2017 ANNUAL REPORT
HOUSTON | AUSTIN | DALLAS | SAN ANTONIO | PHOENIX
CREATING COMMUNITIES IN OUR PROPERTIESTM
WS R
LISTED
NYSE
2017 FINANCIAL HIGHLIGHTS *
20.6% Growth in Revenues to $126 million
19.2% Growth in NOI to $84 million
29.6% Increase in FFO to $35 million
19.6% Growth in FFO Core to $47 million
7.0% Increase in Rental Rates on New and Renewal Leases
$205M Million in Property Acquisitions
$17.5M Million of Capital Improvements to our Portfolio
Over $40M Million of dividends distributed in 2017
* NOI, FFO and FFO Core are financial measures that are not calculated pursuant to U.S. generally accepted accounting principles (“GAAP”). Please refer to “Reconciliation of Non-GAAP Financial Measures” on
pages 60 to 61 of our Annual Report on Form 10-K for the year ended December 31, 2017 for explanations and reconciliations of these metrics to their most comparable GAAP metric.
TOTAL SHAREHOLDER RETURN RANK AMONGST
US PUBLIC REIT SHOPPING CENTERS *
#1 OF 17
OVER 1 YEAR
#3 OF 17
OVER 3 YEARS
#4 OF 15
OVER 5 YEARS
* Whitestone REIT Total Shareholder Return as compared to its peers according to the SNL Public REIT Market Data based on closing prices on December 31, 2017. Peers include: Regency Centers Corp., Cedar
Realty Trust Inc., Retail Opportunity Investments Corp., Weingarten Realty Investors, Saul Centers Inc., Urban Edge Properties, Federal Realty Investment Trust, Urstadt Biddle Properties Inc., Ramco-Gershenson
Properties Trust, Retail Properties of America Inc., Kite Realty Group Trust, Acadia Realty Trust, Wheeler REIT Inc., Brixmor Property Group Inc., Kimco Realty Corp., and DDR Corp.
We strive to strategically optimize the tenant mix and create communities that are the front
porches, the living rooms, the entertainment centers, and the workspaces of the communities.
- Jim Mastandrea, Chairman and CEO
2“
DEAR FELLOW SHAREHOLDERS:
Our 2017 Annual Report to shareholders reflects a transformational year in which Whitestone delivered strong
financial and operating results while making changes to significantly enhance the Company’s Competitive
Advantages on three fronts:
A “Acquiring High Quality Properties” in strong Markets
A “Operating an E-Commerce Resistant Retail Business Model” in a Disrupted Retail environment
A “Attracting Institutional Investors” by making Corporate Governance changes, including refreshing our Board with the
addition of three new independent Trustees, significantly enhancing the Board’s gender, ethnic, age, and professional
diversity, along with overall compensation alignments in line with our REIT Peer Group.
Within the real estate industry, we compete daily for “Properties,” “Tenants,” and “Capital” and as we continue to
transform our overall business, we expect to accelerate our growth and increase our profitability while delivering
industry leading Total Returns to our Shareholders.
In 2017, we grew our total market capitalization to $1.24 billion from $981 million1, or 25%; were added to the S&P
Small Cap 600 Index; closed on two Class-A retail centers; AND completed a $100 million common share offering,
while successfully navigating Hurricane Harvey. This was all accomplished while producing strong financial results that put
Whitestone #1 among its peers in total shareholder return for 20172. Our success is driven by an entrepreneurial culture
with a forward thinking and proven E-Commerce resistant contrarian business strategy. Our profitable, sustainable, and
scalable business model is well-positioned to succeed in the current market, with shorter-term leases that allow us to
increase rental rates in an inflationary environment. We expect to continue creating shareholder value by consistently
executing on our clearly articulated strategy with our highly qualified team of knowledgeable, experienced, and dedicated
real estate professionals looking upward for wisdom and discernment, with our “Commitment of Service” to all of our
Shareholders, Tenants, Associates, and Stakeholders.
Our work to date is summarized in the 2017 Financial Highlights, 2017 Operational Highlights, Corporate Governance
Highlights, Acquisition Activity in 2017 and E-Commerce Resistant Business Model sections below. As I write, I remind
our shareholders that our current challenges are no greater than what we faced to reach this point in time, and no fewer
than we expect in the future. We look forward to the challenges we will face and take very seriously the fact that many of
our shareholders rely on our monthly dividend to pay their bills and the value of our shares to fund their retirements.
(1) Includes: (a) outstanding common shares and operating partnership units of 40.3 million at the market price of $14.41 per share and 30.6 million at the market price of $14.38 per share as of December 31, 2017
and December 31, 2016, respectively, and (b) total net debt capitalization of $653 million and $541 million as of December 31, 2017 and December 31, 2016, respectively.
(2) Whitestone REIT total shareholder return as compared to its peers according to the SNL Public REIT Market Data based on closing prices on December 31, 2017. Peers include Regency Centers Corp., Cedar
Realty Trust, Inc., Retail Opportunity Investments Corp., Weingarten Realty Investors, Saul Centers, Inc., Urban Edge Properties, Federal Realty Investment Trust, Urstadt Biddle Properties Inc., Ramco-Gershenson
Properties Trust, Retail Properties of America, Inc., Kite Realty Group Trust, Acadia Realty Trust, Wheeler REIT Inc., Brixmor Property Group Inc., Kimco Realty Corp., and DDR Corp.
EXECUTING OUR STRATEGY: PEER LEADING TOTAL SHAREHOLDER
RETURNS DESPITE RETAIL REIT INDUSTRY HEADWINDS *
17 PUBLICLY TRADED US SHOPPING CENTERS REITS
WSR
REG UBA ROIC BFS WRI FRT CDR RPT UE RPAI AKR KRG BRX KIM DDR WHLR
WSR #1 IN TSR % FOR 2017
)
%
(
N
R
U
T
E
R
E
G
A
T
N
E
C
R
E
P
10
0
-10
-20
-30
-40
-50
* Source: SNL, as of December 31, 2017. Total shareholder return (TSR) is defined as the share price change plus the re-investment of dividends at the ex-dividend date.
3
3
2017 FINANCIAL HIGHLIGHTS
Our highly talented team delivered another successful year for Whitestone.
Through the end of 2017, Whitestone’s Total Shareholder Return ranked:
A #1 of 17 US Publicly Traded Shopping Center REITs over a 1-year
timeframe
A #3 of 17 US Publicly Traded Shopping Center REITs over a 3-year
timeframe
A #4 of 15 US Publicly Traded Shopping Center REITs over a 5-year
timeframe
Other highlights of Whitestone’s strong 2017 financial performance
include:(3)
A 20.6% growth in revenues to $126.0 million
A Net income attributable to Whitestone REIT of $8.3 million and $0.22
per share compared to $7.9 million and $0.26 per share in 2016
A 19.2% growth in NOI to $83.8 million
A Same store NOI growth in wholly owned portfolio up 2.6% and 1.4%
including consolidated partnership properties
A 29.6% increase in FFO to $35.0 million, or 2.2% on a per share basis to $0.93
A 19.6% growth in FFO Core to $47.1 million
A More than $40 million of dividends distributed to shareholders
2017 OPERATIONAL
HIGHLIGHTS
Bolstered by our performance and investment
activity in 2017, Whitestone made significant
progress expanding and enhancing our portfolio.
Operational highlights include:
A Total occupancy, including operating
properties, development properties and
consolidated partnership properties, of
88.0%, up 120 basis points
A Successfully redeveloped our Sugar Park
property in Houston, achieving 100%
occupancy at year-end
A Grew our operating portfolio occupancy by
80 basis points, achieving 90.5% occupancy in
our operating portfolio at year-end
A 7.0% aggregate increase in rental rates on
new and renewal leases signed in 2017 on a
GAAP basis
A Completed $205 million of acquisitions and
made $17.5 million of capital improvements
to our portfolio of properties
CORPORATE GOVERNANCE HIGHLIGHTS
Following engagement and dialog with shareholders, we made several significant corporate governance enhancements
in 2017, including:
A Implementing share ownership guidelines for named executive officers (“NEOs”) and Trustees of 5 times the annual retainer
fee for trustees, 5 times base salary for the CEO, and 3 times base salary for other NEOs
A Adopting annual frequency for shareholder say-on-pay vote
A Aligning our compensation structure and performance goals more closely with industry peers and industry best practices
A Refreshing and strengthening the Board by adding three new independent trustees who have exceptional experience as well
as diverse backgrounds
(3) NOI, FFO and FFO Core are financial measures that are not calculated pursuant to U.S. generally accepted accounting principles (“GAAP”). Please refer to “Reconciliation of Non-GAAP Financial Measures” on
pages 60 to 61 of our Annual Report on Form 10-K for the year ended December 31, 2017 for explanations and reconciliations of these metrics to their most comparable GAAP metric.
4
2017 ACQUISITION ACTIVITY
We purchase Community Centered Properties® in
neighborhoods with high household incomes, located in fast
growing cities in business-friendly states where we can increase
cash flow and value. By investing in properties that we can
re-tenant with smaller service based companies, we are able
to capture and meet the surrounding neighborhoods’ unmet
demand for services. Our strong year-over-year financial
performance since our IPO in 2010 validates our acquisition
strategy, which continues to strengthen and diversify the
Company, driving growth and value creation for Whitestone
shareholders.
Eldorado Plaza: On May 3, 2017, we completed the acquisition
of Eldorado Plaza, located on the north end of the Dallas
“Platinum Corridor” in Texas for $46.6 million. This Class-A
lifestyle center contains 221,577 square feet of leasable space.
As of December 31, 2017, Eldorado Plaza was 96% leased.
BLVD Place: On May 26, 2017, we completed the acquisition
of BLVD Place, a Class-A retail center located in the affluent
and fast growing Uptown community of Houston, Texas,
for a purchase price of $158.0 million. This Class-A lifestyle
center, includes 216,944 square feet of leasable space and
approximately 1.43 acres of developable land. As of December
31, 2017, BLVD Place was 100% leased.
FUTURE AND LONG-TERM GOALS
At Whitestone, we take a “long-term view” and continue to
refine our approach to the changing economic environment.
Whitestone started as a public non-traded REIT, with many of
the challenges that exist in the non-traded REIT industry. Our
Board made important changes and brought on a new team to
lead the exit from the non-traded REIT industry and list the
Company on the NYSE, providing true liquidity and a market
valuation to our shareholders. Given the significant growth in
our seven years as a public traded company, we see a bright
future for Whitestone and our shareholders. Going forward,
with our scalable infrastructure in place, we will work to
maintain best in class returns, while reducing relative leverage
to a ratio of Debt to EBITDA of 6 to 7 and G&A costs as a
percentage of revenue to 8% to 10%, as communicated in our
Letter to Shareholders in February of this year.
E-COMMERCE RESISTANT BUSINESS
MODEL
The strength of our unique, E-Commerce resistant business
model has enabled Whitestone to allocate capital thoughtfully
and strategically. At the center of Whitestone’s success is our
entrepreneurial culture, built on our differentiated contrarian
strategy that focuses on the consumer and service-based
retail properties. We do extensive research related to
consumer behavior, looking to:
A Understand the needs of the surrounding community
A Determine which services and necessities are missing
A Acquire unique properties in the respective communities
A Find entrepreneurial tenants to meet the local needs
A Provide our infrastructure of people and processes to
ensure the community centers can be replicated and its
tenants successful
We foresaw that E-Commerce would forever change the way
people shop, and the manner in which soft and hard goods are
distributed, and as such, we reevaluated our strategy in order
to mitigate the downside risk and capitalize on the needs of
a changing market “focusing on the consumer.” We strive to
strategically optimize the tenant mix and create communities
that are the front porches, the living rooms, the entertainment
centers, and the workspaces of the communities.
SUMMARY
We are proud of the significant growth and the stable,
consistent, and predictable returns the Whitestone team has
produced to date. In our current economic environment
where retail REITs are severely discounted to net asset
value, we believe that our competitive advantages of having
a basket of “Quality Properties in strong Markets,” operating
an “E-Commerce Resistant Retail Business Model,” instituting
changes for an “Institutional Aligned Corporate Governance,”
and having an in-place “Scalable Infrastructure,” we can
continue to produce exceptional “Total Returns to our
Shareholders.” On behalf of our Board of Trustees, senior
management team and all of our associates, I would like to
thank you for your continued confidence and support.
Sincerely,
James C. Mastandrea, Chairman and CEO
“Do not be conformed to this age, but be transformed by the
renewing of your mind, so that you may discern what is the good,
pleasing, and perfect will of God.” - Romans 12:2
5
EXECUTING OUR STRATEGY: BUSINESS-FRIENDLY, ATTRACTIVE
DEMOGRAPHICS
PHOENIX
#3
#5
Fastest Growing Tech Market (7)
Largest Labor Pool in the West(6)
Next Biggest Boom Town (1)
AUSTIN
#1
#1
Fastest Growing City in the U.S.
for the 4th Consecutive Year (2)
SAN ANTONIO
TOP 10
Fastest Growing City (8)
#8
Best Economic Climate(9)
DALLAS
#1
Top Real Estate Market for
Investment in 2017(3)
#1
Most Business Friendly City in
America(4)
#1
Great Cities for Starting a
Business(5)
HOUSTON
#1
in the world in GDP per
capita(10)
#1
Highest Starting Salaries in
the US(11)
The “Energy Capital of the
World” also boasts the Largest
Medical Center in the World(12)
(1) Source: HFF Market Overview, Forbes, 4Q17
(2) Source: HFF, Forbes, 4Q17
(3) Source: HFF, PwC, ULI, 4Q17
(4) Source: HFF, MarketWatch, 4Q17
(5) Source: HFF, Kiplinger, 4Q17
(6) Source: HFF, BLS January, 2018
(7) Source: HFF, Fortune November 2016
(8) Source: HFF, Forbes 2018
(9) Source: HFF, Forbes 2018
(10) Source: HFF, A.T. Kearney, January 2018
(11) Source: HFF, WalletHub 2018
(12) Source: HFF, Texas Medical Center 2018
EXECUTING OUR STRATEGY: HOUSEHOLD INCOME = GREATER
DISCRETIONARY SPENDING *
)
1
(
i
)
s
u
d
a
R
e
l
i
l
M
-
3
(
e
m
o
c
n
I
d
o
h
e
s
u
o
H
n
a
i
d
e
M
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
PEER AVERAGE: $74,474
* Source: S&P Global Market Nov 2017; Retail portfolio only. Excludes properties owned through Pillarstone Capital REIT Operating Partnership LP.
FRT
WSR
REG
KIM
DDR
WRI
BRX
6
6
EXECUTING OUR STRATEGY: 2023 LONG TERM PLAN INCLUDES
LOWERING DEBT, SCALING G&A, AND GROWTH FOR THE
COMMUNITY, TENANTS, SHAREHOLDERS, AND WSR EMPLOYEES
LOWERING
DEBT COVERAGE
DEBT /
EBITDA RATIO
CURRENT
8.3x *
SCALING
G & A
G&A /
REVENUE
CURRENT
17% *
* For the Quarter Ended December 31, 2017
GOAL
6x-7x
GOAL
8%-10%
OUR
COMMUNITIES
WE DESIGN TO REFLECT
THE SURROUNDING
LIFESTYLES AND CULTURES
UNIQUE APPROACH TO
LOCAL TASTE
CONNECTION
AND
OUR
TENANTS
WE SEE THE VALUE
IN NURTURING
ENTREPRENEURIAL
BUSINESSES
STIMULATE ECONOMIC
GROWTH BY PROVIDING
EMPLOYMENT
OPPORTUNITIES
GO FOR GROWTH
COMMUNITY BY DESIGN
THRIVING COMMUNITIES
LOCAL CONNECTION AND COMMERCE
PLATFORM OF GROWTH FOR TENANTS
PROVIDE AN OPPORTUNITY FOR GROWTH AND
SUCCESS FOR OUR ENTREPRENEURIAL TENANTS
GROWTH FOR OUR TEAM MEMBERS
THE FOUNDATION OF STRATEGIC ADAPTABILITY
VALUE FOR OUR SHAREHOLDERS
VALUE-CREATING GROWTH PLANS
OUR TEAM
MEMBERS
PURPOSE IN THE
WORK WE DO AND THE
COMMUNITIES WE CREATE
IN-HOUSE TRAINING
PROGRAM AND FOCUS
ON CONTINUED
EDUCATION
NNECTION
OUR
SHAREHOLDERS
ALL ROADS LEAD TO
OUR SHAREHOLDERS
ALL TEAM MEMBERS ARE
SHAREHOLDERS
CONNTION AND
COMMERCE
7
EXECUTING OUR STRATEGY:
FUTURE DEVELOPMENTS
BLVD DEVELOPMENT | HOUSTON, TEXAS
1.4 ACRES of Entitled Development Land
137,000
Additional Square Feet of GLA
8
CINEMA
EXECUTING OUR STRATEGY:
FUTURE DEVELOPMENTS
VILLAGE SQUARE DEVELOPMENT | MESA, ARIZONA
4.7 ACRES of Entitled Development Land
200,000
Additional Square Feet of GLA
9
2017 ACQUISTIONS
BLVD PLACE - HOUSTON, TX
BLVD PLACE
On May 26, 2017, the Company completed the acquisition of BLVD Place, a Class-A retail center located in the affluent and
fast growing Uptown community of Houston, Texas, one of the largest business districts in the United States, for a purchase
price of $158.0 million. This Class-A lifestyle center, includes 216,944 square feet of leasable space and approximately 1.43
acres of developable land. As of December 31, 2017, BLVD Place was 100% leased.
ELDORADO PLAZA - MCKINNEY, TX
ELDORADO PLAZA
On May 3, 2017, the Company completed the acquisition of Eldorado Plaza, located in McKinney, Texas, for $46.6 million.
Eldorado Plaza is located on the north end of the Dallas “Platinum Corridor.” This Class- A lifestyle center contains 221,577
square feet of leasable space. As of December 31, 2017, Eldorado Plaza was 96% leased.
10
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
For the transition period from ____________ to ____________
Commission File Number: 001-34855
______________________________
WHITESTONE REIT
(Exact Name of Registrant as Specified in Its Charter)
Maryland
(State or Other Jurisdiction of Incorporation or
Organization)
2600 South Gessner, Suite 500, Houston, Texas
(Address of Principal Executive Offices)
76-0594970
(I.R.S. Employer
Identification No.)
77063
(Zip Code)
Registrant's telephone number, including area code: (713) 827-9595
Securities registered pursuant to Section 12(b) of the Act:
Common Shares of Beneficial Interest, par value $0.001 per share
New York Stock Exchange
Title of each class
Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Emerging growth company
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the common shares held by nonaffiliates of the registrant as of June 30, 2017 (the last business day of the registrant's most
recently completed second fiscal quarter) was $465,386,087.
As of March 1, 2018, the registrant had 39,223,591 common shares of beneficial interest, $0.001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: We incorporate by reference in Part III of this Annual Report on Form 10-K portions of our definitive
proxy statement for our 2018 Annual Meeting of Shareholders, which proxy statement will be filed no later than 120 days after the end of our fiscal year ended
December 31, 2017.
11
WHITESTONE REIT
FORM 10-K
Year Ended December 31, 2017
PART I
Item 1.
Item 1A.
Item 1B.
PART I
Item 2.
Item 3.
Item 4.
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Business.
Legal Proceedings.
Risk Factors.
Mine Safety Disclosures.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4. Mine Safety Disclosures.
Item 5.
PART II
Item 6.
Item 7.
PART II
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
Selected Financial Data.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
Selected Financial Data.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Item 9A.
Item 9B.
Trustees, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accountant Fees and Services.
Controls and Procedures.
Other Information.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART III
PART III
PART IV
Item 15.
Item 16.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Exhibits and Financial Statement Schedules.
Form 10-K Summary.
SIGNATURES.
Trustees, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accountant Fees and Services.
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules.
Form 10-K Summary
Index to Exhibits
SIGNATURES.
12
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Table of Contents
Unless the context otherwise requires, all references in this Annual Report on Form 10-K to the “Company,” “we,” “us” or
“our” are to Whitestone REIT and its consolidated subsidiaries.
Forward-Looking Statements
The following discussion should be read in conjunction with our audited consolidated financial statements and the notes
thereto in this Annual Report on Form 10-K.
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities
laws, including discussion and analysis of our financial condition, anticipated capital expenditures required to complete
projects, amounts of anticipated cash distributions to our shareholders in the future and other matters. These forward-looking
statements are not historical facts but are the intent, belief or current expectations of our management based on its knowledge
and understanding of our business and industry. Forward-looking statements are typically identified by the use of terms such as
“may,” “will,” “should,” “potential,” “predicts,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates”
or the negative of such terms and variations of these words and similar expressions, although not all forward-looking
statements include these words. These statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed or forecasted in the forward-looking statements.
Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. You are
cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date
of this Annual Report on Form 10-K. We undertake no obligation to update or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes to future operating results. Factors that could cause
actual results to differ materially from any forward-looking statements made in this Annual Report on Form 10-K include:
•
•
•
•
•
•
•
•
•
•
•
•
the imposition of federal taxes if we fail to qualify as a real estate investment trust (“REIT”) in any taxable year or forego
an opportunity to ensure REIT status;
uncertainties related to the national economy, the real estate industry in general and in our specific markets;
legislative or regulatory changes, including changes to laws governing REITs and the impact of the Tax Reform Legislation
(as defined below);
adverse economic or real estate developments or conditions in Texas, Arizona or Illinois;
increases in interest rates, operating costs or general and administrative expenses, including those incurred in connection
with the nomination of trustees by a shareholder;
availability and terms of capital and financing, both to fund our operations and to refinance our indebtedness as it matures;
decreases in rental rates or increases in vacancy rates;
litigation risks;
lease-up risks, including leasing risks arising from exclusivity and consent provisions in leases with significant tenants;
our inability to renew tenants or obtain new tenants upon the expiration of existing leases;
our inability to generate sufficient cash flows due to market conditions, competition, uninsured losses, changes in tax or
other applicable laws; and
the need to fund tenant improvements or other capital expenditures out of operating cash flow.
The forward-looking statements should be read in light of these factors and the factors identified in the “Risk Factors”
section of this Annual Report on Form 10-K.
13
Table of Contents
PART I
Item 1. Business.
General
We are a Maryland Real Estate Investment Trust (“REIT”) engaged in owning and operating commercial properties in
culturally diverse markets in major metropolitan areas. Founded in 1998, we changed our state of organization from Texas to
Maryland in December 2003. We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended
(the “Code”).
We are internally managed and, as of December 31, 2017, we wholly-owned a real estate portfolio of 59 properties
that meet our Community Centered Property® strategy containing approximately 5.0 million square feet of gross leasable area
(“GLA”), located in Texas, Arizona and Illinois. Further, as of December 31, 2017, we, through our majority interest in our
consolidated subsidiary, Pillarstone Capital REIT Operating Partnership LP (“Pillarstone” or the “Consolidated Partnership”),
owned a majority interest in 14 properties that do not meet our Community Centered Property® strategy containing
approximately 1.5 million square feet of GLA (the “Pillarstone Properties”). Our consolidated property portfolio has a gross
book value of approximately $1,149 million and book equity, including noncontrolling interests, of approximately $358 million
as of December 31, 2017.
We own 81.4% of the Consolidated Partnership and fully consolidate it on our financial statements. We also manage
the day-to-day operations of the Consolidated Partnership.
Our common shares of beneficial interest, par value $0.001 per share, are traded on the New York Stock Exchange
(the “NYSE”) under the ticker symbol “WSR.” Our offices are located at 2600 South Gessner, Suite 500, Houston, Texas
77063. Our telephone number is (713) 827-9595 and we maintain a website at www.whitestonereit.com. The contents of our
website are not incorporated into this filing.
Our Strategy
In October 2006, our current management team joined the Company and adopted a strategic plan to acquire,
redevelop, own and operate Community Centered Properties®. We define Community Centered Properties® as visibly located
properties in established or developing culturally diverse neighborhoods in our target markets. We market, lease and manage
our centers to match tenants with the shared needs of the surrounding neighborhood. Those needs may include specialty retail,
grocery, restaurants and medical, educational and financial services. Our goal is for each property to become a Whitestone-
branded retail community that serves a neighboring five-mile radius around our property. We employ and develop a diverse
group of associates who understand the needs of our multicultural communities and tenants.
Our primary business objective is to increase shareholder value by acquiring, owning and operating Community
Centered Properties®. The key elements of our strategy include:
•
Strategically Acquiring Properties.
Seeking High Growth Markets. We seek to strategically acquire commercial properties in high-growth
markets. Our acquisition targets are located in densely populated, culturally diverse neighborhoods,
primarily in and around Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and San Antonio.
Diversifying Geographically. Our current portfolio is concentrated in Houston and Phoenix. We believe that
continued geographic diversification in markets where we have substantial knowledge and experience will
help offset the economic risk from a single market concentration. We intend to continue to focus our
expansion efforts on the Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and San Antonio markets.
We believe our management infrastructure and capacity can accommodate substantial growth in those
markets. We may also pursue opportunities in other regions that are consistent with our Community Centered
Property® strategy. Markets in which we have developed some knowledge and contacts include Orlando,
Florida and Denver, Colorado, both of which have economic, demographic and cultural profiles similar to our
Arizona and Texas markets.
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Capitalizing on Availability of Reasonably Priced Acquisition Opportunities. We believe that currently and
during the next several years there will continue to be excellent opportunities in our target markets to acquire
quality properties at historically attractive prices. We intend to acquire assets in off-market transactions
negotiated directly with owners or financial institutions holding foreclosed real estate and debt instruments
that are either in default or on bank watch lists. Many of these assets may benefit from our Community
Centered Property® strategy and our management team’s experience in turning around distressed properties,
portfolios and companies. We have extensive relationships with community banks, attorneys, title companies
and others in the real estate industry with whom we regularly work to identify properties for potential
acquisition.
•
•
•
•
Redeveloping and Re-tenanting Existing Properties. We have substantial experience in repositioning
underperforming properties and seek to add value through renovating and re-tenanting our properties to create
Whitestone-branded Community Centered Properties®. We seek to accomplish this by (1) stabilizing occupancy, with
per property occupancy goals of 90% or higher; (2) adding leasable square footage to existing structures; (3)
developing and building new leasable square footage on excess land; (4) upgrading and renovating existing structures;
and (5) investing significant effort in recruiting tenants whose goods and services meet the needs of the surrounding
neighborhood.
Recycling Capital for Greater Returns. We seek to continually upgrade our portfolio by opportunistically selling
properties that do not have the potential to meet our Community Centered Property® strategy and redeploying the sale
proceeds into properties that better fit our strategy. Some of our properties that we owned at the time our current
management team assumed the management of the Company (the “Legacy Portfolio” or “Non-Core Properties”) may
not fit our Community Centered Property® strategy, and we may look for opportunities to dispose of these properties
as we continue to execute our strategy. For example, in December 2014, we sold three suburban office properties in
Clear Lake, Texas that were part of the Legacy Portfolio, and, on December 31, 2016, we contributed to Pillarstone the
14 Pillarstone Properties located in Dallas and Houston that were part of the Legacy Portfolio.
Prudent Management of Capital Structure. We currently have 53 properties that are unencumbered. We may seek to
add mortgage indebtedness to existing and newly acquired unencumbered properties to provide additional capital for
acquisitions. As a general policy, we intend to maintain a ratio of total indebtedness to undepreciated book value of
real estate assets that is at or less than 60%. As of December 31, 2017, our ratio of total indebtedness to undepreciated
book value of real estate assets was 57%.
Investing in People. We believe that our people are the heart of our culture, philosophy and strategy. We continually
focus on developing associates who are self-disciplined and motivated and display, at all times, a high degree of
character and competence. We provide them with equity incentives to align their interests with those of our
shareholders.
Our Structure
Substantially all of our business is conducted through Whitestone REIT Operating Partnership, L.P., a Delaware
limited partnership organized in 1998 (the “Operating Partnership”). We are the sole general partner of the Operating
Partnership. As of December 31, 2017, we owned a 97.3% interest in the Operating Partnership.
As of December 31, 2017, we wholly-owned a real estate portfolio consisting of 59 properties located in three
states. The aggregate occupancy rate of our wholly-owned portfolio was 90% based on GLA as of December 31, 2017.
Additionally, we, through our majority interest in Pillarstone, owned a majority interest in 14 properties located in Dallas and
Houston, Texas. The aggregate occupancy rate of the Pillarstone properties was 81% based on GLA as of December 31, 2017.
We are hands-on owners who directly manage the operations and leasing of our properties. Substantially all of our
revenues consist of base rents received under varying term leases. For the year ended December 31, 2017, our total revenues
were approximately $126.0 million.
Our largest property, BLVD Place (“BLVD”), a retail community purchased on May 26, 2017 and located in Houston,
Texas, accounted for 7.4% of our total revenues for the year ended December 31, 2017. BLVD also accounted for 16.2% of our
consolidated real estate assets, net of accumulated depreciation, as of the year ended December 31, 2017. Of our 59 wholly-
owned properties, 17 and 27 are located in the Houston, Texas and Phoenix, Arizona metropolitan areas, respectively. Of our 14
properties in which we hold a majority interest, two are in Dallas, Texas and 12 are in Houston, Texas.
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Economic Environment
Low interest rates and desire for higher yielding investments with moderate risk has resulted in lower capitalization
rates and higher prices for commercial real estate acquisitions. Each of these factors could negatively impact the value of
public real estate companies, including ours. However, the majority of our retail properties are located in densely populated
metropolitan areas and are occupied by tenants that generally provide basic necessity-type items and services which have
tended to be less affected by economic changes. Furthermore, a substantial portion of our portfolio is in metropolitan areas in
Texas that have been impacted less by the economic slowdown compared to other metropolitan areas.
Competition
All of our properties are located in areas that include competing properties. The amount of competition in a particular
area could impact our ability to acquire additional real estate, sell current real estate, lease space and the amount of rent we are
able to charge. We may be competing with owners, developers and operators, including, but not limited to, real estate
investors, other REITs, insurance companies and pension funds.
Should we decide to dispose of a property, we may compete with third-party sellers of similar types of commercial
properties for suitable purchasers, which may result in our receiving lower net proceeds from a sale or in our not being able to
dispose of such property at a time of our choosing due to the lack of an acceptable return. In operating and managing our
properties, we compete for tenants based upon a number of factors including, but not limited to, location, rental rates, security,
flexibility, expertise to design space to meet prospective tenants' needs and the manner in which the property is operated,
maintained and marketed. We may be required to provide rent concessions, incur charges for tenant improvements and other
inducements, or we may not be able to timely lease vacant space, all of which could adversely impact our results of operations.
Many of our competitors have greater financial and other resources than us and also may have more operating
experience. Generally, there are other neighborhood and community retail centers within relatively close proximity to each of
our properties. There is, however, no dominant competitor in the Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and
San Antonio metropolitan areas. Our retail tenants also face increasing competition from outlet malls, internet retailers, catalog
companies, direct mail and telemarketing.
Compliance with Governmental Regulations
Under various federal and state environmental laws and regulations, as an owner or operator of real estate, we may be
required to investigate and clean up certain hazardous or toxic substances, asbestos-containing materials, or petroleum product
releases at our properties. We may also be held liable to a governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by those parties in connection with any such contamination. In addition, some
environmental laws create a lien on a contaminated site in favor of the government for damages and costs the government
incurs in connection with contamination on the site. The presence of contamination or the failure to remediate contamination at
any of our properties may adversely affect our ability to sell or lease the properties or to borrow using the properties as
collateral. We could also be liable under common law to third parties for damages and injuries resulting from environmental
contamination coming from our properties.
We will not purchase any property unless we are generally satisfied with the environmental status of the property. We
typically obtain a Phase I environmental site assessment for each new acquisition, which includes a visual survey of the
building and the property in an attempt to identify areas of potential environmental concerns, visually observing neighboring
properties to assess surface conditions or activities that may have an adverse environmental impact on the property, and
contacting local governmental agency personnel and performing a regulatory agency file search in an attempt to determine any
known environmental concerns in the immediate vicinity of the property. A Phase I environmental site assessment does not
include any sampling or testing of soil, groundwater or building materials from the property.
We believe that our properties are in compliance in all material respects with all applicable federal, state and local
laws and regulations regarding the handling, discharge and emission of hazardous or toxic substances. Because release of
chlorinated solvents can occur as a result of dry cleaning operations, we participate in the Texas Commission on Environmental
Quality Dry Cleaner Remediation Program (“DCRP”) with respect to four of our properties that currently or previously had a
dry cleaning facility as a tenant. The DCRP administers the Dry Cleaning Remediation fund to assist with remediation of
contamination caused by dry cleaning solvents.
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We have not been notified by any governmental authority, and are not otherwise aware of any material noncompliance,
liability or claim relating to hazardous or toxic substances in connection with any of our present or former properties.
Nevertheless, it is possible that the environmental assessments conducted thus far and currently available to us do not reveal all
potential environmental liabilities. It is also possible that subsequent investigations will identify material contamination or
other adverse conditions, that adverse environmental conditions have arisen subsequent to the performance of the
environmental assessments, or that there are material environmental liabilities of which management is unaware.
Under the Americans with Disabilities Act (“ADA”), all places of public accommodation are required to meet certain
federal requirements related to access and use by disabled persons. Our properties must comply with the ADA to the extent
that they are considered “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers
to access by persons with disabilities in public areas of our properties where such removal is readily achievable. We believe
that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital
expenditures to address the requirements of the ADA. In addition, we will continue to assess our compliance with the ADA and
to make alterations to our properties as required.
Employees
As of December 31, 2017, we had 103 employees.
Materials Available on Our Website
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports, proxy statements with respect to meetings of our shareholders, as well as Reports on Forms 3, 4
and 5 regarding our officers, trustees or 10% beneficial owners, filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge through our website
(www.whitestonereit.com) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the
Securities and Exchange Commission (“SEC”). We have also made available on our website copies of our Audit Committee
Charter, Compensation Committee Charter, Nominating and Governance Committee Charter, Corporate Governance
Guidelines, Insider Trading Compliance Policy, and Code of Business Conduct and Ethics Policy. In the event of any changes
to these documents, revised copies will also be made available on our website. You may also read and copy any materials we
file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an
internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC as we do. The website address is http://www.sec.gov. Materials on our website are not part of our
Annual Report on Form 10-K. The contents of these websites are not incorporated into this filing.
Financial Information
Additional financial information related to the Company is included in Item 8 “Financial Statements and
Supplementary Data.”
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Item 1A. Risk Factors.
In addition to the other information contained in this Annual Report on Form 10-K, the following risk factors should
be considered carefully in evaluating our business. Our business, financial condition, results of operations or the trading price
of our common shares could be materially adversely affected by any of these risks. Please note that additional risks not
presently known to us or which we currently consider immaterial may also impair our business and operations.
Risks Associated with Real Estate
Market disruptions may significantly and adversely affect our financial condition and results of operations.
World financial markets have, from time to time, experienced significant disruption. While many U.S. real estate
markets have generally stabilized since the pervasive and fundamental disruptions associated with the last recession, which
resulted in increased unemployment, weakening of tenant financial condition, large-scale business failures and tight credit
markets, the financial markets have been volatile recently, and oil prices have declined dramatically over the past year. Our
results of operations may be sensitive to changes in overall economic conditions that impact tenants of our properties or tenant
leasing practices. Adverse economic conditions affecting tenant income, such as employment levels, business conditions,
interest rates, tax rates, fuel and energy costs and other matters, could reduce overall tenant leasing or cause tenants to shift
their leasing practices. In addition, periods of economic slowdown or recession, rising interest rates or declining demand for
real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased
incidence of defaults under existing leases. Although the U.S. economy generally appears to have emerged from the worst
aspects of the last recession, rental rates and valuations for retail space have not fully recovered to pre-recession levels and may
not for a number of years. In addition, financial markets may again experience significant and prolonged disruption, including
as a result of unanticipated events, or as a result of recent uncertainty regarding legislative and regulatory shifts relating to,
among other things, taxation and trade, which could adversely affect our tenants and our business in general. For example, a
general reduction in consumer spending and the level of tenant leasing could adversely affect our ability to maintain our current
tenants and gain new tenants, affecting our growth and profitability. Accordingly, if financial and macroeconomic conditions
deteriorate, or if financial markets experience significant disruption, it could have a significant adverse effect on our cash
flows, profitability, results of operations and the trading price of our common shares.
Real estate property investments are illiquid due to a variety of factors and therefore we may not be able to dispose of
properties when appropriate or on favorable terms.
Our strategy includes opportunistically selling properties that do not have the potential to meet our Community
Centered Property® strategy. However, real estate property investments generally cannot be disposed of quickly. In addition,
the Code imposes certain restrictions on the ability of a REIT to dispose of properties that are not applicable to other types of
real estate companies. Therefore, we may not be able to vary our portfolio in response to economic or other conditions
promptly or on favorable terms, which could cause us to incur extended losses, reduce our cash flows and adversely affect
distributions to shareholders.
We cannot predict whether we will be able to sell any property for the price or on the terms set by us or whether any
price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time
needed to find a willing purchaser and to close the sale of a property. To the extent we are unable to sell any properties for our
book value, we may be required to take a non-cash impairment charge or loss on the sale, either of which would reduce our net
income.
We may be required to expend funds and time to correct defects or to make improvements before a property can be
sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements, which
may impede our ability to sell a property. Further, we may agree to transfer restrictions that materially restrict us from selling a
property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid
on that property. These transfer restrictions could impede our ability to sell a property even if we deem it necessary or
appropriate. These facts and any others that would further contribute to the illiquid character of real estate properties and
impede our ability to respond to adverse changes in the performance of our properties may have a material adverse effect on
our business, financial condition, results of operations, our ability to make distributions to our shareholders and the trading
price of our common shares.
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Our business is dependent upon our tenants successfully operating their businesses, and their failure to do so could have a
material adverse effect on our ability to successfully and profitably operate our business.
We depend on our tenants to operate their businesses in a manner that generates revenues sufficient to allow them to
meet their obligations to us, including their obligations to pay rent, maintain certain insurance coverage, pay real estate taxes
and maintain the properties in a manner so as not to jeopardize their operating licenses or regulatory status. The ability of our
tenants to fulfill their obligations under our leases may depend, in part, upon the overall profitability of their operations. Cash
flow generated by the businesses of certain tenants may not be sufficient for such tenants to meet their obligations to us. Our
financial position could be weakened and our ability to fulfill our obligations under our indebtedness and make distributions to
our shareholders could be limited if a number of our tenants were unable to meet their obligations to us or failed to renew or
extend their relationships with us as their lease terms expire, or if we were unable to lease or re-lease our properties on
economically favorable terms.
Disruption in capital markets could adversely impact acquisition activities and pricing of real estate assets.
Volatility or other disruption in capital markets could adversely affect our access to or the cost of debt and equity
capital, which could adversely affect our acquisition and other investment activities. Disruptions could include price volatility
or decreased demand in equity markets, as seen in recent months, rising interest rates, tightening of underwriting standards by
lenders and credit rating agencies and the significant inventory of unsold collateralized mortgage backed securities in the
market. As a result, we may not be able to obtain favorable equity and debt financing in the future or at all. This may impair
our ability to acquire properties at favorable returns or adversely affect our returns on investments in development and re-
development projects, which may adversely affect our results of operations and distributions to shareholders. Furthermore, any
turmoil in the capital markets could adversely impact the overall amount of capital available to invest in real estate, which may
result in price or value decreases of real estate assets.
The value of investments in our common shares will be directly affected by general economic and regulatory factors we
cannot control or predict.
Investments in real estate typically involve a high level of risk as the result of factors we cannot control or predict.
One of the risks of investing in real estate is the possibility that our properties will not generate income sufficient to meet
operating expenses or will generate income and capital appreciation, if any, at rates lower than those anticipated or available
through investments in comparable real estate or other investments. The following factors may affect income from properties
and yields from investments in properties and are generally outside of our control:
•
•
•
•
•
•
•
•
•
•
•
•
conditions in financial markets;
continuing deterioration of the brick-and-mortar retail industry;
over-building in our markets;
a reduction in rental income as the result of the inability to maintain occupancy levels;
adverse changes in applicable tax, real estate, environmental or zoning laws;
changes in general economic conditions or economic conditions in our markets;
a taking of any of our properties by eminent domain;
adverse local conditions (such as changes in real estate zoning laws that may reduce the desirability of real estate in the
area);
acts of God, such as hurricanes, earthquakes or floods and other uninsured losses;
changes in supply of or demand for similar or competing properties in an area;
changes in interest rates and availability of permanent debt capital, which may render the sale of a property difficult or
unattractive; and
periods of high interest rates, inflation or tight money supply.
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Some or all of these factors may affect our properties, which could adversely affect our operations and ability to make
distributions to shareholders.
All of our properties are subject to property taxes that may increase in the future, which could adversely affect our cash
flow.
Our properties are subject to property taxes that may increase as property tax rates change and as the properties are
assessed or reassessed by taxing authorities. As the owner of the properties we are ultimately responsible for payment of the
taxes to the government. If property taxes increase, our tenants may be unable to make the required tax payments, ultimately
requiring us to pay the taxes. In addition, we will generally be responsible for property taxes related to any vacant space in our
properties.
Our assets may be subject to impairment charges.
We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment
regarding the existence of impairment indicators is based on factors such as market conditions, tenant performance and legal
structure. If we determine that a significant impairment has occurred, we would be required to make an adjustment to the net
carrying value of the asset, which could have a material adverse effect on our results of operations and funds from operations in
the period in which the write-off occurs.
Compliance or failure to comply with laws requiring access to our properties by disabled persons could result in substantial
cost.
The ADA and other federal, state and local laws generally require public accommodations be made accessible to
disabled persons. Noncompliance with these laws could result in the imposition of fines by the government or the award of
damages to private litigants. These laws may require us to modify our existing properties, which could require a significant
investment of our cash resources that could otherwise be invested in more productive assets. These laws may also restrict
renovations by requiring improved access to such buildings by disabled persons or may require us to add other structural
features which increase our construction costs. Legislation or regulations adopted in the future may impose further obligations,
restrictions or increased compliance costs on us with respect to improved access by disabled persons. We may incur
unanticipated expenses that may be material to our financial condition or results of operations to comply with ADA and other
federal, state and local laws, or in connection with lawsuits brought by private litigants.
We face intense competition, which may decrease, or prevent increases of, the occupancy and rental rates of our properties.
We compete with a number of developers, owners and operators of commercial real estate, many of whom own
properties similar to ours in the same markets in which our properties are located. If our competitors offer space at rental rates
below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants
and we may be pressured to reduce our rental rates below those we currently charge or to offer more substantial rent
abatements, tenant improvements, early termination rights or below-market renewal options in order to retain tenants when our
tenants' leases expire. This competitive environment could have a material adverse effect on our ability to lease our properties
or any newly developed or acquired property, as well as on the rents charged.
Our acquisition strategy includes acquiring distressed commercial real estate, and we could face significant
competition from other investors, REITs, hedge funds, private equity funds and other private real estate investors with greater
financial resources and access to capital than us. Therefore, we may not be able to compete successfully for investments. In
addition, the number of entities and the amount of purchasers competing for suitable investments may increase, all of which
could result in competition for accretive acquisition opportunities and adversely affect our business plan and our ability to
maintain our current dividend rate.
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Risks Associated with Our Operations
Because a majority of our GLA is in the Houston and Phoenix metropolitan areas, an economic downturn in either area
could adversely impact our operations and ability to make distributions to our shareholders.
The majority of our assets and revenues are currently derived from properties located in the Houston and Phoenix
metropolitan areas. As of December 31, 2017, 28% and 47% of our wholly-owned GLA was located in Houston and Phoenix,
respectively. Our results of operations are directly affected by our ability to attract financially sound commercial tenants. A
significant economic downturn in the Houston, including as a result of the recent significant decline in oil prices, or Phoenix
metropolitan area may adversely impact our ability to locate and retain financially sound tenants, could have an adverse impact
on our existing tenants' revenues, costs and results of operations and may adversely affect their ability to meet their obligations
to us. Likewise, we may be required to lower our rental rates to attract desirable tenants in such an environment. Consequently,
because of the geographic concentration among our current assets, if either the Houston or Phoenix metropolitan area
experiences an economic downturn, our operations and ability to make distributions to our shareholders could be adversely
impacted. In addition, a substantial component of the Houston economy is the oil and gas industry, and the current low prices
of oil and natural gas could adversely affect companies in that industry and their employees, which could adversely affect the
businesses of our Houston tenants.
