Whitestone REIT's (WSR) CEO James Mastandrea on Q1 2014 Results - Earnings Call Transcript

May. 6.14 | About: Whitestone REIT (WSR)

Whitestone REIT (NYSE:WSR)

Q1 2014 Earnings Call

May 06, 2014 11:30 am ET

Executives

Suzy Taylor -

James C. Mastandrea - Chairman, Chief Executive Officer and President

David K. Holeman - Chief Financial Officer and Principal Accounting Officer

Analysts

Mitchell B. Germain - JMP Securities LLC, Research Division

Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division

Merrill H. Ross - Wunderlich Securities Inc., Research Division

Carol L. Kemple - Hilliard Lyons, Research Division

Paul E. Adornato - BMO Capital Markets U.S.

Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division

Operator

Good day, everyone, and welcome to the Whitestone REIT First Quarter 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Suzy Taylor, Director of Investor Relations. Please go ahead, ma'am.

Suzy Taylor

Thank you, Rebecca. Good morning, and thank all of you for joining Whitestone REIT's First Quarter 2014 Earnings Conference Call. Joining me on today's call will be Jim Mastandrea, our Chairman and Chief Executive Officer; and Dave Holeman, our Chief Financial Officer.

Please note that some statements made during the call are not historical and may be deemed forward-looking statements. Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risks and uncertainties. Please refer to the company's filings with the Securities and Exchange Commission, including the company's Form 10-K and Form 10-Q for a detailed discussion of these risks.

Acknowledging the fact that this call may be webcast for a period of time, it is also important to note that today's call includes time-sensitive information that may be accurate only as of today's date, May 6, 2014. Whitestone's earnings press release and first quarter supplemental operating and financial data package have been filed with the SEC, and the Form 10-Q will be filed shortly. All are or will be available on our website, whitestonereit.com, in the Investor Relations section. Also included in the supplemental data package are the reconciliations from GAAP financial measures.

With that, let me pass the call to Jim Mastandrea. Jim?

James C. Mastandrea

Thank you, Suzy, and thank you all for joining us today on our call. Today, we're going to review our first quarter results and update you on the recent progress of our initiatives. Dave's portion of our call will focus on our financial results, our ongoing progress and Whitestone's operating results and conclude with a review of our financial guidance for 2014.

As we begin our fourth full year as a public company, we are pleased to report the progress we have made. At the core of our progress and what truly has energized our team is the success of our service-based community center property business model. Our tenants provide 4 primary types of service: One, fast food and dining; two, education, tutoring, et cetera; three, medical and social services; and, four, exercise and personal care. We receive a rent premium of 48% on our small space tenants. We continue to divide larger spaces into smaller spaces, which are more profitable and easier to rent. Our leases are shorter term, 3 to 5 years, and give us the ability to continue to increase rents and avoid the blend and extend, retraded deals that larger tenants frequently request.

What drives the demand for our community center business model is the need for services that are not impacted by the shift to online shopping. And ironically, as our smaller service-based tenants create additional traffic, they help our grocery tenants, Safeway, Albertsons', AJ's, and Bashas, experience increased revenues. Overall, our attention to our tenant needs and their success drives our increases in FFO and shareholder value. Our approach differentiates Whitestone from the big-box strip center and mall owners in the public retail space. Our service-driven culture and our defined target markets have demonstrated our value-add approach works and in time, we believe we will earn a premium valuation.

I would like to provide some background on our tenants. We have a continually expanding tenant base of 1,225 tenants across 60 properties. Many tenants are now locating in more than one of our properties. We receive personal guarantees, rent deposits and tenant improvement investments from them. Our tenants have the reward and the risk of their business, but also they have the passion to succeed. Our support, investment in our properties to provide quality space, gives them added confidence. Our downside risk is minimized, managed and measured in 2 ways: one, the laddering of our leases; and, two, our limited exposure to any one tenant. No one tenant, if they leave, can negatively impact our revenue by more than 1.9%. We stay focused on our plans for high growth, underserved markets and the consistent execution of our business models striving to meet the needs of our ultimate customer, the consumer, and selecting the right tenants.

