Mixed 2Q for Whitestone

Whitestone REIT (WSR - Snapshot Report), a real estate investment trust (REIT), reported second quarter 2012 recurring FFO (funds from operations) of 23 cents per share, missing the Zacks Consensus Estimate by 4 cents. However, this compares favorably with recurring FFO of 20 cents in the year-earlier quarter.

Recurring FFO came in at $2.9 million compared with $2.0 million in the year-ago quarter. The reported FFO was $2.7 million, or 22 cents per share compared with $1.6 million or 15 cents per share in the year-ago quarter.

Quarter Highlights

Total revenue in the quarter was $11.0 million, up 36.1% from $8.1 million in the year-ago period, but in line with the Zacks Consensus Estimate. The year-over-year increase was attributable to 27.1% increase in rental revenues and 80.5% surge in other revenues.

Property net operating income (NOI) stood at $6.7 million, up 35% year over year. The increase was mainly attributable to gains from new acquisitions.

Total property occupancy increased to 87% from 81% in the year-ago quarter. This is the highest increase since the company’s initial public offering in August 2010. The increase was attributed to Whitestone’s ongoing re-development, re-leasing and portfolio restructuring activities during the quarter. In addition, operating portfolio occupancy increased to 87% from 84% in the year-ago quarter.

Leasing Activity

During the quarter, Whitestone signed 92 new and renewal leases spanning 190,000 square feet. The company reported an increase of 19% in new and renewal lease agreement from the year-ago period. In addition, Whitestone recorded a year-over-year increase of 18% in tenant base to 963.

Portfolio Update

The company is focused on acquisition of properties located in economically vibrant and culturally diverse markets. In this connection, it acquired a Class A Community Center -- The Shops at Pinnacle Peak -- for $6.4 million during the quarter. Additionally, Whitestone has around $40.0 million of additional acquisition contract signed during the quarter.

As of June 30, 2012, Whitestone owned 46 community center properties spanning approximately 3.6 million square feet, including two development land parcels.

Liquidity

At the end of second quarter, Whitestone had cash and cash equivalents of $3.9 million and $101.0 million available under the revolving credit facility.

Dividend

Whitestone declared a quarterly dividend of 3 cents per share, to be paid in three equal installments in July, August and September 2012. The company has paid the first dividend installment on July 6. The August and September installments will be paid on August 7 and September 7, respectively to common shareholders of record as of July 31 and August 31, respectively.

Our Viewpoint

Based on Whitestone’s significant leasing activity, ongoing portfolio restructuring and strong liquidity position, we expect analysts to up their estimates in the coming days. Currently, the Zacks Consensus Estimate for 2012 and 2013 are pegged at $1.09 and $1.25, respectively.

One of its competitors – General Growth Properties Inc. (GGP - Snapshot Report) – recently reported second quarter recurring FFO of 23 cents per share, beating the Zacks Consensus Estimate by 2 cents. Whitestone carries a Zacks #2 Rank, implying a short-term Buy rating. However, we reiterate our long-term Neutral recommendation on the stock.

Note: FFO, a widely accepted and reported measure of the performance of REITs, is derived by adding depreciation, amortization and other non-cash expenses to net income.