Whitestone REIT Aktie

Greetings, and welcome to the Whitestone REIT Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce David Mordy, Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining Whitestone REIT's Fourth Quarter 2025 Earnings Conference Call. Joining me on today's call are Dave Holeman, Chief Executive Officer; Christine Mastandrea, President and Chief Operating Officer; and Scott Hogan, Chief Financial Officer.

Please note that some statements made during this call are not historical and may be deemed forward-looking statements. Actual results may differ materially from those forward-looking statements due to a number of risks, uncertainty and other factors. Please refer to the company's earnings news release and filings with the SEC, including Whitestone's most recent Form 10-Q and 10-K for a detailed discussion of these factors. Acknowledging the fact that this call may be webcast for a period of time, it is also important to note that this call includes time-sensitive information that may be accurate only as of today's date, February 26, 2026. The company undertakes no obligation to update this information.

Whitestone's fourth quarter earnings news release and supplemental operating and financial data package have been filed with the SEC and are available on our website in the Investor Relations section. We published fourth quarter 2025 slides on our website yesterday afternoon, which highlight topics to be discussed today.

I will now turn the call over to Dave Holeman, our Chief Executive Officer.

Thank you, David. Good morning, and thank you for joining Whitestone's Fourth Quarter 2025 Earnings Conference Call. I'll get right into the key results and then spend a little time on our long-term focus.

For 2025, we delivered $1.05 core FFO per share. This is up from $0.86 in 2021, which was the year prior to my appointment as CEO and reshaping of the leadership team. This represents a 5% CAGR, and we did that while strengthening our balance sheet as evidenced by our debt-to-EBITDA metric improving from 9.1x for the full year 2021 to 7.0x for the full year 2025. In addition, we overcame interest rate headwinds with an $0.11 per share step-up in interest expense between 2022 and 2023.

Given that we have interest rates fixed on the bulk of our loans and minimal debt maturities until 2029, one of the strongest leasing environments I have ever seen and a great team, we have very good visibility into the next 3 years and are very confident in our ability to generate long-term 5% to 7% core FFO per share growth.

Today, we'll talk about some non-FFO benefits we plan on delivering for investors, primarily gaining scale and enhancing the long-term value of our real estate, but know that delivering consistent core FFO growth is our north star.

For 2025, we delivered 4% same-store NOI growth. We delivered this through a combination of strong contractual escalators in excess of 2%, leasing success with straight-line leasing spreads in excess of 19% and targeted redevelopment with projects typically delivering double-digit yields. We're issuing same-store NOI growth guidance of 3% to 4.75% for 2026, and we expect to deliver with the same combination of drivers that allowed us to deliver in 2025.

During the fourth quarter, we acquired World Cup Plaza in Plano, a highly affluent Dallas submarket and one where we are gaining synergies from our concentration of properties there, with World Cup Plaza in close proximity to our Starwood and Lakeside properties.

In addition, in the fourth quarter, we acquired Ashford Village, anchored by Houston's largest Japanese grocer and in close proximity to the Ashford Yard development, a mixed-use project currently underway on the former Schlumberger campus. We also disposed of Kempwood Plaza, another of our legacy properties during the fourth quarter. Kempwood Plaza is located in Houston.

Whitestone's acquisition and disposition strategy is designed around identifying and then remaining cognizant of the gap between neighborhood strength and the tenant strength. We identify properties where that gap is significant and then our leasing team goes to work to close that gap. If we feel that, that gap no longer exists, especially if it is the result of a neighborhood demand growth slowing, a property becomes a candidate for disposition.

You may notice we've significantly increased our Green Street TAP score over the past 4 years, which is an indication that we're going after higher-end neighborhoods with greater discretionary spending capability. We anticipate this will serve investors well in various economic cycles, and it's more manageable as we scale. However, the biggest value to be gained is not because of the overall level of our TAP score, but rather our ability to identify and acquire properties where we can improve a tenant base that lags that TAP score.

Over the past 3 years, we've acquired approximately $213 million in properties, which provides our leasing team with great opportunities to generate earnings growth. We're capable of increasing that volume handled both by our acquisitions and our leasing teams, and we'll look for ways to increase that volume while achieving both our core FFO per share long-term growth target and continuing to strengthen our balance sheet with continued improvement in our debt-to- EBITDAre ratio.

Our focus on shop space delivers 2 additional primary benefits. Shop space requires less capital spend versus the bigger boxes, allowing us to deliver same-store NOI growth while being at the low end of the spectrum on capital spending. In addition, when paired with robust tenant selection and underwriting, our nearly 1,500 tenants provide greater durability of cash flow and greater risk dispersion.

Supply/demand conditions within our footprint remains strong with a limited supply of neighborhood centers coming on to the market and with demand continuing to increase. Foot traffic to our centers was up 3.9% year-over-year, and our leasing pipeline remains robust.

Our team remains very engaged in looking at ways to generate shareholder value and continue to outperform the market the way we've done over the last several years.

With that, I'll turn things over to Christine to share more specifics on results and our focus on increasing the value of our real estate. Christine?

Good morning. We delivered strong consistent results for 2025. We hit a record occupancy of 94.6% and delivered same-store NOI growth of 4% for the year. Combined straight-line leasing spreads for the fourth quarter were 18.2%, 25.9% for new leases and 16.6% for renewals. This is our 15th consecutive quarter with leasing spreads in excess of 17%.

One of the key initiatives this management team focused on immediately after the 2022 transition was our quality of revenue initiative, pushing to make sure that we have high-quality, fast-growing businesses throughout the portfolio. We're already renewing many of the leases from 2022 and re-leasing rates we are achieving are a testament to the strength of businesses we matched to the neighborhoods that surround our centers. Our consistently high leasing spreads reveal the competitive advantage of our model and the expertise of our leasing team.

We drove bad debt down to 0.55% for 2025, less than half the rate versus the years prior to the pandemic. Getting down to these levels represent a combination of our tenant selection, our underwriting and the expectation we set with our tenants. We believe we have one of the lowest bad debt levels for shop space across the peer set.

Over the past 4 years, we've set out to prove that our geography and focus on actively managing a very high percentage of shop space allows us to outperform our larger peers. Accordingly, we focused a lot on the annual financial metrics and continuing to deliver for investors on those metrics. This morning, I want to stress that delivering those results go hand-in-hand with a strategy that is enhancing the long-term value of our real estate.

We have a plan for every property in our portfolio, and the plan for each property incorporates anticipated demographic changes and expected nearby urban development with a re-contracting plan that is designed to bring tenants up to speed with the demand generated by the surrounding neighborhood.

When we acquire properties, we look for properties with a large delta exists between the strength of the neighborhood and in-place tenants. Earnings growth has accelerated as we close the gap. Let me be clear, we're able to close that gap more quickly and effectively as a result of how we do business because of the team we built. At times, redevelopment is a tool to help close the gap. But the overarching goal in terms of long-term value creation is upgrading the tenant base to match the neighborhood to successfully serve our customers and our clients.

A prime example of pursuing a property plan and creating value is Heritage Trace Plaza in Fort Worth. We purchased Heritage Trace in 2014, recognizing the rapid growth of the Alliance Corridor in North Fort Worth. In 2022, H-E-B, the second largest private employer in Texas and a grocer of the most dominant brand loyalty in the state announced they are opening an H-E-B across some Heritage Trace. H-E-B made this decision in large part because of the increasingly dense concentration of young upwardly mobile families in the area, something we discovered early on when we acquired the property.

Accordingly, we refocused our plan for the center in order to take advantage of the increased traffic from H-E-B as well as the demographic changes that were taking place in the neighborhood. The center developed a very strong traffic from parents returning home from work. Consequently, we took back a larger space in 2024 from a challenged fitness studio that have been in the center since acquisition and created 7 spaces in its place. Six out of 7 of those spaces were leased immediately in 2025, doubling the base rental rate for the space at approximately $34 per square foot. Overall, we anticipate it will increase the center's NOI by 30% between 2022 to 2026.

Our work is nowhere near done, as we've got nearly 50% of the center's leases come due within the next 3 years. And we will continually review each and every tenant to ensure they're keeping up with the speed of the growth in the area and the demography it represents.

As I said, this type of plan exists for every center in our portfolio, whether it's upgrading the type of restaurant and space, creating a pad when there's none that existed before or moving and increasing the visibility of a key space in the center or such as setting up rooftop pickleball as we relentlessly pursue enhancing the value of our centers.

Two acquisitions I'll call out that have rapid development similar to Heritage Trace are Arcadia Towne Center in Phoenix and Garden Oaks in Houston. Arcadia is anchored by the Paradise Valley, one of the 50 wealthiest suburbs in the United States with home values increasing at double-digit rates. The former Paradise Valley Mall is being redeveloped into a $2.2 billion mixed-use development, and Arcadia is not only anchored close to Paradise Valley, growth is spreading and developing the center.

The Tempe waterway and the bike trail pass by the backside of Arcadia, and we anticipate creating a pad site that will capitalize on associated traffic in the neighborhood. Similarly, in Houston, Garden Oaks is benefiting from the expansion of the Heights redeveloped as Houston Heights recognize the value of larger plots of land in the area with excellent proximity to downtown for work.

Rapid development occurring on Shepherd Drive is expanding northward and Target anticipates opening a new store next to Garden Oaks in early 2027. We're evaluating pad site options and tenant candidates for that pad as well as remerchandising that center.

Let me expand a bit on the record 94.6% occupancy we hit at the end of 2025. This included very strong activity right up to the end of the year. When I say that, I mean I signed a lease at 11:23 p.m. on the 31st.

Our redevelopment CapEx in 2025 was approximately $5 million with redevelopment projects complete at Williams Trace, La Mirada and Lion Square. We've added redevelopment projects to the list, including at Garden Oaks, and so we'll have a multiyear forecast of $20 million to $30 million in redevelopment spend in addition to the pads that we add every year. Last year, we added several pads. We anticipate continuing to do that over the next few years. We will look to accelerate some of that work, and so we'll estimate the time frame for that spend over the next 3 years.

I'd like to thank the leasing, redevelopment and property management teams for everything they delivered in 2025. Our teams continue to elevate the performance every year, sharpening their plans for our center, adapting to change and making sure our tenants see the value in operating from a Whitestone property. Their success is our success.

