Whitestone REIT Reports Fourth Quarter and Full Year 2018 Results

| Source: Whitestone REIT Whitestone REIT

-Net Income per share of $0.52, more than double From 2017-
-Occupancy Increases 30 Basis Points, Reaching 90.5% at Year End 2018-
-Annualized Base Rent per Leased Squared Foot Grows 2.8% From Year End 2017-
-Same Store Net Operating Income (“NOI”) increases 3.3% From 2017-

HOUSTON, Feb. 27, 2019 (GLOBE NEWSWIRE) --  Whitestone REIT (NYSE: WSR) (“Whitestone” or the “Company”) today announced the operating and financial results for the quarter and year ended December 31, 2018. Whitestone is a pure-play 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 optimal mix of national, regional and local tenants provide daily necessities, needed services and entertainment to the respective communities which are not readily available online.

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

Full Year Operating and Financial Highlights:

  • Funds from Operations, as defined by the National Association of Real Estate Investment Trusts ("FFO") was $0.94 per share for the year compared to $0.93 in 2017;
  • FFO Core was $1.16 per share for the year compared to $1.25 per share in 2017;
  • Rental rates on new and renewal leases signed in 2018 increased 7.0% and 11.1%, respectively, on a GAAP basis;
  • Annualized Base Rent (“ABR”) per leased squared foot grew to $19.35 from $18.82 a year ago;
  • Dispositions of five properties (including three properties owned through investment in Pillarstone REIT Operating Partnership, L.P. ("Pillarstone OP")) in 2018 generating $29.3 million in gross proceeds; and
  • Net Debt to EBITDA, adjusted improved to 8.4 times from 8.5 times in 2017.

Jim Mastandrea, Chairman and Chief Executive Officer of Whitestone REIT commented, “2018 was a solid year for Whitestone, as we produced improvement in many key areas of the business. In addition to growing same store NOI by over 3% in 2018, we also increased occupancy and rental rates.  While our 2018 FFO Core per share reflects a decrease year-over-year, we made progress upgrading the portfolio through selective dispositions, improved our leverage metrics, scaled G&A and enhanced our corporate governance which should result in long-term value creation for our shareholders.” Mr Mastandrea added, "Our, high-quality properties, differentiated and unique 'E-Commerce resistant' business model, together with a cycle-tested management team, contributed to our industry-leading Total Shareholder Returns for the last three years. We are energized by the opportunity ahead of us in 2019 as our communities are located within the fastest growing cities in the country, which supports our ongoing efforts to reach our long-term milestones.  We continue to evolve our truly best-in-class company to extract additional value as we move ahead."

Financial Results

The Company reported Net Income attributable to Whitestone REIT of $8.5 million, or $0.21 per share for the fourth quarter of 2018, compared to $1.9 million, or $0.05 per share for the same period in 2017.  For the year, Net Income attributable to Whitestone REIT was $21.4 million, or $0.52 per share, for 2018 compared to $8.3 million or $0.22 per share for 2017.

FFO was $9.5 million, or $0.23 per share for the fourth quarter of 2018, compared to $9.1 million, or $0.22 per share for the same period in 2017.  For the year, FFO was $39.4 million, or $0.94 per share in 2018, compared to $35.0 million, or $0.93 per share in 2017.

FFO Core was $11.4 million, or $0.27 per share in the fourth quarter of 2018, compared to $12.2 million, or $0.30 per share in the same period of 2017.  For the year, FFO Core was $48.8 million, or $1.16 per share compared to $47.1 million or $1.25 per share in 2017.

Reconciliations of Net Income to FFO and FFO Core are included herein.
Operating Results

For the periods ending December 31, 2018, the Company’s operating highlights were as follows:

 Q4-2018YTD 2018
Occupancy:  
Wholly Owned Properties90.5% 
Same Store Property Net Operating Income Growth(0.9)%3.3%
Rental Rate Growth - Total (GAAP Basis):4.5%10.3%
New Leases6.9%7.0%
Renewal Leases4.5%11.1%
   
Leasing Transactions:  
Number of New Leases28131
New Leases - Annualized Revenue (millions)$5.4$41.2
Number of Renewal Leases47177
Renewal Leases - Annualized Revenue (millions)$12.3$41.5

Real Estate Portfolio Update

Community Centered PropertiesTM Portfolio Statistics:

