2021
ANNUAL
REPORT
CONNECTING
COMMUNITY AND
CONVENIENCE
Communities That Thrive
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2021 HIGHLIGHTS
60
Properties
1,500+
Tenants
5.2 M SF
Total GLA
91.3%
Occupancy
10.8%(1)
Leasing Spreads
$20+
PSF Annual Base Rent
TOTAL SHARHOLDER RETURN
January 2021 to March 2022
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DEAR FELLOW SHAREHOLDERS
The last two years have been unprecedented and have been turbulent for
investors. More than ever, investors are searching for companies that will deliver
consistent, sustainable growth.
Over that time, we were challenged in ways we never imagined. But those
challenges revealed the strength of our team’s character, the resilience and
“fighting spirit” of our tenants, the quality of our revenue and validated our
strategic decision to operate in high growth markets in business-friendly states
and build a tenant mix focused on convenience and connection to the community.
2021 Highlights:
f Grew total revenues by 6.3% to $125.4 million
f Increased net income attributable to common shareholders per share to
$0.26 from $0.14 in 2020
f 8.9% increase in FFO per share to $0.86 as compared to $0.79 in 2020,
excluding $0.04 gain from loan forgiveness
f Increased Occupancy by 3.1% to 91.3%
f Increased Effective Average Net Effective Annual Base Rent per Leased
Square Foot (2) by 7.7% to $21.08
f Positive Comparable Total Leasing Spreads (GAAP) of 10.8% (1)
• Renewal Leases: 12.2%
• New Leases: 6.1%
f Grew Same-Store Net Operating Income by 5.7%
f Record Total Leasing: Total lease value signed in 2021 of $131.9 million, an
increase of 75% from 2020 and 50% from 2019
f Improved Debt Leverage: Debt to EBITDA ratio improved 1.1 turns to 9.1X
f Grew liquidity (3) to $103 million from $44 million
As I stepped into the role of CEO earlier this year, my focus centered on actions
that will help ensure long-term success for our tenants, our customers, our
communities, our associates, and our shareholders.
In brief, those actions are:
f Commitment to Corporate Responsibility – Advancing the interests of all our
stakeholders
f Re-Shaping of the Executive Leadership Team with high character
passionate leaders who possess integrity, self-awareness, gratitude, learning
agility, courage, and respect
f Building a first-rate, diverse team of employees, dedicated to our success
f Drive organic growth from owning high-quality open-air shopping centers in
the best markets in the country that serve as daily touch points in surban (4)
areas and provide necessity and service to the surrounding communities
• Leasing – Customer engagement, understanding their businesses and
ensuring the right fit in our centers
• Localization versus standardization – Knowing our communities and
adapting to diverse consumer markets
• Quality of revenue - Predictable and stress tested, profitable and
designed to grow, and with a diverse, community-connected, well-
crafted tenant mix
OUR PROPERTIES
AUSTIN - SAN ANTONIO
Anderson Arbor
Davenport Village
Quinlan Crossing
City View Village
Parkside Village North
Parkside Village South
The Strand at Huebner Oaks
Windsor Park Centre
DALLAS - FORT WORTH
Eldorado Plaza
Headquarters Village
Heritage Trace Plaza
Keller Place
Lakeside Market
Las Colinas Village
Shops at Starwood
HOUSTON
BLVD Place
Bissonnet Beltway Plaza
Kempwood Plaza
Lion Square
Providence Plaza
Shaver Street Center
Shops at Williams Trace
South Richey
Sugar Park Plaza
Sunridge Center
Town Park Plaza
West Memorial - Office
Westchase Plaza
Williams Trace Plaza
PHOENIX
Ahwatukee Plaza
Anthem Marketplace
Desert Canyon
Fountain Hills Plaza
Fountain Square
Fulton Ranch Towne Center
Gilbert Tuscany Village
La Mirada
Market Street at DC Ranch
Marketplace at Central
Mercado at Scottsdale Ranch
Paradise Plaza
Pima Norte
Pinnacle of Scottsdale
Scottsdale Seville
Sunset at Pinnacle Peak
Terravita Marketplace
The Citadel
The Promenade at Fulton Ranch
The Shops at Pecos Ranch
Village Square at Dana Park
CHICAGO
Spoerlein Commons
WHITESTONE REIT 2021 ANNUAL REPORT
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f Listening to shareholders and engaging in best governance practices
f Reducing G&A expenses, particularly associated with management compensation
f Focusing on growth that delivers consistent, sustainable increases in FFO per share and long-term
shareholder value
f Strengthening our balance sheet – grow liquidity, reduced debt leverage
We believe that the initiatives above will allow us to continue to deliver strong returns over the course
of the next decade. Our core business model is built around the idea that individuals will continue to
flock to localized centers designed around the needs of the community. We also strongly believe that
migration to warmer, business friendly states will continue at a robust pace.
Commitment to Corporate Responsibility
We have a responsibility to do good while we do well.
Whitestone is committed to enhancing our ESG program, with a focus on our people, our communities,
governance, and environmental stewardship, under-pinned by meaningful engagement with investors,
tenants, and other stakeholders.
Recent ESG Accomplishments
f Separated CEO and Chairman of the Board roles
f Terminated Shareholder Rights Plan (poison pill)
f Onboarded ESG data management software solution
f Continued building a diverse, talented employee team
2022 Objectives
f Strategy – Further development of strategy and policies for ESG oversight and risk management,
including investment and acquisition criteria
f Reporting – Publish next Corporate Responsibility & Sustainability Report
f Benchmarking – Submit first GRESB Real Estate Assessment
f Engagement – Continue to engage stakeholders in sustainability and Diversity, Equity & Inclusion
discussions
A Look Ahead
We are well positioned going into 2022 with:
f Our new leadership team in place
f Record 2021 leasing activity
f Increasing occupancy and rental rates
f Immediate reductions to our G&A expenses
f An Improving Balance Sheet
f Best-in-class geographic focus, and
f A well-crafted and “stress tested” tenant base
We will work diligently to be good stewards for all stakeholders and remain committed to our corporate
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responsibility efforts. The fundamentals for long-term growth are firmly in place and through the
hard work of our dedicated team we expect to deliver best-in-class FFO per share growth in 2022 and
consistent, sustainable growth for years to come.
Warren Buffett frequently says that “In the short run, the market is a voting machine, but in the long
run, it is a weighing machine.” We strongly believe that both the short and long-term are bright for
Whitestone and are excited about the opportunity ahead.
We truly appreciate our investors and will work daily to earn your confidence and to attract new
shareholders in 2022.
I also would like to thank our talented and dedicated employees who continue to deliver day in and day
out. We have a strong partnership with our employees and understand their success is inexorably linked
to ours.
In closing, we hope investors not only have the opportunity to read the pages that follow, but to visit
our centers, interact with our employees and see what makes Whitestone unique.
Sincerely,
David K. Holeman
Chief Executive Officer
(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. Increase % represents the rent on a straight-lined basis for
the new or renewed leases versus the prior lease in the space.
(2) Represents (i) the contractual base rent for leases in place as of December 31, 2021, 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 of December 31, 2021.
(3) Represents the total of cash on hand and availability on Credit Facility.
(4) Suburbs with an urban feel and urban services.
Note: The Company does not provide a reconciliation of forward-looking non-GAAP financial measures to the comparable GAAP
financial measures because we are unable to reasonably predict certain items contained in the GAAP measures, including non-
recurring and infrequent items that are not indicative of the Company’s ongoing operations. Such items include, but are not limited
to, net gain or loss on sale or disposal of assets, gain on sale of property from discontinued operations and pro rata net gain or loss on
sale or disposal of properties or assets of real estate partnership. These items are uncertain, depend on various factors and could have
a material impact on our GAAP results for the guidance period. A reconciliation of FFO to net income attributable to Whitestone REIT
for 2021 is included herein.
WHITESTONE REIT 2021 ANNUAL REPORT
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
(Mark One)
☒
☐
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:
Title of each class
Common Shares of Beneficial Interest, par
value $0.001 per share
Preferred Stock Purchase Rights
Trading Symbol(s)
Name of each exchange on which registered
WSR
N/A
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
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 ☒
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 every Interactive Data File required to be submitted 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 such files).
Yes ☒ No ☐
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 ☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
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, 2021 (the last business day of the registrant’s
most recently completed second fiscal quarter) was $376,965,526.
As of March 9, 2022, the registrant had 49,145,844 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 2022 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, 2021.
WHITESTONE REIT
FORM 10-K
Year Ended December 31, 2021
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities.
Reserved.
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.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
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.
Page
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61
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 reflect 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 income 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;
adverse economic or real estate developments or conditions in Texas or Arizona, Houston and Phoenix in particular,
including the potential impact of COVID-19 on our tenants’ ability to pay their rent, which could result in bad debt
allowances or straight-line rent reserve adjustments;
increases in interest rates, operating costs or general and administrative expenses;
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 tenant leases or obtain new tenant leases 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;
the need to fund tenant improvements or other capital expenditures out of operating cash flow; and
the risk that we are unable to raise capital for working capital, acquisitions or other uses on attractive terms or at all.
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.
PART I
Item 1. Business.
General
We are a Maryland REIT engaged in owning and operating commercial properties in culturally diverse markets in
major metropolitan areas. 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, 2021, we wholly-owned a real estate portfolio of 60 properties
that meet our Community Centered Property® strategy containing approximately 5.2 million square feet of gross leasable area
(“GLA”), located in Texas, Arizona and Illinois. Our consolidated property portfolio has a gross book value of approximately
$1.2 billion and book equity, including noncontrolling interests, of approximately $399 million as of December 31, 2021.
Further, as of December 31, 2021, we, through our equity-method investment in Pillarstone Capital REIT Operating
Partnership LP (“Pillarstone” or “Pillarstone OP”), owned a majority interest in eight properties that do not meet our
Community Centered Property® strategy containing approximately 0.9 million square feet of GLA (the “Pillarstone
Properties”). We own 81.4% of the total outstanding units of Pillarstone OP, which we account for using the equity method.
We also manage the day-to-day operations of Pillarstone OP. In this Annual Report on Form 10-K, unless otherwise indicated,
we do not include the Pillarstone Properties when we refer to our properties.
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 Road, 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, we 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, medical, educational, financial
services, entertainment and experiences. 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. As of
December 31, 2021, we wholly-owned 15 properties in Houston, nine properties in Dallas-Fort Worth, three
properties in San Antonio, five properties in Austin, 27 properties in the Scottsdale and Phoenix, Arizona
metropolitan areas, and one property in Buffalo Grove, Illinois, a suburb of Chicago.
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.
1
◦
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 own (the “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.
Prudent Management of Capital Structure. Of our 60 properties, 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 debt, net of cash, to
undepreciated book value of real estate assets, including our proportional share of real estate from our unconsolidated
real estate partnership, that is at or less than 60%. As of December 31, 2021, our ratio of debt, net of cash, to
undepreciated book value of real estate assets was 51%.
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, 2021, we owned a 98.5% interest in the Operating Partnership.
As of December 31, 2021, we wholly-owned a real estate portfolio consisting of 60 properties located in three
states. The aggregate occupancy rate of our portfolio was 91% based on GLA as of December 31, 2021.
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, 2021, our total revenues
were approximately $125.4 million.
Additionally, we, through our equity-method investment in Pillarstone, owned a majority interest in eight properties
located in Dallas and Houston, Texas. The aggregate occupancy rate of the Pillarstone properties was 58% based on GLA as of
December 31, 2021.
Our largest property, BLVD Place (“BLVD”), a retail community purchased on May 26, 2017 and located in Houston,
Texas, accounted for 11.8% of our total revenues for the year ended December 31, 2021. BLVD also accounted for 15.9% of
our consolidated real estate assets, net of accumulated depreciation, as of the year ended December 31, 2021.
2
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.
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.
3
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.
Human Capital
We believe that our people are the heart of our culture, philosophy and strategy. Our employees are in direct contact
with our tenants and the communities we serve. We continually focus on developing associates who are self-disciplined and
motivated and display at all times a high degree of character and competence. Employee engagement is critical to our long term
success, so employees’ performance are reviewed annually. Employees are provided with equity incentives to align their
interests with those of our shareholders. Every Whitestone associate is encouraged to be an owner by being issued with stock as
part of their compensation package.
As of December 31, 2021, we had 86 full-time employees.
Diversity: We strive to create a culture of inclusivity and think of our shareholders, our tenants, and our communities
as one. Every year, we hold diversity and sensitivity training for management and associates to reiterate the importance within
our organization and to ensure that all associates practice this approach both internally and externally. We do not tolerate
disrespectful or inappropriate behavior, unfair treatment, retaliation or harassment of any kind. In addition, pursuant to our
bylaws, we seek to nominate trustees to the Board that represent a diversity of experience, gender, race, ethnicity and age.
Though we have no formal policy addressing diversity, any individual who does not satisfy the qualifications above is not
eligible for nomination or election as a trustee. This commitment to diversity applies across our Company.
Employee Retention and Training: We conduct individual annual employee reviews that focus on goal setting as well
as informal sessions with associates and executive team members. We created the Real Estate Executive Development program
for associates that wish to continue their career and knowledge of Whitestone REIT and real estate. Selected associates are
chosen on an annual basis to participate in the program. In addition, for associates that wish to continue their education,
whether it be receiving a Bachelors, MBA, or specialized certification, we will help to reimburse a portion of the fees for the
program in accordance with Company policy. We also conduct a variety of trainings on an annual basis from OSHA and Safety
Regulations to Anti-Harassment Training to ensure we are up-to-date on the most recent standards and regulations.
Compensation and Benefits: We are committed to rewarding, supporting, and developing the associates who make it
possible to deliver on our strategy. Our compensation package includes market-competitive pay, broad-based stock grants and
bonuses, healthcare benefits, pension and retirement savings plans, among others. We also offer our team a variety of options
for College Savings and 401(k) programs, including an employer 401(k) match up to 3.5%. There is a financial planner on site
on a quarterly basis to help assist associates choose the best savings options.
Health and Safety: The health and safety of our employees and their families is a top priority. We created an internal
program that encourages associates to make healthy choices and lead a healthy lifestyle, including a gym reimbursement
program.
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
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. The SEC 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.
4
Financial Information
Additional financial information related to the Company is included in Item 8 “Financial Statements and
Supplementary Data.”
5
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
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, nor can we 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 resources to correct defects or to make improvements before a property can be sold.
We cannot assure 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.
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. A
number of our tenants operate service and retail businesses that require in-person interactions with their customers to generate
revenues, and the COVID-19 pandemic has affected customers’ willingness to frequent some of our tenants’ businesses, which
has impacted and may continue to impact their ability to fulfill their obligations to us. 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, 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. Turmoil in the capital markets could adversely
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impact the overall amount of capital available to invest in real estate, which may result in price or value decreases of real estate
assets.
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.
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 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 their 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. 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.
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, 2021, 24% and 45% of our 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 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
7
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 were to experience an economic downturn, our operations and ability
to make distributions to our shareholders could be adversely impacted.
The ongoing COVID-19 pandemic has in the past and may continue to materially and adversely impact and disrupt our
business, financial condition, results of operations and cash flows. Any future outbreak of any COVID-19 variants or any
other highly infectious or contagious disease could have a similar impact.
The impact of COVID-19, including any resurgences, future pandemics or other health crises may also heighten other
risks discussed herein, which could adversely affect our business, financial condition, results of operations, cash flows and
market value. These type of health crises may impact our business in the following ways:
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•
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•
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•
closures of, or other operational issues at, our properties resulting from government or tenant action;
reduced economic activity impacting our tenants' ability to meet their rental and other obligations to us in full or at all;
the ability of our tenants who have been granted rent deferrals to timely pay deferred rent;
any inability to renew leases or lease vacant space on favorable terms, or at all;
tenant bankruptcies;
liquidity issues resulting from reduced cash flows from operations;
negative impacts to the credit and/or capital markets making it difficult to access capital on favorable terms or at all;
impairment in value of our tangible or intangible assets;
a general decline in business activity and demand for real estate transactions adversely affecting our ability to grow our
portfolio of properties and service our indebtedness;
supply chain disruptions adversely affecting our tenants' operations; and
impacts on the health of our personnel and a disruption in the continuity of our business.
Because substantially all of our income is derived from rentals of commercial real property, our business, income, cash
flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations and our ability to
pay dividends and other distributions to our shareholders would be adversely affected if a significant number of tenants are
unable to meet their obligations or their revenues decline. The extent to which the COVID-19 pandemic, or a future pandemic,
impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be
predicted with confidence.
We lease our properties to approximately 1,600 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, 2021, approximately
28% of the aggregate GLA of our properties is subject to leases that expire prior to December 31, 2023. We are subject to the
risk that:
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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,
8
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.
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, including as a result of climate change, 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.”
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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, health and safety concerns such as the recent coronavirus outbreak and increasing online consumer
purchases.
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. We have experienced
cyber-attacks, and while to date none of these incidents have been material to our operations, we expect to continue to face such
threats in the future. We employ a number of measures to prevent, detect and mitigate these threats, but there is no guarantee
such efforts will be successful in preventing future cyber-attacks. In addition, cybersecurity incidents could compromise the
confidential information of our tenants, employees and third party vendors that we collect in the ordinary course of our
business. Laws and expectations relating to data protection and privacy vary by jurisdiction and continue to evolve, and we
believe increased regulation in additional jurisdictions is likely to develop in the future. For example, the California Consumer
Privacy Act (CCPA), that went into effect on January 1, 2020, requires covered companies to, among other things, provide new
disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information.
A cyber-attack or our ability or perceived inability to comply with regulations related to cybersecurity and/or data protection
and privacy could materially and adversely affect the efficiency of our business operations, which in turn could have a material
adverse effect on our reputation, competitiveness and results of operations.
We are subject to risks related to corporate social and environmental responsibility and reputation.
A number of factors influence our reputation and brand value, including how we are perceived by our tenants, business
partners, investors, associates, other stakeholders and the communities in which we do business. We face increasing scrutiny
related to environmental, social and governance (“ESG”) activities and disclosures and risk damage to our reputation if we fail
to act appropriately and responsibly in ESG matters, including, among others, environmental stewardship, supply chain
management, climate change, human rights, diversity and inclusion, workplace ethics and conduct, philanthropic activity and
support for the communities we serve and in which we operate. Any damage to our reputation could impact the willingness of
our business partners and customers to do business with us, or could negatively impact our associate hiring, engagement and
retention, all of which could have a material adverse effect on our business, results of operations and cash flows.
Recent changes in our executive management team may be disruptive to, or cause uncertainty in, our business, results of
operations and the price of our common shares.
On January 18, 2022, the Board of Trustees terminated James Mastandrea, with cause, from his position as Chief
Executive Officer. Mr. Mastandrea was also replaced as Chairman of the Board. Following his termination, the Board of
Trustees appointed Dave Holeman, previously our Chief Financial Officer, as Chief Executive Officer. We also recently
replaced our Chief Operating Officer and our Executive Vice President of Acquisitions and Asset Management. These changes,
as well as future change, in our executive management team may be disruptive to, or cause uncertainty in, our business, and
may have a negative impact on our ability to grow and manage our business effectively.
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The recently adopted Pillarstone REIT shareholder rights plan could adversely impact the value of our investment in
Pillarstone OP.
On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new rights agreement (the “Pillarstone
Rights Agreement”), pursuant to which each holder of Pillarstone REIT common stock received one preferred share purchase
right (a “Right”) per common share held as of the applicable record date. Each Right entitles the registered holder to purchase
from Pillarstone REIT one one-thousandth (a “Unit”) of a series D preferred share of Pillarstone at a purchase price (“Purchase
Price”) of $7.00 per Unit, subject to adjustment. The Rights are exercisable upon the occurrence of certain events as described
in the Pillarstone Rights Agreement, including the acquisition by certain holders of 5% or more of the common shares of
Pillarstone REIT (an “Acquiring Person”). Upon the acquisition of Pillarstone REIT common shares by an Acquiring Person,
each holder of a Right (other than an Acquiring Person), will have the right to receive upon exercise a number of Pillarstone
REIT common shares having a market value of two times the Purchase Price.
As set forth in the Amended and Restated Limited Partnership Agreement of Pillarstone OP, dated as of December 8,
2016 (the “Pillarstone Partnership Agreement”), we have the contractual right to have our limited partnership interests in
Pillarstone redeemed at our discretion. However, upon receipt of a redemption notice, Pillarstone OP has the option of the
applicable redemption price in cash, based on the market value of Pillarstone REIT common shares, or in Pillarstone REIT
common shares.
To the extent we seek to have our partnership units in Pillarstone OP redeemed and Pillarstone OP elects to pay the
applicable redemption price in Pillarstone REIT common shares (and such shares represent 5% or more of the outstanding
common shares of Pillarstone REIT), the Rights could become exercisable. To the extent the Rights are exercised as a result of
our Pillarstone OP units being redeemed for Pillarstone REIT common shares, our ownership interest in Pillarstone REIT would
be significantly diluted, which could adversely impact the value of our investment in Pillarstone OP. While we do not believe
the overall impact of the Pillarstone Rights Agreement on the value of our investment in Pillarstone OP is material, we cannot
reasonably estimate a range of possible loss at this time.
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, 2021, we had
fixed rate hedges on $265 million of our variable rate unsecured credit facility. We may enter into additional interest rate swap
agreements for our variable rate debt not currently subject to hedges, which totaled $119.5 million as of December 31, 2021.
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.
As of December 31, 2021, we had outstanding indebtedness, net of cash, of $627.9 million, including, through our
Operating Partnership, $100.0 million aggregate principal amount of the Notes (as defined below) and $384.5 million drawn on
the 2019 Facility (as defined below). As of December 31, 2021, our unused borrowing capacity under our 2019 Facility was
$130.5 million. Obligations under the Notes and the 2019 Facility are guaranteed by the Company and certain subsidiary
guarantors. Our current debt agreements, including the agreements governing the Notes and the 2019 Facility, contain, and any
future debt agreements may contain, a number of restrictive and financial covenants that impose significant operating and
financial restrictions on us. Such restrictive covenants may significantly limit our ability to:
sell or otherwise dispose of assets;
incur additional debt, including issuing guarantees;
incur liens;
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• make certain investments;
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• make acquisitions;
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• make distributions to our shareholders;
engage in restructuring activities;
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engage in certain sale and leaseback transactions; and
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issue or repurchase common shares or other securities.