In addition, the hard work not only allowed us to deliver in 2025, but lines up the company for continued growth in the years ahead. Scott?

We delivered very strong results for both the fourth quarter and for the year. We delivered $1.05 in core FFO per share versus $1.01 in 2024, representing 4% growth. In 2024, we had above-average termination fees, which is part of the reason we grew core FFO per share by 11% in 2024.

Those termination fees were at a normal level for 2025, $0.02 less than 2024. The by-quarter breakdown for 2025's core FFO was $0.25, $0.26, $0.26 and $0.28. That's about what we anticipated in terms of seeing growth during the year with some additional revenues in Q4, including percent of sales clauses that typically help accelerate things in the fourth quarter. You should anticipate a similar distribution in 2026.

We delivered same-store NOI growth of 3.8% for the fourth quarter and 4% for the full year. Our 3% to 4.75% same-store NOI growth forecast is a ground-up tenant-by-tenant forecast for 2026 that incorporates what we're seeing in terms of macroeconomic conditions.

Meanwhile, the longer 3% to 5% growth is based upon what we've been able to achieve historically and incorporates the longer-term benefits of redevelopment projects we have underway. Same-store NOI growth is the primary driver for our core FFO per share growth and gives us the confidence to lay out our 5% to 7% growth target in 2026 and the longer-term.

Occupancy came in at 94.6%. And as a reminder, we only include tenants in our occupancy when they take possession, not when the contract is signed. Both our process and our heavier mix of shop space tenants equates to a much lower signed not open list, and we view the quicker turnaround as one of our competitive advantages. This is record occupancy for Whitestone, and we were able to move it to that level by having a long-term vision for our properties rather than taking short-term occupancy wins.

Christine covered our redevelopment capital. We've underwritten double-digit unlevered IRR on those outlays, and we generally view the redevelopment as low-risk, high-return investments.

On the balance sheet front, we finished the year with debt-to-EBITDAre at 7x despite acquisitions being greater than dispositions in 2025 by approximately $56 million. In terms of Whitestone's liquidity, we have $7.4 million in cash and $220 million available under the credit facility.

In 2025, cash flow from operations was $50.8 million and dividends were $27.8 million, leaving strong cash flow after dividends to fund growth. We have no maturities in 2026 and $80 million in maturities in 2027. So we have a very clear runway in terms of our need to access the debt markets over the next 2 years.

We've increased our dividend by 5.6% for the first quarter of 2026. Our intent is to continue growing the dividend in line with core FFO growth. Whitestone's dividend remains one of the most secure, highest growing dividends within the peer group, and we believe we have the right plan in place to continue the growth trajectory while maintaining our payout ratio.

And with that, we'll open the line for questions.

[Operator Instructions] Your first question comes from Mitchell Germain with Citizens.

You guys had the final settlement with Pillarstone in the back part, I guess, is the kind of last week of the year. Just maybe kind of talk about how that payment impacted your balance sheet and what are the different puts or takes we need to be aware of in terms of maybe pro forma, what changes occurred so late in the year?

Mitch, it's Scott. We -- day 1, we took those proceeds. We paid down the credit facility. And going forward, we'll evaluate acquisitions and dispositions as the opportunities become available. So I would think about it as just an improvement to the balance sheet improvement to leverage on day 1. And then as we always do, we'll make capital allocation decisions based on the opportunities as we proceed through '26, '27 and beyond.

Got you. Okay. What's G&A guide for the year?

Mitch, it's Dave. So make sure I understood your question. What the -- could you say that one more time?

G&A, for -- you didn't include that in your guidance this year. Historically, you have. Any idea of kind of where things can shake out over the course of 2026?

Sure. I think we just -- obviously, if you look at the guidance we give and the underlying metrics. I think we've just continued to redeem that a little bit. But I think you should expect G&A to be similar levels. No major changes there other than normal course. I don't know if Scott wants to add anything. But there always is with G&A, some volatility with certain items like legal costs. But right now, we expect a similar G&A level with normal kind of cost of living increase probably.

Yes, Mitch, we just haven't been as granular as our earnings have become more predictable. And so I would expect a similar level with some kind of CPI increase.

Got you. Okay. Last one for me. Obviously, in line quarter, so congrats with that. Your guidance was $1.03 to $1.07. Your result came in at the low end of that range. But all of the various assumptions that you provided same-store occupancy, G&A, interest, you kind of hit the midpoint on all of them.

So -- and I recognize your comments, Scott, about the cadence of earnings per share increasing as the year went on. But what's -- is $0.28 like the starting point now? Is it kind of -- are we growing from that level? Or is it really some of the occupancy came on late quarter and you didn't really get the full benefit of that? I'm just trying to understand about how we should be thinking about kind of 1Q and beyond.

You lost me a little bit there, Mitch, because you -- it sounded like you were talking about the '25 guidance coming in at the low end. And I think we came in at the midpoint of $1.05, and the '26 guidance is $1.10 to $1.14. Did I not understand...

No, actually, you're right it's $1.05. My apologies. But let's start at $0.28. Am I growing from $0.28? Is that the way to think about it in terms of how we should be thinking about the cadence for 2026?

Well, our long-term growth, we feel very confident that it's going to be 5% to 7%. How it's distributed between each year is a little tougher to determine because of the timing of some of the redevelopment projects and just acquisitions and dispositions. But longer-term, I think we're very comfortable with the 5% to 7%.

And then, Mitch, it's Dave. Then on a quarterly cadence, I think Scott gave some indication. The fourth quarter does tend to be a little higher because we have a percent of rent clauses come in. And if you look at the cadence this year, it was increasing. I think you would expect to see similar in '26. So I don't know if it's completely accurate to say you're just jumping off the $0.28 in the fourth quarter.

When you said...

I think you're jumping off the annual amount with normal quarterly cadence.

I thought you were talking about 2028 when you said 28.

No, no. I indeed got it. I appreciate it you guys.

Floris van Dijkum with Ladenburg.

Could you maybe quantify what your signed not open pipeline is? I know you report physical occupancy unlike peers who tend to report leased occupancy and then provide what the physical occupancy is. But if you could give us a sense of what your leased occupancy is in terms of percentage and maybe also in terms of the value of the ABR that you've got signed?

Floris, it's Dave. Hope you're doing well. Thanks for the question. I think we historically have not reported signed not open, because our model is different and that we're moving a little bit quicker than some of our peers. We typically have the shorter -- smaller spaces, shorter leases and are able to commence leases very quickly. So we just haven't reported it, because it's not a number that is huge for us because we get tenants in very quickly.

I also, just on an editorial level, feel like it's a little -- people report signed not open, but always there's a sign, but there's a moving out list as well, but nobody reports. So for us, we report our commenced occupancy and really at any point in time or with the smaller tenants have leases that we're signing and moving in quickly.

But would you say that based on the leasing demand today that your leased occupancy is probably -- I think, if I recall correctly, your typical SNL pipeline is about 50 basis points. But is that higher today than it has stood historically?

I think the leasing environment is very good. Our leasing traction is improving. So I think your -- I think the general answer would be, if anything, it's growing or getting better, although we are moving very quickly. So the signed not open is just a status of the process. We're moving quickly to get those folks commencing and paying rent. But I think your point is our signed not open pipeline would be, if anything, growing because we are having great progress.

Maybe another question in terms of the fourth quarter average rent that you signed of $32.58 and when I compare that to your average ABR of the whole portfolio, there's about 28% delta. Now I know quarterly things can be tricky, but is that sort of what people should think about in terms of mark-to-market -- if the portfolio were to be mark-to-market today?

Floris, it's Scott. So first of all, as Dave said, the leasing pipeline is strong. We've got great demand in our markets. So I think the best place to look just in terms of what to expect in increases is our leasing spreads. And our overall leasing spreads for the fourth quarter were 18.2%. And I think we said for 15 quarters, they've been 17% or higher.

So strong leasing demand. There's always a mix issue. I think in the fourth quarter, we may have had more smaller tenants than you have throughout the rest of the year. So that would explain why it's a bit higher than our average rents. But I would look to the leasing spreads for an indication of what you would look for going forward.

And maybe my last question in terms of what is your shop occupancy today? And how is that relative to historical levels? And how does that compare to your anchor occupancy today?

Yes, it's on the -- we're flipping here. It's on the first page of the earnings release. So I think we -- doing this by memory, I don't have it in front of me, but we are -- Scott may have it. I think we're 50 or 60 bps up on the small space year-over-year as well as about a similar amount on the larger spaces. So Scott, you got those actual numbers?

Yes. So we're at 97.7% on the larger spaces versus 97.4% a year ago. The smaller spaces, 92.7%, up 60 bps from 92.1% a year ago. So we're continuing to see good movement in both of our spaces.

Yes. And both of them, you mentioned overall occupancy -- physical occupancy is at record levels. Both of those would be at physical -- that's what I was trying to get. Apologies, I probably wasn't very clear. Are both of those at record levels? Or is there more upside? And how much higher do you think you can push occupancy?

I think it's -- I think we can get to the averages of our peers, but I continue to say this, I'll take back space where I can and put it back to work for profitability wherever I'm able to.

I will say that probably over the last couple of years, I've been actively being able to do that in the portfolio. As we strengthen the quality of revenue, there's less opportunity to do so. But our renewals and again, new leasing spreads, I think, are going to continue going out the next couple of quarters and really into the next couple of years just because there's no new products being built into the markets that we're in.

I think the small spaces are the ones where we're going to continue to see the ability to move. I mean, historically, as you know, Floris, people always talked about small spaces and lower occupancy. I think that paradigm is shifting. I think you're going to see the small spaces bumping up to the larger space kind of occupancy levels as we move forward.

That's one that will continue to move up. We do think there's opportunity. There's no reason to have a significant amount of vacancy in your small spaces. So we're making progress there, and I think that's one we'll see moving. Obviously, the larger spaces are closer to 100% to 98% or so, it's a little more difficult.

Next question, Gaurav Mehta with Alliance Global Partners.

I wanted to ask you on the 2 acquisitions that you made in the quarter. Can you maybe talk about any upside in those properties maybe on mark-to-market rent or on the occupancy side?

Yes. I would say with Ashford, that's an area where it's in the path of growth. So this is not that far from I-10 and the Energy Corridor. And it's a very healthy neighborhood that has good housing stock and what we've been watching is seeing the improvement in the homes in the area. So I think for that, that's going to be just trading space into a rising income.

