Ladies and gentlemen. Good day, and welcome to the Whitestone REIT's First Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Kevin Reed, Director of Investor Relations. Please go head, sir.

Thank you, Ally. Good morning, and thank you for joining Whitestone REIT's first quarter 2019 earnings conference call. Joining me on today's call are Jim Mastandrea, our Chairman and Chief Executive Officer; and David Holeman, our Chief Financial Officer. Please note, that 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, 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 maybe accurate, only as of today's date May 2, 2019. The company undertakes no obligation to update the information. Whitestone's first 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 the 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.

Kevin, thank you, and thank you all for joining us on our first quarter 2019 conference call. We are off to an encouraging start for the year, as our e-commerce resistant strategy produced quarterly results that continue to show improvement. We continue to withstand market cycles and ongoing retail industry adversity. Our approach to owning and operating retail real estate with a focus on the consumer and the entrepreneurial tenants was a paradigm shift, we made from the traditional retail real estate investing. We were innovative in our approach, and early to recognize the adverse impact that the Internet would have on the retail industry. Many companies within traditional industries have experienced similar business paradigms, the one we made, and over time have proven successful One example was the introduction of Kevlar [ph]. This product was developed in 1965 by DuPont, to replace steel in numerous applications. Initially, it was highly disruptive to traditional manufacturing and product application in many other industries. Overtime, it proved quite successful. In a similar way, the Internet created a digital disruption and continues to change the way retail goods are delivered to the end consumer. Traditional brick and mortar retailing is no longer the only go-to-place for the purchase of soft and hard goods. Our innovative approach began to evolve in 2010. As we look beyond, the real estate to the end user. Since then, we have been acquiring and repositioning our real estate portfolio with a highly concentrated mix of credit-worthy entrepreneurial tenants focused on the new service economy. One that cannot be replaced by Internet and position us ahead of the curve, where we intend to remain. Major national retailers continue to struggle impacting the owners of retail real estate. A recent Wall Street Journal article in April of 2019 highlighted the…

Thanks, Jim. On January 1st of 2019. We adopted the new lease accounting standards and as such all income related to tenant leases is reflected in a single rental line on the operating statement. The impact of bad debt is now a component of the single rental line item and is no longer a component of operating and maintenance expenses, and real estate taxes paid by certain major tenants directly to the taxing authorities are no longer reflected in rental income and real estate tax expense these bad debt tax changes are reflected in the 2019 reporting periods, but have not been made to the 2018 historical results. The company's net income, net operating income and funds from operations were not impacted by these presentation changes. As Jim said, we are pleased with our first quarter start to 2019, highlighted by significant strengthening of our balance sheet and liquidity through the amendment extension and expansion of our credit facility, and our first bond private placement. Positive same-store net operating income growth of 2.4% and year-over-year ABR growth of 5.8%, increasing our ABR to $19.58 per lease square foot. Let me first comment on our operating results. During the first quarter, we executed 54 renewal leases and 27 new leases for a total lease value of $15.8 million, consistent with our focused tenant mix strategy. Our average lease size was approximately 2500 square feet and the average term was just under four years. Our blended leasing spreads on a GAAP basis are 8.4% on a trailing 12-month basis. Our total occupancy, as of the end of the first quarter was 90.1%, which is down 40 basis points from year-end 2018. 40 basis points represents approximately 17,000 square feet in our portfolio. During the first quarter, we increased occupancy and lease square…

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

Hi. Good morning. So is there any thoughts to maybe try to push term on leases higher, about four years in the quarter, a little bit below your prior four quarter average. As we continue to progress in the current cycle. So, any thoughts to maybe try to get five year plus to some of these leases?

That's a valid question. We have some leases that go out to seven years. What we find is, when you're working with entrepreneurial tenants, they are more inclined to be less sensitive to rental increases, when you roll the terms of the leases on a short-term basis. Yet, their businesses are very deeply embedded in the communities. So we run a very low risk that they're going to exit. And we have a very high probability that we increase the rents significantly.

