Good day, and welcome to the Whitestone REIT Fourth Quarter and Full Year 2019 Earnings Conference Call. Today's conference is being recorded. With that, let me pass the call to Mr. Kevin Reed, Director of Investor Relations.

Thank you, Justin. Good morning, and thank you for joining Whitestone's Fourth 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-K and 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 may be accurate only as of today's date, February 27, 2020. The company undertakes no obligation to update the information. Whitestone's fourth 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.

Great. Thank you, Kevin, and thank you all for joining us today. My remarks today will address the progress that Whitestone has made to deliver consistent and predictable financial results since we did our IPO in 2010, how we got there and where we're going. We are consistently striving to perform better today than we did yesterday. 2019 was a very good year for Whitestone. We reached our annual earnings guidance range and continue to successfully execute on our strategic plan while remaining focused on providing excellence to all shareholders. Our commitment to our stakeholders begins with our employees who are a driving force that connect Whitestone to our other stakeholders, especially our tenants and the communities where we operate. Our commitment to the better mix of our tenant and community begins with our core values. Through development, redevelopment and enhancement of our properties, Whitestone's values are transparent to our tenants and the communities in which we operate, creating jobs, including home value and driving business-packed revenues. As a result of our long-term commitment and the efforts of our team, our shareholders were rewarded at year-end 2019, when Whitestone achieved the ranking of top shareholder return, TSR, of all the public U.S. shopping center REIT over the past few years, and #2 ranking over the past 5 years. This ranking is even more significant when compared to traditional retail, which has significantly changed over the years and has negatively impacted the owners of retail properties in the surrounding communities. The two most notable impact were additional vacancies and reduced rent. First, the traditional retail tenant [indiscernible] has vacated, additional vacancies occurred in the centers, decreasing cash flow and reducing property value. And second, transfer of control of the real estate with tenants from the landlord when leased operating covenants were…

Thanks, Jim. In my remarks, I will provide details on our fourth quarter and full year operating and financial results, our balance sheet, our acquisition and disposition efforts, progress on our long-term goals and our 2020 guidance. During the fourth quarter, we further enhanced the overall quality of our assets through stringent asset management and the addition of Las Colinas Village located in our Dallas market. I will provide a few more details on our newest acquisition later in my remarks. Additionally, tenant mix Nick continues to improve, as evidenced by the increase in our annual base rent per square foot and strong same-store net operating income growth from a year ago. On an annual basis, our annual base rent per leased square foot increased to $19.77, and our same-store NOI for the fourth quarter grew 4.7% from the fourth quarter of 2018. Beginning this quarter, we are changing our definition of same-store NOI to provide greater transparency and to be consistent with the reporting of most of our peers. Beginning in this reporting period, we are reporting same-store NOI, excluding straight-line rent, amortization of above/ below market rent, and lease termination fee. On this basis, same-store NOI increased 2.4% for the full year and 4.7% for the fourth quarter. The primary drivers of same-store growth are embedded contractual rent increases, rental rate increases from new and renewal leases, occupancy levels and expense recovery and management. Prior to this year and included in our 2019 guidance, we reported same-store growth, including straight-line rent, amortization of above/below market rent and lease termination fee. Using this basis, our same-store NOI increased 1.1% for the quarter and 0.5% for the year, which was at the lower end of our annual 2019 guidance. Our leasing volume for the fourth quarter was very strong, with…

[Operator Instructions]. Our first question comes from Craig Kucera with B. Riley FBR.

I want to start off by talking about the Las Colinas -- I wanted to talk about the Las Colinas acquisition first. Can you tell us how you sourced that transaction and what the initial cap rate is expected to be here in 2020?

Yes, I'll touch maybe on the cap rate, and then I'll let Jim give a little more detail on the sourcing of the acquisition. The implied NOI at the time of acquisition represented about 7% unlevered yield on our investment costs. The asset was 86% occupied. So obviously, from a cap rate perspective, it would be a higher cap rate than that when it stabilized at a 95% occupancy.

Yes. Thanks, Dave. Yes, Craig, we looked at this asset several times, probably more than 4 times including myself, and it fits perfectly into the business model we have and into our Dallas portfolio. A number of factors come into when you buy something like this. First of all, we have upside because it's maybe 6% occupied. The cash-on-cash going in is 7%. But we also have an excellent team in Dallas that -- which our portfolio is performing above the 90%, in fact certainly it is above that in occupancy. And so that we reward the different regional operations by feeding them more properties like this. So we're pretty excited about it. We think there's some upside, some opportunity to buy some additional parcels there. And it fits very well into our portfolio.