And then if I look at World Cup Plaza, that's more of a remerchandising effort. So I think this is one where we can really reposition that property just alone just because it's along the highway and it's such a -- it has such a high VPD count compared to others. That will be more of a remerchandising.

And same thing, we're already starting that process now with that property versus Ashford will be a natural, I think, in the natural path of growth. And so you'll just -- every time a lease turns, we'll be able to do a renewal at a much higher rate.

Okay. Second question I have is on the same property expenses that you reported in this quarter. It seems like they were up 30% on the property operations and maintenance side. Can you provide some color on what drove the expenses higher?

Yes. There's always some timing in there. We -- at the portfolio level, we recover about 93% of property expenses. So those were just planned maintenance, painting properties, parking lot repairs, those sorts of things. So sometimes they -- you have more in one quarter than the other, but I don't think it would be indicative of a run rate for the portfolio. It's just a timing thing in 2025.

Next question, Jay Kornreich with Cantor.

Just wanted to follow-up on the comments around the record occupancy levels, which is clearly showing the strength of your shopping centers. But I guess I wondered, with the high occupancy, does that imply maybe some of the shopping centers have -- are closer to maxing out kind of what their occupancy limits are and maybe some of these centers are more ripe for like value creation asset recycling? Or do you feel like there's just enough leasing power and still some occupancy left that you're happy with the kind of current portfolio you have?

So I think there's still a long -- so we always look at assets as we purchase them to where we get to maturity with them. So in the beginning -- and this is -- you've seen the capital recycling that we've been doing, especially when I talk about this when we're doing a remerchandising effort or buying an asset that's in the path of growth. They may have a higher occupancy level, but I have the opportunity to raise rents even based on an asset that's in place or in a remerchandising.

And then also, like I said, at points in time, we'll take space back. So I don't see it topping out yet really for the next couple of years. And I also think because there's just really -- these are all in infill markets. There's not a lot available for competition. So I think we still have room to go.

Jay, it's Dave. The only thing I might add is I think we -- in our remarks, we talked about how we look at the surrounding neighborhood really is the biggest driver. So I think when we look at acquisitions and dispositions, that's kind of our -- one of the huge factors is looking at surrounding neighborhoods. So we think that even the properties that are 100%, as Christine said, we see growing neighborhoods. We see areas where you're seeing household incomes grow, discretionary spending grow and the ability to move rents.

So we will look at -- we -- just like we've done, we'll look at our portfolio and look for candidates to dispose and recycle capital. I think in our investor deck on Page 10, we've got a lot of detail we provide to the investment community about what we're selling and what we're buying. So we'll continue to look for those opportunities. But largely, our properties are in great growing areas where we see even with high occupancy levels, the ability to move rent.

Great. Appreciate that color. And then just one follow-up. You've outlined the $20 million to $30 million for redevelopment opportunities at, I think, 5 potential pad sites. Is there any possibility of any of those coming online in 2026?

Yes. We're doing about 2 to 3 pads a year, and I think we're right on track this year with doing 3. That's -- it's really -- it's more of a double -- we look for a double-digit yield on incremental capital for those. That's just more or less getting the approval depends on the cost for utilities and adjustment for grade on the site. But those are really easy to pop out.

With the larger developments, and this is something that we're starting to project out for in the sense that we've gotten the approvals for additional GLA in the number of sites, and we already have gone in for design and permitting on some of these. And it's really a question of making sure that we strike when the returns are in the right place with construction costs.

And how we look at this is that we do this in phases that way we can horizontally manage the risk because, again, it's an expansion of a property with additional GLA. So I don't see that coming on necessarily this year, but if some of it does, it'd be later in the year.

Next question, Craig Kucera with Lucid Capital Markets.

Scott, you kind of touched on this a few times, but I'd be curious to hear sort of the breakout in the fourth quarter of some percentage rents and maybe were there any lease terminations as well? Just because your base rent was a little higher than we were looking for.

I'm sorry, the what was a little higher?

Basically, your rent was a little higher. I'm just trying to figure out how much of that was percentage rents? Were there any lease terminations, any other onetimers?

So there's always some lease terminations. We didn't have any large lease terminations in the fourth quarter of '25 like we did in '24. There's normally somewhere around $1 million of percentage rent in the fourth quarter. I don't have the number in front me, $800,000, $900,000, $1 million in the fourth quarter, so $0.01 or $0.02 of percentage rent normally in the fourth quarter.

Okay. That's helpful. Ballpark is good enough. And I guess based on your commentary, it doesn't sound like there's a lot of anticipation for additional occupancy, but I'd be curious in the guidance, is that -- how much of that is further occupancy gains? Or is that pretty much the strength of sort of rent growth and leasing?

It's primarily the strength of rent growth and leasing, not occupancy gains.

Okay. That's helpful. And just one more for me. Clearly, you had a pick up in acquisitions this year. I'd just be curious to hear about the volume of deals you're seeing and maybe the appetite you had given the existing liquidity you have? Or you mentioned, Dave, you might be recycling some capital later this year.

Yes. Thanks, Craig. So we did see a bit of a pick up. I think we did close to $100 million in acquisitions this year, which is slightly up, did that largely with recycling and then obviously putting some of the Pillarstone settlement proceeds to work.

So we are seeing opportunities in our market. I think one of the comments I made in my earlier remarks was looking forward to opportunities to scale and grow the platform. So we are seeing a little bit more activity in the market, continues to be a very tight market with limited supply of retail. So we are out there looking for opportunities, looking in the current markets we're in. We look for assets that are a little different. If you look at what we bought versus some of our peers, potentially a little smaller assets. We love to find assets with hair. Those are harder and harder to find, but we're finding ones where we can move the rents largely from a re-tenanting and remerchandising.

So I would say our -- what we're seeing in the market is slightly positive and slightly up. I think our appetite for growth is there. But what will always guide us is disciplined capital allocation and growing earnings and growing the value of the properties. So we do think there's opportunities to grow and scale and look at different ways to do that, but we're always going to be guided with our target to grow earnings and grow value, not just to grow for growth's sake.

Next question, John Massocca with B. Riley Securities.

Maybe looking at the redevelopment slide in the investor deck a little more. You kind of mentioned there's potential for 1% kind of boost to same-store NOI growth from redevelopment. Is much of that already kind of flowing in the expectations you have for 2026 same-store NOI growth? Or could that be additive, particularly if we use your 2026 guidance is like a run rate for a longer-term portfolio level growth?

John, it's Scott. I think it would be mainly beyond '26 that we're going to see the benefit of those redev opportunities.

Hold on, I've got to clarify that. There's development and redevelopment. So we do a number of redevelopments every year. So usually about 2 to 3 a year. So the redevelopment do flow into this year and into next year. Development's a little different. That just has a little more future, right, because it just takes a little more time to get it out of the ground.

Okay. And is that -- so is that 1% that's kind of being talked about in the deck more on maybe the full ground-up pad site level? Or is that including some of the things that are a little more tradition development for...

It's both. Just like it has in the last couple of years. Like I said, we do usually 2 to 3 pads a year. And then in addition to that, we do 2 to 3 redevelopments. And then with that, we get a much larger bump in rents whenever we do a redevelopment.

So we just finished Lion Square. We're starting into Garden Oaks. We finished La Mirada, all that starts flowing into this year. And then I would anticipate that Garden Oaks would flow into 2027 and so on.

Okay. And I guess with something like Lion Square or even Garden Oak mentioned a little bit, but like does that kind of click on relatively immediately after the redevelopment spend is completed? Or does it take a couple of leasing cycles for you to see the full uplift from that spend?

No. It depends on each one. So an example, with Lion Square, we actually got the grocer in there before we started the redevelopment. And so it can be -- as we start into the process of the redevelopment, if there's a significant remerchandising that goes with it, we actually do it. We actually started even before the redevelopment takes place. So it depends.

But I do think that's a key component of our timing of redevelopment. We look for a center that's got the ability to move the rents. When term -- when the maturities are coming, it's not immediate, but we look for the ability to move it pretty quickly to time that with where we have the ability. We're not doing redevelopment where you have tenants locked down for multiple years and you can't move rents...

Yes. No, that's...

We're looking forward.

Right. So we look at -- I guess, at Garden Oaks, we wanted to make sure -- so an example of that is with Garden Oaks is that we wanted to see that the Target was coming online before we started that move. Now with the Target coming in, we'll start the redevelopment process, and we'll start the re-tenanting. So we keep the in-place cash flow, reduce the risk and then bring it alongside either. In this case, we did the same thing with Lakeside too, where we waited for the H-E-B to come online. Started to spend just before the H-E-B came online, then started re-tenanting while the H-E-B was coming out of the ground. So we try to time these things the best so we can get the best IRRs.

Okay. And then in terms of occupancy, should we expect some, I guess, seasonality in 1Q? I just know it tends to be when some of the re-tenanting in the in-place portfolio is in full swing. Just kind of curious what the expectations are on a super short-term basis for occupancy?

I think it goes the same way. The last couple of years, we are more active in taking back space because it was the right time to do in the portfolio and there was, I think, again, a significant upside with improving the revenue on some of the poor performing tenants, I see that less so, but it might still be -- at the end of the year, it's just the season of leasing and how things get executed at the end of the year always seems to have a heavier uplift. But that's because of the leasing activity that's taken place in the first and second quarter. So we know what it's going to look like towards the end of the year because of the timing, but it just is a -- leasing just has a seasonal factor to it.

I would like to turn the floor over to Dave Holeman for closing remarks.

This is Dave. Thank you guys again for joining us on the call today. We're very pleased with the progress and performance of the business and the strength of our markets and tenants. I would tell you, I think we're off to a great start in '26, and we look forward to seeing many of you over the coming months.

With that, I think this concludes our call, and thank you, everyone, and have a great day.

This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to the Whitestone REIT Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Mr. David Mordy. Please go ahead.

Good morning and thank you for joining Whitestone REIT's Third Quarter 2025 Earnings Conference Call. Joining me on today's call are Dave Holeman, Chief Executive Officer; Christine Mastandrea, President and Chief Operating Officer; and Scott Hogan, Chief Financial Officer. Please note that some statements made during this call are not historical and may be deemed forward-looking statements. Actual results may differ materially from those forward-looking statements due to a number of risks, uncertainties and other factors. Please refer to the company's earnings news release and filings with the SEC, including Whitestone's most recent Form 10-Q and 10-K for a detailed discussion of these factors.

