Whitestone REIT (WSR) Q3 2016 Earnings Report, Transcript and Summary

Good day, and welcome to the Whitestone REIT Third Quarter 2016 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Bob Aronson, Director of Investor Relations at Whitestone REIT. Please go ahead, sir.

Thank you, Hannah. Good morning, and welcome to Whitestone REIT 2016 Third Quarter Conference Call. With us on the call this morning is Jim Mastandrea, Chairman and Chief Executive Officer; and Dave Holeman, Chief Financial Officer. Please be aware that some statements made during this call are not historical and may be deemed forward-looking statements. Actual results may differ materially from these forward-looking statements due to a number of risks and uncertainties. Please refer to the company's filings with the SEC, including Whitestone's Form 10-K and Form 10-Q for a detailed discussion of the factors and risks that could adversely affect the company's results. It is also important to note that today's call includes time-sensitive information accurate only as of today, November 01, 2016. Whitestone's third quarter earnings press release and supplemental operating and financial data package have been filed with the SEC. Our Form 10-Q will be filed shortly. All of these documents will be available on our website, whitestonereit.com in the Investor Relations section. Today's remarks include certain non-GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the earnings press release and supplemental data package. I'd now like to turn the call over to Jim.

Thanks, Bob, and thank you all for joining us on our call. Today, Dave and I will review our third quarter results and will provide you with an update on our recent progress and initiatives, and we welcome your questions at the end of our presentation. We continue build on Whitestone's portfolio of exceptional retail properties, located in prime locations with high household incomes within some of the fastest growing markets in the country. Our tenant base is crafted with strong tenants who are primarily service providers that are performing very well as they continue to gain sales in direct contrast in many of our traditional retailers that continue to lose sales to e-commerce. Our properties and overall enterprise value continues to increase. We make acquisitions of retail properties with potential upside gained through increasing rental rates, retenanting, increasing occupancies and adding leasable square footage at competitively lower cost. This quarter, I want to highlight our industry-leading compound annual growth rates in key financial measures since our IPO in August of 2010: Our third quarter financial and operating results; our recent acquisitions utilizing our operating partnership units priced at $19 a share, which is a significant premium to our current traded stock price; our current development activities and our efforts to attract additional investors. We have implemented a forward-thinking business model that is service tenant based and profitable. With it we have produced compounded annual growth rates since our IPO in August 2010 of 26.5% in revenues, 27.5% in property net operating income, 33.8% in funds from operation core and 8.5% in funds from operations core per share. On a year-over-year basis, this quarter marks our 24th consecutive quarter of revenue and NOI growth and our 25th consecutive quarter of FFO core growth. Our third quarter compared to last year's third quarter is equally impressive. Our results are highlighted by 220 basis points improvement in retail occupancy to 89.6%. Our highly differentiated business is innovative and continues to drive our performance and gain recognition with growth-oriented institutional investors. At its core are high-quality, e-commerce-resistant neighborhood community and lifestyle retail centers. Our portfolio currently consists of 71 properties located in the largest and the fastest growing cities in the United States, including Austin, Dallas-Fort Worth, Houston, San Antonio, Phoenix, Mesa and Scottsdale. Within these cities, our properties are anchored by some of the best communities with high household incomes, highly educated workforces and strong job growth. Our internal growth is strategically driven by our team who continue to craft a tenant mix to capitalize on the changing retail landscape, shifting consumer behaviors and purchasing patterns. We utilize our full range of research to understand the needs of busy families living in the nearby thriving neighborhoods, and match those with tenants that are a go-to destination for daily necessities, services and entertainment. This approach is in contrast to traditional retail rates that lease their properties to retailers