Updated on December 17th, 2020 by Ben Reynolds
Whitestone REIT (WSR) has three appealing investment characteristics:
#1: It is a REIT so it has a favorable tax structure and pays out the majority of its earnings as dividends.
Related: List of publicly traded REITs
#2: It is a high yield stock based on its 5.1% dividend yield.
Related: List of 5%+ yielding stocks
#3: It pays dividends monthly instead of quarterly.
Related: List of monthly dividend stocks
You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter like dividend yield and payout ratio) by clicking on the link below:
Whitestone REIT’s trifecta of favorable tax status as a REIT, a high yield, and a monthly dividend make it appealing for individual investors.
And, Whitestone REIT ranked first in year-over-year Black Friday foot traffic recovery at 80% as compared to the overall public shopping center industry average of 48%.
But there’s more to the company than these factors. keep reading this article to learn more about Whitestone REIT.
Whitestone is a commercial REIT that acquires, owns, manages, develops and redevelops properties it believes to be e-commerce resistant in metropolitan areas with high rates of population growth.
Its properties are located primarily in the southern United States in areas it sees as having favorable demographics, such as income and economic growth. The trust’s properties are mostly in Phoenix and Houston, with smaller allocations to other major cities in Texas.
The company’s acquisition criteria includes community-centered properties that are visibly located in developing and diverse areas.
Source: Investor Presentation, page 6
Properties are typically in the 50,000-200,000 square foot range, and from $5 million to $180 million in cost.
Whitestone believes its investment properties are “e-commerce resistant” because they are go-to destinations that provide necessary goods. Moreover, the company believes these are products and services that are not readily available online. In fact, Whitestone sees itself as the least susceptible to online replacement among its peer group.
This has proven beneficial during the time of COVID-19. Whitestone collected 90% of its billed recurring rents in Q3 2020, and 92.4% in November 2020.
These properties are located in densely-populated, high-income areas, which are experiencing strong growth. The image below would likely look even more impressive if cost of living were factored in as the company’s properties tend to be in lower cost of living areas relative to prominent East and West coast metropolitan areas.
Source: Investor Presentation, page 7
Whitestone is well in excess of both peer and national averages when it comes to the household income in the communities in which it invests.
Going forward, the company will continue its acquisition strategy to fuel future growth.
Whitestone’s growth strategy is centered around:
- Investing in locations with solid population growth
- Acquiring properties that are mismanaged, overleveraged, or in forclosure or receivership
- Enhancing value property
From 2012 through 2015 Whitestone acquired 2.465 million square feet of gross leaseable area. From 2016 through 2019 Whitestone acquired 0.778 million square feet of gross leasable area.
The decline in acquisitions is due in part to a focus on deleveraging. The image below shows the company’s deleveraging goals and progress.
With further deleveraging anticipated it’s likely that Whitestone REIT continues with its modest acquisition pace of the last 4 years through 2023.
Whitestone’s value enhancement approach can be seen with its flagship BLVD Place property.
Whitestone has worked to increase value in the property. As an example, the company’s management has added a roof top cinema to the property.
Whitestone has managed to significantly grow its assets over time. Assets increased from $196 million in fiscal 2010 to $1,056 million in fiscal 2019.
While the business has grown, financing through issuing additional units has diluted away much of this growth for shareholders. Distributions per unit (equivalent to dividends per share for a common stock) remained unchanged at $1.14 per year from fiscal 2011 through fiscal 2019.
Whitestone’s current focus on deleveraging coupled with a distribution growth history that was flat for nearly a decade (before COVID-19 hit) means growth expectations are low for Whitestone.
And, the distribution was cut significantly this year due to COVID-19 (more on that in the Dividend Analysis section later in this article).
We conservatively have a 5 year forward estimated growth rate of 0.0% for Whitestone REIT. This growth estimate is off of fiscal 2019’s FFO/unit of $0.90, not our temporarily depressed (due to COVID-19) fiscal 2020 FFO/unit estimate of $0.77.
Dividend & Valuation Analysis
Whitestone REIT reduced its monthly dividend from $0.095 to $0.035 starting with the April 2020 payment. The company’s reasoning was as follows:
“In further pursuit of ensuring the financial flexibility of Whitestone, Whitestone’s Board of Trustees (the “Board”) determined to conserve additional liquidity by reducing its dividend in response to the COVID-19 pandemic.”
The reduction was expected. Whitestone’s distribution has long been higher than FFO. A reduction during COVID-19 was both prudent and necessary. Whitestone has maintained its $0.035 monthly distribution since April 2020.
The distribution looks secure going forward. Adjusted FFO from the company’s most recent quarterly report (Q3 2020) shows adjusted FFO per unit of $0.23. This equates to a payout ratio of just 39.8%, which is especially low for a REIT.
With such a low payout ratio, we believe the distribution will very likely increase significantly from its current low based over the next several years. There’s room for the distribution to safely double without growth on a per unit basis.
Whitestone REIT currently has a 5.1% yield. Additional distribution growth would only enhance investor’s yield on cost.
The REIT is currently trading for just 9.0x its fiscal 2019 FFO. The company’s 5 year historical multiple was a bit below 14x.
But with years of stagnation on a per unit basis and a recent distribution reduction, we conservatively forecast a fair value price to FFO of 12.0 for Whitestone
Note: This value will be reflected in the next Sure Analysis report on the company.
Based on this, Whitestone REIT is trading for 75% of its fair value at current prices. If the REIT were to see its valuation multiple rise to 12 over the next 5 years, this would add 5.9% percentage points to expected total returns.
With a 5.1% distribution yield and expected valuation multiple returns of 5.9%, Whitestone REIT offers investors 10%+ expected total returns.
And this is without any increase in the distribution over the next five years. We believe distribution increases are likely in the medium term because Whitestone REIT’s payout ratio is so low for a REIT currently.
The security has shown it can continue to pay shareholders at this new lower distribution rate even during COVID-19. The monthly dividends are a bonus for investors looking for income. And, the low valuation should appeal to value investors.