Acknowledging the fact that this call may be webcast for a period of time, it is also important to note that this call includes time-sensitive information that may be accurate only as of today's date, October 30, 2025. The company undertakes no obligation to update this information. Whitestone's earnings news release and supplemental operating and financial data package have been filed with the SEC and are available on our website in the Investor Relations section. We published third quarter 2025 slides on our website yesterday afternoon, which highlight topics to be discussed today.

I will now turn the call over to Dave Holeman, our Chief Executive Officer.

Thanks, David. Good morning, and thanks again for joining our call. We've got a number of great things to discuss this quarter, so I'll start in with some highlights for the quarter and our overall achievements. We hit 94.2% occupancy this quarter, up 30 basis points from Q2. This is near record occupancy and given that the fourth quarter is typically our strongest leasing quarter, we're set up for a very strong finish to the year.

We delivered 4.8% same-store net operating income growth for the quarter, again, fueled by increases across the spectrum of shop space leases, various tenant types in both Texas and Arizona. The quality of our portfolio continues to be recognized by third parties as Green Street has now increased our TAP score by 5 points since Green Street started scoring our portfolio 2.5 years ago.

In that time, the 5-point increase leads the peer group and is a testament to the strength of our acquisitions, our operations and our recycling efforts, as well as the demographic trajectory of the area surrounding our properties. We extended and improved the terms of our credit facility, locking down one of the key variables for us to achieve our long-term 5% to 7% core FFO per share growth target. Scott will provide greater detail on our debt metrics in his remarks.

We're near completion on redevelopment for La Mirada in Scottsdale. We're in full swing on our work at Lion Square in Houston, and we've kicked off redevelopment at Terravita in Scottsdale. We forecasted that redevelopment will add up to 1% to Whitestone's same-store NOI growth with a $20 million to $30 million capital spend over the next couple of years, and we're on track to have this initiative deliver in 2026. And our average base rent is now $25.59, an 8.2% increase over the third quarter last year and a 26% increase versus this quarter 4 years ago, translating to a 5.9% compound annual growth rate.

Specific to this quarter, we delivered $0.26 in core FFO per share. As a reminder, we typically have a lift of a couple of cents in the fourth quarter versus the third quarter as a result of new lease commencements and percent of sales clauses that trigger as we close out the year. Straight-line leasing spreads were 19.3% for the quarter, our 14th consecutive quarter above 17% on leasing spreads. So those are the recent highlights.

Let me go on now to talk a little about what we have planned ahead. Our path forward is clear: deliver on consistent earnings growth, deliver on the targets we've put in front of our investors and if you have any doubts about our ability to deliver these results and don't see the value of our differentiated business model, come talk to us, dig into our great results and come see our properties.

We know many investors have asked themselves, why not Whitestone? How is this small cap delivering growth that's larger than many of our peers? Don't accept a quick inaccurate answer. We'll help you understand the building blocks underpinning our 5% to 7% core FFO growth target and we'll help you understand why our cash flows are very durable. Because our success is rooted in operations, we believe investors gain a tremendous amount by seeing our operations.

We'll be at REIT World in Dallas this December, we'll be showing investors properties on Monday, December 8, and we'll have one-on-ones on Tuesday. We hope you'll be able to join us at this conference.

As part of our ongoing asset recycling efforts, we disposed of one property this quarter, Sugar Park Plaza in Houston. Over the last 3 years, we have increased the NOI in this property by 22% by transforming the center into a grocery-anchored center and remerchandising the shop space and the time was right to sell and deploy the proceeds where we can create greater value over the coming years.

This disposition brings our total acquisitions and dispositions over the past 3 years to approximately $150 million. I anticipate we'll have a couple more acquisitions very shortly and should have 1 to 2 dispositions to finish out the year. Our markets are continuing to show significant strength as Texas and Arizona's business-friendly environments and strong demographic trends continue to support demand. Our acquisition team continues to identify neighborhoods with upwardly mobile consumers where our leasing team can have the greatest impact applying our business model.

And in closing, we remain steadfast in our belief that a company with a well-aligned forward-thinking team, a well-located portfolio with a concentration of high-value shop space properly anchored to the community can outperform the herd. I look forward to connecting with investors in the months ahead, and I look forward to being able to lay out our 2026 plan on the fourth quarter call.

Christine?

Good morning, everyone. On the leasing front, we had a strong quarter, and we're accelerating as we close in on year-end. We signed $29.1 million in total lease value with spreads on new leases at 22.5% and renewals at 18.6% for a combined 19.3% on a straight-line leasing spreads. Same-store NOI growth was 4.8% for the quarter, allowing us to raise the lower end of the same-store NOI growth target by 50 basis points.

Foot traffic across the portfolio was up 4% versus the third quarter of 2024. That's a good indicator we've got in terms of the health of the consumer specific to our footprint and our locations. What we're seeing in terms of successful tenants right now are those that are successfully expanding on their offerings. For restaurants, delivery services have gone from a nice add to a critical component of the business. In addition, we continue to see an expansion of beauty, health, wellness, fitness and see the spend on overall health and mental wellness continues to increase.

Understanding these avenues for the tenant success is critical for Whitestone to stand top as we curate our centers to the neighborhood needs. On the redevelopment front, we've completed the facade renovation at La Mirada, which puts us on track to finish this by year-end. And at Lion Square, the transformation of striking is about 75% complete. With the redevelopment at Lion Square, the grocery we brought in last year at Sun Wing will expand, creating value by making this grocery-anchored center the heart of Houston's Asia town.

Now we're kicking off the facade work at Terravita, which we talked about on the second earnings call, bringing in the Pickler and ACE hardware. This will further accelerate the transformation of the center, which is experiencing dynamic growth as a result of TSMC's nearby semiconductor fabrication facility.

We also generally move a couple of pads into action each year. This year, we created a pad at Lakeside in Dallas and brought in Central National Bank on that pad. We also signed a tenant for a pad at Scottsdale Commons. As a reminder, we purchased Scottsdale Commons in 2024, so the creation of the new pad represents a significant value creation pretty rapidly post acquisition. We anticipate bringing a couple of pads -- additional pads online in 2026 as well.

We continue to see pickleball succeed as the demand with the younger demographic accelerates. We're looking at bringing pickleball on the roof of Boulevard, which is adding value to where we had no income stream for that square footage previously and welcome this as an opportunity to add value also for the office community in the area.

On the last several calls, we've talked about the intentional design of our business model to benefit from change, both in terms of change allowing us to enhance our growth trajectory and change enabling us to ensure more durable cash flows, a key component of what we do proactively tracking and understanding consumer behavior and capitalizing on that knowledge, we will see change as the result of 3 primary forces.

First, change is a result of generational shifts as the younger generations step up into new roles, both as consumers and business owners. Two, migratory change as consumers move to more business-friendly areas and take advantage of opportunities there, such as our markets and what we've seen over the last number of years. And number three, technological change as both consumers and businesses become more sophisticated in utilizing technology and as spending patterns shift accordingly.

Both generational change and migratory change show up in the Esri data, heavily used by our acquisitions team and our leasing team. Migratory change is a bit slower moving, but also critically component for acquisition team to get it right. The Houston metro area has added nearly 2 million people over the last 15 years, while the Phoenix Metro area has added 1 million residents during that time as well.

Ensuring we benefit from that phenomenal growth is very important in terms of Whitestone's success. All 3 types of change also impact the consumer data that we -- and traffic data that we follow and Pacer AI. This is critical for leasing, but is key in our underwriting process. Our assessment of the business' ability to meet the future consumer demands weighs heavily into our decisions to move forward on any lease we sign.

For all of our leasing agents, our weekly leasing meetings provide an opportunity to discuss what changes we're seeing as they interact with their neighborhoods and the tools they're using to evaluate those changes around our centers.

The biggest takeaway for investors here is that our ability to translate change into a higher same-store NOI growth starts with our assets and our business model, but also relies heavily on technology, but ultimately needs to be embedded in our culture and our processes to which Whitestone delivers our results. We delivered strong finishes in both 2023 and 2024, and the team here is pushing hard to take advantage of the year-end dynamics and close leases.

And with that, I turn it over to Scott to cover the financials.

Thank you, Christine. This morning, we reiterated our 2025 $1.03 to $1.07 core FFO per share guidance, improved our same-store NOI growth range to 3.5% to 4.5% and reiterated our long-term growth rates. On our leverage metrics, we're making steady progress, and I anticipate our fourth quarter annualized debt-to-EBITDAre ratio will be in the mid to high 6s.

The most significant development this quarter on the financial side was our amended and extended credit facility. We accomplished everything we wanted to accomplish here in large part because of the actions we've taken over the last 3 years. We were able to expand our bank group and improve Whitestone's valuation cap rate to 6.75% because there was wide recognition that we are consistently delivering and we have steadily increased the value of our properties through our focused strategy and strong execution. We increased the size of the facility to put Whitestone on par with our size-based peers in terms of available revolver credit capacity, and we expect to continue our debt leverage improvement initiative over the coming quarters and years.

We fixed an increased percentage of our overall debt, bringing the weighted average term on all of our debt to 4.3 years and the weighted average rate on our fixed debt to 4.8%. Most importantly, locking down our debt clears the runway for us to focus on executing our plan and delivering core FFO per share growth for shareholders.

I will note that included in the quarter is approximately $800,000 of debt extinguishment costs related to our refinancing. We have adjusted for this amount in our core FFO. Our revenue for the quarter was up 6% and most importantly, the quality of revenue continues to strengthen as evidenced by our improvement in uncollectible accounts and downward revision to our full year bad debt guidance.

Our total headcount is down 6% from a year ago, and we continue to focus on lowering G&A cost as we scale. As a reminder, our dividend is well covered with a healthy payout ratio, and we expect to grow the dividend in sync with earnings growth.

And with that, I'll conclude my comments and open the line for questions.

[Operator Instructions] And our first question will come from Mitch Garman with JMP Securities.

This is Jody on for Mitch. Just a few questions here. The first one being, so the rent expirations in 2026, the average rent is higher than average there. Should we expect similar leasing spreads as in recent quarter? I think it was 17% for the next year or so?

