Should you invest in Whitestone REIT now?
PPerformance is not indicative of future results, and in the event of Whitestone REIT (NYSE: WSR) it can be a good thing.
This real estate investment trust (REIT) buys, develops, owns and operates outdoor shopping centers in the fast-growing, high-income household markets of Phoenix, Austin, Dallas-Fort Worth, Houston and San Antonio.
The focus on these strong communities inhabited by well-compensated employees of many of the nation’s largest growth companies allows Whitestone to set a record for potential outperformance. He still has a long way to go.
The graph above shows the performance of Whitestone REIT compared to the whole S&P 1500 real estate sector since the REIT went public in 2010 at $12 a share. The chart below shows Whitestone’s performance over the past year.
So what has changed? Well, for starters, the company fired its chairman and CEO in January and promoted its longtime chief financial officer to CEO, its controller to chief financial officer, and named an independent director as chairman. On the other hand, this retail REIT has chained strong performance numbers with a focus on high growth markets.
Community-focused properties and a diverse tenant base
Whitestone now owns 60 of what it calls “community-centric properties,” including 32 in Texas, 27 in Phoenix and one in Chicago. These 32 properties in Texas include 15 in the Houston market, nine in Dallas-Fort Worth, five in Austin and three in San Antonio.
Five of these properties are parcels of land slated for future development, while the others contain 5.2 million square feet of rental space. That space is occupied by 1,592 tenants with lease terms ranging from less than a year for its smaller tenants to more than 15 years for its largest tenants, the company said in its second-quarter 2022 earnings report.
Its overall turnover is also diversified by tenant, with Safeway Stores at 2.6%, Whole Foods Market at 2.3% and Frost Bank at 2%, representing the highest shares of annualized rent.
Whitestone’s second-quarter revenue increased approximately 14% year-over-year to $35 million and same-store net operating income (NOI) was up 8% to $21.8 million of dollars. Meanwhile, funds from operations (FFO), a key measure of REIT performance, rose a penny to $0.25 per share.
Accelerate the pace of the dividend and support the growth of the FFO
Whitestone has paid dividends every month without fail since its IPO, but there have been disruptions in the amount. After paying $0.095 per share per month since 2010, the payout was reduced to $0.035 in 2019. The $0.095 payout was reinstated for three months, but then the pandemic hit and dividends were again reduced to $0.035 in April 2020 at the peak of store closings. Since then, the dividend has been increased once in 2021 and once again this year and now stands at $0.04 per month, up about 14% in two years.
Whitestone stock is currently trading between $10 and $11 per share and yields around 4.6%. Analysts like the company enough to classify it as a “moderate buy” and give it a consensus price target of $13.67, so there’s a nice upside if that happens.
Looking ahead, the company is showing a record occupancy rate of 91.5% and has been able to increase rents by 15% to 18% on lease renewals and 8.9% for the its entire portfolio since June 2021. That’s pretty good for a commercial REIT.
The company also said in its Q2 report that it was targeting FFO growth per share of 14% to 18%, but did not indicate a timeframe for that. However, it projects total FFO for 2022 of $0.98 to $1.02 per share, a 16% mid-term gain from the $0.86 per share FFO it reported in 2021.
This could be a good deal — I’m buying this thesis
At the current share price, you can buy Whitestone shares at a price to FFO per share ratio of approximately 11.3. It looks cheap compared to Accept real estatea comparable commercial SCPI with a price/FFO ratio of approximately 20.4 and 21.1 for the commercial SCPI giant, Real estate income.
Whitestone has a long way to go to boast a record like these two stocks, but its portfolio and revamped management appear to be up to the task. I started buying his stock, both for the growth potential and the passive income he produces monthly.
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Marc Rapport holds positions at Agree Realty, Realty Income and Whitestone REIT. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.