There are a lot of great deals in the market right now for investors looking to capitalize on downtrodden prices, and real estate investment trusts (REITs) are no exception.
A great example is Whitestone REIT (WSR 1.83%), a smaller competitor in the realm of retail REITs but one that I think holds particular promise in a recovering sector for several reasons. Let's look at why Whitestone REIT should be on your radar.
Time to consider Whitestone REIT
Whitestone is smaller and doesn't have the geographic diversity of its much larger, better-known peers -- such as Realty Income and National Retail Properties -- but its narrow focus is also one of its strengths. This trust's 57 open-air retail centers are focused on affluent areas in the fast-growing markets of Phoenix, Austin, Dallas-Fort Worth, San Antonio, and its hometown of Houston -- with the exception of one property in Chicago.
Whitestone's tenants are just the kinds of recession-resistant businesses that can't easily be replaced by e-commerce, such as restaurants, grocers, health and fitness shops, in-person financial services, education, and entertainment. Tenants include brand names such as Whole Foods, Trader Joe's, UPS , Orange Theory, Starbucks, and Edward Jones, along with an array of independent restaurants and shops.
Whitestone was founded in 1998 and went public in 2010, and as the chart below shows, its historical performance since then seriously lags that of National Retail Properties, Realty Income, and the benchmark Vanguard Real Estate ETF.
NNN Total Return Level data by YCharts.
Changes at the top at Whitestone REIT
Whitestone fired its longtime CEO in January 2022 and instituted a series of changes that include separating the chairman and CEO roles and reducing executive compensation, building board diversity, and creating ESG initiatives.
The company also has pledged to improve its balance sheet, and in the past year has lowered its debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio from 9.1 to a still-high 8.0 while continuing to work through lawsuits involving its former CEO and a non-publicly traded REIT that Whitestone owns a major portion of and would like to "monetize."
Positive key financial improvements are emerging. For instance, Whitestone said that its occupancy in the third quarter of 2022 was a record 92.5% and that it was projecting a healthy jump of 16% to 19% in funds from operations (FFO) per share when it reports final 2022 totals in March. Whitestone also has raised its dividend by nearly 12% in the past year and now pays $0.04 per share monthly.
This REIT has been rallying
The market has noticed. Whitestone's stock price has grown by about 1.3% in the past year since it launched its governance changes and jumped by about 6% in the past month alone. But by one key measure, price/FFO per share, it's still a relative bargain at 10.4 times, compared to, say, about 17 for Realty Income and 15.4 for National Retail Properties.
This also is a much smaller company whose performance can move the needle more quickly than those relatively massive competitors, and I wouldn't be surprised if it doesn't push that needle further into the black.
Whitestone stock currently sells for about $10.30 a share and yields about 4.7%. This REIT's improving financials and its properties' presence in typically high-traffic areas surrounded by high-income neighborhoods stands it well going forward.
