Greetings, and welcome to the Whitestone REIT Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kevin Reed, Director of Investor Relations.

Thank you, operator. Good morning, and thank you for joining Whitestone REIT's fourth quarter and year-end 2020 earnings conference call. Joining me on today's call are Jim Mastandrea, our Chairman and Chief Executive Officer; and Dave Holeman, our Chief Financial Officer. Please note 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 press release and filings with the SEC, including Whitestone's most recent Form 10-Q and Form 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 25, 2021. The company undertakes no obligation to update this information. Whitestone's fourth quarter earnings press release and supplemental operating and financial data package have been filed with the SEC and are available on our website, www.whitestonereit.com, in the Investor Relations section. During this presentation, we may reference certain non-GAAP financial measures, which we believe allow investors to better understand the financial position and performance of the company. Included in this earnings press release and supplemental data package are the reconciliations of non-GAAP measures to GAAP financial measures. With that, let me pass the call to Jim Mastandrea.

Thank you, Kevin, and thank you all for joining us on our fourth quarter and year-end 2020 investor call. We continue to hope that all of you, your families, your businesses remain healthy and are doing well as we continue to navigate these most unusual times. Let me discuss the many positives that can be derived from the last year of challenges, and how our unique business model that we designed successfully passed a gauntlet of stress tests over this past year. The proof of Whitestone’s concept has become a reality, well before COVID hit. In the previous investor calls, we've often talked about the necessity of being local, the essential tools of convenience, leasing to well capitalized tenants that have skin in the game and the evolution of retail to smaller, more flexible spaces. From its inception, Whitestone has differentiated itself from our competitors with our avoidance of big boxes and hard and soft goods selling national retailers and have favored the smaller footprint, service-based entrepreneurial tenants. Our tenants or triple net in during normal times in the real estate world a disruptive contrarian concept like ours would take years to play out. What we have witnessed, however, is in the real estate industry 10 years of this Freshman was condensed into 10 months. The result, we make this statement given the results of our team has had been able to achieve and facing such difficult headwinds this past year. I would like to highlight six key factors in achieving our results. First, we had strong cash rental collections. Over the past year Whitestone has consistently been near or at the top of the shopping centre industry regarding quarterly cash rental collections. In the second quarter, we collected 81% versus an industry average of 73%. In the third quarter,…

Thanks, Jim. First, I would like to echo Jim's comments regarding the strength, the economic recovery in our markets and properties. Our foot traffic recovered strongly, and our cash collections continue to build toward pre-COVID normal levels. Our occupancy has been impacted, but only by about 2%. Our leasing activity has rebounded to pre-COVID levels and leasing spreads have remained strong throughout 2020. We have a highly dedicated team that works every day to create local connections and communities that thrive. We continue to see the strength of our geographic focus and our forward thinking well crafted tenant mix. Despite having a significant amount of our tenant businesses impacted, we only had a handful of tenants close for good, such that the portfolio occupancy rate held up well, ending the year at 88.2%, down 2.1% from last year, or approximately 100,000 less least square feet, representing the net loss of only nine tenants year over year. Also, our annualized base rent per square foot at the end of the quarter was $19.43 and $19.58 on a cash and straight line basis. This represents a 1% decrease on both a cash and straight line basis from a year ago. The change on a straight line basis is largely related to the conversion of 102 tenants to cash basis accounting and the associated write-off of accrued straight line rents. During 2020, the impact to funds from operations from these cash basis conversions was approximately $3.5 million $0.08 per share. At year end, we have 54 tenants on a cash basis, representing 4.2% of our gross leasable area and 4.6% of our annualized base rent. Cash basis tenants paid 65% of contractual rents in the fourth quarter, up from 63% in Q3 and 41% in Q2. Our square foot leasing activity was 10%…

[Operator Instruction] Our first question is from Aaron Hecht with JP -- JMP Securities. Please proceed with your question.

Hey, John, hey, Dave. Thanks for taking my questions. Want to start with Texas? Obviously, the weather's been really tough there over the last week or so, wondering if there's any damage that's occurred at the properties, any sort of impact people leave for Whitestone from the weather conditions in Texas?

Hey, hey, Aaron, it's Dave, thanks for your question. Yeah, it has been a strange week so we had some unprecedented cold weather in Texas. Whitestone has done very well had minimal damage to our properties, a couple of small pipe breaks, but nothing significant. But a lot of folks in the area have been impacted, but Whitestone did very well throughout it.

