Regional Senior Vice President of Dallas & Austin, WHITESTONE REIT
Whitestone (WSR) CEO On Open-Air Retail Centers
Whitestone (WSR) is a community-centered REIT that acquires, owns, operates, and develops open-air retail centers. CEO, Dave ...
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 (9 segments)
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Host0:01
Senior markets correspondent. All right. Time to spotlight real estate in a different way. The Sun Belt in particular, from Houston to Phoenix, Dallas to San Antonio. Our next guest properties can be found all over that space. Dave Holman is with us, CEO of Whitestone REIT. Thank you for being with us. You're somebody who could tell us a lot about what's going on in the real estate space as we work through this struggling thing. What's a company like yours doing right now?
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David Spagnolo0:29
Well, Nikola, it's a pleasure to be with you this morning and excited to share a little bit about Whitestone. Just a couple things that differentiate Whitestone would be our focus on geography. You mentioned we're 100% Sunbelt and fast-growing markets. And then we focus on really supporting the communities that our properties operate in, largely services and necessities. So we continue to see really positive demand in our properties and in our markets. We're also seeing historically low supply levels, which benefit us and others in our sector.
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Host1:12
When we talk about some of these properties, I see El Dorado Plaza, Fountain Square, and Anderson Arbor. How are you finding those who are renting from you? Are they paying on time? Is it very different than the time of COVID now?
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David Spagnolo1:29
Very, very important. If you think about our sector, for a number of years it was large retailers and big box centers selling hard goods and soft goods. A lot of changes with e-commerce and the impact on brick and mortar. Whitestone focuses on neighborhood centers and services. So if you think about the places you frequent regularly, maybe your gym, maybe your favorite restaurant, we're seeing those businesses still do very well. One of the things that separates Whitestone is we're a little bit more of a local operator. We love to get into a community, find out who are the best in certain categories, and look to populate our centers with those businesses. So it's very much an active, hands-on approach, a little bit different than others in our sector. We also have smaller spaces. I think we've all seen in the headlines that businesses operate more efficiently, use less square footage. Whitestone has spaces that are typically smaller and in greater demand, and we've seen a tremendous amount of need for that product.
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Host2:35
Yeah. You came out with your quarterly report. You had to cut the guidance a little bit. Tell us a little bit about the quarter. You have many proud moments of the last quarter and the guidance going forward. Explain what's going on there.
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David Spagnolo2:53
Sure. Whitestone had a very good quarter. I would highlight it by probably the most important metric I would tell you for someone in our area, which is tenant demand. We saw our occupancy in our centers up year over year about 20 basis points. We've been able to grow our rent levels by a little over 5% annually. And then our organic growth is very strong. So really pleased with the fundamental performance of the business. However, we, like others, have seen the impact of higher interest rates. Whitestone has long-term debt, most of it at fixed rates, so we're not that subject to increasing rental rates. But that has been a headwind on our results this year. And accordingly, we adjusted our guidance because of that higher interest rate earlier in the year. We are very positive about 2023 as we head into the holiday season. I think we're excited about closing the year in a strong fashion. Lots of demand in our centers. Our centers are populated. Our biggest category is restaurants, and we continue to see people, especially younger folks, eating out more often than ever before. Probably the biggest competitor to grocery stores, I would say, is the restaurant business.
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Host4:12
Yeah, understood. And you mentioned the high rate environment. What are your thoughts on just some big picture, if people were asking you about commercial real estate here on the East Coast in New York, for example, or housing prices? Maybe there were too many multifamily homes built and not enough single family homes. Do you have some big picture comments on housing or other types of commercial real estate?
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David Spagnolo4:42
Sure. I would say that I believe in the headlines. People lump commercial real estate all into one category. Very, very important that you understand the fundamentals of real estate because it's very different. Strong believer in migration trends. So we have focused exclusively on the areas of the country that are growing. I think we are probably topping out on the interest rates, and real estate should benefit as rates stabilize and decrease. And I think everyone is looking forward to a decrease in consumer spending. We're not seeing it at this point. But Whitestone is very well positioned with a little bit more landlord-friendly leases to be able to react in a changing environment and then maybe in a little harder landing. So I think at the macro level, I'm a strong believer in the fundamentals that we've adopted, which are to continue to focus on convenience. We believe that's a key driver for consumers, necessities, Sun Belt, and then the size of our spaces I think is important. I think you're going to continue to see retailers pull back on their space size and become more efficient. As far as overall thoughts on the overall economy, I'll leave that maybe to someone at a higher pay grade, but I think we feel very good about our position.
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Host6:09
Look, it's nice to hear what you're saying about the trends you're seeing, the consumer spend maybe not really pulling back in the way that some people are seeing, and maybe that rates are topping out. Those were some of your ideas you just mentioned, David. It's great to chat with you. Thank you for the big picture. And looking forward to that end of the year, right?