Within the local markets where we own property, we study, research and understand the cultural, demographic and ethnic influences. With this knowledge and information, we accordingly reposition and redevelop our properties. We have acquired properties with this purpose at significant discounts to replacement cost. We accomplish our value-added approach notching up our properties at least 1 class. We also strategically position ourselves to control multiple properties in an area, creating barriers to entry, by controlling the supply side of available real estate. Let me give you an example.

In Scottsdale, Arizona, we own 3 properties on a well-populated, well-traveled 2-mile road, with a T intersection in the middle. We have a property at each end of this roadway, on corner locations, and one on the corner of the T intersection. A tenant that wants to be in this particular submarket can choose from 1 of our 3 properties at different rental price points. With our strong revenue-generated strategies, leasing, redevelopment and repositioning of properties, we are also able to increase our FFO per share by driving down our cost of capital, G&A as a percentage of revenue and scale our operations. Dave will address these in his remarks.

We are pleased that our first quarter in 2014 continued the momentum we have been building for the past 3 years, to drive positive operating results and report our third consecutive quarter of increased core FFO per share, meeting and exceeding our dividend at a 91% payout ratio for the quarter. This result is from solid leasing, redevelopment and repositioning efforts of our team. Dave will also provide additional details to our first quarter leasing activity report, which was robust, showing that positive leasing spreads on new and renewal leases continue to increase at a very healthy rate.

Our first quarter occupancy rate was 85.8%, an increase of 1.8% over the prior year. Due to the timing of some of our tenant repositioning efforts, our first quarter of 2014, compared to the fourth quarter of 2013, was slightly down. This was no surprise to us, as we expect occupancy to react this way during this process. We expect occupancy to increase in 2014 as we continue our repositioning work.

Our first quarter property net operating income increased by 31%, with a same-store growth of 3.2%. Our first quarter funds from operations increased 19.2% to $0.31 per share, and revenue posted a meaningful 28% growth to $17.8 million.

I would like to share 4 reasons why we continue with solid quarter-to-quarter operating performance. Let me first touch on operations: First, we increased the value of the community centers we own by improving the quality and stability of our tenants and mix; two, we opportunistically enhance our centers with selective redevelopment and development positioning of the properties; three, we lease smaller spaces to our tenants and in doing so, charge more rent as they grow their businesses; and, four, we continually demonstrate to our tenants that we care about their success, invest in our properties and respond quickly to their needs.

Our pipeline of potential leases remains deep, with leases currently in negotiation, letter of intent and those signed but not yet moved in. I would also like to share 4 reasons of our acquisition success: We are selective and disciplined purchasing one-off deals; number two, we search for accretive acquisitions in high-growth markets; number three, we avoid submarkets that have become overheated and sellers that create a bidding war competition; and number four, we stay true to our -- acquiring properties that fit our business model. The properties we purchased have upside at a minimum through lease up and operating efficiencies. Our pipeline for potential acquisitions remains strong as we continue to track selected properties and follow cycles to strategically acquire high-quality community centers in our target markets. Our track record solidly represents our ability to execute and plan and grow an enterprise profitably.

Over the last 3 years, since our IPO, we have acquired $330 million in community center properties and several adjacent development land parcels, all at discounted prices. Our capital structure is simple: With only 1 class of common stock, no joint ventures or partnerships and significant available credit with quality capital resources, our investors and shareholders know precisely what their investment is in. Bottom line, we leverage our infrastructure, people, systems and processes profitably, with a well-managed balance sheet that is strong, which allows us to remain nimble and quick and take advantage of opportunities.

With that, I would like to turn things over to Dave Holeman, our Chief Financial Officer. Dave?

David K. Holeman

Thank you, Jim. I will start this morning by reviewing our key operating results for the first quarter, follow that with a review of our balance sheet and strong financial position and then finish with a discussion regarding our 2014 financial guidance.

Funds from operations core for the quarter was $7 million, or $0.31 per share, which is an increase of 55% on an absolute dollar basis and over 19% on a per-share basis over the prior-year quarter. Total revenues for the quarter were $17.8 million, an increase of 27%, or $3.7 million, from the same period of 2013. For the quarter, our same-store revenues, which represent 80% of our total revenues, increased 3%. Leasing spreads were very healthy and very strong in the quarter on new and renewal leases signed, with an increase of 12% on a GAAP basis and 4.4% on a cash basis.

