Interview With Whitestone REIT - Strong Buy Reaffirmed
Important Note
Before going into today’s article, I wanted to let you know that we will soon conduct interviews with the management teams of the following REITs:
Agree Realty Corporation (ADC)
VICI Properties (VICI)
Gaming and Leisure Properties (GLPI)
NewLake Capital Partners (OTCQX:NLCP)
Gladstone Land (LAND)
Canadian Net REIT (NET.UN:CA)
Let me know if you have any questions for them, and I will make sure to ask them for you. You can put your questions in the comment section below.
Thanks!
=============================
Interview With Whitestone REIT - Strong Buy Reaffirmed
We just recently shared our new investment thesis for Whitestone REIT (WSR), which you can read by clicking here.
I will not repeat all the details here, but in short, Whitestone has been one of our most successful investments in recent years. Under new leadership, it transformed from a conflicted, overleveraged REIT into a disciplined, high-quality operator focused on per-share value creation.
Leverage dropped from roughly 10x to just over 7x Debt-to-EBITDA, rents have surged as its Sunbelt properties became undersupplied, and management has guided for 3–5 % annual NOI growth through 2029. Its unique focus on small-format retail spaces has proven highly profitable, allowing frequent rent resets and minimal capex.
Despite these improvements, the market has not fully re-rated the stock. Whitestone trades at only ~11.5x 2025 FFO and about a 30% discount to our estimated $17 NAV, even after rejecting several buyout offers. As leverage continues to decline and the REIT keeps surprising the market with sector-leading growth, we expect meaningful upside ahead.
Whitestone remains a textbook example of a successful REIT transformation that still offers attractive long-term total return potential.
To better understand Whitestone’s transformation and its outlook, I recently sat down with the company’s CEO, Dave Holeman, for an in-depth discussion.
In the following interview, we explore how the management team reshaped the REIT, where they see growth opportunities ahead, and how they plan to continue unlocking value for shareholders.
In short, the interview reaffirmed our investment thesis and only strengthened our conviction. We maintain our Strong Buy rating on Whitestone REIT. We already own a sizable position, but we will not hesitate to buy more if and when the stock dips in the future.
1) You have taken a differentiated approach, focusing primarily on smaller properties with 1,500–3,000 square foot shops, rather than the big box retail assets many of your peers target. What led you to pursue this strategy, and what are its main advantages?
The company was built with this strategy in mind, focusing on the impact of e-commerce on bricks and mortar retail, tenant demand trajectory, and where the market was headed. It predates the turnaround that began in 2022 (which fixed things like execution and refocused the company on investors but was not a reset of the core strategy). Most service-based businesses don’t need big boxes, so having centers configured with smaller spaces sets you up to match demand for services from the surrounding neighborhood rather than relying on hard and soft goods, which is Amazon’s lane. There are numerous other advantages:
Paired with a shorter lease business model, allows for a frequent refresh of the tenant base, ensuring strong tenants that meet ever changing consumer behavior patterns and provides for more durable cash flows
Provided a REIT focuses on underwriting strong businesses, allows the REIT to move rents more quickly in times of higher inflation (this also better aligns the REIT with its debt maturities since many REITs do not have maturities that extend as far as their leases)
Requires less capital than big boxes
Allows the REIT to maintain better control of the real estate (national big boxes try to insert more restrictions into leases), enabling the REIT to better capitalize on opportunities or changes in the market
Provides greater diversification of risk with less concentration on large anchors
The strategy isn’t without its challenges. The biggest challenge is that this is high touch operationally and you need to develop the talent we have in order to make it successful. Leasing agents need to be able to understand neighborhood demographics, utilize technology like Placer.ai in order to match tenants to underlying demand, properly assess and underwrite businesses, frequently renew leases and understand trends in consumer demand. Whitestone’s moat isn’t just the type and location of the centers we own, but the business model designed to effectively operate those assets.
2) Some investors argue that these smaller properties are riskier because they are often leased to smaller regional tenants. How do you respond to that concern?
The evidence from the pandemic is decidedly in our favor. Our FFO per share dropped 8% between 2019 and 2020 (3rd best in the group). Kimco dropped 19%, Brixmor dropped 23%, Regency 24% and Federal dropped 29%. When the pandemic hit the national big box chains had a lot of power to lean on REITs and they did. More importantly, because we constantly review/refresh our tenants to ensure they’re matching surrounding demand, we don’t build up the same degree of weakness that our peers do. I would also note that while we performed well in the pandemic because of our base business model, we’re in a far stronger position than we were then. We’ve:
Cycled out of weaker properties and switched into properties with higher household incomes and better surrounding demographics (see our Acquisition / Disposition slide)
Utilized very strong demand over the past few years to be ever more aggressive in switching out tenants for stronger tenants that better serve the neighborhood
Moved our occupancy up 360 basis points (Q4 2019 v Q2 2025)
We get that having regional tenants without credit ratings makes it harder for investors to assess us on an apples-to-apples basis versus our peers. We have peers that are publishing just shy of 20% their portfolios with non-investment grade big box national tenants. Meanwhile, we’ve got strong regional or local non-graded tenants that are thriving and well received in the neighborhoods we operate in, like: Sun Wing Supermarket, Pvolve, The Picklr, Elvira’s restaurant, Bluestone Lane and on and on. As an investor, I would want to quiz any REIT management team on the strength of their underwriting process in terms of truly assessing a business’s ability to grow and not just relying on a credit rating.