We lease our wholly-owned properties to approximately 1,300 tenants and leases for approximately 10% to 20% of our GLA
expire annually. Each year we face the risk of non-renewal of a significant percentage of our leases and the cost of re-
leasing a significant amount of our available space, and our failure to meet leasing targets and control the cost of re-leasing
our properties could adversely affect our rental revenue, operating expenses and results of operations.
Our Community Centered Property® business model produces shorter term leases to smaller, non-national tenants, and
substantially all of our revenues consist of base rents received under these leases. As of December 31, 2017, approximately
29% of the aggregate GLA of our properties is subject to leases that expire prior to December 31, 2019. We are subject to the
risk that:
•
•
•
•
tenants may choose not to, or may not have the financial resources to, renew these leases;
we may experience significant costs associated with re-leasing a significant amount of our available space;
we may experience difficulties and significant time lags re-leasing vacated space, which may cause us to fail to meet our
occupancy and average base rent targets and experience increased costs of re-leasing; and
the terms of any renewal or re-lease may be less favorable than the terms of the current leases.
We routinely seek to renew leases with our existing tenants prior to their expiration and typically begin discussions
with tenants as early as 18 months prior to the expiration date of the existing lease. While our early renewal program and other
leasing and marketing efforts provide early focus on expiring leases, and have generally been effective in producing lease
renewals prior to expiration of the leases at rates comparable to or slightly in excess of the current rates, market conditions,
including new supply of properties, and macroeconomic conditions in our markets and nationally could adversely impact our
renewal rate and/or the rental rates we are able to negotiate. If any of these risks materialize, our rental revenue, operating
expenses and results of operations could be adversely affected.
Many of our tenants are small businesses, which may have a higher risk of bankruptcy or insolvency.
Many of our tenants are small businesses that depend primarily on cash flows from their operations to pay their rent
and without other resources could be at a higher risk of bankruptcy or insolvency than larger, national tenants. If tenants are
unable to comply with the terms of our leases, we may be forced to modify the leases in ways that are unfavorable to us.
Alternatively, the failure of a tenant to perform under a lease could require us to declare a default, repossess the space and find
a suitable replacement tenant. There is no assurance that we would be able to lease the space on substantially equivalent or
better terms than the prior lease, or at all, or successfully reposition the space for other uses. If one or more of our tenants files
for bankruptcy relief, the Bankruptcy Code provides that a debtor has the option to assume or reject the unexpired lease within
a certain period of time.
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Any bankruptcy filing by or relating to one or more of our tenants could bar all efforts by us to collect pre-bankruptcy
debts from that tenant or seize its property. A tenant bankruptcy could also delay our efforts to collect past due balances under
the lease and could ultimately preclude collection of all or a portion of these sums. It is possible that we may recover
substantially less than the full value of any unsecured claims we hold, if any. Furthermore, dealing with a tenant's bankruptcy
or other default may divert management's attention and cause us to incur substantial legal and other costs. The bankruptcy or
insolvency of a number of smaller tenants may have an adverse impact on our business, financial condition and results of
operations, our ability to make distributions to our shareholders and the trading price of our common shares.
Uninsured losses relating to real property or excessively expensive premiums for insurance coverage may adversely affect
our returns.
We attempt to adequately insure all of our properties to cover casualty losses. However, there are types of losses,
generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or
environmental matters, which are uninsurable or not economically insurable, or may be insured subject to limitations, such as
large deductibles or co-payments. Our current geographic concentration in the Houston metropolitan area potentially increases
the risk of damage to our portfolio due to hurricanes. Insurance risks associated with potential terrorism acts could sharply
increase the premiums we pay for coverage against property and casualty claims. In some instances, we may be required to
provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot
assure you that we will have adequate coverage for these losses. Also, to the extent we must pay unexpectedly large insurance
premiums, we could suffer reduced earnings that would result in less cash to be distributed to shareholders.
Discovery of previously undetected environmentally hazardous conditions may adversely affect our operating results.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in
its property. The costs of removal or remediation could be substantial. These laws often impose liability whether or not the
owner or operator knew of, or was responsible for, the presence of any hazardous or toxic substances. Environmental laws also
may impose restrictions on the manner in which a property may be used or businesses may be operated, and these restrictions
may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be
enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common
law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos
containing materials into the air. In addition, third parties may seek recovery from owners or operators of real properties for
personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against
claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of
paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently,
amounts available for distributions to our shareholders.
Certain of our properties currently include or have in the past included a dry cleaning facility as a tenant. See
“Business - Compliance with Governmental Regulations.”
We may not be successful in consummating suitable acquisitions or investment opportunities, which may impede our growth
and adversely affect the trading price of our common shares.
Our ability to expand through acquisitions is integral to our business strategy and requires us to consummate suitable
acquisition or investment opportunities that meet our criteria and are compatible with our growth strategy. We may not be
successful in consummating acquisitions or investments in properties that meet our acquisition criteria on satisfactory terms or
at all. Failure to consummate acquisitions or investment opportunities, the failure of an acquired property to perform as
expected, or the failure to integrate successfully any acquired properties without substantial expense, delay or other operational
or financial problems, would slow our growth, which could in turn adversely affect the trading price of our common shares.
Our ability to acquire properties on favorable terms may be constrained by the following significant risks:
competition from other real estate investors with significant capital, including other REITs and institutional investment
funds;
competition from other potential acquirers which may significantly increase the purchase price for a property we acquire,
which could reduce our growth prospects;
unsatisfactory results of our due diligence investigations or failure to meet other customary closing conditions;
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the failure of an acquired property to perform as expected; and
failure to finance an acquisition on favorable terms or at all.
If any of these risks are realized, our business, financial condition and results of operations, our ability to make
distributions to our shareholders and the trading price of our common shares may be materially and adversely affected.
Our success depends in part on our ability to execute our Community Centered Property® strategy.
Our Community Centered Property® strategy requires intensive management of a large number of small spaces and
small tenant relationships. Our success depends in part upon our management's ability to identify potential Community
Centered Properties® and find and maintain the appropriate tenants to create such a property. Lack of market acceptance of our
Community Centered Property® strategy or our inability to successfully attract and manage a large number of tenant
relationships could adversely affect our occupancy rates, operating results and dividend rate.
Our business is significantly influenced by demand for retail space generally, and a decrease in such demand may have a
greater adverse effect on our business than if we owned a more diversified real estate portfolio.
Because our portfolio of properties consists primarily of community and neighborhood shopping centers, a decrease in
the demand for retail space, due to the economic factors discussed above or otherwise, may have a greater adverse effect on our
business and financial condition than if we owned a more diversified real estate portfolio. The market for retail space has been,
and could continue to be, adversely affected by weakness in the national, regional and local economies, the adverse financial
conditions of some retailing companies, the ongoing consolidation in the retail sector, the excess amount of retail space in a
number of markets and increasing online consumer purchases.
Loss of our key personnel, particularly our senior managers, could threaten our ability to execute our strategy and operate
our business successfully.
We are dependent on the experience and knowledge of our key executive personnel, particularly certain of our senior
managers who have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and
training key personnel and arranging necessary financing. Losing the services of any of these individuals could adversely
affect our business until qualified replacements could be found. We also believe that they could not quickly be replaced with
managers of equal experience and capabilities and their successors may not be as effective.
Our systems may not be adequate to support our growth, and our failure to successfully oversee our portfolio of properties
could adversely affect our results of operations.
We make no assurances that we will be able to adapt our portfolio management, administrative, accounting and
operational systems, or hire and retain sufficient operational staff, to support our growth. Our failure to successfully oversee
our current portfolio of properties or any future acquisitions or developments could have a material adverse effect on our results
of operations and financial condition and our ability to make distributions.
We face risks relating to cybersecurity attacks, loss of confidential information and other business disruptions.
Our business is at risk from and may be impacted by cybersecurity attacks, including attempts to gain unauthorized
access to our confidential data and other electronic security breaches. Such cyber-attacks can range from individual attempts to
gain unauthorized access to our information technology systems to more sophisticated security threats. While we employ a
number of measures to prevent, detect and mitigate these threats, there is no guarantee such efforts will be successful in
preventing a cyber-attack. Cybersecurity incidents could compromise the confidential information of our tenants, employees
and third party vendors and affect the efficiency of our business operations, which in turn could have a material adverse effect
on our reputation, competitiveness and results of operations.
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There can be no assurance that we will be able to pay or maintain cash distributions or that distributions will increase over
time.
There are many factors that can affect the availability and timing of cash distributions to shareholders. Distributions
are based upon our funds from operations, financial condition, cash flows and liquidity, debt service requirements, capital
expenditure requirements for our properties and other matters our board of trustees may deem relevant from time to time. If we
do not have sufficient cash available for distributions, we may need to fund the shortage out of working capital or borrow to
provide funds for such distributions, which would reduce the amount of capital available for real estate investments and
increase our future interest costs.
We can give no assurance that we will be able to continue to pay distributions or that distributions will increase over
time. In addition, we can give no assurance that rents from our properties will increase, or that future acquisitions of real
properties, mortgage loans or our investments in securities will increase our cash available for distributions to shareholders.
Our actual results may differ significantly from the assumptions used by our board of trustees in establishing the distribution
rate to shareholders. Our inability to make distributions, or to make distributions at expected levels, could result in a decrease
in the trading price of our common shares.
Any weaknesses identified in our system of internal controls by us and our independent registered public accounting firm
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our business.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that public companies evaluate and report on their systems of
internal control over financial reporting. In addition, our independent registered public accounting firm must report on
management's evaluation of those controls. In future periods, we may identify deficiencies in our system of internal controls
over financial reporting that may require remediation. There can be no assurances that any such future deficiencies identified
may not be material weaknesses that would be required to be reported in future periods. Any deficiencies or material
weaknesses could result in significant time and expense to remediate, which could have a material adverse effect on our
financial condition, results of operations and ability to make distributions to our shareholders.
Risks Associated with Our Indebtedness and Financing
Current market conditions could adversely affect our ability to refinance existing indebtedness or obtain additional
financing for growth on acceptable terms or at all, which could adversely affect our ability to grow, our interest cost and our
results of operations.
The United States credit markets have experienced significant dislocations and liquidity disruptions, including the
bankruptcy, insolvency or restructuring of certain financial institutions. These circumstances have materially impacted
liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases have resulted in the
unavailability of various types of debt financing. Reductions in our available borrowing capacity, or inability to refinance our
revolving credit facility when required or when business conditions warrant, could have a material adverse effect on our
business, financial condition and results of operations. In addition, we mortgage many of our properties to secure payment of
indebtedness. If we are not successful in refinancing our mortgage debt upon maturity, then the property could be foreclosed
upon or transferred to the mortgagee, or we might be forced to dispose of some of our properties upon disadvantageous terms,
with a consequent loss of income and asset value. A foreclosure or disadvantageous disposal on one or more of our properties
could adversely affect our ability to grow, financial condition, interest cost, results of operations, cash flow and ability to make
distributions to our shareholders.
Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon
refinancing, then the interest expense relating to that refinanced indebtedness would increase. Higher interest rates on newly
incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will
increase, which could adversely affect our transaction and development activity, financial condition, results of operation, cash
flow, our ability to pay principal and interest on our debt and our ability to make distributions to our shareholders.
Our failure to hedge effectively against interest rate changes may adversely affect results of operations.
We currently have mortgages that bear interest at variable rates and we may incur additional variable rate debt in the
future. Accordingly, increases in interest rates on variable rate debt would increase our interest expense, which could reduce
net earnings and cash available for payment of our debt obligations and distributions to our shareholders.
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We may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as
interest cap agreements and interest rate swap agreements. These agreements involve risks, such as the risk that counterparties
may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our
exposure to interest rate changes and that a court could rule that such an agreement is not legally enforceable. In the past, we
have used derivative financial instruments to hedge interest rate risks related to our variable rate borrowings. We will not use
derivatives for speculative or trading purposes and intend only to enter into contracts with major financial institutions based on
their credit rating and other factors, but we may choose to change this practice in the future. As of December 31, 2017, we had
fixed rate hedges on $209.7 million of our variable rate debt, including $200 million of our unsecured credit facility. We may
enter into additional interest rate swap agreements for our variable rate debt not currently subject to hedges, which totaled
$232.2 million as of December 31, 2017. Hedging may reduce the overall returns on our investments. Failure to hedge
effectively against interest rate changes may materially and adversely affect our results of operations.
We currently have and may incur additional mortgage indebtedness and other borrowings, which may increase our business
risks and may adversely affect our ability to make distributions to our shareholders.
If we determine it to be in our best interests, we may, in some instances, acquire real properties by using either existing
financing or borrowing new funds. In addition, we may incur or increase our current mortgage debt to obtain funds to acquire
additional properties. We may also borrow funds if necessary to satisfy the REIT distribution requirement described above, or
otherwise as may be necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax
purposes.
On November 7, 2014, we, through our Operating Partnership, entered into an unsecured credit facility (the “2014
Facility”) with the lenders party thereto, with BMO Capital Markets Corp., Wells Fargo Securities, LLC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and U.S. Bank, National Association, as co-lead arrangers and joint book runners, and Bank of
Montreal, as administrative agent (the “Agent”). On October 30, 2015, we, through our Operating Partnership, entered into the
first amendment to the 2014 Facility (the “First Amendment”) with the guarantors party thereto, the lenders party thereto and
the Agent. We refer to the 2014 Facility, as amended by the First Amendment, as the “Facility.” Proceeds from the Facility
were used for general corporate purposes, including property acquisitions, debt repayment, capital expenditures, the expansion,
redevelopment and re-tenanting of properties in our portfolio and working capital. We intend to use the additional proceeds
from the Facility for general corporate purposes, including property acquisitions, debt repayment, capital expenditures, the
expansion, redevelopment and re-tenanting of properties in our portfolio and working capital.
The Facility is comprised of the following four tranches:
$300 million unsecured revolving credit facility with a maturity date of October 30, 2019;
$50 million unsecured term loan with a maturity date of October 30, 2020;
$50 million unsecured term loan with a maturity date of January 29, 2021; and
$100 million unsecured term loan with a maturity date of October 30, 2022.
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The Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity
to $700 million, upon the satisfaction of certain conditions. As of December 31, 2017, $432.2 million was drawn on the
Facility and our unused borrowing capacity was $67.8 million, assuming that we use the proceeds of the Facility to acquire
properties, or to repay debt on properties, that are eligible to be included in the unsecured borrowing base. The Facility
contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as information
reporting requirements, maximum secured indebtedness to total asset value, minimum EBITDA (earnings before interest, taxes,
depreciation, amortization or extraordinary items) to fixed charges and maintenance of a minimum net worth. The Facility also
contains customary events of default with customary notice and cure, including, without limitation, nonpayment, breach of
covenant, misrepresentation of representations and warranties in a material respect, cross-default to other major indebtedness,
change of control, bankruptcy and loss of REIT status. The amount available to us and our ability to borrow under the Facility
is subject to our compliance with these requirements. Maintaining compliance with these covenants could limit our ability to
implement our business plan effectively, or at all.
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We may also incur mortgage debt on a particular property if we believe the property's projected cash flow is sufficient
to service the mortgage debt. As of December 31, 2017, we had approximately $228.7 million of mortgage debt secured by 20
of our wholly-owned or majority interest held properties. If there is a shortfall in cash flow, however, the amount available for
distributions to shareholders may be affected. In addition, incurring mortgage debt increases the risk of loss because defaults
on such indebtedness may result in loss of property in foreclosure actions initiated by lenders. For tax purposes, a foreclosure
of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the
debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the
property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. We may give lenders
full or partial guarantees for mortgage debt incurred by the entities that own our properties. When we give a guaranty on behalf
of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by
that entity. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one
property may be affected by a default. If any of our properties are foreclosed upon due to a default, our ability to pay cash
distributions to our shareholders may be adversely affected. For more discussion, see “Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
If we set aside insufficient working capital or are unable to secure funds for future tenant improvements, we may be
required to defer necessary property improvements, which could adversely impact the quality of our properties and our
results of operations.
When tenants do not renew their leases or otherwise vacate their space, it is possible that, in order to attract
replacement tenants, we may be required to expend substantial funds for tenant improvements and refurbishments to the
vacated space. If we have insufficient working capital reserves, we will have to obtain financing from other sources. Because
most of our leases provide for tenant reimbursement of operating expenses, we have not established a permanent reserve for
maintenance and repairs for our properties. However, to the extent that we have insufficient funds for such purposes, we may
establish reserves for maintenance and repairs of our properties out of cash flow generated by operating properties or out of
non-liquidating net sale proceeds. If these reserves or any reserves otherwise established are insufficient to meet our cash
needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. We cannot
assure you that sufficient financing will be available or, if available, will be available on economically feasible terms or on
terms acceptable to us. Additional borrowing for working capital purposes will increase our interest expense, and therefore our
financial condition and our ability to pay cash distributions to our shareholders may be adversely affected. In addition, we may
be required to defer necessary improvements to our properties that may cause our properties to suffer from a greater risk of
obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential tenants being attracted
to our properties. If this happens, we may not be able to maintain projected rental rates for affected properties, and our results
of operations may be negatively impacted.
We have in the past and may continue to structure acquisitions of property in exchange for limited partnership units in our
Operating Partnership on terms that could limit our liquidity or our flexibility.
We have in the past and may continue to acquire properties by issuing limited partnership units in our Operating
Partnership (“OP units”) in exchange for a property owner contributing property to the Operating Partnership. If we enter into
such transactions, in order to induce the contributors of such properties to accept OP units, rather than cash, in exchange for
their properties, it may be necessary for us to provide them with additional incentives. For instance, our Operating
Partnership's limited partnership agreement provides that any holder of OP units may redeem such units for cash, or, at our
option, common shares on a one-for-one basis. We may, however, enter into additional contractual arrangements with
contributors of property under which we would agree to redeem a contributor's OP units for our common shares or cash, at the
option of the contributor, at set times. If the contributor required us to redeem OP units for cash pursuant to such a provision, it
would limit our liquidity and thus our ability to use cash to make other investments, satisfy other obligations or pay
distributions. Moreover, if we were required to redeem OP units for cash at a time when we did not have sufficient cash to fund
the redemption, we might be required to sell one or more properties to raise funds to satisfy this obligation. Furthermore, we
might agree that if distributions the contributor received as a limited partner in our Operating Partnership did not provide the
contributor with a defined return, then upon redemption of the contributor's OP units, we would pay the contributor an
additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and
flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to our
Operating Partnership, we might agree not to sell a contributed property for a defined period of time or until the contributor
redeemed the contributor's OP units for cash or our common shares. Such an agreement would prevent us from selling those
properties, even if market conditions made such a sale favorable to us.
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We may issue preferred shares with a preference in distributions over our common shares, and our ability to issue preferred
shares and additional common shares may deter or prevent a sale of our common shares in which you could profit.
Our declaration of trust authorizes our board of trustees to issue up to 400,000,000 common shares and 50,000,000
preferred shares. Our board of trustees may amend our declaration of trust from time to time to increase or decrease the
aggregate number of shares or the number of any class or series that we have authority to issue. In addition, our board of
trustees may classify or reclassify any unissued common shares or preferred shares and may set the preferences, rights and
other terms of the classified or reclassified shares. The terms of preferred shares could include a preference in distributions
senior to our common shares. If we authorize and issue preferred shares with a distribution preference senior to our common
shares, payment of any distribution preferences of outstanding preferred shares would reduce the amount of funds available for
the payment of distributions on our common shares. Further, holders of preferred shares are normally entitled to receive a
preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common shareholders,
likely reducing the amount our common shareholders would otherwise receive upon such an occurrence. In addition, under
certain circumstances, the issuance of preferred shares or a separate class or series of common shares may render more difficult
or tend to discourage:
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a merger, tender offer or proxy contest;
assumption of control by a holder of a large block of our shares; or
removal of incumbent management.
Risks Associated with Income Tax Laws
If we fail to qualify as a REIT, our operations and distributions to shareholders would be adversely impacted.
We intend to continue to be organized and to operate so as to qualify as a REIT under the Code. A REIT generally is
not taxed at the corporate level on income it currently distributes to its shareholders. Qualification as a REIT involves the
application of highly technical and complex rules for which there are only limited judicial or administrative interpretations.
The determination of various factual matters and circumstances not entirely within our control may affect our ability to
continue to qualify as a REIT. In addition, new legislation, new regulations, administrative interpretations or court decisions
could significantly change the tax laws, possibly with retroactive effect, with respect to qualification as a REIT or the federal
income tax consequences of such qualification.
If we were to fail to qualify as a REIT in any taxable year:
we would not be allowed to deduct our distributions to shareholders when computing our taxable income;
we would be subject to federal income tax on our taxable income at regular corporate rates;
we would be disqualified from being taxed as a REIT for the four taxable years following the year during which
qualification was lost, unless entitled to relief under certain statutory provisions;
our cash available for distributions to shareholders would be reduced; and
we may be required to borrow additional funds or sell some of our assets in order to pay corporate tax obligations that
we may incur as a result of our disqualification.
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We may need to incur additional borrowings to meet the REIT minimum distribution requirement and to avoid excise tax.
In order to maintain our qualification as a REIT, we are required to distribute to our shareholders at least 90% of our
annual real estate investment trust taxable income (excluding any net capital gain and before application of the dividends paid
deduction). In addition, we are subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions
paid by us with respect to any calendar year are less than the sum of (i) 85% of our ordinary income for that year, (ii) 95% of
our net capital gain for that year and (iii) 100% of our undistributed taxable income from prior years. Although we intend to
pay distributions to our shareholders in a manner that allows us to meet the 90% distribution requirement and avoid this 4%
excise tax, we cannot assure you that we will always be able to do so.
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Our income consists almost solely of our share of our Operating Partnership's income, and the cash available for
distribution by us to our shareholders consists of our share of cash distributions made by our Operating Partnership. Because
we are the sole general partner of our Operating Partnership, our board of trustees determines the amount of any distributions
made by our Operating Partnership. Our board of trustees may consider a number of factors in authorizing distributions,
including:
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the amount of cash available for distribution;
our Operating Partnership's financial condition;
our Operating Partnership's capital expenditure requirements; and
our annual distribution requirements necessary to maintain our qualification as a REIT.
Differences in timing between the actual receipt of income and actual payment of deductible expenses and the
inclusion of income and deduction of expenses when determining our taxable income, as well as the effect of nondeductible
capital expenditures and the creation of reserves or required debt amortization payments could require us to borrow funds on a
short-term or long-term basis or make taxable distributions to our shareholders of our shares or debt securities to meet the REIT
distribution requirement and to avoid the 4% excise tax described above. In these circumstances, we may need to borrow funds
to avoid adverse tax consequences even if our management believes that the then prevailing market conditions generally are not
favorable for borrowings or that borrowings would not be advisable in the absence of the tax consideration.
If our Operating Partnership were classified as a “publicly traded partnership” taxable as a corporation for federal income
tax purposes under the Code, we would cease to qualify as a REIT and would suffer other adverse tax consequences.
We structured our Operating Partnership so that it would be classified as a partnership for federal income tax purposes.
In this regard, the Code generally classifies “publicly traded partnerships” (as defined in Section 7704 of the Code) as
associations taxable as corporations (rather than as partnerships), unless substantially all of their taxable income consists of
specified types of passive income. In order to minimize the risk that the Code would classify our Operating Partnership as a
“publicly traded partnership” for tax purposes, we placed certain restrictions on the transfer and/or redemption of partnership
units in our Operating Partnership. If the Internal Revenue Service were to assert successfully that our Operating Partnership is
a “publicly traded partnership,” and substantially all of its gross income did not consist of the specified types of passive
income, the Code would treat our Operating Partnership as an association taxable as a corporation.
In such event, the character of our assets and items of gross income would change and would prevent us from
continuing to qualify as a REIT. In addition, the imposition of a corporate tax on our Operating Partnership would reduce our
amount of cash available for payment of distributions by us to our shareholders.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise
attractive investments.
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other
things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our shareholders and
the ownership of our shares. In order to meet these tests, we may be required to forego investments we might otherwise make.
Thus, compliance with the REIT requirements may hinder our performance.
In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of
cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities (other
than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting
securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in
general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can
consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by the
securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar
quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief
provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to
liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available
for distribution to our shareholders.
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Recent changes to the U.S. federal income tax laws, including the enactment of certain tax reform measures, could have an
adverse impact on the economy, our tenants and our business and financial results.
On December 22, 2017, President Trump signed the legislation (the “Tax Reform Legislation”) commonly known as
the Tax Cuts and Jobs Act into law, which, among other changes:
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Reduces the corporate income tax rate from 35% to 21% (including with respect to our taxable REIT
subsidiaries);
Reduces the rate of U.S. federal withholding tax on distributions made to non-U.S. shareholders by a REIT
that are attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%;
Allows an immediate 100% deduction of the cost of certain capital asset investments (generally excluding
real estate assets), subject to a phase-down of the deduction percentage over time;
Changes the recovery periods for certain real property and building improvements (for example, to 15 years
for qualified improvement property under the modified accelerated cost recovery system, and to 30 years
(previously 40 years) for residential real property and 20 years (previously 40 years) for qualified
improvement property under the alternative depreciation system);
Restricts the deductibility of interest expense by businesses (generally, to 30% of the business’ adjusted
taxable income) except, among others, real property businesses electing out of such restriction; generally, we
expect our business to qualify as such a real property business, but businesses conducted by our taxable REIT
subsidiaries may not qualify and we have not yet determined whether we will make such election;
Requires the use of the less favorable alternative depreciation system to depreciate real property in the event
a real property business elects to avoid the interest deduction restriction above;
Restricts the benefits of like-kind exchanges that defer capital gains for tax purposes to exchanges of real
property;
Requires accrual method taxpayers to take certain amounts in income no later than the taxable year in which
such income is taken into account as revenue in an applicable financial statement prepared under U.S
generally accepted accounting principles (“GAAP”), which, with respect to certain leases, could accelerate
the inclusion of rental income;
Eliminates the corporate alternative minimum tax;
Reduces the highest marginal income tax rate for individuals to 37% from 39.6% (excluding, in each case,
the 3.8% Medicare tax on net investment income);
Generally allows a deduction for individuals equal to 20% of certain income from pass-through entities,
including ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend
income), generally resulting in a maximum effective federal income tax rate applicable to such dividends of
29.6% compared to 37% (excluding, in each case, the 3.8% Medicare tax on net investment income); and
Limits certain deductions for individuals, including deductions for state and local income taxes, and
eliminates deductions for miscellaneous itemized deductions (including certain investment expenses).
Many of the provisions in the Tax Reform Legislation expire in seven years (at the end of 2025). As a result of the
changes to U.S. federal tax laws implemented by the Tax Reform Legislation, our taxable income and the amount of
distributions to our stockholders required in order to maintain our REIT status, and our relative tax advantage as a REIT, may
significantly change.
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The Tax Reform Legislation is a far-reaching and complex revision to the U.S. federal income tax laws with disparate
and, in some cases, countervailing impacts on different categories of taxpayers and industries, and will require subsequent
rulemaking and interpretation in a number of areas. The long-term impact of the Tax Reform Legislation on the economy, us,
our investors, our tenants, the real estate industry and government revenues cannot be reliably predicted at this early stage of
the new law’s implementation. Furthermore, the Tax Reform Legislation may negatively impact certain of our tenants’
operating results, financial condition, and future business plans. The Tax Reform Legislation may also result in reduced
government revenues, and therefore reduced government spending, which may negatively impact tenants that directly or
indirectly rely on government funding. There can be no assurance that the Tax Reform Legislation will not negatively impact
our operating results, financial condition, and future business operations. Additionally, the Tax Reform Legislation may be
adverse to certain of our stockholders and other investors. Prospective investors are urged to consult their tax advisors
regarding the effect of the changes to the U.S. federal tax laws on an investment in our shares and other securities.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
For non-corporate taxpayers the maximum tax rate applicable to “qualified dividend income” paid by regular “C”
corporations to U.S. shareholders generally is 20%. Dividends payable by REITs, however, generally are not eligible for the
reduced rates on qualified dividend income. Instead, our ordinary dividends generally are taxed at the higher tax rates
applicable to ordinary income, the current maximum rate of which is 37%. However, for taxable years prior to 2026, individual
stockholders are generally allowed to deduct 20% of the aggregate amount of ordinary dividends distributed by us, subject to
certain limitations, which would reduce the maximum marginal effective tax rate for individuals on the receipt of such ordinary
dividends to 29.6%.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our liabilities. Any income from a hedging
transaction that we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to
borrowings made or to be made to acquire or carry real estate assets does not constitute “gross income” for purposes of the
75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those
transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these
rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through taxable REIT
subsidiaries. This could increase the cost of our hedging activities because any taxable REIT subsidiary that we may form
would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise
want to bear. In addition, losses in taxable REIT subsidiaries will generally not provide any tax benefit, except for being
carried forward against future taxable income in the taxable REIT subsidiaries.
Pursuant to the Tax Protection Agreement, the amount that Pillarstone is required to indemnify the Operating Partnership
for certain tax liabilities reduces over the term of the Tax Protection Agreement.
In connection with the Contribution (as defined below), on December 8, 2016, the Operating Partnership entered into a
Tax Protection Agreement (the “Tax Protection Agreement”) with Pillarstone Capital REIT (“Pillarstone REIT”), the general
partner of Pillarstone, and Pillarstone pursuant to which Pillarstone agreed to indemnify the Operating Partnership for certain
tax liabilities resulting from its recognition of income or gain prior to December 8, 2021 (a) if such liabilities result from a
transaction involving a direct or indirect taxable disposition of all or a portion of the Pillarstone Properties or (b) if Pillarstone
fails to maintain and allocate to the Operating Partnership for taxation purposes minimum levels of liabilities as specified in the
Tax Protection Agreement, the result of which causes such recognition of income or gain and the Company incurs taxes that
must be paid to maintain its REIT status for federal tax purposes. However, the Tax Protection Agreement expires on the
earlier of (x) December 8, 2021 and (y) the date on which the Operating Partnership disposes of 50% or more of the Pillarstone
OP Units (as defined below) issued in connection with the Contribution. Further, the amount that Pillarstone is required to
indemnify the Operating Partnership reduces over the term of the Tax Protection Agreement as follows: on December 8th of
each year, the amount of tax liability recognized by the Operating Partnership during that year that Pillarstone is required to
indemnify is reduced by 20 percentage points. Once the Tax Protection Agreement has expired, the Company could be subject
to additional taxes upon the occurrence of certain events that must be paid to maintain its REIT status for federal tax purposes.
30
17
Table of Contents
Risks Related to Ownership of our Common Shares
Increases in market interest rates may result in a decrease in the value of our common shares.
One of the factors that may influence the price of our common shares will be the dividend distribution rate on the
common shares (as a percentage of the price of our common shares) relative to market interest rates. If market interest rates
rise, prospective purchasers of shares of our common shares may expect a higher distribution rate. Higher interest rates would
not, however, result in more funds being available for distribution and, in fact, would likely increase our borrowing costs and
might decrease our funds available for distribution. We therefore may not be able, or we may not choose, to provide a higher
distribution rate. As a result, prospective purchasers may decide to purchase other securities rather than our common shares,
which would reduce the demand for, and result in a decline in the market price of, our common shares.
Broad market fluctuations could negatively impact the market price of our common shares.
The stock market has experienced extreme price and volume fluctuations that have affected the market price of many
companies in industries similar or related to ours and that have been unrelated to these companies' operating performances.
These broad market fluctuations could reduce the market price of our common shares. Furthermore, our operating results and
prospects may be below the expectations of public market analysts and investors or may be lower than those of companies with
comparable market capitalizations. Either of these factors could lead to a material decline in the market price of our common
shares.
Maryland takeover statutes may deter others from seeking to acquire us and prevent shareholders from making a profit in
such transactions.
The Maryland General Corporation Law (“MGCL”) contains many provisions, such as the business combination
statute and the control share acquisition statute, that are designed to prevent, or have the effect of preventing, someone from
acquiring control of us. The business combination statute, subject to limitations, prohibits certain business combinations
between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting
power of our outstanding voting shares or an affiliate or associate of our Company who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding shares) or an
affiliate of an interested shareholder for five years after the most recent date on which the person becomes an interested
shareholder and thereafter imposes super-majority voting requirements on these combinations. The control share acquisition
statute provides that “control shares” of our Company (defined as shares which, when aggregated with other shares controlled
by the shareholder (except solely by virtue of a revocable proxy), entitle the shareholder to exercise one of three increasing
ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect
acquisition of ownership or control of issued and outstanding control shares) have no voting rights except to the extent
approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter,
excluding all interested shares.
We are currently subject to the control share acquisition statute, although our board of trustees may amend our
Amended and Restated Bylaws, or our bylaws, without shareholder approval, to exempt any acquisition of our shares from the
statute. Our board of trustees has adopted a resolution exempting any business combination with any person from the business
combination statute. The business combination statute (if our board of trustees revokes the foregoing exemption) and the
control share acquisition statute could delay or prevent offers to acquire us and increase the difficulty of consummating any
such offers, even if such a transaction would be in our shareholders' best interest.
The MGCL, the Maryland REIT Law and our organizational documents limit shareholders' rights to bring claims against
our officers and trustees.
The MGCL and the Maryland REIT Law provide that a trustee will not have any liability as a trustee so long as he
performs his duties in good faith, in a manner he reasonably believes to be in our best interests, and with the care that an
ordinarily prudent person in a like position would use under similar circumstances. In addition, our declaration of trust
provides that no trustee or officer will be liable to us or to any shareholder for money damages except to the extent that (a) the
trustee or officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or
profit in money, property, or services actually received; or (b) a judgment or the final adjudication adverse to the trustee or
officer is entered in a proceeding based on a finding in the proceeding the trustee's or officer's action or failure to act was the
result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Finally, our
declaration of trust authorizes our Company to obligate itself, and our bylaws obligate us, to indemnify and advance expenses
to our trustees and officers to the maximum extent permitted by Maryland law.
18
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Table of Contents
Our classified board of trustees may prevent others from effecting a change in the control of our board of trustees.
We believe that classification of our board of trustees will help to assure the continuity and stability of our business
strategies and policies as determined by the board of trustees. However, the classified board provision could have the effect of
making the replacement of incumbent trustees more time-consuming and difficult. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in a majority of our board of trustees. Thus, the
classified board provision could increase the likelihood that incumbent trustees will retain their positions. The staggered terms
of trustees may delay, defer or prevent a transaction or a change in control that might involve a premium price for our common
shares or otherwise be in the best interest of the shareholders.
The terms of our employment agreements with our executive officers and severance arrangements with other employees and
the terms of certain equity awards granted to our employees may deter others from seeking to acquire us or reduce the price
of any such acquisition.
We have entered into employment agreements with our executive officers and severance arrangements with other of
our employees, and have granted equity awards to a number of our employees. In certain cases, upon a change of control
acquisition of us, such agreements and awards would entitle the officer or employee to severance payments and vesting of
otherwise unvested awards. The cost of these payments and the impact of the vesting of such awards could deter a third party
from seeking to acquire us or could cause the price payable to shareholders in connection with any such acquisition to be lower
than it otherwise may have been. These effects could delay or prevent offers to acquire us and increase the difficulty in
consummating any such offers, even if such a transaction would be in our shareholders’ best interests.
Future offerings of debt, which would be senior to our common shares upon liquidation, and/or preferred equity securities
that may be senior to our common shares for purposes of distributions or upon liquidation, may adversely affect the market
price of our common shares.
In the future, we may attempt to increase our capital resources by making additional offerings of debt or preferred
equity securities, including medium-term notes, trust preferred securities, senior or subordinated notes and preferred shares.
Upon liquidation, holders of our debt securities and preferred shares and lenders with respect to other borrowings will receive
distributions of our available assets prior to the holders of our common shares. Additional equity offerings may dilute the
holdings of our existing shareholders or reduce the market price of our common shares, or both. Holders of our common shares
are not entitled to preemptive rights or other protections against dilution. Our preferred shares, if issued, could have a
preference on liquidating distributions or a preference on distribution payments that could limit our ability to pay distributions
to the holders of our common shares. Because our decision to issue securities in any future offering will depend on market
conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future
offerings. Thus, our common shareholders bear the risk of our future offerings reducing the market price of our common
shares and diluting their share holdings in us.
Item 1B. Unresolved Staff Comments.
None.
19
32
Table of Contents
Table of Contents
Item 2. Properties.
Item 2. Properties.
General
General
As of December 31, 2017, we wholly-owned or held a majority interest in 73 commercial properties, including 17 properties in
As of December 31, 2017, we wholly-owned or held a majority interest in 73 commercial properties, including 17 properties in
Houston, seven properties in Dallas-Fort Worth, three properties in San Antonio, four properties in Austin, 27 properties in the Scottsdale and
Houston, seven properties in Dallas-Fort Worth, three properties in San Antonio, four properties in Austin, 27 properties in the Scottsdale and
Phoenix, Arizona metropolitan areas, one property in Buffalo Grove, Illinois, a suburb of Chicago and the 14 Pillarstone Properties.
Phoenix, Arizona metropolitan areas, one property in Buffalo Grove, Illinois, a suburb of Chicago and the 14 Pillarstone Properties.
Our tenants consist of national, regional and local businesses. Our properties generally attract a mix of tenants who provide basic
Our tenants consist of national, regional and local businesses. Our properties generally attract a mix of tenants who provide basic
staples, convenience items and services tailored to the specific cultures, needs and preferences of the surrounding community. These types of
tenants are the core of our strategy of creating Whitestone-branded Community Centered Properties®. We also believe daily sales of these
staples, convenience items and services tailored to the specific cultures, needs and preferences of the surrounding community. These types of
tenants are the core of our strategy of creating Whitestone-branded Community Centered Properties®. We also believe daily sales of these
basic items are less sensitive to fluctuations in the business cycle than higher priced retail items. Our largest tenant represented only 2.5% of
basic items are less sensitive to fluctuations in the business cycle than higher priced retail items. Our largest tenant represented only 2.5% of
our total revenues for the year ended December 31, 2017.
our total revenues for the year ended December 31, 2017.
We directly manage the operations and leasing of our wholly-owned properties and the 14 Pillarstone Properties pursuant to
We directly manage the operations and leasing of our wholly-owned properties and the 14 Pillarstone Properties pursuant to
management agreements. Substantially all of our revenues consist of base rents received under leases that generally have terms that range
management agreements. Substantially all of our revenues consist of base rents received under leases that generally have terms that range
from less than one year to 15 years. The following table summarizes certain information relating to our properties as of December 31, 2017:
from less than one year to 15 years. The following table summarizes certain information relating to our properties as of December 31, 2017:
Commercial Properties
Commercial Properties
Whitestone
Whitestone
Pillarstone (3)
Pillarstone (3)
Development, New Acquisitions (4)
Development, New Acquisitions (4)
Total
Total
GLA
GLA
4,897,822
4,897,822
1,531,737
1,531,737
125,393
125,393
6,554,952
6,554,952
Average
Occupancy as of
Average
12/31/17
Occupancy as of
12/31/17
Annualized Base
Rental Revenue
Annualized Base
(in thousands) (1)
Rental Revenue
(in thousands) (1)
79,612
79,612
14,106
14,106
3,193
3,193
96,911
96,911
91 % $
91 % $
81 %
81 %
79 %
79 %
88% $
88% $
Average
Annualized
Average
Base
Annualized
Rental Revenue
Base
Per Sq. Ft. (2)
Rental Revenue
Per Sq. Ft. (2)
17.86
$
17.86
$
11.37
11.37
32.23
32.23
16.80
16.80
$
$
(1) Calculated as the tenant's actual December 31, 2017 base rent (defined as cash base rents including abatements) multiplied by
(1) Calculated as the tenant's actual December 31, 2017 base rent (defined as cash base rents including abatements) multiplied by
12. Excludes vacant space as of December 31, 2017. Because annualized base rental revenue is not derived from historical results that
12. Excludes vacant space as of December 31, 2017. Because annualized base rental revenue is not derived from historical results that
were accounted for in accordance with GAAP, historical results differ from the annualized amounts. Total abatements for leases in effect
were accounted for in accordance with GAAP, historical results differ from the annualized amounts. Total abatements for leases in effect
as of December 31, 2017 equaled approximately $190,000 for the month ended December 31, 2017.
as of December 31, 2017 equaled approximately $190,000 for the month ended December 31, 2017.
(2) Calculated as annualized base rent divided by GLA leased as of December 31, 2017. Excludes vacant space as of December 31, 2017.
(2) Calculated as annualized base rent divided by GLA leased as of December 31, 2017. Excludes vacant space as of December 31, 2017.
(3) As of December 31, 2017, we own 81.4% of Pillarstone and fully consolidate it on our financial statements.
(3) As of December 31, 2017, we own 81.4% of Pillarstone and fully consolidate it on our financial statements.
(4)
Includes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are
Includes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are
undergoing significant development, redevelopment or re-tenanting.
undergoing significant development, redevelopment or re-tenanting.
(4)
Our largest property, BLVD Place, a retail community purchased on May 26, 2017 and located in Houston, Texas, accounted for
Our largest property, BLVD Place, a retail community purchased on May 26, 2017 and located in Houston, Texas, accounted for
7.4% of our total revenues for the year ended December 31, 2017. BLVD also accounted for 16.2% of our consolidated real estate assets, net
7.4% of our total revenues for the year ended December 31, 2017. BLVD also accounted for 16.2% of our consolidated real estate assets, net
of accumulated depreciation, for the year ended December 31, 2017.
of accumulated depreciation, for the year ended December 31, 2017.
As of December 31, 2017, approximately $228.7 million of our total debt of $660.9 million was secured by 20 of our wholly-owned
As of December 31, 2017, approximately $228.7 million of our total debt of $660.9 million was secured by 20 of our wholly-owned
or majority interest held properties with a combined net book value of $340.6 million.
or majority interest held properties with a combined net book value of $340.6 million.
Location of Properties
Location of Properties
Of our 59 wholly-owned properties, 17 are located in the greater Houston metropolitan statistical area. These 17 properties
Of our 59 wholly-owned properties, 17 are located in the greater Houston metropolitan statistical area. These 17 properties
represent 23% of our revenue for the year ended December 31, 2017. An additional 27 of our wholly-owned properties are located in the
represent 23% of our revenue for the year ended December 31, 2017. An additional 27 of our wholly-owned properties are located in the
greater Phoenix metropolitan statistical area and represent 39% of our revenue for the year ended December 31, 2017.
greater Phoenix metropolitan statistical area and represent 39% of our revenue for the year ended December 31, 2017.
According to the United States Census Bureau, Houston and Phoenix ranked fifth and twelfth, respectively, in the largest United States
According to the United States Census Bureau, Houston and Phoenix ranked fifth and twelfth, respectively, in the largest United States
metropolitan statistical areas as of July 1, 2016. The following table sets forth information about the unemployment rate in Houston, Phoenix
metropolitan statistical areas as of July 1, 2016. The following table sets forth information about the unemployment rate in Houston, Phoenix
and nationally during the last six months of 2017.
and nationally during the last six months of 2017.
Table of Contents
July
Aug.
Sept.
Oct.
Nov.
Dec.
National (1)
Houston (2)
Phoenix (2)
(1) Seasonally adjusted.
(2) Not seasonally adjusted.
(3) Represents estimate.
Source: Bureau of Labor Statistics
4.3%
4.9%
4.6%
4.4%
5.2%
4.3%
4.2%
4.8%
4.0%
4.1%
4.1%
3.7%
4.1%
4.3%
3.7%
4.1%
4.3% (3)
3.9% (3)
20
20
33
21
Table of Contents
General Physical and Economic Attributes
The following table sets forth certain information relating to each of our properties owned as of December 31, 2017.