As of December 31, 2018, Whitestone wholly owned 57 Community Centered PropertiesTM with 4.8 million square feet of gross leasable area ("GLA"). The portfolio is comprised of 29 properties in Texas, 27 in Arizona and one in Illinois. Whitestone’s Retail Community Centered PropertiesTM are located in Austin (4), San Antonio (3), Chicago (1), Dallas-Fort Worth (7), Houston (15) and the greater Phoenix metropolitan area (27). In addition to being business friendly, these are five of the top markets in the country in terms of size, economic strength and population growth. 2017 estimates show the projected 5-year population growth rates for both Austin and Dallas-Fort Worth to be 9.7%, San Antonio to be 8.6%, Houston to be 8.0%, and Phoenix to be 6.6% (1). The Company’s retail properties in these markets are located on the best retail corners embedded in affluent communities. The Company also owns an equity interest in and manages 11 properties containing 1.3 million square feet of GLA through its investment in Pillarstone OP.

At the end of the fourth quarter, the Company's diversified tenant base was comprised of approximately 1,337 tenants, with the largest tenant accounting for only 3.0% of annualized base rental revenues. Lease terms range from less than one year for smaller tenants to over 15 years for larger tenants. Our leases generally include minimum monthly lease payments and tenant reimbursements for payment of taxes, insurance and maintenance, and typically exclude restrictive lease clauses.

Disposition Activity:

On December 27, 2018, Pillarstone OP, through an indirect wholly owned subsidiary, Whitestone Industrial-Office, LLC, sold a portfolio of three properties in Houston, Texas to an unaffiliated third party for $15.8 million in cash.  The Company owns 81.4% of Pillarstone OP and accounts for its ownership under the equity method.   Pillarstone OP used the net proceeds, after customary closing deductions, to pay off mortgage debt on the three properties, and repay $8.0 million of its $14.5 million loan from Whitestone.   Included in 2018 equity in earnings from real estate partnership is $6.6 million related to this sale.

On September 24, 2018, we completed the sale of Torrey Square, located in Houston, Texas, for $8.7 million. We recorded a
gain on sale of $4.4 million.

On February 27, 2018, we completed the sale of Bellnott Square, located in Houston, Texas, for $4.7 million.  We recorded a gain on sale of $0.3 million.

(1) Source: Claritas, as of April 2017.

Balance Sheet and Liquidity

Liquidity, Debt and Credit Facility:

At December 31, 2018, 49 of the Company’s wholly-owned 57 properties were unencumbered by mortgage debt, with an undepreciated cost basis of $749.5 million.  At December 31, 2018, the Company had total real estate debt of $619.4 million, of which approximately 61% was subject to fixed interest rates.  Subsequent to year end, the Company fixed the rate on an additional $65 million of variable rate debt bringing the fixed rate percentage to 70%.  The Company's weighted average interest rate on all fixed rate debt as of the end of the fourth quarter was 3.92% and the weighted average remaining term was 4.5 years.

At quarter end, Whitestone had $14 million of cash available on its balance sheet and $59 million of available capacity under its credit facility, before the $200 million accordion option.

Dividend

On December 20, 2018, the Company declared a quarterly cash distribution of $0.285 per common share and OP unit for the first quarter of 2019, to be paid in three equal installments of $0.095 in January, February, and March of 2019.

2019 Guidance

The Company’s outlook for 2019 is as follows:

 2019 Guidance
Net income attributable to Whitestone REIT (per share)$0.21 - $0.25
NAREIT FFO (per share)$0.90 - $0.94
FFO Core$1.06 - $1.10
Same Store NOI growth0.5% - 2%

The following table outlines the key factors impacting 2019 FFO and FFO Core ranges, and accounts for the difference from the Company's 2018 reported FFO and FFO Core:

 
Whitestone REIT and Subsidiaries
2019 FINANCIAL GUIDANCE
 
 
 FFO FFO Core
 Low High Low High
Actual - 2018 $  0.93  $  0.93  $  1.16  $  1.16 
         
Increased Share Count   (0.01)   (0.01)   (0.02)   (0.02)
2018 Dispositions   (0.04)   (0.04)   (0.04)   (0.04)
G&A Expenses   0.05    0.06    (0.01)   — 
Same Store NOI Growth   —   0.03    —    0.03 
Interest rate increase   (0.03)   (0.03)   (0.03)   (0.03)
         