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engage in mergers or consolidations or certain other “change of control” transactions;
Such agreements may also require us to satisfy other requirements, including maintaining certain financial ratios and
condition tests. Our ability to meet these requirements can be affected by events beyond our control, and we may be unable to
meet them. To the extent we fail to meet any such requirements and are in default under our debt obligations, our financial
condition may be materially adversely affected. Further, these restrictions may limit our ability to engage in activities that could
otherwise benefit us. To the extent that we are unable to engage in activities that support the growth, profitability and
competitiveness of our business, our results of operations may be materially adversely affected.
12
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, 2021, we had approximately $159.1 million of mortgage debt secured by
seven of our 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.
13
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:
•
•
•
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.
Changes in how LIBOR is determined, or the potential replacement of LIBOR with an alternative reference rate, may
adversely affect our interest expense.
A number of our current debt agreements, including our 2019 Facility (as defined below), have an interest rate tied to
the London Interbank Offered Rate (“LIBOR”). The U.K. Financial Conduct Authority announced in 2017 that it would no
longer compel banks to submit rates for the calculation of LIBOR after 2021. It is not possible to predict whether banks will
continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or
supported after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. It is
expected that a transition away from the widespread use of LIBOR to alternative rates is likely to occur during the next several
years. We cannot predict the impact of the phase out of LIBOR on our debt agreements and interest rates. While some of our
current debt agreements provide procedures for determining an alternative base rate in the event that LIBOR is discontinued,
not all do so. Regardless, there can be no assurances as to what alternative base rates may be and whether such base rate will be
more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. The Company
intends to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and work with its lenders to
ensure any transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances
regarding the impact of the discontinuation of LIBOR on its financial condition or whether the discontinuation of LIBOR would
have a material adverse effect on its results of operations.
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;
14
•
•
•
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.
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.
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:
•
•
•
•
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.
15
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.
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.
We could be subject to additional taxes upon the occurrence of certain events that must be paid to maintain our REIT status
for federal tax purposes.
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 expired on
December 8, 2021. 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.
Changes to the U.S. federal income tax laws, including the enactment of certain tax reform measures, could have an adverse
impact on our business and financial results.
16
We cannot predict whether, when, or to what extent any new U.S. federal tax laws, regulations, interpretations, or
rulings will impact the real estate investment industry or REITs. Prospective investors are urged to consult their tax advisors
regarding the effect of potential future changes to the federal tax laws on an investment in our shares.
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.
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.
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.
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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.
General Risk Factors
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. 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. 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, and 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.
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:
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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;
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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, health and safety epidemics, such as the COVID-19 pandemic,
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.
Some or all of these factors may affect our properties, which could adversely affect our operations and ability to make
distributions to shareholders.
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;
the failure of an acquired property to perform as expected; and
failure to finance an acquisition on favorable terms or at all.
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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 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.
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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. We may identify deficiencies in our system of internal controls over financial
reporting that may require remediation. 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.
Item 1B. Unresolved Staff Comments.
None.
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Item 2. Properties.
General
As of December 31, 2021, we wholly-owned 60 commercial properties, including 15 properties in Houston, nine properties in
Dallas-Fort Worth, three properties in San Antonio, five properties in Austin, 27 properties in the Scottsdale and Phoenix, Arizona
metropolitan areas, and one property in Buffalo Grove, Illinois, a suburb of Chicago.
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
basic items are less sensitive to fluctuations in the business cycle than higher priced retail items. Our largest tenant represented only 2.6% of
our total revenues for the year ended December 31, 2021.
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, 2021:
Commercial Properties
Whitestone
Average
Occupancy as
of
12/31/21
Annualized Base
Rental Revenue
(in thousands) (1)
Average
Annualized
Base
Rental Revenue
Per Sq. Ft. (2)
91 % $
97,136 $
20.50
GLA
5,205,966
(1) Calculated as the tenant’s actual December 31, 2021 base rent (defined as cash base rents including abatements) multiplied by
12. Excludes vacant space as of December 31, 2021. 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, 2021 equaled approximately $381,000 for the month ended December 31, 2021.
(2) Calculated as annualized base rent divided by GLA leased as of December 31, 2021. Excludes vacant space as of December 31, 2021.
Our largest property, BLVD Place, a retail community purchased on May 26, 2017 and located in Houston, Texas, accounted for
11.8% of our total revenues for the year ended December 31, 2021. BLVD also accounted for 15.9% of our real estate assets, net of
accumulated depreciation, for the year ended December 31, 2021.
As of December 31, 2021, approximately $159.1 million of our total debt of $643.6 million was secured by seven of our properties
with a combined net book value of $247.2 million.
Location of Properties
Of our 60 wholly-owned properties, 15 are located in the greater Houston metropolitan statistical area. These properties represent
27% of our revenue for the year ended December 31, 2021. An additional 27 of our wholly-owned properties are located in the greater
Phoenix metropolitan statistical area and represent 42% of our revenue for the year ended December 31, 2021.
According to the United States Census Bureau, Houston and Phoenix ranked seventh and thirteenth, respectively, in the largest
United States metropolitan statistical areas as of December 31, 2021. The following table sets forth information about the unemployment
rate in Houston, Phoenix and nationally during the last six months of 2021.
July
5.4%
6.8%
5.7%
Aug.
5.2%
6.1%
4.7%
Sept.
4.7%
5.6%
3.8%
Oct.
4.6%
5.4%
3.2%
Nov.
4.2%
5.1%
2.8%
Dec.
3.9%
4.8%(P)
2.4%(P)
National (1)
Houston (2)
Phoenix (2)
(1) Seasonally adjusted.
(2) Not seasonally adjusted.
(P) Represents preliminary estimates.
Source: Bureau of Labor Statistics
21
General Physical and Economic Attributes
The following table sets forth certain information relating to each of our properties owned as of December 31, 2021.
Whitestone REIT and Subsidiaries
Property Details
As of December 31, 2021
Community Name
Location
Year
Built/
Renovated
Gross
Leasable
Square
Feet
Percent
Occupied
at
12/31/2021
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
Anthem Marketplace Phase II
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
Las Colinas Village
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
Seville
Shaver
Shops at Pecos Ranch
Shops at Starwood
The Shops at Williams Trace
South Richey
Spoerlein Commons
Starwood Phase II
Phoenix
Phoenix
Phoenix
Houston
Houston
Phoenix
San Antonio
Austin
Phoenix
Dallas
Phoenix
Phoenix
Phoenix
Phoenix
Phoenix
Dallas
Dallas
Dallas
Houston
Phoenix
Dallas
Houston
Phoenix
Phoenix
Phoenix
Phoenix
Austin
Austin
Phoenix
Phoenix
Phoenix
Phoenix
Houston
Austin
Phoenix
Houston
Phoenix
Dallas
Houston
Houston
Chicago
Dallas
The Strand at Huebner Oaks
San Antonio
SugarPark Plaza
Sunridge
Sunset at Pinnacle Peak
Houston
Houston
Phoenix
1979
2000
2019
1978
2014
2013
2005
1999
2000
2004
2009
1986
2005
2009
2009
2006
2009
2001
1974
1997
2000
2014
2012
2003
1987
1983
2005
2012
2007
1991
2017
2007
1980
2012
1990
1978
2009
2006
1985
1980
1987
2016
2000
1974
1979
2000
72,650
113,293
6,853
29,205
216,944
28,547
17,870
128,934
62,533
219,287
111,289
118,209
120,575
49,415
14,603
70,431
89,134
93,541
91,302
147,209
104,919
117,592
111,130
244,888
118,730
125,898
27,045
90,101
35,110
113,108
27,063
98,792
90,327
109,892
90,042
21,926
78,767
55,385
132,991
69,928
41,455
35,351
73,920
95,032
49,359
41,530
22
81 % $
770 $
13.08 $
88 %
100 %
90 %
100 %
99 %
100 %
99 %
88 %
95 %
95 %
90 %
96 %
91 %
100 %
100 %
97 %
96 %
88 %
89 %
85 %
100 %
99 %
96 %
86 %
90 %
100 %
100 %
64 %
99 %
100 %
80 %
92 %
97 %
90 %
94 %
88 %
99 %
93 %
100 %
90 %
90 %
98 %
96 %
93 %
97 %
1,527
235
401
9,320
487
556
3,312
786
3,252
1,657
1,865
2,065
882
128
1,675
2,553
1,009
1,208
3,248
2,603
1,862
1,123
5,209
1,676
1,590
864
2,352
366
2,543
838
1,104
1,067
2,563
2,660
341
1,849
1,757
2,137
758
746
1,176
1,696
1,196
708
760
15.32
34.29
15.26
42.96
17.23
31.11
25.95
14.28
15.61
15.67
17.53
17.84
19.61
8.77
23.78
29.53
11.24
15.04
24.79
29.19
15.83
10.21
22.16
16.41
14.03
31.95
26.10
16.29
22.71
30.96
13.97
12.84
24.04
32.82
16.55
26.68
32.04
17.28
10.84
19.99
36.96
23.41
13.11
15.42
18.87
13.46
14.99
34.00
14.84
45.80
17.97
31.23
26.32
15.17
16.37
16.38
17.18
17.79
20.30
8.90
23.94
36.73
11.74
14.94
23.85
26.45
16.34
10.29
21.63
16.30
12.96
38.60
27.14
17.85
23.09
29.49
13.50
13.41
25.53
32.70
16.40
28.19
33.36
19.90
10.44
21.15
37.28
26.23
12.75
16.10
18.17
Phoenix
Houston
Phoenix
Houston
Houston
San Antonio
Houston
Dallas
Austin
Houston
Phoenix
Dallas
Phoenix
Phoenix
Terravita Marketplace
Town Park
Village Square at Dana Park
Westchase
Williams Trace Plaza
Windsor Park
Woodlake Plaza
Total/Weighted Average -
Whitestone Properties
Development Properties:
Lakeside Market
Anderson Arbor
Total/Weighted Average -
Development Properties
Land Held for Development:
BLVD Phase II-B
Dana Park Development
Eldorado Plaza Development
Fountain Hills
Market Street at DC Ranch
Total/Weighted Average - Land Held
For Development (4)
Grand Total/Weighted Average -
Whitestone Properties
Whitestone REIT and Subsidiaries
Property Details
As of December 31, 2021
102,733
76 %
1997
1978
2009
1978
1983
2012
1974
2000
2001
N/A
N/A
N/A
N/A
N/A
43,526
323,026
50,332
129,222
196,458
106,169
4,953,571
162,649
89,746
252,395
—
—
—
—
—
—
96 %
82 %
73 %
90 %
97 %
64 %
92 %
82 %
89 %
85 %
—
—
—
—
—
—
1,198
1,014
5,902
601
1,814
1,960
1,174
92,143
3,261
1,732
4,993
—
—
—
—
—
—
15.34
24.27
22.28
16.36
15.60
10.29
17.28
20.22
24.45
21.68
23.27
—
—
—
—
—
—
14.69
24.20
23.46
16.30
16.01
10.09
16.91
20.76
25.41
23.26
24.46
—
—
—
—
—
—
5,205,966
91 % $
97,136 $
20.50 $
21.08
(1) Calculated as the tenant’s actual December 31, 2021 base rent (defined as cash base rents including abatements) multiplied by 12.
Excludes vacant space as of December 31, 2021. Because annualized base rental revenue is not derived from historical results that were
accounted for in accordance with generally accepted accounting principles, historical results differ from the annualized amounts. Total
abatements for leases in effect as of December 31, 2021 equaled approximately $382,000 for the month ended December 31, 2021.
(2) Calculated as annualized base rent divided by gross leasable area leased as of December 31, 2021. Excludes vacant space as of
December 31, 2021.
(3) Represents (i) the contractual base rent for leases in place as of December 31, 2021, 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 of December 31, 2021.
(4) As of December 31, 2021, these parcels of land were held for development and, therefore, had no gross leasable area.
23
Significant Tenants
The following table sets forth information about our 15 largest tenants as of December 31, 2021, based upon consolidated
annualized rental revenues at December 31, 2021.
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)
Austin,
Houston and
Phoenix
$
Houston
Houston
Houston
Phoenix
2,531
2,247
1,988
1,071
1,010
2.6 %
2.3 %
2.0 %
1.1 %
1.0 %
Verizon Wireless (4)
Walgreens & Co. (5)
Alamo Drafthouse Cinema
Dollar Tree (6)
Wells Fargo & Company (7)
Kroger Co.
Regus Corporation
Paul's Ace Hardware
Original Ninfas LP
Whataburger University
Houston and
Phoenix
Houston and
Phoenix
Austin
Houston and
Phoenix
Phoenix
Dallas
Houston
Phoenix
Houston
San Antonio
953
1.0 %
946
690
641
592
483
460
427
411
374
1.0 %
0.7 %
0.7 %
0.6 %
0.5 %
0.5 %
0.4 %
0.4 %
0.4 %
$
14,824
15.2 %
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
8/16/1994,
2/1/2004,
5/10/2004,
1/27/2006 and
5/1/2014
11/14/1982,
11/2/1987,
8/24/1996 and
11/3/1996
2/1/2012
8/10/1999,
6/29/2001,
11/8/2009,
12/17/2009,
and 5/21/2013
10/24/1996 and
4/16/1999
12/15/2000
5/23/2014
3/1/2008
8/29/2018
2/1/2018
2022, 2024,
2025, 2025,
2026 and 2034
2035
2024
2026
2024 and 2029
2022, 2023,
2024, 2024 and
2038
2022, 2027,
2049 and 2056
2031
2023, 2025,
2025, 2026 and
2027
2022 and 2023
2022
2025
2033
2029
2023
(1) Annualized Base Rental Revenues represents the monthly base rent as of December 31, 2021 for each applicable tenant multiplied by 12.
(2) As of December 31, 2021, 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 $1,047,000, which
represents approximately 1.1% 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 $44,000, 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 2026, 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 2025, was $353,000, which represents approximately 0.4% 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 2025, was $425,000, which represents approximately 0.4% of
our total annualized base rental revenue.
24
(3) As of December 31, 2021, 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 $281,000, 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 $729,000, which represents approximately 0.8% of our total annualized base
rental revenue
(4) As of December 31, 2021, 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 2038, was $23,000,
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 2023, was $136,000, 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 2024, was$38,000, 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 $749,000, which
represents approximately 0.8% 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.
(5) As of December 31, 2021, 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 $189,000, 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 2027, 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.
(6) As of December 31, 2021, we had five leases with the same tenant occupying space at properties in Houston and Phoenix. The
annualized rental revenue for the lease that commenced on August 10, 1999, and is scheduled to expire in 2025, was $88,000, 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 2025, was $118,000, 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 2026, 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 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, 2021, 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 2023, was $460,000, which represents approximately 0.5% of our total
annualized base rental revenue.
25
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, 2021
Number of
Leases
Approximate
Square Feet
Percent of
Total
Amount
(in thousands)
Percent of
Total
338
220
223
207
157
88
42
27
25
25
809,680
643,589
779,008
799,264
578,350
319,800
189,818
172,744
75,890
123,498
15.6 % $
12.4 %
15.0 %
15.4 %
11.1 %
6.1 %
3.6 %
3.3 %
1.5 %
2.4 %
14,753
12,640
16,500
15,189
11,755
7,103
4,336
3,234
2,349
3,403
1,352
4,491,641
86.4 % $
91,262
15.1 %
13.0 %
16.9 %
15.6 %
12.1 %
7.3 %
4.4 %
3.3 %
2.4 %
3.5 %
93.6 %
Year
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
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 subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally
covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of
such matters will not have a material adverse effect on our financial position, results of operations, cash flows or liquidity. See Note 16
Commitments and Contingencies to the accompanying consolidated financial statements for more information.
Item 4. Mine Safety Disclosures.
Not applicable.
26
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 9, 2022, we had
49,145,844 common shares of beneficial interest outstanding held by a total of 860 shareholders of record.
On March 9, 2022, the closing price of our common shares reported on the NYSE was $13.04 per share.
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
Not Applicable.
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”), the Financial Times Stock Exchange (“FTSE”) National Association of Real Estate Investment
Trusts (“NAREIT”) Equity REITs Index (“FTSE NAREIT Equity REITs Index”), and to the FTSE NAREIT Equity Shopping
Centers Index from December 31, 2016 to December 31, 2021. The graph assumes that the value of the investment in our
common shares and in the S&P 500 Index, the FTSE NAREIT Equity REITs Index and the FTSE NAREIT Equity Shopping
Centers Index was $100 at December 31, 2016, and all dividends were reinvested. The closing price of our common shares on
December 30, 2016 (on which the graph is based) was $14.38. 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.
27
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURNAmong Whitestone REIT, the S&P 500 Index,the FTSE NAREIT Equity REITs Index, and FTSE NAREIT Equity Shopping Centers IndexWhitestone REITS&P 500 IndexFTSE NAREIT Equity REITs IndexFTSE NAREIT Equity Shopping Centers Index12/31/1612/31/1712/31/1812/31/1912/31/2012/31/21$50$100$150$200$250 Item 6. Reserved
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, we 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, 2021, we wholly-owned 60 commercial properties consisting of:
Consolidated Operating Portfolio
•
53 properties that meet our Community Centered Properties® strategy; and containing approximately 4.9
million square feet of GLA and having a total carrying amount (net of accumulated depreciation) of $905.9
million; and
Redevelopment, New Acquisitions Portfolio
•
•
two wholly owned properties, Lakeside Market and Anderson Arbor, that meet our Community Centered
Properties® containing approximately 0.2 and 0.1 million square feet of GLA and having a total carrying
amount (net of accumulated depreciation) of $52.7 and $28.2 million respectively.
five parcels of land held for future development that meet our Community Centered Properties® strategy
having a total carrying amount of $19.8 million.
As of December 31, 2021, we had an aggregate of 1,567 tenants. We have a diversified tenant base with our largest
tenant comprising only 2.6% of our total revenues for the year ended December 31, 2021. 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 400 new and renewal
leases during 2021, totaling 1,046,700 square feet and $131.9 million in total lease value.
We employed 86 full-time employees as of December 31, 2021. 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.
Real Estate Partnership
As of December 31, 2021, we, through our investment in Pillarstone OP, owned a majority interest in eight properties
that do not meet our Community Centered Property® strategy containing approximately 0.9 million square feet of GLA (the
“Pillarstone Properties”). We own 81.4% of the total outstanding units of Pillarstone OP, which we account for using the
equity method. We also manage the day-to-day operations of Pillarstone OP.
28
Market Conditions and COVID-19
COVID-19
The global health crisis caused by COVID-19 and the related responses intended to control its spread may continue to
adversely affect business activity, particularly relating to our retail tenants, across the markets in which we operate. In light of
the changing nature of the COVID-19 pandemic, we are unable to predict the extent that its impact will have on our financial
condition, results of operations and cash flows.
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.
Refer to “Item 1A - Risk Factors” in this Annual Report on Form 10-K for additional information.
How We Derive Our Revenue
Substantially all of our revenue is derived from rents received from leases at our properties. We had total revenues of
approximately $125,365,000 for the year ended December 31, 2021 as compared to $117,915,000 for the year ended
December 31, 2020, a increase of $7,450,000, or 6%.
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. During the three years prior to 2020, 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. In 2020 the impact of the COVID-19
pandemic temporarily affected this trend. However, as of the date of this Annual Report on Form 10-K, collection rates and rent
increases have substantially returned to pre-pandemic levels. Included in our adjustments to rental revenue for the years ending
December 31, 2021 and 2020, were bad debt adjustments of $0.1 million and $2.3 million, respectively, and a straight-line rent
reserve adjustments of $0.9 million and $1.2 million. respectively, related to credit loss for the conversion of 59 and 102
tenants, respectively, to cash basis revenue as a result of COVID-19 collectability analysis. We are unable to predict the impact
that the COVID-19 pandemic will have on our rental income in the long term. The situation surrounding the COVID-19
pandemic remains fluid, and we are actively managing our response in collaboration with tenants, government officials and
business partners and assessing potential impacts to our and our tenants’ financial positions and operating results.
Scheduled Lease Expirations
We tend to lease space to smaller businesses that desire shorter term leases. As of December 31, 2021, approximately
28% of our GLA was subject to leases that expire prior to December 31, 2023. Over the last three years, we have renewed
expiring leases with respect to approximately 73% 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
29
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.
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, 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 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. 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 Acquisitions. On December 1, 2021 we acquired Anderson Arbor, a property that meets our Community
Centered Property® strategy, for $28.1 million in cash and net prorations. Anderson Arbor, a 89,746 square foot property, was
89% leased at the time of purchase and is located in Austin, Texas.
On July 8, 2021, we acquired Lakeside Market, a property that meets our Community Centered Property® strategy, for
$53.2 million in cash and net prorations. Lakeside Market, a 162,649 square foot property, was 80.5% leased at the time of
purchase and is located in Plano, Texas.
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 own (the “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.
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 that, at the time, owned 14 non-core properties (the “Pillarstone Properties”) that did not
fit our Community Centered Property® strategy, to Pillarstone for aggregate consideration of approximately $84 million,
consisting of (1) approximately $18.1 million of Class A units representing limited partnership interests in Pillarstone
(“Pillarstone OP Units”) and (2) the assumption of approximately $65.9 million of liabilities (collectively, the “Contribution”).
As of December 31, 2021, we owned approximately 81.4% of the total outstanding Pillarstone OP Units, which we
account for under the equity method. See Note 4 Investment in Real Estate Partnership to the accompanying consolidated
financial statements for more information on our accounting treatment of our investment in Pillarstone OP.
30
Leasing Activity
As of December 31, 2021, we wholly-owned 60 properties with 5,205,966 square feet of GLA, which were
approximately 91% occupied. The following is a summary of the Company’s leasing activity for the year ended December 31,
2021:
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
Comparable (1)
Renewal Leases
New Leases
Total/Average
Total
Renewal Leases
New Leases
Total/Average
221
81
302
613,560
156,452
770,012
4.7 $
6.0
5.0 $
4.44 $
16.16
6.82 $
21.23 $
23.54
21.70 $
20.87
25.08
21.72
12.2 %
6.1 %
10.8 %
Number of
Leases Signed
GLA Signed
Weighted
Average Lease
Term (2)
TI and
Incentives per
Sq. Ft. (3)
Contractual Rent
Per Sq. Ft (4)
235
165
400
648,227
398,473
1,046,700
4.7 $
6.5
5.4 $
4.53 $
17.41
9.43 $
21.20
22.25
21.60
(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, development 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.