Okay. Good to hear. And then on the demand side, it sounds like the fleet traffic's really starting to pick back up, which is good. Looking at the new leases in the renewal, looks like new leases are down about 5% renewals, up double-digit, pretty big divergence there. Any sort of takeaways between the new leases and the renewals to give us better insight into what's going on? And I mean, is it a certain group of tenants that have lower demand for their product moving out and the higher demand tenants wanting to renew that's causing that just a sort of insight there?

Sure, it's a Dave again, I'll start off and Jim might have some comments as well. But yeah, one of the things we do obviously is try to give some transparency as to the leasing spreads. I will tell you, we like to look at it more on a 12 month basis than an individual quarter because in any given quarter, there's only you know, not that many leases that come through. So our leasing spreads, as you said for the quarter were a little lower on the new leases. I think the renewal leases were kind of consistent. There really isn't a trend we've seen. We saw a couple of little shorter leases where we were doing a smaller amount but not a trend. I think historically our – we've been around the 10% kind of level with blended spreads. And that's where we are for the 12 months. So we – we were very energised by the activity we're seeing, we're seeing a lot of demand. I think one of the things we talked about a little bit on the call was the migration. And I think in our markets with the amount of population migration, as well as some business migrations, we're seeing very good activity.

Yes, company – Aaron. Thanks for asking the question. Company-wide, we're seeing a lot of enthusiasm from the leasing team. We've got, we meet once a week, we need once a week and for about two hours with every single leasing person and we screen the deals and the letters of intent and in leases that are out for signature. So we're seeing a lot of a lot of activity in that regard. And it's interesting to at these meetings, we learn things and this is something that earlier in our remarks, we talked about the migration into Texas and Arizona. And we learned this past Monday that one of the large home builders in Arizona is now in the lottery system for selling lots. They've separated the sale of the house from a lot. And so you can buy a house, but then you have to go into a lottery system for a lot. And that's part of the reason is the influx from California into Arizona. So that in effect will triple – trickle over to the demand for our senators. We're seeing that very closely. So what you're going see, you're going see those numbers change a bit in future.

That's great insight on the net migration. Appreciate that. Nice quarter, guys. We'll jump back in the queue.

Thanks.

Thanks.

[Operator Instructions] Our next question is with Craig Kucera with B. Riley Securities. Please proceed with your question.

Yeah, hi, Good morning, guys. Dave, I'd like to talk about your bad debt assumptions. I think we've seen bad debt fallen half from the second quarter, but it didn't materially change from third quarter. It was sort of midway through the first quarter, you're looking at collections that are you know, relatively flat and even modestly improving kind of what are your thoughts there? As we move through first quarter and the first half of the year?

Yes. Hey, Greg, thanks for – thanks for the question. Obviously, it's been a year of assessing collectability on our tenant base. We've done that at a very granular level, really looking at the tenants understanding their financial position, we've converted about 104 tenants to cash basis. You're right, I think our highest bad debt quarter was the second quarter, obviously. And we've seen that come down in the third quarter. And then fourth quarter was fairly consistent with third quarter. We do expect, obviously, to see that dissipate in 2021. But there's a lot of continued uncertainty with the pandemic and the impact, but our collections are improving 96% in January, we're very pleased with. And so I do think you'll, for the year, we recorded about $6 million in kind of reserves for COVID. Collectability and I think with the increasing trends and our collection rates, we should see that obviously improve in 2021. Q – Craig Kucera: Okay. Thanks for that. And we're hearing that there's an increasing amount of money looking to buy shopping centres here in early 2021. Give me your leverage. Are you considering at all maybe selling some assets to possibly deleverage the balance sheet? Or is that not a consideration at this point in time?

As prudent owners of real estate, we're always looking at this as investments. We do think there's a lot of benefits to Whitestone from continuing to scale our platform. One of the things, Jim mentioned is we are seeing some opportunities out there from the acquisition side. We're going to be very prudent with our capital allocation. But you know, right now, we always look at the individual assets and look at, what's the best way to get a return to our shareholders from owning those assets?