Guidance - 2019 $  0.90  $  0.94  $  1.06  $  1.10 
 

Note: Guidance reflects management’s view of current and future market conditions, as well as the earnings impact of events referenced in our earnings release and supplemental data package.  This guidance does not include the operational or capital impact of any future unannounced acquisition or disposition activity or the impact of the Company's restatement of prior periods or effects therefrom. Estimates involve numerous assumptions such as rental income, interest rates, tenant default, occupancy rates, expenses 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. We will update our guidance, on a quarterly basis, or more often as needed, reflecting the impact of acquisition and disposition volume and other factors.

 
Whitestone REIT and Subsidiaries
2019 FINANCIAL GUIDANCE		 
 Projected Range 
 Full Year 2019 
  Low High 
Net income attributable to Whitestone REIT $  0.21  $  0.25  
      
Adjustments to reconcile net income to FFO(1):     
Depreciation expense, amortization, gain on disposal of assets   0.69     0.69   
(Gain) loss on sale or disposal of assets or properties   —    —  
Net income attributable to redeemable operating partnership   —    —  
FFO $  0.90  $  0.94  
      
Adjustments to reconcile FFO to FFO Core:     
Share based compensation expense   0.16     0.16   
FFO Core $  1.06  $  1.10  
      
Same Store NOI Growth  0.50%  2.00% 
Occupancy  90.0%  92.0% 
Average interest rate on all debt  4.3%  4.3% 
Weighted average shares and OP units   42,357     42,327   
 

(1)   Includes pro-rata share attributable to equity investment in non consolidated real estate.

Restatement of Quarterly Periods Due to Modification of ASC 606 Adoption

On January 1, 2018, the Company adopted ASU 2014-09 ("Topic 606"), as subsequently amended, using the modified retrospective method and applied Topic 606 to those contracts that were not completed as of January 1, 2018.  In August 2018, the Company received a comment letter from the staff of the SEC (the "Staff") relating to its Quarterly Report on Form 10-Q for the period ended June 30, 2018.  The Staff requested that the Company provide them with an analysis of the Company’s determination that the contribution of all of the equity interests in 14 properties to Pillarstone OP in exchange for Pillarstone OP Units and the assumption of debt in December 2016 (the “Contribution”) did not meet the requirements for derecognition of the underlying assets under Topic 606, and an explanation of the Company’s consideration of the immaterial accounting errors related to Pillarstone OP in its conclusion that disclosure controls and procedures and internal controls over financial reporting were effective as of June 30, 2018 and December 31, 2017.  In September 2018, the Company responded to the Staff’s letter with the requested analysis and explanation.  In October 2018, the Company received a comment letter from the Staff with certain follow up questions.  Subsequently, the Company engaged in verbal discussions with the Staff regarding its responses and, in February 2019, the Staff verbally informed the Company that it objected to the Company's conclusion regarding the assessment of the transfer of control criteria in Topic 606 with respect to the Contribution and objected to the Company’s continued recognition of the underlying assets and liabilities associated with the Contribution  subsequent to January 1, 2018, the adoption date of Topic 606.  Accordingly, the Company, has concluded that the Company’s unaudited consolidated financial statements as of and for the periods ended March 31, 2018, June 30, 2018 and September 30, 2018 (collectively, the “Prior Period Financial Statements”) included in the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2018, June 30, 2018 and September 30, 2018, respectively, should be restated to correct the accounting error described below and should no longer be relied upon.  Because this change from the profit sharing method is only applicable for periods ending after giving effect to the implementation of Topic 606, no periods prior to January 1, 2018 are affected by this error.

The Company will restate, as soon as reasonably practicable, the Prior Period Financial Statements in a comprehensive Annual Report on Form 10-K for the year ended December 31, 2018 (the “Comprehensive Form 10-K”).