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 $0.12 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, 2021, our cash provided from operating activities was $47.0 million and our total
dividends and distributions paid were $19.7 million. Therefore, we had cash flow from operations in excess of distributions of
approximately $27.3 million. The 2019 Facility included a $300 million unsecured borrowing capacity under a revolving credit
facility, two $50 million term loans and one $100 million term loan. The 2019 Facility also included an accordion feature that
allowed 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 2019 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
31
of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. As of
December 31, 2021, subject to any potential future paydowns or increases in the borrowing base, we have $86.8 million
remaining availability under the revolving credit facility.
Our ability to access the capital markets will be dependent on a number of factors as well, including general market
conditions for REITs and market perceptions about our Company. In light of the dynamics in the capital markets impacted by
the COVID-19 pandemic and the economic slowdown, our access to capital may be diminished. Despite these potential
challenges, we believe we have sufficient access to capital for the foreseeable future, but we can provide no assurance that such
capital will be available to us on attractive terms or at all.
On April 30, 2020, the Company entered into a loan in the principal amount of $1,733,510 from U.S. Bank National
Association, one of the Company’s existing lenders, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the
CARES Act. The PPP Loan was set to mature on May 6, 2022 (the “Maturity Date”), and accrued interest at 1.00% per annum
and could be prepaid in whole or in part without penalty. Pursuant to the CARES Act, the Company applied for and was
granted forgiveness for all of the PPP Loan. Forgiveness was determined by the U.S. Small Business Administration based on
the use of loan proceeds for payroll costs, mortgage interest, rent or utility costs and the maintenance of employee and
compensation levels. The Company used all proceeds from the PPP Loan to retain employees and maintain payroll and make
mortgage payments, lease payments and utility payments to support business continuity throughout the COVID-19 pandemic.
Pursuant to the guidance in Financial Accounting Standards Board (“FASB”) ASC 405-20, “Liabilities - Extinguishment of
Liabilities,” the Company recognized a $1,734,000 gain for the PPP Loan forgiveness during the year ended December 31,
2020 based on the legal release from the U.S. Small Business Administration.
On May 15, 2019, our universal shelf registration statement on Form S-3 was declared effective by the SEC, allowing
us to offer up to $750 million in securities from time to time, including common shares, preferred shares, debt securities,
depositary shares and subscription rights.
On May 31, 2019, we entered into nine equity distribution agreements for an at-the-market equity distribution program
(the “2019 equity distribution agreements”) providing for the issuance and sale of up to an aggregate of $100 million of the
Company’s common shares pursuant to our Registration Statement on Form S-3 (File No. 333-225007). Actual sales will
depend on a variety of factors 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 were 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 2019 equity distribution agreements
or terminate the 2019 equity distribution agreements. For the years ended December 31, 2021, 2020 and 2019, we sold
6,287,087, 170,942 and 1,612,389 common shares, respectively, under the 2019 equity distribution agreements, with net
proceeds to us of approximately $56.0 million, $2.2 million and $21.2 million, respectively. In connection with such sales, we
paid compensation of approximately $853,000, $34,000 and $324,000, respectively, to the sales agents.
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 8 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 and restricted cash of approximately $15,914,000 at December 31, 2021, as
compared to $25,956,000 at December 31, 2020. The decrease of $10,042,000 was primarily the result of the following:
32
Sources of Cash
Cash flow from operations of $47,040,000 for the year ended December 31, 2021 compared to cash flow from
operations of $42,776,000 for the year ended December 31, 2020;
Proceeds from issuance of common shares, net of offering and exchange offer costs of $55,918,000 compared to
proceeds from issuance of common shares, net of offering and exchange offer costs of $2,198,000;
Cash provided by investing activities of discontinued operations of $1,833,000 compared to $0;
Uses of Cash
Acquisition of real estate of $81,588,000 compared to $0;
Payment of dividends and distributions to common shareholders and OP unit holders of $19,651,000 compared to
$25,714,000;
Additions to real estate of $9,642,000 compared to $7,362,000;
Payments of notes payable of $3,261,000 compared to $12,164,000; and
Repurchase of common shares of $691,000 compared to $2,077,000.
•
•
•
•
•
•
•
•
We place all cash in short-term, highly liquid investments that we believe provide appropriate safety of principal.
Equity Offerings
On May 31, 2019, we entered into nine equity distribution agreements for an at-the-market equity distribution program
(the “2019 equity distribution agreements”) providing for the issuance and sale of up to an aggregate of $100 million of the
Company’s common shares. Actual sales will depend on a variety of factors 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 were 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 2019 equity distribution agreements or terminate the 2019 equity distribution agreements. For the
years ended December 31, 2021 and 2020, we sold 6,287,087 and 170,942 common shares, respectively, under the 2019 equity
distribution agreements, with net proceeds to us of approximately $56.0 million and $2.2 million, respectively. In connection
with such sales, we paid compensation of approximately $853,000 and $34,000, respectively, to the sales agents.
We have used and anticipate using net proceeds from common shares issued pursuant to the 2019 equity distribution
agreements for general corporate purposes, which may include acquisitions of additional properties, the repayment of
outstanding indebtedness, capital expenditures, the expansion, redevelopment and/or re-tenanting of properties in our portfolio,
working capital and other general purposes.
33
Debt
Debt consisted of the following as of the dates indicated (in thousands):
Description
Fixed rate notes
$100.0 million, 1.73% plus 1.35% to 1.90% Note, due October 30, 2022 (1)
$165.0 million, 2.24% plus 1.35% to 1.90% Note, due January 31, 2024 (2)
$80.0 million, 3.72% Note, due June 1, 2027
$
$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
$15.1 million 4.99% Note, due January 6, 2024
$2.6 million 5.46% Note, due October 1, 2023
$50.0 million, 5.09% Note, due March 22, 2029
$50.0 million, 5.17% Note, due March 22, 2029
Floating rate notes
Unsecured line of credit, LIBOR plus 1.40% to 1.90%, due January 31,
2023
Total notes payable principal
Less deferred financing costs, net of accumulated amortization
December 31,
2021
2020
100,000 $
165,000
80,000
18,358
17,808
12,978
13,773
13,907
2,289
50,000
50,000
119,500
643,613
(771)
100,000
165,000
80,000
18,687
18,222
13,236
14,014
14,165
2,339
50,000
50,000
119,500
645,163
(978)
644,185
$
642,842 $
(1) Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 3 (as defined below) at 1.73%.
(2) Promissory note includes an interest rate swap that fixed the LIBOR portion of the interest rate at an average rate of 2.24%
for the duration of the term through January 31, 2024.
A number of our current debt agreements, including our 2019 Facility (as defined below), have an interest rate tied to
the London Interbank Offered Rate (“LIBOR”). The U.K. Financial Conduct Authority announced in 2017 that it would no
longer compel banks to submit rates for the calculation of LIBOR after 2021. It is not possible to predict whether banks will
continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or
supported after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. It is
expected that a transition away from the widespread use of LIBOR to alternative rates is likely to occur during the next several
years. We cannot predict the impact of the phase out of LIBOR on our debt agreements and interest rates. While some of our
current debt agreements provide procedures for determining an alternative base rate in the event that LIBOR is discontinued,
not all do so. Regardless, there can be no assurances as to what alternative base rates may be and whether such base rate will be
more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. The Company
intends to monitor the developments with respect to the potential phasing out of LIBOR after 2021 and work with its lenders to
ensure any transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances
regarding the impact of the discontinuation of LIBOR on its financial condition or whether the discontinuation of LIBOR would
have a material adverse effect on its results of operations.
On March 22, 2019, we, through our Operating Partnership, entered into a Note Purchase and Guarantee Agreement
(the “Note Agreement”) together with certain subsidiary guarantors as initial guarantor parties thereto (the “Subsidiary
Guarantors”) and The Prudential Insurance Company of America and the various other purchasers named therein (collectively,
the “Purchasers”) providing for the issuance and sale of $100 million of senior unsecured notes of the Operating Partnership, of
which (i) $50 million are designated as 5.09% Series A Senior Notes due March 22, 2029 (the “Series A Notes”) and (ii) $50
million are designated as 5.17% Series B Senior Notes due March 22, 2029 (the “Series B Notes” and, together with the Series
A Notes, the “Notes”) pursuant to a private placement that closed on March 22, 2019 (the “Private Placement”). Obligations
under the Notes are unconditionally guaranteed by the Company and by the Subsidiary Guarantors.
34
The principal of the Series A Notes will begin to amortize on March 22, 2023 with annual principal payments of
approximately $7.1 million. The principal of the Series B Notes will begin to amortize on March 22, 2025 with annual principal
payments of $10.0 million. The Notes will pay interest quarterly on the 22nd day of March, June, September and December in
each year until maturity.
The Operating Partnership may prepay at any time all, or from time to time part of, the Notes, in an amount not less
than $1,000,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus a make-whole amount.
The make-whole amount is equal to the excess, if any, of the discounted value of the remaining scheduled payments with
respect to the Notes being prepaid over the aggregate principal amount of such Notes (as described in the Note Agreement). In
addition, in connection with a Change of Control (as defined in the Note Purchase Agreement), the Operating Partnership is
required to offer to prepay the Notes at 100% of the principal amount plus accrued and unpaid interest thereon.
The Note Agreement contains representations, warranties, covenants, terms and conditions customary for transactions
of this type and substantially similar to the Operating Partnership’s existing senior revolving credit facility, including
limitations on liens, incurrence of investments, acquisitions, loans and advances and restrictions on dividends and certain other
restricted payments. In addition, the Note Agreement contains certain financial covenants substantially similar to the Operating
Partnership’s existing senior revolving credit facility, including the following:
• maximum total indebtedness to total asset value ratio of 0.60 to 1.00;
• maximum secured debt to total asset value ratio of 0.40 to 1.00;
• minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges
ratio of 1.50 to 1.00;
• maximum other recourse debt to total asset value ratio of 0.15 to 1.00; and
• maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of $372
million plus 75% of the net proceeds from additional equity offerings (as defined therein).
In addition, the Note Agreement contains a financial covenant requiring that maximum unsecured debt not exceed the
lesser of (i) an amount equal to 60% of the aggregate unencumbered asset value and (ii) the debt service coverage amount (as
described in the Note Agreement). That covenant is substantially similar to the borrowing base concept contained in the
Operating Partnership’s existing senior revolving credit facility.
The Note Agreement also contains default provisions, including defaults for non-payment, breach of representations
and warranties, insolvency, non-performance of covenants, cross-defaults with other indebtedness and guarantor defaults. The
occurrence of an event of default under the Note Agreement could result in the Purchasers accelerating the payment of all
obligations under the Notes. The financial and restrictive covenants and default provisions in the Note Agreement are
substantially similar to those contained in the Operating Partnership’s existing credit facility.
Net proceeds from the Private Placement were used to refinance existing indebtedness. The Notes have not been and
will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the
United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Notes
were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
On January 31, 2019, we, through our Operating Partnership, entered into an unsecured credit facility (the “2019
Facility”) with the lenders party thereto, Bank of Montreal, as administrative agent (the “Agent”), SunTrust Robinson
Humphrey, as syndication agent, and BMO Capital Markets Corp., U.S. Bank National Association, SunTrust Robinson
Humphrey and Regions Capital Markets, as co-lead arrangers and joint book runners.
The 2019 Facility is comprised of the following three tranches:
•
•
•
$250.0 million unsecured revolving credit facility with a maturity date of January 1, 2023 (the “2019 Revolver”);
$165.0 million unsecured term loan with a maturity date of January 31, 2024 (“Term Loan A”); and
$100.0 million unsecured term loan with a maturity date of October 30, 2022 (“Term Loan B” and together with Term
Loan A, the “2019 Term Loans”).
35
Borrowings under the 2019 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, 2021, the interest rate
on the 2019 Revolver was 1.74%. The applicable margin for Adjusted LIBOR borrowings ranges from 1.40% to 1.90% for the
2019 Revolver and 1.35% to 1.90% for the 2019 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. Pursuant to the 2019 Facility, in the event of certain circumstances that result in the
unavailability of LIBOR, including but not limited to LIBOR no longer being a widely recognized benchmark rate for newly
originated dollar loans in the U.S. market, the Operating Partnership and the Agent will establish an alternate interest rate to
LIBOR giving due consideration to prevailing market conventions and will amend the 2019 Facility to give effect to such
alternate interest rate.
The 2019 Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing
capacity by $200.0 million, upon the satisfaction of certain conditions. On March 20, 2020, as a precautionary measure to
preserve our financial flexibility in response to potential credit risks posed by the COVID-19 pandemic, the Company drew
down approximately $30.0 million under the 2019 Revolver. As of December 31, 2020, subject to any potential future
paydowns or increases in the borrowing base, we have $86.8 million of remaining availability under the revolving credit
facility. As of December 31, 2021, $384.5 million was drawn on the 2019 Facility and our unused borrowing capacity was
$130.5 million, assuming that we use the proceeds of the 2019 Facility to acquire properties, or to repay debt on properties, that
are eligible to be included in the unsecured borrowing base. The Company used $446.2 million of proceeds from the 2019
Facility to repay amounts outstanding under the previous debt facility, which the 2019 Facility amended and restated, and
intends to use the remaining proceeds from the 2019 Facility for general corporate purposes, including property acquisitions,
debt repayment, capital expenditures, the expansion, redevelopment and re-tenanting of properties in its portfolio and working
capital.
The Company, each direct and indirect material subsidiary of the Operating Partnership and any other subsidiary of the
Operating Partnership that is a guarantor under any unsecured ratable debt will serve as a guarantor for funds borrowed by the
Operating Partnership under the 2019 Facility. The 2019 Facility contains customary terms and conditions, including, without
limitation, customary representations and warranties and affirmative and negative covenants including, without limitation,
information reporting requirements, limitations on investments, acquisitions, loans and advances, mergers, consolidations and
sales, incurrence of liens, dividends and restricted payments. In addition, the 2019 Facility contains certain financial covenants
including the following:
• maximum total indebtedness to total asset value ratio of 0.60 to 1.00;
• maximum secured debt to total asset value ratio of 0.40 to 1.00;
• minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges
ratio of 1.50 to 1.00;
• maximum other recourse debt to total asset value ratio of 0.15 to 1.00; and
• maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of $372
million plus 75% of the net proceeds from additional equity offerings (as defined therein).
We serve as the guarantor for funds borrowed by the Operating Partnership under the 2019 Facility. The 2019 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 2019
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.
36
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.
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 “2018 Facility.” The 2018 Facility was subseuqently amended
and restated by the 2019 Facility defined and described above.
As of December 31, 2021, our $159.1 million in secured debt was collateralized by seven properties with a carrying
value of $247.2 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 by assignment of the rents
and leases associated with those properties. As of December 31, 2021, we were in compliance with all loan covenants.
Scheduled maturities of our outstanding debt as of December 31, 2021 were as follows (in thousands):
Year
2022
2023
2024
2025
2026
Thereafter
Total
Capital Expenditures
Amount Due
(in thousands)
$
$
101,962
147,363
228,574
17,143
17,143
131,428
643,613
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 and Arizona 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.
The following is a summary of the Company’s capital expenditures, excluding property acquisitions, 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
2021
2020
$
$
3,306 $
2,081
3,016
4,255
12,658 $
3,744
617
1,223
3,252
8,836
37
Contractual Obligations
As of December 31, 2021, we had the following contractual obligations (see Note 8 of our accompanying consolidated
financial statements for further discussion regarding the specific terms of our debt):
Consolidated Contractual Obligations
Payment due by period (in thousands)
Total
Less than 1
year (2022)
1 - 3 years
(2023 -
2024)
3 - 5 years
(2025 -
2026)
More than
5 years
(after
2026)
Long-Term Debt - Principal
$ 643,613 $ 101,962 $ 375,937 $
34,286 $ 131,428
Long-Term Debt - Fixed Interest
Long-Term Debt - Variable Interest (1)
Unsecured Credit Facility - Unused commitment fee (2)
Operating Lease Obligations
Related Party Rent Lease Obligations
65,865
4,959
374
232
18
21,419
4,959
351
92
18
27,235
12,502
4,709
—
23
108
—
—
—
32
—
—
—
—
—
Total
$ 715,061 $ 128,801 $ 403,303 $
46,820 $ 136,137
(1) As of December 31, 2021, we had one loan totaling $119.5 million which bore interest at a floating rate. The variable
interest rate payments are based on LIBOR plus 1.40% to LIBOR plus 1.90%, which reflects our new interest rates under
our 2019 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, 2021, of 0.10%.
(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, 2021 balance of $384.5 million.
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.
38
On March 24, 2020, we announced that, in further pursuit of ensuring our financial flexibility, the Board determined to
conserve additional liquidity by reducing our distribution in response to the COVID-19 pandemic. The distribution reduction
resulted in approximately $7.7 million of quarterly cash savings in 2020. On February 10, 2021, the Company announced an
increase to its quarterly distribution to $0.1075 per common share and OP units, equal to a monthly distribution of $0.035833,
beginning with the March 2021 distribution.
During 2021, we paid distributions to our common shareholders and OP unit holders of $19.7 million, compared to
$25.7 million in 2020. 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, 2021 and 2020:
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
2021
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total
2020
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total
$
0.1075 $
5,257 $
0.1075 $
83 $
0.1075
0.1075
4,981
4,602
0.1075
0.1075
0.1058
0.4283 $
4,480
19,320 $
0.1058
0.4283 $
$
83
83
82
331 $
$
0.1050 $
4,432 $
0.1050 $
81 $
0.1050
0.1050
4,430
4,413
0.1050
0.1050
0.2850
0.6000 $
11,928
25,203 $
0.2850
0.6000 $
$
81
91
258
511 $
5,340
5,064
4,685
4,562
19,651
4,513
4,511
4,504
12,186
25,714
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 combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries,
and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income
(loss). Additionally, we have tenants who pay real estate taxes directly to the taxing authority. We exclude these costs paid
directly by the tenant to third parties on our behalf from revenue recognized and the associated property operating expense.
39
Other property income primarily includes amounts recorded in connection with management fees and lease
termination fees. Pillarstone OP pays us management fees for property management, leasing and day-to-day advisory and
administrative services. Their obligations are satisfied over time. Pillarstone OP is billed monthly and typically pays quarterly.
Revenues are governed by the Management Agreements (as defined in Note 4 to our accompanying consolidated financial
statements). Refer to Note 4 to our accompanying consolidated financial statements for additional information regarding the
Management Agreements with Pillarstone OP. Additionally, we recognize lease termination fees in the year that the lease is
terminated and collection of the fee is probable. Amounts recorded within other property income are accounted for at the point
in time when control of the goods or services transfers to the customer and our performance obligation is satisfied.
Equity Method. In accordance with ASU 2014-09 (“Topic 606”) and ASC 610, “Other Income-Gains and Losses from
the Derecognition of Nonfinancial Assets,” the Company recognizes its investment in Pillarstone OP under the equity method.
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, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction),
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, 2021, approximately $414,000 and $291,000 in
interest expense and real estate taxes, respectively, were capitalized. For the year ended December 31, 2020, approximately
$481,000 and $306,000 in interest expense and real estate taxes, respectively, were capitalized. For the year ended
December 31, 2019, approximately $500,000 and $320,000 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. 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, 2021.
Accrued Rents and Accounts Receivable. Included in accrued rents and accounts receivable are base rents, tenant
reimbursements and receivables attributable to recording rents on a straight-line basis. We review the collectability of charges
under our tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment
history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic
conditions in the area where the property is located including the impact of the COVID-19 pandemic on tenants’ businesses and
financial condition. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be
collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-
line method of reporting rental revenue. As of December 31, 2021 and 2020, we had an allowance for uncollectible accounts of
$14.9 million and $16.4 million, respectively. For the years ending December 31, 2021, 2020 and 2019, we recorded an
40
adjustment to rental revenue in the amount of $(0.1) million, $5.6 million and $1.5 million, respectively. Included in the
adjustment to rental revenue for the years ending December 31, 2021 and 2020, was a bad debt adjustment of $0.1 million and
$2.3 million, respectively, and a straight-line rent reserve adjustment of $0.9 million and $1.2 million, respectively, related to
credit loss for the conversion of 59 and 102 tenants, respectively, to cash basis revenue as a result of COVID-19 collectability
analysis.
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, FASB ASC 740, “Income Taxes” (“ASC 740”) applies to the Texas Margin
Tax. As of December 31, 2021, 2020 and 2019, we recorded a margin tax provision of $0.4 million, $0.4 million and $0.4
million, respectively.
Fair Value of Financial Instruments. Our financial instruments consist primarily of cash, cash equivalents, accounts
receivable and accounts and notes payable. 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 $643.6 million and $646.4 million as compared to the book value of approximately $643.6 million and $645.2
million as of December 31, 2021 and 2020, 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.
The fair value of our loan guarantee to Pillarstone OP is estimated on a Level 3 basis (as provided by ASC 820, “Fair
Value Measurements and Disclosures”), using a probability-weighted discounted cash flow analysis based on a discount rate,
discounting the loan balance. The fair value of the loan guarantee is $0.1 million and $0.1 million as compared to the book
value of approximately $0.1 million and $0.1 million as of December 31, 2021 and 2020, respectively.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of
December 31, 2021 and 2020. 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,
2021 and current estimates of fair value may differ significantly from the amounts presented herein.
Derivative Instruments and Hedging Activities. We 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 (loss) 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, 2021, we
consider our cash flow hedges to be highly effective.
41
Recent Accounting Pronouncements. In April 2020, the FASB issued guidance on the application of Topic 842,
relating to concessions being made by lessors in response to the COVID-19 pandemic. The guidance notes that it would be
acceptable for entities to make an election to account for lease concessions relating to the effects of the COVID-19 pandemic
consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for
those concessions existed, even if such enforceable rights and obligations are not explicitly contained in the lease contract.
Thus, for concessions relating to the COVID-19 pandemic, an entity would not have to analyze each contract to determine
whether enforceable rights and obligations for concessions exist in the contract, and would have the option to apply, or not to
apply, the general lease modification guidance in Topic 842 as it stands. We have elected this option to account for lease
concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for
under Topic 842 as though enforceable rights and obligations for those concessions existed. Therefore, such concessions are not
accounted for as a lease modification under Topic 842.
42
Results of Operations
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The following table provides a general comparison of our results of operations for the years ended December 31, 2021
and 2020 (dollars in thousands, except per share data):
Number of properties owned and operated
Aggregate GLA (sq. ft.)