who are continually being threatened by the rising rates of online sales. To ensure our tenant success, we create a physical environment at our properties to increase consumer traffic and gathering and social areas and promote social sporting and holiday events. This process begin with our acquisitions and property strategy same who we developed and then they repositioned. They rebrand and retenant, and then turned over to our operating team to lease and manage. To meet our growth needs, we continue to train and develop our people. In January, we began our 2017 annual executive -- real estate executive development program. This 12-month program provides training and development to potential leaders who we select to ensure that the execution and management of our business policies and practices and processes and then give us the ability to scale our business. In addition, we align entire Whitestone team with our shareholders through our performance-based stock ownership program. During the quarter, we added to our management team with the addition of Travis Rodgers, who joined us as Director of Operations. And Travis who has a law degree and brings 18 years of experience in his being with Walmart. In addition to Travis, we brought on Dennis Younes, a 26-year commercial real estate veteran, who joined our team as Director of Leasing in our Houston operations. During the quarter, as previously announced, we expanded our portfolio with acquisitions of 2 upscale retail centers located in Scottsdale. Both are value-add properties and are complementary to our e-commerce-resistant business model. These assets bring our total holdings in the Greater Phoenix metropolitan area to 27 community center properties totaling 2.3 million leasable square feet and are supported by our existing infrastructure. This places us in the top 2 to 3, 5 owners of retail properties in the Phoenix market. The 2 new properties containing a total of 237,000 square foot of leasable area were acquired at a combined aggregated occupancy of approximately 90% at a 7% in place unlevered cash-on-cash return that we expect to growth to over 9% as we increase the occupancy and retenant some of the tenants and implement our business model. What stands out in addition to cash-on-cash returns, is that we funded 17% of the $72.5 million purchase price with the issuance of operating partnership units at $19 per operating partnership unit and over 40% premium to yesterday's closing stock price. This is the second acquisition we have paid with OP units priced at $19 per a share in premium to our current market valuation. And it is our intention to utilize its advantageous structure in the future. Tenants of these 2 properties include 2 Starbucks, one at each property, an Orange Theory Fitness, Ruth’s Chris, Massage Envy, Mastro’s Steakhouse, Walgreens, Kumon, Bank of America, Wildflower Bread Company, and Jamba Juice and others as well. On the disposition front, we made good strides during the quarter and expect to complete the disposition of our remaining noncore assets this year, achieving our previously communicated goal of becoming a pure-play owner of retail A-grade centers. This year, we also initiated 2 development projects, which we expect to complete in the fourth quarter. Our development projects are at Pinnacle of Scottsdale in Scottsdale and at Shops at Starwood in Frisco, both located adjacent to existing Whitestone centers. At Pinnacle, we increased the leaseable full square footage by 24% and at Starwood by 61%. The land was included in the original acquisitions at the minimum incremental costs. Preleasing efforts have been strong at both new centers. The additional space is projected to be incremental annual NOI in excess of $1.7 million in an unleveraged IRR of 13%. We expect to see the impact of this cash flow to begin sometime in the fourth quarter and then on into next year. As we ended 2015, we committed to further place Whitestone on the radar screens of investors dedicated to long-term growth. We realized that our story wasn't quite understood, and that we had to get out and really tell one-on-one as it is different to what investors are accustomed to in the retail growth rate space. We had one-on-one meetings with a significant number of potential new investors across the United States and in major European markets to make them aware of Whitestone's innovative e-commerce-resistant business. Some of these meetings were second meetings from meeting with them the previous year, particularly in Europe, and we are now helping them as they build their models. With that, I'd like to now turn the call over to Dave. And I'll provide some closing remarks following the conclusion of Q&A. David?

