EX-99.1 2 exhibit991pressreleaseofwh.htm EXHIBIT 99.1 Exhibit


Whitestone REIT Reports Fourth Quarter and Full Year 2017 Results
-Operating Portfolio Occupancy for 2017 Increases 80 Basis Points to 90.5% from 2016-
-Annualized Base Rent per Leased Squared Foot Grows 8.6% to $18.82 from 2016 -
-2017 Full Year Net Income of $0.22 per Share-
-2017 Full Year Funds From Operations Core of $1.25 per Share-
-Provides 2018 Guidance-



HOUSTON, March 1, 2018 - Whitestone REIT (NYSE: WSR) (“Whitestone” or the “Company”) today announced operating and financial results for the fourth quarter and year ended December 31, 2017. Whitestone is a community-centered retail REIT that acquires, owns, manages, develops and redevelops high quality “Ecommerce-resistant” neighborhood, community and lifestyle retail centers principally located in the largest, fastest-growing and most affluent markets in the Sunbelt. Whitestone’s mix of national, regional and local tenants provide daily necessities, needed services and entertainment not typically readily available online to their respective communities.


Highlights

All per share amounts presented are on a diluted per common share and operating partnership (“OP”) unit basis unless stated otherwise.

Fourth Quarter 2017 Compared to Fourth Quarter 2016:

•
19.3% growth in revenues to $33.8 million
•
Net income attributable to Whitestone REIT of $1.9 million and $0.05 per share compared to $0.5 million and $0.01 per share
•
19.0% increase in net operating income (“NOI”) to $22.3 million
•
Same store NOI growth in wholly owned portfolio of 0.1%, 2.2% when adjusting for retenanting and non-recoverable property marketing expenses. Same store NOI growth including consolidated partnership properties of (0.2%), 1.7% when adjusting for retenanting an non-recoverable property marketing expenses.
•
46.7% improvement in Funds from Operations (“FFO”) to $9.1 million and 10% on a per share basis to $0.22
•
14.3% increase in FFO Core to $12.2 million or $0.30 per share compared to $10.6 million or $0.34 per share

Full Year 2017 Compared to Full Year 2016:

•
20.6% growth in revenues to $126.0 million
•
Net income attributable to Whitestone REIT of $8.3 million and $0.22 per share compared to $7.9 million and $0.26 per share
•
19.2% growth in NOI to $83.8 million
•
Same store NOI growth in wholly owned portfolio up 2.6% and 1.4% including consolidated partnership properties
•
29.6% increase in FFO to $35.0 million or 2.2% on a per share basis to $0.93
•
19.6% growth in FFO Core to $47.1 million or $1.25 per share compared to $39.4 million or $1.34 per share
•
Total occupancy, including operating properties, development properties and consolidated partnership properties, of 88.0%, up 120 basis points
•
7.0% increase in rental rates on new and renewal leases on a GAAP basis


“2017 marked another year of strong performance," commented James C. Mastandrea, Chairman and Chief Executive Officer of Whitestone REIT. "While fourth quarter and full year same property NOI growth was slower than previous periods, due primarily to retenanting and non-recoverable property marketing costs, we expect that the expenditures will result in stronger NOI growth in 2018. We believe that our high-quality properties, simple and transparent capital structure, well-aligned business model and efficient infrastructure will allow us to continue to expand profitably. While there will be variability quarter-to-quarter and year-to-year, our proven approach allows us to maximize property income, deliver predictable dividends, provide inflation protection from rising interest rates, and ultimately continue to drive long-term shareholder value."



1

Real Estate Portfolio Update

Community Centered PropertiesTM Portfolio Statistics:

As of December 31, 2017, Whitestone wholly owned 59 Community Centered Properties® with 5.0 million square feet of gross leasable area ("GLA"). Whitestone’s retail Community Centered Properties® are located in Austin (4), San Antonio (3), Chicago (1), Dallas-Fort Worth (7), Houston (17) and the greater Phoenix metropolitan area (27). In addition to being business friendly, the Texas and Arizona markets are among the top in the country in terms of size, economic strength and population growth. Between 2017 and 2022, all of these cities are expected to experience significant population growth, led by Austin at +9.7%, San Antonio at +8.6%, Dallas-Fort Worth at +9.7%, Houston at 8.0% and Phoenix at +6.6% (1). We believe that the Company’s retail properties in these markets are located on the best retail corners embedded in affluent communities. The Company also owns a majority interest in and manages 14 properties containing 1.5 million square feet of GLA through its investment in Pillarstone Capital REIT Operating Partnership, L.P.

At the end of the fourth quarter, the Company's diversified tenant base in our wholly-owned properties was comprised of 1,266 tenants, with the largest tenant accounting for only 2.9% of annualized base rental revenues. Lease terms range from less than one year for smaller tenants to over 15 years for larger tenants. The leases generally include minimum monthly lease payments and tenant reimbursements for payment of taxes, insurance and maintenance, and typically exclude restrictive lease clauses.