Ending occupancy rate - operating portfolio(1)
Ending occupancy rate
Total revenues
Total operating expenses
Total other expense
Income before equity investment in real estate partnership and income tax
Equity in earnings of real estate partnership
Provision for income taxes
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(2)
Funds from operations core(3)
Property net operating income(4)
Distributions paid on common shares and OP units
Distributions per common share and OP unit
Year Ended December 31,
2021
2020
60
58
5,205,966
4,848,652
92 %
91 %
89 %
88 %
$
125,365
$
117,915
90,897
24,272
10,196
609
(385)
10,420
1,833
12,253
205
12,048
40,705
46,618
90,207
19,651
0.4283
$
$
$
88,184
24,122
5,609
921
(379)
6,151
—
6,151
117
6,034
36,375
40,704
83,903
25,714
0.6000
$
$
$
(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, a non-GAAP metric, to net income, see “Funds From
Operations” below.
(3) For an explanation and reconciliation of funds from operations core, a non-GAAP metric, to net income, see “FFO Core”
below.
(4) For an explanation and reconciliation of property net operating income, a non-GAAP metric, to net income, see “Property
Net Operating Income” below.
43
We define “Same Stores” as properties that have been owned for the entire period being compared. For purposes of
comparing the year ended December 31, 2021 to the year ended December 31, 2020, Same Stores include properties owned
during the entire period from January 1, 2020 to December 31, 2021. 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.
Revenues. The primary components of revenue are detailed in the table below (in thousands, except percentages):
Revenue
2021
2020
Change
% Change
Year Ended December 31,
Same Store
Rental revenues (1)
Recoveries (2)
Bad debt (3)
Total rental
Other revenues (4)
Same Store Total
Non-Same Store and Management Fees
Rental revenues
Recoveries
Bad debt
Total rental (5)
Other revenues
Management fees
Non-Same Store and Management Fees Total
$
89,150 $
87,291 $
32,272
79
121,501
920
122,421
1,709
656
11
2,376
—
568
2,944
33,442
(5,649)
115,084
2,233
117,317
—
—
—
—
—
598
598
1,859
(1,170)
5,728
6,417
(1,313)
5,104
2 %
(3) %
(101) %
6 %
(59) %
4 %
1,709 Not Meaningful
656 Not Meaningful
11 Not Meaningful
2,376 Not Meaningful
— Not Meaningful
(30)
2,346
(5) %
392 %
Total revenue
$
125,365 $
117,915 $
7,450
6 %
(1) The Same Store tenant rent increase of $1,859,000 resulted from an increase of $656,000 from the increase in the average
leased square feet to 4,454,580 from 4,421,060, and by the increase of $1,203,000 from the average rent per leased square
foot increasing from $19.74 to $20.01. Included in the average rent per leased square feet mentioned above are Same Store
rental revenue decreases of $865,000 and $1,223,000 from straight-line rent write offs during the years ended
December 31, 2021 and December 31, 2020, respectively, as a result of converting 59 and 102 tenants, respectively, to
cash basis accounting.
(2) The Same Store recoveries revenue decrease of $1,170,000 is primarily attributable to increases in Same Store real estate
tax costs recovered from tenants.
(3) Bad debt increased Same Store total rental revenue by $79,000 during the year ended December 31, 2021, as compared to a
reduction of $5,649,000 during the same period a year ago. The bad debt for the year ended December 31, 2020 was
primarily attributable to increases in allowances against accrued receivables as tenants have deferred or missed payments as
a result of the COVID-19 pandemic.
(4) The decrease in Same Store other revenues is primarily comprised of decreased lease termination fees.
(5) Non-Same Store rental revenue includes Lakeside Market (acquired on July 8, 2021) and Anderson Arbor (acquired on
December 1, 2021).
44
Operating expenses. The primary components of operating expenses for the year ended December 31, 2021 and 2020
are detailed in the table below (in thousands, except percentages):
Operating Expenses
2021
2020
Change
% Change
Year Ended December 31,
Same Store
Operating and maintenance (1)
Real estate taxes (2)
Same Store total
$
21,309 $
19,631 $
16,345
37,654
18,015
37,646
1,678
(1,670)
8
9 %
(9) %
— %
352 Not Meaningful
417 Not Meaningful
(33)
736
647
(4) %
79 %
2 %
6 %
3 %
Non-Same Store and affiliated company rents
Operating and maintenance (3)
Real estate taxes (3)
Affiliated company rents (4)
Non-Same Store and affiliated company rents total
352
417
899
1,668
—
—
932
932
Depreciation and amortization
28,950
28,303
General and administrative (5)
22,625
21,303
1,322
Total operating expenses
$
90,897 $
88,184 $
2,713
(1) The $1,678,000 increase in Same Store operating and maintenance costs was comprised of $567,000 in repairs and
maintenance, $536,000 in labor and other costs, $336,000 in contract services and $239,000 in utilities. Cost saving
initiatives were implemented in March of 2020 in response to the COVID-19 pandemic resulting in lower costs during the
year ended December 31, 2020.
(2) Tax valuations and tax rates were lower during the year ended December 31, 2021 in our Texas and Arizona markets. 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.
(3) Non-Same Store operating and maintenance and real estate taxes include Lakeside Market (acquired on July 8, 2021) and
Anderson Arbor (acquired on December 1, 2021).
(4) Affiliated company rents are spaces that we lease from Pillarstone OP.
(5) The $1,322,000 general and administrative expense increase was attributable to a $717,000 increase in accrued bonus
compensation, a $494,000 increase in salaries and benefits and a $111,000 increase in other general and administrative
costs.
45
Other expenses (income). The primary components of other expenses (income) for the year ended December 31, 2021
and 2020 are detailed in the table below (in thousands, except percentages):
Other Expenses (Income)
2021
2020
Change
% Change
Year Ended December 31,
Interest expense (1)
(Gain) loss on sale or disposal of assets (2)
Gain on loan forgiveness (3)
Interest, dividend and other investment income (4)
Total other expense
$
24,564 $
25,770 $
(176)
—
(116)
364
(1,734)
(278)
$
24,272 $
24,122 $
(1,206)
(540)
(5) %
(148) %
1,734 Not Meaningful
162
150
(58) %
1 %
(1) The $1,206,000 decrease in interest expense is attributable to a decrease in our effective interest rate to 3.71% for the year
ended December 31, 2021 as compared to 3.73% for the year ended December 31, 2020, resulting in a $132,000 decrease
in interest expense, and a decrease in our average outstanding notes payable balance of $28,367,000 that resulted in
$1,057,000 in decreased interest expense. Amortization of loan fees decreased interest expense by $17,000 for the year
ended December 31, 2021 as compared to the year ended December 31, 2020.
(2) During the year ended December 31, 2021, we recognized a $0.3 million gain in connection with the sale of a retail
building we completed on November 19, 2016. In 2016, we provided seller-financing for the retail building, Webster
Pointe, and deferred the seller-financed portion of the gain until the principal payments were received. The purchaser of the
building paid the remaining principal balance of $0.3 million during 2021. As of December 31, 2021, we have recognized
all of the deferred gains associated with the retail building. During the year ended December 31, 2020, we recognized a
$0.4 million loss on a long-lived asset intended for sale. The remainder of the losses recorded for the years ended
December 31, 2021 and December 31, 2020 were from asset disposals associated with tenant move outs.
(3) We applied for and were granted forgiveness for the PPP Loan, and used the proceeds to retain employees and maintain
payroll and make mortgage payments, lease payments and utility payments to support business continuity throughout the
COVID-19 pandemic.
(4) The $162,000 decrease in interest, dividend and other investment income was primarily comprised of decreases in interest
income from notes receivable.
Equity in earnings of real estate partnership. Our equity in earnings of real estate partnership, which is generated
from our 81.4% ownership of Pillarstone OP, decreased $312,000 from $921,000 for the year ended December 31, 2020 to
$609,000 for the year ended December 31, 2021. The majority of the $312,000 decrease was comprised of a decrease in
revenue of $484,000, due to a decrease in occupancy, offset by a higher loss on disposals of $128,000.
Gain on sale of property from discontinued operations. During the year ended December 31, 2021, we recognized a
$1.8 million gain in connection with the sale of three office buildings we completed on December 31, 2014. We provided
seller-financing for the office buildings, Zeta, Royal Crest and Featherwood, and deferred the gain until principal payments on
the seller-financed loans were received. The purchaser of the office buildings paid the remaining principal balance of
$1.8 million during 2021. As of December 31, 2021, we have recognized all the deferred gains associated with the three office
buildings.
46
Same Store net operating income. The components of Same Store net operating income is detailed in the table below (in
thousands):
Same Store (53 properties, excluding development land)
Property revenues
Rental
Management, transaction and other fees
Total property revenues
Property expenses
Property operation and maintenance
Real estate taxes
Total property expenses
Year Ended
December 31,
2021
2020
Increase % Increase
(Decrease)
(Decrease)
$ 121,501 $ 115,084 $
6,417
920
2,233
122,421
117,317
(1,313)
5,104
21,309
16,345
37,654
19,631
18,015
37,646
1,678
(1,670)
8
6 %
(59) %
4 %
9 %
(9) %
— %
Total property revenues less total property expenses
84,767
79,671
5,096
6 %
Same Store straight-line rent adjustments
Same Store amortization of above/below market rents
Same Store lease termination fees
(1,410)
(835)
(320)
542
(822)
(1,613)
(1,952)
(13)
1,293
(360) %
2 %
(80) %
Same Store NOI(1)
$
82,202 $
77,778 $
4,424
6 %
(1) See below for a reconciliation of property net operating income to net income.
47
PROPERTY NET OPERATING INCOME (“NOI”)
Net income attributable to Whitestone REIT
General and administrative expenses
Depreciation and amortization
Equity in earnings of real estate partnership
Interest expense
Interest, dividend and other investment income
Provision for income taxes
Gain on sale of property from discontinued operations
Management fee, net of related expenses
(Gain) loss on sale or disposal of assets, net
Gain on loan forgiveness
NOI of real estate partnership (pro rata)
Net income attributable to noncontrolling interests
NOI
Non-Same Store NOI (1)
NOI of real estate partnership (pro rata)
NOI less Non-Same Store NOI and NOI of real estate partnership (pro rata)
Same Store straight line rent adjustments
Same Store amortization of above/below market rents
Same Store lease termination fees
Same Store NOI (2)
Year Ended December 31,
2021
2020
$
12,048 $
22,625
28,950
(609)
24,564
(116)
385
(1,833)
331
(176)
—
3,833
205
6,034
21,303
28,303
(921)
25,770
(278)
379
—
334
364
(1,734)
4,232
117
$
90,207 $
83,903
(1,607)
(3,833)
84,767
(1,410)
(835)
(320)
—
(4,232)
79,671
542
(822)
(1,613)
$
82,202 $
77,778
(1) We define “Non-Same Stores” as properties that have been acquired since the beginning of the period being compared and
properties that have been sold, but not classified as discontinued operations. For purposes of comparing the twelve months
ended December 31, 2021 to the twelve months ended December 31, 2020, Non-Same Stores include properties acquired
between January 1, 2020 and December 31, 2021 and properties sold between January 1, 2020 and December 31, 2021, but
not included in discontinued operations.
(2) We define “Same Stores” as properties that have been owned during the entire period being compared. For purposes of
comparing the twelve months ended December 31, 2021 to the twelve months ended December 31, 2020, Same Stores
include properties owned before January 1, 2020 and not sold before December 31, 2021. Straight line rent adjustments,
above/below market rents, and lease termination fees are excluded.
48
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
For a discussion and comparison of the results of our operations for the year ended December 31, 2020 with the year
ended December 31, 2019, refer to "Management's Discussion and Analysis of Financial Conditions and Results of Operations"
in our Form 10-K for the year ended December 31, 2020 filed with the SEC on March 8, 2021.
49
Reconciliation of Non-GAAP Financial Measures
Funds From Operations (NAREIT) (“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 depreciation and amortization related to real estate, gains
or losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of
certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of
depreciable real estate held by the entity. We calculate FFO in a manner consistent with the NAREIT definition and also
include adjustments for our unconsolidated real estate partnership.
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.
Funds From Operations Core (“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, proxy contest fees, debt extension costs, 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.
50
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
Depreciation and amortization of real estate assets of real estate partnership (pro
rata) (2)
Loss (gain) on sale or disposal of assets
Gain on sale of property from discontinued operations
Loss (gain) on sale or disposal of properties or assets of real estate partnership
(pro rata) (2)
Net income attributable to noncontrolling interests
FFO
Share-based compensation expense
Early debt extinguishment costs of real estate partnership
Gain on loan forgiveness
FFO Core
Year Ended December 31,
2020
2021
2019
$
12,048 $
6,034 $
23,683
28,806
28,096
26,468
1,674
(176)
(1,833)
1,673
364
—
2,362
(638)
(594)
(19)
205
40,705 $
91
117
36,375 $
(13,800)
545
38,026
5,913 $
—
—
46,618 $
6,063 $
—
(1,734)
40,704 $
6,483
426
—
44,935
$
$
$
(1)
(2)
Includes pro-rata share attributable to real estate partnership.
Included in equity in earnings of real estate partnership on the consolidated statements of operations and comprehensive
income (loss).
Property Net Operating Income (“NOI”)
NOI: Net Operating Income: 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 adjusts for general and administrative expenses,
depreciation and amortization, equity in earnings of real estate partnership, interest expense, interest dividend and other
investment income, provision for income taxes, gain or loss on sale of property from discontinued operations, management fee,
net of related expenses, gain or loss on sale or disposal of assets, gain on loan forgiveness, our pro rata share of NOI of equity
method investments and net income attributable to noncontrolling interests, 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, 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.
51
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
Equity in earnings of real estate partnership
Interest expense
Interest, dividend and other investment income
Provision for income taxes
Gain on sale of property from discontinued operations
Management fee, net of related expenses
(Gain) loss on sale or disposal of assets, net
Gain on loan forgiveness
NOI of real estate partnership (pro rata)
Net income attributable to noncontrolling interests
NOI
Taxes
Year Ended December 31,
2021
2020
2019
$
12,048 $
6,034 $
23,683
22,625
28,950
(609)
21,303
28,303
21,661
26,740
(921)
(15,076)
24,564
25,770
26,285
(116)
385
(1,833)
331
(176)
—
3,833
205
(278)
379
—
334
364
(1,734)
4,232
117
(659)
400
(594)
(42)
(638)
—
6,273
545
$
90,207 $ 83,903 $
88,578
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.
Off-Balance Sheet Arrangements
Guarantees We may guarantee the debt of a real estate partnership primarily because it allows the real estate
partnership to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the real estate
partnership on its investment, and a higher return on our investment in the real estate partnership. We may receive a fee from
the real estate partnership for providing the guarantee. Additionally, when we issue a guarantee, the terms of the real estate
partnership’s partnership agreement typically provide that we may receive indemnification from the real estate partnership or
have the ability to increase our ownership interest. See Note 4 to the accompanying consolidated financial statements for
information related to our guarantees of our real estate partnership’s debt as of December 31, 2021 and 2020.
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.
52
Fixed Interest Rate Debt
As of December 31, 2021, $524.1 million, or approximately 81%, 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, 2021 of approximately 4.1% per annum with expirations ranging from 2022 to 2029
(see Note 8 to our accompanying consolidated financial statements for further detail). Holding other variables constant, a 1%
increase or decrease in interest rates would cause an $14.0 million decline or increase in the fair value for our fixed rate debt.
Variable Interest Rate Debt
As of December 31, 2021, $119.5 million, or approximately 19%, of our outstanding debt was subject to floating
interest rates of LIBOR plus 1.40% to 1.90% 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 $1.2 million.
Credit Risk
Credit risk may be increased as a result of the COVID-19 pandemic. Actions taken by the U.S. and international
governments to decrease the impact of the COVID-19 pandemic may result in a continued decline in global economic activity
generally, and may adversely affect the financial condition of our tenants in particular. Although the full extent of the adverse
impacts on our tenants cannot be predicted, in future periods we may experience reductions in on-time payments or closures of
tenants’ businesses, which could have a material adverse effect on our results of operations, cash flows and financial condition.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is incorporated by reference to our accompanying consolidated 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, 2021, 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, 2021, 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. We maintain disclosure controls and procedures that are designed to provide a reasonable assurance that
information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for timely decisions
regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of its management, including its CEO and CFO, the Company conducted an evaluation of the effectiveness of its
internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the
53
Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the framework in Internal
Control - Integrated Framework (2013), the Company's management concluded that its internal control over financial reporting
was effective as of December 31, 2021.
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-4 of this Annual Report on Form 10-K.
The Company's system of internal control over financial reporting was designed to provide reasonable assurance
regarding the preparation and fair presentation of published financial statements in accordance with accounting principles
generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance and 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.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in our internal control over financial reporting during the Company’s quarter
ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting other than the remediation of material weakness discussed above.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
54
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 2022 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 2022 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, 2021:
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) $
—
—
$
—
—
—
289,958 (2)
— (3)
289,958
Plan Category
Equity compensation plans
approved by security
holders
Equity compensation plans
not approved by security
holders
Total
(1) Excludes 1,008,124 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”) and 3,043,676 common shares granted
pursuant to our 2018 Long-Term Equity Incentive Ownership Plan (the “2018 Plan”).
(2) At our annual meeting of shareholders on May 11, 2017, our shareholders voted to approve 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 became effective on July 30, 2018, which is the day after the 2008 Plan expired.
(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 2022 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 2022 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 2022 Annual Meeting of Shareholders.
55
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.
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.
56
Exhibit No. Description
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
3.1.6
3.1.7
3.1.8
3.1.9
3.2.1
3.2.2
Articles of Amendment and Restatement 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 on July 31, 2008)
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)
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1 to the Registrant's
Current Report on Form 8-K, filed on August 24, 2010)
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.2 to the Registrant’s
Current Report on Form 8-K, filed on August 24, 2010)
Articles Supplementary (previously filed as and incorporated by reference to Exhibit 3.3 to the Registrant’s
Current 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
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
Current Report on Form 8-K, filed June 27, 2012)
Articles of Amendment (previously filed as and incorporated by reference to Exhibit 3.1.8 to the Registrant’s
Annual Report on Form 10-K, filed on March 2, 2020)
Articles Supplementary for Series A Preferred Shares (previously filed as and incorporated by reference to
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on May 15, 2020)
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 March 24, 2020)
Amendment No. 1 to 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 January 19,
2022)
4.1
Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934, as amended
4.2.1
4.2.2
4.2.3
10.1
10.2
10.3
10.4
Rights Agreement, dated May 14, 2020, between Whitestone REIT and American Stock Transfer Trust, LLC,
as Rights Agent (previously filed as and incorporated by reference to Exhibit 4.1 to the Registrant’s Current
Report on Form 8-K, filed on May 15, 2020)
First Amendment to Rights Agreement, dated April 21, 2021, between Whitestone REIT and American Stock
Transfer Trust, LLC, as Rights Agent (previously filed as and incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K, filed on April 23, 2021)
Second Amendment to Rights Agreement, dated February 7, 2022, between Whitestone REIT and American
Stock Transfer Trust, LLC, as Rights Agent (previously filed as and incorporated by reference to Exhibit 4.1
to the Registrant’s Current Report on Form 8-K, filed on February 11, 2022)
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)
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)
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)
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)
57
10.5
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13
10.14
10.15+
10.16
10.17+
10.18+
10.19+
10.20+
10.21+
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)
Whitestone REIT 2008 Long-Term Equity Incentive Ownership Plan (previously filed as and incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed July 31, 2008)
First Amendment to the Whitestone REIT 2008 Long-Term Equity Incentive Ownership Plan (previously
filed as and incorporated by reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K, filed
on March 1, 2011)
Employment Agreement between Whitestone REIT and James C. Mastandrea (previously filed as and
incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed August 29,
2014)
Employment Agreement between Whitestone REIT and David K. Holeman (previously filed as and
incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed August 29,
2014)
Change in Control Agreement between Whitestone REIT and John J. Dee (previously filed as and
incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K, filed August 29,
2014)
Change in Control Agreement between Whitestone REIT and Bradford D. Johnson (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)
Change in Control Agreement between Whitestone REIT and Christine J. Mastandrea (previously filed as and
incorporated by reference to Exhibit 10.45 to the Registrant's Annual Report on Form 10-K, filed March 2,
2015)
OP Unit Purchase Agreement, dated December 8, 2016, among Whitestone REIT Operating Partnership, L.P.,
Pillarstone Capital REIT and Pillarstone Capital REIT Operating Partnership LP (previously filed as and
incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed December 9,
2016).
Amended and Restated Limited Partnership Agreement of Pillarstone Capital REIT Operating Partnership LP,
dated December 8, 2016 (previously filed as and incorporated by reference to Exhibit 10.6 to the Registrant's
Current Report on Form 8-K, filed December 9, 2016).
2018 Long-Term Equity Incentive Ownership Plan (previously filed as and incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on May 12, 2017).
Second Amended and Restated Credit Agreement, dated as of January 31, 2019, among Whitestone REIT
Operating Partnership, L.P., Whitestone REIT, et al., as guarantors, the lenders party thereto, and Bank of
Montreal, as Administrative Agent (previously filed as and incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K, filed on February 6, 2019).
Form of Restricted Common Share Unit Award Agreement (Time-Vested) (previously filed as and
incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q, filed on October
30, 2020)
Form of Restricted Common Share Unit Award Agreement (Performance-Vested) (previously filed as and
incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q, filed on October
30, 2020)
Amendment to Employment Agreement between Whitestone REIT and James C. Mastandrea. (previously
filed as and incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed on
February 10, 2021)
Amendment to Employment Agreement between Whitestone REIT and David K. Holeman (previously filed
as and incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed on
February 10, 2021)
Amendment to Change in Control Agreement between Whitestone REIT and John J. Dee (previously filed as
and incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K, filed on
February 10, 2021)
58
10.22+
10.23+
10.24+
10.25+
Amendment to Change in Control Agreement between Whitestone REIT and Bradford D. Johnson
(previously filed as and incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form
8-K, filed on February 10, 2021)
Amendment to Change in Control Agreement between Whitestone REIT and Christine J. Mastandrea
(previously filed as and incorporated by reference to Exhibit 10.5 to the Registrant's Current Report on Form
8-K, filed on February 10, 2021)
Form of Restricted Common Share Unit Award Agreement (time-based) (previously filed as and
incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on August
6, 2021)
Form of Restricted Common Share Unit Award Agreement (performance-based) (previously filed as and
incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on August
6, 2021)
59
Exhibit No. Description
21.1*
23.1*
List of subsidiaries of Whitestone REIT
Consent of Pannell Kerr Forster of Texas, P.C.