Thanks, Jim. Our distinctive e-commerce-resistant business model continues to deliver solid results. For the third quarter, total revenues increased 3.7% over the same period last year to $25.5 million. Same-store revenues, which represents 91% of our total revenues, for the quarter grew 1.8% to $23.3 million. Property net operating income for the quarter increased 5.4% over last year, driven by our top line growth and efficiencies gained in our property operating expenses reflecting our scalable business model. Same-store net operating income grew 3.5% versus the prior year. Funds from operations core for the quarter increased 3.8% or $360,000. The increase in funds from operations core was primarily driven by increased net operating income of $900,000 or 5.4%, improved G&A by $300,000, which excludes the amortization of our stock compensation and acquisition expenses, which was partially offset by higher debt cost of $900,000 from higher average borrowings during the quarter and higher effective interest rates. To that point, in late 2015, we fixed the rate on $200 million of variable rate debt for a period of 5 to 7 years. Our average interest rate for this year's third quarter was 3.31% compared to 3.05% last year. On a per share basis, funds from operations core was $0.33 this quarter compared to $0.34 in the prior year quarter. The primary reason for the change in the per share amount was the timing of the issuance of 1.9 million shares in Q2 and Q3 through our at-the-market offering program. These funds were used to fund the 2 properties we discussed earlier. We expect the 2 great acquisitions we made in the quarter to contribute approximately $0.12 per share annually or approximately $0.03 per quarter beginning in the fourth quarter of this year. The impact to Q3 '16 of the additional shares was $0.02 per share. Funds from operations per share was off $0.03 from the prior year, primarily as a result of higher amortization of noncash stock compensation partially offset by lower acquisition expenses. We continue to benefit as we gain scale from our larger base of assets on our G&A expenses. G&A expenses, excluding the amortization of noncash share-based compensation expense and acquisition transaction costs from both quarterly period, improved 180 basis points from last year to 10.8% of total revenues. We expect that G&A will continue to become a smaller percentage of our revenue as we grow. We continue to believe the performance-based compensation resulting in significant ownership by management is the best way to align our team with our shareholders. At the end of the quarter, we had 101 employees. With regard to leasing, we had a great quarter. Our leasing team signed 113 new and renewal leases totaling 270,000 square feet with a total lease value of $16.3 million representing future rental revenue income. Our leasing spreads for the last 12 months on a GAAP basis have been a positive 8.2% on renewal leases and a positive 6.5% on new leases for an aggregate 8% increase. We ended the quarter with total occupancy at 87.3%, and our retail properties, which represent approximately 90% of our invested capital, occupancy was 89.6%, which was an improvement of 220 basis points year-over-year. Our average retail based rent on a GAAP basis expanded 3% to 17% per square foot. We have a diverse tenant base minimizing our individual tenant credit risk with our largest tenant representing only 3% of our annualized rental revenues. At quarter end, we had 1,561 tenants. Now let's spend a few minutes on our balance sheet. We had total real estate assets on a gross book basis of $918 million at the end of the quarter producing approximately $74 million in annual net operating income. This equates to an over 8% unlevered cash-on-cash return on our investments. Over the last 12 months, our real estate assets have increased 10%. Our capital structure remains quite simple with [indiscernible] of stock, no joint ventures and a combination of property and corporate level debt. Further, our underlying debt structure is sound with a prudent mix of secured and unsecured debt and well laddered maturities. This composition gives us the financial flexibility and support we need to quickly react to growth opportunities and changing conditions. At the end of the third quarter, approximately 70% of our net debt was fixed with a weighted average interest rate of 3.8% and a weighted average remaining term of 5.5 years. Primarily reflecting borrowings under our credit facility during the quarter of $33.5 million related to the funding of our 2 Scottsdale acquisitions, our real estate debt at quarter end was -- net of cash, was $540 million. We had $108 million of availability under our credit facility at the end of the quarter with an additional availability of up to $200 million from the exercise of the facility's accordion option. As previously communicated, we expect our debt leverage to decrease over time as a result of increased net operating income generated from increases in occupancies and rental rates and capital structuring of future acquisitions. During the quarter, we completed $72.5 million in acquisitions using 54% equity and 46% debt. The debt-to-EBITDA ratio on these acquisitions was 6.5x. As a result, our debt-to-EBITDA ratio decreased from 8.9x in the second quarter to 8.5x in this quarter. We continue to maintain a largely unsecured debt structure with 52 unencumbered properties out of 71 with an undepreciated cost basis of $687 million. During the third quarter, we sold 1,000,084 shares of our common stock under our at-the-market offering program at an average share price of $15.08 resulting in net proceeds of approximately $16.1 million. These funds along with net proceeds of $10.6 million generated in the second quarter from the sale of 736,000 shares under our ATM program at an average share price of $14.66 were used to help fund the 2 accretive Scottsdale acquisitions, which I previously said are expected to contribute approximately $0.12 per share on an annual basis beginning in the fourth quarter of this year. The funds remaining $72.5 million purchase price for the 2 Scottsdale properties, as Jim mentioned, we issued 621,000 operating partnership units -- excuse me, valued at $19 per unit or approximately a 40% premium to our current stock price. We will continue to evaluate other sources of capital to fund our growth, including recycling of capital generated from noncore asset sales, additional debt and issuance of equity and OP units. Turning to our guidance. We are updating our guidance for the year to reflect the 2 recent acquisitions related transaction costs, increased shares and operating partnership and increased amortization of our noncash stock compensation. We are tightening our guidance range for funds from operation core per share to $1.34 to $1.37. As previously communicated, our 2016 guidance does not reflect the effect of any future acquisition or disposition. Please refer to our supplemental financial information that's posted on our website for additional details on our financial guidance. That concludes my remarks. And Jim and I will now be happy to take your questions.