Leasing Activity:

During the fourth quarter, the leasing team signed 94 leases totaling 264,085 square feet in new, expansion and renewal leases, compared to 98 leases totaling 257,395 square feet in the fourth quarter of 2016. The total lease value added during the quarter was $14.8 million compared to $20.0 million during the same period last year. For the full year, total lease value added was $71.2 million compared to $77.0 million in 2016.

The Company's total operating portfolio occupancy, excluding development and non wholly-owned properties, was 90.5% at year-end.

Acquisition Activity in 2017:

Eldorado Plaza

On May 3, 2017, the Company completed the acquisition of Eldorado Plaza, located in McKinney, Texas, for $46.6 million. Eldorado Plaza is located on the north end of the Dallas “Platinum Corridor.” This Class-A lifestyle center contains 221,577 square feet of leasable space. As of December 31, 2017, Eldorado Plaza was 96% leased.

BLVD Place

On May 26, 2017, the Company completed the acquisition of BLVD Place, a Class-A retail center located in the affluent and fast-growing Uptown community of Houston, Texas, one of the largest business districts in the United States, for a purchase price of $158.0 million. This Class-A lifestyle center, includes 216,944 square feet of leasable space and approximately 1.43 acres of developable land. As of December 31, 2017, BLVD Place was 100% leased.

Disposition Activity:

On February 27, 2018, we completed the sale of Bellnott Square, located in Houston, Texas, for $4.7 million. This disposition was pursuant to our strategy of recycling capital by disposing of Non-Core Properties, primarily properties that we owned at the time our current management team assumed the management of the Company, that do not fit our Community Centered Property strategy. We expect to record a gain on sale of approximately $0.3 million in 2018.

Development Activity in 2017:

During 2017, the Company invested $17.6 million of capital improvements in its portfolio, including development of Pinnacle of Scottsdale Phase II, a 27,063 square foot Community Centered Property® located in Scottsdale, Arizona and Shops at Starwood Phase III, a 35,351square foot Community Centered Property® located in Frisco, Texas. Pinnacle of Scottsdale Phase II and Shop at Starwood Phase III were 91% and 71% occupied, respectively, at year-end.


2

Balance Sheet and Liquidity

Balance Sheet:

Reflecting the Company’s acquisition and disposition activity during the year and selective development and redevelopment, undepreciated real estate assets increased $229.1 million, or 24.9%, to $1.149 billion at December 31, 2017 compared to December 31, 2016.

Liquidity, Debt and Credit Facility:

At December 31, 2017, 49 of the Company’s wholly-owned 59 properties were unencumbered by mortgage debt, with an undepreciated cost basis of $735.7 million. At December 31, 2017 the Company had total real estate debt of $659.1 million, of which $426.9 million, or approximately 65%, was subject to fixed interest rates. The Company's weighted average interest rate on all fixed rate debt as of the end of the fourth quarter was 3.9% and the weighted average remaining term was 5.3 years.

At quarter end, Whitestone had $7.8 million of cash available on its balance sheet and $67.8 million of available capacity under its credit facility, before the $200 million accordion option.

Dividend

On December 14, 2017, the Company declared a quarterly cash distribution of $0.285 per common share and OP unit for the first quarter of 2018, to be paid in three equal installments of $0.095 in January, February and March of 2018.

2018 FINANCIAL GUIDANCE
(all amounts in thousands, except shares, per share numbers and percentages)
 
 
 
 
Projected Range
 
 
Actual
 
Full Year 2018
 
 
2017
 
Low
 
High
Net income attributable to Whitestone REIT per common share and OP unit - diluted
 
$
0.22

 
$
0.27

 
$
0.32

FFO per common share and OP unit - diluted
 
$
0.93

 
$
0.96

 
$
1.01

FFO Core per common share and OP unit - diluted
 
$
1.25

 
$
1.19

 
$
1.24

 
 
 
 
 
 
 
Operating Assumptions
 
 
 
 
 
 
Same Store NOI growth - wholly owned properties
 
2.6
 %
 
2.5
 %
 
3.7
%
Same Store NOI growth - Consolidated Partnership
 
(6.6
)%
 
(2.0
)%
 
2.0
%
Same Store NOI growth - all properties
 
1.4
 %
 
2.0
 %
 
3.5
%
 
 
 
 
 
 
 
Ending occupancy - wholly owned properties
 
90.2
 %
 
90.5
 %
 
91.5
%
Ending occupancy - Consolidated Partnership
 
80.5
 %
 
80.5
 %
 
81.5
%
Ending occupancy - all properties
 
88.0
 %
 
88.2
 %
 
89.2
%
 
 
 
 
 
 
 
General and administrative expense (excluding acq cost) as a % of total property revenue
 
17.7
 %
 
16.3
 %
 
15.5
%
 
 
 
 
 
 
 
Net debt to adjusted EBITDA - Year End
 
8.56X

 
8.40X

 
8.20X

Average interest rate on all debt
 
3.8
 %
 
4.1
 %
 
4.1
%
Weighted average shares and OP units
 
37,343

 
41,672

 
41,672


The following table outlines the key factors impacting 2018 FFO and FFO Core ranges, and accounts for the difference from the Company's 2017 reported FFO and FFO Core:

