Whitestone REIT: Dividend Sustainability Is Still An Issue

Investment Thesis
Whitestone REIT (WSR) delivered a mixed quarter as the company saw its average base rent increased by mid-single digits but saw its adjusted funds from operations declined year over year. The company has a quality portfolio located in markets with strong population growth projections. In addition, its portfolio of properties is generally more resilient to the rise of e-commerce. Although Whitestone currently pays a nearly 9%-yielding dividend, it has a leveraged balance sheet and a high dividend payout ratio. Investors should remain cautious and perhaps seek opportunities elsewhere.

Data by YCharts
Recent Developments: Q1 2019 Financial Highlights
Whitestone delivered 2.4% same store net operating income growth in Q1 2019. In the quarter, its annualized base rent per leased square foot grew by 5.8% to $19.58. However, its AFFO declined to $0.28 per share in Q1 2019 from $0.31 per share in Q1 2018. The decline was primarily due to its disposition of properties as well as higher interest expenses.
Earnings and Growth Outlook
Focus in higher population growth markets
Whitestone focuses on 5 major markets in Texas and Arizona with 57 properties. As can be seen from the illustrations below, its major markets include Phoenix, Houston, Dallas, San Antonio, and Austin. These markets are expected to deliver high single-digit populations growth between 2017 and 2022. Strong population growth rate will support retail activities. Whitestone's... Read more

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