[Operator Instructions] And we'll take our first question from Mitch Germain with JMP Securities.

You have a couple of larger tenants with 2017 expirations. I know it's just one of various leases: Safeway, Wells Fargo, Walgreens. What's the status of -- or should we assume that all those are renewed?

Yes. Let's start with the Safeway lease and Anthem. They did just renew. So that's one of them. With regard to Walgreens, I think you're referring to the one that's in Macau. Dave, do you want to address that?

Sure, I'll just -- I'll touch. The quick answer, Mitch, is we expect those tenants to renew. I think, I'll remind everyone, obviously, we have a really a diverse tenant base with -- even our largest tenant being Safeway at 3%, the next one is 1.2%. So the quick answer is, is we expect renewal of those tenants of the Safeway stores that are maturing in the coming months.

Yes. Let me mention, Mitch, on the Safeway up and Anthem that, that was one of the Safeway stores when Albertsons bought Safeway and then they sold a number of stores at Haggen. We -- when we accepted that sale, we kept Safeway on the lease. And so Haggen, as you know, filed bankruptcy and Safeway now came in. They came back to us and said, they'd like to re-lease that space from us. So we did. So they are in the process to be opened by Thanksgiving.

Fantastic. Last one from me. Asset sales, obviously, Jim, you mentioned we should have some sort of validation of the process by year-end. I'm just curious, is this going to be a several trades? Is it one big portfolio? And maybe if you can just provide some sort of idea, what types of potential buyers you're talking to?

Let me start off and Dave will jump in. Today, it's going great. We don't have to be -- we've been consistent with the fact that we think it will take place before year-end. Right now, I believe we have 3 different buyers on the portfolio of the asset, and it's about 14 different properties. Values are comping in the range of between $60 million and $75 million, $80 million.

A little higher than that. Probably $65 million, $85 million value, I think we have all of the noncore assets under -- in the process of disposition. So that's why we remain confident in our ability to close those transaction by year-end.

Your next question comes from R.J. Milligan with Robert W. Baird.

Just to follow on Mitch's question on the disposition side. Can you guys remind us in terms of the dollar volume what your anticipated proceeds are? And any idea in terms of pricing? What are you guys seeing in terms of cap rates?

Sure. I think we've previously communicated a range of kind of $65 million to $85 million expected proceeds. That range still is consistent. And then cap rate wise, they're in the 9% to 10% range, of NOI purchase price.

Okay. And it looks like occupancy ticked down a little bit in the office flex properties. Any color on what's going on there year-over-year?

Yes. Clearly, our focus is on the retail piece of the business. We had great same-store growth in our retail property. Actually the same-store growth was 230 basis points, so up a little bit better than the overall. We did see some decreases in our flex properties, which are all located in Houston about 3% on year-over-year basis. Then there were a couple of lumpier tenants that moved out larger spaces. Continue to be tough, but we're confident in our ability to lease those up. But we are seeing some softening in that flex product, and it's obviously part of our plan to move out of that and to move to 100% retail.

