News Details

$25.4 Million in Acquisitions, Increased Occupancy, Solid Earnings Growth

Highlights

• Achieved record quarterly revenue of $8.8 million, in Q3 2011.
• Physical occupancy of operating portfolio at 86%, a 3% increase, year over year; 2% increase quarter over quarter.
• 15.0% year-over-year and quarter-over-quarter growth in Funds From Operations ("FFO")-Core to $2.3 million, or $0.18 per diluted common share and operating partnership unit.
• 8% year-over-year increase in quarterly property net operating income to $5.2 million in Q3 2011.
• Net income attributable to Whitestone REIT was $0.6 million, or $0.05 per diluted common share.
• Purchased two Arizona Community Centered Properties^TM below replacement cost for approximately $25.4 million.
• Invested approximately $50 million, including the cost to stabilize, in new acquisitions, totaling approximately 427,000 square feet of leasable area, since our IPO in August 2010.
• Under contract for an additional $28 million in acquisitions of Community Centered Properties^TM.

HOUSTON--(BUSINESS WIRE)-- Whitestone REIT (NYSE-Amex: WSR - "Whitestone" or the "Company"), a fully integrated real estate company that owns, operates and re-develops Community Centered Properties^TM, which are visibly located in established or developing culturally diverse neighborhoods, announced financial results for the quarter and nine months ended September 30, 2011. The supplemental operational and financial data package for the quarter ended September 30, 2011 can be found on the Company's website under the Investor Relations tab.

“We are pleased with our quarterly results reflecting growth in occupancy, revenues, NOI and FFO. Our business model, focused on Community Centered Properties^TM with smaller, community service oriented tenants, continues to gain traction. We have acquired six value-add properties at below replacement costs totaling $50 million since completing our initial public and follow-on offerings in the past 14 months, adding 427,000 square feet of service retail space. While we are already benefiting from centers we acquired during the third quarter, income from these most recent acquisitions will be included for the entire quarter beginning in the fourth quarter. Additionally, several key leases that we recently executed will significantly contribute to income growth next year. Further, a number of redevelopment projects initiated in our Houston, San Antonio, and Phoenix markets are expected to start contributing to our earnings growth,” said James C. Mastandrea, Whitestone's Chairman and Chief Executive Officer.

He added, “As we deploy the remaining capital from our public offerings, we also expect to benefit from our strong balance sheet with cash and debt available from our unsecured revolving credit facility, and begin to apply conservative leverage to purchase additional Community Centered Properties^TM. Our acquisition pipeline of off-market centers is currently in excess of $500 million in assets, sourced over several years, from financially distressed owners and/or regional bank foreclosures.”

“While there continues to be political and economic uncertainty in the country," Mastandrea concluded, “our focus remains on acquiring Community Centers that are 30,000 to 150,000 square feet in the largest markets and underserved communities within Houston, Dallas, and San Antonio, Texas; Chicago, Illinois; and greater Phoenix, Arizona. Our strategy of leasing to small-space service oriented tenants (occupying less than 3,000 square feet) is our mainstay, as it provides the Company a 57% rental premium per square foot as compared to our larger space tenants, and our downside risk is minimized, whereby no single tenant can impact our total revenues by more than 2%.”

A reconciliation of FFO, FFO-Core, NOI and EBITDA is included at the end of the financial tables accompanying this release.

The Company declared a quarterly cash dividend of $0.285 per common share and operating partnership ("OP") unit, payable in three equal installments of $0.095 in October, November and December 2011. The Company expects to declare its next quarterly dividend in December, payable in January, February, and March of 2012. Based on the closing price on November 4, 2011 of $11.67 per share, the dividend represents an annual yield of approximately 9.8%.

Acquisition Activity

In August, the Company announced the completed acquisitions of two “Class A” Community Centered Properties^TM in the Phoenix area, both at attractive cap rates and at prices below replacement cost:

• Ahwatukee Plaza Shopping Center in the Ahwatukee Foothills neighborhood, located in south Phoenix, Arizona. The Center, which contains 72,650 leasable square feet, is anchored by Gold's Gym along with other notable tenants including Ahwatukee Children's Theater, Millie's Hallmark, O'Reilly Auto Parts and a variety of other service providers.
• Terravita Marketplace located in North Scottsdale, Arizona. The Center, which contains 102,733 leasable square feet, is anchored by Albertsons 47,000 square foot grocery store along with other well recognized tenants including Walgreens, The Good Egg Restaurant, Bedmart and Wells Fargo. Subsequent to the acquisition, Sherwin Williams signed a new 10 year lease for 3,818 square feet.

Disposition Activity

During the quarter, the Company sold Greens Road Plaza, a non-core retail property in Houston, for $1.8 million in cash and net prorations, and plans to reinvest the proceeds in Community Centered Properties^TM.