Whitestone REIT and Subsidiaries
Property Details
As of December 31, 2017
Community Name
Location
Year Built/
Renovated
GLA
Percent
Occupied
at
12/31/2017
Annualized Base
Rental Revenue
(in thousands) (1)
Average
Base Rental
Revenue Per
Sq. Ft. (2)
Average Net
Effective Annual
Base Rent Per
Leased Sq. Ft.(3)
Whitestone Properties:
Ahwatukee Plaza
Anthem Marketplace
Bellnott Square
Bissonnet Beltway
BLVD Place
The Citadel
City View Village
Davenport Village
Desert Canyon
Eldorado Plaza
Fountain Hills
Fountain Square
Fulton Ranch Towne Center
Gilbert Tuscany Village
Gilbert Tuscany Village Hard Corner
Heritage Trace Plaza
Headquarters Village
Keller Place
Kempwood Plaza
La Mirada
Lion Square
The Marketplace at Central
Market Street at DC Ranch
Mercado at Scottsdale Ranch
Paradise Plaza
Parkside Village North
Parkside Village South
Pima Norte
Pinnacle of Scottsdale
Pinnacle Phase II
The Promenade at Fulton Ranch
Providence
Quinlan Crossing
Shaver
Shops at Pecos Ranch
Shops at Starwood
The Shops at Williams Trace
South Richey
Spoerlein Commons
Phoenix
Phoenix
Houston
Houston
Houston
Phoenix
San Antonio
Austin
Phoenix
Dallas
Phoenix
Phoenix
Phoenix
Phoenix
Phoenix
Dallas
Dallas
Dallas
Houston
Phoenix
Houston
Phoenix
Phoenix
Phoenix
Phoenix
Austin
Austin
Phoenix
Phoenix
Phoenix
Phoenix
Houston
Austin
Houston
Phoenix
Dallas
Houston
Houston
Chicago
The Strand at Huebner Oaks
San Antonio
SugarPark Plaza
Sunridge
Sunset at Pinnacle Peak
Terravita Marketplace
Houston
Houston
Phoenix
Phoenix
34
1979
2000
1982
1978
2014
2013
2005
1999
2000
2004
2009
1986
2005
2009
2009
2006
2009
2001
1974
1997
2014
2012
2003
1987
1983
2005
2012
2007
1991
2017
2007
1980
2012
1978
2009
2006
1985
1980
1987
2000
1974
1979
2000
1997
72,650
113,293
73,930
29,205
216,944
28,547
17,870
128,934
62,533
221,577
111,289
118,209
120,575
49,415
14,603
70,431
89,134
93,541
93,161
147,209
117,592
111,130
242,459
118,730
125,898
27,045
90,101
35,110
113,108
27,063
98,792
90,327
109,892
21,926
78,767
55,385
132,991
69,928
41,455
73,920
95,032
49,359
41,530
102,733
22
91% $
887
$
13.42
$
95%
36%
81%
100%
91%
93%
93%
87%
96%
87%
91%
83%
95%
—
98%
93%
94%
82%
80%
96%
99%
92%
84%
94%
100%
100%
66%
100%
91%
64%
96%
88%
100%
100%
87%
96%
95%
77%
96%
100%
83%
89%
95%
1,770
318
312
8,448
469
457
3,059
766
3,076
1,686
1,854
1,654
842
—
1,517
2,374
910
909
2,412
1,433
978
4,425
1,369
1,511
797
2,307
400
2,366
673
1,110
820
2,068
307
1,620
1,351
1,898
693
687
1,536
1,151
458
636
1,412
16.45
11.95
13.19
38.94
18.05
27.50
25.51
14.08
14.46
17.41
17.24
16.53
17.94
—
21.98
28.64
10.35
11.90
20.48
12.69
8.89
19.84
13.73
12.77
29.47
25.60
17.26
20.92
27.33
17.56
9.46
21.38
14.00
20.57
28.04
14.87
10.43
21.52
21.65
12.11
11.18
17.21
14.47
12.99
16.06
11.91
13.10
41.74
17.13
29.42
25.67
13.90
15.89
17.50
16.75
18.29
19.00
—
22.64
30.06
10.71
11.79
21.59
12.74
8.63
19.76
16.56
13.22
29.84
26.65
18.08
21.58
28.99
17.81
9.62
22.44
14.05
20.59
30.18
15.11
10.42
21.12
21.93
11.83
11.96
16.53
14.36
Table of Contents
Whitestone REIT and Subsidiaries
Property Details
As of December 31, 2017
(continued)
Community Name
Location
Year Built/
Renovated
GLA
Percent
Occupied
at
12/31/2017
Annualized Base
Rental Revenue
(in thousands) (1)
Average
Base Rental
Revenue Per
Sq. Ft. (2)
Average Net
Effective Annual
Base Rent Per
Leased Sq. Ft.(3)
Torrey Square
Town Park
Village Square at Dana Park
Westchase
Williams Trace Plaza
Windsor Park
Woodlake Plaza
Total/Weighted Average - Whitestone
Properties
Whitestone Development Properties:
Seville
Shops at Starwood Phase III
Total/Weighted Average - Whitestone
Development Properties (5)
Total/Weighted Average - Whitestone
Properties
Pillarstone Properties:(4)
9101 LBJ Freeway
Corporate Park Northwest
Corporate Park West
Corporate Park Woodland
Corporate Park Woodland II
Dairy Ashford
Holly Hall Industrial Park
Holly Knight
Interstate 10 Warehouse
Main Park
Plaza Park
Uptown Tower
Westbelt Plaza
Westgate Service Center
Total/Weighted Average - Pillarstone
Properties
Properties Held for Development:
Anthem Marketplace
BLVD Phase II-B
Dana Park Development
Eldorado Plaza Development
Fountain Hills
Market Street at DC Ranch
Total/Weighted Average - Properties Held
For Development (6)
Houston
Houston
Phoenix
Houston
Houston
San Antonio
Houston
Phoenix
Dallas
Dallas
Houston
Houston
Houston
Houston
Houston
Houston
Houston
Houston
Houston
Houston
Dallas
Houston
Houston
Phoenix
Houston
Phoenix
Dallas
Phoenix
Phoenix
1983
1978
2009
1978
1983
2012
1974
1990
2016
1985
1981
1999
2000
2000
1981
1980
1984
1980
1982
1982
1982
1978
1984
N/A
N/A
N/A
N/A
N/A
N/A
105,766
43,526
323,026
50,332
129,222
196,458
106,169
4,897,822
90,042
35,351
125,393
5,023,215
125,874
174,359
175,665
99,937
16,220
42,902
90,000
20,015
151,000
113,410
105,530
253,981
65,619
97,225
1,531,737
—
—
—
—
—
—
—
83%
100%
91%
84%
92%
97%
88%
91%
749
913
6,152
624
1,763
2,123
1,562
79,612
8.53
20.98
20.93
14.76
14.83
11.14
16.72
17.86
82% $
2,442
$
33.07
$
71%
79%
90%
751
3,193
82,805
29.92
32.23
18.32
75% $
1,401
$
14.84
$
79%
78%
97%
88%
37%
91%
100%
86%
79%
64%
81%
67%
99%
81%
1,805
1,540
1,003
167
110
642
375
579
540
580
4,152
492
720
14,106
13.10
11.24
10.35
11.70
6.93
7.84
18.74
4.46
6.03
8.59
20.18
11.19
7.48
11.37
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.79
20.65
20.89
14.10
14.85
10.69
16.56
18.31
34.05
38.33
35.09
18.82
14.02
13.12
11.27
10.76
15.55
7.56
7.34
18.94
4.60
6.69
8.28
20.12
10.78
7.46
11.39
—
—
—
—
—
—
—
Grand Total/Weighted Average
6,554,952
88% $
96,911
$
16.80
$
17.20
(1) Calculated as the tenant's actual December 31, 2017 base rent (defined as cash base rents including abatements) multiplied by 12.
Excludes vacant space as of December 31, 2017. Because annualized base rental revenue is not derived from historical results that were
accounted for in accordance with GAAP, historical results differ from the annualized amounts. Total abatements for leases in effect as of
December 31, 2017 equaled approximately $190,000 for the month ended December 31, 2017.
Table of Contents
(2) Calculated as annualized base rent divided by GLA leased as of December 31, 2017. Excludes vacant space as of December 31, 2017.
23
(3) Represents (i) the contractual base rent for leases in place as of December 31, 2017, adjusted to a straight-line basis to reflect changes in
rental rates throughout the lease term and amortize free rent periods and abatements, but without regard to tenant improvement
allowances and leasing commissions, divided by (ii) square footage under commenced leases as of December 31, 2017.
(4) As of December 31, 2017, we own 81.4% of Pillarstone and fully consolidate it on our financial statements.
(5)
Includes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that are
undergoing significant development, redevelopment or re-tenanting.
(6) As of December 31, 2017, these parcels of land were held for development and, therefore, had no GLA.
35
24
Table of Contents
Significant Tenants
The following table sets forth information about our 15 largest tenants as of December 31, 2017, based upon consolidated annualized
rental revenues at December 31, 2017.
Tenant Name
Location
Annualized
Rental
Revenue
(in
thousands)
Percentage
of Total
Annualized
Base Rental
Revenues (1)
Initial Lease
Date
Year Expiring
Safeway Stores Incorporated (2)
Whole Foods Market
Frost Bank
Newmark Real Estate of Houston LLC
Bashas' Inc. (3)
Walgreens & Co. (4)
Verizon Wireless (5)
Dollar Tree (6)
Alamo Drafthouse Cinema
Wells Fargo & Company (7)
University of Phoenix
Kroger Co.
Ross Dress for Less, Inc. (8)
Ruth's Chris Steak House Inc.
Paul's Ace Hardware
Austin,
Houston and
Phoenix
Houston
Houston
Houston
Phoenix
Houston and
Phoenix
Houston and
Phoenix
Houston and
Phoenix
Austin
Phoenix
San Antonio
Dallas
Houston,
Phoenix and
San Antonio
Phoenix
Phoenix
$
2,447
2,042
1,845
1,164
936
2.5%
2.1%
1.9%
1.2%
1.0%
927
1.0%
870
0.9%
729
690
681
541
483
472
466
460
$
14,753
0.8%
0.7%
0.7%
0.6%
0.5%
0.5%
0.5%
0.5%
15.4%
11/14/1982,
5/8/1991,
7/1/2000,
4/1/2014,
4/1/2014 and
10/19/16
9/3/2014
7/1/2014
10/1/2015
10/9/2004 and
4/1/2009
11/14/1982,
11/2/1987,
8/24/1996 and
11/3/1996
8/16/1994,
2/1/2004,
5/10/2004,
1/27/2006 and
5/1/2014
3/1/1998,
8/10/1999,
6/29/2001,
11/8/2009,
12/17/2009,
4/4/2011 and
5/21/2013
2/1/2012
10/24/1996 and
4/16/1999
10/18/2010
12/15/2000
2/11/2009,
6/18/2012 and
2/7/2013
1/1/1991
3/1/2008
2020, 2020,
2021, 2022,
2024 and 2034
2035
2024
2026
2024 and 2029
2022, 2027,
2049 and 2056
2018, 2018,
2019, 2022 and
2024
2020, 2020,
2021, 2021,
2022, 2023 and
2027
2027
2018 and 2022
2018
2022
2020, 2023 and
2023
2020
2023
(1) Annualized Base Rental Revenues represents the monthly base rent as of December 31, 2017 for each applicable tenant multiplied by 12.
25
36
Table of Contents
(2) As of December 31, 2017, we had six leases with the same tenant occupying space at properties located in Phoenix, Houston and Austin.
The annualized rental revenue for the lease that commenced on April 1, 2014, and is scheduled to expire in 2034, was $997,000, which
represents approximately 1.0% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced
on April 1, 2014, and is scheduled to expire in 2024, was $42,000, which represents less than 0.1% of our annualized base rental revenue.
The annualized rental revenue for the lease that commenced on May 8, 1991, and is scheduled to expire in 2021, was $344,000, which
represents approximately 0.4% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced
on July 1, 2000, and is scheduled to expire in 2020, was $321,000, which represents approximately 0.3% of our total annualized base
rental revenue. The annualized rental revenue for the lease that commenced on November 14, 1982, and is scheduled to expire in 2022,
was $318,000, which represents approximately 0.3% of our total annualized base rental revenue. The annualized rental revenue for the
lease that commenced on October 19, 2016, and is scheduled to expire in 2020, was $425,000, which represents approximately 0.4% of
our total annualized base rental revenue.
(3) As of December 31, 2017, we had two leases with the same tenant occupying space at properties located in Phoenix. The annualized
rental revenue for the lease that commenced on October 9, 2004, and is scheduled to expire in 2024, was $232,000, which represents
approximately 0.3% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on April 1,
2009, and is scheduled to expire in 2029, was $704,000, which represents approximately 0.7% of our total annualized base rental revenue.
(4) As of December 31, 2017, we had four leases with the same tenant occupying space at properties located in Phoenix and Houston. The
annualized rental revenue for the lease that commenced on November 3, 1996, and is scheduled to expire in 2049, was $279,000, which
represents approximately 0.3% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced
on November 2, 1987, and is scheduled to expire in 2027, was $169,000, which represents approximately 0.2% of our total annualized
base rental revenue. The annualized rental revenue for the lease that commenced on November 14, 1982, and is scheduled to expire in
2022, was $181,000, which represents approximately 0.2% of our total annualized base rental revenue. The annualized rental revenue for
the lease that commenced on August 24, 1996, and is scheduled to expire in 2056, was $298,000, which represents approximately 0.3% of
our total annualized rental revenue.
(5) As of December 31, 2017, we had five leases with the same tenant occupying space at properties located in Phoenix and Houston. The
annualized rental revenue for the lease that commenced on August 16, 1994, and is scheduled to expire in 2018, was $21,000, which
represents less than 0.1% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on
January 27, 2006, and is scheduled to expire in 2018, was $126,000, which represents approximately 0.1% of our total annualized base
rental revenue. The annualized rental revenue for the lease that commenced on February 1, 2004, and is scheduled to expire in 2019, was
$36,000, which represents less than 0.1% of our total annualized base rental revenue. The annualized rental revenue for the lease that
commenced on May 1, 2014, and is scheduled to expire in 2024, was $681,000, which represents approximately 0.7% of our total
annualized rental revenue. The annualized rental revenue for the lease that commenced on May 10, 2004, and is scheduled to expire in
2022, was $6,000, which represents less than 0.1% of our total annualized base rental revenue.
(6) As of December 31, 2017, we had seven leases with the same tenant occupying space at properties in Houston and Phoenix. The
annualized rental revenue for the lease that commenced on March 1, 1998, and is scheduled to expire in 2022, was $59,000, which
represents less than 0.1% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on
August 10, 1999, and is scheduled to expire in 2020, was $77,000, which represents approximately 0.1% of our total annualized base
rental revenue. The annualized rental revenue for the lease that commenced on December 17, 2009, and is scheduled to expire in 2020,
was $110,000, which represents approximately 0.1% of our total annualized base rental revenue. The annualized rental revenue for the
lease that commenced on June 29, 2001, and is scheduled to expire in 2021, was $145,000, which represents approximately 0.2% of our
total annualized base rental revenue. The annualized rental revenue for the lease that commenced on April 4, 2011, and is scheduled to
expire in 2021, was $77,000, which represents approximately 0.1% of our total annualized base rental revenue. The annualized rental
revenue for the lease that commenced on May 21, 2013, and is scheduled to expire in 2023, was $110,000, which represents
approximately 0.1% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on
November 8, 2009, and is scheduled to expire in 2027, was $151,000, which represents approximately 0.2% of our total annualized base
rental revenue.
(7) As of December 31, 2017, we had two leases with the same tenant occupying space at properties located in Phoenix. The annualized
rental revenue for the lease that commenced on October 24, 1996, and is scheduled to expire in 2022, was $131,000, which represents
approximately 0.1% of our total annualized base rental revenue. The annualized rental revenue for the lease that commenced on April 16,
1999, and is scheduled to expire in 2018, was $550,000, which represents approximately 0.6% of our total annualized base rental revenue.
(8) As of December 31, 2017, we had three leases with the same tenant occupying space at properties located in San Antonio, Phoenix and
Houston. The annualized rental revenue for the lease that commenced on June 18, 2012, and is scheduled to expire in 2023, was
$175,000, which represents approximately 0.2% of our total annualized base rental revenue. The annualized rental revenue for the lease
that commenced on February 11, 2009, and is scheduled to expire in 2020, was $187,000, which represents approximately 0.2% of our
total annualized base rental revenue. The annualized rental revenue for the lease that commenced on February 7, 2013, and is scheduled
to expire in 2023, was $110,000, which represents approximately 0.1% of our total annualized base rental revenue.
26
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Table of Contents
Lease Expirations
The following table lists, on an aggregate basis, all of our consolidated scheduled lease expirations over the next 10 years.
GLA
Annualized Base Rent
as of December 31, 2017
Number of
Leases
Approximate
Square Feet
Percent of
Total
Amount
(in thousands)
Percent of
Total
490
281
262
205
192
72
51
35
21
31
1,640
1,144,870
17.5 % $
760,124
983,868
631,290
736,363
308,493
416,292
148,490
164,033
201,148
5,494,971
11.6 %
15.0 %
9.6 %
11.2 %
4.7 %
6.4 %
2.3 %
2.5 %
3.1 %
83.9% $
17,419
13,637
15,022
10,945
11,987
4,421
7,468
3,093
3,199
3,970
91,161
18.0 %
14.1 %
15.5 %
11.3 %
12.4 %
4.6 %
7.7 %
3.2 %
3.3 %
4.1 %
94.2%
Year
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
Total
Insurance
We believe that we have property and liability insurance with reputable, commercially rated companies. We also believe that our
insurance policies contain commercially reasonable deductibles and limits, adequate to cover our properties. We expect to maintain this type
of insurance coverage and to obtain similar coverage with respect to any additional properties we acquire in the near future. Further, we have
title insurance relating to our properties in an aggregate amount that we believe to be adequate.
Item 3. Legal Proceedings.
We are a participant in various legal proceedings and claims that arise in the ordinary course of our business. These matters are
generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, we believe that the final outcome of
these matters will not have a material effect on our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
27
38
Table of Contents
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
Market Information
Common Shares
Our common shares are traded on the NYSE under the ticker symbol “WSR.” As of March 1, 2018, we had
39,223,591 common shares of beneficial interest outstanding held by a total of 1,221 shareholders of record.
The following table sets forth the quarterly high, low and closing prices per share of our common shares for the years
ended December 31, 2017 and 2016 as reported on the NYSE.
For the Year Ended December 31, 2017
High
Low
Close
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
For the Year Ended December 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
$
$
$
$
$
$
High
14.78
14.50
13.96
15.15
12.74
15.15
16.30
14.41
$
$
$
$
$
$
$
$
Low
12.89
10.80
11.82
12.97
9.44
12.35
13.41
12.13
$
$
$
$
$
$
$
$
Close
13.84
12.25
13.05
14.41
12.57
15.08
13.88
14.38
On March 2, 2018, the closing price of our common shares reported on the NYSE was $10.86 per share.
Distributions
U.S. federal income tax law generally requires that a REIT distribute annually to its shareholders at least 90% of its
REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at
regular corporate rates on any taxable income that it does not distribute. We currently, and intend to continue to, accrue
distributions quarterly and make distributions in three monthly installments following the end of each quarter. For a discussion
of our cash flow as compared to dividends, see “Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.”
The timing and frequency of our distributions are authorized and declared by our board of trustees in exercise of its
business judgment based upon a number of factors, including:
•
•
•
•
•
•
•
our funds from operations;
our debt service requirements;
our capital expenditure requirements for our properties;
our taxable income, combined with the annual distribution requirements necessary to maintain REIT qualification;
requirements of Maryland law;
our overall financial condition; and
other factors deemed relevant by our board of trustees.
Any distributions we make will be at the discretion of our board of trustees and we cannot provide assurance that our
distributions will be made or sustained in the future.
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Table of Contents
The following table reflects the total distributions we have paid (including the total amount paid and the amount paid
per share/unit) in each indicated quarter (in thousands, except per share/unit data):
Common Shares
Noncontrolling OP Unit Holders
Total
Quarter Paid
Distributions
Per Common
Share
Total Amount
Paid
Distributions
Per OP Unit
Total Amount
Paid
Total Amount
Paid
2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total
2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total
$
$
$
$
0.2850
$
11,002
$
0.2850
$
0.2850
0.2850
0.2850
1.1400
$
10,948
10,093
8,429
40,472
$
0.2850
0.2850
0.2850
1.1400
$
0.2850
$
8,305
$
0.2850
$
0.2850
0.2850
0.2850
1.1400
$
8,109
7,786
7,711
31,911
$
0.2850
0.2850
0.2850
1.1400
$
309
309
310
313
1,241
314
138
138
139
729
$
$
$
$
11,311
11,257
10,403
8,742
41,713
8,619
8,247
7,924
7,850
32,640
Equity Compensation Plan Information
Please refer to Item 12 of this Annual Report on Form 10-K for information concerning securities authorized under our
equity incentive plan.
Issuer Purchases of Equity Securities
During the three months ended December 31, 2017, certain of our employees tendered owned common shares to
satisfy the tax withholding on the lapse of certain restrictions on restricted common shares issued under our 2008 Long-Term
Equity Incentive Ownership Plan (the “2008 Plan”). The following table summarized all of these repurchases during the three
months ended December 31, 2017.
Period
October 1, 2017 through October 31, 2017
November 1, 2017 through November 30, 2017
December 1, 2017 through December 31, 2017
Total
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Maximum
Number of
Shares that
May Yet be
Purchased
Under the Plans
or Programs
Average Price
Paid for Shares
13.05
—
14.41
13.74
N/A
N/A
N/A
N/A
N/A
N/A
Total Number
of Shares
Purchased (1)
84,195
$
—
86,917
171,112
$
(1)
The number of shares purchased represents common shares held by employees who tendered owned common shares
to satisfy the tax withholding on the lapse of certain restrictions on restricted common shares issued under the 2008 Plan. With
respect to these shares, the price paid per share is based on the fair market value at the time of tender.
40
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Table of Contents
Performance Graph
The following graph compares the total shareholder returns of the Company's common shares to the Standard & Poor's
500 Index (“S&P 500 Index”) and to the Morgan Stanley Capital International US REIT Index (“REIT Index”) from December
31, 2012 to December 31, 2017. The graph assumes that the value of the investment in our common shares and in the S&P 500
Index and REIT Index was $100 at December 31, 2012 and that all dividends were reinvested. The closing price of our
common shares on December 31, 2012 (on which the graph is based) was $14.05. The past shareholder return shown on the
following graph is not necessarily indicative of future performance. The performance graph and related information shall not
be deemed “filed” with the SEC, nor shall such information be incorporated by reference into any future filing, except to the
extent the Company specifically incorporates it by reference into such filing.
30
41
Table of Contents
Item 6. Selected Financial Data.
The following table sets forth our selected consolidated financial information and should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated
financial statements and the notes thereto, both of which appear elsewhere in this Annual Report on Form 10-K.
Operating Data:
Revenues
Property expenses
General and administrative
Depreciation and amortization
Interest expense
Year Ended December 31,
(in thousands, except per share data)
2017
2016
2015
2014
2013
$
125,959
$
104,437
$
93,416
$
72,382
$
42,110
23,949
27,240
23,651
34,092
23,922
22,457
19,239
31,335
20,312
19,761
14,910
25,152
15,274
15,725
10,579
60,492
22,678
10,912
13,100
9,975
Interest, dividend and other investment income
(410)
(429)
(313)
(90)
(136)
Income from continuing operations before loss on disposal of assets and
income taxes
Provision for income taxes
Gain on sale of property
Loss on disposal of assets
Income from continuing operations
Income from discontinued operations
Gain on sale of properties from discontinued operations
Net income
Less: net income attributable to noncontrolling interests
9,419
(386)
16
(183)
8,866
—
—
8,866
532
5,156
(289)
3,357
(96)
8,128
—
—
8,128
197
7,411
(372)
—
(185)
6,854
11
—
6,865
116
5,742
(282)
—
(111)
5,349
510
1,887
7,746
160
Net income attributable to Whitestone REIT
$
8,334
$
7,931
$
6,749
$
7,586
$
3,963
(293)
—
(49)
3,621
298
—
3,919
125
3,794
42
31
Table of Contents
Year Ended December 31,
(in thousands, except per share data)
2017
2016
2015
2014
2013
Earnings per share - basic
Income from continuing operations attributable to Whitestone REIT
excluding amounts attributable to unvested restricted shares
Income from discontinued operations attributable to Whitestone REIT
Net income attributable to common shareholders excluding amounts
attributable to unvested restricted shares
Earnings per share - diluted
Income from continuing operations attributable to Whitestone REIT
excluding amounts attributable to unvested restricted shares
Income from discontinued operations attributable to Whitestone REIT
Net income attributable to common shareholders excluding amounts
attributable to unvested restricted shares
$
$
$
$
0.22
0.00
0.22
0.22
0.00
0.22
Balance Sheet Data:
Real estate (net)
Real estate (net), discontinued operations
Other assets
Total assets
Liabilities
Whitestone REIT shareholders' equity
Noncontrolling interest in subsidiary
Other Data:
Proceeds from issuance of common shares
Acquisitions of and additions to real estate (1)
Distributions per share (2)
Funds from operations (3)
Total occupancy at year end
Average aggregate GLA
Average rent per square foot
(1) Including amounts for discontinued operations.
$
1,018,420
$
$
—
53,312
1,071,732
713,414
347,604
10,714
$
1,071,732
$
118,412
231,120
1.13
35,039
88%
6,403
16.81
$
$
$
$
$
$
$
$
$
$
$
0.26
0.00
0.26
0.26
0.00
0.26
813,052
—
42,157
855,209
587,566
255,687
11,956
855,209
30,014
91,785
1.13
27,031
87%
5,837
15.45
$
$
$
$
$
$
$
$
$
$
0.25
0.00
0.25
0.24
0.00
0.24
$
$
$
$
0.23
0.10
0.33
0.22
0.10
0.32
$
$
$
$
0.19
0.02
0.21
0.19
0.01
0.20
745,958
$
602,068
$
474,760
—
36,127
782,085
535,094
242,974
4,017
$
$
—
30,137
632,205
418,882
210,072
3,251
$
$
5,506
26,446
506,712
285,797
215,818
5,097
782,085
$
632,205
$
506,712
49,649
$
6,458
$
63,887
163,050
142,065
137,024
1.13
26,696
1.13
21,920
1.12
17,314
87%
87%
87%
5,734
14.62
$
5,075
13.57
$
4,537
12.60
(2) The distributions per share represent total cash payments divided by weighted average common shares.
(3) We believe that Funds From Operations (“FFO”) is an appropriate supplemental measure of operating performance because it helps our investors compare
our operating performance relative to other REITs. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss)
available to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of operating properties and extraordinary items,
plus depreciation and amortization of real estate assets, including our share of unconsolidated partnerships and joint ventures. We calculate FFO in a manner
consistent with the NAREIT definition. For more information, see “Management's Discussion and Analysis of Financial Condition and Results of
Operations - Reconciliation of Non-GAAP Financial Measures.”
32
43
Table of Contents
The following table sets forth a reconciliation of net income to FFO, the nearest GAAP measure, for the periods
presented:
Net income attributable to Whitestone REIT
Adjustments to reconcile to FFO:(1)
Depreciation and amortization of real estate assets (2)
Loss (gain) on sale or disposal of assets (2)
Net income attributable to redeemable operating partnership units (2)
FFO
(1) Includes pro-rata share attributable to Pillarstone in 2017.
(2) Including amounts for discontinued operations.
Year Ended December 31,
(in thousands, except per share data)
2017
2016
2015
2014
2013
$
8,334
$
7,931
$
6,749
$
7,586
$
3,794
26,290
161
254
22,179
(3,261)
182
19,646
185
116
15,950
(1,776)
160
13,339
56
125
$
35,039
$
27,031
$
26,696
$
21,920
$
17,314
44
33
Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our
audited consolidated financial statements and the notes thereto included in this Annual Report on Form 10-K. For more
detailed information regarding the basis of presentation for the following information, you should read the notes to our audited
consolidated financial statements included in this Annual Report on Form 10-K.
Overview of Our Company
We are a fully integrated real estate company that owns and operates commercial properties in culturally diverse
markets in major metropolitan areas. Founded in 1998, we are internally managed with a portfolio of commercial properties in
Texas, Arizona and Illinois.
In October 2006, our current management team joined the Company and adopted a strategic plan to acquire,
redevelop, own and operate Community Centered Properties®. We define Community Centered Properties® as visibly located
properties in established or developing culturally diverse neighborhoods in our target markets. We market, lease, and manage
our centers to match tenants with the shared needs of the surrounding neighborhood. Those needs may include specialty retail,
grocery, restaurants and medical, educational and financial services. Our goal is for each property to become a Whitestone-
branded retail community that serves a neighboring five-mile radius around our property. We employ and develop a diverse
group of associates who understand the needs of our multicultural communities and tenants.
As of December 31, 2017, we owned or had a majority interest in 73 commercial properties consisting of:
Consolidated Operating Portfolio
•
•
51 wholly-owned properties that meet our Community Centered Properties® strategy containing
approximately 4.9 million square feet of GLA and having a total carrying amount (net of accumulated
depreciation) of $898.9 million; and
as a result of the Contribution (as defined below), a majority interest in 14 consolidated properties that do not
meet our Community Centered Properties® strategy containing approximately 1.5 million square feet of GLA
and having a total carrying amount (net of accumulated depreciation) of $59.5 million; and
Redevelopment, New Acquisitions Portfolio
•
•
two retail properties that meet our Community Centered Properties® strategy containing approximately 0.1
million square feet of GLA and having a total carrying amount (net of accumulated depreciation) of $43.0
million; and
six parcels of land held for future development that meet our Community Centered Properties® strategy having
a total carrying amount of $17.0 million.
As of December 31, 2017, we had an aggregate of 1,664 tenants. We have a diversified tenant base with our largest
tenant comprising only 2.5% of our total revenues for the year ended December 31, 2017. Lease terms for our properties range
from less than one year for smaller tenants to more than 15 years for larger tenants. Our leases generally include minimum
monthly lease payments and tenant reimbursements for taxes, insurance and maintenance. We completed 366 new and renewal
leases during 2017, totaling 991,308 square feet and $71.2 million in total lease value.
We employed 103 full-time employees as of December 31, 2017. As an internally managed REIT, we bear our own
expenses of operations, including the salaries, benefits and other compensation of our employees, office expenses, legal,
accounting and investor relations expenses and other overhead costs.
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Table of Contents
How We Derive Our Revenue
Substantially all of our revenue is derived from rents received from leases at our properties. We had rental income and
tenant reimbursements of approximately $125,959,000 for the year ended December 31, 2017 as compared to $104,437,000 for
the year ended December 31, 2016, an increase of $21,522,000, or 21%. The year ended December 31, 2017 included
$17,057,000 in increased revenues from Non-Same Store operations and $181,000 in increased revenues from our
Consolidated Partnership. We define “Non-Same Stores” as properties acquired since the beginning of the period being
compared and properties that have been sold, but not classified as discontinued operations. During the twelve months ended
December 31, 2017, Same Store revenues increased $4,284,000. We define “Same Stores” as properties owned during the
entire period being compared. For purposes of comparing the year ended December 31, 2017 to the year ended December 31,
2016, Same Stores include properties owned from January 1, 2015 to December 31, 2016. Same Store average occupancy
increased from 89.0% for the year ended December 31, 2016 to 89.5% for the year ended December 31, 2017. Same Store
revenue rate per average leased square foot increased $0.81 for the year ended December 31, 2017 to $23.49 per average leased
square foot as compared to the year ended December 31, 2016 revenue rate per average leased square foot of $22.68, increasing
Same Store revenue by $3,143,000. The revenue rate per average leased square feet is calculated by dividing the total revenue
by the average square feet leased during the period.
Known Trends in Our Operations; Outlook for Future Results
Rental Income
We expect our rental income to increase year-over-year due to the addition of properties and rent increases on renewal
leases. The amount of net rental income generated by our properties depends principally on our ability to maintain the
occupancy rates of currently leased space and to lease currently available space, newly acquired properties with vacant space,
and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability
to maintain or increase rental rates in our submarkets. Over the past three years, we have seen modest improvement in the
overall economy in our markets, which has allowed us to maintain overall occupancy rates, with slight increases in occupancy
at certain of our properties, and to recognize modest increases in rental rates. We expect this trend to continue in 2018.
Scheduled Lease Expirations
We tend to lease space to smaller businesses that desire shorter term leases. As of December 31, 2017, approximately
29% of our GLA was subject to leases that expire prior to December 31, 2019. Over the last three years, we have renewed
expiring leases with respect to approximately 78% of our GLA. We routinely seek to renew leases with our existing tenants
prior to their expiration and typically begin discussions with tenants as early as 18 months prior to the expiration date of the
existing lease. Inasmuch as our early renewal program and other leasing and marketing efforts target these expiring leases, we
hope to re-lease most of that space prior to expiration of the leases. In the markets in which we operate, we obtain and analyze
market rental rates through review of third-party publications, which provide market and submarket rental rate data and through
inquiry of property owners and property management companies as to rental rates being quoted at properties that are located in
close proximity to our properties and we believe display similar physical attributes as our nearby properties. We use this data
to negotiate leases with new tenants and renew leases with our existing tenants at rates we believe to be competitive in the
markets for our individual properties. Due to the short term nature of our leases, and based upon our analysis of market rental
rates, we believe that, in the aggregate, our current leases are at market rates. Market conditions, including new supply of
properties, and macroeconomic conditions in our markets and nationally affecting tenant income, such as employment levels,
business conditions, interest rates, tax rates, fuel and energy costs and other matters, could adversely impact our renewal rate
and/or the rental rates we are able to negotiate. We continue to monitor our tenants' operating performances as well as overall
economic trends to evaluate any future negative impact on our renewal rates and rental rates, which could adversely affect our
cash flow and ability to make distributions to our shareholders.
Acquisitions
We have continued to successfully grow our GLA through the acquisition of additional properties, and we expect to
actively pursue and consummate additional acquisitions in the foreseeable future. We believe that over the next few years we
will continue to have excellent opportunities to acquire quality properties at historically attractive prices. We have extensive
relationships with community banks, attorneys, title companies and others in the real estate industry, which we believe enables
us to take advantage of these market opportunities and maintain an active acquisition pipeline.
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General and Administrative Expenses
On December 29, 2017, a shareholder of the Company notified us of its intention to nominate three trustees to our
board of trustees at our 2018 Annual Meeting of Shareholders. Our board of trustees and the Nominating and Corporate
Governance Committee continue to evaluate the proposed nominees. The process of this evaluation and any potential outcome
could result in an increase in our general and administrative expenses compared to prior periods.
Property Acquisitions and Dispositions
We seek to acquire commercial properties in high-growth markets. Our acquisition targets are properties that fit our
Community Centered Properties® strategy. We define Community Centered Properties® as visibly located properties in
established or developing, culturally diverse neighborhoods in our target markets, primarily in and around Phoenix, Chicago,
Dallas, Fort Worth, San Antonio and Houston. We may acquire properties in other high growth cities in the future. We market,
lease and manage our centers to match tenants with the shared needs of the surrounding neighborhood. Those needs may
include specialty retail, grocery, restaurants and medical, educational and financial services. Our goal is for each property to
become a Whitestone-branded business center or retail community that serves a neighboring five-mile radius around our
property.
Property Dispositions. We seek to continually upgrade our portfolio by opportunistically selling properties that do not
have the potential to meet our Community Centered Property® strategy and redeploying the sale proceeds into properties that
better fit our strategy. Some of our properties that we owned at the time our current management team assumed the
management of the Company may not fit our Community Centered Property® strategy, and we may look for opportunities to
dispose of these properties as we continue to execute our strategy. For example, in December 2014, we sold three suburban
office properties in Clear Lake, Texas that were part of the Legacy Portfolio, and in 2016, we sold three additional properties in
the greater Houston area.
On December 8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the
“Contribution Agreement”) with Pillarstone and Pillarstone REIT pursuant to which we contributed all of the equity interests in
four of our wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a Delaware limited liability company (“CP
Woodland”); Whitestone Industrial-Office, LLC, a Texas limited liability company (“Industrial-Office”); Whitestone Offices,
LLC, a Texas limited liability company (“Whitestone Offices”); and Whitestone Uptown Tower, LLC, a Delaware limited
liability company (“Uptown Tower”, and together with CP Woodland, Industrial-Office and Whitestone Offices, the “Entities”)
that own 14 Non-Core Properties that do not fit our Community Centered Property® strategy, to Pillarstone for aggregate
consideration of approximately $84.0 million, consisting of (1) approximately $18.1 million Class A units representing limited
partnership interests in Pillarstone (“Pillarstone OP Units”), issued at a price of $1.331 per Pillarstone OP Unit; and (2) the
assumption of approximately $65.9 million of liabilities, consisting of (a) approximately $15.5 million of our liability under the
Facility (see Note 9 to the accompanying consolidated financial statements); (b) an approximately $16.3 million promissory
note of Uptown Tower under the Loan Agreement, dated as of September 26, 2013, between Uptown Tower, as borrower, and
U.S. Bank, National Association, as successor to Morgan Stanley Mortgage Capital Holdings LLC, as lender; and (c) an
approximately $34.1 million promissory note (the “Industrial-Office Promissory Note”) of Industrial-Office issued under the
Loan Agreement, dated as of November 26, 2013 (the “Industrial-Office Loan Agreement”), between Industrial-Office, as
borrower, and Jackson National Life Insurance Company, as lender (collectively, the “Contribution”).
In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into an OP Unit
Purchase Agreement (the “OP Unit Purchase Agreement”) with Pillarstone REIT and Pillarstone pursuant to which the
Operating Partnership agreed to purchase up to an aggregate of $3.0 million of Pillarstone OP Units at a price of $1.331 per
Pillarstone OP Unit over the two-year term of the OP Unit Purchase Agreement on the terms set forth therein. The OP Unit
Purchase Agreement contains customary closing conditions and the parties have made certain customary representations,
warranties and indemnifications to each other in the OP Unit Purchase Agreement. In addition, pursuant to the OP Unit
Purchase Agreement, in the event of a Change of Control (as defined therein) of the Company, Pillarstone shall have the right,
but not the obligation, to repurchase the Pillarstone OP Units issued thereunder from the Operating Partnership at their initial
issue price of $1.331 per Pillarstone OP Unit.
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In connection with the Contribution, (1) with respect to each Non-Core Property (other than Uptown Tower),
Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a Management Agreement with the
Entity that owns such Non-Core Property and (2) with respect to Uptown Tower, Whitestone TRS entered into a Management
Agreement with Pillarstone (collectively, the “Management Agreements”). Pursuant to the Management Agreements with
respect to each Non-Core Property (other than Uptown Tower), Whitestone TRS agreed to provide certain property
management, leasing and day-to-day advisory and administrative services to such Non-Core Property in exchange for (x) a
monthly property management fee equal to 5.0% of the monthly revenues of such Non-Core Property and (y) a monthly asset
management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the
respective Non-Core Property based upon the purchase price allocations determined pursuant to the Contribution Agreement,
excluding all indebtedness, liabilities or claims of any nature) of such Non-Core Property. Pursuant to the Management
Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-
to-day advisory and administrative services to Pillarstone in exchange for (x) a monthly property management fee equal to
3.0% of the monthly revenues of Uptown Tower and (y) a monthly asset management fee equal to 0.125% of GAV of Uptown
Tower.
In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into a Tax Protection
Agreement with Pillarstone REIT and Pillarstone pursuant to which Pillarstone agreed to indemnify the Operating Partnership
for certain tax liabilities resulting from its recognition of income or gain prior to December 8, 2021 if such liabilities result
from a transaction involving a direct or indirect taxable disposition of all or a portion of the Pillarstone Properties or if
Pillarstone fails to maintain and allocate to the Operating Partnership for taxation purposes minimum levels of liabilities as
specified in the Tax Protection Agreement, the result of which causes such recognition of income or gain and the Company
incurs taxes that must be paid to maintain its REIT status for federal tax purposes.
As of December 31, 2017, we owned approximately 81.4% of the total outstanding Pillarstone OP Units. Accordingly,
we have consolidated Pillarstone in our consolidated balance sheets and related consolidated statement of operations and
comprehensive income.
Property Acquisitions. On December 29, 2017, we acquired a 1.83 acre parcel of undeveloped land for $0.9 million
in cash and net prorations. The undeveloped land parcel is the hard corner at our Eldorado Plaza property.
On May 26, 2017, we acquired BLVD Place, a property that meets our Community Centered Property® strategy, for
$158.0 million, including $80.0 million of asset level mortgage financing and $78.0 million in cash and net prorations. BLVD
Place, a 216,944 square foot property, was 99% leased at the time of purchase and is located in Houston, Texas. Included in the
purchase of BLVD Place is approximately 1.43 acres of developable land. Revenue and net income attributable to BLVD Place
of $9.3 million and $5.1 million, respectively, have been included in our results of operations for the year ended December 31,
2017.
On May 3, 2017, we acquired Eldorado Plaza, a property that meets our Community Centered Property® strategy, for
$46.6 million in cash and net prorations. Eldorado Plaza, a 221,577 square foot property, was 96% leased at the time of
purchase and is located in McKinney, Texas, a suburb of Dallas, Texas. Revenue and net income attributable to Eldorado Plaza
of $3.0 million and $1.6 million, respectively, have been included in our results of operations for the year ended December 31,
2017.
Hurricane Harvey. In August 2017, Hurricane Harvey impacted the South Texas region, including Houston, Texas.
The majority of our Houston properties incurred minor damage and as a result, we recorded approximately $0.5 million in
Harvey related repairs recorded in property operation and maintenance expense for the year ended December 31, 2017, with no
insurance recoveries expected.
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Leasing Activity
As of December 31, 2017, we owned or held a majority interest in 73 properties with 6,554,952 square feet of GLA,
which were approximately 88% occupied. Our occupancy rate for all properties was approximately 87% occupied as of
December 31, 2016. The following is a summary of the Company's leasing activity for the year ended December 31, 2017:
Number of
Leases Signed
GLA Signed
Weighted
Average Lease
Term (2)
TI and
Incentives per
Sq. Ft. (3)
Contractual Rent
Per Sq. Ft (4)
Prior
Contractual
Rent Per Sq.
Ft. (5)
Straight-lined
Basis Increase
(Decrease)
Over Prior
Rent
213
46
259
548,695
125,450
674,145
3.1
4.0
3.3
$
$
1.53
4.19
2.02
$
$
15.58
14.93
15.46
$
$
15.38
15.61
15.42
7.2%
6.6%
7.1%
Number of
Leases Signed
GLA Signed
Weighted
Average Lease
Term (2)
TI and
Incentives per
Sq. Ft. (3)
Contractual Rent
Per Sq. Ft (4)
220
146
366
574,186
424,549
998,735
3.2
5.6
4.2
$
$
1.90
9.52
5.14
$
$
15.79
15.46
15.65
Comparable (1)
Renewal Leases
New Leases
Total
Total
Renewal Leases
New Leases
Total
(1) Comparable leases represent leases signed on spaces for which there was a former tenant within the last twelve months and
the new or renewal square footage was within 25% of the expired square footage.
(2) Weighted average lease term (in years) is determined on the basis of square footage.
(3) Estimated amount per signed leases. Actual cost of construction may vary. Does not include first generation costs for
tenant improvements (“TI”) and leasing commission costs needed for new acquisitions, developement or redevelopment of
a property to bring to operating standards for its intended use.
(4) Contractual minimum rent under the new lease for the first month, excluding concessions.
(5) Contractual minimum rent under the prior lease for the final month.