Thanks, Jody. This is Dave. I'll start out, and Christine may want to add some granularity. But there's always mix when you look at the -- one of the things about our tenants are we have a highly diversified tenant base with 1,500 tenants. So, in any particular year, you do have some mix, but there's nothing unique about next year's rental rates. We continue to see really strong leasing demand, and there's no sign of any weakening in our leasing spreads. So great quarter this quarter. I think our -- I can't remember the number, but we've had many quarters over 17%. I think it's been about 3 years. And so I'll let Christine add anything she wants to add.

We don't see anything distinguishing next year any different than this past year. We see -- we expect that we're going to continue to see the same rate of leasing spreads, if not more, continue because there's just such a demand for retail space.

Okay. That's very helpful. Secondly, could you give any more information on the change in occupancy? I think the larger centers increase in occupancy and the smaller ones, occupancy went down. So any more details there?

It's the same thing that we've been doing in the past couple of years where we're taking some space back. And the purpose for that on the smaller spaces is we see the opportunity for higher revenue and stronger quality tenants that we want to bring in. We have been doing that for the last couple of years, and we continue to do so going forward. So there's been a number of small spaces that we've taken back, and we expect to put to work with a higher income stream based off of our leasing efforts. And then we did fill a couple of larger spaces this year. And much of that timing has to do with just city approvals and the timing that we can bring that revenue online.

Hey, Jody, I might also just remind everyone that we report fully commenced occupancy. So I know many of our peers report leased and commenced Whitestone's 94.2% is tenants are in the space. And so continuing to see good trends in occupancy. I think we were up 30 basis points just over the second quarter. And I think as we said in our remarks, fourth quarter tends to be a very good time period for us. And so we're excited about finishing out the year strong.

Okay. And the last one for me here is if you all have any update on the Pillarstone JV?

I'm glad to give an update, Jody. I will encourage everyone to we'll file our 10-Q shortly, and it has a very detailed description of the activities that have gone on. What I will say is, we're nearing the end. We've talked about -- we're in the collection phase of just collecting our funds from the partnership. The court recently -- there was recently a settlement agreement filed with the court, and we expect that to be approved. And with that, there would be a distribution of proceeds. But I encourage you -- very shortly, I encourage you to read the 10-Q because it gives all of the details. But the short answer is we have reached a settlement with the court. The court has to approve that settlement. And if it is done, then the proceeds are expected to be distributed by -- in December.

I'm looking forward to that and good luck the next quarter.

Our next question comes from Gaurav Mehta with Alliance Global Partners.

I wanted to ask you on your leverage comments, mid to high 6s in 4Q. It seems like it was 7.2% as of 3Q. So, just want to get some more color on assumptions driving leverage lower in this quarter.

I'm sorry, Gaurav, it's Scott here. I didn't catch the whole question. Are you asking about the leverage ratios?

Yes. I think you mentioned mid to high 6s expected in 4Q from 7.2% as of 3Q. So I just want to get some more color on the assumptions driving leverage lower.

Sure. So, I think there's 2 pieces to the puzzle. We continue to improve the balance sheet, and we're focused on that and then operations continue to improve. The fourth quarter is, as Dave mentioned before, usually one of our -- is our strongest quarter normally. We have percent sales breakpoints that are hitting the fourth quarter. And so on an annualized basis, we do expect the fourth quarter to be in the mid to high 6% range on debt-to-EBITDAre. And then we think we'll continue to improve our balance sheet as we move forward. This year, there's been a little bit of timing in our recycling efforts. The acquisitions have gotten ahead of the dispositions, but we think we'll balance those out as we move forward.

Okay. A follow-up on acquisitions and dispositions. I think in the prepared remarks, you said you're expecting some acquisitions shortly. And then you also mentioned a few more dispositions. So just in terms of timing, is that expected this quarter?

Yes. We expect -- I think I said in my remarks, Gaurav, that we've got -- what we expect is a couple more acquisitions and 1 to 2 dispositions to finish out the year. So that would be expected to occur in the fourth quarter. I think what you'll see is consistent with what we've done in the past, looking at properties that fit Whitestone's model, continuing to upgrade the portfolio. I think we've got a chart in our investor deck that lays out what we've done where we've bought properties that have what we believe is much more upside in better areas and sold properties that we see less growth in the future. So just continuing what we're doing with a couple of those for the balance of the year. And as we've said, we're fairly well balancing the assets, acquisitions and dispositions at this point.

[Operator Instructions] We'll go next to Craig Kucera with Lucid Capital Markets.

Scott, you had a fairly large pickup in real estate tax accruals this quarter. Can you talk about your expectations for the year in regard to real estate tax?

Sure. Yes. So, it's mainly Texas. Texas has a choppy real estate valuation process that we go through. So, we really go through a 3 or 4-step process to ultimately settle on what we're going to pay. And what we typically see is around July, what's called the ARB process happens, and we usually settle in on a little higher valuation, and then we continue to protest those, and we continue to litigate those. And ultimately, I think we feel confident that those will come down. We do pass through most of those costs to our tenants, but we work very hard to keep those low because it's a burden on the tenants. And some of those can take 2 to 3 years to get through the full litigation process. So, I think it's just a normal increase that you'd see in the third quarter, particularly in Texas.

Okay. That's helpful. Just circling back to your commentary, Dave, on the acquisitions and dispositions. I think earlier this year, you were talking about maybe $40 million for the year. Has that number changed at all? Or is that still sort of the expectation of having $40 million of acquisitions and maybe $40 million on the disposition side?

Craig, yes, I don't -- I think we -- like I said, in Page 10 of our deck, we've laid out, we've done 2 acquisitions this year. And as I said, I have a couple more. So, I would say probably we're going to be a little higher than those numbers on the acquisition and disposition side. So not significantly different. If you look back so far, we've done basically $150 million over the last 2.5, 3 years. I think that run rate is consistent with where we are today. But we are seeing some nice opportunities. I'm very pleased with the acquisition of San Clemente in Austin earlier this year, which is across from our Davenport property and provides us some really nice synergies between those 2 properties.

We acquired Hulen in Fort Worth market earlier this year. I think a great acquisition for us and excited about a couple more that we should announce shortly. But no huge change here, just continuing to make sure we're working the portfolio. We're taking the steps we need to do to achieve our 5% to 7% long-term FFO growth. And so probably just a little bit more than the $40 million, but kind of a consistent pattern with what we've done over the last 3 years.

Got it. And kind of changing gears here in the fourth quarter, I think you've got about 4% of your ABR expiring. Is that really just because you have a concentration of month-to-month leases or anything other going on there?

Well, I think if you're looking at the number of leases, mostly just on the lease count, most of that is in our -- what we call the CUBEXEC product, which is a very small percentage of the portfolio, but it's a shared office space concept. And so it's a high number of leases that just tend to be either month-to-month or very short terms, and that's normal. I think if we looked at just what we'd consider to be in our wheelhouse of leases, the number is closer to 50 to 75 that are expiring in the fourth quarter, something like that, probably closer to 50%. So I think it's mainly just CUBEXEC leases expiring.

It's actually very consistent with what we've always had. I mean if you look back to last fourth quarter, I think we're a little smaller. So super pleased with the opportunity to continue to have roll. One of the things that I think is a benefit for Whitestone is in this environment, we're rolling a greater percent of our leases than some of our peers. So obviously, with the positive marks we're having, we're pleased with that. But consistent with what we've had is about 20% of our leases rolling. If you look at the 4% of revenue, that translates very closely.

I think on a square footage and ABR basis, it's actually lower than we were in this position last year, Craig. So...

Okay. That's helpful. One more, just on Slide 10 on the investor presentation, appreciate the color, first of all, that's helpful. But just looking at it optically, it looks like you're acquiring properties with higher rents at higher cap rates and selling assets with lower rents and lower cap rates. So obviously, you're getting that positive cap rate arbitrage, which you've reported over the past few years. Is that just you executing your strategy? Or is that a focus more on more small shop space where you can charge higher rents? I just would be interested in your color on how you're doing that.

I think it's largely our strategy and as I think if you look at the fundamental aspect of what we do, it's capital allocation. So just continuing to look at our portfolio. We do believe that right now, it's the right time to continue to upgrade a number of things, upgrading the tenant base, upgrading the properties to higher income levels to potentially higher ABRs. So, it is a focused strategy to ultimately buy properties that we think have greater growth going forward. And we're doing that probably in a little better areas and upgrading the portfolio. You've seen us move the ABR, you've seen us move kind of our consolidated TAP score. And then most importantly, if you look at the chart on 10, not only are we buying these properties at good rates, but Christine and her team are doing a fabulous job of stepping in day 1, looking at the merchandising mix, looking at ways we can drive NOI.

So, we're buying it at more attractive cap rates, and then we're making very quick return increases as we move forward.

We'll go next to Bill Chen with [ Rhizome Partners ].

I was wondering if you have a update on Pillarstone in terms of timing and then if the dollar figures are still in that same range of, I believe, $50 to $70 that you have previously guided?

Hey, Bill, Dave Holeman. Thanks for your question. I think I said earlier, and I'll remind folks, we're going to file our 10-Q very shortly, and there is a very detailed explanation in the 10-Q that goes through all the activities that have happened on Pillarstone. But just briefly, during the quarter, we received $13.6 million that was a payment of part of our proceeds due from Pillarstone. We have -- there has been a settlement reached with the court, the plan agent that would result in about another $40 million coming to Whitestone. That settlement needs to be approved by the court. There will be a hearing to do so in November. And then if all of that's approved is expected the distribution of approximately $40 million would be made in mid-December.

There are -- obviously, there are -- we expect that to happen, but there are a number of steps to get there. So that's the update. We're very close to receiving what we believe is kind of the end of the joint venture, $13.6 million received in the quarter. And right now, we estimate another $40 million to come in, in December.

Got you. I appreciate that. And does your leverage ratios factor into those payments that you previously just -- that you mentioned on the call earlier today?

Right now, the guidance for the fourth quarter does not include the impact of any gains or losses or the Pillarstone proceeds. So $40 million – if the $40 million Dave mentioned would probably be right around a half turn.

Okay. I appreciate that. And one last question, if I may. On the pass site developments, is the strategy going forward to hold them or to kind of sell them for the gain and redeploy the capital?