Yes, we think that, RJ, [indiscernible] being a pure retail play. And how we've been managing our folks is with the focus on the retail side knowing that will be selling off these assets. It's marginally different in price whether they're down 1 point or 2 in occupancy. When we sell them, the prices all coming in about the same because they're primarily being based on their -- on the locations. We think we can sell them and retain some upside in them as well. But we think that our focus has been really on the retail side, and you can see that getting very, very strong in the future.

And it does a little bit mask our overall results that we recognized. Our overall total occupancy was up 130 basis points year-over-year. And that was taken down by some of the flex of about 3% year-over-year. So really the retail piece of the portfolio is really even performing better than kind of the overall results show, and I think that will be more clear to folks when we get this disposition done.

Okay. So moving over to the retail side, obviously, good same-store NOI growth, good leasing spreads. Wondering if you could provide commentary on more market-specific basis in terms of what you're seeing in both Phoenix and Houston and maybe some of the smaller Texas markets?

Yes. Well, Phoenix is terrific. We have had -- we continue to get strong interest in our properties in Phoenix. We now -- with this recent acquisition, we control about 650,000 square feet within an area of 4 to 5 miles differentiating the properties so that we had different price points for a tenant that want to be in the marketplace, and that gives us a very strong controlling position. One of our properties that you've seen is at the intersection of Scottsdale Road and Pinnacle Peak. It has an Ace Hardware, a Safeway. We've recently expanded that. We'll have a Starbucks. We'll have a Italian restaurant. We have about 4, 5 different restaurants there. The property across the street is smaller. It's about 125,000 square feet. And it was -- it has a Sprouts store, and it's the only competition in the area. Two great pieces of news attached to that. One is that they were unable to attract any of our tenants, and that's a hats off to our leasing and management team and how we take care of our tenants. Two is that property just re-traded at $600 per square foot. So we're very pretty excited about that. I think we're in and about $140 a square foot, and I think -- and it's everything to the west of it is state-owned land, so there's nothing right in that proximity. With regard to the Starwood property, that we're preleasing up in north of Dallas, up in the Plano in the Frisco area. And this is the first for Whitestone. We just hit our $50 square foot rent plus triple nets. And I think in this industry in that kind of space, I think it's in average about 3,000 square foot of space. So that's a really strong sign that we're having great fortune with the preleasing of both the Pinnacle and the Starwood property. And we expect those to add about $1.8 million next year in cash flow. And we're actually turning over -- we turned over 2 of them, one space Starbucks, we turned another space to Orange Theory. I think that gives us now about 5 Starbucks in the portfolio. So in reality, we really have some pretty significant tenants, and they are along with the small tenant-based business model that we have. With regard to Houston, our retail properties continue to grow strong. We've got redevelopment activity on 6 of the properties. And as we redevelop we're able to find extra land parcels, for example, we have a lease with a Checkers on one of our properties, which is a fast-food chain as you know. And this is a property that there's no cost to it. We just recounted the parking, we're able to do that. That's in one of our Houston properties. So Houston continues to go very well for us, particularly our Alliance group property, which is now nearing 100% lease and the rents are about 20% higher than it were 2 years ago. With regard to Dallas and Fort Worth, Dave you want to touch on those and then on Austin and...?

Sure. I'll just -- obviously, I do the quick summary and then we'll hopefully answer your question, R.J. So I guess I would tell you that the leading markets really for us have been Phoenix and Houston over the last year. Very consistent with our past practices. When we acquire properties, it usually takes us 12 or 18 months to really apply our model and fee increases and occupancy and NOI. Our newer acquisitions are in the Boston and Dallas markets. So those markets are forming a little slower right now, but very much expected. It takes us a little time. So really the best markets for us really have been Phoenix and Houston from a growth perspective year-over-year, and we expect Dallas and Austin, obviously, to continue to contribute and grow as well. In our investor presentation, I think we have a slide that shows our acquisitions by year and then what we've done to those acquisitions since we've owned them. You can see it's very consistent, and it takes 12 to 18 months for an acquisition to really start to see the significant increases.

Your next question comes from Carol Kemple with Hilliard Lyons.

