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

Thank you, Eduardo. Good morning, and thank you for joining Whitestone REIT's second quarter 2019 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, 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 August 1, 2019. The company undertakes no obligation to update this information. Whitestone's second 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.

Thank you, Kevin, and thank you all for joining us on our second quarter 2019 earnings conference call. I would like to highlight four areas in my remarks today. First, our continued strong leasing activity related to our value-add properties; second, our development pad opportunities that we continue to capitalize on; third, our predictable and sustainable cash flows; and fourth, our progress towards achieving our long-term goals. My first point is our strong leasing. We continue to focus and execute on our proven and resilient commercial, retail real estate e-commerce-resistant business model and have posted strong leasing activity in the second quarter. Once again, we continue to build on our solid and predictable cash flow. Our leasing is the result of mixing a well-crafted tenant base developed through our extensive research and analysis including the demographics and psychographics of the potential consumers in the surrounding neighborhoods of our properties; controlling our real estate through disciplined leasing and leased underwriting that avoids restrictive co-tenancy clauses; and employing triple-net structures, percentage rent clauses, shorter term lease durations and annual base rent increases of 2% to 3% in our leases. This provides us an inflation hedge and participation in the success of our tenants' businesses. Our approach avoids the retail disruption that the Internet continues to cause. We focus on the consumer and the entrepreneurial service oriented tenant to drive high volume traffic to our centers. Our proactive leasing allows us to transfer properties market-by-market to create value. We lease to tenants that are financially sound and primarily entrepreneurial. Ultimately their success is our success. We have redefined the retail real estate industry by the way we repositioned our real estate portfolio. Our approach of leasing to tenants focused on the new e-commerce resistant, service based economy, produces consistent leasing results. Our end…

Thanks Jim. I am happy to provide a few more details on our second quarter and year-to-date operating and financial results. At the start 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 and tax changes are reflected in the 2019 reporting periods, but have not been made to the company's 2018 historical results. The company's net income, net operating income and funds from operations were not impacted by these presentation changes. We continued to build on our positive start to the year in the second quarter of 2019, we further enhanced the overall quality of assets and our tenant mix continues to improve as evidenced by increases in our composite average annual base rent per leased square foot. Net income attributable to Whitestone REIT for the second quarter was $3.3 million or $0.08 per share compared to $2 million or $0.05 per share in 2018. Net income attributable to Whitestone REIT for the six months, was $6.1 million or $0.15 per share compared to $5.1 million or $0.12 per share, for the six-month period in 2018. NAREIT, funds from operations for the quarter, was $10 million or $0.24 per share, compared to $9 million or $0.21 per share in 2018. For the six months, NAREIT funds from operations was $19.8 million or $0.47 per share compared to $19.1 million or $0.46 per share in…

[Operator Instructions] We'll now take our first question from Mitch Germain from JMP Securities. Please go ahead.

Thank you. On your renewal leases, I saw – on the renewals, I saw term came down a bit. I think term – lease term overall for the quarter was a little bit lower than the last couple. Is that by design? Or is this a trend that is in the market right now?

I could start out, and Jim will probably add. Hey, Mitch, thanks for the question. I think as we've communicated we really do enjoy the shorter-term leases because it gives us the ability just to be more proactive in our ownership of real estate to move the rates. As we've always said, obviously one quarter is not a trend. We continue to focus on leases kind of in that three to five year range with 2% to 3% annual bumps. And we're very comfortable with that. And that gives us the ability as we improve the quality of real estate to move the rental rates.

Yeah. And Mitch, I'd like to add that tenants who are the entrepreneurial smaller-type tenants, they're not thinking in terms of what's the square foot rent they're thinking in terms of absolute numbers. So they're paying $2,500 a month and you say that -- or – and you say their increase is been absolute number, which is maybe $300 a month. They don't think in terms of what's the percentage of that and we are able to charge them appropriately. Also, we're able to adjust the rents to avoid the NAV increases that we might find in some of the cost for operations. But finally, is that when you have really great properties in strong neighborhoods, and you've seen many of them that their businesses do so well, because we attract a lot of people that they don't want to lose that advantage they have in the marketplace. And so they're usually willing to go long. We just want to be careful that we're always fair in terms of what we charge, what we charge and what the market will bear. And there's – it's about a two to three year period sometimes four years, when you buy a value-add property to adjust it to get it up to market rents. And then often if you have the short-term leases you can quickly – you can get it more quickly up to what the market rents are in the surrounding five-mile radius.