As a result of the restatements, the Company will derecognize the underlying assets and liabilities associated with the Contribution as of January 1, 2018 and will recognize the Company’s investment in Pillarstone OP under the equity method.  The adjustments are expected to increase the Company's retained earnings as of January 1, 2018 by $19.1 million.  For the three months ended March 31, 2018, the Company estimates this change will decrease revenue by $3.8 million, decrease total expenses by $3.3 million, increase equity in earnings of real estate partnership by $0.7 million and increase net income by $0.2 million.  For the three months ended June 30, 2018, the Company estimates this change will decrease revenue by $3.6 million,  decrease total expenses by $3.3 million, increase equity in earnings of real estate partnership by $0.6 million and increase net income by $0.2 million.  For the six months ended June 30, 2018, the Company estimates this change will decrease revenue by $7.4 million,  decrease total expenses by $6.6 million, increase equity in earnings of real estate partnership by $1.3 million and increase net income by $0.4 million.  For the three months ended September 30, 2018, the Company estimates this change will decrease revenue by $3.9 million, decrease total expenses by $3.6 million, increase equity in earnings of real estate partnership by $0.5 million and increase net income by $0.2 million. For the nine months ended September 30, 2018, the Company estimates this change will decrease revenue by $11.3 million, decrease total expenses by $10.2 million, increase equity in earnings of real estate partnership by $1.8 million and increase net income by $0.6 million. These estimates are subject to finalization, including completion of  the Company's technical accounting analysis for these matters and completion of interim review procedures.

In light of the facts and determinations described above, the Company’s management, under the supervision and with participation of the Company's Chief Executive Officer and Chief Financial Officer, is in the process of evaluating the effectiveness of the Company’s internal controls over financial reporting and disclosure controls and procedures.  If one or more material weaknesses is determined to have existed, management of the Company expects to conclude that the Company's internal controls over financial reporting and disclosure controls and procedures were ineffective for the periods ending March 31, June 30 and September 30, 2018 and possibly for other periods.

For further information, please refer to Item 4.02 of the Company’s Current Report Form 8-K filed with the SEC on February 27, 2019

Conference Call Information

In conjunction with the issuance of its financial results, the Company invites you to listen to the its earnings release conference call to be broadcast live on Thursday February 28, 2019 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:

Dial-in number for domestic participants:                      (800) 239-9838
Dial-in number for international participants:               (323) 794-2551

The conference call will be recorded, and a telephone replay will be available through Thursday, March 14, 2019.  Replay access information is as follows:

Replay number for domestic participants:                     (844) 512-2921
Replay number for international participants:              (412) 317-6671
Passcode (for all participants):                                          6866571

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 optimal mix of national, regional and local tenants provides daily necessities, needed services and entertainment to the communities in which they are located. 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 December 31, 2018, Whitestone's total shareholder return ranks #2 of 17, #1 of 17, and #2 of 16, of the U.S. public shopping center REITs for the one-year, three-year, and five-year periods, respectively.(2).  For additional information, visit www.whitestonereit.com.

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 include statements about our earnings guidance, future liquidity, performance growth and expectations and other matters and 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.

These statements  include discussion and analysis of the Company’s financial condition; the impact of the restatement on the Company’s financial statements; and the impact of the restatement on the Company’s evaluation of the effectiveness of its internal controls over financial reporting and disclosure controls and procedures.  The outcome of these issues and the impact of these forward looking statements are subject to a number of risks, including: the costs and expenses of the restatement; delays in the preparation of the restated financial statements and the Comprehensive Form 10-K; the risk that additional information will come to light during the course of the preparation of the restated financial statements that alters the scope or magnitude of the restatement; potential reviews, litigation or other proceedings by governmental authorities, shareholders or other parties; risks related to the impact on the restatement on the Company’s reputation, commercial contracts and ability to raise capital, and other factors as discussed in the Company’s filings with the SEC from time to time.

The following are additional 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 rates of return; the Company’s ability to reduce or otherwise effectively manage its general and administrative expenses; 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.

(2)  Whitestone REIT Total Shareholder Return as compared to its peers according to the SNL Public REIT Market Data based on closing prices on December 31, 2018. Peers 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., RPT Realty, Retail Properties of America, Kite Realty Group Trust, Acadia Realty Trust, Wheeler REIT Inc., Brixmor Property Group Inc., Kimco Realty Corp., and Site Centers Corp.

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.

EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization: Management believes that EBITDA is an appropriate supplemental measure of operating performance to net income attributable to the Company. The Company defines EBITDA as operating revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes), adjustments for unconsolidated real estate partnership and general and administrative expenses. Management believes that EBITDA provides useful information to the investment community about the Company's operating performance when compared to other REITs since EBITDA is generally recognized as a standard measure. However, EBITDA should not be viewed as a measure of the Company's overall financial performance since it does not reflect depreciation and amortization, involuntary conversion, interest expense, 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 EBITDA and, accordingly, the Company's EBITDA may not be comparable to other REITs.

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 or assets of unconsolidated real estate partnership, 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, proxy contest fees, debt extension costs, 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.

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, pro rata share of NOI of unconsolidated entities 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.

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

 

Whitestone REIT and Subsidiaries 
CONSOLIDATED BALANCE SHEETS 
(in thousands, except per share data) 
   
 December 31, 
  2018   2017  
ASSETS 
Real estate assets, at cost 
Property$  1,052,238  $  1,149,454  
Accumulated depreciation  (113,300)   (131,034) 
Total real estate assets  938,938    1,018,420  
Investment in real estate partnership 26,236 4,095 26,236   4,095  
Cash and cash equivalents  13,658    5,005  
Restricted cash  128    205  
Marketable securities  —    32  
Escrows and acquisition deposits  8,211    7,916  
Accrued rents and accounts receivable, net of allowance for doubtful accounts  21,642    21,140  
Receivable due from related party  6,055    —  
Unamortized lease commissions and loan costs  6,698    7,157  
Prepaid expenses and other assets  7,306    6,198  
Total assets$  1,028,872  $  1,070,168  
LIABILITIES AND EQUITY 
Liabilities:    
Notes payable$  618,205  $  659,068  
Accounts payable and accrued expenses  33,729    35,536  
Payable due to related party  58    —  
Tenants' security deposits  6,130    5,694  
Dividends and distributions payable  11,600    11,466  
Total liabilities  669,722    711,764  
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, 2018 and December 31, 2017, respectively  —    —  
Common shares, $0.001 par value per share; 400,000,000 shares authorized; 39,778,029 and 39,221,773 issued and outstanding as of December 31, 2018 and December 31, 2017, respectively  39    38  
Additional paid-in capital  527,662    521,314  
Accumulated deficit  (181,361)   (176,684) 
Accumulated other comprehensive gain  4,116    2,936  
Total Whitestone REIT shareholders' equity  350,456    347,604  
Noncontrolling interest in subsidiary  8,694    10,800  
Total equity  359,150    358,404  
Total liabilities and equity$  1,028,872  $  1,070,168  
 


Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
 
 
 
  Year Ended December 31,
   2018   2017   2016 
       
Property revenues      
Rental revenues $  86,644  $  94,568  $  80,068 
Other revenues   33,219    31,391    24,369 
Total property revenues   119,863    125,959    104,437 
       
Property expenses      
Property operation and maintenance   21,069    24,213    19,709 
Real estate taxes   16,362    17,897    14,383 
Total property expenses   37,431    42,110    34,092 
       
Other expenses (income)      
General and administrative   23,281    23,949    23,922 
Depreciation and amortization   25,679    27,240    22,457 
Equity in earnings of real estate partnership   (8,431)   —    — 
Interest expense   25,177    23,651    19,239 
Interest, dividend and other investment income   (1,055)   (410)   (429)
Total other expense   64,651    74,430    65,189 
       
Income before gain (loss) on sale or disposal of properties or assets, income taxes, and profit sharing expense   17,781    9,419    5,156 
       
Provision for income taxes   (347)   (386)   (289)
Gain on sale of properties   4,629    16    3,357 
Profit sharing expense   —    (278)   (15)
Gain (loss) on sale or disposal of assets   (82)   (183)   (96)
       
Net income   21,981    8,588    8,113 
       
Less: Net income attributable to noncontrolling interests   550    254    182 
       
Net income attributable to Whitestone REIT $  21,431  $  8,334  $  7,931 
       
      
  Year Ended December 31,
   2018   2017   2016 
       
Basic Earnings Per Share:      
Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares $  0.54  $  0.22  $  0.26 
Diluted Earnings Per Share:      
Net income attributable to common shareholders, excluding amounts attributable to unvested restricted shares $  0.52  $  0.22  $  0.26 
       
Weighted average number of common shares outstanding:      
Basic   39,274    35,428    27,618 
Diluted   40,612    36,255    28,383 
       
Distributions declared per common share / OP unit $  1.1400  $  1.1400  $  1.1400 
       