I noticed that real estate taxes down in the quarter, which is always exciting. Were you all able to go back and kind of argue that taxes out? Or why were they lower in the quarter?

Yes. We spent a lot of effort on really, free time, the property taxes in Texas. Property taxes are a little higher than they are in some parts of the country. So we are very active in contesting our protest. Our taxes, some of those we take to litigation, and we were able to lower property taxes, primarily in our Texas markets in this quarter. So we continue to see benefits there. We'll continue to push those. Obviously, those taxes are pushed through to our tenants. And as we decrease those, it actually gives us the ability to have a little higher base rents and a higher net operating income.

And then can you talk about the acquisition pipeline? And if you have anything that you think you might close on before year-end?

We have about 4 deals that we're working on right now in the pipeline. One of those we could close before year-end. Our focus is really primarily on becoming the pure-play retail company by year-end. So we may or may not close one more deal this year, but we do have a much higher probability of becoming a pure play by year-end.

We do have a -- as we always have, we have a very large active pipeline of potential acquisitions. So nothing has changed on that front and that we continue to see opportunities in our market for deals that are off market that really meet our business model. So just from a timing perspective and resource perspective, as Jim mentioned, we are focused very much on becoming a pure-play REIT by year-end, but we continue to see opportunities in this type of assets in our markets.

Just to recap, Carol, this year, we had a $165 million worth of deals under contract. We took a pass when we were in due diligence because we learned that when we -- one of the large properties, when it was bifurcated, it had a grocery store that had covenants that were too restrictive to the adjacent property. And you couldn't tell that it had the covenants because there is a road splitting the grocery store near the property. So we took a pass on that. So we spend about 3 or 4 months working on that deal to take a pass. And we had some costs, as you know, which impacted -- I think we might have had $75,000 worth of costs associated with that. The 2 deals we just closed, we had been working on for about 2 years, they'd been in the pipeline. And so those have been just terrific additions to what we're doing. So overall, our pipeline is much larger like Dave said, about a $0.5 million.

Your next question comes from Anthony Hau with SunTrust.

So when I look at the portfolio today, there's couple of assets that are well underlease, such as Mercado at Scottsdale Ranch. Can you just give us an overview and your plans on these pockets of vacancy?

Yes. Mercado, we have 2 larger tenants working -- we're working on. One is 11,000 square-foot tenant, an alternative to that would be taking the entire space. We've been working with them to see if we'd like even one of those to come back into the space. And then some -- and Dave, jump in whenever you want, please. So we're working in number of these spaces. Do you want to comment, Dave?

So obviously, I was just going to go back and remind everyone of the Mercado acquisition. One of the highlights when we bought that property was there was a grocery store there that was really paying, I think, $2 rents, and we expected to be able to retenant that. So while there is a vacancy at Mercado from an economic standpoint, that vacancy is not hurting us. And we expect to have significant upside. And Jim was giving some comment on the colors. But we brought that property really knowing there was going to be the opportunity to retenant and add value over what we paid and the in-place NOI when we brought the property.

And then -- so we had 30,000 square foot vacancy there with a $2 square foot rent. The 2 deals we're looking at, one is $9 a square foot for the entire space and other $7 a square foot for 11,000, including 1,000 square foot. So we're really looking in terms of -- we're very particular how we match our tenants in a property. And so that's one of the things that we'll going back and forth now. In fact, I'll be in Arizona leading on that this week.

And what's the net debt to EBITDA for those noncore assets that you guys are planning to sale?

I'm sorry, did you say the net debt to EBITDA?

Right. Because I know that those are -- those assets are from mortgage debt to those office space properties, right?

Yes. So some of those assets have mortgage debt, some are included in our credit facility. I think we -- I can't give you a net debt to EBITDA, but we believe that, that transaction will be positive from a leverage perspective to Whitestone. Those assets are little higher levered than the retail assets.

Your next question comes from Craig Kucera with Wunderlich.

I'd like to focus on the dispositions and kind of what you're thinking even going into '17. If you're selling the office flex, call it the midpoint of what you're talking about, you've given up maybe about $0.24 in NOI. How do you think about -- as we think about next year, how do we think about are you guys replacing it with acquisitions? Is it going to be match funded? Or do we think we might see levering up to maybe replace that NOI that might be lost?