Redevelopment and Repositioning Activity

• Lion Square-Houston: Teletron, a Vietnamese electronics store based in Los Angeles, signed a new lease for 17,500 square feet, with plans to open in the fourth quarter 2011. Renovation of the entire Asian themed Center, located in Houston's International Management District, will be completed in 2012. Other new tenants include Yan Li, who signed a new 1,040 square foot lease, and Loc Cao, who signed a new 4,360 square foot lease.
• Windsor Park Centre-San Antonio: Whitestone, in cooperation and partnership with the City of Windcrest, repositioned and re-tenanted the Center, which was initiated with the University of Phoenix. When former tenant Circuit City filed for bankruptcy, the physical occupancy at this Center declined to less than 60%. The first phase of renovation at this Center, replacing the entire façade, is underway, and the property is expected to be fully leased by the end of the first quarter 2012. During the third quarter, Ross Dress For Less signed a new 10 year lease for 25,000 square feet and Mattress Firm signed a new lease to develop a 4,000 square foot building on a pad site. Subsequent to the quarter, SKECHERS signed a new lease for 10,000 square feet.

Leasing Highlights: Third Quarter 2011 Compared to Third Quarter 2010: The Company's physical occupancy of its Operating Portfolio was 86% as of September 30, 2011, up 2% from the end of the second quarter at June 30, 2011 and up 3% from 83% as of September 2010. The Company defines Operating Portfolio as all properties excluding (1) new acquisitions through the earlier of (i) attainment of 90% occupancy or (ii) 18 months of ownership, and (2) properties which are undergoing significant redevelopment or re-tenanting. Total physical occupancy, including all properties, was 84% as of September 30, 2011.

The Company's strong leasing activity during the third quarter of 2011 was represented by:

• 152,000 square feet in new and renewal leases signed;
• $5.3 million in new and renewal lease value signed; and
• 67 new and renewal leases signed.

Community Centered Properties^TM Portfolio Statistics

Whitestone currently owns 41 Community Centered Properties^TM with approximately 3.4 million square feet of leasable space located in five of the top markets in the USA in terms of population growth: Houston, Dallas, San Antonio, Phoenix and Chicago.

The Company's strategic efforts target entrepreneurial tenants who provide services to their respective surrounding community. These tenants tend to occupy smaller spaces (less than 3,000 square feet), and as of September 30, 2011, provide a 57% premium rental rate compared to Whitestone's larger space tenants. The Company currently services 850 tenants. No single tenant accounted for more than 2% of the Company's annualized revenue as of September 30, 2011.

Balance Sheet

Whitestone maintains liquidity and financial flexibility through cash balances, unmortgaged properties, and availability under its credit facility. The Company has no amounts drawn under its $20 million unsecured credit facility and also has available 17 unencumbered properties as of September 30, 2011. The 17 unencumbered properties have an undepreciated cost basis of $96 million as of September 30, 2011. Whitestone's total undepreciated value of real estate assets and indebtedness were $241 million and $102 million, respectively, as of September 30, 2011.

The Company has no real estate debt maturing prior to October 2013, and as of September 30, 2011, 76% of the Company's total indebtedness was fixed-rate debt. The blended interest rate for the Company's debt was 5.6% as of September 30, 2011. For the third quarter of 2011, the Company's interest coverage ratio (EBITDA/Interest Expense) was 3.0:1.

Supplemental Financial Information

Further details regarding Whitestone REIT's results of operations, Communities and tenants can be accessed at the Company's website at www.whitestonereit.com.

Webcast and Conference Call

The Company will host a webcast and conference call for investors and other interested parties on Monday, November 7, 2011 at 5:00 p.m. (Eastern Time). The call will be hosted by James C. Mastandrea, Chairman and Chief Executive Officer, and David Holeman, Chief Financial Officer.

Interested parties can listen to the call live on the internet through the Investor Relations section of the Company's website, www.whitestonereit.com, using the News/Events - Press Releases tab. The call is also accessible via telephone by dialing 1-(888) 293-6979 for domestic participants or 1-(719) 325-2313 for international participants. Listeners should go to the website at least 15 minutes prior to the call to download and install any necessary audio software. Those dialing in should call in at least five to ten minutes prior to the start.

The conference call will be recorded and a telephone replay will be available through November 21, 2011, by dialing 1-(877) 870-5176 for domestic participants or 1-(858) 384-5517 for international participants and entering the passcode 4554536. Additionally, a replay of the call will be available on the Company's website until its next earnings release.

The earnings release and supplemental data package will be located in the Investor Relations section of the website on the News/Events - Press Releases tab. For those without internet access, the third quarter 2011 earnings release and supplemental data package will be available by mail upon request. To receive a copy, please call the Company's Investor Relations line at (713) 435-2221.

About Whitestone REIT

Whitestone REIT (NYSE-Amex: WSR) is a fully integrated real estate company that owns, operates and re-develops Community Centered Properties^TM, which are visibly located properties in established or developing culturally diverse neighborhoods. Whitestone focuses on value-creation in its Community Centers, as it markets, leases and manages its centers to match tenants with the shared needs of surrounding neighborhoods. Operations are structured for providing cost-effective service to local service-oriented smaller space tenants (less than 3,000 square feet). Whitestone has a diverse tenant base concentrated on service offerings including medical, education and casual dining. The largest of its 850 tenants comprises less than 2% of its rental revenues. Headquartered in Houston, Texas and founded in 1998, the Company is internally managed with a portfolio of commercial properties in Texas, Arizona and Illinois. For additional information about the Company, please visit www.whitestonereit.com. The Investor Relations section of the Company's website has links to SEC filings, news releases, financial reports and investor newsletters.

