupancy levels and average base rent aren't just up significantly over the last year, our occupancy has increased 230 basis points, and our ABR is over 13% higher since I became the CEO at the beginning of 2022. This growth shows the value of our strategy and as a result of our new team's execution focus, the quality of our assets, and the demand for the types of spaces we specialize in. As Texas and Arizona continue their rapid growth, as our leasing team continues to execute, and as we continue our successful capital recycling efforts, we expect these important metrics to continue to increase. I'll have Christine discuss our leasing and organic growth more shortly. Our capital recycling efforts are going very well also. This year, we have completed the sale of 1 center for $28 million and acquired 2 centers for approximately $50 million. Since we began our recycling efforts in late 2022, we now have completed $84 million in dispositions at an average cap rate of 6.2% based on the trailing 12-month NOI, and we have completed $104 million of acquisitions at an aggregate cap rate of 7.1%, which is based on actual or projected year 1 NOI. Our next 2 transactions, which are underway, will be property sales of about $25 million, balancing out our disposition and acquisition level. Let me delve into the acquisitions a little bit. Garden Oaks is an Aldi-anchored center located in the pathway of significant residential and commercial development and which sits on a major thoroughfare in our Houston market with 30,000 vehicles per day passing by. The center has a strong mix of 19 service and convenience-based tenants and has significant potential for infill development. The surrounding neighborhood has seen residential property values increased nearly 50% since 2019. Our most recent acquisition was Scottsdale Commons in our Phoenix market, and it's another great add to our portfolio. Scottsdale Commons is located on the second most trafficked intersection in Scottsdale, is home to 20 tenants and has a surrounding 3-mile average household income of over $135,000. The center acts as a gateway linking North Scottsdale and Paradise Valley. Both centers fit very well with our strategy and will benefit from our in-place leasing and property management teams who are eager to get to work, growing cash flow and increasing the value of the centers. Looking out slightly longer than the next couple of quarters, I think it is critical to look at what we're hearing from not only our current but prospective shareholders. We've doubled the percentage of our active institutional shareholders over the last few years and what is needed to continue expanding our shareholder base is to extend our track record of steady FFO growth while simultaneously improving our balance sheet. As I mentioned, we are forecasting 11% core FFO per share growth this year, driven primarily by strong same-store NOI growth. With the vast majority of our debt locked until 2027, we have a clear runway for growth, not just this year, but into 2025, '26 and '27. In addition, our earnings growth combined with free cash flow is driving our debt to EBITDA ratio down. We are forecasting sub 7x debt to EBITDAre by the fourth quarter, and that does not assume we collect the bulk of the Pillarstone judgment until 2025. This metric should improve noticeably in the fourth quarter due to annual percent of sale clauses in many of our leases that typically contribute significantly to the fourth quarter as well as the anticipated drop in our G&A expenses once we're past the proxy season. In summary, we are very well lined up to do exactly what we need to do. We're looking forward to connecting with many investors. And for those of you attending REITweek in June, we'd love to meet with you at that conference. I hope you'll come by and see us. And with that, I'll turn the call over to Christine.

Good morning, everyone. As Dave mentioned, we remain confident in terms of achieving our 2024 objectives and are on track within our internal, monthly and quarterly goals. Occupancy remains high at 93.6%, up 90 basis points from a year ago, anchored occupancy was 96.9%, and smaller space occupancy was 91.6%. We achieved renewal leasing spreads of 15% and new leasing spreads of 25.9% for a combined overall positive leasing spread of 17% in the quarter. I remain confident in the leasing team executing in our projections for the year. However, this is the strongest environment we've ever seen in Texas and Arizona for all site spaces in all the categories we serve across our mix of tenants of food, grocery, restaurants, health, wellness and beauty, financial services, other services, education, and entertainment, and anticipate the next couple of years will bring the same as there’s an increasing growth and a new demography that is showing a new interest in new types of things to do in their lives. One of the things that we look for in our tenants is the best-in-class operators, whether it’s an Aldi or the Pickler, one of our keys to success is not just evaluating the credit quality of a potential tenant, but their skill as operators and their ability to succeed over the next 5, 10, and even 20 years. This environment is the perfect time to secure these businesses and ensure that our centers are the right drivers for future success. Regarding the acquisitions we've recently closed, Garden Oaks in Houston and Scottsdale Commons in Arizona. Our leasing team knows how to deliver returns on these acquisitions, especially given the strong starting fundamentals. Their excellent visibility on major thoroughfares and fast-growing surrounding neighborhoods in dense areas that are supply constrained in terms of more retail development. These factors provide for infill development and make these acquisitions similar to, for example, our Las Colinas acquisition in late 2019. Since 2019, we have replaced 50% of the tenants in Las Colinas. We've increased the NOI by 35% and strengthened the traffic drivers for the center, which allows us to continue to drive value for the center, both for our tenants, the neighborhoods, and for Whitestone. With that, I'll keep my comments short today and turn it over to Scott to cover the financials. Scott?

