Regional Senior Vice President of Dallas & Austin, WHITESTONE REIT
Whitestone REIT CEO on its focus on smaller space tenants and goals for next 12-18 months
David Holeman, CEO of Whitestone REIT, joined Judy Shaw on #NYSEFloorTalk at the NYSE Texas Economic Summit to discuss ...
About David Spagnolo
David Spagnolo, Regional Senior Vice President of Dallas & Austin at Whitestone REIT, has been active in the company's public communications. In September 2024, Whitestone REIT CEO David Holeman discussed the company's focus on small-space tenants, noting that 94% of its 1,500 tenants occupy spaces under 10,000 square feet, accounting for 75% of revenue. Holeman stated that the company has been "focused on continuing to improve our financial and operating performance" and has committed to "strengthening our balance sheet, reducing our leverage" and exiting joint venture investments. He also said the company has "won a couple litigation matters" and expects to collect on them, which he said would enable further balance sheet improvement. Holeman described the current environment for Whitestone as "as strong as I've ever seen," citing low supply of new retail space in its Sun Belt markets and strong tenant demand. He noted that the company's occupancy was up 20 basis points year-over-year and that it had grown rent levels by over 5% annually. Holeman acknowledged that higher interest rates have been a headwind, leading to an adjusted guidance, but said the company's long-term debt is mostly fixed-rate. He expressed confidence in the company's momentum, stating, "I believe that momentum as well as the macro environment is going to position us for a nice two or three years ahead."
Transcript (11 segments)
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David Spagnolo0:00
We are a community-centered real estate investment trust. We're focused on owning and operating open-air retail neighborhood shopping centers in some of the fastest-growing markets in the country. We're in Dallas, Houston, Fort Worth, San Antonio, Austin, and Phoenix. Our centers are homes to a lot of convenience-focused businesses. We put together a merchandise mix of service-oriented tenants that provide food. Food continues to be a huge draw for everyone. Grocery and restaurants, self-care, health and fitness today is bigger than it's ever been. Services largely financial and logistics, and then education and entertainment continue to be big drivers for folks. We believe in strong community connections and really deep tenant relationships within our markets. I became the CEO in early 2022, and at that time we embarked on a number of changes for Whitestone. We really focused on continuing to improve our financial and operating performance. We wanted to dramatically improve our relationship with shareholders, and initially we announced a series of governance changes. We committed to strengthening our balance sheet, reducing our leverage, and then really exiting and monetizing our joint venture investment that we had. I'm really pleased to report that we've done very well on that over the last couple years, and that's evidenced by our over 40% total shareholder return.
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Interviewer1:35
Now you're focused on small spaces opposed to big boxes. Why have that focus?
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David Spagnolo1:40
One of the things that differentiates Whitestone is we've always liked the smaller spaces. 94% of our 1500 tenants occupy spaces less than 10,000 square feet. Those tenants make up 75% of our revenue, and that's very intentional for us. If you compare us to a number of the other public REITs, that percentage would be about 50% for them. It's 75% for us, so very much focused on small spaces. Really simple as to why: that's where the demand is today. If you look at a number of businesses, very few people are expanding their size. Everyone is trying to be more efficient and use their spaces in better ways. We continue to see the neighborhoods that surround our centers as a huge driver and a huge anchor. What we do is we obviously utilize technology to track movement of people, as well as our local knowledge, to try to match our tenants with the surrounding community. One trend we've seen that came out of the pandemic was that today people work virtually much more than ever before. So for Whitestone as an owner of neighborhood centers, we see people spend more time around their homes, and we're benefiting from that trend.
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Interviewer2:53
Now on your last earnings call, you mentioned quality of revenue. What does it mean?
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David Spagnolo2:58
Quality of revenue is very important to us. If we think about Whitestone being able to grow, raising our rental rates over time is very important, and that's strongly tied to the success of thriving businesses that drive traffic and grow. Today's environment for companies like Whitestone is as strong as I've ever seen. We operate in neighborhood retail centers. There's been very little supply built in our markets over the last 10 years. Despite me saying the current environment, I recently was at the International Council of Shopping Centers convention in Vegas last week, and there was a lot of talk about what's going on in the retail world. It continues to be very little product built for retail centers. So while the current environment is better than I've ever seen it before, I guess I would tell your listeners that I believe the environment is going to stay for a while.
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Interviewer3:53
Now Whitestone just went through a rough proxy contest. What did you learn from that?
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David Spagnolo3:57
I would say there are some really good things that came out of that. First of all, we spent a tremendous amount of time with all of our shareholders. I believe anytime that you are with your shareholders listening and engaging, that has beneficial outcomes. We believe that a number of the things that were claimed by the dissident were inaccurate and misleading. I've got other words that I'll choose not to use, but we believe they were not representative of what we've done. We've made a lot of progress over the last couple years, and we're going to continue to make progress. There was a lot of spaghetti thrown on the wall in this proxy contest, I would say. But we're not tone-deaf as a company. As we've engaged with shareholders, we know we've got to continue to perform, we've got to continue to get better, and look forward to some announcements for us in that area. As far as what we learned, I would say our team learned a lot. I think we learned a lot that I hope not to utilize anytime in the near future.
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Interviewer4:52
Okay, and finally Dave, tell me as you look ahead to the next 12 to 18 months, what's ahead for Whitestone?
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David Spagnolo4:58
I think we've got a really nice way ahead of us. When I think about how we're positioned, we have the right type of properties: open-air neighborhood centers. We have the right markets; we're in the markets that are growing and continue to be business friendly. Our momentum is really strong, and I believe that momentum as well as the macro environment is going to position us for a nice two or three years ahead. Additionally, we've got some other efforts that are going to contribute to Whitestone. We recently have won a couple litigation matters, and we're going to collect on those matters over the next few months. The collection of that will enable us to continue to improve our balance sheet and have a lower debt level, which many investors consider a key valuation criteria. We've got our debt locked down. Obviously we're in a rising interest rate market, we've got all that locked down. Our strong organic growth is really going to shine and come through over the next few years with the debt lockdown. We've got a great team. I'm really proud of the people we've put together at Whitestone. We are attracting new institutional investors who are beginning to notice what we're doing. All in all, I would say if you look at our 2024 earnings chart and you like it, I think you'll see a similar chart in 25 or 26 for us. The key is just to remain financially disciplined, to provide consistent growth, and that's absolutely what we intend to do.
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Interviewer6:23
All right, well Dave, it's been wonderful to talk with you. Thanks for joining me on Floor Talk today.
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David Spagnolo6:26
Thank you so much.