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Greetings. Welcome to Whitestone REIT’s Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, that this conference is being recorded. At this time, I’ll turn the conference over to David Mordy, Director of Investor Relations. Mr. Mordy, you may begin.

Good morning. And thank you for joining Whitestone REIT’s second quarter 2022 earnings conference call. Joining me today 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, August 3, 2022. The company undertakes no obligation to update this information. Whitestone second quarter earnings news 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. I’d also like to draw investor attention to the fact that we published second quarter 2022 slides on our website yesterday afternoon and will reference page numbers throughout this call. I will now turn the call over to Dave Holeman, our Chief Executive Officer.

Thank you, David. Good morning. And thank you for joining Whitestone’s second quarter 2022 earnings conference call. I will begin on slide number two. We’re pleased to announce another strong quarter of operating and financial results, driven by continued demand for spaces in our centers and associated leasing activity. Versus the second quarter of 2021, our revenue grew over 14%, FFO per share is $0.25 per share up from $0.24, same-store net operating income increased 8%, total occupancy is 91.5%, up 150 basis points from Q2 2021 and up to 50 basis points from the first quarter. As of the end of the second quarter, our net effective annual base rent per square foot was $21.72, up nearly 9% from a year ago and up over 2% from the first quarter. And our balance sheet continues to strengthen with lower debt leverage, as shown by the improvement of our net debt-to-EBITDAre ratio to 8.3 times Total second quarter 2022 leasing spreads were very strong and I’ll have Christine discuss leasing further in her section. Our strategy of designing necessity based community centers located in high growth, high household income, Sunbelt markets continues to produce strong and improving results. Given another quarter of successful results, I wanted to discuss some of the positive steps we’ve taken over the last six months. I’ve shared some of the big focus points over the last several conference calls. We have enhanced our governance, increased our investor outreach and interaction, strengthened our leadership team, while reducing overhead expenses, grown FFO per share 25% and meaningfully improve our debt leverage. Our dedicated team of associates share a common purpose to meet the needs of our communities, position our tenants to reach their success and to create value in commercial real estate better than anyone in our industry. We value hard work, teamwork, integrity and growth, and I am honored to lead a team dedicated to executing on our business model and delivering long-term shareholder value. Our strategy is clear and consistent. Whitestone has had the right strategy in place for over a decade and we believe the environment has never been stronger to showcase that strategy. First in terms of strategic consistency, our focus has been on well located necessity-based retail centers located in high household income neighborhoods in the best submarkets in the fastest growing MSA and today our portfolio is located 99% in the top markets in the Sunbelt. The importance of geographic focus is something the industry has recently and rightfully placed tremendous value on, beyond our geographic focus, and even more important, is our strategy of crafting service-oriented centers designed around meeting local needs. This strategy has always been embraced throughout the company, including our acquisitions team, where we have utilized local sharpshooters to find centers in high income neighborhoods capable of morphing into one of our growth centers. This strategy is relentlessly pursued by our in-house leasing agents who are engrained in the surrounding communities and know how to attract tenants to meet the demands of their communities. This strategy is embedded in the way we write our contracts, opting for shorter leases, because of our strong belief in the tenants we choose for our centers, validated by the successful track record of growth of our tenant base. This strategy is understood by our tenants as they grow, strengthening a centers connection with the surrounding neighborhood and benefiting from increased traffic levels. And finally, this strategy is also embraced by our development and redevelopment team eager to find opportunities to build value through improvements to our current properties and through adding additional leasable area. I’ll have Christine expand on some of the detail behind our strategy, specifically on leasing and by walking through a property development cycle. But I have a couple of new additions to the team, I wanted to mention first. Tim Ng recently joined the team as our Vice President of Acquisitions and brings over 20 years of real estate experience, most recently in similar roles with Fifth Corner and AmREIT. Tim has great relationships in our markets, knows our product type very well and we’re excited to have him on Board. For the balance of 2022, he will be focused on our disposition efforts and sourcing great new acquisitions for the Whitestone portfolio. I also want to welcome our newest Board member, Amy Feng to Whitestone. As part of our continued focus on governance, we are strengthening our Board through the addition of Amy and increasing the number of independent trustees on our Board. Amy is currently the Director of Investor Relations for Shopify, a leading provider of essential internet infrastructure for many of the same businesses we work with. Amy brings significant depth and experience in providing strategic counsel to hundreds of companies in her time at several leading strategic financial communications firms. She has tremendous capital markets knowledge, having spent her time as an analyst on the sell side and we’re thrilled to have her join our Board. And with that, I’ll turn things over to Christine.

