Ladies and gentlemen, greetings and welcome to the Whitestone REIT First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Mordy, Director of Investor Relations. Please go ahead.

Good morning and thank you for joining Whitestone REIT's first quarter 2025 earnings conference call. Joining me on today's call are Dave Holeman, Chief Executive Officer; Christine Mastandrea, President and 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 1, 2025. The company undertakes no obligation to update this information. Whitestone's 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 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.

Good morning. For a lot of investors looking at many companies, they may not view the first quarter as overly indicative of the future as it was entirely pre-tariff announcement. We believe there are a number of reasons to look at Whitestone's first quarter results and view it exactly as the type of quarter you should expect. This morning, we are reiterating our core FFO guidance and I'd like to walk you through the reasons why we believe this quarter very much represents what investors will see in terms of continued performance from Whitestone. There are three primary reasons. First, our redevelopment efforts are translating into same-store net operating income growth exactly as we expected and exactly in the way we're anticipating our ongoing redevelopment will translate into financial results. The capital is modest, $20 million to $30 million over the next few years, but we anticipate our investments will deliver strong results. Second, as we've discussed on the last earnings call, Whitestone is designed to benefit as change occurs. This design means we're capable of performing better in various economic cycles. And today, we'll highlight how our business model and the actions we've taken over the past three years provide both accelerated growth and greater durability of cash flows if economic conditions worsen. And third, our properties are at the heart of the reshoring dynamic that is occurring right now. We strongly believe reshoring isn't really a matter of whether tariffs succeed or not; trillions of dollars of Chinese manufacturing no longer has a young labor force needed to operate effectively and globalization is breaking down. That translates into TSMC's new operations in Phoenix and Apple's announcement of a 250,000 square foot manufacturing facility in Houston. Those investments transform the communities around them and we benefit as long as we ensure that our centers remain anchored to the community and adapt in tandem. We are confident there is more reshoring on the horizon and our strategy and operational model are set up to benefit from that. In 2024, we spent roughly $8 million in capital above the 2023 level, and this translated into an approximate 1% lift in same-store NOI growth that we delivered this quarter. Of the six redevelopment centers shown on Slides 20 and 21, Williams Trace was the vanguard in terms of our efforts, and Windsor Park is well underway. We've issued press releases on redevelopment efforts at Lion Square, Terravita, and Davenport. Collectively, those centers are anticipated to create up to 100 basis points of same-store NOI growth lift in 2026, '27, and '28. So here's what we delivered for the quarter: Core FFO per share of $0.25 for the quarter, up 4.2% versus Q1 '24. Same-store net operating income growth of 4.8%, near the top of our forecasted range. Straight-line leasing spreads of 20.3%, our 12th consecutive quarter with leasing spreads in excess of 17%. And we raised our annual net effective ABR per square foot 4% over Q1 '24. All of this fits perfectly within our longer-term expectation of 4% to 6% organic core FFO per share growth driven by 3% to 5% same-store NOI growth. As a reminder, that same-store NOI growth breaks down to 2% from contractual escalators, 1% to 2% from new and renewal leasing, and up to 1% from redevelopment. I'm going to have Christine talk about what we've done organically that provides greater durability of cash flows, but I wanted to touch briefly on our acquisition and disposition activity. In 2020, we were one of the top-performing retail REITs as measured by year-over-year same-store NOI performance or as measured by bad debt levels. Since 2020, we have sold 11 properties and acquired Lake Woodlands, Arcadia, Garden Oaks, Scottsdale Commons, two non-owned multi-tenant pads at Dana Park, and a non-owned pad site at our Anderson Arbor property in Austin. One obvious benefit from our capital recycling has been to raise the average household income level and ABR for our properties. More importantly, we have a greater degree of confidence about the growth of the communities surrounding our centers and our ability to continue matching tenants to that growing demand. That science of connecting tenants to demand is the key to performing in any economic environment, and we're always eager to walk investors through exactly how we do that. While the overall macroeconomic environment has uncertainty to it right now, the dynamics in our markets, especially for service-based businesses, are much more favorable. Green Street's population forecast for our footprint is 50 to 70 basis points higher versus the national average, and the job growth CAGR is forecasted to run 40 basis points above the rest of the nation. According to CommercialEdge, Phoenix, our largest market, leads the country in terms of industrial construction underway. All of these trends are in line with what we've seen over the past decade, and it allows demand to recover much more quickly from any shocks to the system. We pay close attention to the current environment in terms of the decisions we make, but we are making decisions with a multi-year horizon in mind, and we are very bullish on the future of service-based businesses in the Sunbelt. We're looking forward to seeing many of you at REITweek in June. Please reach out to our Investor Relations if you will be at the conference and would like to spend some time with management. And I'll now turn the call over to Christine.

