Erez Asset Management, LLC, a shareholder of Whitestone REIT (NYSE: WSR), has provided Whitestone notice of Erez’s intention to nominate two candidates to serve on the Whitestone Board of Trustees after years in which Whitestone has underperformed its peers and potential. Erez’s nominees will stand for election at the 2024 annual meeting of Whitestone shareholders, which Erez anticipates will be held in May.
This morning, Whitestone’s management team is holding a conference call to address questions from Whitestone shareholders. Erez urges Whitestone’s shareholders to demand answers regarding the Company’s history of poor capital allocation decisions and the ineffective governance framework within which those decisions have been made.
In particular, Erez encourages Whitestone shareholders to ask the following questions on today’s call:
- It has been reported that Whitestone received an indication of interest to take the Company private from Fortress Investment Group LLC (“Fortress”), a well-regarded and well-financed investment manager.1 We understand the proposed price was a significant premium to the market price. Reports suggest you “rebuffed” the offer.2 Presumably, management and the Board feel the intrinsic value of the Company is even higher than the price at which Fortress was prepared to transact. If that is the case, why haven’t you prioritized investing the Company’s capital, or your personal capital, into Whitestone’s undervalued stock?
- “Buy low, sell high” is a surefire way to make money. The opposite is true too. You have continuously bought properties (at prices that then became the basis for NAV) and then sold equity in the Company, and by extension, in those properties, well below NAV. Worse, you then use the capital raised at a discount to NAV to engage in the same value-destructive “buy high, sell low” strategy. We estimate approximately $75-80 million in shareholder equity value has been destroyed due to equity issuances below NAV over the years. Why are you selling portions of Whitestone’s asset base at prices well below NAV?
- Being a public company has unavoidable costs. If the cash flows in the core business are large enough, these costs are de minimis. But Whitestone is not large, and its public company costs are a substantial drag on cash flow and earnings. Why should Whitestone remain an independent public company, with all the attendant costs, when “excess” G&A expenses (public company and standalone corporate costs well above other shopping center REITs) are, we estimate, approximately $7-8 million per year and drag earnings down by roughly 15% per year?
- At Whitestone’s current debt levels (close to 8x debt/EBITDA last quarter), many long-only REIT investors will not invest. How will Whitestone ever attract enthusiastic real estate investors at current debt levels, or do you plan on further dilutive equity raises or value-destructive asset sales to reduce leverage? What mistake got you into this capital structure?
- If you were organizing a shopping center REIT like Whitestone today and picking a group of trustees to oversee the strategy and execution of such a business, would you again select a lawyer, a PR professional, an energy executive, an investment banker who specializes in bankruptcy and a former politician? Why wouldn’t you want at least a few people who have substantial experience owning and operating a portfolio of shopping centers and/or managing a public REIT among those trustees? Do you think there is a connection between Whitestone’s chronic underperformance, poor capital allocation decisions, subscale platform and massive NAV discount, and the fact that Whitestone has no trustees with any shopping center or REIT capital markets experience?
Erez’s two exceptional and experienced trustee candidates – Bruce Schanzer, a former shopping center REIT CEO who now leads Erez, and Cathy Clark, a former shopping center REIT senior investment executive – intend to ask these questions if and when they are seated on the Whitestone Board and provide independent oversight of the Company’s strategy and execution. Unlike the current independent members of the Board, Mr. Schanzer and Ms. Clark have extensive real estate and shopping center REIT experience.
Erez intends to file and mail proxy materials to Whitestone shareholders in support of the election of its candidates. Other than asking hard questions of management, Whitestone shareholders do not need to take any action at this time.
About Erez Asset Management, LLC
Erez Asset Management, LLC is an investment management firm focused on undervalued small market cap REITs. Erez was founded in 2022 by Bruce Schanzer, former CEO of Cedar Realty Trust, a shopping center REIT, after the successful monetization of Cedar. Erez seeks to acquire meaningful stakes in REITs in which it believes it can work collaboratively with the management team and the board to help catalyze improved performance and share price appreciation by pursuing operational initiatives and strategic alternatives intended to benefit all stakeholders.