Our internal leasing team signed 113 leases, totaling 232,000 square feet in new, expansion and renewal leases. This compares to 71 leases, totaling 131,000 square feet in the first quarter of 2013. Our average lease size was 2,051 square feet, and the total lease value-added during the quarter, was $11.5 million, which is an increase of 62% from a year ago and 6.5% from the fourth quarter of 2013.

Our total property net operating income for the quarter was $11.8 million, which is an increase of 31%, or $2.8 million, from a year ago. Same-store property NOI, which represents 78% of our total NOI, increased 3.2% from a year ago. Our interest expense for the quarter was $2.4 million at an average effective interest rate of 3.3%. Approximately 70% of our debt is at fixed-rate, with a weighted average rate of 3.8% on the fixed rate debt and a weighted average term of approximately 6 years.

As Jim mentioned, we continue to see the effects of gaining scale from a larger base of assets. Our total employee headcount increased 10%, or 7 people, over the last 12 months, while our total revenues increased nearly 30%. As a percentage of revenue, G&A expenses, including -- excluding acquisition expenses and the amortization of share-based compensation, decreased by approximately 1% from a year ago. We remain focused in our cost savings efforts and continue to expect our G&A costs as a percent of revenue to continue to decrease as we grow over time. We believe that compensation that is performance based and encourages significant ownership by management is the best way to align our team with our shareholders. Included in G&A expense for the quarter was approximately $400,000 of expense for the amortization of noncash, performance-based stock compensation. We expect the expense related to the amortization of noncash performance-based stock compensation to be approximately $4.1 million for the full year of 2014.

Depreciation and amortization increased $835,000, or 27%, for the 3 months ended March 31, 2014, as compared to the same period in 2013. Depreciation on improvements to same-store properties was $216,000 for the quarter and the rest of the increase came from the acquisition of new properties.

Now let me touch on some of our key operating measures. As Jim mentioned, our total occupancy rate was 85.8% at the end of the first quarter. I will remind you that our total occupancy represents physical occupancy and does not include tenants which we have -- which -- under lease, which have not yet moved into our properties. Our tenant base consists of 1,225 tenants, and our unique leasing strategy continues to be effective, producing year-over-year increases in occupancy and positive rental rate spreads. We have a diverse tenant base, with our largest tenant compromising (sic) [comprising] only 1.9% of our annualized rental revenues. As I previously mentioned, our leasing spreads for the quarter rose 12% on a GAAP basis, demonstrating the effectiveness of this unique operating model. The lease terms for our properties range from less than 1 year for smaller tenants to over 15 years for our larger tenants. Our leases generally include minimum monthly lease payments and tenant reimbursements for payment of taxes, insurance and maintenance.

Now let me turn to our balance sheet. As of the end of the quarter, we had $265 million of real estate debt, with a consolidated debt to EBITDA ratio of 7.45x. Real estate debt as a percentage of our total market cap was 45%, and our EBITDA to interest rate -- to interest expense ratio was a very healthy 4.1x. We have 41 properties, or 68% of our total properties, which are unencumbered by mortgage debt as of the end of the quarter. Those properties have an undepreciated cost basis of $359 million. The total undepreciated value of our real estate assets was $548 million and $436 million as of March 31, 2014 and 2013, respectively. Approximately 70%, or $180 million, of our debt was subject to fixed interest rates. And our weighted average interest rate on all of our fixed-rate debt was 3.8% as of the end of the quarter. We have capital available for growth, with approximately $100 million available from cash and our corporate level credit facility.

Finally, let me provide an update on 2014 earnings guidance. We are reiterating the guidance we announced in February of this year. We expect FFO core to range from $1.09 per share to $1.18 per share, and full year FFO to range from $0.88 to $0.97 per share. We expect full year EPS to range from $0.22 to $0.30 per share. The range of our earnings guidance assumes acquisitions of $40 million to $60 million for the year and dispositions and development of $10 million to $20 million each.

