Whitestone REIT

Greetings and welcome to the Whitestone REIT fourth quarter and full year 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Morty, Director of Investor Relations for Whitestone REIT. Thank you. You may begin.

Good morning and thank you for joining Whitestone REIT's fourth quarter and full year 2022 earnings conference call. Joining me on today's call are Dave Holman, 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, March 1, 2023. The company undertakes no obligation to update this information. Whitestone's fourth 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 fourth quarter 2022 slides on our website yesterday afternoon, which highlighted topics to be discussed today. I will now turn the call over to Dave Holman, our chief executive officer.

Thanks, David, and good morning, everyone. Thank you for joining us today. We have very strong results that I'm eager to discuss, but I wanted to start by sharing our vision. At Whitestone, our vision is to create the American dream in our centers through inspired team members who position clients for success and to meet the evolving needs of thriving communities. We continually strive to champion a best-in-class team to create value in real estate better than anyone in our business. There are many aspects of that vision that keep me and the team humble and passionate about what we do every day. 2022 was a very good year for Whitestone on many fronts. We exceeded our annual guidance for FFO per share, same store NOI growth, G&A, and net debt to EBITDA RE. We ended the year on an especially high note with strong fourth quarter results hitting record occupancy for the company and achieving it with very robust leasing spread levels. We continue to see the results from our strategic focus on the right locations in growing markets, convenience-focused shopping centers that have a large amount of smaller spaces and minimal big boxes. We populate our centers with an optimal mix of tenants that meet the evolving needs of thriving communities. We benefited from a number of positive macroeconomic trends driving neighborhood demand and supporting our growth, including hybrid work, migration to the Sun Belt, and population shifts toward suburban markets. These demand factors are further amplified by limited new supply in our markets. Our 2022 strong performance is a testament of the quality of our centers, the strength of our tenants, and the hard work of our team. We anticipate the positive momentum will continue, and we're looking forward to building on our success in 2023. Let me provide a few highlights from a year of major accomplishments on multiple fronts. We grew FFO by nearly 20% to $1.03 per share. This was accomplished by staying laser-focused on leasing throughout the year, raising our occupancy by 240 basis points to 93.7%, and achieving same-store NOI growth of nearly 8%. Our fourth quarter ending occupancy improved sequentially from the record occupancy we reported in Q3 by an additional 120 basis points. Straight line leasing spreads were 16.6% for the year and a positive 23.5% for the fourth quarter. We improved our debt to EBITDA ratio to 7.8 times from 9.1 times a year ago. We realized this primarily through strong EBITDA growth supported by capital recycling from acquisitions and dispositions that met our dual criteria of growing FFO per share and improving leverage. During 2022, we sold six properties, for an aggregate price of $35.8 million at a 5.6% cap rate and acquired two properties with greater current and future upside for an aggregate price of $27.5 million at a 7 cap rate. As a reminder, our debt to EBITDA ratio stood at over 10 times in 2020, so we've made great progress in just two years. We lowered our G&A expenses by $4.6 million from the 2021 level, although we did benefit from some one-time reductions that will not repeat in future years. Scott will provide greater clarity to our future G&A levels in his remarks. We amended and extended our corporate credit facility, adding additional liquidity fixing the rate on 82% of our debt and moving the bulk of our maturities out to 2027 and beyond. We received an investment-grade credit rating. We engaged heavily with shareholders and analysts, increasing our interaction with and ownership by institutions while adding sell-side coverage. And importantly, we showed our commitment to corporate responsibility through our ESG actions, which included multiple governance improvements, submission of our first Gresby filing, and publishing of an updated corporate ESG report. The efforts we made in this area were recognized by ISS with year-over-year improvements in our governance score from 9 to 3, in our environmental score from 8 to 6, and in our social score from 4 to 3. These efforts truly position us well for 2023 as we enter the year with great momentum on the leasing side, fueled by strong tenant demand and shorter lease structures, which will allow us to grow rents across our portfolio. In the third quarter of 2022, we shared that over 40% of our properties were at 95% or greater occupancy. As of year end, nearly 60% of our properties were at or above 95% occupancy, and our overall occupancy rate hit a record 93.7%. Anchor occupancy for spaces over 10,000 square feet were 98%, and small space occupancy hit 91.2%. One area that is a significant differentiator for Whitestone is that over 60% of our leasable square footage is in smaller spaces, which we believe to have much greater demand, more flexibility, provide premium rents, and we have occupancy upside in our portfolio in those spaces. As individual centers near full occupancy and tenant demand remains constant, we are presented with tremendous opportunity to accelerate ABR growth through disciplined selection of a strong and successful tenant. With our small space focus, we diversify our risk over more tenants per center and shorter leases with more flexible lease terms than our peers. There has never been a better time to prove our differentiated strategy and ensure that our centers are populated with high-demand businesses that meet the needs of their surrounding communities. Let me now just take a moment to comment on the environment in which we operate today. We understand that this strong economic environment, as we see it through the eyes of our tenant and in our current and ongoing leasing success, does not necessarily match with the expectations of many Fed-focused investors. We have no crystal ball in terms of the economic impact of taming inflation. But what we can do is stay focused on a strategy which we believe will provide stronger returns for our investors regardless of the macroeconomic environment ahead. Our focus remains on staying disciplined and adhering to our strategy, remaining patient with respect to acquisitions and dispositions, continuing to drive industry-leading same-store NOI growth, continuing to strengthen our balance sheet by improving our debt metrics, continuing to reduce our overhead costs as a percent of revenue, and most importantly, being passionate about driving growth in FFO per share and long-term value for shareholders. I would like to thank my fellow Whitestone team members for their hard work in 2022, I thank you for your contribution to the progress we've made, and our team looks forward to delivering for our shareholders again in 2023. And with that, I'll turn it over to Christine to discuss operations.