Forward-Looking Statements

Certain statements contained in this press release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including earnings guidance for the third fiscal quarter. We intend for all such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable. Such information is subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology, such as "may," "will," "expect," "intend," "anticipate," "believe," "continue" or similar words or phrases that are predictions of future events or trends and which do not relate solely to historical matters. Examples of such statements in this press release include, but are not limited to, the strength of the Company's leasing portfolio and lease renewal activities, and the Company's anticipated net income, depreciation and amortization and FFO-Core.

The following are some of the factors that could cause the Company's actual results and its expectations to differ materially from those described in the Company's forward-looking statements: the Company's ability to successfully identify and consummate suitable acquisitions; current adverse market and economic conditions; lease terminations or lease defaults; the impact of competition on the Company's efforts to renew existing leases; changes in the economies and other conditions of the specific markets in which the Company operates; economic and regulatory changes; the success of the Company's real estate strategies and investment objectives; the Company's ability to continue to qualify as a REIT under the Internal Revenue Code; and other factors detailed in our most recent Annual Report on Form 10-K, quarterly reports on Form 10-Q and other documents we file with the Securities and Exchange Commission.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. We cannot guarantee the accuracy of any such forward-looking statements contained in this press release, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Non-GAAP Financial Measures

This release contains the supplemental non-GAAP financial measures of FFO, FFO-Core, NOI and EBITDA. Following are definitions and reconciliations of these metrics to their most comparable GAAP metric.

FFO: Management believes that FFO is a useful measure of the Company's operating performance. The Company computes FFO as defined by the National Association of Real Estate Investment Trusts, or NAREIT, which states FFO should represent net income (loss) available to common shareholders (computed in accordance with GAAP) plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments for unconsolidated partnerships and joint ventures and excluding gains or losses on the sale of operating real estate assets and extraordinary items. FFO does not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an alternative to net income as an indication of the Company's performance or to cash flow from operations as a measure of liquidity or ability to make distributions.

Further, other REITs may use different methodologies for calculating FFO, and accordingly, the Company's FFO may not be comparable to other REITs. The Company presents FFO per diluted share calculations that are based on the outstanding dilutive common shares plus the outstanding OP units for the periods presented. Management considers FFO a useful additional measure of performance for an equity REIT because it facilitates an understanding of the operating performance of its properties without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, management believes that FFO provides a more meaningful and accurate indication of the Company's performance and useful information for the investment community to compare Whitestone to other REITs since FFO is generally recognized as the industry standard for reporting the operations of REITs.

FFO-Core: Management believes that the computation of FFO in accordance with NAREIT's definition includes certain items that are not indicative of the results provided by the Company's operating portfolio and affect the comparability of the Company's period-over-period performance. These items include, but are not limited to, legal and professional fees, gains and losses on insurance claim settlements and acquisition costs. Therefore, in addition to FFO, management uses FFO-Core, which we define to exclude such items. The Company believes that these adjustments are appropriate in determining FFO-Core as they are not indicative of the operating performance of the Company's assets. In addition, the Company believes that FFO-Core is a useful supplemental measure for the investing community to use in comparing the Company to other REITs as most REITs provide some form of adjusted or modified FFO.

NOI: Management believes that NOI is a useful measure of the Company's property operating performance. The Company defines 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, the Company's NOI may not be comparable to other REITs. Because NOI excludes general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes and gain or loss on sale or disposition of assets, 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. The Company uses NOI to evaluate its operating performance since NOI allows the Company to evaluate the impact that factors, such as occupancy levels, lease structure, lease rates and tenant base, have on the Company's results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about the Company's 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 the Company's overall financial performance since it does not reflect general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes, gain or loss on sale or disposition of assets, and the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company's properties.

EBITDA: Management believes that EBITDA is an appropriate supplemental measure of operating performance to net income attributable to the Company. The Company defines EBITDA as operating revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real estate taxes) and general and administrative expenses. Other REITs may use different methodologies for calculating EBITDA, and accordingly, the Company's EBITDA may not be comparable to other REITs. Management believes that EBITDA provides useful information to the investment community about the Company's operating performance when compared to other REITs since EBITDA is generally recognized as a standard measure. However, EBITDA should not be viewed as a measure of the Company's overall financial performance since it does not reflect depreciation and amortization, involuntary conversion, interest expense, provision for income taxes, gain or loss on sale or disposition of assets, and the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company's properties.

⁽¹⁾ Including amounts from discontinued operations.

⁽¹⁾ Including amounts from discontinued operations.

Whitestone REIT
Anne Gregory, (713) 435 2221
Vice President Marketing & Investor Relations
ir@whitestonereit.com

Source: Whitestone REIT