3

 
 
FFO
 
FFO Core
 
 
Low
 
High
 
Low
 
High
Actual - 2017
 
$
0.93

 
$
0.93

 
$
1.25

 
$
1.25

 
 
 
 
 
 
 
 
 
2017 Transactional activity (acquisition costs)
 
0.02

 
0.02

 
—

 
—

Same Store NOI Growth
 
0.03

 
0.06

 
0.03

 
0.06

Interest rate increase
 
(0.03
)
 
(0.03
)
 
(0.03
)
 
(0.03
)
Non-cash share based compensation
 
0.07

 
0.07

 
—

 
—

Cash compensation
 
(0.06
)
 
(0.04
)
 
(0.06
)
 
(0.04
)
 
 
 
 
 
 
 
 
 
Guidance - 2018
 
$
0.96

 
$
1.01

 
$
1.19

 
$
1.24


This guidance reflects management’s view of current and future market conditions, as well as the earnings impact of events referenced elsewhere in this release and during the Company’s conference call. This guidance does not include the operational or capital impact of any future unannounced acquisition or disposition activity. Estimates involve numerous assumptions such as rental income, interest rates, tenant default, occupancy rates, expenses, the consolidation of the Company's non-wholly owned portfolio of non-retail assets and numerous other factors, and excludes potential future acquisitions and dispositions, acquisition and disposition transaction income and expenses and professional service fees. Not all of the factors are determinable at this time and actual results may vary from the projected results, and may be above or below the range indicated. The above range represents management’s estimate of results based upon these assumptions as of the date of this press release. Please refer to the “2018 Financial Guidance” and “Reconciliation of Non-GAAP Measures - 2018 Financial Guidance” sections of the supplemental data package for the full list of guidance information.



RECONCILIATION OF NON-GAAP MEASURES - 2018 FINANCIAL GUIDANCE
(per diluted common share and OP unit)
 
 
 
 
Projected Range
 
 
Actual
 
Full Year 2018
Guidance:
 
2017
 
Low
 
High
Net income attributable to Whitestone REIT
 
$
0.22

 
$
0.27

 
$
0.32

 
 
 
 
 
 
 
Adjustments to reconcile net income to FFO(3):
 
 
 
 
 
 
Depreciation expense, amortization, gain on disposal of assets
 
0.70

 
0.68

 
0.68

(Gain) loss on sale or disposal of assets or properties
 
—

 
—

 
—

Net income attributable to redeemable operating partnership
 
0.01

 
0.01

 
0.01

    FFO
 
$
0.93

 
$
0.96

 
$
1.01

 
 
 
 
 
 
 
Adjustments to reconcile FFO to FFO Core:
 
 
 
 
 
 
Acquisition pursuit and transaction costs
 
0.04

 
0.02

 
0.02

Share based compensation expense
 
0.28

 
0.21

 
0.21

     FFO Core
 
$
1.25

 
$
1.19

 
$
1.24


(3)
Includes pro-rata share attributable to Pillarstone OP.





4

Conference Call Information

In conjunction with the issuance of its financial results, you are invited to listen to the Company’s earnings release conference call to be broadcast live on Friday, March 2, 2017 at 10:00 A.M. Central Time. The call will be led by James C. Mastandrea, Chairman and Chief Executive Officer, and David K. Holeman, Chief Financial Officer. Conference call access information is as follows:

Toll-Free Number (for domestic participants):    (800) 263-0877
Toll Number (for international participants):        (323) 794-2094

The conference call will be recorded and a telephone replay will be available through March 16, 2018. Replay access information is as follows:

Toll-Free Number (for domestic participants):    (844) 512-2921
Toll Number (for international participants):        (412) 317-6671
Pass Code (for all participants):            1228081

To listen to a live webcast of the conference call, click on the Investor Relations tab of the Company’s website, www.whitestonereit.com, and then click on the webcast link. A replay of the call will be available on Whitestone’s website via the webcast link until the Company’s next earnings release. Additional information about Whitestone can be found on the Company’s website.

The fourth quarter and full year earnings release and supplemental data package will be located in the Investor Relations section of the Company’s website. For those without internet access, the earnings release and supplemental data package will be available by mail upon request. To receive a copy, please call the Company’s Investor Relations line at (713) 435-2219.

Supplemental Financial Information

Supplemental materials and details regarding Whitestone's results of operations, communities and tenants are available on the Company's website at www.whitestonereit.com.

About Whitestone REIT

Whitestone is a community-centered retail REIT that acquires, owns, manages, develops and redevelops high quality “E-commerce resistant” neighborhood, community and lifestyle retail centers principally located in the largest, fastest-growing and most affluent markets in the Sunbelt. Whitestone’s mix of national, regional and local tenants provides daily necessities, needed services and entertainment not typically readily available online to their respective communities. Whitestone’s properties are primarily located in business-friendly Phoenix, Austin, Dallas-Fort Worth, Houston and San Antonio, which are among the fastest growing U.S. population centers with highly educated workforces, high household incomes and strong job growth. As of February 28, 2018, Whitestone's total shareholder return ranks #1 of 17, #2 of 17, and #4 of 15, of the U.S. public shopping center REITs for the one-year, three-year, and five-year periods, respectively (2). Visit www.whitestonereit.com for additional information.