Great. The Anthem land I know it's about 60% occupied. Maybe one what's the plan to stabilize that parcel or that development? And then two, what other projects are underway in the portfolio of similar to that one?

Yeah, hey, Mitch it's Dave. I'll start out and we'll once again go back and forth. So we did complete Anthem's 7,000 square feet pad in Arizona. It's going to have three tenants. One of those tenants is currently occupying 58% of the space. The balance of the space is split between two tenants. Half of that space is currently leased and expected to move in probably in the balance of the year. And then the other tenant we're marketing. So we're very confident with about plus 70% leased and just one space to fill up. And I think as we communicated the returns on that are very good with a kind of plus 10% cash of return on our investments. In the portfolio, we have a number of pad sites and I'm going to kick it over to Jim to talk about that.

Yeah, we do. In fact some of those pad sites are very, very large. They're actively in the planning stage right now. For example, Ahwatukee we're in discussions with a major coffee company for a pad that was covered up with asphalt. So that's in progress. In Fulton Ranch down in there -- in the technology sector of Phoenix, we've got several pads that we're looking to develop down there. Market Street which is located in DC Ranch we have a pad that's -- it can accommodate about 50,000 square feet more of buildings. And we're in the discussions and in some design discussions. BLVD Place in Houston is really, really hot right now. And since we bought that property, where the Whole Foods is located as you know, there were two apartment buildings build behind it, one was 350 units another one was 240 units. They're both up and operating now. Right across the street, I mean, literally across the street is another 340-unit building and it happens to be main and main, which is the best location for some office space and some mixed space more. And so we have about 140,000 square feet of space we can build there. We have -- Memphis is open, it's a Mexican restaurant. We've had meetings with the Rooftop theater operator. They're now asking us if they can put a second screen on top of the roof. So we have some development plans there. And then not finally but the ones I care to mention today is Dana Park which is down in Mesa. Mesa is now in the top 50 cities in the country. It's just growing very, very fast again. And we have plans laid out for about 200,000 square feet of additional retail. There is also a multi-family plans there 340 units and then plans for a hotel. So we've got a lot of things on the drawing board. It keeps a team of a few people very, very active.

Great. Last one for me. Do you have any additional asset sales that you're planning in the back part of the year?

We have -- we'll continue to look at our portfolio. There are -- in our equity investment in our real estate partnership, I think there are currently three assets that are for sale there that the proceeds would be some portion of those would come to Whitestone business to pay us down. So, nothing currently active in our wholly-owned portfolio. In the equity investments there are three properties, and we're going to continue to look at our capital sources, which involve selling properties when we feel like we've added all the value we can.

Yeah And Mitchell, I can say that just to follow on Dave's comment on the equity investment we have in the company called Pillarstone, which you're well aware of. In fact, when we were talking to you and others who said, we think that Whitestone should become a pure real estate retail play. As when we develop that business model we're now in the process of selling off. We have LOI not a contract for three properties that once sold it will pay off all the debt owed to Whitestone and the debt owed to one of the insurance company banks.

Thank you. Thanks for everything.

You’re welcome.

[Operator Instructions] We'll now take the next question from Craig Kucera. Please go ahead.

Yeah. Thanks. Good morning. And I apologize if you addressed this earlier. But you had a pretty sizable decline in your G&A expense both year-over-year and sequentially both cash and non-cash. Was this a light order? Or how should we think about sort of a run rate for G&A on both the cash and non-cash basis for the rest of the year?