Capital Expenditures
The following is a summary of the Company's capital expenditures for the years ended December 31 (in thousands):
Capital expenditures:
Tenant improvements and allowances
Developments / redevelopments
Leasing commissions and costs
Maintenance capital expenditures
Total capital expenditures
2017
2016
$
$
$
6,646
6,519
3,118
4,410
20,693
$
5,708
13,702
2,199
2,626
24,235
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Summary of Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial
statements. We prepared these financial statements in conformity with GAAP. The preparation of these financial statements
required us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. We based our estimates on historical experience and on various other assumptions we believe to be
reasonable under the circumstances. Our results may differ from these estimates. Currently, we believe that our accounting
policies do not require us to make estimates using assumptions about matters that are highly uncertain. For a better
understanding of our accounting policies, you should read Note 2 to our accompanying consolidated financial statements in
conjunction with this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We have described below the critical accounting policies that we believe could impact our consolidated financial
statements most significantly.
Revenue Recognition. All leases on our properties are classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts
due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts
receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been
met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the
corresponding costs are incurred. We have established an allowance for doubtful accounts against the portion of tenant
accounts receivable which is estimated to be uncollectible.
Development Properties. Land, buildings and improvements are recorded at cost. Expenditures related to the
development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying
charges (interest and real estate taxes) are capitalized as part of construction in progress. The capitalization of such costs ceases
when the property, or any completed portion, becomes available for occupancy. For the year ended December 31, 2017,
approximately $439,000 and $277,000 in interest expense and real estate taxes, respectively, were capitalized. For the year
ended December 31, 2016, approximately $324,000 and $71,000 in interest expense and real estate taxes, respectively, were
capitalized. For the year ended December 31, 2015, approximately $106,000 and $69,000 in interest expense and real estate
taxes, respectively, were capitalized.
Acquired Properties and Acquired Lease Intangibles. We allocate the purchase price of the acquired properties to
land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair
values at the time of purchase. Identifiable intangibles include amounts allocated to acquired out-of-market leases, the value of
in-place leases and customer relationship value, if any. We determine fair value based on estimated cash flow projections that
utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based
on a number of factors including the historical operating results, known trends and specific market and economic conditions
that may affect the property. Factors considered by management in our analysis of determining the as-if-vacant property value
include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute
similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at
market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates
costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses.
Intangibles related to out-of-market leases and in-place lease value are recorded as acquired lease intangibles and are amortized
as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases.
Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.
Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years
for improvements and buildings, respectively. Tenant improvements are depreciated using the straight-line method over the life
of the improvement or remaining term of the lease, whichever is shorter.
Impairment. We review our properties for impairment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through
operations. We determine whether an impairment in value has occurred by comparing the estimated future cash flows
(undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the
property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds
its fair value. Management has determined that there has been no impairment in the carrying value of our real estate assets as
of December 31, 2017.
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Accrued Rents and Accounts Receivable. Included in accrued rent and accounts receivable are base rents, tenant
reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible
portion of accrued rents and accounts receivable is determined based upon customer credit-worthiness (including expected
recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. As of
December 31, 2017 and 2016, we had an allowance for uncollectible accounts of $9.1 million and $7.3 million, respectively.
As of December 31, 2017, 2016 and 2015, we recorded bad debt expense in the amount of $2.3 million, $1.6 million and $2.0
million, respectively, related to tenant receivables that we specifically identified as potentially uncollectible based on our
assessment of each tenant’s credit-worthiness. Bad debt expenses and any related recoveries are included in property operation
and maintenance expense.
Unamortized Lease Commissions and Loan Costs. Leasing commissions are amortized using the straight-line method
over the terms of the related lease agreements. Loan costs are amortized on the straight-line method over the terms of the
loans, which approximates the interest method. Costs allocated to in-place leases whose terms differ from market terms related
to acquired properties are amortized over the remaining life of the respective leases.
Prepaids and Other Assets. Prepaids and other assets include escrows established pursuant to certain mortgage
financing arrangements for real estate taxes and insurance and acquisition deposits which include earnest money deposits on
future acquisitions.
Federal Income Taxes. We elected to be taxed as a REIT under the Code beginning with our taxable year ended
December 31, 1999. As a REIT, we generally are not subject to federal income tax on income that we distribute to our
shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable
income at regular corporate rates. We believe that we are organized and operate in such a manner as to qualify to be taxed as a
REIT, and we intend to operate so as to remain qualified as a REIT for federal income tax purposes.
State Taxes. We are subject to the Texas Margin Tax which is computed by applying the applicable tax rate (1% for
us) to the profit margin, which, generally, will be determined for us as total revenue less a 30% standard deduction. Although
the Texas Margin Tax is not an income tax, Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) ASC 740, “Income Taxes” (“ASC 740”) applies to the Texas Margin Tax. As of December 31, 2017,
2016 and 2015, we recorded a margin tax provision of $0.4 million, $0.2 million and $0.4 million, respectively.
Fair Value of Financial Instruments. Our financial instruments consist primarily of cash, cash equivalents, accounts
receivable, accounts and notes payable and investments in marketable securities. The carrying value of cash, cash equivalents,
accounts receivable and accounts payable are representative of their respective fair values due to their short-term nature. The
fair value of our long-term debt, consisting of fixed rate secured notes, variable rate secured notes and an unsecured revolving
credit facility aggregate to approximately $659.6 million and $540.0 million as compared to the book value of approximately
$660.9 million and $545.5 million as of December 31, 2017 and 2016, respectively. The fair value of our long-term debt is
estimated on a Level 2 basis (as provided by ASC 820, “Fair Value Measurements and Disclosures”), using a discounted cash
flow analysis based on the borrowing rates currently available to us for loans with similar terms and maturities, discounting the
future contractual interest and principal payments.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of
December 31, 2017 and 2016. Although management is not aware of any factors that would significantly affect the fair value
amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31,
2017 and current estimates of fair value may differ significantly from the amounts presented herein.
Derivative Instruments and Hedging Activities. We occasionally utilize derivative financial instruments, principally
interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for
risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate
swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income and
subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a
cash flow hedge's change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level
2 inputs under ASC 820. Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices
in markets that are not active; and model-derived valuations whose inputs are observable. As of December 31, 2017, we
consider our cash flow hedges to be highly effective.
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Recent Accounting Pronouncements. In May 2014, the FASB issued guidance, as amended in subsequent updates,
establishing a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers
and supersedes most of the existing revenue recognition guidance. The standard also requires an entity to recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. This guidance
became effective for the reporting periods beginning on or after December 15, 2017, and interim periods within those fiscal
years. We have adopted this guidance on a modified retrospective basis beginning January 1, 2018 and do not expect this
standard to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued guidance requiring lessees to recognize a lease liability and a right-of-use asset for
all leases. Lessor accounting will remain largely unchanged with the exception of changes related to costs which qualify as
initial direct costs. The guidance will also require new qualitative and quantitative disclosures to help financial statement users
better understand the timing, amount and uncertainty of cash flows arising from leases. This guidance will be effective for
reporting periods on or after December 15, 2018, with early adoption permitted. We will adopt this guidance on a modified
retrospective basis beginning January 1, 2019, and such adoption will result in certain costs (primarily legal costs related to
lease negotiations) being expensed rather than capitalized. We capitalized $436,000 in legal related costs for the year ended
December 31, 2017.
In March 2016, the FASB issued guidance simplifying the accounting for share-based payment transactions, including
the income tax consequences, balance sheet classification of awards and the classification on the statement of cash flows. We
have adopted this guidance as of January 1, 2017. The main provision regarding excess tax benefits did not have an impact on
our consolidated financial statements due to our status as a REIT for federal income tax purposes. We have elected to continue
estimating the number of shares expected to vest in order to determine compensation cost, and we will continue to classify cash
paid by us for employee taxes when common shares were repurchased to cover minimum statutory requirements under cash
flows from financing activities.
In November 2016, the FASB issued guidance requiring that the statement of cash flows explain the change during the
period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
This guidance became effective for the reporting periods beginning on or after December 15, 2017, and interim periods within
those fiscal years. We have adopted this guidance effective January 1, 2018, and we will reconcile cash and cash equivalents
and restricted cash and restricted cash equivalents on a retrospective basis, whereas under the previous guidance, we reported
restricted cash and restricted cash equivalents under cash flows from financing activities.
In January 2017, the FASB issued guidance clarifying the definition of a business with the objective of adding
guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or dispositions) of
assets or businesses. This guidance became effective for the reporting periods beginning on or after December 15, 2017, and
interim periods within those fiscal years. We have adopted this guidance on a prospective basis beginning January 1, 2018 and
believe the majority of our future acquisitions will qualify as asset acquisitions and the associated transaction costs will be
capitalized as opposed to expensed under previous guidance.
In February 2017, the FASB issued guidance clarifying the scope of asset derecognition guidance, adds guidance for
partial sales of nonfinancial assets and clarifies recognizing gains and losses from the transfer of nonfinancial assets in
contracts with noncustomers. This guidance became effective for the reporting periods beginning on or after December 15,
2017, and interim periods within those fiscal years. We have adopted this guidance on a modified retrospective basis beginning
January 1, 2018 and do not expect the adoption of this guidance to have a material impact on our consolidated financial
statements.
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Liquidity and Capital Resources
Our short-term liquidity requirements consist primarily of distributions to holders of our common shares and OP units,
including those required to maintain our REIT status and satisfy our current quarterly distribution target of $0.2850 per share
and OP unit, recurring expenditures, such as repairs and maintenance of our properties, non-recurring expenditures, such as
capital improvements and tenant improvements, debt service requirements, and, potentially, acquisitions of additional
properties.
During the year ended December 31, 2017, our cash provided from operating activities was $40,959,000 and our total
dividends and distributions paid were $42,092,000. Therefore, we had distributions in excess of cash flow from operations of
approximately $1,133,000. The Facility includes a $300 million unsecured borrowing capacity under a revolving credit facility,
two $50 million term loans and one $100 million term loan. The Facility also includes an accordion feature that will allow the
Operating Partnership to increase the borrowing capacity to $700 million, upon the satisfaction of certain conditions. We
anticipate that cash flows from operating activities and our borrowing capacity under the Facility will provide adequate capital
for our distributions working capital requirements, anticipated capital expenditures and scheduled debt payments in the short
term. We also believe that cash flows from operating activities and our borrowing capacity will allow us to make all
distributions required for us to continue to qualify to be taxed as a REIT for federal income tax purposes.
Our long-term capital requirements consist primarily of maturities under our longer-term debt agreements,
development and redevelopment costs, and potential acquisitions. We expect to meet our long-term liquidity requirements with
net cash from operations, long-term indebtedness, sales of common shares, issuance of OP units, sales of underperforming and
Non-Core Properties and other financing opportunities, including debt financing. We believe we have access to multiple
sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of
additional equity. However, our ability to incur additional debt will be dependent on a number of factors, including our degree
of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to
access the equity markets will be dependent on a number of factors as well, including general market conditions for REITs and
market perceptions about our Company.
We expect that our rental income will increase as we continue to acquire additional properties, subsequently increasing
our cash flows generated from operating activities. We intend to finance the continued acquisition of such additional properties
through equity issuances and through debt financing.
Our capital structure includes non-recourse secured debt that we assumed or originated on certain properties. We may
hedge the future cash flows of certain debt transactions principally through interest rate swaps with major financial institutions.
As discussed in Note 2 to the accompanying consolidated financial statements, pursuant to the term of our $15.1
million 4.99% Note, due January 6, 2024 (see Note 9 to the accompanying consolidated financial statements), which is
collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management
account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize
such promissory note. Amounts in the cash management account are classified as restricted cash.
Cash and Cash Equivalents
We had cash and cash equivalents of approximately $7,817,000 at December 31, 2017, as compared to $4,168,000 at
December 31, 2016. The increase of $3,649,000 was primarily the result of the following:
Sources of Cash
Cash flow from operations of $40,959,000 for the year ended December 31, 2017;
Net proceeds of $118,412,000 from issuance of common shares;
Net proceeds of $45,600,000 from the Facility;
Proceeds of $26,000 from sales of properties;
Proceeds of $513,000 from sales of marketable securities;
•
•
•
•
•
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Uses of Cash
•
•
•
•
•
•
•
Payment of dividends and distributions to common shareholders and OP unit holders of $42,092,000;
Real estate acquisitions of $125,468,000;
Additions to real estate of $17,575,000;
Change in restricted cash of $149,000;
Payments of loan origination costs of $695,000;
Payments of loans of $11,543,000; and
Repurchase of common shares of $4,339,000.
We place all cash in short-term, highly liquid investments that we believe provide appropriate safety of principal.
Equity Offerings
On April 25, 2017, we completed the sale of 8,018,500 common shares, including 1,018,500 common shares
purchased by the underwriters upon exercise of their option to purchase additional common shares, at a public offering price
per share of $13.00 (the “April Offering”). Total net proceeds from the April Offering, after deducting offering expenses, were
approximately $99.9 million, which we contributed to the Operating Partnership in exchange for OP units. The Operating
Partnership used the net proceeds from the April Offering to repay a portion of the Facility and for general corporate purposes,
including funding a portion of the purchase price of BLVD Place and Eldorado Plaza.
On June 4, 2015, we entered into nine amended and restated equity distribution agreements (the “2015 equity
distribution agreements”) for an at-the-market distribution program. Pursuant to the terms and conditions of the 2015 equity
distribution agreements, we can issue and sell up to an aggregate of $50 million of our common shares. Actual sales will
depend on a variety of factors to be determined by us from time to time, including (among others) market conditions, the
trading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and will
be made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act.
We have no obligation to sell any of our common shares, and can at any time suspend offers under the 2015 equity distribution
agreements or terminate the 2015 equity distribution agreements. For the year ended December 31, 2017, we sold 1,324,038
common shares under the 2015 equity distribution agreements, with net proceeds to us of approximately $18.6 million. In
connection with such sales, we paid compensation of approximately $0.3 million to the sales agents. For the year ended
December 31, 2016, we sold 2,063,697 common shares under the 2015 equity distribution agreements, with net proceeds to us
of approximately $30.0 million. In connection with such sales, we paid compensation of approximately $0.5 million to the
sales agents.
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Debt
Mortgages and other notes payable consist of the following (in thousands):
Description
Fixed rate notes
$10.5 million, LIBOR plus 2.00% Note, due September 24, 2018 (1)
$50.0 million, 1.75% plus 1.35% to 1.90% Note, due October 30, 2020 (2)
$50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021 (3)
$100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022 (4)
$80.0 million, 3.72% Note, due June 1, 2027
$37.0 million 3.76% Note, due December 1, 2020 (5)
$6.5 million 3.80% Note, due January 1, 2019
$19.0 million 4.15% Note, due December 1, 2024
$20.2 million 4.28% Note, due June 6, 2023
$14.0 million 4.34% Note, due September 11, 2024
$14.3 million 4.34% Note, due September 11, 2024
$16.5 million 4.97% Note, due September 26, 2023 (5)
$15.1 million 4.99% Note, due January 6, 2024
$9.2 million, Prime Rate less 2.00% Note, due December 29, 2017 (6)
$2.6 million 5.46% Note, due October 1, 2023
Floating rate notes
Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30,
2019 (7)
Total notes payable principal
Less deferred financing costs, net of accumulated amortization
December 31,
2017
2016
$
9,740
$
50,000
50,000
100,000
80,000
33,148
5,842
19,000
19,360
13,944
14,300
16,058
14,865
—
2,472
232,200
660,929
(1,861)
659,068
$
$
9,980
50,000
50,000
100,000
—
34,166
6,019
19,000
19,708
14,000
14,300
16,298
15,060
7,869
2,512
186,600
545,512
(1,492)
544,020
(1) Promissory note includes an interest rate swap that fixed the interest rate at 3.55% for the duration of the term.
(2) Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 1 (as defined below) at 0.84%
through February 3, 2017 and 1.75% beginning February 3, 2017 through October 30, 2020.
(3) Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 2 (as defined below) at 1.50%.
(4) Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 3 (as defined below) at 1.73%.
(5) Promissory notes were assumed by Pillarstone in December 2016 (see Note 5 to the accompanying consolidated financial
statements).
(6) Promissory note includes an interest rate swap that fixed the interest rate at 5.72% for the duration of the term. As part of
our acquisition of Paradise Plaza in August 2012, we recorded a discount on the note of $1.3 million, which amortizes into
interest expense over the life of the loan and results in an imputed interest rate of 4.13%.
(7) Unsecured line of credit includes certain Pillarstone Properties.
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Our mortgage debt was collateralized by 20 operating properties as of December 31, 2017 with a combined net book
value of $340.6 million and 19 operating properties as of December 31, 2016 with a combined net book value of $189.4
million. Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of
outstanding debt and are secured by deeds of trust on certain of our properties and the assignment of certain rents and leases
associated with those properties.
On May 26, 2017, we, through our subsidiary, Whitestone BLVD Place LLC, a Delaware limited liability company,
issued a $80.0 million promissory note to American General Life Insurance Company (the “BLVD Note”). The BLVD Note
has a fixed interest rate of 3.72% and a maturity date of June 1, 2027. Proceeds from the BLVD Note were used to fund a
portion of the purchase price of the acquisition of BLVD Place (see Note 4 to the accompanying consolidated financial
statements).
On November 7, 2014, we, through our Operating Partnership, entered into an unsecured revolving credit facility (the
“2014 Facility”) with the lenders party thereto, with BMO Capital Markets Corp., Wells Fargo Securities, LLC, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and U.S. Bank, National Association, as co-lead arrangers and joint book runners, and
Bank of Montreal, as administrative agent (the “Agent”). The 2014 Facility amended and restated our previous unsecured
revolving credit facility. On October 30, 2015, we, through our Operating Partnership, entered into the First Amendment to the
2014 Facility (the “First Amendment”) with the guarantors party thereto, the lenders party thereto and the Agent. We refer to
the 2014 Facility, as amended by the First Amendment, as the “Facility.”
Pursuant to the First Amendment, the Company made the following amendments to the 2014 Facility:
extended the maturity date of the $300.0 million unsecured revolving credit facility under the 2014 Facility (the
“Revolver”) to October 30, 2019 from November 7, 2018;
converted $100.0 million of outstanding borrowings under the Revolver to a new $100 million unsecured term loan
under the 2014 Facility (“Term Loan 3”) with a maturity date of October 30, 2022;
extended the maturity date of the first $50.0 million unsecured term loan under the 2014 Facility (“Term Loan 1”) to
October 30, 2020 from February 17, 2017; and
extended the maturity date of the second $50.0 million unsecured term loan under the 2014 Facility (“Term Loan 2”
and together with Term Loan 1 and Term Loan 3, the “Term Loans”) to January 29, 2021 from November 7, 2019.
•
•
•
•
Borrowings under the Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted
LIBOR plus an applicable margin based upon our then existing leverage. As of December 31, 2017, the interest rate was
3.30%. The applicable margin for Adjusted LIBOR borrowings ranges from 1.40% to 1.95% for the Revolver and 1.35% to
2.25% for the Term Loans. Base Rate means the higher of: (a) the Agent's prime commercial rate, (b) the sum of (i) the
average rate quoted by the Agent by two or more federal funds brokers selected by the Agent for sale to the Agent at face value
of federal funds in the secondary market in an amount equal or comparable to the principal amount for which such rate is being
determined, plus (ii) 1/2 of 1.00%, and (c) the LIBOR rate for such day plus 1.00%. Adjusted LIBOR means LIBOR divided by
one minus the Eurodollar Reserve Percentage. The Eurodollar Reserve Percentage means the maximum reserve percentage at
which reserves are imposed by the Board of Governors of the Federal Reserve System on eurocurrency liabilities.
We serve as the guarantor for funds borrowed by the Operating Partnership under the Facility. The Facility contains
customary terms and conditions, including, without limitation, affirmative and negative covenants such as information
reporting requirements, maximum secured indebtedness to total asset value, minimum EBITDA (earnings before interest, taxes,
depreciation, amortization or extraordinary items) to fixed charges, and maintenance of a minimum net worth. The Facility also
contains customary events of default with customary notice and cure, including, without limitation, nonpayment, breach of
covenant, misrepresentation of representations and warranties in a material respect, cross-default to other major indebtedness,
change of control, bankruptcy and loss of REIT tax status.
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The Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity
to $700.0 million, upon the satisfaction of certain conditions. The Facility, which is available to us for acquisitions of
properties and working capital, is our primary source of additional credit. As of December 31, 2017, $432.2 million was
drawn on the Facility and our unused borrowing capacity was $67.8 million, assuming that we use the proceeds of the Facility
to acquire properties, or to repay debt on properties, that are eligible to be included in the unsecured borrowing base. Proceeds
from the Facility were used for general corporate purposes, including property acquisitions, debt repayment, capital
expenditures, the expansion, redevelopment and re-tenanting of properties in our portfolio and working capital. We intend to
use the additional proceeds from the Facility for general corporate purposes, including property acquisitions, debt repayment,
capital expenditure, the expansion, redevelopment and re-tenanting of properties in our portfolio and working capital.
On December 8, 2016, in connection with the Contribution, the Operating Partnership entered into the Second
Amendment to the Facility and Reaffirmation of Guaranties (the “Second Amendment”) with Pillarstone, the Company and the
other Guarantors party thereto, the lenders party thereto and the Agent. Pursuant to the Second Amendment, following the
Contribution, Whitestone Offices, LLC and Whitestone CP Woodland Ph. 2, LLC were permitted to remain Material
Subsidiaries (as defined in the Facility) and Guarantors under the Facility and their respective Pillarstone Properties were each
permitted to remain an Eligible Property (as defined in the Facility) and be included in the Borrowing Base (as defined in the
Facility) under the Facility. In addition, on December 8, 2016, Pillarstone entered into the Limited Guarantee (the “Limited
Guarantee”) with the Agent, pursuant to which Pillarstone agreed to be joined as a party to the Facility to provide a limited
guarantee up to the amount of availability generated by the Pillarstone Properties owned by Whitestone Offices, LLC and
Whitestone CP Woodland Ph. 2, LLC. As of December 31, 2017, Pillarstone accounted for approximately $15.5 million of the
total amount drawn on the Facility.
Certain other of our loans are subject to customary covenants. As of December 31, 2017, we were in compliance with
all loan covenants.
Annual maturities of notes payable as of December 31, 2017 are due during the following years:
Year
2018
2019
2020
2021
2022
Thereafter
Total
Amount Due
(in thousands)
$
$
12,208
240,249
82,827
51,918
102,007
171,720
660,929
Capital Expenditures
We continually evaluate our properties’ performance and value. We may determine it is in our shareholders’ best
interest to invest capital in properties we believe have potential for increasing value. We also may have unexpected capital
expenditures or improvements for our existing assets. Additionally, we intend to continue investing in similar properties outside
of Texas in cities with exceptional demographics to diversify market risk, and we may incur significant capital expenditures or
make improvements in connection with any properties we may acquire.
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Contractual Obligations
As of December 31, 2017, we had the following contractual obligations (see Note 9 of our accompanying consolidated
financial statements for further discussion regarding the specific terms of our debt):
Consolidated Contractual Obligations
Total
Payment due by period (in thousands)
Less than
1
year (2018)
1 - 3 years
(2019 -
2020)
3 - 5 years
(2021 -
2022)
More than
5 years
(after
2022)
Long-Term Debt - Principal
$ 660,929
$
12,208
$ 323,076
$ 153,925
$ 171,720
Long-Term Debt - Fixed Interest
Long-Term Debt - Variable Interest (1)
Unsecured Credit Facility - Unused commitment fee (2)
Operating Lease Obligations
Total
80,790
14,049
249
57
15,223
7,663
136
33
28,954
6,386
113
20
18,200
18,413
—
—
4
—
—
—
$ 756,074
$
35,263
$ 358,549
$ 172,129
$ 190,133
As of December 31, 2017, Pillarstone had the following contractual obligations included in the consolidated
contractual obligations:
Pillarstone Contractual Obligations
Total
Payment due by period (in thousands)
Less than
1
year (2018)
1 - 3 years
(2019 -
2020)
3 - 5 years
(2021 -
2022)
More than
5 years
(after
2022)
Long-Term Debt - Principal
Long-Term Debt - Fixed Interest
Long-Term Debt - Variable Interest (3)
Total
$
49,206
$
1,343
$
32,662
$
631
$
14,570
7,921
937
2,019
511
3,882
426
1,481
—
539
—
$
58,064
$
3,873
$
36,970
$
2,112
$
15,109
(1) As of December 31, 2017, we had one loan totaling $232.2 million which bore interest at a floating rate. The variable
interest rate payments are based on LIBOR plus 1.40% to LIBOR plus 1.95%, which reflects our new interest rates under
our 2014 Facility. The information in the table above reflects our projected interest rate obligations for the floating rate
payments based on one-month LIBOR as of December 31, 2017, of 1.37%.
(2) The unused commitment fees on our unsecured credit facility, payable quarterly, are based on the average daily unused
amount of our unsecured credit facility. The fees are 0.20% for facility usage greater than 50% or 0.25% for facility usage
less than 50%. The information in the table above reflects our projected obligations for our unsecured credit facility based
on our December 31, 2017 balance of $432.2 million.
(3) The variable interest relates to Pillarstone Properties remaining in the Facility. As of December 31, 2017, Pillarstone
accounted for approximately $15.5 million of the total amount drawn on the Facility.
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Distributions
During 2017, we paid distributions to our common shareholders and OP unit holders of $42.1 million, compared to
$32.6 million in 2016. Common shareholders and OP unit holders receive monthly distributions. Payments of distributions are
declared quarterly and paid monthly. The distributions paid to common shareholders and OP unit holders were as follows (in
thousands, except per share data) for the years ended December 31, 2017 and 2016:
Common Shares
Noncontrolling OP Unit
Holders
Total
Distributions
Per Common
Share
Total Amount
Paid
Distributions
Per OP Unit
Total Amount
Paid
Total Amount
Paid
Quarter Paid
2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total
2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total
$
$
$
$
0.2850
$
11,002
$
0.2850
$
0.2850
0.2850
0.2850
1.1400
$
10,948
10,093
8,429
40,472
$
0.2850
0.2850
0.2850
1.1400
$
0.2850
$
8,305
$
0.2850
$
0.2850
0.2850
0.2850
1.1400
$
8,109
7,786
7,711
31,911
$
0.2850
0.2850
0.2850
1.1400
$
309
309
310
313
1,241
314
138
138
139
729
$
$
$
$
11,311
11,257
10,403
8,742
41,713
8,619
8,247
7,924
7,850
32,640
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Table of Contents
Results of Operations
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
The following table provides a general comparison of our results of operations for the years ended December 31, 2017
and 2016 (dollars in thousands, except per share data):
Number of properties wholly-owned and operated
Aggregate GLA (sq. ft.)(1)
Ending occupancy rate - wholly-owned operating portfolio(1)
Ending occupancy rate - all wholly-owned properties
Number of properties managed and consolidated
Aggregate GLA (sq. ft.)
Ending occupancy rate - managed and consolidated operating portfolio
Total property revenues
Total property expenses
Total other expenses
Provision for income taxes
Gain on sale of properties
Loss on disposal of assets
Income from continuing operations
Income from discontinued operations
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to Whitestone REIT
Funds from operations core(2)
Property net operating income (3)
Distributions paid on common shares and OP units
Distributions per common share and OP unit
Distributions paid as a % of funds from operations
Year Ended December 31,
2017
2016
59
55
5,023,215
4,557,425
91%
90%
14
90%
89%
14
1,531,737
1,531,737
81%
81%
$
125,959
$
104,437
42,110
74,430
386
(16)
183
8,866
—
8,866
532
8,334
47,090
83,849
41,713
1.1400
$
$
$
34,092
65,189
289
(3,357)
96
8,128
—
8,128
197
7,931
39,379
70,345
32,640
1.1400
89%
83%
$
$
$
(1) Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii)
properties that are undergoing significant redevelopment or re-tenanting.
(2) For an explanation and reconciliation of funds from operations to net income, see “Funds From Operations” below.
(3) For an explanation and reconciliation of property net operating income to net income, see “Property Net Operating
Income” below.
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Property revenues. We had rental income and tenant reimbursements of approximately $125,959,000 for the year
ended December 31, 2017 as compared to $104,437,000 for the year ended December 31, 2016, an increase of $21,522,000, or
21%. The year ended December 31, 2017 included $17,057,000 in increased revenues from Non-Same Store operations and
$181,000 in increased revenues from our Consolidated Partnership. We define “Non-Same Stores” as properties acquired since
the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations.
During the twelve months ended December 31, 2017, Same Store revenues increased $4,284,000. We define “Same Stores” as
properties owned during the entire period being compared. For purposes of comparing the year ended December 31, 2017 to
the year ended December 31, 2016, Same Stores include properties owned from January 1, 2016 to December 31, 2017. Same
Store average occupancy increased from 89.0% for the year ended December 31, 2016 to 89.5% for the year ended
December 31, 2017. Same Store revenue rate per average leased square foot increased $0.81 for the year ended December 31,
2017 to $23.49 per average leased square foot as compared to the year ended December 31, 2016 revenue rate per average
leased square foot of $22.68, increasing Same Store revenue by $3,143,000. The revenue rate per average leased square feet is
calculated by dividing the total revenue by the average square feet leased during the period.
Property expenses. Our property expenses were $42,110,000 for the year ended December 31, 2017, as compared to
$34,092,000 for the year ended December 31, 2016, an increase of $8,018,000, or 24%. Property expenses for the year ended
December 31, 2017 included Same Store, Non-Same Store and Consolidated Partnership amounts of $29,809,000, $5,126,000
and $7,175,000, respectively. Property expenses for the year ended December 31, 2016 included Same Store, Non-Same Store
and Consolidated Partnership amounts of $27,078,000, $607,000 and $6,407,000, respectively. The primary components of
total property expenses, Same Store property expenses and Non-Same Store property expenses are detailed in the tables below
(in thousands):
Overall Property Expenses
2017
2016
Increase
% Increase
Year Ended December 31,
Real estate taxes
Utilities
Contract services
Repairs and maintenance
Bad debt
Labor and other
Total
Same Store Property Expenses
Real estate taxes
Utilities
Contract services
Repairs and maintenance
Bad debt
Labor and other
Total
Non-Same Store Property Expenses
Real estate taxes
Utilities
Contract services
Repairs and maintenance
Bad debt
Labor and other
Total
$
17,897
$
14,383
$
5,514
7,186
5,052
2,356
4,105
4,868
5,941
3,802
1,589
3,509
3,514
646
1,245
1,250
767
596
42,110
$
34,092
$
8,018
24%
13%
21%
33%
48%
17%
24%
Year Ended December 31,
2017
2016
Increase
% Increase
12,883
$
11,873
$
1,010
3,738
4,988
3,733
1,742
3,423
4,865
2,921
1,367
2,725
29,809
$
2,629
27,078
$
315
123
812
375
96
2,731
9%
9%
3%
28%
27%
4%
10%
Year Ended December 31,
2017
2016
Increase
% Increase
190
101
84
77
17
138
607
$
2,232
513
970
329
208
267
4,519
$
2,422
$
614
1,054
406
225
405
5,126
$
50
1,175%
508%
1,155%
427%
1,224%
193%
744%
61
$
$
$
$
$
Table of Contents
Real estate taxes. Real estate taxes increased $3,514,000, or 24%, during the year ended December 31, 2017 as
compared to 2016. The $3,514,000 increase was comprised of increases of $2,232,000 in Non-Same Store expense,
$1,010,000 in Same Store expense and $272,000 in our Consolidated Partnership properties. We actively work to keep our
valuations and resulting taxes low because a majority of these taxes are charged to our tenants through triple net leases, and we
strive to keep these charges to our tenants as low as possible.
Utilities. Utilities increased $646,000, or 13%, during the year ended December 31, 2017 as compared to 2016. The
$646,000 increase was comprised of increases of $513,000 in Non-Same Store expense and $315,000 in Same Store expenses,
offset by a decrease of $182,000 in our Consolidated Partnership properties.
Contract services. Contract services increased $1,245,000, or 21%, during the year ended December 31, 2017 as
compared to 2016. The $1,245,000 increase was comprised of increases of $970,000 in Non-Same Store expense, $123,000 in
Same Store expense and $152,000 in our Consolidated Partnership properties.
Repairs and maintenance. Repairs and maintenance increased $1,250,000, or 33%, during the year ended
December 31, 2017 as compared to 2016. The $1,250,000 increase was comprised of increases of $329,000 in Non-Same
Store expense, $812,000 in Same Store expense and $109,000 in our Consolidated Partnership properties.
Bad debt. Bad debt for the year ended December 31, 2017 increased $767,000, or 48%, as compared to 2016. The
$767,000 increase was comprised of increases of $208,000 in Non-Same Store expense, $375,000 in Same Store expense and
$184,000 in our Consolidated Partnership properties.
Labor and other. Labor and other expenses increased $596,000, or 17%, for year ended December 31, 2017 as
compared to 2016. The $596,000 increase was comprised of increases of $267,000 in Non-Same Store expense, $96,000 in
Same Store expense and $233,000 in our Consolidated Partnership properties.
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Same Store, Non-Same Store and Consolidated Partnership net operating income. The components of Same Store,
Non-Same Store and Consolidated Partnership property net operating income and net income are detailed in the table below (in
thousands):
Year Ended December
31,
2017
2016
Increase
(Decrease)
%
Increase
(Decrease)
Same Store (49 properties excluding development land)
Property revenues
Rental revenues
Other revenues
Total property revenues
Property expenses
Property operation and maintenance
Real estate taxes
Total property expenses
$
67,706
$
65,340
$
23,456
91,162
16,926
12,883
29,809
21,538
86,878
15,205
11,873
27,078
Total same store net operating income
61,353
59,800
Non-Same Store (4 properties excluding development
land)
Property revenues
Rental revenues
Other revenues
Total property revenues
Property expenses
Property operation and maintenance
Real estate taxes
Total property expenses
13,960
5,396
19,356
2,704
2,422
5,126
1,796
503
2,299
417
190
607
2,366
1,918
4,284
1,721
1,010
2,731
1,553
12,164
4,893
17,057
2,287
2,232
4,519
4 %
9 %
5 %
11 %
9 %
10 %
3 %
677 %
973 %
742 %
548 %
1,175 %
744 %
Total Non-Same Store net operating income
14,230
1,692
12,538
741 %
Consolidated Partnership (14 properties)
Property revenues
Rental revenues
Other revenues
Total property revenues
Property expenses
Property operation and maintenance
Real estate taxes
Total property expenses
Total Consolidated Partnership net operating income
12,902
2,539
15,441
4,583
2,592
7,175
8,266
12,932
2,328
15,260
4,087
2,320
6,407
8,853
(30)
211
181
496
272
768
(587)
Total property net operating income
83,849
70,345
13,504
Less total other expenses, provision for income taxes and
loss on disposal of assets
Net income
74,983
62,217
12,766
$
8,866
$
8,128
$
738
0 %
9 %
1 %
12 %
12 %
12 %
(7)%
19 %
21 %
9 %
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Table of Contents
Other expenses. Our other expenses were $74,430,000 for the year ended December 31, 2017, as compared to
$65,189,000 for the year ended December 31, 2016, an increase of $9,241,000, or 14%. The primary components of other
expenses, net are detailed in the table below (in thousands):
Year Ended December 31,
Increase % Increase
2017
2016
(Decrease)
(Decrease)
General and administrative
Depreciation and amortization
Interest expense
Interest, dividend and other investment income
Total other expenses
$
$
23,949
$
23,922
$
27,240
23,651
(410)
74,430
$
22,457
19,239
(429)
65,189
27
4,783
4,412
19
$
9,241
0 %
21 %
23 %
(4)%
14 %
General and administrative. General and administrative expenses increased approximately $27,000 for the year ended
December 31, 2017 as compared to 2016. The increase in general and administrative expenses included increased salaries and
benefits costs of $282,000, increased share-based compensation of $179,000 and increased professional fees of $133,000, offset
by decreased acquisition expenses and other expenses of $541,000 and $26,000, respectively.
Total compensation recognized in earnings for share-based payments for the years ended December 31, 2017 and 2016
was $10.4 million and $10.2 million, respectively. We expect to record approximately $5.6 million in share-based
compensation subsequent to the year ended December 31, 2017. The unrecognized share-based compensation cost is expected
to vest over a weighted average period of 18 months.
Depreciation and amortization. Depreciation and amortization increased $4,783,000, or 21%, for the year ended
December 31, 2017 as compared to 2016. Non-Same Store depreciation increased $2,649,000, Consolidated Partnership
depreciation decreased $264,000 and Same Store depreciation increased $1,810,000. The increase in Same Store depreciation
is attributable to redevelopment and re-tenanting investments. Depreciation on corporate assets and amortization of
commission costs increased $60,000.
Interest expense. Interest expense increased $4,412,000, or 23%, for the year ended December 31, 2017 as compared
to 2016. An increase in our average outstanding notes payable balance of $97,534,000 accounted for $3,366,000 in increased
interest expense, and an increase in our effective interest rate to 3.62% for the year ended December 31, 2017 as compared to
3.45% for the year ended December 31, 2016, resulting in a $1,016,000 increase in interest expense. Amortization of loan fees
increased interest expense by $30,000 for the year ended December 31, 2017 as compared to the year ended December 31,
2016.
Interest, dividend and other investment income. Interest, dividend and other investment income decreased $19,000, or
4%, for the year ended December 31, 2017 as compared to 2016. During the year ended December 31, 2017, our interest
income increased $79,000, our gains on sales of investments in available-for-sale securities decreased $91,000 and our
dividend income decreased $7,000 as compared to the amounts realized during the year ended December 31, 2016.
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Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
The following table provides a general comparison of our results of operations for the years ended December 31, 2016
and 2015 (dollars in thousands, except per share data):
Number of properties wholly-owned and operated
Aggregate GLA (sq. ft.)(1)
Ending occupancy rate - wholly-owned operating portfolio(1)
Ending occupancy rate - all wholly-owned properties
Number of properties managed and consolidated
Year Ended December 31,
2016
2015
55
56
4,557,425
4,424,774
90%
89%
14
90%
89%
14
Aggregate GLA (sq. ft.)
Ending occupancy rate - managed and consolidated operating portfolio(2)
1,531,737
1,531,737
81%
81%
Total property revenues
Total property expenses
Total other expenses
Provision for income taxes
Gain on sale of properties
Loss on disposal of assets
Income from continuing operations
Income from discontinued operations
Gain on sale of property from discontinued operations
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to Whitestone REIT
Funds from operations core(2)
Property net operating income (3)
Distributions paid on common shares and OP units
Distributions per common share and OP unit
Distributions paid as a % of funds from operations
$
104,437
$
34,092
65,189
289
(3,357)
96
8,128
—
—
8,128
197
7,931
39,379
70,345
32,640
1.1400
$
$
$
$
$
$
93,416
31,335
54,670
372
—
185
6,854
11
—
6,865
116
6,749
35,754
62,081
28,946
1.1400
83%
81%
(1) Excludes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii)
properties that are undergoing significant redevelopment or re-tenanting.
(2) For an explanation and reconciliation of funds from operations to net income, see “Funds From Operations” below.
(3) For an explanation and reconciliation of property net operating income to net income, see “Property Net Operating
Income” below.
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Property revenues. We had rental income and tenant reimbursements of approximately $104,437,000 for the year
ended December 31, 2016 as compared to $93,416,000 for the year ended December 31, 2015, an increase of $11,021,000, or
12%. The year ended December 31, 2016 included $8,408,000 in increased revenues from Non-Same Store operations and
$229,000 in decreased revenues from our Consolidated Partnership. We define “Non-Same Stores” as properties acquired since
the beginning of the period being compared and properties that have been sold, but not classified as discontinued operations.
During the twelve months ended December 31, 2016, Same Store revenues increased $2,842,000. We define “Same Stores” as
properties owned during the entire period being compared. For purposes of comparing the year ended December 31, 2016 to
the year ended December 31, 2015, Same Stores include properties owned from January 1, 2015 to December 31, 2016. Same
Store average occupancy increased from 88.4% for the year ended December 31, 2015 to 89.3% for the year ended
December 31, 2016, increasing Same Store revenue $702,000. Same Store revenue rate per average leased square foot
increased $0.63 for the year ended December 31, 2016 to $21.36 per average leased square foot as compared to the year ended
December 31, 2015 revenue rate per average leased square foot of $20.73, increasing Same Store revenue $2,140,000. The
revenue rate per average leased square feet is calculated by dividing the total revenue by the average square feet leased during
the period.
Property expenses. Our property expenses were $34,092,000 for the year ended December 31, 2016, as compared to
$31,335,000 for the year ended December 31, 2015, an increase of $2,757,000, or 9%. Property expenses for the year ended
December 31, 2016 included Same Store, Non-Same Store and Consolidated Partnership amounts of $21,960,000, $5,725,000
and $6,407,000, respectively. Property expenses for the year ended December 31, 2015 included Same Store, Non-Same Store
and Consolidated Partnership amounts of $21,557,000, $2,896,000 and $6,882,000, respectively. The primary components of
total property expenses, Same Store property expenses and Non-Same Store property expenses are detailed in the tables below
(in thousands):
Overall Property Expenses
2016
2015
Increase
% Increase
Year Ended December 31,
Real estate taxes
Utilities
Contract services
Repairs and maintenance
Bad debt
Labor and other
Total
Same Store Property Expenses
Real estate taxes
Utilities
Contract services
Repairs and maintenance
Bad debt
Labor and other
Total
Non-Same Store Property Expenses
Real estate taxes
Utilities
Contract services
Repairs and maintenance
Bad debt
Labor and other
Total
$
14,383
$
12,637
$
1,746
4,868
5,941
3,802
1,589
3,509
4,788
5,297
3,253
2,025
3,335
80
644
549
(436)
174
34,092
$
31,335
$
2,757
$
$
$
$
Year Ended December 31,
Increase
% Increase
2016
2015
8,701
$
2,997
4,310
2,707
838
2,407
8,740
3,046
3,840
2,463
1,065
2,403
$
(Decrease)
(39)
(49)
470
244
(227)
4
403
(Decrease)
0 %
(2)%
12 %
10 %
(21)%
0 %
2 %
21,960
$
21,557
$
Year Ended December 31,
2016
2015
Increase
% Increase
3,362
$
1,459
$
1,903
527
639
290
546
361
300
351
167
462
157
227
288
123
84
204
$
5,725
$
2,896
$
2,829
14 %
2 %
12 %
17 %
(22)%
5 %
9 %
130%
76%
82%
74%
18%
130%
98%
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Table of Contents
Real estate taxes. Real estate taxes increased $1,746,000, or 14%, during the year ended December 31, 2016 as
compared to 2015. The $1,746,000 increase was comprised of an increase of $1,903,000 in Non-Same Store expense and offset
by decreases of $118,000 and $39,000 in our Consolidated Partnership and Same Store properties, respectively. We actively
work to keep our valuations and resulting taxes low because a majority of these taxes are charged to our tenants through triple
net leases, and we strive to keep these charges to our tenants as low as possible.
Utilities. Utilities increased $80,000, or 2%, during the year ended December 31, 2016 as compared to 2015. The
$80,000 increase was comprised of an increase of $227,000 in Non-Same Store expense and offset by decreases of $98,000 and
$49,000 in our Consolidated Partnership and Same Store properties, respectively.
Contract services. Contract services increased $644,000, or 12%, during the year ended December 31, 2016 as
compared to 2015. The $644,000 increase was comprised of increases of $470,000 for Same Store properties and $288,000 for
Non-Same Store properties and offset by a decrease of $114,000 in our Consolidated Partnership properties. The Same Store
increase included increases of $300,000 for security services, $131,000 for exterior landscaping and $39,000 in other increased
expenses.
Repairs and maintenance. Repairs and maintenance increased $549,000, or 17%, during the year ended December 31,
2016 as compared to 2015. The $549,000 increase was comprised of increases of $244,000 for Same Store properties, $182,000
for Consolidated Partnership properties and $123,000 for Non-Same Store properties. The Same Store increase included
increases of $141,000 for parking lot repairs, $51,000 for plumbing repairs, $48,000 in exterior landscape repairs and $4,000 in
other repairs.
Bad debt. Bad debt for the year ended December 31, 2016 decreased $436,000, or 22%, as compared to 2015. The
$436,000 decrease included decreases of $293,000 for Consolidated Partnership properties and $227,000 for Same Store
properties, offset by an increase of $84,000 for Non-Same Store properties.
