1 Analyst Weighs In On High-Yield Whitestone REIT

On March 5, BMO Capital Markets released a note updating earnings and its outlook for $363 million market cap Whitestone REIT WSR. Whitestone owns 63 community shopping centers located in Texas (38), Arizona (24), along with one in Chicago. Local service oriented tenants of 3,000 SF or less comprise ~70 percent of lease revenues, with no single tenant accounting for more than 2.2 percent. Whitestone has paid out a $1.14 annual dividend since 2010. This REIT currently declares quarterly dividends, but distributes a $0.095 dividend on a monthly basis, which represents a ~7.3 percent annual yield. Whitestone shares have traded in a 52-week range of $13.57 - $16.30. BMO reiterated its Market Perform rating on WSR, with a PT of $16 per share. BMO Capital Markets - Raises 2015 FFO Guidance BMO Capital Markets - FFO Increase BMO increased its 2015 FFO estimate "to $1.25, based on 4Q results and guidance for the current year," while noting it is still at "the low end of management's $1.25-1.30 guidance range…" BMO's "conservative SS NOI growth assumption" reflects its belief that "WSR's exposure to the Houston market remains a risk to growth rates." WSR executed $94.1 mm of acquisitions in 4Q (7.6% cap rate, $187 PSF, 86.0% occupancy), the impact of which is yet to be fully reflected in NOI. WSR - High Leverage BMO noted, "WSR's Debt/EBIDTA has increased from 9x to 12x y/y, above the shopping center peer average of 6x." The BMO model "assumes WSR will fund forward acquisitions primarily through a combination of secured debt and a recently extended $500 mm unsecured credit facility… [along] with some equity and asset dispositions." BMO Valuation Metrics WSR trades at 14.1x [BMO's] 2015 AFFO multiple, which represents a 35% discount to the Shopping Center peers' 21.8x. NAV (net asset value) perspective, "WSR trades at a 3% premium, compared to a 1% premium for its peers." Notably, BMO utilized a cap rate of 8 percent for its base case valuation. BMO - Takeaways BMO was "pleased to see the [WSR] dividend approaching full coverage" based upon its estimated 2015 AFF0. BMO "would like to see leverage metrics closer to peers." While noting that Whitestone's exposure to energy markets in Texas represented a risk; BMO believes "that long-term fundamentals for the WSR's community and ethnic-focused niche remain positive…"