Craig. So let me just per your question included in our G&A, as you said is both a cash portion and then the amortization of our stock compensation. In the second quarter of 2019 that amortization of stock compensation was a little lower than some of the other quarters. It was $1.1 million. For the balance of the year, we expect that non-cash G&A portion to be about $3.5 million for the next two quarters in total. And then the cash portion of G&A was relatively flat with the first quarter. And I think the cash portion of the G&A for the second quarter is a pretty good run rate. And then the non-cash portion, which is just the amortization of stock compensation should be about $3.5 million for the balance of 2019.

Okay. Great. And just circling back to some of your leasing activity, I think the cash leasing spreads have been sort of trending down the last few quarters. Occupancy's, I think sort of peaked maybe in third quarter at 92% and has softened a bit. I think last quarter you mentioned that you thought you needed to shuffle some things internally there was maybe a bottleneck. Do you think you've taken care of kind of those things internally? Or are we sort of still midstream in that activity?

Yeah, I think we'll both comment as well. I think obviously we feel like we got a really good team in place to drive occupancy. I think we talked about on the call that the decline in year-over-year occupancy is largely the result of kind of five larger-space tenant boxes in our portfolio. I think we're obviously working through those. But we got -- we have really good lease activity so far this year. The second quarter lease activity from a volume standpoint was very strong. On the spreads, you're right. The cash spreads over the last three quarters have been a little lower. Our GAAP spreads have been in that kind of 7.5% range. We're continuing to watch those. We're continuing to be focused on pushing our occupancy as well as pushing the rates.

Yeah. And Craig, one -- this is Jim. And one of the things that changed it's -- to us, it's all about the people. And what we did is we switched around a process in terms of meeting and discussing leases where now we do it once a week for two hours at the beginning of the week. And it's really all the regions calling in on a conference call going through their activity lease by -- believe it or not, lease by lease by lease. And we have someone who leads that process who's very, very good at it. The change was -- the difference is we were doing it on a regional level and expecting a person to bring that together for the senior management team. Now, what we've done is we've changed it to have all of the leasing people. So, the underwriting is the same. And we have a senior manager, management person, namely me, at those meetings, so that when there's decisions made that deviate from a policy or a process that we might have, it's made right away. An example would be we don't subordinate leases. We don't subordinate our leases to any loans from banks. Answer that question by the way. We don't permit any co-tenancy provisions. That's answered it's off the table right away. We must have personal guarantees answered right away. So, the whole process of filtering is the same. And then on Saturdays, we pick a different person and they usually take us out and show us what they're doing in one of the marketplaces. Little boring to tell you that, but that's what we do.

Craig, I might just add one thing as well Jim. I touched on this, the leasing activity. I think one of the things that are -- that's really positive so far this year that potentially you don't see is, if you look for instance at our renewal volume, we've renewed almost 50% more square feet this year than we did in the six-month period last year. Ultimately what that results in is -- in some of those leases that are not coming in due for six months or something. But ultimately that results in a greater retention rate and higher occupancy levels. So that lease activity, we think is a really good leading indicator of our future results.

All right, guys. Thanks for the color.

Thanks, Craig.

It appears there are no further questions at this time. I'd like to turn the conference back to Mr. Mastandrea for any closing remarks. Thank you.

Yes. Thank you all. Thank you very much. Just in closing, I'd like to say that from our perspective we continue to believe that our strategy is proving it's predictable, and it's reliable and it's sustainable cash flows. I believe I commented the last call that we had that if you take from the time we did our IPO through the time at 12/31/2018 we have paid out approximately $260 million in dividend. And I say that only because it's a stat that you don't really hear in place or look at anyplace. But the meaningful that's behind that is the level of very close tolerances where we run our business, and we feel very confident that we can continue to run that and maybe even see it get better in the shorter term and even longer term future. All the results can be seen in our leasing success. We have achieved year-to-date incredible results and we continue to ring true as our -- as we progress towards our long-term goals. So, I'd like to thank you all for joining us on our call today, and look forward to our call the next quarter. Thank you all.

Now concludes today's call. Thank you for your participation. You may now disconnect.