Thank you, Christine, and good morning. Our solid first quarter results demonstrate the strength of our high-quality portfolio of properties as evidenced by robust leasing spreads and positive same-store NOI growth. Our core FFO per share was $0.24 for the quarter versus $0.24 for the same period in 2023. As Dave mentioned, we remain on track for our core FFO per share guidance of $0.98 to $1.04. We are also on track for our previous projections of same-store NOI growth, ending occupancy, interest expense, and debt to EBITDAre. We have increased our projection for net income and G&A expense to reflect the gain from our first quarter disposition and to reflect proxy contest professional fees. Our first quarter G&A expense included approximately $400,000 of professional fees related to our proxy contest, and we expect that our second quarter will include $1.2 million in professional fees related to our proxy contest. Additionally, bad debt was a bit higher in the first quarter, primarily from a small number of tenants we are now in the process of re-tenanting. We anticipate that number will come down for the remaining quarters. On the whole, we’ve taken significant steps to reduce earnings variables and allow for our strong same-store NOI growth to continue to drive earnings growth and balance sheet improvement. Same-store NOI was 3.1% for the quarter, which is exactly what we need in order to drive the $0.07 earnings growth expected to come from same-store NOI growth in 2024. We redeemed our Pillarstone OP units in January, so going forward, our income statement no longer has a deficit related to Pillarstone and any associated variability. We'll keep you updated on our collection efforts and our guidance does not assume much of that occurs in 2024, and we may have some significant stretches with no update as our collection efforts progress. We are also in the process of covering off maturities we have coming due later in the year and are currently rate locked for approximately $55 million of 7-year mortgage debt at 6.2%. Accordingly, I anticipate our fixed debt rate percentage will be greater than 85% by the end of the year. Furthermore, if the 2 upcoming dispositions Dave mentioned close as expected, our fixed debt percentage will increase as we reduce our overall debt. Let me wrap up our prepared comments by saying we are excited to be able to support the businesses that populate our centers, but most of all, we are thrilled to deliver results to our shareholders. We look forward to connecting with you in the weeks and months ahead. And with that, let's open the line for questions.

The first question we have comes from Mitch Germain of JMP Securities.

Can you provide some perspective on some of the nuances related to the JV accounting now that you've redeemed the units?

Yes. Sure, Mitch. As we mentioned on the call, in January, we redeemed our OP units, which changes the accounting from that of equity method accounting because we're no longer a partner. And Pillarstone to an accounting where we have collection effort around the redemption. So there is a $30 million or $31 million receivable. And then as the guarantor on Pillarstone's only loan, we paid $13.6 million. Both of those are amounts that we're working to collect through the bankruptcy. And we're confident that we'll collect at least that much through the bankruptcy process.

Hey, Mitch, I was going to just add one thing, which was real positive, obviously, it will take some of the volatility that we've had in past quarters out of our results as we no longer will be recording those deficits from Pillarstone that we had in '23. Sorry, Scott, I didn't mean to step on you there.

That's okay. Did I answer it Mitch or are there any...

Yes. So 2 questions. One, there's no more management fee as well, is that it?

Well, we haven't had a management fee from Pillarstone since August of '22 when we canceled the management contract. So, really what we've had with Pillarstone is a JV where there haven't been any distributions to us, or any funding from us to Pillarstone. It's just been an equity method accounting exercise that ended on January 25, when we redeemed our OP units.

And is the deposit on the debt, was that money out the door by you guys, or...

That was money spent. We now have a right of subrogation. I mentioned that there will be a disclosure in our 10-Q regarding this, but in April, Pillarstone and the lender filed a motion to settle the loan with Uptown Tower. Under this agreement, Pillarstone will pay $1.1 million by June 10, or if they cannot, it releases the liens the lender holds against the asset and frees Whitestone as the guarantor. This will allow Pillarstone to hopefully sell the property, and then Whitestone will have a right of subrogation against Pillarstone. We believe there is a contract for $26 million on that building currently, so this amount should cover our $13 million claim.

They have a contractual right to do that despite what's happening between both entities now with a potential settlement from the court.

They need to navigate through the bankruptcy court, but removing the lender from the situation is a positive step. The loan I mentioned earlier is the only loan secured by any of their properties.

Okay. Legal fees that you guided to in addition to the proxy cost, is that all big for G&A?