Consolidated Statements of Comprehensive Income      
       
Net income $  21,981  $  8,588  $  8,113 
       
Other comprehensive gain      
       
Unrealized gain on cash flow hedging activities   1,192    2,022    929 
Unrealized gain on available-for-sale marketable securities   18    118    82 
       
Comprehensive income   23,191    10,728    9,124 
       
Less: Net income attributable to noncontrolling interests   550    254    182 
Less: Comprehensive gain attributable to noncontrolling interests   30    63    23 
       
Comprehensive income attributable to Whitestone REIT $  22,611  $  10,411  $  8,919 
 


Whitestone REIT and Subsidiaries 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME 
(unaudited) 
(in thousands, except per share data) 
 
  Three Months Ended Twelve Months Ended 
  December 31, December 31, 
   2018   2017   2018   2017  
  (unaudited) (unaudited)     
Property revenues         
Rental revenues $  21,626  $  25,371  $  86,644  $  94,568  
Other revenues   8,275    8,460    33,219    31,391  
Total property revenues   29,901    33,831    119,863    125,959  
          
Property expenses         
Property operation and maintenance   5,744    7,240    21,069    24,213  
Real estate taxes   4,102    4,309    16,362    17,897  
Total property expenses   9,846    11,549    37,431    42,110  
          
Other expenses (income)         
General and administrative   5,294    6,351    23,281    23,949  
Depreciation and amortization   6,635    7,304    25,679    27,240  
Equity in earnings of real estate partnership   (6,669)   —    (8,431)   —  
Interest expense   6,472    6,493    25,177    23,651  
Interest, dividend and other investment income   (263)   (29)   (1,055)   (410) 
Total other expense   11,469    20,119    64,651    74,430  
          
Income before gain (loss) on sale or disposal of properties or assets, income taxes, and profit sharing expense   8,586    2,163    17,781    9,419  
          
Provision for income taxes   (87)   (90)   (347)   (386) 
Gain on sale of properties   —    —    4,629    16  
Profit sharing expense   —    (50)   —    (278) 
Gain (loss) on sale or disposal of assets   175    (48)   (82)   (183) 
          
Net income   8,674    1,975    21,981    8,588  
          
Less: Net income attributable to noncontrolling interests   217    54    550    254  
          
Net income attributable to Whitestone REIT $  8,457  $  1,921  $  21,431  $  8,334  
    
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, 
   2018   2017   2018   2017  
  (unaudited) (unaudited)     
Basic Earnings Per Share:         
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $  0.21  $  0.05  $  0.54  $  0.22  
Diluted Earnings Per Share:         
Net income attributable to common shareholders excluding amounts attributable to unvested restricted shares $  0.21  $  0.05  $  0.52  $  0.22  
          
Weighted average number of common shares outstanding:         
Basic   39,493    38,460    39,274    35,428  
Diluted   40,822    39,353    40,612    36,255  
          
Distributions declared per common share / OP unit $  0.2850  $  0.2850  $  1.1400  $  1.1400  
          
Consolidated Statements of Comprehensive Income         
          
Net income $  8,674  $  1,975  $  21,981  $  8,588  
          
Other comprehensive gain (loss)         
          
Unrealized gain (loss) on cash flow hedging activities   (2,971)   1,898    1,192    2,022  
Unrealized gain on available-for-sale marketable securities   —    92    18    118  
          
Comprehensive income   5,703    3,965    23,191    10,728  
          
Less: Net income attributable to noncontrolling interests   217    54    550    254  
Less: Comprehensive gain (loss) attributable to noncontrolling interests   (74)   55    30    63  
          
Comprehensive income attributable to Whitestone REIT $  5,560  $  3,856  $  22,611  $  10,411  
          