24.1
Power of Attorney (included on the signature page hereto)
31.1*
31.2*
Certification of Principal Executive 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
32.1**
Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**
Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following financial information of the Registrant for the year ended December 31, 2021, formatted in
Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of
December 31, 2021 (unaudited) and December 31, 2020, (ii) the Consolidated Statements of Operations
and Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019 (unaudited),
(iii) the Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 and
2019 (unaudited), (iv) the Consolidated Statement of Cash Flows for the years ended December 31, 2021,
2020 and 2019 (unaudited) and (v) the Notes to the Consolidated Financial Statements (unaudited).
104
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL
document.
________________________
*
**
Filed herewith.
Furnished herewith.
+ Denotes management contract or compensatory plan or arrangement.
60
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.
SIGNATURES
WHITESTONE REIT
Date: March 11, 2022
By:
/s/ David K. Holeman
David K. Holeman, CEO
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and
appoints David K. Holeman and John S. Hogan, 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 11, 2022
/s/ David K. Holeman
David K. Holeman, CEO
(Principal Executive Officer)
March 11, 2022
/s/ John S. Hogan
John S. Hogan, Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
March 11, 2022
/s/ David F. Taylor
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
David F. Taylor, Chairman
/s/ Nandita Berry
Nandita Berry, Trustee
/s/ Jeffrey A. Jones
Jeffrey A. Jones, Trustee
/s/ Paul T. Lambert
Paul T. Lambert, Trustee
/s/ Jack L. Mahaffey
Jack L. Mahaffey, Trustee
James C. Mastandrea, Trustee
61
[This page intentionally left blank]
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm (PCAOB ID 342)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
Years Ended December 31, 2021, 2020 and 2019
Consolidated Statements of Changes in Equity for the Years Ended December 31,
2021, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021,
2020 and 2019
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts
Schedule III – Real Estate and Accumulated Depreciation
Page
2
5
7
10
12
14
43
44
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.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Whitestone REIT:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Whitestone REIT and subsidiaries (the “Company”) as of
December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive income (loss), changes
in equity, and cash flows for each of the years in the three year period ended December 31, 2021, and the related notes and
financial statement schedules listed in the Index to Consolidated Financial Statements at Item 15 (collectively referred to as the
“Consolidated Financial Statements”). In our opinion, the Consolidated Financial Statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 2021, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), and our report dated March 11, 2022, expressed an unqualified opinion on the Company’s internal
control over financial reporting.
Basis for Opinion
These Consolidated Financial Statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s Consolidated Financial Statements based on our audits. We are a public accounting firm
registered with the 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
audit to obtain reasonable assurance about whether the Consolidated Financial Statements are free of material misstatement,
whether due to error or fraud. Our audits 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. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the Consolidated Financial
Statements that were communicated or required to be communicated to the audit committee and that: (i) relate to accounts or
disclosures that are material to the Consolidated Financial Statements and (ii) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the Consolidated
Financial Statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment Assessment of Real Estate Assets and Investment in Real Estate Partnership
As described in Note 2 to the Consolidated Financial Statements, management reviews 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. Management determines if 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. Actual results could differ from estimates supporting the Company’s
impairment analysis. If management’s analysis indicates an impairment, a loss will be recorded for the amount by which the
carrying value of the property exceeds its fair value. As of December 31, 2021, the Company had $1 billion in real estate assets,
net of accumulated depreciation, and $35 million of investment in real estate partnership, with no impairment recognized for the
year ended December 31, 2021.
F-2
We identified management’s impairment assessment as a critical audit matter primarily because of the significant estimates
involved in management’s impairment analysis, as these estimates resulted in audit procedures involving a high degree of
auditor judgment and subjectivity and challenges in obtaining and evaluating audit evidence.
Our testing procedures to address this critical audit matter included the following:
•
•
•
•
•
•
testing the design and operating effectiveness of the Company’s internal control over financial reporting applicable to
management’s impairment assessment, including controls pertaining to management’s estimates supporting the
impairment analysis;
evaluating the methodology used by management in its impairment analysis;
comparing the operating income before depreciation for each property to historical results;
evaluating the reasonableness of capitalization rates used in management’s impairment analysis, taking into
consideration comparable market data, including the location and quality rating of the properties;
evaluating the Company’s assessment of the potential impact of the Pillarstone REIT rights agreement on the value of the
Company’s investment in real estate partnership; and
evaluating the completeness and accuracy of the underlying data used by management in its impairment analysis.
Acquisitions of Real Estate Assets
As described in Note 2 to the Consolidated Financial Statements, management allocates the purchase price of acquired
properties to land, buildings and improvements, identifiable intangible assets, and to be acquired liabilities based on respective
fair values at the time of purchase. Management determines 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. During the year ended December 31, 2021, the Company acquired Lakeside Market and Anderson
Arbor for $53.2 million and $28.1 million, respectively, in cash and net prorations.
We identified acquisitions of real estate as a critical audit matter primarily because of the significant estimates involved in
management’s purchase price allocation, as these estimates resulted in audit procedures involving a high degree of auditor
judgment and subjectivity and challenges in obtaining and evaluating audit evidence.
Our testing procedures to address this critical audit matter included the following:
•
•
•
testing the design and operating effectiveness of the Company’s internal control over financial reporting applicable to
management’s purchase price allocation, including controls pertaining to management’s estimates supporting the
purchase price allocation;
evaluating the methodology used by management in its purchase price allocation;
evaluating the consistency of the purchase price allocation with acquisition documents, payment transactions, and
other supporting information;
evaluating the allocation of fixed asset value to land vs. buildings and improvements; and
•
evaluating the completeness and accuracy of the underlying data used by management in its purchase price allocation.
/s/ Pannell Kerr Forster of Texas, P.C.
We have served as the Company’s auditors since 2002.
Houston, Texas
March 11, 2022
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Whitestone REIT:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Whitestone REIT and subsidiaries (the “Company”) as of
December 31, 2021, 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 Company has maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control—Integrated Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets and the related consolidated statements of operations and comprehensive income
(loss), changes in equity, and cash flows of the Company, and our report dated March 11, 2022, expressed an unqualified
opinion on the Company’s consolidated financial statements.
Basis for Opinion
The Company’s management is responsible 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 internal control over financial reporting based on our audit. We are a public accounting firm
registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. 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 audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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.
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.
Houston, Texas
March 11, 2022
F-4
Whitestone REIT and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
Real estate assets, at cost
Property
Accumulated depreciation
Total real estate assets
Investment in real estate partnership
Cash and cash equivalents
Restricted cash
Escrows and acquisition deposits
Accrued rents and accounts receivable, net of allowance for doubtful accounts
Receivable due from related party
Unamortized lease commissions, legal fees and loan costs
Prepaid expenses and other assets(1)
LIABILITIES AND EQUITY
Total assets
Liabilities:
Notes payable
Accounts payable and accrued expenses(2)
Payable due to related party
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, 2021 and December 31, 2020
Common shares, $0.001 par value per share; 400,000,000 shares authorized;
49,144,153 and 42,391,316 issued and outstanding as of December 31, 2021 and
December 31, 2020, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Whitestone REIT shareholders' equity
Noncontrolling interest in subsidiary
Total equity
Total liabilities and equity
December 31,
2021
2020
$
1,196,919 $
1,106,426
(190,333)
1,006,586
(163,712)
942,714
34,588
15,721
193
11,323
22,395
847
8,442
1,995
33,979
25,777
179
9,274
23,009
335
7,686
2,049
$
1,102,090 $
1,045,002
$
642,842 $
45,777
997
8,070
5,366
644,185
50,918
125
6,916
4,532
703,052
706,676
—
—
48
623,462
(223,973)
(6,754)
392,783
6,255
399,038
—
—
42
562,250
(215,809)
(14,400)
332,083
6,243
338,326
$
1,102,090 $
1,045,002
See the accompanying notes to consolidated financial statements.
F-5
Whitestone REIT and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands)
(1) Operating lease right of use assets (net)
(2) Operating lease liabilities
December 31,
2021
2020
$
$
222 $
231 $
592
603
See accompanying notes to consolidated financial statements.
F-6
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
Revenues
Rental(1)
Management, transaction, and other fees
Total revenues
Operating expenses
Depreciation and amortization
Operating and maintenance
Real estate taxes
General and administrative
Total operating expenses
Other expenses (income)
Interest expense
(Gain) loss on sale or disposal of assets, net
Gain on loan forgiveness
Interest, dividend and other investment income
Total other expenses
Year Ended December 31,
2021
2020
2019
$ 123,877 $ 115,084 $ 117,014
1,488
2,831
2,237
125,365
117,915
119,251
28,950
22,560
16,762
22,625
90,897
28,303
20,563
18,015
21,303
88,184
26,740
20,611
16,293
21,661
85,305
24,564
25,770
26,285
(176)
—
(116)
364
(1,734)
(278)
(638)
—
(659)
24,272
24,122
24,988
Income before equity investment in real estate partnership and income tax
10,196
5,609
8,958
Equity in earnings of real estate partnership
Provision for income tax
Income from continuing operations
Gain on sale of property from discontinued operations
Income from discontinued operations
Net income
609
(385)
921
(379)
15,076
(400)
10,420
6,151
23,634
1,833
1,833
—
—
594
594
12,253
6,151
24,228
Less: Net income attributable to noncontrolling interests
205
117
545
Net income attributable to Whitestone REIT
$ 12,048 $
6,034 $ 23,683
See the accompanying notes to consolidated financial statements.
F-7
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
Basic Earnings Per Share:
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 Earnings Per Share:
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
Weighted average number of common shares outstanding:
Basic
Diluted
Consolidated Statements of Comprehensive Income (Loss)
Year Ended December 31,
2021
2020
2019
$
0.23 $
0.14 $
0.03
0.00
0.57
0.02
$
0.26 $
0.14 $
0.59
$
0.22 $
0.14 $
0.04
0.00
0.56
0.01
$
0.26 $
0.14 $
0.57
45,486
46,336
42,244
42,990
40,184
41,462
Net income
$ 12,253 $
6,151 $ 24,228
Other comprehensive income (loss)
Unrealized gain (loss) on cash flow hedging activities
7,803
(9,062)
(9,828)
Comprehensive income (loss)
20,056
(2,911)
14,400
Less: Net income attributable to noncontrolling interests
Less: Comprehensive income (loss) attributable to noncontrolling interests
205
130
117
(173)
545
(221)
Comprehensive income (loss) attributable to Whitestone REIT
$ 19,721 $
(2,855) $ 14,076
See the accompanying notes to consolidated financial statements.
F-8
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
Year Ended December 31,
2020
2019
2021
(1) Rental
Rental revenues
Recoveries
Bad debt
Total rental
$ 90,859 $ 87,291 $ 86,750
32,928
90
33,442
(5,649)
31,748
(1,484)
$ 123,877 $ 115,084 $ 117,014
See accompanying notes to consolidated financial statements.
F-9
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share and unit data)
Additional
Other
Total
Noncontrolling
Common Shares
Shares Amount
Paid-in
Capital
Accumulated Comprehensive
Shareholders’
Interests
Deficit
Gain (Loss)
Equity
Units
Dollars
Total
Equity
Accumulated
Balance, December 31, 2018
39,778 $
39 $
527,662 $
(181,361) $
4,116 $
350,456
929 $
8,694 $ 359,150
Exchange of noncontrolling
interest OP units for common
shares
Issuance of common shares
under dividend reinvestment plan
Issuance of common shares -
ATM Program, net of offering
costs
Exchange offer costs
Repurchase of common shares (1)
Share-based compensation
Distributions
Unrealized loss on change in fair
value of cash flow hedge
Net income
20
10
1,612
—
(65)
137
—
—
—
—
—
2
—
—
—
—
—
—
186
137
21,244
(120)
(776)
6,483
—
—
—
—
—
—
—
—
—
(46,371)
—
23,683
—
—
—
—
—
—
—
(9,607)
—
186
(20)
(186)
—
137
—
21,246
(120)
(776)
6,483
(46,371)
(9,607)
23,683
—
—
—
—
—
—
—
—
—
—
—
—
137
21,246
(120)
(776)
6,483
(1,051)
(47,422)
(221)
545
(9,828)
24,228
Balance, December 31, 2019
41,492 $
41 $
554,816 $
(204,049) $
(5,491) $
345,317
909 $
7,781 $ 353,098
Exchange of noncontrolling
interest OP units for common
shares
Issuance of common shares
under dividend reinvestment plan
Issuance of common shares -
ATM Program, net of offering
costs
Exchange offer costs
Repurchase of common shares (1)
Share-based compensation
Distributions
Unrealized loss on change in fair
value of cash flow hedge
Reallocation of ownership
percentage between parent and
subsidiary
Net income
136
11
171
—
(178)
759
—
—
—
—
1
—
—
—
—
—
—
—
—
—
1,161
89
2,241
(43)
(2,077)
6,063
—
—
—
—
1,162
(136)
(1,162)
89
—
—
—
—
—
—
—
(17,794)
—
—
—
—
—
—
—
2,241
(43)
(2,077)
6,063
(17,794)
—
—
—
—
—
—
—
—
(8,889)
(8,889)
—
6,034
(20)
—
(20)
6,034
—
89
2,241
(43)
(2,077)
6,063
—
—
—
—
—
(340)
(18,134)
(173)
(9,062)
20
117
—
6,151
Balance, December 31, 2020
42,391 $
42 $
562,250 $
(215,809) $
(14,400) $
332,083
773 $
6,243 $ 338,326
See the accompanying notes to consolidated financial statements.
F-10
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share and unit data)
Additional
Other
Total
Noncontrolling
Common Shares
Shares Amount
Paid-in
Capital
Accumulated Comprehensive
Shareholders’
Interests
Deficit
Gain (Loss)
Equity
Units
Dollars
Total
Equity
Accumulated
Balance, December 31, 2020
42,391 $
42 $
562,250 $
(215,809) $
(14,400) $
332,083
773 $
6,243 $ 338,326
Exchange of noncontrolling
interest OP units for common
shares
Issuance of common shares
under dividend reinvestment
plan
Issuance of common shares -
ATM Program, net of offering
costs
Exchange offer costs
Repurchase of common shares
(1)
Share-based compensation
Distributions
Unrealized loss on change in
fair value of cash flow hedge
Reallocation of ownership
percentage between parent and
subsidiary
Net income
2
7
6,287
—
(78)
535
—
—
—
—
—
—
6
—
—
—
—
—
—
—
18
60
55,975
(63)
(691)
5,913
—
—
—
—
—
—
—
—
—
—
(20,212)
—
—
12,048
18
(2)
(18)
60
—
—
—
—
—
—
—
—
55,981
(63)
(691)
5,913
(20,212)
—
—
—
—
—
—
—
—
7,673
7,673
(27)
—
(27)
12,048
—
60
55,981
(63)
(691)
5,913
—
—
—
—
—
(332)
(20,544)
130
7,803
27
205
—
12,253
Balance, December 31, 2021
49,144 $
48 $
623,462 $
(223,973) $
(6,754) $
392,783
771 $
6,255 $ 399,038
(1)
During the years ended December 31, 2021, 2020 and 2019, 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.
F-11
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unamortized lease commissions, legal fees and loan costs
(3,259)
(1,343)
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
Gain on sale or disposal of assets and loan forgiveness, net
Bad debt
Share-based compensation
Equity in earnings of real estate partnership
Changes in operating assets and liabilities:
Escrows and acquisition deposits
Accrued rents and accounts receivable
Receivable due from related party
Distributions from real estate partnership
Prepaid expenses and other assets
Accounts payable and accrued expenses
Payable due to related party
Tenants' security deposits
Net cash provided by operating activities
Cash flows from investing activities:
Acquisitions of real estate
Additions to real estate
Proceeds from note receivable
Proceeds from financed receivable due from related party
Net cash used in investing activities
Net cash provided by investing activities of discontinued operations
Cash flows from financing activities:
Distributions paid to common shareholders
Distributions paid to OP unit holders
Proceeds from issuance of common shares, net of offering costs
Payments of exchange offer costs
Proceeds from bonds and notes payable
Net proceeds from (payments of) credit facility
Repayments of notes payable
Payments of loan origination costs
Repurchase of common shares
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period (1)
(1)
For a reconciliation of cash, cash equivalents and restricted cash, see supplemental disclosures below.
See the accompanying notes to consolidated financial statements.
F-12
(83)
6,926
(1,824)
(4,163)
5,609
249
487
Year Ended December 31,
2021
2020
2019
$
10,420 $
6,151 $
23,634
1,833
12,253
28,950
1,096
(176)
(90)
5,913
(609)
—
6,151
594
24,228
28,303
1,113
(1,370)
5,649
6,063
(921)
26,740
1,095
(638)
1,484
6,483
(15,076)
(2,049)
(885)
(177)
(6,055)
(2,998)
704
(512)
—
142
1,039
1,963
2,663
872
1,154
2,255
2,518
(182)
299
47,040
42,776
47,748
(81,588)
(9,642)
—
—
—
(7,362)
922
—
(34,804)
(13,243)
—
5,661
(91,230)
(6,440)
(42,386)
1,833
—
594
(19,320)
(25,203)
(45,627)
(331)
55,981
(63)
—
—
(511)
2,241
(43)
1,734
10,000
(3,261)
(12,164)
—
(691)
—
(2,077)
32,315
(26,023)
(10,042)
25,956
10,313
15,643
(1,055)
21,244
(120)
100,000
(66,700)
(8,095)
(2,970)
(776)
(4,099)
1,857
13,786
$
15,914 $
25,956 $
15,643
Whitestone REIT and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental Disclosures
(in thousands)
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for taxes
Non cash investing and financing activities:
Disposal of fully depreciated real estate
Financed insurance premiums
Value of shares issued under dividend reinvestment plan
Value of common shares exchanged for OP units
Change in fair value of cash flow hedge
Reallocation of ownership percentage between parent and subsidiary
Property received as termination fee
Cash, cash equivalents and restricted cash
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
Year Ended December 31,
2021
2020
2019
$
$
$
$
$
$
$
$
$
23,685 $
27,741 $
25,360
364 $
353 $
396
297 $
88 $
234
1,712 $
1,431 $
1,238
60 $
18 $
89 $
1,162 $
137
186
7,803 $
(9,062) $
(9,828)
(27) $
— $
(20) $
251 $
—
—
December 31,
2021
2020
2019
$
15,721 $
25,777 $
15,530
193
179
113
$
15,914 $
25,956 $
15,643
See the accompanying notes to consolidated financial statements.
F-13
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
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, 2021, 2020 and 2019, we
owned 60, 58, and 58 commercial properties, respectively, in and around Austin, Chicago, Dallas-Fort Worth, Houston,
Phoenix and San Antonio.
As of December 31, 2021, these properties consist of:
Consolidated Operating Portfolio
•
53 wholly-owned properties that meet our Community Centered Properties® strategy; and
Redevelopment, New Acquisitions Portfolio
•
•
two wholly owned properties, Lakeside Market and Anderson Arbor, that meet our Community Centered
Properties® containing approximately 0.2 and 0.1 million square feet of GLA and having total carrying amounts (net of
accumulated depreciation) of $52.7 and $28.2 million, respectively.
five parcels of land held for future development.
As of December 31, 2021, we, through our equity-method investment in Pillarstone Capital REIT Operating
Partnership LP (“Pillarstone” or “Pillarstone OP”), owned a majority interest in eight properties that do not meet our
Community Centered Property® strategy containing approximately 0.9 million square feet of GLA (the “Pillarstone
Properties”). We own 81.4% of the total outstanding units of Pillarstone OP, which we account for using the equity method.
We also manage the day-to-day operations of Pillarstone OP.
The global health crisis caused by COVID-19 and the related responses intended to control its spread may continue to
adversely affect business activity, particularly relating to our retail tenants, across the markets in which we operate. In light of
the changing nature of the COVID-19 pandemic, we are unable to predict the extent that its impact will have on our financial
condition, results of operations and cash flows.
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, 2021, 2020 and 2019, 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.
Noncontrolling interest in the accompanying consolidated financial statements represents the share of equity and
earnings of the Operating Partnership allocable to holders of operating 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.
F-14
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
Equity Method. In accordance with ASU 2014-09 (“Topic 606”) and ASC 610, “Other Income-Gains and Losses from
the Derecognition of Nonfinancial Assets,” the Company recognizes its investment in Pillarstone OP under the equity method.
As of December 31, 2021, we, through our investment in Pillarstone OP, owned a majority interest in eight properties
that do not meet our Community Centered Property® strategy containing approximately 0.9 million square feet of GLA. We
own 81.4% of the total outstanding units of Pillarstone OP. We also manage the day-to-day operations of Pillarstone OP. In
this Annual Report on Form 10-K, unless otherwise indicated, we do not include the Pillarstone Properties when we refer to our
properties.
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.
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 grant date fair value of common share units included
in share-based compensation expense, 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. In particular, the COVID-19 pandemic has adversely impacted and is likely to further
adversely impact the Company’s business and markets, including the Company’s operations and the operations of its tenants.
The full extent to which the pandemic will directly or indirectly impact the Company's business, results of operations and
financial condition, including revenues, expenses, reserves and allowances, fair value measurements, and asset impairment
charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but
are not limited to, the duration and spread of the pandemic, its severity in our markets and elsewhere, the impact on our tenants’
businesses and financial condition, governmental actions to contain the spread of the pandemic and respond to the reduction in
global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.
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. These reclassifications had no effect on net
income, total assets, total liabilities 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.
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 2018
Long-Term Equity Incentive Ownership Plan (the “2018 Plan”). 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 $5.9 million, $6.1
million and $6.5 million in share-based compensation expense for the years ended December 31, 2021, 2020 and 2019,
respectively.
At our annual meeting of shareholders on May 11, 2017, our shareholders voted to approve 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 became effective on July 30, 2018, which was the day after the 2008 Plan expired.
F-15
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
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 (loss), 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 combine lease and nonlease components in lease contracts, which includes combining base rent, recoveries,
and percentage rents into a single line item, Rental, within the consolidated statements of operations and comprehensive income
(loss). Additionally, we have tenants who pay real estate taxes directly to the taxing authority. We exclude these costs paid
directly by the tenant to third parties on our behalf from revenue recognized and the associated property operating expense.
Other property income primarily includes amounts recorded in connection with management fees and lease
termination fees. Pillarstone OP pays us management fees for property management, leasing and day-to-day advisory and
administrative services. Their obligations are satisfied over time. Pillarstone OP is billed monthly and typically pays quarterly.
Revenues are governed by the Management Agreements (as defined in Note 4). Refer to Note 4 to our accompanying
consolidated financial statements for additional information regarding the Management Agreements with Pillarstone OP.