I'm sorry, I didn't understand the last part of the question. It was legal fees. So there's legal fees and...

G&A guidance, right? You've got G&A guidance that went out quarter-over-quarter, obviously, you're backing out the proxy costs, but that still includes legal, correct?

We haven't changed the guidance on the legal fees. There can be timing on that depending on when hearings happen and so forth. So I think we had a little more in the first quarter, the full-year legal fees we don't think are going to change. And the only change to the guidance was just the proxy fees that we mentioned.

And then can I get some color on the asset sales? You sold the property, sounds like $28 million or so. And then you've got another one, that's or another 1 or 2 queued up. How should I just think about what's been done and what we should anticipate going forward?

It's Dave, I'll take that one. And so I think we announced a couple of years ago the intent to continue just refining the portfolio, looking at assets that we felt like were either very attractively valued or assets that had less upside in the future and recycling those into some new properties. I think in my earlier comments on we're about $100 million once we close the next 2 acquisitions. We've done the dispositions at a cap rate of approximately 6.2%. And we've been able to acquire properties with a day 1 cash flow of 7.1%, and obviously, more importantly, much more upside in really great areas with opportunity. So I think, as you think about our recycling efforts, I mean, this is no different than a portfolio. We're going to continue, probably looking to turn. We've done $100 million in 2 years, that's probably a decent run rate that we would do going forward and redeploying that. We are seeing some positive movement on the cap rates, on acquisitions as evidenced. But right now, we're pleased with the efforts. We think they're contributing significantly. If you look at the new properties we have bought, better demographics, higher incomes, higher ABRs, just continuing to strengthen the portfolio at Whitestone.

Just 1 more follow up. The $28 million closed when in the quarter?

So the $28 million closed in the first quarter.

Are you talking about the asset sale?

Yes.

It was towards the end of March, so...

Okay.

Yes, towards the end of March.

And then you've got $25 million in process, right?

That's right. Timing-wise, we expect it to potentially be in the second quarter, but definitely by early third quarter if not the second quarter. We understand there are risks, but we feel very confident in our progress and will continue to execute our recycling efforts.

The next question we have comes from Gaurav Mehta of Alliance Global Partners.

I wanted to follow up on the asset sales. Just to clarify, the $80 million number that you have in the slide, does that include $25 million or you would have $25 million on top of $80 million?

It does not. The $84 million is the actual dispositions. I think the comment we were making is we have about $100 million in acquisitions, roughly $80 million in dispositions. The next 2 transactions will really balance that. So we're going to get about an additional $20-ish million to go. Just continuing to refine the portfolio, upgrade the portfolio by recycling and without the need for external capital.

Second question on your leverage. I think you touched upon this in your prepared remarks, but hoping to get some more color on your debt to EBITDAre going from 7.8x to the guidance of 6.6x to 7x.

In the first quarter of this year, we've got some elevated G&A cost around legal, pertaining to our efforts with Pillarstone and also proxy contest costs. We also expect NOI to grow throughout the year and debt to continue to improve by the time we get to the fourth quarter. So I think we'll see improvement both in the numerator and the denominator by the time we get to the end of the year through top line growth and also through lower G&A costs.

Okay. I have one more follow-up regarding the balance sheet. For 2024, regarding the $55 million debt you mentioned earlier on the call with a 6.2% rate, is that the rate that is expiring on that debt or the rate you are currently seeing in the market?

That's the rate lock we have on that loan. And I didn't understand the second part of the question about the market, sorry.

How do you plan to replace that debt? Will you consider taking on another mortgage debt or applying it to your line of credit?

That is the replacement debt. It's a $55 million loan, and then we'd use those proceeds to pay down the revolver.

We have about $50 million of debt maturities this year. And basically, I think this is just replacing those, right, Scott?

That's right, yes.

The next question we have comes from John Massocca of B. Riley Securities.

Maybe returning to the topic of capital recycling, I understand the acquisition cap rates, but could you clarify what the disposition cap rates are and how they relate to those transactions?

Sure, John. We've done $84 million in dispositions since October 22. Those have been at a disposition cap rate of 6.2% based on the trailing 12-month NOI. The acquisitions, the other side have been at a 7.1% cap rate on first year NOI, actual or projected.

And maybe how does year-to-date compare to that longer term number?

I think you're asking what's our volume level for recycling? Is that what you're asking?

No, no, just cap rate. I mean, how does the year-to-date cap rate compare to the number you're stating since 2022?

Yes, I believe that’s accurate. We’re not trying to manipulate the period; rather, we’re observing the most recent performance over a 12-month span. Currently, there is about a 1% positive spread between our purchases and sales.