Good morning, everyone. We had an exceptional quarter with a total lease value of $31 million signed, marking the highest amount for a first quarter in our history, up 40% compared to the last decade's average. Our leasing spreads were 22.6% for new leases and 19.9% for renewals, resulting in combined leasing spreads of 20.3% for the quarter. This strong leasing activity, coupled with previous quarters, led to a 4.8% increase in same-store NOI, which is essential for achieving our earnings growth targets. As mentioned in our last call, our shop space at 77% of ABR versus the peer average of 50% provides us with flexibility to respond to demand, a better mix of businesses, and attractiveness for multi-channel services. Additionally, we leverage local insights and data from Esri and Placer.ai to continually monitor the demand factors that contribute to our businesses' success. Aligning tenants with community needs not only creates opportunities for significant growth but also offers better downside protection in three key ways. Firstly, relying solely on anchor tenants increases risks for shop space tenants; we ensure all tenants are aligned with community demand, which limits risks. Secondly, businesses that do not resonate with the community are usually the first to falter in tough times. Our proactive approach mitigates risks by focusing beyond financial guarantees to assess tenants' potential success in their locations. We consistently evaluate the health of our existing tenants and take swift action to upgrade them if a better fit emerges. A great illustration is Terravita, where we replaced a tenant who wasn't adapting to the local demographic changes. We brought in Picklr, a leading operator that attracts health-conscious, active families to the area. Lastly, the diversity of our service-based tenants, combined with a high percentage of shop space, reduces the risks associated with reliance on large national tenants, which can create vulnerabilities during recessions. Our largest tenant contributes only 2.2% to our annual base rental revenue, aiding our stability during the pandemic. These factors contribute to the robust cash flow generated by our shop spaces. In prosperous times, shop tenants can command higher rents and sign more advantageous lease terms, providing us with more control and opportunities to optimize our real estate. Additionally, shop space is ideal for service tenants, who require lower capital investment, allowing us to allocate cash flow towards growth through redevelopment or acquisitions, both crucial for our 5% to 7% core FFO growth target. While Dave touched on some financial benefits from our redevelopment efforts, I want to emphasize Lion Square, which represents over one-sixth of our projected $20 million to $30 million redevelopment spend. Located in Houston's Asiatown, Lion Square attracts over 9 million visitors annually. We have recently enhanced the center by adding Sun Wing Supermarket and are monitoring the transformative Park Eight Place project nearby. We anticipate a 30% to 50% increase in the center's NOI from this redevelopment. Our investments are strategically timed to yield significant results, and we are experiencing quicker construction timelines due to the availability of resources from government project cancellations. It’s crucial to note that tapping into these resources requires careful planning regarding permits, plans, and vendors, and we are well-positioned to act as conditions change. I’d like to highlight the percentage of our shop space in comparison to our peers. Investors should understand that our higher shop space percentage yields results because it aligns with our community engagement efforts and our operational capabilities. The team is diligently pushing forward our growth, and I appreciate their efforts. Now, I’ll hand the call over to Scott to discuss the financial aspects.

Thank you, Christine. This morning, we reiterated our $1.03 to $1.07 core FFO per share guidance and our longer-term 3% to 5% same-store NOI growth target. For the quarter, as planned, we took back some space slightly lower, lowering our occupancy from the prior quarter, and we produced strong same-store NOI growth of 4.8%. Intentionally taking back space in order to bring in higher-performing tenants and drive growth is a fundamental part of our quality of revenue focus. Specifically, this quarter, we made room for the Picklr and Ace Hardware coming into Terravita. All in all, we are reiterating our 3% to 4.5% same-store net operating income projection for 2025. The longer-term 3% to 5% is higher in anticipation of the full impact of redevelopment projects. We continue to see opportunities to acquire centers that fit our stringent criteria and that have the potential to contribute to earnings in both the short and long-term as our leasing team utilizes data from Placer.ai and Esri to better connect tenants to surrounding demand than previous owners. I'll estimate that we have about $50 million in acquisitions in the current pipeline financed primarily through cash flow and dispositions. Touching on the balance sheet, our debt-to-EBITDAre was 7.2x versus 7.8x a year ago. And we remain on track to continue to strengthen our balance sheet in 2025. In terms of Whitestone's liquidity, we have $16 million in cash and $98 million available under the credit facility. Our dividend remains very well supported with nearly a 50% payout ratio, and we anticipate strong dividend growth as we grow the dividend in conjunction with earnings growth. And with that, I'll keep my comments brief and open the line for questions.

The first question comes from the line of Gaurav Mehta from Alliance Global Partners.

I wanted to follow up on your comments around occupancy taking some space back. Can you provide some more color on why the occupancy went lower?