While we have not closed on any acquisitions in 2014, we remain confident of our ability to acquire accretive properties in this volume range. Acquisition and development volumes reflect the amount we expect to fund from debt and proceeds from asset dispositions. Our FFO core guidance includes approximately $0.03 to $0.05 per share from 2014 acquisitions, same-store NOI growth of 4% to 7% and same-store ending occupancy in the range of 87% to 89%. We will continue to provide guidance updates in our future quarterly earnings releases and calls.

With that, let me turn the call back to Jim.

James C. Mastandrea

Thank you, Dave. I would like to close with a short summary.

We initiated a 5-year strategic plan in 2009, which we completed last year. That plan has served us well, and this year we established a plan for the next 5 years. We understand market cycles, economic trends and how to navigate them very well, which leads us to remain optimistic in our plans to grow the company accretively. We have internal growth opportunities to harvest in the form of leasing, rental rate and occupancy increases and selected redevelopments, and we have external opportunities within our acquisition pipeline.

From a capital perspective, we are focused on utilizing select asset sales of our slower-growth Legacy properties. Debt refinancings in our corporate credit facility to support additional growth. Our focus remains on acquiring properties in underserved communities in our target markets, including Asian and Hispanic communities. Our team remains committed to extracting value and driving total return to all of our shareholders. The properties we have purchased give us control of significant portions of the real estate supply chain in many of our key markets to accomplish this goal.

In closing, we believe that our experience and drive to make Whitestone truly a great and profitable company and an industry leader will be recognized over time.

With that, I would like to thank you all for your time and, operator, I'd like to turn it over to you for questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question will come from Mitch Germain with JMP Securities.

Mitchell B. Germain - JMP Securities LLC, Research Division

Jim, maybe just some details on the acquisition landscape. I mean, obviously, you've already kind of laid out that you're anticipating deal flow to decline, but just kind of curious, I mean, it seems like you're getting a little more competition. Are you still seeing those distressed deals? Whatever commentary would be appreciated.

James C. Mastandrea

We are seeing distressed deals. They are smaller. What we're seeing, Mitch, is that of the properties are -- the sellers are getting a bit hubris. For example, we were -- brought a deal that was a private offering to us at $46 million, and it had 16 acres adjacent to it. It was about a 150,000-square-foot deal. We came back. We knew the market really well, and we -- it was less than that. We offered $46 million, but we wanted to control the real estate next to it. So we offered them $9 million for the 16 acres, but it was an option, which gave us control of it. The seller came back and said, "We now have competition. $48 million will take it." And we said, "We're not going to bid against ourselves." They came back and said, "Okay, we'll sell it to you for $48 million, but we want you to commit to the $9 million and we'll give you a year to take it down." When you see that kind of attitude in the selling side, particularly on raw land, it takes 3 years to take a piece of dirt, and get it really to where it's even generating some cash flow, that it's -- that, that portion of the market is getting a little bit overheated. So what we do is, it hasn't sold yet. We just watch it. We've seen this before, and we've had properties in our pipeline for 2 years and ended up picking them up at a significant discount. So we're seeing holes like that, that are starting to creep in, and we're just very cautious. But we do see deals. We are seeing smaller deals. By smaller, I mean, in the $10 million to $40 million range. And we don't see any problem at all in meeting our commitment in terms of our guidance for acquisitions this year.

Mitchell B. Germain - JMP Securities LLC, Research Division

We're seeing a lot more capital flows into secondary markets. I know you mentioned select asset sales. Why not step it up and take advantage of this investor that appears to be chasing yield?

James C. Mastandrea

When you say step it up, what do you mean? We've --

Mitchell B. Germain - JMP Securities LLC, Research Division

Selling more.

James C. Mastandrea

Oh, selling more. Yes. We have several properties right now under letter of intent to sell. And so that if they go to contract, which we expect them to, then we will step that up. We're not seeing the price yields that we think that they could experience. So we're watching that closely.

David K. Holeman

I think as we've said too, Mitch, we're really disciplined in the acquisition and disposition process. We monitor all of our properties. We look at the future potential of value add. And so, we do think it's a good opportunity to recycle some capital, but we're going to do that in a very disciplined manner. We also get a lot of scale benefits, as we're in just a few select markets. We have our team there. We're able to manage large amount of assets very efficiently. So we continually look at properties and recycling capital, and we're going to continue to be very disciplined in that process.

