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Whitestone REIT: Is This 11.1%-Yielding REIT A Buy Right Now?

Apr. 04, 2018 3:12 PM ETWhitestone REIT (WSR)52 Comments
Achilles Research profile picture
Achilles Research


  • Whitestone REIT's shares were kicked to the curb in March when the company issued its 2018 FFO guidance.
  • Whitestone REIT's dividend yield has spiked to ~11 percent, suggesting that the market is increasingly concerned about the REIT's dividend sustainability.
  • However, Whitestone REIT has not slashed its dividend before, and the REIT continues to cover its dividend with cash flow.
  • An investment in WSR is only suitable for investors with a very high risk tolerance. Investors that rely on safe dividend income should give WSR a pass for now.

Whitestone REIT's (NYSE:WSR) shares plunged after the company released a soft FFO guidance for 2018 and missed FFO estimates for the fourth quarter. As a result, Whitestone REIT's dividend yield has spiked, reflecting increasing investor concerns that the dividend might be at risk. What should income investors do now?

A company that reports lower funds from operations or that guides for a decline in FFO puts shareholders in a tricky situation. When a company guides for lower FFO and/or misses FFO estimates, it typically triggers a sell-off in the stock. And this is exactly what happened with Whitestone REIT in March.

See for yourself.

Source: StockCharts

A soft FFO guidance is concerning because it could foreshadow a dividend cut. And that makes sense: Declining funds from operations will almost certainly lead to a deterioration of a REIT's dividend coverage, which in turn could yield a dividend adjustment if the company starts to underearn its dividend.

Since income investors don't hate anything more than a dividend cut, a spiking dividend yield is often a major red flag. In other words, if the yield explodes, investors are increasingly concerned about dividend sustainability and are pricing in a dividend cut.

Whitestone REIT's dividend yield has risen to 11.1 percent after the price drop in March, meaning that the market views Whitestone REIT's dividend as increasingly risky.

That said, though, I don't expect the real estate investment trust to slash its monthly dividend of $0.095/share over the short haul. For one thing, Whitestone REIT declared three more stable monthly cash dividends for the second quarter in March. Further, Whitestone REIT has not cut its dividend before, it has paid a stable $0.095/share monthly dividend since 2010, the REIT's IPO year. Lastly, Whitestone REIT, at least for now, still covers its dividend payout with core FFO.

This article was written by

Achilles Research profile picture
I am a dividend investor and look for undervalued investments in the stock market. I identify misunderstood and undervalued equity investments and hold those securities until their price approximates my estimate of intrinsic value. I am a long-term investor only. I am building a $100,000 high-yield income portfolio. I am running this portfolio as an experiment to see if long-term sustainable income can be generated from a diversified pool of high-risk, high-yield securities. I am willing to accept high risk in order to meet my performance goals.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (52)

AFAHM profile picture
Javelina: After following companies like GAIN, MAIN and even CORR for years most of what I read praises their management as dividend payouts increased (overall) to me.

Although WSR sent me some nice dividend checks since 2012, I couldn't begin to say the same about them. Sure, the business model looks enticing and I've even been inside some of their properties in the Phoenix area, but the constant negativity (not just Ponzi) on SA finally made me get out. When I think of WSR now, the best term I can use to describe it is Flat. Flat dividend payout and (with a bit of luck) flat stock price. GAIN is much more interesting as a monthly payer.

Just my 2 cents,
AFAHM: I have 20k shares of GAIN in my portfolio. It has been a favorite a long time. As for WSR, I hold 15k shares. I will gladly continue holding WSR in the event it turns out to be “flat” for some extended period of time. The dividend makes it worthwhile to me. Love these high yield monthly pay REITs and BDCs. Good investing to you.
Javalina. Every stock I see you in is a high flyer, high dividend and risky stock. If the world gets ugly you are going to get your faced ripped off. Do you have any safe stocks like BA or HD or JNJ or any other defensive stocks?
AFAHM profile picture
Gators2, I actually see both GAIN and MAIN as defensive stocks. But they are also the ONLY BDCs I own. Factoids does a really nice job of pointing out the positives to MAIN, but won't do an analysis on GAIN because it is too small.

According to a comment by EsotericPath on Nov. 28, 2017 to an SA article, "MAIN and GAIN were the only BDCs to raise their dividends this year (2017)".

I have yet to see WSR raise its dividend. Not bashing WSR, just think there are some higher dividend paying stocks out there (if you do sound research) that can be considered as defensive as HD or JNJ.

Just my 2 cents.
Gators2: I have always been up front that I PRIMARILY own high yield monthly pay REITs and BDCs. I have historically done very well doing so. The trick is to know which ones to buy and which ones to sell. I am not a trader per say, but if a situation merits, I respond by buying more or selling. Simple as that. I have never shorted any stock. Good investing to you.
I thought you were always long and strong wsr
I own both too. GAIN is indeed a BDC rather than a REIT. (I own 15k shares of each). I will continue to hold both. In any case, good investing to you!
Achilles....forget Core FFO...it is a smoke screen. What is the CAD (or FAD) per share and then compare that to the dividend distribution. You will find this dividend has never been covered, ever.
CAD is a joke. when a company starts reporting CAD, run! Usually means FFO is bad. Cad includes property sales.
AFAHM profile picture
Compare WSR to GAIN (also a monthly payer). GAIN is a BDC rather than a REIT, but much better numbers. Stock price about the same and their "Special Dividends" show they aren't afraid to share with their shareholders (pun intended).

I owned both WSR and GAIN since 2012, but decided there is too much negativity concerning WSR to hold any longer. .
Teutonic Knight profile picture
I like WSR portfolio and the company's business model. Monthly divvy is a delight.

