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Whitestone REIT Eager To Turn The Page A Year After Firing CEO, But $25M Lawsuit Looms

New leaders of a Houston-based REIT say they are building investor confidence and faring better since firing their previous CEO just over a year ago, despite the $25M wrongful termination lawsuit he filed still hovering in the background.

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Whitestone REIT Chief Operations Officer Christine Mastandrea and CEO David Holeman.

Whitestone REIT, a relatively small retail vehicle with more than 50 open-air centers throughout Phoenix; Chicago; and Austin, Dallas-Fort Worth, Houston and San Antonio, Texas, is working hard to move on from an ugly episode that began last January with the firing of former CEO James Mastandrea

Whitestone cited a violation of an employee agreement and conduct that didn’t meet company standards or the responsibilities of the CEO in cutting its chief executive loose. That led to a February 2022 lawsuit from Mastandrea alleging company leadership, including his estranged wife, Christine Mastandrea, lied to take control of the company, violated his contract and caused economic suffering to Whitestone and shareholders. 

A year later, the lawsuit is moving through the system and divorce proceedings are underway, but company leaders say they are focused on enhancing the value of shopping centers in high-growth Sun Belt regions and using the results of a “listening campaign” to retain and attract investors.

David Holeman, the REIT's prior chief financial officer, has moved up to the CEO spot, and Christine Mastandrea moved from executive vice president to chief operating officer.

The company culture has changed significantly in the past year, Holeman and Christine Mastandrea told Bisnow. Since January 2022, Whitestone has separated its chairman and CEO roles, reduced executive compensation and focused on building board diversity.

“We spent a lot of time with our employee base, kind of talking about ‘What's our mission? What's our purpose?’ Getting clarity of goals,” Holeman said.

The team has been “re-energized,” Christine Mastandrea said of working through the crisis.

“It's been a freeing moment for everybody,” she added. “It's neat to work with people that really have a passion for the business and want to make a difference.”

In January, The Motley Fool reported Whitestone, "a relative laggard" among retail REITs, had made up ground since the drama of last year, lowering the ratio of its debt to earnings before interest, taxes, depreciation and amortization, or EBITDA, while working through lawsuits and making progress on monetizing a nontraded REIT it also owns.

Whitestone grew its occupancy to better than 92% and increased its revenue by $14M from 2021 to 2022. Though its stock values remain shaky, its shares have outperformed the broader REIT market over the past year.

“They’re definitely more shareholder-friendly now than before,” said Anthony Hau, vice president of equity research for Truist Securities and lead analyst for Whitestone REIT’s stock.

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Market Street at DC Ranch in Scottsdale, Arizona, is one of Whitestone REIT's properties.

But whether the company is listening to shareholders more now because of new leadership or continuing historic initiatives isn't clear, as the company began improving investors’ positions before the transition to new leadership, Hau said. 

Whitestone has done a few things right since the pandemic began, including cutting dividend payments in half and boosting its occupancy to a record-high 93.7%, he said.

The company’s net EBITDA ratio was about 7.7 at the end of 2022, but Hau said that can be brought down to 7 by the end of this year. About four years ago, it was 10, “which is really high in the REIT world,” he said.

Whitestone considers itself to be more localized than other REITs, Holeman said, adding that while it works with some brokers, it employs its own leasing agents.

“We have in-house folks that we want to be deep in the communities that they live in,” he said. “So that is something we think is extremely valuable, is that local knowledge and local connection.”

Whitestone leases to tenants with businesses it understands and believes in, Christine Manstandrea said.

“You gotta understand how a business makes money,” she said. “Quite frankly, a lot of leasing agents don't do that. They just want to sign a lease and fill a space. Now, that's not how we operate.”

Whitestone judges itself on whether it is adding value to the communities it operates in, Holeman said. He cited Lake Woodlands, a 60K SF retail property in The Woodlands that Whitestone acquired late last year, as one that adds value to its community.

The center has a Flower Child restaurant, an Ulta Beauty and a Total Wine. There is also a Bluestone Coffee shop opening soon, and Christine Mastandrea recently met with the Australian entrepreneur behind the business, she said.

“It was a good example of what we do,” Holeman said.

Whitestone saw higher revenue in 2022 than it did in 2021, rising from $125.4M to $139.4M, though its stock price sat at $8.72 as of Tuesday morning, down from $12.89 in March 2022. Hau said that underperformance is largely due to rising interest rates and Whitestone's large proportion, about 16%, of floating-rate debt. 

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Former Whitestone REIT CEO James Mastandrea

But James Mastandrea’s attorney, who rose to fame helping take down disgraced movie producer Harvey Weinstein, said he and his client don't believe the drop in stock prices has anything to do with interest rates.

“Whitestone owes Mr. Mastandrea $25M and they know it, but they can’t afford to pay it to him with the stock price falling since he left,” attorney Thomas Ajamie said in a statement to Bisnow. 

At the time of his firing, James Mastandrea was in negotiations to sell Whitestone, and there was an offer on the table, Ajamie said. His suit alleges he was fired because of the attempted sale.

Whitestone filed an amended counterclaim this month, alleging James Mastandrea disclosed confidential information in pursuit of the sale, a violation of his employment agreement. The counterclaim further alleges the former CEO failed to return Whitestone property, including two Land Rover Range Rovers, two laptops, two iPads, three iPhones and keys to the REIT’s office  — charges denied by his attorney.

“Whitestone knows it had no legitimate reason to dismiss Mr. Mastandrea, the man who built this company from nothing into a billion-dollar REIT,” Ajamie said. “It’s pathetic that the people he hired and trained can only defend themselves by petty accusations of taking a leased car, which has in fact been returned, and a computer, which had his personal emails on it.”

Depositions will begin next month, Ajamie said.

Holeman said there is no merit to James Mastandrea’s lawsuit, and the company is eager to put the mess in the rearview mirror.

“I think what the former CEO is trying to make it sound like, it's some kind of big drama. It’s not a big drama,” Holeman said. “This is a public company who felt like its CEO was not acting in the best interest to our shareholders, investigated that, found proof that he wasn’t and let him go.”

Whitestone is involved in two other pending lawsuits, one brought by Pillarstone Capital REIT and its operating partnership, alleging Whitestone's leadership embarked on a scheme to breach contractual agreements, violate fiduciary duties owed to Pillarstone and "pillage Pillarstone OP's assets," according to the original petition. That partnership owns assets with the former CEO, Holeman said.

The other is brought by Whitestone against Pillarstone to invalidate a "poison pill" provision preventing Whitestone from exiting and monetizing its stake in the Pillarstone Partnership, according to Whitestone.

The company feels it is in an "incredibly good position" regarding both lawsuits brought against it, Holeman said. 

Outside of legal entanglements, Whitestone execs say they are in acquisition mode and are eyeing markets in Florida. And while the stock market has been rough on its shares, they are hopeful about new investors brought in over the past year and continued growth.

Hau said Whitestone doesn’t have the capital to buy many assets right now but said it plans to "hyperfocus" on operations and leasing.

“That’s exactly what they should do at this moment,” he said. “I think they’re on track. They just need to keep leasing the portfolio.”

As long as they maintain this performance for the next couple of years, Hau said he thinks the investor community will ascribe a higher value to the stock — with a caveat.

“It’s like a show-me story, right?” he said.