I think absolutely, we think this as a recycling. So we -- as we mentioned, there's great opportunities with our core product type. So we would expect to sell these non-core assets and then recycle those proceeds into retail assets that fit our business model.

Yes. Let me also say that, what we've learned from you all as a group of analysts and also from my investors is that we're being penalized with a 10x today on FFO. We have been consistent in our dividends. We have -- our coverage is strong. The only thing that's not reflecting the strength for the company is our share price. We've made 2 deals now at $19 in OP units, significant amount of capital we raised at 15 -- about $15 million worth of capital. And if in fact what we expect to happen is that our multiple go up anywhere between 10 and 18, we will be in a range that we can raise capital with much lower cost of capital and then just pick the deals out of our pipeline because the deals are there, but it takes a lot of time to be creative to use operating partnership units to make them accretive. And we've done that since we've grown this portfolio from $125 million up to about $1.2 billion today. So we think the benefits, while there might be a slight $0.02 or $0.03 decline in the sale of these assets, we think we'll more than make it up in the multiple. Remember, $0.50 a share gives us an extra $6 million [indiscernible] actually more than that. It's about $15 million in value. So we think that that's going to be a significant change for us.

Got it. You did mention achieving some better economies of scale. I think this quarter was maybe a new high for G&A to almost pushing towards 25% of revenue. Do you think when you get out of the office in flex, is there are any opportunity to improve scale there? Or do you think it comes from other areas?

Sure. We believe very strongly that we will continue to increase scale. So one of the things in our G&A. There's the noncash amortization of stock comp that varies quarter-by-quarter based on the number of periods we were amortizing that cost over. So that when you quote that 20-plus percent, that's including really an amortization. Our core G&A costs for the quarter was 10.8% of revenues, which hold up the stock count, hold up the acquisition transaction expenses. We have seen that decline as a percent of revenue and continue to do that. We've got the infrastructure that we can support and grow. An example of that is that the acquisitions we made for the quarter in Phoenix. We brought on about a little over $5 million in net property income in those 2 properties and really added no G&A costs to support those. So I think you will continue to see us scale our G&A. You will see the percent with the stock comps in it bounce a little bit just because that's cap accounting and kind of the true earning of the stock.

We also think along those lines, that we brought in some new folks that we replaced, particularly our Director of Operations, and so though that change in terms of the additions through overhead there from where we were, that the individual brings a wealth of experience in a company like -- being with Walmart for all these years, and he brings added systems and processes to us. So that's an area that we wanted to really make sure we continue to round our team [indiscernible]. The other individual we brought on board is a fellow who is the Director of Leasing in Houston. And as you all know, our leasing efforts in Houston, particularly with the core assets have lagged behind everything else we've built in the rest of the company. And so I think you're going to see that those 2 folks part of this team now has been the credit difference.

We'll take our final question from Dan Donlan with Ladenburg.

Jim, just wanted to -- or just wanted to clarify the contribution from the developments that are coming online in the fourth quarter and maybe into 2017? Is the $1.8 million you cited, is that a run rate once they're fully stabilized? Or is that how much do you think they're actually going to contribute to 2017?

Yes. That is a annualized run rate once they're stabilized. Maybe I'll give you a little more color on the preleasing efforts that will help you understand where we are in the stabilization process. So we have 2 properties about 70,000 square feet between the 2, I mean -- sorry, with the 2 in total. In Dallas, we have leasing discussions some under lease, some under NOI, some close for a little over 65% of the square footage today. In Scottsdale, the other property, they're both similar sizes, same [indiscernible] exercises with leases, leases under discussions, LOIs. We're at close to 90% leased in that property. Leases were around 90% under discussion. So the $1.8 million is an annualized, stabilized 95% occupancy. And today, we're not too far from that.

