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Whitestone Covers Dividend

|Includes:TNXP, Whitestone REIT (WSR)

We reccomended Whitestone REIT (NYSEMKT:WSR) last month when they did an equity offering. How are they doing? Good. Let's have a look.

Everyone wants to know: is the dividend sustainable? Whitestone's CEO James Mastandrea answers a question on the Q3 conference call:

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

And Carol, I'd add to that, that the -- from a board perspective, that they are comfortable with the dividend level and if I can just remind you all that we have been paying that dividend quarterly since we did our IPO 3 years ago. And it's just a very, very efficient operation we have to be able to do that, and we're quite comfortable. Now the market hasn't represented what the price might be in that, but we're okay with that. Because again, we're still a small-cap company and we do what we say we're going to do. And eventually, you're going to see that price will lift according to where the dividend should be and see us as a relatively lower-risk company than we're being ascribed in the marketplace.

That's a nice summary of where Whitestone stands. CFO Dave Holman also gave some good info in his prepared remarks:

FFO Core for the quarter was $5.1 million or $0.29 per fully diluted share, which is an increase of 50% on an absolute dollar basis and 26% on a per share basis over the prior year third quarter...We continue to see the effects of scaling our general and administrative expenses across a larger base of assets and revenue. Over the last year, our employee count has increased by only 10 people, a 16% increase, while our quarterly revenue has increased 41%...We remain focused on our cost savings efforts and expect our G&A costs as a percent of revenue to continue to decrease as we grow over time...As of the end of the third quarter, we have approximately 150,000 square feet of new tenants expected to take occupancy in the fourth quarter. This includes the tenants previously discussed in the co-tenancy dispute resolution. These new tenants are expected to increase our overall occupancy rate by 3% in the fourth quarter. We remain very confident in our ability to lease our portfolio centers into an aggregate stabilized 93% to 95% occupancy over time...With our recent common share offering combined with debt, we have approximately $120 million in purchasing power. We expect to continue to acquire high-quality properties in our target markets and selective redevelopment and development opportunities.Lastly, let me conclude with a discussion of our outlook for FFO Core per share. We expect to have some dilution in FFO Core per share in the fourth quarter due to our recent offering and the timing of acquisition but expect the investment return on the capital raised from our recent offering to be accretive to our third quarter level on an FFO Core per share basis over the coming quarters. We are well positioned with a strong top and bottom line growth, a stable balance sheet and a pipeline of accretive investment opportunities.

OK so they covered the dividend for the first time, there may be some timing on the Q4 so that they might not actually cover next quarter but things are continuing to progress well.

We like this management team, listen to the CEO:

I'll give you Whitestone-isms and that is that we never fall in love with our assets, any of them, and we've never seen an award-winning property that made money...
And when we operate efficiently with things like our compensation to management, we keep it in the low 25% quartile, and we incentivize with driving FFO and to a per share driven model. So we like to keep ourselves really efficient and operate, so that we can give the shareholders the types of returns they're looking for. And just one final thing I'll add to that is we have -- and we hope we can continue this, we like to keep one class of stock. And so by having one class of stock, our investors can really look at it and understand what they own. And then we don't dilute any of this by taking joint ventures or any other partnerships in any of our assets. So if an investor looks at the company, they can say, hey, we own -- this is what we own and this company owns 100% of it. So we try to be extraordinarily efficient in terms of the capital allocations and what we see it coming up in 2014. If you had to put a bracket around it, in terms of whatever you see in development, we'd never see that number at least, this time, exceeding 20% of the asset base. So we're at a $500 million or $600 million asset base, you'd never see us exceeding $100 million in development, you might see under 5%.

Mr. Pong draws out some more info on management's plans:

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

Maybe another way of asking the question is maybe if you think about AFFO dividend coverage, is there a line of thinking where maybe you'd stabilize your recurring cash flow to get to the point where that's fully covered and then maybe embark on these more offense-driven types of projects, if you will?

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

Yes, I think that's a good question, Jonathan. We are obviously, very focused on driving FFO and AFFO per share. I think we've talked about the intrinsic value in the properties we've acquired in Phoenix and then throughout the portfolio. So I think you'll see us very focused on driving operations, driving rental rates, driving occupancy, driving all the things that really push that AFFO per share up. But then you'll also see us in the markets we're in, taking advantage of the cycle and the timing, and I think we've acquired some nice land parcels along with our acquisitions that have opportunities to add a small amount of GLA pass-bys [ph] that are really not speculative but are -- that are adds that will be -- have income-producing tenants very quickly. So I think we're going to tell you we're going to be focused on both. We're very focused on driving and producing the value from the properties we've acquired. We're very focused on acquiring new assets, still, that we think are very attractive. And then we'll look to do select development and redevelopment that drives that per share data as well.

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

And Jonathan, we like to be tested by you all out there, which is healthy, we think, is do we do what we say we're going to do. And at the beginning of year, we said we planned on being at or covering our dividends by the third quarter of this year. Now a lot of our riders would say it wouldn't be until next year. And we said if we didn't cover it by the end of the third quarter, we would look at our dividend policy. And hopefully, you'll look at the company and how we've performed and you'd be able to see that we do, do what we say we're going to do. And that's really the test that we like to pass with you all.

So that's a great answer, we had a huge real estate bust, and the company got a lot of great priced real estate, we are still in that part of the cycle and management is still looking to exploit it, very good.

So a very quote-heavy blog for you, but I like what I heard and if you wondering if I still like WSR, I sure do!

Email to be added to my free newsletter, and check out Tonix Pharmaceuticals (NASDAQ:TNXP), it sure looks like a multi-bagger.

Disclosure: I am long WSR, TNXP.

Stocks: WSR, TNXP