Got you. And then, if I look at the expiration schedule for this year, it looks like the average rent on the leases that's expiring is a little bit higher than what you're signing leases for, as well as the less -- the next couple of years. Should we expect kind of cash rents to be trending a bit lower, as the year progresses. How should that play out?

Hi, Mitch, it's Dave, thanks for the question. I don't think so, I mean in any particular period, there is a different mix of tenants, obviously that are based on certain properties. I think we've seen a fairly consistent spread increases in our leases. So even though the rate maybe a little higher or lower for a particular quarter, we feel very good about being able to continue to increase those rates. And I think the rate within a particular period of role is largely mix driven as opposed to tenant driven, property mix.

Yes, I'll add to Dave and that is, we have a few of the larger national type tenants in a very few properties, and I'm saying, it's less than like 60%, 70% of our portfolio, we are still getting one or two of lease nationals that are coming back to us and looking for us to give them some rent relief that seems to be very standard among the big boxes or the national retailers. So we have a few of those. And so we make the decision in some cases to do that.

Got you. And then just on leasing pipeline in general, directionally is it kind of consistent with what you've seen the last couple of quarters, is it down a bit, maybe just some thoughts there.

We had that we had little drag last year which surprised us, and we made some -- some changes internally here and now we have just a robust team and they in robust volume of deals and I think that recognizing that we had a problem internally that was bottlenecking us, we've been able to fix that we've got a couple of significant deals we're working on that I been in their business model and we think that you're going to start seeing some significant changes. The next two quarters this year.

We'll take our next question from Ki Bin Kim with SunTrust.

Thanks, Hi all there. Could you talk a little bit more about your lease spreads I'll listen the cash basis it look a little bit weak in the quarter for renewals and new leases and was compounded with more CapEx, just how just what caused that and how do you see that trending throughout the year.

I think we tend to look at leasing spreads over and we like, it's a 12 month rolling period obviously with in any particular quarter. It's not a significant amount of leases, we have 1340 tenants and I think we had 60, 60 some leases that rolled that were comparable so we continue to, in our, in our operating model. Look for 2 to 3% bumps in our leases, sometimes as you can see from the cash spread we are setting that entry point maybe very close to the ending point, but I don't think we've seen any trends that causes us any concern, our comparable leases are kind of 8.4% for the trailing 12 months, and they were 7.2% in this quarter. Like I say, which is a small sample, but there is no. We feel, we feel good about continuing to be able to push the rental rates, obviously, with our smaller tenants, as Jim mentioned, sometimes we're able to get bigger steps. But in order to do that, we started a little lower point. So the cash spreads don't look quite as positive as the GAAP spreads.

Okay. And this quarter one these in your renewal bucket was not considered comparable typically when I look at your data is usually 100% comparable on the renewal cycle. And what was that when the taken out.

It was a renewal of a tenant that actually significantly expanded their space. So I'm not sure if he can we had categorized it as their renewal, but they were renewing a lease into a much different size space but we just because of that was not comparable met our definition kind of a dine comparable in the space. They were going into was not close to the one they are leaving.

All right. That makes sense. And just last question from me, when you guys disclosed in your leasing that page TI that incentive, it does that it as one that clarify what does that include does include TI leasing commissions external brokerage, does that include any landlord work that you would have to do is that all in. Or is it a little more specific.

I think you hit you had all the items that includes it includes tenant improvements, it includes our internal leasing costs and external brokerage cost if there was, if there was a, so includes all the cost of capital. Related to that tentative, for instance, there was an improvement of the space that was not related to the Tenet it wouldn't include that -- that wouldn't make sense that TI and all of the pieces of commission external and internal are included in that number.

Okay.

Yeah, let me add that is a control feature is a policy that we have is that when a leasing person is out negotiating and leasing space tenants always want to have their space spruced up that we deduct TI from the revenue where we calculate the commissions so it's a, there's no incentive for leasing person to give away a lot of TI, TI to get a, get a lease signed. In fact, it's a disincentive because the more they give away the more they get deducted from there opportunity to earn income from a leasing revenue.