Yes, sure. Gaurav, this is Scott. The biggest piece of the decline in occupancy is from a retenanting effort at Terravita. There's a low-paying tenant in there at the end of the year. That's about a 37,000 square foot space that was formerly a grocery store. We have two great new tenants coming in, the Picklr and Ace Hardware. So while we prepare that space for the new tenants to take occupancy, there's a roughly 0.7% decline in occupancy from the end of the year, and that's the majority of it.

Okay. Second question on your comments around $50 million in acquisitions in the current pipeline. So, is that amount that you guys are looking at? Or is that something that you already have under contract?

Thank you for your question, Gaurav. We are actively seeking opportunities in our market to acquire properties that meet our criteria and where we can add value. The $50 million figure is a rough estimate of our current expectations. Historically, we've reached similar levels over the past few years, funding these acquisitions through cash flow and property sales. This year, we are optimistic about maintaining that $50 million target for property acquisitions that Scott mentioned. We’ve successfully enhanced the overall quality of our portfolio through these acquisitions. You've likely noticed the increases in our ABR and Green Street TAP scores, which reflect our ongoing efforts to refine and improve the quality of our portfolio.

Okay. And then lastly, on your debt-to-EBITDA at 7.2x, which seems a little higher than 6.6x in 4Q. Can you provide some color on your expectations for your leverage level this year?

Yes. I think we expect to end the year in the low 6s. That's where we expect to end up. There's always a little bit of extra NOI that comes in, in the fourth quarter around percent sales from tenants. Tenants tend to hit their break points in the fourth quarter. So, we see a sizable increase in percentage rent in the fourth quarter that doesn't repeat in the first quarter. We also had some termination fees in the fourth quarter that were higher than we had in the first quarter here. So, I think when we get to the end of the year, we expect to be in the low 6s.

Gaurav, it's Dave. I'd like to add that over the past few years, we have focused on strengthening our balance sheet, which has led us to receive an investment-grade credit rating. We remain committed to growing our earnings per share while also enhancing our balance sheet. Looking back, although Scott mentioned the seasonality, we have seen a decline of 600 basis points from the first quarter of 2024, moving from 7.8x to 7.2x. I'm very pleased with the progress we've made. We've taken significant steps, and you can expect us to continue growing earnings at an attractive rate while also maintaining a stronger balance sheet.

The next question comes from the line of Mitch Germain from Citizens Bank.

I wanted to discuss the redevelopment efforts. I appreciate the insights you’ve all shared. I understand you’re working on pad sites, but it seems many of those are intended for sale. Specifically, what projects are currently in progress at your centers that you believe are significantly contributing to that 100 basis point increase in same-store performance?

Mitch, it's Dave. I'm going to give a quick intro to your question and then I'm going to turn it over to Christine to give you some more details. One of the things we've tried to do is show the building blocks for investors of how we continue to have consistent sustainable earnings growth. A piece of that is through redevelopment, remerchandising, and making sure that we're getting the most value out of each piece of our property. As you said in our deck, I think we have a series of slides that show the properties we're working on. Maybe I'll just pause and turn it over to Christine to talk about the specifics. I think in her comments, she talked about Lion Square, but Christine, hit anything you want to hit; it would be great.

Sure. The key aspect of the redevelopment process is to assess where the opportunities lie, particularly concerning lease terms and turnover. We consistently review leasing terms and identify where we can transition tenants and enhance revenue quality. Typically, this necessitates investment in the property's facade and tenant improvements. We've identified some promising opportunities, such as Williams Trace, where we re-leased space to an EoS Fitness facility, which also enabled us to optimize parking for additional pads. Moreover, Lion Square is one of our larger projects for this year, with most of the work expected to be done by year's end, allowing us to re-tenant some areas to improve revenue quality. We focus on prime locations where adjacent development is happening, which amplifies our real estate potential. For instance, Garden Oaks is adjacent to a large tract that is anticipated to be sold soon, with interest from major grocery chains. We're already beginning to plan our investment in that property. A significant portion of the redevelopment time is dedicated to this planning phase, while actual construction typically takes six to eight months. The projects we've highlighted are already in the planning stage, and we'll continue their execution through 2025 and 2026, while also looking ahead to 2027 and 2028 with further properties. I hope this provides some insight into our approach and expectations for generating returns within our portfolio.

Great. On to the balance sheet, there were some nuances. Some notes were a portion of some notes paid seems like with the revolver. Can you just talk about kind of what happened in the quarter and what is that leg to push leverage lower? I know Pillarstone is certainly something that is out there but what else exists that's going to bring into the kind of low 6x range?

Mitch, it's Scott. Thanks for the question. First, the debt that was paid in the first quarter was just some amortization on our prudential bonds that we rolled into the revolver. To lower leverage, I think it's going to come from both the increase in earnings that we expect to realize over the course of the year and over the next few years and then also cash flow from operations. Last year, we had about $58 million from operating cash flows. We were able to use a good portion of that to improve our balance sheet. This year, I think we'll be in the $50 million to $60 million range in operating cash flows again. So there's both just continuing operating cash flow improvement and certainly, the Pillarstone when we work through that bankruptcy process, and we expect those proceeds to be probably between $50 million and $70 million. But it's hard to predict the timing, and that's why we haven't included it in our guidance. We'll certainly also improve the balance sheet and lower our leverage.