Forward-Looking Statements

Certain statements contained in this press release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company intends for all such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such information is subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by the Company's use of forward-looking terminology, such as “may,” “will,” “plan,” “expect,” “intend,” “anticipate,” “believe,” “continue,” “goals” or similar words or phrases that are predictions of future events or trends and which do not relate solely to historical matters.


5

The following are some of the factors that could cause the Company's actual results and its expectations to differ materially from those described in the Company's forward-looking statements: the Company's ability to meet its long-term goals, its assumptions regarding its earnings guidance, including its ability to execute effectively its acquisition and disposition strategy, to continue to execute its development pipeline on schedule and at the expected costs, and its ability to grow its NOI as expected, which could be impacted by a number of factors, including, among other things, its ability to continue to renew leases or re-let space on attractive terms and to otherwise address its leasing rollover; its ability to successfully identify, finance and consummate suitable acquisitions, and the impact of such acquisitions, including financing developments, capitalization rates and internal rate of return; the Company’s ability to reduce or otherwise effectively manage its general and administrative expenses, including in connection with the recent proposed nomination of trustees by a shareholder of the Company; the Company’s ability to fund from cash flows or otherwise distributions to its shareholders at current rates or at all; current adverse market and economic conditions; lease terminations or lease defaults; the impact of competition on the Company's efforts to renew existing leases; changes in the economies and other conditions of the specific markets in which the Company operates; economic, legislative and regulatory changes, including the impact of the Tax Cuts and Jobs Act of 2017; the success of the Company's real estate strategies and investment objectives; the Company's ability to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended; and other factors detailed in the Company's most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other documents the Company files with the Securities and Exchange Commission from time to time.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company cannot guarantee the accuracy of any such forward-looking statements contained in this press release, and the Company does not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Non-GAAP Financial Measures

This release contains supplemental financial measures that are not calculated pursuant to U.S. generally accepted accounting principles (“GAAP”) including FFO, FFO Core, and NOI. Following are explanations and reconciliations of these metrics to their most comparable GAAP metric.

FFO: Management believes that FFO is a useful measure of the Company's operating performance. The Company computes FFO as defined by NAREIT, which states that FFO should represent net income available to common shareholders (computed in accordance with GAAP) excluding gains or losses from sales of operating assets, impairment charges and extraordinary items, plus depreciation and amortization of operating properties, including the Company's share of unconsolidated real estate joint ventures and partnerships. FFO does not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an alternative to net income as an indication of the Company's performance or to cash flow from operations as a measure of liquidity or ability to make distributions and service debt.

Management considers FFO a useful additional measure of performance for an equity REIT because it facilitates an understanding of the operating performance of its properties without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, management believes that FFO provides a more meaningful and accurate indication of the Company's performance and useful information for the investment community to compare Whitestone to other REITs since FFO is generally recognized as the industry standard for reporting the operations of REITs.

Other REITs may use different methodologies for calculating FFO, and accordingly, the Company's FFO may not be comparable to other REITs. The Company presents FFO per diluted share calculations that are based on the outstanding dilutive common shares plus the outstanding OP units for the periods presented.

FFO Core: Management believes that the computation of FFO in accordance with NAREIT's definition includes certain non-cash and non-comparable items that affect the Company's period-over-period performance. These items include, but are not limited to, legal settlements, non-cash share-based compensation expense, rent support agreement payments received from sellers on acquired assets and acquisition costs. In addition, the Company believes that FFO Core is a useful supplemental measure for the investing community to use in comparing the Company to other REITs as many REITs provide some form of adjusted or modified FFO. However, other REITs may use different adjustments, and the Company's FFO Core may not be comparable to the adjusted or modified FFO of other REITs.


6

NOI: Management believes that NOI is a useful measure of the Company's property operating performance. The Company defines NOI as operating revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes). Because NOI excludes general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes, gain or loss on sale or disposition of assets and capital expenditures and leasing costs, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy rates, rental rates and operating costs, providing perspective not immediately apparent from net income. The Company uses NOI to evaluate its operating performance since NOI allows the Company to evaluate the impact of factors, such as occupancy levels, lease structure, lease rates and tenant base, have on the Company's results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about the Company's property and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of property performance in the real estate industry. However, NOI should not be viewed as a measure of the Company's overall financial performance since it does not reflect general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes, gain or loss on sale or disposition of assets, and the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company's properties. Other REITs may use different methodologies for calculating NOI, and accordingly, the Company's NOI may not be comparable to that of other REITs.