Thanks, Dave. One of our team’s strengths is leveraging our tenant relationships who continue to produce strong results. Since we’ve made the changes, Dave mentioned earlier, we’ve continued to grow our occupancy, which is now at 91.5%, 150 basis points higher than the prior year and a new record for Whitestone. Aggregate leasing spreads were positive 17.4% in the second quarter and are positive 13.8% over the last 12 months. New leasing spreads were up 15.6% in the second quarter and have grown 11.2% over the trailing 12 months. Renewal leasing spreads expanded 17.6% in the second quarter and increased 14.3% over the trailing 12 months. The qualitative reasons behind these impressive leasing spreads on slide three depict our strategy that we have pursued over the last decade and positions us well to benefit from the trends that have been emerging the last few years primarily, demand for smaller spaces continues to increase, especially in the 2000 square foot range, convenience, necessity and service are ever more critical to our customers, and cannot solely be replaced with an online presence that are optimized by a combined brick-and-mortar strategy. Second, we are seeing a strong rebound in the fitness category, which has numerous brands coming in a variety of sizes, and are strong and sticky traffic drivers. Demand for restaurant space continues to strengthened, convenience and casual restaurants are seeing a significant uptick in demand. This may be a part of a post-pandemic trend, but we think the larger influence is a generational shift as demand for millennials Gen

Thank you, Christine. As you can see on slide six, NAREIT funds from operations per diluted share was $0.25 for the quarter versus $0.24 for the same period in 2021. You will notice that we have shared drivers regarding our 2022 FFO. As Dave and Christine have shared the core business is doing very well, which is driving up our occupancy and base rents. Reduction in management compensation was most impactful in Q1 and will continue to be impactful in future quarters. Development opportunities may be a modest driver late in the year. Our guidance contains an assumption on interest expense increasing versus 2021. We anticipate we will refinance the majority of our 2022 and 2023 maturities within the next few months, which will provide us with greater clarity on our future interest expense. Earnings growth continues to contribute to our strengthening balance sheet. Total net debt was $638 million, improving our debt-to-gross book real estate loss ratio to 51% and improvement from 52% a year ago. We are pleased with the significant progress we have made on strengthening our balance sheets and we remain steadfast in our commitment in this area. Our Board approved a quarterly dividend of $0.12 per share for the second quarter, representing an annualized dividend amount of $0.48 per share and then 11.6% increase versus the previous level. To wrap up, I would like to reaffirm our previously issued 2022 guidance. FFO for fully diluted common share and OP unit guidance is expected to range from $0.98 to $1.02, representing a 14% to 19% increase from 2021. This includes $0.04 of non-recurring stock forfeitures and severance costs from the first quarter. Our key assumptions related to the guidance have not changed. With that, we will now take questions. Operator, please open the lines.

Thank you. [Operator Instructions] Thank you. And our first question is from the line of Mitch Germain with JMP Securities. Please proceed with your questions.

Thank you. Is there anything changed with regards to the lease negotiation? I guess, I’m curious, you’re requiring more security deposit or requirement for financials, anything different in terms of the discussions you’re having with your tenants?