Okay. And then maybe looking at the bigger picture, since they are in the same market, what is the reasoning behind selling Mercado at Scottsdale Ranch and moving into the other asset you acquired in Scottsdale?

Sure, let me clarify this for you. Firstly, Mercado was situated in a challenging location with a restricted 180-degree trade area, making it somewhat limited along Shea Road and closer to Fountain Hills. I always consider the location's effectiveness within the trade area. If you compare it to a property where the trade area is limited by 180 degrees, which is significant due to the surrounding Indian reservation, transitioning to Scottsdale and Shea is advantageous. That intersection is one of the prime spots in Scottsdale, offering better access compared to the limited trade area of Mercado. This is part of our strategy; we've engaged in recycling assets that have reached their potential, faced limited growth opportunities, and the properties we've acquired have surpassed our expectations in terms of rental rates and leasing times.

And then on the bad debt that increased, any kind of specific themes to call out there, was that 1 tenant, multiple tenants, any particular tenant industry, just looking for some more color on that?

It's just a handful of tenants that we're working to retenant and really upgrade and better serve. It gives us an opportunity also to better serve the community around the properties. It's not a pervasive issue across the tenant base, it's really just probably 3 or 4 tenants.

Yes, we have made significant improvements in our portfolio and as a team. As we've mentioned before, if we identify tenants that are underperforming, we prefer to find new tenants in a strong market. We have taken a proactive approach to this, and the team understands that managing bad debt is a serious part of our operations, and we aim to eliminate lingering issues. We have actively focused on reducing past challenges and are prioritizing quality revenue and tenant selection going forward. The team has done a commendable job, and we anticipate continued improvement. I consistently monitor for tenant weaknesses and evaluate our portfolio to ensure we approach leasing carefully in the future. To date, the market has remained robust across all tenant types, and I have not observed significant tenant weakness since COVID.

As we consider the broader aspect of capital recycling, apart from the transactions you've completed or those in the pipeline, is there any impact from the ongoing proxy contest? Should any strategic initiatives be put on hold until that is resolved, or will we evaluate the outcome and make adjustments as necessary?

I think I would say, John, absolutely not. Our business is, frankly, firing on all cylinders. Our tenant demand is strong. We've got great locations. You've got a team that's synced and executing. We intend to keep delivering and keep laying down a track record.

The next question comes from Michael Diana, Maxim Group, LLC. In the pipeline, is that impacted at all by the ongoing proxy contest? Do you need to take a pause on any strategic initiatives until that's completed, or will we see the result of that and then adjust as needed? I think I would say, John, absolutely not. Our business is, frankly, firing on all cylinders. Our tenant demand is strong. We've got great locations. Our team is synced and executing. We intend to keep delivering and maintain our track record.

Christine, you mentioned that in one of the two recent acquisitions, you retenant a lot or there was a lot of retenanting. Can you just give us some more detail? Why were the new tenants better than the old? What were you doing there?

I wouldn't say there's been extensive retenanting. When we acquire a center, we follow a specific approach. First, we assess whether it's effectively serving the community. We look for opportunities in cases where tenants have been retained without active management, and those that may not be fulfilling community needs effectively, as indicated by their sales figures. If management is lacking, we see it as a chance to refresh the tenant mix because our primary goal is to serve the community successfully. For instance, in Woodlands, we acquired a fantastic property in a prime location. We replaced two operators there and were able to significantly increase the rents as a result. We're focused on securing strong operators that can match the area's market potential. This same perspective is applied to every acquisition we evaluate. We analyze the current tenants to see if they meet community demands and identify retenanting possibilities. An earlier example is Las Colinas, where we implemented substantial retenanting. The result was improved traffic levels and better revenue quality, which allowed us to raise rents. This has been our strategy for acquisitions, and it has proven to be very successful, so we will continue to pursue it.

Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the call back over to Dave Holeman for closing remarks. Please go ahead, sir.

Well, thank you, everyone for joining us today. I'd just like to wrap up by saying I'm extremely proud of the progress that's been made at Whitestone. A little over 2 years ago, we put a new team in place at the leadership level. Our board significantly reshaped itself, and we made commitments to shareholders. Since that time, I'm extremely proud that we've delivered on those commitments, and I guess I'll just leave you with today, I'm also extremely confident that the momentum and the progress we have today is going to only continue to accelerate as we move through this year and into the coming years. We have great assets, great markets, have a great team, and we thank you so much for your support. As I said in my comments, a number of conferences coming up over the next few months, so love to run into some of you at NAREIT or other places. If there's anything we can do, don't hesitate to reach out. Thank you.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.