(1)Source: Claritas, April 2017
(2) Whitestone REIT's total shareholder return as compared to its peers according to the SNL Public REIT Market Data based on closing prices on February 28, 2018. One-year and three-year peer groups include Regency Centers Corp., Cedar Realty Trust Inc., Retail Opportunity Investments, Weingarten Realty Investors, Saul Centers Inc., Urban Edge Properties, Federal Realty Investment, Urstadt Biddle Properties Inc., Ramco-Gershenson Properties, Retail Properties of America, Kite Realty Group Trust, Acadia Realty Trust, Wheeler REIT Inc., Brixmor Property Group Inc., Kimco Realty Corp., and DDR Corp. Urban Edge Properties and Brixmor Property Group are not included in the five-year period because they were not listed as of the beginning of the five-year period.


Whitestone REIT Contacts:
Investors Contact:
Kevin Reed
Director of Investor Relations
(713) 435-2219
kreed@whitestonereit.com

Media Contact:
Joele Frank, Wilkinson Brimmer Katcher
Andrew Siegel
(212) 355-4449
Or
Amy Feng
(415) 869-3950










7



Whitestone REIT and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per unit data)

 
 
December 31,
 
 
2017
 
2016
ASSETS
Real estate assets, at cost
 
 
 
 
Property
 
$
1,149,454

 
$
920,310

Accumulated depreciation
 
(131,034
)
 
(107,258
)
Total real estate assets
 
1,018,420

 
813,052

Cash and cash equivalents
 
7,817

 
4,168

Restricted cash
 
205

 
56

Marketable securities
 
32

 
517

Escrows and acquisition deposits
 
10,104

 
6,620

Accrued rents and accounts receivable, net of allowance for doubtful accounts
 
23,504

 
19,951

Unamortized lease commissions and loan costs
 
8,422

 
8,083

Prepaid expenses and other assets
 
3,228

 
2,762

Total assets
 
$
1,071,732

 
$
855,209

 
 
 
 
 
LIABILITIES AND EQUITY
Liabilities:
 
 
 
 
Notes payable
 
$
659,068

 
$
544,020

Accounts payable and accrued expenses
 
35,995

 
28,692

Tenants' security deposits
 
6,885

 
6,125

Dividends and distributions payable
 
11,466

 
8,729

Total liabilities
 
713,414

 
587,566

Commitments and contingencies:
 
—

 
—

Equity:
 
 
 
 
Preferred shares, $0.001 par value per share; 50,000,000 shares authorized; none issued and outstanding as of December 31, 2017 and December 31, 2016, respectively
 
—

 
—

Common shares, $0.001 par value per share; 400,000,000 shares authorized; 39,221,773 and 29,468,563 issued and outstanding as of December 31, 2017 and December 31, 2016, respectively
 
38

 
29

Additional paid-in capital
 
521,314

 
396,494

Accumulated deficit
 
(176,684
)
 
(141,695
)
Accumulated other comprehensive gain
 
2,936

 
859

Total Whitestone REIT shareholders' equity
 
347,604

 
255,687

Noncontrolling interests:
 
 
 
 
Redeemable operating partnership units
 
10,800

 
11,941

Noncontrolling interest in Consolidated Partnership
 
(86
)
 
15

Total noncontrolling interests
 
10,714

 
11,956

Total equity
 
358,318

 
267,643

Total liabilities and equity
 
$
1,071,732

 
$
855,209




8


Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)

 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Property revenues
 
 
 
 
 
 
Rental revenues
 
$
94,568

 
$
80,068

 
$
71,843

Other revenues
 
31,391

 
24,369

 
21,573

Total property revenues
 
125,959

 
104,437

 
93,416

 
 
 
 
 
 
 
Property expenses
 
 
 
 
 
 
Property operation and maintenance
 
24,213

 
19,709

 
18,698

Real estate taxes
 
17,897

 
14,383

 
12,637

Total property expenses
 
42,110

 
34,092

 
31,335

 
 
 
 
 
 
 
Other expenses (income)
 
 
 
 
 
 
General and administrative
 
23,949

 
23,922

 
20,312

Depreciation and amortization
 
27,240

 
22,457

 
19,761

Interest expense
 
23,651

 
19,239

 
14,910

Interest, dividend and other investment income
 
(410
)
 
(429
)
 
(313
)
Total other expense
 
74,430

 
65,189

 
54,670

 
 
 
 
 
 
 
Income before gain (loss) on sale or disposal of properties or assets and income taxes
 
9,419

 
5,156

 
7,411

 
 
 
 
 
 
 
Provision for income taxes
 
(386
)
 
(289
)
 
(372
)
Gain on sale of properties
 
16

 
3,357

 
—

Loss on sale or disposal of assets
 
(183
)
 
(96
)
 
(185
)
Income from continuing operations
 
8,866

 
8,128

 
6,854

 
 
 
 
 
 
 
Income from discontinued operations
 
—

 
—

 
11

Income from discontinued operations
 
—

 
—

 
11

 
 
 
 
 
 
 
Net income
 
8,866

 
8,128

 
6,865

 
 
 
 
 
 
 
Redeemable operating partnership units
 
254

 
182

 
116

Non-controlling interests in Consolidated Partnership
 
278

 
15

 
—

Less: Net income attributable to noncontrolling interests
 
532

 
197

 
116

 
 