Craig. This is Jim. There's a lot of -- there's always a right time to sell properties. We've got some really terrific properties that we've hand picked. And we're in the process of getting those what we call a stabilised level. We consider a property stabilised when it's at a 95% occupancy and when the rents are equal or greater than the market rents in the surrounding three to five mile area. So each property we buy, usually they have some turnaround features in them and some value add features. And so we like to really get them to the point of where they match that stabilized characteristic. We are in the market, looking on the other side to buy properties. We think there's we have an enormous pipeline about a half a billion dollars, as we mentioned in our remarks. We're seeing some really good opportunities, mostly from sellers who may not have wanted to sell their properties before. But since COVID, realised that life is getting too short. And we've had, we've been introduced to some properties we've carried in our pipeline for some time. So we're looking at some really terrific deals right now.

Craig, I might just make one further comment. I think you mentioned the debt, I am very pleased that we were very positive in reducing our leverage this year. Even given the collectability issues of COVID, we brought down our total net debt about $12 million year-over-year. Q – Craig Kucera: All right. Thanks. One more for me, I know you've got about 16% of your leases expiring this year. Can you give us a sense of, kind of how many of those are maybe month-to-month, roughly?

Yeah, so we historically, if you look at our leasing activity, this year, we signed, let me see, about 900, almost a million square feet. So we're very comfortable with the level of leases, we have expiring in 2021, which is about 800,000. So historically, we've done that level. We do have on the month-to-month side. I'm going to -- I don't have a number there, Craig, it's a small amount of the square feet. We typically, roll tenants over. When they go to month-to-month, we roll them over to the leases. So we don't have a significant amount on month-to-month leases in that. We're also very comfortable with that. And then, if you look at the square foot price of those leases around $17, so a little below our portfolio. So, very comfortable in our lease role, very comfortable in the leases that are maturing in the next year.

Got it. So it doesn't sound like there's any known large move outs in 2021 that you're aware of?

That's right, no -- you know our tenant base very -- we have great diversification of a tenant base with our largest tenant making up a little about 3%. But we have no known significant move outs at all coming out.

Nothing large, our average size tenants is 5,000 square feet. So, when a tenant moves out, we can absorb that very quickly, and then release it to the tenant.

Okay, thanks. That's it for me.

Yeah. Thanks, Craig.

Our next question is from Michael Diana with Maxim Group. Please proceed with your question.

Thank you. You said you expect to increase your occupancy to 90% to 95%. You already talked about the role that migration from California may play in that. What sort of assumptions are behind that in regard to opening of the economy and just general growth in Texas and Arizona?

Yeah. Hi, Michael. In terms of how we see our occupancies increasing one, one of the key factors is adding people. And we've added three new leasing people to our team. We have a very specific business model that requires a certain characteristics in our leasing effort. And so, by adding new people, we will be able to fill more of the vacancies that we've had. I think that's one of the assumptions that we've been working with. The second thing is that we have a large space in Terravita. It was an Albertsons that went empty. And that's now -- and that was approximately 60,000 feet. And we're now about two-thirds of the way under lease contracts to get that occupied. So we have a couple of holes like that that we're filling, and we see those fill-up very quickly. And then just a matter of a lot of small spaces that we got to fill, but we're – we're very optimistic is the opportunity we have this year.

And I can touch on the market conditions. Obviously, geographically, the recovery is, I think, happening at different levels throughout the country. We sit as we said, 99% of our businesses are open today. And then really in Texas, in Arizona, they're largely able to operate it, at pretty close to pre-COVID operating levels with a little greater, distancing and spacing. So, you know, we anticipate that the economy and our markets will continue to improve. But we're well along today, probably compared to some other parts of the country.

Okay. Great. Thank you.

Thank you, Michael.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Jim Mastandrea on for closing remarks.

Well, thank you. Thank you all for being here. I'd like to close by reiterating Whitestone's proof of concept, our business model is focused on the necessity of being local, the essentialness of convenience, leasing the credit tenants as we've said, that have skin in the game, and the evolution of retail to smaller and more flexible spaces. These small spaces have really captured the delivery process directly. Our work has served us and served our shareholders very well by stabilizing our business quickly in the early days of the pandemic. We've delivered solid results in significant headwinds. And this has enabled us to really refocus on our pre-COVID goals of targeting accretive acquisitions and extracting the significant embedded intrinsic value in our properties. And then to further scale our platform. Along with the Board, we're pleased to recognize the quick stabilization and momentum of our business and the confidence to increase our dividend earlier this month to prioritize the people, we ultimately serve and that's our shareholders. As we continue to serve our shareholders, employees, tenants, and all of our stakeholders, we know that God's hands on our shoulders, and we truly thank you all for your continued confidence and support in our efforts. With that, I'll close. Thank you.

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