Mitchell B. Germain - JMP Securities LLC, Research Division

Great, and last one for me. If I look back at some of your prior presentations, seems like the premium that you're getting from your smaller space tenants, I think you referenced that, Jim, to be around 50% today, I think it was a little higher, even looking 6, maybe 12 months ago. Has anything changed in the leasing environment? What would drive that decline in the leasing spread for the small tenants?

David K. Holeman

Nothing fundamentally has changed, Mitch. If we look at our actual rates on our small tenants, they've gone up. We're just seeing more of our re-tenanting as we add value to properties and break down spaces. We've moved some of the -- maybe the lower rate, big spaces out, so it causes that premium to be different, but actually on the per-dollar amounts for our small tenant have increased, it's just the ratio from that to our -- the rate we get on the bigger tenants has gone down a little bit. So I don't think we've seen anything fundamentally, but we've continued to manage the tenant mix, and on some of our bigger tenants that had low rates, we've replaced them with smaller tenants that -- so you don't have that premium GAAP ratio as much.

Operator

And next, from Robert W. Baird, we'll hear from Jonathan Pong.

Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division

I was just wondering if there is any kind of favorable seasonality selling in Q1 results that may have skewed NOI or FFO to the upside? Just trying to get a better sense of how we should think about that run rate for the rest of the year, and reconciling that with full year guidance. That seems to imply a slow down, so that FFO will ramp despite -- well, it looks like an expectation of accelerated same property NOI growth?

James C. Mastandrea

Yes. Jonathan, what you're seeing is, we've been able to start building our critical mass. So we have -- we really focused on taking some of the properties that we've been buying over the last couple of years since our IPO, and they're -- and that -- it takes about 18 to 24 months to prep them. I mean, when you start from a vacancy in a property, to where you find a tenant, you go through a whole process of letter of intent, the contract and then you actually do the TI work, and move in that 4 stage process, it takes some time. But what we're seeing now is that we've been building that momentum. And that momentum is starting to take root today. And that's what you're seeing. It's nothing to do with seasonality. It's just due to the timing of when we initiated our acquisitions. Dave, you want to add to that?

David K. Holeman

Let me just add just a little bit to that. I think Jim's exactly right in that we are seeing very positive momentum. We give annual guidance for a reason, in that we'd like to give guidance for a little bit longer time period. There is some volatility we have quarter-to-quarter, as you guys have seen. But we're very comfortable in the annual guidance we have given. As far as seasonality, there's not a lot, but there's a little bit in this business, in that we have the majority of our tenants reimburse expenses, but not all. And so as our expense levels, for instance, on utilities in the hotter months of the summer happen, we don't have full reimbursement of those expenses. So we do see a little bit of seasonality. We've given annual guidance we are very comfortable in, and I think we also talked to some of the expenses around share-based compensation that will be different from a quarter-to-quarter basis.

Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division

Got it. All right. And then, how do you guys think about the attractiveness of mom-and-pop tenants today? Specifically, are you seeing any further pickup in the SDA loan appetite and, maybe regardless of that, do think we're at a point of the cycle where you could obtain credit-rated or better-capitalized region or national tenants to fill that space that's historically gone towards a local entrepreneur?

James C. Mastandrea

What we found is that the -- when you say better-capitalized national tenants, we find they're really harder to deal with. They have, especially when you're buying properties that came out of foreclosure and distress, where they have onerous terms and their leases and basically put some restrictions on the controls you have in terms of owning your property. The larger tenants like to have approval rights on a substitute tenant, which they delay on, because they're on a reduced lower-level rent. We don't have any of those problems with over 70% of our tenants. If you think about the model that we have, it's almost like an apartment model on steroids, because an apartment model goes year-to-year with a fixed monthly rent, and then usually tenants, who may or may not have credit, will renew it in a year. We have tenants that go 3 years and they're individuals, but if their business grows, we can move the folks next to them and expand their space. So it's really not too much different from some of the core elements of an apartment model.