 
 
 
 
 
Net income attributable to Whitestone REIT
 
$
8,334

 
$
7,931

 
$
6,749


9


Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)

 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Basic Earnings Per Share:
 
 
 
 
 
 
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares
 
$
0.22

 
$
0.26

 
$
0.25

Income from discontinued operations attributable to Whitestone REIT
 
0.00

 
0.00

 
0.00

Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
0.22

 
$
0.26

 
$
0.25

Diluted Earnings Per Share:
 
 
 
 
 
 
Income from continuing operations attributable to Whitestone REIT excluding amounts attributable to unvested restricted shares
 
$
0.22

 
$
0.26

 
$
0.24

Income from discontinued operations attributable to Whitestone REIT
 
0.00

 
0.00

 
0.00

Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
0.22

 
$
0.26

 
$
0.24

 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
Basic
 
35,428

 
27,618

 
24,631

Diluted
 
36,255

 
28,383

 
25,683

 
 
 
 
 
 
 
Distributions declared per common share / OP unit
 
$
1.1400

 
$
1.1400

 
$
1.1400

 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
8,866

 
$
8,128

 
$
6,865

 
 
 
 
 
 
 
Other comprehensive gain (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain on cash flow hedging activities
 
2,022

 
929

 
46

Unrealized gain (loss) on available-for-sale marketable securities
 
118

 
82

 
(85
)
 
 
 
 
 
 
 
Comprehensive income
 
11,006

 
9,139

 
6,826

 
 
 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
532

 
197

 
116

Less: Comprehensive gain (loss) attributable to noncontrolling interests
 
63

 
23

 
(1
)
 
 
 
 
 
 
 
Comprehensive income attributable to Whitestone REIT
 
$
10,411

 
$
8,919

 
$
6,711




10


Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)

 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31,
 
December 31,
 
 
2017
 
2016
 
2017
 
2016
 
 
(unaudited)
 
(unaudited)
 
 
 
 
Property revenues
 
 
 
 
 
 
 
 
Rental revenues
 
$
25,371

 
$
21,153

 
$
94,568

 
$
80,068

Other revenues
 
8,460

 
7,212

 
31,391

 
24,369

Total property revenues
 
33,831

 
28,365

 
125,959

 
104,437

 
 
 
 
 
 
 
 
 
Property expenses
 
 
 
 
 
 
 
 
Property operation and maintenance
 
7,240

 
5,328

 
24,213

 
19,709

Real estate taxes
 
4,309

 
4,311

 
17,897

 
14,383

Total property expenses
 
11,549

 
9,639

 
42,110

 
34,092

 
 
 
 
 
 
 
 
 
Other expenses (income)
 
 
 
 
 
 
 
 
General and administrative
 
6,351

 
7,455

 
23,949

 
23,922

Depreciation and amortization
 
7,304

 
6,095

 
27,240

 
22,457

Interest expense
 
6,493

 
5,018

 
23,651

 
19,239

Interest, dividend and other investment income
 
(29
)
 
(90
)
 
(410
)
 
(429
)
Total other expense
 
20,119

 
18,478

 
74,430

 
65,189

 
 
 
 
 
 
 
 
 
Income before gain (loss) on sale or disposal of properties or assets and income taxes
 
2,163

 
248

 
9,419

 
5,156

 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(90
)
 
(42
)
 
(386
)
 
(289
)
Gain on sale of properties
 
—

 
467

 
16

 
3,357

Loss on sale or disposal of assets
 
(48
)
 
(106
)
 
(183
)
 
(96
)
 
 
 
 
 
 
 
 
 
Net income
 
2,025

 
567

 
8,866

 
8,128

 
 
 
 
 
 
 
 
 
Redeemable operating partnership units
 
54

 
20

 
254

 
182

Non-controlling interests in Consolidated Partnership
 
50

 
15

 
278

 
15

Less: Net income attributable to noncontrolling interests
 
104

 
35

 
532

 
197

 
 
 
 
 
 
 
 
 
Net income attributable to Whitestone REIT
 
$
1,921

 
$
532

 
$
8,334

 
$
7,931


11


Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)

 
 
Three Months Ended
 
Twelve Months Ended
 
 
December 31,
 
December 31,
 
 
2017
 
2016
 
2017
 
2016
 
 
(unaudited)
 
(unaudited)
 
 
 
 
Basic Earnings Per Share:
 
 
 
 
 
 
 
 
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
0.05

 
$
0.01

 
$
0.22

 
$
0.26

Diluted Earnings Per Share:
 
 
 
 
 
 
 
 
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares
 
$
0.05

 
$
0.01

 
$
0.22

 
$
0.26

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
38,460

 
28,834

 
35,428

 
27,618

Diluted
 
39,353

 
29,486

 
36,255

 
28,383

 
 
 
 
 
 
 
 
 
Distributions declared per common share / OP unit
 
$
0.2850

 
$
0.2850

 
$
1.1400

 
$
1.1400

 
 
 
 
 
 
 
 
 
Consolidated Statements of Comprehensive Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
2,025