Great question. I think that's an individual-by-individual pass site kind of that we go through. Obviously, we do think there's value in having an aggregation of the properties that all go together. But as you can see from what we've done in the last couple of years, we selectively sold a couple of pad sites that we thought the value was very attractive. So as we do these pad sites, one of the things we look at is structuring them in a way with a lease that is attractive to a buyer. And then so keeping that opportunity open to us. But it's really -- it's an individual kind of decision we go through. We look at the pad site. We look at where it is in the center. We look at potentially the pricing in the market. So, we're looking at a number of ways to do things that add value to shareholders.

Moving on to John Massocca with B. Riley Securities.

Apology, if I missed it earlier in the call. I know it's not really how you tend to think about the portfolio. But as we think about 4Q rents and maybe even beyond that, I mean, do you have a signed not open pipeline or a pipeline of things that are on, call it, a free rent period that could be kicking in here in the next 3 to 6 months? And if so, kind of what's the broad parameters of how big that number is?

Yes. So, hey, John, Dave. So, as I mentioned earlier, we report occupancy as commenced occupancy. So the tenants have taken possession of the space. Some of our peers report, I think, a leased occupancy and then a signed not open. One of the fundamental aspects of our business model is smaller tenants, shorter leases, much more quick and nimble. So, we just don't have a substantial amount of leases that aren't commenced because we move quickly, we get those tenants in very quickly. So, I also think when people report signed not open, they're not reporting potential tenants that move out. So there's -- that signed not open gap always sits there. But Whitestone is at a solid 94%, over 94% fourth quarter moving forward. And we sign leases and we get them commenced very quickly.

I think I answered your question, maybe…

John, just the 3.5% to 4.5% same-store guidance that we've given for the year includes any kind of free rent or anything of that nature in it as well.

So, I guess maybe just as we think about 4Q, which is historically a big leasing quarter, I mean, is that stuff that's in negotiation today? Or is that things that have been negotiated in 3Q, 2Q that are essentially just formalities to close in the quarter?

It's both, John. I mean, leasing, there's complicated leases can take 6 months to negotiate to put in place and some are different. I mean it's across the board. So -- but traditionally, we've always tried to take back some space at the beginning of the year and which always kind of dips our occupancy a bit. And in that, we're moving towards either leasing activity well into the second and third that delivers on the fourth. And then sometimes the fourth, for whatever reason, people wanting to start their businesses up at the beginning of the year, just seems to always been a very productive quarter for us in the beginning -- and I think, again, you kind of see the trend has been the same in the last couple of years. We just expect it to keep being that way.

Yes. And I think obviously, we're not just saying because it's been that way. We've got great visibility into the leases. We -- Christine and her team, every week, we look at the activity, we look at leases in place. So we feel good about where we are on the leasing side. And at this point in the year, there's substantial activity, we believe, to finish out in Q4.

Yes. I haven't seen a downtick in leasing activity this year. Surprisingly, I thought there'd be a little bit of pullback, and it really has not been.

Okay. And then on the kind of redevelopment or center enhancement CapEx you're putting in, is all of the kind of tailwind to same-store NOI or NOI you're expecting to see from that kind of hit in 2026? Or is there projects in place that are really more of a 2027 impact? And I guess, how big could that be compared to what you're going to complete this year or early next and therefore, have it be impacting the '26 numbers?

It's -- boy, we've been stacking this evenly across the board over the number of the years just because the timing of lease rolls when we're able to put production into place. But I think we may see some of our larger projects come online on '27, but '26 is going to be similar to this past year as far as what we're able to achieve as far as putting pads into production, et cetera. And the same thing, we have a couple of projects that we expect to see an uplift from, I think as we talked about, Lion Square, Terravita, a number of these that they take about 6 months to 9 months to put in production and then you see the results the following year. So we continue -- that is part of the value add of our business that we find to be as far as whenever we purchase an asset, we look at doing that. Garden Oaks will probably be the next one to start up.

And that's just how we do business, and that's how we're able to keep increasing and improving the value of the portfolio, the quality of the revenue and deliver to the bottom line.

Okay. And then maybe kind of on a very short-term basis, as I think about the acquisitions and dispositions that are in the pipeline for the remainder of the year, should we expect kind of cap rates to roughly be aligned with what you've done historically on kind of both ends of those transactions?

The general answer is yes. Nothing -- no substantial changes. I mean, we're working a program. The specific cap rates may be slightly different. But generally, we're seeing cap rates consistent with what we show on Slide 10 as far as the acquisition side. Most importantly to us is, obviously, the day 1 cap rate is important, but we're equally focused on the day 300 cap rate. What can we do, how can we move the rents. So it should be no substantial change in doing similar to what we've been doing. I think I said in my remarks, what we plan to do is execute and deliver, share with investors where we think we can add value and then do that. So you should see that on the acquisition disposition side throughout the rest of the year.

This now concludes our question-and-answer session. I would like to turn the floor back to Dave Holeman for closing comments.

Thank you. Thanks to everyone for joining our call. We're very pleased with the progress we're making. I think we've laid down another solid quarter and are excited about finishing out the year with a very strong year. I would love to interact with anyone that was going to be at REIT World in Dallas in December. We're going to be having a property tour and then obviously meeting one-on-one with investors. So if you'd like to do that, reach out to us. And thanks again for joining, and have a great day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Greetings, and welcome to the Whitestone REIT's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David Mordy, Director of Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining Whitestone REIT's Second Quarter 2025 Earnings Conference Call. Joining me on today's call are Dave Holeman, Chief Executive Officer; Christine Mastandrea, President and Chief Operating Officer; and Scott Hogan, Chief Financial Officer.

Please note that some statements made during this call are not historical and may be deemed forward-looking statements. Actual results may differ materially from those forward-looking statements due to a number of risks, uncertainties and other factors. Please refer to the company's earnings news release and filings with the SEC, including Whitestone's most recent Form 10-Q and 10-K for a detailed discussion of these factors. Acknowledging the fact that the call may be webcast for a period of time, it is also important to note that this call includes time-sensitive information that may be accurate only as of today's date, July 31, 2025. The company undertakes no obligation to update this information.

Whitestone's earnings news release and supplemental operating and financial data package have been filed with the SEC and are available on our website in the Investor Relations section. We published second quarter 2025 slides on our website yesterday afternoon, which highlight topics to be discussed today.

I will now turn the call over to Dave Holeman, our Chief Executive Officer.

Thanks, David. Good morning, and thanks again for joining our call. We delivered another solid quarter, increasing core FFO per share by 5.4% year-over-year, growing our occupancy 100 basis points sequentially from Q1 and increasing our average base rent per leased square foot year-over-year by 5.3% to $25.28. We continue to see a very strong leasing environment in our high-growth Sunbelt markets, which is allowing us to grow the value of our centers by strengthening the tenant mix with the addition of new and exciting businesses that serve the surrounding communities.

Whitestone's strategically designed shorter lease terms are allowing us to capture the benefits of this strong environment faster than many peers with less lease roll. Over the next few years, we expect to leverage our leadership position in the high-value shop space to deliver core FFO growth of 5% to 7%, underpinned by same-store NOI growth of 3% to 5%. We intend to grow our dividend in conjunction with our FFO growth and scale our operations, spreading our fixed costs and broadening our investor base.

Let me highlight and provide a few details on 3 of our second quarter accomplishments. First, we grew occupancy 100 basis points sequentially from Q1 to 93.9% as we remerchandise, bringing in stronger tenants and setting up same-store NOI growth in the quarters ahead. At our Terravita Center in North Scottsdale, during the quarter, we added a very strong franchise Ace hardware and expect to add the best-in-class pickleball operator, the Picklr later this year. These types of high-quality tenants enhance the vibrancy of the center and allow us to populate the center with fast-growing businesses that allow us to benefit from their growth through higher rents and expansion potential. Over the last couple of years, we have frequently highlighted our remerchandising efforts, and these efforts are coming to fruition and are providing a catalyst for future growth. Secondly, we had 2 strategic acquisitions in the quarter, San Clemente in Austin and South Hulen in Fort Worth. San Clemente has a very limited competitive retail around it, is anchored by a neighborhood with average incomes in excess of $280,000 and has over 55,000 vehicles per day passing at the intersection of Loop 360 and Westlake Drive. Across the street from our existing Davenport center, we anticipate strong growth ahead for both San Clemente and Davenport. Our South Hulen acquisition expands our geographic reach further in Fort Worth. The center sits at the entrance to Hulen Mall, already the highest visited mall within 30 miles and is poised to do even better as the fast-growing surrounding neighborhood drives additional commercial development in the area. Both San Clemente and South Hulen fit very well within our overall strategy and match our acquisition criteria well.

Our third growth driver is redevelopment. Our redevelopment continues at pace with Lion Square in Houston. We anticipate it will be complete by the end of the third quarter. This is an example where we've really been able to take advantage of a neighborhood's rapid evolution, upgrading our product and ensuring we maximize growth. Not only is the surrounding Asian community experiencing very strong growth, Park Eight Place, a $1 billion redevelopment is occurring down the road on the former Halliburton campus. This type of development is occurring all around our centers, and I'll have Christine go into more detail there.

We are on track for our previously communicated 2025 full year guidance and are reaffirming our core FFO per share, same-store NOI growth and year-end occupancy guidance ranges this morning. In terms of financial performance, we delivered core FFO per share of $0.26 for the quarter and $0.51 for the 6 months, up 5.4% for the quarter and 5.6% for the 6 months versus the prior year period. Same-store NOI growth of 2.5% for the quarter and 3.9% for the 6 months. We remain squarely on target to hit our 3% to 4.5% same-store NOI growth target range for the year.

Straight-line leasing spreads of 17.9%, our 13th consecutive quarter with leasing spreads in excess of 17%. Early on in my time as CEO, I also spelled out that our plan would be to review every property within Whitestone's portfolio to ensure that the properties are in line with our strategy and are supported by the right neighborhood dynamics to drive growth and allow our leasing agents to do what they do best. We've done exactly what we said we would do, and I'll point you to a summary of our transactions on Slide 10. Our review has resulted in our selling 12 properties and purchasing 6 properties in addition to some pads and other parcels we bought adjacent to our existing properties.

