Monthly Dividend Stock In Focus: Whitestone REIT

Up to date on July thirteenth, 2021 by Bob Ciura

Whitestone REIT (WSR) has three interesting funding traits:

#1: It’s a REIT so it has a positive tax construction and pays out nearly all of its earnings as dividends.
Associated: Checklist of publicly traded REITs

#2: It’s a excessive yield inventory primarily based on its 5.1% dividend yield.
Associated: Checklist of 5%+ yielding shares

#3: It pays dividends month-to-month as a substitute of quarterly.
Associated: Checklist of month-to-month dividend shares

You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink beneath:

Whitestone REIT’s trifecta of favorable tax standing as a REIT, a excessive yield, and a month-to-month dividend make it interesting for particular person buyers.

However there’s extra to the corporate than simply these components. Maintain studying this text to be taught extra about Whitestone REIT.

Enterprise Overview

Whitestone is a business REIT that acquires, owns, manages, develops and redevelops properties it believes to be e-commerce resistant in metropolitan areas with excessive charges of inhabitants development.

Its properties are positioned primarily within the southern United States in areas it sees as having favorable demographics, corresponding to revenue and financial development. The belief’s properties are principally in Phoenix and Houston, with smaller allocations to different main cities in Texas.

The corporate’s acquisition standards consists of community-centered properties which are visibly positioned in growing and numerous areas.

Supply: Investor Presentation

Properties are usually within the 50,000-200,000 sq. foot vary, and from $5 million to $180 million in price.

Whitestone believes its funding properties are “e-commerce resistant” as a result of they’re go-to locations that present needed items. Furthermore, the corporate believes these are services that aren’t available on-line. Actually, Whitestone sees itself because the least vulnerable to on-line alternative amongst its peer group.

These properties are positioned in densely-populated, high-income areas, that are experiencing sturdy development. The picture beneath would doubtless look much more spectacular if price of dwelling have been factored in as the corporate’s properties are typically in decrease price of dwelling areas relative to distinguished East and West coast metropolitan areas.

Its portfolio could be very diversified with about 1,400 tenants. The highest 5 industries are restaurant & meals service (23% of annual base lease (ABR)), grocery (9%), monetary companies (9%), salons (8%), and medical & dental (8%).

Supply: Investor Presentation

Whitestone reported its first-quarter 2021 outcomes on 05/04/21. For the quarter, the funds from operations (“FFO”) fell 5% to $8.8 million. The funds from operations per share additionally fell ~5% to $0.20 in comparison with the identical quarter a 12 months in the past. Occupancy was 88.7% (vs. 89.7% a 12 months in the past), whereas same-store property internet working revenue (SSNOI) declined 4.3%.

Notably, WSR’s same-store NOI development charge of three.3% since 2018 was higher than the peer common of 1.8%. In February 2021, the corporate raised its quarterly dividend by 2.4% to $0.1075, which interprets to a month-to-month dividend of $0.035833 per share, or an annualized payout of $0.43 per share. We estimate a normalized 2021 FFOPS of $0.90.

Going ahead, the corporate will proceed its acquisition technique to gas future development.

Progress Prospects

Whitestone’s development technique is centered round:

1. Investing in places with strong inhabitants development
2. Buying properties which are mismanaged, overleveraged, or in foreclosures or receivership
3. Enhancing worth property

From 2012 by 2015 Whitestone acquired 2.465 million sq. toes of gross leaseable space. From 2016 by 2019 Whitestone acquired 0.778 million sq. toes of gross leasable space.

The decline in acquisitions is due partly to a deal with deleveraging. The picture beneath exhibits the corporate’s deleveraging objectives and progress.

Supply: Investor Presentation

With additional deleveraging anticipated it’s doubtless that Whitestone REIT continues with its modest acquisition tempo. Administration believes, post-pandemic, investments in acquisitions, re-development, and growth initiatives can drive returns of not less than 10%. We might first prefer to see the SSNOI flip constructive, which is able to doubtless be helped by a extra supportive macro setting post-pandemic.

For now, we estimate a FFOPS development charge of two% by 2026 on a gradual restoration. Whitestone’s present deal with deleveraging coupled with a distribution development historical past that was flat for almost a decade (earlier than COVID-19 hit) means development expectations are low for Whitestone.

Dividend & Valuation Evaluation

As a retail REIT, Whitestone was not spared from the coronavirus pandemic of 2020. On account of the steep financial influence of the pandemic, Whitestone REIT diminished its month-to-month dividend from $0.095 to $0.035 in April 2020.

The discount was anticipated. Whitestone’s distribution has lengthy been greater than its FFO. A discount throughout COVID-19 was each prudent and needed. Because the pandemic has subsided, Whitestone’s monetary place has improved, which allowed the corporate to boost its month-to-month dividend modestly to $0.0358, the place it at present stands.

The distribution appears to be like safe going ahead. We anticipate Whitestone to take care of a dividend payout ratio of 48% for 2021, primarily based on our projected FFO-per-share of $0.90 for the complete 12 months. A dividend payout ratio beneath 50% is very uncommon for REITs, and implies a excessive stage of dividend security.

With such a low payout ratio, we consider the distribution will very doubtless enhance from its present low primarily based over the following a number of years. Whitestone REIT at present has a 5.4% yield. Extra distribution development would solely improve investor’s yield on price.

One other interesting issue is valuation. The REIT is at present buying and selling for simply 8.9x its fiscal 2021 anticipated FFO-per-share. The corporate’s 5 12 months historic a number of was a bit beneath 14x.

However with years of stagnation on a per unit foundation and a current distribution discount, we conservatively forecast a good worth worth to FFO of 11x for Whitestone. Due to this fact, if the valuation a number of have been to increase from 8.9 to 11 over the following 5 years, this could carry shareholder returns by 4.3% yearly.

Including within the 2% annual FFO-per-share development, potential shareholder returns might exceed 11% per 12 months by 2026. That is a beautiful anticipated charge of return, which makes Whitestone an interesting inventory for worth and revenue buyers, albeit with an elevated stage of danger.

Last Ideas

With a 5.4% distribution yield, constructive EPS development expectations and potential valuation a number of returns, Whitestone REIT presents buyers 10%+ anticipated whole returns.

And that is with out any enhance within the distribution over the following 5 years. We consider distribution will increase are doubtless within the medium time period as a result of Whitestone REIT’s payout ratio is so low for a REIT at present.

The safety has proven it could possibly proceed to pay shareholders at this new decrease distribution charge even throughout COVID-19. The month-to-month dividends are a bonus for buyers searching for revenue. And, the low valuation ought to attraction to worth buyers.