 
$
567

 
$
8,866

 
$
8,128

 
 
 
 
 
 
 
 
 
Other comprehensive gain (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain on cash flow hedging activities
 
1,898

 
7,891

 
2,022

 
929

Unrealized gain on available-for-sale marketable securities
 
92

 
62

 
118

 
82

 
 
 
 
 
 
 
 
 
Comprehensive income
 
4,015

 
8,520

 
11,006

 
9,139

 
 
 
 
 
 
 
 
 
Less: Net income attributable to noncontrolling interests
 
104

 
35

 
532

 
197

Less: Comprehensive gain attributable to noncontrolling interests
 
55

 
289

 
63

 
23

 
 
 
 
 
 
 
 
 
Comprehensive income attributable to Whitestone REIT
 
$
3,856

 
$
8,196

 
$
10,411

 
$
8,919




12


Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
 
 
Net income from continuing operations
 
$
8,866

 
$
8,128

 
$
6,854

Net income from discontinued operations
 
—

 
—

 
11

Net income
 
8,866

 
8,128

 
6,865

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

 
 
Depreciation and amortization
 
27,240

 
22,457

 
19,761

Amortization of deferred loan costs
 
1,283

 
1,554

 
1,212

Amortization of notes payable discount
 
508

 
391

 
295

Loss (gain) on sale of marketable securities
 
91

 
—

 
(44
)
Loss (gain) on sale or disposal of assets and properties
 
167

 
(3,261
)
 
185

Bad debt expense
 
2,340

 
1,585

 
1,974

Share-based compensation
 
10,410

 
10,231

 
7,337

Changes in operating assets and liabilities:
 
 
 
 
 
 
Escrows and acquisition deposits
 
(3,484
)
 
48

 
(2,576
)
Accrued rent and accounts receivable
 
(5,893
)
 
(6,070
)
 
(5,606
)
Unamortized lease commissions
 
(2,864
)
 
(2,638
)
 
(1,918
)
Prepaid expenses and other assets
 
536

 
1,047

 
394

Accounts payable and accrued expenses
 
999

 
4,837

 
7,419

Tenants' security deposits
 
760

 
871

 
882

Net cash provided by operating activities
 
40,959

 
39,180

 
36,169

Net cash provided by operating activities of discontinued operations
 
—

 
—

 
11

Cash flows from investing activities:
 
 

 
 

 
 
Acquisitions of real estate
 
(125,468
)
 
(60,616
)
 
(147,950
)
Additions to real estate
 
(17,575
)
 
(22,036
)
 
(12,719
)
Proceeds from sales of properties
 
26

 
6,897

 
—

Proceeds from sales of marketable securities
 
513

 
—

 
496

Net cash used in investing activities
 
(142,504
)
 
(75,755
)
 
(160,173
)
Net cash used in investing activities of discontinued operations
 
—

 
—

 
—

Cash flows from financing activities:
 
 

 
 

 
 
Distributions paid to common shareholders
 
(40,472
)
 
(31,911
)
 
(28,457
)
Distributions paid to OP unit holders
 
(1,241
)
 
(729
)
 
(489
)
Distributions paid to noncontrolling interest in Consolidated Partnership
 
(379
)
 
—

 
—

Proceeds from issuance of common shares, net of offering costs
 
118,412

 
30,014

 
49,649

Net proceeds from credit facility
 
45,600

 
59,000

 
107,500

Repayments of notes payable
 
(11,543
)
 
(14,335
)
 
(2,847
)
Payments of loan origination costs
 
(695
)
 
—

 
(1,534
)
Change in restricted cash
 
(149
)
 
65

 
(121
)
Repurchase of common shares
 
(4,339
)
 
(3,948
)
 
(1,357
)
Net cash provided by financing activities
 
105,194

 
38,156

 
122,344

Net cash provided by financing activities of discontinued operations
 
—

 
—

 
—

Net increase (decrease) in cash and cash equivalents
 
3,649

 
1,581

 
(1,649
)
Cash and cash equivalents at beginning of period
 
4,168

 
2,587

 
4,236

Cash and cash equivalents at end of period
 
$
7,817

 
$
4,168

 
$
2,587


13



Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental Disclosures
(in thousands)
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Supplemental disclosure of cash flow information:
 
 

 
 

 
 
Cash paid for interest
 
$
22,541

 
$
18,287

 
$
13,470

Cash paid for taxes
 
$
337

 
$
284

 
$
315

Non cash investing and financing activities:
 
 

 
 

 
 
Disposal of fully depreciated real estate
 
$
1,036

 
$
690

 
$
57

Financed insurance premiums
 
$
1,115

 
$
1,060

 
$
1,057

Value of shares issued under dividend reinvestment plan
 
$
127

 
$
114

 
$
95

Value of common shares exchanged for OP units
 
$
206

 
$
125

 
$
174

Change in fair value of available-for-sale securities
 
$
118

 
$
82

 
$
85

Change in fair value of cash flow hedge
 
$
2,022

 
$
929

 
$
(46
)
Acquisition of real estate in exchange for OP units
 
$
—

 
$
8,738

 
$
1,333

Reallocation of ownership percentage between parent and subsidiary
 
$
13

 
$
11

 
$
—

Debt issued with acquisitions of real estate
 
$
80,000

 
$
—

 
$
—







14


Whitestone REIT and Subsidiaries
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share and per unit data)