Right just to clarify based on your comment. So it does include landlord work in the center or it doesn't.

It does.

Right. Okay.

Yes. If we -- if we build out a space for a tenant. And we do the work is included in that number. If we gave them an allowance for them to do that work it would be included in the number of both of those are included in the table.

[Operator Instructions]. We will take our next question from John Massocca with Ladenburg Thalmann.

So what grow kind of OpEx coming down on both kind of same-store basis in quarter-over-quarter, was that all it just tied to the change in lease accounting standards or was there something specific operationally that caused that it

It largely is the presentation of uncollectible amount or bad debt, if you look at the same-store table, as well as the financials. We show the amount of bad debt that's reflected as a kind of reduction in revenue and as a reduction in operating expenses. But it's largely driven by that reclassification.

Okay. And then, how are you guys thinking about, the potential Boulevard Phase II development opportunity, given your cost of capital today, and the fact that, it would be quite a capital commitment upfront that wouldn't be producing immediate rent. Does is it makes sense to either potentially sell that parcel or utilize more of a JV structure to develop that asset?

Hi, John, I'll start, and Jim probably add. But I guess that just start out by saying, it's a great opportunity, as part of our acquisition of Boulevard Place, we were able to get the land where we can do additional development. The Uptown area Houston is growing dramatically, there have been significant apartments. So we see it as a great opportunity and great piece of value that within our portfolio. As far as the timing and all of that, I think we're going to be disciplined, we're going to continue to make sure that we have tenants, and then we're going to match up the capital to do that in a way that's accretive and add value to our shareholders.

Yes, let me add to that. Is that the cost basis of our land is relatively low compared to what's going on in the neighborhood, and just across the street to our West, they've just topped off an additional 250 apartments next -- 350 apartment building, and across the street to our East, they've just broke ground for another 350 units, and behind that building -- two buildings over is the BHP international headquarters. What we're finding is that San Felipe and Post Oak is like the corner of Main and Main, and they're starting to be a lot of recognition for financial players, who want to be at that location. I might add that for any of you have not been the Houston lately, it's the construction that was going on Post Oak, which is putting in a rapid transit system, which will go all the way to the airport. The road work is relatively completed now and they're doing infrastructure that is the pay booths and things like that. So that's really starting to -- I think you're going to see some sales starting to increase because the longer obstructions to get say to the Whole Foods and some of our tenants. I might add on the apartments, the newest apartment building to my surprise and I'm sort of saying I want to wait and see, as they're talking about $3.50 rents for apartments. And I have not really seen that in Houston before, but the ones that are already there are pushing up towards $3. So it will be really interesting next couple of years. We're very optimistic about it.

I guess, maybe on the idea with that parcel of land is to kind of wait and see. So we shouldn't really be expecting anything, let's say in the next 12 to 18 months?

Hi, John, I think we'll absolutely keep you updated as we progress. We're going to be open to obviously, as you mentioned, different ways to finance that. But we think it's a great opportunity and we'll give you guys an update as we make progress.

We will take our final question from Craig Kucera with B. Riley FBR.

Hi, guys. Just a quick one for me, what was the initial spread on the $165 million unsecured term loan?

The spread on the $165 million term loan was so we locked to the LIBOR portion of the loan, at 2.24 for the five years and then the underlying bank spread it flexes from 1.30 to 1.90-based our overall leverage level. Today, I think the all-in rate on that loan is 3.84% with the bank spread and the locked-in LIBOR spread.

I would now like to turn the conference back to Mr. Mastandrea, for any additional or closing remarks.

Great, thank you, Abbie. I'd just like to wrap up by saying that similar to the paradigm shift that occurred with the introduction of Kevlar [ph], Whitestone has focused its investment strategy in the retail real estate industries, ongoing shift to an e-commerce resistant, consumer, service-based business model. Our community property centers, as you've seen continue to produce a track record over time of increasing financial metrics, and solid shareholder return, and we do expect this trend to continue. Thank you.

Ladies and gentlemen, this concludes today's call and we thank you for your participation, you may now disconnect.