Ares Management Acquires Whitestone REIT in $1.7B All-Cash Deal

Whitestone REIT, a Houston-based real estate investment trust (REIT) with a shopping center portfolio exclusively invested in Arizona and Texas and a market capitalization of $971 million, is no longer a public company. 

The REIT announced Thursday it has been purchased by private equity giant Ares Management in an all-cash $1.7 billion deal. 

The $1.7 billion price represents a 12.2 percent premium on Whitestone’s most recent stock price, which closed at $18.90 per share on April 8, and a 26.5 percent premium to where the stock traded just one month ago. 

Whitestone’s portfolio includes 56 retail spaces occupied by 1,466 tenants spread across 4.9 million square feet. Nearly half of the REIT’s portfolio exists in the Phoenix area, with substantial portions in Houston, Dallas, Fort Worth, Austin and San Antonio, Texas. 

David Roth, global head of real estate strategy at Ares Real Estate, said in a statement that his firm was attracted to Whitestone’s portfolio of “necessity-based retail centers” in Southwestern metro areas that had high demand and low supply pipelines for retail. 

“This transaction reflects our high conviction in ‘new economy’ real estate,” said Roth. “Today’s consumers are increasingly seeking convenient experiences for their grocery, pharmacy, health care, fitness and dining needs.” 

David Auerbach, chief investment officer at Hoya Capital, a real estate research firm, took notice of the sale price and zeroed in on Whitestone’s retail-specific portfolio.  

“It just shows that high-quality real estate in well-located markets is in demand and desirable,” he said. 

Dave Holeman, Whitestone CEO, said in a statement that the deal with Ares reflects the desire for sponsors to acquire “high-return smaller [retail] spaces occupied by a well-diversified mix of tenants.” 

Amy Feng, chair of Whitestone’s board, spoke of the returns shareholders received on the sale price. 

“We are excited to reach this agreement, which delivers significant, immediate and certain value to our shareholders while positioning Whitestone’s assets for continued success,” said Feng. 

The sale of Whitestone comes after the firm had rebuffed other attempts at a takeover. 

CO reported in in April and May 2024 how Whitestone fended off Bruce Schanzer, chairman and chief investment officer of Erez Asset Management, a real estate investment firm, who had sought to replace two existing trustees of Whitestone’ six-person board with himself and his business partner, Cathy Clark, an investor.  

That April, Schanzer had told CO in an exclusive interview that board mismanagement had repeatedly issued equity at steep discounts to net asset values, which had manipulated the REIT’s stock price and drastically reduced the stock’s value. The stock was trading at roughly $12 per share, and Schanzer believed it should have traded closer to $16 or $17 per share.

However, with Thursday’s sale to Ares Management for essentially $19 per share, it appears Whitestone’s embattled board got the last laugh. 

“Whitestone’s been in play for a while now, so the transaction comes as no surprise,” said Auerbach, who noted that the deal removes yet another small-cap REIT from the publicly traded marketplace. “Another one bites the dust. It seems small caps getting picked off is the theme of M&A — lowest-hanging fruit with the largest buyer pool, I guess.” 

Jonathan Morris, an adjunct professor at Georgetown University and founder of the REIT Academy education portal, told CO that retail centers are consistent businesses that don’t drop too high or too low, and that he expects Ares will incorporate Whitestone’s employees into its non-traded REITs.

“The press release indicates they’ll become a private company, whereas most ‘take private’ REIT deals want the portfolio of assets, not the management team,” said Morris. “That is likely why they paid the 12 percent premium.”

Brian Pascus can be reached at bpascus@commercialobserver.com.