 
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
December 31,
FFO AND FFO CORE
 
2017
 
2016
 
2017
 
2016
 
2015
Net income attributable to Whitestone REIT
 
$
1,921

 
$
532

 
$
8,334

 
$
7,931

 
$
6,749

  Adjustments to reconcile to FFO:(1)
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization of real estate assets
 
7,035

 
5,984

 
26,290

 
22,179

 
19,646

(Gain) loss on sale or disposal of assets and properties
 
47

 
(361
)
 
161

 
(3,261
)
 
185

Net income attributable to redeemable operating partnership units
 
54

 
20

 
254

 
182

 
116

FFO
 
9,057

 
6,175

 
35,039

 
27,031

 
26,696

  Adjustments to reconcile to FFO Core:
 
 
 
 
 
 
 
 
 
 
Share-based compensation expense
 
2,881

 
3,361

 
10,426

 
10,247

 
7,339

Acquisition costs
 
227

 
1,111

 
1,625

 
2,101

 
1,719

FFO Core
 
$
12,165

 
$
10,647

 
$
47,090

 
$
39,379

 
$
35,754

 
 
 
 
 
 
 
 
 
 
 
FFO PER SHARE AND OP UNIT CALCULATION
 
 
 
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
 
 
 
FFO
 
$
9,057

 
$
6,175

 
$
35,039

 
$
27,031

 
$
26,696

Distributions paid on unvested restricted common shares
 
(112
)
 
(122
)
 
(456
)
 
(620
)
 
(528
)
FFO excluding amounts attributable to unvested restricted common shares
 
$
8,945

 
$
6,053

 
$
34,583

 
$
26,411

 
$
26,168

FFO Core excluding amounts attributable to unvested restricted common shares
 
$
12,053

 
$
10,525

 
$
46,634

 
$
38,759

 
$
35,226

Denominator:
 
 
 
 
 
 
 
 
 
 
Weighted average number of total common shares - basic
 
38,460

 
28,834

 
35,428

 
27,618

 
24,631

Weighted average number of total noncontrolling OP units - basic
 
1,084

 
1,103

 
1,088

 
642

 
430

Weighted average number of total common shares and noncontrolling OP units - basic
 
39,544

 
29,937

 
36,516

 
28,260

 
25,061

 
 
 
 
 
 
 
 
 
 
 
Effect of dilutive securities:
 
 
 
 
 
 
 
 
 
 
Unvested restricted shares
 
893

 
652

 
827

 
765

 
1,052

Weighted average number of total common shares and noncontrolling OP units - diluted
 
40,437

 
30,589

 
37,343

 
29,025

 
26,113

 
 
 
 
 
 
 
 
 
 
 
FFO per common share and OP unit - basic
 
$
0.23

 
$
0.20

 
$
0.95

 
$
0.93

 
$
1.04

FFO per common share and OP unit - diluted
 
$
0.22

 
$
0.20

 
$
0.93

 
$
0.91

 
$
1.00

 
 
 
 
 
 
 
 
 
 
 
FFO Core per common share and OP unit - basic
 
$
0.30

 
$
0.35

 
$
1.28

 
$
1.37

 
$
1.41

FFO Core per common share and OP unit - diluted
 
$
0.30

 
$
0.34

 
$
1.25

 
$
1.34

 
$
1.35

(1) 
Includes pro-rata share attributable to Pillarstone OP.


15


Whitestone REIT and Subsidiaries
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share and per unit data)
 
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
December 31,
 
 
2017
 
2016
 
2017
 
2016
 
2015
PROPERTY NET OPERATING INCOME
 
 
 
 
 
 
 
 
 
 
Net income attributable to Whitestone REIT
 
$
1,921

 
$
532

 
$
8,334

 
$
7,931

 
$
6,749

General and administrative expenses
 
6,351

 
7,455

 
23,949

 
23,922

 
20,312

Depreciation and amortization
 
7,304

 
6,095

 
27,240

 
22,457

 
19,761

Interest expense
 
6,493

 
5,018

 
23,651

 
19,239

 
14,910

Interest, dividend and other investment income
 
(29
)
 
(90
)
 
(410
)
 
(429
)
 
(313
)
Provision for income taxes
 
90

 
42

 
386

 
289

 
372

Gain on sale of properties
 
—

 
(467
)
 
(16
)
 
(3,357
)
 
—

Loss on disposal of assets
 
48

 
106

 
183

 
96

 
185

Income from discontinued operations
 
—

 
—

 
—

 
—

 
(11
)
Net income attributable to noncontrolling interests
 
104

 
35

 
532

 
197

 
116

NOI
 
$
22,282

 
$
18,726

 
$
83,849

 
$
70,345

 
$
62,081





16