EREZ ASSET MANAGEMENT SENDS LETTER TO WHITESTONE REIT SHAREHOLDERS COMMENTING ON THE BOARD'S LACK OF CANDOR
Erez Encourages Whitestone Shareholders to Vote "FOR"
"It is deeply troubling that the
The full text of the letter is below:
Dear Fellow Whitestone REIT Shareholders,
We are writing to encourage you to join us in supporting critical changes at
No, to hear the story from
With such enviable assets and supposed "superior" performance,5 one would expect the Company to be highly valued and generating great returns for shareholders. The sad fact is, however, that the stock market disagrees with
- failed to deliver on its long-term leverage and expense reduction commitments made to investors in 2018;12
- missed all four financial targets in the Company's 2023 Annual Incentive Plan;13 and
- missed its 2023 FFO guidance, despite setting a target that was lower than the result for 2022, cutting that unambitious target just months later and then reaffirming the further reduced guidance just a month before the earnings miss.14
Unfortunately, the Board's uber-defensive reaction to our desire to see improvements in performance at
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Claimed the Board proactively fired the prior CEO for performance issues, when in fact the Board fired him for misconduct. The Board claims it "recognized the lack of execution and underperformance"15 under the Company's former leader. However, at the time of the firing, in the press release announcing the leadership transition, the Board said the termination was "not related to
Whitestone's operating performance [or] financial condition."16 -
Cynically attempted to damage
Mr. Schanzer's credibility by highlighting baseless claims against him, both of which were resolved in his favor and without a finding of fault. The Board knows the allegations it has repeated in its materials have no basis; the veryWall Street Journal article the Board cites notes that the allegations were dismissed, andMr. Schanzer provided the Company with legal documents indicating that an independent arbitrator found the claims to be unsupported. -
Dismissed the significance of Board Chair
David Taylor's undisclosed service as counsel to Pillarstone REIT (an entity in whichWhitestone's then-CEO held a 78% beneficial ownership interest),17 even thoughMr. Taylor's professional relationship withWhitestone's then-CEO surely implicatedMr. Taylor's independence.Mr. Taylor's law firm was potentially paid millions of dollars to negotiate againstWhitestone on behalf of an entity controlled by the Company's then-CEO. Just a few months later,Mr. Taylor was invited to joinWhitestone's Board and was appointed toWhitestone's Compensation Committee. Soon thereafter,Whitestone's then-CEO received a significant pay increase. And shareholders were never told of the relationship between the then-CEO andMr. Taylor . Moreover, aspects of the Whitestone-Pillarstone deal later became the subject of a lawsuit byWhitestone (whereMr. Taylor was then Chair) against Pillarstone (whereMr. Taylor was the drafting lawyer responsible for the deal.) The Board well knows thatMr. Taylor's work for the then-CEO's controlled entity created an ongoing independence issue (especially asWhitestone's ownership stake in Pillarstone is at risk due to the performance and bankruptcy of Pillarstone andWhitestone sued Pillarstone). This relationship should have been disclosed.
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Falsely claimed Erez and
Mr. Schanzer are focused solely on sellingWhitestone , even though that is both not true and was never even discussed duringMr. Schanzer's interview with the Board.Mr. Schanzer initially approached the Company shortly after Bloomberg reported interest from a buyer because he feared that the Board would hastily sell the Company. His advice and input was not to rush into a sale. Since then, in his dialogue with the Board and with shareholders,Mr. Schanzer's focus has been on cost of capital, capital allocation, lease and tenant quality, investor communications, model integrity and other operational topics. The Board obviously knows this; the subject of selling Whitestone was not discussed duringMr. Schanzer's interview. -
Incorrectly claimed
Mr. Schanzer delivered inferior returns while acting as CEO of Cedar Realty Trust, when in fact he oversaw significant improvement and outperformance. Prior toMr. Schanzer announcing Cedar's long-term repositioning plan, shortly after taking over as CEO, Cedar was a chronic underperformer, delivering a negative 55% total shareholder return from the company's IPO.18 UnderMr. Schanzer's leadership, Cedar's fortunes reversed: from the announcement ofMr. Schanzer's long-term plan inNovember 2011 to its sale inAugust 2022 , Cedar delivered a total shareholder return of approximately 103%, significantly outperforming the company's shopping center REIT peers.19 TheWhitestone Board knows this because its own financial advisor also advised the CedarBoard of Trustees (and prepared a presentation inAugust 2022 indicating that Cedar had outperformed).20
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Claimed that Erez nominee
Catherine Clark is not qualified to join the Board, even though she has more directly relevant real estate experience than any ofWhitestone's incumbent independent directors. DespiteMs. Clark's decades-long track record of buying, selling and developing billions in shopping center assets, the Board claimsMs. Clark lacks relevant experience because she has not bought and sold inTexas andArizona specifically.21 But none ofWhitestone's independent trustees have experience buying and selling shopping centers anywhere.
These intentional distortions of the facts by our fiduciaries are discouraging. Perhaps worse still is the Board's attempt to sidestep entirely, without comment, some of the more troubling aspects of
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The Company is sub-scale.
Whitestone has the fewest net real estate assets and number of properties, least leasable square footage and lowest revenue of any of its peers.22 Its small size has led to underinvestment by institutional shareholders23 and excess volatility. -
The Company's operations are inefficient. As a result of its lack of scale,
Whitestone's G&A burden, measured as a percentage of the Company's revenue and enterprise value, is significantly higher than any of its peers.24 -
The Company's leverage is high.