Additionally, we recognize lease termination fees in the year that the lease is terminated and collection of the fee is probable.
Amounts recorded within other property income are accounted for at the point in time when control of the goods or services
transfers to the customer and our performance obligation is satisfied.
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, 2021 and 2020 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.
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, real estate taxes, loan fees, and direct and indirect development costs related to buildings under construction)
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, 2021, approximately $414,000 and $291,000 in
interest expense and real estate taxes, respectively, were capitalized. For the year ended December 31, 2020, approximately
$481,000 and $306,000 in interest expense and real estate taxes, respectively, were capitalized. For the year ended
December 31, 2019, approximately $500,000 and $320,000 in interest expense and real estate taxes, respectively, were
capitalized.
F-16
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
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. 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, 2021.
Accrued Rents and Accounts Receivable. Included in accrued rents and accounts receivable are base rents, tenant
reimbursements and receivables attributable to recording rents on a straight-line basis. We review the collectability of charges
under our tenant operating leases on a regular basis, taking into consideration changes in factors such as the tenant’s payment
history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic
conditions in the area where the property is located including the impact of the COVID-19 pandemic on tenants’ businesses and
financial condition. We recognize an adjustment to rental revenue if we deem it probable that the receivable will not be
collected. Our review of collectability under our operating leases includes any accrued rental revenues related to the straight-
line method of reporting rental revenue. As of December 31, 2021 and 2020, we had an allowance for uncollectible accounts of
$14.9 million and $16.4 million, respectively. For the years ending December 31, 2021, 2020 and 2019, we recorded an
adjustment to rental revenue in the amount of $(0.1) million, $5.6 million and $1.5 million, respectively. Included in the
adjustment to rental revenue for the years ending December 31, 2021 and 2020, was a bad debt adjustment of $0.1 million and
$2.3 million, respectively, and a straight-line rent reserve adjustment of $0.9 million and $1.2 million, respectively, related to
credit loss for the conversion of 59 and 102 tenants, respectively, to cash basis revenue as a result of COVID-19 collectability
analysis.
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
F-17
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
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, Financial Accounting Standards Board (“FASB”) ASC 740, “Income
Taxes” (“ASC 740”) applies to the Texas Margin Tax. As of December 31, 2021, 2020 and 2019, we recorded a margin tax
provision of $0.4 million, $0.4 million and $0.4 million, respectively.
Fair Value of Financial Instruments. Our financial instruments consist primarily of cash, cash equivalents, accounts
receivable and accounts and notes payable. 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 $643.6 million and $646.4 million as compared to the book value of approximately $643.6 million and $645.2
million as of December 31, 2021 and 2020, 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.
The fair value of our loan guarantee to Pillarstone OP is estimated on a Level 3 basis (as provided by ASC 820, using a
probability-weighted discounted cash flow analysis based on a discount rate, discounting the loan balance. The fair value of the
loan guarantee is $0.1 million and $0.1 million as compared to the book value of approximately $0.1 million and $0.1 million
as of December 31, 2021 and 2020, respectively.
Disclosure about fair value of financial instruments is based on pertinent information available to management as of
December 31, 2021 and 2020. 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,
2021 and current estimates of fair value may differ significantly from the amounts presented herein.
Derivative Instruments and Hedging Activities. We 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 (loss) 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, 2021, we
consider our cash flow hedges to be highly effective.
Concentration of Risk. Substantially all of our revenues are obtained from office 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.
Recent Accounting Pronouncements. In April 2020, the FASB issued guidance on the application of Topic 842,
relating to concessions being made by lessors in response to the COVID-19 pandemic. The guidance notes that it would be
acceptable for entities to make an election to account for lease concessions relating to the effects of the COVID-19 pandemic
consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for
those concessions existed, even if such enforceable rights and obligations are not explicitly contained in the lease contract.
Thus, for concessions relating to the COVID-19 pandemic, an entity would not have to analyze each contract to determine
whether enforceable rights and obligations for concessions exist in the contract, and would have the option to apply, or not to
apply, the general lease modification guidance in Topic 842 as it stands. We have elected this option to account for lease
concessions relating to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for
under Topic 842 as though enforceable rights and obligations for those concessions existed. Therefore, such concessions are not
accounted for as a lease modification under Topic 842.
F-18
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
3. REAL ESTATE
As of December 31, 2021, we owned 60 commercial properties in the Austin, Chicago, Dallas-Fort Worth, Houston,
Phoenix and San Antonio areas comprised of approximately 5.2 million square feet of gross leasable area (“GLA”). Five of the
60 commercial properties are land parcels held for future development.
Property Acquisitions. On December 1, 2021 we acquired Anderson Arbor, a property that meets our Community
Centered Property® strategy, for $28.1 million in cash and net prorations. Anderson Arbor, a 89,746 square foot property, was
89% leased at the time of purchase and is located in Austin, Texas.
On July 8, 2021, we acquired Lakeside Market, a property that meets our Community Centered Property® strategy, for
$53.2 million in cash and net prorations. Lakeside Market, a 162,649 square foot property, was 80.5% leased at the time of
purchase and is located in Plano, Texas.
On December 6, 2019, we acquired Las Colinas Village, a property that meets our Community Centered Property®
strategy, for $34.8 million in cash and net prorations. Las Colinas Village, a 104,919 square foot property, was 86% leased at
the time of purchase and is located in Irving, Texas.
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, 2021, 2020 and 2019 were acquired
on January 1, 2019. 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 revenues
Net income
Net income attributable to Whitestone REIT (1)
Basic Earnings Per Share:
Diluted Earnings Per Share:
Weighted-average common shares outstanding:
Basic
Diluted
$
$
$
$
$
Year Ended December 31,
2021
2020
2019
130,468 $
125,384 $
129,755
12,562 $
12,357 $
0.27 $
0.27 $
6,257 $
6,140 $
0.15 $
0.14 $
45,486
46,336
42,244
42,990
24,153
23,608
0.59
0.57
40,184
41,462
(1) Net income attributable to Whitestone REIT reflects historical ownerhip percentages.
Acquisition costs. Acquisition-related costs of $0.3 million and $0.0 million are capitalized in real estate assets in our
balance sheets for the years ended December 31, 2021 and 2020, respectively. No acquisition-related costs are included in
general and administrative expenses in our statements of operations and comprehensive income (loss) for the year ended 2019.
Development properties. As of December 31, 2019, we had substantially completed construction at our Anthem
Marketplace Phase II property. As of December 31, 2019, we had incurred approximately $1.4 million in construction costs.
The 6,853 square foot Community Centered Property® was 100% occupied as of December 31, 2021 and is located in Phoenix,
Arizona, and adjacent to Anthem Marketplace.
F-19
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
Property dispositions. During 2021, we received $1.8 million in principal payments in connection with the sale of
three office buildings we completed on December 31, 2014. We recorded a gain on sale of $1.8 million during the year ended
December 31, 2021. Previously, on April 24, 2019, we received a $0.7 million principal payment in connection with this sale,
and recorded a gain on sale of $0.7 million during the year ended December 31, 2019. In 2014, we provided seller-financing for
the office buildings, Zeta, Royal Crest and Featherwood, and deferred a $2.5 million gain until principal payments on the seller-
financed loan were received. We have included these gains in discontinued operations in the respective years of the principal
payment receipts as both met the definition of discontinued operations at the date of sale. As of December 31, 2021, we have
recognized all the deferred gains associated with the three office buildings.
On October 23, 2020, we received a $0.5 million principal payment in connection with the Centre South seller-
financed retail building mentioned above. We recorded a $0.5 million gain when the principal payment on the seller-financed
loan was received. We have not included the gain in discontinued operations as it did not meet the definition of discontinued
operations at the date of the sale.
On November 15, 2019, we received a $0.8 million principal payment in connection with the sale of two retail
buildings we completed on November 29, 2016. We recorded a gain on sale of $0.8 million. In 2016, we provided seller-
financing for the retail buildings, Webster Pointe and Centre South, and deferred a $1.7 million gain until principal payments on
the seller-financed loan are received. The purchaser of the retail buildings sold Webster Pointe on November 15, 2019 and paid
the entire principal balance of the loan related to the property. We have not included the gain in discontinued operations as it
did not meet the definition of discontinued operations at the date of the sale.
On April 24, 2019 we received a $0.7 million principal payment in connection with the sale of three office buildings
we completed on December 31, 2014. We recorded a gain on sale of $0.7 million. In 2014, we provided seller-financing for
the office buildings, Zeta, Royal Crest and Featherwood, and deferred a $2.5 million gain until principal payments on the seller-
financed loan are received. The purchaser of the office buildings sold Zeta on April 24, 2019 and paid the entire principal
balance of the loan related to the property. We have included the gain in discontinued operations as it did meet the definition
of discontinued operations at the date of the sale.
4. INVESTMENT IN REAL ESTATE PARTNERSHIP
On December 8, 2016, we, through our Operating Partnership, entered into a Contribution Agreement (the
“Contribution Agreement”) with Pillarstone OP and Pillarstone Capital REIT (“Pillarstone REIT”) pursuant to which we
contributed all of the equity interests in four of our wholly-owned subsidiaries that, at the time, owned 14 non-core properties
that did not fit our Community Centered Property® strategy (the “Pillarstone Properties”), to Pillarstone OP for aggregate
consideration of approximately $84 million, consisting of (1) approximately $18.1 million of Class A units representing limited
partnership interests in Pillarstone OP (“Pillarstone OP Units”) and (2) the assumption of approximately $65.9 million of
liabilities (collectively, the “Contribution”).
In connection with the Contribution, Whitestone TRS, Inc., a subsidiary of the Company (“Whitestone TRS”), entered
into a management agreement with the entities that own the contributed Pillarstone Properties (collectively, the “Management
Agreements”). Pursuant to the Management Agreements, Whitestone TRS agreed to provide certain property management,
leasing and day-to-day advisory and administrative services in exchange for (x) a monthly property management fee equal to
5.0% of the monthly revenues of such Pillarstone Property and (y) a monthly asset management fee equal to 0.125% of GAV of
such Pillarstone Property, with the exception of Uptown Tower, in which case services to Pillarstone OP are provided 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. The Management Agreements are automatically
renewable on a month to month basis; provided that each Management Agreement can be terminated by either party thereto
upon not less than thirty days’ prior written notice to the other party. None of the Management Agreements had been
terminated as of December 31, 2021.
F-20
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
In connection with the Contribution, on December 8, 2016, the Operating Partnership entered into a Tax Protection
Agreement with Pillarstone REIT and Pillarstone OP pursuant to which Pillarstone OP 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 OP 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 income tax purposes.
As of December 31, 2021, we owned approximately 81.4% of the total outstanding units of Pillarstone OP.
In accordance with ASU 2014-09 (“Topic 606”) and ASC 610, “Other Income-Gains and Losses from the
Derecognition of Nonfinancial Assets,” the Company recognizes its investment in Pillarstone OP under the equity method.
The table below presents the real estate partnership investment in which the Company held an ownership interest (in
thousands):
The Company’s Investment as of
December 31,
2021(3)
2020
Real estate partnership
Ownership Interest
Pillarstone OP(1)
Total real estate partnership(2)
81.4%
$
$
34,588 $
34,588 $
33,979
33,979
(1) The Company manages these real estate partnership investments and, where applicable, earns acquisition fees, leasing
commissions, property management fees, and asset management fees.
(2) Representing eight property interests and 0.9 million square feet of GLA, as of December 31, 2021 and 2020.
(3) On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted a new rights agreement (the “Pillarstone Rights
Agreement”), pursuant to which each holder of Pillarstone REIT common stock received one preferred share purchase right (a
“Right”) per common share held as of the applicable record date. Each Right entitles the registered holder to purchase from
Pillarstone REIT one one-thousandth (a “Unit”) of a series D preferred share of Pillarstone at a purchase price (“Purchase
Price”) of $7.00 per Unit, subject to adjustment. The Rights are exercisable upon the occurrence of certain events as described
in the Pillarstone Rights Agreement, including the acquisition by certain holders of 5% or more of the common shares of
Pillarstone REIT (an “Acquiring Person”). Upon the acquisition of Pillarstone REIT common shares by an Acquiring Person,
each holder of a Right (other than an Acquiring Person), will have the right to receive upon exercise a number of Pillarstone
REIT common shares having a market value of two times the Purchase Price. As set forth in the Amended and Restated Limited
Partnership Agreement of Pillarstone OP, dated as of December 8, 2016 (the “Pillarstone Partnership Agreement”), we have the
contractual right to have our limited partnership interests in Pillarstone redeemed at our discretion. However, upon receipt of a
redemption notice, Pillarstone OP has the option of the applicable redemption price in cash, based on the market value of
Pillarstone REIT common shares, or in Pillarstone REIT common shares. To the extent we seek to have our partnership units in
Pillarstone OP redeemed and Pillarstone OP elects to pay the applicable redemption price in Pillarstone REIT common shares
(and such shares represent 5% or more of the outstanding common shares of Pillarstone REIT), the Rights could become
exercisable. To the extent the Rights are exercised as a result of our Pillarstone OP units being redeemed for Pillarstone REIT
common shares, our ownership interest in Pillarstone REIT would be significantly diluted, which could adversely impact the
value of our investment in Pillarstone OP. While we do not believe the overall impact of the Pillarstone Rights Agreement on
the value of our investment in Pillarstone OP is material, we cannot reasonably estimate a range of possible loss at this time.
On October 8, 2019, Pillarstone OP, through an indirect wholly owned subsidiary, Whitestone Industrial-Office, LLC,
sold a portfolio of three properties in Houston, Texas to an unaffiliated third party for $39.7 million in cash. Pillarstone OP
used the net proceeds to make a large distribution to Whitestone of $5.4 million after customary closing deductions, to pay off
mortgage debt on the three properties, and to pay off the remaining $5.7 million of its $15.5 million loan from Whitestone.
Included in 2019 equity in earnings from real estate partnership is a $13.8 million gain related to this sale.
F-21
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
The table below presents the Company’s share of net income from its investment in the real estate partnership which is
included in equity in earnings of real estate partnership, net on the Company’s Consolidated Statements of Operations and
Comprehensive Income (Loss) (in thousands):
Year Ended December 31,
2021
2020
2019
Pillarstone OP
$
609 $
921 $
15,076
Summarized financial information for the Company’s investment in real estate partnership is as follows (in thousands):
Assets:
Real estate, net
Other assets
Total assets
Liabilities and equity:
Notes payable
Other liabilities
Equity
Total liabilities and equity
December 31,
2021
2020
$
48,273 $
8,790
57,063
14,920
3,200
38,943
57,063
31,718
2,870
34,588 $
49,113
7,657
56,770
15,185
3,533
38,052
56,770
30,992
2,987
33,979
14,253
(9,045)
(3,449)
16,943
18,702
Company’s share of equity
Cost of investment in excess of the Company’s share of underlying net book
value
Carrying value of investment in real estate partnership
$
Rental revenues
Property expenses
Other expenses
Gain (loss) on sale of properties or disposal of assets
Net income
$
$
2021
Year Ended December 31,
2020
2019
9,272 $
9,672 $
(6,988)
(1,407)
23
(6,858)
(1,440)
(112)
900 $
1,262 $
The amortization of the basis difference between the cost of investment and the Company's share of underlying net
book value for both years ended December 31, 2021 and 2020 was $108,000. The Company amortized the difference into
equity in earnings of real estate partnership on the consolidated statements of operations and comprehensive income (loss).
The Company's maximum exposure to loss relating to Pillarstone OP is limited to its investment in Pillarstone OP and
its guarantee of promissory notes issued to Pillarstone OP. Since the date of the Contribution, the Company has not provided
financial support to Pillarstone OP that it was not previously contractually required to provide under the Management
Agreements.
The Company has evaluated its guarantee to Pillarstone OP pursuant to ASC 460, Guarantees, and has determined the
guarantee to be a performance guarantee, for which ASC 460 contains initial recognition and measurement requirements, and
related disclosure requirements. The Company is obligated in two respects: (i) a noncontingent liability, which represents the
Company’s obligation to stand ready to perform under the terms of the guarantee in the event that the specified triggering
event(s) occur; and (ii) the contingent liability, which represents the Company’s obligation to make future payments if those
F-22
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
triggering events occur. The Company recognized a noncontingent liability of $462,000 at the inception of the guarantee at fair
value and is recorded on the Company’s consolidated balance sheet as a liability. The Company amortizes the guarantee
liability into income over seven years. For the years ended December 31, 2021, 2020, and 2019, the amortization of the
guarantee liability was $38,000, $39,000, and $182,000, respectively.
5. ACCRUED RENTS AND ACCOUNTS RECEIVABLE, NET
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):
Tenant receivables
Accrued rents and other recoveries
Allowance for doubtful accounts
Other receivables
Totals
December 31,
2021
2020
18,410 $
18,681
(14,896)
200
22,395 $
22,956
16,348
(16,426)
131
23,009
$
$
6. UNAMORTIZED LEASE COMMISSIONS, LEGAL FEES 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
December 31,
2021
2020
$
13,341 $
365
3,898
17,604
(6,305)
(248)
(2,609)
Total cost, net of accumulated amortization
$
8,442 $
A summary of expected future amortization of deferred costs is as follows (in thousands):
10,380
373
3,898
14,651
(5,029)
(216)
(1,720)
7,686
Years Ended December 31,
2022
2023
2024
2025
2026
Thereafter
Total
Leasing
Commissions
Deferred
Legal Costs
Deferred
Financing
Costs
Total
$
1,634 $
32 $
829 $
1,344
1,125
874
677
22
19
18
17
241
188
31
—
1,382
7,036 $
$
9
117 $
—
1,289 $
2,495
1,607
1,332
923
694
1,391
8,442
F-23
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
7. LEASES
As a Lessor. All leases on our properties are classified as noncancelable 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 combine lease and nonlease components in lease contracts, which includes combining
base rent, recoveries, and percentage rents into a single line item, Rental, within the consolidated statements of operations and
comprehensive income (loss).
A summary of minimum future rents to be received (exclusive of renewals, tenant reimbursements, contingent rents,
and collectability adjustments under Topic 842) under noncancelable operating leases in existence as of December 31, 2021 is
as follows (in thousands):
Years Ended December 31,
Minimum Future
Rents(1)
2022
2023
2024
2025
2026
Thereafter
Total
$
$
91,846
81,451
67,717
51,413
36,719
112,922
442,068
(1) These amounts do not reflect future rental revenues from the renewal or replacement of existing leases and exclude
reimbursements of operating expenses and rental increases that are not fixed.
As a Lessee. We have office space, automobile, and office machine leases, which qualify as operating leases, with
remaining lease terms of approximately one to five years.
The following table summarizes the fixed, future minimum rental payments, excluding variable costs, which are
discounted by our weighted average incremental borrowing rates to calculate the lease liabilities for our operating leases in
existence as of December 31, 2021 in which we are the lessee (in thousands):
Years Ended December 31,
Minimum Future Rents
2022
2023
2024
2025
2026
Total undiscounted rental payments
Less imputed interest
Total lease liabilities
$
$
110
65
43
31
1
250
19
231
For the year ended December 31, 2021, the total lease costs were $1,036,000. The weighted average remaining lease
term for our operating leases was 2.9 years at December 31, 2021. We do not include renewal options in the lease term for
calculating the lease liability unless we are reasonably certain we will exercise the option or the lessor has the sole ability to
exercise the option. The weighted average incremental borrowing rate was 4.5% at December 31, 2021.
For the year ended December 31, 2020, the total lease costs were $1,077,000. The weighted average remaining lease
term for our operating leases was 2.1 years at December 31, 2020. We do not include renewal options in the lease term for
F-24
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
calculating the lease liability unless we are reasonably certain we will exercise the option or the lessor has the sole ability to
exercise the option. The weighted average incremental borrowing rate was 4.5% at December 31, 2020.
8. DEBT
Mortgages and other notes payable consist of the following (in thousands):
Description
Fixed rate notes
$100.0 million, 1.73% plus 1.35% to 1.90% Note, due October 30, 2022 (1)
$165.0 million, 2.24% plus 1.35% to 1.90% Note, due January 31, 2024 (2)
$80.0 million, 3.72% Note, due June 1, 2027
$
$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
$15.1 million 4.99% Note, due January 6, 2024
$2.6 million 5.46% Note, due October 1, 2023
$50.0 million, 5.09% Note, due March 22, 2029
$50.0 million, 5.17% Note, due March 22, 2029
Floating rate notes
Unsecured line of credit, LIBOR plus 1.40% to 1.90%, due January 31,
2023
Total notes payable principal
Less deferred financing costs, net of accumulated amortization
December 31,
2021
2020
100,000 $
165,000
80,000
18,358
17,808
12,978
13,773
13,907
2,289
50,000
50,000
119,500
643,613
(771)
100,000
165,000
80,000
18,687
18,222
13,236
14,014
14,165
2,339
50,000
50,000
119,500
645,163
(978)
644,185
$
642,842 $
(1) Promissory note includes an interest rate swap that fixed the LIBOR portion of Term Loan 3 (as defined below) at 1.73%.
(2) Promissory note includes an interest rate swap that fixed the LIBOR portion of the interest rate at an average rate
of 2.24% for the duration of the term through January 31, 2024.
A number of our current debt agreements, including our 2019 Facility (as defined below), have an interest rate tied to
the LIBOR. The U.K. Financial Conduct Authority announced in 2017 that it would no longer compel banks to submit rates for
the calculation of LIBOR after 2021. It is not possible to predict whether banks will continue to provide LIBOR submissions to
the administrator of LIBOR, whether LIBOR rates will cease to be published or supported after 2021 or whether any additional
reforms to LIBOR may be enacted in the United Kingdom or elsewhere. It is expected that a transition away from the
widespread use of LIBOR to alternative rates is likely to occur during the next several years. We cannot predict the impact of
the phase out of LIBOR on our debt agreements and interest rates. While some of our current debt agreements provide
procedures for determining an alternative base rate in the event that LIBOR is discontinued, not all do so. Regardless, there can
be no assurances as to what alternative base rates may be and whether such base rate will be more or less favorable than LIBOR
and any other unforeseen impacts of the potential discontinuation of LIBOR. The Company intends to monitor the
developments with respect to the potential phasing out of LIBOR after 2021 and work with its lenders to ensure any transition
away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of
the discontinuation of LIBOR on its financial condition or whether the discontinuation of LIBOR would have a material
adverse effect on its results of operations.