David K. Holeman

Just maybe let me add a couple of points to what Jim said. A couple of things we have seen that show us that our smaller-service providing tenants are continuing to do well. We talked about the leasing spreads. If you look at our leasing spreads this quarter, obviously, the majority of our tenant base are smaller, service-providing tenants. We saw a very healthy 12% increase on a GAAP basis in those tenants and then another factor we've seen are kind of our bad debt expense on tenants decrease a little bit this quarter as well. So we're seeing indicators that those tenants are doing well. One other -- maybe back to your previous question on seasonality, one other trend we've tended to see is, a little bit higher tenant attrition in the first quarter of the year than other quarters. And so that also, we did some of that with our re-tenanting this quarter, as far as improving the mix. We've also tended to see little bit higher loss of tenants in the first quarter than we do in subsequent quarters.

James C. Mastandrea

I'd like to add one thing, which I stated in my remarks, Jonathan. And this is really something we've studied and we've learned, that traditionally, folks who analyze and look at the real estate industry, particularly retail, think of the grocery anchors as driving the people to the properties, with their marketing and advertising that help support the smaller tenants. We have learned just the opposite. We've learned that if we take care of our properties and we really take care of the small tenants, they're bringing in traffic and in every one of our properties where we have a grocery anchor, they are reporting higher sales, and they've done nothing different. But we've painted our properties, we've put signage on them, we've put directional flows of traffic in it. We're bringing in the consumers with cigar stores and the Starbucks and the cupcakes and the gelatos and all those places, and then, by the way, the people do their grocery shop. And so it's kind of an interesting new direction that we're seeing that we didn't anticipate.

Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division

Great. That's very helpful. And then last question for me. Jim, on the downsizing initiative you spoke of in your prepared remarks, can you give us a sense maybe of the payback period on that capital deployment, or how else do you think about the economics of that?

James C. Mastandrea

Of the -- I'm sorry.

Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division

Downsizing.

David K. Holeman

Downsizing? Of the tenants?

Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division

Yes.

James C. Mastandrea

Well, we only have, I want to say, one large space remaining. And by downsizing that, by putting a demising wall in, we can, it's more -- we're seeing tenants today going forwards that 5,000 to 10,000 to 15,000 square feet, that were normally going for the bigger, larger sizes before. Take, for example, AJ's, the grocery store at Arizona, it's their top end of the boxes line. And we have 2 AJ's. They're about 20,000 to 30,000 square feet. Your Trader Joe's is in that same size range. Sprouts is in that same size range. So we're seeing some of those tenants that can get into and out of markets more quickly. So we're seeing the downsize to be more appealing to them. And that helps us find more probable users than we do on the larger size.

Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division

I guess, what's the payback period on the capital deployment associated with that downsizing, in terms of the incremental rents that you can get on the residual space?

David K. Holeman

We typically target mid-teens kind of returns on those efforts. Obviously, there's always some mix you look at, and we look at the benefit of the center, but we'll target mid-teen kind of returns on capital deployed for those types of efforts.

Operator

And from Wunderlich Securities, we'll hear from Merrill Ross.

Merrill H. Ross - Wunderlich Securities Inc., Research Division

Looking at your guidance, and also looking at your portfolio statistics, looking at the new development dollars, $10 million to $20 million, and noting that there is not -- there -- don't appear in the bottom part of the roll forward, where you do include the acquisitions and subtract the -- and the dispositions. And I'm wondering if you didn't include that return on new development because it wouldn't be timed into this year? Or if we should maybe figure that's already included in the same-store growth, or something?

David K. Holeman

Thanks, Merrill. Let me make sure I understand your question. So we have assumed $10 million to $20 million of development this year. Many of those activities are ongoing. There's a couple of properties that we're actively moving forward on, Shops of Starwood in Dallas and The Pinnacle of Scottsdale, in Scottsdale, are 2 properties that we acquired adjacent land parcels when we bought the properties. They are properties that are near 100% leased, and we've got demand for additional space. There's a couple of properties we are expecting to have significant progress on this year. From a return perspective, they really won't contribute on a return basis this year. So we'll -- we expect to deploy $10 million to $20 million that will provide return in subsequent years to '14. So the way we've modeled that is really just from a cost of capital perspective, $10 million to $20 million of capital, with a return coming in 2015 and beyond.