The net effect of all of this has been to strengthen our ability to grow and secure higher-ended properties that have greater growth potential and durability of cash flows. Since the fourth quarter of 2022, our acquisitions have totaled $153 million and our dispositions have totaled approximately $126 million. We anticipate the capital recycling program will continue with an estimated $40 million of acquisitions and $40 million of dispositions through the balance of the year.

In conclusion of my prepared remarks, I'll reiterate our belief that in today's rapidly changing retail environment, a company with a well-aligned forward-thinking team and a well-located portfolio with a higher concentration of high-value shop space properly anchored to the community can outperform the herd. We're not only putting all the pieces in place to make that happen via top line growth, we're actively managing our expenses as well, reducing our G&A and interest expense, both by about 6% from last year.

All in all, we're executing on our remerchandising, capital recycling, reducing our expenses, improving our balance sheet while growing earnings and our steadfast commitment to grow long-term value for shareholders. I look forward to continue to update investors in the months ahead, and I'll now turn it over to Christine.

Good morning, everyone. As Dave said, we delivered another strong quarter, bringing the occupancy number back up with the Ace Hardware commencing at Terravita and with a strong momentum in the shop space leases. We signed $33.2 million of total lease value, picking up slightly from the first quarter and building towards the fourth quarter, which is typically our strongest quarter. Leasing spreads were 41.4% for new leases and 15.2% for renewals, giving us a combined leasing spreads of 17.9% for the quarter.

Same-store NOI growth was 3.9% for 6 months, and we remain confident in hitting our 2025 guidance of 3% to 4.5% same-store NOI growth. Looking out a bit further, 2 significant new tenants, EoS at Windsor Park in San Antonio and Cactus Club Cafe at Boulevard Place in Houston are energizing their respective centers and will move out of their build-free rent period soon and contribute over 150 basis points to same-store NOI in 2026.

Our most recent acquisition, South Hulen, joins a growing list of Whitestone properties that have major development going on around them. We've had the opportunity to acquire very stable cash flows and future upside as a result of urban development. And so we took action and made the acquisition. Urban development is both a factor within our acquisition criteria framework and the natural progression that occurs because of our other criteria, strong university systems, high household incomes and upwardly mobile surrounding demographics.

We spoke on the last 2 earnings calls about how Whitestone is designing to proactively identify change to take advantage of that change, delivering earnings as the company leverages change. Today, I would like to highlight some of the major changes going on around our portfolio that will provide the opportunity in years ahead. Expanding further on South Hulen's development, Fort Worth population grew 3.1% last year and has become the nation's 11th largest city. It's clear to us that Hulen Mall will undergo additional development, further elevating the traffic to the area, which is already robust with I-20 and Hulen Street attracting more than 180,000 vehicles per day. Our South Hulen Center is perfectly positioned as a gateway for the mall and for upcoming development.

In terms of upcoming development, Garden Oaks purchased in 2024 is very similar. We anticipate a major announcement soon concerning the neighboring old Sears property. The property will be redeveloped in conjunction with the neighborhood that is experiencing very rapid growth as Houston Heights redevelopment spreads northward. In other parts of the Houston Metro, we've got pockets of development as well. Near our Lake Woodlands Center, The Cynthia Mitchell Woods Pavilion has taken over as the top spot globally for outdoor amphitheaters with over 600,000 guests in attendance in 2024 alone. In response to the area's growth, Howard Hughes is building The Ritz-Carlton Residences, a short walk from Lake Woodlands Center and projected to be completed by the beginning of 2027.

We've anticipated this development when we purchased the property in late 2022, and we're already benefiting from our ongoing remerchandising efforts. Near our Boulevard Center, Post Oak Central is being revitalized, transforming a 16-acre campus into a mixed-use environment of retail, restaurant and office spaces. Midway is the lead developer on the project and groundbreaking recently occurred and completion is expected late next year.

In addition, the adjacent parcel to our Boulevard Center was recently purchased by Crescent Real Estate, the Doggett families and also the Schnitzer families. They are developing a 6-acre parcel to create a mixed-use development with 1.5 million square feet of additional space. We anticipate that this project is moving very quickly, and we welcome them as a neighbor. Given that our Boulevard property is very strong interest right now, and it sits at the main artery in the uptown area of San Felipe 610 and Post Oak Boulevard. We have the opportunity not only to protect our asset but further upgrade our tenant base and move Whitestone's developable land at the property into an income-producing column. One last Houston highlight that David touched upon was Park Eight Place is a $1 billion mixed-use development occurring less than a mile from Lion Square in the former Halliburton campus with over 70 acres designed around walkability, health and sustainability and convenience.

This development is supercharging an already fast-growing Asian community. The second largest concentration of Asian Americans in the United States are in Houston, Texas. In Phoenix, near our Anthem Center, TSMC is investing $165 billion, including 6 fabs, 2 advanced packaging centers and an R&D center. The project is expected to produce 6,000 direct manufacturing jobs and over 20,000 construction jobs. Anthem is Whitestone's closest center to TSMC's investment, but we anticipate the benefits will be felt throughout the greater metro area, which represents approximately 40% of Whitestone's portfolio.

In Dallas, explosive growth is occurring around our El Dorado center and plans to build and expand on the McKinney Airport have recently been announced, adding 47,000 square foot [ terminal ], which is intended to handle 1 million passengers annually within 5 years. This expansion is a result of numerous corporate headquarters located in McKinney and will likely add to the attractiveness of the area for more major corporations. Construction that has already begun on the new airport is expected to open late next year.

In Austin, we announced the purchase of San Clemente, really a sister center that sits across the road from our Davenport Center. Both of our properties will benefit from the recent improvements to the Loop 360, which would increase the traffic above the current 80,000 vehicles per day, our centers currently enjoy. In addition, the Four Seasons is adding nearly 200 high-end residences to the area. This is another opportunistic acquisition that fit our criteria as well.

With all of these developments, our leasing agents are constantly working to ensure our tenant mix is properly connected to the community, and we'll see the benefits in the same-store net operating income growth as we evolve the tenant mix. In some cases, we'll benefit without investment to a center. Lake Woodlands would be an example of a center that's prime benefit from change without redevelopment. In other cases, Lion Square being a primary example, we can make a modest redevelopment in investment and capture significant gains upgrading a center to match the neighborhood.

And finally, we've got a few centers like Boliver Place and Dana Park. We have land for development where we expect to capture additional growth and quite possibly partnering with another firm to develop mixed-use assets at the center. In total, we have at least 5 to 7 years' worth of development and redevelopment in order to supplement our growth. In terms of guidance, we have up to 1% of redevelopment growth embedded in our longer-term same-store growth target, and we'll add development growth once we have greater visibility into timing on larger development projects in the area.

I'll close by thanking the different teams at Whitestone for their ability to work together in a seamless fashion. Calling out one group I'm very pleased with is the tight integration between our acquisitions and leasing teams, allowing us to move quickly on acquisitions and integrate into our operations. That same closeness runs between leasing, property management, legal, finance really throughout the entire company.

We're a team-based company, and it has proved in the efforts and where we've exceeded these past years. This may be because of our smaller size, but overall, we appreciate that we've got these great teams, all working hard towards the same objectives. And with that, I'll turn it over to Scott to cover the financials.

Thank you, Christine. This morning, we reiterated our 2025 $1.03 to $1.07 core FFO per share guidance and our longer-term 3% to 5% (sic) [ 4.5% ] same-store NOI growth target. We have also reiterated our forecast for year-end occupancy in the 94% to 95% range. We have strong momentum going into the second half, which is where we typically fill spaces we've taken back at the beginning of the year.

Another measure of health of the business, our bad debt for the quarter ran just under 1% of revenues, nearly identical to this time last year and within our forecasted range. Last 12-month pro forma debt-to-EBITDAre was 7.2x, an improvement from 7.8x for the same period a year ago. This is up slightly from last quarter with the acquisition of San Clemente and Hulen in the second quarter. We anticipate property acquisitions and property sales to be roughly balanced through the end of the year, and we expect year-end last 12-month pro forma EBITDAre to be about 7x.

We're in the process of recasting our credit facility and bank demand seems to be very strong. Our goals are to further ladder our debt, expand our bank group and deepen the relationships with our existing banks. However, versus 2022 when we last recasted our credit facility, Whitestone is a very different company. Debt-to-EBITDAre is down over a full turn, driven primarily by EBITDAre growing 13.9% since Q2 of 2022.

We've proven the value of high-return shop space and strengthened both our tenant base and the quality of our centers. We've been disciplined with our capital, delivered top quartile same-store NOI growth, broadened our investor base and positioned the company for continued strong growth. I anticipate I'll be able to provide a more detailed update on the credit facility recast on the next earnings call.

In terms of Whitestone's liquidity, we had $5.3 million in cash and $69 million available under the credit facility at the end of the quarter. Our dividend remains very well supported at approximately 50% of our FFO, and we expect to grow the dividend level in conjunction with earnings growth. We are focused on continuing to execute our plan and in turn, financial results. And with that, we will open the line for questions.

[Operator Instructions] The first question is from Mitch Germain from Citizens Capital Markets.

It seems like the next couple of quarters, this one as well, the next 2 have some pretty tough same-store comps. So I'm curious what gives you the confidence that you can continue to meet your forecast in the back part of the year?

Mitch, it's Dave. Thanks for the question. I'll give a high level and then maybe let Scott or Christine add more details if they'd like. Obviously, we do a very detailed forecasting. We look ahead at our tenants. We look at those tenants that come in. You saw this quarter that we brought up our occupancy 100 basis points from Q1. Those kind of activities obviously will contribute to future same-store NOI growth. So as we look at the projections of the activity we've done, we do anticipate stronger same-store NOI growth in the upcoming quarters versus Q2. For the 6 months, I think we're right just a little under 4%, which is within our guidance range.

And Mitch, this is Scott. I'll just add to that, there are a number of large tenants that are already under contract that are in their free rent periods. So their rents are not reflected in the same-store numbers that you saw in the second quarter, but we -- a lot of that is just free rent coming into effect or going out in Q3 and Q4.

Got you. And do you get any benefit from Picklr in the second part of the year? Or are they a back-end weighted commencement?

So we anticipate they're going to commence in the back half of the year. There will be some early concession period. So it will be [ amenable ] to same-store NOI, I think, this year from Picklr. But obviously, as we project out to future quarters, a number of these activities are going to significantly increase the momentum we've got in that category.