Whitestone is one of the highest-levered shopping center REITs,25 with its 2023 net debt/EBITDAre of 7.6x significantly higher than both the peer median and the Company's own 2023 goal of 6.8x.26 -
The Company has re-cycled equity for no rational economic reason and at the expense of great dilution. Since 2017,
Whitestone has sold nearly$200 million in equity, always at a discount to NAV.27 Instead of using this equity to de-lever the balance sheet or grow the scale of the business,Whitestone has returned a substantial amount of it right back to equity holders in the form of "return of capital" dividends.28 There is simply no economic rationale for selling equity and returning "excess" equity, often in the same year. This is abysmal capital allocation. -
The Board has repeatedly recruited directors from among the Company's service providers. Rather than casting a wide net for the most capable and qualified talent,
Whitestone has filled its Board with trustees who had a former business and/or social relationship with the Company and its executives.29 -
The Board also
recruited a trustee who later committed one of the largest fraudulent check-kiting schemes in
U.S. history,30 then failed to adequately disclose the circumstances surrounding his abrupt resignation fromWhitestone's Board.31 It's unclear why the Board decided to appoint thisIndiana -based payroll company owner in the first place. And, so far, the Board has chosen to remain silent on its own poor vetting and his criminal conviction. - The Board has flaunted the will of shareholders. When one of the Board's nominees was forced to tender his resignation after failing to receive majority support from shareholders at the 2021 annual meeting – due, in part, to the Board's adoption of an off-market poison pill with a 5% threshold and a slow-hand feature32 – the Board rejected his resignation.33
Even as the Board remains silent about these concerns, and obfuscates others, one thing remains clear: the market believes
We agree and believe that change is urgently needed. Shareholders deserve a Board that is honest (and transparent) about the challenges
Our nominees bring highly relevant real estate, REIT capital markets and shopping center expertise. If elected to the Board, they are committed to working constructively with
And
To ensure the election of
Sincerely,
Chairman,
If you have any questions or require assistance in voting your BLUE universal proxy card, please contact our proxy solicitor, Innisfree M&A Incorporated at: Shareholders may call toll-free: (877) 456-3422 Banks and brokers call: (212) 750-5833 |
About
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.
Disclaimer
This material does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein in any state to any person. In addition, the discussions and opinions in this press release and the material contained herein are for general information only, and are not intended to provide investment advice. All statements contained in this press release that are not clearly historical in nature or that necessarily depend on future events are "forward-looking statements," which are not guarantees of future performance or results, and the words "may," "might," "could," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of these terms and other comparable terminology are generally intended to identify forward-looking statements. Any such forward-looking statements contained herein are based on current assumptions, estimates and expectations, but are subject to a number of known and unknown risks and significant business, economic and competitive uncertainties that may cause actual results to differ materially from expectations. Any forward-looking statements should be considered in light of those risk factors. The Participants (as defined below) caution readers not to rely on any such forward-looking statements, which speak only as of the date they are made. Certain information included in this press release is based on data obtained from sources considered to be reliable. No representation is made with respect to the accuracy or completeness of such data, and any analyses provided to assist the recipient of this press release in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any analyses should also not be viewed as factual and also should not be relied upon as an accurate prediction of future results. Any figures are unaudited estimates and subject to revision without notice. The Participants disclaim any intent or obligation to publicly update or revise any such forward-looking statements to reflect any change in expectations or future events, conditions or circumstances on which any such forward-looking statements may be based, or that may affect the likelihood that actual results may differ from those set forth in such forward-looking statements.
Certain Information Concerning the Participants
The definitive proxy statement and an accompanying BLUE proxy card has been furnished to some or all of the Company's shareholders and are, along with other relevant documents, publicly available at no charge on the
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1 |
Source: Whitestone REIT Investor Presentation, filed with the |
2 |
Source: Whitestone REIT Investor Presentation, filed with the |
3 |
Id. |
4 |
Id. |
5 |
See Whitestone REIT Letter to Shareholders, filed with the |
6 |
Source: S&P Capital IQ Pro. Data as of |
7 |
S&P Capital IQ Pro. Data is for the period |
8 |
Source: FactSet. Data as of |
9 |
Id. |
10 |
Source: FactSet. Based on the five-year total return as of |
11 |
Source: Whitestone REIT Definitive Proxy Statement, filed with the |
12 |
In an Investor Presentation filed with the |
13 |
Source: Whitestone REIT Definitive Proxy Statement, filed with the |
14 |
Source: |
15 |
Source: Whitestone REIT Investor Presentation, filed with the |
16 |
Source: Whitestone REIT Press Release, |
17 |
See, e.g., Contribution Agreement and OP Unit Purchase Agreement between |
18 |
Source: S&P Capital IQ Pro. Data from |
19 |
Source: S&P Capital IQ Pro. Data from |
20 |
Source: Presentation to the Cedar Realty Trust |
21 |
Source: Whitestone REIT Investor Presentation, filed with the |
22 |
Sources: Bloomberg and FactSet. Data as of and for the year ended |
23 |
Source: FactSet. Data as of |
24 |
Source: FactSet. Data as of |
25 |
Source: FactSet. Data as of |
26 |
Source: Whitestone REIT Definitive Proxy Statement, filed with the |
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Sources: |
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Sources: |
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Source: |
31 |
In the Form 8-K disclosing |
32 |
Source: Diligent. Note: Several shareholders, including BlackRock, the |
33 |
Source: Whitestone REIT Form 8-K, filed with the |
34 |
Source: Whitestone REIT Investor Presentation, filed with the |
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