Great. Last one for me and probably for Christine. I know you and your team do a really fantastic job getting the pulse of what is happening at your centers and your tenants. So obviously, with everything happening in the world, there is some likelihood of a consumer pullback. I'm curious if some of your tenants on the service side or on the restaurant side are seeing any indication of that trend happening at this point?

Thank you for the question, Mitch. We have been closely monitoring this situation. I may have mentioned this earlier, but we see it as a trend rather than just a temporary decline; alcohol sales in our restaurants have gone down. It appears that the trend of dry January is extending into the year, which seems to be linked to people making healthier lifestyle choices. We have been tracking the fitness side as well to see if there's been a decline in traffic, and that hasn't been the case. In fact, we've observed an increase in fitness, which I attribute to people seeking the comfort of their communities. Regarding the restaurant segment, we do have a few high-end restaurants where we have noticed some decline. Surprisingly, two recently opened restaurants have experienced significant success. We are keeping an eye on these developments but have yet to feel any major impact. We are monitoring the situation closely, but we are not seeing a notable reduction in traffic; it is still there, although sales may be shifting. We do notice that restaurants are starting to adjust their offerings to attract customers, but there hasn't been a substantial decline in sales yet.

Mitch, it's Dave. The only thing I might add, Christine is spot on, but I will tell you that her and her team do a tremendous job of picking the right operators. In any market, picking the right operators is essential. Our underwriting standards and tenant identification standards have improved significantly since Christine has taken leadership of that team. A major part of what Whitestone does is watching but ensuring we're picking the strongest tenants through local knowledge and data.

And I just will add one more thing to it. This is really something that's been very striking: we're definitely seeing the contractors coming out of their booked shortages in 2026, which is one of the reasons why we're looking at amping up some of that investment into the centers because we see that there might be a bending of the cost curve with construction projects.

Mitch, do you have any more questions? The next question comes from the line of John Massocca from B. Riley Securities.

I know you talked a little bit about what was moving the numbers around in the occupancy this quarter. But if you included those two leases you talked about where you brought in a higher paying tenant, what would kind of be the occupancy on like a signed but not opened basis, if you will, roughly?

I believe it was about the same. If you focus on Terravita and account for the tenant Scott mentioned, along with the two new ones, Picklr and Ace, that gives us a rough idea. We think we were at 93.9% last quarter. Scott, please correct me if I'm wrong, but we experienced a decline of about 700 basis points from last quarter, and it largely remains flat with the addition of these two new tenants. We don’t report signed but not opened tenants like some of our competitors since we typically have a smaller gap because we open tenants very quickly. So, I think overall, it would be flat, John.

That's very helpful. And then bigger picture, just in the context of tariffs, as you think about your shop tenant base today, what's kind of the rough divide between people offering services and people selling kind of hard goods?

Yes. I'll start out and Christine will probably add some as well. But I think in our deck, we do have a slide that talks about our mix. We've always focused on services and kind of e-commerce compatible tenants. If you look at our space that we've identified as kind of hard soft goods, it's probably 15%, but we don't have your traditional big boxes. Our tenants tend to be a little less impacted clearly by the impact of tariffs, and I'll let Christine add if she'd like.

Yes, one of the reasons we've focused more on the services side is due to the challenges in goods, particularly with the growth of e-commerce. It is really under 15%, if at all. We have checked in with some of our restaurants, and they have been able to adapt fairly quickly, so they haven't been significantly affected. We also have Fergusons in our portfolio, and we haven't observed anything from them that raises concerns. But again, that's under 15%, possibly a bit generous.

Okay, that's helpful. And then I know it's only 60 basis points but your Dollar Tree exposure, just as a reminder, are those true Dollar Trees or are those Family Dollars, and kind of if they are Family Dollars, what are you expecting in terms of underwriter credit impact from the split?

Total Dollar Trees.

Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Dave Holeman for his closing comments. Dave?

Thank you. Thanks to all for joining us today. We very much appreciate your attending and your interest in Whitestone. We're pleased with our start to 2025 and really remain very optimistic about our business model and the ability to produce in different economic cycles. While there's a fair amount of uncertainty today in the economic environment, Whitestone is positioned very well. We look forward to engaging with a number of you at the upcoming conferences, ICSC and NAREIT. With that, I'll wish everyone a great day. Thank you.

Thank you. Ladies and gentlemen, the conference of Whitestone REIT has now concluded. Thank you for your participation. You may now disconnect your lines.