Great. And then, Dave, you mentioned $40 million of acquisitions and dispositions. The fact you gave that number and seem to be pretty certain about it leads me to believe that some of this activity is already in process. Anything that you want to share with regards to what's happening there?

Sure. I mean I think we've been very clear on our objectives of looking at our portfolio, continuing to evaluate every property, looking for those that we feel like we've tapped out the value, looking for opportunities in neighborhoods where we find assets. So we do have a number of activities going on. We are seeing a little bit more product coming to market. So one of the things we're seeing is a little bit more product than we've seen. But we do have, obviously, a number of activities.

I did comment that we expect to be about $40 million, and we feel pretty good about that number. So that does tell you that we're moving along in that process. But recycling is just something we should be doing. It's just like any portfolio where you're continuing to look at your holdings and make sure you're allocating capital in the best way. So we're roughly balanced. I think we talked about $150 million or so sales and -- I'm sorry, $150 million or so acquisitions and $125 million or so of dispositions. So just for the balance of the year, you'll see us continue to do what we've done for the last couple of years, which is upgrade this portfolio, continue to add value through getting better properties in the mix.

Great. Last one for me. It looks like interest expense forecast moved up slightly. And I know that you had baked in some potential savings from Pillarstone. That obviously seems to be a little bit on delay, which I'm not surprised about. Is there anything else that's kind of motivating that change that I should be aware of?

Yes, sure. I don't think we had any Pillarstone savings baked into the forecast. But really what's driving that interest expense is just that in our recycling efforts, some of the acquisitions have come ahead of some of the dispositions. And so that $1 million increase you see in interest expense is going to be offset by increased non-same-store NOI, maybe even a little accretive on those efforts. So it's really just capital that we had to put out there to purchase a few properties.

So just the timing thing. And then, Scott, from that regard, are we still thinking kind of sub 7x debt to EBITDA by year-end?

On a last 12 months basis, I think we'll be right around 7x. And if we're just talking about the fourth quarter annualized, probably mid-6s is where we're forecasting.

The next question is from Gaurav Mehta from Alliance Global Partners.

I wanted to ask you on the 2 acquisitions that you announced in second quarter. Can you provide some more color on the upside in those acquisitions as far as lease-up opportunity and maybe mark-to-market rent potential?

Sure. I'll start out again and allow some of my teammates to chime in if they'd like. But I think fundamentally, Gaurav, the most important thing we looked at was the quality of the neighborhoods and locations and the trajectory. Both the Fort Worth acquisition and the Austin acquisitions are in really great submarkets. They're in areas with strong household incomes, traffic growth and then neighborhoods that are continuing to get better.

South Hulen in Fort Worth is adjacent to the Hulen Mall, which is a mall that's going through redevelopment. There continues to be activity there. I think as we look at the opportunity, obviously, continuing to be able to improve rents is a part of that and continuing to look at the tenant mix and upgrade that in conjunction with what we see going around the area. And in Austin, it's a couple of things. We have a sister property right across Loop 360 that's Davenport. So we're going to get some good synergies by those 2 properties being very close to each other.

And another one, it's one of the best areas in Austin with very little retail around. And so we'll be -- you've got a really strong restaurant there that it's a local draw. And so we'll be able to do a number of things from the tenant mix and drive rents. So I think the opportunity for us on both of these is kind of our bread and butter. It is buying properties in areas that are -- have an upward trajectory where the center is trailing a bit, and we could come in and apply our model and really continue to move the tenant base and move the rents.

Okay. Second question on the recycling on the $40 million of assets that you talked about that could be sold. Have you guys already shortlisted the properties that you plan to sell? And would you still consider selling if you don't find the right acquisition opportunities this year?

Sure. We are evaluating our properties on a regular basis, right? It's what we do. We look at cash flow models. We understand the surrounding area. We look at the tenant mix, and we look at what's going on in the market. So none of this is ever set in stone. When we identify a property that we think it makes sense to divest and move on, it's obviously based on a value that we think is appropriate for receiving for that property.

So we annually do -- we annually, quarterly, monthly do a review of our holdings, and we -- there's fluidity in that based on market conditions. But we do see good conditions right now. As I mentioned, we're seeing a little bit more product on the acquisition side, and we continue to see interest in some of the assets we've been selling, which are a little different quality than the ones we're buying, but local buyers and other buyers seem to have a pretty strong interest in those.

The next question is from Barry Oxford from Colliers.

Just building on the acquisitions, what have you seen as far as from a pricing standpoint or cap rate, let's just say, from January 1 to now? And then on a market basis, are you seeing any of your markets on a pricing basis be more favorable on a risk-adjusted basis? Or are you guys just more on an asset-by-asset type of mindset?

I'll comment on the cap rates. I'll let Christine maybe give some thoughts on the markets. But from a cap rate basis, I do think we've seen some leveling of the cap rates, less volatility there. If you look at Slide 10 of our investor presentation, we've given the kind of the going-in cap rates on the centers we bought. Most recent acquisitions were in the 6.4% to 6.7% range, going in. So I think that's kind of consistent with what we're seeing.

And then we've also provided on that slide some current history on some of the other acquisitions. So we look to add probably at least a couple of hundred basis points of yield to our initial going-in yield. So I think from a cap rate perspective, we've seen a lot of stability of that over the last several months and quarters and appears to be settling in for the type of product we're looking at.

And I think what we're also starting to see is just with the shifting market trends with the growth that we're starting to -- we're anticipating every time we buy a center, what's the timing of the remerchandising effort? Or is it something that we see as a potential redevelopment? And most of the time, the remerchandising that we look at really starts occurring within 18 months of when we buy an asset. And then along with that, something that might see as something like Garden Oaks, for example, which we bought at a fairly good price, but was waiting for an adjacent property to be developed before we'd start doing the redevelopment with it.

So we kept the in-place cash flow, which is fairly strong. And then we'll start moving into redevelopment probably in another year to probably around in a year. So this is based again on what we see as the market conditions, as I just spoke about today. It's our locations have really, really strong infrastructure development, densification coming in, and it's been rather impressive and much of that has to do with the communities that we choose for growth.

The next question is from John Massocca from B. Riley Securities.

Maybe thinking about the same-store growth guidance. How much of that right now is subject to leasing activity? Is it going on now or is it going to be going on the remainder of 3Q and 4Q? And how much of that growth is really locked in based on things you have signed that are going through free rent period? I know you mentioned a little bit in kind of Mitch's question, but is there any kind of -- I mean is that kind of set in stone at this point, just given the free rent period that tends to exist for bigger tenants?

I think what we have in our forecast right now, John, is just normal leasing activity. And so there's nothing extraordinary happening in the third and fourth quarters that those same-store forecasts are based on. So without getting into a lot of detail, I think it's just our regular lease expirations and just normal leasing activity. I don't know if that helps at all.

That makes sense. I'm just kind of thinking like is the activity you're going to be engaging on the leasing front, the remainder of this quarter and into 4Q, really going to be more of a '26 event and it's stuff you did in 1Q, 2Q, maybe even last year that's going to be driving the remainder of kind of the same-store growth? I'm just kind of thinking is there any -- if something happens on a macro front, whatever it may be, I mean, how much of that is kind of variable in that guidance today?

We have a couple of large spaces that we're leasing that will run into 2026 that are -- but they're built into the forecast that way. And then we just have routine leasing that's going on. I don't know if Dave or Christine would add anything, but I think it's just -- there is a mix in there, but it's a normal mix.

Yes. I think, John, as you said, at a macro level, the same-store NOI trails the leasing activity. And so I think we're very bullish on balance of the year same-store NOI as we look to '26, what we've been doing in our portfolio and the quality of tenants we've been bringing in and the remerchandising efforts. So I think we've given the guidance for '25. We're bullish about where we're headed, and we do think that you're on and that there is a bit of a trail on the same-store NOI to your leasing activity.

And then what are you kind of seeing in terms of trends on leasing spreads starting from a very high base, obviously, in 3Q of last year, but things have kind of trended down. I understand 2H is your stronger leasing season. So just kind of is it maybe -- once again, I understand you're starting from a high base. Is there kind of a seasonal trough in kind of 1Q, 2Q and a bounce back in 2H? Or is some of the tightening maybe a little bit of a normalization of things in the macro environment, the leasing environment, et cetera?

Well, if I look at the leasing spreads, the new leasing spreads were just north of 40%. And that's -- there weren't a ton of leases in there, but it's based on some very strong restaurant activity that we had. So second-generation restaurant spaces that we're filling are coming in at much higher rents than they were. And the renewal leasing spreads were down just a little bit, but they were -- they're on a lower TI and leasing commission amount than we've seen in prior quarters. So I think if you were to net the leasing spreads against the TI and leasing commissions that they're going to come in pretty close to the same amount.

Okay. I appreciate that color. And then last one for me. On a short-term basis, kind of where are you comfortable taking leverage if for whatever reason, maybe the acquisition environment is more attractive than dispositions? Or there is something that is kind of lined up there timing-wise?

I think we've -- yes, I'll start. We've committed to continuing to improve our balance sheet as we grow. So I think that's our commitment. I think Scott talked about where we expect debt-to-EBITDAre to be year-end. If you look back, the progress we've made over the last couple of years is very significant. So I just think for us, it's continuing to execute to grow this platform, to strengthen the balance sheet, to strengthen our investor base. So what we're comfortable on taking leverage to, I think we're comfortable on doing the things we said we're going to do, which is we're going to grow earnings and we're going to strengthen our balance sheet in conjunction. You can do both things.

Okay. I'd imagine the answer is no. But essentially, some of this acquisition activity you're seeing is attractive. It's not contingent on you closing disposition activity first.

No, I don't think so. I mean we have -- we do have different sources of capital. We have a credit facility. So we have largely been capital neutral on our recycling, and we're going to continue to do that. We said that was the activity for the balance of the year. So we're thinking ahead. We're looking at acquisitions. We obviously have the capital sources that allow us to act more quickly than many other buyers. And so I think I answered your question in a roundabout way there.

There are no further questions at this time. I would like to turn the floor back over to Dave Holeman, Chief Executive Officer, for closing comments.

Thanks to all for joining our call. We appreciate your interest in Whitestone. We appreciate giving you an update and look forward to finishing the year and look forward to further communications. If there's anything we can do, any questions anyone has, please feel free to reach out to us. Thanks, and have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.