Well, I think -- thanks for your question. But I think what they’re looking at, they’re starting to see the impact of inflation and they’re also asking for longer lease terms and so this is something that we’re still sticking with keeping shorter lease terms, because that’s benefited us as a company them as well, because it gives an opportunity to revisit their business and their lease terms. Regarding additional security on those other items, I mean, we have changed our focus to a quality of revenue focus about two years ago. We did this primarily during COVID. And that’s really strengthened, I think, our product line the stickiness of the kind of clients that we have now. That involves a deeper look in their financials, but not just their financials, it’s a look at what resources they have. It’s not just cash, it’s how they operate, who their teams are, what -- what’s the quality of some of their vendors, looking into their current operations to understand how well they under -- how well they understand the metrics of their business, their commitment to the business as an owner and how engaged and how involved they are. So those are some of the things that we’ve refocused the team and their efforts on and it’s paid off.

Hey, Mitch. It’s Dave. I’ll just add a couple things to Christine’s comments and she said just continue to focus on quality revenue. And just to highlight, we have seen, obviously, that’d be very successful. If you look at our leasing activity, as well as our leasing spreads, they’re trending very well, with this quarter being 17.5% leasing spreads on a GAAP basis and 9% on a just a starting point basis. So really pleased with the activity levels we’re seeing in our centers, pleased with the leasing activities and really a focus on continuing to lock in really quality revenue.

Great. Question on same-store, obviously, the results have been significantly above guidance. If your -- are you implying a slowdown potentially in the backyard or are you just taking a conservative view with regards to your guidance?

Thanks for the question. It’s Scott. I think the -- we expected the first part of the year to yield higher same-store results, because we were still in a recovery mode from COVID to the first few quarters, and by the time we got to the back half of the year, we started to see improved collections, our occupancy ended up with record leasing, and by the time we got to the end of the year and since. So I think it’s just -- it has more to do with 2021 than it does to do with 2022 results.

Got you. And then what should I be thinking about asset sales in the back part of the year? Is there -- are there any assets on the market and what’s the status -- if there are, what’s the status of discussions?

Yeah. So as we communicated previously, we expect to do some recycling this year. We do have a handful of assets that are hitting the market. So I think we’ve targeted somewhere less than $50 million kind of been in dispositions and acquisitions. We are actively in the market on a handful of dispositions that that come up to about that amount and we’re sourcing potential recycling deals for those. So I think we’re on track and look forward to having more to report potentially in the next couple quarters.

Thank you.

Thank you. The next question…

Thanks, Mitch.

Next question comes from the line of Gaurav Mehta with EF Hutton. Please proceed with your question.

Thank you. Good morning. Following up on your comment on sourcing potential transactions, can you maybe provide some color on what you guys are seeing in the acquisition market?

Good morning, Gaurav. This is Dave. Yeah. So what we’re -- obviously, we are seeing some softening of pricing. But it’s a little early, we’re still seeing a fairly decent gap between sellers and buyers on cap rate expectations. But Whitestone has always looked for a little different type of asset, part of our search is our depth and the markets we’re in through our relationships. We tend to look for assets that are widely marketed. So it’s -- I think we’ll have greater visibility into that as we get a little further into the process. But right now, we’re tending to look for probably a little smaller asset, maybe a type of asset that is in an area of capital, where Whitestone could get in at a price that’s attractive. So right now we’re seeing opportunities, but probably not a whole lot more to comment. So we get further along the line.

Okay. And on the assets that you’re trying to sell, can you talk about your expectations for the -- that you happen to be?

I’m sorry, Gaurav, can you repeat that question? I lost you at the end.

Maybe can you talk about what you guys expecting for the assets that you hold in the joint venture, would you be planning to sell those assets as well?

Yeah. I think that’s -- you are talking about the properties we own in our joint venture, the non-core assets, Whitestone is working toward liquidated -- liquidating that equity investment. We have on our books about $35 million of investment in some assets that are non-retail and so we are working towards monetizing that. Timing of that’s a little hard to predict now, but we are actively working toward recycling those properties as well.

Okay. And then lastly on the balance sheet, you talked about the potential refinancing of 2022 and 2023 debt explorations in next few months. Can you maybe provide some color on what you guys doing as far as the interest rate? And then the 2023 debt explanation that the credit line with the floating rate debt, should we expect you guys to fix -- to enter in the fixed rate debt as you try to refinance the maturities?

