WSR - EREZ ASSET MANAGEMENT MAILS PROXY STATEMENT SEEKING TO REPLACE TWO WHITESTONE REIT TRUSTEES | Benzinga

Board Has Hidden Conflicts of Interest and Has Overseen Poor Governance and Capital Allocation, Leaving Whitestone Subscale and Over-Leveraged

Company Has Diluted Shareholders with Equity Offerings Only to Return that Equity to Shareholders in a Non-Sensical Recycling of Capital

Whitestone Trades at Persistent Discount to NAV and Has Underperformed Its Potential, Its Peers, and the Board's Own Expectations

Each of Erez's Nominees Has Decades of Shopping Center, REIT Management, and Real Estate Capital Markets Experience and Can Help Enhance Whitestone's Value

Erez Urges ALL Whitestone Shareholders to Protect Their Investment by Voting "FOR" Catherine Clark and Bruce Schanzer and to "WITHHOLD" from David Taylor and Nandita Berry Using the BLUE Proxy Card TODAY

NEW ROCHELLE, N.Y., April 9, 2024 /PRNewswire/ -- Erez Asset Management, LLC ("Erez"), a shareholder of Whitestone REIT (NYSE:WSR) ("Whitestone" or the "Company"), today mailed a proxy statement soliciting the votes of Whitestone's shareholders for the election of two exceptional candidates to the Company's Board of Trustees (the "Board"). Erez also sent the following letter to Whitestone shareholders:

April 9, 2024

Dear Fellow Whitestone REIT Shareholders:

I am writing on behalf of Erez Asset Management (Erez), which invests in small-cap real estate investment trusts (REITs) with untapped value. In our view, Whitestone is such a REIT: it owns a terrific portfolio of shopping center assets in attractive and growing markets. Yet, despite the quality of its assets, Whitestone has significantly underperformed its peers and its stock trades at a massive discount to its net asset value (NAV). This discount persists despite a recent run-up in the stock after takeover rumors surfaced in October 2023.  Even after this takeover-fueled run up, Whitestone's share price remains below the Company's 2010 IPO price.¹

Erez endeavors to work collaboratively with management teams and boards to help catalyze improved performance. We have attempted to do so at Whitestone, offering to share my successful experience as the longtime CEO of Cedar Realty Trust ("Cedar"), a comparable shopping center REIT.  But Whitestone's trustees—none of whom have any prior shopping center, public REIT, or real estate capital markets experience—have refused to engage with us substantively while cynically mischaracterizing our very limited interactions. We have thus concluded that the Company's persistent underperformance and massive discount to NAV can only be remedied by making changes to the composition of the Board.

Erez has nominated two candidates to the Board who bring critical skills the current Board demonstrably lacks. I am writing to ask you to vote for Catherine Clark and me, Bruce Schanzer, at the upcoming Annual Meeting to replace two long-serving trustees, David Taylor and Nandita Berry.

We believe change at Whitestone is urgently needed for a number of reasons:

• Whitestone has underperformed its potential, its peers, and the Board's own expectations. The Board is mischaracterizing this performance in its communications with shareholders.
• Whitestone's Board lacks independence and transparency, and has supported poor governance practices. Three of the so-called "independent" trustees have undisclosed, longstanding relationships with management and the Company that, in our view, clearly impact the objectivity and independence of the trustees and therefore should have been disclosed to shareholders. The Board also supports outmoded and problematic governance practices, including single-trigger change-in-control arrangements, a "proxy put", and nepotism.
• Whitestone's Board has allocated capital poorly. Whitestone is over-leveraged, subscale, and undervalued. Worse still, the Board has allowed the Company to raise equity at a discount to NAV and then, sometimes in the same year, return this capital to investors through dividends. At best this is inefficient; at worst, it is an expensive and dilutive way to inflate the dividend at the expense of long-term shareholder value.

Whitestone Has Underperformed

In October 2023, Bloomberg reported an unsolicited takeover bid for Whitestone.2 The stock soared on the news and remains elevated.

Prior to this takeover speculation, Whitestone had significantly underperformed the FTSE NAREIT Shopping Centers Index for five years.³ Prior to the takeover speculation, the Company produced exactly zero returns for shareholders during the tenure of the current CEO.⁴ Today, Whitestone's stock trades for a price that is below its IPO price from 2010, as it has for nearly 600 of the last 700 trading days.

As one of Whitestone's largest active shareholders, it is galling to us that the Board claims that it has delivered "superior"—or even acceptable—returns. It can only do so by disingenuously taking credit for the rise in the stock price following the takeover rumors. But those rumors, and the subsequent stock price rise, do not reflect anything this management team and Board have accomplished, nor the fundamental performance of the Company.

In reality, the Company has woefully underperformed. Whitestone failed to meet any of its five performance targets in the 2023 annual incentive program, developed by the Board. This is not because those targets were ambitious or even particularly challenging. The Board had very low expectations for management:  amazingly, three of the four quantitative performance targets for 2023 were set at levels below what the Company achieved in 2022:

Whitestone also underperformed its peers.⁶ The Company was dead last among its thirteen shopping center REIT peers based on FFO per share growth, and more than 1,000 basis points worse than the closest peer. It was ninth of thirteen in same-store net operating income growth; eleventh of thirteen in G&A as a percentage of revenue; and twelfth of thirteen in leverage. This is hallmark underperformance: missing the Board's target on every (mostly lowered) metric and falling below the median of its peers on each one as well. If these results are "the product of [the Company's] clearly defined strategy and relentless execution" (as the Board states in its recent letter to shareholders) then that strategy is demonstrably failing.

Yet, the Board would have shareholders believe all is well. In the same letter to shareholders, the Board claims the Company is "positioned to continue delivering strong results." To make such a bold claim, the Board is forced to resort to various new metrics, like occupancy and straight-line leasing spread growth, neither of which were used to measure management's performance for compensation purposes. Even these new, cherry-picked metrics do not make the Company look great. For example, in terms of occupancy rates, the Company ranks ninth among thirteen peers.

Moreover, the Company committed the cardinal sin of missing revised, lowered guidance this past year. After cutting guidance for FFO per diluted share in August (and reiterating these reduced expectations in November), the Company still missed this lower target for the year. While the Board may declare these to be "outstanding operational results," we believe that a management team missing lowered guidance is clear and objective evidence of underperformance.

Nevertheless, the Board has tried mightily to paint a picture of strong performance. Yet, it has not fooled the market. Whitestone trades at one of the steepest discounts to consensus NAV (second to last among the peers)⁷ and at one of the lowest multiples of forward Adjusted Funds from Operations (also second to last among the peers).⁸ Peer companies trade on average at a 2.0x higher FFO multiple than Whitestone⁹ and stock market valuations for those peers are much closer to consensus NAV.¹⁰  We believe this massive discount to market peers is evidence that investors are discouraged by current performance and expect  continued underperformance.

Whitestone's Board lacks independence and transparency and supports poor governance

Disappointingly, the Board's attempt to characterize weak performance as strong fits a pattern of the Board failing to provide accurate and complete information to shareholders.

In its recent letter to shareholders, the Board says that, in 2022, "your Board took action in a deliberate and decisive manner and terminated the prior CEO for cause." To be clear, two of the five independent trustees were not even on the Board at the time. The other three had been sitting on the Board idly for years, allowing the prior CEO, in their own words, to "put his own interest ahead of shareholders."¹¹  We do not think these three trustees, especially the long-tenured Mr. Taylor and Ms. Berry, should be credited for supporting inadequate ...

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