Past performance is no guarantee of future results, and in the case of Whitestone REIT (WSR -0.97%) that may be a good thing.

This real estate investment trust (REIT) buys, develops, owns, and operates open-air retail centers in the fast-growing, high-household-income markets of Phoenix, Austin, Dallas-Fort Worth, Houston, and San Antonio.

A focus on these strong communities inhabited by well-paid employees of many of the nation's most prominent growth companies sets Whitestone up for building a record of potential outperformance. It still has a ways to go.

WSR Total Return Level Chart

WSR Total Return Level data by YCharts.

The chart above shows Whitestone REIT's performance compared with the broad S&P 1500 Real Estate Sector index since the REIT went public in 2010 at $12 a share. The chart below shows how well Whitestone has done in the past year.

WSR Total Return Level Chart

WSR Total Return Level data by YCharts.

So, what's changed? Well, for one, the company fired its chief executive officer/chairman in January and promoted its longtime chief financial officer to the CEO spot, its controller to the CFO spot, and named an independent trustee as the chairman. For another, this retail REIT has been stringing together solid performance numbers with a focus on strong growth markets.

Community-centered properties and a diverse tenant base

Whitestone now owns 60 of what it calls "community-centered properties," with 32 in Texas, 27 in Phoenix, and one in Chicago. Those 32 properties in Texas include 15 in the Houston market, nine in Dallas-Fort Worth, five in Austin, and three in San Antonio.

Five of those properties are land parcels for future development, while the rest contain 5.2 million square feet of leasable space. That space is occupied by 1,592 tenants with lease terms ranging from less than a year for its smaller tenants to more than 15 years for its larger tenants, the company said in its earnings report for the second quarter of 2022.

Its overall revenue is also diversified by tenant, with Safeway Stores at 2.6%, Whole Foods Market at 2.3%, and Frost Bank at 2%, representing the highest shares of annualized rent. 

Whitestone Q2 revenue rose by about 14% year over year to $35 million and same-store net operating income (NOI) by 8% to $21.8 million. Meanwhile, funds from operations (FFO), a key measure of REIT performance, rose by a penny to $0.25 per share.

Picking up the dividend pace and guiding for FFO growth

Whitestone has been paying dividends monthly without fail since its IPO, but there's been some disruption in how much. After paying $0.095 per share per month since 2010, the payout was reduced to $0.035 in 2019. The $0.095 payout was restored for three months, but then the pandemic struck and dividends were again cut to $0.035 in April 2020 during the height of retail shutdowns. Since then, the dividend was raised once in 2021 and once more this year and now stands at $0.04 per month, up about 14% in two years.

Whitestone stock is currently trading between $10 and $11 per share and is yielding about 4.6%. Analysts like the company enough to rank it a "moderate buy" and give it a consensus price target of $13.67, so there's some nice upside there if that happens.

Looking ahead, the company is reporting record occupancy of 91.5% and has been able to raise rents between 15% and 18% in lease renewals and by 8.9% for its entire portfolio since June 2021. That's pretty good for a retail REIT.

The company also said in its 2Q report that it's targeting FFO per share growth of 14% to 18% but didn't state a time range for that. However, it is forecasting 2022 total FFO of $0.98 to $1.02 per share, a 16% gain at the midpoint from the $0.86 per share in FFO it reported in 2021.

This could be a bargain -- I'm buying into that thesis

At today's share price, you can buy Whitestone stock at a price-to-FFO per share ratio of about 11.3. That looks cheap compared with Agree Realty, a comparable retail REIT with a price/FFO ratio of about 20.4 and 21.1 for the giant of retail REITs, Realty Income.

Whitestone has a ways to go to boast a record like those two stocks, but its portfolio and revamped management appear to be up to the task. I've begun buying its shares, both for the growth potential and the passive income it produces monthly.