Got it. So it sounds like job one, probably the immediate plan in 2020 is probably to try to push up occupancy and then perhaps longer term, pursue some of those development opportunities?

That's correct. We are always focused on the occupancy. And as you can see, when you buy a new property, and it takes anywhere from 18 to 24 months to integrate it into the operation, and it's maybe 6% occupied. We're going to have that upside pressure on the occupancy, but we're doing a pretty good job of getting there. So yes, that's right.

I'll highlight as well. We've also been able to do a good job of increasing our rental rates if we were new leases and Las Colinas as well as other assets we feel like if we come in and operate the property and via our business model, we'll have the ability to push the rate on the realm on those renewals as well. I think our leasing spreads for the trailing 12 months on renewals are around 10%.

And just one additional note I would say is we buy other things that we call off-market. In other words, it's not circulated, it's usually not a portfolio listed by a broker. We don't get into bidding auctions, we don't get into the final -- question final round, none of that. It's a straight up deal, principally the principal . And sometimes there's a broker involved, most of the time, it's not. But that's how we've been buying out properties, and we found that we were very successful in the past.

One other thing I'd like to highlight, I think I said this in my remarks, Craig, but it really does enable us to scale our insight infrastructure. Our team in Dallas is very good [indiscernible] and we added the [indiscernible] without having to add any additional thoughts. So we'll continue to improve in the G&A coverage and other aspects through acquisitions like Las Colinas.

Okay. And just given your commentary on guidance, it doesn't include any dispositions, should we take away from that, that you're not currently marketing any of your remaining eight assets in Pillarstone or those potentially could be sold and recycled, but you're just including it in guidance at this point?

I think from a guidance perspective, it's obviously difficult to predict the timing of those kind of activities. So from a guidance perspective, we give guidance based on our current portfolio. We're going to continue to look for opportunity to take the value we've created in asset and recycle that. But just due to the difficulty of timing, we don't include that in our acquisition guidance. And we will -- as those activities occur, obviously, we'll update our guidance if necessary.

And what I'll add to that, Craig, is that, a great way to -- when you're looking at creating the net asset value of the company. So we take the gain that we've looked at and build that into, add that to the cash flow of the business. We're going to see that it is very significant, and that's what our business model is, to create added value. And as we sell those properties off, you'll see some more added value. Now the downside of that is that we take away some FFO which reduced, when Dave mentioned in his remarks, how it reduced FFO -- reduced because we sold an asset, it took away FFO. So very sensitive balance it would be.

Got it. And one more for me. Just again, circling back to the guidance, there's a pretty healthy bump in share counts for the average for the year. Have -- should we assume that, that's sort of ATM issuance throughout the year? Or have you been relatively active here in the first quarter? Any color there would be appreciated.

Yes, I think that's largely driven by the full impact of -- during the fourth quarter of '19, we sold $12.6 million under ATM program. I think for the full year of '19, we sold about $21 million under our ATM program. In 2020, that will be fully diluted or it's only partially diluted for 2019. So that's the largest driver, also just the impact of the diluted effect of kind of a long-term stock brand, but the biggest piece is the ATM full year dilution from '19.

Alright. And just if I can comment on last, for a second is we're excited here because it's our first acquisition since we went through about a 2-year sabbatical dealing with a activist investor, which we -- and also the class action fees, which we cleaned out very favorably for Whitestone shareholders. So we're now back on track to continue judicious growth strategy, and we're pretty excited about that. So I think that's something that all shareholders welcome. I remind everyone before I share some closing comments that we've been doing this for a long time, and that we find that the track record is starting to really firm up in terms of being stable and predictable.

[Operator Instructions]. And at this time, there are no further questions. Mr. Mastandrea, I will now turn the conference back over to you.

Thank you. As always, I want to thank you for joining us on our investor call today. We really look forward to these. And we enjoy sharing with our investors the success we've had and knowing that we're staying true to our discipline and to our plan. As we look forward to 2020, I want to say that our list of objectives and goals are clear to us and, hopefully, they will be clear to you all as owners, simply to be better this year than we did last year. And know that I am committed to serving broad whose hands -- I believe in putting you on my shoulders, through serving all of you as shareholders, serving our tenants, our employees and our stakeholders. With that, I'll say thank you very much, and if any of you have any questions or would like to give Dave and me a call or credit, please feel free to do so and we'll make ourselves available. And as I say always, we would be happy to see you on any properties that you own. Thank you very much.

Well, thank you. That does conclude today's conference. We do thank you for your participation. Have a wonderful day.