Labor and other. Labor and other expenses increased $174,000, or 5%, for year ended December 31, 2016 as
compared to 2015. The increase of $174,000 was primarily comprised of a $204,000 increase for Non-Same Store properties
and also included a $4,000 increase in Same Store properties expenses, offset by a decrease in Consolidated Partnership
properties expense of $34,000.
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Same Store, Non-Same Store and Consolidated Partnership net operating income. The components of Same Store,
Non-Same Store and Consolidated Partnership property net operating income and net income are detailed in the table below (in
thousands):
Year Ended December 31,
2016
2015
Increase % Increase
(Decrease)
(Decrease)
Same Store (40 properties excluding development land)
Property revenues
Rental revenues
Other revenues
Total property revenues
Property expenses
Property operation and maintenance
Real estate taxes
Total property expenses
Total same store net operating income
Non-Same Store (10 properties excluding development
land)
Property revenues
Rental revenues
Other revenues
Total property revenues
Property expenses
Property operation and maintenance
Real estate taxes
Total property expenses
Total Non-Same Store net operating income
Consolidated Partnership (14 properties)
Property revenues
Rental revenues
Other revenues
Total property revenues
Property expenses
Property operation and maintenance
Real estate taxes
Total property expenses
Total Consolidated Partnership net operating income
$
55,374
$
53,438
$
17,161
72,535
13,259
8,701
21,960
50,575
11,762
4,880
16,642
2,363
3,362
5,725
10,917
12,932
2,328
15,260
4,087
2,320
6,407
8,853
16,255
69,693
12,817
8,740
21,557
48,136
5,507
2,727
8,234
1,437
1,459
2,896
5,338
12,898
2,591
15,489
4,444
2,438
6,882
8,607
1,936
906
2,842
442
(39)
403
2,439
6,255
2,153
8,408
926
1,903
2,829
5,579
34
(263)
(229)
(357)
(118)
(475)
246
Total property net operating income
70,345
62,081
8,264
Less total other expenses, provision for income taxes and
loss on disposal of assets
Income from continuing operations
Income from discontinued operations, net of taxes
Net income
68
62,217
55,227
8,128
—
8,128
$
6,854
11
6,865
$
6,990
1,274
(11)
1,263
$
57
4 %
6 %
4 %
3 %
0 %
2 %
5 %
114 %
79 %
102 %
64 %
130 %
98 %
105 %
0 %
(10)%
(1)%
(8)%
(5)%
(7)%
3 %
13 %
13 %
19 %
(100)%
18 %
Table of Contents
Other expenses. Our other expenses were $65,189,000 for the year ended December 31, 2016, as compared to
$54,670,000 for the year ended December 31, 2015, an increase of $10,519,000, or 19%. The primary components of other
expenses, net are detailed in the table below (in thousands):
General and administrative
Depreciation and amortization
Interest expense
Interest, dividend and other investment income
Total other expenses
Year Ended December 31,
Increase % Increase
2016
2015
(Decrease)
(Decrease)
$
$
23,922
$
20,312
$
22,457
19,239
(429)
65,189
$
19,761
14,910
(313)
54,670
$
3,610
2,696
4,329
(116)
10,519
18%
14%
29%
37%
19%
General and administrative. General and administrative expenses increased approximately $3,610,000, or 18%, for
the year ended December 31, 2016 as compared to 2015. The increase in general and administrative expenses included
increased share-based compensation costs of $2,908,000, increased salaries and benefits of $888,000 and increased other
expenses of $19,000 and was offset by decreased acquisition transaction expenses of $105,000 and decreased legal fees of
$100,000.
Total compensation recognized in earnings for share-based payments for the years ended December 31, 2016 and 2015
was $10.2 million and $7.3 million, respectively. Based on our current financial projections, we expect approximately 83% of
the unvested awards to vest over the next 27 months. As of December 31, 2016, there was approximately $5.9 million in
unrecognized compensation cost related to outstanding non-vested performance-based shares, which are expected to vest over a
period of 27 months, and approximately $4.5 million in unrecognized compensation cost related to outstanding non-vested
time-based shares, which are expected to be recognized over a period of approximately 12 months beginning on January 1,
2017.
We expect to record approximately $10.4 million in share-based compensation subsequent to the year ended
December 31, 2016. The unrecognized share-based compensation cost is expected to vest over a weighted average period of 18
months. The dilutive impact of the performance-based shares will be included in the denominator of the earnings per share
calculation beginning in the period that the performance conditions are expected to be met.
Depreciation and amortization. Depreciation and amortization increased $2,696,000, or 14%, for the year ended
December 31, 2016 as compared to 2015. Non-Same Store depreciation increased $1,805,000, Consolidated Partnership
depreciation decreased $134,000 and Same Store depreciation increased $827,000. The increase in Same Store depreciation is
attributable to redevelopment and re-tenanting investments. Depreciation on corporate assets and amortization of commission
costs increased $110,000.
Interest expense. Interest expense increased $4,329,000, or 29%, for the year ended December 31, 2016 as compared
to 2015. An increase in our average outstanding notes payable balance of $81,324,000 accounted for $2,533,000 in increased
interest expense, and an increase in our effective interest rate to 3.45% for the year ended December 31, 2016 as compared to
3.11% for the year ended December 31, 2015, resulting in a $1,754,000 increase in interest expense. Amortization of loan fees
increased interest expense by $42,000 for the year ended December 31, 2016 as compared to the year ended December 31,
2015.
Interest, dividend and other investment income. Interest, dividend and other investment income increased $116,000, or
37%, for the year ended December 31, 2016 as compared to 2015. During the year ended December 31, 2016, our interest
income increased $162,000, our gains on sales of investments in available-for-sale securities decreased $44,000 and our
dividend income decreased $2,000 as compared to the amounts realized during the year ended December 31, 2015.
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Discontinued operations. Discontinued operations are comprised of the of three office buildings known as Zeta,
Royal Crest and Featherwood, located in Houston, Texas. On December 31, 2014, we completed the sale of the three office
buildings for $10.3 million. As part of the transaction, we provided short-term seller financing of $2.5 million. We recorded a
gain on sale of $4.4 million, including recognizing a $1.9 million gain on sale for the year ended December 31, 2016 and
deferring the remaining $2.5 million gain on sale to be recognized upon receipt of principal payments on the financing
provided by us.
The primary components of discontinued operations are detailed in the table below (in thousands):
Property revenues
Rental revenues
Other revenues
Total property revenues
Property expenses
Property operation and maintenance
Real estate taxes
Total property expenses
Other expenses
Interest expense
Depreciation and amortization
Total other expense
Income before loss on disposal of assets and income taxes
Provision for income taxes
Gain on sale or disposal of property or assets in discontinued operations
Year Ended December 31,
2016
2015
$
— $
—
—
—
—
—
—
—
—
—
—
—
Income from discontinued operations
$
— $
51
—
51
41
—
41
—
—
—
10
—
1
11
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Reconciliation of Non-GAAP Financial Measures
Funds From Operations (“FFO”)
The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) available to
common shareholders computed in accordance with GAAP, excluding gains or losses from sales of operating real estate assets,
impairment charges on properties held for investment and extraordinary items, plus depreciation and amortization of operating
properties, including our share of unconsolidated real estate joint ventures and partnerships. We calculate FFO in a manner
consistent with the NAREIT definition.
Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain
limitations associated with using GAAP net income (loss) alone as the primary measure of our operating performance.
Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real
estate assets diminishes predictably over time. Because real estate values instead have historically risen or fallen with market
conditions, management believes that the presentation of operating results for real estate companies that use historical cost
accounting is insufficient by itself. In addition, securities analysts, investors and other interested parties use FFO as the
primary metric for comparing the relative performance of equity REITs.
FFO should not be considered as an alternative to net income or other measurements under GAAP, as an indicator of
our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO
does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.
Although our calculation of FFO is consistent with that of NAREIT, there can be no assurance that FFO presented by us is
comparable to similarly titled measures of other REITs.
FFO Core
Management believes that the computation of FFO in accordance with NAREIT's definition includes certain items that
are not indicative of the results provided by our operating portfolio and affect the comparability of our period-over-period
performance. These items include, but are not limited to, legal settlements, non-cash share-based compensation expense, rent
support agreement payments received from sellers on acquired assets, management fees from Pillarstone and acquisition costs.
Therefore, in addition to FFO, management uses FFO Core, which we define to exclude such items. Management believes that
these adjustments are appropriate in determining FFO Core as they are not indicative of the operating performance of our
assets. In addition, we believe that FFO Core is a useful supplemental measure for the investing community to use in
comparing us to other REITs as many REITs provide some form of adjusted or modified FFO. However, there can be no
assurance that FFO Core presented by us is comparable to the adjusted or modified FFO of other REITs.
Below are the calculations of FFO and FFO Core and the reconciliations to net income, which we believe is the most
comparable GAAP financial measure (in thousands):
FFO AND FFO CORE
Net income attributable to Whitestone REIT
Adjustments to reconcile to FFO:(1)
Depreciation and amortization of real estate assets (2)
Loss (gain) on disposal or sale of assets (2)
Net income attributable to redeemable operating partnership units (2)
FFO
Share-based compensation expense
Acquisition costs
FFO Core
(1)
(2)
Includes pro-rata share attributable to Pillarstone in 2017.
Includes amounts from discontinued operations.
Year Ended December 31,
2016
2015
2017
$
8,334
$
7,931
$
6,749
26,290
161
254
35,039
10,426
1,625
47,090
$
$
$
22,179
(3,261)
182
27,031
10,247
2,101
39,379
$
$
$
19,646
185
116
26,696
7,339
1,719
35,754
$
$
$
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Property Net Operating Income (“NOI”)
Management believes that NOI is a useful measure of our property operating performance. We define NOI as
operating revenues (rental and other revenues) less property and related expenses (property operation and maintenance and real
estate taxes). Other REITs may use different methodologies for calculating NOI and, accordingly, our NOI may not be
comparable to other REITs. Because NOI excludes general and administrative expenses, depreciation and amortization,
involuntary conversion, interest expense, interest income, provision for income taxes and gain or loss on sale or disposition of
assets, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly
associated with owning and operating commercial real estate properties and the impact to operations from trends in occupancy
rates, rental rates and operating costs, providing perspective not immediately apparent from net income. We use NOI to
evaluate our operating performance since NOI allows us to evaluate the impact that factors such as occupancy levels, lease
structure, lease rates and tenant base have on our results, margins and returns. In addition, management believes that NOI
provides useful information to the investment community about our property and operating performance when compared to
other REITs since NOI is generally recognized as a standard measure of property performance in the real estate industry.
However, NOI should not be viewed as a measure of our overall financial performance since it does not reflect general and
administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for
income taxes and gain or loss on sale or disposition of assets, the level of capital expenditures and leasing costs necessary to
maintain the operating performance of our properties.
Below is the calculation of NOI and the reconciliation to net income, which we believe is the most comparable GAAP
financial measure (in thousands):
PROPERTY NET OPERATING INCOME (“NOI”)
Net income attributable to Whitestone REIT
General and administrative expenses
Depreciation and amortization
Interest expense
Interest, dividend and other investment income
Provision for income taxes
Gain on sale of properties
Loss on sale or disposal of assets
Income from discontinued operations
Net income attributable to noncontrolling interests
NOI
Taxes
Year Ended December 31,
2017
2016
2015
$
8,334
$
7,931
$
6,749
23,949
27,240
23,651
(410)
386
(16)
183
—
532
23,922
22,457
19,239
(429)
289
(3,357)
96
—
197
20,312
19,761
14,910
(313)
372
—
185
(11)
116
$
83,849
$
70,345
$
62,081
We elected to be taxed as a REIT under the Code beginning with our taxable year ended December 31, 1999. As a
REIT, we generally are not subject to federal income tax on income that we distribute to our shareholders. If we fail to qualify
as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. We
believe that we are organized and operate in a manner to qualify and be taxed as a REIT, and we intend to operate so as to
remain qualified as a REIT for federal income tax purposes.
Inflation
We anticipate that the majority of our leases will continue to be triple-net leases or otherwise provide that tenants pay
for increases in operating expenses and will contain provisions that we believe will mitigate the effect of inflation. In addition,
many of our leases are for terms of less than five years, which allows us to adjust rental rates to reflect inflation and other
changing market conditions when the leases expire. Consequently, increases due to inflation, as well as ad valorem tax rate
increases, generally do not have a significant adverse effect upon our operating results.
Off-Balance Sheet Arrangements
We had no significant off-balance sheet arrangements as of December 31, 2017.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our future income, cash flows and fair value relevant to our financial instruments depend upon prevailing market
interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the
nature of our operations, we are not subject to foreign exchange rate or commodity price risk. The principal market risk to
which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations, and other factors that are beyond our control
contribute to interest rate risk. Our interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and
cash flows and to lower our overall borrowing costs. To achieve this objective, we manage our exposure to fluctuations in
market interest rates for our borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable
rates are obtainable.
All of our financial instruments were entered into for other than trading purposes.
Fixed Interest Rate Debt
As of December 31, 2017, $428.7 million, or approximately 65%, of our outstanding debt was subject to fixed interest
rates, which limit the risk of fluctuating interest rates. Though a change in the market interest rates affects the fair market
value, it does not impact net income to shareholders or cash flows. Our total outstanding fixed interest rate debt has an average
effective interest rate as of December 31, 2017 of approximately 3.81% per annum with expirations ranging from 2018 to 2027
(see Note 9 to our accompanying consolidated financial statements for further detail). Holding other variables constant, a 1%
increase or decrease in interest rates would cause a $17.0 million decline or increase, respectively, in the fair value for our fixed
rate debt.
Variable Interest Rate Debt
As of December 31, 2017, $232.2 million, or approximately 35%, of our outstanding debt was subject to floating
interest rates of LIBOR plus 1.40% to 1.95% and not currently subject to a hedge. The impact of a 1% increase or decrease in
interest rates on our floating rate debt would result in a decrease or increase, respectively, of annual net income of
approximately $2.3 million.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is incorporated by reference to our Financial Statements beginning on page
F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Annual Report on Form 10-K, as of December 31, 2017, an evaluation was
performed under the supervision and with the participation of the Company's management, including our Chief Executive
Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure
controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. In performing this evaluation, management
reviewed the selection, application and monitoring of our historical accounting policies. Based on that evaluation, the CEO and
CFO concluded that as of December 31, 2017, these disclosure controls and procedures were effective and designed to ensure
that the information required to be disclosed in our reports filed with the SEC is recorded, processed, summarized and reported
on a timely basis. In designing and evaluating disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives. Management is required to apply judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
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Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, we
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation under this framework, our management concluded that our internal control over financial reporting
was effective as of December 31, 2017.
The Company's independent registered public accounting firm has issued a report on the effectiveness of the
Company's internal control over financial reporting, which appears on page F-3 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no changes during the Company's quarter ended December 31, 2017, in the Company's internal
controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
Item 9B. Other Information.
None.
74
63
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PART III
Item 10. Trustees, Executive Officers and Corporate Governance.
The information required by Item 10 of Form 10-K is incorporated herein by reference to such information as set forth
in the definitive proxy statement for our 2018 Annual Meeting of Shareholders.
Item 11. Executive Compensation.
The information required by Item 11 of Form 10-K is incorporated herein by reference to such information as set forth
in the definitive proxy statement for our 2018 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The following table provides information regarding our equity compensation plans as of December 31, 2017:
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(a)
(b)
(c)
— (1) $
—
— $
—
—
—
868,815 (2)
— (3)
868,815
Plan Category
Equity compensation plans
approved by security
holders
Equity compensation plans
not approved by security
holders
Total
(1) Excludes 3,119,221 common shares subject to outstanding restricted common share units granted pursuant to our 2008
Long-Term Equity Incentive Ownership Plan, as amended (the “2008 Plan”).
(2) Pursuant to the 2008 Plan, the maximum aggregate number of common shares that may be issued under the 2008 Plan will
be increased upon each issuance of common shares by the Company so that at any time the maximum number of shares
that may be issued under the 2008 Plan shall equal 12.5% of the aggregate number of common shares of the Company and
OP units issued and outstanding (other than units issued to or held by the Company). At our annual meeting of
shareholders on May 11, 2017, our shareholders voted to approve the 2018 Long-Term Equity Incentive Ownership Plan
(the “2018 Plan”). The 2018 Plan provides for the issuance of up to 3,433,831 common shares and OP units pursuant to
awards under the 2018 Plan. The 2018 Plan will become effective on July 30, 2018, which is the day after the 2008 Plan
expires.
(3) Excludes 8,333 restricted common shares issued to trustees outside the 2008 Plan.
The remaining information required by Item 12 of Form 10-K is incorporated by reference to such information as set forth
in the definitive proxy statement for our 2018 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by Item 13 of Form 10-K is incorporated herein by reference to such information as set forth
in the definitive proxy statement for our 2018 Annual Meeting of Shareholders.
Item 14. Principal Accountant Fees and Services.
The information required by Item 14 of Form 10-K is incorporated herein by reference to such information as set forth
in the definitive proxy statement for our 2018 Annual Meeting of Shareholders.
64
75
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
1. Financial Statements. The list of our financial statements filed as part of this Annual Report on Form 10-K is set forth
on page F-1 herein.
78.
2. Financial Statement Schedules.
a. Schedule II - Valuation and Qualifying Accounts
b. Schedule III - Real Estate and Accumulated Depreciation
All other financial statement schedules have been omitted because the required information of such schedules
is not present, is not present in amounts sufficient to require a schedule or is included in the consolidated financial
statements.
3. Exhibits. The list of exhibits filed as part of this Annual Report on Form 10-K in response to Item 601 of Regulation S-
K is submitted on the Exhibit Index attached hereto and incorporated herein by reference.
Item 16. Form 10-K Summary.
None.
76
66
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WHITESTONE REIT
Date:
March 6, 2018
By:
/s/ James C. Mastandrea
James C. Mastandrea, Chairman and CEO
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and
appoints James C. Mastandrea and David K. Holeman, and each of them, acting individually, as his attorney-in-fact, each with
full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to
sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be
done in connection therewith and about the premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
March 6, 2018
/s/ James C. Mastandrea
James C. Mastandrea, Chairman and CEO
(Principal Executive Officer)
March 6, 2018
/s/ David K. Holeman
David K. Holeman, Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
March 6, 2018
March 6, 2018
March 6, 2018
March 6, 2018
March 6, 2018
March 6, 2018
/s/ Nandita Berry
Nandita Berry, Trustee
/s/ Donald F. Keating
Donald F. Keating, Trustee
/s/ Najeeb A. Khan
Najeeb A. Khan, Trustee
/s/ Paul T. Lambert
Paul T. Lambert, Trustee
/s/ Jack L. Mahaffey
Jack L. Mahaffey, Trustee
/s/ David F. Taylor
David F. Taylor, Trustee
73
77
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Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations and Comprehensive Income for the Years
Consolidated Statements of Operations and Comprehensive Income for the
Consolidated Statements of Operations and Comprehensive Income for the
Ended December 31, 2017, 2016 and 2015
Years Ended December 31, 2017, 2016 and 2015
Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended December 31,
Consolidated Statements of Changes in Equity for the Years Ended
2017, 2016 and 2015
December 31, 2017, 2016 and 2015
Consolidated Statements of Changes in Equity for the Years Ended
December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31,
2017, 2016 and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016
and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31,
2017, 2016 and 2015
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts
Schedule II – Valuation and Qualifying Accounts
Schedule III – Real Estate and Accumulated Depreciation
Schedule III – Real Estate and Accumulated Depreciation
Schedule III – Real Estate and Accumulated Depreciation
Page
79
81
83
85
87
90
113
114
Page
Page
F- 2
F- 2
F- 4
F- 4
F- 6
F- 6
F- 8
F- 8
F- 10
F- 10
F- 12
F- 12
F- 36
F- 36
F- 37
F- 37
All other schedules for which provision is made in the applicable accounting regulations of the Securities and
All other schedules for which provision is made in the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
78
F- 1
F- 1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Whitestone REIT
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Whitestone REIT and subsidiaries (the “Company”) as of
December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive income, changes in equity,
and cash flows for each of the years in the three year period ended December 31, 2017, including the related notes and schedules
(collectively referred to as the “Consolidated Financial Statements”). We also have audited the Company’s internal control over
financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the
three year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Also, in our opinion,
the related consolidated financial statement schedules, when considered in relation to the basic Consolidated Financial Statements
taken as a whole, present fairly, in all material respects, the information set forth therein. Lastly, in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control-Integrated Framework (2013) issued by COSO.
Basis for Opinion
The Company’s management is responsible for these Consolidated Financial Statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express an opinion on the Company’s Consolidated Financial Statements and an opinion on the Company’s
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the Consolidated Financial Statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the Consolidated Financial Statements included performing procedures to assess the risks of material misstatement
of the Consolidated Financial Statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Consolidated Financial
Statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the Consolidated Financial Statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
F- 2
79
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Pannell Kerr Forster of Texas, P.C.
We have served as the Company’s auditor since 2002.
Houston, Texas
March 6, 2018
80
F- 3
Table of Contents
Real estate assets, at cost
Property
Accumulated depreciation
Total real estate assets
Cash and cash equivalents
Restricted cash
Marketable securities
Escrows and acquisition deposits
Whitestone REIT and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS(1)
December 31,
2017
2016
$
1,149,454
(131,034)
1,018,420
7,817
205
32
10,104
23,504
8,422
3,228
920,310
(107,258)
813,052
4,168
56
517
6,620
19,951
8,083
2,762
1,071,732
$
855,209
$
$
$
Accrued rents and accounts receivable, net of allowance for doubtful accounts
Unamortized lease commissions and loan costs
Prepaid expenses and other assets
LIABILITIES AND EQUITY(2)
Total assets
Liabilities:
Notes payable
Accounts payable and accrued expenses
Tenants' security deposits
Dividends and distributions payable
Total liabilities
Commitments and contingencies:
Equity:
Preferred shares, $0.001 par value per share; 50,000,000 shares authorized;
none issued and outstanding as of December 31, 2017 and December 31,
2016, respectively
Common shares, $0.001 par value per share; 400,000,000 shares authorized;
39,221,773 and 29,468,563 issued and outstanding as of December 31, 2017
and December 31, 2016, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive gain
Total Whitestone REIT shareholders' equity
Noncontrolling interests:
Redeemable operating partnership units
Noncontrolling interest in Consolidated Partnership
Total noncontrolling interests
Total equity
Total liabilities and equity
659,068
$
35,995
6,885
11,466
713,414
—
—
38
521,314
(176,684)
2,936
347,604
10,800
(86)
10,714
358,318
$
1,071,732
$
See the accompanying notes to consolidated financial statements.
F- 4
544,020
28,692
6,125
8,729
587,566
—
—
29
396,494
(141,695)
859
255,687
11,941
15
11,956
267,643
855,209
81
Table of Contents
Whitestone REIT and Subsidiaries
CONSOLIDATED BALANCE SHEETS - Continued
(in thousands, except per share data)
(1) Assets of consolidated Variable Interest Entities included in the total assets above:
December 31,
2017
2016
Real estate assets, at cost
Property
Accumulated depreciation
Total real estate assets
Cash and cash equivalents
Escrows and acquisition deposits
Accrued rents and accounts receivable, net of allowance for doubtful accounts
Unamortized lease commissions and loan costs
Prepaid expenses and other assets
Total assets
$
$
95,146
(35,980)
59,166
2,812
2,188
2,364
1,265
65
92,338
(32,533)
59,805
1,236
2,274
2,313
1,150
82
$
67,860
$
66,860
(2) Liabilities of consolidated Variable Interest Entities included in the total liabilities above:
Notes payable
Accounts payable and accrued expenses
Tenants' security deposits
Total liabilities
$
$
48,840
$
3,494
1,191
53,525
$
50,001
3,481
996
54,478
See the accompanying notes to consolidated financial statements.
82
F- 5
Table of Contents
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Property revenues
Rental revenues
Other revenues
Total property revenues
Property expenses
Property operation and maintenance
Real estate taxes
Total property expenses
Other expenses (income)
General and administrative
Depreciation and amortization
Interest expense
Interest, dividend and other investment income
Total other expense
Income before gain (loss) on sale or disposal of properties or assets and income
taxes
Provision for income taxes
Gain on sale of properties
Loss on sale or disposal of assets
Income from continuing operations
Income from discontinued operations
Income from discontinued operations
Net income
Redeemable operating partnership units
Non-controlling interests in Consolidated Partnership
Less: Net income attributable to noncontrolling interests
Year Ended December 31,
2017
2016
2015
$
94,568
$
80,068
$
71,843
31,391
125,959
24,369
104,437
21,573
93,416
24,213
17,897
42,110
19,709
14,383
34,092
18,698
12,637
31,335
23,949
27,240
23,651
(410)
74,430
23,922
22,457
19,239
(429)
65,189
20,312
19,761
14,910
(313)
54,670
9,419
5,156
7,411
(386)
16
(183)
8,866
—
—
(289)
3,357
(96)
8,128
—
—
(372)
—
(185)
6,854
11
11
8,866
8,128
6,865
254
278
532
182
15
197
116
—
116
Net income attributable to Whitestone REIT
$
8,334
$
7,931
$
6,749
See the accompanying notes to consolidated financial statements.
F- 6
83
92,338
(32,533)
59,805
1,236
2,274
2,313
1,150
82
66,860
50,001
3,481
996
54,478
Table of Contents
Table of Contents
Table of Contents
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
CONSOLIDATED BALANCE SHEETS - Continued
(in thousands, except per share data)
Whitestone REIT and Subsidiaries
Basic Earnings Per Share:
Basic Earnings Per Share:
Real estate assets, at cost
(1) Assets of consolidated Variable Interest Entities included in the total assets above:
Year Ended December 31,
Year Ended December 31,
December 31,
2017
2017
2016
2016
2015
2017
2015
2016
Income from continuing operations attributable to Whitestone REIT excluding
Income from continuing operations attributable to Whitestone REIT excluding
Property
amounts attributable to unvested restricted shares
amounts attributable to unvested restricted shares
Accumulated depreciation
$
Income from discontinued operations attributable to Whitestone REIT
Income from discontinued operations attributable to Whitestone REIT
Net income attributable to common shareholders excluding amounts attributable to
Total real estate assets
Net income attributable to common shareholders excluding amounts attributable to
Cash and cash equivalents
$
unvested restricted shares
Diluted Earnings Per Share:
unvested restricted shares
Diluted Earnings Per Share:
Escrows and acquisition deposits
$
0.22
0.26
$
$
$
0.26
0.25
$
0.00
0.00
0.00
0.00
0.22
$
0.00
$
95,146
0.25
(35,980)
0.00
59,166
0.22
$
$
0.22
0.26
$
$
0.26
0.25
$
0.25
2,812
2,188
Income from continuing operations attributable to Whitestone REIT excluding
Income from continuing operations attributable to Whitestone REIT excluding
Accrued rents and accounts receivable, net of allowance for doubtful accounts
0.26
$
Unamortized lease commissions and loan costs
$
0.22
0.22
$
$
amounts attributable to unvested restricted shares
amounts attributable to unvested restricted shares
2,364
$
0.26
0.24
$
0.24
1,265
Income from discontinued operations attributable to Whitestone REIT
Prepaid expenses and other assets
Income from discontinued operations attributable to Whitestone REIT
0.00
0.00
0.00
0.00
0.00
0.00
65
Net income attributable to common shareholders excluding amounts attributable to
Net income attributable to common shareholders excluding amounts attributable to
$
unvested restricted shares
unvested restricted shares
Total assets
0.22
$
$
0.22
0.26
$
$
$
0.26
0.24
$
67,860
0.24
$
(2) Liabilities of consolidated Variable Interest Entities included in the total liabilities above:
Weighted average number of common shares outstanding:
Weighted average number of common shares outstanding:
Notes payable
Basic
Basic
Diluted
Diluted
Accounts payable and accrued expenses
Tenants' security deposits
35,428
35,428
27,618
$
24,631
27,618
36,255
36,255
28,383
28,383
25,683
48,840
24,631
25,683
3,494
1,191
$
$
Total liabilities
Distributions declared per common share / OP unit
Distributions declared per common share / OP unit
$
1.1400
$
$
1.1400
1.1400
$
$
1.1400
$
$
1.1400
53,525
1.1400
Consolidated Statements of Comprehensive Income
Consolidated Statements of Comprehensive Income
Net income
Net income
$
8,866
$
$
8,866
8,128
$
$
8,128
6,865
$
6,865
See the accompanying notes to consolidated financial statements.
Other comprehensive gain (loss)
Other comprehensive gain (loss)
Unrealized gain on cash flow hedging activities
Unrealized gain on cash flow hedging activities
Unrealized gain (loss) on available-for-sale marketable securities
Unrealized gain (loss) on available-for-sale marketable securities
2,022
2,022
929
118
118
82
929
82
46
(85)
46
(85)
Comprehensive income
Comprehensive income
11,006
11,006
9,139
9,139
6,826
6,826
Less: Net income attributable to noncontrolling interests
Less: Net income attributable to noncontrolling interests
Less: Comprehensive gain (loss) attributable to noncontrolling interests
Less: Comprehensive gain (loss) attributable to noncontrolling interests
532
63
532
197
63
23
197
23
116
(1)
116
(1)
Comprehensive income attributable to Whitestone REIT
Comprehensive income attributable to Whitestone REIT
$
10,411
$
$
10,411
8,919
$
$
8,919
6,711
$
6,711
See the accompanying notes to consolidated financial statements.
See the accompanying notes to consolidated financial statements.
84
F- 7
F- 7
F- 5
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Whitestone REIT and Subsidiaries
Table of Contents
Basic Earnings Per Share:
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share and unit data)
Year Ended December 31,
2017
2016
2015
Paid-in
Accumulated Comprehensive
Shareholders'
Partnership
Consolidated
Total
Income from continuing operations attributable to Whitestone REIT excluding
amounts attributable to unvested restricted shares
Income from discontinued operations attributable to Whitestone REIT
Net income attributable to common shareholders excluding amounts attributable to
Accumulated
unvested restricted shares
Diluted Earnings Per Share:
Common Shares
Additional
Other
Gain/(Loss)
Income from continuing operations attributable to Whitestone REIT excluding
Capital
amounts attributable to unvested restricted shares
Balance, December 31, 2014
$
Income from discontinued operations attributable to Whitestone REIT
Shares Amount
Exchange of noncontrolling
(93,938) $
304,078
Deficit
22,836
23
$
$
(91) $
Net income attributable to common shareholders excluding amounts attributable to
—
173
—
21
1
interest OP units for common
shares
unvested restricted shares
Issuance of common shares under
dividend reinvestment plan
Issuance of common shares, net
Issuance of OP units
Basic
Repurchase of common shares (1)
Diluted
Shared-based compensation
Distributions
7
—
95
(101)
478
—
—
—
—
(1,357)
7,337
—
of offering costs
Weighted average number of common shares outstanding:
3,750
—
49,645
—
—
4
Unrealized gain on change in fair
Distributions declared per common share / OP unit
—
value of cash flow hedge
—
—
Unrealized loss on change in fair
value of available-for sale
marketable securities
Consolidated Statements of Comprehensive Income
—
—
—
—
—
—
—
—
(29,706)
—
—
Net income
Balance, December 31, 2015
Net income
Exchange of noncontrolling
—
26,991
interest OP units for common
shares
15
Other comprehensive gain (loss)
9
Issuance of common shares under
dividend reinvestment plan
—
27
—
—
—
6,749
359,971
(116,895)
125
114
—
—
of offering costs
Issuance of common shares, net
Unrealized gain on cash flow hedging activities
—
Issuance of OP units
Unrealized gain (loss) on available-for-sale marketable securities
Repurchase of common shares (1)
—
(3,948)
30,012
2,064
(282)
—
—
—
—
—
2
Share-based compensation
Distributions
Comprehensive income
Unrealized gain on change in fair
value of cash flow hedge
671
—
—
—
—
—
10,231
—
—
—
(32,731)
—
Less: Net income attributable to noncontrolling interests
Unrealized gain on change in fair
value of available-for sale
marketable securities
Less: Comprehensive gain (loss) attributable to noncontrolling interests
Reallocation of ownership
—
—
—
—
percentage between parent and
subsidiary
Comprehensive income attributable to Whitestone REIT
—
—
—
—
(11)
—
—
7,931
Net income
—
—
—
—
—
—
45
(84)
—
(129)
—
—
—
—
—
—
—
908
80
—
—
859
$
0.22
0.00
$
Noncontrolling Interests
$
0.26
0.00
General
0.25
0.00
$
Total
Redeemable
$
Operating
0.22
0.26
Partner's
$
Interest in
0.25
Equity
$
210,072
$
174
95
49,649
Units
0.22
398
0.00
$
$
(21)
0.22
$
—
—
—
35,428
120
(1,357)
36,255
7,337
—
—
Dollars
Partnership
Equity
3,251
0.26
$
0.00
(174)
0.26
—
$
$
0.24
— $ 213,323
0.00
—
0.24
—
—
95
—
1,333
27,618
—
28,383
—
—
—
24,631
—
25,683
—
49,649
1,333
(1,357)
7,337
(29,706)
—
(509)
—
(30,215)
$
1.1400
45
—
$
1.1400
1
$
1.1400
—
46
(84)
6,749
—
—
(1)
116
—
—
(85)
6,865
242,974
$
497
8,866
$
4,017
8,128
$
—
6,865
246,991
125
114
(15)
(125)
—
—
—
—
30,014
2,022
—
—
929
—
(3,948)
10,231
621
118
—
—
(32,731)
11,006
—
908
—
532
80
63
—
(11)
$
7,931
10,411
—
—
8,738
82
—
—
—
46
(85)
—
—
9,139
(905)
21
197
23
2
—
6,826
—
—
116
(1)
—
$
11
8,919
182
$
—
6,711
15
—
114
30,014
8,738
(3,948)
10,231
(33,636)
929
82
—
8,128
Balance, December 31, 2016
29,468
29
396,494
(141,695)
255,687
1,103
11,941
15
267,643
See the accompanying notes to consolidated financial statements.
F- 7
F- 8
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Table of Contents
Table of Contents
Table of Contents
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share and unit data)
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share and unit data)
CONSOLIDATED BALANCE SHEETS - Continued
Whitestone REIT and Subsidiaries
(in thousands, except per share data)
Accumulated
Accumulated
Redeemable
Redeemable
2017
Partner's
Partner's
2016
Noncontrolling Interests
Noncontrolling Interests
December 31,
General
General
Additional
(1) Assets of consolidated Variable Interest Entities included in the total assets above:
Interest in
Additional
Consolidated
Accumulated Comprehensive
Accumulated Comprehensive
Shareholders'
Shareholders'
Consolidated
Partnership
Partnership
Interest in
Operating
Operating
Paid-in
Other
Other
Total
Total
Exchange of noncontrolling
Exchange of noncontrolling
interest OP units for common
shares
interest OP units for common
shares
Issuance of common shares under
Issuance of common shares under
dividend reinvestment plan
dividend reinvestment plan
Issuance of common shares -
Issuance of common shares -
ATM Program, net of offering
costs
ATM Program, net of offering
costs
Issuance of common shares -
Issuance of common shares -
overnight offering, net of
overnight offering, net of
offering costs
offering costs
Repurchase of common shares (1)
Repurchase of common shares (1)
Share-based compensation
Share-based compensation
Distributions
Distributions
Unrealized gain on change in fair
value of cash flow hedge
Unrealized gain on change in fair
value of cash flow hedge
Unrealized gain on change in fair
Unrealized gain on change in fair
value of available-for sale
value of available-for sale
marketable securities
marketable securities
Reallocation of ownership
Reallocation of ownership
percentage between parent and
subsidiary
percentage between parent and
subsidiary
Net income
Net income
Common Shares
Real estate assets, at cost
Common Shares
Paid-in
Shares Amount
Capital
Shares Amount
Property
Capital
Accumulated depreciation
Total real estate assets
19
—
—
19
206
206
Cash and cash equivalents
—
Escrows and acquisition deposits
127
127
—
9
9
Deficit
Deficit
Gain/(Loss)
Gain/(Loss)
Equity
Equity
Units
Units
Dollars
Dollars
$
—
—
—
—
—
—
—
—
206
206
(19)
(19)
(206)
(206)
127
127
—
—
—
—
Accrued rents and accounts receivable, net of allowance for doubtful accounts
1,324
1,324
1
1
18,516
18,516
Unamortized lease commissions and loan costs
—
—
—
—
18,517
18,517
—
—
—
—
Prepaid expenses and other assets
8
99,887
99,887
8,019
8,019
8
Total assets
(324)
(324)
—
—
(4,339)
(4,339)
—
—
—
—
—
—
—
—
99,895
99,895
(4,339)
(4,339)
—
—
—
—
$
—
—
—
—
Partnership
Partnership
95,146
$
(35,980)
59,166
—
—
Total
Total
Equity
Equity
92,338
(32,533)
59,805
—
—
2,812
2,188
2,364
1,265
65
67,860
1,236
2,274
2,313
1,150
82
66,860
—
—
127
127
—
—
18,517
18,517
—
—
$
—
—
99,895
99,895
(4,339)
(4,339)
10,410
10,410
(44,941)
(44,941)
707
707
—
—
—
10,410
—
(2) Liabilities of consolidated Variable Interest Entities included in the total liabilities above:
—
(43,323)
(43,323)
(43,323)
(43,323)
(1,239)
(1,239)
10,410
10,410
10,410
(379)
(379)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Notes payable
—
—
—
—
Accounts payable and accrued expenses
—
—
—
—
1,962
1,962
1,962
1,962
—
—
Tenants' security deposits
—
—
—
—
—
—
Total liabilities
—
—
115
115
115
115
—
—
$
$
60
60
48,840
$
—
—
3,494
1,191
53,525
—
—
$
3
3
50,001
2,022
2,022
3,481
996
118
118
54,478
—
—
—
—
—
—
—
—
13
13
—
—
—
—
8,334
8,334
—
—
—
—
13
13
8,334
8,334
—
—
—
—
(13)
(13)
254
254
—
—
278
278
—
—
8,866
8,866
Balance, December 31, 2017
Balance, December 31, 2017
39,222
39,222
$
$
38
38
$
$
521,314
521,314
$
$
$
$
10,800
See the accompanying notes to consolidated financial statements.
(176,684) $
(176,684) $
347,604
347,604
10,800
2,936
1,084
2,936
1,084
$
$
$
$
(86) $ 358,318
(86) $ 358,318
(1)
(1)
During the years ended December 31, 2017, 2016 and 2015, the Company acquired common shares held by employees who tendered owned common shares to satisfy the tax
withholding on the lapse of certain restrictions on restricted shares.
During the years ended December 31, 2017, 2016 and 2015, the Company acquired common shares held by employees who tendered owned common shares to satisfy the tax
withholding on the lapse of certain restrictions on restricted shares.
See the accompanying notes to consolidated financial statements.
See the accompanying notes to consolidated financial statements.
F- 9
F- 9
F- 5
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Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income from continuing operations
Net income from discontinued operations
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of deferred loan costs
Amortization of notes payable discount
Loss (gain) on sale of marketable securities
Loss (gain) on sale or disposal of assets and properties
Bad debt expense
Share-based compensation
Changes in operating assets and liabilities:
Escrows and acquisition deposits
Accrued rent and accounts receivable
Unamortized lease commissions
Prepaid expenses and other assets
Accounts payable and accrued expenses
Tenants' security deposits
Net cash provided by operating activities
Net cash provided by operating activities of discontinued operations
Cash flows from investing activities:
Acquisitions of real estate
Additions to real estate
Proceeds from sales of properties
Proceeds from sales of marketable securities
Net cash used in investing activities
Net cash used in investing activities of discontinued operations
Cash flows from financing activities:
Distributions paid to common shareholders
Distributions paid to OP unit holders
Distributions paid to noncontrolling interest in Consolidated Partnership
Proceeds from issuance of common shares, net of offering costs
Net proceeds from credit facility
Repayments of notes payable
Payments of loan origination costs
Change in restricted cash
Repurchase of common shares
Net cash provided by financing activities
Net cash provided by financing activities of discontinued operations
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year Ended December 31,
2017
2016
2015
$
8,866
$
8,128
$
6,854
—
8,866
27,240
1,283
508
91
167
2,340
10,410
(3,484)
(5,893)
(2,864)
536
999
760
—
8,128
22,457
1,554
391
—
(3,261)
1,585
10,231
48
(6,070)
(2,638)
1,047
4,837
871
11
6,865
19,761
1,212
295
(44)
185
1,974
7,337
(2,576)
(5,606)
(1,918)
394
7,419
882
40,959
39,180
36,169
—
—
11
(125,468)
(17,575)
26
513
(60,616)
(22,036)
6,897
—
(147,950)
(12,719)
—
496
(142,504)
(75,755)
(160,173)
—
—
—
(40,472)
(31,911)
(28,457)
(1,241)
(379)
118,412
45,600
(729)
—
30,014
59,000
(11,543)
(14,335)
(695)
(149)
(4,339)
105,194
—
3,649
4,168
—
65
(3,948)
38,156
—
1,581
2,587
$
7,817
$
4,168
$
(489)
—
49,649
107,500
(2,847)
(1,534)
(121)
(1,357)
122,344
—
(1,649)
4,236
2,587
87
See the accompanying notes to consolidated financial statements.
F- 10
Table of Contents
Table of Contents
Table of Contents
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental Disclosures
(in thousands)
Whitestone REIT and Subsidiaries
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED BALANCE SHEETS - Continued
Supplemental Disclosures
(in thousands, except per share data)
(in thousands)
Year Ended December 31,
Year Ended December 31,
December 31,
2015
2016
2017
2016
2017
2017
2015
2016
Supplemental disclosure of cash flow information:
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for interest
Real estate assets, at cost
(1) Assets of consolidated Variable Interest Entities included in the total assets above:
$
18,287
$
22,541
$
18,287
22,541
$
$
$
Cash paid for taxes
Cash paid for taxes
Property
$
$
337
$
337
$
Non cash investing and financing activities:
Non cash investing and financing activities:
Accumulated depreciation
Disposal of fully depreciated real estate
Disposal of fully depreciated real estate
Total real estate assets
Financed insurance premiums
Financed insurance premiums
Cash and cash equivalents
Value of shares issued under dividend reinvestment plan
Escrows and acquisition deposits
Value of shares issued under dividend reinvestment plan
$
$
$
$
$
$
Value of common shares exchanged for OP units
Value of common shares exchanged for OP units
Change in fair value of available-for-sale securities
Change in fair value of available-for-sale securities
$
Accrued rents and accounts receivable, net of allowance for doubtful accounts
$
$
$
Change in fair value of cash flow hedge
Change in fair value of cash flow hedge
Unamortized lease commissions and loan costs
Prepaid expenses and other assets
Acquisition of real estate in exchange for OP units
Acquisition of real estate in exchange for OP units
Total assets
Reallocation of ownership percentage between parent and subsidiary
Reallocation of ownership percentage between parent and subsidiary
1,060
284
$
284
95,146
(35,980)
690
$
690
59,166
1,060
$
2,812
114
$
114
2,188
125
$
125
2,364
82
$
82
1,265
929
$
929
65
8,738
$
67,860
11
$
11
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
13,470
13,470
315
315
92,338
(32,533)
59,805
57
57
1,057
1,057
95
95
174
174
85
85
(46)
(46)
1,236
2,274
2,313
1,150
82
1,333
1,333
66,860
—
—
—
—
— $
8,738
1,036
1,036
$
1,115
1,115
$
127
127
$
206
206
$
118
118
$
2,022
2,022
$
— $
$
13
13
$
$
$
$
$
$
$
Debt issued with acquisitions of real estate
Debt issued with acquisitions of real estate
(2) Liabilities of consolidated Variable Interest Entities included in the total liabilities above:
$
$
80,000
80,000
$
— $
— $
Notes payable
Accounts payable and accrued expenses
Tenants' security deposits
See the accompanying notes to consolidated financial statements.
