Whitestone REIT Acquires Scottsdale Commons
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Insights
Whitestone REIT's acquisition of Scottsdale Commons highlights a strategic move to strengthen its portfolio with high-occupancy, revenue-generating properties. The location's high traffic and affluent surrounding community suggest robust consumer spending power, which can translate into stable and potentially growing rental income. The 96.6% occupancy rate is above the national average, indicating strong demand and effective property management.
Furthermore, the acquisition's funding through a capital recycling program indicates a disciplined investment approach. This strategy of selling lower-yielding assets to fund higher-yielding acquisitions could enhance the REIT's overall return profile. The reported capitalization rate of 7.1% is favorable compared to the sold properties' 6.2%, suggesting an improved yield on investments. However, it's essential to monitor the long-term performance and integration of the new asset into Whitestone's portfolio, as well as the broader market conditions that could affect commercial real estate valuations.
The tenant mix at Scottsdale Commons, with businesses like Rosati’s Chicago Pizza and Rusty Nail Meats, points to a focus on local and specialty services that are less susceptible to e-commerce competition. This can be a wise move in an era where brick-and-mortar retail faces significant challenges. The presence of award-winning U.S. Egg and BevMo also suggests a strategy of anchoring the center with popular and experiential tenants to drive foot traffic.
For investors, the key to assessing this acquisition's value will be to watch consumer trends and the performance of these tenants. The specialty nature of these businesses could provide a buffer against economic downturns, as they offer unique products and services not easily replicated online. It's also worth noting the potential for rent escalations given the high-income profile of the surrounding area, which could further increase the asset's value over time.
The financial structuring of the acquisition, using proceeds from targeted dispositions, illustrates Whitestone's focus on maintaining a balanced and strategic approach to portfolio management. The increase in annual base rent from approximately $18 to $27 per square foot signifies a potential rise in revenue. However, investors should consider the cost of maintaining higher-end properties and the potential for unforeseen expenses that could affect net operating income (NOI).
It is also worth examining the broader economic indicators and real estate market trends to gauge the sustainability of these returns. While the short-term accretive nature of the deal is clear, the long-term success will depend on economic stability and the continued appeal of the Scottsdale area as a retail and commercial hub. Keeping an eye on the property's ability to retain and attract high-quality tenants will be important for ongoing performance evaluation.
HOUSTON, April 09, 2024 (GLOBE NEWSWIRE) -- Whitestone REIT (NYSE:WSR) (“Whitestone” or the “Company”) today announced the acquisition of Scottsdale Commons in Scottsdale, Arizona for
“Whitestone has the perfect opportunity to leverage our leasing and operations skills in order to drive performance at Scottsdale Commons,” said Whitestone REIT COO, Christine Mastandrea. “We have a great team and a strong presence in the Scottsdale market. This acquisition is accretive on day one and we believe our team can add significant additional value.”
The acquisition is funded through Whitestone’s capital recycling program, which is intended to improve the overall quality of its portfolio through targeted dispositions and the acquisition of greater long-term value properties. The program began in 2022, is intended to match disposition proceeds with acquisition funding amounts, and now totals over
About Whitestone REIT
Whitestone REIT (NYSE: WSR) is a community-centered real estate investment trust (REIT) that acquires, owns, operates, and develops open-air, retail centers located in some of the fastest growing markets in the country: Phoenix, Austin, Dallas-Fort Worth, Houston and San Antonio.
Our centers are convenience focused: merchandised with a mix of service-oriented tenants providing food (restaurants and grocers), self-care (health and fitness), services (financial and logistics), education and entertainment to the surrounding communities. The Company believes its strong community connections and deep tenant relationships are key to the success of its current centers and its acquisition strategy. For additional information, please visit the Company's investor relations website.
Forward-Looking Statements
This Report contains forward-looking statements within the meaning of the federal securities laws, including discussion and analysis of our financial condition and results of operations, statements related to our expectations regarding the performance of our business, and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” or the negative of such terms and variations of these words and similar expressions, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
Factors that could cause actual results to differ materially from any forward-looking statements made in this Report include: the imposition of federal income taxes if we fail to qualify as a real estate investment trust (“REIT”) in any taxable year or forego an opportunity to ensure REIT status; uncertainties related to the national economy, the real estate industry in general and in our specific markets; legislative or regulatory changes, including changes to laws governing REITs; adverse economic or real estate developments or conditions in Texas or Arizona, Houston and Phoenix in particular, including the potential impact of public health emergencies, such as COVID-19, on our tenants’ ability to pay their rent, which could result in bad debt allowances or straight-line rent reserve adjustments; increases in interest rates, including as a result of inflation operating costs or general and administrative expenses; our current geographic concentration in the Houston and Phoenix metropolitan area makes us susceptible to local economic downturns and natural disasters, such as floods and hurricanes, which may increase as a result of climate change, increasing focus by stakeholders on environmental, social, and governance matters, financial institution disruption; availability and terms of capital and financing, both to fund our operations and to refinance our indebtedness as it matures; decreases in rental rates or increases in vacancy rates; harm to our reputation, ability to do business and results of operations as a result of improper conduct by our employees, agents or business partners; litigation risks; lease-up risks, including leasing risks arising from exclusivity and consent provisions in leases with significant tenants; our inability to renew tenant leases or obtain new tenant leases upon the expiration of existing leases; risks related to generative artificial intelligence tools and language models, along with the potential interpretations and conclusions they might make regarding our business and prospects, particularly concerning the spread of misinformation; our inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or other applicable laws; geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine, the conflict in the Gaza Strip and unrest in the Middle East; the need to fund tenant improvements or other capital expenditures out of operating cash flow; the extent to which our estimates regarding Pillarstone REIT Operating Partnership LP's financial condition and results of operations differ from actual results; and the risk that we are unable to raise capital for working capital, acquisitions or other uses on attractive terms or at all 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.
Non-GAAP Financial Measures
This release contains supplemental financial measures that are not calculated pursuant to U.S. generally accepted accounting principles (“GAAP”) including EBITDAre, FFO, NOI and net debt. Following are explanations and reconciliations of these metrics to their most comparable GAAP metric.
NOI: Net Operating Income: Management believes that NOI is a useful measure of our property operating performance. We define NOI as operating revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes). Other REITs may use different methodologies for calculating NOI and, accordingly, our NOI may not be comparable to other REITs. Because NOI excludes general and administrative expenses, depreciation and amortization, equity or deficit in earnings of real estate partnership, interest expense, interest, dividend and other investment income, provision for income taxes, gain on sale of property from discontinued operations, management fee (net of related expenses) and gain or loss on sale or disposition of assets, and includes NOI of real estate partnership (pro rata) and net income attributable to noncontrolling interest, 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. We use NOI to evaluate our operating performance since NOI allows us to evaluate the impact that factors such as occupancy levels, lease structure, lease rates and tenant base have on our results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about our 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 our overall financial performance since it does not reflect the level of capital expenditure and leasing costs necessary to maintain the operating performance of our properties, including general and administrative expenses, depreciation and amortization, equity or deficit in earnings of real estate partnership, interest expense, interest, dividend and other investment income, provision for income taxes, gain on sale of property from discontinued operations, management fee (net of related expenses) and gain or loss on sale or disposition of assets.
Investor and Media Contact:
David Mordy
Director, Investor Relations
Whitestone REIT
(713) 435-2219
ir@whitestonereit.com
A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/508bd724-1bc3-48a6-8d77-b02d360212d3
FAQ
What did Whitestone REIT (WSR) acquire?
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