And Dan, let me just go back and I appreciate the question because it gives me an opportunity to share with you part of the culture and philosophy and strategy of Whitestone. We bought the shopping center at the corner of Scottdale Road and Pinnacle Peak. Then at the same time, we brought a parcel of land just north of that on Scottsdale Road from 2 different owners. The land we bought, we paid $900,000 for it. It was from a bank who had a $4.5 million loan on it. We went to the city. We received the entitlements to build approximately 40,000 square feet plus an additional 20,000 square feet towards the back of that property. The back of the property, including -- it was a separate parcel and the buyer of that separate parcel purchased from us that 20,000 square foot proceeds stand for $1.3 million. So we completely cashed out of our $900,000 investment in the land, and they're paying a third of the development cost and putting in the new roadway going back to their property. So net of all those, net of the cost, we're able to be in that 16% to 17% range return on investment. I'm sharing it with you because that's the way -- how we approach deals. The same thing in Starwood. We bought that property. We had the residual piece of land. We're careful to bring on a percentage of land each year, but I would say and virtually 90% of the properties we've acquired, there's some element of development that we have -- we can either obtain the entitlements or we have a piece of land that's already entitled that we can add these properties.

Hey, Dan, jut to give you one more piece on that [indiscernible] add and really the build cost on that is about $18 million for the 2 properties. We funded 75%, 80% of that today. So that's kind of reflected also in our debt level, and you're not seeing that in the EBITDA. So that's a transaction that will be accretive from a leverage prospective next year as well.

Okay, perfect. I really appreciate the color. And just last thing just for modeling purposes, it seems that you've been running the company under net debt-to-adjusted-EBITDA somewhere between 8x, 9x. Is that kind of the range that we should be thinking about you guys going forward? Just kind of curious there?

So we've communicated our goal to decrease that debt-to-EBITDA [indiscernible] 24 months down to 7 turns range. So similar to the acquisition we did in Q3, which was at 6.5 debt-to-EBITDA ratio, you're going to see us bring that ratio down really from increased cash flow and then the structuring on acquisitions and dispositions as we go forward.

And that concludes today's question-and-answer session. Mr. Mastandrea, I would like to turn the call over to you for any closing remarks.

Yes. Thanks, operator, and thank you all. We do appreciate your interest in Whitestone and for joining us on our call today. And we also appreciate your continued confidence in what we're doing with the company. I think we're building a great company. Looking at the big picture, I'm confident in our ability to maintain our momentum in the fourth quarter. Longer term, our belief is that our innovative e-commerce-resistant business model is well positioned in ideally located portfolio of properties and optimum mix of tenants providing services really not really available online, and that continues to drive our profitable growth. What's very important to that, that, we are committed to educating our institutional and retail investors because it's a new business model. And it's unlike the retail, real estate ownership that's traditionally has been known. So as we continue to educate and tell our story, we do this on a one-on-one basis but we're also always consistently trying to educate our existing analysts and also new analysts that we'll be bringing on board who seem to love what we're doing. And the reasons are the financial strength of the model, the earning power that we have and the growth potential. That's pretty much inherent. When we did this recent deal at $19 a share on operating partnership, that was a discount to the net asset value of the company. And that discount we feel it really has been warranting a lot of attention. With that, the last thing I'd say is that, NAREIT is holding its an annual conference in the REITWorld, the week of November 15 through to 16, I'll be mentioning on each of our calls that I want to again mention that we're hosting an event to spotlight one of our properties, and within that -- within a 4-mile area of that property, we have I want to say 5 other properties. So it's a Market Street at DC Ranch. For those of you who will be attending, REITWorld would love to have come by on November 14 and join us. We will be running a shuttle bus back and forth to the Marriott Desert Ridge which is maybe 15 minutes west of our Market Street property. We'll have lots of fun and entertainment. We have 7 restaurants at the property. We have new [indiscernible] lounge that we think will be open. But we'll have some entertainment for you, and we think it will be fun. We've had our RSVP list now that's upwards of 50. So we'd love to welcome anyone else who will come on by. With that, I'm going to close our call. And thank you, once again. And we look forward to the final call we will make at the end of the year. Thank you, operator.

And this concludes today's conference. Thank you for your participation. You may now disconnect.