See the accompanying notes to consolidated financial statements.
Total liabilities
$
$
48,840
$
3,494
1,191
53,525
$
50,001
3,481
996
54,478
See the accompanying notes to consolidated financial statements.
88
F- 5
F- 11
F- 11
Table of Contents
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Whitestone REIT (“Whitestone”) was formed as a real estate investment trust, pursuant to the Texas Real Estate
Investment Trust Act on August 20, 1998. In July 2004, we changed our state of organization from Texas to Maryland pursuant
to a merger where we merged directly with and into a Maryland real estate investment trust formed for the sole purpose of the
reorganization and the conversion of each of our outstanding common shares of beneficial interest of the Texas entity into
1.42857 common shares of beneficial interest of the Maryland entity. We serve as the general partner of Whitestone REIT
Operating Partnership, L.P. (the “Operating Partnership” or “WROP” or “OP”), which was formed on December 31, 1998 as a
Delaware limited partnership. We currently conduct substantially all of our operations and activities through the Operating
Partnership. As the general partner of the Operating Partnership, we have the exclusive power to manage and conduct the
business of the Operating Partnership, subject to certain customary exceptions. As of December 31, 2017, 2016 and 2015, we
owned or held a majority interest in 73, 69, and 70 commercial properties, respectively, in and around Austin, Chicago, Dallas-
Fort Worth, Houston, Phoenix and San Antonio.
These properties consist of:
Consolidated Operating Portfolio
•
•
51 wholly-owned properties that meet our Community Centered Properties® strategy; and
through our 81.4% majority interest in our consolidated subsidiary, Pillarstone Capital REIT Operating Partnership LP
(“Pillarstone”) an interest in 14 consolidated properties that do not meet our Community Centered Properties®
strategy.
Redevelopment, New Acquisitions Portfolio
•
•
two retail properties that meet our Community Centered Properties® strategy; and
six parcels of land held for future development.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. We are the sole general partner of the Operating Partnership and possess full legal control and
authority over the operations of the Operating Partnership. As of December 31, 2017, 2016 and 2015, we owned a majority of
the partnership interests in the Operating Partnership. Consequently, the accompanying consolidated financial statements
include the accounts of the Operating Partnership. We also consolidate a variable interest entity (“VIE”) when we are
determined to be the primary beneficiary. Determination of the primary beneficiary is based on whether an entity has (1) the
power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb
losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the
primary beneficiary considers all relationships between us and the VIE, including management and other contractual
agreements. See Note 5 for additional disclosure on our VIE.
Noncontrolling interest in the accompanying consolidated financial statements represents the share of equity and
earnings of the Operating Partnership allocable to holders of partnership interests other than us. Net income or loss is allocated
to noncontrolling interests based on the weighted-average percentage ownership of the Operating Partnership during the
year. Issuance of additional common shares of beneficial interest in Whitestone (the “common shares”) and units of limited
partnership interest in the Operating Partnership that are convertible into cash or, at our option, common shares on a one-for-
one basis (the “OP units”) changes the percentage of ownership interests of both the noncontrolling interests and Whitestone.
Basis of Accounting. Our financial records are maintained on the accrual basis of accounting whereby revenues are
recognized when earned and expenses are recorded when incurred.
F- 12
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Table of Contents
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates that we use include the estimated fair values of properties acquired, the
estimated useful lives for depreciable and amortizable assets and costs, the estimated allowance for doubtful accounts, the
estimated fair value of interest rate swaps and the estimates supporting our impairment analysis for the carrying values of our
real estate assets. Actual results could differ from those estimates.
Reclassifications. We have reclassified certain prior year amounts in the accompanying consolidated financial
statements in order to be consistent with the current fiscal year presentation. During 2016, we reclassified certain deferred
financing costs, previously classified as an asset as a direct reduction from the carrying amount of certain debt liabilities for all
periods presented. Deferred financing costs related to our unsecured line of credit have not been reclassified. See Note 9 for
additional information. These reclassifications had no effect on net income or equity.
Restricted Cash. We classify all cash pledged as collateral to secure certain obligations and all cash whose use is
limited as restricted cash. During 2015, pursuant to the terms of our $15.1 million 4.99% Note, due January 6, 2024, which is
collateralized by our Anthem Marketplace property, we were required by the lenders thereunder to establish a cash management
account controlled by the lenders to collect all amounts generated by our Anthem Marketplace property in order to collateralize
such promissory note. As a result, these amounts are reported in the consolidated statements of cash flows under cash flows
from financing activities.
Share-Based Compensation. From time to time, we award nonvested restricted common share awards or restricted
common share unit awards, which may be converted into common shares, to executive officers and employees under our 2008
Long-Term Equity Incentive Ownership Plan (the “2008 Plan”). The vast majority of the awarded shares and units vest when
certain performance conditions are met. We recognize compensation expense when achievement of the performance conditions
is probable based on management’s most recent estimates using the fair value of the shares as of the grant date. We recognized
$10.4 million, $10.2 million and $7.3 million in share-based compensation expense for the years ended December 31, 2017,
2016 and 2015, respectively.
Noncontrolling Interests. Noncontrolling interests are the portion of equity in a subsidiary not attributable to a
parent. The ownership interests not held by the parent are considered noncontrolling interests. Accordingly, we have reported
noncontrolling interests in equity on the consolidated balance sheets but separate from Whitestone’s equity. On the
consolidated statements of operations and comprehensive income, subsidiaries are reported at the consolidated amount,
including both the amount attributable to Whitestone and noncontrolling interests. Consolidated statements of changes in
equity are included for both quarterly and annual financial statements, including beginning balances, activity for the period and
ending balances for shareholders’ equity, noncontrolling interests and total equity.
Revenue Recognition. All leases on our properties are classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the related leases. Differences between rental income earned and amounts
due per the respective lease agreements are capitalized or charged, as applicable, to accrued rents and accounts
receivable. Percentage rents are recognized as rental income when the thresholds upon which they are based have been
met. Recoveries from tenants for taxes, insurance, and other operating expenses are recognized as revenues in the period the
corresponding costs are incurred. We have established an allowance for doubtful accounts against the portion of tenant
accounts receivable which is estimated to be uncollectible.
Cash and Cash Equivalents. We consider all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash and cash equivalents as of December 31, 2017 and 2016 consisted of demand
deposits at commercial banks and brokerage accounts. We may have net book credit balances in our primary disbursement
accounts at the end of a reporting period. We classify such credit balances as accounts payable in our consolidated balance
sheets as checks presented for payment to these accounts are not payable by our banks under overdraft arrangements, and,
therefore, do not represent short-term borrowings. As of December 31, 2017 and 2016, there were net book credit balances of
$0.8 million and $1.5 million, respectively, in our primary disbursement accounts that were classified as accounts payable on
our consolidated balance sheets.
90
F- 13
Table of Contents
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
Marketable Securities. We classify our existing marketable equity securities as available-for-sale in accordance with
the Financial Accounting Standards Board's (“FASB”) Investments-Debt and Equity Securities guidance. These securities are
carried at fair value with unrealized gains and losses reported in equity as a component of accumulated other comprehensive
income or loss. The fair value of the marketable securities is determined using Level 1 inputs under FASB Accounting
Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures.” Level 1 inputs represent quoted prices
available in an active market for identical investments as of the reporting date. Gains and losses on securities sold are based on
the specific identification method, and are reported as a component of interest, dividend and other investment income.
Real Estate
Development Properties. Land, buildings and improvements are recorded at cost. Expenditures related to the
development of real estate are carried at cost which includes capitalized carrying charges and development costs. Carrying
charges (interest and real estate taxes) are capitalized as part of construction in progress. The capitalization of such costs ceases
when the property, or any completed portion, becomes available for occupancy. For the year ended December 31, 2017,
approximately $439,000 and $277,000 in interest expense and real estate taxes, respectively, were capitalized. For the year
ended December 31, 2016, approximately $324,000 and $71,000 in interest expense and real estate taxes, respectively, were
capitalized. For the year ended December 31, 2015, approximately $106,000 and $69,000 in interest expense and real estate
taxes, respectively, were capitalized.
Acquired Properties and Acquired Lease Intangibles. We allocate the purchase price of the acquired properties to
land, building and improvements, identifiable intangible assets and to the acquired liabilities based on their respective fair
values at the time of purchase. Identifiable intangibles include amounts allocated to acquired out-of-market leases, the value of
in-place leases and customer relationship value, if any. We determine fair value based on estimated cash flow projections that
utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based
on a number of factors including the historical operating results, known trends and specific market and economic conditions
that may affect the property. Factors considered by management in our analysis of determining the as-if-vacant property value
include an estimate of carrying costs during the expected lease-up periods considering market conditions, and costs to execute
similar leases. In estimating carrying costs, management includes real estate taxes, insurance and estimates of lost rentals at
market rates during the expected lease-up periods, tenant demand and other economic conditions. Management also estimates
costs to execute similar leases including leasing commissions, tenant improvements, legal and other related expenses.
Intangibles related to out-of-market leases and in-place lease value are recorded as acquired lease intangibles and are amortized
as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases.
Premiums or discounts on acquired out-of-market debt are amortized to interest expense over the remaining term of such debt.
Depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 39 years
for improvements and buildings, respectively. Tenant improvements are depreciated using the straight-line method over the life
of the improvement or remaining term of the lease, whichever is shorter.
Impairment. We review our properties for impairment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of the assets, including accrued rental income, may not be recoverable through
operations. We determine whether an impairment in value has occurred by comparing the estimated future cash flows
(undiscounted and without interest charges), including the estimated residual value of the property, with the carrying cost of the
property. If impairment is indicated, a loss will be recorded for the amount by which the carrying value of the property exceeds
its fair value. Management has determined that there has been no impairment in the carrying value of our real estate assets as
of December 31, 2017.
Accrued Rents and Accounts Receivable. Included in accrued rent and accounts receivable are base rents, tenant
reimbursements and receivables attributable to recording rents on a straight-line basis. An allowance for the uncollectible
portion of accrued rents and accounts receivable is determined based upon customer credit-worthiness (including expected
recovery of our claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. As of
December 31, 2017 and 2016, we had an allowance for uncollectible accounts of $9.1 million and $7.3 million, respectively.
As of December 31, 2017, 2016 and 2015, we recorded bad debt expense in the amount of $2.3 million, $1.6 million and $2.0
million, respectively, related to tenant receivables that we specifically identified as potentially uncollectible based on our
assessment of each tenant’s credit-worthiness. Bad debt expenses and any related recoveries are included in property operation
and maintenance expense.
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Notes to Consolidated Financial Statements
December 31, 2017
Unamortized Lease Commissions and Loan Costs. Leasing commissions are amortized using the straight-line method
over the terms of the related lease agreements. Loan costs are amortized on the straight-line method over the terms of the
loans, which approximates the interest method. Costs allocated to in-place leases whose terms differ from market terms related
to acquired properties are amortized over the remaining life of the respective leases.
Prepaids and Other Assets. Prepaids and other assets include escrows established pursuant to certain mortgage
financing arrangements for real estate taxes and insurance and acquisition deposits which include earnest money deposits on
future acquisitions.
Federal Income Taxes. We elected to be taxed as a REIT under the Code beginning with our taxable year ended
December 31, 1999. As a REIT, we generally are not subject to federal income tax on income that we distribute to our
shareholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable
income at regular corporate rates. We believe that we are organized and operate in such a manner as to qualify to be taxed as a
REIT, and we intend to operate so as to remain qualified as a REIT for federal income tax purposes.
State Taxes. We are subject to the Texas Margin Tax, which is computed by applying the applicable tax rate (1% for
us) to the profit margin, which, generally, will be determined for us as total revenue less a 30% standard deduction. Although
the Texas Margin Tax is not considered an income tax, FASB ASC 740, “Income Taxes” (“ASC 740”) applies to the Texas
Margin Tax. As of December 31, 2017, 2016 and 2015, we recorded a margin tax provision of $0.4 million, $0.2 million and
$0.4 million, respectively.
Fair Value of Financial Instruments. Our financial instruments consist primarily of cash, cash equivalents, accounts
receivable, accounts and notes payable and investments in marketable securities. The carrying value of cash, cash equivalents,
accounts receivable and accounts payable are representative of their respective fair values due to their short-term nature. The
fair value of our long-term debt, consisting of fixed rate secured notes, variable rate secured notes and an unsecured revolving
credit facility aggregate to approximately $659.6 million and $540.0 million as compared to the book value of approximately
$660.9 million and $545.5 million as of December 31, 2017 and 2016, respectively. The fair value of our long-term debt is
estimated on a Level 2 basis (as provided by ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”)), using a
discounted cash flow analysis based on the borrowing rates currently available to us for loans with similar terms and maturities,
discounting the future contractual interest and principal payments.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of
December 31, 2017 and 2016. Although management is not aware of any factors that would significantly affect the fair value
amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31,
2017 and current estimates of fair value may differ significantly from the amounts presented herein.
Derivative Instruments and Hedging Activities. We occasionally utilize derivative financial instruments, principally
interest rate swaps, to manage our exposure to fluctuations in interest rates. We have established policies and procedures for
risk assessment, and the approval, reporting and monitoring of derivative financial instruments. We recognize our interest rate
swaps as cash flow hedges with the effective portion of the changes in fair value recorded in comprehensive income and
subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Any ineffective portion of a
cash flow hedge's change in fair value is recorded immediately into earnings. Our cash flow hedges are determined using Level
2 inputs under ASC 820. Level 2 inputs represent quoted prices in active markets for similar assets or liabilities; quoted prices
in markets that are not active; and model-derived valuations whose inputs are observable. As of December 31, 2017, we
consider our cash flow hedges to be highly effective.
Concentration of Risk. Substantially all of our revenues are obtained from office, warehouse and retail locations in the
Austin, Chicago, Dallas-Fort Worth, Houston, Phoenix and San Antonio metropolitan areas. We maintain cash accounts in
major U.S. financial institutions. The terms of these deposits are on demand to minimize risk. The balances of these accounts
sometimes exceed the federally insured limits, although no losses have been incurred in connection with these deposits.
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Notes to Consolidated Financial Statements
December 31, 2017
Recent Accounting Pronouncements. In May 2014, the FASB issued guidance, as amended in subsequent updates,
establishing a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers
and supersedes most of the existing revenue recognition guidance. The standard also requires an entity to recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. This guidance
became effective for the reporting periods beginning on or after December 15, 2017, and interim periods within those fiscal
years. We have adopted this guidance on a modified retrospective basis beginning January 1, 2018 and do not expect this
standard to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued guidance requiring lessees to recognize a lease liability and a right-of-use asset for
all leases. Lessor accounting will remain largely unchanged with the exception of changes related to costs which qualify as
initial direct costs. The guidance will also require new qualitative and quantitative disclosures to help financial statement users
better understand the timing, amount and uncertainty of cash flows arising from leases. This guidance will be effective for
reporting periods on or after December 15, 2018, with early adoption permitted. We will adopt this guidance on a modified
retrospective basis beginning January 1, 2019, and such adoption will result in certain costs (primarily legal costs related to
lease negotiations) being expensed rather than capitalized. We capitalized $436,000 in legal related costs for the year ended
December 31, 2017.
In March 2016, the FASB issued guidance simplifying the accounting for share-based payment transactions, including
the income tax consequences, balance sheet classification of awards and the classification on the statement of cash flows. We
have adopted this guidance as of January 1, 2017. The main provision regarding excess tax benefits did not have an impact on
our consolidated financial statements due to our status as a REIT for federal income tax purposes. We have elected to continue
estimating the number of shares expected to vest in order to determine compensation cost, and we will continue to classify cash
paid by us for employee taxes when common shares were repurchased to cover minimum statutory requirements under cash
flows from financing activities.
In November 2016, the FASB issued guidance requiring that the statement of cash flows explain the change during the
period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
This guidance became effective for the reporting periods beginning on or after December 15, 2017, and interim periods within
those fiscal years. We have adopted this guidance effective January 1, 2018, and we will reconcile cash and cash equivalents
and restricted cash and restricted cash equivalents on a retrospective basis, whereas under the previous guidance, we reported
restricted cash and restricted cash equivalents under cash flows from financing activities.
In January 2017, the FASB issued guidance clarifying the definition of a business with the objective of adding
guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or dispositions) of
assets or businesses. This guidance became effective for the reporting periods beginning on or after December 15, 2017, and
interim periods within those fiscal years. We have adopted this guidance on a prospective basis beginning January 1, 2018 and
believe the majority of our future acquisitions will qualify as asset acquisitions and the associated transaction costs will be
capitalized as opposed to expensed under previous guidance.
In February 2017, the FASB issued guidance clarifying the scope of asset derecognition guidance, adds guidance for
partial sales of nonfinancial assets and clarifies recognizing gains and losses from the transfer of nonfinancial assets in
contracts with noncustomers. This guidance became effective for the reporting periods beginning on or after December 15,
2017, and interim periods within those fiscal years. We have adopted this guidance on a modified retrospective basis beginning
January 1, 2018 and do not expect the adoption of this guidance to have a material impact on our consolidated financial
statements.
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Notes to Consolidated Financial Statements
December 31, 2017
3. MARKETABLE SECURITIES
All of our marketable securities were classified as available-for-sale securities as of December 31, 2017, 2016 and
2015. Available-for-sale securities consist of the following (in thousands):
December 31, 2017
Gains in
Accumulated
Other
Comprehensive
Income
Losses in
Accumulated
Other
Comprehensive
Income
Estimated Fair
Value
Amortized Cost
Real estate sector common stock
Total available-for-sale securities
$
$
50
50
$
$
— $
— $
(18) $
(18) $
32
32
December 31, 2016
Gains in
Accumulated
Other
Comprehensive
Income
Losses in
Accumulated
Other
Comprehensive
Income
Estimated Fair
Value
Amortized Cost
Real estate sector common stock
Total available-for-sale securities
$
$
654
654
$
$
— $
— $
(137) $
(137) $
517
517
During the years ended December 31, 2017 and 2015, available-for-sale securities were sold for total proceeds of
$513,000 and $496,000, respectively. The gross realized gains and losses on these sales totaled $5,000 and $96,000,
respectively, in 2017, and $44,000 and $0, respectively, in 2015. During the year ended December 31, 2016, no available-for-
sale securities were sold. For the purpose of determining gross realized gains and losses, the cost of securities sold is based on
specific identification. A net unrealized holding loss on available-for-sale securities in the amount of $18,000 and $137,000 for
the years ended December 31, 2017 and 2016, respectively, has been included in accumulated other comprehensive income.
4. REAL ESTATE
As of December 31, 2017, we owned or held a majority interest in 73 commercial properties in the Austin, Chicago,
Dallas-Fort Worth, Houston, Phoenix and San Antonio areas comprised of approximately 6.6 million square feet of gross
leasable area (“GLA”).
Property Acquisitions. On December 29, 2017, we acquired a 1.83 acre parcel of undeveloped land for $0.9 million in
cash and net prorations. The undeveloped land parcel is the hard corner at our Eldorado Plaza property.
On May 26, 2017, we acquired BLVD Place, a property that meets our Community Centered Property® strategy, for
$158.0 million, including $80.0 million of asset level mortgage financing and $78.0 million in cash and net prorations. BLVD
Place, a 216,944 square foot property, was 99% leased at the time of purchase and is located in Houston, Texas. Included in the
purchase of BLVD Place is approximately 1.43 acres of developable land. Revenue and net income attributable to BLVD Place
of $9.3 million and $5.1 million, respectively, have been included in our results of operations for the year ended December 31,
2017.
On May 3, 2017, we acquired Eldorado Plaza, a property that meets our Community Centered Property® strategy, for
$46.6 million in cash and net prorations. Eldorado Plaza, a 221,577 square foot property, was 96% leased at the time of
purchase and is located in McKinney, Texas, a suburb of Dallas, Texas. Revenue and net income attributable to Eldorado Plaza
of $3.0 million and $1.6 million, respectively, have been included in our results of operations for the year ended December 31,
2017.
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Notes to Consolidated Financial Statements
December 31, 2017
On September 30, 2016, we acquired La Mirada and Seville, properties that meet our Community Centered Property®
strategy, for 621,053 OP units and $60.7 million in cash and net prorations. The OP units are redeemable for cash or, at our
option, Whitestone REIT common shares on a one-for-one basis, subject to certain restrictions. La Mirada, a 147,209 square
foot property, was 90% leased at the time of purchase. Seville, a 90,042 square foot property, was 88% leased at the time of
purchase. Both properties are located in Scottsdale, Arizona.
On August 28, 2015, we acquired the hard corner at our Gilbert Tuscany Village property for approximately $1.7
million in cash and net prorations. The 14,603 square foot single-tenant property was vacant at the time of purchase and is
located in Gilbert, Arizona.
On August 26, 2015, we acquired two parcels of undeveloped land totaling 3.12 acres for 120,000 OP units. The OP
units, are convertible on a one-for-one basis for Whitestone REIT common shares, subject to certain restrictions. The
undeveloped land parcels are adjacent to our Keller Place property.
On August 26, 2015, we acquired Keller Place, a property that meets our Community Centered Property® strategy, for
approximately $12.0 million in cash and net prorations. The 93,541 square foot property was 92% leased at the time of
purchase and is located in the Keller suburb of Fort Worth, Texas.
On August 26, 2015, we acquired Quinlan Crossing, a property that meets our Community Centered Property®
strategy, for approximately $37.5 million in cash and net prorations. The 109,892 square foot property was 95% leased at the
time of purchase and is located in Austin, Texas.
On July 2, 2015, we acquired Parkside Village North, a property that meets our Community Centered Property®
strategy, for approximately $12.5 million in cash and net prorations. The 27,045 square foot property was 100% leased at the
time of purchase and is located in Austin, Texas.
On July 2, 2015, we acquired Parkside Village South, a property that meets our Community Centered Property®
strategy, for approximately $32.5 million in cash and net prorations. The 90,101 square foot property was 100% leased at the
time of purchase and is located in Austin, Texas.
On May 27, 2015, we acquired Davenport Village, a property that meets our Community Centered Property® strategy,
for approximately $45.5 million in cash and net prorations. The 128,934 square foot property was 85% leased at the time of
purchase and is located in Austin, Texas.
On March 31, 2015, we acquired City View Village, a property that meets our Community Centered Property®
strategy, for approximately $6.3 million in cash and net prorations. The 17,870 square foot property was 100% leased at the
time of purchase and is located in San Antonio, Texas.
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Notes to Consolidated Financial Statements
December 31, 2017
Unaudited pro forma results of operations. The following unaudited pro forma results summarized below reflect our
consolidated results of operations as if our acquisitions for the years ended December 31, 2017, 2016 and 2015 were acquired
on January 1, 2015. The unaudited consolidated pro forma results of operations is not necessarily indicative of what the actual
results of operations would have been, assuming the transactions had been completed as set forth above, nor do they purport to
represent our results of operations for future periods.
(in thousands, except per share data)
Total property revenues
Net income
Net income attributable to Whitestone REIT (1)
Basic Earnings Per Share:
Diluted Earnings Per Share:
Weighted-average common shares outstanding:
Basic (2)
Diluted (2)
Year Ended December 31,
2017
2016
2015
$
$
$
$
$
133,663
11,600
10,990
0.28
0.27
$
$
$
$
$
129,385
16,978
16,583
0.45
0.44
$
$
$
$
$
37,933
38,760
35,637
36,402
127,485
18,219
17,912
0.53
0.52
32,650
33,702
(1) Net income attributable to Whitestone REIT reflects historical ownership percentages and does not reflect the effects of the
April Offering (as defined in Note 14), assuming the sale of the common shares took place on January 1, 2015, as the
related impact on ownership percentage is minimal.
(2) Pro forma weighted averages reflect the April Offering, assuming the sale of the common shares took place on January 1,
2015.
Acquisition costs. Acquisition-related costs of $1.6 million, $2.1 million and $1.7 million are included in general and
administrative expenses in our income statements for the years ended December 31, 2017, 2016 and 2015, respectively.
Development properties. As of March 31, 2017, we had substantially completed construction at our Pinnacle of
Scottsdale Phase II property. As of December 31, 2017, we had incurred approximately $5,200,000 in construction costs,
including approximately $565,000 in previously capitalized interest and real estate taxes. The 27,063 square foot Community
Centered Property® was 91% leased at year end and is located in Scottsdale, Arizona, and adjacent to Pinnacle of Scottsdale.
As of December 31, 2016, we had substantially completed construction at our Shops at Starwood Phase III property.
As of December 31, 2017, we had incurred approximately $8.0 million in construction costs, including approximately $1.0
million in previously capitalized interest and real estate taxes. The 35,351 square foot Community Centered Property® was
71% leased at year end and is located in Frisco, Texas, a northern suburb of Dallas, Texas, and adjacent to Shops at Starwood.
Property dispositions. On November 29, 2016, we completed the sale of Centre South and Webster Pointe, located in
Houston, Texas, for $4.9 million. This disposition was pursuant to our strategy of recycling capital by disposing of Non-Core
Properties, primarily properties that we owned at the time our current management team assumed the management of the
Company, that do not fit our Community Centered Property® strategy. As part of the transaction, we provided short-term seller
financing of $1.7 million. We recorded a gain on sale of $2.2 million, including recognizing a $0.5 million gain on sale for the
year ended December 31, 2016 and deferring the remaining $1.7 million gain on sale to be recognized upon receipt of principal
payments on the financing provided by us. We have not included Centre South and Webster Pointe in discontinued operations
as the sale did not meet the definition of discontinued operations.
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Notes to Consolidated Financial Statements
December 31, 2017
On March 3, 2016, we completed the sale of Brookhill, located in Houston, Texas, for $3.1 million. This disposition
was pursuant to our strategy of recycling capital by disposing of Non-Core Properties, primarily properties that we owned at
the time our current management team assumed the management of the Company, that do not fit our Community Centered
Property® strategy. We recorded a gain on sale of $1.9 million. The sale was structured as a like-kind exchange within the
meaning of Section 1031 of the Code and sales proceeds were deposited into a Section 1031 exchange escrow account with a
qualified intermediary and subsequently distributed for general corporate purposes. We have not included Brookhill in
discontinued operations as it did not meet the definition of discontinued operations.
On February 17, 2016, we completed the sale of approximately 0.5 acres of our 4.5 acre Pinnacle Phase II
development parcel, located in Scottsdale, Arizona, for $1.1 million. We recorded a gain on sale of $1.0 million.
Involuntary conversion. On August 29, 2015, we experienced a fire at our Corporate Park Northwest property, located
in Houston, Texas. As a result, we recorded involuntary conversion losses of $447,000 related to the disposal of 11,268 square
feet of property and related improvements and $55,000 in demolition costs which were offset with $569,000 in insurance
proceeds. The $67,000 gain on conversion is included as a reduction in our loss on sale or disposal of assets in the consolidated
statements of operations and comprehensive income.
Hurricane Harvey. In August 2017, Hurricane Harvey impacted the South Texas region, including Houston, Texas.
The majority of our Houston properties incurred minor damage and as a result, we recorded approximately $0.5 million in
Harvey related repairs recorded in property operation and maintenance expense for the year ended December 31, 2017, with no
insurance recoveries expected.
5. VARIABLE INTEREST ENTITIES
On December 8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the
“Contribution Agreement”) with Pillarstone and Pillarstone Capital REIT (“Pillarstone REIT”) pursuant to which we
contributed all of the equity interests in four of our wholly-owned subsidiaries: Whitestone CP Woodland Ph. 2, LLC, a
Delaware limited liability company (“CP Woodland”); Whitestone Industrial-Office, LLC, a Texas limited liability company
(“Industrial-Office”); Whitestone Offices, LLC, a Texas limited liability company (“Whitestone Offices”); and Whitestone
Uptown Tower, LLC, a Delaware limited liability company (“Uptown Tower”, and together with CP Woodland, Industrial-
Office and Whitestone Offices, the “Entities”) that own 14 Non-Core Properties that do not fit our Community Centered
Property® strategy, to Pillarstone for aggregate consideration of approximately $84.0 million, consisting of (1) approximately
18.1 million Class A units representing limited partnership interests in Pillarstone (“Pillarstone OP Units”), issued at a price of
$1.331 per Pillarstone OP Unit; and (2) the assumption of approximately $65.9 million of liabilities, consisting of (a)
approximately $15.5 million of our liability under the 2014 Facility (as defined in Note 9); (b) an approximately $16.3 million
promissory note of Uptown Tower under the Loan Agreement, dated as of September 26, 2013, between Uptown Tower, as
borrower, and U.S. Bank, National Association, as successor to Morgan Stanley Mortgage Capital Holdings LLC, as lender; and
(c) an approximately $34.1 million promissory note (the “Industrial-Office Promissory Note”) of Industrial-Office issued under
the Loan Agreement, dated as of November 26, 2013 (the “Industrial-Office Loan Agreement”), between Industrial-Office, as
borrower, and Jackson National Life Insurance Company, as lender (collectively, the “Contribution”).
In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into an OP Unit
Purchase Agreement (the “OP Unit Purchase Agreement”) with Pillarstone REIT and Pillarstone pursuant to which the
Operating Partnership agreed to purchase up to an aggregate of $3.0 million of Pillarstone OP Units at a price of $1.331 per
Pillarstone OP Unit over the two-year term of the OP Unit Purchase Agreement on the terms set forth therein. The OP Unit
Purchase Agreement contains customary closing conditions and the parties have made certain customary representations,
warranties and indemnifications to each other in the OP Unit Purchase Agreement. In addition, pursuant to the OP Unit
Purchase Agreement, in the event of a Change of Control (as defined therein) of the Company, Pillarstone shall have the right,
but not the obligation, to repurchase the Pillarstone OP Units issued thereunder from the Operating Partnership at their initial
issue price of $1.331 per Pillarstone OP Unit.
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WHITESTONE REIT AND SUBSIDIARIES
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017
December 31, 2017
WHITESTONE REIT AND SUBSIDIARIES
December 31, 2017
Notes to Consolidated Financial Statements
December 31, 2017
In connection with the Contribution, (1) with respect to each Non-Core Property (other than Uptown Tower),
In connection with the Contribution, (1) with respect to each Non-Core Property (other than Uptown Tower),
In connection with the Contribution, (1) with respect to each Non-Core Property (other than Uptown Tower),
Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a Management Agreement with the
Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a Management Agreement with the
Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a Management Agreement with the
Entity that owns such Non-Core Property and (2) with respect to Uptown Tower, Whitestone TRS entered into a Management
Entity that owns such Non-Core Property and (2) with respect to Uptown Tower, Whitestone TRS entered into a Management
In connection with the Contribution, (1) with respect to each Non-Core Property (other than Uptown Tower),
Entity that owns such Non-Core Property and (2) with respect to Uptown Tower, Whitestone TRS entered into a Management
Agreement with Pillarstone (collectively, the “Management Agreements”). Pursuant to the Management Agreements with
Agreement with Pillarstone (collectively, the “Management Agreements”). Pursuant to the Management Agreements with
Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered into a Management Agreement with the
Agreement with Pillarstone (collectively, the “Management Agreements”). Pursuant to the Management Agreements with
respect to each Non-Core Property (other than Uptown Tower), Whitestone TRS agreed to provide certain property
respect to each Non-Core Property (other than Uptown Tower), Whitestone TRS agreed to provide certain property
Entity that owns such Non-Core Property and (2) with respect to Uptown Tower, Whitestone TRS entered into a Management
respect to each Non-Core Property (other than Uptown Tower), Whitestone TRS agreed to provide certain property
management, leasing and day-to-day advisory and administrative services to such Non-Core Property in exchange for (x) a
management, leasing and day-to-day advisory and administrative services to such Non-Core Property in exchange for (x) a
Agreement with Pillarstone (collectively, the “Management Agreements”). Pursuant to the Management Agreements with
management, leasing and day-to-day advisory and administrative services to such Non-Core Property in exchange for (x) a
monthly property management fee equal to 5.0% of the monthly revenues of such Non-Core Property and (y) a monthly asset
monthly property management fee equal to 5.0% of the monthly revenues of such Non-Core Property and (y) a monthly asset
respect to each Non-Core Property (other than Uptown Tower), Whitestone TRS agreed to provide certain property
monthly property management fee equal to 5.0% of the monthly revenues of such Non-Core Property and (y) a monthly asset
management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the
management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the
management, leasing and day-to-day advisory and administrative services to such Non-Core Property in exchange for (x) a
management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the
respective Non-Core Property based upon the purchase price allocations determined pursuant to the Contribution Agreement,
respective Non-Core Property based upon the purchase price allocations determined pursuant to the Contribution Agreement,
monthly property management fee equal to 5.0% of the monthly revenues of such Non-Core Property and (y) a monthly asset
respective Non-Core Property based upon the purchase price allocations determined pursuant to the Contribution Agreement,
excluding all indebtedness, liabilities or claims of any nature) of such Non-Core Property. Pursuant to the Management
excluding all indebtedness, liabilities or claims of any nature) of such Non-Core Property. Pursuant to the Management
management fee equal to 0.125% of GAV (as defined in each Management Agreement as, generally, the purchase price of the
excluding all indebtedness, liabilities or claims of any nature) of such Non-Core Property. Pursuant to the Management
Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-
Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-
respective Non-Core Property based upon the purchase price allocations determined pursuant to the Contribution Agreement,
Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-
day advisory and administrative services to Pillarstone in exchange for (x) a monthly property management fee equal to 3.0%
day advisory and administrative services to Pillarstone in exchange for (x) a monthly property management fee equal to 3.0%
excluding all indebtedness, liabilities or claims of any nature) of such Non-Core Property. Pursuant to the Management
day advisory and administrative services to Pillarstone in exchange for (x) a monthly property management fee equal to 3.0%
of the monthly revenues of Uptown Tower and (y) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower.
of the monthly revenues of Uptown Tower and (y) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower.
Agreement with respect to Uptown Tower, Whitestone TRS agreed to provide certain property management, leasing and day-to-
of the monthly revenues of Uptown Tower and (y) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower.
day advisory and administrative services to Pillarstone in exchange for (x) a monthly property management fee equal to 3.0%
As of December 31, 2017, we owned approximately 81.4% of the total outstanding units of Pillarstone. Additionally,
As of December 31, 2017, we owned approximately 81.4% of the total outstanding units of Pillarstone. Additionally,
of the monthly revenues of Uptown Tower and (y) a monthly asset management fee equal to 0.125% of GAV of Uptown Tower.
As of December 31, 2017, we owned approximately 81.4% of the total outstanding units of Pillarstone. Additionally,
certain of our Named Executive Officers and Trustees serve as Officers and Trustees of Pillarstone REIT. We have determined
certain of our Named Executive Officers and Trustees serve as Officers and Trustees of Pillarstone REIT. We have determined
certain of our Named Executive Officers and Trustees serve as Officers and Trustees of Pillarstone REIT. We have determined
that we are the primary beneficiary of Pillarstone, through our power to direct the activities of Pillarstone, additional working
that we are the primary beneficiary of Pillarstone, through our power to direct the activities of Pillarstone, additional working
As of December 31, 2017, we owned approximately 81.4% of the total outstanding units of Pillarstone. Additionally,
that we are the primary beneficiary of Pillarstone, through our power to direct the activities of Pillarstone, additional working
capital required by Pillarstone under the OP Unit Purchase Agreement and our obligation to absorb losses and receive benefits
capital required by Pillarstone under the OP Unit Purchase Agreement and our obligation to absorb losses and receive benefits
certain of our Named Executive Officers and Trustees serve as Officers and Trustees of Pillarstone REIT. We have determined
capital required by Pillarstone under the OP Unit Purchase Agreement and our obligation to absorb losses and receive benefits
based on our ownership percentage. Accordingly, we account for Pillarstone as a VIE and fully consolidate in our consolidated
based on our ownership percentage. Accordingly, we account for Pillarstone as a VIE and fully consolidate in our consolidated
that we are the primary beneficiary of Pillarstone, through our power to direct the activities of Pillarstone, additional working
based on our ownership percentage. Accordingly, we account for Pillarstone as a VIE and fully consolidate in our consolidated
financial statements.
financial statements.
capital required by Pillarstone under the OP Unit Purchase Agreement and our obligation to absorb losses and receive benefits
financial statements.
based on our ownership percentage. Accordingly, we account for Pillarstone as a VIE and fully consolidate in our consolidated
financial statements.
sheets as of December 31, 2017 and 2016, consists of the following (in thousands):
sheets as of December 31, 2017 and 2016, consists of the following (in thousands):
sheets as of December 31, 2017 and 2016, consists of the following (in thousands):
The carrying amounts and classification of certain assets and liabilities for Pillarstone in our consolidated balance
The carrying amounts and classification of certain assets and liabilities for Pillarstone in our consolidated balance
The carrying amounts and classification of certain assets and liabilities for Pillarstone in our consolidated balance
The carrying amounts and classification of certain assets and liabilities for Pillarstone in our consolidated balance
sheets as of December 31, 2017 and 2016, consists of the following (in thousands):
Real estate assets, at cost
Real estate assets, at cost
Real estate assets, at cost
Property
Property
Property
Accumulated depreciation
Real estate assets, at cost
Accumulated depreciation
Accumulated depreciation
Total real estate assets
Property
Total real estate assets
Total real estate assets
Cash and cash equivalents
Accumulated depreciation
Cash and cash equivalents
Cash and cash equivalents
Escrows and acquisition deposits
Total real estate assets
Escrows and acquisition deposits
Escrows and acquisition deposits
Accrued rents and accounts receivable, net of allowance for doubtful accounts(1)
Cash and cash equivalents
Accrued rents and accounts receivable, net of allowance for doubtful accounts(1)
Accrued rents and accounts receivable, net of allowance for doubtful accounts(1)
Unamortized lease commissions and loan costs
Escrows and acquisition deposits
Unamortized lease commissions and loan costs
Unamortized lease commissions and loan costs
Prepaid expenses and other assets(2)
Accrued rents and accounts receivable, net of allowance for doubtful accounts(1)
Prepaid expenses and other assets(2)
Prepaid expenses and other assets(2)
Unamortized lease commissions and loan costs
Prepaid expenses and other assets(2)
Liabilities
Liabilities
Liabilities
Total assets
Notes payable(3)
Notes payable(3)
Notes payable(3)
Accounts payable and accrued expenses(4)
Liabilities
Accounts payable and accrued expenses(4)
Accounts payable and accrued expenses(4)
Notes payable(3)
Tenants' security deposits
Tenants' security deposits
Tenants' security deposits
Accounts payable and accrued expenses(4)
Total liabilities
Total liabilities
Total liabilities
Tenants' security deposits
Total assets
Total assets
Total assets
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
December 31,
December 31,
December 31,
December 31,
2016
2016
2016
2017
2017
2017
2017
95,146
95,146
95,146
(35,980)
(35,980)
(35,980)
59,166
95,146
59,166
59,166
2,812
(35,980)
2,812
2,812
2,188
59,166
2,188
2,188
2,364
2,812
2,364
2,364
1,265
2,188
1,265
1,265
65
2,364
65
65
67,860
1,265
67,860
67,860
65
67,860
48,840
48,840
48,840
3,494
3,494
3,494
1,191
48,840
1,191
1,191
53,525
3,494
53,525
53,525
1,191
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2016
92,338
92,338
92,338
(32,533)
(32,533)
(32,533)
59,805
92,338
59,805
59,805
1,236
(32,533)
1,236
1,236
2,274
59,805
2,274
2,274
2,313
1,236
2,313
2,313
1,150
2,274
1,150
1,150
82
2,313
82
82
66,860
1,150
66,860
66,860
82
66,860
50,001
50,001
50,001
3,481
3,481
3,481
996
50,001
996
996
54,478
3,481
54,478
54,478
996
54,478
Table of Contents
(1) Excludes approximately $1.3 million and $0.5 million in accounts receivable due from Whitestone that were
Total liabilities
(1) Excludes approximately $1.3 million and $0.5 million in accounts receivable due from Whitestone that were
(1) Excludes approximately $1.3 million and $0.5 million in accounts receivable due from Whitestone that were
$
eliminated in consolidation as of December 31, 2017 and 2016, respectively.
eliminated in consolidation as of December 31, 2017 and 2016, respectively.
eliminated in consolidation as of December 31, 2017 and 2016, respectively.
eliminated in consolidation as of December 31, 2017 and 2016, respectively.
as of December 31, 2016.
as of December 31, 2016.
as of December 31, 2016.
(1) Excludes approximately $1.3 million and $0.5 million in accounts receivable due from Whitestone that were
(2) Excludes approximately $0.9 million in prepaid expenses due from Whitestone that were eliminated in consolidation
WHITESTONE REIT AND SUBSIDIARIES
(2) Excludes approximately $0.9 million in prepaid expenses due from Whitestone that were eliminated in consolidation
(2) Excludes approximately $0.9 million in prepaid expenses due from Whitestone that were eliminated in consolidation
Notes to Consolidated Financial Statements
December 31, 2017
(2) Excludes approximately $0.9 million in prepaid expenses due from Whitestone that were eliminated in consolidation
(3) Excludes approximately $15.5 million and $15.5 million in notes payable due to Whitestone that were eliminated in
(3) Excludes approximately $15.5 million and $15.5 million in notes payable due to Whitestone that were eliminated in
(3) Excludes approximately $15.5 million and $15.5 million in notes payable due to Whitestone that were eliminated in
as of December 31, 2016.
consolidation as of December 31, 2017 and 2016, respectively.
consolidation as of December 31, 2017 and 2016, respectively.
consolidation as of December 31, 2017 and 2016, respectively.
(3) Excludes approximately $15.5 million and $15.5 million in notes payable due to Whitestone that were eliminated in
F- 21
(4) Excludes approximately $1.0 million and $0.3 million in accounts payable due to Whitestone that were eliminated in
F- 21
F- 21
consolidation as of December 31, 2017 and 2016, respectively.
consolidation as of December 31, 2017 and 2016, respectively.
53,525
$
98
6. ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET
F- 21
Accrued rents and accounts receivable, net, consists of amounts accrued, billed and due from tenants, allowance for
doubtful accounts and other receivables as follows (in thousands):
December 31,
2017
2016
$
$
15,124
$
17,527
(9,147)
23,504
$
12,972
14,237
(7,258)
19,951
December 31,
2017
2016
$
10,797
$
436
4,071
15,304
(4,753)
(66)
(2,063)
$
8,422
$
8,720
—
4,071
12,791
(3,597)
—
(1,111)
8,083
2,450
1,714
1,480
1,114
827
837
8,422
Tenant receivables
Accrued rents and other recoveries
Allowance for doubtful accounts
Totals
7. UNAMORTIZED LEASE COMMISSIONS AND LOAN COSTS
Costs which have been deferred consist of the following (in thousands):
Leasing commissions
Deferred legal cost
Deferred financing cost
Total cost
Less: leasing commissions accumulated amortization
Less: deferred legal cost accumulated amortization
Less: deferred financing cost accumulated amortization
Total cost, net of accumulated amortization
A summary of expected future amortization of deferred costs is as follows (in thousands):
Years Ended December 31,
2018
2019
2020
2021
2022
Thereafter
Total
Leasing
Commissions
Deferred
Legal Costs
Deferred
Financing
Costs
Total
$
1,516
$
$
$
1,276
1,065
835
602
750
79
69
56
44
35
87
855
369
359
235
190
—
$
6,044
$
370
$
2,008
$
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Table of Contents
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Excludes approximately $1.0 million and $0.3 million in accounts payable due to Whitestone that were eliminated in
December 31, 2017
consolidation as of December 31, 2017 and 2016, respectively.
6. ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET
(4) Excludes approximately $1.0 million and $0.3 million in accounts payable due to Whitestone that were eliminated in
Accrued rents and accounts receivable, net, consists of amounts accrued, billed and due from tenants, allowance for
consolidation as of December 31, 2017 and 2016, respectively.
doubtful accounts and other receivables as follows (in thousands):
6. ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET
December 31,
Accrued rents and accounts receivable, net, consists of amounts accrued, billed and due from tenants, allowance for
2017
2016
Tenant receivables
doubtful accounts and other receivables as follows (in thousands):
Accrued rents and other recoveries
Allowance for doubtful accounts
Totals
Tenant receivables
Accrued rents and other recoveries
7. UNAMORTIZED LEASE COMMISSIONS AND LOAN COSTS
Allowance for doubtful accounts
Totals
Costs which have been deferred consist of the following (in thousands):
7. UNAMORTIZED LEASE COMMISSIONS AND LOAN COSTS
Costs which have been deferred consist of the following (in thousands):
Leasing commissions
Deferred legal cost
Deferred financing cost
Total cost
Leasing commissions
Less: leasing commissions accumulated amortization
Deferred legal cost
Less: deferred legal cost accumulated amortization
Deferred financing cost
Less: deferred financing cost accumulated amortization
Total cost
Total cost, net of accumulated amortization
Less: leasing commissions accumulated amortization
$
$
$
$
$
$
$
Less: deferred legal cost accumulated amortization
A summary of expected future amortization of deferred costs is as follows (in thousands):
Less: deferred financing cost accumulated amortization
Total cost, net of accumulated amortization
$
A summary of expected future amortization of deferred costs is as follows (in thousands):
Years Ended December 31,
Leasing
Commissions
Deferred
Legal Costs
2017
15,124
$
17,527
December 31,
(9,147)
23,504
15,124
$
$
17,527
(9,147)
23,504
$
2016
December 31,
2017
2016
10,797
$
436
December 31,
4,071
2017
2016
$
$
15,304
10,797
(4,753)
436
(66)
4,071
(2,063)
15,304
8,422
(4,753)
(66)
(2,063)
8,422
$
Deferred
Financing
Costs
12,972
14,237
(7,258)
19,951
12,972
14,237
(7,258)
19,951
8,720
—
4,071
12,791
8,720
(3,597)
—
—
4,071
(1,111)
12,791
8,083
(3,597)
—
(1,111)
8,083
Years Ended December 31,
2018
2019
2020
2021
2018
2022
2019
Thereafter
2020
Total
2021
2022
Thereafter
Total
$
1,516
$
1,276
79
69
$
Leasing
1,065
Commissions
835
1,516
602
1,276
750
1,065
6,044
835
$
Deferred
56
Legal Costs
44
79
35
69
87
56
370
44
$
$
$
$
$
855
$
369
Deferred
Financing
Costs
359
235
855
190
369
—
359
2,008
235
$
$
Total
2,450
1,714
Total
1,480
1,114
2,450
827
1,714
837
1,480
8,422
1,114
602
750
35
87
190
—
$
6,044
$
370
$
2,008
$
827
837
8,422
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
8. FUTURE MINIMUM LEASE INCOME
We lease the majority of our properties under noncancelable operating leases, which provide for minimum base rents
plus, in some instances, contingent rents based upon a percentage of the tenants’ gross receipts. A summary of minimum future
rents to be received (exclusive of renewals, tenant reimbursements, and contingent rents) under noncancelable operating leases
in existence as of December 31, 2017 is as follows (in thousands):
Years Ended December 31,
2018
2019
2020
2021
2022
Thereafter
Total
9. DEBT
Minimum Future
Rents
$
$
91,716
79,580
65,752
52,117
39,386
147,748
476,299
Mortgages and other notes payable consist of the following (in thousands):
Description
Fixed rate notes
$10.5 million, LIBOR plus 2.00% Note, due September 24, 2018 (1)
$50.0 million, 1.75% plus 1.35% to 1.90% Note, due October 30, 2020 (2)
$50.0 million, 1.50% plus 1.35% to 1.90% Note, due January 29, 2021 (3)
$100.0 million, 1.73% plus 1.65% to 2.25% Note, due October 30, 2022 (4)
$80.0 million, 3.72% Note, due June 1, 2027
$37.0 million 3.76% Note, due December 1, 2020 (5)
$6.5 million 3.80% Note, due January 1, 2019
$19.0 million 4.15% Note, due December 1, 2024
$20.2 million 4.28% Note, due June 6, 2023
$14.0 million 4.34% Note, due September 11, 2024
$14.3 million 4.34% Note, due September 11, 2024
$16.5 million 4.97% Note, due September 26, 2023 (5)
$15.1 million 4.99% Note, due January 6, 2024
$9.2 million, Prime Rate less 2.00% Note, due December 29, 2017 (6)
$2.6 million 5.46% Note, due October 1, 2023
Floating rate notes
Unsecured line of credit, LIBOR plus 1.40% to 1.95%, due October 30,
2019 (7)
Total notes payable principal
Less deferred financing costs, net of accumulated amortization
$
$
December 31,
2017
2016
$
9,740
50,000
50,000
100,000
80,000
33,148
5,842
19,000
19,360
13,944
14,300
16,058
14,865
—
2,472
232,200
660,929
(1,861)
659,068
$
9,980
50,000
50,000
100,000
—
34,166
6,019
19,000
19,708
14,000
14,300
16,298
15,060
7,869
2,512
186,600
545,512
(1,492)
544,020
(1) Promissory note includes an interest rate swap that fixed the interest rate at 3.55% for the duration of the term.
100
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
(2) Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 1 (as defined below) at 0.84%
through February 3, 2017 and 1.75% beginning February 3, 2017 through October 30, 2020.
(3) Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 2 (as defined below) at 1.50%.
(4) Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 3 (as defined below) at 1.73%.
(5) Promissory notes were assumed by Pillarstone in December 2016 (see Note 5).
(6) Promissory note includes an interest rate swap that fixed the interest rate at 5.72% for the duration of the term. As part of
our acquisition of Paradise Plaza in August 2012, we recorded a discount on the note of $1.3 million, which amortizes into
interest expense over the life of the loan and results in an imputed interest rate of 4.13%.
(7) Unsecured line of credit includes certain Pillarstone Properties.
Our mortgage debt was collateralized by 20 operating properties as of December 31, 2017 with a combined net book
value of $340.6 million and 19 operating properties as of December 31, 2016 with a combined net book value of $189.4
million. Our loans contain restrictions that would require the payment of prepayment penalties for the acceleration of
outstanding debt and are secured by deeds of trust on certain of our properties and the assignment of certain rents and leases
associated with those properties.
On May 26, 2017, we, through our subsidiary, Whitestone BLVD Place LLC, a Delaware limited liability company,
issued a $80.0 million promissory note to American General Life Insurance Company (the “BLVD Note”). The BLVD Note
has a fixed interest rate of 3.72% and a maturity date of June 1, 2027. Proceeds from the BLVD Note were used to fund a
portion of the purchase price of the acquisition of BLVD Place (See Note 4).
On November 7, 2014, we, through our Operating Partnership, entered into an unsecured revolving credit facility (the
“2014 Facility”) with the lenders party thereto, with BMO Capital Markets Corp., Wells Fargo Securities, LLC, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and U.S. Bank, National Association, as co-lead arrangers and joint book runners, and
Bank of Montreal, as administrative agent (the “Agent”). The 2014 Facility amended and restated our previous unsecured
revolving credit facility. On October 30, 2015, we, through our Operating Partnership, entered into the First Amendment to the
2014 Facility (the “First Amendment”) with the guarantors party thereto, the lenders party thereto and the Agent . We refer to
the 2014 Facility, as amended by the First Amendment, as the “Facility.”
Pursuant to the First Amendment, the Company made the following amendments to the 2014 Facility:
•
•
•
•
extended the maturity date of the $300 million unsecured revolving credit facility under the 2014 Facility (the “Revolver”)
to October 30, 2019 from November 7, 2018;
converted $100 million of outstanding borrowings under the Revolver to a new $100 million unsecured term loan under
the 2014 Facility (“Term Loan 3”) with a maturity date of October 30, 2022;
extended the maturity date of the first $50 million unsecured term loan under the 2014 Facility (“Term Loan 1”) to October
30, 2020 from February 17, 2017; and
extended the maturity date of the second $50 million unsecured term loan under the 2014 Facility (“Term Loan 2” and
together with Term Loan 1 and Term Loan 3, the “Term Loans”) to January 29, 2021 from November 7, 2019.
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
Borrowings under the Facility accrue interest (at the Operating Partnership's option) at a Base Rate or an Adjusted
LIBOR plus an applicable margin based upon our then existing leverage. As of December 31, 2017, the interest rate was
3.30%. The applicable margin for Adjusted LIBOR borrowings ranges from 1.40% to 1.95% for the Revolver and 1.35% to
2.25% for the Term Loans. Base Rate means the higher of: (a) the Agent's prime commercial rate, (b) the sum of (i) the
average rate quoted by the Agent by two or more federal funds brokers selected by the Agent for sale to the Agent at face value
of federal funds in the secondary market in an amount equal or comparable to the principal amount for which such rate is being
determined, plus (ii) 1/2 of 1.00%, and (c) the LIBOR rate for such day plus 1.00%. Adjusted LIBOR means LIBOR divided by
one minus the Eurodollar Reserve Percentage. The Eurodollar Reserve Percentage means the maximum reserve percentage at
which reserves are imposed by the Board of Governors of the Federal Reserve System on eurocurrency liabilities.
We serve as the guarantor for funds borrowed by the Operating Partnership under the Facility. The Facility contains
customary terms and conditions, including, without limitation, affirmative and negative covenants such as information
reporting requirements, maximum secured indebtedness to total asset value, minimum EBITDA (earnings before interest, taxes,
depreciation, amortization or extraordinary items) to fixed charges, and maintenance of a minimum net worth. The Facility also
contains customary events of default with customary notice and cure, including, without limitation, nonpayment, breach of
covenant, misrepresentation of representations and warranties in a material respect, cross-default to other major indebtedness,
change of control, bankruptcy and loss of REIT tax status.
The Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing capacity
to $700 million, upon the satisfaction of certain conditions. As of December 31, 2017, $432.2 million was drawn on the
Facility and our unused borrowing capacity was $67.8 million, assuming that we use the proceeds of the Facility to acquire
properties, or to repay debt on properties, that are eligible to be included in the unsecured borrowing base. Proceeds from the
Facility were used for general corporate purposes, including property acquisitions, debt repayment, capital expenditures, the
expansion, redevelopment and re-tenanting of properties in our portfolio and working capital. We intend to use the additional
proceeds from the Facility for general corporate purposes, including property acquisitions, debt repayment, capital expenditure,
the expansion, redevelopment and re-tenanting of properties in our portfolio and working capital.
On December 8, 2016, in connection with the Contribution, the Operating Partnership entered into the Second
Amendment to the Facility and Reaffirmation of Guaranties (the “Second Amendment”) with Pillarstone, the Company and the
other Guarantors party thereto, the lenders party thereto and the Agent. Pursuant to the Second Amendment, following the
Contribution, Whitestone Offices, LLC and Whitestone CP Woodland Ph. 2, LLC were permitted to remain Material
Subsidiaries (as defined in the Facility) and Guarantors under the Facility and their respective Pillarstone Properties were each
permitted to remain an Eligible Property (as defined in the Facility) and be included in the Borrowing Base (as defined in the
Facility) under the Facility. In addition, on December 8, 2016, Pillarstone entered into the Limited Guarantee (the “Limited
Guarantee”) with the Agent, pursuant to which Pillarstone agreed to be joined as a party to the Facility to provide a limited
guarantee up to the amount of availability generated by the Pillarstone Properties owned by Whitestone Offices, LLC and
Whitestone CP Woodland Ph. 2, LLC. As of December 31, 2017, Pillarstone accounted for approximately $15.5 million of the
total amount drawn on the Facility.
Certain other of our loans are subject to customary covenants. As of December 31, 2017, we were in compliance with
all loan covenants.
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
Annual maturities of notes payable as of December 31, 2017 are due during the following years:
Year
2018
2019
2020
2021
2022
Thereafter
Total
Amount Due
(in thousands)
12,208
240,249
82,827
51,918
102,007
171,720
660,929
$
$
Contractual Obligations
As of December 31, 2017, we had the following contractual obligations:
Consolidated Contractual Obligations
Total
Payment due by period (in thousands)
Less than
1
year (2018)
1 - 3 years
(2019 -
2020)
3 - 5 years
(2021 -
2022)
More than
5 years
(after
2022)
Long-Term Debt - Principal
$ 660,929
$
12,208
$
323,076
$
153,925
$
171,720
Long-Term Debt - Fixed Interest
Long-Term Debt - Variable Interest (1)
Unsecured credit facility - Unused commitment fee (2)
Operating Lease Obligations
Total
80,790
14,049
249
57
15,223
7,663
136
33
28,954
6,386
113
20
18,200
18,413
—
—
4
—
—
—
$ 756,074
$
35,263
$
358,549
$
172,129
$
190,133
As of December 31, 2017, Pillarstone had the following contractual obligations included in the consolidated
contractual obligations:
Pillarstone Contractual Obligations
Total
Payment due by period (in thousands)
Less than
1
year (2018)
1 - 3 years
(2019 -
2020)
3 - 5 years
(2021 -
2022)
More than
5 years
(after
2022)
Long-Term Debt - Principal
Long-Term Debt - Fixed Interest
Long-Term Debt - Variable Interest (3)
Total
$
49,206
$
1,343
$
32,662
$
631
$
14,570
7,921
937
2,019
511
3,882
426
1,481
—
539
—
$
58,064
$
3,873
$
36,970
$
2,112
$
15,109
(1) As of December 31, 2017, we had one loan totaling $232.2 million which bore interest at a floating rate. The variable
interest rate payments are based on LIBOR plus 1.40% to LIBOR plus 1.95%, which reflects our new interest rates under
the Facility. The information in the table above reflects our projected interest rate obligations for the floating rate
payments based on one-month LIBOR as of December 31, 2017, of 1.37%.
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
(2) The unused commitment fees on the Facility, payable quarterly, are based on the average daily unused amount of the
Facility. The fees are 0.20% for facility usage greater than 50% or 0.25% for facility usage less than 50%. The
information in the table above reflects our projected obligations for the Facility based on our December 31, 2017 balance
of $432.2 million.
(3) The variable interest relates to Pillarstone properties remaining in the Facility. As of December 31, 2017, Pillarstone
accounted for approximately $15.5 million of the total amount drawn on the Facility.
10. DERIVATIVES AND HEDGING ACTIVITIES
The fair value of our interest rate swaps is as follows (in thousands):
Interest rate swaps:
December 31, 2017
December 31, 2016
Balance Sheet Location
Estimated Fair Value
Accounts payable and
accrued expenses
Accounts payable and
accrued expenses
$
$
(3,036)
(662)
On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of
Montreal that fixed the LIBOR portion of Term Loan 3 under the Facility at 1.73%. In the fourth quarter of 2015, pursuant to
the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $35.0 million of the swap to U.S. Bank,
National Association, and $15.0 million of the swap to SunTrust Bank. See Note 9 for additional information regarding the
Facility. The swap began on November 30, 2015 and will mature on October 28, 2022. We have designated the interest rate
swap as a cash flow hedge with the effective portion of the changes in fair value to be recorded in comprehensive income and
subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The ineffective portion of the
change in fair value, if any, will be recognized directly in earnings.
On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of
Montreal that fixed the LIBOR portion of Term Loan 1 under the Facility at 1.75%. In the fourth quarter of 2015, pursuant to
the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $3.8 million of the swap to Regions
Bank, $6.5 million of the swap to U.S. Bank, National Association, $14.0 million of the swap to Wells Fargo Bank, National
Association, $14.0 million of the swap to Bank of America, N.A., and $5.0 million of the swap to SunTrust Bank. See Note 9
for additional information regarding the Facility. The swap will begin on February 3, 2017 and will mature on October 30,
2020. We have designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value to
be recorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction
affects earnings. The ineffective portion of the change in fair value, if any, will be recognized directly in earnings.
On November 19, 2015, we, through our Operating Partnership, entered into an interest rate swap with Bank of
Montreal that fixed the LIBOR portion of Term Loan 2 under the Facility at 1.50%. In the fourth quarter of 2015, pursuant to
the terms of the agreement governing the interest rate swap, Bank of Montreal assigned $3.8 million of the swap to Regions
Bank, $6.5 million of the swap to U.S. Bank, National Association, $14.0 million of the swap to Wells Fargo Bank, National
Association, $14.0 million of the swap to Bank of America, N.A., and $5.0 million of the swap to SunTrust Bank. See Note 9
for additional information regarding the Facility. The swap began on December 7, 2015 and will mature on January 29, 2021.
We have designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value to be
recorded in comprehensive income and subsequently reclassified into earnings in the period that the hedged transaction affects
earnings. The ineffective portion of the change in fair value, if any, will be recognized directly in earnings.
A summary of our interest rate swap activity is as follows (in thousands):
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
Amount Recognized
as Comprehensive
Income
Location of Loss
Recognized in
Earnings
Amount of Loss
Recognized in
Earnings (1)
$
$
$
2,022
Interest expense
929
46
Interest expense
Interest expense
$
$
$
(1,575)
(2,385)
(991)
(1) Amounts represent the effective portions of our interest rate swaps. We did not recognize any ineffective portion of our
interest rate swaps in earnings for the years ended December 31, 2017, 2016 and 2015.
11. EARNINGS PER SHARE
Basic earnings per share for our common shareholders is calculated by dividing income from continuing operations
excluding amounts attributable to unvested restricted shares and the net income attributable to non-controlling interests by our
weighted-average common shares outstanding during the period. Diluted earnings per share is computed by dividing the net
income attributable to common shareholders excluding amounts attributable to unvested restricted shares and the net income
attributable to non-controlling interests by the weighted-average number of common shares including any dilutive unvested
restricted shares.
Certain of our performance-based restricted common shares are considered participating securities, which require the
use of the two-class method for the computation of basic and diluted earnings per share. During the years ended December 31,
2017, 2016 and 2015, 1,088,292, 642,132 and 429,809 OP units, respectively, were excluded from the calculation of diluted
earnings per share because their effect would be anti-dilutive.
For the years ended December 31, 2017, 2016 and 2015, distributions of $472,000, $636,000 and $564,000,
respectively, were made to the holders of certain restricted common shares, $16,000, $16,000 and $36,000 of which were
charged against earnings, respectively. See Note 15 for information related to restricted common shares under the 2008 Plan.
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
(in thousands, except per share data)
Numerator:
Net income
Less: Net income attributable to noncontrolling interests
Distributions paid on unvested restricted shares
Income from continuing operations attributable to Whitestone REIT excluding
amounts attributable to unvested restricted shares
Income from discontinued operations
Less: Net income attributable to noncontrolling interests
Income from discontinued operations attributable to Whitestone REIT
Net income attributable to common shareholders excluding amounts
attributable to unvested restricted shares
Denominator:
Year Ended December 31,
2017
2016
2015
$
$
8,866
(532)
(456)
$
8,128
(197)
(620)
6,854
(116)
(528)
7,878
7,311
6,210
—
—
—
—
—
—
11
—
11
$
7,878
$
7,311
$
6,221
Weighted average number of common shares - basic
35,428
27,618
24,631
Effect of dilutive securities:
Unvested restricted shares
Weighted average number of common shares - dilutive
Earnings Per Share:
Basic:
827
36,255
765
28,383
1,052
25,683
Income from continuing operations attributable to Whitestone REIT excluding
amounts attributable to unvested restricted shares
Income from discontinued operations attributable to Whitestone REIT
Net income attributable to common shareholders excluding amounts attributable to
unvested restricted shares
Diluted:
Income from continuing operations attributable to Whitestone REIT excluding
amounts attributable to unvested restricted shares
Income from discontinued operations attributable to Whitestone REIT
Net income attributable to common shareholders excluding amounts attributable to
unvested restricted shares
$
$
$
$
$
0.22
0.00
$
0.26
0.00
0.25
0.00
0.22
$
0.26
$
0.25
$
0.22
0.00
$
0.26
0.00
0.24
0.00
0.22
$
0.26
$
0.24
12. FEDERAL INCOME TAXES
Federal income taxes are not provided because we intend to and believe we qualify as a REIT under the provisions of
the Code and because we have distributed and intend to continue to distribute all of our taxable income to our
shareholders. Our shareholders include their proportionate taxable income in their individual tax returns. As a REIT, we must
distribute at least 90% of our real estate investment trust taxable income to our shareholders and meet certain income sources
and investment restriction requirements. In addition, REITs are subject to a number of organizational and operational
requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable
income at regular corporate tax rates.
Income earned by our taxable REIT subsidiary, Whitestone Davenport TRS LLC (“Davenport TRS”), is subject to
federal income tax. For the year ended December 31, 2016, we recognized $45,000 in income tax expense related to
Davenport TRS taxable year. Davenport TRS was dissolved in the fourth quarter of 2016.
Taxable income differs from net income for financial reporting purposes principally due to differences in the timing of
recognition of interest, real estate taxes, depreciation and rental revenue.
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
For federal income tax purposes, the cash distributions to shareholders are characterized as follows for the years ended
December 31:
Ordinary income (unaudited)
Return of capital (unaudited)
Capital gain distributions (unaudited)
Total
13. RELATED PARTY TRANSACTIONS
2017
2016
2015
15.3 %
84.7 %
— %
100.0%
49.0 %
33.7 %
17.3 %
100.0%
60.9 %
37.7 %
1.4 %
100.0%
The Contribution. Mr. James C. Mastandrea, the Chairman and Chief Executive Officer of the Company, also serves
as the Chairman and Chief Executive Officer of Pillarstone REIT and beneficially owns approximately 77.9% of the
outstanding equity in Pillarstone REIT (when calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act of 1934,
as amended (the “Exchange Act”)). Mr. John J. Dee, the Chief Operating Officer and Corporate Secretary of the Company, also
serves as the Senior Vice President and Chief Financial Officer of Pillarstone REIT and beneficially owns approximately 26.3%
of the outstanding equity in Pillarstone REIT (when calculated in accordance with Rule 13d-3(d)(1) under the Exchange Act).
In addition, Mr. Paul T. Lambert, a Trustee of the Company, also serves as a Trustee of Pillarstone REIT. The Contribution is
pursuant to the Company’s strategy of recycling capital by disposing of Non-Core Properties that do not fit the Company’s
Community Centered Property® strategy and the terms of the Contribution Agreement, the OP Unit Purchase Agreement, the
Tax Protection Agreement and the Contribution were determined through arm’s-length negotiations. The Contribution was
unanimously approved and recommended by a special committee of independent Trustees of the Company. See Note 5 for
additional disclosure on the Contribution.
14. EQUITY
Under our declaration of trust, as amended, we have authority to issue up to 400 million common shares of beneficial
interest, $0.001 par value per share, and up to 50 million preferred shares of beneficial interest, $0.001 par value per share.
Equity Offerings
On April 25, 2017, we completed the sale of 8,018,500 common shares, including 1,018,500 common shares
purchased by the underwriters upon exercise of their option to purchase additional common shares, at a public offering price
per share of $13.00 (the “April Offering”). Total net proceeds from the April Offering, after deducting offering expenses, were
approximately $99.9 million, which we contributed to the Operating Partnership in exchange for OP units. The Operating
Partnership used the net proceeds from the April Offering to repay a portion of the Facility and for general corporate purposes,
including funding a portion of the purchase price of BLVD Place and Eldorado Plaza.
On June 4, 2015, we entered into nine amended and restated equity distribution agreements (the “2015 equity
distribution agreements”) for an at-the-market distribution program. Pursuant to the terms and conditions of the 2015 equity
distribution agreements, we can issue and sell up to an aggregate of $50 million of our common shares. Actual sales will
depend on a variety of factors to be determined by us from time to time, including (among others) market conditions, the
trading price of our common shares, capital needs and our determinations of the appropriate sources of funding for us, and will
be made in transactions that will be deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act.
We have no obligation to sell any of our common shares, and can at any time suspend offers under the 2015 equity distribution
agreements or terminate the 2015 equity distribution agreements. For the year ended December 31, 2017, we sold 1,324,038
common shares under the 2015 equity distribution agreements, with net proceeds to us of approximately $18.6 million. In
connection with such sales, we paid compensation of approximately $0.3 million to the sales agents. For the year ended
December 31, 2016, we sold 2,063,697 common shares under the 2015 equity distribution agreements, with net proceeds to us
of approximately $30.0 million. In connection with such sales, we paid compensation of approximately $0.5 million to the
sales agents.
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
Operating Partnership Units
Substantially all of our business is conducted through the Operating Partnership. We are the sole general partner of
the Operating Partnership. As of December 31, 2017, we owned a 97.3% interest in the Operating Partnership.
Limited partners in the Operating Partnership holding OP units have the right to redeem their OP units for cash or, at
our option, common shares at a ratio of one OP unit for one common share. Distributions to OP unit holders are paid at the
same rate per unit as distributions per share to Whitestone common shares. As of December 31, 2017 and 2016, there were
40,184,532 and 30,450,377 OP units outstanding, respectively. We owned 39,100,951 and 29,347,741 OP units as of
December 31, 2017 and 2016, respectively. The balance of the OP units is owned by third parties, including certain
trustees. Our weighted-average share ownership in the Operating Partnership was approximately 97.0%, 97.8% and 98.3% for
the years ended December 31, 2017, 2016 and 2015, respectively. For the year ended December 31, 2017 and 2016, 19,055
and 15,450 OP units, respectively, were redeemed for an equal number of common shares.
Distributions
The following table reflects the total distributions we have paid (including the total amount paid and the amount paid
per share) in each indicated quarter (in thousands, except per share data):
Common Shares
Noncontrolling OP Unit
Holders
Total
Quarter Paid
Distribution Per
Common Share
Total Amount
Paid
Distribution
Per OP Unit
Total Amount
Paid
Total Amount
Paid
2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total
2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total
$
$
$
$
0.2850
$
11,002
$
0.2850
$
0.2850
0.2850
0.2850
1.1400
$
10,948
10,093
8,429
40,472
$
0.2850
0.2850
0.2850
1.1400
$
0.2850
$
8,305
$
0.2850
$
0.2850
0.2850
0.2850
1.1400
$
8,109
7,786
7,711
31,911
$
0.2850
0.2850
0.2850
1.1400
$
309
309
310
313
1,241
314
138
138
139
729
$
$
$
$
11,311
11,257
10,403
8,742
41,713
8,619
8,247
7,924
7,850
32,640
15. INCENTIVE SHARE PLAN
On July 29, 2008, our shareholders approved the 2008 Plan. On December 22, 2010, our board of trustees amended
the 2008 Plan to allow for awards in or related to Class B common shares pursuant to the 2008 Plan. On June 27, 2012, our
Class B common shares were redesignated as “common shares.” The 2008 Plan, as amended, provides that awards may be
made with respect to common shares of Whitestone or OP units, which may be redeemed for cash or, at our option, common
shares of Whitestone. The maximum aggregate number of common shares that may be issued under the 2008 Plan is increased
upon each issuance of common shares by Whitestone so that at any time the maximum number of common shares that may be
issued under the 2008 Plan shall equal 12.5% of the aggregate number of common shares of Whitestone and OP units issued
and outstanding (other than shares and/or units issued to or held by Whitestone).
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
The Compensation Committee of our board of trustees administers the 2008 Plan, except with respect to awards to
non-employee trustees, for which the 2008 Plan is administered by our board of trustees. The Compensation Committee is
authorized to grant share options, including both incentive share options and non-qualified share options, as well as share
appreciation rights, either with or without a related option. The Compensation Committee is also authorized to grant restricted
common shares, restricted common share units, performance awards and other share-based awards.
On April 2, 2014, the Compensation Committee approved the modification of the vesting provisions with respect to
awards of an aggregate of 633,704 restricted common shares and restricted common share units for certain of our employees.
The modified time-based shares vested annually in three equal installments. The modified performance-based restricted
common shares and restricted common share units were modified to include performance-based vesting based on achievement
of certain absolute financial goals, as well as one to two years of time-based vesting post achievement of financial goals.
Continued employment is required through the applicable vesting date. Additionally, 2,049,116 restricted performance-based
common share units were granted with the same vesting conditions as the modified performance-based grants described above.
If the performance targets are not met prior to December 31, 2018, any unvested performance-based restricted common shares
and restricted common share units will be forfeited.
The Compensation Committee approved the grant of an aggregate of 320,000 and 143,000 time-based restricted
common share units on June 30, 2016 and 2015, respectively, to James C. Mastandrea and David K. Holeman.
On September 6, 2017, the Compensation Committee approved the grant of an aggregate of 267,783 performance-
based restricted common share units under the 2008 Plan with market-based vesting conditions (the “TSR Units”) to certain of
our employees. Vesting is contingent upon achieving Total Shareholder Return relative to the peer group defined in the TSR
Unit award agreements over a three-year performance period. At the end of the performance period, the number of common
shares awarded for each vested TSR Unit will vary from 0% to 200% depending on the Company's ranking in the peer group
(the “TSR Peer Group Ranking”). Continued employment is required through the vesting date. The grant date fair value for
each TSR Unit of $12.37 was determined using the Monte Carlo simulation method and is being recognized as share-based
compensation expense ratably from the September 30, 2017 grant date to the end of the performance period, December 31,
2019. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the
market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the
model were estimated using a historical period consistent with the performance period of approximately three years. The risk-
free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant.
On September 6, 2017, the Compensation Committee approved the grant of an aggregate of 965,000 performance-
based restricted common share units under the 2008 Plan which only vest immediately prior to the consummation of a Change
in Control (as defined in the 2008 Plan) that occurs on or before September 30, 2024 (the “CIC Units”) to certain of our
employees. Continued employment is required through the vesting date. If a Change in Control does not occur on or before
September 30, 2024, the CIC Units shall be immediately forfeited. The Company considers a Change in Control on or before
September 30, 2024 to be improbable, and no expense has been recognized for the CIC Units. If a Change in Control occurs,
any outstanding CIC Units would be expensed immediately on the date of the Change in Control using the grant date fair value.
The grant date fair value for each CIC Unit of $13.05 was determined based on the Company's closing share price on the grant
date.
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
A summary of the share-based incentive plan activity as of and for the year ended December 31, 2017 is as follows:
Non-vested at January 1, 2017
Granted
Modified to new agreements
Modified from existing agreements
Vested
Forfeited
Non-vested at December 31, 2017
Available for grant at December 31, 2017
Weighted-
Average
Grant Date
Fair Value (1)
14.48
12.92
—
—
14.55
14.38
13.60
Shares
2,044,334
$
1,354,534
—
—
(881,710)
(35,827)
2,481,331
868,815
$
(1) The fair value of the shares granted were determined based on observable market transactions occurring near the date of
the grants.
A summary of our nonvested and vested shares activity for the years ended December 31, 2017, 2016 and 2015 is
presented below:
Year Ended
Year Ended December 31, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
Shares Granted
Shares Vested
Non-Vested
Shares Issued
Weighted-
Average Grant-
Date Fair Value
Vested Shares
Total Vest-Date
Fair Value
(in thousands)
1,354,534
545,778
327,122
$
$
$
12.92
14.85
13.49
(881,710) $
(734,261) $
(348,786) $
12,829
10,577
4,969
Total compensation recognized in earnings for share-based payments for the years ended December 31, 2017, 2016
and 2015 was $10.4 million, $10.2 million and $7.3 million, respectively.
Based on our current financial projections, we expect approximately 83% of the unvested awards, exclusive of
965,000 CIC Units, to vest over the next 24 months. As of December 31, 2017, there was approximately $2.3 million in
unrecognized compensation cost related to outstanding non-vested performance-based shares, which are expected to vest over a
period of 15 months, $2.8 million in unrecognized compensation cost related to outstanding non-vested TSR Units, which are
expected to vest over a period of 24 months and approximately $0.5 million in unrecognized compensation cost related to
outstanding non-vested time-based shares, which are expected to be recognized over a period of approximately 3 months
beginning on January 1, 2018.
We expect to record approximately $5.6 million in share-based compensation subsequent to the year ended
December 31, 2017. The unrecognized share-based compensation cost is expected to vest over a weighted average period of 18
months. The dilutive impact of the performance-based shares will be included in the denominator of the earnings per share
calculation beginning in the period that the performance conditions are expected to be met. The dilutive impact of the TSR
Units is based on the Company's TSR Peer Group Ranking as of the reporting date and weighted according to the number of
days outstanding in the period. As of December 31, 2017, the TSR Peer Group Ranking called for 200% attainment. The
dilutive impact of the CIC Units is based on the probability of a Change in Control. Because the Company considers a Change
in Control on or before September 30, 2024 to be improbable, no CIC Units are included in the Company's dilutive shares.
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
At our annual meeting of shareholders on May 11, 2017, our shareholders voted to approve the 2018 Long-Term
Equity Incentive Ownership Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of up to 3,433,831 common
shares and OP units pursuant to awards under the 2018 Plan. The 2018 Plan will become effective on July 30, 2018, which is
the day after the 2008 Plan expires.
16. GRANTS TO TRUSTEES
On December 12, 2017, each of our six independent trustees and one trustee emeritus was granted 3,000 common
shares, which vest immediately and are prorated based on date appointed. The 16,281 common shares granted to our trustees
had a grant fair value of $14.46 per share. On December 12, 2017, three of our independent trustees each elected to receive a
total of 2,320 common shares with a grant date fair value of $14.46 in lieu of cash for board fees. The fair value of the shares
granted during the year ended December 31, 2017 was determined using quoted prices available on the date of grant.
On December 21, 2016, each of our four independent trustees and one trustee emeritus was granted 1,500 common
shares, which vest immediately. The 7,500 common shares granted to our trustees had a grant date fair value of $14.07 per
share. On December 21, 2016, two of our independent trustees each elected to receive a total of 3,128 common shares with a
grant date fair value of $14.07 in lieu of cash for board fees. The fair value of the shares granted during the year ended
December 31, 2016 was determined using quoted prices available on the date of grant.
17. COMMITMENTS AND CONTINGENCIES
We are a participant in various legal proceedings and claims that arise in the ordinary course of our business. These
matters are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, we
believe that the final outcome of these matters will not have a material effect on our financial position, results of operations, or
cash flows.
18. SEGMENT INFORMATION
Our management historically has not differentiated by property types and therefore does not present segment
information.
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WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2017
19. SELECT QUARTERLY FINANCIAL DATA (unaudited)
The following is a summary of our unaudited quarterly financial information for the years ended December 31, 2017
and 2016 (in thousands, except per share data):
2017
Revenues
Net income
Net income attributable to Whitestone REIT
Basic Earnings per share:
Net income attributable to common shareholders excluding amounts
attributable to unvested restricted shares (1)
Diluted Earnings per share:
Net income attributable to common shareholders excluding amounts
attributable to unvested restricted shares (1)
2016
Revenues
Net income
Net income attributable to Whitestone REIT
Basic Earnings per share:
Net income attributable to common shareholders excluding amounts
attributable to unvested restricted shares (1)
Diluted Earnings per share:
Net income attributable to common shareholders excluding amounts
attributable to unvested restricted shares (1)
First
Second
Third
Fourth
Quarter Quarter Quarter Quarter
$ 28,267
$ 30,208
$ 33,653
$ 33,831
$
$
$
$
1,557
1,440
$
$
2,144
1,983
$
$
3,140
2,993
$
$
2,025
1,921
0.05
$
0.05
$
0.07
$
0.05
0.04
$
0.05
$
0.07
$
0.05
$ 25,435
$ 25,129
$ 25,508
$ 28,365
$
$
$
$
5,088
4,997
$
$
1,509
1,484
$
$
964
949
$
$
567
532
0.18
$
0.05
$
0.03
$
0.01
0.18
$
0.05
$
0.03
$
0.01
(1) The sum of individual quarterly basic and diluted earnings per share amounts may not agree with the year-to-date basic and
diluted earning per share amounts as the result of each period's computation being based on the weighted average number
of common shares outstanding during that period.
20. SUBSEQUENT EVENTS
On February 27, 2018, we completed the sale of Bellnott Square, located in Houston, Texas, for $4.7 million. This
disposition was pursuant to our strategy of recycling capital by disposing of Non-Core Properties, primarily properties that we
owned at the time our current management team assumed the management of the Company, that do not fit our Community
Centered Property strategy. We expect to record a gain on sale of approximately $0.3 million in 2018. We have not included
Bellnott Square as held for sale at December 31, 2017 as it did not meet the definition of discontinued operations.
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Whitestone REIT and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
December 31, 2017
Description
Allowance for doubtful accounts:
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
(in thousands)
Balance at
Charged to
Deductions
Balance at
Beginning
of Year
Costs and
Expense
from
Reserves
End of
Year
$
7,258
$
2,340
$
6,647
4,964
1,585
1,974
(451) $
(974)
(291)
9,147
7,258
6,647
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Whitestone REIT and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2017
Initial Cost (in thousands)
to Acquisition (in thousands)
Costs Capitalized Subsequent
Gross Amount at which Carried at
(1) (2)
End of Period
(in thousands)
Property Name
Land
Improvements
(net)
Costs
Land
Improvements
Total
Building and
Improvements
Carrying
Building and
Whitestone Properties:
Ahwatukee Plaza
Anthem Marketplace
Bellnott Square
Bissonnet Beltway
BLVD Place
The Citadel
City View Village
Davenport Village
Desert Canyon
Eldorado Plaza
Fountain Hills Plaza
Fountain Square
Fulton Ranch Towne Center
Gilbert Tuscany Village
Gilbert Tuscany Village Hard Corner
Heritage Trace Plaza
Headquarters Village
Keller Place
Kempwood Plaza
La Mirada
Lion Square
The Marketplace at Central
Market Street at DC Ranch
Mercado at Scottsdale Ranch
Paradise Plaza
Parkside Village North
Parkside Village South
Pima Norte
Pinnacle of Scottsdale
Pinnacle of Scottsdale Phase II
The Promenade at Fulton Ranch
Providence
Quinlan Crossing
Shaver
Shops at Pecos Ranch
Shops at Starwood
The Shops at Williams Trace
South Richey
Spoerlein Commons
The Strand at Huebner Oaks
SugarPark Plaza
Sunridge
Sunset at Pinnacle Peak
Terravita Marketplace
Torrey Square
Town Park
Village Square at Dana Park
Westchase
$
5,126
$
4,086
$
4,790
1,154
415
63,893
472
2,044
11,367
1,976
16,551
5,113
5,573
7,604
1,767
856
6,209
7,171
5,977
733
12,853
1,546
1,305
9,710
8,728
6,155
3,877
5,562
1,086
6,648
883
5,198
918
9,561
184
3,781
4,093
5,920
778
2,340
5,805
1,781
276
3,610
7,171
1,981
850
10,877
423
17,973
4,638
1,947
90,942
1,777
4,149
34,101
1,704
30,746
15,340
9,828
22,612
3,233
794
13,821
18,439
7,577
1,798
24,464
4,289
5,324
26,779
12,560
10,221
8,629
27,154
7,162
22,466
4,659
13,367
3,675
28,683
633
15,123
11,487
14,297
2,584
7,296
12,335
7,125
1,186
2,734
9,392
2,971
2,911
40,250
1,751
365
319
554
448
93
2,593
11
972
1,485
67
199
2,224
1,957
1,721
9
300
873
465
1,750
441
4,260
1,328
3,925
865
1,155
249
345
2,151
1,649
1,157
212
1,287
146
82
747
281
256
1,856
868
275
1,046
524
725
798
1,287
397
3,133
3,142
114
F- 37
$
— $
5,126
$
4,451
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
517
—
565
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,790
1,154
415
63,893
472
2,044
11,367
1,976
16,551
5,113
5,573
7,604
1,767
856
6,209
7,171
5,977
733
12,853
1,546
1,305
9,710
8,728
6,155
3,877
5,562
1,086
6,648
883
5,198
918
9,561
184
3,781
4,093
5,920
778
2,340
5,805
1,781
276
3,610
7,171
1,981
850
10,877
423
18,292
5,192
2,395
91,035
4,370
4,160
35,073
3,189
30,813
15,539
12,052
24,569
4,954
803
14,121
19,312
8,042
3,548
24,905
8,549
6,652
30,704
13,425
11,376
8,878
27,499
9,830
24,115
6,381
13,579
4,962
28,829
715
15,870
11,768
14,553
4,440
8,164
12,610
8,171
1,710
3,459
10,190
4,258
3,308
43,383
4,893
9,577
23,082
6,346
2,810
154,928
4,842
6,204
46,440
5,165
47,364
20,652
17,625
32,173
6,721
1,659
20,330
26,483
14,019
4,281
37,758
10,095
7,957
40,414
22,153
17,531
12,755
33,061
10,916
30,763
7,264
18,777
5,880
38,390
899
19,651
15,861
20,473
5,218
10,504
18,415
9,952
1,986
7,069
17,361
6,239
4,158
54,260
5,316
Table of Contents
Whitestone REIT and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2017
Initial Cost (in thousands)
to Acquisition (in thousands)
Costs Capitalized Subsequent
Gross Amount at which Carried at
(1) (2)
End of Period
(in thousands)
Property Name
Land
Improvements
(net)
Costs
Land
Improvements
Total
Building and
Improvements
Carrying
Building and
Williams Trace Plaza
Windsor Park
Woodlake Plaza
Development Properties:
Seville
Shops at Starwood Phase III
Total - Development Properties(3)
Total Whitestone Properties
Pillarstone Properties:
9101 LBJ Freeway(4)
Corporate Park Northwest
Corporate Park West
Corporate Park Woodland
Corporate Park Woodland II
Dairy Ashford
Holly Hall Industrial Park
Holly Knight
Interstate 10 Warehouse
Main Park
Plaza Park
Uptown Tower(5)
Westbelt Plaza
Westgate Service Center
Total - Pillarstone Properties
Land Held for Development:
Anthem Marketplace
BLVD Place Phase II-B
Dana Park Development
Eldorado Plaza Development
Fountain Hills
Market Street at DC Ranch
Total - Land Held for Development
Grand Totals
$
$
$
$
$
$
$
$
$
6,800
2,621
1,107
14,003
10,482
4,426
255
8,884
2,254
—
—
—
6,800
2,621
1,107
14,258
19,366
6,680
21,058
21,987
7,787
283,219
$
645,923
$
62,385
$
1,082
$
283,219
$
709,390
$
992,609
6,913
1,818
8,731
291,950
$
$
$
25,518
7,069
32,587
678,510
$
$
$
497
1,323
1,820
64,205
$
$
$
— $
954
954
2,036
$
$
6,913
1,818
8,731
291,950
$
$
$
26,015
9,346
35,361
744,751
$
$
32,928
11,164
44,092
1,036,701
1,597
$
6,078
$
1,513
$
— $
1,597
$
7,591
$
1,534
2,555
652
2,758
226
608
320
208
1,328
902
1,621
568
672
6,306
10,267
5,330
—
1,211
2,516
1,293
3,700
2,721
3,294
15,551
2,165
2,776
2,268
1,615
830
26
49
395
402
495
1,113
1,141
4,975
958
1,175
—
—
—
—
—
—
—
—
—
—
—
—
—
1,534
2,555
652
2,758
226
608
320
208
1,328
902
1,621
568
672
8,574
11,882
6,160
26
1,260
2,911
1,695
4,195
3,834
4,435
20,526
3,123
3,951
9,188
10,108
14,437
6,812
2,784
1,486
3,519
2,015
4,403
5,162
5,337
22,147
3,691
4,623
15,549
$
63,208
$
16,955
$
— $
15,549
$
80,163
$
95,712
204
$
— $
— $
— $
204
$
— $
10,500
4,000
911
277
704
16,596
324,095
$
$
—
—
—
—
—
— $
420
25
—
—
—
445
741,718
$
81,605
—
—
—
—
—
10,500
4,000
911
277
704
$
$
— $
16,596
2,036
$
324,095
$
$
420
25
—
—
—
445
825,359
$
$
204
10,920
4,025
911
277
704
17,041
1,149,454
F- 38
115
Table of Contents
Whitestone REIT and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2017
Property Name
Encumbrances
(in thousands)
Construction
Acquired
Life
Accumulated
Depreciation
Date of
Date
Depreciation
Whitestone Properties:
Ahwatukee Plaza
Anthem Marketplace
Bellnott Square
Bissonnet Beltway
BLVD Place
The Citadel
City View Village
Davenport Village
Desert Canyon
Eldorado Plaza
Fountain Hills Plaza
Fountain Square
Fulton Ranch Towne Center
Gilbert Tuscany Village
Gilbert Tuscany Village Hard Corner
Heritage Trace Plaza
Headquarters Village
Keller Place
Kempwood Plaza
La Mirada
Lion Square
The Marketplace at Central
Market Street at DC Ranch
Mercado at Scottsdale Ranch
Paradise Plaza
Parkside Village North
Parkside Village South
Pima Norte
Pinnacle of Scottsdale
Pinnacle of Scottsdale Phase II
The Promenade at Fulton Ranch
Providence
Quinlan Crossing
Shaver
Shops at Pecos Ranch
Shops at Starwood
The Shops at Williams Trace
South Richey
Spoerlein Commons
The Strand at Huebner Oaks
SugarPark Plaza
Sunridge
Sunset at Pinnacle Peak
Terravita Marketplace
Torrey Square
Town Park
Village Square at Dana Park
Westchase
$
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
783
2,178
2,144
1,771
1,360
1,496
293
2,431
593
460
1,735
1,859
1,877
1,320
73
1,310
2,474
481
1,400
789
4,088
1,439
3,670
1,668
1,692
580
1,817
2,514
4,045
219
1,111
2,095
1,732
327
2,155
1,882
1,164
2,101
1,998
1,115
2,769
788
589
1,763
2,416
1,950
6,160
1,897
3/31/2017
8/16/2011
6/28/2013
1/1/2002
1/1/1999
5/26/2017
9/28/2010
3/31/2015
5/27/2015
4/13/2011
5/3/2017
10/7/2013
9/21/2012
11/5/2014
6/28/2011
8/28/2015
7/1/2014
3/28/2013
8/26/2015
2/2/1999
9/30/2016
1/1/2000
11/1/2010
12/5/2013
6/19/2013
8/8/2012
7/2/2015
7/2/2015
10/4/2007
12/22/2011
11/5/2014
3/30/2001
8/26/2015
12/17/1999
12/28/2012
12/28/2011
12/24/2014
8/25/1999
1/16/2009
9/19/2014
9/8/2004
1/1/2002
5/29/2012
8/8/2011
1/1/2000
1/1/1999
9/21/2012
1/1/2002
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
116
F- 39
Table of Contents
Whitestone REIT and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2017
Accumulated
Depreciation
Date of
Date
Depreciation
Property Name
Encumbrances
(in thousands)
Construction
Acquired
Williams Trace Plaza
Windsor Park
Woodlake Plaza
Development Properties:
Seville
Shops at Starwood Phase III
Total - Development Properties(3)
Total - Whitestone Properties
Pillarstone Properties:
9101 LBJ Freeway(4)
Corporate Park Northwest
Corporate Park West
Corporate Park Woodland
Corporate Park Woodland II
Dairy Ashford
Holly Hall Industrial Park
Holly Knight
Interstate 10 Warehouse
Main Park
Plaza Park
Uptown Tower(5)
Westbelt Plaza
Westgate Service Center
Total - Pillarstone Properties
Land Held for Development:
Anthem Marketplace
BLVD Place Phase II-B
Dana Park Development
Eldorado Plaza Development
Fountain Hills
Market Street at DC Ranch
Total - Land Held For Development
Grand Total
(17)
(15)
(15)
(15)
(15)
(15)
(15)
(15)
(16)
(15)
(15)
1,114
7,796
2,282
93,763
838
257
1,095
94,858
2,710
3,679
4,959
3,331
5
686
1,356
1,090
2,852
1,957
2,352
7,504
1,981
1,714
36,176
—
—
—
—
—
—
—
131,034
$
$
$
$
$
$
$
$
$
12/24/2014
12/16/2003
3/14/2005
Life
5-39 years
5-39 years
5-39 years
12/31/2016
9/30/2016
5-39 years
5-39 years
11/1/2000
8/10/2005
1/1/2002
1/1/2002
10/17/2013
1/1/1999
1/1/2002
8/1/2000
1/1/1999
1/1/1999
1/1/2000
11/22/2005
1/1/1999
1/1/2002
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
6/28/2013
5/26/2017
9/21/2012
Land - Not Depreciated
Land - Not Depreciated
Land - Not Depreciated
12/29/2017
Land - Not Depreciated
10/7/2013
12/5/2013
Land - Not Depreciated
Land - Not Depreciated
F- 40
117
Table of Contents
Whitestone REIT and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2017
(1) Reconciliations of total real estate carrying value for the three years ended December 31, follows:
Balance at beginning of period
Additions during the period:
Acquisitions
Improvements
Deductions - cost of real estate sold or retired
Balance at close of period
2017
920,310
$
( in thousands)
2016
835,538
$
$
2015
673,655
213,545
17,575
231,120
(1,976)
$ 1,149,454
$
69,749
22,036
91,785
(7,013)
920,310
$
150,331
12,653
162,984
(1,101)
835,538
(2) The aggregate cost of real estate (in thousands) for federal income tax purposes for Whitestone is $1,027,360 and $84,646 for
(3)
Pillarstone.