Operator

[Operator Instructions] From Hilliard Lyons we'll hear from Carol Kemple.

Carol L. Kemple - Hilliard Lyons, Research Division

If you all had to quantify the acquisition pipeline, how large would it be at this point?

James C. Mastandrea

I would estimate that to be upwards of $450 million.

Carol L. Kemple - Hilliard Lyons, Research Division

And do you have anything at this point that you expect to close in the second quarter?

James C. Mastandrea

We do.

Carol L. Kemple - Hilliard Lyons, Research Division

Could you give any more details about that?

James C. Mastandrea

I'd like to, but we don't have it quite to that point yet.

David K. Holeman

I'll just -- on this point, obviously, you know our track record on acquisitions, Merrill, and we've -- I think we did $130 million last year. We always have LOIs and negotiations on progress. We have several of those going, just like we would at any time. And so we are -- we're very confident in the volume we've given for the year, and we're also confident of our ability to get those closed. So timing is always difficult to predict, but I think we've given annual guidance that we feel very good about.

James C. Mastandrea

Yes, and, Carol, I'd also like to say that we're beginning to see a lot of deals that are coming to us, just because our ability to close and the nature of how we acquire properties. So it's very positive.

Carol L. Kemple - Hilliard Lyons, Research Division

And then, I'm assuming there's been no change to the board's thought on the dividend at this point?

James C. Mastandrea

The only thing I would tell you is, obviously, we have continued to talk about growing our cash flow. We've done that. We've had significant increases in our per-share FFO core and cash flow, and so we continue to feel very good about the cash flow level supporting the dividends. I think Jim mentioned, for this quarter, our dividend to FFO core ratio, payout ratio was approximately 91%, which represents the significant improvement we've made over the last several years.

Operator

And we have 2 questions left in the queue. Next, we'll hear from Paul Adornato with BMO Capital Markets.

Paul E. Adornato - BMO Capital Markets U.S.

Just looking at the realized rent growth, that was quite [indiscernible] this quarter, I was wondering, if we look at it over the [indiscernible] quarters, [indiscernible] is that sustainable in your leasing activity?

James C. Mastandrea

Paul, you're breaking up. It's hard to understand your question a little bit.

Paul E. Adornato - BMO Capital Markets U.S.

Sorry, the question was, regarding the [indiscernible] is the rent growth that you achieved in the first quarter sustainable throughout the year?

David K. Holeman

I think I heard the call. Let me repeat it and make sure. I think you said is the rent growth we had in the first quarter sustainable throughout the year?

Paul E. Adornato - BMO Capital Markets U.S.

That's perfect.

David K. Holeman

I think I would -- and Jim can comment as well. I do think we have had very nice rate increases over the last 2 quarters. I think it's prudent to look at a little longer time period as well. We're very pleased in our -- in what we're seeing in our markets and the growth we're getting, and we're very confident, I think, and we gave the same-store NOI growth in the 4% to 7% range. So, I'm not sure I would just take 1 quarter and assume it will continue, but we've seen 2 quarters of nice growth. We are very focused in all of our markets on not just driving occupancy, but also driving revenue and making sure that we maximize the value and the properties to that quality mix of occupancy and rate, with a lot of focus on driving rate in our centers.

Paul E. Adornato - BMO Capital Markets U.S.

Okay, great. Let me just -- one more question if I could, and that is, what are the cap rate assumptions in your guidance, in terms of the [indiscernible] divisions?

David K. Holeman

So as far as the guidance and the cap rates we have assumed in our guidance, we typically, if you look at the properties we've bought over the last 3 years, consistently, we've bought properties that are been in the -- probably around the 8%, kind of cash on cash returns going in, with some level of vacancy. In our guidance this year, we've assumed about 7% to 8% going in cash on cash, and approximately 10% to 15% of vacancy on the acquisitions.

Paul E. Adornato - BMO Capital Markets U.S.

And on dispositions?

David K. Holeman

The dispositions? We've assumed, I believe $10 million to $20 million in dispositions. From a timing perspective, we've assumed that, that would be mid to late year, and then we've assumed that those -- that capital is deployed into the acquisition, it becomes the capital source. I think typically, on the disposition side, we're looking at dispositions probably in the 7% to 9% cap rate range.