3) Your latest investor presentation provides a 3–5% same-property NOI growth guidance through 2029. It is quite rare for REITs to provide multi-year guidance. What gives you the confidence to issue such a long-term outlook?
We’ve been very specific about the blocks that underpin our SS NOI growth assumption (Contractual Escalators, Leasing and Redevelopment). We know what we’ve proven we can do and we know the supply and demand fundamentals that will shape the road ahead. It’s not unusual for companies to issue longer-term guidance (look at guidance from publicly traded utilities).
I think it’s that our peers simply lack the organic growth to put out an attractive growth rate. We’ve got a few peers putting out longer term SS NOI growth, but I think there are only two of us putting out longer-term Core FFO per share growth (WSR & PECO).
4) You have already transformed Whitestone into a much stronger REIT, and the market has rewarded you with a higher valuation multiple. Even so, the stock still trades at a sizable discount to NAV. What are the next steps to continue improving the REIT and close that gap?
From larger institutional investors to quantitative funds to retail investors, we are of the belief that what makes a company attractive is consistent, steady growth. And by growth we mean as represented by growth in Core FFO per share.
There are a number of other things that will help improve our valuation: lower leverage, a larger market cap, improved liquidity and scaling our G&A, or fixed costs, as we grow revenue. However, as you think about all of those other things, know that our north star is consistent Core FFO growth and achieving what we’ve put in front of shareholders.
We’re not going to take a shortcut that achieves one of those other things at the expense of consistent Core FFO per share growth.
5) Historically, you have appeared reluctant to repurchase shares, even when trading at a significant discount to NAV. Other smaller REITs, such as BSR REIT, have successfully sold assets to fund accretive buybacks, increasing NAV per share, all else equal. Is this an approach you would consider if the discount persists?
Be assured that we are constantly looking for all ways to grow long-term shareholder value. Over the last few years we have committed to, and executed on, a significantly improved debt leverage profile.
This focus will continue but probably at a slightly reduced pace, given the great progress we have made, providing us additional options for allocating free cash flow. Regarding repurchasing shares, I wouldn’t rule anything out, but we have not announced a share repurchase program, which is the first step in buying back shares.
6) The latest buyout offer was for $15 per share, which you rejected, stating that it undervalued the company. By our estimates, your NAV is closer to $17–18 per share. Does that align with your own internal assessment?
Our board regularly reviews the company valuation utilizing 3rd party advisors and traditional valuation methods including FFO multiples, NAV, and a DCF model that ties to our strategic plan. We view this as a best practice as it grounds the board on valuation. We have 6 sell side analysts that cover the company and publish an NAV number regularly.
However, we and the vast majority of our peers don’t believe that companies publishing a “point in time” NAV estimate is helpful to investors due to the subjectivity and volatility of private market cap rates and the impact of future growth not being included in NAV. We believe it is more meaning for us to provide visibility into our future growth, as we have done with our long-term 5-7% FFO per share growth target and to keep our eye on delivering strong financial and operational results.
============================
Access Our Portfolios Via Google Sheets
Our three portfolios are available through Google Sheets. These sheets provide detailed information on position sizes, risk ratings, and key metrics to help you make well-informed investment decisions:
============================
Access Our REIT Market Intelligence Sheet
This exclusive tool includes a list of all equity REITs grouped by property sector, providing all the information you need to make better decisions: FFO multiple, dividend yield, payout ratio, credit rating, and much more.
============================
Access Our Portfolio Tracker
The HYL Portfolio Tracker is a Google Spreadsheet designed specifically for members of High Yield Landlord. It helps you track all your HYL investments in one place with a simple format. It is very easy to use, so don’t miss out on this free feature!
============================
Access Our Live Chat
Our live chat room is where the HYL community comes together to share market news, discuss investment ideas, and help new members get started. Members can post questions and receive prompt answers from other real estate investors and our team.
============================
Finally, feel free to contact us anytime. You can send me a direct message on the chat or email me at jaskola@leonbergcapital.com
Sincerely,
Jussi Askola
Analyst’s Disclosure: I/we have a beneficial long position in the shares of all companies held in the CORE PORTFOLIO, RETIREMENT PORTFOLIO, and INTERNATIONAL PORTFOLIO either through stock ownership, options, or other derivatives. High Yield Landlord® (’HYL’) is managed by Leonberg Research, a subsidiary of Leonberg Capital. All rights are reserved. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. The newsletter is impersonal and subscribers/readers should not make any investment decision without conducting their own due diligence, and consulting their financial advisor about their specific situation. The information is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The opinions expressed are those of the publisher and are subject to change without notice. We are a team of five analysts, each contributing distinct perspectives. Nonetheless, Jussi Askola, the leader of the service, is responsible for making the final investment decisions and overseeing the portfolio. We do not always agree with each other and an investment by Jussi should not be taken as an endorsement by other authors. Past performance is no guarantee of future results. Our portfolio performance data is provided by Interactive Brokers and believed to be accurate but its accuracy has not been audited and cannot be guaranteed. Our portfolio may not be perfectly comparable to the relevant index. It is more concentrated and may at times use margin and/or invest in companies that are not typically included in REIT indexes. Finally, High Yield Landlord is not a licensed securities dealer, broker, US investment adviser, or investment bank. We simply share research on the REIT sector.