Includes (i) new acquisitions, through the earlier of attainment of 90% occupancy or 18 months of ownership, and (ii) properties that
are undergoing significant redevelopment or re-tenanting.
(4) This property includes improvements and accumulated depreciation of approximately $385,000 and $77,000, respectively, related to
Whitestone leased spaces.
(5) This property includes improvements and accumulated depreciation of approximately $181,000 and $119,000, respectively, related to
Whitestone leased spaces.
(6) This property secures a $15.1 million mortgage note.
(7) This property secures a $80.0 million mortgage note.
(8) This property secures a $19.0 million mortgage note.
(9) This property secures a $9.2 million mortgage note.
(10) This property secures a $14.1 million mortgage note.
(11) This property secures a $14.0 million mortgage note.
(12) This property secures a $14.3 million mortgage note.
(13) This property secures a $10.5 million mortgage note.
(14) This property secures a $2.6 million mortgage note.
(15) These properties secure a $37.0 million mortgage note.
(16) This property secures a $16.5 million mortgage note.
(17) This property secures a $6.5 million mortgage note.
118
F- 41
Table of Contents
Exhibit No. Description
Whitestone REIT and Subsidiaries
Index to Exhibits
3.1.1
3.1.1
3.1.2
3.1.2
3.1.3
3.1.3
3.1.4
3.1.4
3.1.5
3.1.5
3.1.6
3.1.6
3.1.7
3.1.7
3.2
3.2
10.1
10.1
10.2
10.2
10.3
10.3
10.4
10.4
10.5
10.5
10.6
10.6
10.7
10.7
Articles of Amendment and Restatement of Whitestone REIT (previously filed as and incorporated by reference
Articles of Amendment and Restatement of Whitestone REIT (previously filed as and incorporated by reference to
to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on July 31, 2008)
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on July 31, 2008)
Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant’s
Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant’s
Current Report on Form 8-K, filed December 6, 2006)
Current Report on Form 8-K, filed December 6, 2006)
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.1 to the Registrant's Current
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.1 to the Registrant’s Current
Report on Form 8-K, filed on August 24, 2010)
Report on Form 8-K, filed on August 24, 2010)
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.2 to the Registrant’s Current
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.2 to the Registrant’s Current
Report on Form 8-K, filed on August 24, 2010)
Report on Form 8-K, filed on August 24, 2010)
Articles Supplementary (previously filed and incorporated by reference to Exhibit 3.3 to the Registrant’s Current
Articles Supplementary (previously filed and incorporated by reference to Exhibit 3.3 to the Registrant’s Current
Report on Form 8-K, filed on August 24, 2010)
Report on Form 8-K, filed on August 24, 2010)
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.1 to the Registrant's
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.1 to the Registrant’s
Current Report on Form 8-K, filed June 27, 2012)
Current Report on Form 8-K, filed June 27, 2012)
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.2 to the Registrant's
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.2 to the Registrant’s
Current Report on Form 8-K, filed June 27, 2012)
Current Report on Form 8-K, filed June 27, 2012)
Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit
Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit
3.1 to the Registrant’s Current Report on Form 8-K, filed October 9, 2008)
3.1 to the Registrant’s Current Report on Form 8-K, filed October 9, 2008)
Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously filed as and
incorporated by reference to Exhibit 10.1 to the Registrant’s General Form for Registration of Securities on Form
Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously filed as and
10, filed on April 30, 2003)
incorporated by reference to Exhibit 10.1 to the Registrant’s General Form for Registration of Securities on Form
10, filed on April 30, 2003)
Certificate of Formation of Whitestone REIT Operating Partnership II GP, LLC (previously filed as and
incorporated by reference to Exhibit 10.3 to the Registrant’s General Form for Registration of Securities on Form
Certificate of Formation of Whitestone REIT Operating Partnership II GP, LLC (previously filed as and
10, filed on April 30, 2003)
incorporated by reference to Exhibit 10.3 to the Registrant’s General Form for Registration of Securities on Form
10, filed on April 30, 2003)
Limited Liability Company Agreement of Whitestone REIT Operating Partnership II GP, LLC (previously filed
as and incorporated by reference to Exhibit 10.4 to the Registrant’s General Form for Registration of Securities
Limited Liability Company Agreement of Whitestone REIT Operating Partnership II GP, LLC (previously filed as
on Form 10, filed on April 30, 2003)
and incorporated by reference to Exhibit 10.4 to the Registrant’s General Form for Registration of Securities on
Form 10, filed on April 30, 2003)
Agreement of Limited Partnership of Whitestone REIT Operating Partnership II, L.P. (previously filed as and
incorporated by reference to Exhibit 10.6 to the Registrant’s General Form for Registration of Securities on Form
Agreement of Limited Partnership of Whitestone REIT Operating Partnership II, L.P. (previously filed as and
10, filed on April 30, 2003)
incorporated by reference to Exhibit 10.6 to the Registrant’s General Form for Registration of Securities on Form
10, filed on April 30, 2003)
Amendment to the Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously
filed in and incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-11,
Commission File No. 333-111674, filed on December 31, 2003)
Amendment to the Agreement of Limited Partnership of Whitestone REITOperating Partnership, L.P. (previously
filed in and incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-11,
Promissory Note between HCP REIT Operating Company IV LLC and MidFirst Bank, dated March 1, 2007
Commission File No. 333-111674, filed on December 31, 2003)
(previously filed and incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-
K for the year ended December 31, 2006, filed on March 30, 2007)
Promissory Note between HCP REIT Operating Company IV LLC and MidFirst Bank, dated March 1, 2007
(previously filed and incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K
Term Loan Agreement among Whitestone REIT Operating Partnership, L.P., Whitestone Pima Norte LLC,
for the year ended December 31, 2006, filed on March 30, 2007)
Whitestone REIT Operating Partnership III LP, Hartman REIT Operating Partnership III LP LTD, Whitestone
REIT Operating Partnership III GP LLC and KeyBank National Association, dated January 25, 2008 (previously
Term Loan Agreement among Whitestone REIT Operating Partnership, L.P., Whitestone Pima Norte LLC,
filed as and incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2007, filed on March 31, 2008)
Whitestone REIT Operating Partnership III LP, Hartman REIT Operating Partnership III LP LTD, Whitestone
REIT Operating Partnership III GPLLC and KeyBank National Association, dated January 25, 2008 (previously
filed as and incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2007, filed on March 31, 2008)
67
119
79
Table of Contents
Exhibit No. Description
Whitestone REIT and Subsidiaries
Index to Exhibits
Articles of Amendment and Restatement of Whitestone REIT (previously filed as and incorporated by reference
Whitestone REIT 2008 Long-Term Equity Incentive Ownership Plan (previously filed and incorporated by
to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on July 31, 2008)
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed July 31, 2008)
Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant’s
Promissory Note among Whitestone Corporate Park West, LLC and MidFirst Bank dated August 5, 2008
Current Report on Form 8-K, filed December 6, 2006)
(previously filed and incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K,
filed August 8, 2008)
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.1 to the Registrant's Current
Report on Form 8-K, filed on August 24, 2010)
Promissory Note among Whitestone Centers LLC and Sun Life Assurance Company of Canada dated October 1,
2008 (previously filed and incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.2 to the Registrant’s Current
8-K, filed October 7, 2008)
Report on Form 8-K, filed on August 24, 2010)
Promissory Note among Whitestone Centers LLC and Sun Life Assurance Company of Canada dated October 1,
Articles Supplementary (previously filed and incorporated by reference to Exhibit 3.3 to the Registrant’s Current
2008 (previously filed and incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form
Report on Form 8-K, filed on August 24, 2010)
8-K, filed October 7, 2008)
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.1 to the Registrant's
Promissory Note among Whitestone Centers LLC and Sun Life Assurance Company of Canada dated October 1,
Current Report on Form 8-K, filed June 27, 2012)
2008 (previously filed and incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form
8-K, filed October 7, 2008)
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.2 to the Registrant's
Current Report on Form 8-K, filed June 27, 2012)
Promissory Note among Whitestone Centers LLC and Sun Life Assurance Company of Canada dated October 1,
2008 (previously filed and incorporated by reference to Exhibit 99.4 to the Registrant’s Current Report on Form
Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit
8-K, filed October 7, 2008)
3.1 to the Registrant’s Current Report on Form 8-K, filed October 9, 2008)
Promissory Note among Whitestone Centers LLC and Sun Life Assurance Company of Canada dated October 1,
Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously filed as and
incorporated by reference to Exhibit 10.1 to the Registrant’s General Form for Registration of Securities on Form
2008 (previously filed and incorporated by reference to Exhibit 99.5 to the Registrant’s Current Report on Form
10, filed on April 30, 2003)
8-K, filed October 7, 2008)
Certificate of Formation of Whitestone REIT Operating Partnership II GP, LLC (previously filed as and
Note among Whitestone Offices LLC and Nationwide Life Insurance Company dated October 1, 2008 (previously
incorporated by reference to Exhibit 10.3 to the Registrant’s General Form for Registration of Securities on Form
filed and incorporated by reference to Exhibit 99.6 to the Registrant’s Current Report on Form 8-K, filed October
10, filed on April 30, 2003)
7, 2008)
Limited Liability Company Agreement of Whitestone REIT Operating Partnership II GP, LLC (previously filed
Floating Rate Promissory Note among Whitestone Industrial-Office LLC and Jackson National Life Insurance
as and incorporated by reference to Exhibit 10.4 to the Registrant’s General Form for Registration of Securities
Company dated October 3, 2008 (previously filed and incorporated by reference to Exhibit 10.1 to the Registrant’s
on Form 10, filed on April 30, 2003)
Current Report on Form 8-K, filed October 9, 2008)
Agreement of Limited Partnership of Whitestone REIT Operating Partnership II, L.P. (previously filed as and
Form of Restricted Common Share Award Agreement (Performance Vested) (previously filed and incorporated by
incorporated by reference to Exhibit 10.6 to the Registrant’s General Form for Registration of Securities on Form
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed January 7, 2009)
10, filed on April 30, 2003)
Form of Restricted Common Share Award Agreement (Time Vested) (previously filed and incorporated by
Amendment to the Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously
filed in and incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-11,
reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed January 7, 2009)
Commission File No. 333-111674, filed on December 31, 2003)
Form of Restricted Unit Award Agreement (previously filed and incorporated by reference to Exhibit 10.3 to the
Promissory Note between HCP REIT Operating Company IV LLC and MidFirst Bank, dated March 1, 2007
Registrant’s Current Report on Form 8-K, filed January 7, 2009)
(previously filed and incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-
K for the year ended December 31, 2006, filed on March 30, 2007)
Promissory Note among Whitestone Centers LLC and Sun Life Assurance Company of Canada dated February 3,
2009 (previously filed and incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
Term Loan Agreement among Whitestone REIT Operating Partnership, L.P., Whitestone Pima Norte LLC,
8-K, filed February 10, 2009)
Whitestone REIT Operating Partnership III LP, Hartman REIT Operating Partnership III LP LTD, Whitestone
REIT Operating Partnership III GP LLC and KeyBank National Association, dated January 25, 2008 (previously
Promissory Note among Whitestone Centers LLC and Sun Life Assurance Company of Canada dated February 3,
filed as and incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2007, filed on March 31, 2008)
2009 (previously filed and incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
8-K, filed February 10, 2009)
Promissory Note among Whitestone Centers LLC and Sun Life Assurance Company of Canada dated February 3,
2009 (previously filed and incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
8-K, filed February 10, 2009)
67
3.1.1
10.8+
3.1.2
10.9
3.1.3
10.10
3.1.4
10.11
3.1.5
3.1.6
10.12
3.1.7
10.13
3.2
10.14
10.1
10.2
10.15
10.3
10.16
10.4
10.17+
10.18+
10.5
10.19+
10.6
10.20
10.7
10.21
10.22
120
80
Table of Contents
Exhibit No. Description
Whitestone REIT and Subsidiaries
Index to Exhibits
3.1.1
10.23
3.1.2
10.24
3.1.3
10.25+
3.1.4
3.1.5
10.26+
3.1.6
10.27+
3.1.7
10.28+
3.2
10.1
10.29
10.2
10.30
10.3
10.31
10.4
10.32
10.5
10.33
10.6
10.34+
10.7
Articles of Amendment and Restatement of Whitestone REIT (previously filed as and incorporated by reference
Promissory Note among Whitestone Centers LLC and Sun Life Assurance Company of Canada dated February 3,
to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on July 31, 2008)
2009 (previously filed and incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form
8-K, filed February 10, 2009)
Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant’s
Current Report on Form 8-K, filed December 6, 2006)
Agreement of Purchase and Sale between Whitestone REIT Operating Partnership, L.P. and Bank One, Chicago,
NA, as trustee for Midwest Development Venture IV dated December 18, 2008 (previously filed and incorporated
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.1 to the Registrant's Current
by reference to Exhibit 10.8 to Registrant’s Quarterly Report on Form 10-Q, filed on May 15, 2009)
Report on Form 8-K, filed on August 24, 2010)
Trustee Restricted Common Share Grant Agreement (Time Vested) between Whitestone REIT and Daryl J. Carter
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.2 to the Registrant’s Current
(previously filed and incorporated by reference to Exhibit 10.9 to Registrant’s Quarterly Report on Form 10-Q,
Report on Form 8-K, filed on August 24, 2010)
filed on May 15, 2009)
Articles Supplementary (previously filed and incorporated by reference to Exhibit 3.3 to the Registrant’s Current
Trustee Restricted Common Share Grant Agreement (Time Vested) between Whitestone REIT and Daniel G.
Report on Form 8-K, filed on August 24, 2010)
DeVos (previously filed and incorporated by reference to Exhibit 10.10 to Registrant’s Quarterly Report on Form
10-Q, filed on May 15, 2009)
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.1 to the Registrant's
Current Report on Form 8-K, filed June 27, 2012)
Trustee Restricted Common Share Grant Agreement (Time Vested) between Whitestone REIT and Donald F.
Keating (previously filed and incorporated by reference to Exhibit 10.11 to Registrant’s Quarterly Report on Form
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.2 to the Registrant's
10-Q, filed on May 15, 2009)
Current Report on Form 8-K, filed June 27, 2012)
Trustee Restricted Common Share Grant Agreement (Time Vested) between Whitestone REIT and Jack L.
Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit
Mahaffey (previously filed and incorporated by reference to Exhibit 10.12 to Registrant’s Quarterly Report on
3.1 to the Registrant’s Current Report on Form 8-K, filed October 9, 2008)
Form 10-Q, filed on May 15, 2009)
Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously filed as and
incorporated by reference to Exhibit 10.1 to the Registrant’s General Form for Registration of Securities on Form
Promissory Note dated September 10, 2010 between Whitestone REIT Operating Company IV LLC and MidFirst
10, filed on April 30, 2003)
Bank (previously filed and incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
8-K, filed September 16, 2010)
Certificate of Formation of Whitestone REIT Operating Partnership II GP, LLC (previously filed as and
incorporated by reference to Exhibit 10.3 to the Registrant’s General Form for Registration of Securities on Form
Modification of Promissory Note dated September 10, 2010 between Whitestone REIT Operating Company IV
10, filed on April 30, 2003)
LLC and MidFirst Bank (previously filed and incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K, filed September 16, 2010)
Limited Liability Company Agreement of Whitestone REIT Operating Partnership II GP, LLC (previously filed
as and incorporated by reference to Exhibit 10.4 to the Registrant’s General Form for Registration of Securities
Limited Guarantee dated September 10, 2010 between Whitestone REIT Operating Company IV LLC and
on Form 10, filed on April 30, 2003)
MidFirst Bank (previously filed and incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on
Form 8-K, filed September 16, 2010)
Agreement of Limited Partnership of Whitestone REIT Operating Partnership II, L.P. (previously filed as and
incorporated by reference to Exhibit 10.6 to the Registrant’s General Form for Registration of Securities on Form
Promissory Note between Whitestone Featherwood LLC and Viewpoint Bank dated March 31, 2011 (previously
10, filed on April 30, 2003)
filed and incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed April 5,
2011)
Amendment to the Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously
filed in and incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-11,
Commission File No. 333-111674, filed on December 31, 2003)
Assumption Agreement among U.S. National Bank Association, Scottsdale Pinnacle LP, Howard Bankchik, Steven
J. Fogel, Whitestone Pinnacle of Scottsdale, LLC and Whitestone REIT Operating Partnership, LP and Whitestone
Promissory Note between HCP REIT Operating Company IV LLC and MidFirst Bank, dated March 1, 2007
REIT, dated December 22, 2011 (previously filed and incorporated by reference to Exhibit 10.35 to the Registrant’s
(previously filed and incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-
Annual Report on Form 10-K for the year ended December 31, 2011, filed on February 29, 2012)
K for the year ended December 31, 2006, filed on March 30, 2007)
First Amendment to the Whitestone REIT 2008 Long-Term Equity Incentive Ownership Plan (previously filed
Term Loan Agreement among Whitestone REIT Operating Partnership, L.P., Whitestone Pima Norte LLC,
and incorporated by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K, filed on March 1,
Whitestone REIT Operating Partnership III LP, Hartman REIT Operating Partnership III LP LTD, Whitestone
2011)
REIT Operating Partnership III GP LLC and KeyBank National Association, dated January 25, 2008 (previously
filed as and incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2007, filed on March 31, 2008)
67
121
81
Table of Contents
Exhibit No. Description
Whitestone REIT and Subsidiaries
Index to Exhibits
Articles of Amendment and Restatement of Whitestone REIT (previously filed as and incorporated by reference
Separation Agreement between Whitestone REIT and Valarie King (previously filed and incorporated by reference
to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on July 31, 2008)
to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed August 9, 2012)
Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant’s
Summary of Relocation Agreement between Whitestone REIT and James C. Mastandrea (previously filed and
Current Report on Form 8-K, filed December 6, 2006)
incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed August 9, 2012)
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.1 to the Registrant's Current
Separation Agreement between Whitestone REIT and Richard Rollnick (previously filed and incorporated by
Report on Form 8-K, filed on August 24, 2010)
reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed November 6, 2013)
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.2 to the Registrant’s Current
Loan Agreement, dated November 26, 2013, by and between Whitestone Industrial-Office LLC and Jackson
Report on Form 8-K, filed on August 24, 2010)
National Life Insurance Company (previously filed and incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed December 3, 2013)
Articles Supplementary (previously filed and incorporated by reference to Exhibit 3.3 to the Registrant’s Current
Report on Form 8-K, filed on August 24, 2010)
Fixed Rate Promissory Note by Whitestone Industrial-Office LLC to Jackson Life National Insurance Company,
dated November 26, 2013 (previously filed and incorporated by reference to Exhibit 10.2 to the Registrant’s
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.1 to the Registrant's
Current Report on Form 8-K, filed December 3, 2013)
Current Report on Form 8-K, filed June 27, 2012)
Employment Agreement between Whitestone REIT and James C. Mastandrea (previously filed and incorporated by
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.2 to the Registrant's
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed August 29, 2014)
Current Report on Form 8-K, filed June 27, 2012)
Employment Agreement between Whitestone REIT and David K. Holeman (previously filed and incorporated by
Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit
reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed August 29, 2014)
3.1 to the Registrant’s Current Report on Form 8-K, filed October 9, 2008)
Change in Control Agreement between Whitestone REIT and John J. Dee (previously filed and incorporated by
Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously filed as and
incorporated by reference to Exhibit 10.1 to the Registrant’s General Form for Registration of Securities on Form
reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed August 29, 2014)
10, filed on April 30, 2003)
Change in Control Agreement between Whitestone REIT and Bradford D. Johnson (previously filed and
Certificate of Formation of Whitestone REIT Operating Partnership II GP, LLC (previously filed as and
incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K, filed August 29, 2014)
incorporated by reference to Exhibit 10.3 to the Registrant’s General Form for Registration of Securities on Form
10, filed on April 30, 2003)
Amended and Restated Credit Agreement between Whitestone REIT Operating Partnership, L.P. and Bank
of Montreal dated November 7, 2014 (previously filed and incorporated by reference to Exhibit 10.1 to the
Limited Liability Company Agreement of Whitestone REIT Operating Partnership II GP, LLC (previously filed
Registrant’s Current Report on Form 8-K, filed November 12, 2014)
as and incorporated by reference to Exhibit 10.4 to the Registrant’s General Form for Registration of Securities
on Form 10, filed on April 30, 2003)
Change in Control Agreement between Whitestone REIT and Christine J. Mastandrea (previously filed and
incorporated by reference to Exhibit 10.45 to the Registrant’s Annual Report on Form 10-K, filed March 2, 2015)
Agreement of Limited Partnership of Whitestone REIT Operating Partnership II, L.P. (previously filed as and
incorporated by reference to Exhibit 10.6 to the Registrant’s General Form for Registration of Securities on Form
Form of Restricted Unit Award Agreement (Time Vested) (previously filed and incorporated by reference to Exhibit
10, filed on April 30, 2003)
10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 7, 2015)
Amendment to the Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously
filed in and incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-11,
Amended and Restated Equity Distribution Agreement, dated June 4, 2015, by and among Whitestone REIT,
Commission File No. 333-111674, filed on December 31, 2003)
Whitestone REIT Operating Partnership, L.P., and Wells Fargo Securities, LLC (previously filed and incorporated
by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K, filed on June 4, 2015)
Promissory Note between HCP REIT Operating Company IV LLC and MidFirst Bank, dated March 1, 2007
(previously filed and incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-
Amended and Restated Equity Distribution Agreement, dated June 4, 2015, by and among Whitestone REIT,
K for the year ended December 31, 2006, filed on March 30, 2007)
Whitestone REIT Operating Partnership, L.P., and JMP Securities LLC (previously filed and incorporated by
reference to Exhibit 1.2 to the Registrant’s Current Report on Form 8-K, filed on June 4, 2015)
Term Loan Agreement among Whitestone REIT Operating Partnership, L.P., Whitestone Pima Norte LLC,
Whitestone REIT Operating Partnership III LP, Hartman REIT Operating Partnership III LP LTD, Whitestone
REIT Operating Partnership III GP LLC and KeyBank National Association, dated January 25, 2008 (previously
filed as and incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2007, filed on March 31, 2008)
67
3.1.1
10.35+
3.1.2
10.36+
3.1.3
10.37+
3.1.4
10.38
3.1.5
10.39
3.1.6
10.40+
3.1.7
10.41+
3.2
10.42+
10.1
10.43+
10.2
10.44
10.3
10.45+
10.4
10.46
10.5
10.47
10.6
10.48
10.7
122
82
Table of Contents
Exhibit No. Description
Whitestone REIT and Subsidiaries
Index to Exhibits
3.1.1
10.49
3.1.2
10.50
3.1.3
10.51
3.1.4
3.1.5
10.52
3.1.6
10.53
3.1.7
10.54
3.2
10.1
10.55
10.2
10.56
10.3
10.57
10.4
10.58
10.5
10.6
10.59
10.7
10.60
10.61
Articles of Amendment and Restatement of Whitestone REIT (previously filed as and incorporated by reference
Amended and Restated Equity Distribution Agreement, dated June 4, 2015, by and among Whitestone REIT,
to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on July 31, 2008)
Whitestone REIT Operating Partnership, L.P., and BMO Capital Markets Corp. (previously filed and incorporated
by reference to Exhibit 1.3 to the Registrant’s Current Report on Form 8-K, filed on June 4, 2015)
Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant’s
Current Report on Form 8-K, filed December 6, 2006)
Amended and Restated Equity Distribution Agreement, dated June 4, 2015, by and among Whitestone REIT,
Whitestone REIT Operating Partnership, L.P., and Wunderlich Securities, Inc. (previously filed as and incorporated
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.1 to the Registrant's Current
by reference to Exhibit 1.4 to the Registrant’s Current Report on Form 8-K, filed on June 4, 2015)
Report on Form 8-K, filed on August 24, 2010)
Amended and Restated Equity Distribution Agreement, dated June 4, 2015, by and among Whitestone REIT,
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.2 to the Registrant’s Current
Whitestone REIT Operating Partnership, L.P., and Ladenburg Thalmann (previously filed and incorporated by
Report on Form 8-K, filed on August 24, 2010)
reference to Exhibit 1.5 to the Registrant’s Current Report on Form 8-K, filed on June 4, 2015)
Articles Supplementary (previously filed and incorporated by reference to Exhibit 3.3 to the Registrant’s Current
Amended and Restated Equity Distribution Agreement, dated June 4, 2015, by and among Whitestone REIT,
Report on Form 8-K, filed on August 24, 2010)
Whitestone REIT Operating Partnership, L.P., and Robert W. Baird & Co. Incorporated (previously filed and
incorporated by reference to Exhibit 1.6 to the Registrant’s Current Report on Form 8-K, filed on June 4, 2015)
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.1 to the Registrant's
Current Report on Form 8-K, filed June 27, 2012)
First Amendment to Amended and Restated Credit Agreement between Whitestone REIT Operating Partnership,
L.P. and Bank of Montreal dated October 30, 2015 (previously filed and incorporated by reference to Exhibit 10.1
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.2 to the Registrant's
to the Registrant’s Current Report on Form 8-K, filed November 5, 2015)
Current Report on Form 8-K, filed June 27, 2012)
Contribution Agreement, dated December 8, 2016, among Whitestone REIT Operating Partnership, L.P.,
Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit
Pillarstone Capital REIT and Pillarstone Capital REIT Operating Partnership LP (previously filed and incorporated
3.1 to the Registrant’s Current Report on Form 8-K, filed October 9, 2008)
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed December 9, 2016).
Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously filed as and
incorporated by reference to Exhibit 10.1 to the Registrant’s General Form for Registration of Securities on Form
OP Unit Purchase Agreement, dated December 8, 2016, among Whitestone REIT Operating Partnership, L.P.,
10, filed on April 30, 2003)
Pillarstone Capital REIT and Pillarstone Capital REIT Operating Partnership LP (previously filed and incorporated
by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed December 9, 2016).
Certificate of Formation of Whitestone REIT Operating Partnership II GP, LLC (previously filed as and
incorporated by reference to Exhibit 10.3 to the Registrant’s General Form for Registration of Securities on Form
Second Amendment to Amended and Restated Credit Agreement, Joinder and Reaffirmation of Guaranties,
10, filed on April 30, 2003)
dated December 8, 2016, among Whitestone REIT Operating Partnership, L.P., Whitestone REIT, Pillarstone
Capital REIT Operating Partnership LP, et al., as guarantors, the lenders party thereto, and Bank of Montreal, as
Limited Liability Company Agreement of Whitestone REIT Operating Partnership II GP, LLC (previously filed
Administrative Agent (previously filed and incorporated by reference to Exhibit 10.4 to the Registrant’s Current
as and incorporated by reference to Exhibit 10.4 to the Registrant’s General Form for Registration of Securities
Report on Form 8-K, filed December 9, 2016).
on Form 10, filed on April 30, 2003)
Limited Guarantee, dated December 8, 2016, between Pillarstone Capital REIT Operating Partnership LP and
Agreement of Limited Partnership of Whitestone REIT Operating Partnership II, L.P. (previously filed as and
Bank of Montreal, as Administrative Agent (previously filed and incorporated by reference to Exhibit 10.5 to the
incorporated by reference to Exhibit 10.6 to the Registrant’s General Form for Registration of Securities on Form
Registrant’s Current Report on Form 8-K, filed December 9, 2016).
10, filed on April 30, 2003)
Amended and Restated Limited Partnership Agreement of Pillarstone Capital REIT Operating Partnership LP,
Amendment to the Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously
filed in and incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-11,
dated December 8, 2016 (previously filed and incorporated by reference to Exhibit 10.6 to the Registrant’s Current
Commission File No. 333-111674, filed on December 31, 2003)
Report on Form 8-K, filed December 9, 2016).
Promissory Note between HCP REIT Operating Company IV LLC and MidFirst Bank, dated March 1, 2007
Agreement of Purchase and Sale, dated as of March 21, 2017, between Whitestone REIT Operating Partnership,
(previously filed and incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-
L.P. and Phase II Boulevard Place, LP (previously filed and incorporated by reference to Exhibit 10.1 to the
K for the year ended December 31, 2006, filed on March 30, 2007)
Registrant’s Quarterly Report on Form 10-Q, filed on August 4, 2017).
Term Loan Agreement among Whitestone REIT Operating Partnership, L.P., Whitestone Pima Norte LLC,
Operating Partnership, L.P. and Phase II Boulevard Place, LP (previously filed and incorporated by reference to
Whitestone REIT Operating Partnership III LP, Hartman REIT Operating Partnership III LP LTD, Whitestone
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on August 4, 2017).
REIT Operating Partnership III GP LLC and KeyBank National Association, dated January 25, 2008 (previously
filed as and incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2007, filed on March 31, 2008)
Operating Partnership, L.P. and Phase II Boulevard Place, LP (previously filed and incorporated by reference to
Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, filed August 4, 2017).
67
123
83
Table of Contents
Table of Contents
Exhibit No. Description
Whitestone REIT and Subsidiaries
Index to Exhibits
3.1.1
10.62
10.62+
Articles of Amendment and Restatement of Whitestone REIT (previously filed as and incorporated by reference
2018 Long-Term Equity Incentive Ownership Plan (previously filed as and incorporated by reference to
2018 Long-Term Equity Incentive Ownership Plan (previously filed as and incorporated by reference to Exhibit
to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on July 31, 2008)
Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on May 12, 2017).
10.1 to the Registrant’s Current Report on Form 8-K, filed on May 12, 2017).
3.1.2
12.1*
12.1*
21.1*
21.1*
3.1.3
23.1*
23.1*
3.1.4
24.1
24.1
31.1*
3.1.5
31.1*
31.2*
31.2*
3.1.6
32.1**
32.1**
32.2**
3.1.7
32.2**
Statement of Calculation of Consolidated Ratio of Earnings to Fixed Charges
Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3(i).1 to the Registrant’s
Statement of Calculation of Consolidated Ratio of Earnings to Fixed Charges
Current Report on Form 8-K, filed December 6, 2006)
List of subsidiaries of Whitestone REIT
List of subsidiaries of Whitestone REIT
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.1 to the Registrant's Current
Report on Form 8-K, filed on August 24, 2010)
Consent of Pannell Kerr Forster of Texas, P.C.
Consent of Pannell Kerr Forster of Texas, P.C.
Articles of Amendment (previously filed and incorporated by reference to Exhibit 3.2 to the Registrant’s Current
Power of Attorney (included on the signature page hereto)
Report on Form 8-K, filed on August 24, 2010)
Power of Attorney (included on the signature page hereto)
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Articles Supplementary (previously filed and incorporated by reference to Exhibit 3.3 to the Registrant’s Current
Report on Form 8-K, filed on August 24, 2010)
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.1 to the Registrant's
Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Current Report on Form 8-K, filed June 27, 2012)
Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.2 to the Registrant's
Current Report on Form 8-K, filed June 27, 2012)
3.2
101.INS***
Amended and Restated Bylaws of Whitestone REIT (previously filed as and incorporated by reference to Exhibit
3.1 to the Registrant’s Current Report on Form 8-K, filed October 9, 2008)
XBRL Instance Document
101. SCH***
XBRL Taxonomy Extension Schema Document
10.1
101.CAL***
Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously filed as and
incorporated by reference to Exhibit 10.1 to the Registrant’s General Form for Registration of Securities on Form
10, filed on April 30, 2003)
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB***
XBRL Taxonomy Extension Label Linkbase Document
10.2
Certificate of Formation of Whitestone REIT Operating Partnership II GP, LLC (previously filed as and
incorporated by reference to Exhibit 10.3 to the Registrant’s General Form for Registration of Securities on Form
10, filed on April 30, 2003)
XBRL Taxonomy Extension Presentation Linkbase Document
101.PRE***
101.DEF***
10.3
XBRL Taxonomy Extension Definition Linkbase Document
Limited Liability Company Agreement of Whitestone REIT Operating Partnership II GP, LLC (previously filed
as and incorporated by reference to Exhibit 10.4 to the Registrant’s General Form for Registration of Securities
on Form 10, filed on April 30, 2003)
________________________
10.4
*
**
Filed herewith.
Furnished herewith.
Agreement of Limited Partnership of Whitestone REIT Operating Partnership II, L.P. (previously filed as and
incorporated by reference to Exhibit 10.6 to the Registrant’s General Form for Registration of Securities on Form
10, filed on April 30, 2003)
10.5
Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in XBRL
***
Amendment to the Agreement of Limited Partnership of Whitestone REIT Operating Partnership, L.P. (previously
(eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of December 31, 2017 and 2016, (ii) the
filed in and incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-11,
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2017, 2016 and 2015,
Commission File No. 333-111674, filed on December 31, 2003)
(iii) the Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015, (iv) the
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 and (v) the Notes to
Consolidated Financial Statements.
Promissory Note between HCP REIT Operating Company IV LLC and MidFirst Bank, dated March 1, 2007
(previously filed and incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-
K for the year ended December 31, 2006, filed on March 30, 2007)
10.6
10.7
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part
Term Loan Agreement among Whitestone REIT Operating Partnership, L.P., Whitestone Pima Norte LLC,
of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are
Whitestone REIT Operating Partnership III LP, Hartman REIT Operating Partnership III LP LTD, Whitestone
deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not
REIT Operating Partnership III GP LLC and KeyBank National Association, dated January 25, 2008 (previously
subject to liability under those sections.
filed as and incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2007, filed on March 31, 2008)
+ Denotes management contract or compensatory plan or arrangement.
124
84
67
72
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CORPORATE HEADQUARTERS
Whitestone REIT
2600 South Gessner Road, Suite 500
Houston, TX 77063
Toll Free: 866-789-7348
Phone: 713-827-9595
Email: IR@whitestonereit.com
Website: www.whitestonereit.com
INVESTOR RELATIONS
Shareholders are encouraged to contact
Kevin Reed, Director of Investor Relations,
at the Company with questions or requests
for information. A copy of the Company’s
Annual Report on Form 10-K as filed with the
Securities and Exchange Commission is included
as part of this annual report and is available
upon written request and online at the SEC
website: www.sec.gov
REGISTRAR & TRANSFER AGENT
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, New York 11219
ACCOUNT MAINTENANCE INQUIRES
SHOULD BE DIRECTED TO
AST Shareholder Services Department
888-999-0027
718-921-8200
CORPORATE INFORMATION
BOARD OF TRUSTEES
JAMES C. MASTANDREA, Chairman and Chief Executive Officer, Whitestone
REIT; Chairman, Chief Executive Officer and President, Pillarstone Capital REIT
and MDC Realty Corporation; former Chairman and Chief Executive Officer of
First Union REIT (NYSE); Director, Cleveland State University Foundation Board;
Adjunct Professor, Rice University; Guest Lecturer, University of Chicago.
NANDITA V. BERRY, Former 109th Texas Secretary of State; former Board
Member of the University of Houston System Board of Regents; former Senior
Counsel of Locke Lord LLP and El Paso Energy Corporation, former Board
Member of the Houston Zoo, Inc., the South Asian Chamber of Commerce and
the Community Family Center of Houston; Adjunct Professor, University of
Houston.
DONALD F. KEATING, Former Chief Financial Officer, Shell Mining Company;
former Director, Billiton Metal Company, R&F Coal Company and Marrowbone
Coal Company.
PAUL T. LAMBERT, President, Lambert Capital Corporation; former Principal
and Managing Partner, Shidler Group; Founder and former Director and Chief
Operating Officer, First Industrial Realty Trust; Trustee, Pillarstone Capital REIT.
NAJEEB A. KHAN, Founder, President and Chief Executive Officer of Interlogic
Outsourcing, Inc. (“IOI” is the successor to Interlogic Systems, Inc. “ISI”); former
Vice President of Commercial Services, Midwest Commerce Data Corporation;
Chairman and Chief Executive Officer of CNA UniSource; Director of 1st Source
Bank; former Trustee of Memorial Health Foundation, The Community Foundation
of St. Joseph County, WNIT public television, and Studebaker Museum.
JACK L. MAHAFFEY, Former Chairman, President and Chief Executive Officer,
Shell Mining Company, Former Director, National Coal Association and the
National Coal Council.
DAVID F. TAYLOR, Current Chair, of Locke Lord LLP; Managing Partner of
Houston office of Locke Lord, LLP. Board of the Greater Houston Partnership,
Central Houston, Inc, Theatre Under the Stars, and Oldham Little Church
Foundation.
SENIOR MANAGEMENT TEAM
JAMES C. MASTANDREA, Chairman and Chief Executive Officer
DAVID K. HOLEMAN, Chief Financial Officer
JOHN J. DEE, Chief Operating Officer
BRADFORD D. JOHNSON, Executive Vice President, Acquisitions & Asset Management
CHRISTINE J. MASTANDREA, Executive Vice President, Corporate Strategy
KEVIN REED, Director of Investor Relations
J. SCOTT HOGAN, Vice President and Controller
VINCE MOUER, Corporate Counsel
TRAVIS L. RODGERS, Director of Operations
MICHELLE SIV, Director of Human Resources
DANIEL P. KOVACEVIC, Regional Vice President, Southwest Region
DIANA ARMSTRONG, Regional Director, Houston Region
MATT OKMIN, Division Director, Austin/San Antonio
DAVE SPAGNOLO, Division Director, Dallas/Fort Worth
AUSTIN
Davenport Village • Quinlan Crossing • Parkside Village North • Parkside Village South
DALLAS
Heritage Trace Plaza • Shops at Starwood • Headquarters Village • Keller Place • Eldorado Plaza
HOUSTON
BLVD Place • Williams Trace Plaza • The Shops at Williams Trace • South Richey • Shaver Street Center •
Bissonnet Beltway Plaza • Westchase Plaza • Sunridge Center • Town Park Plaza • Providence Plaza • Sugar Park
Plaza • Kempwood Plaza • Torrey Square • Lion Square • Woodlake Plaza
PHOENIX
Fulton Ranch Towne Center • Promenade at Fulton Ranch • Gilbert Tuscany Village • Ahwatukee Plaza •
Pinnacle of Scottsdale • Sunset at Pinnacle Peak • Village Square at Dana Park • Fountain Square • Shops at
Pecos Ranch • Mercado at Scottsdale Ranch • Pima Norte • The Citadel • Marketplace at Central • Desert
Canyon • Terravita Marketplace • Paradise Plaza • Anthem Marketplace • Fountain Hills Plaza • Market Street at
DC Ranch • La Mirada Center • Scottsdale Seville
SAN ANTONIO
City View Village • The Strand at Huebner Oaks • Windsor Park Centre
CHICAGO
Spoerlein Commons
WS R
LISTED
NYSE
HOUSTON CORPORATE HEADQUARTERS: 2600 South Gessner Road, Suite 500, Houston, TX 77063 | Toll Free 866.789.7348
ARIZONA REGIONAL OFFICE: 20789 North Pima Road, Suite 210, Scottsdale, AZ 85255 | Phone 480.584.6181
DALLAS DIVISION OFFICE: 4144 North Central Expressway, Suite 610, Dallas, TX 75204 | Phone 214.824.7888
AUSTIN DIVISION OFFICE: 3801 North Capital of Texas Highway, Suite E-205, Austin, TX 78746 | Phone 512.992.1507
SAN ANTONIO DIVISION OFFICE: 11225 Huebner Road, San Antonio, TX 78230 | Phone 210.437.3037
www.whitestonereit.com