Operator

And that will come from John Masaka with Ladenburg Thalmann.

Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division

Actually, it's Dan Donlan here with John. Dave, just wanted to talk about the G&A here, what are you expecting in total? I think last year, if you strip out noncash stock comp and acquisitions, you did about $7.6 million in cash comp. It seems like your guidance would imply that, that's going to move up maybe a couple of million? Could you maybe give us some clarity on that?

David K. Holeman

Sure, Dan. So included in our G&A is, obviously, it's some transaction costs or acquisition expenses are included in there, and then there is also the amortization, the noncash amortization, of stock comp. This quarter, our G&A was approximately $3 million, and there was about $400,000 of stock comp and $150,000 of acquisition expenses. So that run rate, I think, would be fairly consistent. From a personnel standpoint, we'll add people minimally, as we add properties, but our infrastructure scales very well. If you look at the current quarter and you take out about 370 in stock comp and 150 acquisition expenses, that's probably about the current G&A run rate.

Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division

Okay. Perfect, understood. And then, just going back to Jonathan's question on the same-store, or actually the, not the same-store, but just kind of the drop in operating expenses. You acquired, I don't know, $61 million of properties in the fourth quarter, yet your property operating expenses came down by about $500,000. So was there something onetime-ish in that, do you expect that to move back to the $4 million range, given that you acquired as many assets as you did in the back half of last year? I would suspect that, that would move back up, or is there something from a lease perspective that you're -- that's changing that?

David K. Holeman

I'll add a couple of things. I think they're -- I do believe we have -- as we get more scale, we're able to manage our cost infrastructure better. We're able to leverage some of the scale and get better pricing. If you look at just the same-store expense growth, it was about 1% year-over-year, and we've seen improvement, a little bit of improvement in our bad debt expense. We've also seen some improvement in just our labor costs, meaning that we're able to leverage our maintenance guys over more properties, our property managers over more properties. There is some timing of just repairs and maintenance you make in the property, and the first quarter tends to be a little lighter than other quarters. So from a repairs and maintenance standpoint, they'd probably be a little heavier in future quarters than you would see in the first quarter. But really, just a combination of managing our costs, a little bit of seasonality on the repair side and then, obviously, things like utilities. It's hot in Phoenix and Houston in the summer, so those tend to be a little bit higher in the summer months.

Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division

Okay, understood. And as far as your -- the amount of debt on your credit facility, what are your plans for terming that out? Kind of how high does -- are you comfortable keeping that relative to the overall capacity that you have?

David K. Holeman

It's a good question. So we have a $175 million unsecured credit facility that's led by Wells Fargo, Bank of America, U.S. Bank and Bank of Montréal. That facility is $175 million, and has an accordion option to go to $225 million. We feel very confident in our ability to exercise that accordion option if we wanted to. Currently, we have $134 million drawn, of which $50 million has been termed out. So we have about $80 million that is floating, and that's really all of our variable rate debt, is the $80 million floating on the line. We'll do a little bit more financing this year, pulling a couple assets, 2 or 3 assets, out of the line, and putting secured financing on those. The rates, as you saw from last year, are very good. I think we did $100 million of refinancing last year at -- right at 4%, with an average term of a little over 8 years. So we think with -- from a credit facility, we've got a lot of room to take some properties out of there, free up a little more room and then do the acquisition volume we've talked about. We did term out. We termed out 50 of it, so we have aid that floats. We'll continue to look if makes sense to term out a little bit more, but we like to keep our fixed rates in that 70% to 80% of our total debt.

Operator

And at this time, there are no further questions.

James C. Mastandrea

Okay. Well, operator, thank you very much and thank you all for attending our conference call. We sure appreciate it. And if any of you do have questions later on, feel free to call either Dave Holeman or myself. This is Jim Mastandrea, and thank you, and good day.

Operator

And with that, ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.

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Whitestone REIT (WSR): Q1 FFO of $0.31 beats by $0.03. Revenue of $17.8M (+28% Y/Y) misses by $0.13M.