On April 30, 2020, the Company entered into a loan in the principal amount of $1,733,510 from U.S. Bank National
Association, one of the Company’s existing lenders, pursuant to the Paycheck Protection Program (the “PPP Loan”) of the
F-25
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
CARES Act. The PPP Loan was set to mature on May 6, 2022 (the “Maturity Date”), and accrued interest at 1.00% per annum
and could be prepaid in whole or in part without penalty. Pursuant to the CARES Act, the Company applied for and was
granted forgiveness for all of the PPP Loan. Forgiveness was determined by the U.S. Small Business Administration based on
the use of loan proceeds for payroll costs, mortgage interest, rent or utility costs and the maintenance of employee and
compensation levels. Pursuant to the guidance in FASB ASC 405-20, “Liabilities - Extinguishment of Liabilities,” the
Company recognized a $1,734,000 gain for the PPP Loan forgiveness during the year ended December 31, 2020 based on the
legal release from the U.S. Small Business Administration.
On March 22, 2019, we, through our Operating Partnership, entered into a Note Purchase and Guarantee Agreement
(the “Note Agreement”) together with certain subsidiary guarantors as initial guarantor parties thereto (the “Subsidiary
Guarantors”) and The Prudential Insurance Company of America and the various other purchasers named therein (collectively,
the “Purchasers”) providing for the issuance and sale of $100 million of senior unsecured notes of the Operating Partnership, of
which (i) $50 million are designated as 5.09% Series A Senior Notes due March 22, 2029 (the “Series A Notes”) and (ii) $50
million are designated as 5.17% Series B Senior Notes due March 22, 2029 (the “Series B Notes” and, together with the Series
A Notes, the “Notes”) pursuant to a private placement that closed on March 22, 2019 (the “Private Placement”). Obligations
under the Notes are unconditionally guaranteed by the Company and by the Subsidiary Guarantors.
The principal of the Series A Notes will begin to amortize on March 22, 2023 with annual principal payments of
approximately $7.1 million. The principal of the Series B Notes will begin to amortize on March 22, 2025 with annual principal
payments of $10.0 million. The Notes will pay interest quarterly on the 22nd day of March, June, September and December in
each year until maturity.
The Operating Partnership may prepay at any time all, or from time to time part of, the Notes, in an amount not less
than $1,000,000 in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus a make-whole amount.
The make-whole amount is equal to the excess, if any, of the discounted value of the remaining scheduled payments with
respect to the Notes being prepaid over the aggregate principal amount of such Notes (as described in the Note Agreement). In
addition, in connection with a Change of Control (as defined in the Note Purchase Agreement), the Operating Partnership is
required to offer to prepay the Notes at 100% of the principal amount plus accrued and unpaid interest thereon.
The Note Agreement contains representations, warranties, covenants, terms and conditions customary for transactions
of this type and substantially similar to the Operating Partnership’s existing senior revolving credit facility, including
limitations on liens, incurrence of investments, acquisitions, loans and advances and restrictions on dividends and certain other
restricted payments. In addition, the Note Agreement contains certain financial covenants substantially similar to the Operating
Partnership’s existing senior revolving credit facility, including the following:
• maximum total indebtedness to total asset value ratio of 0.60 to 1.00;
• maximum secured debt to total asset value ratio of 0.40 to 1.00;
• minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges
ratio of 1.50 to 1.00;
• maximum other recourse debt to total asset value ratio of 0.15 to 1.00; and
• maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of $372
million plus 75% of the net proceeds from additional equity offerings (as defined therein).
In addition, the Note Agreement contains a financial covenant requiring that maximum unsecured debt not exceed the
lesser of (i) an amount equal to 60% of the aggregate unencumbered asset value and (ii) the debt service coverage amount (as
described in the Note Agreement). That covenant is substantially similar to the borrowing base concept contained in the
Operating Partnership’s existing senior revolving credit facility.
The Note Agreement also contains default provisions, including defaults for non-payment, breach of representations
and warranties, insolvency, non-performance of covenants, cross-defaults with other indebtedness and guarantor defaults. The
occurrence of an event of default under the Note Agreement could result in the Purchasers accelerating the payment of all
F-26
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
obligations under the Notes. The financial and restrictive covenants and default provisions in the Note Agreement are
substantially similar to those contained in the Operating Partnership’s existing credit facility.
Net proceeds from the Private Placement were used to refinance existing indebtedness. The Notes have not been and
will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the
United States absent registration or an applicable exemption from the registration requirements of the Securities Act. The Notes
were sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
On January 31, 2019, we, through our Operating Partnership, entered into an unsecured credit facility (the “2019
Facility”) with the lenders party thereto, Bank of Montreal, as administrative agent (the “Agent”), SunTrust Robinson
Humphrey, as syndication agent, and BMO Capital Markets Corp., U.S. Bank National Association, SunTrust Robinson
Humphrey and Regions Capital Markets, as co-lead arrangers and joint book runners.
The 2019 Facility is comprised of the following three tranches:
•
•
•
$250.0 million unsecured revolving credit facility with a maturity date of January 1, 2023 (the “2019 Revolver”);
$165.0 million unsecured term loan with a maturity date of January 31, 2024 (“Term Loan A”); and
$100.0 million unsecured term loan with a maturity date of October 30, 2022 (“Term Loan B” and together with Term
Loan A, the “2019 Term Loans”).
Borrowings under the 2019 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, 2021, the interest rate
on the 2019 Revolver was 1.74%. The applicable margin for Adjusted LIBOR borrowings ranges from 1.40% to 1.90% for the
2019 Revolver and 1.35% to 1.90% for the 2019 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. Pursuant to the 2019 Facility, in the event of certain circumstances that result in the
unavailability of LIBOR, including but not limited to LIBOR no longer being a widely recognized benchmark rate for newly
originated dollar loans in the U.S. market, the Operating Partnership and the Agent will establish an alternate interest rate to
LIBOR giving due consideration to prevailing market conventions and will amend the 2019 Facility to give effect to such
alternate interest rate.
The 2019 Facility includes an accordion feature that will allow the Operating Partnership to increase the borrowing
capacity by $200.0 million, upon the satisfaction of certain conditions. On March 20, 2020, as a precautionary measure to
preserve our financial flexibility in response to potential credit risks posed by the COVID-19 pandemic, the Company drew
down approximately $30.0 million under the 2019 Revolver. As of December 31, 2021, subject to any potential future
paydowns or increases in the borrowing base, we have $86.8 million remaining availability under the 2019 Revolver. As of
December 31, 2021, $384.5 million was drawn on the 2019 Facility and our unused borrowing capacity was $130.5 million,
assuming that we use the proceeds of the 2019 Facility to acquire properties, or to repay debt on properties, that are eligible to
be included in the unsecured borrowing base. The Company used $446.2 million of proceeds from the 2019 Facility to repay
amounts outstanding under the previous debt facility, which the 2019 Facility amended and restated, and intends to use the
remaining proceeds from the 2019 Facility for general corporate purposes, including property acquisitions, debt repayment,
capital expenditures, the expansion, redevelopment and re-tenanting of properties in its portfolio and working capital.
The Company, each direct and indirect material subsidiary of the Operating Partnership and any other subsidiary of the
Operating Partnership that is a guarantor under any unsecured ratable debt will serve as a guarantor for funds borrowed by the
Operating Partnership under the 2019 Facility. The 2019 Facility contains customary terms and conditions, including, without
limitation, customary representations and warranties and affirmative and negative covenants including, without limitation,
information reporting requirements, limitations on investments, acquisitions, loans and advances, mergers, consolidations and
F-27
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
sales, incurrence of liens, dividends and restricted payments. In addition, the 2019 Facility contains certain financial covenants
including the following:
• maximum total indebtedness to total asset value ratio of 0.60 to 1.00;
• maximum secured debt to total asset value ratio of 0.40 to 1.00;
• minimum EBITDA (earnings before interest, taxes, depreciation, amortization or extraordinary items) to fixed charges
ratio of 1.50 to 1.00;
• maximum other recourse debt to total asset value ratio of 0.15 to 1.00; and
• maintenance of a minimum tangible net worth (adjusted for accumulated depreciation and amortization) of
$372 million plus 75% of the net proceeds from additional equity offerings (as defined therein).
We serve as the guarantor for funds borrowed by the Operating Partnership under the 2019 Facility. The 2019 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 2019
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.
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.
As of December 31, 2021, our $159.1 million in secured debt was collateralized by seven properties with a carrying
value of $247.2 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 by assignment of the rents
and leases associated with those properties. As of December 31, 2021, we were in compliance with all loan covenants.
Scheduled maturities of our outstanding debt as of December 31, 2021 were as follows (in thousands):
Year
2022
2023
2024
2025
2026
Thereafter
Total
Amount Due
101,962
147,363
228,574
17,143
17,143
131,428
643,613
$
$
F-28
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
As of December 31, 2021, we had the following contractual obligations (in thousands):
Consolidated Contractual Obligations
Payment due by period (in thousands)
Total
Less than 1
year (2022)
1 - 3 years
(2023 -
2024)
3 - 5 years
(2025 -
2026)
More than
5 years
(after
2026)
Long-Term Debt - Principal
$ 643,613 $ 101,962 $ 375,937 $
34,286 $ 131,428
Long-Term Debt - Fixed Interest
Long-Term Debt - Variable Interest (1)
Unsecured credit facility - Unused commitment fee (2)
Operating Lease Obligations
Related Party Rent Lease Obligations
65,865
4,959
374
232
18
21,419
4,959
351
92
18
27,235
12,502
4,709
—
23
108
—
—
—
32
—
—
—
—
—
Total
$ 715,061 $ 128,801 $ 403,303 $
46,820 $ 136,137
(1) As of December 31, 2021, we had one loan totaling $119.5 million which bore interest at a floating rate. The variable
interest rate payments are based on LIBOR plus 1.40% to LIBOR plus 1.90%, which reflects our new interest rates under
the 2019 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, 2021, of 0.10%.
(2) The unused commitment fees on the 2019 Facility, payable quarterly, are based on the average daily unused amount of the
2019 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 2019 Facility based on our December 31, 2021
balance of $384.5 million.
F-29
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
9. DERIVATIVES AND HEDGING ACTIVITIES
The estimated fair value of our interest rate swaps is as follows (in thousands):
Accounts payable and accrued expenses
Balance Sheet Location
Accounts payable and accrued expenses
Balance Sheet Location
December 31, 2021
Estimated Fair Value
$
(6,860)
December 31, 2020
Estimated Fair Value
$
(14,663)
On January 31, 2019, we, through our Operating Partnership, entered into an interest rate swap of $65 million with
Bank of Montreal that fixed the LIBOR portion of Term Loan A under the 2019 Facility at 2.43%. Pursuant to the terms of the
agreement governing the interest rate swap, Bank of Montreal assigned $12.9 million of the swap to U.S. Bank, National
Association, $11.6 million of the swap to Regions Bank, $15.7 million of the swap to SunTrust Bank, and $5.9 million of the
swap to Associated Bank. See Note 8 (Debt) for additional information regarding the 2019 Facility. The swap began on
February 7, 2019 and matured on November 9, 2020. We designated the interest rate swap as a cash flow hedge with the
effective portion of the changes in fair value recorded in comprehensive income (loss).
On January 31, 2019, we, through our Operating Partnership, entered into an interest rate swap of $115 million with
Bank of Montreal that fixed the LIBOR portion of Term Loan A under the 2019 Facility at 2.43%. Pursuant to the terms of the
agreement governing the interest rate swap, Bank of Montreal assigned $22.7 million of the swap to U.S. Bank, National
Association, $20.5 million of the swap to Regions Bank, $27.9 million of the swap to SunTrust Bank, and $10.5 million of the
swap to Associated Bank. See Note 8 (Debt) for additional information regarding the 2019 Facility. The swap began on
November 9, 2020 and matured on February 8, 2021. We designated the interest rate swap as a cash flow hedge with the
effective portion of the changes in fair value recorded in comprehensive income (loss).
On January 31, 2019, we, through our Operating Partnership, entered into an interest rate swap of $165 million with
Bank of Montreal that fixed the LIBOR portion of Term Loan A under the 2019 Facility at 2.43%. Pursuant to the terms of the
agreement governing the interest rate swap, Bank of Montreal assigned $32.6 million of the swap to U.S. Bank, National
Association, $29.4 million of the swap to Regions Bank, $40.0 million of the swap to SunTrust Bank, and $15.0 million of the
swap to Associated Bank. See Note 8 (Debt) for additional information regarding the 2019 Facility. The swap began on
February 8, 2021 and will mature on January 31, 2024. 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 (loss) 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. The Company does not expect any amount of the existing gains or losses to be
reclassified into earnings within the next 12 months.
On September 5, 2018, we, through our Operating Partnership, entered into an interest rate swap with Bank of
America that fixed the LIBOR portion of the $9.6 million extension loan on the Whitestone Terravita Marketplace property at
2.85%. The swap began on September 25, 2018 and matured on September 24, 2020. We designated the interest rate swap as a
cash flow hedge with the effective portion of the changes in fair value recorded in comprehensive income (loss).
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 2018 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 8 for additional information
regarding the 2018 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 (loss) 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. The Company does
not expect any amount of the existing gains or losses to be reclassified into earnings within the next 12 months.
F-30
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
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 2018 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 8 for additional information regarding the 2018 Facility. The swap began on February 3, 2017 and matured on October
30, 2020. We designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value
recorded in comprehensive income (loss).
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 2018 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 8 for additional information regarding the 2018 Facility. The swap began on December 7, 2015 and matured on January
29, 2021. We designated the interest rate swap as a cash flow hedge with the effective portion of the changes in fair value
recorded in comprehensive income (loss).
A summary of our interest rate swap activity is as follows (in thousands):
Year ended December 31, 2021
Year ended December 31, 2020
Year ended December 31, 2019
Amount Recognized
as Comprehensive
Income (Loss)
Location of Income
(Loss) Recognized in
Earnings
Amount of Income
(Loss) Recognized in
Earnings (1)
$
$
$
7,803
(9,062)
(9,828)
Interest expense
Interest expense
Interest expense
$
$
$
5,427
3,578
1,036
(1) There was no ineffective portion of our interest rate swaps recognized in earnings for the years ended December 31, 2021,
2020 and 2019.
F-31
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
10. 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,
2021, 2020 and 2019, 772,383, 820,563 and 924,314 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, 2021, 2020 and 2019, distributions of $0, $0 and $41,000, respectively, were made
to the holders of certain restricted common shares, none of which were charged against earnings. See Note 14 for information
related to restricted common shares under the 2008 Plan.
F-32
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
(in thousands, except per share data)
Numerator:
Income from continuing operations
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
Year Ended
December 31,
2021
2020
2019
$
10,420 $
6,151 $
23,634
(172)
—
10,248
1,833
(33)
1,800
(117)
—
(511)
(41)
6,034
23,082
—
—
—
594
(34)
560
$
12,048 $
6,034 $
23,642
Denominator:
Weighted average number of common shares - basic
45,486
42,244
40,184
Effect of dilutive securities:
Unvested restricted shares
Weighted average number of common shares - dilutive
850
46,336
746
42,990
1,278
41,462
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
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
$
$
$
$
0.23 $
0.14 $
0.03
0.00
0.57
0.02
0.26 $
0.14 $
0.59
0.22 $
0.14 $
0.04
0.00
0.56
0.01
0.26 $
0.14 $
0.57
11. 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.
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.
F-33
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
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
12. RELATED PARTY TRANSACTIONS
2021
2020
2019
80.7 %
19.3 %
— %
100.0 %
59.9 %
40.1 %
— %
100.0 %
28.6 %
19.4 %
52.0 %
100.0 %
The Contribution. As of December 31, 2021, Mr. James C. Mastandrea, the Chairman and Chief Executive Officer of
the Company, also served as the Chairman and Chief Executive Officer of Pillarstone REIT and beneficially owns
approximately 66.7% 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”)). As of December 31, 2021, Mr. John J. Dee, the Chief Operating
Officer and Corporate Secretary of the Company, also served as the Senior Vice President and Chief Financial Officer of
Pillarstone REIT and beneficially owns approximately 20.0% 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. Mr. James C. Mastandrea’s employment with the Company was terminated on January
18, 2022. He was also removed as Chairman of the Board following his termination. Mr. John J. Dee also departed the
Company on February 9, 2022.
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 4 for additional disclosure on the Contribution.
Pillarstone OP. In accordance with ASU 2014-09 (“Topic 606”) and ASC 610, “Other Income-Gains and Losses
from the Derecognition of Nonfinancial Assets,” the Company recognizes its investment in Pillarstone OP under the equity
method.
During the ordinary course of business, we have transactions with Pillarstone OP that include, but are not limited to,
rental income, interest expense, general and administrative costs, commissions, management and asset management fees, and
property expenses.
The following table presents the revenue and expenses with Pillarstone OP included in our consolidated statements of
operations and comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019 (in thousands):
Rent
Property management fee
income
Interest income
Location of Revenue
(Expense)
Operating and maintenance
Management, transaction, and
other fees
Interest, dividend and other
investment income
$
$
$
2021
2020
2019
(899) $
(932) $
(813)
568 $
598 $
— $
— $
856
171
On December 8, 2016, we received a $15.4 million financed receivable from Pillarstone OP to provide the financing
for the ordinary course of business transactions for Pillarstone OP. The financed receivable had a interest rate of 1.4%-1.95%
plus LIBOR and a maturity date of December 31, 2019. The financed receivable was paid off on October 17, 2019.
F-34
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
13. 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 May 31, 2019, we entered into nine equity distribution agreements for an at-the-market equity distribution program
(the “2019 equity distribution agreements”) providing for the issuance and sale of up to an aggregate of $100 million of the
Company’s common shares pursuant to our Registration Statement on Form S-3 (File No. 333-225007). Actual sales will
depend on a variety of factors 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 were 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 2019 equity distribution agreements
or terminate the 2019 equity distribution agreements. For the years ended December 31, 2021 and 2020, we sold 6,287,087
and 170,942 common shares under the 2019 equity distribution agreements, with net proceeds to us of approximately $56.0
million and $2.2 million, respectively. In connection with such sales, we paid compensation of approximately $853,000 and
$34,000, respectively, to the sales agents.
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, 2021, we owned a 98.5% 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, 2021 and 2020, there were
49,793,803 and 43,043,251 OP units outstanding, respectively. We owned 49,023,313 and 42,270,476 OP units as of
December 31, 2021 and 2020, 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 98.3%, 98.1% and 97.7% for
the years ended December 31, 2021, 2020 and 2019, respectively. For the years ended December 31, 2021 and 2020, 2,285 and
135,797 OP units, respectively, were redeemed for an equal number of common shares.
F-35
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
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
2021
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total
2020
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total
$
0.1075 $
5,257 $
0.1075 $
83 $
0.1075
0.1075
0.1058
0.4283 $
4,981
4,602
0.1075
0.1075
4,480
19,320 $
0.1058
0.4283 $
83
83
82
331 $
0.1050 $
4,432 $
0.1050 $
81 $
0.1050
0.1050
0.2850
0.6000 $
4,430
4,413
0.1050
0.1050
11,928
25,203 $
0.2850
0.6000 $
81
91
258
511 $
$
$
$
5,340
5,064
4,685
4,562
19,651
4,513
4,511
4,504
12,186
25,714
On March 24, 2020 we announced that, in further pursuit of ensuring our financial flexibility, our board of trustees (the
“Board”) determined to conserve additional liquidity by reducing our distribution in response to the COVID-19 pandemic. The
distribution reduction has resulted in approximately $7.7 million of quarterly cash savings for 2020.
The Board will regularly reassess the dividend, particularly as there is more clarity on the duration and severity of the
COVID-19 pandemic and as business conditions improve.
Shareholders' Rights Plan
On May 14, 2020, the Board authorized a dividend of one preferred share purchase right (a “Right”) for each
outstanding common share of beneficial interest, par value $0.001 per share, of the Company (the “Common Shares”). The
dividend is payable on May 26, 2020 (the “Record Date”), to the holders of record of Common Shares as of 5:00 P.M., New
York City time, on the Record Date. The description and terms of the Rights are set forth in a rights agreement, dated as of May
14, 2020 (as the same may be amended from time to time, the “Rights Agreement”), between the Company and American
Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agent”). Each Right entitles the registered holder to
purchase from the Company one one-thousandth (a “Unit”) of a Series A Preferred Share, par value $0.001 per share (each a
“Preferred Share”), of the Company at a purchase price (“Purchase Price”) of $30.00 per Unit, subject to adjustment.
The Board adopted the Rights Agreement to ensure that the Board remains in the best position to fulfill its duties and is
intended to promote the fair and equal treatment of all shareholders by guarding against opportunistic efforts to capitalize on
recent macroeconomic conditions, including open market accumulations or other tactics, aimed at gaining control of the
Company without paying an appropriate control premium to deliver sufficient value for all Company shareholders.
The Rights will expire on the earliest of (i) the close of business on May 13, 2021, (ii) the time at which the Rights are
redeemed pursuant to the Rights Agreement, (iii) the closing of any merger or other acquisition transaction involving the
Company that has been approved by the Board, at which time the Rights are terminated, and (iv) the time at which the Rights
are exchanged pursuant to the Rights Agreement (such earliest date, the “Expiration Date”).
F-36
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
On April 21, 2021, the Company entered into the First Amendment to Rights Agreement (the “First Amendment”)
with the Rights Agent. The First Amendment amends the Rights Agreement by and between the Company and the Rights
Agent, solely to extend the expiration date of the rights under the Rights Agreement from the close of business on May 13,
2021 to the close of business on May 13, 2022, unless earlier exercised, exchanged, amended, redeemed, or terminated.
On February 7, 2022, the Company entered into the Second Amendment to Rights Agreement (the “Second
Amendment”) with the Rights Agent. The Second Amendment amends the First Amendment to the Rights Agreement by and
between the Company and the Rights Agent, solely to accelerate the expiration date of the rights under the Rights Agreement
from the close of business on May 13, 2022 to the close of business on February 7, 2022. As a result of the Second
Amendment, effective as of the close of business on February 7, 2022, the Rights as defined in the Rights Agreement have
expired and cease to be outstanding.
14. INCENTIVE SHARE PLAN
The Company’s 2008 Long-Term Equity Incentive Ownership Plan (as amended, the “2008 Plan”) expired in July
2018. At the Company’s 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 became effective on July 30, 2018, which is the day
after the 2008 Plan expired.
The Compensation Committee administered the 2008 Plan and administers the 2018 Plan except, in each case, with
respect to awards to non-employee trustees, for which the 2008 Plan was and the 2018 Plan is administered by the 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 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. On January 1, 2020, the remaining unvested 247,978 TSR units that were granted on September 6, 2017
vested at 200% achievement into 495,956 common shares.