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  2018   2017   2018   2017   2016  
Net income attributable to Whitestone REIT $  8,457  $  1,921  $  21,431  $  8,334  $  7,931  
Adjustments to reconcile to FFO:           
Depreciation and amortization of real estate   6,565    7,035    25,401    26,290    22,179  
Depreciation and amortization of real estate assets of unconsolidated real estate partnership   776    —    2,903    —    —  
(Gain) loss on sale or disposal of assets and properties   (175)   47    (4,547)   161    (3,261) 
Gain on sale or disposal of properties or assets of unconsolidated real estate partnership   (6,350)   —    (6,340)   —    —  
Net income attributable to noncontrolling interests   217    54    550    254    182  
FFO   9,490    9,057    39,398    35,039    27,031  
Adjustments to reconcile to FFO Core:           
Share-based compensation expense   1,864    2,881    6,758    10,426    10,247  
Proxy contest professional fees   —    —    2,534    —    —  
Early debt extinguishment costs of unconsolidated real estate partnership   88    —    88    —    —  
Acquisition costs   —    227    —    1,625    2,101  
FFO Core $  11,442  $  12,165  $  48,778  $  47,090  $  39,379  
            
FFO PER SHARE AND OP UNIT CALCULATION           
Numerator:           
FFO $  9,490  $  9,057  $  39,398  $  35,039  $  27,031  
Distributions paid on unvested restricted common shares   (76)   (112)   (301)   (456)   (620) 
FFO excluding amounts attributable to unvested restricted common shares $  9,414  $  8,945  $  39,097  $  34,583  $  26,411  
FFO Core excluding amounts attributable to unvested restricted common shares $  11,366  $  12,053  $  48,477  $  46,634  $  38,759  
Denominator:           
Weighted average number of total common shares - basic   39,493    38,460    39,274    35,428    27,618  
Weighted average number of total noncontrolling OP units - basic   929    1,084    1,011    1,088    642  
Weighted average number of total common shares and noncontrolling OP units - basic   40,422    39,544    40,285    36,516    28,260  
            
Effect of dilutive securities:           
Unvested restricted shares   1,329    893    1,338    827    765  
Weighted average number of total common shares and noncontrolling OP units - diluted   41,751    40,437    41,623    37,343    29,025  
            
FFO per common share and OP unit - basic $  0.23  $  0.23  $  0.97  $  0.95  $  0.93  
FFO per common share and OP unit - diluted $  0.23  $  0.22  $  0.94  $  0.93  $  0.91  
            
FFO Core per common share and OP unit - basic $  0.28  $  0.30  $  1.20  $  1.28  $  1.37  
FFO Core per common share and OP unit - diluted $  0.27  $  0.30  $  1.16  $  1.25  $  1.34  
            
            
            
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, 
PROPERTY NET OPERATING INCOME  2018   2017   2018   2017   2016  
Net income attributable to Whitestone REIT $  8,457  $  1,921  $  21,431  $  8,334  $  7,931  
General and administrative expenses   5,294    6,351    23,281    23,949    23,922  
Depreciation and amortization   6,635    7,304    25,679    27,240    22,457  
Equity in earnings of real estate partnership   (6,669)   —    (8,431)   —    —  
Interest expense   6,472    6,493    25,177    23,651    19,239  
Interest, dividend and other investment income   (263)   (29)   (1,055)   (410)   (429) 
Provision for income taxes   87    90    347    386    289  
Gain on sale of properties   —    —    (4,629)   (16)   (3,357) 
Management fee, net of related expenses   (116)   —    (208)   —    —  
Profit sharing expense   —    50    —    278    15  
Loss on disposal of assets   (175)   48    82    183    96  
NOI, adjustments for unconsolidated real estate partnership   1,840    —    7,725    —    —  
Net income attributable to noncontrolling interests   217    54    550    254    182  
NOI $  21,779  $  22,282  $  89,949  $  83,849  $  70,345  
            
            
            
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, 
EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION  2018   2017   2018   2017   2016  
            
Net income attributable to Whitestone REIT $  8,457  $  1,921  $  21,431  $  8,334  $  7,931  
Depreciation and amortization   6,635    7,304    25,679    27,240    22,457  
Equity in earnings of real estate partnership   (6,669)   —    (8,431)   —    —  
Interest expense   6,472    6,493    25,177    23,651    19,239  
Provision for income taxes   87    90    347    386    289  
Gain on sale of properties   —    —    (4,629)   (16)   (3,357) 
Profit sharing expense   —    50    —    278    15  
Loss on disposal of assets   (175)   48    82    183    96  
EBITDA adjustments for unconsolidated real estate partnership   1,771    —    7,463    —    —  
Net income attributable to noncontrolling interests   217    54    550    254    182  
EBITDA $  16,795  $  15,960  $  67,669  $  60,310  $  46,852