Long, a commercial real estate in the Southern areas would never go BK IMO. Tenants just come and go. Just Relax! Besides, I drip like hell
And you Drip too? OMG! Good luck.
Pinguino Investments profile picture
Have you tried an antihistamine?
It's at a 52 week low, so it pops up on my alerts.

30 minutes of due diligence indicates this thing has a bad odor. there is a ton of self dealing going on.

going into my "consider shorting" ledger.
Thanks for the input Javelina, I am leaning that way too.
I will be voting my proxy in favor of existing company management. I believe they are aligned to fulfill stated company goals. JMHO. LONG WSR!
Maybe if everyone votes your way they can dilute everyone with another round of free shares. That would be great! Let's all be Long and Strong! Right buddy? More like Dumb and Fleeced! You must be on the payroll to be this dense.
ponzifinder: I have recently been adding more absolutely. I do believe the majority of shareholders will indeed vote in favor of management. Finally, no I am not on their payroll. You have some imagination. LOL!
I need to start a phony business and have you invest it in so I can skim you. I promise that you will receive a great divy! (that is up until I have given myself a nice payday.....)
I am cautiously optimistic and consider WSR a buy at this level. There is an important story - largely ignored in forums - that is culminating at the May 17th shareholders meeting: KBS (10% owner) is trying to place 2 Board members. Whether or not they succeed is almost less relevant than the message it has sent to management.


Management is aware of the growing criticism regarding excessive comp as evidenced in the last two letters and conf call. They know that bringing it in line can only positively effect the share price and themselves as shareholders (after all, they do own the stock). Once addressed, WSR will excel as it is a company growing - most importantly - in the right markets.

The portfolio, locations and strategy are solid / focused. Local-serving, high-trip convenience centers (as opposed to other types of retail) thrive in growing / high-income markets (note: Texas' economy is growing TWICE as fast as the rest of the country).

IMO, this is THE most important factor in this interest rate environment and why KBS is long WSR and investing time in this Board effort.
What we are forgetting is that the company will be bought out, as the M's are getting old and there are no juniors that I am arrive of. If you do a Pro Forma and eliminate all the M stuff, the numbers are pretty good.
Agree. Though they keep touting their training program and bench.
Well, at least you have thought it through. I guess. So they are now going to "do the right thing" after having raided the cookie jar. Maybe they should give back all the shares.
jpm1jr profile picture
I've owned WSR for many years, Early on they had a good story and focus. But now they have lost their way. The last two big acquisitions were not accretive, just growth for growth sake. Now they are in a trap-- can't make acquisitions with the share price at this level, dist is barely covered, and too much debt. Interesting that they switched to cash comp just as the stock tanked. I have reduced my position to a vert small one, because I think it is possible WSR will be acquired by someone with a stronger balance sheet. If not, look for dist cut by year-end
D.S. Leach & C.E. Leach profile picture
I sold out last year at $14.90. Picked up several months of dividends plus about 15% in cap gains. This was pure luck. Even a blind three legged squirrel finds a nut once in a while.

I sold because I saw that management was pretty greedy with their compensation packages including the CEO's wife's compensation. It appears that the CEO is using WSR as his personal piggy bank. While this REIT has a fairly e-commerce and recession proof investment strategy, any gains in FFO made in the last couple of years have been going to management and not to shareholders. I haven't seen that change so WSR is not on my wish list.

welcometothemachine profile picture
Hi Dirk
I wondered who I bought those shares from
Do you want em back?
I’ll make you a deal
D.S. Leach & C.E. Leach profile picture

Thank you for your generous offer but I'm good for the moment not owning WSR. Maybe if they get more independence on their board and some sanity in their compensation packages. I'll let you know.

Thanks for the article. I closed my 4000 share WSR position last September for a small gain at $13.36. I was also concerned regarding the CEO compensation and possible conflicts of interest.

We eat regularly at a restaurant in a WSR center in the Phoenix area and I see this upscale center appears to be doing well. After the major drop in share price I reestablished a smaller position recently and will continue to monitor this stock closely. I guess I got sucked back in by the monthly dividends which are a major incentive for me.
Javelina- Only 15k. I thought you own 150k shares by now since you have been touting this stock for so long.
zvarw: I have touted this holding for a long time because I believe in WSR. I have traded it at various times to capture capital gains too, but I like the covered high yield monthly pay dividend so I always maintain a base holding. Currently at 15k, but likely will be continuing to add. I have done my DD and maintain confidence in this stock. Good investing to you!
But wait....I thought you were long and adding. But trading too? Hmmmm....
ponzifinder: You are slow. Check the times of my earlier today comments and then check yours. I trade any stock I own if the price and market conditions are right (buying or selling). In the case of WSR, I always keep a base number not traded. That philosophy goes for all my holdings. It has served me extremely well.
I consider WSR a buy. I have owned it for a number of years. In fact, I have continued adding over the past few months. I now own 15k shares of this high yield monthly pay REIT. The dividend remains covered and I expect it will continue to be. Fits my investment philosophy! VERY LONG WSR!
You keep changing your story Javelina. Your total return has been eviscerated and you know it.
I have been long WSR for a couple of years. I appreciate the dividend but have been concerned about executive compensation...it is outrageous. Am beginning to cut back my holdings.
Pinguino Investments profile picture
It's true that WSR has never cut its dividend; it also has never raised it. I've read about what appear to be unethical moves by management, dilution of shares, and the overall impression that management works to reward itself first rather than build wealth for shareholders. I think you're right in that, in the short term, WSR's share price will recover a bit. But I have already decided to sell this turkey to harvest the capital loss for tax purposes.
nicholas davout profile picture
Thank you for a very timely article on this one. fwiw, I agree with your advice. Modest position in WSR, holding. (higher risk tolerance than average & hedge with options)
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