On March 16, 2018, the Compensation Committee approved the grant of an aggregate of 387,499 time-based restricted
common share units under the 2008 Plan, which vest annually in three equal installments, and 4,300 performance-based
restricted common share units to certain of our employees.
On December 1, 2018, the Compensation Committee approved the grant of an aggregate of 229,684 TSR Units under
the 2018 Plan to certain of our employees. Vesting was 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 was 50% based on the Company’s TSR Peer Group
Ranking. Continued employment was required through the vesting date. The grant date fair value for each TSR Unit of $14.89
was determined using the Monte Carlo simulation method and was recognized as share-based compensation expense ratably
from the December 1, 2018 grant date to the end of the performance period, December 31, 2020. 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 January 1, 2021, the remaining unvested
208,210 TSR units that were granted on December 1, 2018 vested at 50% achievement into 104,105 common shares.
On June 30, 2019, the Compensation Committee approved the grant of an aggregate of 405,417 TSR Units and
317,184 time-based restricted common share units under the 2018 Plan to certain of our employees. On September 30, 2019,
F-37
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
the Compensation Committee approved the grant of 17,069 time-based restricted common share units under the 2018 Plan to
certain of our employees. Vesting of the TSR Units 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 was 0% based on on the Company’s TSR Peer Group
Ranking. Continued employment is required through the vesting date. The grant date fair value for each TSR Unit of $8.22 was
determined using the Monte Carlo simulation method and was recognized as share-based compensation expense ratably from
the June 30, 2019 grant date to the end of the performance period, December 31, 2021. 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 December 31, 2021, the remaining unvested
385,648 TSR Units that were granted on June 30, 2019 and September 30, 2019 vested at 0% attainment into 0 common shares.
The time-based restricted common share units have a grant date fair value of $10.63 and $11.69 and vest annually in three equal
installments for the June 30, 2019 and September 30, 2019 grants, respectively.
On July 31, 2020, the Compensation Committee approved the grant of an aggregate of 545,000 TSR Units and
530,000 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units
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 TSR Peer Group Ranking. Continued employment is
required through the vesting date. The grant date fair value for each TSR Unit of $5.55 was determined using the Monte Carlo
simulation method and is being recognized as share-based compensation expense ratably from the July 31, 2020 grant date to
the end of the performance period, December 31, 2022. 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. The time-based restricted common share units have a grant date fair value of
$5.83 and vest annually in three equal installments.
On March 17, 2021, the Compensation Committee approved the grant of an aggregate of 2,490 common share units
under the 2018 Plan to certain of our employees. The common share units had a grant date fair value of $10.04 each and vested
immediately.
On June 30, 2021, the Compensation Committee approved the grant of an aggregate of 433,200 TSR Units and
433,200 time-based restricted common share units under the 2018 Plan to certain of our employees. Vesting of the TSR Units 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 TSR Peer Group Ranking. Continued employment is
required through the vesting date. The grant date fair value for each TSR Unit of $4.17 was determined using the Monte Carlo
simulation method and is being recognized as share-based compensation expense ratably from the June 30, 2021 grant date to
the end of the performance period, December 31, 2023. 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 3 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. The time-based restricted common share units have a grant date fair value of
$7.51 and vest annually in three equal installments. The 433,200 TSR Units granted on June 30, 2021 include 111,465 TSR
Units that will be converted into the right to receive cash in the amount of the fair market value of the common shares to the
extent that common shares are not available for issuance under the 2018 Plan.
On September 30, 2021, the Compensation Committee approved the grant of an aggregate of 5,500 time-based
restricted common share units under the 2018 Plan to certain of our employees. The time-based common share units had a grant
date fair value of $9.06 each and vest annually in three equal installments.
F-38
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
A summary of the share-based incentive plan activity as of and for the year ended December 31, 2021 is as follows:
Non-vested at January 1, 2021
Granted
Vested
Forfeited
Non-vested at December 31, 2021
Available for grant at December 31, 2021
Weighted-
Average
Grant Date
Fair Value (1)
9.45
5.99
9.52
7.28
8.32
Shares
2,903,846 $
904,215
(1,024,808)
(67,121)
2,716,132
289,958
(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, 2021, 2020 and 2019 is
presented below:
Year Ended
Year Ended December 31, 2021
Year Ended December 31, 2020
Year Ended December 31, 2019
Shares Granted
Shares Vested
Non-Vested
Shares Issued
Weighted-
Average Grant-
Date Fair Value
Vested Shares
Total Vest-Date
Fair Value
(in thousands)
904,215 $
1,108,014 $
762,630 $
5.99
5.76
9.46
(1,024,808) $
(511,621) $
(284,964) $
9,757
5,566
3,352
Total compensation recognized in earnings for share-based payments was $5.9 million, $6.1 million, and $6.5 million
for the years ended December 31, 2021, 2020, and 2019, respectively.
As of December 31, 2021, there were 885,000 CIC Units outstanding that we do not expect to vest before their period
of restriction lapses in 33 months because the Company considers a Change in Control unlikely on or before September 30,
2024. As of December 31, 2021, there was approximately $2.7 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 $4.8 million in
unrecognized compensation cost related to outstanding non-vested time-based shares, which are expected to be recognized over
a period of approximately 30 months beginning on January 1, 2022.
We expect to record approximately $7.5 million in share-based compensation subsequent to the year ended
December 31, 2021. The unrecognized share-based compensation cost is expected to vest over a weighted average period of 22
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, 2021, the TSR Peer Group Ranking called for 0% attainment of the TSR
Units granted in 2020 and 2021. 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.
F-39
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
15. GRANTS TO TRUSTEES
On December 13, 2021, five independent trustees and one trustee emeritus were granted a total of 29,825 common
shares, which vest immediately and are prorated based on date appointed. The 29,825 common shares granted to our trustees
had a grant fair value of $9.32 per share. The fair value of the shares granted during the year ended December 31, 2021 was
determined using quoted prices available on the date of grant.
On December 4, 2020, six independent trustees, including one independent trustee who served on the board until the
2020 annual meeting of shareholders and did not stand for re-election, and one trustee emeritus were granted a total of 29,587
common shares, which vest immediately and are prorated based on date appointed. The 29,587 common shares granted to our
trustees had a grant fair value of $8.17 per share. On December 4, 2020, one of our independent trustees elected to receive a
total of 3,427 common shares with a grant date fair value of $8.17 in lieu of cash for board fees. The fair value of the shares
granted during the year ended December 31, 2020 was determined using quoted prices available on the date of grant.
On December 12, 2019, each of our six independent trustees and one trustee emeritus were granted approximately
3,000 common shares, which vest immediately and are prorated based on date appointed. The 19,562 common shares granted
to our trustees had a grant fair value of $13.54 per share. On December 12, 2019, two of our independent trustees each elected
to receive a total of 3,398 common shares with a grant date fair value of $13.54 in lieu of cash for board fees. The fair value of
the shares granted during the year ended December 31, 2019 was determined using quoted prices available on the date of grant.
16. COMMITMENTS AND CONTINGENCIES
On December 26, 2021, the Board of Trustees of Pillarstone REIT adopted the Pillarstone Rights Agreement. See
Note 4 (Investment in Real Estate Partnership) for additional information regarding the Pilliarstone Rights Agreement.
On December 12, 2017, a property owner that owns a land parcel adjacent to a Whitestone property filed suit against
Whitestone Pinnacle of Scottsdale - Phase II, LLC (“Whitestone Pinnacle”), a wholly owned subsidiary of the Operating
Partnership, alleging breach of contract and resulting in the delay of the construction of their assisted living facility. The
claimant sought approximately $2.3 million in restitution from Whitestone Pinnacle. On June 28, 2021, the parties executed a
confidential mutual settlement agreement and release resolving all claims between the parties, and the case has been dismissed.
We are subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are
generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes
the final outcome of such matters will not have a material adverse effect on our financial position, results of operations, cash
flows or liquidity.
17. SEGMENT INFORMATION
Our management historically has not differentiated by property types and therefore does not present segment
information.
F-40
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
18. SELECTED QUARTERLY FINANCIAL DATA (unaudited)
The following is a summary of our unaudited quarterly financial information for the years ended December 31, 2021
and 2020 (in thousands, except per share data):
2021
Revenues
Net income
Net income attributable to Whitestone REIT
Basic Earnings per share:
Income from continuing operations attributable to Whitestone REIT,
excluding amounts attributable to unvested restricted shares(1)
Income from discontinued operations attributable to Whitestone
REIT(1)
Net income attributable to common shareholders, excluding amounts
attributable to unvested restricted shares(1)
Diluted Earnings per share:
Income from continuing operations attributable to Whitestone REIT,
excluding amounts attributable to unvested restricted shares(1)
Income from discontinued operations attributable to Whitestone
REIT(1)
Net income attributable to common shareholders, excluding amounts
attributable to unvested restricted shares(1)
2020
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
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
$
$
$
$
$
$
29,045 $
30,618 $
32,444 $
33,258
1,441 $
5,218 $
2,946 $
1,415 $
5,126 $
2,899 $
2,648
2,608
0.03 $
0.08 $
0.06 $
0.05
0.00 $
0.04 $
0.00 $
0.00
0.03 $
0.12 $
0.06 $
0.05
0.03 $
0.08 $
0.06 $
0.05
0.00 $
0.04 $
0.00 $
0.00
0.03 $
0.12 $
0.06 $
0.05
30,584 $
27,597 $
29,900 $
29,834
1,647 $
1,612 $
419 $
410 $
914 $
900 $
3,171
3,112
$
0.04 $
0.01 $
0.02 $
0.07
$
0.04 $
0.01 $
0.02 $
0.07
(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.
F-41
WHITESTONE REIT AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2021
19. SUBSEQUENT EVENTS
Shareholders' Rights Plan
On February 7, 2022, the Company entered into the Second Amendment to Rights Agreement (the “Amendment”)
with American Stock Transfer and Trust, LLC, as rights agent (the “Rights Agent”). The Amendment amends the First
Amendment to the Rights Agreement (the “Rights Agreement”), dated as of April 21, 2021, by and between the Company and
the Rights Agent, solely to accelerate the expiration date of the rights under the Rights Agreement from the close of business on
May 13, 2022 to the close of business on February 7, 2022. As a result of the Amendment, effective as of the close of business
on February 7, 2022, the Rights as defined in the Rights Agreement have expired and cease to be outstanding.
Executive Officer Changes
On January 18, 2022, the Board of Trustees terminated James Mastandrea, with cause, from his position as Chief
Executive Officer. Mr. Mastandrea was also replaced as Chairman of the Board. Following his termination, the Board of
Trustees appointed Dave Holeman, previously our Chief Financial Officer, as Chief Executive Officer. The Company also
recently replaced its Chief Operating Officer and Executive Vice President of Acquisitions and Asset Management. As a result
of these changes, we will recognize a reduction of share-based compensation of approximately $2 million in the first quarter of
2022 due to forfeitures. These changes, as well as future change, in our executive management team may be disruptive to, or
cause uncertainty in, our business, and may have a negative impact on our ability to grow and manage our business effectively.
Former CEO Litigation
On February 23, 2022, Whitestone’s former CEO, James Mastandrea, filed suit against Whitestone REIT and certain
of the Company’s trustees (Nandita Berry, Jeff Jones, Jack Mahaffey, and David Taylor) and officers (David Holeman,
Christine Mastandrea, Peter Tropoli) in the District Court of Harris County, Texas, alleging claims relating to the termination of
claimant’s employment. Claimant purports to assert claims for breach of contract, breach of fiduciary duties, tortious
interference with contract, civil conspiracy, and declaratory judgment. The claimant seeks $25 million in damages and equitable
relief. However, the Company denies the claims, has substantial legal and factual defenses against the claims, and intends to
vigorously defend against the claims. The Company does not believe a probable loss will be incurred, nor does it anticipate a
material adverse effect on its financial position, results of operations, cash flows or liquidity. Therefore, the Company has not
recorded a charge as a result of this action.
F-42
Whitestone REIT and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
December 31, 2021
Description
Allowance for doubtful accounts:
(in thousands)
Balance at
Beginning
of Year
Charges(1)
Deductions
Balance at
from
Reserves
End of
Year
Year ended December 31, 2021
$
16,426 $
(90) $
(1,440) $
Year ended December 31, 2020
Year ended December 31, 2019
11,173
9,746
5,649
1,484
(396)
(57)
14,896
16,426
11,173
(1) For the year ended December 31, 2021, 2020, and 2019 charges were reductions (additions) to revenue.
F-43
Whitestone REIT and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2021
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
Anderson Arbor
Anthem Marketplace
Anthem Marketplace Phase II
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
Lakeside Market
La Mirada
Las Colinas Village
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
Seville
Shaver
Shops at Pecos Ranch
Shops at Starwood
Shops at Starwood Phase III
The Shops at Williams Trace
South Richey
Spoerlein Commons
The Strand at Huebner Oaks
SugarPark Plaza
Sunridge
Sunset at Pinnacle Peak
Terravita Marketplace
$
5,126 $
4,086 $
370 $
— $
5,126 $
4,456 $
4,679
4,790
204
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
18,116
12,853
16,706
1,546
1,305
9,710
8,728
6,155
3,877
5,562
1,086
6,648
883
5,198
918
9,561
6,913
184
3,781
4,093
1,818
5,920
778
2,340
5,805
1,781
276
3,610
7,171
23,545
17,973
—
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
35,290
24,464
18,098
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
25,518
633
15,123
11,487
7,069
14,297
2,584
7,296
12,335
7,125
1,186
2,734
9,392
F-44
(48)
1,817
502
552
2,921
3,271
108
1,622
960
771
632
2,863
2,852
1,356
169
883
1,750
925
2,358
(291)
1,465
688
4,850
1,494
9,163
1,705
1,307
192
939
2,884
1,955
2,718
689
2,887
1,151
1,157
140
893
1,089
3,575
1,156
2,349
1,675
974
1,385
781
860
1,481
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,679
4,790
204
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
18,116
12,853
16,706
1,546
1,305
9,710
8,728
6,155
3,877
5,562
1,086
6,648
883
5,198
918
9,561
6,913
184
3,781
4,093
1,818
5,920
778
2,340
5,805
1,781
276
3,610
7,171
23,497
19,790
502
2,499
93,863
5,048
4,257
35,723
2,664
31,517
15,972
12,691
25,464
4,589
963
14,704
20,189
8,502
4,156
34,999
25,929
18,786
9,139
6,818
35,942
14,265
11,528
8,821
28,093
10,046
24,421
7,377
14,056
6,562
29,834
26,675
773
16,016
12,576
10,644
15,453
4,933
8,971
13,309
8,510
1,967
3,594
10,873
9,582
28,176
24,580
706
2,914
157,756
5,520
6,301
47,090
4,640
48,068
21,085
18,264
33,068
6,356
1,819
20,913
27,360
14,479
4,889
53,115
38,782
35,492
10,685
8,123
45,652
22,993
17,683
12,698
33,655
11,132
31,069
8,260
19,254
7,480
39,395
33,588
957
19,797
16,669
12,462
21,373
5,711
11,311
19,114
10,291
2,243
7,204
18,044
Whitestone REIT and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2021
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
Town Park
Village Square at Dana Park
Westchase
Williams Trace Plaza
Windsor Park
Woodlake Plaza
850
10,877
423
6,800
2,621
1,107
2,911
40,250
1,751
14,003
10,482
4,426
479
4,846
3,382
1,768
8,664
3,643
—
—
—
—
—
—
850
10,877
423
6,800
2,621
1,107
3,390
45,096
5,133
15,771
19,146
8,069
4,240
55,973
5,556
22,571
21,767
9,176
Total Whitestone Properties
$
328,520 $
747,834 $
100,727 $
— $
328,520 $
848,561 $
1,177,081
Land Held for Development:
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 - Whitestone Properties
$
$
10,500
4,000
911
277
704
—
—
—
—
—
699
25
30
—
—
2,692
—
—
—
—
10,500
4,000
911
277
704
3,391
25
30
—
—
13,891
4,025
941
277
704
16,392 $
— $
754 $
2,692 $
16,392 $
3,446 $
19,838
344,912 $
747,834 $
101,481 $
2,692 $
344,912 $
852,007 $
1,196,919
F-45
Whitestone REIT and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2021
Property Name
Encumbrances
(in thousands)
Construction
Acquired
Life
Accumulated
Depreciation
Date of
Date
Depreciation
Whitestone Properties:
Ahwatukee Plaza
Anderson Arbor
Anthem Marketplace
Anthem Marketplace Phase II
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
Lakeside Market
La Mirada
Las Colinas Village
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
Seville
Shaver
Shops at Pecos Ranch
Shops at Starwood
Shops at Starwood Phase III
The Shops at Williams Trace
South Richey
Spoerlein Commons
The Strand at Huebner Oaks
SugarPark Plaza
Sunridge
Sunset at Pinnacle Peak
Terravita Marketplace
Town Park
(3)
(4)
(5)
(6)
(7)
(8)
3/1/2019
3/31/2017
12/31/2016
1,193
25
4,302
146
2,154
11,475
2,671
779
6,615
1,091
3,786
3,468
3,774
4,761
1,933
235
3,087
4,996
1,593
2,233
408
3,981
1,009
6,101
2,477
10,461
3,604
3,277
1,560
4,789
3,836
6,834
1,707
2,841
3,137
5,130
3,798
470
3,933
3,310
2,056
3,028
3,097
2,949
2,666
3,785
1,056
1,156
2,991
2,499
8/16/2011
12/01/2021
6/28/2013
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
7/8/2021
9/30/2016
12/6/2019
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
9/30/2016
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
1/1/1999
$
F-46
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
5-39 years
5-39 years
Whitestone REIT and Subsidiaries
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2021
Property Name
Encumbrances
(in thousands)
Construction
Accumulated
Depreciation
Date of
Village Square at Dana Park
(9)
Westchase
Williams Trace Plaza
Windsor Park
Woodlake Plaza
Land Held for Development:
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 - Whitestone Properties
11,511
2,768
2,906
11,052
3,833
$
190,333
—
—
—
—
—
—
190,333
$
$
Date
Acquired
9/21/2012
1/1/2002
12/24/2014
12/16/2003
3/14/2005
Depreciation
Life
5-39 years
5-39 years
5-39 years
5-39 years
5-39 years
5/26/2017
9/21/2012
Land - Not Depreciated
Land - Not Depreciated
12/29/2017
Land - Not Depreciated
10/7/2013
12/5/2013
Land - Not Depreciated
Land - Not Depreciated
(1) Reconciliations of total real estate carrying value for the three years ended December 31, follows (in thousands):
2021
2020
$ 1,106,426 $ 1,099,955 $ 1,052,238
2019
81,588
9,642
91,230
(737)
34,804
13,474
48,278
(561)
$ 1,196,919 $ 1,106,426 $ 1,099,955
—
7,613
7,613
(1,142)
Balance at beginning of period
Additions during the period:
Acquisitions
Improvements
Deductions - cost of real estate sold or retired
Balance at close of period
(2) The aggregate cost of real estate for federal income tax purposes is $1.2 billion.
(3) This property secures a $15.1 million mortgage note.
(4) This property secures a $80.0 million mortgage note.
(5) This property secures a $19.0 million mortgage note.
(6) This property secures a $20.2 million mortgage note.
(7) This property secures a $14.0 million mortgage note.
(8) This property secures a $14.3 million mortgage note.
(9) A portions of this property secures a $2.6 million mortgage note.
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CORPORATE INFORMATION
Board of Trustees
Senior Management Team
DAVID F. TAYLOR
Chairman of the Board of Trustees, Whitestone REIT; Chair of Locke Lord, LLP
DAVID K. HOLEMAN
Chief Executive Off icer
and former Managing Partner of its Houston off ice; Board Member of the
Greater Houston Partnership, The Salvation Army of Greater Houston, Theatre
Under the Stars, and Oldham Little Church Foundation.
CHRISTINE J. MASTANDREA
Chief Operating Off icer
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
J. SCOTT HOGAN
Chief Financial Off icer
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
PETER A. TROPOLI
General Counsel
Houston.
JEFFREY A. JONES
Managing Director of Stephens Inc.; former Co-Head of Blackhill Partners, an
MICHELLE S. SIV
Vice President of Human Resources
investment banking and restructuring firm; current member of the Board of the
Alternative Asset Center at Southern Methodist University; current Board Trustee
DAVID L. MORDY
Director of Investor Relations
of the First Presbyterian Church of Dallas Foundation; former Board Member of
MATTHEW A. OKMIN
Regional Senior Vice President, Arizona
DAVID C. SPAGNOLO
Regional Vice President, Dallas/Austin
the CFA Society of Dallas.
PAUL T. LAMBERT
Chief Executive Off icer of Lambert Capital Corporation; Founder and former
Director and Chief Operating Off icer, First Industrial Realty Trust; Trustee,
Pillarstone Capital REIT.
JACK L. MAHAFFEY
Former Chairman, President and Chief Executive Off icer, Shell Mining Company,
former Director, National Coal Association and the National Coal Council.
JAMES C. MASTANDREA
Chairman, Chief Executive Off icer and President, Pillarstone Capital REIT and
MDC Realty Corporation; former Chairman and Chief Executive Off icer of First
Union REIT (NYSE); Director, Cleveland State University Foundation Board.
WHITESTONE REIT 2021 ANNUAL REPORT
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CORPORATE HEADQUARTERS
Whitestone REIT
INVESTOR RELATIONS
Shareholders are encouraged to contact
2600 South Gessner Road,
David Mordy, Director of Investor
Suite 500
Houston,TX 77063
Toll Free: 866.789.7348
Relations, with questions or requests for
information at ir@whitestonereit.com.
https://www.whitestonereit.com
A copy of the Company’s Annual Report
ARIZONA REGIONAL OFFICE
20789 North Pima Road, Suite 210
Scottsdale, AZ 85255
Phone: 480.584.6181
DALLAS-FORT WORTH DIVISION
OFFICE
8240 Preston Road Ste 275
Plano TX 75024
Phone: 214.824.7888
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
AUSTIN DIVISION OFFICE
3801 North Capital of Texas Highway,
SHOULD BE DIRECTED TO
AST Shareholder Services Department
ACCOUNT MAINTENANCE INQUIRIES
Suite E-205
Austin, TX 78746
Phone: 512.992.3037
888.999.0027
877.879.8035
SAN ANTONIO DIVISION OFFICE
11225 Huebner Road
San Antonio, TX 78230
Phone: 512.992.3037
Rev. 3.30.22
WSR
NYSE LISTED
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