Well -- hi. I’m Scott. We’re working on the recast right now. We do expect to fix the interest rates on the $260 million that are fixed now and probably to leave around 20% of our debt variable, but we’re assessing that as we go through the process. But those are our current expectations. And Dave, I don’t know if you have anything to add there.

Yeah. I might just add, if you -- obviously there’s been a ton of volatility around rates. But it has come down just a little bit. If you look at the Treasury rates, they’re very similar where they were four years ago, when we did our last recast of our credit facility. I think we’ve looked at the five-year swap rates and they’re somewhere in that 25% today, obviously, a little bit of variability. So we’re in the process. There’s a fair amount of activity in the banking world as you guys know, right now with folks doing refinancing, so we expect to be closed in the third quarter. We’ve built a little bit of extra interest expense into our guidance for the second half of the year and we’ll have greater visibility on that, obviously, as we close. I think we’re, we’re on track with the refinancing moving out those 2022 and 2023 maturities. And then continuing to look at laddering our debt, continuing look at our fixed rate variable rates, but we do believe having a portion variable right now makes sense about -- as Scott said, about 20%.

Okay. Thank you.

Thank you.

The next question comes from the line of Craig Kucera with B. Riley Securities. Please proceed with your questions.

Hey. Good morning, guys. You’ve reported a loss in your joint venture portfolio for the first time, I think, since you reported it. It looks like occupancy dropped sequentially at some of those properties. But can you give some color going on there, were there any one-time adjustments maybe impairments or? And kind of what are your expectations for the rest of the year?

No. No. There weren’t any impairments in that portfolio. There’s a number of properties that I believe they’re trying to cycle the leases out of there to have flexibility with purchasers and so we are -- we do see NOI going down in a number of those properties. But I think in several of those cases, they’re just getting them ready to sell.

And all I might add to that is, I do think, Craig, that, we clearly would like to exit those assets. So I think there might have been some additional expenses incurred by the general partner this quarter that were charged as well. But I think we think clearly from Whitestone perspective, it’s in the best interest of our shareholders exit, we’re working toward that and recycling that into the retail assets that we do very well at.

Got it. And I would say for over the last year, so you’ve been able to keep a lid on taxes a pretty well, but there was a pickup this quarter, were there any one-time adjustments in there or is that just a function of the rising value of the assets?

In the Texas market, there’s sort of a three step process in the tax valuations with and that’s where a good chunk of our assets are. So there’s an initial valuation, then we get a chance to protest and then we litigate. So oftentimes, we see a little bit of a bump until we work our way, all the way through that three step process. And we’re just we’re conservative in the way that we estimate those taxes and we would expect those two valuations to get lower as we work through the process this year.

Got it. No. I appreciate the color. Just one more for me, with the potential for recycling capital, Dave, are you guys looking at maybe getting involved in any sort of development or redevelopment of your existing properties that placing capital there versus maybe making acquisitions or what are your current thoughts there?

Sure. I’ll start with just a couple comments and have Christine give more thoughts. But, excuse me, yeah, we’re continuing to look at so just on the dispositions and recycling, obviously, focused on 2022 to get back into the markets, obviously, do some acquisitions and do it in a capital neutral way through recycling. We do also have several opportunities within the portfolio that maybe some are small, some are larger development, but we’re ramping those up and expect to have that come in. I will let Christine. Christine wants to add anything, she may not, but we have -- within the portfolio, all I will say is, as we’ve acquired assets over the years, sometimes we’ve picked up land parcels, sometimes you picked up a little extra parking field and we’re working internally to look for pad side opportunities, development opportunities and really getting those starting to plan up so they can contribute to our earnings over the coming years. So we think we’ll have more to announce on that. But I think that right now we are -- our plan is to extract that value to start to work toward that and working through that, we will provide more details later.

Okay. Thanks.

Thanks, Craig.

[Operator Instructions] Thank you. At this time, I will turn the floor back to management for further closing remarks.

Well, thank everyone for joining on today’s call. We very much appreciate your interest in Whitestone. Should you have any questions I encourage you to reach out to David Mordy or anyone on our team. And once, again, we thank you for your interest and have a great day.